Document

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Emerging growth company o

0001627014-17-000061.txt : 20171102 0001627014-17-000061.hdr.sgml : 20171102 20171102162525 ACCESSION NUMBER: 0001627014-17-000061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171102 DATE AS OF CHANGE: 20171102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Black Knight, Inc. CENTRAL INDEX KEY: 0001627014 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37394 FILM NUMBER: 171172737 BUSINESS ADDRESS: STREET 1: 601 RIVERSIDE AVENUE CITY: JACKSONVILLE STATE: FL ZIP: 32204 BUSINESS PHONE: (904) 854-5100 MAIL ADDRESS: STREET 1: 601 RIVERSIDE AVENUE CITY: JACKSONVILLE STATE: FL ZIP: 32204 FORMER COMPANY: FORMER CONFORMED NAME: Black Knight Financial Services, Inc. DATE OF NAME CHANGE: 20141204 10-Q 1 bk2017q3form10-q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37394

Black Knight, Inc.

______________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Delaware		81-5265638
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

601 Riverside Avenue, Jacksonville, Florida		32204
(Address of principal executive offices)		(Zip Code)

(904) 854-5100

___________________________________________________________________

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

There were 153,469,978 shares outstanding of the Registrant's common stock as of November 1, 2017.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended September 30, 2017

TABLE OF CONTENTS




	Page
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
A. Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2017 and December 31, 2016	1
B. Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three and nine months ended September 30, 2017 and 2016	2
C. Condensed Consolidated Statement of Equity (Unaudited) for the nine months ended September 30, 2017	3
D. Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and 2016	4
E. Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosure About Market Risk	35
Item 4. Controls and Procedures	35
Part II: OTHER INFORMATION	37
Item 1. Legal Proceedings	37
Item 1A. Risk Factors	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	39

Table of Contents

Part I: FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements (Unaudited)

BLACK KNIGHT, INC.

Condensed Consolidated Balance Sheets

(In millions, except share data)



	September 30, 2017		December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	146.2	$	133.9
Trade receivables, net	169.2		155.8
Prepaid expenses and other current assets	42.5		45.4
Receivables from related parties	18.5		4.1
Total current assets	376.4		339.2
Property and equipment, net	165.0		173.0
Computer software, net	422.1		450.0
Other intangible assets, net	248.5		299.5
Goodwill	2,306.8		2,303.8
Other non-current assets	231.2		196.5
Total assets	$	3,750.0	$	3,762.0
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable and other accrued liabilities	$	52.1	$	55.2
Accrued compensation and benefits	39.2		61.1
Current portion of long-term debt	55.1		63.4
Deferred revenues	54.2		47.4
Total current liabilities	200.6		227.1
Deferred revenues	98.1		77.3
Deferred income taxes	301.8		7.9
Long-term debt, net of current portion	1,486.9		1,506.8
Other non-current liabilities	12.5		3.5
Total liabilities	2,099.9		1,822.6
Commitments and contingencies (Note 6)
Equity:
Black Knight, Inc. common stock; $0.0001 par value; 550,000,000 shares authorized; 153,473,895 shares issued and outstanding as of September 30, 2017	—		—
Black Knight, Inc. preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of September 30, 2017	—		—
Black Knight Financial Services, Inc. Class A common stock; $0.0001 par value; 350,000,000 shares authorized; 69,091,008 shares issued and outstanding as of December 31, 2016	—		—
Black Knight Financial Services, Inc. Class B common stock; $0.0001 par value; 200,000,000 shares authorized, 84,826,282 shares issued and outstanding as of December 31, 2016	—		—
Black Knight Financial Services, Inc. preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of December 31, 2016	—		—
Additional paid-in capital	1,594.9		810.8
Retained earnings	54.2		65.7
Accumulated other comprehensive earnings (loss)	1.0		(0.8		)
Total shareholders' equity	1,650.1		875.7
Noncontrolling interests	—		1,063.7
Total equity	1,650.1		1,939.4
Total liabilities and equity	$	3,750.0	$	3,762.0

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(Unaudited)

(In millions, except per share data)



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Revenues	$	263.8		$	267.1		$	784.1		$	764.5
Expenses:
Operating expenses	140.7			152.2			428.2			433.4
Depreciation and amortization	51.3			56.8			154.2			154.2
Transition and integration costs	4.0			1.1			8.5			2.2
Total expenses	196.0			210.1			590.9			589.8
Operating income	67.8			57.0			193.2			174.7
Other income and expense:
Interest expense	(14.1		)	(16.9		)	(44.8		)	(50.6		)
Other expense, net	(0.6		)	(1.4		)	(17.1		)	(6.2		)
Total other expense, net	(14.7		)	(18.3		)	(61.9		)	(56.8		)
Earnings before income taxes	53.1			38.7			131.3			117.9
Income tax expense	9.2			6.3			24.3			19.2
Net earnings	43.9			32.4			107.0			98.7
Less: Net earnings attributable to noncontrolling interests	29.2			21.2			71.9			64.7
Net earnings attributable to Black Knight	$	14.7		$	11.2		$	35.1		$	34.0
Other comprehensive earnings (loss):
Unrealized holding gains (losses), net of tax	0.3			0.4			0.9			(0.9		)
Reclassification adjustments for losses included in net earnings, net of tax (1)	—			0.1			0.2			0.4
Total unrealized gains (losses) on interest rate swaps, net of tax (2)	0.3			0.5			1.1			(0.5		)
Foreign currency translation adjustment	—			0.1			0.1			(0.1		)
Other comprehensive earnings (loss)	0.3			0.6			1.2			(0.6		)
Comprehensive earnings attributable to noncontrolling interests	29.8			22.2			74.1			63.9
Comprehensive earnings	$	44.8		$	34.0		$	110.4		$	97.3

	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Earnings per share:
Net earnings per share attributable to Black Knight common shareholders:
Basic	$	0.22		$	0.17		$	0.52		$	0.52
Diluted	$	0.21		$	0.16		$	0.51		$	0.50
Weighted average shares of common stock outstanding (Note 2):
Basic	67.9			65.9			67.7			65.9
Diluted	68.5			67.9			152.7			67.8

______________________________

(1)

Amounts reclassified to net earnings relate to losses on interest rate swaps and are included in Interest expense on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited). Amount is net of income tax expense of less than $0.1 million for the three months ended September 30, 2017 and $0.1 million for the three months ended September 30, 2016. Amount is net of income tax expense of $0.1 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively.


(2)	Net of income tax expense of $0.2 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively. Net of income tax expense (benefit) of $0.7 million and $(0.3) million for the nine months ended September 30, 2017 and 2016, respectively.

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statement of Equity

(Unaudited)

(In millions)



	Black Knight Financial Services, Inc.								Black Knight, Inc.
	Class A common stock				Class B common stock				Common stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive (loss) earnings			Treasury stock
	Shares		$		Shares		$		Shares	$		Additional paid-in capital			Retained earnings			Accumulated other comprehensive (loss) earnings			Shares		$			Noncontrolling interests			Total equity
Balance, December 31, 2016	69.1		$	—	84.8		$	—	—	$	—	$	810.8		$	65.7		$	(0.8	)	—		$	—		$	1,063.7		$	1,939.4
Issuance of restricted shares of Class A common stock	1.0		—		—		—		—	—		—			—			—			—		—			—			—
Forfeitures of restricted shares of Class A common stock	(0.1	)	—		—		—		—	—		—			—			—			—		—			—			—
Exchange of Class B common stock for Class A common stock	0.2		—		(0.2	)	—		—	—		—			—			—			—		—			—			—
Tax withholding payments for restricted share vesting	(0.1	)	—		—		—		—	—		(4.3		)	—			—			—		—			—			(4.3		)
Purchases of treasury stock	—		—		—		—		—	—		—			—			—			1.2		(46.6		)	—			(46.6		)
Equity-based compensation expense	—		—		—		—		—	—		14.0			—			—			—		—			—			14.0
Net earnings	—		—		—		—		—	—		—			35.1			—			—		—			71.9			107.0
Foreign currency translation adjustment	—		—		—		—		—	—		—			—			0.1			—		—			—			0.1
Unrealized gains on interest rate swaps, net	—		—		—		—		—	—		—			—			1.1			—		—			2.2			3.3
Tax distributions to members	—		—		—		—		—	—		—			—			—			—		—			(75.3		)	(75.3		)
Distribution of FNF's ownership interest and related transactions	(70.1	)	—		(84.6	)	—		153.5	—		774.4			(46.6		)	0.6			(1.2	)	46.6			(1,062.5		)	(287.5		)
Balance, September 30, 2017	—		$	—	—		$	—	153.5	$	—	$	1,594.9		$	54.2		$	1.0		—		$	—		$	—		$	1,650.1

See Notes to Condensed Consolidated Financial Statements (Unaudited).

