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

Hi, everybody. This is Alex Hess with JPMorgan. I'm an associate on the business and information services equity research team, led by Andrew Steinerman. We're pleased to have with us today Dun & Bradstreet's CFO, Bryan Hipsher. Bryan has served in his role since February 2019. I believe this is your third appearance at Ultimate Services?

I believe so.

Awesome. Great. So welcome, Bryan.

So Bryan, I want to start with Dun & Bradstreet's early 2023 Investor Day. D&B unveiled targets to accelerate organic revenue growth to 5% to 7% annually over the medium term. Historically, not this year, but historically, D&B has been a low single-digit percent top line grower. This year, you're about midway there, let's say. What gives you the most confidence that D&B can accelerate revenue growth in years ahead?

Yes. So first and foremost, it's great to be back, 3 years and running, as always. We've always been on a journey, as you know that. And so my start with the company really ensued with the initial take private in an ongoing transformation to really accelerate the business, drive innovation and really structurally change the trajectory of where the business was on when I think, historically, those previous 10 years from that perspective. And so a couple of things are starting to happen in terms of just the reported growth, right? So one thing, as you know, even in this latest quarter, we grew 4.8% organic constant currency. And one of the nice components was no more GSA headwind, right? And so some of the things as we came into the business, there were some kind of structural headwinds that were provided, contracts that were lost back in '18. That kind of layered in and, I would say, overshadowed some of the growth of the underlying assets that we're really driving it. And so as we get into this quarter, in the third quarter and beyond, right, a lot of those are behind the way. So seeing things like the Finance Solutions, nice long-term contracts, very, very sticky price increases right from that perspective. And that allowed a jumping off point to get into third-party and supply chain risk management. It's a great business. It's been growing, I'd say, nice double digits for, I think, almost like 8, 9 quarters in a row now. And so you saw that shine through, for instance, in the third quarter and so far this year. And then, really, when we think about the last kind of component, I think we'll talk a little bit around Credibility. But that's a business that, again, went through some changes, has gone through some pains from that perspective. But it's kind of getting towards the tail end of some of the challenges as they've [ said ]. It allows us to really start to innovate and accelerate within that kind of smaller business space. And so all of this combined, what we're doing on the Finance and Risk side, having the headwinds abate. Master Data Management, right, that's a great example of a business in the sales and marketing space, 60% of the revenues. It's not one of those that kind of fluctuates up and down on seats or fluctuates up and down on what's the budget for our marketing and sales department from a macro perspective. It's mission-critical, it's deeply embedded, and again, it's growing nicely and expanding from that perspective. So we talk about all those things, and I think we'll talk about international maybe a little bit later, so I won't make this answer the complete list of your question so far. But it's been a nice journey and something that we're excited about, taking that next step from kind of midpoint of our guide, 4-ish percent, right, into that 5%, 6% and beyond from that perspective.

Got it. So another way to think about your business, there's like 15 ways to think about it. What is Finance and Risk or Sales & Marketing, North America versus International. But let's talk maybe about top sellers versus revitalization opportunities, let's call them. Top sellers would be things like, correct me if I'm wrong, D&B Analytics Studio, Optimizer and Master Data Management, Finance Analytics, Risk Analytics, those are growing well. Revitalization opportunities, we'd still say Hoovers, and we would say Credibility. And how do we get from where we are guiding to this year to 5% to 7%? Is it more compounding on the top sellers? Is it more -- do you need the revitalization to kick in?

Yes. So I think a couple of things, and Hubert was a good example, right? It was a drag, right, for 3, 4 years, right, for all intents and purposes. One of the first steps in any transformation is just take it from a drag to being neutral, right? Because then it allows those top sellers, right, as you describe them, to really continue to shine through and accelerate from that perspective. Now on Hoovers, is it good enough that it's a kind of flattish to maybe slightly growing? No, not from our perspective, right? We want all our portfolio to be really turned and growing from that side. But those things always take a little bit of time to build some momentum and get into the market and expand from that side. In terms of Credibility, same thing, right? We got through -- we had an open investigation, right, when we bought the business from sales practices that date back to like 2016, '17, '18. The order came through, and we've had to work through from that perspective. So again, just getting it to kind of be less of a headwind, getting it to neutral, but then starting to invest and accelerate into that SMB space, look, we can go far beyond CreditBuilder, right? And that's what that business was all about, right? It was, hey, I have a poor credit score, come to Dun & Bradstreet, we can help fix it through some incremental trade credit references, et cetera. But the real fact of the matter is we have a potential in our ecosystem to help them build out a better business, right? And so by bringing in different data elements, like we'll talk about the Plaid integration and how the banking data can come into it to help improve from that side. We'll talk about financial statement data. If I broaden it to things like ESG sustainability, veteran-owned status, minority-owned status from an ownership perspective, those things can help a small business then differentiate themselves within a Risk Analytics, right, to a Walmart, to a Dow, to a large-scale provider. And so again, these are early stage, and we're kind of working through. And I think that brings a nice optionality to what we could be doing from the growth rate over time. The main things are execute, continue to drive high retention, right? Pricing, this year, it's about 2%. It's got an ability to go north of that, obviously, as we go forward. And then bringing innovation and new solution right to market, that's been one of the biggest things for us that's allowed us to go from -- it was relatively flat to now in that 4%. And then how do you take those next 1% or 2% to get into that 5%, 6%, and that's what we're focused on all day every day.

