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

Good afternoon. I'm Heather Balsky, BofA's business and information services analyst. And I'm pleased to be here with Bryan Hipsher, Chief Financial Officer of Dun & Bradstreet. Bryan, thank you so much for joining us.

Yes. Thanks for having me. It's been a really fruitful day, I think. A lot of conversations, a lot of meetings. So excited to chat.

It's great. It's been an awesome day for us as well. I thought it would be valuable to start with an overview of your business for anyone who might be new to your story. What does Dun & Bradstreet do? And what's its value proposition?

Yes. So Dun & Bradstreet is a company -- I think we always talk about this, had 4 U.S. presidents, including most famous colleague, President Lincoln. And really, what we've done is created this like really powerful Data Cloud that supports 550 million entities throughout the world. It is all tied up through the D-U-N-S Number, which is a unique identifier that creates a parent-child relationship from a commercial perspective. Then with that data that hangs off of those 550 million entities, we solve kind of 2 buckets, Finance and Risk, which we call defensive, we were talking about sports earlier, and then sales and marketing on the offensive side. And so we're really deeply embedded within organizations and continuing to find new and innovative use cases to help them become more efficient, more effective and, frankly, reduce risk.

Okay. That's helpful. Starting with Finance and Risk, what are the largest components of revenues, the key drivers of growth? How should we think about that?

Sure. And so if you kind of break it up into 2 big buckets, the traditional side of the equation is Finance Solutions, right? And so this is usually in the data and the analytics for underwriting business lending, underwriting trade credit extension. And then what was interesting was that really evolved into kind of second largest bucket, which is Third Party Risk & Compliance, so vendors, suppliers, supply chain risk management. It started with, hey, you're underwriting my vendors and suppliers from a financial perspective. Would you do that for the regulatory and compliance aspect of it? And so we expanded our data set, right, to collect reg and compliance data throughout the world. And then it expanded into things like ESG and sustainability, moving into things like cyber. And then it even pushed into things like universal beneficial ownership. So not just the legal entity hierarchy but who's on the Board, who are the owners, right, how might that ultimately impact who I'm doing business with and whether or not I want to do business with them going forward. So really, I would say it's the combination of the F&R is really the Finance Solutions side and then the risk side of the equation.

Okay. That's helpful. And that's becoming increasingly important and a lot of focus on that.

Yes, absolutely. And like the Finance Solutions side is very sticky, very embedded. I mean it was funny because before this, I was at whether it was FIS or Black Knight or -- and like nobody really knew what I did or what company -- you say Dun & Bradstreet, and it's like people throughout the globe know who you are and know what you do from that perspective. And it really started off on that, the credit side of the equation. I think what's interesting and as we talk about the next side of it, it's like how you leverage off of that Data Cloud and the Master Data Management to also solve use cases on the Sales & Marketing side.

Got it. Yes. So thank you for that intro. I appreciate it. So Sales & Marketing, walk us through your biggest products there and the key drivers of growth.

Yes. It's interesting. About 60% revenue in the Sales & Marketing side is around Master Data Management. And so when you think about CRMs and MarTech stacks, lots of data is input, lots of opportunities. In essence, what we're doing there is curating and deduping and then adding to, right, those resources from a data element perspective and from an overall prospecting perspective. And so that's, I would say, a core component of it. We then extended into sales acceleration. So products like Hoovers, for instance, is a good example, where you had all this data that was born out of the credit side and the Master Data Management side. But then you can say, who do I want to actually prospect to? So if I'm HP and I have a new green server that's coming out, which are the businesses that are most likely, right, to want to buy that? And then I can start forming my marketing and sales campaigns to go after that higher-propensity type of prospect. And then finally, the digital marketing side of the equation is taking our ID graph, right, from a business in lens perspective and applying that into the digital marketing space. And so while a lot of early digital marketing was around consumer, and you were thinking about maybe Bryan Hipsher, and I like sneakers and I like the Knicks, et cetera. And then all of a sudden, the ads show up for like the blue and orange sneaker, right? This is more around do I look like the CFO of a multibillion-dollar corporation? Because then if I'm on The Wall Street Journal, the ad and the value that's coming from there is Oracle and Workday and SAP fighting in the background to present their latest ERP or their latest treasury workstation. And so again, we're very focused on the commercial side, very focused on the business side, and that's the differentiation we bring in that space.

