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spk01: Good morning. My name is Sylvia and I will be your conference operator today. At this time, I would like to welcome everyone to Dunn and Bradstreet's third quarter 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. With that, I would now like to turn the call over to Deb McCann, Treasurer and Senior Vice President of Investor Relations. You may proceed.
spk00: Thank you. Good morning, everyone, and thank you for joining us for Dun & Bradstreet's Financial Results Conference Call for the third quarter ending September 30th, 2020. Today, we have Dun & Bradstreet's CEO, Anthony Jabbour, and CFO, Brian Hipscher. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the 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 are described in our earnings release and other SEC filings. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release and supplemental slide presentation. This conference call will be available for replay via webcast through Dun & Bradstreet's Investor Relations website at investor.dnb.com. Anthony will begin with highlights from the third quarter, including the progress we are making with our growth strategies and transformation. Brian will then take you through a review of the financials before we proceed to Q&A. With that, I'll now turn the call over to Anthony.
spk12: Thank you, Deb. Good morning, everyone, and thank you for joining us for a third quarter earnings call. This was another solid quarter that finished in line with our expectations and putting us on track to meet the full year 2020 outlook provided on the second quarter call. Our company's financial results demonstrate that despite experiencing impacts of COVID-19 and other near-term headwinds, the core fundamentals of our business are strong. Our continued focus on efficiency is reflected in our improved EBITDA margins and the annualized run rate cost savings to date of $225 million, which is up $5 million from the second quarter. We continue to progress towards our revised target of $250 million and will continue to update you on future calls. Overall, our team continues to make great strides in executing on our strategy and we are building significant momentum. During today's call, I'll update you on some notable progress against both our growth strategy and ongoing transformation and then turn the call over to Brian for a financial review. After that, we'll take your questions. So let's start with some of the announcements and successes that occurred during the third quarter. First is the announcement we made last month that we entered into a definitive agreement to acquire BizNode, a long-time Dun & Bradstreet Worldwide Network member. The acquisition represents a key investment in support of our international growth strategy. During our October 8 call, we described how BizNode adds several strategic and financial benefits, including a significantly expanded footprint across the DOC region, which is Germany, Australia, and Switzerland, Scandinavia, and Central Europe, allowing us to better serve our clients operating in the region and globally. We are busy with the integration planning in anticipation of the transaction close, which is still expected in January 2021, and plan to share incremental financial and strategic details on BizNode during the next quarter's earnings call. Now turning to our sales and operations execution in the third quarter, our year-to-date retention rate remained strong at 96% and 32% of our business was sold in multi-year deals. One deal that exemplifies both of those metrics is the expansion of our strategic relationship with Microsoft to a multi-year contract for enterprise data management with use cases spanning both finance and risk and sales and marketing. This is an important example of our ability to not just retain, but expand the scope and duration of strategic relationships, which is a key element of our growth strategy. Other third quarter renewals include a multi-year enterprise license deal with HSBC, supporting their data and analytics strategy. A Global 500 office supply retailer who turned to Dun & Bradstreet to help them manage fraud risk. and an expanded multi-year relationship with a multibillion-dollar private shipping supplies company. We also renewed business with insurance solutions provider, CNA, and financial technology solutions provider, WEX, who both use our finance and risk solutions. Plus, we expanded our relationship with Greensill, a British market-leading provider of working capital finance. These renewals are examples of where we're able to build off of an existing set of use cases within the enterprise and cross-sell and up-sell our solutions to broaden our penetration into different parts of their global organizations. Turning to new business. Among others, we recently signed a Fortune 500 manufacturer of coatings and paint who turned to our United Kingdom and United States teams for a cross-border solution that provides an end-to-end view of their customers' and suppliers' master data using our latest API Direct Plus offering. We also won back an industry-leading Fortune 1000 global specialty chemicals and performance materials company who turned back to Dun & Bradstreet from a lower-cost alternative to consolidate its credit processes. As you can see, client engagement is strong, and we continue to see high demand across our existing portfolio of solutions, giving us confidence that we have listened to our clients and that our ongoing transformation of technology, data coverage, and analytics is delivering what they need. In addition to our existing portfolio of solutions, we recently announced a new sales and marketing solution, D&B Connect, a highly configurable, plug-and-play, self-service data management platform. D&B Connect helps our clients assess, clean, and enrich their customer data against category-leading data in the Dun & Bradstreet Data Cloud. With D&B Connect, time spent on data management is reduced from days to hours so that our clients can focus on what's most important, growing their business. This is particularly important for small and medium-sized businesses who do not have the resources of a large enterprise. and who need to quickly make sense of the data they have and gain additional insights to safeguard and grow their business. Next, I'll update you on our technology transformation, starting with our progress on Project Ascent. As we described on the second quarter call, Project Ascent will modernize our data supply chain, allowing us to rapidly expand our traditional and non-traditional data sets, simplify connectivity to the end-user solutions, and enhance our overall throughput. In the quarter, we began ingesting global shipping manifest data, which is a new non-traditional data set that is complex to curate and in high demand for use in supply chain fraud and risk analytics. We're already using the data to fulfill a finance and risk use case for our customer engagement and are pleased with the initial performance. In the fourth quarter and beyond, we plan to enhance the operational user interface, reporting