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)



	Nine months ended September 30,
	2017			2016
Cash flows from operating activities:
Net earnings	$	107.0		$	98.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	154.2			154.2
Amortization of debt issuance costs, bond premium and original issue discount	2.5			2.0
Loss on extinguishment of debt, net	12.6			—
Deferred income taxes, net	4.8			3.7
Equity-based compensation	14.2			9.5
Changes in assets and liabilities, net of acquired assets and liabilities:
Trade and other receivables, including receivables from related parties	(19.9		)	(23.1		)
Prepaid expenses and other assets	3.1			(7.0		)
Deferred contract costs	(35.6		)	(41.1		)
Deferred revenues	27.6			15.8
Trade accounts payable and other accrued liabilities, including accrued compensation and benefits	(30.7		)	(2.2		)
Net cash provided by operating activities	239.8			210.5
Cash flows from investing activities:
Additions to property and equipment	(5.3		)	(24.0		)
Additions to computer software	(37.1		)	(31.9		)
Business acquisitions, net of cash acquired	—			(150.2		)
Other investing activities	(4.0		)	—
Net cash used in investing activities	(46.4		)	(206.1		)
Cash flows from financing activities:
Borrowings	400.0			55.0
Senior Notes redemption	(390.0		)	—
Senior Notes redemption fee	(18.8		)	—
Debt service payments	(25.9		)	(138.0		)
Distributions to members	(75.3		)	(48.5		)
Purchases of treasury stock	(46.6		)	—
Capital lease payments	(11.6		)	—
Tax withholding payments for restricted share vesting	(4.3		)	—
Debt issuance costs	(8.6		)	—
Net cash used in financing activities	(181.1		)	(131.5		)
Net increase (decrease) in cash and cash equivalents	12.3			(127.1		)
Cash and cash equivalents, beginning of period	133.9			186.0
Cash and cash equivalents, end of period	$	146.2		$	58.9

Supplemental cash flow information:
Interest paid	$	(45.2	)	$	(39.6	)
Income taxes paid	$	(13.6	)	$	(16.0	)

See Notes to Condensed Consolidated Financial Statements (Unaudited).

Table of Contents

BLACK KNIGHT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Except as otherwise indicated or unless the context otherwise requires, all references to "Black Knight," the "Company," "we," "us" or "our" (1) prior to the Distribution (as defined in Note 1 — Basis of Presentation), are to Black Knight Financial Services, Inc., a Delaware corporation, and its subsidiaries ("BKFS") and (2) after the Distribution, are to Black Knight, Inc., a Delaware corporation, and its subsidiaries.


(1)	Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission ("SEC") on February 24, 2017.

As a result of the Distribution and the THL Interest Exchange on September 29, 2017 (as defined below), Black Knight, Inc. became the new public company and owns 100% of BKFS, and therefore, there are no longer any noncontrolling interests of BKFS as of September 30, 2017. There was no change to the underlying Black Knight business, and for this reason, there was no change in reporting entity in accordance with GAAP.

Description of Business

Black Knight is a leading provider of software, data and analytics solutions to the mortgage and consumer loan, real estate and capital market verticals. We believe we differentiate ourselves by the breadth and depth of our comprehensive, integrated solutions and the insight we provide to our clients.

Reporting Segments

We conduct our operations through two reporting segments: (1) Software Solutions (formerly known as the Technology segment) and (2) Data and Analytics. See further discussion in Note 8 — Segment Information.

Distribution of FNF's Ownership Interest and Related Transactions

On December 7, 2016, we announced that Fidelity National Financial, Inc.'s ("FNF") board of directors approved a tax-free plan (the "Distribution Plan") whereby FNF intended to distribute all 83.3 million shares of BKFS common stock that it owned to FNF Group shareholders.

On September 29, 2017, the transactions contemplated by the Distribution Plan were consummated through four newly-formed corporations, New BKH Corp. ("New BKH"), Black Knight, Inc. (formerly known as Black Knight Holdco Corp.), New BKH Merger Sub, Inc. ("Merger Sub One") and BKFS Merger Sub, Inc. ("Merger Sub Two"), as follows:


•	Black Knight Holdings, Inc. ("BKHI"), a wholly-owned subsidiary of FNF, contributed all of its 83.3 million shares of BKFS Class B common stock and all of its units of Black Knight Financial Services, LLC ("BKFS LLC") to New BKH in exchange for 100% of the shares of New BKH common stock;


•	Following which BKHI converted into a limited liability company and distributed to FNF all of the shares of New BKH common stock held by BKHI;


•	Immediately thereafter, FNF distributed the shares of New BKH common stock to the holders of FNF Group common stock on a pro-rata basis (the "Spin-off");


•	Immediately following the Spin-off, Merger Sub One merged with and into New BKH (the "New BKH merger");

•

In the New BKH merger, each outstanding share of New BKH common stock (other than shares owned by New BKH) was exchanged for one share of Black Knight, Inc. common stock. New BKH shares owned by New BKH immediately prior to the New BKH merger were canceled for no consideration. As a result of the Spin-Off and the New BKH merger, FNF Group shareholders received 0.3066322 shares of Black Knight, Inc. common stock for each share of FNF Group common stock they held;

Table of Contents

BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)


•	Immediately following the New BKH merger, Merger Sub Two merged with and into Black Knight Financial Services, Inc. (the "BKFS merger");


•	In the BKFS merger, each outstanding share of BKFS Class A common stock (other than shares owned by BKFS) was exchanged for one share of Black Knight, Inc. common stock. Shares of BKFS Class A common stock owned by BKFS, otherwise referred to as treasury stock, immediately prior to the BKFS merger were canceled for no consideration; and


•	Black Knight, Inc. is the public company following the completion of the transactions above which are collectively referred to as the "Distribution".

Shares of Black Knight, Inc. common stock are listed on the New York Stock Exchange under the trading symbol “BKI”, and began trading on October 2, 2017. Under the organizational documents of Black Knight, Inc., the rights of the holders of shares of Black Knight, Inc. common stock are substantially the same as the rights of former holders of BKFS Class A common stock.

On June 8, 2017, Black Knight, Inc., BKFS and certain affiliates of Thomas H. Lee Partners, L.P. ("THL") entered into an interest exchange agreement (the "THL Interest Exchange"). Immediately following the completion of the Distribution, affiliates of THL contributed to Black Knight, Inc. all of their BKFS Class B common stock and all of their BKFS LLC Units in exchange for a number of shares of Black Knight, Inc. common stock equal to the number of shares of BKFS Class B common stock contributed. Following the completion of the Distribution and the THL Interest Exchange, the shares of BKFS Class B common stock were canceled.

For additional details of the effects of the Distribution, the THL Interest Exchange and other related transactions, see "Share Repurchase Plan", "Deferred Compensation Plan", "Employee Stock Purchase Plan", "401(k) Profit Sharing Plan" and "Treasury Shares" within this note, Note 5 — Income Taxes and Note 7 — Equity-Based Compensation.

Consolidation

Prior to the Distribution described above, BKFS LLC was subject to the consolidation guidance related to variable interest entities as set forth in Accounting Standards Codification ("ASC") Topic 810, Consolidation ("ASC 810"). Black Knight, as the sole managing member of BKFS LLC, had the exclusive authority to manage, control and operate the business and affairs of BKFS LLC and its subsidiaries, pursuant to the terms of the Second Amended and Restated Limited Liability Company Agreement ("LLC Agreement"). Under the terms of the LLC Agreement, Black Knight was authorized to manage the business of BKFS LLC, including the authority to enter into contracts, manage bank accounts, hire employees and agents, incur and pay debts and expenses, merge or consolidate with other entities and pay taxes. Because Black Knight was the primary beneficiary through its sole managing member interest and possessed the rights established in the LLC Agreement, in accordance with the requirements of ASC 810, Black Knight controlled BKFS LLC and appropriately consolidated the operations thereof.

We account for noncontrolling interests in accordance with ASC 810. Our Class A shareholders indirectly controlled BKFS LLC through our managing member interest. Our Class B shareholders had a noncontrolling interest in BKFS LLC. Their share of equity in BKFS LLC is reflected in Noncontrolling interests in our Condensed Consolidated Balance Sheets (Unaudited) and their share of net earnings or loss in BKFS LLC is reported in Net earnings attributable to noncontrolling interests in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited). Net earnings attributable to noncontrolling interests do not include expenses incurred directly by Black Knight, including income tax expense attributable to Black Knight.

Subsequent to the Distribution, BKFS LLC is an indirect wholly-owned subsidiary of Black Knight, Inc., and therefore, there are no longer any noncontrolling interests in BKFS LLC.

Realignment of Property Insight

Effective January 1, 2017, Property Insight, LLC ("Property Insight"), a Black Knight subsidiary that provides information used by title insurance underwriters, title agents and closing attorneys to source and underwrite title insurance for real property sales and transfer, realigned its commercial relationship with FNF. In connection with the realignment, Property Insight employees responsible for title plant posting and maintenance were transferred to FNF. Under the new commercial arrangement, Black Knight continues to own the title plant technology and retains sales responsibility for third parties, other than FNF. As a result of the realignment, Black Knight no longer recognizes revenues or expenses related to title plant posting and maintenance, but charges FNF a license fee for use of the technology to access and maintain the title plant data. This transaction did not result in any gain or loss.

Table of Contents

BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

Share Repurchase Program

On January 31, 2017, the BKFS board of directors approved a three-year share repurchase program, effective February 3, 2017, authorizing us to repurchase up to 10 million shares of BKFS Class A common stock from time to time through February 2, 2020, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. There were no repurchases during the third quarter of 2017. During the nine months ended September 30, 2017, we repurchased approximately 1.2 million shares of our BKFS Class A common stock for $46.6 million, or an average of $39.18 per share.

In connection with the Distribution, the Black Knight board of directors approved a share repurchase program authorizing the repurchase of shares of Black Knight, Inc. common stock consistent with the previous BKFS share repurchase program. The timing and volume of share repurchases will be determined by our management based on ongoing assessments of the capital needs of the business, the market price of Black Knight, Inc. common stock and general market conditions. As of September 30, 2017, we had approximately 8.8 million shares remaining under our share repurchase authorization.

