Dun & Bradstreet Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Dun & Bradstreet First Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, the 2nd of May, 2024. I would now like to turn the conference over to Mr. Sean Anthony. VP Corporate FP&A. Please go ahead, sir.

Thank you. Good morning, everyone. And thank you for joining us for Dun & Bradstreet's Financial Results Conference Call for the first quarter of 2024. On the call today, we have Dun & Bradstreet CEO Anthony DeBoer and CFO Brian Hipcher. Anthony will begin with an overview of our first quarter results, provide a few strategic updates on what's driving our growth outlook, and then pass it to Brian for an in-depth financial review. We will then finish up with Q&A and a few closing remarks. 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 risk and uncertainties the 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 the reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release and supplemental slide presentations. The conference call will be available for replay via webcast through Dun & Bradstreet's investor relations website at investor.dnb.com. With that, I'll now turn the call over to Anthony. Thank you, Sean. Good morning, everyone, and thank you for joining us for our first quarter earnings call. 2024 is off to a strong start. We delivered an accelerated organic revenue growth rate of 4.3%. 50 basis points of margin expansion, and improved free cash flow conversion of 119%, up 22 percentage points versus the prior year quarter. The business continues to improve as we have shifted to mid-single-digit growth and are moving into our midterm target of 5% to 7% organic revenue growth. With the vast majority of our revenues at or above the high end of our midterm range, we have more conviction now that we can drive towards the higher end of that range over the coming years as we bring more innovation to strengthen our existing solutions portfolio. It's exciting to see the investments we've made materialize into consistently improving revenue growth, profitability, and free cash flow generation, and the team and I look forward to bringing even more of that to bear in the near future. And with the leverage coming down to 3.7 times and headed towards 3.5 times by the end of the year, our board also authorized a share repurchase program of up to 10 million shares through 2027. While our capital allocation focus remains on organically growing the business and deleveraging the balance sheet, we also want to give ourselves the flexibility to be opportunistic in light of the significant disconnect we see with our valuation against our financial performance relative to our peers. Our retention rates are rock solid at 96%, and combined with the improvements we have made in cross-sell, up-sell, new logo acquisition, new solution innovation, and pricing, we are bringing a holistic approach to our improved growth algorithm. It all begins with the investments we've made in our data supply chain and our ongoing cloud upgrades that have allowed us to significantly improve our data and analytic offerings. Our vitality index is now at 32% overall and is a reflection of our clients utilizing our most modern solutions and taking on net new innovations that we are now producing every quarter. With new solutions to sell, our sales force is bringing incremental value propositions to our customers through cross-sell and up-sell efforts And we expect another one to two points of growth to materialize in 2025 and into 2026 from those efforts. Increased growth from pricing is also a reflection of the improvements we've made. And while this year is expected to deliver around 2.5% growth from price, we expect to see closer to 3% to 3.5% growth in 2025 and beyond. The first quarter was another strong quarter of execution. from both an operational and financial perspective. While the overall solution portfolio is performing well, I want to take some time to highlight a few areas that are really exciting and we believe will drive the next phase of our growth story. Beginning with our finance and risk solutions, I want to share a deeper view into what we are doing in our third-party supply chain risk management solutions. Those solutions are growing to nearly $200 million in annual revenues and we saw the first quarter grow nearly 30% on a global basis. Clients and prospects throughout the world continue to need better data, analytics, and insights into the risk profile of the most critical vendors and third parties, while the definition of risk continues to expand each and every day. Expectations and regulations around sustainability, social, compliance, financial, cyber, and governance continue to rise, and more and more businesses are coming to us as the one-stop shop to solve their needs. We believe the depth and breadth of our private company data throughout the world puts us at a significant advantage to others, and we will continue to pursue rapid expansion and proliferation of our risk analytics and associated solution sets to our existing clients and prospects. With a total addressable market of nearly $10 billion, and a relatively low penetration to our existing finance solutions customer base of less than 10%, the cross-sell opportunity is significant, let alone the ability to secure new logos in regions of the world that are lower penetrated, such as Sweden, Germany, and others in Central Europe, Latin America, and Asia. Now, while understanding who you're doing business with is top of mind, Another topic that is just as relevant to our clients is managing and mastering first and third-party data