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

That's helpful. Talking about another -- switching gears and talking about S&M, digital marketing was another business which was struggling. It seems like you're also turning the corner there. So I was just wondering if you could...

Yes. Again, we talked about kind of the demand environment, right, in overall spend, and that tends to hit things like digital marketing or just marketing and sales in general. So late Q3, pretty -- started to see it slow down, right? Pretty tough comps as you went through the beginning of this year, started to get a little bit better in 3Q, started to lose some ambiguity in terms of Google, are you going to deprecate their cookie or you not? They decided not to, right, from that side. And so all of those things started to help from that perspective. It's a more transactional business, right? And so we don't have a super long history of this. I was talking with a colleague, an old friend of mine that's at FNF and like there, you see the history, right, of that fluctuation up and down. So for us, I think -- and the same goes for credibility. That 10% of the business that's been a little bit of a headwind we wanted to improve it. We want to then also evaluate it to see because if you've got 90% of the business, you're growing -- it's been growing roughly 6%, right? Is there a need to have that last 10% core into the overall structure of the business? Or is there something else to do from that side? And that's kind of a contemporary evaluation that's going on is improve them, let the medicine work and start to -- but if they tend to have too much transactional cyclicality or seasonality from one side or if the credibility side doesn't kind of pick up, then we can evaluate alternative options for both of those businesses.

That's very helpful color. Focusing on the core business within S&M, which is the master data management, that part of the business has been growing really well. What's driving the growth there?

Yes. I think you've seen businesses just really continue to rely on data and analytics to improve efficiency and effectiveness within an organization, right? And so as technology is proliferating as AI, right, and generative AI strategies are being laid, you're seeing the need for a structured data set around client vendor and then potentially 360, right? So for us to be able to go in and be that trusted responsibly sourced master client master vendor record, it's a really important position for us to get into because then with 4,000-plus data to hang off that, you solve a lot of use cases, and there's a lot of opportunity to incrementally sell and upsell from that side of the equation. And look, when you look at the CRM and the initial interaction from a client or prospect and that journey all the way from prospect to client to circle back to that next prospective upsell, right, that data integrity and consistency across the board is really something that we think is interesting and really powerful within an organization. So while we may get MDM first in, in sales and marketing, for us, the strategy will then be to play that over the enterprise and then drive the organization really keyed off the Dun's and the core structure and then what are the incremental use cases we can solve off the back of that.

That's great. So it's like a land and expand strategy where continue to expand the footprint within the enterprises. Drilling down into the Gen AI initiatives that you talked about. Obviously, you were mentioning the clients initiative, but also your own Chat D&B. And so I was wondering if you can talk about the initial feedback that you might have received on it and also give some flavor around the Gen AI initiatives over the last year, 1.5 years.

Yes. I'll tell you, it's been really positive, right? We've rolled it out to, I would say, our employee base, right? We've rolled it out to some internal functions, you can imagine, that also would leverage it and then to a select client set. And what's really, I think, been powerful is the utilization of the data and analytics tends to be very much at a functional level. And this is kind of raising that up, right, from that perspective. And it's allowing also more senior individuals within an organization to interplay with that data to get answers almost like real time from that perspective without having to go down into the org to the analyst that feeds it up from that perspective. So it's been very positive received from that perspective. The natural way to interact versus kind of filtering down and having to do a lot of that kind of analytical research on your own is something we think is going to be very powerful and game-changing for us going forward. The rollout has been right now, it's in our data blocks, right, on the kind of the back of our API within interface. Eventually, you'll see it migrate into the UIs, right, and a little bit broader from that perspective. So the ultimate is going to be that enterprise relationship because it's constrained now in terms of when you ask it a question, what are your data rights, right? And what have you engaged from a commercial perspective? And so the more you engage across the use cases, then you can ask it questions in sales, marketing, third-party risk, climate, pretty much anything related to a business from that perspective and be able to return. And for us, that's where the monetization occurs, right, and how we've thought about it in terms of controlling it versus the cost in the background that could scale up, that's where you have to be mindful from a contractual perspective. And again, when I talk about like the back office work we've done, the QTC, the BBO, virtual back office usage reporting, all this, all of that lays the foundation for us being able to capitalize on these trends versus tell you 5 years ago, like that probably wasn't going to happen.

