UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2020

OR

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

Commission File Number 001-37394

Black Knight, Inc.

______________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)

Delaware					81-5265638
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification Number)
601 Riverside Avenue	,	Jacksonville	,	Florida	32204
(Address of principal executive offices)					(Zip Code)

(904) 854-5100

___________________________________________________________________

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	BKI	New York Stock Exchange

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 ☑ No ☐

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 ☑ No ☐

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

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐

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. ☐

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

Yes ☐ No ☑

There were 149,916,435 shares outstanding of the Registrant's common stock as of May 4, 2020.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended March 31, 2020

TABLE OF CONTENTS

	Page
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
A. Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019	1
B. Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the three months ended March 31, 2020 and 2019	2
C. Condensed Consolidated Statements of Equity (Unaudited) for the three months ended March 31, 2020 and 2019	3
D. Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2020 and 2019	4
E. Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosure About Market Risk	29
Item 4. Controls and Procedures	30
Part II: OTHER INFORMATION	31
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	33

i

Part I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

BLACK KNIGHT, INC.

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	66.5		$	15.4
Trade receivables, net	180.8			175.1
Prepaid expenses and other current assets	73.2			64.8
Receivables from related parties	0.4			0.2
Total current assets	320.9			255.5
Property and equipment, net	170.5			176.9
Computer software, net	430.3			406.0
Other intangible assets, net	154.9			150.0
Goodwill	2,386.9			2,361.4
Investments in unconsolidated affiliates	302.7			294.9
Deferred contract costs, net	163.2			159.3
Other non-current assets	151.4			158.8
Total assets	$	4,080.8		$	3,962.8
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable and other accrued liabilities	$	62.9		$	65.3
Accrued compensation and benefits	42.2			65.5
Current portion of debt	84.1			79.1
Deferred revenues	52.5			50.9
Total current liabilities	241.7			260.8
Deferred revenues	106.1			98.0
Deferred income taxes	181.0			185.3
Long-term debt, net of current portion	1,551.5			1,465.1
Other non-current liabilities	80.9			55.1
Total liabilities	2,161.2			2,064.3
Commitments and contingencies (Note 13 )
Equity:
Common stock; $0.0001 par value; 550,000,000 shares authorized; 152,958,427 shares issued and 149,941,484 shares outstanding as of March 31, 2020, and 153,062,920 shares issued and 149,697,754 shares outstanding as of December 31, 2019	—			—
Preferred stock; $0.0001 par value; 25,000,000 shares authorized; issued and outstanding, none as of March 31, 2020 and December 31, 2019	—			—
Additional paid-in capital	1,562.7			1,586.8
Retained earnings	540.0			490.6
Accumulated other comprehensive loss	(41.0		)	(20.2		)
Treasury stock, at cost, 3,016,943 shares as of March 31, 2020 and 3,365,166 shares as of December 31, 2019	(142.1		)	(158.7		)
Total equity	1,919.6			1,898.5
Total liabilities and equity	$	4,080.8		$	3,962.8

See Notes to Condensed Consolidated Financial Statements (Unaudited).

1

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(In millions, except per share data)

(Unaudited)

	Three months ended March 31,
	2020			2019
Revenues	$	290.7		$	283.1
Expenses:
Operating expenses	162.4			160.0
Depreciation and amortization	57.7			56.9
Transition and integration costs	2.4			0.9
Total expenses	222.5			217.8
Operating income	68.2			65.3
Other income and expense:
Interest expense, net	(14.7		)	(15.0		)
Other expense, net	(0.8		)	(0.3		)
Total other expense, net	(15.5		)	(15.3		)
Earnings before income taxes and equity in earnings (losses) of unconsolidated affiliates	52.7			50.0
Income tax expense	8.2			10.7
Earnings before equity in earnings (losses) of unconsolidated affiliates	44.5			39.3
Equity in earnings (losses) of unconsolidated affiliates, net of tax	5.6			(13.3		)
Net earnings	$	50.1		$	26.0
Other comprehensive (loss) earnings:
Unrealized holding losses, net of tax(1)	(21.6		)	(6.2		)
Reclassification adjustments for losses (gains) included in net earnings, net of tax(2)	1.2			(0.7		)
Total unrealized losses on interest rate swaps, net of tax	(20.4		)	(6.9		)
Foreign currency translation adjustment(3)	(0.2		)	—
Unrealized losses on investments in unconsolidated affiliates(4)	(0.2		)	(0.2		)
Other comprehensive losses	(20.8		)	(7.1		)
Comprehensive earnings	$	29.3		$	18.9
Net earnings per share:
Basic	$	0.34		$	0.18
Diluted	$	0.34		$	0.18
Weighted average shares of common stock outstanding (Note 4):
Basic	148.0			147.5
Diluted	148.7			148.2

______________________________

(1) Net of income tax benefit of $7.3 million and $2.2 million for the three months ended March 31, 2020 and 2019, respectively.

