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Black Knight, Inc. (BKI) Q3 2020 Earnings Call Transcript

By Motley Fool Transcribers - Nov 9, 2020 at 3:00PM

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BKI earnings call for the period ending September 30, 2020.

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Black Knight, Inc. ( BKI 1.85% )
Q3 2020 Earnings Call
Nov 9, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Black Knight Third Quarter 2020 Earnings Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Steve Eagerton, Investor Relations with Black Knight. Thank you. You may begin.

Steve Eagerton -- Vice President of Investor Relations

Thanks. Good morning, everyone. And thank you for joining us for the Black Knight third quarter 2020 earnings conference call. Joining me today are Chief Executive Officer, Anthony Jabbour; and Chief Financial Officer, Kirk Larsen.

Our results were released this morning, and the press release and supplemental slide presentation have been posted to our website. This conference call will include statements related to the expected future results of our Company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to, are described in our earnings release, Form 10-K and other SEC filings.

Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliations between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation. This conference call will be available for replay via webcast through Black Knight's Investor Relations website at investor.blackknightinc.com.

I'll now turn over the call to Anthony.

Anthony Jabbour -- Chief Executive Officer

Thank you, Steve. Good morning, everyone, and thank you for joining us for our third quarter earnings call. This was a strong quarter for Black Knight, during which we continue to execute against our strategic growth initiatives, including adding new clients to our core platforms, cross-selling, delivering innovative solutions and making strategic acquisitions. Our sales have been particularly strong so far this year, despite the challenges from this unprecedented environment. This illustrates that forward thinking lenders and servicers are seeing the value of our innovations, the integration of One Black Knight and our sense of urgency in all that we do, and they want to reap the benefits that our valuable solutions offer.

First, let me provide an update on each of our businesses beginning with our servicing software business. In the third quarter, we signed three new clients to MSP, including Caliber, a top 25 non-bank servicer, which I mentioned on the last call, and two mid-tier servicers. Year-to-date, we've signed five new MSP clients representing over 750,000 loans. We also renewed our MSP contract with Dovenmuehle Mortgage, a top 10 servicer. In our origination software business, we've continued the momentum selling Expedite, AIVA, Fee Services and Exchange, which are solutions that can be used with any loan origination system.

At the end of last year, we reorganized the team that sell these solutions and the results have been remarkable, as we've seen sales contract value more than double. We also had continued success selling Empower to mid and top tier lenders. In fact, we signed two new lenders to our Empower platform in the third quarter. In addition to signing the Truist long-term renewal that includes adding to BB&T production on to Black Knight systems, which we previously discussed.

Next I'd like to talk about our Data and Analytics business. Last year, we launched the Rapid Analytics Platform or RAP. We signed twice as many clients to RAP in the third quarter, than we have since launching the product last year, which speaks to the value our clients see in the solution to help them make informed business decisions and develop effective and important strategies. In addition to being a powerful platform, RAP drives more bundled data sales and is a differentiator when it comes to customer renewals.

At the onset of the pandemic, we launched the McDash Flash Dataset to give clients deeper daily insights into the impact of the coronavirus on servicing performance. In the third quarter alone, we executed eight deals that included both McDash Flash data and RAP. The company that will be leveraging these unique solutions include four of the top investment banks and a Federal Reserve Bank. I frequently share with our clients, our colleagues and with you our intense focus on innovation, integration and urgency. It is this commitment that has enabled us to launch our next generation customer service solution, which helps MSP clients better support their customers by displaying all the information they need to respond to our callers questions in a single location. So they can respond quickly, efficiently and accurately. We've signed four clients to this solution since launching it last month.

We also continue to add capabilities to our digital origination suite. Our Digital Point of Sale solution, which is now generally available simplifies the loan application process by leveraging AI throughout the process, and enables consumers to complete the loan application under schedule and from any device. Complementing this solution, we have also delivered a digital solutions for loan officers, which gives them a single mobile responsive platform with all the tools they need to serve their customers anytime, anywhere.

