Dun & Bradstreet - Q3 2022

Transcript

Speaker 0

Good morning, and welcome to Dun and Bradstreet's Third Quarter 2022 Conference Call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. With that, I would like to turn the call over to Sean Anthony.

You may proceed.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us for Dun and Bradstreet's financial results conference call for the Q3 of 2022. On the call today, we have Dun and Bradstreet's CEO, Anthony Jabbour and CFO, Brian Hippscher. Before we begin, allow me to provide a disclaimer regarding forward looking statements. This call, including the Q and A portion of the call, may include forward looking statements related to the with expected future results for our company and are therefore forward looking statements.

Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward looking statements are subject to and are described in our earnings release and other SEC filings. Today's remarks will also include references to non GAAP financial measures. Financial information is provided in the press release and supplemental slide presentation. This conference call will be available for replay via webcast through Dun and Bradstreet's Investor Relations website at investor.

Dmb.com. With that, I'll now turn the call over to Anthony.

Speaker 2

Thanks, Sean. Good morning, everyone, and thank you for joining us for our call today. I'll begin with an update on our Q3 results and then provide a general business overview, including some of the more strategic initiatives we have going on. Following my commentary, Brian will provide additional detail on the Q3 results and an update on the outlook for the remainder of the year. After that, we'll open up the call for questions.

The 3rd quarter was another strong quarter of financial and operational execution. Adjusted revenues for the total company grew 2.7 percent or 6.6 percent before the effects of foreign currency. On an organic constant currency basis, We grew 3.9%, while also bringing adjusted EBITDA margin back up to 40%, driven by margin expansion within our organic results. As global macroeconomic conditions continue to deteriorate, I'm proud of our team's resiliency and ability to deliver results in this challenging environment. While many businesses are facing significant headwinds, We are impacted very little by these external factors, which has allowed us to show our defensible growth profile.

With 51% of our revenues under multiyear contracts and 96% gross revenue retention rate and 95% recurring revenues. We continue to build our business into a sustainable mid single digit growth engine with further upside from increased innovation, continued market expansion and better leveraging pricing power. Organic constant currency growth for the total company remains balanced between our North American and international markets. Beginning with North America, the segment grew 4% overall and mid single digits overall when adjusting for the impact of the GSA. Our finance and risk solutions continues to be the primary driver of growth as clients and prospects alike and are focusing their efforts on leveraging the highest quality data and analytics during these times of heightened risk and uncertainty.

Driven by strong double digit growth in our Know Your Customer and Know Your Partner platforms, along with the direct integrations of our 3rd party data and Supply Chain Risk Analytics. Our risk business has grown strong double digits for its 7th consecutive quarter themselves for the foreseeable future and continue to extend their multiyear contracts that include built in pricing escalators. On the sales and marketing front, we grew 12% overall and 3% on an organic basis, with solutions like Master Data Management growing high single digits and our digital marketing solutions growing low double digits. And while solutions we have invested in like Hoover's are now heading in the right direction, we continue to have a mix of legacy solutions to say, I'm pleased with the continued momentum we are building upon in North America. Turning to our international markets, We had another consistent quarter of 4% organic growth on an organic constant currency basis.

Similar to North America, Finance and risk was a key driver as European and Asian businesses are in some ways even more exposed to the current geopolitical and financial conditions. And our clients and prospects in those markets are looking to tighten up their credit compliance. We give our clients an unparalleled view of for current and future financial performance for their borrowers, customers, suppliers and other third party vendors. Despite the evolving market and macro landscape, we continue to be laser focused on delivering long term value through our guiding strategic principles: innovate solutions and localize them throughout the world increase our wallet share with strategic clients through expanded datasets and complementary solutions, approach and monetize the small business channel in new and innovative ways, and continue to grow international in both our owned and worldwide network markets. On the product innovation front, we continue to make significant progress in the rollout of new and innovative solutions and have further improved our vitality index to nearly 16%.

Most recently, we integrated our fraud and cyber risk products into the risk analytics suite, and therefore recently added the fraud and cyber risk solutions into our comprehensive risk analytics suite to provide clients with a singular end to end platform for full risk assessment, underwriting and portfolio monitoring. In addition to strong demand for our risk products, We also see strong growth in our master data management solutions. Our DNB Connect platform, which helps clients to connect to our best in class data cloud to clean, consolidate and enrich their data, Was expanded in September with the launch of DNB Connect Manage. This powerful new platform layers in additional artificial intelligence and machine learning capabilities to fill in the gaps where there is incomplete data available and identification and resolution of commercial entities. We are already in the process of building pipeline and look forward to closing sales as we gear up for a few of our largest opportunity months in November December.

We also completed the modification and integration of Hoovers into our e commerce channel with a new self serve option and commercial pricing model that allows clients to pay monthly based on usage. With a new UX, Enhanced intent data, over 46,000,000 e mails and 25,000,000 direct dials, We are now positioned to aggressively pursue Hoover's opportunities with a modified sales model and dedicated seller approach. Early indicators are showing a changing trajectory in sales and we are excited about the positive momentum as we head into our largest sales opportunity in the Q4. As we continue to execute and deliver on our new solutions, We also continue to expand our datasets. As stated earlier, we grew our business coverage data cloud to over 500,000,000 DUNS with 110,000,000 of those in the United States alone.