capabilities, and most importantly, add new non-traditional data sets and convert our existing data sets over to the new supply chain process. Our ongoing enhancements to our API technology allow us to expand our latest D&B Direct Plus offerings globally, including the United Kingdom and Ireland, China, and to our worldwide network, which has been met with strong market reception. Consolidating and progressing our API solutions enables simplification, scalability, and the ability to deliver integrated data solutions with speed at lower costs. As we connect deeper and deeper within the core workflows of clients through our technology enhancements, it is clear to us that organizations are seeking more effective ways to grow revenue, improve their margins, and mitigate their risks. Our transformation also includes the expansion and enhancement of our data, which has led to significant growth of our data cloud, which today includes over 400 million public and private businesses worldwide. This is 85 million, or 27% more coverage of our businesses than we had when we took the company private in February of 2019. We frequently hear from customers who want more and better data coverage, especially in international markets, including Asia and Europe, In February 2019, we have increased our coverage of businesses in the Asia-Pacific region by 57% fueled by our proprietary AI engine that addresses local language translation. We also renewed focus on the expanding coverage of small and emerging businesses in the United States, United Kingdom, and Ireland, increasing the pace of small business data accumulation, growing from 56,000 per month in the first half of the year to 174,000 per month in the third quarter. We are listening to our clients and delivering, which is translating into sales and ultimately revenue and profit. Another key element of our transformation is a strengthening of our analytics and insights. Last quarter, we told you about D&B Analytics Studio, our cloud-based analytics platform, which allows clients to combine their data with third-party data and the scale, diversity, and accuracy of our constantly expanding data cloud to achieve broader insights that could not be achieved on their own. It puts the power of analytics directly in the hands of the user and gives them a glimpse of the power of our data and could translate to future cross-selling into different solutions. For example, one of the largest global management consulting firms piloted our analytics studio using Dun & Bradstreet data and insights combined with their data and insights to build derivative B2B analytics for improved customer engagement. Being able to rapidly ingest third-party, internal, and customer data is a key advantage for consulting engagements, and we believe that the analytics studio gives our clients differentiated capabilities. The studio is gaining fast momentum, and we have 13 proof-of-concepts underway with clients. We sign five deals in the quarter, including a global financial software company who is studying its total addressable market as well as to analyze its customers' product purchasing behaviors and and with a government client who turned to D&B Analytics Studio to research and understand the impact of federal funding on small and medium businesses. With continued strong interest from clients and a growing pipeline, we will continue to evolve the studio with alternative data sources, services, and commercial use solution sets to meet more use cases. Overall, we are pleased with the extraordinary effort of our team and are excited about the continued progress we are making in our transformation. We look forward to closing out the year strong. With that, I'll now turn the call over to Brian to discuss our financial results for the quarter.
spk13: Thank you, Anthony, and good morning, everyone. Today, I will discuss our third quarter 2020 results and our full year guidance. Turning to slide one, on a gap basis, third quarter revenues were $442 million, an increase of 8% compared to the prior year quarter. This includes the net impact of the lower purchase accounting deferred revenue adjustment of $38 million. We had a net loss of $17 million for the third quarter, or a diluted loss per share of 4 cents, compared to a net loss of $89 million for the prior year quarter, primarily driven by the lower purchase accounting deferred revenue adjustment, lower transition-related costs, preferred dividends included in the prior year period, and lower interest expense, partially offset by the call premium related to the partial redemption of the senior secured notes. Turning to slide two, I'll now discuss our adjusted results for the third quarter. Third quarter adjusted revenues for the total company were $442 million, an increase of 8%. The increase was driven by the net impact of the lower purchase accounting deferred revenue adjustment of $38 million. This increase was partially offset by known headwinds as previously communicated. These headwinds include lower usage revenues driven by the impact of COVID-19 of approximately $6 million, lower royalty revenues from the wind down of the data.com partnership of approximately $6 million. A decision we made in the second half of 2019 to make structural changes within the legacy credibility business of $3 million and the shift of a government contract from Q3 to Q4 of $4 million. The total impact of these known headwinds was approximately $19 million. Excluding these unique items, revenues grew approximately 3%, primarily from growth in our subscription-based revenues in our finance and risk solutions. Adjusted EBITDA for the total company was $197 million. an increase of 27%, primarily driven by the lower purchase accounting deferred revenue adjustments reflected in the corporate segment, along with lower overall operating costs driven primarily by lower net personnel expenses due to ongoing cost management initiatives. Adjusted EBITDA margin was 44.6%. We had an adjusted net income of $101 million, or adjusted diluted earnings per share of 24 cents. Turning now to slide three, I will now discuss the results for our two segments, North America and international. In North America, revenues for the third quarter decreased 3 percent to $363.3 million. Finance and risk revenues decreased $1.8 million, or 1 percent, to $206.6 million. The decrease was primarily driven by lower usage volumes the structural change in credibility and the shift of a government contract from Q3 to Q4 partially offset by an $8 million increase in our subscription-based revenues and our risk and government solutions. Sales and marketing revenues decreased $9.6 million, or 6%, to $156.7 million. The decrease was primarily due to lower royalty revenue of approximately $6 million from the Data.com Legacy Partnerships along with lower usage revenues. Adjusted EBITDA for North America decreased $5.4 million, or 3%, primarily due to lower revenues, partially offset by lower operating costs, primarily from ongoing cost management efforts. Adjusted EBITDA margin for North America was 50.7%. Turning to slide four, in our international segment, third