Okay. And just zooming further in on Master Data Management because it's such an important part of your growth story, how are customers using it? Like what is its value proposition? Just kind of better understanding that. And why is it different from the data that is provided by competitors like, say, a ZoomInfo? I think that's something that's not well understood.

Yes. Like very, very different. I mean if you look at like a ZI, right, or a contact data provider, that's very myopic and even in like a portion of what we do on the Hoovers side. And so from that perspective, and we can go longer into why our contact data was kind of underinvested in and what we've done over the last few years to turn that around. And you've seen gains, right, that we've had on the Hoovers side. The MDM side is really a unique differentiator because it does cross both sales and marketing, but you see MDM as a use case also into Finance and Risk. It was the first exposure I had actually to DNB, was when I was at FIS, we were in the financial crisis, right? A layman goes down and all of sudden it's like, what's the exposure on the receivable side, right, to all these different banks? Bank of America being one of them, Wells Fargo being another, Chase being another. Well, all of a sudden Countrywide and Merrill all of a sudden became part of the Bank of America story. Wachovia and World became part of Wells. Bear Stearns and WaMu became part -- if you said what's our exposure then to Bank of America, we called it 73 different things within our applications. And that was little FIS, by the way, right? Because it's BAML, Bank of America, it's BoA. It's all these different kind of components. And so what MDM does is it takes all of that. It creates the D-U-N-S. It creates the ultimate global ultimate D-U-N-S and hierarchy. And then you can say very rapidly, here's my exposure, versus the weeks it took to gather all that data and get into a spot and say, here's what our ultimate risk profile works from that perspective. So the D-U-N-S hierarchy and then the entity resolution, the matching algorithms and capability, like that is the true differentiation that sits behind the scenes. And those algorithms have obviously been refined and grown over the last 10, 20 years. And I would say, 30, 40, 50 years, you can go back, right? But the acceleration of what we're doing in that space is really interesting. And so when you're talking about 550 million entities with 3,000 elements, and this is a consistent structure throughout the globe, like that is very, very valuable to large multinational corporation. So the deal we did with Volkswagen a few years ago in our last year in Germany, I mean, imagine their lakehouse strategy and all the data that sits in there from a first party or third party, right? We are taking that and helping them to organize all that into a consistent manner. And then as they bring in data, as things change, you always have that structure that you're building off of the backbone. Very difficult to replicate, very difficult to displace. And so any competitor who's trying to go on that, like we feel like they're running their head against the wall. But our advantage is we can then take complementary assets and hang more and more of that off of the frame. So in an all-equal environment, we like the position we're in from that perspective as we continue to invest and continue to bring on new and alternative data sets because again, our ability to land, expand and displace is really powerful.

That's really helpful. And you mentioned Hoovers and some of the progress you've seen there earlier on. So let me ask you about that, what you're excited about.

Yes. It's continued to improve. And I think in the overall environment, you're still seeing sales budgets, marketing budgets not at the levels that they were in maybe 2 or 3 years ago. But certainly, I think as people are getting a little bit more optimistic, rate cuts are going to happen at some point, right? I know people got excited in March and then July. And we'll see how the rate eventually goes. We didn't think about this year as anything different than last year in terms of customer sentiment, right? And the great thing is we don't have big macro fluctuations in terms of volumes that we're predicated on. So I think it's a great opportunity to continue to garner share, right, and improve the assets that we have because as things do turn and budgets open up, that's your ability to come in to cross-sell and upsell even harder than what we're doing today.

That's really helpful. So you guided organic sales. Let me get to the decimal place here. I think it was 4.1% to 5.1%. You expect to see a nice tailwind from pricing, I think around 2.5%-ish. Focusing on the volume part of the business, what's driving the other sort of 2-ish points of growth? Is it cross and upsell, better retention, new logos, new products?

I would expect this year, retention is going to be pretty similar as to what it was last year. Pricing, as you said, is up a little bit from that perspective. It's really cross-sell, upsell, right, and then the new products that we're releasing. So it's funny, things like MDM and what we're doing in Third Party Risk & Compliance, those are newer into the international markets, right? Even some of the things we're rolling out in terms of MDM -- in MDM in support of the GenAI initiatives, right? What you're seeing is that these strategies need to have foundational consistency and curation and really strong data to grow off of if you're going to go down the GenAI route. Outside of that, like cap markets, right, is another great example of. It's funny because a lot of the data has existed for years, right, in terms of solving solutions for cap markets providers. Now things we brought in like shipping data and some of the alternative assets really bolstered the prospects, but what we needed was some subject matter expertise in the product space to really drive that home. So I brought in a guy, Brian Filanowski, who's under Ginny Gomez's team on the product side. Brian was former President of Fitch Ratings, knows the space inside and out. He couples up with our Chief Data Officer, Gary Kotovets, who came out of Bloomberg. All of a sudden, you have a small team, right, that's focused on starting to build out specific solutions that solve cap markets use cases. So we had a really nice win in the fourth quarter, top 10 player in the space. It's funny that originally, I think we were talking about doing some press releases. They backed off in the end because they felt like it was too proprietary, and they didn't want to announce what they were doing with us. So we're not, not proprietary with them. You know what I mean? But I think, certainly, we're excited about the opportunities and the value that we're driving for them and how we can drive that for the other big players in the space.

