Dun & Bradstreet Holdings, Inc. (DNB) Earnings Call Transcript & Summary

Good morning, and welcome to Dun & Bradstreet's Investor Call. As a reminder, today's call is being recorded and your participation implies consent to such recording. [Operator Instructions] With that, I would like to turn the call over to Deb McCann, Treasurer and Senior Vice President of Investor Relations. You may proceed.

Thanks, Neal. Good morning, everyone, and thank you for joining us today. On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for 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 press release and presentation. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in a supplemental slide presentation. This conference call will be available for replay via webcast through Dun & Bradstreet's Investor Relations website at investor.dnb.com. Anthony will begin with an overview of the announced transaction, and then Bryan will discuss the financials and timing before we proceed to Q&A. With that, I'll now turn the call over to Anthony.

Thank you, Deb. Good morning, everyone, and thank you for joining us this morning, particularly on such short notice. As we discussed with you during the IPO process and also on our second quarter earnings call, a key element of our growth strategy is to expand our international presence. This is why we are excited to be with you today to discuss an important step towards executing this strategy, entering into an agreement to acquire Bisnode, a leading European data and analytics firm and long-standing member of the Dun & Bradstreet worldwide network. We are pleased to bring Bisnode into the Dun & Bradstreet family, following a nearly 2-decade strategic alliance. The powerful combination of our data, analytics and innovative solutions, paired with their deep client relationships and expertise in European markets will provide our existing and future clients with vital business intelligence to support their growth. Turning to Slide 4. Bisnode is a long-standing partner of Dun & Bradstreet, with approximately 1/3 of their revenues currently being generated from Dun & Bradstreet solutions. Bisnode is headquartered in Sweden with operations throughout Europe, including Germany, Switzerland and other Nordic and Central European countries. Bisnode's 33 million records from 550-plus sources throughout Europe will quickly contribute to the scale, depth, diversity and accuracy of our constantly expanding data cloud that contains comprehensive information on more than 316 million total businesses. We look forward to welcoming Bisnode's approximate 2,000 employees into the Dun & Bradstreet family and to working together to grow the global business. Turning to Slide 5. You'll quickly see how we intend to build on our 17-year alliance with Bisnode to deliver strategic benefits to Dun & Bradstreet. First, we will continue to globalize and leverage Dun & Bradstreet products in the region. Dun & Bradstreet solutions currently represent approximately 1/3 of Bisnode's revenue, and we have seen strong demand for our solutions in recent years. Upon transaction close, we'll rapidly introduce our modern finance and risk and sales and marketing solutions at scale, migrating existing clients and securing new prospects. This includes solutions such as Finance Analytics, D&B Hoovers, Data Blocks and Optimizer. Second, the acquisition allows us to expand our global relationships. The acquisition positions Dun & Bradstreet to rapidly expand across the Scandinavian; DACH, which is Germany, Austria and Switzerland; and Central European countries expanding our footprint across Global 500 companies and having direct access to nearly 50 Global 500 companies headquartered in Bisnode territories. We'll be able to better serve our global customer base and grow our share of wallet. Third, Dun & Bradstreet will broaden its client base and increase market penetration by adding over 110,000 Bisnode customers to its client list. These clients range from small businesses to large enterprises, providing access to additional data and end market knowledge and expertise to strengthen our competitive position. Lastly, we have the opportunity to realize operational efficiencies from sunsetting legacy redundant solutions and platforms and migrating clients to modern, more rapidly growing solutions. We'll also leverage Dun & Bradstreet's existing data supply chain capabilities and technology to more efficiently source and curate data, and we will leverage global resources to create efficiencies across all functions. With deep industry roots, a long-established alliance and local European expertise, the Dun & Bradstreet and Bisnode teams are well positioned to realize operational efficiencies and hit the ground running upon transaction close. Turning to Slide 6. Two of the key elements of our growth strategy we have spoken to about are to enhance existing client relationships and win new clients. As mentioned on the previous slide, 50 of the Global 500 companies are headquartered in Bisnode territories, a sample of which are listed here. Some of these companies are existing clients of Dun & Bradstreet, in most cases with U.S.-only contracts, which allow us the opportunity to expand these relationships geographically as well as cross sell and up sell solutions. Many of these companies are not current clients of Dun & Bradstreet, which provides us a great opportunity to grow our client base with new logos. This is a very exciting prospect for us as we continue to execute on all 5 elements of our growth strategy. I'll now turn the call over to Bryan to discuss some of the details of the transaction.