Next, I'm going to talk about some enhancements we've made to our Expedite Close solution, which uses advanced intelligence to select the best, most permissible way to digitally close a loan for each jurisdiction. In the third quarter, we acquired DocVerify, an integrated, best leading software in to Expedite Close to support e-notarization and remote online notarization. Another innovation in the Digital Mortgage Lifecycle journey is our new guided close solution that guides borrowers on a document by document basis through the closing package. Together these solutions are transforming closings into a more efficient and contactless process. As the trend toward a fully digital mortgage process accelerates, particularly in the socially distance environment, these solutions further enhance our client's ability to serve their customers, where they are.

All the solutions I just mentioned are integrated and further our digital footprint. We are the only provider in the industry that offers comprehensive platforms across the loan lifecycle, as well as digital solutions that can be leveraged at any point in the process to help our clients be more efficient and better serve their customers, which leads to increased customer satisfaction and retention. Finally, we continue gaining traction with our innovative servicing digital and loss mitigation solutions. In fact, we now have 43% of the loans on MSP signed for servicing digital and 34% for loss mitigation.

Next, I'd like to give an update on our acquisition of Optimal Blue, which closed in September. By combining the Optimal Blue and Compass Analytics teams and offerings, we now have the leading product pricing and eligibility engine as well as the premier hedging capability in the industry. The combined team has a great deal of experience in both mortgage and technology that will help drive continued innovations for our Company. We've already started to identify ways we can aggregate our strong data assets to deliver even more valuable analytics and insights to our clients. The power of this combined set of solutions is resonating with clients of both companies. I look forward to providing you with additional updates on this acquisition on future calls.

In closing, it's clear that the core fundamentals of our business remain strong, and we continue to execute on our strategy to drive revenue growth by adding new clients, expanding relationships with existing clients, delivering innovative solutions and pursuing strategic acquisitions. I'm excited about the momentum we have built and how we'll continue to transform the industry.

Thank you for your time today. Now I'd like to turn the call over to Kirk for our financial update.

Kirk Larsen -- Chief Financial Officer

Thank you, Anthony, and good morning everyone. Today, I'm going to discuss our third quarter results and our updated outlook for the year. To summarize, the underlying performance in the third quarter was very strong. The results came in as we expected, with the exception of origination volumes that came in higher. It was another quarter that demonstrates the resilience, visibility, and predictability of our business.

With that, I'll take you through the details and our outlook. Turning to Slide 3, which shows our GAAP results. On a GAAP basis, third quarter revenues were $313 million, an increase of 4.5% compared to the prior year quarter, net earnings attributable to Black Knight were $128 million, an increase of 243%. Diluted earnings per share was $0.82, an increase of 228%. The effect of our investment in Dun & Bradstreet was an increase in net earnings attributable to Black Knight of $87 million or $0.55 per diluted share, primarily related to an $88 million non-cash gain as a result of their initial public offering and concurrent private placement. Net earnings margin was 36.7%, compared to 12.5%.

Turning to Slide 4, I'll now discuss our adjusted results for the third quarter. Third quarter adjusted revenues were $313 million, an increase of 4.5% compared to the prior year quarter. Adjusted EBITDA was $155 million, an increase of 3%. Adjusted EBITDA margin was 49.5% compared to 50.1%. Adjusted net earnings were $81 million, an increase of 7%, and adjusted earnings per share was $0.52, an increase of 2%.

Turning now to Slide 5, I'll discuss our Software Solutions segment results. Third quarter revenues for the Software Solutions segment increased 1% to $260 million. Our servicing software solutions revenue declined 4% as a result of the previously discussed headwinds, including the effect of the foreclosure moratorium. The year-over-year performance improved from the second quarter as a result of the Bank of America conversion and the anniversary of certain other previously discussed anomalous headwinds from 2019. We continue to be pleased with the underlying performance in our servicing software business and the outlook for growth as we look forward.

In origination software solutions, revenue increased 20% driven by new clients, high origination volumes and revenue from acquisitions. Optimal Blue contributed $5.5 million of revenue in the third quarter. Third quarter EBITDA decreased 1% to $152 million and EBITDA margin was 58.4% compared to 59.5% due to unfavorable revenue mix.

Turning to Slide 6, third quarter revenues for the Data and Analytics segment increased 27% to $53 million, primarily driven by strong sales execution, high origination volumes and revenue from an acquired business. EBITDA increased 74% to $18 million, EBITDA margin was 34.5%, an increase of 940 basis points from the prior year quarter. Adjusted EBITDA for the corporate segment was $1 million unfavorable compared to the prior year quarter, driven by higher incentive-based compensation.