Our partnership with Google continues to perform as we work with their partner Climate Engine to create new climate risk products and further leverage that data within our ESG solutions. And finally, As we head into the Q4, we are focused on helping our clients and prospects minimize the impacts of a recession. As previous cycles have shown, 3 prevailing themes arise during times like these. 1st, Lending portfolios come under a greater risk of generating losses, if not proactively monitored and actioned upon. 2nd, business fraud rises significantly.

And 3rd, capital becomes even more precious. We have already seen the demand for our best in class data and analytics rise, and we are adding to it through forward looking alternative data sets and additional insights such as our blended score. On the fraud side, we have launched a number of solutions that have already begun to help clients fend off And finally, on the capital liquidity side, we are working with a large financial institution where we have modeled a view of their portfolio that could allow them to reduce their need for over $1,000,000,000 in capital reserves. By taking their portfolio and analyzing it at a more granular level and business specific level, we have provided them the tools to more accurately measure one's true risk, which is imperative in allowing them to free up more capacity to create economic returns on previously inaccessible cash reserves. This is yet another example of where we have gotten even closer to some of our largest customers and continue to find and expand use cases that solve some incredibly challenging yet very rewarding problems.

Speaking of solving major issues for large and complex customers, I'm pleased to report That our success with strategic customers has continued to be a pillar of our growth acceleration. Beginning in North America, we won new business with Databricks, A leading data cloud provider that is growing rapidly with a focus on scaling its business to maintain or increase its growth trajectory. The Databricks sales operation team required additional information to help build its vertical market territories. Through our DNB Data Cloud and our ability to deliver data in a variety of manners, including native API integration into the CRM, They saw the power of the DUNS, its peerless matching capabilities and the broad set of data elements we bring to bear. We're also able to add in members of our data advisory team, which helps clients take their data to even higher levels of value through deep expertise developed through being power users of DNB Data in the past.

On the renewal side, 1 of the big five American tech companies and a client that has now been with us for 20 years renewed and expanded their multiyear contract for our products and data to support several use cases across their business functions, including finance, sales operations under developer relations organization, where they are fully standardized on the DUNS. We also renewed and expanded Copas, a French credit insurer that operates worldwide in addition to offering debt collection services, with the following question. They continue to use our API solutions to support their underwriting risk processes and have expanded their relationship with us in our MDM practice through the use of DNB Optimizer. The need to integrate multiple databases throughout the globe was a complex challenge. However, with our single global data cloud, We're able to meet their needs and provide a baseline solution that sets us both up for future success.

And before we move on to our international markets, I want to touch on a strong example of how ESG is beginning to make its way and to some of our largest clients. For instance, at IBM, the team is looking at ways to better assess the ESG footprint While public company data is becoming more readily available, our focus on private companies, both domestically and internationally, as a unique proposition for many of our most significant clients and prospects as we use our proprietary data to drive actual analytics versus modeled ones. With ESG data now being available in our risk analytics platform this past quarter, We're beginning to see the green shoots of growth and what we believe could be a significant source of opportunity for us in the coming years. On the international sales side, we renewed a significant deal with Zurich Insurance and expanded our relationship with Dentons Group, with 1 of the world's largest multinational law firms. We also won a multiyear 7 figure deal with Toyota Material Handling out of Sweden.

They will be using our solutions to manage their credit process across 21 European countries through our Datablocks API that directly integrates into their SAP system. Our local presence in Asia has continued to pay dividends with key wins. For example, at Alibaba, we expanded the relationship to include our master data management tools to help them organize and update their customer and supplier records in an ongoing and sustainable manner. And with 1 of the largest banks in the world, we won a new business to grow. This one displaced as a key competitor in the region and is the 1st major deal we have landed with this large financial institution.

As we continue to take share in our Asian markets, The depth of data and more comprehensive solution sets are creating a differentiation for us in this market. And finally, we landed a deal with Fresnius Medical Care in Germany. They operate multiple centers throughout the region with 122,000 employees and over €17,000,000,000 in annual revenue. And they selected our Datablocks API to facilitate stronger compliance practices and for their master data management applications. While large businesses throughout the world are looking to tighten lending standards and make better credit decisions, SMBs are on the other side of the equation.

For that reason, we're looking for more and different ways to illuminate the true credit profiles small businesses and allow them and themselves with a combination of our existing solutions and our new DUNS registry seal, which displays the DNB branded logo that provides credibility and authenticity for a business online. In addition, last quarter we announced our partnership with Lendio and have already completed 2 thirds of our integration. This is allowing both newly formed businesses and ones that are already growing to have rapid access to small business capital offers through our MyDNP portal. While the focus is initially with North American SMBs, we're also localizing these solutions to bring them to bear in our markets throughout the rest of the world. And with more and more localization, Our international business continues to accelerate across all markets, including the UKI, Europe and Asia.

