Black Knight's fourth quarter net earnings were down 71% year-over-year, largely the result of the slowing mortgage industry, even though on a full-year basis, the company's profitability more than doubled.
In the most recent period, the company earned $17.6 million, compared with $30 million in the third quarter and $60.7 million for the fourth quarter of 2021.
But strong performance earlier in the year, enhanced by a $305.4 million gain from the exchange of a portion of its shares in Dun & Bradstreet for the remaining 40% stake in Optimal Blue, led Black Knight to report 12-month net earnings of $452.5 million, up from $207.9 million in 2021.
"Market commentary struck a downbeat tone around client demand and attrition," Ryan Tomasello, an analyst at Keefe, Bruyette & Woods said in a flash note after the earnings release. "However, management noted it remains positive about long-term growth opportunities despite near-term headwinds."
Because of the pending merger with Intercontinental Exchange, Black Knight did not do a conference call this quarter. But the results release came the day after a published report that the Federal Trade Commission is expected to file a lawsuit to quash the transaction.
Investors on Tuesday morning continued to drive Black Knight's stock even lower. It opened at $59.67 per share after closing on Monday at $60.85. By 11 a.m., Black Knight was trading at $59.42, according to Yahoo Finance.
"We believe investors were already pricing in a very high probability of an FTC lawsuit, as evidenced by the deal spread widening by only 3.9% on the news to 35.8%," Tomasello said in a note issued Monday night. Going forward, the stock price will be driven by how both companies respond to the roadblock, he wrote.
"While it could take several weeks to get clarity on that front following the formal filing of a lawsuit, we reiterate our base-case assumption that ICE will continue to pursue the merger and litigate, and that the deal has a more than 50% probability of closing (vs. a market-implied closing probability of about 30%)," Tomasello continued.
Black Knight Executive Chairman Anthony Jabbour declared in the press release that he was pleased with the company's fourth quarter and full year performance.
"Despite a very challenging time for the markets we serve, coupled with our proposed transaction with Intercontinental Exchange, our team remained focused and continued to execute against our strategic initiatives to deliver profitable growth over the long term," Jabbour said.
Full year revenues for 2022 was $1.55 billion, compared with $1.48 billion during 2021.
"We delivered organic revenue growth of 4% for the year, which demonstrates the durability of our business model," said Joe Nackashi, the CEO. "We remain focused on winning new clients, expanding and extending our relationships with existing clients through cross sales and contract renewals and delivering innovative new solutions."
Fourth quarter revenue declined just 1% on a year-over-year basis to $383.5 million. Its servicing software revenue grew 2% from new Black Knight clients as well as cross-selling products to existing customers. It also benefited from higher foreclosure-related revenue and contract termination fees.
But the servicing business had lower transactional revenues and attrition also affected this line.
Meanwhile the origination software business 2% as revenue from new clients in this area was offset by lower origination volume.
ICE Mortgage Technology previously reported a $6 million operating loss for the fourth quarter as its business suffered from the ongoing contraction in originations.
