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

No. This is something that's interesting. While it moved away in 2022, that contract was actually lost in 2018. And so as we were coming in, in February 2019, we were diligent in the business, and we were around it, we were in some of the meetings just to hear the feedback. And so by late '18, it was -- the ship had sailed, right, unfortunately. It took a long time and a couple of extensions to actually get it kind of limp over the finish line. And so they technically went live in April of 2022. It was a point headwind for us in 2022 and it rolls off in April of 2023. That being said, it was a very kind of politically charged reaction, right, to how D&B had behaved. And so we talked about some of this prior behavior and the lack of innovation, lack of investment. And frankly, that's spilled over into the GSA and created an emotional decision that wasn't the best decision, I would say, for the GSA, but was the decision that they ultimately made. And so from that side, it hasn't impacted the commercial side. Even in the -- within the government walls, they're still using the D-U-N-S Number, and they're still using the data that ties to the D-U-N-S Number. So the Number in of itself is powerful, right, but the uniqueness really comes from all of the data in all of the parent-child hierarchy, all of that linkage that sits behind it, that's what differentiates it because again, you and I could go out and make numbers for any company, right? But understanding the linkage, the suppliers, the supply chain, the parent-child relationship, that takes years and years. You're talking 50, 70, 100 to learn and evolve and match. And so that's not something that's changing because 1 entity changed out for the new identifier.

So maybe turning to some of the business units a little bit. Drilling down into finance and risk, what are some of the use cases that you expect to drive growth?

Yes. So definitely, what we've seen is on the risk side, supply chain and third-party risk management is very in vogue, right, in something that has, I think, a lot of potential over the years to come. We did it for a really large retail initially, who was a huge Trade Credit client of ours. That ended up having some issues with regulatory and compliance needs, and it's really expanded from that perspective. When we added things in like UBO data, right, universal beneficial ownership data, it's interesting because here's an example why I think I'm working with a small gas provider on the land, Florida, right? Well, it turns out that they're owned by a Dutch Up-C structure, which is ultimately owned by Gazprom. So that linkage then ties you to a Russian-owned entity, which carries with it different decisioning factors within banks and commercials throughout the world. And so as we continue to think about whether it's ESG and sustainability, whether it's cyber risk, whether it's risk and compliance or just plain financial underwriting, that is going to continue to be a big theme for supply chains as we go throughout the globe. The other cool thing that we have is because we have all this data on alternate supply chains, we can also say, hey, look, if you're having issues of this supplier, it looks like it's going to go on a business in the next 90 or 120 days, or it's just received some form of sanction or regulatory violation. Here are 5 others that you could flip through in either regions that you're looking at today or regions in other parts of the world. So on that side, I think it's really interesting for us to continue to grow that. On the finance side, whether it's continuing to drive price and then driving those new solutions like Finance Analytics into our European markets, what we also brought over, I think is pretty interesting is in Asia, we used to use what was called the D-U-N-S Registered seal, right? And think about this as a pretty simplistic validation of a very small micro business. We can apply that same thing to North America. I would say the SMB sector for us has largely been untapped, right? We have the legacy Credibility business, and that's really all that was done from that side. And frankly, that's something that we had to run through the FTC order and kind of get it back on track. But we've been doing a lot of underlying work there, too, to consolidate websites, to get a functioning cart, to have this kind of gateway to start to sell products that are fit for purpose for small business. And so on there, I think the finance side has a lot of opportunity from that perspective, too.

And then on the sales and marketing side of your business, you bought Eyeota and NetWise, you've revamped Hoovers. Do you feel like you're in a position of going offense in that side of things?

We do. Look, Master Data management is a great kind of [ saw work ] from that perspective, growing nicely and is going to continue to provide a lot of value as we go forward. The Hoover side, as you said, we needed to get the UI right. We needed to get the workflow right? We needed to get the data there. And you're starting to see the green shoots in that turn the page from that perspective. And then Eyeota and NetWise in what we had in Audience Solutions, again, that digital marketing side, the B2C side tends to kind of be 5, 6, 7 years on ahead of the B2B side. And so for us, we're really seeing nice growth there and an opportunity to take the D-U-N-S from being really offline and starting to put it more and more online.

Can you describe the revenue model? How much of it is contractual? How much is it tied to data utilization or other metrics?

