10-K 1 bki2018form10-k.htm 10-K Document
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File No. 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 No.)
 
 
 
601 Riverside Avenue
Jacksonville, Florida 32204
 (Address of principal executive offices, including zip code)
 
(904) 854-5100
 (Registrant’s telephone number,
including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.0001 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ 
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 every Interactive Data File required to be submitted 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 such files).  Yes þ    No o 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
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.
Large accelerated filer þ
 
     Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company o
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 
The aggregate market value of the shares of Black Knight, Inc. common stock held by non-affiliates of the registrant as of June 30, 2018 was $7,534,921,486 based on the closing price of $53.55 as reported by the New York Stock Exchange.
As of February 21, 2019, there were 150,011,919 shares of Black Knight, Inc. common stock outstanding.
The information in Part III hereof is incorporated by reference to the registrant's proxy statement for the fiscal year ended December 31, 2018. The registrant intends to file the proxy statement within 120 days after the close of the fiscal year that is the subject of this Report.
 
 
 
 
 



BLACK KNIGHT, INC.
FORM 10-K
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 



i


Statement Regarding Forward-Looking Information
 The statements contained in this Annual Report on Form 10-K or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, intentions or strategies regarding the future. These statements relate to, among other things, future financial and operating results of Black Knight. In many cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "could," "potential" or "continue," or the negative of these terms and other comparable terminology. Actual results could differ materially from those anticipated in these statements as a result of a number of factors, including, but not limited to the following:
security breaches against our information systems;
changes to our relationships with our top clients, whom we rely on for a significant portion of our revenues and profit;
limitation of our growth due to the time and expense associated with switching from competitors' software and services;
providing credits or refunds for prepaid amounts or contract terminations in connection with our service level commitments;
our ability to offer high-quality technical support services;
our ability to comply with or changes in laws, rules and regulations that affect our and our customers' businesses;
consolidation in our end client market;
regulatory developments with respect to use of consumer data and public records;
efforts by the government to reform or address the mortgage market and current economic environment;
our clients' relationships with government-sponsored enterprises;
our ability to adapt our solutions to technological changes or evolving industry standards;
our ability to compete effectively;
increase in the availability of free or relatively inexpensive information;
our ability to protect our proprietary software and information rights;
infringement on the proprietary rights of others by our applications or services;
our ability to successfully consummate and integrate acquisitions;
our reliance on third parties;
our dependence on our ability to access data from external sources;
our international operations and third-party service providers;
our investment in The Dun & Bradstreet Corporation ("D&B");
our ability to develop widespread brand awareness cost-effectively;
system failures, damage or interruption with respect to our software solutions;
delays or difficulty in developing or implementing new, enhanced or existing mortgage processing or software solutions;
change in the strength of the economy and housing market generally;
our existing indebtedness and any additional significant debt we incur;
the adequacy of our risk management policies and procedures;
our ability to achieve our growth strategies;
litigation, investigations or other actions against us;
the market price of our common stock may be volatile;
future sales of our common stock in the public market;
industry or securities analysts could publish unfavorable or inaccurate information about us;
our charter and bylaws and provisions of Delaware law may discourage or prevent strategic transactions;
our intention not to pay dividends on our common stock for the foreseeable future;
if the spin-off from Fidelity National Financial, Inc. and its subsidiaries ("FNF") (the "Distribution") is treated as a taxable transaction due to our acts or failure to act, we may have a significant indemnity obligation to FNF, which is not limited in amount or subject to any cap;
the possibility that we will forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities; and
restrictions on our ability to pursue potential business opportunities under a non-competition agreement with FNF that we entered in connection with the Distribution.

See "Risk Factors" for a further description of these and other factors. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Annual Report on Form 10-K. Any forward-looking statement made by us in this Annual Report on Form 10-K speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future

1


events or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
Part I
Item 1.
Business
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, 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 ("BKI").
Overview
We are a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital markets verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. We are committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership.
We have market-leading software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage originators and 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.
We believe the breadth and depth of our comprehensive end-to-end, integrated solutions and the insight we provide to our clients differentiate us from other software providers and position us particularly well for emerging opportunities. We have served the mortgage and real estate industries for over 55 years and utilize this experience to design and develop solutions that fit our clients' ever-evolving needs. The cost of origination and servicing are at historically high levels according to the Mortgage Bankers Association ("MBA"). 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 industry requirements and maintain our position as an industry-standard platform for mortgage market participants.
The table below summarizes the number of 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
 
Total first and second lien mortgages
 
2018
 
2017
 
 
2018
 
2017
 
2018
 
2017
Active loans
32.1

 
31.6

 
 
2.5

 
2.0

 
34.6

 
33.6

Market size
51.8

(1)
51.2

(1)
 
13.4

(2)
15.4

(2)
65.2

 
66.6

Market share
62
%
 
62
%
 
 
19
%
 
13
%
 
53
%
 
50
%
_______________________________________________________
(1)
According to the December Black Knight Mortgage Monitor Reports as of December 31, 2018 and 2017 for U.S. first lien mortgages.
(2)
According to the October 2018 and November 2017 Equifax National Consumer Credit Trends Reports as of September 30, 2018 and 2017, respectively, 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.
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, multiple listing service solutions and other data solutions.
We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital markets 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, particularly in the Software Solutions segment. 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, 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 flows.

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Our Markets
The U.S. mortgage market is large, and the loan lifecycle is complex and consists of several stages. The mortgage loan lifecycle 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 lifecycle are the software, data and analytics support behind each process, which has become 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 lifecycle.
Overview of the Markets We Serve
The U.S. mortgage servicing market is comprised of first and second lien mortgage loans. Even through housing downturns, the mortgage servicing market generally remains stable, as the total number of first lien mortgage loans outstanding tends to stay relatively constant. The number of second lien mortgage loans outstanding can vary based on a number of factors including loan-to-value ratios, interest rates and lenders' desire to own such loans.
While delinquent mortgages typically represent a small portion of the overall loan servicing market, the mortgage default process is long and complex and involves multiple parties, a significant exchange of data and documentation and extensive regulatory requirements. Providers in the default process must be able to meet strict regulatory guidelines, which we believe are best met through the use of technology.
The U.S. mortgage origination market consists of both purchase and refinance originations. The mortgage origination process is complex and involves multiple parties, significant data exchange and significant regulatory oversight, which requires a comprehensive, scalable solution developed by a company with substantial industry experience. According to the MBA, the U.S. mortgage origination market for purchase and refinance originations is estimated as follows (in billions):
 
2018
 
2017
 
2016
Mortgage Originations (1):
 
 
 
 
 
Purchase
$
1,185.0

 
$
1,143.0

 
$
1,052.0

Refinance
458.0

 
616.0

 
999.0

Total
$
1,643.0

 
$
1,760.0

 
$
2,051.0

_______________________________________________________
Note: Amounts may not recalculate due to rounding.
(1) The 2018, 2017 and 2016 U.S. mortgage origination market for purchase and refinance originations is estimated by the MBA Mortgage Finance Forecast as of February 11, 2019, October 16, 2018 and January 20, 2018, respectively.
Market Trends
Market trends that have spurred lenders and servicers to seek software solutions are as follows:
Growing role of technology in the U.S. mortgage industry. Banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements. We believe technology providers 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. This includes an enhanced digital experience along with the application of artificial intelligence, robotic process automation and adaptive learning.
Lenders increasingly focused on core operations. As a result of regulatory scrutiny and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe lenders are increasingly shifting from in-house solutions to third-party solutions that provide a more comprehensive and efficient solution. Lenders require these providers to deliver best-in-class solutions and deep domain expertise and to assist them in maintaining regulatory compliance.
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 solutions that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals.
Regulatory oversight. Most U.S. mortgage market participants are subject to a high level of 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 Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which contained broad changes for many sectors of the financial services and lending industries and established the Consumer Financial Protection Bureau ("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 regulatory requirements and are

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looking toward solutions that assist them in complying with their regulatory requirements. In addition, recent high-profile data security incidents have resulted in an increased focus on data security by our clients and our clients' regulators. We expect the industry focus on privacy and data security to continue to increase.
Our Solutions and Services
Our solutions provide clients with a comprehensive, integrated software and workflow management solution set that is supported by data and analytics to enhance capabilities and drive efficiencies while assisting our clients with regulatory compliance.
Software Solutions
Our Software Solutions segment offers leading software and hosting solutions that facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. These solutions primarily consist of mortgage origination and servicing, processing and workflow management software applications coupled with related support and services.
Our clients in this segment are primarily mortgage lenders and servicers. We believe they use our software and services to reduce their operating costs, improve their ability to provide superior customer service and enhance the quality and consistency of various aspects of their mortgage operations. We work with our clients to enhance and integrate our software and services in order to assist them in gaining the greatest value from the solutions we provide.
The primary applications and services within our Software Solutions segment are as follows:
Solution:
 
Description:
MSP®
 
A software as a service application that delivers one central, comprehensive platform for mortgage and home equity loans. MSP® provides servicers the ability to automate all areas of loan servicing, including setup and maintenance, customer service, cashiering, escrow administration, investor accounting and default management. It serves as a core application and database of record for first and second lien mortgages.
 
 
 
BankruptcySM/ ForeclosureSM
 
This flexible and scalable solution can be used for managing and automating the wide range of different workflow processes involving distressed and non-performing loans. It provides a real-time integration with MSP® and increases process efficiencies while increasing processing volumes.
 
 
 
InvoicingSM
 
Sophisticated web-based solution that helps servicers save time and eliminate errors by automating every aspect of the billing and invoice process - from invoice set-up to post payment activities.
 
 
 
Empower®
 
Dynamic, innovative, enterprise-wide loan origination system used by lenders to originate their first mortgages, home equity loans and lines of credit across the retail, wholesale, consumer-direct and correspondent lending channels. It provides functionality for every facet of the origination process, including first and second mortgage products support, loan fulfillment and closing, pre- and post-closing audit and compliance functions, product and pricing, electronic document management and industry-standard interfaces.
 
 
 
LendingSpace®
 
Comprehensive, end-to-end correspondent lending platform designed specifically to support the entire correspondent process. A correspondent loan is a loan that is originated and funded by one lender and sold to another lender who services the loan or sells it on the secondary market. LendingSpace facilitates real-time communication between correspondent loan sellers and purchasers. It standardizes operations, enhances data integrity and helps ensure that process and compliance rules are consistently applied.
 
 
 
ExchangeSM
 
Platform that provides a fully interconnected network of originators, agents, settlement services providers and mortgage investors in the U.S. It currently connects lenders with more than 25,000 service providers. This secure and integrated solution allows lenders and their service providers to connect and do business electronically.
 
 
 
Expedite®
 
A suite of products and services used by lenders, title underwriters, settlement agents and real estate professionals to automate and streamline internal business processes, manage compliance and accelerate the application-to-close cycle. Expedite’s data-enriched “transaction workspace” enables all participants to seamlessly interact throughout real estate transaction lifecycle.
We build all of our software platforms to be scalable, secure, flexible, standards-based and web-connected for easy use by our clients. Further, we have a history of being able to bring solutions to market quickly due to investments we have made in integrating our software and development processes. Servicing DigitalSM and our artificial intelligence virtual assistant ("AIVASM"), which we acquired through our HeavyWater, Inc. acquisition, are two recent solution initiatives we introduced to the market to offer an enhanced digital experience along with the application of robotic process automation and adaptive learning. A description of each of these solutions is included below:
Servicing DigitalSM - A cutting-edge, interactive, customer-centric solution that delivers detailed, timely and highly personalized information about the value of consumer’s home and the wealth that can be built from the underlying real estate asset. It enables servicers to strengthen their relationship with the customer.

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AIVASM - An artificial intelligence virtual assistant that reads, comprehends and draws conclusions based on context to mimic cognitive thinking and build expertise over time. This scalable solution helps deliver operational efficiencies to reduce turn times and origination costs by automating many of the task-oriented and repetitive manual functions that lenders manage every day and accelerating the speed of processing.
Data and Analytics
Our Data and Analytics segment supports and enhances our software solutions and is designed to help lenders and servicers make more informed decisions, improve performance, identify and predict risk and generate more qualified leads. We believe, based on our knowledge of the industry and competitors, that we have aggregated one of the largest residential real estate data sets in the United States that is derived from both proprietary and public data sources. Utilizing this data, subject to any applicable use restrictions, and our deep history and understanding of the mortgage market, we have created detailed real estate data solutions that assist in portfolio management, valuations, property records, lead generation and improved risk analysis for all aspects of origination, servicing, default and capital markets/investing. In addition, we deliver data, analytics and software solutions to customers in the real estate, title insurance, multiple listing service ("MLS") and other verticals that rely on property data-centric solutions to make informed decisions and run their businesses.
Our primary data and analytics services are as follows:
Property data: A large collection of property information on real estate parcels in the United States. The data is delivered through a variety of distribution mechanisms, including web portals, application programming interfaces, bulk files and through integrations with our proprietary mortgage enterprise software platforms.
Title plant software: A software platform that helps title companies navigate a vast collection of data regarding property ownership, legal, and vesting.
Multiple listing service software solution: A software platform that helps regional Multiple Listing Service Associations manage their local area property listings. The platform also enables membership management.
McDashSM loan data: An extensive repository of mortgage performance data, representing the majority of the mortgage industry. With advanced data-processing capabilities, customized record layouts and flexible delivery options, it offers current, reliable and high-quality information to meet our clients' needs.
AFTSM: Model that forecasts prepayments, default, delinquencies and losses on residential mortgage loans and securities. It allows servicers to enhance their collection strategies through our Dialer Optimizer solution, which offers the capability to risk rank the servicing portfolio based on expected loss and borrower payment pattern using a proven analytical model.
We also recently introduced to the market our Actionable Intelligence Platform ("AIPSM"), a unified framework for delivering actionable intelligence across the loan lifecycle. AIP supports origination, servicing and home equity businesses and is designed to address our clients' revenue, efficiency and compliance initiatives.
Our Competitive Strengths
We believe our competitive strengths include the following:
Market leadership with comprehensive and integrated solutions. We are a leading provider of comprehensive and integrated solutions. We believe our leadership position is, in part, the result of our unique expertise and insight developed from over 55 years serving the needs of clients in the mortgage industry. We have used this insight to develop an integrated and comprehensive suite of proprietary software, data and analytics solutions to automate many of the mission-critical business processes across the entire homeownership lifecycle. These integrated solutions are designed to reduce manual processes, assist in improving organizational compliance and mitigating risk, and to ultimately deliver significant cost savings to our clients.
Broad and deep client relationships with significant recurring revenues. We have long-standing, sticky relationships with our largest clients. We frequently enter into long-term contracts with our software solutions clients that contain a base fee that is contractually obligated. Our products are typically embedded within our clients' mission-critical workflow and decision-making processes across various parts of their organizations.
Extensive data assets and analytics capabilities. We develop and maintain large, accurate and comprehensive data sets on the mortgage and housing industry that we believe are competitively differentiated. Our unique data sets provide a combination of public and proprietary data, and each of our data records features a large number of attributes. Our data scientists utilize our data sets, subject to any applicable use restrictions, and comprehensive analytical capabilities to create highly customized reports, including models of customer behavior for originators and servicers, portfolio analytics for capital markets and government agencies and proprietary market insights for real estate agencies. Our

