Feb 7, 2018
Executives
Bryan Hipsher - SVP, Finance William Foley - Chairman Tom Sanzone - CEO Kirk Larsen - EVP and CFO
Analysts
Jason Deleeuw - Piper Jaffray Andrew Jeffrey - SunTrust Tien-Tsin Huang - JPMorgan Bill Warmington - Wells Fargo David Ridley-Lane - Bank of America Merrill Lynch John Campbell - Stephens, Inc Bose George - KBW James Schneider - Goldman Sachs Ashish Sabadra - Deutsche Bank
Operator
Greetings and welcome to the Black Knight Fourth Quarter and Full Year 2017 Earnings Results 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.
I would now like to turn the conference over to our host, Bryan Hipsher, Senior Vice President of Finance. Please go ahead.
Bryan Hipsher
Thanks. Good afternoon, everyone, and thank you for joining us for the Black Knight fourth quarter 2017 earnings conference call.
Joining me today are Executive Chairman, Bill Foley; CEO, Tom Sanzone; and Chief Financial Officer, Kirk Larsen. We will begin with a brief overview from Bill, Tom will then discuss 2017 highlights as well 2018 key areas of focus and Kirk will finish with a review of fourth quarter and full year financial highlights and our outlook for 2018.
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 in 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 relations website at investor.bkfs.com. Will also be available through telephone replay from 8:00 pm Eastern Time on February 7, 2018 through November 14, 2018 by dialing 844-512-2921 or 412-317-6671.
The replay passcode will be 13674141. I will now turn the call over to Bill.
William Foley
Thanks, Bryan. 2017 was another strong year for Black Knight, as we continue to execute against our long-term strategy, strategic initiatives to drive organic growth and increase shareholder return.
In particular we expanded our relationships with several key new client wins in existing markets, continued down the path of creating enterprise relationships with our substantial client base and created values through the spin off, debt refinancing and share repurchase program. As we look towards 2018, we're excited and optimistic about our opportunities to continue to drive Black Knight forward and deliver more value for our shareholders.
Based on the outcome of the Tax Cuts and Jobs Act of 2017, we anticipate a significant reduction in our effective tax rate, which will result in additional capital deploy. Our continued focus will be on delivering value through our - through investment in our solution sets, opportunistic share repurchases and debt pay down, to strengthen our financial positioning, as we look for requisitions that can create enhanced value for the company.
I will now turn the call over to Tom, who will provide us with an update on the business.
Tom Sanzone
Thank you, Bill and good afternoon everyone. Thank you for joining us for our fourth quarter earnings call.
I would like to spend my time today discussing some highlights from 2017 and then finish up with our key areas of focus for 2018. 2017 was a year in which we focused on landing a top 10 bank on our loan origination software, implementing the second largest home equity portfolio in the country, proving out the power of our enterprise business intelligence solutions, and openly expanding our significant sold pipeline through cross sell and enterprise expansion efforts.
As we mentioned on our last earnings call, we had seen a level of interest in third-party loan origination software platform from the top 10 banks that we had never seen before. Through our competitive process, CitiMortgage is the first of those banks to select Black Knight as their loan origination software provider.
We believe that Black Knight was selected due to our end-to-end solution with superior scalability, feature functionality and an ability to drive production costs down. When combined with their decision to move their performing loan portfolio to our servicing software platform BSMR [ph] it is clear that they recognize the exponential value of becoming an enterprise client.
This is a transformational deal for us, as it proves out that a cradle to grave solution is a compelling differentiator for any lender or servicer considering a platform change. It also supports the fact that we had the ability to process the largest providers in the country, on all of our software and analytic offering.
Following up on the theme of transformational events in 2017, the conversion of JPMorgan Chase's home equity portfolio was another milestone achievement. The conversion of the second largest home equity portfolio in the country, not only enhances an already strong relationship with JPMorgan, but is a proof point that we can deliver for the largest home equity services in the nation.
We are very excited about the successful outcome and we look forward to delivering scalability, feature functionality and cost saving to the rest of the industry's other top participants. To go along with these significant events, we also continue to grow our already substantial sold pipeline.
With Ocwen, we signed another top 15 servicer, which means 14 of the top 15 servicers will be using MSP. We also signed six other MSP clients and renewed 11 existing MSP clients to deals extending out five years on average.
We also expanded our existing servicing relationships with Regions and Wells Fargo by adding home equity capabilities. In origination software, we added Citi and expanded our origination relationships with Regions and citizens to add home equity capabilities added an Empower Now client and nine new lending solution clients.
Data and analytics and enterprise business intelligence also had a strong sales year, adding names like Wells Fargo to the data hub and M&T Bank most recently to our full EBI suite. M&T Bank is an exciting client for us, as they will be utilizing all of our key solution.