For example, with continued rollout of localized solutions, our revenues for the DNB products in Europe grew 22% in the quarter. As discussed on the last call, we continue to focus on the remaining migration of legacy finance solutions onto our latest finance analytics platform and are also progressing with the migration of smaller legacy solutions that are spread throughout our product segments. By continuing to sundown and transition legacy solutions, we gained the benefit of accelerated growth, increased stickiness and enhanced upsell opportunities on the back of our most modern and innovative solutions. The international business continues to consistently strengthen And as we bring new and modern solutions to the markets, we are confident in our ability to accelerate growth and profitability in the regions. Overall, I'm very pleased with the way we have executed year to date and believe Dun and Bradstreet is uniquely positioned in the market due to our combination of high quality revenues, increasing innovation, strong margins, solid balance sheet and disciplined capital allocation.

I look forward to continuing to report on our progress over the coming quarters, and I'm especially excited to host many of you at our upcoming Investor Day in February of 2023. I look forward to having the opportunity to provide a detailed review of our solution sets, their expected longer term growth prospects and some in person demos and discussion with our fantastic management team. With that, I'd now like to turn the call over to Brian to discuss our financial results for the Q3 in more detail and the outlook for the remainder of 2022.

Speaker 3

Thank you, Anthony, and good morning, everyone. Today, I will discuss our Q3 2022 results and provide an update on our guidance for the remainder of the year. Turning to Slide 1. On a GAAP basis, 3rd quarter revenues were $556,000,000 an increase of $14,000,000 for 3% compared to the prior year quarter and 7% before the effect of foreign exchange. Net income for the Q3 was $8,000,000 for a diluted earnings per share of $0.02 compared to a net income of $17,000,000 for the prior year quarter for a diluted earnings per share of $0.04 The decrease in net income of $9,000,000 for this quarter was primarily due to investments in data and data processing and higher non operating costs.

Turning to Slide 2. I'll now discuss our adjusted results for the Q3. 3rd quarter adjusted revenues for the total company were $556,000,000 an increase of 3% or 7% before the effect of foreign exchange versus the prior year quarter. Revenues on an organic constant currency basis were up 3.9%, which included a 1.1% headwind from the roll off of the GSA contract. 3rd quarter adjusted EBITDA for the total company was $223,000,000 an increase of $3,000,000 or 1%.

This included a headwind of $4,000,000 from the impact of foreign exchange, resulting from a strengthening U. S. Dollar. The $7,000,000 of underlying increase was driven by organic revenue growth, partially offset by investments leading to higher data and data processing costs. 3rd quarter adjusted EBITDA margin was 40%, a decrease of 60 basis points compared to the prior year quarter.

However, excluding the impact of acquisitions, adjusted EBITDA margin expanded at 41%. 3rd quarter adjusted net income was $123,000,000 for adjusted diluted earnings per share of $0.29 and remained flat in comparison to the prior year quarter. This was driven by higher EBITDA, offset by higher non operating expenses. Turning now to Slide 3. I'll now discuss the results from our 2 segments, North America and International.

In North America, revenues for the Q3 were 4 0 4,000,000 an increase of 8%. Excluding the impact of foreign exchange and acquisitions, North America organic revenues on a constant currency basis increased 3.8%. In Finance and Risk, revenues were $224,000,000 an increase of 5%, primarily due to strong double digit growth in our 3rd party and supply chain risk management solutions and solid single digit growth in our finance solutions, partially offset by lower revenues in our public sector, driven primarily by the conclusion of the GSA contract at the end of April. In sales and marketing, revenues were $180,000,000 an increase of 12%. The growth was primarily driven by our marketing solutions, which includes IOTA and NetWise as well as growth in our Master Data Management solutions.

Excluding the acquisitions, sales and marketing grew 3%. North America 3rd quarter adjusted EBITDA was $188,000,000 an increase of 2%, primarily due to higher organic revenue growth, partially offset by investments leading to higher data and data processing fees. Adjusted EBITDA margin for North America was 47% for 48% excluding the acquisitions. Turning to Slide 4. In our International segment, 3rd quarter revenues were $153,000,000 a decrease of $15,000,000 or 9% and an increase of 3% on a constant currency basis.

Organic revenues on a constant currency basis increased 4.3%. Finance and risk revenues for the Q3 of 2022 for $102,000,000 a decrease of $7,000,000 or approximately 6% and an increase of 6% on a constant currency basis. Growth was driven across all markets and in particular higher sales from our finance solutions in Europe and Asia. Sales and marketing revenues for the Q3 of 2022 were $51,000,000 a decrease of $9,000,000 or 14% and a decrease of less than 1% on a constant currency basis. The decrease in revenue compared to the prior year period is due to the divested B2C marketing business in Germany.

Excluding the impact of the divestiture, growth was approximately 2%. International Q3 adjusted EBITDA was $52,000,000 a decrease of $2,000,000 or 4% compared to the prior year period. The decrease is primarily due to the negative impact from the strengthening U. S. Dollar, partially offset by organic growth in the underlying business.

Adjusted EBITDA margin was 34%, a 160 basis point improvement versus the prior year period. Turning now to Slide 5. I'll now walk through our capital structure. As of September 30, 2022, We had cash and cash equivalents of $204,000,000 and total principal amount of debt of $3,651,000,000 The $3,651,000,000 in principal is made up of $460,000,000 of unsecured notes at 5%, which mature in 2029. Term loans of $2,687,000,000 at LIBOR plus 325 that matures in 2026.