Thank you, Anthony, and good morning, everyone. Turning to Slide 8. The acquisition price will be SEK 7.2 billion, which based on an exchange rate of 8.8, translates to approximately USD 818 million. Upon closing, 75% of the consideration will be paid in cash and 25% of the consideration will be paid in newly issued shares of common stock in a private placement. The cash portion will be funded through cash on hand and debt financing to be determined between now and close. We expect to maintain that leverage in the range of low to mid 4x. In 2019, Bisnode had revenues of approximately $400 million and adjusted EBITDA of approximately $70 million. Upon close, we anticipate the deal to be accretive, excluding purchase price amortization and onetime integration costs. We will provide further guidance on this at the same time we provide our total company guidance for 2021. The results will be reported as part of Dun & Bradstreet's international segment. However, we will call on Bisnode individually so that organic growth is transparent. The acquisition is subject to certain customary regulatory approvals, and therefore, we anticipate the transaction will close by early 2021. Turning to Slide 9. In summary, the acquisition of Bisnode gives us the opportunity to allocate capital with efficient funding into a high-return synergistic business expected to be accretive in 2021. The transaction is on strategy to expand Dun & Bradstreet's international presence, securing direct ownership across 18 strategic territories in Europe and expanding our reach among Global 500, along with small- and medium-sized businesses in the region. Lastly, we have provided a significant opportunity to deliver a broader product set to a larger global client base and realize significant global scale. We are excited by this opportunity to deliver on our strategy of international growth and are looking forward to what lies ahead as we work to drive long-term value and sustained growth. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A?

[Operator Instructions] Our first question comes from the line of Manav Patnaik with Barclays.

My first question maybe is just if you could just help us understand your strategy around owning the worldwide network partner like Bisnode. And also maybe just perhaps, what has that growth trajectory looked like?

I'll take the first part. Maybe I'll pass it on to Bryan for the second part. The international expansion is a key tenant of our growth strategy, and the worldwide network will continue to be a fundamental part of the international strategy. But as we previously said, we want to review the partners in a strategic manner and either look for ways to improve the commercial arrangements that we have or make it more relevant for the world we're in right now, potentially purchase the partner and the arrangement, seek a new partner or maybe look for a competitor in the region. So really what we want to do here is really have a fresh set of eyes looking at how we go to market globally. And I think there will be examples where acquisition makes sense, where partnership continues to make sense with existing partners but keeping an open mind to all possibilities, again, with the underlying tenant being a focus on growth.

Yes. Manav, from a growth perspective, I want to be sensitive just because of being in the quiet period right now, not just for us but Bisnode is also a part of Ratos, which is publicly traded from that perspective. That being said, we will provide guidance on our expectations in our 2021 call in conjunction with our guidance expectations. I will say that what excites us is the D&B revenues have been growing in a solid manner right over the past few years for the Bisnode territories. And so from that perspective, we've seen that kind of shift from legacy products on to more modern, whether it be APIs or more modern GUI interfaces like our Finance Analytics. So we're excited about the acceptance rate as our products have then entered into those markets and then traditionally sold by their teams.

Got it. And just one more maybe. Just for some perspective, would you say Bisnode, with $400 million of revenues, is in your kind of top 5 in terms of the size of your network partners? Or just trying to understand, are there larger ones out there?

Yes. Manav, they are one of the larger ones from that perspective.

Next question is from the line of Ashish Sabadra with Deutsche Bank.