5


data and analytics capabilities are also embedded into our software solutions and workflow products, providing our clients with integrated and comprehensive solutions.
Scalable and cost-effective operating model. We believe we have a highly attractive and scalable operating model derived from our market leadership, hosted software solutions and the large number of clients we serve. Our scalable operating model provides us with significant benefits. Our scale and operating leverage allows us to add incremental clients to our existing platforms with limited incremental cost. As a result, our operating model drives attractive margins and generates significant cash flow. Also, by leveraging our scale and leading market position, we are able to make cost-effective investments in our software solutions to assist with complex regulatory and compliance requirements, which we believe increases our value proposition to clients.
Our Strategy
Our comprehensive and integrated software solutions, robust data and analytic capabilities, differentiated business model, broad and deep client relationships and other competitive strengths enable us to pursue multiple growth opportunities. We intend to continue to expand our business and grow through the following key strategies:
Cross-sell existing products. We believe our established client base presents a substantial opportunity for growth. We seek to capitalize on the trend of standardization and increased adoption of leading third-party solutions and increase the number of solutions provided to our existing client base. We intend to broaden and deepen our client relationships by cross-selling our suite of end-to-end software solutions, as well as our robust data and analytics. By helping our clients understand the full extent of our comprehensive solutions and the value of leveraging the multiple solutions we offer, we believe we can expand our existing relationships by allowing our clients to focus on their core businesses and their customers.
Win new clients. We intend to attract new clients by leveraging the value proposition provided by our software and comprehensive solutions offering. In particular, we believe there is a significant opportunity to penetrate the mid-tier mortgage originators and servicers market. We believe these institutions can benefit from our proven solutions suite in order to address complex regulatory requirements and compete more effectively in the evolving mortgage market. We intend to continue to pursue this channel and benefit from the low incremental cost of adding new customers to our scalable applications and infrastructure.
Solution development. Our long-term vision is to be the industry-leading provider for participants of the mortgage and consumer loan, real estate and capital markets verticals for their platform, data and analytic needs. We intend to enhance what we believe is a leadership position by continuing to innovate our solutions and refine the insight we provide to our clients. We have a strong track record of introducing and developing new solutions that span the homeownership lifecycle, are tailored to specific industry trends and enhance our clients' core operating functions. By working in partnership with key clients, we have been able to develop and market new and advanced solutions to our client base that meet the evolving demands of the mortgage and consumer loan, real estate and capital markets verticals. In addition, we will continue to develop and leverage insights from our large public and proprietary data assets to further improve our customer value proposition.
Selectively pursue strategic acquisitions. The core focus of our strategy is to grow organically. However, we may selectively evaluate strategic acquisition opportunities that would allow us to expand our footprint, broaden our client base and deepen our product and service offerings. We believe that there are meaningful synergies that result from acquiring small companies that provide best-in-class single point solutions. Integrating and cross-selling these point solutions into our broader client base and integrating acquisitions into our efficient operating environment would potentially result in revenues and cost synergies.
Our Clients
We have numerous clients in each category of service that we offer. A significant focus of our marketing efforts is on the top U.S. mortgage originators and servicers. We also provide our solutions to a number of other financial institutions, investors, attorneys, trustees and real estate professionals.
The U.S. mortgage industry is concentrated among the top 25 mortgage institutions and our most significant and long-term relationships tend to follow the industry landscape. We typically provide an extensive number of solutions to each client. Because of the depth of these relationships, we derive a significant portion of our aggregate revenues from our largest clients.
During the year ended December 31, 2018, Wells Fargo, N.A. accounted for approximately 12% of our consolidated revenues and approximately 13% of our Software Solutions segment revenues. We also had one client that accounted for approximately 14% of our Data and Analytics segment revenues.
During the year ended December 31, 2018, our five largest clients accounted for approximately 34% of our consolidated revenues and approximately 36% of our Software Solutions segment revenues. However, the revenues in each case are spread across a range of services and are subject to multiple, separate contracts. Although the diversity of the services we provide to each

6


of these clients reduces the risk that we would lose all of the revenues associated with any of these clients, a significant deterioration in our relationships with or the loss of any one or more of these clients could have a significant effect on our results of operations. See Item 1A. Risk Factors of Part I of this Report.
Sales and Marketing
Our sales and marketing efforts are focused on both generating new clients as well as cross-selling our broad service offerings to existing clients.
We have teams of experienced sales personnel with subject matter expertise in particular services and in the needs of particular types of clients. A significant portion of our potential clients in each of our business lines is targeted via direct and/or indirect field sales, as well as inbound and outbound telemarketing efforts. Marketing activities include direct marketing, print and electronic advertising, media relations, web-based activities, thought leadership, client meetings and conferences, tradeshow and convention activities and other targeted initiatives.
Given the broad range of solutions we offer and the concentration and scale of many of our existing clients, we have the opportunity to expand our sales to our existing client base through cross-selling efforts. We have established a core team of account managers who cross-sell the full range of our services to existing and potential clients at the top U.S. mortgage originators and servicers, as well as a number of other financial institutions, investors and real estate professionals. The individuals who participate in this effort spend a significant amount of their time on sales and marketing efforts.
We engage in strategic account reviews, during which our executives share their knowledge of clients and the market in order to determine the best sales approach on a client-by-client basis. As a result, we believe we have created an effective cross-selling culture within our organization.
Research and Development
Our research and development activities relate primarily to the design, development and enhancement of our software applications. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems in response to the needs of our clients and to enhance the capabilities surrounding our infrastructure. We work with our clients to determine the appropriate timing and approach to introducing technology or infrastructure changes to our applications and services.
Patents, Trademarks and Other Intellectual Property
We rely on a combination of contractual restrictions, internal security practices and copyright and trade secret laws to establish and protect our software, technology, data and expertise. Further, we have developed a number of brands that have accumulated goodwill in the marketplace, and we rely on the above to protect our rights in that area. We intend to continue our policy of taking all measures we deem necessary to protect our copyright, trade secret and trademark rights.
Competition
A number of the businesses in which we engage are highly competitive. Competitive factors in processing businesses include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services and pricing. We believe that our integrated software solutions and economies of scale in the mortgage processing business provide us with a competitive advantage in each of these categories. Based on our knowledge of the industry and competitors, we also believe that no single competitor offers the depth and breadth of solutions we are able to offer.
Software Solutions. With respect to our Software Solutions segment, we compete with our clients' internal technology departments and other providers of similar systems, such as Ellie Mae, Inc., Sagent Lending Technologies and Mortgage Cadence. Competitive factors include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services and pricing. We believe that our integrated software solutions and economies of scale in the mortgage processing business provide us with a competitive advantage in each of these categories.
Data and Analytics. In our Data and Analytics segment, we primarily compete with CoreLogic, Inc., First American Financial Corporation, in-house capabilities and certain niche providers. We compete based on the breadth and depth of our data, the exclusive nature of some of our key data sets and the capabilities to create highly customized reports. We believe that the quality of the data we offer is distinguished by the broad range of our data sources, including non-public sources, the volume of records we maintain, our ability to integrate our data and analytics with our software solutions and the ability to leverage our market leading position in the mortgage origination and servicing industries.

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Government Regulation
Various aspects of our businesses are subject to federal and state regulations. Our failure to comply with any applicable laws and regulations could result in restrictions on our ability to provide certain services, as well as the possible imposition of civil fines and criminal penalties.
As a provider of electronic data processing to financial institutions, such as banks and credit unions, we are subject to regulatory oversight and examination by the Federal Financial Institutions Examination Council ("FFIEC"), an interagency body of the Federal Reserve Board ("FRB"), the CFPB, the Office of the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC") and various other federal and state regulatory authorities. We also may be subject to possible review by state agencies that regulate banks in each state in which we conduct our electronic processing activities.
Our financial institution clients are required to comply with various privacy laws and regulations under state and federal law, including the Gramm-Leach-Bliley Act. These laws and regulations place restrictions on the use of non-public personal information. All financial institutions must disclose detailed privacy policies to their customers and offer them the opportunity to direct the financial institution not to share information with third parties. The regulations, however, permit financial institutions to share information with non-affiliated parties who perform services for the financial institutions. As a provider of services to financial institutions, we are required to comply with the same privacy regulations and are generally bound by the same limitations on disclosure of the information received from our clients as those that apply to the financial institutions themselves.
The most recent financial crisis resulted in increased scrutiny of all parties involved in the mortgage industry by governmental authorities. This scrutiny has included federal and state governmental review of all aspects of the mortgage lending business, including an increased legislative and regulatory focus on consumer protection practices. Future legislative or regulatory changes are difficult to predict and new laws or regulations that may be implemented by the CFPB or other regulatory bodies may require us to change our business practices or cause us to incur increased costs to comply.
Many consumer advocates, privacy advocates and government regulators believe that existing laws and regulations do not adequately protect privacy or ensure the accuracy of consumer-related data. As a result, they have implemented or are seeking to implement further restrictions, such as the California Consumer Privacy Act ("CCPA"), New York Department of Financial Services Cybersecurity Requirements for Financial Services Companies ("NY DFS Cybersecurity Regulation") and the Vermont Act Relating to Data Brokers and Consumer Protection ("Vermont Data Broker Law"), on the acquisition, dissemination or commercial use of personal information within the public and private sectors and are also contemplating requirements relative to data accuracy and the ability of consumers to opt to have their personal data removed from databases such as ours. We are also subject to these state regulations.
Information Security
We are highly dependent on information technology networks and systems to securely process, transmit and store electronic information. Attacks on information technology systems continue to grow in frequency, complexity and sophistication. Such attacks have become a point of focus for individuals, businesses and governmental entities. These attacks can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information.
We remain focused on making strategic investments in information security to protect our clients and our information systems. This includes both capital expenditures and operating expenses on hardware, software, personnel and consulting services. As our primary solutions and services evolve, we apply a comprehensive approach to the mitigation of identified security risks. We have established risk management policies, including those related to information security and cybersecurity, and we employ a broad and diversified set of risk monitoring and risk mitigation techniques. We also participate in industry and governmental initiatives to improve information security for our clients.
Employees
As of December 31, 2018, we had approximately 4,700 employees and approximately 200 independent contractors. None of our workforce currently is unionized. We have not experienced any work stoppages, and we consider our relations with employees to be good.
Financial Information by Segment
In addition to our two reporting segments, we have a corporate organization that consists primarily of general and administrative expenses that are not included in the other segments. For financial information by reporting segment, see Note 19 to the Notes to Consolidated Financial Statements.
Additional Information
Our website address is www.blackknightinc.com. We make available free of charge on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed

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or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). However, the information found on our website is not part of this or any other report.
Item 1A.
Risk Factors
In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below and others described elsewhere in this Annual Report on Form 10-K. Any of the risks described herein could result in a significant or material adverse effect on our results of operations or financial condition.
If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, or if we are unable to provide adequate security in the electronic transmission of sensitive data, it could have a material adverse effect on our business, financial condition and results of operations.
We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, and the evolving threat landscape can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information. Cyber-based attacks, including those to extort payment in return for the release of sensitive information, are increasing. Unauthorized access, including through use of fraudulent schemes such as "phishing" schemes, could jeopardize the security of information stored in our systems. In addition, malware or viruses could jeopardize the security of information stored or used in a user's computer. If we are unable to prevent or detect such security or privacy breaches, our operations could be disrupted, or we may suffer loss of reputation, financial loss, lawsuits and regulatory imposed restrictions and penalties because of lost or misappropriated information, including sensitive consumer data, which could have a material adverse effect on our business, financial condition and results of operations. Likewise, our clients are increasingly imposing more stringent contractual obligations on us relating to our information security protections. If we are unable to maintain protections and processes at a level commensurate with that required by our large clients, it could negatively affect our relationships with those clients, increase our operating or litigation costs or subject us to liability under those contractual obligations, which could have a material adverse effect on our business, financial condition and results of operations.
We rely on our top clients for a significant portion of our revenues and profits, which makes us susceptible to the same macro-economic and regulatory factors that affect our clients. If these clients are negatively affected by current economic or regulatory conditions or otherwise experience financial hardship or stress, or if the terms of our relationships with these clients change, it could have a material adverse effect on our business, financial condition and results of operations.
Our clients are in a consolidated industry and, as a result, a small number of our clients have accounted for a significant portion of our revenues. We expect that a limited number of our clients will continue to represent a significant portion of our revenues for the foreseeable future. The significant portion of our revenues that a limited number of our clients currently represent may increase in the future. During the year ended December 31, 2018, our largest client, Wells Fargo, N.A., or Wells Fargo, accounted for approximately 12% of our consolidated revenues, and our five largest clients accounted for approximately 34% of our consolidated revenues.
Our clients face continued pressure in the current economic and regulatory climate. Many of our relationships with these clients are long-standing and are important to our business and results of operations, but there is no guarantee that we will be able to retain or renew existing agreements or maintain our relationships on acceptable terms or at all. Additionally, we rely on cross-selling our products and services to our existing clients as a source of growth. The deterioration in or termination of any of these relationships could significantly reduce our revenues and could have a material adverse effect on our business, financial condition and results of operations. As a result, we may be disproportionately affected by declining revenues from, or loss of, a significant client. In addition, by virtue of their significant relationships with us, these clients may be able to exert pressure on us with respect to the pricing of our services.
The time and expense associated with switching from our competitors' software and services to ours may limit our growth.
The costs for a mortgage lender or servicer to switch providers of software, data and analytics solutions and services can be significant and the process can take 12 to 18 months, or longer, to complete. As a result, potential clients may decide that it is not worth the time and expense to begin using our solutions and services, even if we offer competitive and economic advantages. If we are unable to convince these potential clients to switch to our software and services, our ability to increase market share will be limited, which could have a material adverse effect on our business, financial condition and results of operations.

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We typically provide service level commitments under our client contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our business, financial condition and results of operations.
Our client agreements typically provide service level commitments measured on a daily and monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to provide these clients with service credits or refunds or we could face contract terminations. If we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our clients or if we experience any extended service outages, it could have a material adverse effect on our business, financial condition and results of operations.
Any failure to offer high-quality technical support services may adversely affect our relationships with our clients and could have a material adverse effect on our business, financial condition and results of operations.
Once our applications and software are deployed, our clients depend on our support organization to resolve technical issues relating thereto. We may be unable to respond adequately to accommodate short-term increases in client demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased client demand for these services, without corresponding revenues, could increase costs and adversely affect our results of operations. In addition, our sales process is highly dependent on our applications and business reputation and on positive recommendations from our existing clients. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation and our ability to sell our applications to existing and prospective clients, any of which could have a material adverse effect on our business, financial condition and results of operations.
Our clients and we are subject to various governmental regulations, and a failure to comply with governmental regulations or changes in these regulations, including changes that may result from changes in the political landscape, could result in penalties, restrict or limit our or our clients' operations or make it more burdensome to conduct such operations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Many of our clients' and our businesses are subject to various federal, state, local and foreign laws and regulations. Our failure to comply with applicable laws and regulations could restrict our ability to provide certain services or result in imposition of civil fines and criminal penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity and loss of revenues.
As a provider of electronic data processing to financial institutions, such as banks and credit unions, we are subject to regulatory oversight and examination by the FFIEC, an interagency body of the FRB, the CFPB, the OCC, the FDIC and various other federal and state regulatory authorities. We also may be subject to possible review by state agencies that regulate banks in each state in which we conduct our electronic processing activities.
In addition, our businesses are subject to an increased degree of compliance oversight by regulators and by our clients. Specifically, the CFPB has authority to write rules affecting the business of, supervise, conduct examinations of and enforce compliance with federal consumer financial laws and regulations with respect to certain "non-depository covered persons" determined by the CFPB to be "larger participants" that offer consumer financial products and services. The CFPB and the prudential financial institution regulators such as the OCC also have the authority to examine us in our role as a service provider to large financial institutions. In addition, we believe some of our largest bank clients' regulators are requiring the banks to exercise greater oversight and perform more rigorous audits of their key service providers such as us.
The Real Estate Settlement Procedures Act ("RESPA") and related regulations generally prohibit the payment or receipt of fees or any other item of value for the referral of real estate-related settlement services. RESPA also prohibits fee shares or splits or unearned fees in connection with the provision of residential real estate settlement services, such as mortgage brokerage and real estate brokerage. Notwithstanding these prohibitions, RESPA permits payments for goods furnished or for services actually performed, so long as those payments bear a reasonable relationship to the market value of the goods or services provided. RESPA and related regulations may to some extent restrict our real estate-related businesses from entering into certain preferred alliance arrangements. The CFPB is responsible for enforcing RESPA.
Changes to laws and regulations and regulatory oversight of our clients and us, including those that may result from changes in the political landscape, may cause us to increase our prices in certain situations or decrease our prices in other situations, may restrict our ability to implement price increases or otherwise limit the manner in which we conduct our business. We may also incur additional expense in keeping our software solutions services up to date as laws and regulations change, and we may not be able to pass those additional costs on to our clients. In addition, in response to increased regulatory oversight, participants in the mortgage lending industry may develop policies pursuant to which they limit the extent to which they can rely on any one vendor or service provider. Conversely, in an environment with less stringent regulatory oversight, prospective clients may choose to retain their in-house platforms, or current service providers, or seek alternative service providers who provide services that are less compliance and quality oriented at a lower price point. If we are unable to adapt our products and services to conform to increased or evolving laws and regulations, or if these laws and regulations have a negative effect on our clients, we may experience

