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

Yes, it's been very helpful from that perspective. And so in essence, what we're kind of using is a strategy that says, listen, if you're going to do a 1-year contract, right, the MSRP and the price step-up is going to be higher. If you're willing to engage in a multiyear contract, then we can not be price increase down a little bit, and that's what ends up blending in. Again, the benefits of multiyears are: one, just that fixed and built-in price escalator. But then on top of it, you're not haggling over and you're not renegotiating the existing book of business every year. You're now going back in and thinking about the upsell, the cross-sell and really generating that next leg of value from a client perspective. So for us, when we talk about 1% to 2%, that's the blended average across the entire portfolio. And it started to approach more 2% last year, which certainly was a big step up from where it had been historically. As we continue to press forward, we think there's another point or 2 from that side. And again, that's really going to be driven by, frankly, taking some underinvested products and getting them up to the right speed because as you bundle those in, as you continue to improve them, they become more inelastic over time, where right now, we've really kind of bifurcated the client sets. We've bifurcated the segments and the products and really going after price in what are the traditionally inelastic, very sticky, very mission-critical side. But the ones that we were kind of playing from behind a little bit and needed investment, we haven't pushed pricing very hard there. But again, over the next few years as you kind of step up the same level the rest are, that's where you can start to take more and more.

I wanted to ask you this question, which is because you've made so many investments in the business, improve the data. Has there been an education process with the customer throughout -- just in terms of -- because there's probably a lot of customers who remember old D&B before the management team came in.

Yes, customers and investors, Heather, both, actually. So it has been, and it's one of the things that's why we're out here. It's why we want to be in front of the clients as much as possible because we want them to understand that the business has gone through a large transformation. It's a different entity. We run at a different speed. And in that, it does -- it takes time. It takes communication. It takes outreach. It takes effort. And then obviously, it takes execution, right? And so those are the things that we're focused on each and every day. And it's interesting, too, because you're in some very, very -- we're in 90% plus of the Fortune 500, right? But these are very large entities. And when you think about decision makers, for instance, that are on maybe the financial risk side versus on the sales side versus the marketing side, there can be even different perceptions from that perspective. And so as we're engaging, it's making sure that we're engaging properly across the organization, really maximizing the ability to garner share. And again, what's interesting is on the larger, you tend to go in with a master data management strategy and then you can kind of run off both sides of that, right? When you get into the middle side where MDM is can be important, right, but also maybe not be as critical as it is in a large organization, that's where you have to make sure you're engaging with the right level of expertise. So we talked about on the GTM side. In the sales and marketing business, we've really started to put dedicated and expert sellers in there versus we were in a generalist model, I would say, over the first year or 2. So it's not a whole scale change. We're not going completely from generalists to specialists. But for instance, in Hoovers, that was a product that was in -- it was so under investment, right? We have a million business contacts in there, the UI was archaic, right? And so now we're at the stage where the product is ready, the data is ready and so we can kind of launch full scale on the GTM side. And so seeing some good green shoots and certainly turning from that perspective, but that's kind of the evolution that we continue to go through.

Well, I have to ask you a Hoovers then because it seems like you've gotten a lot of questions about Cooper's given the competitive dynamics. It actually a relatively small percentage of your sales today. But at the Investor Day, it came up that there have been some innovations and the team seem very excited about it. What's different now? And what's the enthusiasm all about?

Yes. So what I would say is the connectivity, right, and just the kind of ease of use from that perspective. The data, right, is in a very different place, whether it's the intent data that we're leveraging internally, some of the third parties that we're running with, the contact data, especially when we talk about now going from as like 3 million records to something that nearly 30 million at this point. And look, we focused on the high-tier decision-makers, right? You can have a database with 500 million records in it. But if it's all of the interns, you know what I mean, from last summer's program, they're generally not buyers, right, from that side. And so it's great to see that the user interface, it's great to see the ease of connectivity. And then look, our firmographics data are superior, right? And so that's why traditionally. Two, some of the big customers, they're not worried about big blast e-mail campaigns and things like that, right? They're doing pretty deep market studies. And that's where it continued to shine from that perspective, right, where it wasn't as strong was in that kind of middle and lower end right, where you're really trying to use something that's a little bit simpler or something that's very focused on the contact side. And so that's where we evolve the solution. I think what's cool now and Jenny probably talked about it right, is you can toggle between kind of a contact view versus a firm view. And having the ability to do both is really powerful.