Turning now to Slide 7, I'll walk through our debt structure. At the end of September, we had cash and cash equivalents of $31 million, total debt principal was $2,323 million. We had revolver capacity available of $612 million and our leverage ratio was 3.6 times. Before I walk through our updated outlook for 2020, I'll go through the details of our investment in Dun & Bradstreet shares.

Turning now to Slide 8, we own 54.8 million shares. The market value of this investment was $1,407 million based on the $25.66 closing price of D&B on September 30, our invested capital was $493 million. That puts our unrealized pre-tax gain at $915 million, our unrealized after tax gain at $683 million, and the after-tax value of our D&B investment at $1,176 million. It goes without saying that we have been very pleased with performance of the D&B team and our investment.

Turning to Slide 9, I'll discuss our updated outlook for 2020, which we are raising to reflect the Optimal Blue acquisition, the outperformance in the third quarter and expectations for the fourth quarter. Revenues and adjusted revenues for the full year are expected to be in the range of $1,229 million to $1,235 million. Adjusted EBITDA is expected to be in the range of $603 million to $608 million, and adjusted earnings per share is expected to be in the range of $2.03 to $2.07. Additional modeling details underlying our outlook are as follows.

We expect full year interest expense of approximately $64 million, full-year depreciation and amortization expense of $136 million, excluding the net incremental depreciation and amortization, resulting from purchase accounting, and adjusted effective tax rate of approximately 19% in the fourth quarter and 22% for the full year, including certain discrete tax benefits and fourth quarter weighted average shares outstanding of $156.5 million, and full year weighted average shares outstanding of approximately $153 million.

Thanks again for your time this morning. I'll now turn it over to the operator for Q&A.

Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from John Campbell with Stephens Inc. Please proceed with your question.

John Campbell -- Stephens Inc. -- Analyst

Hey guys, congrats on the quarter. Really good success with innovation efforts and then closing on Optimal Blue, that's great work. Congrats.

Anthony Jabbour -- Chief Executive Officer

Thank you, John.

Kirk Larsen -- Chief Financial Officer

Thanks so much.

John Campbell -- Stephens Inc. -- Analyst

First question, how many loans, if you can just update us how many loans on MSP now and what's the expected kind of loan count once you get through the implementations?

Kirk Larsen -- Chief Financial Officer

Loans today are 32.7 million of first 3.4 and seconds, which is 36 total. So market share is 61% on first, 26% on seconds, and then pro forma to be a little over 62% on first and about 29% on seconds.

John Campbell -- Stephens Inc. -- Analyst

Okay, that's helpful. And then on Optimal Blue, I think you guys originally kind of framed that up as -- I think $120 million growing 30%-ish, 35% something like that. It looks like you guys might be a little over-scheduled now, so if you could just maybe provide us an update on kind of the Optimal Blue outlook and if you could maybe give us a little bit more color on the contractual versus transactional mix at this point.

Anthony Jabbour -- Chief Executive Officer

Yeah, it's still in that area, John. It came in and frankly as we expected for the two weeks we had in the third quarter and the forecast for the fourth quarter was in line with that expectations. So right in that that $120 million area. From a transactional versus subscription, it's about 80% subscription, a little bit less, but it's a very, it's a business that is very similar to most of Black Knight with that very high subscription content, a little bit of benefit from volumes, but not nearly as sensitive as some other origination software providers in this space. So very high recurring, which as we talked about last quarter is something that we really like about the business is that that predictability and consistency in the revenue base. And then of course the high incremental margins.

John Campbell -- Stephens Inc. -- Analyst

Okay. And then on the modeling, I know it did have a little bit of debt in analytics revenue, but is it safe to assume that the vast majority of that falls into origination for you guys?

Anthony Jabbour -- Chief Executive Officer

It all does. So Optimal Blue fully reports into our origination software business. We actually with the combination of Compass created a secondary marketing technologies division. That's the combination of Compass and Optimal Blue.

John Campbell -- Stephens Inc. -- Analyst

Perfect, thank you guys.