M&T is the model of what we wish to achieve for the industry's key participants. A cradle to grave Black Knight solutions set that drives cost savings, enables revenue growth and mitigates risk across our clients' entire mortgage business.
These sales efforts over the past few years have resulted in a significant sold pipeline. Previously we had communicated $130 million as of the spinoff date, but based on the significant sales of late, we wanted to provide an update amount and timing.
Based on the latest information we have, the sold pipeline has now grown to approximately $160 million of incremental run rate by the end of 2020. This $160 million represents sold 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 may sign in the future.
Shifting to our areas of focus for 2018, we will be focusing on growing our origination software client base, winning additional home equity deals in servicing, growing and extending our EBI client base and utilizing investment dollars to enhance and evolve our solution. First and foremost, we will be focused on adding top tier originators to our origination software platform.
In fact, we feel confident that another top 20 lender will sign an agreement to use our solution before the end of this year. And we will continue to target our existing relationships in servicing to drive additional origination software signings in 2018.
To put the opportunity in perspective, 16 out of our 68 MSP clients are using or implementing our Empower loan origination system. The remaining 52 would represent a significant share of the total origination market.
By leveraging these relationships along with focusing on the largest non-bank originators with an offering that is unmatched in scalability and functionality we are well-positioned to substantially strengthen our position over the coming years. 2018 will also be a year in which we focus on continuing to increase our home equity market share on MSP.
We ended 2017 with a post implementation pro-forma market share of approximately 30% and will look to build on the momentum I discussed earlier. Innovating and evolving our solutions will be the investment focus for this year.
In addition to building out correspondent functionality within Empower, we are enhancing our offerings to include full process automation, enhance user experience, machine learning capabilities and increase fortification for our solutions in terms of information security and datacenter hardening. Black Knight is the premier provider of software data and analytics to the mortgage and consumer loan, real estate and capital markets verticals and we intent to extend that position year-after-year.
In closing, 2017 was a transformational year for Black Knight that will position us for continued strength in the years to come and 2018 will be another example of Black Knight's position as the premier financial technology and software provider to the industry's key participants. Thank you for your time today.
I'll 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 fourth quarter and full year 2017 financial results and our financial plan for 2018.
Turning to slide three, on a GAAP basis, full year 2017 revenues increased 2.5% to $1,051.6 billion, compared to 2016. Net earnings attributable to Black Knight Inc.
were $182.3 million or $1.47 per diluted share, compared to $45.8 million in 2016 or $0.67 per diluted share in 2016. For the fourth quarter, revenues increased 2% to $267.5 million, compared to $261.5 million in 2016.
Net earnings attributable to Black Knight Inc. were $147.2 million or $0.97 per diluted share, compared to $11.8 million or $0.17 per diluted share in the prior year quarter.
The fourth quarter and full year 2017 GAAP results include a tax benefit of $110.9 million related to the revaluation of our net deferred income tax liabilities to reflect the lower tax rates resulting from the new tax reform legislation passed in December. Turning to slide 4, I'll now discuss our adjusted result for the full year and fourth quarter.
In 2017, adjusted revenues were $1,056 million, an increase of 2% compared to 2016. Adjusted revenues grew 5% excluding the effect of the Property Insight realignment.
Adjusted EBITDA was $505.8 million an increase of 9% compared to 2016. Adjusted EBITDA margin was $47.9 million, an increase of 310 basis points compared to 2016.
Adjusted net earnings was $209.6 million, an increase of 19.5%. Adjusted net earnings per share was $1.38, an increase of 20%.
And finally full year 2017 CapEx was $89.5 million including capital leases entered into during the year. I'll now discuss our adjusted results for the fourth quarter.
During the fourth quarter, adjusted revenues were $268.4 million, an increase of 2% compared to the prior year quarter. Adjusted revenues were up 5% excluding the effect of the Property Insight realignment.
Adjusted EBITDA increased 13% to $131.9 million compared to $116.7 million in the prior year quarter. Adjusted EBITDA margin was 49.1%, an increase of 470 basis points compared to the prior year quarter.
Adjusted net earnings was $56.6 million, an increase of 25% compared to the prior year quarter. Adjusted net earnings per share for the fourth quarter was $0.37, an increase of 23% compared to the prior year quarter.
Adjusted net earnings and adjusted net earnings per share for the fourth quarter and full year 2017 exclude the tax benefit resulting from the new tax reform legislation that I mentioned earlier. Capital expenditures in the fourth quarter totaled $38.3 million.
Turning now to slide five, I'll discuss the Software Solutions segment results. In the fourth quarter adjusted revenues for the Software Solutions segment increased 4% to $228.2 million.
Our servicing software business had adjusted revenue growth of 9%, driven by strong loan growth on our core servicing software solution from new and existing clients, price increases and new client wins. In our origination software business, adjusted revenues declined 17%, primarily due to the decline in refinance originations.