(2) Amounts reclassified to net earnings relate to losses (gains) on interest rate swaps and are included in Interest expense, net above. Amounts are net of income tax benefit of $0.4 million and income tax expense of $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

(3) Net of income tax benefit of $0.1 million for the three months ended March 31, 2020.

(4) Net of income tax benefit of $0.1 million for the three months ended March 31, 2020 and 2019.

See Notes to Condensed Consolidated Financial Statements (Unaudited).

2

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Equity

(In millions)

(Unaudited)

	Three months ended March 31, 2020
	Common stock				Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Treasury stock
	Shares		$											Shares		$			Total equity
Balance, December 31, 2019	153.1		—		1,586.8			490.6			(20.2		)	3.4		(158.7		)	1,898.5
Effect of CECL adoption (Note 1)	—		—		—			(1.1		)	—			—		—			(1.1		)
Adjusted balance at January 1, 2020	153.1		—		1,586.8			489.5			(20.2		)	3.4		(158.7		)	1,897.4
Grant of restricted shares of common stock	—		—		(24.5		)	—			—			(0.5	)	24.5			—
Forfeitures of restricted shares of common stock	—		—		0.2			—			—			—		(0.2		)	—
Tax withholding payments for restricted share vesting	(0.1	)	—		(18.2		)	—			—			—		—			(18.2		)
Vesting of restricted shares granted from treasury stock	—		—		7.7			—			—			0.1		(7.7		)	—
Equity-based compensation expense	—		—		10.7			—			—			—		—			10.7
Net earnings	—		—		—			50.1			—			—		—			50.1
Equity-based compensation expense of unconsolidated affiliates	—		—		—			0.4			—			—		—			0.4
Foreign currency translation adjustment	—		—		—			—			(0.2		)	—		—			(0.2		)
Unrealized losses on interest rate swaps, net	—		—		—			—			(20.4		)	—		—			(20.4		)
Other comprehensive loss on investments in unconsolidated affiliates	—		—		—			—			(0.2		)	—		—			(0.2		)
Balance, March 31, 2020	153.0		$	—	$	1,562.7		$	540.0		$	(41.0	)	3.0		$	(142.1	)	$	1,919.6

	Three months ended March 31, 2019
	Common stock				Additional paid-in capital			Retained earnings			Accumulated other comprehensive earnings			Treasury stock
	Shares		$											Shares		$			Total equity
Balance December 31, 2018	153.2		$	—	$	1,585.8		$	381.1		$	0.3		3.9		$	(180.7	)	$	1,786.5
Effect of ASU 2018-02 adoption (Note 1)	—		—		—			(1.0		)	1.0			—		—			—
Adjusted balance at January 1, 2019	153.2		—		1,585.8			380.1			1.3			3.9		(180.7		)	1,786.5
Grant of restricted shares of common stock	—		—		(37.2		)	—			—			(0.8	)	37.2			—
Tax withholding payments for restricted share vesting	(0.1	)	—		(10.9		)	—			—			—		—			(10.9		)
Vesting of restricted shares granted from treasury stock	—		—		3.6			—			—			0.1		(3.6		)	—
Equity-based compensation expense	—		—		13.3			—			—			—		—			13.3
Net earnings	—		—		—			26.0			—			—		—			26.0
Unrealized losses on interest rate swaps, net	—		—		—			—			(6.9		)	—		—			(6.9		)
Other comprehensive loss on investments in unconsolidated affiliates	—		—		—			—			(0.2		)	—		—			(0.2		)
Balance, March 31, 2019	153.1		$	—	$	1,554.6		$	406.1		$	(5.8	)	3.2		$	(147.1	)	$	1,807.8

See Notes to Condensed Consolidated Financial Statements (Unaudited).