quarter revenues increased 10%, or 7% on a constant currency basis, $79.8 million. Finance and risk revenues increased $8 million to $66.3 million, excluding the positive impact of foreign exchange of approximately $1 million. The $7 million increase was driven primarily by worldwide network alliances from higher cross-border data sales of approximately $5 million and higher revenue from our U.K. market of approximately $2 million. partially offset by lower usage volume in our Asia market of $0.6 million. Sales and marketing revenues decreased $1.1 million to $13.5 million. Excluding the positive impact of foreign exchange of $0.4 million, decreased revenue was primarily attributable to lower revenue from our UK market of approximately $2 million. Lower usage volume in our Asia market of $0.5 million partially offset by increased revenue from worldwide network alliances of $0.6 million, primarily a result of increased product loyalty. International adjusted EBITDA of $28.2 million increased $2.7 million, or 10.6%, primarily due to higher revenues, with adjusted EBITDA margin of 35.4%. Adjusted EBITDA for the corporate segment increased $44.7 million, primarily due to the net impact of lower purchase accounting deferred revenue adjustments of $38 million. Turning to slide five, I'll now walk through our capital structure. At the end of September 30th, 2020, we had cash and cash equivalents of $311.3 million, which when combined with the full capacity of our recently upsized $850 million revolving line of credit through 2025, represents total liquidity of approximately $1.2 billion. On July 6, 2020, we completed the initial public offering in concurrent private placement, which raised net proceeds of $2.2 billion after deducting underwriting discounts and IPO-related expenses. We used the majority of these proceeds to redeem the full amount of preferred stock in 40% or $300 million of our senior unsecured notes. Shortly after the IPO, we paid down our revolving line of credit balance, and on September 26th, we partially redeemed 40% or $280 million of our senior secured notes. As of September 30th, total debt principal was $3,387 million, and our leverage ratio was 4.7 times on a gross basis and 4.2 times on a net basis. This compared to 5.6 times gross and 5.5 times net at the end of the second quarter. As a result of our decreased leverage during the third quarter, our credit rating was upgraded to B-plus from B-minus by S&P Global with a positive outlook, to a B-2 from a B-3 by Moody's, and to a B-plus and subsequently to a double B-minus from a B by Fitch. We are happy with the progress we are making to deleverage our balance sheet and improve our credit rating, allowing us more financial flexibility to further support our growth initiatives. Regarding our recent announcement to acquire Biznode for approximately 7.2 billion Swedish krona, or $818 million, upon close, 75% of the consideration for the equity value will be paid in cash and the remaining 25% will be paid in newly issued shares of common stock of the company in a private placement. The cash portion will be funded through cash on hand and debt financing. Once funded, we anticipate that we will maintain that leverage in the range of low to mid four times. Turning now to slide six, I'll now walk through our outlook for full year 2020. Full year guidance is unchanged since our last call. Revenue on a constant currency basis is expected to be in the range of $1,729 million to $1,759 million. Adjusted EBITDA is expected to be in the range of $704 million to $724 million. Revenue and adjusted EBITDA include a negative $21 million impact from deferred revenue purchase accounting in both the low end and high ends of the range. Adjusted EPS is expected to be in the range of $0.89 to $0.93. Adjusted EPS includes a negative $0.04 impact from deferred revenue purchase accounting in both the low end and high end of the range. Additional modeling details underlying our outlook are as follows. These estimates include an additional $2 million of public company costs per quarter, with the largest component being corporate insurance. We expect interest expense of approximately $255 million, reduced from $265 million primarily due to partial paydown of the secured notes, and depreciation and amortization expense of approximately $60 million, excluding incremental depreciation and amortization expense resulting from purchase accounting. Adjusted effective tax rate of approximately 24%, weighted average shares outstanding of $367 million, and finally, CapEx of approximately $120 million. Overall, we are pleased with the progress we are making in our transformation in the core performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A?
spk01: Thank you, ladies and gentlemen. As a reminder, to ask a question, please press star then the number one on your telephone keypads. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gary Bisbee from Bank of America.
spk09: Hey, guys. Good morning. Good morning, Gary. I guess the first question, when you add new alternative data, and you mentioned a few things on the call, and I know that's a focus, how does that play out in your business model? Do you get immediate price or volume lift from adding new data sets, or is this more – a long-term play to drive innovation and attract new customers.
spk12: Sure, Gary. It's a great question, and a bit of all of that, obviously. Number one, the future is moving to looking at new alternative data sources, and so that is future-proofing our business and showing to our clients how innovative and forward-thinking we are, but it also has short-term implications for us as well in terms of clients buying that data from us and and leveraging maybe an analytics studio as well as a, you know, combine their data with our data in addition to this alternate data and, you know, and collaborate with it to look for, you know, new insights and new signals. So it gives us benefit short-term on the buying side and also future-proofs our business and client relationships.
spk09: So if you add a data set and a customer wants to use it, I guess maybe it depends on the product, but they actually have to pay more for that, or is it hard to generalize?
spk12: Yes. No, they traditionally would pay more for that.
spk09: Okay. All right. That's helpful. And then maybe on just the numbers, you know, as I look at the revenue growth over the last few quarters, I know there's moving parts with COVID and all the other things you called out, but it seems like there's a lot of volatility there. in growth rates both across your businesses and quarter to quarter within the business. Given the highly recurring nature of the revenue, I guess I'm puzzling a little bit as to why. I certainly know timing of deliverables plays into it, but is there any way you can help us understand if, you know, for example, you'd expect more consistent growth rates once you work through some of these issues, or is this just you know, how the business works and really quarter to quarter when customers take the data can have pretty big impacts on the revenue growth rate. Thank you.
