Nov 1, 2017
Executives
Bryan Hipsher - SVP, Finance William P. Foley II - Chairman Tom Sanzone - President and CEO Kirk Larsen - CFO
Analysts
John Campbell - Stephens Jason Deleeuw - Piper Jaffray James Schneider - Goldman Sachs Andrew Jeffrey - SunTrust Robinson Humphrey David Ridley Lane - Bank of America Merrill Lynch Bose George - KBW Jason Weaver - Wedbush Securities Kevin Kaczmarek - Zelman & Associates Brandon Dobell - William Blair
Operator
Greetings and welcome to Black Knight Third Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Bryan Hipsher, Senior Vice President of Finance for Black Knight. Please go ahead, sir.
Bryan Hipsher
Thanks. Good afternoon, everyone, and thank you for joining us for the Black Knight Third Quarter 2017 Earnings Conference Call.
Joining me today are Executive Chairman, Bill Foley; CEO, Tom Sanzone; and Chief Financial Officer, Kirk Larsen. We'll begin with a brief overview from Bill; Tom will then provide an update on third quarter accomplishments as well as an update on the progress that we've made towards the execution of our growth strategy; and Kirk will finish with a review of financial highlights and our outlook for 2017.
We'll then open up the call for your questions. This conference call includes forward-looking statements that involve a number of risks and uncertainties.
Statements that are not historical facts, including statements about our expectations, hopes, intentions, or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management.
Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
The risks and uncertainties that forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release issued earlier today, and in the Statement Regarding Forward-Looking Information, Risk Factors, and other sections of our Form 10-K and other filings with the Securities and Exchange Commission. Today's remarks will also include references to non-GAAP financial measures in order to provide more meaningful comparisons between the periods presented.
These are important financial performance measures to Black Knight, but are not financial measures as defined by Generally Accepted Accounting Principles or GAAP. Reconciliations between non-GAAP financial information to the GAAP financial information are provided in the schedules to the press release and in the appendix of the supplemental slide presentation.
This conference call will be available for replay via Webcast through Black Knight's investor relation Web-site at investor.bkfs.com. It will also be available through telephone replay from 8:00 pm Eastern Time on November 1, 2017 through November 8, 2017 by dialing 844-512-2921 or 412-317-6671.
The replay passcode will be 13672323. I’ll now turn the call over to Bill.
William P. Foley II
Thanks Bryan. During the third quarter, we continue to execute on our long-term strategic initiatives to drive organic growth through cross-selling and winning new clients in existing markets.
In addition, we successfully completed the spin-off of Black Knight from Fidelity National Financial, which we believe unlock significant value for our shareholder. Our enhanced trading liquidity will make our stock more accessible to a broader base of potential investors and allow us to deploy capital to repurchase shares more opportunistically.
We have increased financial flexibility which is reflected in the repayment of our revolving following the spin and finally Black Knight will benefit from a less complex corporate structure and will now be eligible for index inclusion. The transaction marks another important milestone in Black Knight’s evolution to become the premier provider of software and data and analytic solutions to the mortgage and consumer loan, real-estate and capital markets verticals.
As our clients continue to search for way to increase efficiency, enhance their operation and reduce risk and compliance exposure. Black Knight remains the right company at the right time to offer solutions and insight tells them overcome these complex business and regulatory challenges and optimize performance.
I’ll now turn the call over to Tom, who will provide us with an update on the business and progress we’ve made towards the execution of our growth strategies.
Tom Sanzone
Thank you, Bill, and good afternoon everyone. Thank you for joining us for our third quarter earnings call.
As Bill mentioned earlier, we completed the spin-off from FNF at the end of September. This milestone event for Black Knight was a joint effort with strong support from FNF.
As we began our journey as a fully independent entity, I would first like to thank FNF and their entire team for the support they have provided us these last three years. FNF is a first class organization and we are proud that we’ve been part of such a wonderful team.
With that being said, I would like to discuss a bit about the road show we performed in preparation for the spin. Over two week period, we met with 85 current and potential investors to discuss Black Knights continued evolution as the premier provider of software, and data and analytics to the markets we serve.
With 83 million shares moving into the hands of FNF shareholders, it was critical for us to reinforce the attributes that we believe that Black Knight is such a strong strategic and long-term investment. As we discussed the attributes of our business model, including our own match and capabilities, blue chip client base, comprehensive public and proprietary datasets massive addressable market and powerful long term reoccurring financial model, we believe it offered evidence that Black Knight is a unique investment opportunity.
As we dealt deeper into our business model, one of the items we discussed was at the time of the road show. We had a significant sold pipeline of an incremental, annual run rate of approximately a $130 million that would phase in over the next three years.