3

BLACK KNIGHT, INC.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

	Three months ended March 31,
	2020			2019
Cash flows from operating activities:
Net earnings	$	50.1		$	26.0
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	57.7			56.9
Amortization of debt issuance costs and original issue discount	0.7			0.7
Deferred income taxes, net	1.1			3.0
Equity in (earnings) losses of unconsolidated affiliates, net of tax	(5.6		)	13.3
Equity-based compensation	10.7			13.3
Changes in assets and liabilities, net of acquired assets and liabilities:
Trade and other receivables, including receivables from related parties	(1.4		)	3.1
Prepaid expenses and other assets	(5.3		)	0.1
Deferred contract costs	(12.8		)	(8.0		)
Deferred revenues	(0.4		)	(1.0		)
Trade accounts payable and other liabilities	(34.3		)	(43.3		)
Net cash provided by operating activities	60.5			64.1
Cash flows from investing activities:
Additions to property and equipment	(3.5		)	(3.8		)
Additions to computer software	(18.2		)	(18.9		)
Business acquisition, net of cash acquired	(50.4		)	—
Investments in unconsolidated affiliate	—			(375.0		)
Asset acquisition	(15.0		)	—
Net cash used in investing activities	(87.1		)	(397.7		)
Cash flows from financing activities:
Revolver borrowings	246.6			542.4
Revolver payments	(140.6		)	(198.4		)
Term loan payments	(7.8		)	(7.8		)
Finance lease payments	(2.3		)	—
Tax withholding payments for restricted share vesting	(18.2		)	(10.9		)
Net cash provided by financing activities	77.7			325.3
Net increase (decrease) in cash and cash equivalents	51.1			(8.3		)
Cash and cash equivalents, beginning of period	15.4			20.3
Cash and cash equivalents, end of period	$	66.5		$	12.0
Supplemental cash flow information:
Interest paid, net	$	(13.9	)	$	(13.6	)
Income taxes (paid) refunded, net	$	(0.4	)	$	1.0

See Notes to Condensed Consolidated Financial Statements (Unaudited).

4

BLACK KNIGHT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) of Black Knight, Inc. and its subsidiaries ("Black Knight," the "Company," "we," "us" or "our") were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited), as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission ("SEC") on February 28, 2020 and other filings with the SEC.

Description of Business

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.

Reporting Segments

We conduct our operations through two reporting segments: (1) Software Solutions and (2) Data and Analytics. See further discussion in Note 16 — Segment Information.

Share Repurchase Program

On February 12, 2020, our Board of Directors approved a three-year share repurchase program authorizing us to repurchase up to 10.0 million shares of our outstanding common stock through February 12, 2023, through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws and other restrictions. This share repurchase program replaces our previous share repurchase program that expired on February 2, 2020.

There were no share repurchases during the first quarters of 2020 and 2019.

Cash and Cash Equivalents

Highly liquid instruments purchased with original maturities of three months or less are considered cash equivalents. Cash equivalents are invested with high credit quality financial institutions and consist of short-term investments, such as demand deposit accounts, money market accounts, money market funds and time deposits. The carrying amounts of these instruments reported in the Condensed Consolidated Balance Sheets (Unaudited) approximate their fair value because of their immediate or short-term maturities.

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

	March 31, 2020		December 31, 2019
Cash	$	66.5	$	8.2
Cash equivalents	—		7.2
Cash and cash equivalents	$	66.5	$	15.4

5

BLACK KNIGHT, INC.

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

Trade Receivables, Net

The carrying amounts reported in the Condensed Consolidated Balance Sheets (Unaudited) for Trade receivables, net approximate their fair value because of their short-term nature.

A summary of Trade receivables, net of allowance for credit losses is as follows (in millions):

	March 31, 2020			December 31, 2019
Trade receivables — billed	$	138.8		$	136.6
Trade receivables — unbilled	44.1			39.8
Trade receivables	182.9			176.4
Allowance for credit losses	(2.1		)	(1.3		)
Trade receivables, net	$	180.8		$	175.1

In addition to the amounts above, we have unbilled receivables that we do not expect to collect within the next year included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Billings for these receivables are based on contractual terms. Refer to Note 9 — Other Non-Current Assets.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in millions):

	March 31, 2020		December 31, 2019
Prepaid expenses	$	46.7	$	37.1
Contract assets, net	19.7		19.5
Other current assets	6.8		8.2
Prepaid expenses and other current assets	$	73.2	$	64.8

Contract Assets

Our short-term contract assets are included in Prepaid expenses and other current assets in our Condensed Consolidated Balance Sheets (Unaudited). Our long-term contract assets are included in Other non-current assets in our Condensed Consolidated Balance Sheets (Unaudited). Refer to Note 9 — Other Non-Current Assets.