Operator

Our next question is with Andrew Jeffrey, Truist Securities. Please proceed with your question.

Andrew Jeffrey -- Truist Securities -- Analyst

Hey, good morning. I appreciate you taking the call.

Anthony Jabbour -- Chief Executive Officer

Good morning.

Andrew Jeffrey -- Truist Securities -- Analyst

Optimal Blue seems to be a terrific fit and obviously very strong future growth driver. Now Anthony, can you talk a little bit about maybe a product roadmap and exactly what -- how we might think about the integration of Optimal Blue solutions and perhaps new solutions that they grow out of the consolidated entity. Is that a '21 event? What's the kind of timeframe in the roadmap there?

Anthony Jabbour -- Chief Executive Officer

Sure. Well, the first integration, Andrew is integrating Empower with Optimal Blue, and that's targeted for Q1, often running in terms of the projects, the selling, sharing leads back and forth, etc., on a more broad basis but on that integration, it's looking Q1. And in terms of really new possibilities coming from it, as Kirk said, we created a new division, our secondary marketing technology division where we put our Compass Analytics business together with Optimal Blue where -- I think that was a great collaboration and specialization in that space, and we'll constantly find new ways to innovate and ideas to come up, you know the one that probably has the most steam right now that we're pursuing is a trading platform.

Looking at what Optimal Blue had, previously, we're adding seasoned loans to it from MSP and the analytics and the data that we have on those loans is probably the soonest one. And I imagine we'll launch at some point next year and do what we always do, work with our clients, beta test, learn, pivot and then come on a GA basis.

Andrew Jeffrey -- Truist Securities -- Analyst

Okay, that's helpful. Thank you. And then I just, I wonder if you could just comment on the macro environment to the extent that debt rates stay low, low and the purchase market is robust. As we start to see perhaps some increased foreclosure activity, is it just kind of the best of all possible worlds looking to next year for Black Knight?

Anthony Jabbour -- Chief Executive Officer

Well, like I said, the thing that we pride ourselves on is not being affected as much by other impacts in the environment. But certainly, as you've seen unnatural things can occur such as the foreclosure moratorium, which did occur and as we see things improving, we saw the Pfizer announcement this morning and hopefully unrelated to our culture, it's good for all humanity in terms of we work our way out of this pandemic, but certainly rates are low, they are looking to stay low. I think the President elect has talked about tax credits to spur on more purchase for low-income.

So we anticipate that continuing, we -- the foreclosure moratorium does next year, we'll see I mean, but -- but we're certainly in a good spot. There is headwinds and tailwinds. I think that we can go through across all these things that we're starting to think about them. Would there be an increase in regulations for example, as a potential headwind to the industry, it's something that's been classically a tailwind for companies such as ourselves where strong industry leaders of clients turn to, to stay within guidelines. So we'll work through that, but we certainly feel good about where we're positioned. We feel good about next year.

Andrew Jeffrey -- Truist Securities -- Analyst

Great, thank you very much.

Anthony Jabbour -- Chief Executive Officer

Thanks Andrew.

Operator

Our next question is with Ashish Sabadra with Deutsche Bank. Please proceed with your question.

Ashish Sabadra -- Deutsche Bank Research -- Analyst

Thanks for taking my question. So first one on the origination suite, you've built out a great product there, combination of the digital suite plus the Optimal Blue. I know it's still very early days, but I was just wondering how you -- how are your client conversations, how is the pipeline building up for the origination suite, obviously, you've had a really great success over the last few quarters. But how do you think about the momentum going forward? Thanks.

Anthony Jabbour -- Chief Executive Officer

Sure, Ashish. We feel great about the momentum going forward. I certainly feel that the -- we're leaders on the digital channels and prior to the pandemic, and that's just exaggerated the trends and accelerated them. And so the innovation that we're bringing to market really is resonating with our clients and we're seeing it in the conversations that we're having with them and our prospects. So short answer is, we feel very good about how we're positioned there.

Ashish Sabadra -- Deutsche Bank Research -- Analyst

That's great. And then just quickly on Data and Analytics. Kirk, if you can give us what the organic growth there was excluding mortgage and acquisition? And then a follow-up there obviously pretty strong momentum there as well, eight new deals. Can you just talk about how do you think about, again, are you gaining market share in that business and what's driving that strong momentum you called out RAP platform as well as McDash but just wondering are there other products, which are in the pipeline as well. Any color on those fronts? Thanks.