Yes. Yes. No, that's very exciting. And when you think about monetization, you mentioned monetization briefly, but the way you think about it, is it going to be more usage-based, consumption-based? Or is there -- sorry, opportunity to roll out new products?

Yes. No, it's a mix, right? I think there's going to be things like we just rolled out today D&B Ask Procurement, right, alongside IBM and Watson. And that's a very specific tool, right, for a procurement and sourcing organization, right? And so from that side, it's fine-tuned right from that and the functionality and utilization is really fit for purpose from that side of the equation. That's going to be then monetized individually, right, as a stand-alone asset. When you talk about like Chat D&B, you do have -- again, you're going to have a subscription amount, but then you've built in that kind of tier pricing mechanism to allow them to flex up. Now we'll have to be mindful in terms of we'd rather keep raising the bar on the minimum than having overage right from that side. But that's the idea is to maintain that subscription. Some of it, of course, is going to be incremental functionality to differentiate versus other platforms. And so that then helps you rationalize pricing and expansion from that perspective. But we're going to come at it from a couple of different ways. But definitely, it's something that you want embedded, you want people using, you want them to kind of get hooked on it from that side. And then you can really start to come in and create the monetization on the back side.

That's very helpful color. Maybe switching gears, talking about international. Can you talk about -- again, international has been on a good growth trajectory. Can you talk about what's driving the growth there? And then if you can split up between certain -- are there certain geographies which are growing much faster or -- and also highlight what's going on with the worldwide network?

Yes. Neeraj and his team have been doing a really nice job in continuing to improve, right, and accelerate the growth across the board in the international regions. The same thematics are playing out, right, master data management, third-party risk and compliance, data blocks, right, and API delivery. And then clearly, the localization of the products that Ginny and team roll out from North America roll into there, and they make a lot more sense, right, for the Swiss market or the Swedish market or the German market, et cetera. And so what I would say there is that while they had more medium and smaller-sized businesses as clients before, the focus has really been on winning with the winners, right? So the large-scale automotive manufacturers, the large-scale tech and production manufacturer, I mean, Siemens is a great example, right? I mean you can't call them technology manufacturer, they're everything, right? But multinational customer set, multinational vendor set. And so that's where our strength really comes to bear from that perspective. We talked about IKEA up in Scandi. So you can imagine vendor network, you can imagine customers, right? MDM and third-party risk compliance are really foundational from that side, and we're seeing that continue to drive growth in those regions. UKI, really nice growth, I would say, up to this point, kind of in that high singles range. Europe, right, which you remember when we bought Bisnode, minus 2% grower, now it's in the 4-ish percent range, right? So really improved from that side and margins are almost double what they were before. So that's been very positive. China and Greater China in the Asia area have a lot of opportunity, a little bit much smaller, right, but we're starting to build some momentum there, too. So it's been great, I would say, really across the different regions. Worldwide network, we've continued to optimize some of those contracts and drive our products into their regions from that perspective, too. It's one of those areas that I think there's continued opportunity in some of those regions performing very well. Some of them maybe better for data acquisition than they are for pure distribution from that side. But the team has been doing a nice job continuing to see uplift from royalties and the worldwide network in general.

That's great. That's great. Maybe just talking about partnerships. You announced 2 partnerships last quarter, one with LSE and another one with ICE. Can you talk about those partnerships, but also how you think about those, like how do you think about expanding your addressable market or revenue growth opportunities with those partnerships?

