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

Okay. So we'll get started here. I'm Sameer Kalucha. I'm the Information and Services Analyst here at Deutsche Bank. From Dun & Bradstreet, we are very delighted to have Bryan Hipsher, CFO, join us for our conference. It's a pleasure to have you here today, Bryan, and welcome you to the conference.

Yes, Sameer, thanks so much. We've already been off to a great start with a set of meetings this morning and really appreciate the support from DB and look forward to our chat now and for the rest of the day.

Wonderful.

So maybe to start off, I think D&B is a relatively new name on the IPO circuit, but the company has been around for 100-plus -- or I'll call about 150 years. And I'm not sure how many people out there understand the history of how D&B was founded in the 1800, 1900s and how it has transformed to so many things, including Moody's and all the Nielsen kind of spinoffs. So it would be great to have a historical perspective and overview of the company just to set the context of where D&B has been and where it is today? And what are the key things, the company has seen along the way?

Yes. So the history side of the equation is pretty amazing, right, which includes 4 United States presidents, including the most famous, I would say is Abraham Lincoln, right? So it started back on Church Street, as you said, almost 140, 150 years ago. And really, what I would say is the initial side of the equation was that finance side of the equation, right? So it's to make credit, business-to-business lending underwriting and really evolve from that perspective. So as you said, a very meek and well-known established brand. We've got some amazing 4 assets from that perspective that's really evolved in drawing over years and years and years. As it evolved to those times, you mentioned it, right, I think back in '92, there was a divestiture where Nielsen and Cognizant actually I think going in from a -- and then a few years later, Moody's actually even sprung on. So great track record, great history from that perspective. What I would say is that as it continue to evolve and its mission-critical status poised had maintained especially with the persistence of the DUNS number right, and then the ubiquity, for instance, of the Fed export, it was something that probably over the last, I would say, 5, 10 years, I kind of gotten a pattern where it is still now, right? There wasn't a lot of innovation. There wasn't a lot of growth. Frankly, we saw a management style. That was what we described it as a country. And so from that perspective, 2 years ago, led by Bill Foley and a team of an investor consorting with the likes of THL and Tom Haggerty came in, we took the business private. And then above a really significant transformation over these past 2 years, including, as you said the IPO, which is now almost a year ago as we're coming up on the anniversary from that perspective. So one thing that I would say about the business where historically, it was much more of the finance risk side, it's really expanded, right. And so you have about 60% of the revenue is coming from finance risk, about 40% from the sales and marketing side. So we really help companies play both offense. The sales and marketing have also deepened from a finance perspective. Now continue to evolve the solution, continuing to evolve the data set by expanding both in North America but also globally. As you know, we did an acquisition earlier this year of Bisnode. We brought out of the Scandinavian region, the DACH regions of Germany, Austria, Switzerland and also a lot of at Southern and Eastern European countries. And that was complementary to what we're doing with the UKI, Greater China and India.

That's wonderful. So, yes, good to get a sense from a historical perspective, how the company has evolved over time. And it's such an established brand name with such a known quantity around the businesses. And to start off, you mentioned it has -- so you help companies play offense and defense. And just to get a sense of from sales and marketing and financial and risk, how big of the opportunity you target? What is your market size that you go after? And then how big do you think these can -- these things can get over time, especially given all the new changes you're putting in place right now?

Sure. So TAM is always something that Anthony and I kind of talked about, right. And look, I mean, where you think about how we play and where we play, both domestically, globally, horizontally and vertically, you can use kind of the big data TAMs, which are in excess of $30 billion, $40 billion, $50 billion. So it's a massive TAM. When you think about the 3 kind of main components, right? We have the finance and risk side. So great credit business loan underwriting. You have this huge set, the sales and marketing side of the equation, which is really anything from prospecting to pipeline generation, to sales efficiency. And then you have the risk side of the equation, right, which is supply chain and third-party risk management. I call it, KY little X, know your cost, know your members, know your suppliers, et cetera. All of these are really I would say, massive opportunities from that perspective. When you think about it from our side, if I were to bring it down a level, clearly, the sales and marketing side is a space that we're very strong on the master data side. And then on the sales acceleration side in terms of the commercial aspect of that, the business aspect of it, we're really unparalleled. Where we have the big opportunity there is both internationally, right, rolling out our products in a localized manner, but also bringing to bear content data, intent data in other alternative data sets to complementary for that core commercial offering that we've really kind of built upon over those last few years. So great opportunity there, continued growing market. I think, if anything, you're going to see digital sales, digital marketing campaigns just continue to accelerate. They were accelerating. And then with COVID and kind of how we've shifted, I think it says build even more momentum on that side of the equation. When you flip to -- yes, I was going to say on the finance and risk side.