Allowance for Credit Losses

We record our billed and unbilled trade receivables and contract assets at their amortized cost less an allowance for expected credit losses that are not expected to be recovered. We recognize an allowance for the remaining lifetime expected credit losses based on management’s expectation of collectability. We base our estimate on multiple factors including historical experience with bad debts, our relationship with our clients and their credit quality, the aging of respective asset balances, current macroeconomic conditions and management’s expectations of conditions in the future. Our allowance for expected credit losses is based on management’s assessment of the collectability of assets with similar risk characteristics. We pool our respective asset balances based on risk characteristics primarily related to financial asset type, extent of client relationship, product/solution, business division and delinquency status.

Subsequent changes are recorded as an adjustment in Operating expenses. We write off trade receivables in the period when the likelihood of collection of a trade receivable balance is considered remote.

Investments in Unconsolidated Affiliates

We account for our investments in unconsolidated affiliates using the equity method of accounting. We record our share of equity-based compensation expense of unconsolidated affiliates as an adjustment to our investment with a related adjustment to our equity.

6

BLACK KNIGHT, INC.

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

Deferred Revenues

Deferred revenues represent our obligations to transfer solutions or services to our clients for which we have received consideration, or an amount of consideration is due, from the client. During the three months ended March 31, 2020 and 2019, revenues recognized related to the amount included in the Deferred revenues balance at the beginning of each year were $15.6 million and $19.3 million, respectively.

Equity-Based Compensation

We expense employee equity-based payments in accordance with Accounting Standards Codification ("ASC") Topic 718, Compensation—Stock Compensation, which requires compensation cost measured using the grant date fair value of equity-based payments to be recognized over the requisite service period, which generally equals the vesting period. For awards with a performance condition, we recognize compensation cost under the graded vesting method over the requisite service period of the award, which at times results in accelerated recognition of the cost. We do not recognize compensation costs if the performance condition is not considered probable of achievement. If at any point we determine that the performance condition is improbable of achievement, we reverse any previously recognized compensation cost for that award.

The fair value of our restricted stock awards is measured based on the closing market price of our stock on the grant date. Income tax effects of awards are recorded in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) when the awards vest or are settled. We account for forfeitures as they occur.

Depreciation and Amortization

Depreciation and amortization includes the following (in millions):

	Three months ended March 31,
	2020		2019
Computer software	$	25.8	$	23.7
Other intangible assets	13.0		14.5
Deferred contract costs	8.9		10.2
Property and equipment	10.0		8.5
Total	$	57.7	$	56.9

Deferred contract costs amortization for the three months ended March 31, 2019 includes accelerated amortization of $1.7 million.

Transition and Integration Costs

Transition and integration costs for the three months ended March 31, 2020 primarily consisted of costs associated with acquisitions and expense reduction initiatives. Transition and integration costs for the three months ended March 31, 2019 primarily consisted of costs associated with acquisitions.

Recent Accounting Pronouncements

Current Expected Credit Losses ("CECL") (ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326"))

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, as well as several other related updates, which were codified as ASC 326. This update changes how companies measure and recognize credit losses for many financial assets. The new standard requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets included in the scope of this standard.

Our financial assets that are included in the scope of ASC 326 are primarily receivables and contract assets. We applied an integrated approach to analyzing the effects of adopting ASC 326, including developing accounting policies and positions, evaluating differences from applying the requirements of the new standard to our previous business practices and assessing the need for any changes in our processes and design of internal controls.

The primary effect of adopting the new standard relates to the changes in our estimated credit losses and providing additional disclosures about our financial assets that are included in the scope of this new standard. Based on our assessment, we did not identify a material change in our financial condition, results of operation or business practices.

We adopted ASC 326 on January 1, 2020 using a modified retrospective approach. The effect of adoption was an adjustment of $1.1 million, net of tax to opening Retained earnings on our Condensed Consolidated Statements of Equity (Unaudited).

7

BLACK KNIGHT, INC.

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

Other Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides for optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform. The accommodations are effective for all entities through December 31, 2022. They may be applied from the beginning of the interim period that includes the issuance of this update. We do not expect the adoption of this update to have a material effect on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). This update addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. This update is effective prospectively for fiscal years beginning after December 15, 2020. We do not expect the adoption of this update to have a material effect on our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

(2)    Business Acquisition

We include the results of operations of acquired businesses beginning on the respective acquisition dates. The purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values, with the excess recorded as goodwill. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed on the acquisition date. Acquisition-related costs are expensed as incurred.