That's very helpful. We're at 16 minutes, so I figured I'd check if anyone happens to have a question, we can send around a mic, but I can keep going, too, which is I want to shift to margins. You talked about 50 to 100 basis points of EBITDA margin expansion over the midterm. What goes into that? What drives that extension?

Yes. I would say, generally speaking, look, we're always looking at efficiencies, right, and driving forward. The general uplift will come from the revenue contribution, right? And so when you think about any given deal, it's north of when we talked about 50%, 60% plus contribution margins. I would say the offset is we're continuing to invest in our people, continuing to invest in data assets, right, both domestically and internationally. And so that's kind of the place that gets you to 50 to 100 bps on that kind of revenue growth. And so we've seen a big step function change. I mean, when we came in here, it was kind of in the mid-30s and frankly, declining. And so we got it up into the low 40s. Some of the acquisitions that we did actually brought it back down a little bit, which is why I think we exited last year like 39% roughly. But when you think about in the kind of low 40s range, right, that's really the organic growth flowing through with those types of contribution margins.

And then kind of moving down to that free cash flow. How do we -- I think you talked about at your Investor Day, 80% free cash flow, 80% plus free cash flow conversion plus is important.

Plus is important.

Very important. Kind of what's the ramp there? You guys have some accounting things with your contracts that flow through and the pension too. So kind of putting that all together, how should we think about it.

Yes. So the first thing you mentioned was the pension side. This was always a bridging item. It was something historically that DNB had in there just in net earnings. Frankly, as we were kind of coming out of the IPO, we've now had about 3 years, right, of kind of clean financial statements, right? And from that perspective, it was a good opportunity to go in and take that out of the adjusted net earnings calculation. Again, it was a non-op, noncash item. And so there was always going to be a bridging piece between that in adjusted free cash flow, right? So that's not out of the equation. And if you look back, we went ahead and kind of recast those prior periods for comparability perspective. On a go-forward basis, what I would say is the biggest driver in differentiation right now between free cash flow and adjusted income is actually that difference in CapEx and depreciation and amortization. And so one of the big pieces was the business was investing maybe $30 million, $40 million a year in cap. So we took that from $80 million. And frankly, last year, it kind of peaked out in the number, that it did, and it's coming back down. It was almost 10% of revenues last year. Now that's coming back down, it should be around that kind of 6% to 7% over time. This year, I think we guided around like 7.5%, give or take. And so for us, we want to continue to invest and make sure we're driving the accelerated growth in the company. But we know that even as CapEx kind of peaked and will come down. Our depreciation and amortization is going to step up over the next few years. And so as those 2 things collide, then you end up with a tighter conversion from that perspective.

That's helpful. And then the cash and putting it to work. You talked about your priorities. But can you remind us and just sort of where -- in particular where debt repayment kind of falls in the sector.

