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

Good morning. Kevin McVeigh is going to moderate our session today. He's with Credit Suisse. We have Bryan Hipsher, CFO at Dun & Bradstreet. I'm Anthony Jabbour, CEO of Dun & Bradstreet. Welcome. So what I thought I'd do is just give you an overview of Dun & Bradstreet before we go into the Q&A, just so you have -- for those of you that aren't aware of the company. What we're focused on and what we're going to spend the time on today is accelerating growth and specifically organic growth. So Dun & Bradstreet has -- okay. Is it -- I just want to make sure I get on the big slide. There you go. Perfect. Thank you. The data cloud that we have at Dun & Bradstreet has over 420 million businesses in it worldwide, at -- public businesses but, obviously, at that scale, private businesses. And it's really important, as you start looking at some of the use cases we'll talk about, understanding all businesses and the relationship between those businesses and hierarchies within those businesses. And for all of them, we have a DUNS number. Think of a DUNS number as a fingerprint for a business to really uniquely identify it. It's incredibly powerful in lots of ways that we'll get into, and we'll highlight some of the use cases today. But probably the most powerful thing is how many companies worldwide rely on the DUNS number in their internal workflows and create relevancy for it. Our business is 40% sales and marketing use cases and about 60% finance and risk. So if you think of the sales and marketing, our marketing business is about $30 million in revenues, growing about 40%, so performing very strongly here. We recently made 2 acquisitions to further the moat that we have around this business, further strengthen this business. I'll talk about them later. Our sales in terms of providing contact data for our customers in their selling campaigns, it's about a $90 million to $100 million business for us. And the big part of sales and marketing is our Master Data management. So again, the power of the DUNS number, helping companies identify and cleanse their data, normalize the data, get rid of duplicates. There's a lot of complexity, especially at the larger enterprises and working down on data management and mastering it. And we'll talk more about that as well. On the finance and risk side, the big part of the business is the finance side. It's really establishing credit for businesses on a global basis and really being able to track from assigning credit to cash and receivables, so really large market share in that space. Lots of great capability, many large enterprises relying on us for this. And the other part of the business, the risk business, is a $100 million business, growing strong double digits. And what's really exciting across all of these is it's taking all the same great data that we had and finding more and more different use cases for it. And so what we're -- the journey we're on is continuing to find more use cases for this wonderful data and going deeper into these additional segments that I've talked to you about. If you look about our organic growth and how we want to accelerate it, this is what we talked about at the time of our IPO. And I'm going to focus on the final 3 building blocks here. The growth we've had so far is from the first 2 bars that you see, the existing -- selling to existing client relationships, enhancing them, cross-selling and winning new clients in new markets and also some of the pricing benefits that we've seen, all the good work that we've done in terms of transforming our business, earning the right from a price perspective, having multiyear contracts in place where we have annual price escalators, that's what we're starting to see in the growth right now. But where I want to focus on with you is innovation, driving innovation and having that as a key component of organic revenue growth, expanding our international presence and strategic M&A. And these are the things that we talked about at the time of the IPO and what we'll follow on with you today. Innovation is something -- for those of you that know me best know, everywhere I've been, I'm very passionate about it. I believe it's really important not just to drive revenue but also to drive a culture in the company, to drive an aggressiveness in a company, to drive tighter partnerships with your clients, having your clients always wanting to look to you for their next need or their next opportunity, having your frontline salespeople always excited because there's always something new for them to go and help their clients with. And we've got a lot of great innovation already underway. So if you think about this business, our first phase of it was an operational transformation, right? We created significant improvements in our margins, significant improvements in our data, our technology, et