Dollars 458,000,000 at SOFR plus $325,000,000 that matures in 2029 and borrowings of $46,000,000 under our revolver. The LIBOR based term loan has a $1,000,000,000 floating to fixed swap effective through March 2024 at 0.467 percent. And the SOFR based term loan and has $250,000,000 swap from floating to fixed through February 2025 at 1.629%. We also have 3 cross currency swaps at $125,000,000 each that settle in July of 2024, in 20 5 and 2026. We had $804,000,000 available on our $850,000,000 revolving credit facility as of September 30, 2022.

Overall, our weighted average interest rate was 4.8% as of September 30, 2022. Our leverage ratio was 4.0 times on a net basis In the credit facility, senior secured net leverage ratio was 3.5 times. Turning to Slide 6. I'll now walk through our outlook for 2022. We expect total adjusted revenues on a constant currency basis to increase 5.5% to 6.5%.

And we now expect adjusted revenues after the effect of foreign currency to be in the range of $2,215,000,000 to $2,235,000,000 or an increase of approximately 2.1% 3.0%. This update reflects a 3.4% headwind to revenue after the effect of foreign currency, due primarily to the continued strength in the U. S. Dollar versus the euro, Swedish krona and in particularly the British pound in the second half of the year. For revenues on an organic constant currency basis, we are narrowing our range to 3.5% to 4.4% for the full year, with the midpoint of our guidance remaining consistent.

Adjusted EBITDA is expected to be in the narrowed range of $865,000,000 to $885,000,000 taking into account the continued strengthening of the U. S. Dollar I just mentioned. We continue to expect interest expense to be in the range of $185,000,000 to $195,000,000 And finally, we're narrowing our expectation of adjusted EPS to be in the range of $1.10 to 1.14 Additional modeling details underlying our outlook are as follows. Depreciation and amortization expense of approximately $90,000,000 excluding incremental depreciation and amortization expense resulting from purchase accounting.

Adjusted effective tax rate of approximately 24.5 percent, with CapEx of around $180,000,000 and weighted average diluted shares outstanding of approximately 430,000,000. With the exception of the continued strengthening of the U. S. Dollar, the 3rd quarter came in largely as expected, With organic constant currency growth of 3.9% for the quarter and 4% year to date, we are on track to against our original growth expectations for the year. On the EBITDA side, we are narrowing our guidance to account for the full year impact of currency and excluding that, I've been right on where we would have expected for the year.

In Q4, we look to return to expanding both organic in total EBITDA margins as revenue growth comes on at more normalized contribution margins. We are mindful on focusing our team's with time, attention and energy on continuing to drive increased value to our clients and thus allowing our continued improvement in organic constant currency growth. With new innovations, material enhancements to existing solutions and an expanding global portfolio, we are excited about the opportunities in front of us and look forward to discussing that and much more at our upcoming Investor Day at the New York Stock Exchange on February 22, 2023. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q and A?

Speaker 0

Thank

Speaker 4

You will hear a 3 tone prompt to acknowledge your request. We ask that you limit yourself to one question and one follow-up, The first question comes from Seth Weber, Wells Fargo. Please go ahead.

Speaker 5

Hey, guys. Good morning. I was wondering if you could just comment on just what you're seeing kind of in the selling cycle, whether you're seeing kind of any Discussions taking longer than expected, whether you're getting any pushback on pricing, Maybe we'll start there. Thanks.

Speaker 2

Sure. Thank you, Seth. What I'd say on the sales cycle is We're for the most part not seeing any changes there. Where we are seeing them is mostly in our inside sales, focus at the smaller end of our client base. And that segment is less than 10% of our revenues, but we've seen about a 10 day Elongation of the sales cycle, so nothing significant.

Speaker 3

Seth, on the pricing side, I would say a couple of things. One, the fact that we have 51% of our revenues under multiyear contracts with the built in price escalators, A lot of that is flowing through and we're seeing kind of that natural uptick from that perspective. In terms of How renewals are going or how new customers, it's really been about quality, right? And when you look at this overall Kind of macroeconomic environment, things are getting tighter, things are getting tougher and really working with the highest quality data providers, the highest quality analytics, That's where more of the conversation has been going versus a pricing conversation. Got it.

Speaker 5

That makes sense, Brian. Thanks. And then if I could just follow-up, Brian, on your comment about margin expansion, would you expect EBITDA margins to be up year over year in both North America and international in the 4th quarter or was that comment just Overall company margin up?

Speaker 3

Yes. So I mentioned it overall, but I would expect it to be on both sides, Seth. One of the things if you remember going into the Q4, so in the Q3, we were able to expand what I would call organic margins. If you remember, NetWise and OETA had come in, in November of last year. And so we'll be lapping them and they'll be in our full year results by November December.

And so I would expect to see both organic and total company margins expand, And we should see that across both the international segments and North America.

Speaker 5

Perfect. Thank you very much guys. Appreciate it.

Speaker 2

Thanks, Seth.

Speaker 4

Thank you. The next question comes from Kyle Peterson, Needham. Please go ahead.