Congrats on the acquisition. Maybe just a question quickly on the margin front and opportunities for further cost takeout. So Anthony, you provided a lot of good color around cost rationalization opportunity. I was wondering if it's possible to provide any color around how much cost synergies exist. The margins for the business are 20% versus D&B margins at 40%. Is it possible to -- can Bisnode's margin get to the company average margins?

Yes. Again, I'll take that, maybe, Ashish, then pass it on to Bryan for the second part. Look, we're excited because we've got a good history of doing M&A and finding opportunities for operational efficiencies and bringing the teams together. And that doesn't necessarily mean all the expense comes out of the company that we've acquired. It could come out of our existing company if there's overlap or if there's a great product. The overriding factor for us and drive for us is what makes us the strongest company possible. And I think it's a big differentiator for how we go about our M&A and how we bring in the companies that we acquire, bring them into the family for them to feel a part of the family because we look very openly across all areas to find the operational efficiencies. And we've got confidence that we'll see that here, obviously, as well. But Bryan, I don't know if you want to add anything to that.

Yes. No, Anthony, I think you laid it out well. There's certainly the continued ability, as I said, to generate growth. And I think that's what we're really excited about that, Ashish. And as you can imagine, with kind of the combined data supply chain and platforms, right, rolling on to more, whether it's modern APIs or modern GUIs, the contribution margins are strong. And so similar to our strategy here at D&B, we're really excited about the opportunity to grow Bisnode and really see the contribution margins flow through from that perspective.

That's very helpful. And maybe just a quick housekeeping question. Once Bisnode gets consolidated with D&B, are there certain revenues or EBITDA that will need to be eliminated? Any color on that front?

Yes. So Ashish, we haven't called out the exact amount of worldwide network revenues that Bisnode is. But in essence, if you look at overall worldwide network, right, we talked about being roughly third, right, of the international. Bisnode, right, as Manav had asked earlier, is one of the larger components. So think about it, circa 15% to 20% from that perspective. So as we get into '21, we'll lay it out exactly for you kind of what the ins and outs is. But in essence, you'll see Dun & Bradstreet ride traditional worldwide network revenues down, but then the cost offset from the royalty expense in Bisnode.

Our next question comes from the line of Kevin McVeigh with Crédit Suisse.

Great. Congratulations on the transaction. It seems like you've had the alliance for about 17 years. Just trying to get some thoughts on why is now the right opportunity consolidated? Is it a function of kind of where you are on the internal evolution? Or just any thoughts around that would be helpful.

Sure, Kevin. Thank you. I guess a couple of points. Number one, we're excited with the growth that we're seeing of our Dun & Bradstreet products in the Bisnode business and so certainly the momentum there, but candidly, as we look across the transformation agenda and the growth agenda that we're under, international is one. And looking at the existing, I'll say, business architecture compared to what it could be going forward, we really see that there's an opportunity there for us to more directly play in those markets. And overall, what I'd say is what you're seeing from us is a more active management of the business. And those -- I'd say were probably the primary reasons that had us really excited about this acquisition. And the fact that, obviously, we know the company very well.

Sure. And then it seems like there's a pretty good sense of client overlap, but also diversity as you extend that to your existing product base. Is that fair?

Yes, it is. That's a great point.

Next question is from the line of Andrew Steinerman with JPMorgan.

It's Andrew. Is Bisnode the largest business information data provider in the Nordics region? Who are their main competitors in the Nordics? And what do you think the growth rate or the market growth is for a business information data provider in the Nordics?

Sure. Andrew, thanks for the question. From a competitive landscape, Bisnode right now covers not just the Nordics, but also the DACH region. And what was referred to previously as international, which include companies -- regions like Finland, Poland, Hungary, kind of southern and eastern markets from that perspective. So the individual market growth is varying right from country to country, but as you've seen businesses that compete across that region, for instance, as Bureau van Dijk, right, that's now part of Moody's or Creditsafe, specifically to your question, in Scandinavia, Asiakastieto is one of the key competitors in that region, and so again, these businesses have also shown the ability to grow in a meaningful way, and the market has supported it from that perspective.