On March 3, 2020, we completed the acquisition of Collateral Analytics, LLC ("Collateral Analytics"), a provider of real estate products and tools to support appraisers, appraisal management companies, lenders, investors and government agencies. Collateral Analytics is reported within our Data and Analytics segment as it enhances our real estate solutions and automated valuation model offerings. This acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). The results of operations of Collateral Analytics are not material to our Condensed Consolidated Financial Statements (Unaudited) and related disclosures.

Allocation of purchase price

The purchase price of the Collateral Analytics acquisition was allocated to the assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The fair value of the acquired Computer software and Other intangible assets was primarily determined using a third-party valuation based on significant estimates and assumptions, including Level 3 inputs, which are judgmental in nature. These estimates and assumptions include the projected timing and amount of future cash flows, discount rates reflecting the risk inherent in the future cash flows and future market prices. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Computer software, Other intangible assets, Goodwill and contingent consideration.

Total consideration, net of cash received, was $51.0 million for 100% of the equity interests in Collateral Analytics. The total consideration was as follows (in millions):

Cash paid	$	54.1
Contingent consideration	0.6
Less: cash acquired	(3.7		)
Total consideration, net	$	51.0

8

BLACK KNIGHT, INC.

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

The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):

Total purchase price consideration	$	51.0
Computer software	$	6.4
Other intangible assets	17.9
Goodwill	25.5
Other current and non-current assets	3.3
Total assets acquired	53.1
Total liabilities assumed	2.1
Net assets acquired	$	51.0

The purchase agreement requires us to pay additional cash consideration based on EBITDA over a three-year period beginning April 1, 2020. In accordance with ASC Topic 805, Business Combinations, we will recognize the majority of this consideration as compensation cost over the three-year period due to an ongoing employment requirement.

Estimated Useful Lives of Computer Software and Other Intangible Assets Acquired

As of the acquisition date, the gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired consisted of the following (dollars in millions):

	Gross carrying value		Weighted average estimated life (in years)
Computer software	$	6.4	5
Other intangible assets:
Client relationships	16.7		10
Trade names	0.3		3
Non-compete agreements	0.9		3
Other intangible assets	17.9
Total gross carrying value	$	24.3

(3)    Investments in Unconsolidated Affiliates

In 2019, we invested an aggregate of $392.6 million (the "D&B Investment") in Star Parent, L.P., a Delaware limited partnership ("Star Parent"), related to its acquisition of The Dun & Bradstreet Corporation, a Delaware corporation ("D&B"). D&B is a global leader in commercial data and analytics that provides various services helping companies improve their operational performance. In connection with this investment, we were issued certain limited partner interests in Star Parent, representing approximately 18.1% of the outstanding common equity of Star Parent. We account for our D&B Investment as an equity method investment.

Our maximum exposure related to our variable interests in Star Parent is limited to our investment and commitments we may enter into from time to time to maintain our pro-rata share of limited partner interests. The table below summarizes the carrying amount of our D&B Investment and our maximum exposure related to our variable interests in Star Parent (in millions):

	March 31, 2020
	Total assets		Maximum exposure
Investment in Star Parent	$	299.1	$	299.1

During the third quarter of 2019, we had a change in accounting principle to eliminate the one-quarter lag related to our investment in Star Parent. We determined eliminating the one-quarter lag was preferable as it enables us to provide investors, lenders and other users of our consolidated financial statements with the most recently available financial information related to our investment in Star Parent. We applied the effects of this change in accounting principle retrospectively. There was no change to Operating income, Earnings before equity in losses of unconsolidated affiliates or Cash flows from operating activities for any of the prior periods as a result of this change in accounting principle.

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The following tables summarize the effect of this change in accounting principle on the primary financial statement line items on our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) for the first quarter of 2019:

	Three months ended March 31, 2019
	As reported		Adjusted
Equity in losses of unconsolidated affiliates, net of tax	$	—	$	(13.3	)
Net earnings	$	39.3	$	26.0
Other comprehensive (loss) earnings:
Unrealized losses on investments in unconsolidated affiliates	$	—	$	(0.2	)
Net earnings per share:
Basic	$	0.27	$	0.18
Diluted	$	0.27	$	0.18

Our Net earnings for the three months ended March 31, 2020 and 2019 in our Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) include our equity in earnings (losses) of Star Parent for the three months ended March 31, 2020 and for the period from February 8, 2019 to March 31, 2019, respectively.