cetera. And as we've pivoted to the second phase of our transformation being growth and growth based on innovation, I'm just excited at the ways we're finding to leverage these assets and even more excited about the future opportunities that I see in front of us to do more and more of it. If we look at some of these, I'll pick a couple, maybe ESG intelligence. It's a new one. I know it's very much top of mind for all of you. And it's an area where, as we explore that, really what we did, we hired a couple of experts in ESG and said sit with our data and analytics team and explore what we could do today. And it was powerful. The way we can score companies on ESG is very exciting to us. More than just the company, because of that hierarchy and the DUNS number, where you can look at all the interrelationships between companies and subsidiaries, et cetera, the way we can look at all the vendors that supply those companies, we can create an ESG score for all of them and roll it up to an aggregate ESG score. That's powerful. Because if you think of where things are headed from an ESG perspective, we all know it's going to only increase. And so if you think about being able to score it, it's exciting. What's the next step for clients that don't believe it reflects their true operations, they can do a survey, right? Many companies are doing ESG surveys today. They're self-reported surveys. So you tell me how much energy you're consuming. You tell me how much greenhouse gas you're emitting, right? And the beauty, again, of the DUNS number, an example is on the self-reporting, we can pull in the data tied to a DUNS number. We could pull in data from utilities tied to that DUNS number. So it's no longer a self-reported questionnaire or survey, it's factual. And when it's data-driven, we could run it daily, weekly, monthly, not suggesting you need to, but that's the power of it. So if you believe that this is only going to rise in the future, think of the importance of an application, a loan application. If you told me you had a $100,000 salary, $100,000 in the bank, would I just give you the loan? On your self-reported answers, I wouldn't, right? I'd want to validate it. So the beauty here is we've got the ability, and it's just one small use case for us with the DUNS number and the power that DUNS number provides to us in being able to give you a really accurate and truthful score. Rev.Up, we've talked about in our marketing suite. Prior -- when Michael Blend was talking about System1 and third parties going away, Rev.Up is based on our customer data platform really helping our clients leverage their first-party data and doing a lot more with it. And lastly, maybe on this slide on the SMB space, we've talked about that really throughout, and it's been a topic on every earnings call that we focused on, and it's really about how do we help the SMB space. We've created a portal that we've talked about for all the SMBs that are coming to us just on a natural basis. They're coming to us. We're not marketing to bring them to us. They're coming to us because they need a DUNS number. They want to put an app in the App Store. And guess what Apple asks of them? That they have a DUNS number. They want to be a supplier to a Walmart. And guess what they need? A DUNS number. And so they're coming to us because they want to improve their credit score. They want to understand their credit. What can they do about it? They want to be a supplier for a large enterprise and that large enterprise directs them to us to help. So we've got this natural flow of SMBs coming to us already, and we've organized it in a way to really leverage it and find better ways to help them and for us to monetize that traffic flow, which is exciting. And the last thing I'll say in the SMB space is, on the Q3 earnings call, we talked about our new product called blended score, where we created a blended score of our commercial credit bureau data that we always had; and TransUnion data on the consumer side. So finding the combination of both data sets, we've improved the match rate of being able to identify the small business. We've improved what the consumer credit bureau would have scored and the credit they would have provided just on that score, and we've improved the score that we would have provided just based on our data. So really exciting. Early days. The feedback from our clients so far has been really promising. So -- but just some examples that I want to share with you on the innovation front and ways we're leveraging these great assets that we have. As you see, our new product vitality index that we talked about is 8% of our revenue. It was 2% a year ago. So the work that we're doing here is really starting to materialize, and we're getting lots of great proof points from it and great conversations with our clients. The next topic we talked about in the growth bar