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client losses or increased operating costs, which could have a material adverse effect on our business, financial condition and results of operations.
There may be consolidation in our end client market, which could reduce the use of our services by our clients and could have a material adverse effect on our business, financial condition and results of operations.
Consolidations among existing or potential clients could reduce the number of our clients and potential clients. If our clients merge with, are acquired by or sell their servicing portfolios to other entities that are not our clients, or that use fewer of our services, they may discontinue or reduce their use of our services. In addition, if potential clients merge, our ability to increase our client base may be adversely affected and the ability of our customers to exert pressure on our pricing may increase. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.
Regulatory developments with respect to use of consumer data and public records could have a material adverse effect on our business, financial condition and results of operations.
Because our databases include certain public and non-public personal information concerning consumers, we are subject to government regulation and potential adverse publicity concerning our use of consumer data. We acquire, store, use and provide many types of consumer data and related services that are subject to regulation under the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Driver's Privacy Protection Act and, to a lesser extent, various other federal, state and local laws and regulations. These laws and regulations are designed to protect the privacy of consumers and to prevent security breaches, cyber-based attacks, other unauthorized access and misuse of personal information in the marketplace. Our failure to comply with these laws, or any future laws or regulations of a similar nature, could result in substantial regulatory penalties, litigation expense and loss of revenues, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, some of our data suppliers face similar regulatory requirements and, consequently, they may cease to be able to provide data to us or may substantially increase the fees they charge us for this data, which may make it financially burdensome or impossible for us to acquire data that is necessary to offer our products and services. Further, many consumer advocates, privacy advocates and government regulators believe that existing laws and regulations do not adequately protect privacy or ensure the accuracy of consumer-related data. As a result, they have implemented or are seeking to implement further restrictions, such as the CCPA, NY DFS Cybersecurity Regulations and Vermont Data Broker Law, on the acquisition, dissemination or commercial use of personal information within the public and private sectors and are also contemplating requirements relative to data accuracy and the ability of consumers to opt to have their personal data removed from databases such as ours. Privacy laws may be interpreted and applied inconsistently from state to state and impose inconsistent or conflicting requirements. Complying with varying jurisdictional requirements could increase the cost and complexity of compliance. Any future laws, regulations or other restrictions limiting the dissemination or use of personal information may reduce the quality and availability of our solutions and services, which could have a material adverse effect on our business, financial condition and results of operations. Further, violations of privacy laws can result in significant penalties and damage to our brand and business.
Participants in the mortgage industry are subject to efforts by the government to regulate the mortgage industry or address the mortgage market and current economic environment, which could have a material adverse effect on our business, financial condition and results of operations.
The mortgage industry is heavily regulated and continues to be subject to review by governmental authorities. Inquiries may include federal and state governmental review of all aspects of the mortgage lending business. Such efforts may include actions to address the housing market and the economy in general and to maintain rigorous mortgage servicing standards.
Additional state and federal government actions directed at housing and the mortgage industry may occur and could have a material adverse effect on our business, financial condition and results of operations.
Our clients' relationships with government-sponsored enterprises ("GSEs") are subject to change, which could have a material adverse effect on our business, financial condition and results of operations.
Our clients have significant relationships with Fannie Mae and Freddie Mac, which are GSEs tasked with working with financial institutions to provide liquidity to the mortgage market. The GSEs do this by purchasing loans from the lenders either for cash or in exchange for mortgage-backed securities that are backed by those loans and that, for a fee, carry the GSEs' guarantee of timely payment of interest and principal to investors of those mortgage-backed securities. Because our clients service the loans owned by GSEs, we provide solutions and services for many of those loans. As a result of these relationships, GSEs have been able to implement changes to our pricing structure on certain products and services we provide. GSEs or other governmental agencies may be able to exert similar pressure on the pricing of our solutions and services in the future, which could have a material adverse effect on our business, financial condition and results of operations.

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If we fail to adapt our solutions to technological changes or evolving industry standards and regulations, or if our ongoing efforts to upgrade our technology are not successful, we could lose clients and have difficulty attracting new clients for our solutions, which could have a material adverse effect on our business, financial condition and results of operations.
The markets for our solutions are characterized by constant technological changes, frequent introductions of new products and services and evolving industry standards and regulations. Our future success will be significantly affected by our ability to successfully enhance our current solutions, and to develop and introduce new solutions and services that address the increasingly sophisticated needs of our clients and their customers. These initiatives carry the risks associated with any new product or service development effort, including cost overruns, delays in delivery and performance issues. There can be no assurance that we will be successful in developing, marketing and selling new solutions and services that meet these changing demands, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these solutions and services or that our new solutions and services and their enhancements will adequately meet the demands of the marketplace and achieve market acceptance. If our efforts are unsuccessful, it could have a material adverse effect on our business, financial condition and results of operations.
We operate in a competitive business environment and, if we are unable to compete effectively, it could have a material adverse effect on our business, financial condition and results of operations.
The markets for our solutions are intensely competitive. Our competitors vary in size and in the scope and breadth of the services they offer. Some of our competitors have substantial resources. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. There can be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not have a material adverse effect on our business, financial condition and results of operations.
Further, because many of our larger potential clients have historically developed their key processing applications in-house, and therefore, view their system requirements from a make-versus-buy perspective, we often compete against our potential clients' in-house capabilities. As a result, gaining new clients in our servicing and origination software businesses can be difficult. For banks and other potential clients, switching from an internally designed system to an outside vendor, or from one vendor of servicing and origination software services to a new vendor, is a significant undertaking. These potential clients worry about possible disadvantages such as loss of custom functionality, increased costs and business disruption. As a result, these potential clients often resist change. There can be no assurance that our strategies for overcoming potential clients' reluctance to change will be successful, and if we are unsuccessful, it could have a material adverse effect on our business, financial condition and results of operations.
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our data and information solutions may decrease, which could have a material adverse effect on our business, financial condition and results of operations.
Public sources of free or relatively inexpensive information have become increasingly available, particularly through the Internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources of free or relatively inexpensive information may reduce demand for, or the price that clients are willing to pay for, our data and information solutions. To the extent that clients choose not to obtain data and information from us and instead rely on information obtained at little or no cost from these public sources, it could have a material adverse effect on our business, financial condition and results of operations.
We rely upon proprietary technology and information rights, and if we are unable to protect our rights, it could have a material adverse effect on our business, financial condition and results of operations.
Our success depends, in part, upon our intellectual property rights. We rely primarily on a combination of patents, copyrights, trade secrets and trademark laws and nondisclosure and other contractual restrictions on copying, distribution and creation of derivative products to protect our proprietary technology and information. This protection is limited, and our intellectual property could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any infringement, disclosure, loss, invalidity of or failure to protect our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Moreover, litigation may be necessary to enforce or protect our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could be time-consuming, result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.

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If our applications or services are found to infringe the proprietary rights of others, we may be required to change our business practices and may also become subject to significant costs and monetary penalties, any of which could have a material adverse effect on our business, financial condition and results of operations.
As our information technology applications and services develop, we may become increasingly subject to infringement claims. Any such claims, whether with or without merit, could:
be expensive and time-consuming to defend;
cause us to cease providing solutions that incorporate the challenged intellectual property; 
require us to redesign our solutions, if feasible;
divert management's attention and resources; and
require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies.
Any one or more of the foregoing outcomes could have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be liable for damages for past infringement if a court determines that our software or technologies infringe upon a third party's patent or other proprietary rights.
Some of our solutions contain “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
We use a limited amount of software licensed by its authors or other third parties under so-called “open source” licenses and may continue to use such software in the future. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software if we combine our proprietary software with open source software in a certain manner. Additionally, the terms of many open source licenses have not been interpreted by the United States or other courts, and there is a risk that these licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. We cannot be sure that all open source software is submitted for approval prior to use in our solutions. In addition, many of the risks associated with using open source software cannot be eliminated, and could, if not properly addressed, have a material adverse effect on our business, financial condition and results of operations.
If we are unable to successfully consummate acquisitions or experience delays in integrating acquisitions, it could have a material adverse effect on our business, financial condition and results of operations.
One of our strategies to grow our business is to opportunistically acquire complementary businesses, technologies and services. This strategy will depend on our ability to find suitable acquisitions and finance them on acceptable terms. We may require additional debt or equity financing for future acquisitions, and doing so will be made more difficult by our indebtedness. Raising additional capital for acquisitions through debt financing could result in increased interest expense and may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital for acquisitions through equity financing, the ownership interests of existing shareholders will be diluted.
If we are unable to acquire suitable acquisition candidates, we may experience slower growth. Further, we may face challenges in integrating any acquired business. These challenges include eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. Additionally, the acquisition and integration processes may disrupt our business and divert management attention and our resources. If we fail to successfully integrate acquired businesses, products, technologies and personnel, it could impair relationships with employees, clients and strategic partners, distract management attention from our core businesses, result in control failures and otherwise disrupt our ongoing business, any of which could have a material adverse effect on our business, financial condition and results of operations. We also may not be able to retain key management and other critical employees after an acquisition. In addition, we may be required to record future charges for impairment of goodwill and other intangible assets resulting from such acquisitions.
Our reliance on third parties subjects us to risk and may disrupt or adversely affect our operations. In addition, we may not realize the full benefit of our third-party arrangements, which may result in increased costs, or may adversely affect the service levels we are able to provide our clients.
We rely upon third parties for various business process and information technology products and services, including cloud-based providers. Although we have contractual provisions with our providers that specify performance requirements, we do not ultimately control their performance, which may make our operations vulnerable to their performance failures. In addition, our failure to adequately monitor and regulate the performance of our third-party vendors could subject us to additional risk. Reliance

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on third parties also makes us vulnerable to changes in our vendors' businesses, financial condition and other matters outside of our control, including their violations of laws or regulations, which could increase our exposure to liability or otherwise increase the costs associated with the operation of our business. If for any reason our relationship with any of these third parties, including cloud-based providers, were to end unexpectedly, it could require a significant amount of cost and time to transition to new third-party service providers. The failure of our providers to perform as expected or as contractually required could result in significant disruptions and costs to our operations and to the services we provide to our clients, or could result in loss of revenues, which could have a material adverse effect on our business, financial condition and results of operations.
We depend on our ability to access data from external sources to maintain and grow our businesses. If we are unable to access needed data from these sources or if the prices charged for these services increase, the quality, pricing and availability of our solutions may be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations.
We rely extensively upon data from a variety of external sources to maintain our proprietary and non-proprietary databases, including data from third-party suppliers, various government and public record sources and data contributed by our clients. Our data sources could cease providing or reduce the availability of their data to us, increase the price we pay for their data or limit our use of their data for a variety of reasons, including legislatively or judicially imposed restrictions on use. If a number of suppliers are no longer able or are unwilling to provide us with certain data, or if our public record sources of data become unavailable or too expensive, we may need to find alternative sources. If we are unable to identify and contract with suitable alternative data suppliers and efficiently and effectively integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Moreover, some of our data suppliers compete with us in certain product offerings, which may make us vulnerable to unpredictable price increases from them. Significant price increases could require us to seek other sources of data on more favorable economic terms, which may not be available at all. Loss of such access or the availability of data in the future on commercially reasonable terms or at all may reduce the quality and availability of our services and solutions, which could have a material adverse effect on our business, financial condition and results of operations.
Our international third-party service providers and our own international operations subject us to additional risks, which could have a material adverse effect on our business, financial condition and results of operations.
Over the last few years, we have sought to reduce our costs by utilizing lower-cost labor in India. This country may be subject to higher degrees of political and social instability than the United States and may lack the infrastructure to withstand political unrest or natural disasters. Such disruptions can affect our ability to deliver our solutions on a timely basis, if at all, and to a lesser extent can decrease efficiency and increase our costs. Weakness of the U.S. dollar in relation to the currency used and higher inflation rates experienced in this country may also reduce anticipated savings. Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States and, as a result, many of our clients may require us to use labor based in the United States. We may not be able to pass on the increased costs of higher-priced United States-based labor to our clients, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, India could adopt new legislation or regulations that could make it difficult, more costly or impossible for us to continue our foreign activities as currently being conducted. In addition, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act ("FCPA") or other local anti-corruption laws. Any violations of FCPA or local anti-corruption laws by us or our subsidiaries, could result in substantial financial and other penalties, which could have a material adverse effect on our business, financial condition and results of operations.
We have substantial investments in recorded goodwill and other intangible assets as a result of prior acquisitions, and an economic downturn or troubled mortgage market could cause these investments to become impaired, requiring write-downs that could have a material adverse effect on our results of operations.
Goodwill was $2.3 billion, or approximately 64% of our total assets, as of December 31, 2018. Other intangible assets, net were $188.0 million, or approximately 5% of our total assets. Current accounting rules require that goodwill and other indefinite lived intangible assets be assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable. Current accounting rules require that intangible assets with finite useful lives be assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors that may indicate the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future results of operations, a significant decline in our stock price and market capitalization, and negative industry or economic trends. No goodwill or other intangible assets impairment charge was recorded during 2018. However, if there is an economic downturn in the future, the carrying amount of our goodwill or other intangible assets may no longer be recoverable, and we may be required to record an impairment charge, which could have a material adverse effect on our results of operations. We will continue to monitor our market capitalization and the effect of the economy to determine if there is an impairment of goodwill or other intangible assets in future periods.

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Our investment in D&B may expose us to certain risks, which could have a material adverse effect on our results of operations.
On February 8, 2019, an investment consortium completed the acquisition of D&B. We invested $375.0 million as part of this transaction. Refer to Note 3 to the Notes to Consolidated Financial Statements for additional information.
D&B’s strategy is designed to drive long-term sustainable growth as one global company delivering content through modern channels to serve customer needs with their forward-leaning culture. The achievement of their strategic initiatives depends on a number of factors, including but not limited to their ability to maintain the integrity of their brand and reputation, customer demand for their products, the effect of macro-economic challenges on their customers and vendors, their reliance on third parties to provide data and certain operational services and their ability to protect their information technology. D&B may not be able to successfully implement their strategic initiatives in accordance with their expectations, or in the timeframe they desire, which may result in us not realizing our expected return on investment, or a negative return on investment.
D&B has undertaken a strategic and operational review of their business to help them find ways to accelerate value realization, including certain cost saving initiatives. Based on this review, D&B intends to undertake certain strategic and cost saving initiatives, which they believe will help them to achieve this goal. They cannot guarantee they will be able to successfully implement these strategic or cost saving initiatives. Furthermore, they may be unable to achieve, or may be delayed in achieving, some or all of the benefits from such initiatives. Additionally, even if they achieve these goals, they may not receive the expected benefits of the initiatives, or the costs of implementing these initiatives could exceed the related benefits. If they are unable to successfully implement these initiatives, if these initiatives are not as successful as planned or if they do not receive the expected benefits of these initiatives, they may not be able to meet their value realization expectations, which may result in us not realizing our expected return on investment, or a negative return on investment.
We expect our investment will be accounted for under the equity method of accounting, through which we will record our proportionate share of their net earnings or loss in our consolidated financial statements. Equity-method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. If our equity-method investment is not recoverable, we may be required to record an impairment charge, which could have a material adverse effect on our results of operations.
If we fail to develop widespread brand awareness cost-effectively, it could have a material adverse effect on our business, financial condition and results of operations.
We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to our ability to achieve widespread acceptance of our software solutions and attract new clients. Brand promotion activities may not generate client awareness or increase revenues, and even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain clients necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad client adoption of our applications, which could have a material adverse effect on our business, financial condition and results of operations.
We may experience system failures with respect to our software solutions resulting in damage or interruption that could harm our business and reputation and expose us to potential liability.
We depend heavily upon the computer systems and our existing technology infrastructure located in our data centers. Certain system interruptions or events beyond our control could interrupt or terminate the delivery of our solutions and services to our clients and may interfere with our suppliers' ability to provide necessary data to us and our employees' ability to perform their responsibilities.
These potential interruptions include, but are not limited to, damage or interruption from hurricanes, floods, fires, power losses, telecommunications outages, cyber-based attacks, terrorist attacks, acts of war, human errors and similar events. Our U.S. corporate offices and one of our data centers are located in Jacksonville, Florida, which is an area that is at high risk of hurricane and flood damage. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could cause disruptions in our business or the economy as a whole. The servers that we use through various third-party service providers may also be vulnerable to similar disruptions, which could lead to interruptions, delays and loss of critical data. Such service providers may not have sufficient protection or recovery plans in certain circumstances, and our insurance may not be sufficient to compensate us for losses that may occur.
Defects in our software solutions, errors or delays in the processing of electronic transactions, or other difficulties could result in:
interruption of business operations;
delay in market acceptance;
us, or our clients, missing a regulatory deadline;
additional development and remediation costs;