This $130 million represents old deals that are in some stage of their implementation or ramp up cycle, but does not include price increases, organic volume growth, or any other new deals we had signed in the meantime or may sign in the future. This revenue may not come in evenly due to implementation timing considerations, but the deals are signed and we will be a strong contributor to future growth.
Now that we’ve talked a bit more about the previously announced sold pipeline, I’m very excited to discuss and particularly new deal that is incremental to the $130 million. Today we announce the signing of the multiyear agreement with Ocwen Financial Corporation, the 12th largest servicer in the country to utilize our suite of servicing software and data and analytic solutions including our LoanSphere, MSP servicing system.
This will take our share to 14 of the top 15 servicers in the United States. We believe this deal is a direct result of Black Knight’s ability to provide solutions that are proven, reliable and scalable, and are supported by employees who are extremely knowledgeable in both the industry and our solution sets.
On the enterprise business intelligence front, we are pleased to announce that Wells Fargo a long time Black Knight’s servicing client has selected the data hub to leverage throughout its servicing operation and to link data across the enterprise. We are very excited about this initial use case and the potential for further expansion of the full solution set down the road.
This makes Wells Fargo the 7th servicer out of our 70 existing MSP clients to select the data hub. Ocwen and Wells Fargo are examples of Black Knight’s continued focus on the top 50 institutions and our key vertical who are responsibility for a majority of the volume and spend.
In origination software, we have begun to see increase interest in our loan origination software solutions from the top 10 banks specifically, until recently many of the top 10 banks preferred leveraging their in-house solutions rather than leveraging a third-party technology provider. However because of the increasing pressure on profitability for these lenders, the enhanced regulatory environment, and the need for an integrated software and data solution, these lenders are exploring opportunities with trusted, scalable, end-to-end providers such as Black Knight.
This is a trend now we saw it take place years ago in the servicing space. And, we are very excited about this potential opportunity in the origination business.
To make a final point on the evolution of the top banks decision making process, it has become apparent to us that the integration of their servicing system and origination system has become a point of emphasis. The strategy of having a single integrated provider with a consistent approach that enterprise business intelligence is becoming more of a focal point for differentiating providers during the RFT process.
We believe we are in a unique position with our servicing and origination software solutions, and the data hub to help clients meet their strategic objectives. Another emerging technology that Black Knight is embracing is the delivery of digital capability as a key factor in our product strategy, and a focus of lenders and servicers of all sizes.
We are working with leading third-party providers of digital technology interfaces as well as clients, who are developing their own interfaces to combine the technology capabilities of our software platforms with the digital capabilities from these providers to enable our clients to benefit from an enhanced digital experience, while driving incremental revenues to Black Knight. In closing, Black Knight continues to see significant momentum as we execute on our growth strategies of winning new clients in existing markets, cross-selling to existing to clients, and expanding our solutions to innovative development.
Thank you for your time today. And, I will now turn the call over to Kirk for an in-depth financial update.
Kirk Larsen
Thank you, Tom, and good afternoon everyone. Today I’m going to discuss our third quarter financial results and our outlook for the remainder of 2017.
For the third quarter, revenues decreased 1% to $263.8 million as a result previously discussed Property Insight realignment. Net earnings attributable to Black Knight were $14.7 million or $0.21 per diluted share compared to $11.2 million or $0.16 per diluted share in the prior year quarter.
Year to date, revenues increased 3% to $784.1 million, and net earnings attributable to Black Knight were $35.1 million or $0.51 per diluted share. Turning to Slide 4, I’ll now discuss our adjusted results.
For the third quarter, adjusted revenues were $264.8 million, a decrease of 1% compared to the prior year quarter. Excluding the effect of the Property Insight realignment, revenues increased 2% compared to the prior quarter.
Adjusted EBITDA was $128.2 million, an increase of 7% compared to the prior year quarter. Adjusted revenue and adjusted EBITDA in the quarter were less than the internal plan that we set for ourselves at the beginning of the year, primarily due to previously discussed implementation delays that caused us $6 million in the quarter primarily related to three clients.
Adjusted EBITDA margin was 48.4%, an increase of 380 basis points compared to the prior year quarter. Adjusted net earnings were $54.3 million, an increase of 22% compared to the prior year quarter, an adjusted net earnings per share was $0.36, an increase of 24% compared to the prior year quarter.
CapEx for the third quarter was $11.9 million. Year to date, adjusted revenues were $787.7 million, an increase of 2% compared to the prior year.