Adjusted EBITDA increased 9% to $135.1 million, while adjusted EBITDA margins was 59.2%, an increase of 240 basis points compared to the prior year quarter. Full year 2017 adjusted revenues increased 4% to $893.8 million and adjusted EBITDA increased 7% to $523 million.
Adjusted EBITDA margin was 58.5%, an increase of 150 basis points compared to 2016. Turning to slide six, in the fourth quarter, adjusted revenues for the Data and Analytics segment, decreased 8% to $40.2 million.
Excluding the impact of the Property Insight realignment, data analytics grew 9%, primarily driven by growth in the property data and multiple listing service businesses. Adjusted EBITDA was $9 million, compared to $4.5 million in the prior year quarter.
Adjusted EBITDA margin was 22.4% in the fourth quarter of 2017, compared to 10.3% in the prior year quarter. Full year 2017 adjusted revenues were $162.3 million, compared to $177.5 million last year.
Excluding the effect of the Property Insight realignment, adjusted revenues grew 10% versus the prior year. Adjusted EBITDA was $31.9 million, compared to $26.5 million and adjusted EBITDA margin was 19.7%, compared to 14.9% in 2016.
Adjusted EBITDA for the Corporate segment in the fourth quarter was flat compared to the prior quarter, reflecting lower incentive based compensation. Adjusted EBITDA for the corporate segment for the full year 2017 was $2.1 million better than in 2016.
Turning to slide seven, I will walk through our capital structure. At the end of December, we had cash and cash equivalents of $16 million.
Total debt principal as of December 31st was $1,449 million. We had revolver bonds outstanding of $55 million and $445 million of borrowing remaining under our revolver.
Our gross leverage ratio was 2.9 times and our net leverage ratio was 2.8 times. Before I discuss our 2018 outlook, I will take a moment to talk about a reporting change for two 2018.
ON January 1st, we realigned the composition of our two reportable segments. Certain enterprise business intelligence offerings will be moved to our Software Solutions segment from our Data and Analytics segment.
This change aligns with our go-to-market strategy and the internal management of our business operations, including the allocation of resources and assessment of performance. The historical segment information recast to reflect this change will be furnished in an 8-K that we will file, after our 10-K is filed later this month.
Turning now to slide eight, I will walk through our outlook for full year 2018. GAAP revenues are expected to be in the range of $1,102 million to $1,122 million.
Adjusted revenues are expected to be in the range of $1,105 million to $1,125 million. Adjusted EBITDA is expected to be in the range of $530 million to $545 million and adjusted EPS is expected to be in a range of $1.73 to $1.81.
Before I walk through some modeling details, I will go through a few items reflected in our outlook. First, we are now expecting to record any processing or implementation revenues in 2018 related to the Bank of America MSP implementation, based on the current timeline.
As we have talked about before, while we are not highly correlated to market volumes, our guidance assumes a little less than 1 percentage point headwind, the anticipate decline in origination and default volumes. And 2018 will also include approximately $5 million of incremental expenses related to certain corporate functions that we are taking over following the spinoff from FNF.
Additional modeling details underlying our outlook are as follows. We currently expect interest expense of approximately $52 million to $54 million.
Depreciation and amortization expense of $120 million excluding the net incremental depreciation and amortization, resulting from purchase accounting, an adjusted effective tax rate of approximately 27%, and finally FX of approximately $100 million. Although, we do not provide quarterly guidance, but I want to provide you with some color as how we expect to progress through the year.
We expect to grow revenues in the first quarter of 2018, to grow about 3% compared to the first quarter of last year and we expect EBITDA to grow about 4%. For the remainder of the year, we would expect to see growth accelerate from Q1 to Q2 and then be more consistent in the third quarter and fourth quarter compared to the prior year on a quarterly basis.
Overall we are pleased with our fourth quarter and full year results and look forward to another good year for Black Knight in 2018. Before we turn out the call over to the operator for questions, Bill would like to take a moment to discuss today's announcement.
William Foley
Thanks, Kirk. As many of you read earlier Anthony Jabbour will be assuming the role of Chief Executive Officer for Black Knight.
Anthony has a proven track record of growing businesses, establishing and extending client relationships and managing large complex technology operations. I've known Anthony and worked with him for over 14 years.
I am confident that Anthony and the rest of the management team will take the company to the next level. Tom and the team have done an excellent job of creating a strategy and structure for our company that has not only increased shareholder value, but has set a course for future success.
Tom has always exceeded our expectations and we're grateful for his many contributions. I look forward to Tom's input and his involvement with our Board of Directors.
With that operator, please open the line for Q&A.
Operator
At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jason Deleeuw from Piper Jaffray.
Please proceed with your question.
Jason Deleeuw
Hello, thanks for taking the question. And Tom it's been nice working with you congrats on a new move and welcome aboard, Anthony looking forward to working with you.
