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

I am Faiza Alwy, Deutsche Bank's business services analyst. We have with us this morning DNB. It's Bryan Hipsher, CFO of the company. Bryan, thank you so much for being here.

Maybe just to start, for those who aren't too familiar with the story, just give us some background or an overview of the company's transformation over the last couple of years since going private and sort of where you are at this stage.

Sure. So it's been a pretty incredible ride up to this point, Faiza. So we're 3 years in now since the take private and now going on about 2 years -- a little almost 2 years from when we came back public. And so when you think about the transformation, I mean, it really came from the bottom up. And so as we came into the asset, really great bones, really great data, really great market positioning, brand. But it had, frankly, been run, I would say, in a relatively lethargic manner, right, for a longer period of time, and so not a lot of innovation, not a lot of investment in the overall company. I think the run rate [ IDSW ] was somewhere around like $30 million or $40 million. And so when we came in, we had to do a few things. One, we changed a lot of the management team. We changed a lot of the go-to-market organization. We changed the -- what was an extremely matrix organization into ones that actually had business unit level P&Ls, right, so we can measure it. And we always say if you can measure it, you can improve it, right? And so a lot of that, I would say, fundamental bedrock was done in the first, I'd say, 1.5 years to 2 years. And where we are now is that we've really flexed from, I'd say, kind of 80-20 transformation to innovation to now 90-10 innovation to transformation. And so transformations, in my opinion, they never stop, right? It's like as soon as you've done your technology transformation, it's this -- the next one is right behind it. But the real heavy lifting from that side is behind us. And so the next piece of it is really about bringing new products to bear, which is really the exciting piece of it. And I think you've seen that turn from where we worked through a lot of that bedrock, a lot of that fundamental. And now you're seeing the revenue start to accelerate, and that's where we're at in the journey.

Yes. Maybe let's talk a little bit about new product development. You've talked about the vitality index and how that's improved over time. Can you give us some numbers on how that's going so far, sort of what your targets are on that vitality index? And also give us some examples of the types of new products that you're launching.

Yes, sure. Absolutely. So I think on -- the vitality index is a really easy place to start with because, I mean, it was near 0, right, when we started in 2019. And so what we measure it from is a pretty, I would say, conservative view, which is, obviously, your new product revenues as a percentage of the overall revenues, right? And so again, as we started out, it was less than 2%, right? In this last first quarter that we went through, we're a little over 10% at this point. And so that journey, when you think about the first quarters of each of the years and how it's progressed, it went from like 2% to 4% to, I think, 6.5-ish to 10%. And so we've really seen a large portion of that being net new products versus new products that are replacing old products, right? And so both of those end up kind of bundled in there, and that's an important metric for us. But things like what we call the Analytics Studio -- and so one of the pieces that we came in was that we didn't have a real structural sandbox, right, for our customers to play in. And so when you think about their use cases around Master Data management, it really starts from a central perspective and then it can branch out, whether it's on the Finance and Risk side or the Sales and Marketing side. And so now what they do is they ingest their data, they ingest our data, they can ingest other third-party data and start to work through with tools and analytic models and then deploy, right, ultimately into their end state. And so that was an example of something that's a good chunk of revenue inside of that. D&B Connect is a good example. So for a long time, we had what was called Optimizer, really successful product. Again, the core of a lot of Master Data management strategy is in very large-scale Fortune 500 companies. But when you start just going to the midsize and the lower end, it wasn't as user-friendly, right, as in self-serve as needed for those customer bases. And so that's one piece I think you'll really see from our side, is that we've traditionally played extremely well at the Fortune 500, at the Fortune 100 level, at the Global 1000 or whatever, right? Where we've then, in essence, not gone for specific kind of product, packaging, pricing is at the very lower end. It was kind of like we were trying to sell a Mercedes-Benz to somebody that wanted to buy a bicycle, right? In the end, they both transport people, but you got to understand that there's 2 different end markets and they behave in 2 different ways. And so for us, we've really made an effort too also to kind of decouple functionality, decouple some of the solution sets and start to bring it down to a more simple level, right, that can be consumed by a small-sized business. And really help them drive and punch above their weight is really the goal.