Excluding the effect of the Property Insight realignment, adjusted revenues increased 5%. Adjusted EBITDA was $373.9 million, an increase of 8% compared to the prior year, and adjusted EBITDA margin was 47.5%, an increase of 250 basis points compared to the prior year.
Adjusted net earnings were $153 million, an increase of 18% compared to the prior year. Adjusted net earnings per share was $1, an increase of 18% compared to the prior year.
And, finally, year-to-date CapEx was $42.4 million. Turning now to Slide 5, I’ll discuss the results for our software solution segment which is formally known as the Technology segment.
In the third quarter, adjusted revenues for the software solutions increased 2% to $224.5 million. Our industry leading servicing software business continued a strong performance with adjusted revenues growth of 6%, primarily driven by higher loan volumes, price increases, and higher transactional volumes on our core servicing software solution partially offset by lower specialty servicing volumes.
In our origination software business, adjusted revenues declined by 17%, driven primarily by lower exchange volumes as a result of a decline in the refinancing originations of 43%, as reported by the MBA on October 24, 2017. Adjusted EBITDA increased 5% to $131.5 million, while adjusted EBITDA margin was 58.6%, an increase of 200 basis points compared to the prior year quarter.
Year-to-date, adjusted revenues in the software solutions increased 5% to $665.6 million, driven by our servicing software business that had adjusted revenue growth of 8%. Adjusted EBITDA increased 7% to $387.9 million, while adjusted EBITDA margin was 58.3%, an increase of 120 basis points compared to the prior year.
Turning to Slide 6, in the third quarter, adjusted revenues for the data and analytics were $40.3 million compared to $47.6 million in the prior year quarter. Excluding the effect in the Property Insight realignment, adjusted revenues increased 3% compared to the prior year quarter, driven by the growth in our property data and multiple listing service businesses.
Adjusted EBITDA was $7.6 million compared to $8.4 million in the prior year quarter, while adjusted EBITDA margin was18.9%, an increase of 130 basis points compared to the prior year quarter. Year-to-date, adjusted revenues for the data and analytics were $122.1 million compared to $133.7 million in the prior year.
Excluding the effect of the Property Insight realignment, adjusted revenues increased 11% compared to prior year. Adjusted EBITDA increased 4% to $22.9 million, while adjusted EBITDA margin was 18.8%, an increase of 230 basis points compared to the prior year.
Finally for the third quarter, operating expenses for the corporate segment were $2.1 million lower compared to the prior year quarter due to lower incentive compensation. Turning to Slide 7, I’ll walk through our capital structure.
At the end of September, we had cash and cash equivalents of $146.2 million. Total debt principal at the end of September was $1,563.3 million.
We had revolver borrowings of outstanding of $150 million. Finally the completion of the spin-off, we repaid the revolver borrowings which increased our revolver borrowing capacity to $500 million.
At the end of September, our gross leverage ratio was 3.2x and our net leverage ratio was 2.9x. We did not repurchase shares during the third quarter or during October, we continue to have approximately 8.8 million shares available to repurchase under our share repurchase authorization.
Turning now to Slide 8, I’ll discuss our outlook for full year 2017, due to the previously discussed, implementation timing delays that caused a headwind of just over 1.5%. We now expect to be - expected revenues and adjusted revenues growth of approximately 2.5% or 5.5%, if we adjust to reflect the Property Insight realignment as if it took place on January 1, 2016.
We now expect to have adjusted EBITDA growth of approximately 10% which intakes into account, the effect of the revenue delays. Finally we expect adjusted EPS to be in the range of $1.36 to $1.38 reflecting discipline investment and efficient capital allocation.
That range represents growth of 18% to 20% compared to 2016. Additional modeling details underlying our outlook include; interest expense of approximately $60 million; depreciation and amortization expense of $115 million, excluding the net incremental depreciation and amortization resulting from purchase accounting; incremental annualized corporate cost due to the spin-off of approximately $4 million with the majority relating to standalone insurance policy starting to spin-off.
A fully-distributed effective tax rate of approximately 37%; diluted weighted average shares outstanding of approximately 152 million to 153 million shares; and finally, CapEx of approximately $90 million. Overall, we are very pleased with our performance despite delays and implementation that are not in our complete control and merely represent timing.
And, we continue to be very optimistic about the on-boarding of our clients representing more than $130 million annualized run rate went fully implemented. Operator, please open the line for Q&A.
Operator
[Operator Instructions] Our first question today is coming from John Campbell from Stephens. Please proceed with your question.
John Campbel
Hey guys, good afternoon.
Kirk Larsen
Hey John.
John Campbel
Congrats on the Ocwen, that’s a great deal for you guys. I know you guys don’t typically kind of size up those loans, I think I’ve seen in their filings maybe $1.3 million, is that kind of in the right neighborhood?