was expanding our international presence. So in this case, 2 areas I want to highlight. The acquisition of Bisnode, which was a great acquisition for us. It provided us phenomenal markets in Europe. So we own markets in the U.K. and Ireland. This gave us the DACH region, which is Germany, Austria, Switzerland. It gave us Scandinavia and a number of other Southern European countries. We got a lot of great data through that acquisition. We've got a lot of great talent that came from that acquisition. And we also were able to really go deep with many multinational organizations that were headquartered in those regions, further expanding our partnership and the depth of our relationship with them. So it's been really exciting in that regard. We've got great synergies. We're on track to annualize $25 million this year and $40 million next year. The price we paid, we thought it was great value for us, right, at between 7 to 8x EBITDA multiple for the business. So really great move that way in terms of expanding internationally. But the other thing I want to talk about is organic. Organically, what did we do? We created 20 new products in 2020 for the international market. And so far this year, we've already created 24 new products internationally. So we're not just relying on M&A. It's organic. How are we driving this business? How are we creating new capability and bringing it to local markets? So it's really exciting, and you've seen that in the accelerated growth rates of our international business. And then lastly, on the M&A side of those growth buyers I was walking you through, we talked about NetWise and Eyeota on the last earnings call, really exciting acquisitions for us. If you look along the bottom of the screen, there's really 6 steps in programmatic online advertising. And the success we're having today, like I said, 40% growth we're having today, we're taking our data that we already have, our DUNS number, and it's very successful in the offline world. Extending that to our clients for them to sell through e-mails or phone calls to their clients, this is really taking it similar to what Michael was talking about to the online world, identifying where your customers are. The difference for us is this is purely B2B is what we focus on. And what's great is you've seen the success in the B2C online marketing world. And what I like so much about Dun & Bradstreet, as being a B2B player, you can see what trends work. And you can extrapolate to say, do I believe this will work in a B2B marketplace. And this is one that we absolutely do believe will work. We're seeing it already offline. And so what NetWise will do is they'll take our great data and their DUNS number and they'll map it. They'll create an ID graph identifying who the CFO of Dun & Bradstreet is, his personal e-mails, his devices that he has. We'll go to Eyeota. Eyeota will syndicate that out to the e-commerce network to place the ads and syndicate that data. So if you look at the far right, you see the Wall Street Journal, that's an example of just a website that's out there that wants to post an ad. And what happens in real time before that ad gets posted is there's a demand side and a supply side where there's a real-time auction that takes place. And whoever bids the most, they get to place the ad when Bryan Hipsher is coming on. So the beauty of this, I'll just give you one quick example. Let's say there's 3 companies competing for the ad on the Wall Street Journal. There's McDonald's, there's Nike and there's Ceridian. The B2B advertisement is always going to be able to pay more because they're selling a higher price target. And so what we're excited about is the hit rate that we believe will occur from B2B online marketing is going to be higher than B2C. That's what's exciting about it. So it's like we're going to create all these ads, put them there, and McDonald's and Nike will always outbid our clients. It's the opposite. Our brands that we work with today, the relationships we have today that have numbers, a DUNS number with us today, that rely on our data today to market, we're just extending it. And we're extending into a space where there is opportunity for them to sell. So that's exciting. And lastly, just on the overall revenue growth and EBITDA growth, right, where it all matters, as you see from an adjusted revenue perspective, right, we've grown 6% since 2018, like when we took the company private and then public. Our adjusted EBITDA, up significantly. So we see $569 million at the time to now $813 million. And lastly, at the bottom, again, what we're hyper focused on is our organic constant currency revenue growth. You're seeing that accelerate in our business. And that's what we're excited about inside of D&B and for you today. So with that, that's -- I just want to give you a quick update. And now we'll open up maybe to our session, Kevin.