Speaker 6

Hey, good morning, guys. Thanks for taking the questions. Just wanted to see if you guys could remind us, Particularly on your kind of structure of costs and how FX could potentially impact that, I can see that to help kind of protect EBITDA if the dollar keeps strengthening like it has.

Speaker 2

Yes. I'll start and then I'll pass Brian, we do have, I'd say, a natural hedge in the business. So we're not an American company building a Product here and just selling it overseas. We have thousands of employees overseas in international markets Offsetting the so having a lower expense base, obviously, with a stronger U. S.

Dollar and offsetting the revenue. And we also have an expense pure expense base in Ireland where we have a good part of our So we have some natural hedge built into it, but Brian, if there's anything else you'd add to that?

Speaker 3

Yes, Kyle. I mean, what's interesting is if you kind of think about, hey, start with Segment margins were around 30%. That would be the flow through. But to Anthony's point, with our operations in Ireland That really support the overall global enterprise. It brings that down to something that's more in the call it 15% to 20% incremental impact range.

And so when we talk about 3.4%, which is roughly $75,000,000 You're talking $11,000,000 or $12,000,000 of EBITDA impact on a full year basis. So again, really nice that we have our Our teams are costs in those regions to kind of offset any of that revenue FX volatility.

Speaker 6

Got it. That's really helpful color. And then just a follow-up on capital return plans. Obviously, good to see EBITDA and cash flow remains really strong here. Just I want to get your appetite for potentially returning capital shareholders through the form of Buyback, obviously, nice to see the quarterly dividend, but at least with the stock at these levels, kind of what are your thoughts on

Speaker 2

Yes, I'll take that. What I'd say is, we still believe obviously the highest and best use of capital is investing in our organic acceleration of growth, And we continue to have a lot of confidence there. We're also still looking for M and A, but obviously being very thoughtful around that. And what I'd say in general, private markets have not caught up to public markets. And so It has to be something obviously that would drive real shareholder value for us to do something in terms of a tuck in acquisition.

But we will continue to pay down our dividend, delever below the 4x like we've talked about. But to your question, Kyle, we'll also look for strategic opportunities to repurchase shares. And as liquidity continues to open up in the share base, We'll consider more structured repurchase program.

Speaker 6

Got it. That's really helpful. Thanks guys. Nice quarter.

Speaker 7

Thanks, Kyle.

Speaker 4

Thank you. The next question comes from Andrew Jeffrey of Truist Securities. Please go ahead.

Speaker 7

Hey, it's Scott stepping on for Andrew. I want to talk a little bit about the new product introductions and see get your comments on success of cross sell there.

Speaker 2

Yes. What I'd say, was a key focus for us was on meeting last week and the feedback from them was very positive in terms of really where we're taking the business, The type of new innovations that we're bringing to market, I'd say the ones that we mentioned are typically our latest ones. So From a pure sales cycle, we're at the stage of building pipeline versus closing deals. They're very new that we're introducing to you. And we're excited about the pipeline building across all of these.

But I really feel, like I said, By staying close to our clients, really understanding their challenges and opportunities, we can co innovate and that's what they want to do with us. And we're very excited about the amount of new capabilities that we're bringing to market and the pace of them.

Speaker 7

Got it. And then on the S and M side, there was like about 3% Underlying growth in the U. S. Looking at ZoomInfo, it got tattooed yesterday for lack of a better word. Could you talk a bit about the competitive environment there?

Speaker 2

Yes, sure. What I'd say, we have between $90,000,000 $100,000,000 of revenue of our business that competes with ZoomInfo and many others in that segment, so a relatively smaller part of our business. And it was an area where we hadn't focused initially as we're transforming the broader company. We're focused, like I said, more the bigger boulders and rocks, but we have been very steadily investing in it. And really, I'd say, have crossed an inflection point with our Hoovers capability and where we have a very competitive offering now that we're very proud of.

As I mentioned in my prepared remarks, we've got a dedicated sales team Reaching back out to clients who have left over time and winning back and we're seeing A good number of those come back from competitive takeaway. So we're excited about the offering that we have right now across the data, the user experience, but also As we talk about every dollar needs to count for sales and marketers now and going into next year, Also tying in some of our other capabilities such as what's the risk of selling to a client that won't be able to pay you in the end anyways, is that where you want to as well with our clients. And so we're excited with like I said, we see a different trajectory in that business right now. And we're really excited to see the investments starting to pay off.

Speaker 7

Thank you. Appreciate all the commentary.

Speaker 2

Thank you, Gus.

Speaker 4

Thank you. The next question comes from Stephanie Moore of Jefferies. Please go ahead.

Speaker 8

Hi. This is Hans in for Stephanie. You guys kind of talked about ESG data being sort of a big opportunity for you guys starting to see some green shoots. Could you maybe just frame for us how big that is today and maybe how big it can get and just any additional detail you'd like to provide?

Speaker 2

Yes. Maybe I'll start, some jumping back and Brian you can quantify it. Really, with many of our clients, ESG is just one of those topics. It's one of the most I So, Sai, a chart on what CEOs across industries are talking mostly about and ESG sustainability, climbers The whole group is in that top quadrant of where everyone's focused on right now. So for us, it's a great addition to our risk analytics platform as you look at the total risk with the counterparty.