Kirk Larsen
That’s probably available information, that’s correct.
John Campbel
Okay, and then what droves that decision making process that was, I guess, I think you guys might have announced in the press release that was a decision making process kind of tied to their internal cost efficiency program, is that right?
Tom Sanzone
Hey John, it’s Tom Sanzone. It’s really the same thing that we’ve been talking about on our deal, it’s a combination of really strong economic benefit tied to very strong industry leading regulatory and compliance capabilities, it’s really business case that we do over and over that’s really financially strong coupled with really real improvements in risk management.
John Campbel
Okay. And, then Kirk I think you said the implementation delay, that was about $6 million in the quarter, I’m just curious for the implied 4Q revenue guidance, are you assuming some of that loss revenue goes 4Q or is that going into ‘18?
Kirk Larsen
It’s a combination of both the effect of the revenue delays in the fourth quarter is actually a little bit more than what it was in Q3 just the way the things pushed us at about $7 million in the fourth quarter. So, you think about the 1.5% a little more than 1.5% effective of those delays, there was a little bit in Q2 and then it was really the Q3 and Q4 and some is pushing into ‘18, and so it really will feather in depending on the specific implementation of overtime.
John Campbel
And, I’m assuming some of that was a professional service piece, which is why you are showing such a good margin in 4Q in wide margin?
Kirk Larsen
It’s really the processing that pushed out, so during the implementation, the professional services gets deferred and recognized over the life of the contract after it goes live, and so really what we’re pushing out is the starting point for the billing for processing, which then as you can imagine will come at a high contribution margin.
John Campbel
Okay, great. Thanks, guys.
Kirk Larsen
Thank you.
Operator
Thank you. Our next question is coming from Jason Deleeuw from Piper Jaffray.
Please proceed with your question.
Jason Deleeuw
Thanks. So, I’m just wondering on the revenue shortfalls, is that incremental to the original 1.5% revenue headwind that we had for the guidance this year, so $6 million was this incremental to that so that was kind of the surprise in the quarter and the timing?
Kirk Larsen
The two components that were, so we came into the year and we talked about what we planned and what - there is 1.5% headwind from loan origination volumes that was included in our guidance that’s beginning of the year. What we’ve been talking about the last couple of quarters, so there really wasn’t a difference in this quarter from the implementation delays, I spoke about it on the last quarter call, so that wasn’t a surprise, it was more just giving the more granular detail on this call to explain where we came up relative to our own internal plans, and that being the $6 million being the largest driver of it.
But 1.5% related to the implementation delay is consistent largely with what I talked about it on the last call.
Jason Deleeuw
Got it, thanks for that, and so we have this kind of short-term implementation delay timing issue, but it sounds like the longer term outlook is gone actually better, so we got the Ocwen win and now the commentary around, the origination technology, is there any sense on the timing, it sounds like the originators, the top 10 originators are more interested in outsourcing, is there any more color you can give us maybe on timing, is this something multiyear or is it closer to that just any help there?
Tom Sanzone
Well, the sales cycle on these things from initial conversations to close on a large client is, you probably figure six months in that process and then, the implementation is probably anywhere between 12 to 18 months, I would guess on a large client. So, it would - as you hear if a deal gets done, it’s probably 12 to 18 months from there.
Jason Deleeuw
Got it, and then is there any update, I know it’s still early, but any update you can give us on empower now and just kind of how it’s been performing in the marketplace as how you kind of thought about your strategy in the marketplace with that product solution, just any color on that?
Tom Sanzone
Absolutely, we are beta, we implemented our beta product with the clients recently and that went well. And, we recently just signed-on on other client for the product and we have a pretty good pipeline of clients that were working at this point.
What I will tell you though is, I mean, the going down market for us was a way to compete in a space where we think there is good money to be made and not a lot of competition. And, that also helped us because of our focus on the top providers, and if you have roles in that space which you really could have, you could keep yourself busy at that x tier, right, we identified 200 clients to target in that space.
So, that’s why it made sense for us. The only thing I will say to you, if there is movement in the top 10 or the top 20, and we are fortunate to be successful in that space.
If that queue builds up that will certainly always be our principle focus, because that’s where the volume is and that’s where the wallet is.
Jason Deleeuw
Great, thank you.
Operator
Thank you. Our next question today is coming from James Schneider from Goldman Sachs.
Please proceed with your question.
James Schneider
Sorry, can you hear me?
Tom Sanzone
Yes, hey Jim.
Kirk Larsen
Hey Jim.
James Schneider
Okay, apologize. Just want to kind of get a sense as we head into and congratulations on the Ocwen win.