Tom Sanzone
Thank you, Jason.
Jason Deleeuw
The first question just on the BFA implementation I guess to the extent that you can give us any additional color is that just a push out of the implementation or is there any extra color you can give us on that?
Tom Sanzone
Yes, it's just an extension of the date as we've talked about in the past, there is conversions in general highly complex and at a company like BFA their size and scope it's even more complex. So it's a shifting of the date, but the same dynamics.
Jason Deleeuw
And is that in the $160 million of planned implementations of $160 million of revenue by the end of 2020?
Tom Sanzone
It is, yes.
Jason Deleeuw
Got it, thanks. And there was a headwind of 1.5% of revenue roughly maybe a little more in 2017 on implementation delays is that expected to flow through in 2018 in the guidance?
Tom Sanzone
Well, the 1.5% Jason was relative to our expectations when we set forth at the beginning of 2017. Now that a year has passed things have moved around with multiple implementations and in some cases it's moved between years.
So that 1.5% really has more - it's just part of the 160 that's going to meter out over the next several years.
Jason Deleeuw
Got it, thank you.
Operator
Our next question is with Andrew Jeffrey with SunTrust. Please proceed with your question.
Andrew Jeffrey
Thanks. Appreciate you taking the question, Tom it's been excellent working with you.
Tom Sanzone
Thank you.
Andrew Jeffrey
When I look at BI sort of broadly, sounds like you're having some success there are there some metrics or data points that you could share with us as to maybe some of the success in ROI that your customers are enjoying on the data hub or with the BI platform generally. I'm just trying to frame that up from a sort of sustainable growth standpoint?
Tom Sanzone
Well, listen Kirk, in his remarks, he talked about moving that product into the platform. So let me explain why we're doing that, just like in a car the data hub now with the analytics on top, series of analytics on top of the data hub is going to become standard equipment in both our servicing and origination platforms.
And that's been a natural kind of progression that we've experienced. It's a core element of our service and origination offering.
But in particular when you have - Andrew, when you have like enterprise clients now you'll see that those deals have the data hub. And as an example the recent one was Citi and we really think that this product is our core differentiator - one of our core differentiators in why we're going to be very successful in converting these enterprise clients.
Because if you think about it Black Knight is the only company that really can deliver a mortgage platform from right from front to back, from a smartphone all the way through servicing and if necessary default. The data hub and the analytics product is the heart or the brain of that whole operation.
So we can for clients bring all that data from the origination of that, beginning of the origination of the loan all the way through servicing and all those transactions into a consolidated data hub. And then allow clients to run pretty sophisticated analytics on top of that platform that really breakdown into 3 categories.
One, I'd say the first is revenue retention and revenue generation; second, would be operational efficiency and excellence; and third, would be risk and compliance. So this is a core differentiator for us and is really going to be packaged as part of our offering going forward in both platforms.
So specifically on the data hub, we could probably generate some items overtime, but really we're looking at these deals as bundles now. And the data hub and its capabilities are bundled in these new sales and in renewals.
Andrew Jeffrey
Okay. And is it safe to say that the accounting changes, the realignment is more a reflection of what you just described rather than some leading indicator of changing your go-to-market?
Tom Sanzone
Yes, it's exactly what I just described. It was a product that was initially an innovation and kind of a bet we were making on a particular product space that we thought had a lot of upside.
And now with the feedback from clients and our success in the market, we've now made it a standard offering in our product line.
Andrew Jeffrey
Okay. And then one more follow up if I may, with regard to the 52 customers that are current LOS customers, how do those breakdown between Empower and Empower Now.
How much of penetration of those customers will be reliant on a move down market versus fort of further penetration of this sort of traditional Empower Now customer base.
Tom Sanzone
Yes, I would say that the vast majority are in the higher tier, Andrew.
Andrew Jeffrey
Okay, thank you.
Operator
Our next question is with Tien-Tsin Huang with JPMorgan. Please proceed with your questions.
Tien-Tsin Huang
Thanks so much. And Tom, my best to you as well, thanks for everything.
Just a couple of question I think mostly on the outlook. Just on the - I guess, the revenue guidance at the midpoint's below sort of your long-term target.
I heard the comments, but anything else that might push you below sort of your long-term target? I'm curious if we're just logically thinking about 2019, would it be reasonable to expect that we'd be at the higher end or maybe even above sort of your long-term targets.
I am just trying to reconcile those two items.
Kirk Larsen
Yes, Tien-Tsin I think the story with 2018 it's somewhat the last of the headwind from the decline in refinance volumes that absent that would you'd be much more in the range of the low-to-midpoint of the long-term guidance range. So I think that's a 2018 issue that will abate because certainly as refinance originations are down 40% or so and then down another 29% as projected.