And so as we look at what we're trying to provide to our clients, it's really that holistic 360 degree view and ESG is Clearly one of those. So we mentioned the one client with IBM in the prepared remarks, but we've got lots of exciting things I'd say cooking there.

Speaker 3

Yes. And so we're just in kind of the early innings, right? And so I'd say we have a few million in sales and certainly a large amount of pipeline building and in discussions Progressing, one of the things that we've mentioned before too is the more regulation that comes out and you're seeing some of it solidify for instance from The SEC that starts to talk about scope 3 emissions for instance. And when you start to think about the assets that sit in our data cloud and the ability to Really match that parent child relationship and understanding not just the vendor or your partner, but the vendors and the vendors of their vendors. And all of that kind of hierarchy and connectedness puts us in a pretty unique position to solve not just kind of Public company type of disclosure, right?

But really when you think about supply chains and third party networks in those private company, That's where we feel like we're going to have differentiation here over the next few years.

Speaker 8

Got it. That's very helpful. And then I guess my follow-up, how should we think about DMD's pricing strategy going forward? How do you think about price increases, maybe Enterprise versus seat based contracts, multiyear versus annual contract exposure and kind of anything else you want to call out?

Speaker 2

Yes, I'd say we continue to execute against our pricing strategy that we talked about previously. We have a mix of multiyear contracts that have CPI like increases in them. We've also increased base prices this year due to the inflationary environment with some of the pricing escalators, but it's a solid lever of growth for us overall. And It's going as we expected. Certainly, some products will have more pricing power than others and certain clients will be more price sensitive.

So again, like we're seeing the smaller clients being more price sensitive than the medium to larger for clients. But for the most part, like I said, it's really right down the middle of the fairway in terms of what we Said we'd be doing is what we are doing.

Speaker 8

Got it. Thanks.

Speaker 2

Thank you, Gus or Hans, sorry.

Speaker 4

Thank you. The next question comes from Manav Patnaik of Barclays. Please go ahead.

Speaker 9

Good morning. This is Brendan on for Manav. Just want to ask real quick on the guidance. Typically, Q4 is Strongest quarter obviously for not just the revenue value, but also for the growth. And you've done 4% through 9 months.

So it seems like The Q4, you're kind of just saying a similar number for growth. Now I know the other GSA contracts running off, Yes, that's also been on the last couple of quarters too. That's been a headwind. So just is it is there a little conservatism just around the sales cycle? Is it just conservative or if you could just talk more on that?

Speaker 3

Yes, I'll start off. I mean, if you think about it, you hit Right. Year to date, we've been at 4%. If you look at the midpoint, it's right around that 4%. We did 3.9 in the Q3 and the GSA does have the kind of biggest impact in the Q4 consistent with what it was in the Q3.

We gave and tightened up the range from that perspective. There's always a little bit of give and take from that perspective in terms of Sales, delivery, usage, forfeitures, all those different things. So again, I think for us, we're very confident in our ability to continue to execute. And so that's why we were able to, 1, maintain the range that we provided at the beginning The year, which as you know, a lot of other businesses have had a lot of more volatility from that perspective. And second, again, just tightening that right as we closed into the Q4, which you mentioned big sales opportunity for us and big revenue So again, I think we were pretty consistent in how we thought about the quarter coming in.

Speaker 2

The only thing I'll add to that Brendan is, we worked at flattening out the quarters over the past number of years with these multiyear contracts and having them renew at at different times versus always in the Q4, because obviously it's a lot of risk going into a 4th Quarter if that's when all the sales are going to happen. So we've been intentional about spreading them over the past few years.

Speaker 9

Okay, great. Thanks. And then just a follow-up and you might have given us, but can you give us The growth numbers this quarter for NetWise and IOTA?

Speaker 3

Yes. So NetWise and IOTA Grew each in the double digits, Brandon. And so when you look at the overall sales and marketing, North America, it was up closer to 8% in Anthony's remarks and then we were about 3% on an organic basis. So that translates into Teams growth for those 2.

Speaker 9

Okay, great. Thank you.

Speaker 4

Thank you. The next question comes from Ashish Sabadra of RBC Capital Markets. Please go

Speaker 10

Thanks for taking my question. I just wanted to focus or drill down further on the margin question earlier. Data and data processing increases in data and data processing costs have been also weighing on the margins a bit. We're talking about margin expansion going forward. My question was what are we seeing from a cost perspective?

And as some of the pricing increases and operating leverage starts to roll through, how should we think about Margin expansion not only in the we are getting obviously margin expansion in the Q4, but also setting up for next year. Any preliminary color will be helpful. Thanks.

Speaker 3

Yes, sure, Ashish. Thanks for the question. And as we talked about in the first and second quarters actually on a Total on our and onorganic basis, those day in day of processing cost investments were actually weighing on margins. And so this quarter we saw organically it expanded. And so call it about 20 bps.