Can you maybe just give us a pipeline update beyond Ocwen kind of how many major customer implementation wins either on the origination or servicing side or kind of in the hopper, how many you would be kind of close to getting sign within the next 6 months or so?
Tom Sanzone
Well, we don’t actually give the list, I mean, many of the significant deals both in servicing and in originations had been press released, so you could look back and there is a number of them that are being worked on at the moment and getting close, there is a number that are close to being implemented at this point. What I would say just a general outlook is, we continue to win deals in both servicing and originations.
And, what I’m excited about what you’ll note with like the Ocwen announcement. Once again to keep following up on the themes, we were able to get that deal and also sell data and analytics.
And, if you notice once again it is a deal that includes both first and second in loans, right, so the HELOC business as well. And, we’re very excited about that whole trend.
So, not only in acquiring new clients in servicing as an example, but also on renewals of existing clients, we feel really strong about our ability to capture both those lines of business for any of our existing clients, so we are pretty excited about that. And, we continue to not only acquire new clients, but on renewals to add other products to Black Knight and if they have home equity, we’ve been very successful capturing that business as well.
On the origination side, I’m excited about the opportunities there going forward, because I’ll give you guys an analogy with this, and my guys next to me will make a face, because they hear all the time, but when you look at a client, first of all, we are in a very strong position when we have the servicing business which we do particularly in the space that we like to win in which is the top tier players. And, when you look at our clients that would be interested in moving to third-party provider say for originations, Black Knight having the servicing business and then having the loan origination platform with our data hub product that consolidates all that information is I believe in a very strong position, right.
And, so if you think about it, I give the body analogy, right? So, you have the heart, lungs, and all the organs, and they’re connected up with circulatory system, and then you got the brain, right?
So, if a client were to take an approach as an example with three providers, say they pick Black Knight for servicing and they pick some LOS vendor other than Black Knight, and then they pick core logic for data, okay, or their public records data anyway. Well, now they have these three separate vendors, right?
And, so the body analogy is the circulatory system that feeds the organs which is kind of activity they have to do that, right? And, then if you add, the most important organ which is the brain, okay, which I would argue is the data and data hub, and the analytics around the data hub, well the clients has to build that themselves.
So, if you go with a kind of a buffet on those decisions, you have to connect them and you have to put the data together, which is significant expense in these organizations. If you look at where a lot of the money goes, it’s trying to bring all these data from origination and servicing together, right?
On the other hand if you go with Black Knight not only do you get a strong LOS platform, great data and analytics, and data hub, which brings both origination and servicing together, so you get the connectivity and you get the brain, right, you get the consolidation of the data, and that’s why I’m excited about the OT business in the future, because the investments we made over the last three years that connect all of our products and to build data hub as an offering, we did it with purpose because we see the value of having all the stuff connected and data in a consolidated and consistent formats for clients, and we have that now, and we are pretty excited about our position.
James Schneider
That’s helpful, thanks.
Tom Sanzone
I know that was a long winded answer. But I think there are lots of opportunities in both businesses.
James Schneider
It’s helpful context. And, maybe just a quick one for Kirk, regarding margins as we start to think about building our model for 2018, traditionally all of your technology businesses has very high incremental margin I believe kind of 60% to 70%, any reason to believe that wouldn’t be the case as your big pipeline of wins comes into the revenue pie next year, and anything that you would think about in terms of incremental investments that would potentially offset some of that?
Kirk Larsen
So, generally speaking I would say that there is no reason to think that we wouldn’t have a consistent pattern of incremental margins as we’ve had in the past outside of event driven savings that we had like in 2014 and some other pockets, since then it’s a little early in our budget process to think through more specific areas we’re going to invest. But one important to highlight that we often do when we talk about margin is that, we will bring on the revenue command at high incremental margins, but we will continue to invest, especially in this day and age when you’re reading the press issues that other folks are having and were some tech companies are adding investment is around information security and that’s something that we will always continue to evaluate and look to and think through as we go forward and plan for investment.
So, we will absolutely be very focused on continuing to drive the margin expansion that we have committed to the street, and so you can expect that we will work towards that as well. But structurally there’s nothing that’s been different than it has been in the past.
James Schneider
Thank you very much. Operator Thank you.
[Operator Instructions] Our next question today is coming from Andrew Jeffrey from SunTrust. Please proceed with your question.
Andrew Jeffrey
Hi guys, good afternoon.
Kirk Larsen
Good afternoon, Andrew.