Sure. So first and foremost, it's organic growth is profitable organic growth is clearly the priority right? And again, I think we were mixing transformation work, and we still have some ongoing cloud transformation, et cetera, from that side but it's really on the innovation side and the new solutions that we're putting our dollars to work from that perspective. What I would say, and we had it in there is we're about 4x levered right on a net basis. It's a business that's very sticky, very mission-critical, generates consistent cash flows from that side. So certainly, I mean, when I got in here, I think we were like 9x levered. And so we don't want to be there. But it's a business that can handle that type of leverage because of the structure that we have. That being said, we gave that kind of midterm guide of around like 3% to 3.5%, right, from that perspective. And so we're going to continue to work down. We'll be below 4x is the expectation this year and then continue to migrate down. And so that will be a combination of expanding EBITDA but also using some excess free cash flows to drive down the gross debt balance. After that, M&A is always out there, right in the strategic M&A in terms of tuck-ins in the right assets. But when we're looking at it, I would say, especially in this environment, we're very, very selective. We're always, I would say, very selective. But when you're looking at this kind of overall just macro backdrop and environment, it's got to be something that's attractive. And the fact of the matter is, is that if it's growing accretive to growth and if it's got margins in the range and it's got -- those are generally not the cheapest assets. And so when we're balancing those things, we always want to look towards the long term, right? And so we want to make sure like if it's something that is generated from that perspective and obviously leverage goes up for a very short period of time, but we can bring it right back down, that's something we would consider. But I would say that's definitely something that is behind kind of the natural evolution, which is just grow the business, delever the business, right, and then move forward from there. The dividend, we'll stay on track with where we are from that perspective. And then share repurchase is an interesting one because I think where we're at right now, I mean, the shares are like from my side, from our side, like extremely attractive, especially when you look at the valuation. But we also still have some holders from Cannae and THL. We also still have the dynamic around where the leverage is right now. And so we don't have a huge float, right, from that perspective. And so you're kind of weighing all of those variables, right, as you're thinking about where to allocate from that perspective. But definitely, the obvious ones are growing and deleveraging.

And just touching on M&A. I guess, Bisnode, you mentioned it earlier, can I guess when you did that acquisition, just sort of what was the catalyst for that decision to buy it? And I guess, how is it progressing? Kind of what's the update there?

Sure. So Bisnode was actually a worldwide network partner of ours. And so it covers the Scandinavian regions. It covers the DUC region, and then it's got some of the southern eastern markets, very strategic, I would say, in terms of where it is from a Central Europe perspective. And again, if you look at what we did last year, new clients such as Volkswagen, new clients like Siemens, right, there are massive entities and opportunities to continue to grow and expand in those regions, especially with larger-sized customers. And so we have really kind of, I would say, inside track to any of those worldwide network partners from that perspective, and that was one that Anthony, Neeraj, myself, the Board were very enthused about, and again, came over at the right price, like -- that's always the dynamic, right? In any of these is like, look, do we have opportunities to buy other worldwide network partners? Sure, right? But it's got to come at the right value and the right price with the right kind of financial profile from that side because we've done a nice job of continuing to evolve the contracts and the worldwide network has a very strong use, right, in the current construct. But there are going to be opportunities for us to look at those and say, is it better to own versus kind of having the WWN model for a specific set of areas. So Bisnode has progressed very well. The synergies have certainly come through from that perspective. The revenue growth rate went from negative 2% organically when we bought it this year. Now it's in kind of that low singles. And again, lots of progress from that side. And so continuing to evolve and transform it, but very, very pleased with the progress we've made from that side.

That's helpful. I mean because Bisnode catch up with the overall growth of the business over time?

Yes. I think over time, especially on the international side, right? Again, we spent last year migrating thousands and thousands of customers, right? And so it takes some of that period. And remember, we're always thinking about this on a constant currency basis, right? Certainly, there's some FX exposure, right, in last year, we had it in the SEK, the euro and the pound. And it was a pretty big swing. But look, when we look at the overall impact, I think it was, gosh, almost like $60 million or $70 million of revenue and it's like $15 million of EBITDA, right? And so because of the expenses in those regions also, we end up with a natural hedge from that perspective. And so not nearly as impactful where if we were just in the U.S. with all our employees, all our expenses and selling into those -- that's a little bit of a different animal so.

So -- you talked about M&A and we talked about Bisnode and you've also in the past bought data assets. I think what's sort of the decision process there around data assets and -- yes.

Yes, yes, and it's a mix. I would say it's data assets or it's also some kind of tuck-ins from a software perspective. And so I think I would and that was right, they're a little bit of a mix because underlying them. They had some identity graph, right, capabilities, but they also have the technology side of where they sit in that kind of digital marketing stack. And so as we look at those, we're always balancing what's our core competency, core expertise, right? And then what are things that would take us potentially years, right? So a lot of times, it's the build versus buy scenario from that side. And so there was a natural kind of synergy with what we're doing with the DUNS, what we're doing with our audience solutions business without and that was kind of taking our value from just being really offline to now bringing online, I think, was something that we were quite excited about, and that's a lot of power for the business as we go forward. So that's the evaluation. When we look at anything, it generally tends to be a build versus buy, right? And we have a lot of innovation, we have a lot of organic going in. But if there's something that can kind of speed those things up and come in at a fair price, that's what we evaluate from that side.