And then by the time we get into the Q4, we will have strong revenue growth flowing through at the right contribution margins and then NetWise and IOTA will be in that comparison Q4 of last year to Q4 this year. And so as we set up into next year, we've really lapped, I would say, a majority of those headwinds. We'll have the GSA in the Q1 of next year at a full 3 months. But outside of that, certainly, The investments that we've made, whether it's in ESG data, whether it's in shipping data, whether it's in these other alternative data sets that are really giving us A differentiation in the market right now and ability to continue to accelerate our organic growth, We'll see that natural flow through we've talked about, which is generally on like mid single digits, 50 to 100 bps of margin expansion. So we'll get into obviously guidance and discussion in February.

Looking forward, obviously, I know Anthony and I to reporting results and Talking about 2023, but also in the Investor Day being able to speak about what we think the new kind of medium and longer term Our growth prospects are and that will reinforce obviously our ability to continue to expand margins on this leverage business.

Speaker 10

That's very helpful color. And maybe drilling down further on Europe, looks like, I just wanted to see with this whole legacy migration mostly behind us, how is the business growth trending? You obviously talked about some pretty good sales momentum there. How should we think about growth in Europe going forward, particularly in light of some of the macroeconomic challenges there?

Speaker 2

I'll start and then Brian you could add on. We're very pleased with the results. Like I mentioned in DNB Europe, the DNB products growing 22% and us migrating to Our finance analytics suite, we've migrated thousands of clients. And again, as we keep pointing to the decisions we made for the long term, An initial migration takes more costs and priority Then it drives revenue, but it sets you up to then cross sell a lot of products into your latest suite and to drive A lot more new products to your client base to renew more strongly, have stronger pricing power. So It's a really strategic important thing that we're doing and I'm really proud of the team and the great execution of really thousands and thousands of flawless migrations for clients in Europe.

Brian, anything else you want to add

Speaker 3

to that? Yes. Ashish, this note actually in what we call now DNB, The rest of the markets in the UKI and Asia grew well. The worldwide network had a pretty tough comp in the Q3 year over year. But then in the Q4, you'll continue to see that strength in Europe and then the rest of the markets continuing to accelerate.

So Really, I think to Anthony's point, proud of the change of what was in essence a negative 2% growing business to now something that's in that kind of low single digits and starting to catch up with the international segment that was drawn more in the mid to high single digits. So Really great progress there and again look forward to continuing that momentum through the remainder of this year and really into next year.

Speaker 10

That's great. Very helpful. Thanks again.

Speaker 4

Thank you. The next question comes from Andrew Steinerman of JPMorgan. Please go ahead.

Speaker 11

Hi. This is Alex on for Andrew Steinerman. I want to briefly just return to the discussion of 4th quarter organic constant currency revenue growth. When we spoke last quarter, you guys had still been guiding towards 4Q accelerating on an organic constant currency basis from 3Q. Is that Still the case and to what degree or maybe lower amounts of forfeitures or usage in the Q4 going to Maybe weigh on that.

Speaker 3

Yes. So, hey, Alex, thanks for the question. Again, if you look at the progression of how things Have gone. We did about 3.9% in the Q3. So obviously, anything at kind of 4% puts you in that strike zone of continued acceleration.

But really for us, to Anthony's point, we've kind of balanced You know, Al tried to derisk obviously the Q4 as much as possible. And so executing on the 3rd quarter was very And then again executing again in the Q4 is what we have in our mind. So it's right in that strike zone and again Very consistent with the 4% year to date growth we've shown already.

Speaker 11

Got it. And then as a follow-up, maybe looking at for an early glimpse in 'twenty three, you have NetWise and IOTA Sort of coming into the organic constant currency number in 4Q, you have a lot of sort of Product innovation, you're lapping GSA in the Q1 of next year. Are there any maybe drags to being sort of in the mid single digits or even the higher end of that mid single digit range in 2023 that maybe haven't been discussed on the call thus far?

Speaker 3

Yes. Alex, certainly, we want to get into more guidance discussions in February, right, when we give things formally. But you're right, when you look at the things like NetWise and OTA continuing to grow and grow strongly, You're right that GSA has the Q1 and then remember it's about a month, right, because it came off in April of Q2. But Outside of that, I think that's the road that we've been on, right, and the progression that we've been The continued ability to express price increases, right? The continued high retention rates, The introduction to new products, the acceleration and migration of the Bisnode in the Europe acquisition.

And Those are all the things that continue to allow us to execute against what has been our original Kind of roadmap, which is that mid single digit, sustainable mid single digit growth.

Speaker 11

All right. Thank you so much.

Speaker 3

Thanks, Alex.

Speaker 4

Thank you. The next question comes from Heather Malsky of Bank of America. Please go ahead.

Speaker 12

Hi, thank you. I guess my first question is with regards to your master data management. You talked about a fair amount, it's Doing well. Can you talk about sort of your business proposition with regards to what you offer, how Competitive you are and why you think that business is pretty defensive, especially if we go into a downturn?

Speaker 2

Sure, Heather. If you talk to any executives, everyone will say that they want to leverage data and insights that they can drive from that data to really drive their business. And so at the heart of it, you'd say, you have confidence in the quality and the depth for the data that you have. And what we've been able to provide to clients and what we continue to enhance like with the latest announcement we made around DNB Connect Manage is that we're constantly adding more and more capability. With the latest release, it's identifying maybe clients where there's not lots of information about certain businesses, but being able to use AI and machine learning to identify them and to bring more visibility to our clients about some of these other businesses that are out there.