spk13: Yeah, sure, Gary. So if we kind of start with the 442, right, and as you said, you added back, excuse me, the million four for the foreign exchange, and then we're down to only a million a quarter from the from the deferred revenue impact. And so when you're thinking about that from the 444 and a half, right, what you saw is that it's generally relatively consistent in Q2 and Q3. What we still have a little bit of, and as we transform into the multi-year contracts, as Anthony had mentioned, and kind of smooth out, as you said, some of that movement between quarters. We still have a fourth quarter that is a step up from that perspective. And what happens a lot of times, and we talked about this prior too, is that we'll have committed amounts in some of these legacy contracts of the amount of usage that the customer is leveraging throughout the year. And there is some revenue recognition that ends up with a forfeiture amount at the end of the contract for any unused polls or unused data sets from that perspective. And so that is the one thing that can cause a little bit of variance between quarters. We've gotten away from a lot of the one-time data delivery deals. and things like that. So it's a continued evolution. It's definitely a lot more, you know, consistent. As you heard, you know, we increased the subscription-based revenues by $8 million again on a quarter-over-quarter basis. So we'll continue to drive from that perspective. But I think this year specifically, just because of some of the impacts of COVID, there was, you know, some movement of usage volumes, you know, from quarter to quarter. But that ends up, you know, catching up by the end of the year.
spk09: Okay. Thank you.
spk01: Your next question comes from the line of Hamza Mazari from Jefferies.
spk14: Hey, guys. This is actually Ryan Gunning on for Hamza. Just wondering if you could talk about your worldwide network similar to BizNote and how those deals are structured in terms of royalties and then are there larger assets there that you could buy back similar to what you did on that deal?
spk12: Sure, Ryan. We're very proud of the worldwide network arrangement that we have to really give the global capabilities. From a contractual perspective, we've got royalties in place where as they use some of our products, there's a royalty fee that we would get. We also have data sharing that goes back and forth where we receive data from them, they receive data from us, and obviously both sides compensate So I think it's fairly traditional, as you'd expect, in that regard. In terms of other potential acquisitions in the space similar to business, we do think that that's a possibility. And as we talked consistently about our growth strategy, one of the growth tenants was in our international markets, and we're excited with what we think we can do there. We've got a In addition to the whole universe of acquisition potential that we have, in some of the worldwide network partners, these are companies we've worked with for a very long time, understand them well, using our products. The relative risk is very low on doing anything there. So if there's an opportunity there, we're certainly going to look at it.
spk14: Great, thanks. And then for my follow-up, could you just comment on after the remaining cost takeouts taken out, just how to think about margin expansion annually in like a normal year, how it should look like with either a low or a mid-single-digit organic revenue growth?
spk13: Yeah, sure. So if you look at it, we run at about a 60% to 70% all-in contribution margin. Certainly on an individual deal, right, it could be much higher than that. But when we think about betting against investments, et cetera, from that perspective, you're looking at, you know, 50 to 100 bits of margin expansion in a normalized year. Now, that being said, of course, we're always, you know, thinking about continuous improvement from that perspective. But, Ryan, that's pretty much the standard. Great. Thanks, guys. Thank you.
spk01: Your next question comes from the line of Manav Patnik from Barclays.
spk06: Good morning, guys. You mentioned talk is obviously very important for you guys. And I was just wondering, you know, the visibility levels you have in the face of, you know, we have obviously rising cases and certainties. I'm just wondering if there can be risks that, you know, clients pull back on some of those commitments.
spk12: Manav, you broke up just at the beginning. Were you asking on COVID, with the rising COVID cases, how that impacts?
spk06: Yeah, and more specifically to the fourth quarter, since it's so important for you guys, you know, if there's any risk of pulling back last minute.
spk12: Well, I'll start and I'll pass it on to Brian. I'd say, you know, with COVID, you know, there certainly is, you know, uncertainty introduces to all companies out there. And, you know, we've shown our impact from it on the revenue side has been significant. relatively small for the size of the company that we are, but still we hold ourselves accountable to the last dollar. We're very focused on what we commit to the street and how we execute upon it. What I'd say is we've seen Great engagement with our clients. We've seen strong interest in the new innovations that we're coming out with, the focus that we have. All of that feels very positive. And we do see from clients a little more guarded on their budgets on certain parts of the industry and certain parts of where they are spending. as it ties to COVID to kind of feel their way through it. So that's been some color that I could share with you on that. Brian, I don't know if there's anything else you'd add to that.
spk13: Yeah, Manav, I think as you saw, too, we reiterated from that perspective. So, you know, we're quite confident in where we're coming in in Q4. As Gary mentioned earlier, you know, this year we did have a little bit of movement, right, from the usage timing. But, again, you know, based upon the subscription nature of our contracts, That, you know, revenue ultimately flows through right by the end of the year, you know, regardless from that perspective. So the other piece, as I mentioned, you know, clearly is that while there was a head winding in Q3, you know, that government contract, you know, will, you know, fold in in Q4. So that's, you know, $4 million from that perspective. But Overall, I think, you know, COVID impact, you know, generally, we talked about it being about 6 million this quarter, and we expect something similar in the fourth quarter. But that's all built into the guidance monop.
spk06: Got it. And then, you know, the low-force leverage levels, you know, I know you're comfortable with that, but I was just hoping you could talk to us, like, to see another decent-sized deal comes along. Like, how much are you willing to extend yourself and, you know, just how you would potentially fund that?