THL Secondary Offering

On May 8, 2017, Black Knight announced the pricing of an underwritten secondary offering of 5,000,000 shares of its Class A common stock (the “Offering”) by affiliates of THL pursuant to a shelf registration statement on Form S-3 filed with the SEC on May 8, 2017. Affiliates of THL in the Offering granted the underwriter an option to purchase up to 750,000 additional shares (the “Overallotment Option"). The Offering closed on May 12, 2017, and the full exercise of the Overallotment Option closed on May 18, 2017. The Company did not sell any shares and did not receive any proceeds related to the Offering or Overallotment Option. See Note 3 — Related Party Transactions for the change in ownership percentages related to these transactions.

Cash and Cash Equivalents

Cash and cash equivalents include the following (in millions):



	September 30, 2017		December 31, 2016
Unrestricted:
Cash	$	87.0	$	129.8
Cash equivalents	57.2		1.8
Total unrestricted cash and cash equivalents	144.2		131.6
Restricted cash equivalents (1)	2.0		2.3
Total cash and cash equivalents	$	146.2	$	133.9

_______________

(1) Restricted cash equivalents relate to our subsidiary, I-Net Reinsurance Limited, and are held in trust until the final reinsurance policy is canceled.

Trade Receivables, Net

A summary of Trade receivables, net of allowance for doubtful accounts, as of September 30, 2017 and December 31, 2016 is as follows (in millions):



	September 30, 2017			December 31, 2016
Trade receivables — billed	$	129.1		$	115.4
Trade receivables — unbilled	42.4			42.6
Total trade receivables	171.5			158.0
Allowance for doubtful accounts	(2.3		)	(2.2		)
Total trade receivables, net	$	169.2		$	155.8

Table of Contents

BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

Capital Leases

Black Knight entered into a one-year capital lease agreement commencing January 1, 2017 with a bargain purchase option for certain computer equipment. The leased equipment has a useful life of five years and will be depreciated on a straight-line basis over this period. The leased equipment was valued based on the net present value of the minimum lease payments, which was $8.4 million (net of imputed interest of $0.1 million).

The gross value of assets subject to capital leases was $8.4 million (net of imputed interest of $0.1 million) and $10.0 million (net of imputed interest of $0.1 million) as of September 30, 2017 and December 31, 2016, respectively, and is included in Property and equipment, net on the Condensed Consolidated Balance Sheets (Unaudited). The remaining capital lease obligation of $2.2 million and $5.0 million as of September 30, 2017 and December 31, 2016, respectively, is included in Trade accounts payable and other accrued liabilities on the Condensed Consolidated Balance Sheets (Unaudited). The non-cash investing and financing activity for the nine months ended September 30, 2017 and 2016 was $2.2 million and $8.4 million, respectively, and relates to the unpaid portion of the capital lease obligation.

Deferred Compensation Plan

Prior to the Distribution, certain of our management level employees and directors participated in the FNF Deferred Compensation Plan (the "FNF Plan"). The FNF Plan permits participants to defer receipt of part of their current compensation. Participant benefits for the FNF Plan are provided by a funded rabbi trust. The compensation withheld from FNF Plan participants, together with investment income on the FNF Plan, was recorded as a deferred compensation obligation to participants. The underlying rabbi trust and the related liability was historically carried by FNF. As a result of the Distribution, the liability to Black Knight participants in the FNF Plan, as well as the related assets of the funded rabbi trust, were transferred to the newly-formed Black Knight Deferred Compensation Plan (the "Black Knight Plan") in a non-cash transaction. The terms of the Black Knight Plan are consistent with the terms of the former FNF Plan. As of September 30, 2017, the assets of the funded rabbi trust of $11.5 million are included in Other non-current assets, $10.2 million of the related liability is included in Other non-current liabilities and $1.2 million of the related liability is included in Trade accounts payable and other accrued liabilities on the Condensed Consolidated Balance Sheets (Unaudited).

Employee Stock Purchase Plan

Effective July 20, 2015, we adopted the Black Knight Financial Services, Inc. Employee Stock Purchase Plan (the "ESPP"). On September 29, 2017, the board of directors of Black Knight, Inc. approved, and Black Knight, Inc. assumed the ESPP and renamed it the Black Knight, Inc. Employee Stock Purchase Plan. There were no changes to the terms of the ESPP.

401(k) Profit Sharing Plan

Prior to the Distribution, our employees participated in a qualified 401(k) plan sponsored by FNF. As a result of the Distribution, our employees no longer participate in this plan sponsored by FNF. Our indirect subsidiary, Black Knight InfoServ, LLC ("BKIS"), adopted and established the Black Knight 401(k) Profit Sharing Plan (the “Black Knight 401(k) Plan”), effective September 29, 2017. The terms of the Black Knight 401(k) Plan are consistent with the terms of the 401(k) plan sponsored by FNF.

Treasury Shares

Shares held in treasury at the time of the Distribution were canceled for no consideration. In connection with this transaction, we made a policy election to charge the cost in excess of par value to Retained earnings when we cancel or retire repurchased shares.

Equity-Based Compensation

During the first quarter of 2017, Black Knight adopted Accounting Standards Update ("ASU") 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). In connection with this adoption, we made a policy election to account for forfeitures as they occur. The adoption of this ASU did not have a material effect on our business, financial condition or our results of operations.

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Depreciation and Amortization

Depreciation and amortization on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) include the following (in millions):



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Property and equipment	$	7.3	$	7.2	$	21.7	$	21.4
Computer software	21.2		20.6		62.4		57.5
Other intangible assets	16.9		20.5		50.9		56.2
Deferred contract costs	5.9		8.5		19.2		19.1
Total	$	51.3	$	56.8	$	154.2	$	154.2

Deferred contract costs amortization for the nine months ended September 30, 2017 includes accelerated amortization of $3.3 million recorded in the first quarter related to certain deferred implementation costs. Deferred contract costs amortization for the three and nine months ended September 30, 2016 includes accelerated amortization of $2.9 million.

Transition and Integration Costs

Transition and integration costs during the three and nine months ended September 30, 2017 primarily represent legal and professional fees related to the Distribution. Transition and integration costs during the three and nine months ended September 30, 2016 primarily represent acquisition-related costs.

2016 eLynx Acquisition

On May 16, 2016, Black Knight completed the acquisition of eLynx Holdings, Inc. ("eLynx"). The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair value of the acquired Computer software and Other intangible assets was determined using a third-party valuation based on significant estimates and assumptions, including level 3 inputs, which are judgmental in nature. These estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting the risk inherent in the future cash flows and future market prices. These estimates for the eLynx acquisition were finalized in the first quarter of 2017. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed on the acquisition date.

During the first quarter of 2017, adjustments were recorded to the following (in millions):



Goodwill	$	3.0
Computer software	(2.6		)
Accrued compensation and benefits	(0.3		)
Other intangible assets	(0.1		)

The goodwill adjustment of $3.0 million is included in the Software Solutions segment. An adjustment of $0.5 million to Depreciation and amortization was recorded in the first quarter of 2017 related to the changes in provisional values.

Recent Accounting Pronouncements

Revenue Recognition (ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"))

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which was codified as ASC 606. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The guidance requires a five-step analysis of transactions to determine when and how revenue is recognized based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. The FASB has issued several additional ASUs since this time that add additional clarification. All of the new standards are effective for the Company on January 1, 2018.

In preparation for adoption of ASC 606, we formed a project team and engaged a third-party professional services firm to assist us with our evaluation. We are applying an integrated approach to analyzing ASC 606's impact on our pattern of revenue

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recognition, including a review of accounting policies and practices, evaluating differences from applying the requirements of the new standard to our contracts and business practices and assessing the need for changes to our processes, accounting systems and design of internal controls. Based upon our assessment to date, we currently do not anticipate a material change to the pattern of revenue recognition related to revenue earned from the majority of our Software Solutions segment hosted software arrangements, Data and Analytics segment arrangements with transaction or volume-based fees or perpetual license arrangements in our Software Solutions and Data and Analytics segments. However, due to the complexity of certain of our contracts, including contracts for multiple products and services related to each of our segments, the final determination will be dependent on contract-specific terms.

During the third quarter, we continued our assessment with increased focus on completing certain detailed contract reviews and further identification of data and disclosure requirements, including the effect on our processes, accounting system and design of internal controls. We finalized changes to our revenue recognition and contract costs policies to address differences in treatment resulting from the adoption of the new standard.

While we continue to assess the effect the adoption of ASC 606 will have on our consolidated financial statements, we currently anticipate changes related to the timing of revenue recognition for distinct professional services performed during implementation of certain solutions within our origination software business, which will be recognized over the period the professional services are performed. Moreover, fees for certain post-implementation professional services related to minor customization of hosted software solutions, determined not to be distinct from the hosted software solutions, will be deferred and recognized over the remaining hosted software contract term. In addition, based on the ongoing analysis of contract acquisition and fulfillment costs, we do not expect a significant change to our current practice for capitalizing such costs; however, we anticipate we will amortize certain capitalized contract costs over a longer time period for certain contracts based on the requirements of the new standard. Further, we currently anticipate recognizing the license portion of certain distinct term license arrangements within our Data and Analytics segment upon delivery as opposed to ratably over the license term. For contracts where the promised software license and ongoing services are not distinct from each other, the timing of revenue recognition will be over time, which is consistent with the treatment under the current revenue recognition standard.

We are still in the process of quantifying the effects ASC 606 will have on our consolidated financial statements.

The standard allows companies to use either a full retrospective or a modified retrospective adoption approach. We currently anticipate adopting the new standard using the modified retrospective transition approach. Our decision to adopt using the modified retrospective transition approach is dependent on the completion of our analysis of the effect the adoption of ASC 606 will have on our results of operations, financial position and related disclosures.