And certainly, The ability to leverage the DUNS number is always a very, very strong advantage. It's embedded in the workflows of many of our clients. It's proven to be very, very sticky. And as we're heading what many believe into on macroeconomic uncertainty next year, making sure that they have the most up to date and accurate data is critical for any business. And but we're seeing it in the conversations we're having with our clients and we're also seeing it in the buying patterns from them.

So we feel really good about our master data management capabilities and we're going to continue to advance them.

Speaker 12

Thank you. And then I have another question on price. I know you already got a question on kind of your pricing strategy. But can you just update us on, 1, where are you shaking out on price this year versus I think you had said 2% for the year? And then as we look into next

Speaker 2

We had targeted to 2% this year and that is where we are. In terms of next year, I know we'll discuss that in February as part of the overall plan. But I'd say all the actions that we've been talking about Over the last few years in terms of growing the business and the operational Initiatives that we have underway, I'd say, are all on track.

Speaker 3

And Heather, definitely, as we progress through the year, right, as the kind of multiyear contracts Come up into that 12 month, it stacks on. We're really running a similar type of playbook, I'd say, in Europe, right? And The first big step was to get a lot of those legacy solutions, kind of aged solutions migrated over on to finance analytics and our more modern products And then take that next step to start to take price, right? And again, it's difficult to be Taking price on something that hasn't been updated in 15 years, right? It's a lot easier when it's on your best, brightest and most modern applications.

So Very much on track and look forward to that continuing to be a lever of growth for us in 'twenty three and frankly beyond.

Speaker 12

Thank you very much.

Speaker 2

Thank you, Heather.

Speaker 4

Thank you. Our final question comes from Craig Huber of Huber Research Partners. Please go ahead.

Speaker 13

Great. Thank you. My first question, just want to get a sense, if we go into a much Tougher economic backdrop here. How much flexibility you think you have in your cost base on maybe on a percentage basis like in the U. S.

To take out costs in a much tougher environment. For example, if like a sort of worst case of next year, if organic revenue growth was say flat next year in North America, could you keep margins Flat for the year without doing damage to your business long term? That's my first question.

Speaker 3

Craig, what I would say is that from an organic growth perspective, obviously, the contribution margins are quite high, Right. So if you're talking like 60%, 70%, to be flat from that perspective would clearly put pressure on keeping margins flat on a year over year basis and making sure that we continue to invest and take opportunities as we go forward. That being said, look, Anthony, myself, the team, we've been through these cycles before. We've been in businesses that frankly have a lot of Volume sensitivity, when we look back into the Fidelity days, we look back into some of the other Businesses we've been a part of. And so certainly, we have that kind of downturn, quote unquote downturn playbook mentality, where we'll right size variable costs, we'll right size kind of ongoing administrative costs where necessary and protect Profitability, I think as good as anyone could during that type of environment.

Speaker 13

Thank you for that. My other question is, if I stay on North America here, what percent of the revenues in North America Do you view as defensive and what parts are those in a tougher economic environment?

Speaker 2

Well, like I said, certainly our finance and risk business is very defensive and we see that, like I said, when In recessionary times as we've seen in the past, credit comes under a more important category, fraud does as well and we help in both of those. So in some ways, the Lower cost providers undercutting us with lesser quality is less of an issue for us in a tougher market because the quality of the data just matters that much more. So we feel good about it there. Seeing on the sales And marketing side, a big chunk that our master data management we feel is pretty defensible as well. We feel the digital marketing is really providing a great return on investment.

So that is as well. So I'd say for the most part, like I said, we've always believed we had a very defensible And when you look back to the Great Recession in 2008, and it took our business now and went back then, it'd be flat where other S and P 500 companies averaged about a 13% decline in revenues. We were minus 2% at that time With the print business that was included that's no longer here and minus that it would have been flat. So we've seen in tough economic times We are a defensive growth company and we're certainly seeing Mixed signals heading into next year as obviously we've got a very great database. We're not seeing increases in Sears delinquencies.

We're seeing an increase in credit card issuance The one concerning thing we see across the industry is a 30% decrease in maritime shipping orders, right? But They're mixed signals is what we're seeing. And like I said, when you have the type of insight now that we have and you could take shipping orders, tie them back to a DUNS number, That's really valuable information. And so we feel, like I said, pretty good about our capabilities, the defensive nature of our business. And as you can imagine, we're working hard around the clock trying to continue to add to that capability.

Speaker 13

Great. Thank you very much.

Speaker 8

Thank

Speaker 4

you. At this time, I'd like to turn the conference back over to Anthony Drevor for any closing remarks.

Speaker 2

Thank you. As always, I'd like to thank my Dun and Bradstreet colleagues for their exceptional efforts to sustainably grow our business For the years to come and to our great clients for their partnership and for their guidance. Thank you for your interest in Dun and Bradstreet and for joining us on the call. Have a wonderful day.

Speaker 4

Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.