The large numbers is working with us on that one; the numbers is getting smaller so less of a headwind. And then it just comes down to the timing implementation.
I mean, as you look at how that $160 million will meter out. Certainly there is a chunk of it in 2018, but it actually really does go out over the next several years with actually the amount being larger in 2020 than it even is in 2018 with obviously a nice plug as well in 2019.
So I think the way that $160 million will meter out it's actually a platform for growth around our guidance range for the next several years. So actually we're pretty excited about that the fact that we have been excited about having that sort of implementation pipeline, obviously timing we'd always like it come quicker versus later.
But it's visibility out the next several years that I think is pretty rare in the market. But it really in 2018 there is some - it's really about the refinance volumes, and then someone-timers from early 2017, that were growing through as well, that at the midpoint it would look something more like the midpoint of our long-term guidance range versus the lower end.
Tien-Tsin Huang
Got it. No, that makes sense.
And the earnings power is big I guess for the $160 million and it's up. So we'll just watch the timing.
But as my follow up, I guess, same question for the margins. If I did the math right Kirk it looks like 30 bps of margin expansion for 2018 and for 2017 also a little below your long-term target.
I heard the $5 million is there anything else to drive the delta there?
Kirk Larsen
Yes the other piece and I alluded to it in the section on corporate would be the lower incentive compensation. With the results for 2017 coming below our initial guidance, you can imagine that had an effect on incentive based compensation.
And so if you were to add that back that's probably in the area of where the corporate costs are, if not maybe a bit bigger. And if you sort of exempt those and normalize for those, you actually would be squarely in the middle towards the higher end of our guidance range, which is - the leverage in the model is there, it absolutely is there it really comes down to some of those anomalous things like, if you adjust for the corporate costs, you are squarely in the middle of that 50 to 100 basis point range.
And then if you adjust for the other piece, like I said you'll be at the high-end. So there is really is no change, we're continuing to have high incremental margin on the revenue growth, there's nothing different about that.
And then we also continue to invest as we talked about and in the remarks and we will continue to do that, that this is a long-term sustainable business modeling. So our goal won't be to have the highest margins we can for a year, but rather looking to the long-term.
But even with those investments, we'd be midpoint to higher end of our guidance range for margin expansion.
Tien-Tsin Huang
Understood, thank you.
Operator
Our next question is with Bill Warmington with Wells Fargo. Please proceed with your question.
Bill Warmington
Good afternoon, everyone. So a question for you on the mortgage exposure.
So within originations, are you guys disproportionally exposed to refi versus purchase, or are you pretty much balanced versus the market?
Kirk Larsen
The piece of the business where we are more affected by refinance originations would be on our exchange platform, that is a - largely driven by refinance volumes, the rest of the business we are a little more agnostic. And so - but as I said as volumes continue to decline it has less and less of an effect relative to where we were a year or two ago.
Bill Warmington
Got it. Okay.
I also wanted to ask about the rise in the CapEx this year growing from $89 million to $100 million, is that level about - first of all to ask about why that's going up and then second to ask if that level of about 9% of revenue is where we should think that's going to stay?
Kirk Larsen
Yes, we don't look at it as a percent of revenue per se, what we do is actually a bottoms up view of where we see primarily investments that we want to make in our products, which then manifest itself as capitalized software and is included in CapEx. And we look at the infrastructure and see how the growth of the business requires additional infrastructure where we have end of life equipment et cetera.
That increase frankly is if you think about the tax rate change going from - for us from 37% to 27% and what effect that has on our profit and cash flow. As we were looking at our projects, frankly we took an opportunity to invest incrementally in our products.
And so we pulled - we looked at some projects that we think are important to the company around platform modernization and digital and some other initiatives and increased our CapEx from $90 million to $100 million, that level is pretty healthy for us. And so as we look forward, I would necessarily assume that that percent of revenue is what we will need as we grow, we're going to each and every year evaluate the projects that we have, make sure that we are investing in the highest return areas and the numbers going to be what it's going to be.
Bill Warmington
Okay. And then also one housekeeping item, it look like deferred revenue was up pretty strongly of about 38%, just wanted to ask, if you could talk a little bit about what's behind that?
Kirk Larsen
That relates to - I mean, that is a function of continued growth of that filled implementation pipeline. So as we charge the implementations, during implementation what we get paid gets deferred as well as the costs.
And then they both get recognized as post go live. And so growth in deferred revenue over time is a very leading - positive leading indicator of future growth.
And so you would expect that would grow as the implementation pipeline grows.
Bill Warmington
Got it. Alright, thank you very much.
Operator
Our next question is with David Ridley-Lane from Bank of America Merrill Lynch. Please proceed with your question.
David Ridley-Lane
…into revenues so this. I did want to ask the question, is there some conservatism that's baked into your revenue guidance?
Have you allowed for more slippage on implementation timelines versus prior years for example?