Yes. No, it's really interesting. I mean LSEG is interesting because that's got Refinitiv clearly from that side. We've been doing business with them for a while. But it's always kind of been like this legacy relationship that has kind of kept going, but like we weren't really taking more advantage of it than we should have. And so we tweaked the relationship, went a little bit deeper on some use cases. Clearly, we're not giving away, what I mean, too much of the data, too much of the use cases, right, because there's going to be some things that we'll talk about like in private markets and capital markets that the opportunity for us is massive, right? And we're going to want to go take the lion's share of that from our own perspective. But that was a good example. ICE has some really nice climate data, right? Our private company data primarily used to be more on the public side. We're pushing some private climate scores that make a lot of sense from that side. Again, we've constricted it from a data perspective, from a use case perspective, even from a vertical perspective because as we want to kind of start seeding into this capital markets space and starting to use some of the distribution platforms and capabilities and partnerships that make sense within LSE and within ICE, which are 2 great companies that have really strong platforms and certain data sets. We also want to think about the fact that our data in that area is ahead of where our products and sales force are, right, which in some ways is good, right? But you have to balance like how fast can I move to monetize? Because, look, I mean, you know that private company data, private credits in private markets is really raising in its importance, I think, in an opportunity over the last 12 to 18 months, right? And so we want to be selective in the partners that we choose. And then we want to go after the areas that we think we have great opportunity to, which would also include thinking about not just the data and analytics, but delivery through platforms, right, and also our own platforms. And then also like what's the data out there, right, that's complementary to what we're doing that we don't collect today that we could go on and get and then really bring something that's really exciting.

That's very helpful color. If there are any questions, please raise your hands or I'll go ahead with mine. So maybe shifting gears and talking about margins. We've seen some pretty good margin expansion this year, 60 basis points, if I'm not mistaken. How do we think about margins going forward? Is there further room for margin expansion?

Yes, there absolutely is, right? And I think what we're always balancing is like the opportunities, right? So if you said, hey, look, you could double the size of the business in private and capital markets, but you have to stay flat on margins for a year or 2, like that's -- and I'm not saying that that's the case, but we're always analyzing each and every year kind of that balance of flow-through, right, naturally from a leverage perspective, which you said is that 50 to 100 bps, right, from that side. Clearly, the higher the organic growth, the more flow-through comes through. We've always tried to operate to say, look, while the contribution margin is higher than that 50%, 60%, some of that does come back in investment, right? And so we should be able to do both, right, which is continue to invest in these areas we think that are great opportunities, but see the natural operating leverage from the organic revenue acceleration.

That's helpful. A question on free cash flow and capital allocation. Can you talk about the trajectory of getting to the midterm 80% free cash flow conversion? How should we think about it? And now that your leverage has started to come down, how do you think about capital allocation priorities?

Yes. I mean part of it was we had a business that for 10 years before we owned it was flat organically, I mean, maybe even slightly down, right? And they had invested maybe 2% I mean, of cap as a percentage of revenue, and most of that was replatform, right? So for us, we had to take that data supply chain infrastructure and then some of the product interfaces to really go after in data, right? And so from that side, we ramped up cap, right? And what ends up happening is there's just a mathematical derivation between CapEx and depreciation and amortization. So you're seeing those 2 things start to converge. One, cap is starting to come down. We talked about $15 million of annualized reduction coming out of the back of September. But -- and then D&A, obviously, is going to be coming up, which all supports why organic growth went from nothing to where it's been roughly 4% for the last couple of years and on the 90% north of that, right? So from that perspective, I think that's the journey we're on, continuing to see free cash flow as a percentage of adjusted net income raise up. And 80% is not the end game, right? But knowing where we were coming from to where we were going, we wanted to lay out kind of what a reasonable midterm target was on that side. Post that, as you said, leverage coming down, we said 3, 3.25. If we got to get to 2.94x, I mean to make everybody happy, like we'll be in that ZIP code, right, as we continue to progress, we'll be roughly 3.5x by the end of the year. Then it's going to come down to where we're at from that perspective. So we've got organic growth. We talked about that. We talked about deleveraging the balance sheet, both through increased EBITDA, but also having the ability to pay back some of that Term Loan B. And then you're in a position where if the company is trading where it is today, I mean, clearly, we think that, that's a significant buyback opportunity, right? It's hard to go on and look at M&A and say, I want to pay X times this when we're Y times that, and there's a disjointment from that perspective. But you would imagine those 2 things ultimately resolve itself as we continue to post fundamental improvement plus the deleveraging. Then it comes down to thinking about where to deploy in terms of a more, I would say, structural buyback versus strategic buyback and then where M&A opportunities start to arise from tuck-ins and/or other kind of regions to pick up, et cetera.

That was very helpful. We are top of 30 minutes. So thank you again, Bryan.

Absolutely. Thanks a lot Ashish.