spk12: Well, I'd say the deal specificment of and based on the, you know, if there's an average deal and average opportunity, you know, we wouldn't. If we're very excited about what it can do in terms of creating value for our shareholders, then, you know, we would look to go after it. But I'd really say it's on a deal-by-deal basis. We're very thoughtful on our leverage. And at the same time, we want to make sure there's some really great opportunities for creating long-term shareholder value that we go after it aggressively.
spk06: All right. Thank you, guys.
spk12: Thank you, Manav. Thank you.
spk01: At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypads. Your next question comes from the line of Seth Weber from RBC Capital Markets.
spk02: Hey, guys. Good morning. I hope you're doing well. I wanted to ask about the international business specifically. I mean, the margin was significantly better than what we were looking for. You know, do you feel like and it was up considerably from the second quarter. So do you feel like that this sort of mid to mid 30 percent range is is sort of the right level to be thinking about it going forward? And then I guess, you know, there were some call outs in the press release about softness in Asia, you know, COVID related and stuff like that. Have you seen any improvement there or is that continuing to be a headwind? Thanks.
spk13: Yeah, sure. So two points. One, you know, we had called out in our last call that we were lapping some of those worldwide network one-time revenues, which were clearly a high margin from that perspective. So, you know, this was a relatively clean quarter for international. And you saw, again, as the, you know, revenues increased from that perspective, you know, there was that contribution margin and flow through, which ultimately drove the margin expansion. And so, you That business in and of itself is lower than the overall companies, but the good thing is we don't have a lot of mixed issues from that perspective, and the contribution margins are overall accretive. When we talk about, you know, the headwinds from Asia, again, those have subsided, I would say, you know, compared to where they were, especially in the first and second quarter. And so, you know, of the $6 million, you know, you're talking about maybe a million dollars, right, in that segment. So very limited overall.
spk02: Okay, that's helpful. Thanks. And then just as a follow-up, you know, you continue to add more multi-year contracts. Can you just talk to the type of price escalators that you're putting in those contracts and how we should think about pricing going forward relative to where it's been. Thanks.
spk13: Yeah, absolutely. So on the multi-year contracts, you know, the way we really think about it is twofold, right? We think about the first base that goes in there is, in essence, a cost-of-living adjustment. And so think about that as kind of a low single-digit, you know, call it, you know, 3-ish percent from that perspective, right? When we look about the broader portfolio and as renewals come up, we're certainly doing further elasticity studies, further studies from a market comparability perspective, and really applying what I would describe as a strategic price increase where it's necessary. a customer that may be out of line from that perspective. And so that's what ultimately is driving the overall price increase where, again, we had talked about, you know, being, you know, quite limited before, you know, starting to grow up to something to be more like, you know, two to two and a half percent over the next year or two.
spk15: Terrific. Thank you very much, guys.
spk12: Sorry, just with our new standard contract language, even if we don't have MALT here, if it's an annual contract, the auto renewal provision in there will have for an increase as well. So we're being thoughtful in all areas in addition to what Brian had just mentioned.
spk02: Terrific. I appreciate it, guys. Thank you very much.
spk12: Thanks, Jeff.
spk02: Thank you.
spk01: Your next question comes from the line of Kevin McVeigh from Credit Suisse.
spk10: Great, thanks. Hey, you talked about what I thought was really a sizable step up in clients. I think the number is like 400 million worldwide, up from 85 million. Any thoughts on just the aggregation process? Because it seems like you're doing that in a more efficient manner, given where kind of the cost leverage is coming in. Just any thoughts on that?
spk12: Yeah, no, we're really excited about it. It was one of the areas that we knew we needed to really improve for us to fulfill our ambitions. And so it started with what we had talked about with you before in terms of executive changes and approaches and technology. And as you constantly see with the work that we're doing around improving just our technology stacks, enabling us to do more and go faster, Project Ascent as an example, all that is really put in place to enable us to be able to do more at a cheaper price. And specifically, as we think about alternative data sources, there's a tremendous amount of data there that you need to churn through to get nuggets or signals of information. And so the efficiency of the technology initiatives that we're under are really important to us because, you know, ultimately they'll keep costs down. If they will for really driving value out of these alternative data sources, then they will for the other more traditional data approaches that we've been taking in terms of, you know, business coverage, et cetera.
spk10: That's helpful. And then just, you know, some of the client wins, like HSBC, Microsoft, you know, definitely seem like, or HSBC may have been a renewal, but just, is that just maybe some of the data coming in a little bit cleaner and, you know, just more evidence of where you are operationally, I guess, from a, you know, historical perspective?
spk12: Well, I think it's a couple things. Again, when we talk about transformation, we've always been very specific about talking in a well-rounded sense. All the things we're doing is transforming the company. So we've certainly transformed the data and the analytics and the technology. We've also transformed our go-to-market. So I think we're really engaging with our clients well. And so as we're in these renewal discussions, really engaging. showing them some of the new innovations that we're coming out with, listening more, bringing executives in as part of the deals and the renewals. So those two, for example, I was involved in myself with Microsoft and HSBC. Steve Daffron, our president's involved in a number of them. So we're really bringing our go-to-market approach is really, I'd say, a key differentiator from what we used to be doing in addition to all the improvements that we've been making in the business. And I think that's manifesting itself in these types of renewals and expansion of existing deals. Awesome. Thank you. Thank you.
spk01: Your next question is from the line of Brett Huff from Stevens, Inc.
spk11: Good morning, guys. Good morning, Brett. How are you?
