Black Knight loses clients, stock suffers

Jacksonville-based mortgage processing services company projects it may lose 5% of its revenue next year.


  • By Mark Basch
  • | 5:10 a.m. November 14, 2019
  • | 5 Free Articles Remaining!
Black Knight CEO Anthony Jabbour said the “fundamental underlying strength of the core business hasn’t changed.”
Black Knight CEO Anthony Jabbour said the “fundamental underlying strength of the core business hasn’t changed.”
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Black Knight Inc. reported better-than-expected earnings last week, but also said its results next year will be impacted by the loss of several customers. That sent its stock down after the report.

Jacksonville-based Black Knight is the dominant company in its field, providing processing services for 63% of all U.S. first mortgage loans.

However, Black Knight said it may lose about 5% of its revenue next year because of client losses.

The company projects about $1.2 billion in revenue for 2019, but it hasn’t given a full revenue projection for 2020.

The most prominent customer loss is PennyMac Financial Services Inc., which terminated its relationship amid disputes with Black Knight on Oct. 31. The two companies filed competing lawsuits against each other last week.

PennyMac generated $24.8 million in revenue for Black Knight in the first nine months of this year.

“I look at it and say the fundamental underlying strength of the core business hasn’t changed,” CEO Anthony Jabbour said in Black Knight’s quarterly conference call with analysts.

“It (2020) would have been a very strong year if it wasn’t for the unusual headwinds that will cloud the performance,” he said, referring to the client losses.

Black Knight reported adjusted third-quarter earnings of 51 cents a share, 3 cents higher than last year’s third quarter and also 3 cents higher than the consensus forecast of analysts surveyed by Zacks Investment Services.

However, the potential revenue losses for next year sent Black Knight’s stock down $4.69 to $57.65 on Nov. 6 after the earnings report.

Several analysts remained positive about Black Knight’s long-term outlook.

“Investors hate uncertainty, especially when accompanied by lower estimates. We get that, but encourage opportunistic long-term investors to accumulate,” SunTrust Robinson Humphrey analyst Andrew Jeffrey said in a research note.

Susquehanna Financial Group analyst Jack Micenko said in his note he is lowering his estimates for Black Knight. But “we still expect the company to generate positive revenue growth year-over-year in 2020,” he said.

Piper Jaffray analyst Jason Deleeuw said he is encouraged by technology innovations at Black Knight. 

“We remain buyers of Black Knight as we believe the deconversions are unique situations rather than signs of systemic challenges,” he said in his note.

J.P Morgan analyst Tien-tsin Huang did think the stock drop was “warranted” on the news.

“Underlying issues appear to be isolated and not a reflection on Black Knight’s solutions and/or execution, (but) we are disappointed as the headwind largely washes out the strong backlog driven growth expected next year that supported our thesis of highly visible growth,” Huang’s note said.

FIS earnings rise, beat estimates

A few days after confirming its plans for a new Jacksonville headquarters building, Fidelity National Information Services Inc., or FIS, reported higher third-quarter earnings.

The financial technology company reported adjusted earnings of $1.43 a share, up from $1.33 the previous year and 8 cents higher than the consensus analysts’ forecast, according to Zacks.

The results were helped by the company’s July 31 acquisition of payments company Worldpay Inc.

FIS “got off to a very fast start with both revenue and cost synergies, especially considering we operated for only two months as a combined company,” CEO Gary Norcross said in the company’s conference call.

“The integration of these large transformational M&A transactions continues to be a core competency, and we will utilize it as part of our strategy and further accelerate our organic growth and shareholder value,” he said.

FIS expects fourth-quarter revenue of $3.3 billion, with a full quarter of Worldpay included.

Robert W. Baird analyst David Koning said in a research note that the Worldpay businesses are growing faster than investors realize and the growth should accelerate in the fourth quarter, which will help FIS’ stock.

“Stocks are more a reflection of the future than the past,” he said. “And we like when the recent past and near future both show acceleration.”

FIS, which shares a building with Black Knight, announced plans Nov. 1 to build a $145 million headquarters near the existing office on Riverside Avenue.

Rayonier AM reports third-straight loss

Rayonier Advanced Materials Inc. last week reported a third-quarter loss from continuing operations of $14 million, or 29 cents a share, its third straight quarterly loss.

Paul Boynton, CEO of the Jacksonville-based producer of cellulose specialty products, said the company is taking steps to improve profitability.

“We’re confident in our ability to manage through these difficult commodity markets and execute on our strategy. We’ve seen these cycles in the past and we know what it takes to manage through them,” Boynton said in Rayonier AM’s conference call.

“We have implemented measures to minimize costs, preserve cash, increase liquidity and reduce volatility,” he said.

Also last week, Rayonier AM completed the $175 million sale of a pulp mill in Quebec that it did not consider part of its core operations. The company is using $100 million in proceeds from the sale to pay off debt.

“The closing of this transaction concludes the formal process of our portfolio evaluation. Naturally, we will continue to opportunistically evaluate alternatives for noncore assets,” Boynton said.

D.A. Davidson analyst Steven Chercover said in a research note he is maintaining a “buy” rating on Rayonier AM’s stock.

“While the market backdrop for many of Rayonier AM’s products remain challenged, we are encouraged by recently amended covenants and the potential to reduce debt in coming quarters,” he said.

“Additionally, while it’s impossible to ignore all that has gone wrong, we continue to believe both the asset value and earnings power are substantially greater than what’s embedded in shares at current levels.”

FRP cautious on investments

FRP Holdings Inc. reported a slight decrease in third-quarter earnings as the Jacksonville-based company continues to search for real estate development opportunities.

The company owned and operated 43 commercial properties at the beginning of 2018 but has sold most of them, retaining only an office building in Maryland and a vacant lot on Jacksonville’s Northside that formerly was  the headquarters site for Florida Rock Industries Inc. 

FRP was spun off from construction materials company Florida Rock, which was sold to Vulcan Materials Co. in 2007.

In its quarterly news release last week, FRP said it remains “cautious and perhaps conservative” in using the proceeds from its asset sales last year to invest in new projects.

“We do not expect that our investors will have unlimited patience as to when this money is put to work, and no one is more anxious than our management team to return the money to our shareholders in the form of new investments. However, though we hear the clock ticking, we are not going to let that factor unduly into any investment decision we make,” it said.

FRP reported third-quarter earnings of 20 cents a share, 2 cents lower than last year.

Kaman Aerospace announces more Jacksonville work

Kaman Aerospace Group Inc. last week said it was awarded a contract by The Boeing Co. to manufacture more parts for the U.S. Air Force A-10 aircraft.

Connecticut-based Kaman said the work on wing control surfaces and structural assemblies will be performed at its facility in North Jacksonville.

The contract for Kaman is indefinite but is related to a contract between Boeing and the Air Force through 2030 with a $999 million ceiling.

 

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