Kirk Larsen -- Chief Financial Officer

Sure. So to answer the first question of the quantitative aspects, if you, if you back out collateral analytics and the effective volumes, it was about 6% growth. So very consistent and we're actually, we continue to be very pleased with that performance as well as the margin performance in our Data and Analytics business. So, very consistent with the last several quarters. So very good performance there. From a -- what's driving it, it's actually just pretty broad based. We are continuing to focus on cross-selling to the existing client base and leveraging those relationships.

We're leveraging the sales and the receptivity of the Rapid Analytics Platform, which not only is a way, it's not only a platform sale, but it's a way to deliver more data and so it's actually a way to deepen those partnerships as well, but it's really across the board, and it's been remarkably consistent over the last four or five quarters, what that performance has been and we think that that's a reasonable expectation as we go forward as well.

Ashish Sabadra -- Deutsche Bank Research -- Analyst

Thanks and congrats on such a solid results. Thank you.

Kirk Larsen -- Chief Financial Officer

Thank you.

Anthony Jabbour -- Chief Executive Officer

Thank you, Ashish.

Operator

Our next question is with Tien-Tsin Huang with JPMorgan. Please proceed with your question.

Tien-Tsin Huang -- JPMorgan -- Analyst

Hi, good morning. Really everything was very strong, everything is ahead of our expectations it looks like except for the servicing margins came in a little bit light, you overcame with revenues overall I know, but just trying to think about that line there specifically and the Bank of America boarded you've got mix etc. Any one timers to call out there or considerations for that line ahead.

Anthony Jabbour -- Chief Executive Officer

Tien, and you're saying Software Solutions margins?

Tien-Tsin Huang -- JPMorgan -- Analyst

Yeah.

Anthony Jabbour -- Chief Executive Officer

Yeah. It's a good question. Really, it does -- there's no one timers on from an expense perspective. In the third quarter, we didn't have the benefit of lower medical costs like we had last quarter. That was something that happened that didn't recur. We got back to more of a normal level from a year-over-year basis. It comes down to revenue mix, really simply put, so some of those anomalous headwinds were transactional with a very little related variable costs.

We had that termination fee and origination last year. Those come at 100% margin. And then, it's replaced with margins that require support even on a relatively limited basis with the new clients, and then, of course, some of those acquired businesses. So, it really is a revenue mix story more than anything. There's really nothing else to note.

Tien-Tsin Huang -- JPMorgan -- Analyst

Got you. No, thanks for that. And then, just some on the change in the guidance here, is it predominantly Optimal Blue that's coming in with the acquisitions? Or is there some underlying performance benefit there? Any way to maybe break that up for us a bit?

Anthony Jabbour -- Chief Executive Officer

Sure, sure. So we exceeded our own expectations in Q3 because of volumes. And so, if you take that out, Q3 be it excluding Optimal Blue, that becomes the first layer. The next layer, the Optimal Blue and it's -- you know I think you can back into what those numbers are. And then, there's incremental amount above that, if you look at it, where the new guidance range is, and that's, frankly, in an environment like this. When we came into our -- we gave our guidance for the second half of the year, we didn't think there was any reason to be anything other than potentially a bit conservative.

And so, with six months left in this environment, there's -- even with as predictable as our business is, we felt the prudent to be a little conservative now. We have three months left, there's only -- there's -- you know, there's -- it's half the time remaining. And so, you know, I think we tuned up the guidance, narrowed the range, raised that and now we get back to sort of thinking of things at the mid-point going forward. So -- but it really is that. It was first volume, second Optimal Blue, and then third, it was just a bit of conservatism in the prior guidance.

Tien-Tsin Huang -- JPMorgan -- Analyst

Yeah. Always happy to see the raise. Thank you, guys.

Anthony Jabbour -- Chief Executive Officer

Thanks, Tien-Tsin.

Operator

Our next question is from Ryan Tomasello with KBW. Please proceed with your question.

Ryan Tomasello -- KBW -- Analyst

Good morning, everyone. Thanks for taking the questions and congrats on a strong quarter.