Andrew Jeffrey
So, I got a question about D&A both sort of short-term and longer-term, there’s been a little bit of choppiness in the quarterly performance, and it sounds like you’re having some nice success with the data hub which is encouraging. Any implementation - revenue related implementation delays in that segment in particular, and then just wondering what you think uptake of that are cross-selling associate to generally is in the current bank environment, bank regulatory environment?
Tom Sanzone
Well, Andrew what I would say is that it’s a great question kind of good news, bad news story, which is when we sell the data hub and it’s tied to another less implementation or servicing implementation, there are revenues there for D&A business, but similar to servicing origination, the cost and revenue gets deferred until the implementation goes live. So, there is a tie to implementations that affect the revenue for the D&A business.
It does make sense?
Andrew Jeffrey
Yes, sort of.
Tom Sanzone
On the second question, we are pretty excited about not only our normal course of business with our D&A business going out and competing with other data providers, but the data hub as I mentioned in my opening comments is a new product that we now have sold and in the process of implementing as some of that are live, but most of that are in the process of implementing with only 7 of our 70 servicing clients. So, we’re just at the early stages and we are at 10%.
And, the reason I highlighted Wells Fargo is, I always say it’s really important both in LOS and in servicing and equally so in D&A, getting Wells Fargo or Chase or Fidelity, is a difference maker, right, because once you get one of those large providers and you get them done and implemented, it builds credibility and builds a momentum to really take yourself going forward. I think years ago once the MSP product started to be implemented in the top 3 or the top 4 that was a tipping point moment for that business as the origination business and the data business to my view will be no different, putting those products in place for that type of client is really a tipping point.
And, so we see a lot of opportunity even just - forget about other strategies were pursuing, but selling this product into our servicing core franchise of which we’ve only penetrated now 10% as a nice opportunity going forward.
Andrew Jeffrey
Okay, all right, that’s helpful. And, this may be an unfair question towards, I guess, but considering the $130 million and now plus signed pipeline and recognizing that it’s difficult to gauge timing, I mean, over what kind of period would it be reasonable to expect, may be you could even provide best case, worst case kind of range, would it be reasonable to expect from Black Knight to recognize that revenue, and maybe some color on that types of delays, and what’s causing the delays, I’m just trying to get a sense for how many - over how many years that could stretch?
Kirk Larsen
So, the way to think about the timing of that Andrew is really over the next three years, there are some complicated implementations in the queue that frankly just will take longer than a typical one. And, so that $130 million, I don’t think I would assume that is very front and loaded, I would say that we are actually excited that it’s a platform for growth for that three years, which I think is a very positive thing as we look out in the visibility that we have looking up the next several years as opposed to trying to live from quarter-to-quarter.
But the timing I think, I hesitate to be more specific because we thought the moment that was out of our control this time, I mean, as far as the - and what causes a delay, it really depends on the client, it depends on the product, the delays were much more on the loan origination system than they were the servicing side which we have 70 proof points that people that we have implemented, numbers a little on the LOS side. So, it’s really as a matter of, it can be resources, it could be compliance, testing, it could be training, it could be other rollout, there are number of things that could cause it’s really very client specific as to what would cause, the cause of the delay.
But I think, as we think about that 130, we will certainly give you more color about that as we give guidance on the next call as to what we are assuming and how we’re thinking about it, because we’ll be a little, it will be a further along and have better visibility than we did coming into this year.
Andrew Jeffrey
Okay, but despite to say, we could be talking about something that’s waited toward back out of ‘18 even ‘19?
Kirk Larsen
Definitely that should be the case, I mean, there are a lot of deals that are underpinning that $130 million. And, by the way the other thing I would say about that is, it will feather in over those three years, and I would also say that it may not be even from one quarter to the next.
And, so as we think about how those come on, it will be, as something a lot, you’ll get the next four quarters of incremental revenue growth, but the growth rates could bounce around depending on which implementations go live when.
Andrew Jeffrey
Sure, okay, that’s helpful. Thanks.
Operator
Thank you our next question today is coming from David Ridley Lane from Bank of America Merrill Lynch. Please proceed with your question.
David Ridley Lane
Sure, thank you. So, now you had the, when you gave the initial guidance for 2017, you talked about the 150 basis points dragged from lower market by financing the lines, I think things have come in a little better than expected in terms of [refi OMs].
So, I’m wondering, first, do you have an updated view on what that number is likely to be turn out to be in 2017? And, then on looking forward, if you take the MBA volume forecasted volume for ‘18, it’s safe to assume that there is a very modest impact from refi declines in ‘18?
Kirk Larsen
As far as where this year is coming out, it’s close enough to what we were planning that I would say is not measurable, it’s not a measurable difference to the total company, you’re talking about 10% here and there, it wasn’t exactly 1.50% when we came into the year. So, I would say the fact it’s been a little bit better, but really hasn’t had a noteworthy effect on the results for the year, so I think you can still think of it in that area.