Other Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU expands and refines hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This update also includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. This ASU is effective in fiscal years beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the effect the adoption of this ASU will have on our consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This ASU is effective prospectively in fiscal years beginning after December 15, 2017 with early adoption permitted. We do not expect this update to have a material effect on our results of operations or our financial position.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 of the goodwill impairment test that required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit's carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update is effective prospectively for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, or those beginning after January 1, 2017 if early adopted. We do not expect this update to have a material effect on our results of operations or our financial position.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU enhances the reporting model and addresses certain aspects

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of recognition, measurement, presentation and disclosure for financial instruments. This ASU is effective in fiscal years beginning after December 15, 2017. Early adoption of this ASU is not permitted. We do not expect this update to have a material effect on our results of operations or our financial position.

(2) Earnings Per Share

Basic earnings per share is computed by dividing Net earnings attributable to Black Knight by the weighted-average number of shares of common stock outstanding during the period.

Prior to the Distribution, potentially dilutive securities include unvested restricted stock awards and the shares of BKFS Class B common stock. The numerator in the diluted net earnings per share calculation is adjusted to reflect our income tax expense at an expected effective tax rate assuming the conversion of the shares of BKFS Class B common stock into shares of BKFS Class A common stock on a one-for-one basis, prior to the Distribution, for the nine months ended September 30, 2017. The expected effective tax rate for the nine months ended September 30, 2017 was 41.1%, including certain discrete items recorded during the period. The denominator includes approximately 84.4 million shares of BKFS Class B common stock outstanding for the nine months ended September 30, 2017. However, the approximately 83.7 million shares of BKFS Class B common stock for the three months ended September 30, 2017 and 84.8 million shares of BKFS Class B common stock for the three and nine months ended September 30, 2016 have been excluded in computing diluted net earnings per share because including them on an "if-converted" basis would have an anti-dilutive effect. The denominator also includes the dilutive effect of approximately 0.6 million shares of unvested restricted shares of common stock for the three and nine months ended September 30, 2017, respectively, and approximately 2.0 million and 1.9 million shares for the three and nine months ended September 30, 2016, respectively.

The shares of Class B common stock did not share in the earnings or losses of Black Knight and were, therefore, not participating securities. Accordingly, basic and diluted net earnings per share of Class B common stock have not been presented.

The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts):



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Basic:
Net earnings attributable to Black Knight	$	14.7	$	11.2	$	35.1	$	34.0
Shares used for basic net earnings per share:
Weighted average shares of common stock outstanding	67.9		65.9		67.7		65.9
Basic net earnings per share	$	0.22	$	0.17	$	0.52	$	0.52

Diluted:
Earnings before income taxes					$	131.3
Income tax expense excluding the effect of noncontrolling interests					54.0
Net earnings					$	77.3
Net earnings attributable to Black Knight	$	14.7	$	11.2			$	34.0
Shares used for diluted net earnings per share:
Weighted average shares of common stock outstanding	67.9		65.9		67.7		65.9
Dilutive effect of unvested restricted shares of common stock	0.6		2.0		0.6		1.9
Weighted average shares of Class B common stock outstanding	—		—		84.4		—
Weighted average shares of common stock, diluted	68.5		67.9		152.7		67.8
Diluted net earnings per share	$	0.21	$	0.16	$	0.51	$	0.50

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(3) Related Party Transactions

We are party to certain related party agreements, including those with FNF and THL. The following table sets forth the ownership interests of FNF, THL and other holders of Black Knight common stock (shares in millions):



	September 30, 2017			December 31, 2016
	Shares	Ownership Percentage		Shares	Ownership Percentage
Black Knight, Inc. common stock:
THL and its affiliates	35.1	22.9	%	—	—	%
Restricted shares	1.9	1.2	%	—	—	%
Other, including those publicly traded	116.5	75.9	%	—	—	%
Total shares of Black Knight, Inc. common stock	153.5	100.0	%	—	—	%
BKFS Class A common stock:
THL and its affiliates	—	—	%	39.3	25.5	%
Restricted shares	—	—	%	2.9	1.9	%
Other, including those publicly traded	—	—	%	26.9	17.5	%
Total shares of Class A common stock	—	—	%	69.1	44.9	%
BKFS Class B common stock:
FNF subsidiary	—	—	%	83.3	54.1	%
THL and its affiliates	—	—	%	1.5	1.0	%
Total shares of Class B common stock	—	—	%	84.8	55.1	%
Total shares of BKFS common stock	—	—	%	153.9	100.0	%

As a result of the Distribution as described in Note 1 — Basis of Presentation, FNF no longer has an ownership interest in Black Knight as of September 30, 2017. FNF is still considered to be a related party primarily due to the combination of certain shared board members, members of senior management and various agreements.

Transactions with FNF and THL are described below.

FNF

We have various agreements with FNF and certain FNF subsidiaries to provide software, data and analytics services, as well as corporate shared services and information technology. We are also a party to certain other agreements under which we incur other expenses or receive revenues from FNF.

A detail of the revenues and expenses, net from FNF is set forth in the table below (in millions). The decrease in Revenues from the prior year period are primarily the result of the Property Insight realignment as described in Note 1 — Basis of Presentation.



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Revenues	$	13.8	$	19.2	$	43.2	$	53.4
Operating expenses	3.4		3.8		9.8		11.5
Guarantee fee	—		0.9		1.2		2.9

We paid to FNF a guarantee fee of 1.0% of the outstanding principal of the Senior Notes (as defined in Note 4 — Long-Term Debt) in exchange for the ongoing guarantee by FNF of the Senior Notes. The guarantee fee is included in Interest expense on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited). On April 26, 2017, the Senior Notes were redeemed (see Note 4 — Long-Term Debt for further information), and we are no longer required to pay a guarantee fee.

FNF subsidiaries held $48.9 million and $49.3 million as of September 30, 2017 and December 31, 2016, respectively, of principal amount of our Term B Loan (as defined in Note 4 — Long-Term Debt) from our credit agreement dated May 27, 2015, as amended.

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THL

Two managing directors of THL currently serve on our Board of Directors. We purchase software and systems services from certain entities over which THL exercises control.

A detail of the expenses, net from THL is set forth in the table below (in millions):



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Operating expenses	$	—	$	0.2	$	0.2	$	1.0
Software and software-related purchases	—		—		—		1.1

Certain affiliates of THL held $39.4 million of principal amount of our Term B Loan (as defined in Note 4 — Long-Term Debt) as of December 31, 2016 from our credit agreement dated May 27, 2015. They did not hold any of our debt as of September 30, 2017.

Revenues and Expenses

A detail of related party items included in Revenues is as follows (in millions):



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Data and analytics services	$	5.7	$	12.3	$	18.4	$	34.2
Servicing, origination and default software services	8.1		6.9		24.8		19.2
Total related party revenues	$	13.8	$	19.2	$	43.2	$	53.4

A detail of related party items included in Operating expenses (net of expense reimbursements) is as follows (in millions):



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Data entry, indexing services and other operating expenses	$	1.4		$	2.4		$	3.9		$	7.3
Corporate services	2.4			2.4			7.4			7.6
Technology and corporate services	(0.4		)	(0.8		)	(1.3		)	(2.4		)
Total related party expenses, net	$	3.4		$	4.0		$	10.0		$	12.5

Additionally, related party prepaid fees were less than $0.1 million as of September 30, 2017 and $0.1 million as of December 31, 2016. These fees are included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets (Unaudited). Finally, related party deferred revenues were $1.0 million as of September 30, 2017, which are included in current Deferred revenues on the Condensed Consolidated Balance Sheets (Unaudited).

We believe the amounts earned from or charged by us under each of the foregoing arrangements are fair and reasonable. We believe our service arrangements are priced within the range of prices we offer to third parties, except for certain corporate services provided to an FNF subsidiary and certain corporate services provided by FNF, which are at cost. However, the amounts we earned or that were charged under these arrangements were not negotiated at arm's length, and may not represent the terms that we might have obtained from an unrelated third party.

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(4) Long-Term Debt

Long-term debt consisted of the following (in millions):



	September 30, 2017										December 31, 2016
	Principal		Debt Issuance Costs			Discount			Total		Principal		Debt Issuance Costs			Premium (Discount)			Total
Term A Loan	$	1,017.1	$	(7.5	)	$	—		$	1,009.6	$	740.0	$	(7.0	)	$	—		$	733.0
Term B Loan	391.0		(2.6		)	(1.5		)	386.9		394.0		(3.4		)	(0.8		)	389.8
Revolving Credit Facility	150.0		(4.5		)	—			145.5		50.0		(3.7		)	—			46.3
Senior Notes, issued at par	—		—			—			—		390.0		—			11.1			401.1
Total long-term debt	1,558.1		(14.6		)	(1.5		)	1,542.0		1,574.0		(14.1		)	10.3			1,570.2
Less: Current portion of long-term debt	55.5		(0.4		)	—			55.1		64.0		(0.6		)	—			63.4
Long-term debt, net of current portion	$	1,502.6	$	(14.2	)	$	(1.5	)	$	1,486.9	$	1,510.0	$	(13.5	)	$	10.3		$	1,506.8

Principal maturities as of September 30, 2017 for each of the next five years and thereafter are as follows (in millions):



2017 (remaining)	$	13.9
2018	55.5
2019	81.3
2020	107.0
2021	132.7
Thereafter	1,167.7
Total	$	1,558.1

Scheduled maturities noted above exclude the effect of the debt issuance costs of $14.6 million as well as $1.5 million original issue discount.