Anthony Jabbour -- Chief Executive Officer

Thanks, Ryan.

Ryan Tomasello -- KBW -- Analyst

Just following up on your comments to an earlier question, it seems like one of the lower hanging fruit opportunities at Optimal Blue is the cross-sell to the existing Empower clients once that integration is completed. So can you talk about what that sales cycle will look like? I know, Anthony, you mentioned it's ongoing, you know, the level of adoption, you might expect there from Empower clients and what the opportunity could be in terms of revenues from those clients?

Anthony Jabbour -- Chief Executive Officer

I'd say in terms of, you know, how I see the sales process, you know, progressing is, you know, we're in constant communication with our clients about all the innovations that we've got coming out. The majority of Empower clients had a basically a built-in PP engine inside of Empower. And obviously, Optimal Blue is a lot more powerful. So, we're excited to bring that new capability, you know, to those clients. And as we sell, you know, new Empower deals, we will sell them with Optimal Blue just bundled in, and automatic and already integrated.

So, what we want to do is, we want to change just how we go to market in terms of selling a loan origination system. Of course, it has a PP engine integrated into it. It's not a separate decision. More and more capability that we're bringing to market, we want to bring it integrated into a sales cycle, and do more and more in a more integrated way, making it easier for our clients. So that's really what our focus is, from a revenue perspective.

Kirk Larsen -- Chief Financial Officer

Yeah. We usually don't get into pricing for particular deals, but it's -- as Anthony said, we'll end up bundling it into each of the deals, and for existing deals, we'll add it on a per loan basis, and then, of course, get benefit of having minimums in the contracts as well. But it's -- you know, I think -- it's something that certainly will be a nice add to the revenue per loan that we'll get from our Empower clients, and certainly, it'll be something that will help contribute to that 20% growth that we've talked about over the next several years for Optimal Blue.

Ryan Tomasello -- KBW -- Analyst

Great. And then, you know, 2020 is clearly shaping up to be a very strong year in terms of new sales and implementations. So I guess, without explicitly asking for anything about 2021, could you maybe walk us through the moving pieces as we think about the organic growth power in the business next year that is already really in a bag per se from recent sales, layering in Optimal Blue being naturally accretive to growth as well as some other, you know factors like the ongoing impact of forbearance and foreclosure moratoriums into next year. And specifically, you know, for recent client wins and implementations across software and D&A, is it possible to quantify the cumulative impact of those from a run rate revenue perspective?

Kirk Larsen -- Chief Financial Officer

Sure. I'll take that one, Ryan. It's a great question. Certainly it's -- it is that time of year where we're working on budgets and thinking about, in very detailed terms, all the things that you're asking about. It's a bit premature for us to go through those details, but what I will do is walk you through things in three buckets, the tailwinds that will drive the growth next year; the known headwinds as we sit here today; and then, some things that that are kind of a coin flip, I'll say, we -- meaning we don't exactly know what -- which direction that's going to go next year at this point, because things can change. But it's -- the single biggest driver of growth, as it always is, is going to be the revenue related new clients on our platform.

So MSP, Empower, foreclosure and bankruptcy are the primary platforms, and I would say we certainly have a nice backlog going into next year. I won't characterize it where it is relative specifically to where we are this year, but we'll get -- you know, we'll have a full year of Bank of America versus five months this year. And then, certainly have other clients that have gone live or are signed and will go live next year. So that'll be the primary driver of growth next year and we'll go through the details of what our expectations are for that when we give full guidance on our next call.

The other thing benefiting next year is going to be a return to more typical attrition. So, we will have gotten it almost entirely through the anomalous headwinds we talked about from last year, as some of those have abated, another one will abate later this year, and then, just a little bit of carryover to next year. So, we'll get back into that, you know 2%-ish kind of attrition level that we had experienced in the past. And then, as you said, the accretion from the Optimal Blue growing at the rate that it's growing, so just not thinking of it just as we'll have a full-year of it, but it is accretive to our overall organic growth rate.

From a headwind perspective, you know origination volumes, there's a large refinance eligible population, but we and most others are calling for next year's refi to be lower than this year. Where that ultimately lands, we all will have to wait and see because it can be -- it can move around a bit, but, you know, as we think about that number, as Anthony said before, we're just not that sensitive to origination volumes. So, this year with the significant pickup and record level of origination, it's a couple points of growth.