That's great perspective. So we just want to make sure large TAM, which is growing at a nice clip. It depends on the particular segment, of course, could be single digits or marketing probably more in the double-digit kind of range. So if you're focusing on the -- obviously, on the high growth side of things. And one -- to be honest, the big thing that investors have been kind of like grappling with lately has been, of course, the organic growth rate of the company. And then this is the reason I bring up TAM and the opportunity first. So the targets we heard were between 3% and 6% between 4% and 7%. And it keeps on a little bit of drifting depending on the market conditions, which is totally understandable given all the recent events of COVID and whatnot. Where are your thought process right now in terms of what is the long-term organic growth you can target? And if you can kind of give us a sense of the growth algorithm that you're working with over there?

Sure. Yes and as we came out through the IPO, we knew there were some transporting, the one slide that we had discussed, so whether it was Data.com or whether it was some of the impacts from the changes we made to credibility, right, which was the SMB side of the equation, some products and some go-to-market strategies there. And so we talked about kind of that initial 0% to 3%. And then evolving, as we kind of get pass, so 3% to 5%, and then even extending right from 4% to 6% and beyond, right? So from that side, absolutely, you have what we're building here Sameer is very poor return revenue growth. And so what have we been doing? So over the past 7 quarters, when you kind of take the noise out, both the highs and the lows, meaning that we did 8.5% back in Q3 of '19, we did 6% arriving in Q4 of '19. And then we did about 3% in Q1 of '20. And then COVID hit, right and some of those transfer headwinds came through. But we've been very consistent that the core engine has been producing that plus or minus 3%, right. And so it's really taking that 3-ish percent and you accelerated it from there. And that comes from, of course, closing the backdoor, which we've done a really nice job of. So increasing retention rates, creating multiyear contracts and then building some price escalators into those multiyear contracts; doing the elasticity studies and really starting to understand where we have more inelastic product that we could drive a little bit of a higher price increase on a year-over-year basis. And that is, again, start to get you from what was less than 1% of price increase in there per year of revenue growth. For this year, it will be about a peak quarter. Next year, it will be about, call it roughly 2-ish. And then it should get to around 2%, 2.5% on a consistent basis as we move forward. So that's a nice starting point from. When you look at cross-sell, upsell, so selling what we have on the truck today, we did a lot of changes in GPM. Supply chain is another one, Sameer. We've talk about sales and marketing, but that supplier risk management, that TAM is growing quite rapidly right now, too. And we have opportunities to bring ESG data to bear, cyber data to bear, more about financial risk and clients' products there. And it's been actually growing quite nicely for us up to this point. And we see a lot of runway to go in that space also. So cross-sell, upsell has gotten us a couple of points right at this point. When you think about kind of the 4 engines of that. Then it's new logos. And it's really, what I would say, new product over and above what we have today. On the new logo side, the SMB space is a place where we've been always very strong historically as we opened up in the mega clients, in the strategic clients, the very large clients. When you weigh it down to the small, small businesses, big economy, micro, 4 suppliers, that's where, frankly, we had kind of a Mercedes Benz, but we didn't have a more of a Toyota-style offering at the lower end of the market. So you need that. You need product. You need packaging. You need pricing. You need delivery mechanism. And D&B just never really took that approach. So on the SMB -- the D&B marketplace, right, the data that D&B marketplace with solutions just well out in the first quarter. And we're really excited from that perspective about taking with some 120,000 SMBs at our customers today. And look, that's a TAM. You talk about a TAM, 30 million SMBs in the United States alone. If we want a brand out of those 8 million businesses that would take 120,000 we have today. So it doesn't take -- I don't have to convince you we're going to go from less than 1% to -- or 30% to 40%. We're talking about less than 1% to something is could have a material impact on what's exactly where our businesses is going to go. And then on...

So that...

Yes. So just on that side, the last piece, the new product side, again, supply chain risk management is a good example. It was nothing, and it's a little over $100 million business, right? And it's been growing kind of low double digits right over the last few years. So we'll roll out some singles like doubles. And then every once in a while, we'll hit kind of a triple or home run, right. But certainly, we've seen it in International. And here, when we brought new products to bear, more customers take it. And so that's why with Jenny, with Mike, with Anthony, with Raj will be very much focused on innovation. That's Anthony's sweet spot, right? He's on on-site in market as fairly as I want, but he's got an incredible track record. And FYI, you see what he's doing at Black Knight, right? You're really getting that flywheel spinning and really bringing a family together and inducing and instigating that innovation. If there's something he's very passionate about and the team is really passionate about, continuing that momentum.