So would another way to characterize -- because you've really seen -- they had a great quarter in the sales force. We'll dive into some of that in a bit. But would it be a fair way to characterize to say to hit the 5%, you just sort of need to see the solutions that are growing, that have done well for you guys the last few years, keep doing well. To get to the 7%, you do need to see some turnaround and in...

Yes. They're not a huge portion of the revenue. I mean you're talking Credibility in that roughly $120 million, $130 million range, right? And so just by stemming it, you don't necessarily need to get that significantly accelerated. When you're talking about the higher end of the range or how do you go beyond, that's when I think you really hit the ground running on some of these things that have been a bit of a drag in the past, right? And then you're combining that with, obviously, you mentioned new solutions, right? So things like the Analytics Studio, things we're doing with A -- but I know we're going to get into the gen AI discussion at some point. But those are all things that I think are incremental in potential from that side for us to really, as you said, drive towards the higher end of the range. But for us, let's go on that journey first, right? Let's execute against getting from where we were initially into that 4-ish percent to that 5-ish, 6-ish percent, and then we'll start talking about how do we go above and beyond that.

Yes. So let's highlight a few of the innovation areas we've sort of previewed already. Plaid, you've had a partnership with Plaid since August 2022 around using business-permissioned data to help small businesses improve their commercial credit results. We've compared this in the past to experienced consumer-facing boost offering, which has been obviously tremendously successful. Where does the Plaid partnership stand today? And what's the potential for that partnership to be a needle mover?

Yes. So I think one of the things is we did a lot of underlying kind of infrastructure work and laying the foundation for when we worked through some of the issues we had on the Credibility side that we were ready to launch, right? So I think this quarter, you heard us talk about the new concierge offering in that SMB space. And so, where before, it was a high-touch offering that allowed, again, a lot of focus on trade credit, right, which is still a very core asset from that perspective. But it broadened it and allowed us to now, in an automated way, bring in, right there, permissioned financial statement of banking data, right, from that perspective. And I think when we're thinking about the boost kind of concept, how do you improve that score? It's by building out that larger profile, collecting more of that alternative data, right, and then giving businesses a different SKU and a different scope in terms of how they can represent themselves to whether it's FIs and banks, whether it's other commercials, or whether it's people who are looking for global vendors, right, and suppliers. Because again, one of the things that you always got to think about is our scoping goes 500 million public and private entities throughout the globe, right? And so when we think about the diversification of third-party and supply chain risk, that's the type of data and analytics that we're providing, which is really powerful.

And the Plaid partnership, does that have the potential to be your needle mover?

I think it's a component, that helps us create what would be a needle mover is really cracking the case on the SMB side. I mean if you look, we have maybe 120,000, 130,000 customers, right, in North America in that SMB spot. There's -- I could say there's 30 million small businesses. But the fact of the matter is the guy who's got the Nathan's Hotdog stand on the corner is probably not going to be buying our products. But there's probably about 5 million to 8 million that are legitimate from that side. I mean we get 2 million to 3 million businesses that come to us unsolicited per year because they need a D-U-N-S Number, because they want to be an app developer in the App Store, they want to be an app developer in Google Play, they want to be a vendor at a Walmart. Like that kind of interaction allows us to really start to develop solutions, right, that are priced and fit for purpose for SMBs, and that's the opportunity we have in front of it. We just have to start executing against it.

Got it. So the opportunity set for you guys or the, shall we say, untouched opportunity or unvended presently, opportunity set for you guys in the U.S. is largest in SMBs. But in Europe -- sorry, excuse me, internationally, ex-North America, it is largest with enterprise by your assessment. How do you sort of juxtapose going small in one half of your business and then going big in the other half?