And so, as you think to next year, if there is a headwind, it's, you know, one to two points, maybe somewhere. We'll go through those details and tell you our assumptions on the next call. But it's in the -- in the grand scheme of things. It's just not a big number. And then, you know, one kind of smaller detail, but I'll tell you this just because it's something we know, you know, as you know, when we implement our clients on our platforms, MSP or Empower, for example, we -- many times, we get paid for the implementation and we recognize that over the life of the contract.

We had a relatively large client that renewed and this year, got to the end of the first contract and renewed and extended, and so, that deferred revenue amortization has now been fully recognized. And so, that's probably a half point or so of headwind to next year. So, not the biggest number, but I'll point it out because you asked. And then, the last thing, you know, as you think about on the piece of the third bucket where I'd say it's something that we don't know at this point, is the foreclosure volumes. You know, I would say, as we sit here today, we expect them to come back in the second half of next year.

But the exact timing and quantum is something that we're going to have to monitor and it's another thing that I would expect that we would be very explicit with what our assumptions are when we give you guidance for next year. So, we can all measure against the same set of assumptions, so that's kind of the revenue side. One quick thing I'll just -- I'll mention on the expense side is, you know, we, like everybody else this year, benefited a bit from on the expense side related to travel and entertainment and sales and marketing costs because we're all working from home, as well as we, and I know many others also experienced lower medical costs.

And those are things that, as we look to next year, will return maybe not back to the norm, because things won't fully be normal next year, but certainly, there will be some elements of those coming back. And we'll talk about that too when we give guidance next year, but those are, you know, I think about the building blocks for next year. That's how we're thinking about it and I think it'd be important next year giving some of the variables there that we go through those details with you, but that'll be something we'll go through on the next call.

Ryan Tomasello -- KBW -- Analyst

Great. Thanks, guys. Thanks for taking the questions.

Anthony Jabbour -- Chief Executive Officer

Thanks, Ryan.

Operator

[Operator Instructions] Our next question is with Jake Williams from Wells Fargo. Please proceed with your question.

Jake Williams -- Wells Fargo -- Analyst

Good morning, everyone.

Anthony Jabbour -- Chief Executive Officer

Good morning, Jake.

Kirk Larsen -- Chief Financial Officer

Good morning, Jake.

Jake Williams -- Wells Fargo -- Analyst

I wanted to touch on your strong margin expansion in D&A, how much of that was driven by favorable operating leverage with the origination of tailwind versus any structural cost reductions or anything more ongoing?

Kirk Larsen -- Chief Financial Officer

That was more about volumes. That was more about -- and I wouldn't say just origination volumes, though, because it was growing 6% on a natural basis, and so, it really is the operating leverage in the business. There were no reported cost actions there that really benefited. But it really is a business that we've been very focused on positioning it for efficiency. And so, in most cases, we've made the investments once and we can deliver it many times, which is the way we like our business to run.

There are certain aspects within volumes that do bring with them, some cost tickets sold, but in other cases, it's a matter of selling it and there isn't a whole lot of variable costs. So, we're, as I said before, very pleased with the performance in that business and maintaining for now with the third quarter in a row of margins over 30% and that's going to be our focus to continue going forward.

Jake Williams -- Wells Fargo -- Analyst

Thank you very much.

Operator

Our next question is with Stephen Sheldon with William Blair. Please proceed with your question.

Stephen Sheldon -- William Blair -- Analyst

Good morning. Thanks for taking my question. Just one quick one here, I just want to ask on the servicing side, thanks for the remarks, your update, I think you said 29% on the second lien, and I know you add KeyBanc recently. Just wanted to ask how conversations on the second lien side in particular are going and the potential for market share to continue moving higher as we look out over the next few years?

Anthony Jabbour -- Chief Executive Officer

Well, you know, we continue to have, you know, lots of great conversations around the value proposition that we came out where it continues to resonate -- actually continues to resonate more because -- and as we come up with servicing digital that also works with the second lien solutions as well, so it's a more holistic solution even then, you know, we previously launched that. So, we feel, you know, very good about our continued, you know, momentum that we're having in the space and look forward to continue to grow, updates on new wins as they come.