Yes. What percentage of your sales overall are now sort of these SMEs, small and medium enterprises?

Yes. It's still relatively small. So one of the things in that foundation lane that we went through was we just didn't have a cohesive strategy, I would say, historically, right? And so we, in essence, needed to consolidate, for instance, like websites, right? So we had 7 or 8 different web portals for them to enter in. It's all now consolidated to a single space. As that funnels through, then the product is there, the placement is there. The digital channel is something that we've talked about since I think we took the company public, right, each and every quarter because it's a real, I think, opportunity for us to continue to expand. But you're talking about something -- in terms of the overall scheme of the business, 10% to 15% of the revenue is kind of in that how you define small and medium-sized business. And some of that is North America. But also when we think about Asia, right, and we think about our European presence, a lot of those are also small and medium-sized businesses, too.

And is there a target to take that -- do you want it to be a 50-50 split between sort of large and small?

I think that what's interesting is if you look at our customer count, right, in North America, for instance, there's about 120,000, 130,000 customers, right? About 115,000 of those are SMBs. The issue is, is that in the U.S. alone, there are 30 million small businesses, right? And if you look at kind of a doppelgänger analysis of 115,000, who else looks like them, there's 8 million or 9 million. So the point is, is that there is a massive opportunity for us to really go after that and garner that market in a different way because we're not even scratching the surface at this point.

And is there -- in terms of -- again, going back to new product development. I think are there more products that you can introduce? Like I imagine that's where the focus is in terms of the new products. Sort of where do you want to take that?

Yes. Absolutely. So a place that we've had real success in is in third-party risk and supply chain risk management, right? So what's interesting is it was a natural extension of what we were doing on the finance side. And so where you start off and you're underwriting a small business loan, you're underwriting trade credit extension, when you think about then your supply chain, your vendors, it's a starting point for that, right? You bring them in, procurement underwrites them right through -- not just on the finance side but then it became on the regulatory and compliance side, right, so the KYC, KYB, KYx, right? You fill in the word. But it's understanding, from a federal, state, local regulatory perspective, are they on OFAC list, right? And from a business-to-business perspective, that's obviously really critical, right, when you think about who your supply chain is, how you're doing business with them, what's the risk of disruption from that side. The next phase that's really interesting from our side and where we're venturing in, in this new ESG world is in that supply chain risk management space. And so what you see is that -- and look, I mean, there's some guidance out there from the SEC. There's obviously guidance that's flowing through in Europe right now. And when you look at the -- not just your own ESG stance, right, but it's also who you're doing business with, right? And that becomes now an extension and part of your score from that perspective. And so when you look at all of these providers out there right now, they're very focused on, I would say, public companies, right? Our unique data asset and the way it's contributed in is really both public and private entities. So you're talking about 460 million entities throughout the globe. When you think about a supply chain in -- Volkswagen was a great example of a new customer win on that supply chain side. And on the ESG side is -- they took a piece of their supply chain that has 8,000 vendors, right? And so when you think about the ability to track, monitor, understand, those vendors are not publicly traded companies, right? You're not going to go out and see kind of how they're -- what's in their 10-K or their 10-Q, right? And so from that side of the equation, I think we have a really unique opportunity to take advantage of that supply chain side and deliver some real value to our customers. Because, again, every Board meeting, every customer call, our investment discussions, right, it's just continuing to come up more and more. And we already saw it, I would say, on our European side through D&B Europe, but it's definitely emerging more and more into the U.S. And so we're really excited about that as an extension, again, of a use case, right, that continues to expand. And so that's where we're taking it, I would say, is continuing to take the core assets that we have and then look to solve more and more problems within our customer bases because that's the real advantage, right?

Yes, yes. It seems that this is more of a -- this would help more of the larger companies. I imagine they are more focused on the ESG side, like Volkswagen as an example, right?