Credit Agreement

On May 27, 2015, BKIS entered into a credit and guaranty agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto and the other agents and lenders party thereto. The Credit Agreement provided for (i) an $800.0 million term loan A facility (the "Term A Loan"), (ii) a $400.0 million term loan B facility (the "Term B Loan") and (iii) a $400.0 million revolving credit facility (the "Revolving Credit Facility", and collectively with the Term A Loan and Term B Loan, the "Facilities"). The Facilities are guaranteed by substantially all of BKIS's wholly-owned domestic restricted subsidiaries and BKFS LLC, and are secured by associated collateral agreements that pledge a lien on virtually all of BKIS's assets, including fixed assets and intangible assets, and the assets of the guarantors.

As of September 30, 2017, the Term A Loan and the Revolving Credit Facility bear interest at the Eurodollar rate plus a margin of 175 basis points, and the Term B Loan bears interest at the Eurodollar rate plus a margin of 225 basis points, subject to a Eurodollar rate floor of 75 basis points. As of September 30, 2017, we have $350.0 million capacity on the Revolving Credit Facility and pay an unused commitment fee of 25 basis points. During the nine months ended September 30, 2017, there were $100.0 million of incremental borrowings and no payments on our Revolving Credit Facility and $55.0 million of borrowings and $105.0 million of payments during the nine months ended September 30, 2016. As of September 30, 2017, the interest rates on the Term A Loan, Term B Loan and Revolving Credit Facility were 3.00%, 3.50% and 3.00%, respectively.

After September 30, 2017, we made payments of $150.0 million on our Revolving Credit Facility, which increased our available capacity to $500.0 million.

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Term B Loan Repricing

On February 27, 2017, BKIS entered into a First Amendment to Credit and Guaranty Agreement (the "Credit Agreement First Amendment") with JPMorgan Chase Bank, N.A. as administrative agent. Pursuant to the Credit Agreement First Amendment, the Term B Loan bears interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of 125 basis points, or (ii) the Eurodollar rate plus a margin of 225 basis points, subject to a Eurodollar rate floor of 75 basis points. The Term B Loan matures on May 27, 2022. In addition, the Credit Agreement First Amendment permitted the Distribution. The amount included in Other expense, net on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) related to the Term B Loan repricing was $1.1 million.

Term A Loan and Revolver Refinancing

On April 26, 2017, BKIS entered into a Second Amendment to Credit and Guaranty Agreement (the “Credit Agreement Second Amendment”) with the JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. The Credit Agreement Second Amendment increases (i) the aggregate principal amount of the Term A Loan by $300.0 million to $1,030.0 million and (ii) the aggregate principal amount of commitments under the Revolving Credit Facility by $100.0 million to $500.0 million. The Credit Agreement Second Amendment also reduces the pricing applicable to the loans under the Term A Loan and Revolving Credit Facility by 25 basis points and reduces the unused commitment fee applicable to the Revolving Credit Facility by 5 basis points. The Term A Loan and Revolving Credit Facility bear interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of between 25 and 100 basis points depending on the total leverage ratio of BKFS LLC and its restricted subsidiaries on a consolidated basis (the “Consolidated Leverage Ratio”) and (ii) the Eurodollar rate plus a margin of between 125 and 200 basis points depending on the Consolidated Leverage Ratio, subject to a Eurodollar rate floor of zero basis points. In addition, BKIS will pay an unused commitment fee of between 15 and 30 basis points on the undrawn commitments under the Revolving Credit Facility, also depending on the Consolidated Leverage Ratio. Pursuant to the terms of the Credit Agreement Second Amendment, the Term A Loan and the Revolving Credit Facility mature on February 25, 2022. The amount included in Other expense, net on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) related to the Term A Loan and Revolving Credit Facility refinancing was $3.3 million.

Senior Notes

Through April 25, 2017, BKIS had 5.75% Senior Notes, interest paid semi-annually, which were scheduled to mature on April 15, 2023 (the "Senior Notes"). The Senior Notes were senior unsecured obligations, registered under the Securities Act and contained customary affirmative, negative and financial covenants, and events of default for indebtedness of this type (with grace periods, as applicable, and lender remedies). On April 26, 2017, we redeemed the outstanding Senior Notes at a price of 104.825% (the "Redemption") and paid $0.7 million in accrued interest. The amount included in Other expense, net on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) related to the Senior Notes redemption was $8.2 million.

Fair Value of Long-Term Debt

The fair value of our Facilities approximates their carrying value at September 30, 2017. The fair value of our Facilities is based upon established market prices for the securities using level 2 inputs.

Interest Rate Swaps

On September 6, 2017, we entered into an interest rate swap agreement to hedge forecasted monthly interest rate payments on $200.0 million of our floating rate debt (the "September 2017 Swap Agreement"). Under the terms of the September 2017 Swap Agreement, we receive payments based on the 1-month LIBOR rate (equal to 1.25% as of September 30, 2017) and pay a fixed rate of 1.69%. The effective term for the September 2017 Swap Agreement is September 29, 2017 through September 30, 2021.

On March 7, 2017, we entered into an interest rate swap agreement to hedge forecasted monthly interest rate payments on $200.0 million of our floating rate debt (the "March 2017 Swap Agreement"). Under the terms of the March 2017 Swap Agreement, we receive payments based on the 1-month LIBOR rate (equal to 1.25% as of September 30, 2017) and pay a fixed rate of 2.08%. The effective term for the March 2017 Swap Agreement is March 31, 2017 through March 31, 2022.

On January 20, 2016, we entered into two interest rate swap agreements to hedge forecasted monthly interest rate payments on $400.0 million of our floating rate debt ($200.0 million notional value each) (the "January 2016 Swap Agreements", and together with the March 2017 Swap Agreement and September 2017 Swap Agreement, the "Swap Agreements"). Under the terms of the January 2016 Swap Agreements, we receive payments based on the 1-month LIBOR rate (equal to 1.25% as of September 30, 2017) and pay a weighted average fixed rate of 1.01%. The effective term for the January 2016 Swap Agreements is February 1, 2016 through January 31, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

We entered into the Swap Agreements to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated these Swap Agreements as cash flow hedges. A portion of the amount included in Accumulated other comprehensive earnings (loss) is reclassified into Interest expense as a yield adjustment as interest payments are made on the hedged debt. The fair value of our Swap Agreements is based upon level 2 inputs. We have considered our own credit risk when determining the fair value of our Swap Agreements.

The estimated fair values of our Swap Agreements are as follows (in millions):



Balance Sheet Account	September 30, 2017		December 31, 2016
Other non-current assets	$	3.7	$	—
Other non-current liabilities	$	1.8	$	2.2

As of September 30, 2017, a cumulative gain of $1.9 million ($1.1 million net of tax) is reflected in Accumulated other comprehensive earnings (loss). As of December 31, 2016, a cumulative loss of $1.0 million ($0.6 million net of tax) is reflected in Accumulated other comprehensive earnings (loss), and a cumulative loss of $1.2 million is reflected in Noncontrolling interests. Below is a summary of the effect of derivative instruments on amounts recognized in Other comprehensive earnings (loss) ("OCE") on the accompanying Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three months ended September 30, 2017 and 2016 (in millions):



	Three months ended September 30, 2017				Three months ended September 30, 2016
	Amount of Gain Recognized in OCE		Amount of Loss Reclassified from Accumulated OCE into Net earnings		Amount of Gain Recognized in OCE		Amount of Loss Reclassified from Accumulated OCE into Net earnings
Swap agreements
Attributable to noncontrolling interests	$	0.5	$	0.1	$	0.7	$	0.3
Attributable to Black Knight	0.3		—		0.4		0.1
Total	$	0.8	$	0.1	$	1.1	$	0.4

Below is a summary of the effect of derivative instruments on amounts recognized in other comprehensive earnings ("OCE") on the accompanying Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the nine months ended September 30, 2017 and 2016 (in millions):



	Nine months ended September 30, 2017				Nine months ended September 30, 2016
	Amount of Gain Recognized in OCE		Amount of Loss Reclassified from Accumulated OCE into Net earnings		Amount of Loss Recognized in OCE			Amount of Loss Reclassified from Accumulated OCE into Net earnings
Swap agreements
Attributable to noncontrolling interests	$	1.7	$	0.5	$	(1.6	)	$	0.8
Attributable to Black Knight	0.9		0.2		(0.9		)	0.4
Total	$	2.6	$	0.7	$	(2.5	)	$	1.2

Approximately $0.3 million ($0.2 million net of tax) of the balance in Accumulated other comprehensive earnings (loss) as of September 30, 2017 is expected to be reclassified into Interest expense over the next 12 months.

It is our policy to execute such instruments with credit-worthy banks and not to enter into derivative financial instruments for speculative purposes. As of September 30, 2017, we believe our interest rate swap counterparties will be able to fulfill their obligations under our agreements, and we believe we will have debt outstanding through the various expiration dates of the swaps such that the occurrence of future cash flow hedges remains probable.

(5) Income Taxes

Our effective tax rate for the three months ended September 30, 2017 and 2016 was 17.3% and 16.3%, respectively, and 18.5% and 16.3% for the nine months ended September 30, 2017 and 2016, respectively. These rates are lower than the typical federal and state statutory rate because of the effect of our noncontrolling interests prior to the Distribution. The increase in the effective tax rate for the nine months ended September 30, 2017 is primarily driven by the resolution of a legacy tax matter, partially offset by the effect of adopting ASU 2016-09 related to the income tax effects of awards that vested.