spk15: Good. How are you? Thanks for the date on the call, as usual. First question is, the conversations you're having with your clients, The sales seem to be coming in pretty well. I know some of the usage is down just because of the virus and things like that, but can you characterize the conversations you're having with the clients? What are the drivers of their buying, even in the face of a difficult business environment? What's kind of getting them over the hump?
spk12: Well, I'd say the key thing, Brett, is every business is trying to to improve, right? I mean, they're trying to leverage data in some way, their operations in some way to improve, right? And I think everyone realizes where things are at, especially while the pandemic is on. But they're looking for ways and creative ideas and partners who will come to them with suggestions on how they can improve their business, but also with the solutions that they can install for clients and be held accountable to the results. And that's the approach that we're taking. We're collaborating a lot with our clients. We're creating new capabilities. for them. Again, there's countless ones I could walk you through here. But really, what I'd say from a client perspective, at times like this, everyone's looking for leadership. And what I'm proud of our team is we're stepping into that void with confidence, consulting on what we're seeing working in the market and what solutions that are helping drive those results. So very warm receptions, having lots of meetings, good meetings. Like I said, even in this new paradigm that we're in, lots of online selling, remote selling is going on. And so I think I am excited about that. And at the same time, like I said, I do see, you know, some clients, you know, concerned obviously from a budget perspective if their, you know, type of business has been impacted, you know, dramatically.
spk15: That's great. And then follow-up, sort of a more detailed question on that front. We know that you guys have a lot of great high-value ads. you know, products where you have pricing power and things like that. But there's a couple where it seems like it's going to be more of a dogfight, specifically in the SMB area and then in some of the sales and marketing. Any thoughts specifically on the competitive environment, how you're stacking up against the SMB competitors, especially here in the U.S.? And then also, you know, lots of data on, you know, corporate people within corporations, newly public companies and things like that. How's that going? that sort of street fight going?
spk12: Well, you know us from the past. We are street fighters, and we're bringing our best to the fight. We've made lots of improvements, I'd say, specifically in both those areas, SMS as well as SMB, in terms of bringing additional data. And fortunately for us, You know, it's not, you know, we don't have a tremendous market share of the S&B space. We look at that as having more opportunity versus risk for us from a competitive perspective. I'd say from an SMS perspective, there's a number of things that we're doing. One is we've made a shift to account-based marketing where instead of just being transactional, bringing in more of our solutions to our clients in an integrated manner to show them how it all works with the data that can help them achieve what they want. We're improving our contact data significantly. We recently launched B&B Email IQ, which allows clients to get some free data from us, a number of free data contacts per month. Again, the gift-to-get model that we're so used to using, if they give us some data, And so, again, there's a lot of work, great work, I'd say, that we're doing in that regard. And so we feel really good about, you know, how we're positioned on a long-term basis here in both those segments. That's great. Appreciate the color. Thank you, Brett.
spk01: Your next question comes from the line of Andrew Jeffrey from Truist Securities.
spk07: Hi. Good morning, everybody. This is Tom Blakey on for Andrew. Maybe on the heels of that last question, you know, our question was also around SMB and the large opportunity there. You guys have had solid retention and expansion, you know, in large customers. Just wanted to double-click a little bit on the SMB opportunity. Any metrics you could share with us to highlight near return traction there? I'll maybe expand a little bit more on that in terms of your go-to-market strategy you were just speaking of. And, you know, what would be the overall, you know, kind of like margins of this business as it reaches scale relative to the overall corporate averages? It would be helpful. Thank you.
spk12: Sure. I'll start and I'll pass it on to Brian to answer the second part. I think from an S&B perspective, you know, we've talked about how we've built capabilities, you know, for that segment. We've reorganized our go-to-markets for that segment. The other area that we've been focused on is from a digital perspective, and we're very excited with the trends. They're early, but what we're seeing in terms of clients coming to us and buying from us directly through our digital channels. So one of the benefits that we have from an SMB perspective is we have over 1,000 of them coming to us every day for one of our products or solutions, right? get a credit signal, apply for a DUNS number. They weren't vetted as a supplier from one of our clients, and we're going to help them be an approved supplier. For whatever reason, there's many reasons that are coming to us. We have the great benefit of not trying to attract traffic to our websites, but to redirect the traffic that's already coming and directing them to our solutions. And so that is an area where we'll continue to build on from a digital perspective. And obviously, It's great, you know, for SMB clients, many who are, you know, self-navigators, and it's great business for us as well. But Brian, do you want to add to the second part of that?
spk13: Yeah, when you look at overall, I mean, clearly we're driven by our, what we call either, you know, strategic or mega accounts and then our national accounts. So when we look at the S&B space, it's a place that, you know, we are, as Anthony said, making, you know, strong inroads in, especially through digital means. That business in and of itself now is, call it roughly, you know, 15%, you know, the overall, you know, revenue of the company that's kind of in that S&B, you know, space, right, depending on, know how you define it but um so so yeah i think you know we're pretty excited about you know taking our our current solutions right um and as anthony said extending them down you know doing product and packaging from that perspective because you know as we talked about the microsoft's of the world right you know they have you know certain levels of sophistication and use cases that they need and therefore you know have a larger budget and a larger appetite to pay from that perspective. For us, it's being quite mindful and being targeted to have differentiation, but also to make sure that we're not selling a Ferrari when we need to be selling more of a Toyota. And so that's been something that with the technology team's evolution and the product team's evolution, we've been able to package and price more appropriately to address the lower end of the market.