As far as next year certainly, I think they’re still pronounced, a projected pronounced decline next year as well. But certainly as the number gets smaller, the effect will moderate as well.
And, so we haven’t quantified, we haven’t given guidance for 2018, so I don’t think I would quantify at this point, but all signs would point to less of a headwind next year purely from market volumes, but we’ll have to go through our process and get to January to see where things are, because as you know from one month quarter to the next things moving around a little bit, I would rather have heavily more firm of a view to quantify more specific way.
David Ridley Lane
Okay, and then I did want to check on the implementation delays, is it sort of customer driven and that the customers are still satisfied with the outcomes to date, in other words that they know that their own actions are responsible for the life?
Tom Sanzone
Listen at the end of the day, I’ve done, I don’t know, how many dozens of these in my career. I think it’s fair to say that in any one of these projects there’s going to be issues on both sides and fairness.
But what I have talked to you guys about before and I think this is truly a consistent is when you pullout one of these existing platforms you create a lot of dangling lines when you rip it out. So, there could be in some clients dozens of other internal systems that need to be supported, right, and you need to hook into and then, you need to test that whole thing front to back through the entire infrastructure.
And, beyond the doubt that is the longest polling attempt is doing that integration, and we don’t - and Black Knight doesn’t do that. So, it’s usually internal IT folks within the client, and in fairness that’s the most complicated piece of work in my view.
I think on our side, in servicing as an example as converting the old loan files and getting all that process up and running, but once the loans are converted to MSP it produces the speeds, but then the client has to nit that into the environment, and that has - but my experience that’s always the most complex piece of the job.
David Ridley Lane
Okay, thank you very much.
Tom Sanzone
You’re welcome.
Operator
Thank you. Our next question today is coming from Bose George from KBW.
Please proceed with your question.
Bose George
Good afternoon. Just on the second lean side as just in talking to lenders on that side, are you seeing lenders starting to think about home equity as a potential area for growth over the next few years as given the strong comprise appreciation we have now seen for multiple years?
Tom Sanzone
Thanks Bose, I mean, I’m glad you asked that question because that’s another that we’re very excited. And, if you look in the press in the last couple of weeks, there’s been a number of articles written projections that the depending on which one you read that the home equity volume, people are thinking over the next five years or so will double from where it is now.
That would obviously be very good timing for us as we grow our market share, right now about a 13% implemented and in our pipeline we are around 30% or so of home equity. And, as I told you, I think we’ll continue to be successful cash running market share in home equity.
So, yes, I mean, the conditions you have significant value improvement in home pricing over the last number of years, there is, I don’t know the number off the top of my head, but there is significant equity in the current portfolio of homes, and so what indicate that the opportunity to drop that home equity business that should be pretty good. And, so we are hoping that those projections are correct, because that would be great for Black Knight, and certainly the economics of where home pricing is right now would indicate that.
Bose George
Okay, great, thanks. And, then just can you remind us, have you given us the number for the - number of your MSP clients that have also signed up for the second lead side?
Tom Sanzone
That’s 15.
Bose George
Okay, great. Thank you.
Operator
Thank you. [Operator Instructions] Our next question is coming from Jason Weaver from Wedbush Securities.
Please proceed with your question.
Jason Weaver
Hi, good afternoon. Thanks again and congratulations on the Ocwen win.
I think most of my questions have been asked already, but maybe you could just share a little light on push spin-off, has your stance for M&A has changed at all?
Kirk Larsen
It hasn’t. As part of our capital allocation framework as we thought about M&A as a way to catalyze growth in the business, we are really focused on our product strategy and identifying products gaps in our product line, and using M&A to augment that to fill product gaps with product focused stuck in acquisitions like we did with e-links and Motivity.
So, post spin at this point it’s really the same strategy.
Jason Weaver
Fair enough; thank you.
Operator
Thank you. Our next question is coming from Kevin Kaczmarek from Zelman & Associates.
Please proceed with your question.
Kevin Kaczmarek
Hey guys, thanks for the taking question. You mentioned that top 10 lenders looking at new LOS options, do you have any sense of how many different LOS as these lenders would be seriously evaluating in the current environment, I mean, would it be two or three or maybe five to six in the sense?
Tom Samzone
Yes, I think on our RFP at that level, my guess is, generally around 3ish, if you expand beyond that it becomes not only a longer process, but I think you have serious gaps in the quality of the products that would even be capable of dealing in that environment at that scale.
