Black Knight, the Florida-based mortgage tech and analytics behemoth, increased its profits six fold in the first quarter of 2022, compared to the same period of 2021, propelled by the investment in the credit reporting services company Dun & Bradstreet Holdings.
The company’s latest earnings became public on Thursday, less than 24 hours after Intercontinental Exchange offered $13.1 billion to acquire the rival.
If the deal receives all the approvals needed, ICE will take control of a company that reported $364.6 million in net earnings in the first quarter of 2022, compared to $54.1 million in Q1 2021 and $60.7 million in Q4 2021. The company’s net earnings margin jumped from 13% in the first quarter of 2021 to 93.5% in the same period of 2022.
According to Black Knight, the investment in Dun & Bradstreet Holdings brought in net earnings of $303.1 million in the first quarter, comprising 83% of the total. In the first quarter, Black Knight also had a gain of $305.4 million for exchanging Dun & Bradstreet Holdings’ shares to acquire a remaining 40% interest in Optimal Blue HoldCo on February 15.
Black Knight announced in July 2020 it would buy 60% of Optimal Blue, a company founded in 2002 that provides an online marketplace that connects originators, investors and providers in the mortgage industry. As a result of the transaction, Optimal Blue will become a wholly owned subsidiary of Black Knight.
In the first quarter, Black Knight’s revenue reached $387.2 million, an increase of 11% compared to the same period of 2021. Organic revenue growth reached 9% from January to March, but the company mentioned in the previous quarter that the organic growth will slow during the downturn in the mortgage industry.
Software solutions represented 85.4% of the revenues in the first quarter, with an operating margin of 46.3%, down from 47.2% in the same period of 2021. The remaining revenue came from data and analytics, a segment with an operating margin of 26.9% from January to March, compared to 29.5% in the previous year.
Anthony Jabbour, Black Knight’s chairman and CEO, said in a statement that the company sees positive momentum as lenders and servicers look for ways to “drive revenue growth, increase efficiency and maintain regulatory compliance.”
Investors’ expectations are not so positive. With the belief that the declining mortgage origination volume may chill demand for data and analytics products in 2022, they are punishing Black Knight’s stock, which was trading at $72.16 around 11:00AM on Thursday, down 0.93% from the previous close. In the previous day, the stocks jumped almost 15% due to the ICE deal.
However, the transaction with ICE, already approved by both companies’ board of directors, per the release, valued Black Knight at $85 per share. The deal, expected to close in the first half of 2023, needs approval from regulators and Black Knight stockholders. In a call with analysts on Thursday morning, executives from the companies said they have complementary services and will invest in cross-selling to improve earnings.
Due to the transaction with ICE, Black Knight has suspended the practice of providing forward-looking guidance.