And I wanted to finish off with a question on one of your products that was -- you called out a few times in 2022, which is your supply chain product. And what's the status of that? And maybe just also just give a quick overview of what that is.

Yes. So our supply chain fits in what we call kind of third-party risk and analytics. And it is -- it was interesting because there was a real natural extension of what we're doing on kind of the finance solutions side. When you think about what we're doing, we're underwriting, right? We underwrite from a fraud perspective, we underwrite from a financial perspective, risk and compliance perspective. Now from an ESG sustainability perspective, a cyber risk perspective, right? And so if you think about traditionally that occurring for trade credit extension or business-to-business lending extension, same thing happens when you're onboarding a supplier or vendor from that perspective. And if you think about, again, going back, you ask me why is the DUNS powerful, right? Because all of that international hierarchy spreads around, think about the supply chain, right, you're using vendors and suppliers that are all over the world. And remember, early on, gosh, what was it almost 2 years ago, right, or 2.5 years ago when COVID first started coming in, right? And there were concerns about Wuhan. Well, guess what, all of those businesses that had suppliers in Wuhan were like -- do I have suppliers in Wuhan, who are they, how are they performing? What's my risk profile? And not only that, but then what are my alternatives? Now this is when everybody thought it was like a localized it that turned out not to be the case. But if you think about a business and the ability to be more forward thinking more proactive, you can actually take and say what are doppelgangers of that supplier in Latin America, in Europe, right, in North America that I could potentially shift to that have a more stable financial profile or don't have some rising compliance risk right or actions that occur. So that's the other thing is we're constantly monitoring, for instance, for like regulatory infractions. So when those occur, boom flags up on the risk analytics, you evaluate it and say, no, not acceptable because your supply chain is now a reflection of you, right? And so the work you're doing, and that's where we've kind of come at the angle from an ESG perspective not on all of the public companies, right? I mean we have all of that data, but it's really the private company data in our database that we have from that perspective that is quite unique from that perspective. And so when you're thinking about doing supply chain financing, when you're thinking about doing the onboarding of a new third party or supplier. It's also understanding hey, I'm onboarding the supplier, but what's their ownership. And that's always something interesting to in that kind of linkage and parent-child relationship is you think you're doing business with this group, right? But you're really doing business with somebody that may be much larger, maybe on an OFAC list, maybe on a banned country list, et cetera. And as we know, the world is evolving quite rapidly and this kind of front shoring versus offshoring versus nearshoring and so we want to continue to provide analytics solutions data to help our customers kind of punch above their weight.

My prior life was retail, and we were seeing supply chains change and the tariffs even -- and so there is migration there already. Do you think the sort of supply chain challenges post-COVID drove that product? Do you think those tailwinds weighing? Or do you think there's still momentum.

No, it was interesting. We started with a massive retailer, right? Like very, very large retailer. And what it started with was they were having reg and compliance issues, not with themselves, but with their suppliers. And ultimately, the government agencies were saying like, this is your problem, right? And so that's where we started to build the product. Now we evolved that under -- it was supplier risk manager to now risk analytics. And so that's kind of the innovation side of the industrialization and kind of the more holistic view that, that provides. But certainly, what I would say is these events are kind of like incremental accelerants or wake up costs to say, like, this isn't just for really big businesses. This isn't for me. This isn't for North America, and this -- it's for everybody, right? And what's cool about it for our side, too, is like DNB traditionally has always been B2B, right? And so businesses that have like an end customer as a pure consumer, McDonald's, right? You're not doing trade credit on like a hamburger or something like that okay? But McDonald's has a massive and complex global supply chain, right? And so when you think about the opportunities from that side, these are the innovations that continue to help us grow and expand and allow us to attack even a larger TAM.

Thank you. Thank you for the time, Bryan, and for going a little over, too. I appreciate it. Thank you so much.

No worries. Thank you, Heather. We appreciate it.

All right. Thank you.