Yes. So if we look at it, we talk about it 95% plus recurring, right? And I'm always pretty conservative in how we talk about recurring. I always give this story when we were doing the Black Knight IPO, and it was actually a law and services company. And they said they're 100% recurring revenue. So I was like, "Really?" And they were like, "Yes, well, the grass grows every year." And I was like, "That doesn't necessarily count." If we look at how we structure, right, we have kind of 3 big buckets of revenue. One are daily ratable, right? Well, first, we back up. 50% of our revenues are under multiyear contracts. The rest are generally under a year contract. There's very little where they're just pulling down like a report. If you then go into the construct, you're talking like roughly 75% is daily ratable recurring, and so we've already completed stand-ready obligation. So the UI is up like a Risk Analytics or a Finance Analytics, and that's just running straight through. The next piece of subscription or recurring is about 15%, give or take, and that is on delivery. Now those deliveries can happen monthly. That can happen quarterly, semiannually or annually. So they're contracted from that perspective. But what can vary in any given quarter is the amount of delivery that occurs. So it catches in a full 12-month period, but you can have 15,000 delivered in the first quarter, 25,000 in the second, 30,000 in the fourth and so on and so forth and little variation year-to-year. The last roughly 10%, I would say, about half of that is very usage-based where it's an annual contract. They've committed to the amount, but it's just draw down. And whenever they draw the downs when it recognized. The last 5%, I said is truly variable, right? That's where level of reports, level of overage, right, things like that, that's where the variability would come into play. But it is the vast, vast, vast majority is subscription.

Got it. That's helpful. So I was reading through your 10-K the other day, which is fascinating. Every 10-K is. But there was some, actually some interesting language in there, I think a risk factor about sales and marketing competition. And it indicates that sometimes data can be collected in a way that may cross ethical and privacy boundaries. How do you make sure that Dun & Bradstreet as a data company is staying on the right side of those boundaries and steers clear of any data privacy regulations?

Sure. First of all, we have a very disciplined General Counsel, and we have a very disciplined compliance, and we have a very disciplined regulatory compliance side of the equation and especially with the data expertise from that side. Look, we carry with us 180 years of brand, 180 years of trust with the largest and most sophisticated players. So in the end, we're not going to go over the boundaries to jump for that next dollar. And so where I would say is you can swing the pendulum to be ultra conservative, right, but we always look at balancing the product side, the commercial side and the regulation side is always being, first and foremost, compliant from that side, but also making sure that we're not completely shutting off the spigot because there are a lot of opportunities to continue to grow and evolve from that side. So when you look at our expertise, our balance sheet, our ability to meet requirements around GDPR, CCPA, now we're seeing like individual states come up with their own kind of regulations and interpretations and the same thing throughout the world. For us, it's something that we see, too, as a differentiator, right? Small companies don't always have the ability to go to that level of detail, and they're out potentially gathering data in ways that they shouldn't. For us, it's a part of our core business and core production, how we think about rolling out a solution, and it's critical to how we think about business going forward.

Why don't I pause for a second and see if there are any questions in the room?

[indiscernible]

Sure. So Cannae's is our largest shareholder. Bill was involved originally, and Bill is the Executive Chairman. Bill was involved with the original group that took the business private, so Cannae, THL, CC Capital and then an investment from Black Knight were really the driving force behind the privatization back in 2019. Anthony is CEO and has been around the [ poly ] complex for a while. I've come out of the FIS, LPS, Black Knight side of the equation. And so we have a relationship from understanding kind of how we transform businesses, how we drive metrics, and we think about entrepreneurship, we think about ownership and how we run a company. But in terms of just the direct relationship, it is -- Cannae is roughly, I think, 20% ownership is where it's at today. Bill is clearly the Chair from that side. So sits on the Board, provides strategic direction and very helpful from that side, but they're an investor.

[indiscernible]

I mean it's always a good question for them, especially, Cannae as a public company, rather than myself. But I would always leave it at that. I think they're quite believers in what we're doing. And clearly, I think we all think that where the valuation is today and where the stock is trading is not where we think it should be. But in terms of what they need and what they're going to do from that side again, I would have to redirect you to the Cannae team.

Maybe one last question for me then. Do you feel like Dun & Bradstreet has the free cash flow and the balance sheet capacity to make strategically important acquisitions? And how do you weigh acquisitions versus deleveraging in a higher interest rate environment?

Yes. So it's interesting, right? I mean when we took the business over, we ended up, we were 9x levered, right? And certainly, it's a business because of the mission-critical nature of the long-term contracts, the stickiness. It can handle leverage certainly over 4x, right? But at the same time, we also understand the sensitivity of the market and the fact that we have some floating rate debt, right, that when it flexes up, it takes away money that we would rather spend on other things, right? And so we laid out a target of 3 to 3.5x is where we would like to get to from that perspective. But in terms of putting ourselves in a box, if we had to go up to do a really strategic, perfect, great acquisition, we could do that, right? But it would be an acquisition, too, that would be growing rapidly with strong margins and then quickly would be deleveraging again very rapidly. I would say excluding that, which sounds like there are very few of those, right, at the right price, investing in organic growth acceleration, deleveraging the business, right, continuing the dividend, right, and looking at strategic M&A, those are really the priorities. The question around like share repurchase and things like that is clearly out there, right? One is the fact that you have some of the overhang that's constricting the float in and of itself. Two, you have the sensitivity around where we're at from a leverage perspective right now. But certainly, as we look at the business evolving, hitting its KPIs and metrics, that's something that comes into play pretty quickly, too.

All right. Terrific. Well, I think that's a good spot to wrap up. So thanks to everybody for joining us, and thanks, especially to Bryan.

Absolutely. Thank you.