Great. Thanks so much, Anthony and Bryan. And again, I thought that was a great segue into our first question. I wanted to go back to '18 and talk about the go private because I think you folks collectively have -- part of your career has been identifying really deep intrinsic value in assets. So maybe, Anthony, help us understand the strategic rationale for the take private back in '18, and maybe we'll start there.

Yes. No. The deal, obviously, was done before I got involved. Credit to Bill, CC Capital, THL in terms of identifying the opportunity, but it's really finding these great assets where they've got a phenomenal brand. I mean our clients are pulling for us. The brand is incredibly strong. We're finding lots of ways that we can do a lot more things with it, but it was just undermanaged. That was the problem. And so we knew coming in with our operational playbook, and we could execute like we've done many times, and we could do a couple of things. We could really improve the efficiency of the business while also driving growth in the business and really just change the pace at which we're running and take these really good assets and make them really great assets, like we've done so many times before.

Sure. And then just I think from the time you took it private to the time you took it public again was probably faster than what you would have thought in terms of initial thesis. Maybe talk to that a little bit, what drove that decision and -- post the IPO. And then within the context of that, you had a lot of success in terms of margin expansion over those first 18 months. Maybe talk to the components of the margin expansion back then and then what will drive some of that going forward?

Sure. The exciting part for us, I think, in terms of -- we went through a lot of change, right? Obviously, changed out the whole Board, the majority of the senior leadership team, changed about 1/3 of the employees and replaced half of those with new positions, new talent, new people. So a very major overhaul of this business and one that anyone in their right mind wouldn't do in a public setting because it's just a tremendous amount of risk with that kind of change. But that's what -- that's the model that -- really that Bill's companies have followed from, FNF initially to FIS, to Black Knight to now is really get it to a solid foundation to then grow from. And for us, what was exciting was -- and look, there were shockwaves inside of Dun & Bradstreet. I don't want to say that everyone was onboard from day 1. But what happened was they saw us doing the things that they always knew they should be doing. Those colleagues of ours most passionate about that business knew the things we should be investing and they knew the moves we should have been making. And there are hard decisions that they knew should be made that weren't being made. And so when they saw us taking these aggressive actions and then investing aggressively, our colleagues came along, and they were very passionate, and that's where we had a lot of confidence to go back into the public markets because there really wasn't a risk. I mean we were reporting our numbers to our bondholders kind of throughout as to how we're performing, and it put us in a great position to pay down some very expensive debt. We wouldn't have been in a position to do the Bisnode acquisition, which, again, is very strategic for us. There's work that we had. It was declining in revenue, but the assets were so strategic long term for this business. And we've always had a long-term mindset that it gave us the ability to do that, which is really important.

Great. And I think one thing that gets lost in terms of the IPO was it was in the middle of COVID. And when you think about how durable the business model was and the way it behaved, it was really remarkable, right, where a lot of business models were down 40%, 50%. You weren't even close to that. You were essentially almost breakeven, which was remarkable. But maybe switching gears over to Bryan for a minute. Maybe Bryan, talk about the organic growth trajectory in the business because I think what gets us so excited about Dun & Bradstreet, in particular, is the organic growth optionality. And one of the things we focus on from a coverage perspective is retention, right? I mean you've had best-in-class retention. If you think about infoservices overall, it's 95%, 96% retention, and you folks have been in that zip code. But Bryan, maybe help us understand the organic growth algorithm because you've had steady improvement. And again, you've put a lot of things in place that are going to drive that, and it's a very, very predictable fashion in terms of how you've been executing on that, very consistent with best-in-class and full services companies.

Yes, absolutely. I think Anthony opened it up with that bridge. And actually, the first step before you even get to the growth is the retention side of the equation. And so we've done some things to put in place. And obviously, the foundational improvements, the data quality, the technology, the throughput, et cetera, that all helps put you in that kind of moral high ground, right, of retention. And then we'll also talk about price increases. One of the big things that we saw was that our large customers, strategic customers who were with us more than 20 years, yet we only had less than 20% of our revenues under multiyear contracts. And so by shifting -- and now, Kevin, we're -- about 50% of our revenues are in multiyear contracts. We've been able to lock it in, build in a price escalator, right, that steps up each and every year. And then our hunters can really go in and focus on the cross-sell and upsell of our existing solutions and the new innovation solutions that Anthony was talking about. And so as you start to look at these from a strategic perspective, it's not really like one point is how you create increased growth or increased pricing power. It's really the holistic approach that we've been taking. And so you see retention 96%, 97%. You see price this year will be about 1.25% over the entire portfolio. Next year, it should be closer to 2%. You see what we've been doing with cross-sell upsell from that perspective, whether it was a large-scale Microsoft deal or now we're starting to penetrate with more product packaging and pricing for the smaller-end businesses. And so again, that's where we -- when we came in, it was one product per. Now we're seeing that step up to 1 to 2 to 3, increases stickiness and expands the TAM at the lower end of the market. So as we are approaching 3.7% in the third quarter, roughly 4%, it's about that price setting the base, the cross-sell, upsells where we filled in today. And then it's about innovation. It's really the acceleration over and above as we target mid-single digits and beyond.

And I think what's great is you really set a couple of different milestones in terms of a couple of ranges of organic growth kind of near term and then longer term. I'm glad you mentioned innovation because, Anthony, I want to talk about that a little bit because that's really one of the cornerstones. As we think about information services models overall, there's pricing, there's innovation. And I think that's one thing that historically has lacked at D&B that you folks have really seen an opportunity. So maybe talk to that a little bit and weave into the fact that when it comes to innovation, you don't -- it's not a 2-week process. It's -- so you're really starting to see the benefit of some of the seeds you've sown, but talk to that a little bit and maybe -- I think the clearest proxy we see is the vitality index here.