Summarized consolidated financial information for Star Parent is presented below (in millions):

	March 31, 2020		December 31, 2019
Current assets	$	570.1	$	417.9
Non-current assets	8,602.3		8,694.9
Total assets	$	9,172.4	$	9,112.8
Current liabilities, including short-term debt	$	927.7	$	1,090.4
Non-current liabilities	5,592.4		5,412.9
Total liabilities	6,520.1		6,503.3
Cumulative preferred series A stock	1,032.8		1,030.6
Total capital	1,619.5		1,578.9
Total liabilities and partners' capital	$	9,172.4	$	9,112.8

	Three months ended March 31, 2020			For the period February 8 to March 31, 2019
Revenues	$	395.3		$	174.1
Loss before provision for income taxes and equity in net income of affiliates	(1.0		)	(111.6		)
Net earnings (loss)	73.9			(81.1		)
Net earnings (loss) attributable to Star Parent	41.5			(99.4		)

The summarized consolidated financial information for Star Parent was obtained from the audited consolidated financial statements of Star Parent as of December 31, 2019 that were filed with the SEC on March 25, 2020 as Exhibit 99.1 to our Form 10-K/A.

During the three months ended March 31, 2020 and 2019, we recorded equity in earnings related to our D&B Investment of $5.6 million, net of income tax expense of $1.9 million, and equity in losses of $13.3 million, net of income tax benefit of $4.7 million, respectively.

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(4)    Earnings Per Share

Diluted net earnings per share includes the effect of unvested restricted stock awards. The following table sets forth the computation of basic and diluted net earnings per share (in millions, except per share amounts):

	Three months ended March 31,
	2020		2019
Basic:
Net earnings	$	50.1	$	26.0
Shares used for basic net earnings per share:
Weighted average shares of common stock outstanding	148.0		147.5
Basic net earnings per share	$	0.34	$	0.18
Diluted:
Net earnings	$	50.1	$	26.0
Shares used for diluted net earnings per share:
Weighted average shares of common stock outstanding	148.0		147.5
Dilutive effect of unvested restricted shares of common stock	0.7		0.7
Weighted average shares of common stock, diluted	148.7		148.2
Diluted net earnings per share	$	0.34	$	0.18

(5)    Related Party Transactions

D&B

As of February 8, 2019, D&B is considered to be a related party primarily due to the combination of certain shared board members, members of executive management and our D&B Investment. Refer to Note 3 — Investments in Unconsolidated Affiliates. As of March 31, 2020 and December 31, 2019, we had a related party receivable of $0.4 million and $0.2 million, respectively, from D&B.

FNF

We are party to certain agreements with Fidelity National Financial, Inc. ("FNF"), including agreements that were entered into when we were related parties, to provide software, data and analytics services, as well as corporate shared services and information technology. We are also a party to certain other agreements under which we incur other expenses or receive revenues from FNF. As a result of our spin-off from FNF and its subsidiaries, FNF and Black Knight are separate independent companies. FNF no longer has an ownership interest in us, but was still considered a related party until December 1, 2019 due to the combination of certain shared board members, members of senior management and various agreements. As of December 1, 2019, the Chairman of our Board of Directors, who also serves as Chairman of FNF's Board of Directors, no longer serves as one of our executive officers, and FNF is no longer considered a related party.

A summary of the revenues and expenses, net from FNF for the period we were related parties is as follows (in millions):

	Three months ended March 31, 2019
Revenues	$	14.0
Operating expenses	2.8

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

	Three months ended March 31, 2019
Software services	$	8.7
Data and analytics services	5.3
Total related party revenues	$	14.0

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

	Three months ended March 31, 2019
Data entry, indexing services and other operating expenses	$	1.8
Corporate services	1.0
Total related party expenses, net	$	2.8

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

(6)    Computer Software

Computer software, net consists of the following (in millions):

	March 31, 2020			December 31, 2019
Internally developed software	$	852.3		$	808.2
Purchased software	84.5			78.9
Computer software	936.8			887.1
Accumulated amortization	(506.5		)	(481.1		)
Computer software, net	$	430.3		$	406.0

In the fourth quarter of 2019, we entered into agreements to acquire software in exchange for a combination of cash consideration and certain of our products and services. The software was acquired for $32.0 million, of which software valued at $25.5 million was received in the first quarter of 2020 and resulted in non-cash investing activity of $10.5 million.