Kirk Larsen
So as we planned at the midpoint of the range, we have taken into account our best estimate of the implementations. The situation we find ourselves in this year, compared to last year is naturally as time passed, we are further along in those implementations, which would mean, we would expect there would be less variability.
But we certainly made our best estimate as to when those would come, and in some cases little bit of allowing for a bit of slippage because we had seen it before. So we'll see where that comes in, but it kind of gets at the point of before planning at the midpoint what would make this go higher or lower within that range.
And there is an element of implantation timing that could make us go a little bit better and certainly could to go the other direction as well if there are delays. But we don't expect it from - to the degree of what we had last year.
David Ridley-Lane
And then on the $5 million of corporate overhead expenses coming over following the spin-off, are those costs that you could conceivably work down over time or should we think them more as run rate normal course of the business?
Kirk Larsen
There are elements that would be run rate normal course of business things like insurance, but we separated the insurance policies, the director and officer and air and omission those types of things that that I think we did pretty well on, those are pretty run rate par. But certainly as we bring over other corporate functions and build them up initially, we would certainly expect to work towards being more efficient in those areas.
And so without committing to it David, there certainly is that possibility and as we do in all parts of the corporate functions as well as the businesses, we are always going to look to be more efficient and particularly manage the corporate cost as well. And so we would certainly seek to do that.
David Ridley-Lane
And last one for me if I could, within the 2018 guidance, so what's your anticipated growth on the data analytic side?
Kirk Larsen
With the reconstructed of a - or recast Data and Analytics business that does include the enterprise intelligence component, I would expect to be in the low to mid-single digits.
David Ridley-Lane
Understood, thank you very much.
Operator
Our next question is with John Campbell with Stephens, Inc. Please proceed with your question.
John Campbell
Hey guys. Good afternoon.
Tom I'd definitely like to echo since that you are a key part of the successful IPO and getting the company to the point it is today. So great work and best of luck in the future.
But guys just on the guidance, I think there has been a couple of questions around the $160 million of sold pipeline revenue. But Kirk, I don't know if how much you can give us, but just any kind of rough idea of how much of that actually falls into 2018, is it just a sliver or is it half of it?
Kirk Larsen
The way you think about it, as of today and I will caveat that with as of today, I would say a little less than a third is what we would expect to see in 2018, a little bit more than - a little bit less than a quarter in 2019 well less than 25% in 2019, a little bit more than a third in 2020. And then the balance would be in 2021, that's the way we see today as of the implementation timelines that we believe will take place, but subject to change of course.
John Campbell
That's very, very helpful, thank you. And then on origination win that was a fantastic pickup by you guys.
Just curious about kind of what drove that win what was Citi looking for that you guys can provide that other couldn't, any kind of color there?
Tom Sanzone
Yes, as I tried to John highlight in the comments, we made some decisions back four years ago about where we thought we could take the company. And when we look at our assets, our origination business, servicing business, a great servicing franchise, very powerful and then a data and analytics business.
Listen it struck us right away that we could be the only front to back provider of technology in the mortgage at the highest level. So, I mean, I think that's the important part too.
And so when you look at - these guys are going to laugh at me when I give my analogies, but I gave this analogy before. If you look a client like Citi who wants to pick three core technologies for their business.
So you could pick MSP for servicing and you can choose to pick a different vendor for origination and a different vendor for data. The problem is like the body so I give the body analogy the organs.
One of the things the organs need is it need circulatory system to connect them and then it needs the brain to operate them. If you pick a different origination platform than MSP, and you pick MSP and then you pick say core logic as an example in data.
The client has to put the circulatory system together and they have to build the data, they have to build the brand. When you get Black Knight's product offering now, we're differentiated in our ability to not only deliver all the connectivity, but to deliver the data consolidation across both servicing and origination.
And that's why we're so excited John, we are unique in that way. And it took a lot of work, and it a lot of investment, but we integrated the products, we build new products that we didn't have, we acquired products like Motivity as an example for our dashboard and to sit on top of our data hub.
And now we have an offering that frankly no other vender front to back could match. And so I think Citi was very excited about that.
And then the last thing about Black Knight that I continue to stress and this is - it's not something we see in a brochure necessarily, but when you can deliver implementation to Chase and Wells Fargo and Bank of America at those volumes at those scales, right and you have a proven ability to successfully implement and your product has a proven ability to scale, that's a big differentiator and that's Black Knight that's our strength. So we're really excited about that, and the fact that many companies are interested in having this conversations because frankly their focus now not only on risk as they always have been, but they need to get their cost down.
And one of the things we do with that front to back platform is we get their cost down.
John Campbell
Absolutely, thanks for the color, Tom.
Operator
Our next question is with Bose George with KBW. Please proceed with your question.