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BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

As a result of the Distribution and the THL Interest Exchange, there are no longer any noncontrolling interests. Black Knight has determined that the Distribution represents a significant, unusual transaction or infrequently occurring event, and therefore, it is appropriate to exclude the taxes for the period prior to the Distribution from the estimated annual effective tax rate. The taxes for such items are individually computed and recognized as they occur.

Prior to the Distribution and THL Interest Exchange, the net deferred tax liability of Black Knight was primarily related to its investment in BKFS LLC. Following the Distribution, Black Knight indirectly owns 100% of BKFS LLC and has recorded a non-cash transaction resulting in an increase of $288.4 million to Deferred income taxes with an offset to Additional paid-in capital on the Condensed Consolidated Balance Sheets (Unaudited) to reflect the difference in the tax and financial reporting basis of the Company’s assets and liabilities. The components of deferred tax assets and liabilities as of September 30, 2017 primarily relate to intangible assets, deferred contract costs, deferred revenues, property and equipment, equity-based compensation and deferred compensation.

As a result of the Distribution, Black Knight recorded an $8.3 million contingent tax liability for an uncertain tax position that was previously recorded at BKHI. As part of the Distribution, a tax matters agreement was entered into by FNF and Black Knight. The agreement outlines requirements for items such as the filing of pre and post-spin tax returns, payment of tax liabilities, entitlements of refunds and certain other tax matters. Under the tax matters agreement with FNF, Black Knight has an indemnification receivable for the full amount of the contingent tax liability included in Receivables from related parties on the Condensed Consolidated Balance Sheets (Unaudited).

Pursuant to the tax matters agreement with FNF, we are obligated to indemnify FNF for (i) any action by Black Knight, or the failure to take any action within our control that negates the tax-free status of the transactions; or (ii) direct or indirect changes in ownership of Black Knight equity interests that cause the Distribution to be a taxable event to FNF as a result of the application of Section 355(e) of the Internal Revenue Code (“IRC”) or to be a taxable event as a result of a failure to satisfy the “continuity of interest” or “device” requirements for tax-free treatment under Section 355 of the IRC. No such events have occurred.

We record interest and penalties related to income taxes, if any, as a component of Income tax expense on the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).

Tax Distributions

Prior to the Distribution, the taxable income of BKFS LLC was allocated to its members, including BKFS, and the members were required to reflect on their own income tax returns the items of income, gain, deduction and loss and other tax items of BKFS LLC that were allocated to them. BKFS LLC made tax distributions to its members for their allocable share of BKFS LLC's taxable income. Tax distributions are calculated based on allocations of income to a member for a particular taxable year without taking into account any losses allocated to the member in a prior taxable year. This practice is consistent with IRS regulations. Subject to certain reductions, tax distributions are generally made based on an assumed tax rate equal to the highest combined marginal federal, state and local income tax rate applicable to a U.S. corporation. BKFS LLC made tax distributions of $75.3 million and $48.5 million during the nine months ended September 30, 2017 and 2016, respectively. The 2017 tax distributions were for the 2016 tax year and 2017 tax year relating to the period before the Distribution.

(6) Commitments and Contingencies

Legal and Regulatory Matters

In the ordinary course of business, we are involved in various pending and threatened litigation and regulatory matters related to our operations, some of which include claims for punitive or exemplary damages. Our ordinary course litigation includes purported class action lawsuits, which make allegations related to various aspects of our business. From time to time, we also receive requests for information from various state and federal regulatory authorities, some of which take the form of civil investigative demands or subpoenas. Some of these regulatory inquiries may result in the assessment of fines for violations of regulations or settlements with such authorities requiring a variety of remedies. We believe that none of these actions depart from customary litigation or regulatory inquiries incidental to our business.

We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings where it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending cases is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.

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BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

Indemnifications and Warranties

We often agree to indemnify our clients against damages and costs resulting from claims of patent, copyright, trademark infringement or breaches of confidentiality associated with use of our software through software licensing agreements. Historically, we have not made any payments under such indemnifications, but continue to monitor the conditions that are subject to the indemnifications to identify whether a loss has occurred that is both probable and estimable that would require recognition. In addition, we warrant to clients that our software operates substantially in accordance with the software specifications. Historically, no costs have been incurred related to software warranties and none are expected in the future, and as such, no accruals for warranty costs have been made.

Indemnification Agreement

We are party to a cross-indemnity agreement dated December 22, 2014 with ServiceLink Holdings, LLC ("ServiceLink"). Pursuant to this agreement, ServiceLink indemnifies us from liabilities relating to, arising out of or resulting from the conduct of ServiceLink's business or any action, suit or proceeding in which we or any of our subsidiaries are named by reason of being a successor to the business of Lender Processing Services, Inc. and the cause of such action, suit or proceeding relates to the business of ServiceLink. In return, we indemnify ServiceLink for liabilities relating to, arising out of, or resulting from the conduct of our business.

(7) Equity-Based Compensation

On February 3, 2017, we granted 884,570 restricted shares of our Class A common stock with a grant date fair value of $37.90 per share, which was based on the closing price of our common stock on the date of grant. Of the 884,570 restricted shares granted, 203,160 restricted shares vest over a three-year period and 681,410 restricted shares vest over a four-year period. The vesting of all the restricted shares granted on February 3, 2017 is also based on certain operating performance criteria.

During the third quarter of 2017, we granted 98,194 restricted shares of our Class A common stock with a grant date fair value ranging from $41.90 to $42.25, which was based on the closing price of our common stock on the date of grant. These vest over a two-year period.

Restricted stock transactions in 2017 are as follows:



	Shares		Weighted Average Grant Date Fair Value
Balance, December 31, 2016	2,908,374		*
Granted	982,764		$	38.31
Forfeited	(123,824	)	$	34.42
Vested	(1,840,719	)	*
Balance, September 30, 2017	1,926,595		*

______________________________

The BKFS LLC profits interest units that were converted into restricted shares in connection with our initial public offering had a weighted average grant date fair value of $2.10 per unit. The fair value of the restricted shares at the date of conversion, May 20, 2015, was $24.50 per share. The original grant date fair value of the vested restricted shares, which were originally granted as profits interests units, was $2.01 per unit.

Equity-based compensation expense was $4.1 million and $3.4 million for the three months ended September 30, 2017 and 2016, respectively, and $14.2 million and $9.5 million for the nine months ended September 30, 2017 and 2016, respectively. These expenses are included in Operating expenses in the Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited).

Total unrecognized compensation cost was $44.3 million as of September 30, 2017 and is expected to be recognized over a weighted average period of approximately 2.6 years.

Omnibus Plan

The Black Knight Financial Services, Inc. 2015 Omnibus Incentive Plan (the "BKFS Omnibus Plan") was established in 2015 and is now titled the “Black Knight, Inc. Amended and Restated 2015 Omnibus Incentive Plan” (the "Black Knight Omnibus Plan"). The Black Knight Financial Services, Inc. board of directors adopted the Black Knight Omnibus Plan as of September 29, 2017, and the Black Knight Omnibus Plan was assumed by Black Knight, Inc. on September 29, 2017.

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BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)

(8) Segment Information

ASC Topic 280, Segment Reporting ("ASC 280") establishes standards for reporting information about segments and requires that a public business enterprise reports financial and descriptive information about its segments. Segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Black Knight’s chief executive officer is identified as the CODM as defined by ASC 280. To align with the internal management of our business operations based on service offerings, our business is organized into two segments:


•	Software Solutions - offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Software Solutions segment was formerly known as the Technology segment.


•	Data and Analytics - offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, prepayment and default models, lead generation and other data solutions.

Separate discrete financial information is available for these two segments and the operating results of each segment are regularly evaluated by the CODM in order to assess performance and allocate resources. We use EBITDA as the primary profitability measure for making decisions regarding ongoing operations. EBITDA is earnings before Interest expense, Income tax expense and Depreciation and amortization. We do not allocate Interest expense, Other expense, net, Income tax expense, equity-based compensation and certain other items, such as purchase accounting adjustments and acquisition-related costs to the segments, since these items are not considered in evaluating the segments' overall operating performance.

Summarized financial information concerning our segments is shown in the tables below (in millions):



	Three months ended September 30, 2017
	Software Solutions		Data and Analytics		Corporate and Other				Total
Revenues	$	224.5	$	40.3	$	(1.0	)	(1)	$	263.8
Expenses:
Operating expenses	93.0		32.7		15.0				140.7
Transition and integration costs	—		—		4.0				4.0
EBITDA	131.5		7.6		(20.0		)		119.1
Depreciation and amortization	24.3		3.7		23.3			(2)	51.3
Operating income (loss)	107.2		3.9		(43.3		)		67.8
Interest expense									(14.1		)
Other expense, net									(0.6		)
Earnings before income taxes									53.1
Income tax expense									9.2
Net earnings									$	43.9

_______________________________________________________

Note: The Software Solutions segment was formerly known as the Technology segment.


(1)	Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.


(2)	Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP.

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BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)



	Three months ended September 30, 2016
	Software Solutions		Data and Analytics		Corporate and Other				Total
Revenues	$	221.0	$	47.6	$	(1.5	)	(1)	$	267.1
Expenses:
Operating expenses	95.9		39.2		17.1				152.2
Transition and integration costs	—		—		1.1				1.1
EBITDA	125.1		8.4		(19.7		)		113.8
Depreciation and amortization	29.0		2.1		25.7			(2)	56.8
Operating income (loss)	96.1		6.3		(45.4		)		57.0
Interest expense									(16.9		)
Other expense, net									(1.4		)
Earnings before income taxes									38.7
Income tax expense									6.3
Net earnings									$	32.4

_______________________________________________________

Note: The Software Solutions segment was formerly known as the Technology segment.