15


diversion of technical and other resources;
loss of clients;
negative publicity; or
exposure to liability claims.
Any one or more of the foregoing occurrences could have a material adverse effect on our business, financial condition and results of operations. Although we attempt to limit our potential liability through disclaimers and limitation-of-liability provisions in our license and client agreements, we cannot be certain that these measures will be successful in limiting our liability.
We may experience delays or difficulty in developing or implementing new, enhanced or existing software or hosting solutions, which may negatively affect our relationships with existing and potential clients, reduce or delay the generation of revenues or increase development and implementation costs, which could have a material adverse effect on our business, financial condition and results of operations.
Our future financial performance depends upon the successful development, implementation and client acceptance of new, existing and enhanced versions of our software and hosting solutions. We continually seek to develop enhancements to our solutions, including updates in response to changes in applicable laws, as well as new offerings to supplement our existing solutions. As a result, we are subject to the risks inherent in the development and integration of new technologies, including defects or undetected errors in our software solutions, difficulties in installing or integrating our technologies on platforms used by our clients or other unanticipated performance, stability and compatibility problems. Any of these problems could result in material delays in the introduction or acceptance of our solutions, increased costs, decreased client satisfaction, breach of contract claims, harm to our industry reputation and reduced or delayed revenues. If we are unable to implement existing solutions or deliver new solutions or upgrades or other enhancements to our existing solutions on a timely and cost-effective basis, it could have a material adverse effect on our business, financial condition and results of operations.
In addition, as a significant focus of our sales efforts is on the top U.S. mortgage originators and servicers, larger clients may demand more complex integration, implementation services and features, which may result in implementations that take longer than we forecast or delays in these clients using our solutions. Furthermore, if implementations take longer than planned or these clients delay their use of our solutions, we may be required to delay revenue recognition on some of these transactions until the technical or implementation requirements have been met, and we may not generate revenues from these clients as quickly as we had forecast.
Because our revenues from clients in the mortgage lending industry are affected by the strength of the economy and the housing market generally, including the volume of real estate transactions, a change in any of these conditions could have a material adverse effect on our business, financial condition and results of operations.
Our revenues are primarily generated from software and hosting solutions, professional services and data solutions we provide to the mortgage industry and, as a result, a weak economy or housing market may have a material adverse effect on our business, financial condition and results of operations. The volume of mortgage origination and residential real estate transactions is highly variable and reductions in these transaction volumes could have a direct effect on the revenues we generate from our software solutions business and some of our data and analytics businesses.
The revenues we generate from our servicing software solutions primarily depend upon the total number of mortgage loans processed on MSP®, which tends to be comparatively consistent regardless of economic conditions. However, in the event that a difficult economy or other factors lead to a decline in levels of home ownership and a 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, our MSP® revenues could be adversely affected. Moreover, negative economic conditions, including increased unemployment or interest rates or a downturn in other general economic factors, among other things, could adversely affect the performance and financial condition of some of our clients in many of our businesses, which may have a material adverse effect on our business, financial condition and results of operations if these clients go bankrupt or otherwise exit certain businesses.
A weaker economy and housing market tend to increase the volume of consumer mortgage defaults, which can increase revenues from our applications focused on supporting default management functions. However, government regulation of the mortgage industry in general, and the default and foreclosure process in particular, has greatly slowed the processing of defaulted mortgages and has changed the way many of our clients address mortgage loans in default. A downturn in the origination market and a concurrent slowdown or change in the way mortgage loans in default are addressed could have a material adverse effect on our business, financial condition and results of operations.
Our indebtedness could have a negative effect on our financing options and liquidity position.
As of December 31, 2018, we had approximately $1.3 billion of total debt outstanding.

16


Our indebtedness could have important consequences to us, including:
making us more vulnerable to economic downturns and adverse developments in our business, which may cause us to have difficulty borrowing money in the future for working capital, capital expenditures, acquisitions or other purposes and may limit our ability to pursue other business opportunities and implement certain business strategies;
requiring us to use a portion of the money we earn to pay principal and interest on our debt, which could reduce the amount of money available to finance operations, acquisitions and other business activities;
exposing us to the risk of increased interest rates as $1.3 billion in principal amount of our debt bears interest at a floating rate as of December 31, 2018 (an increase of one percentage point in the applicable interest rate could cause an increase in interest expense of approximately $13.2 million on an annual basis ($2.7 million including the effect of our current interest rate swaps) based on the principal outstanding as of December 31, 2018, which may make it more difficult for us to service our debt);
exposing us to costs and risks associated with agreements limiting our exposure to higher interest rates, as such agreements may not offer complete protection from these risks, and we are subject to the risk that one or more of the counterparties to these agreements may fail to satisfy their obligations under such agreements; and
causing a competitive disadvantage if we have higher levels of debt than our competitors by reducing our flexibility in responding to changing business and economic conditions, including increased competition.
Risks associated with our indebtedness could have a material adverse effect on our business, financial condition and results of operations.
Despite our indebtedness, we still may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our existing indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the 2018 Credit Agreement governing the 2018 Facilities, as defined in Note 11 to the Notes to Consolidated Financial Statements, imposes operating and financial restrictions on our activities, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our outstanding debt levels, the risks related to our indebtedness that we will face could increase.
Certain of our financing arrangements subject us to various restrictions that could limit our operating flexibility.
The 2018 Credit Agreement governing the 2018 Facilities imposes operating and financial restrictions on our activities, and future debt instruments may as well. These restrictions include compliance with, or maintenance of, certain financial tests and ratios, including a minimum interest coverage ratio and maximum leverage ratio, and limit or prohibit our ability to, among other things:
create, incur or assume any additional debt and issue preferred stock;
create, incur or assume certain liens;
redeem and/or prepay certain subordinated debt we might issue in the future;
pay dividends on our stock or repurchase stock;
make certain investments and acquisitions;
enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us;
enter new lines of business;
engage in mergers and acquisitions;
engage in specified sales of assets; and
enter into transactions with affiliates.
These restrictions on our ability to operate our business could limit our ability to take advantage of financing, mergers and acquisitions and other corporate opportunities, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our outstanding debt instruments, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and results of operations, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could have a material adverse effect on our business, financial condition and results of operations. If we cannot make scheduled payments on our debt, we will be in default and holders of our outstanding debt could declare all outstanding principal and interest to be due and payable, and we could be forced into bankruptcy or liquidation.

17


Our risk management policies and procedures, including those related to cybersecurity, may prove inadequate for the risks we face, which could have a material adverse effect on our business, financial condition and results of operations.
We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Nonetheless, our risk management strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. If our solutions change and as the markets in which we operate evolve, our risk management strategies may not always adapt to such changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and management's judgment. Other of our methods of managing risk depend on the evaluation of information regarding markets, customers, catastrophe occurrence or other matters that are publicly available or otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly evaluated. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures or available information indicate. In addition, management of operational, legal and regulatory risks requires, among other things, policies and procedures to record and verify large numbers of transactions and events, which may not be fully effective. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our business, financial condition and results of operations. In addition, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators.
Certain members of our Board of Directors and certain of our officers and directors have or will have interests and positions that could present potential conflicts.
We are party to a variety of related party agreements and relationships with FNF. One of our executive officers is employed by FNF and four of our directors serve on the board of directors of FNF. Also, on February 8, 2019, we invested in D&B. Concurrent with the closing of this transaction, our Executive Chairman began serving as Executive Chairman of D&B, and our Chief Executive Officer ("CEO") also began serving as CEO of D&B. Five of our directors, including Mr. Foley and Mr. Jabbour, also serve on the board of directors of D&B. Due to the combination of these factors, D&B is considered to be a related party as of February 8, 2019.
As a result of the foregoing, there may be circumstances where one of our executive officers and certain directors may be subject to conflicts of interest with respect to, among other things: (i) our ongoing relationships with FNF or D&B, including any related party agreements; (ii) the quality, pricing and other terms associated with services that we provide to FNF or D&B, or that they provide to us, under related party agreements; (iii) business opportunities arising for any of us, FNF or D&B; and (iv) conflicts of time with respect to matters potentially or actually involving or affecting us.
We have in place a code of business conduct and ethics prescribing procedures for managing conflicts of interest and our chief compliance officer and audit committee are responsible for the review, approval or ratification of any potential conflicts of interest transactions. Additionally, we expect that interested directors will abstain from decisions with respect to conflicts of interest as a matter of practice. However, there can be no assurance that such measures will be effective, that we will be able to resolve all potential conflicts or that the resolution of any such conflicts will be no less favorable to us than if we were dealing with an unaffiliated third party.
Our senior leadership team is critical to our continued success, and the loss of such personnel could have a material adverse effect on our business, financial condition and results of operations.
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. We have attempted to mitigate this risk by entering into long-term (two to three year) employment contracts with the members of our senior management operating team and providing long-term incentive compensation with multi-year vesting provisions. If we lose key members of our senior management operating team or are unable to effect smooth transitions from one executive to another as part of our succession plan, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this could have a material adverse effect on our business, financial condition and results of operations.
We may fail to attract and retain enough qualified employees to support our operations, which could have an adverse effect on our ability to expand our business and service our clients.
Our business relies on large numbers of skilled employees, and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention

18


policies. Increased competition for employees could have a material adverse effect on our ability to expand our business and service our clients, as well as cause us to incur greater personnel expenses and training costs.
We may not be able to effectively achieve our growth strategies, which could adversely affect our business, financial condition and results of operations.
Our growth strategies depend in part on maintaining our competitive advantage with current solutions in new and existing markets, as well as our ability to develop new technologies and solutions to serve such markets. There can be no assurance that we will be able to compete successfully in new markets or continue to compete effectively in our existing markets. If we fail to introduce new technologies or solutions effectively or on a timely basis, or if we are not successful in introducing or obtaining regulatory or market acceptance for new solutions, we may lose market share and our results of operations or cash flows could be adversely affected.
Current and future litigation, investigations or other actions against us could be costly and time consuming to defend.
We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes and employment claims made by our current or former employees. Litigation can result in substantial costs and may divert management's attention and resources, which may seriously harm our business, financial condition and results of operations. 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.
Although certain matters may be subject to a cross-indemnity agreement between Black Knight Financial Services, LLC ("BKFS LLC") and ServiceLink Holdings, LLC ("ServiceLink"), there can be no assurance that we will not incur additional material costs and expenses in connection with any potential future investigations or claims, including but not limited to fines or penalties and legal costs, or be subject to other remedies, any of which could have a material adverse effect on our business, financial condition and results of operations. Insurance may not cover such investigations and claims, may not be sufficient for one or more such investigations and claims and may not continue to be available on terms acceptable to us. An investigation or claim brought against us that is uninsured or underinsured could result in unanticipated costs, management distraction or reputational harm, which could have a material adverse effect on our business, financial condition and results of operations.
The distribution by FNF of the shares of New BKH common stock to the holders of FNF Group common stock on a pro-rata basis (the "Spin-off") could result in significant tax liability to FNF and to holders of FNF Group common stock, and under certain circumstances, we may have a significant indemnity obligation to FNF, which is not limited in amount or subject to any cap, if the Spin-off is treated as a taxable transaction due to our acts or failure to act.
FNF received a private letter ruling from the Internal Revenue Service (“IRS”) in connection with the Spin-off, and an opinion of Deloitte Tax LLP, tax advisor to FNF, to the effect that certain contributions made by FNF to Black Knight Holdings, Inc. ("BKHI") and the Spin-off qualify as a tax-free reorganization under Sections 368(a) and 355 of the Internal Revenue Code (the “IRC”) and a distribution to which Sections 355 and 361 of the IRC applies, respectively. The IRS private letter ruling and the opinion are based upon various factual representations and assumptions and, in the case of the opinion, certain undertakings, made by FNF and Black Knight. Any inaccuracy in the representations or assumptions upon which such tax opinion was based, or failure by FNF or Black Knight to comply with any undertakings made in connection with such tax opinion, could alter the conclusions reached in such opinion. Opinions with respect to these matters are not binding on the IRS or the courts. As a result, the conclusions expressed in these opinions could be challenged by the IRS and a court could sustain such a challenge.
Even if the Spin-off otherwise qualifies for tax-free treatment under Sections 355, 361 and 368(a) of the IRC, the Spin-off would result in a significant U.S. federal income tax liability to FNF (but not to holders of FNF Group common stock) under Section 355(e) of the IRC if one or more persons acquire a 50% or greater interest (measured by vote or value) in the stock of Black Knight as part of a plan or series of related transactions that includes the Spin-off. Current U.S. federal income tax law generally creates a presumption that any acquisitions of the stock of Black Knight within two years before or after the Spin-off are part of a plan that includes the Spin-off, although the parties may be able to rebut that presumption. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. We do not expect that the mergers and the interest exchange agreement between BKFS and certain affiliates of Thomas H. Lee Partners, L.P. ("THL") (the "THL Interest Exchange"), by themselves, will cause Section 355(e) to apply to the Spin-off. Notwithstanding the IRS ruling and the opinion of Deloitte Tax LLP described above, Black Knight might inadvertently cause or permit a prohibited change in the ownership of Black Knight to occur, thereby triggering a tax liability to FNF. If the Spin-off is determined to be taxable to FNF, FNF would recognize gain equal to the excess of the fair market value of the New BKH Corp. ("New BKH") common stock held by it immediately before the Spin-off over FNF’s tax basis therein. Open market purchases of Black Knight common stock by third parties without any negotiation with Black Knight will generally not cause Section 355(e) of the IRC to apply to the Spin-off.

19


In connection with the Spin-off, we entered into a tax matters agreement (the "Tax Matters Agreement") with FNF pursuant to which we are obligated to indemnify FNF for (i) any action by Black Knight, or the failure to take any action within our control which, negates the tax-free status of the transactions; or (ii) direct or indirect changes in ownership of Black Knight equity interests that cause the Spin-off to be a taxable event to FNF as a result of the application of Section 355(e) of the 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.
If it is subsequently determined, for whatever reason, that the Spin-off does not qualify for tax-free treatment, holders of FNF Group common stock immediately prior to the Spin-off could incur significant tax liabilities.
We may decide to forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities.
Under the Tax Matters Agreement, we covenanted not to take or fail to take any reasonably required action, following the Spin-off, which action or failure to act, would (i) be inconsistent with any covenant or representation made by Black Knight in any document related to the Spin-off, or (ii) prevent, or be reasonably likely to prevent, the tax-free status of the Spin-off. Further, the Tax Matters Agreement requires us to generally indemnify FNF for any taxes or losses resulting from any action by Black Knight or our subsidiaries, or the failure to take any action within our control which, negates the tax-free status of the Spin-off; or direct or indirect changes in ownership of Black Knight equity interests that cause the Spin-off to be a taxable event to FNF as a result of the application of Section 355(e) of the 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. As a result, we may determine to forgo certain transactions that might have otherwise been advantageous in order to preserve the tax-free treatment of the Spin-off.
In particular, we may determine to continue to operate certain of our business operations for the foreseeable future even if a liquidation or sale of such business might have otherwise been advantageous. Moreover, in light of the mergers as well as certain other transactions that might be treated as part of a plan that includes the Spin-off for purposes of Section 355(e) of the IRC (as discussed above), we may determine to forgo certain transactions, including share repurchases, stock issuances, asset dispositions or other strategic transactions for some period of time following the mergers. In addition, our indemnity obligation under the Tax Matters Agreement might discourage, delay or prevent a third party from entering into a change of control transaction with us for some period of time following the Spin-off.
We will be restricted from pursuing potential business opportunities under the non-competition agreement.
In connection with the Distribution, we entered into a non-competition agreement with FNF pursuant to which we agreed to certain restrictions on the scope of the business that we may conduct for the ten-year period following completion of the transactions, including that we are prohibited from (i) engaging in title generation/escrow services, appraisal or default and field services work (other than technology solutions for such settlement services) without the prior written consent of FNF (subject to an exception allowing us to acquire a business engaged in such restricted services if at least 90% of such business’ revenues is contributed by activities other than such restricted services) and (ii) engaging in certain transactions, such as a merger, sale of assets or sale of greater than 5% of its equity interests, with a buyer that derives 10% or more of its revenues from such restricted services. Although we do not presently engage in any of these restricted services and our current business is not restricted, as a result of these restrictions, we may have to forgo certain transactions that might have otherwise been advantageous in compliance with our obligations under the non-competition agreement.
In particular, the restriction on engaging in a merger, sale of assets or sale of greater than 5% of its equity interests with a buyer that derives 10% or more of its revenues from restricted services may discourage a third party engaged in such restricted services from pursuing such a transaction with us during the ten-year period following completion of the transactions.
Our charter and bylaws and provisions of Delaware law may discourage or prevent strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our shareholders.
Provisions contained in our charter and bylaws and provisions of the Delaware General Corporation Law ("DGCL") could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our shareholders. For example, our charter and bylaws:
divide our Board of Directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change of control;
authorize the issuance of "blank check" preferred stock that could be issued by us upon approval of our Board of Directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive;
provide that directors may be removed from office only for cause and that any vacancy on our Board of Directors may only be filled by a majority of our directors then in office, which may make it difficult for other shareholders to reconstitute our Board of Directors;
provide that special meetings of the shareholders may be called only upon the request of a majority of our Board of Directors or by the chairman of the Board of Directors or our chief executive officer; and
require advance notice to be given by shareholders for any shareholder proposals or director nominees.