Bose George
Hey, guys. Actually I wanted to ask about use of capital, you repurchased some share this quarter, and can you just remind us how you think about repurchase versus other uses of capital?
Kirk Larsen
Sure, our approach has been pretty consistent since 2015, which is first and foremost we look to invest in the business, through infrastructure investments and product development. And we talk about the CapEx for 2018 earlier, I mean, the other dimensions are managing our debt balance, which we've done a good job of and we have managed leverage down from 4.5 times down to 2.8 net at the end of the quarter.
So we're focused on that, managing that and then M&A is going to be a focus area for us, it has been we did two deals in 2016 as you know, Bose. So, we continue to look for good assets that can catalyze growth and fill product gaps.
And then share repurchases the other dimension and you saw us do that we bought back $3.2 million shares this year in two different ways. We were in the market pretty regularly in the second quarter and then we had an opportunity when Thomas H.
Lee did a block trade back in November. As we look to this year from a share repurchase perspective, I think you can expect to see us in the market more on an ongoing fashion as oppose to event driven, would be the expectation all the while still looking for assets to add to the products suit that so we can accelerate growth in the business.
Bose George
Okay, great that's helpful, thanks. And then actually switching back to the earlier question on the MSP clients who are not on Empower right now.
So, how many of them are on some other loan operating systems - origination systems, sorry?
Tom Sanzone
What do you mean, I mean, obviously all of them on a different one than Empower.
Bose George
Are on an external system versus working with - or how many of them are using an internal system versus working with other vendors?
Tom Sanzone
I think I can't give you that exact number at the moment that's something we could probably scoop out, but what the reality is the largest ones and the ones we most desire are on internal systems for the most part. So we love that scenario where client is building and supporting an entire platform just for themselves and those business cases are always fairly compiling for us.
So a lot of the big ones have their own. Some of the others frankly have what was the genesis of a third party vendor, but have customized that platform to such a degree that in essence it's also unique to them they need to maintain it.
So that's another big opportunity for us. And then some of them do use other third party competitors.
Bose George
Okay, great and thanks. And just actually one question on the guidance, in the prepared remarks, you just say the headwind from volumes declined in 2018 and in the 2017 it was 1%?
Kirk Larsen
Yes, a little less than 1% from lower origination lower default volumes.
Bose George
Okay, great. Thanks.
Operator
[Operator Instructions] Our next question is with Jim Schneider with Goldman Sachs. Please proceed with your question.
James Schneider
Good afternoon, thanks for taking my question. I was wondering if you can may be comment on, for 2018 what your expectation would be in terms of the amount that pricing and loan growth would contribute positively to revenue understanding that the decline in originations is the 1% headwind.
Kirk Larsen
Yes, so the pricing, we typically have targeted sort of 1.5% to 2% from price and so that's typically where it been, from an organic loan growth perspective we have targeted 3,000 to 5,000 loans and that's typically where it's been the last several years and that's from existing clients. So the growth with new clients would be embedded in that $160 million of sold pipeline that we talked about.
James Schneider
That's helpful, thanks. And then maybe - could you maybe just comment on your ability to kind of organically grow the pipeline, you have done a really good job there with growing from $130 million I guess a year ago to $160 million, do you think that kind of pace of pipeline growth kind of keep up at this stage.
And where do you see kind of incremental share opportunities across origination versus servicing?
Tom Sanzone
Well, I mean, Jim, as you saw from the spinoff date till now not too long the sold pipeline grew nicely, as background information these last two years, I think two years ago was an absolute record for the company in sales and last year was not far behind from the prior year. And so, we've had some really strong sales here the last couple of years and I am pretty optimistic about the pipeline.
We have a demand environment right now that I think plays to Black Knight's strength, obviously in servicing. We continue to add new clients even though our biddings were down, we continue to add new clients to MSP each year.
The home equity opportunity is very strong for us as you know, we are up to when we implement we'll have 30% market share, but we think it's possible to get to similar market shares that we have in the first loans, which should be in 60%, 70% level. We have a bunch of new solutions that are early days our claims products, our loss mitigation product that we're very optimistic about and we are building digital capabilities in servicing as well.
In originations we see interest in the top 10 banks in Empower like MSP is being a nice pipeline in putting equity products on that platform, home equity products. So, it's not just for the straight origination business and now we add home equity as well, we gave some examples.
We have built a digital - well we've work with providers and have the digital capability in the platform in which we get paid for. And we have opportunities in Empower now.
And then lastly in Data and Analytics I mean, we have been very successful and I believe we'll continue to be in cross selling D&A products into our existing origination and servicing clients. I think we've proven that out and I expect that to continue.
And as we mentioned before our data hub is gaining a lot of traction. And very excited about getting that product in some of the largest banks in the country.
James Schneider
Thank you.
Operator
Our next question is with Steven [indiscernible] with William Blair. Please proceed with your questions.
