Black Knight reported slimmer profits and slowing organic growth in the second quarter, largely due to weaker mortgage volume from clients as well as near-term effects from the proposed merger deal with Intercontinental Exchange (ICE).

The company’s profit dropped 61% quarter over quarter to $55.3 million in Q2 2023. Profit rose 32% from $40.3 million in Q1 2023. 

“Our second quarter results reflect a weaker than expected mortgage market coupled with the near-term effects of the proposed merger with ICE. Revenue declined 4% on an organic basis driven by lower origination volumes as well as indirect effects of the mortgage market on our originations software business,” Black Knight CEO Joe Nackashi said in a statement.

Black Knight’s revenue in the second quarter reached $368.2 million, declining 7% from the same period in 2022.

“High interest rates following the rapid rise since early 2022 continue to cause operational challenges for Black Knight’s clients and prospects,” the company noted in its 8K filing.

Heightened focus on expenses by clients and prospects, as well as the proposed ICE transaction, has elongated the sales cycles in the short term; market conditions continue to result in elevated originator consolidation, bankruptcies and associated attrition, according to its filing with the Securities and Exchange Commission (SEC). 

Software solutions represented 87.9% of the revenues in the first quarter, with an operating margin of 41.4%, down from 45.6% in the same period of 2022. 

“Our origination software solutions revenues decreased $15.6 million, or 13%, as revenues from new clients were more than offset by a decrease of $8.3 million in license fees and the effect of lower origination volumes and attrition,” according to the company’s 10 Q filing with the SEC. 

The remaining revenue came from data and analytics, a segment with an operating margin of 15.2% from April to June, compared to 24.9% in the previous year.   

Development on ICE-Black Knight merger 

With ICE’s proposed acquisition of Black Knight under review by the Federal Trade Commission (FTC), the two companies and the FTC are expecting a preliminary injunction hearing scheduled for August 14 – August 18. 

Black Knight, ICE and the FTC asked for a delay as the planned sale of Optimal Blue in July requires time for the FTC staff to analyze the implications of the divestiture and discuss a potential resolution of the pending matter.

ICE and Black Knight also announced an agreement to sell loan origination system Empower to a subsidiary of Canada’s Constellation Software in March to quell FTC’s antitrust concerns. 

Following ICE and Black Knight’s announcement of an agreement to sell Optimal Blue, Keefe, Bruyette & Woods (KBW) noted that the divestiture of Black Knight’s Optimal Blue leaves the FTC with a weak case as it remedies the remaining horizontal overlap cited in the FTC’s complaint.

KBW had floated the possibility of the FTC settling on the ICE-BK merger deal before the August 14 trial, allowing the deal to close Q3 2023.

“As this case continues to evolve, it is not possible to reasonably estimate the probability that the parties will ultimately reach settlement or that the FTC will ultimately prevail on its claims. Should the parties not reach a settlement, we intend to vigorously defend against the claims of the FTC,” Black Knight’s 10 Q filing said. 

Due to the transaction with ICE, Black Knight has suspended the practice of providing forward-looking guidance.