Next question is from the line of Bill Warmington with Wells Fargo.

So a question for you on the growth rate. I'm looking at the annual report from Bisnode, and it's showing about 2%. And actually, over the last 5 years, it's more like 1.5% to 2%. And Bryan, you mentioned that you thought the growth rate was solid. So I wanted to see if I'm looking at the growth rate right, if you adjust for the portion that's going to D&B, whether that growth rate is different, but it just seems like part of what you're doing is you're moving from the 0% to 3% bucket to the 4% to 7% bucket long term. So help us with that.

Yes. Sure, Bill. So I think one of the things that we've traditionally seen and that excited us about Bisnode was that they had gone through, under Ratos' ownership, a transformation effort in and of themselves. And so from that perspective, they refer to it as One Bisnode and really starting to drive away from what were some legacy disparate products from that perspective, and Anthony mentioned the ability to sunsetting and transform. What excited us also was we saw that Bisnode-D&B revenue, so in essence, when we were instituting our product sets right into their portfolio, those were actually growing faster than, frankly, our overall revenue streams over the past few years. So Bill, to that point, there is going to be a transformation from that perspective and a continued evolution from moving off of some legacy more inefficient platforms onto the faster-growing D&B ones. But that's where we see the true opportunity to accelerate from that perspective.

Okay. And so I know the margin question has come up a number of times. So the thought is that you guys are going to be able to initiate a transformation at the company that's going to be able to take the margins from the 19% level that they're showing to something closer to the 40s. And just to confirm that and then to try to get a sense for how long that's going to take.

Yes. Sure, Bill. So this time I know that was the question earlier and have pointed comparing the 2 right up to the 40s. What I answered was that, in essence, clearly, we're going to look through, as you said, the transformation from that perspective and then we see the contribution margins, right, because, again, it's a data company similar to what our company is from that perspective. So certainly, we'll look to migrate those north. And again, we'll talk about where we think about the timing in cadence from that perspective as we talk about guidance and forward looking in 2021 -- excuse me, in -- when we give our 2021 guidance.

Next question is from the line of Gary Bisbee with Bank of America Securities.

Can you hear me?

Yes. We hear you, Gary.

Yes. So you said 1/3 of the revenue roughly comes from the D&B part of it. What's the other 2/3? And just any color on sort of opportunities around what they are doing, whether that stuff you can leverage? Or are those businesses as well that you're excited about?

Sure. The other 2/3 are basically their proprietary solutions that they have in market. And so as we look at them, they have some solutions that we are excited about that we think could help, and we're going to approach this like we approach any acquisition. We're going to look openly at the asset, talent and make sure the output from this is that we have a much stronger company in a better position to grow. I'd also say, in terms of -- from a margin perspective, we'll give forward guidance when we talk about '21, but needless to say, we understand the company very well. We've been doing business with them for a very long time. We've got a lot of great overlap from the same type of business. It's just the geographical play. So we understand it well. And we're excited with what we can do with it. And some of the products that they've created that we think could help, and obviously, the products that we have and the rapid pace of new products that we plan on introducing into the market and having more of a footprint to deploy those, we think both will help us in that 5-step growth plan that we walked through on the IPO process.

Great. And then the follow-up. So you mentioned a bunch of what sounded to me like some of your core products that you would roll out here. Can you just -- if you take a step back from this asset, in particular, how does that work with the worldwide network? Are they not marketing -- you mentioned Hoovers, you mentioned a number of the sales and marketing offerings, I think, are they not marketing those solutions? And what -- if not, sort of, what are they doing, just selling more of the core data?

Yes. There's a mixture of them reselling our products, reselling our data, having their own proprietary solutions, having their data, which they contribute to our global data cloud. So there's, I'd say, a mixture of that across all the different worldwide networks and partners across all the different regions of the globe. And with this one, in particular, 1/3 of the business was done in Bradstreet products.