Yes. And it becomes a virtuous cycle, right? It's the same concept around -- those are the same ones who need it for the finance side or the risk side, right? But in that same vein, for instance, if you want to be a vendor to Walmart, you have to have a DUNS number, right? And you have to have ultimately a certain level of understanding and score from that perspective. So then it becomes very interesting to a small business to understand, well, okay, first of all, what is ESG, right? What is my -- and one of the things that's really important for us is like we have 32 data elements, right, that make up the score. And they're very measurable, they're very transparent, they're very clear, right? And so from that perspective -- and they are company-specific, right? So -- versus, hey, we live in the same neighborhood, right, and we both went to a similar university so we both have the same ESG score, right? That's how frankly a lot of it's done today, and this is where you get some folks that get relatively frustrated. I think our friend -- some CEOs were pretty public around what they thought about some of these comparative scores, right? And that's important, right? It's important for us just like as an individual when you look at your credit score, it's, to you, how do you behave, right? Same thing for a business from our perspective. How do you pay your bills, right? What does your financial stability, balance sheet look like? How do you comply with regulatory and compliance rules? More black and white, I would say, than trying to be in some kind of gray area. And so from that side of it, a small business is actually -- really can be advantaged from that perspective. We just had the SBA in Jacksonville about 2 weeks ago, and they had like 700 small businesses presenting when we talked about it. And it perks up a lot of ears and eyes because when you think about the S side of the ESG, the social, a lot of small businesses, minority owned, women owned, et cetera, they can advantage themselves through that to actually go out and expose themselves to more capital, expose themselves to more credit from that perspective. So I think it ends up kind of working from both sides, where, yes, of course, it's important for a large business, but for a small business, it becomes important because that's how that ecosystem ultimately interplays.

Walk us through like how are you getting the ESG data. Like are you working with each individual company? Like it sounds like a lot of work sort of getting all of the data from the companies. Are you using sort of other third-party sources? Sort of what's your process?

It's a mix, right? So on the contributory side, when you start to go from like a governance perspective, one of the things we have is like this massive universal beneficial ownership database, right? And so when you think about that whole parent-child relationship loans, that's -- a fundamental question in this is like who am I ultimately doing business with. You start with that, right? And what's interesting is -- and you can imagine over the last few months, right, there's been a lot of interest in Russian and Belarusian-owned entities, right? And so you think you're doing business with [ Fina Oil ] out of DeLand, Florida, right? And that's -- this isn't a true example, right? But when you look at that chain all the way through up, if they're ultimately owned by Gazprom, who are you doing business with, right? And so this was really important for a lot of our customers, a lot of institutions to understand that from that perspective. So a lot of that comes through, obviously, our gathering and then the contributory side. And so in the background, we see already who's doing business with whom, right? And then we can kind of tie that together from multiple sources coming through. So I think out of the 15,000 sources that are coming in, right, in any given time, there are 2,000, 3,000, 4,000, 5,000 that are contributory in nature. And so these are the largest telecoms, these are the largest retailers, these are the largest manufacturers, the largest banks, right, on the planet. And so what was interesting -- and this is always the evolution for us. We go back to the transformation, but it's like, in some ways, there was this huge Victorian mansion, right, that just hadn't been really utilized and we like open up a closet, realize that out of the 32 data elements, like 26 of them already existed. So a lot of that is contributory, right, from that perspective. The E side of the equation is probably the one that has the most challenge from that perspective. And when we think about what's a calculated field versus what's kind of like a raw field, the carbon footprint is one that it's -- everyone has to calculate it, right? Because there's -- it's -- in essence, the primary way for us and for most businesses is energy consumption, right, and generally from a physical footprint, right, tends to be one of the bigger components now. If you go into industrials and you go into others, they have a lot of different mechanisms that come through from that perspective. But a good example on third-party data that we acquire and it was an interesting one because the business was out there consolidating utility bills and then paying on behalf of the business, right? So what they would say is that, hey, I'm Amazon, right? And then I have all these warehouses throughout the country. And so rather than paying each individual one themselves, right, they consolidate it all up and then one business, right -- this separate entity pays it on their behalf. What they figured out was that they now have the full footprint of Amazon's energy consumption in one place, right? Then we tie it to the DUNS number, and all of a sudden, it becomes an incremental element from that perspective. So that's an example of data we acquired, right, that the original use case wasn't what it was meant to be, but that's how it ultimately turned out to be something very valuable from our perspective.