(1)	Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.


(2)	Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP.



	Nine months ended September 30, 2017
	Software Solutions		Data and Analytics		Corporate and Other				Total
Revenues	$	665.6	$	122.1	$	(3.6	)	(1)	$	784.1
Expenses:
Operating expenses	277.7		99.2		51.3				428.2
Transition and integration costs	—		—		8.5				8.5
EBITDA	387.9		22.9		(63.4		)		347.4
Depreciation and amortization	74.9		11.0		68.3			(2)	154.2
Operating income (loss)	313.0		11.9		(131.7		)		193.2
Interest expense									(44.8		)
Other expense, net									(17.1		)
Earnings before income taxes									131.3
Income tax expense									24.3
Net earnings									$	107.0

Balance sheet data:
Total assets	$	3,153.4	$	352.0	$	244.6			$	3,750.0
Goodwill	$	2,115.0	$	191.8	$	—			$	2,306.8

_______________________________________________________

Note: The Software Solutions segment was formerly known as the Technology segment.


(1)	Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.


(2)	Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP.

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BLACK KNIGHT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)



	Nine months ended September 30, 2016
	Software Solutions		Data and Analytics		Corporate and Other				Total
Revenues	$	636.6	$	133.7	$	(5.8	)	(1)	$	764.5
Expenses:
Operating expenses	273.2		111.7		48.5				433.4
Transition and integration costs	—		—		2.2				2.2
EBITDA	363.4		22.0		(56.5		)		328.9
Depreciation and amortization	80.2		6.5		67.5			(2)	154.2
Operating income (loss)	283.2		15.5		(124.0		)		174.7
Interest expense									(50.6		)
Other expense, net									(6.2		)
Earnings before income taxes									117.9
Income tax expense									19.2
Net earnings									$	98.7

Balance sheet data:
Total assets	$	3,225.6	$	353.4	$	134.5			$	3,713.5
Goodwill	$	2,108.7	$	191.8	$	—			$	2,300.5

_______________________________________________________

Note: The Software Solutions segment was formerly known as the Technology segment.


(1)	Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.


(2)	Depreciation and amortization for Corporate and Other primarily represents net incremental depreciation and amortization adjustments associated with the application of purchase accounting recorded in accordance with GAAP.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Except as otherwise indicated or unless the context otherwise requires, all references to "Black Knight," the "Company," "we," "us" or "our" (1) prior to the Distribution (as defined in Note 1 — Basis of Presentation), are to Black Knight Financial Services, Inc., a Delaware corporation, and its subsidiaries and (2) after the Distribution, are to Black Knight, Inc., a Delaware corporation, and its subsidiaries.

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including statements regarding expectations, hopes, intentions or strategies regarding the future. Forward-looking statements are based on Black Knight management's beliefs, as well as assumptions made by, and information currently available to, them. 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. Black Knight, Inc. ("Black Knight," the "Company," "we," "us" or "our") undertakes 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:


•	security breaches against our information systems;


•	our ability to maintain and grow our relationships with our customers;


•	changes to the laws, rules and regulations that affect our and our customers' businesses;


•	our ability to adapt our services to changes in technology or the marketplace;


•	the effect of any potential defects, development delays, installation difficulties or system failures on our business and reputation;


•	changes in general economic, business, regulatory and political conditions, particularly as they affect the mortgage industry;


•	risks associated with the availability of data;


•	the effects of our substantial leverage on our ability to make acquisitions and invest in our business;


•	our ability to successfully integrate strategic acquisitions;


•	risks associated with our spin-off from FNF, including limitations on our strategic and operating flexibility as a result of the tax-free nature of the spin-off; and


•	other risks and uncertainties detailed in the "Statement Regarding Forward-Looking Information," "Risk Factors" and other sections of our Annual Report on Form 10-K for the year ended December 31, 2016 and other filings with the Securities and Exchange Commission ("SEC").

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 24, 2017.

History

Black Knight is a leading provider of software, data and analytics solutions to the mortgage and consumer loan, real estate and capital market verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle, from origination until asset disposition. We believe we differentiate ourselves by the breadth and depth of our comprehensive, integrated solutions and the insight we provide to our clients. Black Knight was a majority-owned subsidiary of Fidelity National Financial, Inc. ("FNF") prior to the Distribution as described in the "Distribution of FNF's Ownership Interest and Related Transactions" section below.

Overview

We have market-leading positions in mortgage processing and software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage originators and mortgage servicers, as well as other financial institutions, investors and real estate professionals, to support mortgage lending and servicing operations, analyze portfolios and properties, operate more efficiently, meet regulatory compliance requirements and mitigate risk.

The U.S. mortgage market is undergoing significant change, and mortgage market participants have been subjected to more stringent oversight in recent years. Regulators have increasingly focused on better disclosure, improved risk mitigation and enhanced oversight. Mortgage lenders large and small have experienced higher costs in order to comply with this higher level of regulation. Despite these new regulatory requirements, the mortgage industry remains a competitive marketplace with numerous large lenders and smaller institutions competing for new loan originations. In order to comply with the increased regulatory requirements and compete more effectively, mortgage market participants have continued to outsource mission-critical functions to third party technology providers that can offer comprehensive and integrated solutions, which are also cost-effective, due to their deep domain expertise and economies of scale.

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We believe our comprehensive end-to-end, integrated solutions differentiate us from other software providers serving the mortgage industry and position us particularly well for evolving opportunities in this market. We have served the mortgage and real estate industries for over 50 years and utilize this experience to design and develop solutions that fit our clients’ ever-evolving needs. Our proprietary software solutions and data and analytics capabilities reduce manual processes, improve compliance and quality, mitigate risk and deliver significant cost savings to our clients. Our scale allows us to continually and cost-effectively invest in our business in order to meet evolving industry requirements and maintain our position as an industry-standard platform for mortgage market participants.

The table below summarizes active first and second lien mortgages on our mortgage servicing software solution and the related market data, reflecting our leadership in the mortgage servicing software solutions market (in millions):



	First lien mortgages						Second lien mortgages
	as of September 30,						as of September 30,
	2017			2016			2017			2016
Active loans	31.5			31.2			1.9			1.1
Market size	51.0		(1)	50.7		(1)	15.4		(2)	15.7		(2)
Market share	62	%		61	%		12	%		7	%

_______________________________________________________

Note: Percentages above may not recalculate due to rounding.


(1)	According to the August Black Knight Mortgage Monitor Report as of August 31, 2017 and 2016 for U.S. first lien mortgages.


(2)	According to the July 2017 Equifax National Consumer Credit Trends Report as of June 30, 2017 and September 30, 2016 for U.S. second lien mortgages.

Our business is organized into two segments:


•	Software Solutions - offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Software Solutions segment was formerly known as the Technology segment.


•	Data and Analytics - offers data and analytics solutions to the mortgage, real estate and capital markets verticals. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, prepayment and default models, lead generation and other data solutions.

We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital market verticals. The quality and breadth of our solutions contribute to the long-standing nature of our relationships with our clients, the majority of whom enter into long-term contracts across multiple products that are embedded in their mission critical workflow and decision processes. Given the contractual nature of our revenues and stickiness of our client relationships, our revenues are highly visible and recurring in nature. Due to our integrated suite of solutions and our scale in the mortgage market, we are able to drive significant operating leverage, which we believe enables our clients to operate more efficiently while allowing us to generate strong margins and cash flow.

Business Trends and Conditions

General

The U.S. mortgage market is large, and the loan life cycle is complex and consists of several stages. The mortgage loan life cycle includes origination, servicing and default. Mortgages are originated to finance home purchases or refinance existing mortgages. Once a mortgage is originated, it is serviced on a periodic basis by mortgage servicers, which may not be the lenders that originated the mortgage. Furthermore, if a mortgage experiences default, it triggers a set of multifaceted processes with an assortment of potential outcomes depending on a mix of variables.

Underlying the three major components of the mortgage loan life cycle are the software and data and analytics support behind each process, which has become increasingly critical to industry participants due to the complexity of regulatory requirements. As the industry has grown in complexity, participants have responded by outsourcing to large scale specialty providers, automating manual processes and seeking end-to-end solutions that support the processes required to manage the entire mortgage loan life cycle.

The U.S. mortgage market has seen significant change over the past few years and is expected to continue to evolve going forward. Key regulatory actions arising from the recent financial crisis, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and the establishment of the Consumer Financial Protection Bureau ("CFPB"), impose new and evolving standards for market participants. These regulatory changes have spurred lenders and servicers to seek technology solutions that facilitate the meeting of compliance obligations in the face of a changing regulatory environment while remaining efficient and profitable.

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•

Evolving regulation. Most U.S. mortgage market participants have become subject to increased regulatory oversight and regulatory requirements as federal and state governments have enacted various new laws, rules and regulations. One example of such legislation is the Dodd-Frank Act, which contained broad changes for many sectors of the financial services and lending industries and established the CFPB, the federal regulatory agency responsible for regulating consumer financial protection within the United States. It is our experience that mortgage lenders have become more focused on minimizing the risk of non-compliance with these evolving regulations and are looking toward technologies and solutions that help them comply with the increased regulatory oversight and requirements.

•

Lenders increasingly focused on core operations. As a result of greater regulatory scrutiny and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe that lenders are increasingly shifting from in-house technologies to solutions with third-party providers who can provide better technology and services more efficiently. Lenders require these vendors to provide best-in-class technology and deep domain expertise and to assist them in maintaining regulatory compliance.