That's really helpful. And you have a midterm goal of 5% to 7% organic growth. Where are you focused to get volumes up a bit more to hit that target?

Yes. And it's interesting. It's like on the volume side, we're not a big volume flux player, right? I think it's more around new logos, and especially big new logos, throughout Europe and APAC, continuing to do the migrations, right, which puts you in a place to take even more price. So like 2.5% growth from price is good, but it's certainly something that we should be north of 3%, right, as we go forward. And then when we're thinking about these new vintages of products, I mean, you've seen the Vitality Index. Now it's not going to stay at 30%, right, forever. It's a bit of an indictment of how non-vital the product set was before we took it over in 2019. But as those vintages roll off, the new products that we're bringing out that are continuing to kind of stack on to the overall revenue stream. So strong retention, incremental pricing, some new logos. Bigger, I would say, internationally. Maybe smaller domestically. And then it's the new products, right, and continuing to innovate and solve those types of solutions. The other is -- and I talk about innovation from a vertical perspective. Cap market is a good example. Insurance, right? There are other verticals that are akin to what we're doing that we go a little bit deeper in, but you just need a little bit of tweak in terms of product focus from that perspective. Do you want to go outside? And you say, okay, health care is a vertical. That's going to take a little bit more incremental investment because there's different data sets, right? There's different GTM motions that you have to work through. So we're always kind of balancing like you want to be -- and DNB is interesting because we could be the provider to everybody and everything and every -- you almost have to have like focus. Somebody asked me like, what keeps you up at night? It's like we got to continue to focus on a finite set of opportunities because if you try to boil the ocean, you're never going to get there from that perspective.

That makes sense. So I want to shift to margins. And some of this came up on your call, but I thought it was helpful to kind of recap it. So can you walk us through, in 2023, what contributed to your margin pressure? And what gives you confidence in your guidance for expansion in 2024?

Yes. Again, I think we're always focused on continuing to have very strong gross margins, always looking to execute from that side. Last year, we actually had about $16 million that I would say was kind of unique. $10 million of that was our bonus payout for our company, right, company-wide, was about 80 -- mid-80s in 2022 -- mid- to low 80s. And last year was at target, right, for all intents and purposes, very close to target. And so that was about a $10 million increase to kind of get back to that target range from that perspective. The other side was we're self-insured, like most large corporations, and we saw health care costs up. It was about $8 million in the fourth quarter, but it was about $6 million for the full year. And so $16 million is kind of the difference of where margin landed versus being up 40 bps. There was 10 bps maybe of like FX kind of noise in there. So you're in that range at the lower end of what we talked about at 50 bps of expansion on a year-over-year basis. The good thing is as we head into '24, look, the midpoint of the guide is about 30 bps of expansion. Things like the $10 million of bonus or the health care, those are kind of normalized, right, on a year-over-year basis, so not headwinds. What we did build in was extra, I would say, kind of $5 million to $10 million of OpEx that is focused on GenAI investments and probably a little over and above where we would normally be. So I would say, look, on $1 billion, $5 million counts, right, $5 million to $10 million. It's a difference between 30 bps of expansion and 60 or 70 bps of expansion. I'd hate to say that I'm the one who cut off $5 million of extra expense, and we're in third place on the race to GenAI. And so from that side, we're always kind of balancing the near term in meeting those midterm targets -- medium-term targets but also making sure that when there's these types of opportunities in front of us that we're making the right decision. And ultimately, that's what turns into faster growth, and then ultimately, faster margin expansion.

Yes. So when you think about your midterm target, up 50 to 100 basis points, and you talk about incremental investment for GenAI, how much are you broadly investing in GenAI? Is that the -- is the $5 million to $10 million the full budget? Is there more? And kind of what is that investment going towards?