Stephen Sheldon -- William Blair -- Analyst

Thanks.

Operator

Our next question is from Mihir Bhatia with Bank of America. Please proceed with your question.

Mihir Bhatia -- Bank of America -- Analyst

Good morning, and thank you for taking my questions. Wanted to ask about the Data and Analytics business, you saw some nice growth there this quarter. But, you know, it has a lot of pieces in it. So one question I did have was, are there -- can you provide me a little bit more color on certain things that might be resonating a lot currently? And is there anything in there like, is there any risk that you know, this resonate -- like those pieces are resonating because of elevated forbearance and people maybe need a little bit more data and analytics and some of that could start dropping off next year or the year after that? Or is it more the case of generally once you get in there and you start providing some of these, they tend to be pretty sticky and customers don't give up that data that easily?

Anthony Jabbour -- Chief Executive Officer

Sure. There's probably a few things I'd attribute the success we're having in D&A growth, you know, obviously, in addition to, you know, great leadership and doing all the right things. The first is RAP and the introduction of our RAP platform. It really gives an opportunity for our clients to view their data with our data to -- in a sandbox, so to speak, and really look for new insights from it. And so, it's powerful in that way and has led to a lot of data sales for us. So that would be one.

The second would be our McDash Flash. So early on, when the pandemic broke out, we were very quickly working with all sorts of agencies and organizations in sharing our data as to what we're seeing, you know, really on the front lines, and you know, that's contributed to interest and I'd say relationships that have been, you know, grown beyond the initial, you know, forbearance relationship into other types of data and analytics we can provide to these organizations.

And the third, I'd say is really just our integration to our core platforms. So again, we really -- you know, we talked about servicing and originations and data and analytics, but from a client perspective, we just want them to see one integrated Black Knight. And so, as we integrate our offerings more and more into these core platforms and we sell them and include them in the packaging, that's really continuing to help us grow that business as well. So, those are the three areas that probably call out.

Mihir Bhatia -- Bank of America -- Analyst

Got it. And then, just last question for me, now that, you know, Optimal Blue is kind of acquired, I guess that has close. Can you just talk about what your capital allocation strategy looks like, from here, in terms of your appetite for M&A? Is it more likely near term to be seen as smaller tuck-in type acquisition? Or are you still open to wider and just generally on your capital allocation? Thank you. That'll be all.

Anthony Jabbour -- Chief Executive Officer

Sure. Yes, at the macro level, our priorities have remained unchanged from cash allocation perspective. You know, first, we're going to continue to invest, you know, in internal investment and innovation. We're very pleased, you know, with what we're seeing there, and obviously, going to stay the course. But, you know, as I said, with the acquisition of Optimal Blue, we've increased our consolidated leverage to the mid-3s. And so, as a near term, we have a focus on de-levering, which will happen quickly based on the growth and EBITDA, as well as our significant cash generation. But that de-levering won't reduce our abilities to have potential tuck-in acquisitions, or obviously, our continued focus on internal investments.

Mihir Bhatia -- Bank of America -- Analyst

Got it. Thank you.

Anthony Jabbour -- Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back over to Anthony Jabbour, CEO, for closing remarks.

Anthony Jabbour -- Chief Executive Officer

Thank you. In closing, I'm confident in our ability to grow market share and continue delivering significant value to our clients through a powerful and integrated solutions and by acting with urgency to support their success. These efforts will continue to drive long-term growth and create value for our shareholders.

Finally, I'd like to thank my colleagues for their extraordinary work and commitment to our clients and to our clients for their trust and partnership. Last, I like to thank our shareholders for their ongoing support. Please stay safe and have a great day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Steve Eagerton -- Vice President of Investor Relations

Anthony Jabbour -- Chief Executive Officer

Kirk Larsen -- Chief Financial Officer

John Campbell -- Stephens Inc. -- Analyst

Andrew Jeffrey -- Truist Securities -- Analyst

Ashish Sabadra -- Deutsche Bank Research -- Analyst

Tien-Tsin Huang -- JPMorgan -- Analyst

Ryan Tomasello -- KBW -- Analyst

Jake Williams -- Wells Fargo -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Mihir Bhatia -- Bank of America -- Analyst

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