•

Growing role of technology in the U.S. mortgage industry. Banks and other lenders and servicers have become increasingly focused on technology automation and workflow management to operate more efficiently and meet their regulatory guidelines. We believe that vendors must be able to support the complexity of the market, display extensive industry knowledge and possess the financial resources to make the necessary investments in technology to support lenders.

•

Increased demand for enhanced transparency and analytic insight. As U.S. mortgage market participants work to minimize the risk in lending, servicing and capital markets, they rely on the integration of data and analytics with technologies that enhance the decision making process. These industry participants rely on large comprehensive third party databases coupled with enhanced analytics to achieve these goals.

Mortgage Originations

Our various businesses are affected differently by the level of mortgage originations, including refinancing transactions. Our mortgage servicing software solution is minimally affected by varying levels of mortgage originations because it primarily earns revenues based on the total number of mortgage loans it processes, which tend to stay more constant than the market for originations. Our origination software and some of our data businesses may be affected by the volume of real estate transactions and mortgage originations, but many of our client contracts for origination software solutions contain minimum charges.

Economic Conditions

Our various businesses may also be affected by general economic conditions. For example, in the event that a difficult economy or other factors lead to a significant decline in levels of home ownership and a significant reduction in the number of mortgage loans outstanding and we are not able to counter the effect of those events with increased market share or higher fees, it could have a material adverse effect on our mortgage processing revenues. In contrast, we believe that a weaker economy tends to increase the volume of consumer mortgage defaults, which can increase the revenues in our specialty servicing software business that is used to service residential mortgage loans in default. Also, interest rates tend to decline in a weaker economy driving higher than normal refinance transactions that provide potential volume increases to our origination software offerings, most specifically the Exchange platform.

Distribution of FNF's Ownership Interest and Related Transactions

On December 7, 2016, we announced that FNF's Board of Directors approved a tax-free plan (the "Distribution Plan") whereby FNF intended to distribute all 83.3 million shares of Black Knight common stock that it currently owned to FNF Group shareholders.

On September 29, 2017, the transactions contemplated by the Distribution Plan were consummated (the "Distribution") as described in Note 1 of the Notes to Condensed Consolidated Financial Statements (Unaudited).

Following the closing of the transactions, shares of Black Knight, Inc. common stock are listed on the New York Stock Exchange under the trading symbol “BKI”, and began trading on October 2, 2017. Under the organizational documents of Black Knight, Inc., the rights of the holders of shares of Black Knight, Inc. common stock are substantially the same as the rights of former holders of Black Knight Financial Services, Inc. Class A common stock.

Subsequent to the Distribution and related transactions, Black Knight Financial Services, LLC ("BKFS LLC") is an indirect wholly-owned subsidiary of Black Knight, Inc. and there are no noncontrolling interests in BKFS LLC. In addition, the Up-C structure is no longer in place. As a result, our consolidated statements of operations will reflect a higher effective tax rate more closely aligned with other C-corporations in the U.S. and will no longer reflect net earnings attributable to noncontrolling interests. Had the Distribution taken place on January 1, 2017, our effective tax rate for the nine months ended September 30, 2017 would have been 41.1%, including certain discrete items recorded during the period.

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Realignment of Property Insight

Effective January 1, 2017, Property Insight, LLC ("Property Insight"), a Black Knight subsidiary that provides information used by title insurance underwriters, title agents and closing attorneys to source and underwrite title insurance for real property sales and transfer, realigned its commercial relationship with FNF. In connection with the realignment, Property Insight employees responsible for title plant posting and maintenance were transferred to FNF. Under the new commercial arrangement, Black Knight continues to own the title plant technology and retains sales responsibility for third parties, other than FNF. As a result of the realignment, Black Knight no longer recognizes revenues or expenses related to title plant posting and maintenance, but charges FNF a license fee for use of the technology to access and maintain the title plant data. Had the realignment taken place on January 1, 2016, Black Knight revenues and expenses for 2016 would have been lower by approximately $30 million with essentially no effect to operating income. This transaction did not result in any gain or loss.

Share Repurchase Program

On January 31, 2017, the Black Knight Financial Services, Inc. board of directors approved a three-year share repurchase program, effective February 3, 2017, authorizing us to repurchase up to 10 million shares of Black Knight Financial Services, Inc. Class A common stock. The repurchase program authorized us to purchase Black Knight Class A common stock from time to time through February 2, 2020, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. There were no repurchases during the third quarter of 2017. During the nine months ended September 30, 2017, we repurchased approximately 1.2 million shares of our Class A common stock for $46.6 million, or an average of $39.18 per share.

In connection with the Distribution, the Black Knight board of directors approved a share repurchase program authorizing the repurchase of shares of Black Knight, Inc. common stock consistent with the previous Black Knight Financial Services, Inc. share repurchase program. The timing and volume of share repurchases will be determined by our management based on ongoing assessments of the capital needs of the business, the market price of Black Knight common stock and general market conditions. As of September 30, 2017, we had approximately 8.8 million shares remaining under our share repurchase authorization.

Term B Loan Repricing

On February 27, 2017, Black Knight InfoServ, LLC ("BKIS") entered into a First Amendment to Credit and Guaranty Agreement (the "Credit Agreement First Amendment") with JPMorgan Chase Bank, N.A. as administrative agent. Pursuant to the Credit Agreement First Amendment, the Term B Loan, as described in Note 4 to the Notes to Condensed Consolidated Financial Statements (Unaudited), bears interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of 125 basis points, or (ii) the Eurodollar rate plus a margin of 225 basis points, subject to a Eurodollar rate floor of 75 basis points. The Term B Loan matures on May 27, 2022. In addition, the Credit Agreement First Amendment permitted the Distribution.

Debt Refinancing and Senior Notes Redemption

On April 26, 2017, BKIS entered into a Second Amendment to Credit and Guaranty Agreement (the “Credit Agreement Second Amendment”) with the JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. The Credit Agreement Second Amendment increases (i) the aggregate principal amount of the Term A Loan, as described in Note 4 to the Notes to Condensed Consolidated Financial Statements (Unaudited), by $300.0 million to $1,030.0 million and (ii) the aggregate principal amount of commitments under the Revolving Credit Facility, as described in Note 4 to the Notes to Condensed Consolidated Financial Statements (Unaudited), by $100.0 million to $500.0 million. The Credit Agreement Second Amendment also reduces the pricing applicable to the loans under the Term A Loan and Revolving Credit Facility by 25 basis points and reduces the unused commitment fee applicable to the Revolving Credit Facility by 5 basis points. The Term A Loan and Revolving Credit Facility bear interest at rates based upon, at the option of BKIS, either (i) the base rate plus a margin of between 25 and 100 basis points depending on the total leverage ratio of BKFS LLC and its restricted subsidiaries on a consolidated basis (the “Consolidated Leverage Ratio”) and (ii) the Eurodollar rate plus a margin of between 125 and 200 basis points depending on the Consolidated Leverage Ratio, subject to a Eurodollar rate floor of zero basis points. In addition, BKIS will pay an unused commitment fee of between 15 and 30 basis points on the undrawn commitments under the Revolving Credit Facility, also depending on the Consolidated Leverage Ratio. Pursuant to the terms of the Credit Agreement Second Amendment, the Term A Loan and the Revolving Credit Facility mature on February 25, 2022.

On April 26, 2017, we redeemed the outstanding Senior Notes, as described in Note 4 to the Notes to Condensed Consolidated Financial Statements (Unaudited), at a price of 104.825% (the "Redemption") and paid $0.7 million in accrued interest.

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THL Secondary Offering

On May 8, 2017, Black Knight announced the pricing of an underwritten secondary offering of 5,000,000 shares of its Class A common stock (the “Offering”) by affiliates of Thomas H. Lee Partners, L.P. (“THL”) pursuant to a shelf registration statement on Form S-3 filed with the SEC on May 8, 2017. Affiliates of THL in the Offering granted the underwriter an option to purchase up to 750,000 additional shares (the “Overallotment Option"). The Offering closed on May 12, 2017, and the full exercise of the Overallotment Option closed on May 18, 2017. The Company did not sell any shares and did not receive any proceeds related to the Offering or Overallotment Option. See Note 3 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for the change in ownership percentages related to these transactions.

Results of Operations

Key Performance Metrics

We use Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin for financial and operational decision making and as a means to evaluate period-to-period comparisons. Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures, which we believe are useful for investors in evaluating our overall financial performances. Black Knight believes these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making, including determining a portion of executive compensation.

Adjusted Revenues and Adjusted EBITDA for the Software Solutions and Data and Analytics segments are presented in conformity with Accounting Standards Codification 280, Segment Reporting. These measures are reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, these measures are excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.


•	Adjusted Revenues - We define Adjusted Revenues as Revenues adjusted to include the revenues that were not recorded by Black Knight during the periods presented due to the deferred revenue purchase accounting adjustment recorded in accordance with GAAP. These adjustments are reflected in Corporate and Other.


•	Adjusted EBITDA - We define Adjusted EBITDA as Net earnings, with adjustments to reflect the addition or elimination of certain income statement items including, but not limited to:


◦	Depreciation and amortization;


◦	Interest expense;


◦	Income tax expense;


◦	Other expense, net;


◦	Loss (gain) from discontinued operations, net of tax;


◦	deferred revenue purchase accounting adjustment recorded in accordance with GAAP;


◦	equity-based compensation, including related payroll taxes;