Internally developed software and purchased software include assets acquired through our acquisition of Collateral Analytics. Refer to Note 2 — Business Acquisition for further discussion.

(7)    Other Intangible Assets

Other intangible assets consist of the following (in millions):

	March 31, 2020							December 31, 2019
	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Client relationships	$	603.8	$	(454.1	)	$	149.7	$	587.1	$	(441.4	)	$	145.7
Other	10.3		(5.1		)	5.2		9.1		(4.8		)	4.3
Total other intangible assets	$	614.1	$	(459.2	)	$	154.9	$	596.2	$	(446.2	)	$	150.0

Client relationships and other intangible assets include assets acquired through our acquisition of Collateral Analytics. Refer to Note 2 — Business Acquisition for further discussion.

(8)    Goodwill

Goodwill consists of the following (in millions):

	Software Solutions		Data and Analytics		Corporate and Other		Total
Balance, December 31, 2019	$	2,189.3	$	172.1	$	—	$	2,361.4
Collateral Analytics acquisition (Note 2)	—		25.5		—		25.5
Balance, March 31, 2020	$	2,189.3	$	197.6	$	—	$	2,386.9

The increase in Goodwill related to our Collateral Analytics acquisition is deductible for tax purposes.

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(9)    Other Non-Current Assets

Other non-current assets consist of the following (in millions):

	March 31, 2020		December 31, 2019
Property records database	$	60.1	$	60.1
Contract assets, net	39.5		37.8
Right-of-use assets(1)	26.0		26.4
Deferred compensation plan related assets	11.7		15.2
Prepaid expenses	4.1		8.1
Unbilled receivables, net	2.6		3.5
Other	7.4		7.7
Other non-current assets	$	151.4	$	158.8

_______________________________________________________

(1) Includes non-cash additions for right-of-use assets obtained in exchange for lease liabilities of $2.6 million and $0.7 million for the three months ended March 31, 2020 and 2019, respectively.

(10)        Long-Term Debt

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

	March 31, 2020										December 31, 2019
	Principal		Debt issuance costs			Discount			Total		Principal		Debt issuance costs			Discount			Total
Term A Loan	$	1,195.3	$	(4.7	)	$	—		$	1,190.6	$	1,203.1	$	(5.2	)	$	—		$	1,197.9
Revolving Credit Facility	416.0		(3.8		)	—			412.2		310.0		(4.1		)	—			305.9
Other	33.8		—			(1.0		)	32.8		41.7		—			(1.3		)	40.4
Total long-term debt	1,645.1		(8.5		)	(1.0		)	1,635.6		1,554.8		(9.3		)	(1.3		)	1,544.2
Less: Current portion of debt	84.9		(0.2		)	(0.6		)	84.1		80.0		(0.2		)	(0.7		)	79.1
Long-term debt, net of current portion	$	1,560.2	$	(8.3	)	$	(0.4	)	$	1,551.5	$	1,474.8	$	(9.1	)	$	(0.6	)	$	1,465.1

As of March 31, 2020, principal maturities, including payments related to our finance leases, are as follows (in millions):

2020 (remaining)	$	64.3
2021	72.3
2022	111.8
2023	1,396.7
Total	$	1,645.1

Credit Agreement

On April 30, 2018, our indirect subsidiary, Black Knight InfoServ, LLC ("BKIS") entered into an amended and restated credit and guaranty agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto.

The Credit Agreement provides for (i) a $1,250.0 million term loan A facility (the “Term A Loan”) and (ii) a $750.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term A Loan, collectively, the “Facilities”), the proceeds of which were used to repay in full the previous term loan A facility, term loan B facility and revolving credit facility.

As of March 31, 2020, the interest rates on the Term A Loan and the Revolving Credit Facility were based on the Eurodollar rate plus a margin of 150 basis points and were approximately 2.49% and 2.18%, respectively. As of March 31, 2020, we had $334.0 million capacity on the Revolving Credit Facility and paid an unused commitment fee of 20 basis points.

The Facilities are guaranteed by all of BKIS’s wholly-owned domestic restricted subsidiaries and Black Knight Financial Services, LLC, a Delaware limited liability company and the direct parent company of BKIS, and are secured by associated

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collateral agreements that pledge a lien on substantially all of BKIS’s assets, including fixed assets and intangibles, and the assets of the guarantors, in each case, subject to customary exceptions.