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By virtue of not opting out of Section 203 of the DGCL in our amended and restated certificate of incorporation, we are subject to Section 203 of the DGCL, which prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time the shareholder became an interested stockholder, subject to certain exceptions, including if, prior to such time, the board of directors approved the business combination or the transaction which resulted in the shareholder becoming an interested stockholder. "Business combinations" include mergers, asset sales and other transactions resulting in a financial benefit to the "interested stockholder." Subject to various exceptions, an "interested stockholder" is a person who, together with his or her affiliates and associates, owns or within three years did own 15% or more of the corporation's outstanding voting stock. These restrictions generally prohibit or delay the accomplishment of mergers or other takeover or change of control attempts that are not approved by a company's board of directors.
These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by impeding a sale of us.
The market price of our common stock may be volatile and you may lose all or part of your investment.
The market price of our common stock could fluctuate significantly, and you may not be able to resell your shares at or above the price at which your shares were acquired. Those fluctuations could be based on various factors, including those described above and the following:
our operating performance and the performance of our competitors and fluctuations in our operating results;
the public's reaction to our press releases, our other public announcements and our filings with the SEC;
changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry;
global, national or local economic, legal and regulatory factors unrelated to our performance;
announcements of positive news by us or our competitors, such as announcements of new products, services, strategic investments or acquisitions;
announcements of negative news by us or our competitors, such as announcements of poorer than expected results of operations, data breaches or significant litigation;
actual or anticipated variations in our or our competitors' operating results, and our and our competitors' growth rates;
failure by us or our competitors to meet analysts' projections or guidance we or our competitors may give the market;
changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;
changes in accounting standards, policies, guidance, interpretations or principles;
the arrival or departure of key personnel;
the number of shares publicly traded;
future sales or issuances of our common stock, including sales, distributions or issuances by us, our officers or directors and our significant shareholders; and
other developments affecting us, our industry or our competitors.
In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common stock, and you may not realize any return on your investment in us and may lose some or all of your investment.
As we primarily operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock is influenced in part by the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We may retain future earnings, if any, for future operations, expansion and debt repayment. We have not paid cash dividends to date and have no current plans to pay any cash dividends for the foreseeable future. As a result of our current dividend policy,

21


you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. Any future determination to declare and pay cash dividends will be at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our Board of Directors deems relevant.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate headquarters is located at 601 Riverside Avenue, Jacksonville, Florida 32204, which we own. We also own a facility in Sharon, Pennsylvania. As of December 31, 2018, we lease office space as follows:
Location
 
Number of locations
California
 
4

Texas
 
3

Florida
 
3

Colorado
 
2

Other states (1)
 
9

India
 
2

__________________
(1)
Represents one location in each of nine states.
Item 3.
Legal Proceedings
For a description of our legal proceedings, see Note 13 to the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report, which is incorporated by reference into this Part I, Item 3.

Item 4.
Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
On May 26, 2015, we completed the our initial public offering ("IPO") of 18,000,000 shares of BKFS Class A common stock, par value $0.0001 per share ("Class A common stock"), at an offering price of $24.50 per share. We granted the underwriters a 30-day option to purchase an additional 2,700,000 shares of BKFS Class A common stock at the offering price, which was exercised in full. A total of 20,700,000 shares of Class A common stock were issued on May 26, 2015.
BKFS Class A common stock was listed on the New York Stock Exchange ("NYSE") and traded under the trading symbol "BKFS" from May 20, 2015 through September 29, 2017, the date of the Distribution, as defined in Note 1 to the Notes to Consolidated Financial Statements. Prior to that time, there was no public market for BKFS Class A common stock. There was no established public trading market for BKFS Class B common stock.
We completed the Distribution on September 29, 2017. Shares of Black Knight, Inc. (formerly known as Black Knight Holdco Corp.) common stock are listed on the NYSE and have been trading under the trading symbol "BKI" since October 2, 2017.
Information concerning securities authorized for issuance under our equity compensation plans will be included in Item 12 of Part III of this Report.

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Share Repurchase Program
The following table summarizes share repurchases under our share repurchase program described below during the year ended December 31, 2018:
Period in 2018
 
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced program (1)
 
Maximum number of shares that may yet be purchased under the program (2)
January
 

 
$

 

 
6,809,879

February
 
2,000,000

 
46.41

 
2,000,000

 
4,809,879

March
 
1,000,000

 
48.63

 
1,000,000

 
3,809,879

April
 

 

 

 
3,809,879

May
 

 

 

 
3,809,879

June
 

 

 

 
3,809,879

July
 

 

 

 
3,809,879

August
 

 

 

 
3,809,879

September
 

 

 

 
3,809,879

October
 

 

 

 
3,809,879

November
 

 

 

 
3,809,879

December
 

 

 

 
3,809,879

Total
 
3,000,000

 
$
47.15

 
3,000,000

 
3,809,879

_______________________________________________________
(1)
On January 31, 2017, our Board of Directors authorized a three-year share repurchase program, effective February 3, 2017, under which we may repurchase up to 10 million shares of BKFS Class A common stock through February 2, 2020, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. In connection with the Distribution, our Board of Directors approved a share repurchase program authorizing the repurchase of shares of BKI common stock consistent with the previous BKFS share repurchase program.
(2)
As of the last day of the applicable month.


23


PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return for our common stock from May 20, 2015 (the date BKFS Class A common stock commenced trading on the NYSE) through December 31, 2018, and the S&P 500 Index and the S&P North American Technology Sector Index from May 20, 2015 through December 31, 2018. The data for the S&P 500 Index and the S&P North American Technology Sector Index assumes reinvestment of dividends. The graph assumes an initial investment of $100.00, and the cumulative returns are based on the market price as of each year end. Note that historic stock price performance is not necessarily indicative of future stock price performance.
graph2018.jpg
*$100 invested on May 20, 2015 in Black Knight or each respective index, including reinvestment of dividends.
Copyright© 2019 Standard & Poor's, a division of S&P Global. All rights reserved.
 
 
December 31,
 
Initial
2015
2016
2017
2018
Black Knight
$100.00
$121.95
$139.43
$162.86
$166.21
S&P 500 Index
$100.00
$97.41
$109.06
$132.87
$127.05
S&P North American Technology Sector Index
$100.00
$102.61
$114.97
$156.64
$159.58
On January 31, 2019, the closing price of our common stock on the NYSE was $49.19 per share. We had 6,354 holders of record of our common stock. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
There were no unregistered sales of equity securities during the years ended December 31, 2018, 2017 and 2016.
Item 6.
Selected Financial Data
The information set forth below should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information included elsewhere in this Annual Report on Form 10-K.
Acquisition of LPS by FNF and Internal Reorganization
On January 2, 2014, FNF acquired Lender Processing Services, Inc. ("LPS") (the "Acquisition"), and as a result, LPS became an indirect, wholly-owned subsidiary of FNF.

24


Following the Acquisition, on January 3, 2014, a series of transactions were effected (the "Internal Reorganization"), pursuant to which (i) LPS was converted into a limited liability company and renamed Black Knight InfoServ, LLC ("BKIS"); (ii) the former Transaction Services businesses of LPS were transferred by BKIS to Black Knight Holdings, Inc. ("BKHI"), a wholly-owned subsidiary of FNF, and contributed by BKHI to ServiceLink; (iii) Black Knight Financial Services, LLC ("BKFS LLC") acquired all of the membership interests of BKIS; and (iv) all of the outstanding membership interests of Commerce Velocity were contributed by BKHI to BKFS LLC.
As a result of the Internal Reorganization, BKFS LLC acquired substantially all of the former Technology, Data and Analytics segment of LPS and Fidelity National Commerce Velocity, LLC ("Commerce Velocity"), a former indirect subsidiary of FNF. BKFS LLC did not acquire the former Transaction Services segment of LPS.
Following the Internal Reorganization, BKFS LLC issued, in the aggregate, 35.0% of the membership interests ("Units") of BKFS LLC, to (i) certain affiliates ("THL Affiliates") of Thomas H. Lee Partners, L.P. ("THL"), and (ii) THL Black Knight I Holding Corp. and THL Investors Black Knight I Holding Corp. (together, the "THL Intermediaries"), each of which is an affiliate of THL, formed for the purpose of holding investments in BKFS LLC. As consideration for the Units of BKFS LLC, THL contributed $350.0 million.
Following the Internal Reorganization and the subsequent issuance of Units to THL, BKFS LLC was majority owned by FNF through its wholly-owned subsidiary, BKHI, and certain affiliates of FNF and BKHI, and minority owned by THL through the THL Affiliates and THL Intermediaries.
Contribution of Property Insight
On June 2, 2014, two wholly-owned subsidiaries of FNF contributed their respective interests in Property Insight, LLC ("Property Insight") to BKFS LLC. In connection with the Property Insight contribution, BKFS LLC issued an additional 6.4 million Units to certain affiliates of BKHI. As a result of this issuance, THL Affiliates' and THL Intermediaries' combined percentage ownership in BKFS LLC was reduced from 35.0% to 32.9%, and FNF's percentage of beneficial ownership of BKFS LLC increased from 65.0% to 67.1%.
In accordance with U.S. generally accepted accounting principles ("GAAP") requirements for transactions between entities under common control, the Consolidated and Combined Financial Statements of BKFS LLC were adjusted to reflect Commerce Velocity and Property Insight as of October 16, 2013, the date on which BKFS LLC was formed. LPS is considered the legal predecessor of BKFS LLC. For financial reporting purposes, BKFS LLC, including Commerce Velocity and Property Insight, is a predecessor for the day ended January 1, 2014. The successor period is presented as BKFS LLC for periods subsequent to January 1, 2014 through May 25, 2015, the day prior to the IPO, BKFS for the period from May 26, 2015, the date we completed our IPO, through September 29, 2017, the date of the Distribution, and Black Knight, Inc. for the period from September 30, 2017, the day subsequent to the Distribution, through December 31, 2018.
Realignment of Property Insight
Effective January 1, 2017, Property Insight 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, we continue to own the title plant technology and retain sales responsibility for third parties, other than FNF. As a result of the realignment, we no longer recognize revenues or expenses related to title plant posting and maintenance, but charge 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, our 2016 revenues and expenses 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.
Distribution of FNF's Ownership Interest and Related Transactions
On September 29, 2017, we completed a tax-free plan whereby FNF distributed to FNF Group shareholders all 83.3 million shares of BKFS Class B common stock that it owned through a series of transactions (the "Distribution") as defined in Note 1 of the Notes to Consolidated Financial Statements.
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 BKFS Class A common stock.
As a result of the Distribution and related transactions, our Consolidated Statements of Earnings and Comprehensive Earnings reflect an effective tax rate more closely aligned with other C - corporations in the U.S. and no longer reflect net earnings attributable to noncontrolling interests.


25


Selected Historical Consolidated and Combined Financial Data of Black Knight
The Consolidated Statements of Earnings data for the years ended December 31, 2018, 2017 and 2016 and the Consolidated Balance Sheets data as of December 31, 2018 and 2017 are derived from the audited Consolidated Financial Statements of Black Knight included in this Annual Report on Form 10-K. The Combined Statements of Operations data for the years ended December 31, 2015 and 2014 and the Consolidated Balance Sheets data as of December 31, 2016, 2015 and 2014 are derived from the audited Consolidated and Combined Financial Statements of BKFS and BKFS LLC not included or incorporated by reference into this Annual Report on Form 10-K.
 
Year ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
1,114.0

 
$
1,051.6

 
$
1,026.0

 
$
930.7

 
$
852.1

Expenses:
 
 
 
 
 
 
 
 
 
Operating expenses
625.4

 
569.5

 
582.6

 
538.2

 
514.9

Depreciation and amortization
217.0

 
206.5

 
208.3

 
194.3

 
188.8

Transition and integration costs
6.6

 
13.1

 
2.3

 
8.0

 
119.3

Total expenses
849.0

 
789.1

 
793.2

 
740.5

 
823.0

Operating income
265.0

 
262.5

 
232.8

 
190.2

 
29.1

Other income and expense:
 
 
 
 
 
 
 
 
 
Interest expense, net
(51.7
)
 
(57.5
)
 
(67.6
)
 
(89.8
)
 
(128.7
)
Other expense, net
(7.1
)
 
(12.6
)
 
(6.4
)
 
(4.6
)
 
(12.0
)
Total other expense, net
(58.8
)
 
(70.1
)
 
(74.0
)
 
(94.4
)
 
(140.7
)
Earnings (loss) from continuing operations before income taxes
206.2

 
192.4

 
158.8

 
95.8

 
(111.6
)
Income tax expense (benefit)
37.7

 
(61.8
)
 
25.8

 
13.4

 
(5.3
)
Net earnings (loss) from continuing operations
168.5

 
254.2

 
133.0

 
82.4

 
(106.3
)
Loss from discontinued operations, net of tax

 

 

 

 
(0.8
)
Net earnings (loss)
168.5

 
254.2

 
133.0

 
82.4

 
(107.1
)
Less: Net earnings (loss) attributable to noncontrolling interests

 
71.9

 
87.2

 
62.4

 
(107.1
)
Net earnings attributable to Black Knight
$
168.5

 
$
182.3

 
$
45.8

 
$
20.0

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
May 26, 2015 through December 31, 2015
 
 
 
Year ended December 31,
 
 
 
 
2018
 
2017
 
2016
 
 
 
Net earnings per share attributable to Black Knight common shareholders:
 
 
 
 
 
 
 
 
 
Basic
$
1.14

 
$
2.06

 
$
0.69

 
$
0.31

 
 
Diluted
$
1.14

 
$
1.47

 
$
0.67

 
$
0.29

 
 
Weighted average shares of common stock outstanding:
 
 
 
 
 
 
 
 
 
Basic
147.6

 
88.7

 
65.9

 
64.4

 
 
Diluted
148.2

 
152.4

 
67.9

 
67.9

 
 

 
December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
 
(In millions)
Balance Sheets Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
20.3

 
$
16.2

 
$
133.9

 
$
186.0

 
$
61.9

Total assets
$
3,653.4

 
$
3,655.9

 
$
3,762.0

 
$
3,703.7

 
$
3,598.3

Total debt (current and long-term)
$
1,336.7

 
$
1,434.1

 
$
1,570.2

 
$
1,661.5

 
$
2,135.1


26


Selected Historical Consolidated Financial Data of LPS
The Consolidated Statement of Operations data for the day ended January 1, 2014 and the Consolidated Balance Sheet data as of January 1, 2014 are derived from the audited Consolidated Financial Statements of LPS not included or incorporated by reference into this Annual Report on Form 10-K.
 
Day ended
January 1, 2014
(In millions, except per share data)
Statements of Operations Data:
 
Revenues
$

Net loss from continuing operations
$
(39.0
)
Net loss
$
(39.0
)
Balance Sheets Data:
 
Cash and cash equivalents
$
278.4

Total assets
$
2,446.6

Total debt (current and long-term)
$
1,068.1

Cash dividends per share
$


Selected Quarterly Financial Data of Black Knight (Unaudited)
Selected quarterly financial data is as follows:
 
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
 
 
 
 
 
 
 
 
(In millions, except per share data)
2018
 
 
 
 
 
 
 
Revenues
$
270.3

 
$
276.6

 
$
281.7

 
$
285.4

Earnings before income taxes
$
55.2

 
$
47.1

 
$
53.8

 
$
50.1

Net earnings
$
42.7

 
$
40.0

 
$
43.0

 
$
42.8

Basic earnings per share
$
0.29

 
$
0.27

 
$
0.29

 
$
0.29

Diluted earnings per share
$
0.29

 
$
0.27

 
$
0.29

 
$
0.29

2017
 
 
 
 
 
 
 
Revenues
$
258.1

 
$
262.2

 
$
263.8

 
$
267.5

Earnings before income taxes and noncontrolling interests
$
39.9

 
$
38.3

 
$
53.1

 
$
61.1

Net earnings
$
33.9

 
$
29.2

 
$
43.9

 
$
147.2

Net earnings attributable to Black Knight
$
12.2

 
$
8.2

 
$
14.7

 
$
147.2

Basic earnings per share attributable to Black Knight
$
0.18

 
$
0.12

 
$
0.22

 
$
0.98

Diluted earnings per share attributable to Black Knight
$
0.18

 
$
0.11

 
$
0.21

 
$
0.97


Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity and capital resources and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Statement Regarding Forward-Looking Information." Our actual results may differ materially from those contained in or implied by the forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Selected Historical Financial Data," "Liquidity and Capital Resources" and the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.
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 the "Distribution of FNF's Ownership Interest and Related Transactions" section below), 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 ("BKI").