Unidentified Analyst
Hi, thanks for taking my questions. First I know it's recent, but has the origination contract win with Citi, has that pushed the conversations any further with the other top 10 banks or do you think they may wait to see how that plays out?
Tom Sanzone
That's a great question, and I would say that anytime you get an account like that, it makes other ask questions. And to your point, I think it's when you get the deal is one thing, when you implement the deal it's another.
As I mentioned in the opening remarks, when we converted Chase's home equity portfolio at that scale on to MSP and proved it out, that opened up dialog with other large players. And so, I think Steven, all these deals the deal helps and the implementation helps.
And then it builds momentum. I mean, that is frankly how the MSP product grew overtime.
And some of the tipping points, clearly we're doing it at the largest volume the largest scale in the industry.
Unidentified Analyst
Okay, thanks that's helpful. And then it was nice to see some acceleration in the servicing business in the quarter against slightly more difficult comp.
I mean, can you maybe walk through the drivers of the acceleration a 9% from the prior quarter, was there any impact from recent implementations or maybe less of a drag from specialty servicing. Just any color on the acceleration there?
Kirk Larsen
I mean it's - that business is growing based upon loan growth on the platform, which we saw, the obvious price increases and there was an implementation that went live in the fourth quarter. So I think it's a combination of all of that, but we're doing a good job in selling the - selling new solutions on the specialty side as well.
So it's actually a combination of all those things.
Unidentified Analyst
Okay, thanks.
Operator
Our next question with Ashish Sabadra with Deutsche Bank. Please proceed with your questions.
Ashish Sabadra
Thanks. My question was a clarification on the implementation timeline that you gave.
When you talk about one third of the implementation like going live in 2018, you don't necessarily could talking about that much revenues being recognized in 2018 that's still pipeline that goes live and you'll get some of the revenues in 2018, but a good chunk in 2019, is that the right way to think about it?
Kirk Larsen
I was actually splitting the $160 million. I was actually focused on that dollar amount and how that dollar amount would meter out over the next 2018, 2019 and 2020 with the stub in 2021.
So a little less than - what I said was a little less than a third of that we would expect to see in the revenue in 2018.
Ashish Sabadra
Okay. Because a little less than one third would imply somewhere in the range of $50 million of revenues coming from implementation and the guidance implies somewhere around $60 million of incremental revenues at the midpoint.
So my question would does the core only contribute like $10 million? If my numbers are right.
Does the core business prior to any implementation that would only contribute like $10 million if my math is right if my calculations are right.
Kirk Larsen
So the way to think about the bridge Ashish is to say so you've got that that less than a third number. You've got that component, you have the price increase that would be additive there as well.
So you have the market headwind that's little less than a point as we talked about. We've talked in the past about attrition or I'll say non-retention say we talked about retention of call it 99% or so.
There is a little bit there and then the rest of that bridge, there is some one-timers that can vary from year-to-year and then there is a sort of the sell and deliver which maybe is what you're talking of being the core business. I wouldn't necessarily describe it that way.
I'd really call it that's the in-year revenue we need to go sell and deliver that would be the remaining component if you think about it at the midpoint.
Ashish Sabadra
That's helpful. Question on the tax rate as well, so the benefit of the tax reform lowers the tax rate, but companies with 100% U.S.
income tend to have more lower tax rate. Is there anything included in the assumption for a 27% tax rate?
Kirk Larsen
Yes, if you startup our 37%, which is roughly what we were on an adjusted basis for 2017, you have got the 14% reduction in the federal rate. The add-back so to speak would be the benefit for federal purposes of the state tax, because the federal rates going down, the federal benefit for the state income tax is a little bit lower, so that adds about a point.
The elimination of the production activities credit the so called Section 199 deduction that we had been receiving the benefit of that went away, that's a couple of points. And then there is really some other mix in that including the elimination of the 162M exceptions for executive officer compensation, that's call it another point.
So, that's how you get from 37% down to 27%.
Ashish Sabadra
Okay, that's helpful. And maybe one final question is the banks in general have talked about reinvesting like roughly quarter of their tax saving in growth initiative and I believe mortgage would definitely be one of the areas that we would see some investment.
So how should we think about that benefiting Black Knight in terms of potentially more spend on DNA or more software implementation, more features and functionalities being added on to the existing products that banks may adopt?
Tom Sanzone
I think, depending on the client we are seeing, as I mentioned before, we had really good sales last year, we got - we are seeing a really good pipeline this year. I think the clients are in an investment mode.
I think the optimism in the business is up. And, so I think market conditions for us into our client base is that I see a very strong market in 2018.
Ashish Sabadra
Thanks for the color.
Operator
Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the call back over to Kirk Larsen, CFO for closing remarks.
Kirk Larsen
Thank you, we appreciate everyone listening in and thanks again for joining. Have a great rest of your day.