in the coming age of generative artificial intelligence. Our Master Data Management, or MDM, solutions in both North America and international grew double digits with total growth of just over 10%. In North America, we continue to see expansion through the addition of complementary datasets price increases, and utilization of the solution across more and more functional areas within a large corporation. Our best-in-class entity resolution and matching process identifies unique business entities which enable the creation of commonly shared business insights and a master client supplier record. And while cross-sell and up-sell is the key driver of growth in North America, for the international side, The introduction of data blocks and D&B Connect have created strong demand from new logos. One of the exciting parts of our earlier acquisition of BizNode was the direct access to key clients in the region. For instance, while the Scandinavian economy is not built on financial institutions, it contains a significant manufacturing and industrial production presence. These types of companies are a perfect fit for our global MDM data and analytics capabilities, not to mention third-party and supply chain risk management, which I mentioned earlier. And what really works for us is when we get into the core of a company's data strategy, embed the DUNS number and our parent-child hierarchy into their master client and our master supplier record. This lays the groundwork for symbiotic relationship for companies that first master and manage their data in an organized and curated manner. allowing for the offensive and defensive use cases we provide clients to be scalable and sustainable for years to come. The total addressable market for master data management is over $15 billion, and we have less than 10% of our clients using MDM across finance and risk and sales and marketing, which means that the runway for growth through the next 5 to 10 years is a great opportunity. These are two really exciting areas of what we are doing today. But before I move on to a few key wins in the quarter, I want to provide a quick update on where we are in our Gen AI progress, as we believe it could be a significant tailwind in the future. It's exciting to see the rapid growth and increased awareness of Gen AI over the past year, which has led to many organizations coming to us for guidance and support. Our trusted data has been among the broadest and deepest commercial data sets in the world, Our data, and more specifically, our MDM solutions, are becoming a foundational element to ensure the Gen AI answers are accurate and relevant. It is also critically important to highlight that our focus on and commitment to responsible and trustworthy AI is foundational to all we do and is embedded in our processes underpinned by our AI ethics policies. Recognizing customers' concern about hallucination, we are committed to transparency and showing our work in our Gen AI products. To this end, we have created explainability and traceability features in our AI agents, which allows our customers to audit in real time what the tool is doing and to review the raw data that was used for generating a response. What's becoming apparent is that while many LLMs are popping up, there are clearly a limited amount of truly differentiated and reliable data sources. In our dnb.ai labs, we have tested the top large language models, and what is clear is that even the best model built on poor data delivers poor results with significant amounts of hallucinations and drift. However, an average LLM with data like ours produces superior results with accuracy that can be relied upon. So with our unique third-party risk data and one of the premier models out today, Ask Procurement is the newest Gen AI solution that we are co-developing with IBM that leverages the Dun & Bradstreet data cloud, real-time business intelligence and analytics, as well as IBM technology. Ask Procurement simplifies, accelerates, and reduces the cost of certain essential procurement decisions. It empowers professionals to access new data and insights on current and prospective suppliers, offering a detailed perspective on company relationships to drive savings and efficiencies and improve risk management. The product will deliver answers derived from customer-specific information and Dun & Bradstreet supplier risk data via data blocks. We are also launching B&B Hoover's Conversational List Builder. to GenAI capability to generate targeted prospect audience and contact lists in partnership with Google Vertex AI. For this solution, we leverage natural language processing to allow our customers to query our data in a more natural way. Hoover's conversational list builder will be the first of many B&B talk with your data assistants, in which we look to democratize and proliferate the utilization of our data and analytics throughout our portfolio of solutions. In the end, we are very proud of the unique proprietary and linked data that we own. And as we look to Gen AI shifting from one-off pilots to broader adoption, we are excited about the heightened, elevated importance our data will receive. If I can draw a parallel to Formula One racing, billions have been spent creating a race car to win, and teams want to feed their engines with the highest quality, highest octane fuel to drive maximum performance. And similarly, for Gen AI to be successful, data is going to be what fuels these models. And we look forward to supporting our clients and prospects in this next phase of their business evolution.

And now I'll highlight a few client wins in the quarter.