spk12: And you see that, Tom, with some of the new products, like our D&B Connect product as an example, where before it would take IT teams from our large clients to work and combine data, et cetera, whereas now it's really simple to use. I could use it myself. Great user interface, highly configurable. So we're being thoughtful about going more down market as we build this capability, and that's something where an internal IT team is not needed anymore. you know, to benefit from the data through D&B Connect.
spk07: Right. And then maybe as a follow-up more towards the mega and more strategic clients, just directly on Analytics Studio, I know it's early days, but it's an exciting product. And I was just curious about how this would be priced, you know, kind of longer-term contracts.
spk13: um all you can eat to kind of incent usage or will this be more of a capacity-based uh product in terms of price that's it thank you yeah so we start with a uh a basic license from that perspective and then they can build up um by the amount of you know they're bringing in their data right they're bringing in our data and they're bringing in in some circumstances even other you know kind of third-party data from that perspective so In essence, what we end up doing is kind of building like a tiered pricing model where they're paying a base rate that, in essence, is covering kind of the infrastructure, and then they'll scale up right as they leverage the analytics. And so in a sandbox kind of methodology, you allow them to be quite creative and drive new and thoughtful analytics and But once they want to operationalize them, right, that's when, you know, they're engaging in, again, you know, upsells of incremental alternative data sets, incremental analytics or larger kind of broader use case, right, that drives increased price from that perspective. That's really the model is, you know, kind of creating that fixed layer. But, you know, as they want to scale up and use more and more and more, they, you know, pay increased economics from that perspective.
spk07: Very helpful. Thank you, guys.
spk12: Thank you, Tom.
spk01: At this time, I would like to remind everyone, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of George Tong from Goldman Sachs.
spk03: Hi, thanks. Good morning. On the sales and marketing front, you indicated that 32% of business is now sold in multi-year deals. Can you talk about how pricing and economics change for multi-year deals versus annual deals and what your targeted mix is for multi-year deals?
spk12: Yeah. Sure. I'll start, Brian. So the beauty with multi-year deals is obviously we have annual price escalators in there when you have a multi-year deal, and so that helps drive revenue growth. And where that may be an obvious benefit of it, there are some other benefits that may not be as obvious. And one of the key ones that I've found throughout all my years in the industry is When you're close to a renewal, you're focusing on the renewal. You're not focusing on expanding business relationships. So you're posturing. That's what happens typically. And when you've got an annual contract, you're constantly going through that churn. So one of the big benefits that I see is as we have these multi-year contracts, We're now married for a number of years. Let's focus on all the ways we can help. You're not thinking about a renewal. You're just thinking about new solutions, new ways. And the new sale that we'll add to an existing contract will be significantly higher when we have a multi-year agreement in place versus an agreement that's about to expire in the year. Brian, do you want to add anything more to that?
spk13: Yeah, the one thing, George, I would add to that is if you're going to ultimately enter into a one-year contract from that perspective, when we look at our base rate increases, that's going to be a little bit higher than what a basic price escalator would be from a multi-year contract. And so as we think about, you know, kind of the balancing of those perspectives, you know, as you extend out, you know, a three-year deal or four-year deal, right, you know, we can do a little bit less of a price escalator from that perspective. But if you're going to do a shorter deal, right, a one-year deal or two-year deal, then it's going to be a bit above the average from what we've discussed.
spk03: Got it. That's helpful. You talked about an increased pace of cross track this progress, such as percentage of customers that are buying multiple products or average number of products sold per customer and how that's expected to trend over time?
spk13: Yeah, George. So we've continued to kind of dig into the separation from that perspective. I think a great example that Anthony walked through earlier was Microsoft, right? That was a business, as they renewed into this, that was leveraging You know, in essence, pretty heavily on the sales and marketing side. And, you know, as we talked to them about the power of the DUNS and the connectivity, they ultimately were able to leverage, you know, that broader data set and extend use cases more into the risk space, for instance. splitting into the finance and risk side. And so, again, what we tend to see, George, is at the top end of the customer base, they're using eights and now closer to nine solutions per. It's really the metrics in the mid-sized companies and the smaller where they're using kind of you know, on average, like 1.7 right to 2 from that perspective. And then in the SMBs, that's where it's really, you know, down to the ones. But maybe, Anthony, too, the digital, you know, aspect of that and how we expect, you know, the smaller businesses to now be able to come to us, have that experience, and be exposed to both sides of the business is interesting.
spk03: Got it. That's helpful. Thank you.
spk01: Your next question comes from the line of Ashish Kabadra from Dorta Bank.
spk05: Thanks for taking my question. I just wanted to drill down further in the strength that we saw in the international finance and risk business. I was wondering if you could talk about what's driving that elevated worldwide network sales. Are there any regions or particular companies in particular which are driving it? And then on the UK sales as well, what's driving the strength in the UK business? Thanks.
spk13: Yeah, sure. So on the Worldwide Network, Ashish, as Neeraj has come in and looked at some of these legacy agreements, we've certainly been updating them to make sure that we're positioning ourselves in the right place. And so in the finance and risk space, for instance, we do a lot of the facilitation in the coordination right between, you know, the worldwide network partners. And so as we saw, you know, demand for our data and demand for our solutions being sold through, you know, Europe on the finance and risk side, that's where, you know, we saw the step up from that perspective. The UKI was a great example. You know, you heard about Greensill and HSBC. You know, both are customers that I think, you know, Anthony can extend upon. But, again, you know, saw the relationships, saw the opportunity to take, you know, a much, you know, broader view of, you know, finance and risk and sales and marketing from that perspective. So definitely we're seeing some strong momentum in those regions and certainly, you know, is a positive thing. into BizNode, right? And maybe, Anthony, if you talk about BizNode and how we've seen their ability to sell our Dun & Bradstreet products and the successes I think that they've reported would be great.