27


Overview
We are a leading provider of integrated software, data and analytics solutions to the mortgage and consumer loan, real estate and capital markets verticals. Our solutions facilitate and automate many of the mission-critical business processes across the homeownership lifecycle. We are committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership.
We have market-leading software solutions combined with comprehensive real estate data and extensive analytic capabilities. Our solutions are utilized by U.S. mortgage originators and 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.
We believe the breadth and depth of our comprehensive end-to-end, integrated solutions and the insight we provide to our clients differentiate us from other software providers and position us particularly well for evolving opportunities. We have served the mortgage and real estate industries for over 55 years and utilize this experience to design and develop solutions that fit our clients' ever-evolving needs. The cost of origination and servicing are at historically high levels according to the Mortgage Bankers Association ("MBA"). 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 the number of 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
 
Total first and second lien mortgages
 
2018
 
2017
 
 
2018
 
2017
 
2018
 
2017
Active loans
32.1

 
31.6

 
 
2.5

 
2.0

 
34.6

 
33.6

Market size
51.8

(1)
51.2

(1)
 
13.4

(2)
15.4

(2)
65.2

 
66.6

Market share
62
%
 
62
%
 
 
19
%
 
13
%
 
53
%
 
50
%
_______________________________________________________
(1)
According to the December Black Knight Mortgage Monitor Reports as of December 31, 2018 and 2017 for U.S. first lien mortgages.
(2)
According to the October 2018 and November 2017 Equifax National Consumer Credit Trends Reports as of September 30, 2018 and 2017, respectively, 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.
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, multiple listing service solutions and other data solutions.
We offer our solutions to a wide range of clients across the mortgage and consumer loan, real estate and capital markets 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, particularly in the Software Solutions segment. 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, 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 flows.
Recent Developments
Acquisitions
2018 Acquisitions
On May 31, 2018, we completed our acquisition of HeavyWater, Inc. ("HeavyWater"), a provider of artificial intelligence and machine learning to the financial services industry. Heavywater's AIVA solution will be integrated into our premier solutions and will allow clients to deploy artificial intelligence and machine learning within other parts of their organizations to help enhance efficiency, effectiveness and accuracy.
On November 6, 2018, we completed the acquisition of Ernst Publishing Co., LLC and two related entities (collectively, "Ernst"), a provider of technology and closing cost data for the real estate and mortgage industries. Ernst's capabilities will be

28


integrated into our premier suite of origination solutions and will augment our existing fee engine to create a unified access point for all fee-related needs.
2016 Acquisitions
On May 16, 2016, we completed our acquisition of eLynx Holdings, Inc. ("eLynx"), a leading lending document and data delivery platform that we now refer to as our eLending business. On June 22, 2016, we completed our acquisition of Motivity Solutions, Inc. ("Motivity"), which provides customized mortgage business intelligence software solutions.
Refer to Note 3 to the Notes to Consolidated Financial Statements for additional information related to our acquisitions.
Segment Realignment
On January 1, 2018, we realigned the composition of our two reportable segments. Certain enterprise business intelligence offerings in our Data and Analytics segment were moved to our Software Solutions segment. This change aligns with our go-to-market strategy and with the internal management of our business operations, including the allocation of resources and assessment of performance. Prior period results have been reclassified to conform to the current segment presentation.
Our Corporate Structure
Prior to the Distribution, BKFS conducted its business through Black Knight Financial Services, LLC ("BKFS LLC") and its subsidiaries. We had a sole managing member interest in BKFS LLC, which granted us the exclusive authority to manage, control and operate the business and affairs of BKFS LLC and its subsidiaries, pursuant to the terms of its Second Amended and Restated Limited Liability Company Agreement ("LLC Agreement"). Under the terms of the LLC Agreement, we are authorized to manage the business of BKFS LLC, including 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. We consolidated BKFS LLC in our consolidated financial statements and reported noncontrolling interests related to the membership interests ("Units") in BKFS LLC held by Black Knight Holdings, Inc. ("BKHI") and certain affiliates of THL ("THL Affiliates"). Our shareholders indirectly controlled BKFS LLC through our managing member interest.
FNF, through BKHI, and certain THL affiliates held Units and a number of shares of BKFS Class B common stock equal to the number of Units held by each such owner.
Prior to the Distribution, our corporate structure, as described above, was commonly referred to as an "Up-C" structure, which is often used by partnerships and limited liability companies when they undertake an initial public offering. Our Up-C structure allowed the owners of BKFS LLC to realize tax benefits associated with ownership interests in an entity that was treated as a partnership, or "passthrough" entity, for income tax purposes. These benefits included limiting entity level corporate taxes. Because Units were exchangeable for cash from BKFS LLC or, at our option, shares of BKFS Class A common stock, the Up-C structure also provided the owners of BKFS LLC potential liquidity that holders of privately held limited liability companies are not typically afforded. The owners of BKFS LLC also had voting rights in Black Knight equal to those of holders of BKFS Class A common stock through their ownership of shares of BKFS Class B common stock. BKFS also held Units and received the same benefits as the other holders of Units on account of its ownership in an entity treated as a partnership, or passthrough entity, for income tax purposes. Meanwhile, holders of BKFS Class A common stock had economic and voting rights similar to those of holders of common stock of non-Up-C structured public companies.
Generally, we received a pro-rata share of any distributions made by BKFS LLC to its members, which included us, BKHI and certain THL Affiliates. However, pursuant to the LLC Agreement, BKFS LLC was required to make tax distributions to help each of the holders of the Units pay taxes according to such holder's allocable share of taxable income rather than on a pro-rata basis. Additionally, tax distributions were required to be made based upon an assumed tax rate. Funds used by BKFS LLC to satisfy its tax distribution obligations were not available for reinvestment in our business.
BKFS was a holding company and its sole asset was its interest in BKFS LLC. BKFS, through its sole managing member interest, had 100% of the voting power in BKFS LLC and, through its ownership of Units, had 44.5% of the economic interests in BKFS LLC immediately following our initial public offering. Investors in BKFS held an indirect interest in BKFS LLC through us.
Subsequent to the Distribution and related transactions, BKFS LLC is an indirect wholly-owned subsidiary of BKI, and we no longer have any noncontrolling interests in BKFS LLC. In addition, the Up-C structure is no longer in place.
Business Trends and Conditions
General
The U.S. mortgage market is large, and the loan lifecycle is complex and consists of several stages. The mortgage loan lifecycle 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

29


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 lifecycle are the software, 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 lifecycle.
Market Trends
Market trends that have spurred lenders and servicers to seek software solutions are as follows:
Growing role of technology in the U.S. mortgage industry. Banks and other lenders and servicers have become increasingly focused on automation and workflow management to operate more efficiently and meet their regulatory requirements. We believe technology providers 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. This includes an enhanced digital experience along with the application of artificial intelligence, robotic process automation and adaptive learning.
Lenders increasingly focused on core operations. As a result of regulatory scrutiny and the higher cost of doing business, we believe lenders have become more focused on their core operations and customers. We believe lenders are increasingly shifting from in-house solutions to third-party solutions that provide a more comprehensive and efficient solution. Lenders require these providers to deliver best-in-class solutions and deep domain expertise and to assist them in maintaining regulatory compliance.
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 solutions that enhance the decision-making process. These industry participants rely on large comprehensive third-party databases coupled with enhanced analytics to achieve these goals.
Regulatory oversight. Most U.S. mortgage market participants are subject to a high level of 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 Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), which contained broad changes for many sectors of the financial services and lending industries and established the Consumer Financial Protection Bureau ("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 regulatory requirements and are looking toward solutions that assist them in complying with their regulatory requirements. In addition, recent high-profile data security incidents have resulted in an increased focus on data security by our clients and our clients' regulators. We expect the industry focus on privacy and data security to continue to increase.
Mortgage Market
The largest component of our business, servicing software, primarily generates revenues based on the number of active loans outstanding on our system, which has been very stable and growing. Our servicing software business has some exposure to defaulted loan volumes; however, outside of the most recent financial crisis, the number of loans that fall into seriously delinquent status has been quite stable.
For our origination software solutions, our loan origination system revenues are based on closed loan volumes subject to minimum base software fees that are contractually obligated. These arrangements limit our exposure to origination volumes in our origination software business. Our lending solutions business is exposed to fluctuations in origination volumes, primarily related to refinance volumes due to the nature of the services provided.
Finally, our data and analytics business is predominantly based on longer-term strategic data licenses, other data licenses and subscription-based revenues. Our data and analytics business has some exposure to origination volumes where we provide data related to title insurance and other settlement service-related activities.

30


Regulatory Requirements
There continues to be a high level of legislative and regulatory focus on consumer protection practices. As a result, 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 U.S. This has led banks and other lenders to seek software solutions that assist them in satisfying their regulatory compliance obligations in the face of a changing regulatory environment. We have developed solutions that target this need, which has resulted in additional revenues.
The CFPB has issued guidance that applies to "supervised service providers," which the CFPB has defined to include service providers, like us, to CFPB-supervised banks and non-banks. In addition, the Dodd-Frank Act contains the Mortgage Reform and Anti-Predatory Lending Act that imposes additional requirements on lenders and servicers of residential mortgage loans. Future legislative or regulatory changes are difficult to predict and new laws or regulations that may be implemented by the CFPB or other regulatory bodies may require us to change our business practices or incur increased costs to comply.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based upon audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we evaluate our estimates including those related to revenue recognition, goodwill and other intangible assets and computer software. These judgments are based on our historical experience, terms of our existing contracts, our evaluation of trends in the industry, information provided by our clients and information available from outside sources as appropriate. Our actual results may differ from those estimates. See Note 2 to the Notes to Consolidated Financial Statements for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements.
The accounting policies described below are those we consider to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgment.
Revenue Recognition
We recognize revenues in accordance with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). Recording revenues requires judgment, including determining whether an arrangement includes multiple performance obligations, whether any of those obligations are distinct and cannot be combined and allocation of the transaction price to each performance obligation based on the relative standalone selling prices ("SSP"). Clients receive certain contract elements over time. Changes to the elements in an arrangement or, in our determination, to the relative SSP for these elements, could materially affect the amount of earned and unearned revenues reflected in our consolidated financial statements.
The primary judgments relating to our revenue recognition include determining whether (i) the contract with a client exists; (ii) performance obligations are identified; (iii) the transaction price is determined; (iv) the transaction price is allocated to performance obligations; and (v) the distinct performance obligations are satisfied by transferring control of the product or service to the client. Transfer of control is typically evaluated from the client's perspective.
At contract inception, we determine whether we satisfy the performance obligation over time or at a point in time. Revenues from software and hosting solutions are primarily recognized ratably over time or as fee-bearing usages occur. Revenues from certain licenses that require a significant level of integration, interdependency and interrelation with integral updates are generally recognized ratably over time as services are performed. Distinct professional services revenues are primarily billed on a time and materials basis, and revenues are recognized over time as the services are performed. Revenues from data solutions related to a license for historical data or the license portion of certain distinct term licenses are recognized at a point in time upon delivery, while the remaining arrangement consideration allocated to updates is recognized ratably over the period the updates are provided.
We are often party to multiple concurrent contracts or contracts pursuant to which a client may purchase a combination of goods and services. These situations require judgment to determine whether multiple contracts should be combined and accounted for as a single arrangement. In making this determination, we consider whether the economics of the individual contracts cannot be understood without reference to the whole and multiple promises represent one single performance obligation.
Due to the large number, broad nature and average size of individual contracts we are a party to, the effect of judgments and assumptions we apply in recognizing revenues for any single contract is not likely to have a material effect on our consolidated

31


operations. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of clients could significantly influence the timing and amount of revenues recognized in our results of operations.
Goodwill and Other Intangible Assets
We have significant intangible assets that were recorded in connection with business acquisitions. These assets primarily consist of client relationships and the excess of purchase price over the fair value of identifiable net assets acquired (goodwill).
As of December 31, 2018, Goodwill was $2,329.7 million. Goodwill is not amortized, but is tested for impairment annually or more frequently if circumstances indicate potential impairment. In evaluating the recoverability of goodwill, we consider the amount of excess fair value over the carrying value of each reporting unit, the period of time since a reporting unit's last quantitative test and other factors to determine whether or not to first perform a qualitative test. When performing the annual goodwill impairment analysis based on review of qualitative factors, we evaluate if events and circumstances exist that lead to a determination that the fair value of each reporting unit is more likely than not greater than its carrying amount. Based on the results of this qualitative analysis or other factors mentioned above, a quantitative goodwill impairment test may be completed. The quantitative process of determining whether or not an asset, such as goodwill, is impaired or recoverable relies on a weighted average of multiple valuation methods, primarily a combination of an income approach and a market approach. The income approach includes the present value of estimated future cash flows, while the market approach uses earnings multiples of similar guideline public companies. Such projections are inherently uncertain and, accordingly, actual future cash flows may differ materially from projected cash flows. A quantitative goodwill impairment analysis is sensitive to changes in estimates of future net cash flows and discount rates. Changes to these estimates might result in material changes in the fair value of the reporting units and determination of the recoverability of goodwill that may result in charges against earnings and a reduction in the carrying value of our goodwill. We completed our annual goodwill impairment analysis in each of the past three years and, as a result, no impairment charges were recorded to goodwill in 2018, 2017 and 2016.
As of December 31, 2018, Other intangible assets, net of accumulated amortization, were $188.0 million, which consist primarily of client relationships. Long-lived assets and intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The valuation of these assets involves significant estimates and assumptions concerning matters such as client retention, future cash flows and discount rates. If any of these assumptions change, it could affect the recoverability of the carrying value of these assets. Client relationships are amortized over their estimated useful lives using an accelerated method that takes into consideration expected client attrition rates over a period of up to 10 years from the acquisition date. All intangible assets that have been determined to have indefinite lives are not amortized, but are reviewed for impairment at least annually in accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC 350"). The initial determination of estimated useful lives and the allocation of the purchase price to the fair values of the intangible assets other than goodwill require significant judgment and may affect the amount of future amortization of such intangible assets.
Definite-lived intangible assets are amortized over their estimated useful lives ranging from 3 to 10 years using accelerated methods. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from intangible assets. We have not historically experienced material changes in these estimates but could be subject to them in the future.
Computer Software
Computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. As of December 31, 2018, computer software, net of accumulated amortization, was $405.6 million. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at fair value and amortized using straight-line or accelerated methods over the estimated useful life, ranging from 3 to 10 years.
Capitalized software development costs are accounted for in accordance with either ASC Topic 985, Software, Subtopic 20, Costs of Software to Be Sold, Leased, or Marketed ("ASC 985-20") or ASC 350, Subtopic 40, Internal-Use Software ("ASC 350-40"). For computer software products to be sold, leased or marketed (ASC 985-20 software), all costs incurred to establish the technological feasibility are research and development costs and are expensed as they are incurred. Costs incurred subsequent to establishing technological feasibility, such as programmers' salaries, related payroll costs and costs of independent contractors, are capitalized and amortized on a product-by-product basis commencing on the date of general release to clients. We do not capitalize any costs once the product is available for general release to clients. For internal-use computer software products (ASC 350-40 software), internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product-by-product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use. Internally developed software costs are amortized using straight-line or accelerated methods over the estimated useful life. Useful lives of computer software range from 3 to 10 years.