Other Debt

On April 1, 2018, we entered into a financing agreement for $32.9 million, with a stated interest rate of 0% and an imputed interest rate of 3.4%, primarily related to certain data processing and maintenance services. On December 31, 2019, we entered into an amendment to the financing agreement for an additional $16.3 million, with a stated interest rate of 0% and an imputed interest rate of 3.3%. Under the terms of the amendment, quarterly payments are due beginning January 2, 2020 through January 2, 2023. As of March 31, 2020, $10.0 million is included in the Current portion of debt and $11.0 million is included in Long-term debt, net of current portion in our Condensed Consolidated Balance Sheets (Unaudited).

Finance Leases

On December 31, 2019, we entered into one-year finance lease agreements, with a stated interest rate of 0%, an imputed interest rate of 3.3% and bargain purchase options for certain computer equipment. The leased equipment has a useful life of five years and is depreciated on a straight-line basis. The finance lease liabilities of $11.8 million as of March 31, 2020 are included in the Current portion of debt on our Condensed Consolidated Balance Sheets (Unaudited). For the three months ended March 31, 2020, non-cash investing and financing activity was $12.0 million related to the unpaid portion of our finance lease agreements.

Fair Value of Long-Term Debt

The fair value of our Facilities approximates their carrying value at March 31, 2020. The fair value of our Facilities is based upon established market prices for the securities using Level 2 inputs.

Interest Rate Swaps

We enter into interest rate swap agreements to hedge forecasted monthly interest rate payments on our floating rate debt. As of March 31, 2020, we had the following interest rate swap agreements (collectively, the "Swap Agreements") (in millions):

Effective dates	Notional amount		Fixed rates
March 31, 2017 through March 31, 2022	$	200.0	2.08%
September 29, 2017 through September 30, 2021	$	200.0	1.69%
April 30, 2018 through April 30, 2023	$	250.0	2.61%
January 31, 2019 through January 31, 2023	$	300.0	2.65%

Under the terms of the Swap Agreements, we receive payments based on the 1-month London Interbank Offered Rate ("LIBOR") (approximately 0.99% as of March 31, 2020).

We entered into the Swap Agreements to convert a portion of the interest rate exposure on our floating rate debt from variable to fixed. We designated these Swap Agreements as cash flow hedges. A portion of the amount included in Accumulated other comprehensive loss is reclassified into Interest expense, net as a yield adjustment as interest is either paid or received on the hedged debt. The fair value of our Swap Agreements is based upon Level 2 inputs. We have considered our own credit risk and the credit risk of the counterparties when determining the fair value of our Swap Agreements.

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

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

Balance sheet accounts	March 31, 2020		December 31, 2019
Other non-current liabilities	$	49.3	$	21.9

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A cumulative loss of $49.3 million ($36.9 million net of tax) and cumulative loss of $21.9 million ($16.4 million net of tax) is reflected in Accumulated other comprehensive loss as of March 31, 2020 and December 31, 2019, respectively. Below is a summary of the effect of derivative instruments on amounts recognized in Other comprehensive (loss) earnings ("OCE") on the accompanying Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited) (in millions):

	Three months ended March 31, 2020					Three months ended March 31, 2019
	Amount of loss recognized in OCE			Amount of loss reclassified from Accumulated OCE into Net earnings		Amount of loss recognized in OCE			Amount of gain reclassified from Accumulated OCE into Net earnings
Swap agreements	$	(21.6	)	$	1.2	$	(6.2	)	$	(0.7	)

Approximately $18.6 million ($13.9 million net of tax) of the balance in Accumulated other comprehensive loss as of March 31, 2020 is expected to be reclassified into Interest expense, net over the next 12 months.

(11) Fair Value Measurements

Fair Value of Financial Assets and Liabilities

Fair value represents the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of financial assets and liabilities are determined using the following fair value hierarchy:

• Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

• Level 2 inputs to the valuation methodology include:

◦ quoted prices for similar assets or liabilities in active markets;

◦ quoted prices for identical or similar assets or liabilities in inactive markets;

◦ inputs other than quoted prices that are observable for the asset or liability; and

◦ inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in millions):

	March 31, 2020								December 31, 2019
	Carrying amount		Fair value						Carrying amount		Fair value
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents (Note 1)	$	66.5	$	66.5	$	—	$	—	$	15.4	$	15.4	$	—	$	—