spk12: Yeah, it was one of the things we were excited with Biznode. Like I said, by being in partnership with some of these companies and seeing the actual volumes that they're driving and getting an inside look at their business, with Biznode, especially in the dock region, Germany, Austria, and Switzerland, where they had a lot of Dun & Bradstreet product there, they were growing faster than they were throughout the rest of the business significantly. We look at these signals and examples and overlay our solutions on top to see what do we believe the outcome would be through acquiring them and bringing more of our products into those markets and taking those products into other markets now that we own them all directly, and we're excited about what that could look like.
spk05: That's great. Very helpful color. And maybe just to follow up to this, just around the diffusion of IP in the international market and also launch of new localized products, can you just provide any update on that front?
spk12: Thanks. So Ashish, the first part you said the IP in the international market? Yes.
spk05: Yeah, and if you could talk about how you're rolling out the products which are currently in the U.S. market, like the analytics rollout in the U.K. and Ireland and the plans to roll that out in the international market. Thanks.
spk12: Yes. Again, as we look at transforming the business, that's an area we looked at and said, well, we've got these great products. It's just about getting more shelf space for them. And in the international marketplaces, we weren't doing enough of that historically. And so we really put to the pedal on that and have localized a lot of solutions that localized a lot of the SMS solutions in our Asia Pacific region, our API solutions in, you know, the UKI, China, India. So it really is a priority for us because, again, as we look at what's low-hanging fruit, you know, what's a birthright for us, right? Some of these things are out there just waiting to take to be made available, and historically we hadn't done that. So it really is a great priority for us. It's where we're directing some of our capital to make sure we're doing these, and they're relatively quick and easy. We've got a great technology team in place helping enable it and great local business expertise, knowing which ones will be the highest probability winners out there. So I feel really good about that, and we'll continue on that path.
spk11: that's very helpful color and good momentum in the international front thanks thank you thank you your next question comes from the line of judah soco from jp morgan hi good morning good morning uh hey judah good morning my a quick question i don't know if i missed it but did you quantify the amount of m a contribution in the quarter
spk13: Yeah, Judah, the organic and inorganic were the same this quarter. We lapped Lattice in the second quarter of last year, and so we had talked, you know, the other, you know, orbit or co-action were de minimis from that perspective. So Lattice was a lap, so the numbers were the same.
spk11: Got it. And then my other question is just in terms of sales and marketing. I know you guys have done a great job in terms of smoothing out the seasonality, really getting it across the four quarters rather than being a large fourth quarter outside impact from Optimizer. But I know you can still get a boost from a strong Optimizer in some years. So after a weaker third quarter for sales and marketing, how do you think Optimizer will do in the fourth quarter, given that that's a quarter that customers often commit to Optimizer more? Thanks.
spk13: Yeah, Judah, so from that perspective, I would say less optimizer this year, more about the timing of some of the usage, you know, that's just flowing through, right? And so from that perspective, that's where part of the sales and marketing, you know, backup has been throughout the year. That being said, you know, we do, you know, continue to look for, you know, sales, right – in the in the fourth quarter from that perspective and so the master data has certainly been a continued growth area along with what we call audience solutions which is our digital offering from that perspective and so that's a business that's continued to have you know strong double digit growth on a year-over-year basis and you know we'll continue to expand from that perspective but Unlike, you know, kind of the old days, Judah, from that perspective, we still see, you know, a lot of demand for optimizer. We're still going to see continued demand for what's now D&B Connect, kind of the next step, right, from a data management solution perspective. But really, you know, some of that timing that will flow through into the fourth quarter will just be more of a release of some of those pent-up usage, you know, values that have built through the year. Okay, thank you.
spk01: Your final question comes from the line of Jake Williams with Wells Fargo.
spk04: Good morning, everyone. Good morning, Jake. Hey, Jake. Good morning. Can you expand on what characteristics or qualities that might lead you to acquire a global network partner versus continuing to just maintain that partnership?
spk12: Sure. I think, you know, one, do we believe it's a well-run organization? Do we believe, you know, the amount of effort we would need to put into it or capital put into it would be relatively small relative to the output that it would help us deliver in terms of, you know, new markets, new solutions, new revenue, ultimately, you know, new value for our shareholders. But, you know, that would, I'd say, you know, generally be, you know, one of the areas that we would look at. Are they open to selling? I mean, that's obviously a critical part of this as well. And you saw with BizNode where they were very open, they were excited, they took 25% in equity, you know, to help ensure, you know, the outcomes from it. So the number of factors I think that kind of roll into it, but those would be the highest ones, I'd say.
spk04: Got it. Thank you very much.
spk12: Thank you, Jake.
spk01: And we have reached the allotted time for questions and answers. I will now turn the call to Mr. Anthony Jabbour for any closing remarks.
spk12: Thank you. In summary, we're pleased with our progress to transform Dun & Bradstreet. We have a great company, and we'll continue to focus on maximizing shareholder value. As always, I'd like to thank my Dun & Bradstreet colleagues for their exceptional efforts and our clients for their strong relationships. Thank you for your interest in Dun & Bradstreet and for joining us on the call today. Take care.
spk01: Ladies and gentlemen, this does conclude today's conference. Thank you for your participation.
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