Kevin Kaczmarek
Okay, and based on preference for pricing structure, whether more fixed or variable?
Tom Samzone
Our structure remains consistent in as we have talked about over the years, we took the best practices from MSP and kind of applied into the origination space. And, so with minimum, it’s usually a deal where you get a minimum which is a floor, generally no cap on a per transaction basis.
Kevin Kaczmarek
Okay, all right, thanks a lot. I guess, all my other questions have been answered.
Tom Samzone
Thanks Kevin.
Operator
Thank you. Our next question today is coming from Bill Warmington from Wells Fargo.
Please proceed with your question.
Unidentified Analyst
Good evening everyone. This is Jake on for Bill.
I was just hoping you could update us on the capital allocation cost fee following the complete FNF spin?
Kirk Larsen
It really hasn’t changed. We are primarily going to focus on investing in ourselves product development infrastructure for the hosting business, etcetera.
So, investing in organic growth from a debt management perspective, it’s certainly something we’ll stay focused on. But as I indicated in my remarks, we are basically at our leverage target, we set a target of 3x and we’re at 2.9 net as we are today.
I’ve talked about M&A strategy earlier, and then the last element that really is much more actionable now post spin is the ability to return cash to shareholders through opportunistic share repurchases which as I have mentioned, we didn’t buy back shares in the fourth quarter, we are prepared to following the spin, if there were - we saw this location to stock price, frankly it traded very well, following the spin and so the price figures that we had at the time were tripped and so we continue to stand ready to evaluate all of the alternatives to deploy capital with share repurchase being one, if we don’t find other deals being a logical one, again from an opportunistic perspective as we talked about previously.
Unidentified Analyst
Great, thank you very much.
Operator
Thank you. Our next question is coming from Brandon Dobell from William Blair.
Please proceed with your question.
Brandon Dobell
Thanks. Maybe leveraging of a couple of prior questions, as you guys have talked to customers given how significant to decline in refinance volumes has been for people, has that pushed out decision processes either on market share opportunities for you guys or maybe sales of D&A into customers they were more refi, and just wondering if that this location has not just changed the number of loans that are out there, but more about how companies are thinking about spending money near term and how that may change in ‘18?
Tom Sanzone
Yes, I think what’s driving Brandon, and what’s driving the decision making on behalf of the clients is they’re all looking to improve profitability in their origination business, and as well as risk and compliance. And, that seems to be the major driving factor here.
So, when you look at what happened over the last ex number of years post to crisis is people were scrambling to keep up with regulations and beating compliance and all the things that you’re aware of, to do that in a very short window, you need to throw money at the problem and it was thrown at it in the form of frankly bodies, lots more people, and in many cases doing manual work, so that’s build up the expense base. And, then what I would say is point technology solutions to kind of put a band aid on something, but maybe not the most integrated way to do it, like if you had the time how you would have like to do it.
So, post that you’re looking at a business that’s grown significantly in the expense and overhead. And, now the challenge is to take this environment now and how can we make it more efficient, lower cost, higher compliance, that’s what’s driving the decision.
Brandon Dobell
Got it, okay. And, then I have a question on secondly in share as you guys think about customers thought process around moving to different providers or a different provider whether it’s from in-house or from a different software platform, how important is having you as a proprietor on the first link to that thought process about looking for you guys to take their second lead business or how important on a relative basis is larger banks moving these products under the same wing in the bank, I’m just trying to get a sense of when second lead share comes your way, what are the main drivers for that, is it something you can control or is it more of a cultural shift internally at these lenders?
Tom Sanzone
Well, I mean, ultimately we’ve been involved at some scenarios where like the first move would to be to put like our LOS product on the front end for let’s say home equity product. But frankly for the clients, they’re looking for a system that can do both the purchase business, resale, wholesale, the correspondent, and home equity, right?
And, so the key is, if you can have one platform that can do all different types of transactions and integrated, right, instead of having a system for HELOC systems for wholesale, retail and the like. So, we’ll go in any way we can if we get an opportunity to get into a significant lender and the opportunity happens to be initially with home equity, we are happy to do that and we would feel that can lead to a dialogue later on to do the rest of the business.
Brandon Dobell
Okay, thanks guys, I appreciate it.
Tom Sanzone
Thank you.
Kirk Larsen
Thank you.
Operator
We’ve reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further closing comments.
Tom Sanzone
Okay. Thank you folks, we appreciate everyone listening in and hope you share the same excitement about Black Knight’s progress as we do.
Thanks again for joining and have a great rest of your day.
Operator
Thank you. This does conclude today's teleconference.
You may disconnect your lines at this time and have a wonderful evening. Thank you for your participation today.