32


We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from computer software. We have not historically experienced material changes in these estimates but could be subject to them in the future.
Factors Affecting the Comparability of Our Results of Operations
Our results of operations for periods prior to the adoption of ASC 606, Tax Reform Act and Distribution are not comparable to periods thereafter. Our historical results of operations are not be comparable to our results of operations in future periods as a result of these and a number of other factors. In addition, our results of operations may vary from period to period. Set forth below is a brief discussion of the key factors affecting the comparability of our results of operations.
Revenues. On January1, 2018 we adopted ASC 606 using the modified retrospective approach. Under this method, we recognized the cumulative effect of applying the new revenue recognition standard to existing revenue contracts that were active as of the adoption date as an adjustment to the opening balance of Retained earnings. The reported results for 2018 reflect the application of ASC 606, while the comparative information has not been restated and continues to be reported under the related accounting standards in effect for those periods. Refer to Note 14 to the Notes to Consolidated Financial Statements for additional information related to the effect of adopting ASC 606.
Income Taxes. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("Tax Reform Act") was signed into law. Among other provisions, the Tax Reform Act reduced the federal statutory corporate income tax rate from 35% to 21%. During the fourth quarter of 2017, we recorded a one-time non-cash net tax benefit of $110.9 million related to the revaluation of our deferred income tax assets and liabilities as a result of the Tax Reform Act. The effect of this adjustment on our 2017 effective tax rate was (57.6)%. Our effective tax rate for the years ended December 31, 2018, 2017 and 2016 was 18.3%, (32.1)% and 16.2%, respectively. Refer to Note 17 to the Notes to Consolidated Financial Statements for additional information related to the reconciliation of our federal tax rate to our effective tax rate.
Noncontrolling interests. Prior to the Distribution, noncontrolling interests represented BKHI and certain of its affiliates' and THL and certain THL affiliates' share of net earnings or loss and of equity in BKFS LLC. Subsequent to the Distribution and related transactions, we no longer have any noncontrolling interests in BKFS LLC. Refer to Note 1 to the Notes to Consolidated Financial Statements for additional information related to the Distribution.
Key Components of Results of Operations
Revenues
We generate revenues through contractual arrangements we enter into with our clients to provide products or services either individually or in combination with one another as part of an integrated offering of multiple services. These arrangements occasionally include offerings from more than one segment to the same client.
Software Solutions
Our Software Solutions segment revenues are primarily derived from software and hosting solutions and professional services. Revenues from software and hosting solutions are typically volume-based agreements driven by factors such as the number of accounts processed, transactions processed and computer resources utilized. Professional services consists of pre-implementation and post-implementation support and services and are primarily billed on a time and materials basis. Professional services may also include dedicated teams provided as part of agreements with software and hosting solutions clients.
Data and Analytics
Our Data and Analytics segment revenues are primarily derived from property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, behavioral models, a multiple listing service software solution and other data solutions.  
Expenses
The following is a brief description of the components of our expenses:
Operating expenses primarily include compensation costs, including benefits and equity-based compensation, hardware and software maintenance costs, third-party software costs, rent-related costs and professional services.
Transition and integration costs for 2018 primarily represent costs associated with executive transition, transition-related costs from the transfer of certain corporate functions from FNF following the Distribution and acquisition-related costs. Transition and integration costs for 2017 primarily consisted of legal and professional fees related to the Distribution and transition-related costs following the Distribution. In 2016, these costs consisted of acquisition-related costs and professional services related to the Distribution.

33


Depreciation and amortization expense consists of our depreciation related to investments in property and equipment, including hardware, as well as amortization of purchased and developed software and other intangible assets, principally client relationship assets recorded in connection with acquisitions. It also includes the amortization of previously deferred contract costs.
Interest expense, net consists primarily of interest expense on our borrowings, a guarantee fee that we paid FNF for their guarantee of our senior notes prior to the Senior Notes Redemption, amortization of our debt issuance costs, bond premium and original issue discount, payments on our interest rate swaps, commitment fees on our revolving credit facility and administrative agent fees net of capitalized interest and interest income. See Note 11 in the Notes to Consolidated Financial Statements for a more detailed discussion of our Interest expense and our senior notes redemption.
Other expense, net for 2018 primarily related to the loss on extinguishment of debt and costs incurred in connection with our debt refinancing on April 30, 2018. Other expense, net for 2017 primarily consisted of losses on the extinguishment of debt and costs incurred in connection with our senior notes redemption, term A loan and revolving credit facility refinancing and the term B loan repricing, partially offset by the resolution of a legacy legal matter. Other expense, net for 2016 primarily consisted of legal fees associated with litigation matters.
Income tax expense (benefit) represents federal, state, local and foreign taxes based on income attributable to Black Knight. In 2017, it also includes a one-time, non-cash net tax benefit of $110.9 million related to the revaluation of our deferred income tax assets and liabilities as a result of the Tax Reform Act.

34


Results of Operations
Key Performance Metrics
We use non-GAAP financial measures such as Adjusted Revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Earnings and Adjusted Net Earnings Per Share for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe these non-GAAP financial measures are useful for investors in evaluating our overall financial performance. We believe these measures provide useful information about our 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 financial and operational decision-making, including determining a portion of executive compensation. We also present these non-GAAP financial measures because we believe investors, analysts and rating agencies consider them useful in measuring our ability to meet our debt service obligations. By disclosing these non-GAAP financial measures, we believe we offer investors a greater understanding of, and an enhanced level of transparency into, the means by which our management operates the Company. These non-GAAP financial measures are not measures presented in accordance with GAAP, and our use of these terms may vary from that of others in our industry. These non-GAAP financial measures should not be considered as an alternative to revenues, net earnings, net earnings per share or any other measures derived in accordance with GAAP as measures of operating performance or liquidity.
Adjusted Revenues, Adjusted EBITDA and Adjusted EBITDA Margin for the Software Solutions and Data and Analytics segments are presented in conformity with ASC Topic 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 ("SEC") 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 us 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 statement of earnings items including, but not limited to:
Depreciation and amortization;
Impairment charges;
Interest expense, net;
Income tax expense (benefit);
Other expense, net;
deferred revenue purchase accounting adjustment;
equity-based compensation, including related payroll taxes;
costs associated with debt and/or equity offerings, including the Distribution;
spin-off related transition costs;
acquisition-related costs, including ongoing costs pursuant to a purchase agreement; and
costs associated with executive transition.
These adjustments are reflected in Corporate and Other.
Adjusted EBITDA Margin — Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Adjusted Revenues.
Adjusted Net Earnings - We define Adjusted Net Earnings as Net earnings with adjustments to reflect the addition or elimination of certain statement of earnings items including, but not limited to:
the net incremental depreciation and amortization adjustments associated with the application of purchase accounting;
deferred revenue purchase accounting adjustment;
equity-based compensation, including related payroll taxes;
costs associated with debt and/or equity offerings, including the Distribution;
spin-off related transition costs;
acquisition-related costs, including ongoing costs pursuant to a purchase agreement;
costs associated with executive transition;
significant legal and regulatory matters; and
adjustment for income tax expense primarily related to assuming the conversion of all the shares of Class B common stock into shares of Class A common stock prior to the Distribution, the tax effect of the non-GAAP adjustments, the revaluation of our net deferred tax liability related to purchase accounting, equity-based compensation and debt modifications and the deferred tax revaluation adjustment as a result of the Tax Reform Act.
Adjusted Net Earnings Per Share - Adjusted Net Earnings Per Share is calculated by dividing Adjusted Net Earnings by the

35


diluted weighted average shares of common stock outstanding. For the periods prior to the Distribution, the denominator includes the effect of assuming the exchange of all shares of Class B common stock into shares of Class A common stock at the beginning of the respective period.
Consolidated Results of Operations
The following tables present certain financial data for the periods indicated (dollars in millions):
 
Year ended December 31,
 
2018
 
2017
 
2016
Revenues
$
1,114.0

 
$
1,051.6

 
$
1,026.0

Expenses:
 
 
 
 
 
Operating expenses
625.4

 
569.5

 
582.6

Depreciation and amortization
217.0

 
206.5

 
208.3

Transition and integration costs
6.6

 
13.1

 
2.3

Total expenses
849.0

 
789.1

 
793.2

Operating income
265.0

 
262.5

 
232.8

Operating margin
23.8
%
 
25.0
%
 
22.7
%
Interest expense, net
(51.7
)
 
(57.5
)
 
(67.6
)
Other expense, net
(7.1
)
 
(12.6
)
 
(6.4
)
Earnings before income taxes
206.2

 
192.4

 
158.8

Income tax expense (benefit)
37.7

 
(61.8
)
 
25.8

Net earnings
$
168.5

 
$
254.2

 
$
133.0

 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
Net earnings per share attributable to Black Knight common shareholders:
 
 
 
 
 
Diluted
$
1.14

 
$
1.47

 
$
0.67

Weighted average shares of common stock outstanding:
 
 
 
 
 
Diluted
148.2

 
152.4

 
67.9

 
 
 
 
 
 
Non-GAAP Financial Measures
 
 
 
 
 
Adjusted Revenues
$
1,116.5

 
$
1,056.1

 
$
1,033.3

Adjusted EBITDA
$
542.5

 
$
505.8

 
$
463.1

Adjusted EBITDA Margin
48.6
%
 
47.9
%
 
44.8
%
Adjusted Net Earnings
$
277.9

 
$
209.6

 
$
175.4

Adjusted Net Earnings Per Share
$
1.87

 
$
1.38

 
$
1.15


Reconciliations of the above non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables below (in millions):
 
Year ended December 31,
 
2018
 
2017
 
2016
Revenues
$
1,114.0

 
$
1,051.6

 
$
1,026.0

Deferred revenue purchase accounting adjustment
2.5

 
4.5

 
7.3

Adjusted Revenues
$
1,116.5

 
$
1,056.1

 
$
1,033.3



36


 
Year ended December 31,
 
2018
 
2017
 
2016
Net earnings
$
168.5

 
$
254.2

 
$
133.0

Depreciation and amortization
217.0

 
206.5

 
208.3

Interest expense, net
51.7

 
57.5

 
67.6

Income tax expense (benefit)
37.7

 
(61.8
)
 
25.8

Other expense, net
7.1

 
12.6

 
6.4

EBITDA
482.0

 
469.0

 
441.1

Deferred revenue purchase accounting adjustment
2.5

 
4.5

 
7.3

Equity-based compensation
51.4

 
19.2

 
12.4

Debt and/or equity offering expenses
0.7

 
7.5

 
0.6

Spin-off related transition costs
2.2

 
5.6

 

Acquisition-related costs
1.3

 

 
1.7

Executive transition costs
2.4

 

 

Adjusted EBITDA
$
542.5

 
$
505.8

 
$
463.1

Adjusted EBITDA Margin
48.6
%
 
47.9
%
 
44.8
%

 
Year ended December 31,
 
2018
 
2017
 
2016
Net earnings
$
168.5

 
$
254.2

 
$
133.0

Depreciation and amortization purchase accounting adjustment
90.6

 
92.2

 
90.1

Deferred revenue purchase accounting adjustment
2.5

 
4.5

 
7.3

Equity-based compensation
51.4

 
19.2

 
12.4

Debt and/or equity offering expenses
6.5

 
20.1

 
0.6

Spin-off related transition costs
2.4

 
5.8

 

Acquisition-related costs
1.3

 

 
1.7

Executive transition costs
2.4

 

 

Legal and regulatory matters
0.8

 
(0.3
)
 
6.4

Income tax expense adjustment
(48.5
)
 
(75.2
)
 
(76.1
)
Tax Reform Act adjustment

 
(110.9
)
 

Adjusted Net Earnings
$
277.9

 
$
209.6

 
$
175.4

 
 
 
 
 
 
Adjusted Net Earnings Per Share
$
1.87

 
$
1.38

 
$
1.15

Weighted Average Adjusted Shares Outstanding
148.2

 
152.4

 
152.7

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenues
Consolidated Revenues were $1,114.0 million in 2018 and $1,051.6 million in 2017, an increase of $62.4 million, or 6%. The change in revenues is discussed further at the segment level below.

37


The following table sets forth revenues by segment for the periods presented (in millions):
 
Year ended December 31,
 
2018
 
2017
Software Solutions
$
962.0

 
$
904.5

Data and Analytics
154.5

 
151.6

Corporate and Other (1)
(2.5
)
 
(4.5
)
Total
$
1,114.0

 
$
1,051.6

_______________________________________________________
(1)
Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.
Software Solutions
Revenues were $962.0 million in 2018 compared to $904.5 million in 2017, an increase of $57.5 million, or 6%. Our servicing software solutions revenues increased 7%, or $52.5 million, primarily driven by loan growth on MSP® from new and existing clients, which increased 4.3% to 34.4 million average loans, an increase in our average revenue per loan and cross-sales to existing clients. Our origination software solutions revenues increased 3%, or $5.0 million, primarily driven by 31% growth in our loan origination system solutions and a software license fee in our Lending Solutions business, partially offset by the effect of lower volumes on our Exchange and eLending platforms primarily as a result of the 26% decline in refinancing originations as reported by the Mortgage Bankers Association.
Data and Analytics
Revenues were $154.5 million in 2018 compared to $151.6 million in 2017, an increase of $2.9 million, or 2%. The increase was primarily driven by growth in our property data and multiple listing service businesses, partially offset by upfront revenues from long-term strategic license deals in 2017.
Operating Expenses
Consolidated Operating expenses were $625.4 million in 2018 compared to $569.5 million in 2017, an increase of $55.9 million, or 10%. The changes in operating expenses are discussed further at the segment level below.
The following table sets forth operating expenses by segment for the periods presented (in millions):
 
Year ended December 31,
 
2018
 
2017
Software Solutions
$
394.8

 
$
388.0

Data and Analytics
115.0

 
113.2

Corporate and Other
115.6

 
68.3

Total
$
625.4

 
$
569.5

Software Solutions
Operating expenses were $394.8 million in 2018 compared to $388.0 million in 2017, an increase of $6.8 million, or 2%. The increase was primarily due to higher personnel costs, hardware and software maintenance costs in support of business growth and the effect of the HeavyWater and Ernst acquisitions, partially offset by increased capitalization of software development costs.
Data and Analytics
Operating expenses were $115.0 million in 2018 compared to $113.2 million in 2017, an increase of $1.8 million, or 2%. The increase was primarily driven by data acquisition costs.
Corporate and Other
Operating expenses were $115.6 million in 2018 compared to $68.3 million in 2017, an increase of $47.3 million, or 69%. The increase was primarily driven by a $32.0 million increase in equity-based compensation of which $6.9 million of the increase related to accelerated expense, $8.9 million of higher incentive bonus expense and incremental costs following the Distribution.
Depreciation and Amortization
Consolidated Depreciation and amortization was $217.0 million in 2018 compared to $206.5 million in 2017, an increase of $10.5 million, or 5%. The changes in depreciation and amortization are discussed further at the segment level below.

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The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
 
Year ended December 31,
 
2018
 
2017
Software Solutions
$
112.9

 
$
101.2

Data and Analytics
14.1

 
12.8

Corporate and Other (1)
90.0

 
92.5

Total
$
217.0

 
$
206.5

_______________________________________________________
(1)
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.
Software Solutions
Depreciation and amortization was $112.9 million in 2018 compared to $101.2 million in 2017, an increase of $11.7 million, or 12%. The increase is primarily due to amortization of deferred contract costs related to new client wins and new hardware and software placed in service.
Data and Analytics
Depreciation and amortization was $14.1 million in 2018 compared to $12.8 million in 2017, an increase of $1.3 million, or 10%. The increase is primarily due to higher software amortization from new software placed in service for new solutions and enhancements for existing solutions.
Transition and Integration Costs
Consolidated Transition and integration costs were $6.6 million in 2018 compared to $13.1 million in 2017, a decrease of $6.5 million. Transition and integration costs in 2018 primarily consisted of costs associated with executive transition, transition-related costs from the transfer of certain corporate functions from FNF following the Distribution and acquisition-related costs. Transition and integration costs in 2017 primarily consisted of legal and professional fees related to the Distribution and transition-related costs following the Distribution.
Operating Income (Loss)
Consolidated Operating income was $265.0 million in 2018 compared to $262.5 million in 2017, an increase of $2.5 million, or 1%. The change in operating income (loss) is discussed further at the segment level below.
The following table sets forth operating income (loss) by segment for the periods presented (in millions):
 
Year ended December 31,
 
2018
 
2017
Software Solutions
$
454.3

 
$
415.3

Data and Analytics
25.4

 
25.6

Corporate and Other
(214.7
)
 
(178.4
)
Total
$
265.0

 
$
262.5

Software Solutions
Operating income was $454.3 million in 2018 compared to $415.3 million in 2017, an increase of $39.0 million, or 9%. Operating margin was 47.2% in 2018 compared to 45.9% in 2017. The increase in operating income is primarily due to revenue growth within servicing software, partially offset by higher depreciation and amortization.
Data and Analytics
Operating income was $25.4 million in 2018 compared to $25.6 million in 2017, a decrease of $0.2 million. Operating margin was 16.4% in 2018 compared to 16.9% in 2017. The decrease in operating income is primarily due to data acquisition costs and higher software amortization.
Corporate and Other
Operating loss was $214.7 million in 2018 compared to $178.4 million in 2017, an increase of $36.3 million, or 20%. The increase in loss was primarily driven by an increase in equity-based compensation, incentive bonus accruals and incremental costs following the Distribution.