Yes. I think the great thing is going big and midsized in strategics is -- it's the history of D&B, right? And so the -- part of the issue was, internationally, we didn't have a consolidated leadership. We didn't have a strategic vision there. It was more, in essence, like they were treating it as a place to consolidate the data, right, which is owned from our perspective, and then utilize that for large multinationals. Well, the fact of the matter is bringing our local products, our existing products in the U.S., but localized, right, for the German region, right, for the Scandi regions, for Southeastern markets, even in Asia, right, in Greater China and India, all of that allows us then to start driving more strategic relationships. So we talked about Munich Re, right? We talked about Siemens, Volkswagen in some of those regions. We talked about 2 of the largest banks in Asia, right? And so there's a lot of opportunity, I would say, for some larger scale players to adopt. Because in the end, what they're doing and what the companies in North America, they're all doing the same thing, right? Business is business is businesses from a functional perspective. It's really just making sure that the data, the language, right, the capabilities are fit for purpose, right, and tweaked to those local requirements. But leveraging off of the big FA kind of core platform, off the Risk Analytics core platform, because that's what gives us scale across the board.

So it sounds like, under the prior management team, let's say, the prior approach was to have international offices that supported a U.S.-led effort. So you'd have a large U.S. enterprise account, let's say, a JPMorgan-style firm that had offices overseas, but you'd principally be selling in the U.S. and then supporting workers overseas. Now you can actually sell into other geographies and to firms that are maybe headquartered in another country, but have global reach as well.

Yes, I think that's very fair.

Got it. And so the area where you've had the most success with this so far and perhaps it's just a language thing, perhaps something else, has been the U.K. and Ireland. You reacquired Bisnode in early 2021, but what are sort of the big -- which is for those who are unaware, Bisnode is the -- it had -- was D&B's network partner in the German-speaking countries and in the Nordics, so just call it, Central Europe and the Nordics. What is sort of the playbook there in sort of plain English that you're aiming to replicate from the U.K. and Ireland to Europe?

Yes. So you were going to test my German skills. I saw that out there, but I appreciate the plain English then. Listen, it's interesting because they had a lot of, I would say, disparate kind of one-off legacy applications, right, and they were running in a federated model. And so in some circumstances, the nice part about having the UKI is we had already started down that kind of transformation acceleration, right, when we took over back in 2019. And so then applying those same kind of rigor accountability, be able to bring those solutions to bear within a slightly -- obviously, different culture, right, in terms of Europe versus the U.S. It was nice to have that presence there already. in those disciplines that were already kind of built up in terms of how Neeraj and the team were running the UKI. So if we look at the acceleration from Bisnode, it's kind of a minus 2% organic grower. Now it's in that 3% to 4% range. Margins were kind of in the teens. Now they're in that 30-ish percent range. So again, really nice in terms of continuing to progress and drive a mix of what was kind of cost savings and consolidation, but really accelerating the growth through sundowning and migrating those legacy one-off bespoke products and really bringing our modernized solutions into those regions. It's been a nice, I would say, kind of turnaround from that perspective. Still a lot of room to go, still a lot of big businesses to go after. And one of the things that's very exciting from my perspective is the difference in the UKI versus maybe Scandi or DACH, UKI is very FI-centric, right, a lot of banking, a lot of services from that side. When you get into Scandi, when you get into, for instance, like Germany, Austria, Switzerland, they get a bit more industrial, they get a bit more mechanistic from that side. So what's very important in those, supply chain, third-party risk management, even Master Data Management, right? Because, again, Europe is dealing with global suppliers, whether it's Latin America, whether it's Asia or whether it's other countries within Europe, all of that kind of feeds right into what we're really driving in North America and the UKI and applying that over the next few years into those regions is pretty exciting.

You cited having -- you previously had a federated model. And to that point, D&B still does have the worldwide network. So for anybody who's new to the D&B story, Bisnode, which now D&B Europe had been 1 of 14 worldwide network partners. Worldwide Network alliance partners have basically redistribution rights, but also contributed data themselves to D&B core. Can you -- does the worldwide network add a level of complexity to the execution of your international strategy? Or is that the wrong way to frame it?

No. What I would say is that, over the last 3 years, right, we've gone through a lot of the -- we call them CSAs, right, the agreements between us. And a lot of those have been, I would say, put in a position where it doesn't create that level of friction as it did before. One of the really important things is that data that is being collected and contributed into world-based, that is our data. We are not a data aggregator, right? And I think this will be interesting again. I know we're [ all enough ] to talk about some of the things that evolve from a gen AI perspective, but owning the data, understanding where that data comes from, having the rights from that perspective and being able to move right is going to be important and I think a differentiator for us going forward. So are there times where it can create complications? Yes, but they are fewer and far between. I think we've done a really nice job of kind of setting the boundaries and making sure that we're generating the type of benefits and flexibility that we need, but also making sure that we reward the partners fairly, right, because, again, they're strong contributors into the data set. And especially with one of the things we saw that was attractive about Bisnode was they were selling our products, right, at a much faster rate than some of their legacy products. So it gives them nice, modern solutions to really operate off of, too.