Yes. No, I think it is as well. At the end of the day, that's all that matters is the revenue and the EBITDA we drive from it. But it's really important in so many ways. And again, it's a cultural thing. If you look at the -- again, like the richness of the data cloud that we have and the ubiquity of the DUNS number, it really puts you in a great position to leverage it. I mean our company started out in just finance, right? What's the creditworthiness of this business? Should we extend more credit, underwrite more credit to them, et cetera? The whole sales and marketing was just saying, "Man, we've got all this great data. We understand all these companies and dependencies and the contacts within them. We could reuse this data in a different use case, and the risk model is the same." So the -- so we leveraged a lot of what we had before, say, in sales and marketing, and we added contact data to it, right? And now if you look on risk, which is probably the newest business, and that's growing, like I said, very strong double digits, the contacts are important for me to know how to reach Bryan as CFO of Dun & Bradstreet if I'm trying to collect from him, right? So identifying the use cases, being able to connect with the contacts to actually whatever the transaction might be. But it just feels like an unlimited amount of innovation that we can bring based on this asset. But it's incumbent upon us about getting that flywheel spinning, spinning faster and faster. And that's really what we're focused on. It's a personal passion of mine, but it's one that I just -- every place I've been, I've seen what it does to the client relationships. They become incredibly tight. They're more about partnerships. You look at our client list, I mean there's no company that's got a better client list than Dun & Bradstreet. I mean it's incredibly powerful. And what we've instituted here and what we've done elsewhere is let's have advisory boards with them, bring them in. Again, you don't have to be the smartest person in the room. I'm not. I know I'm not. But I listen, right? We all listen. And we've got a lot of great ideas that come in. And again, to the extent that we respond, right, with capability and an innovation based on the feedback, they're going to keep coming. And we've got very senior people from very large companies, parts of all these different advisory boards that we've set up. It's incredibly powerful. And I think all of our colleagues inside as well, they get energy from that, right? And that's probably the most exciting part, I think, for us internally as well.

And I agree. And as we think about the story within the context of the competitive landscape, there's been so much emphasis and focus on private market data. And when you think about the DUNS number relative to PAYDEX score, you folks control the whole ecosystem, and just a really, really powerful competitive offering bring to bear. And you've got that domestically, but maybe talk about also the international opportunity from a sales and marketing perspective but also on the credit side and maybe weave that into a couple of more recent acquisitions you've done, particularly Bisnode.

Yes. Yes. No, Bisnode is great. Eyeota was great as well on the marketing side, where in the European market, where the privacy laws are much stricter than they are in the U.S., many fell out of the European market. Eyeota's standing tall. They were built for it. And so as we play that forward in terms of how the privacy laws will change in the U.S., we're really excited that we feel we're playing above the rim right now in that space. But more and more, it is the assets that we have and what we can do with them, which I think really separates us in that space. The private data is critically important. So how can Bryan, as the CFO of a company, be sure he's not letting bad actors into the network? He's held accountable to any vendors that we work with, looking at all the hierarchies of these vendors, the different relationships among them, ultimate beneficial owners, who's investing in some of those companies, right? Is that a problem? Is there adverse media on any of those players and tying it all the way back. Having that access to that private data is incredibly important because the bar is going to continue to be raised for all of us on all these risk elements, who you do business with, your ESG scores. Every one of them is going to go higher, and there's going to be new ones that keep getting at it every couple of years. And so it gives just a richness. And with the DUNS number, being able to match it, that's the part that I didn't realize until I was inside of Dun & Bradstreet, just the power of that DUNS number. We've got dozens of patents around identity resolution. It's such a complex science, and we're very, very strong at it. There really are unlimited numbers of use cases that we can provide in that space.

And one more recent success, maybe talk to the partnership with TransUnion, because when you think about the competitive dynamics, particularly on the commercial side, you straddled -- the credit bureau is on the low end of the range. And then ultimately, the Moody's and BvDs of the world, so on and so forth. But again, I think a real unique opportunity, the partnership with TransUnion, so maybe we can understand that a little bit.

Well, it's funny. We had an open flank, and D&B had it historically, right? They had this business credit bureau that was expensive, and it's incredibly valuable. You look at the enterprise side, I mean, it's immovable. It's great. But as you work your way down to a much smaller business, it didn't provide the value for the price. And there have been a move away from it to just using -- so I'll keep using Bryan as my example here.