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Interest Expense, Net
Consolidated Interest expense, net was $51.7 million in 2018 compared to $57.5 million in 2017, a decrease of $5.8 million, or 10%. The decrease is driven by the lower outstanding debt balance in 2018 and interest savings from the Senior Notes redemption in April 2017.
Other Expense, Net
Consolidated Other expense, net was $7.1 million in 2018 compared to $12.6 million in 2017. The 2018 amounts were primarily related to the loss on extinguishment of debt and costs incurred in connection with our debt refinancing on April 30, 2018, as discussed in Note 11 to the Notes to Consolidated Financial Statements. The 2017 amount primarily consisted of losses on the extinguishment of debt and costs incurred in connection with our senior notes redemption, term A loan and revolving credit facility refinancing and the term B loan repricing, as discussed in Note 11 to the Notes to Consolidated Financial Statements, and well as a resolution of a legacy legal matter.
Income Tax Expense (Benefit)
Consolidated Income tax expense was $37.7 million in 2018 compared to a benefit of $61.8 million in 2017. Our effective tax rate was 18.3% in 2018 compared to (32.1)% in 2017. Our effective tax rate for 2018 includes the effect of a reduction in our blended state tax rate, a prior year return to provision adjustment, higher than expected tax credits and excess tax benefits related to the vesting of the restricted shares of our common stock. The effective tax rate for 2017 was lower than the typical federal and state statutory rate because of the effect of the Tax Reform Act and our noncontrolling interests prior to the Distribution, partially offset by the effect of certain discrete items recorded during 2017.
Adjusted Revenues
Consolidated Adjusted Revenues were $1,116.5 million in 2018 compared to $1,056.1 million in 2017, an increase of $60.4 million, or 6%. The increase was primarily driven by growth in our servicing software solutions.
Adjusted EBITDA and Adjusted EBITDA Margin
Consolidated Adjusted EBITDA was $542.5 million in 2018 compared to $505.8 million in 2017, an increase of $36.7 million, or 7%. The changes in Adjusted EBITDA are discussed further at the segment level below.
Consolidated Adjusted EBITDA Margin was 48.6% in 2018 compared to 47.9% in 2017, an increase of 70 basis points. The changes in Adjusted EBITDA Margin are discussed further at the segment level below.
The following tables set forth Adjusted EBITDA (in millions) and Adjusted EBITDA Margin by segment for the periods presented:
 
Year ended December 31,
 
2018
 
2017
Software Solutions
$
567.2

 
$
516.5

Data and Analytics
39.5

 
38.4

Corporate and Other
(64.2
)
 
(49.1
)
Total
$
542.5

 
$
505.8

 
Year ended December 31,
 
2018
 
2017
Software Solutions
59.0
%
 
57.1
%
Data and Analytics
25.6
%
 
25.3
%
Corporate and Other
N/A

 
N/A

Total
48.6
%
 
47.9
%
Software Solutions
Adjusted EBITDA was $567.2 million in 2018 compared to $516.5 million in 2017, an increase of $50.7 million, or 10%, with an Adjusted EBITDA Margin of 59.0%, an increase of 190 basis points from the prior year. The increase was primarily driven by incremental margins on revenue growth.

40


Data and Analytics
Adjusted EBITDA was $39.5 million in 2018 compared to $38.4 million in 2017, an increase of $1.1 million, or 3%, with an Adjusted EBITDA Margin of 25.6% in 2018 compared to 25.3% in 2017, an increase of 30 basis points from the prior year. The Adjusted EBITDA Margin increase was primarily due to incremental margins on revenue growth.
Adjusted Net Earnings and Adjusted Net Earnings Per Share
Adjusted Net Earnings was $277.9 million in 2018 compared to $209.6 million in 2017, an increase of $68.3 million, or 33%. Adjusted Net Earnings Per Share was $1.87 in 2018 compared to $1.38 in 2017, an increase of $0.49, or 36%. The increase was primarily driven by increased earnings from revenue growth and lower income tax expense and interest expense.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues
Consolidated Revenues were $1,051.6 million in 2017 compared to $1,026.0 million in 2016, an increase of $25.6 million, or 2%. The change in revenues is discussed further at the segment level below.
The following table sets forth revenues by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
904.5

 
$
860.7

Data and Analytics
151.6

 
172.6

Corporate and Other
(4.5
)
 
(7.3
)
Total
$
1,051.6

 
$
1,026.0

Software Solutions
Revenues were $904.5 million in 2017 compared to $860.7 million in 2016, an increase of $43.8 million, or 5%. Our servicing software business grew 8%, or $57.2 million, primarily driven by higher loan volumes on MSP, which increased 3.3% to 33.0 million average loans, price increases and higher transactional volumes. Our origination software business declined 8%, or $13.4 million, primarily driven by lower Exchange volumes as a result of a decline in refinancing originations, consulting revenues and client contract termination fees, partially offset by incremental revenues from business acquisitions.
Data and Analytics
Revenues were $151.6 million in 2017 compared to $172.6 million in 2016, a decrease of $21.0 million, or 12%. The decrease was driven by the effect of the Property Insight realignment, partially offset by growth in our property data and multiple listing service businesses. Had the realignment taken place on January 1, 2016, revenues for 2016 would have been lower by $30.1 million.
Operating Expenses
Consolidated Operating expenses were $569.5 million in 2017 compared to $582.6 million in 2016, a decrease of $13.1 million, or 2%. The changes in operating expenses are discussed further at the segment level below.
The following table sets forth operating expenses by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
388.0

 
$
374.6

Data and Analytics
113.2

 
144.4

Corporate and Other
68.3

 
63.6

Total
$
569.5

 
$
582.6

Software Solutions
Operating expenses were $388.0 million in 2017 compared to $374.6 million in 2016, an increase of $13.4 million, or 4%. The increase was primarily due to business acquisitions and the effect of costs associated with the Data Hub®.
Data and Analytics
Operating expenses were $113.2 million in 2017 compared to $144.4 million in 2016, a decrease of $31.2 million, or 22%. The decrease was primarily driven by the Property Insight realignment.

41


Corporate and Other
Operating expenses were $68.3 million in 2017 compared to $63.6 million in 2016, an increase of $4.7 million, or 7%. The increase was primarily driven by an increase in equity-based compensation and professional fees, partially offset by lower incentive bonus expense.
Depreciation and Amortization
Consolidated Depreciation and amortization was $206.5 million in 2017 compared to $208.3 million in 2016, a decrease of $1.8 million, or 1%. The changes in depreciation and amortization are discussed further at the segment level below.
The following table sets forth depreciation and amortization by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
101.2

 
$
107.0

Data and Analytics
12.8

 
8.0

Corporate and Other (1)
92.5

 
93.3

Total
$
206.5

 
$
208.3

_______________________________________________________
(1)
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.
Software Solutions
Depreciation and amortization was $101.2 million in 2017 compared to $107.0 million in 2016, a decrease of $5.8 million, or 5%. The decrease is primarily due to lower amortization of deferred contract costs and software.
Data and Analytics
Depreciation and amortization was $12.8 million in 2017 compared to $8.0 million in 2016, an increase of $4.8 million, or 60%. The increase is primarily due to an increase in depreciation from computer hardware and amortization of new software development.
Transition and Integration Costs
Consolidated Transition and integration costs were $13.1 million in 2017 compared to $2.3 million in 2016, an increase of $10.8 million. Transition and integration costs for 2017 primarily consisted of legal and professional fees related to the Distribution and transition-related costs following the Distribution. In 2016, these costs consisted of acquisition-related costs and professional services related to the Distribution.
Operating Income (Loss)
Consolidated Operating income was $262.5 million in 2017 compared to $232.8 million in 2016, an increase of $29.7 million, or 13%. The change in operating income (loss) is discussed further at the segment level below.
The following table sets forth operating income (loss) by segment for the periods presented (in millions):
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
415.3

 
$
379.1

Data and Analytics
25.6

 
20.2

Corporate and Other
(178.4
)
 
(166.5
)
Total
$
262.5

 
$
232.8

Software Solutions
Operating income was $415.3 million in 2017 compared to $379.1 million in 2016, an increase of $36.2 million, or 10%. Operating margin was 45.9% in 2017 compared to 44.0% in 2016. The increase in operating income is primarily due to revenue growth within servicing software, partially offset by higher depreciation and amortization and the effect of expenses associated with the Data Hub®.

42


Data and Analytics
Operating income was $25.6 million in 2017 compared to $20.2 million in 2016, an increase of $5.4 million. Operating margin was 16.9% in 2017 compared to 11.7% in 2016. The increase in operating income is primarily due to incremental revenues excluding the Property Insight realignment.
Corporate and Other
Operating loss was $178.4 million in 2017 compared to $166.5 million in 2016, an increase of $11.9 million, or 7%. The increase was primarily driven by an increase in equity-based compensation and legal and professional fees related to the Distribution, partially offset by lower incentive bonus expense.
Interest Expense, Net
Consolidated Interest expense, net was $57.5 million in 2017 compared to $67.6 million in 2016, a decrease of $10.1 million, or 15%. The decrease is driven by interest savings from the term B loan repricing and debt refinancing.
Other Expense, Net
Consolidated Other expense, net was $12.6 million in 2017 compared to $6.4 million in 2016, an increase of $6.2 million, or 97%. The 2017 amount primarily consisted of losses on the extinguishment of debt and costs incurred in connection with our senior notes redemption, term A loan and revolving credit facility refinancing and the term B loan repricing as well as a resolution of a legacy tax matter. Other expense, net for 2016 primarily consisted of legal fees associated with litigation matters.
Income Tax Expense
Consolidated Income tax benefit was $61.8 million in 2017 compared to Income tax expense of $25.8 million in 2016. Our effective tax rate was (32.1)% in 2017 compared to 16.2% in 2016. The change is primarily due to an adjustment of $110.9 million related to the revaluation of our net deferred income tax liability as a result of the Tax Reform Act. The effect of this adjustment on our 2017 effective tax rate was (57.6)%, partially offset by a higher effective tax for the period following the Distribution as we no longer have any noncontrolling interests.
Adjusted Revenues
Consolidated Adjusted Revenues were $1,056.1 million in 2017 compared to $1,033.3 million in 2016, an increase of $22.8 million, or 2%. The increase was primarily driven by growth in our servicing software solutions and business acquisitions, partially offset by the effect of the Property Insight realignment and lower Exchange volumes as a result of a decline in refinancing originations.
Adjusted EBITDA and Adjusted EBITDA Margin
Consolidated Adjusted EBITDA was $505.8 million in 2017 compared to $463.1 million in 2016, an increase of $42.7 million, or 9%. The changes in Adjusted EBITDA are discussed further at the segment level below.
Consolidated Adjusted EBITDA Margin was 47.9% in 2017 compared to 44.8% in 2016, an increase of 310 basis points. The changes in Adjusted EBITDA Margin are discussed further at the segment level below.
The following tables set forth Adjusted EBITDA (in millions) and Adjusted EBITDA Margin by segment for the periods presented:
 
Year ended December 31,
 
2017
 
2016
Software Solutions
$
516.5

 
$
486.1

Data and Analytics
38.4

 
28.2

Corporate and Other
(49.1
)
 
(51.2
)
Total
$
505.8

 
$
463.1

 
Year ended December 31,
 
2017
 
2016
Software Solutions
57.1
%
 
56.5
%
Data and Analytics
25.3
%
 
16.3
%
Corporate and Other
N/A

 
N/A

Total
47.9
%
 
44.8
%

43


Software Solutions
Adjusted EBITDA was $516.5 million in 2017 compared to $486.1 million in 2016, an increase of $30.4 million, or 6%, with an Adjusted EBITDA Margin of 57.1%, an increase of 60 basis points from the prior year. The Adjusted EBITDA Margin increase was primarily driven by incremental margins on revenue growth, partially offset by costs associated with the Data Hub®.
Data and Analytics
Adjusted EBITDA was $38.4 million in 2017 compared to $28.2 million in 2016, an increase of $10.2 million, or 36%, with an Adjusted EBITDA Margin of 25.3% compared to 16.3% in 2016, an increase of 900 basis points from the prior year. The Adjusted EBITDA Margin increase was primarily due to the effect of the Property Insight realignment and incremental revenue growth.
Adjusted Net Earnings and Adjusted Net Earnings Per Share
Adjusted Net Earnings was $209.6 million in 2017 compared to $175.4 million in 2016, an increase of $34.2 million, or 19%. Adjusted Net Earnings Per Share was $1.38 in 2017 compared to $1.15 in 2016, an increase of $0.23, or 20% . The increase was primarily driven by increased earnings from revenue growth and lower interest expense.
Liquidity and Capital Resources
Cash Requirements
Our primary sources of liquidity are our existing cash and cash equivalents balances, cash flows from operations and borrowings on our revolving credit facility.
Our primary cash requirements include operating expenses, debt service payments (principal and interest), capital expenditures (including property, equipment and computer software expenditures) and tax-related payments and may include share repurchases and business acquisitions.
As of December 31, 2018, we had cash and cash equivalents of $20.3 million and debt principal of $1,349.8 million. We believe that our cash flows from operations and available cash and cash equivalents are sufficient to meet our liquidity needs, including the repayment of our outstanding debt, for at least the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded through borrowings on our revolving credit facility, the incurrence of other indebtedness, equity issuance or a combination thereof. We cannot be assured that we will be able to obtain this additional liquidity on reasonable terms, or at all. The loss of the largest lender on our revolving credit facility would reduce our borrowing capacity by $68.0 million. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot be assured that our business will generate sufficient cash flows from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.
On February 8, 2019, we invested $375.0 million in The Dun & Bradstreet Corporation ("D&B") for an economic ownership of approximately 18%. This investment was funded by borrowings on our revolving credit facility. Refer to Note 3 to the Notes to Consolidated Financial Statements for additional information related to our investment in D&B.
Cash Flows
The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in millions):
 
Year ended December 31,
 
2018
 
2017
 
2016
Cash flows provided by operating activities
$
435.5

 
$
351.1

 
$
325.7

Cash flows used in investing activities
(144.1
)
 
(84.7
)
 
(230.2
)
Cash flows used in financing activities
(287.3
)
 
(384.1
)
 
(147.6
)
Net increase (decrease) in cash and cash equivalents
$
4.1

 
$
(117.7
)
 
$
(52.1
)
Operating Activities
The $84.4 million increase in cash provided by operating activities in 2018 compared to 2017 is primarily related to increased earnings excluding the prior year effect of the Tax Reform Act and the timing and amount of cash receipts for Trade receivables, net. The $25.4 million increase in cash provided by operating activities in 2017 compared to 2016 is primarily related to increased earnings excluding the effect of the Tax Reform Act, partially offset by the increase in working capital.

44


Investing Activities
The $59.4 million increase in cash used in investing activities in 2018 compared to 2017 is primarily related to the HeavyWater and Ernst acquisitions and higher capital expenditures in 2018. The $145.5 million decrease in cash used in investing activities in 2017 compared to 2016 is primarily related to business acquisitions in 2016.
Financing Activities
The $96.8 million decrease in cash used in financing activities in 2018 compared to 2017 is primarily related to tax distributions to BKFS LLC members and the senior notes redemption fee in 2017. The $236.5 million increase in cash used in financing activities in 2017 compared to 2016 was primarily related to purchases of treasury stock, incremental debt-related payments, net of borrowings, and higher tax distributions to BKFS LLC members.
Financing
For a description of our financing arrangements, see Note 11 to the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report, which is incorporated by reference into this Part II Item 7.
Contractual Obligations
Our long-term contractual obligations generally include our debt and related interest payments, data processing and maintenance commitments and operating lease payments on certain of our property and equipment.
As of December 31, 2018, our required annual payments relating to these contractual obligations were as follows (in millions):
 
 
 
 
Payments due by period
 
 
Total
 
2019
 
2020-2021
 
2022-2023
 
Thereafter
Long-term debt
 
$
1,349.8

 
$
53.2

 
$
128.2

 
$
1,168.4

 
$

Interest on long-term debt (1)
 
218.6

 
53.4

 
102.7

 
62.5

 

Data processing and maintenance commitments
 
151.6

 
66.3

 
85.3