So that's wonderful. So it seems like the definite new opportunities to target and then definitely new opportunities are from new products and especially the SMB side of things. Maybe to dig deeper into the new product side, what is the ASP delta or revenue or ARPU per customer that you could lift -- ARPU lift that you could drive from adding new products?

Yes. Quite significant, right? So what's interesting.

Supply chain, shipments, ESG.

Yes. So it varies by segment, customer segment is what I would say. On the SMB side, right, they historically are buying one product per, right? So It's quite easy that I could tell you we could double the ARPU line very quickly if they like to, right?

Like bundle the excess, right?

That's exactly right. And so again, we were going and it was really a telephonic kind of inbound sales perspective, and it was primarily around like a credit report, right. Well, now being able to bundle because think about small businesses, they don't have the Ph.D. stats. They don't have huge data like strategies, right. They can use us as they're almost outsource provider from that perspective. Or they just need a simple, configurable, easy kind of usable platform, whether that's D&B Connect or whether that's Hoovers Essentials, where they can, again, want their business in a more sophisticated way. And we say kind of punch above their weight for all intents and purposes. So a lot of opportunity there to -- you can get exponential, for instance, on their ARPU. When you go into the bigger customers, then it's dependent. Some of our very large customers are spending tens of millions of dollars. But there are deals, right, in a stand-alone basis that can be hundreds of thousands of dollars, sometimes in the millions of dollars, depending on the data set, depending on the scope, right, whether it's domestic or for international exposure. So yes, I think there's a real opportunity for us to significantly expand the average sales price per customer. We've seen it with -- what I would say is taking the level of conversation up from where previously had that. Meeting that -- Microsoft is a great example. We were in kind of, I would say, a vendor relationship versus a partner relationship. And frankly, Kevin Coop, our Head of North America, created and drove that relationship with their Chief Digital Officer. That was supported by Anthony, ha the CEO to CEO relationship. And so again, when you talk about meaningfully expanding client relationships in the Fortune 500, it can't be at the 81 out in the organization, right. Really, you need to step up and have that more strategic discussion.

That's wonderful. So again, great things happening from a growth perspective and expanding to new clients and new products driving growth from here onwards. And to be honest, that is a key thing that everybody wants to see and what's really going to drive the growth going forward. And sticking to the SMB side of things a little over here. You mentioned you have only very little versus -- so domestic is like $26 billion. If you look at the international number, I think the international numbers we hear from companies like say, into the world or whatnot is in 800 or millions or depending on how you count it, it could be even a billion. So there's a massive opportunity on the SMB side of things. And there's a -- and with SMBs comes the macro. There's a macro factor that plays with SMB all the time. And given how macro has evolved and how COVID has played a part, and now we're going to have more help from the government. And how do you think macro plays a part in here? And where do you think SMB side can go depending on the growth going forward supported by the spending from the government?

Sure. So again, I think it's dependent country by country, too, right. So certainly, in North America, a stronger overall economy and a stronger base supports small- and medium-sized business growth. And frankly, it's why the digital strategy is really important, too because a lot of these kind of gig economy start-ups are digital presences in and of themselves. And so they're going to need things like a unique identifier, the DUNS number, right, to start to establish themselves and their identity from that perspective. And that's important to us because we want to sell the SMBs. But again, the more SMBs that come into our network, it creates that virtuous cycle that supports the big customers because the big customers want to sell to those SMBs, too. So I definitely think that on the broad scheme of things that new business formation, SMB is kind of getting healthier is a net-net positive. Now we see these unique things like last year where when the government came in with the PPP loans, those impacted, for instance, our usage at the high end because, again, they're using that for underwriting, right, the big players. And so if you have a fully backstop government loan, there isn't a whole lot of underwriting that goes on. It's kind of just feeding through and pushing out because, again, you don't have risk and bankruptcy. You don't have risk of the fall, things like that. So that's -- I just mentioned that because that's the kind of stuff that government intervention can be a little bit of unintended consequences. But generally speaking, what we're seeing across the globe is small businesses becoming more sophisticated. And through becoming more sophisticated, they're becoming more sophisticated through the use of data analytics and platform and workflow technology. So again, I think those are all net-net positives. This year, pure macro, Sameer, we didn't call that it was going to be like a big tailwind to us. And you always want to be mindful of how things recover, the vaccine rollout, different pockets, right, of Europe, different pockets of India particularly have had some challenges from that side. But I think net-net, by the end of this year and going into next year, you're definitely going to see some things being up and momentum going.