Dun & Bradstreet Holdings, Inc.

Good morning and welcome to Dunn and Bradstreet's financial results for the second quarter of 2024. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. Please note, this event is being recorded. I would now like to turn the conference over to Sean Anthony, Vice President of FP&A and Investor Relations. Please go ahead.

Thank you. Good morning, everyone. And thank you for joining us for Dun & Bradstreet's Financial Results Conference call for the second quarter of 2024. On the call today, we have Dun & Bradstreet CEO Anthony Jabbour and CFO Brian Hipcher. Anthony will begin with an overview of our second quarter results 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 the certainties 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 the reconciliation between non-GAAP financial information to the GAAP financial information, is provided in the press release and supplemental slide presentations. This 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 second quarter earnings call. Overall, we delivered another solid result in both top and bottom lines. Organic revenue growth was 4.3%, up 40 basis points from the first quarter of 2023, and represents our fourth consecutive quarter of reported mid-single-digit growth. With 90% of our revenues growing slightly over 6% in the quarter and on a trailing 12-month basis, we saw continued strong demand for our third-party supply chain, risk, and master data management solutions in both our North America and international segments. We've seen continued strength in these two areas of strategic investment and believe there is much more opportunity to grow in the coming years. The remaining 10% of our revenues comprised of credibility and digital marketing solutions continue to be negatively impacted by a variety of factors, including broader macro conditions. However, we have work underway to reduce their impact on the overall growth rate, and I'll spend some time in my prepared remarks discussing our remediation efforts and the timing thereof. From a profitability perspective, EBITDA grew 6% in the quarter, driving 60 basis points of margin expansion. We continue to operate more efficiently, and along with lower revenue growth from areas that have below average incremental margins, we're able to deliver strong profitability in the quarter. We continue to focus our capital allocation on sustainable organic growth acceleration, deleveraging the balance sheet, and maintaining our dividend while being opportunistic in both M&A and share buybacks when circumstances allow. And while we continue to execute well, our share price provided an attractive valuation throughout the quarter, and we began to utilize our share repurchase authorization. Throughout the quarter, we were able to purchase around 960,000 shares at an average price per share of around $9.70. We accomplished this while maintaining our net leverage ratio at 3.7 times, with visibility to around 3.5 times by year end. As we expect capitalized spend and other extraordinary investments to come down in the second half, we continue to expect improved free cash flow conversion for the full year, and we'll look to deploy it efficiently and effectively. And now turning to what's driving our financial results, I'll start with an update on our finance and risk solutions. Across both segments, we saw strong performance in our core finance and risk solutions. Finance solutions continues to be a deeply embedded solution set that creates an excellent platform for cross-selling our risk solutions. While our finance and risk solutions are a key part of our 96% overall gross retention rate, They're also a key part of our 36% vitality index with third-party risk management delivering another stellar quarter of over 20% growth. We are seeing strong demand for our risk analytics platform and even stronger demand for our risk data block solutions delivered via direct API integrations. While medium to larger size clients prefer a platform approach, we are seeing the largest and mega-sized clients prefer direct integrations into their core applications. And while we continue to see growth and expansion with our medium and larger size customers throughout the world, smaller clients are still a great opportunity for us in both North America and internationally. For instance, in Asia, we saw high single-digit growth driven by some of our more localized finance solutions. As smaller companies throughout the region look to validate themselves as worthy suppliers to large multinational businesses, DMV stands as a trusted provider of authentication and confidence. And while we have continued to transform our SMB businesses in North America, Credibility continued to see some softness in the second quarter, largely as expected. The second quarter was down $2.3 million, or a 7% decline versus prior year, and $4.1 million or a 6.4% decline year to date. The declines up to this point have been solutions that are directly impacted by the consent order and its impact on those renewals throughout last year and into early this year. We still expect the business to be near flat in Q3 and then begin to slightly grow in Q4 and remain positive as we are seeing green shoots in our new solution sales and in particular, the improved performance of our Credit Insights product. While it took us a little longer to launch than expected, I'm particularly excited about the early results we are seeing from the July 17th launch of our money-back guarantee. And that, coupled with the product enhancements we have made, significantly increased the value we are providing to our clients and prospects. These efforts, combined with several others, are transforming the credibility solutions and give us confidence in our ability to turn this part of our negative 10% into a more positive contributor by the end of this year. And now turning to our sales and marketing solutions, we grew mid-single digits overall, driven by strong performance in master data management and improving performance and sales acceleration. The overall market remained constrained as delayed interest rate cuts persisted throughout the second quarter. But through the mission critical nature of our MDM solutions and improving sales acceleration offerings, we were able to offset much of the lackluster spending. That being said, the majority of the business was growing nicely. Our transactional volumes and digital marketing solutions remained depressed. While things didn't deteriorate further from the prior trends, they certainly didn't improve at the rate we had expected. While the vast majority of our revenues are subscription-based, Our digital marketing solutions are more cyclical in nature and therefore impacted both positively and negatively by volume trends. For context, these solutions were down $4.6 million or 14% in the second quarter and $7.7 million or 12% year to date. We anticipate improvement in the back half of this year for three reasons. The first is we expect the Fed to begin to reduce interest rates, driving increased spend. Second, Google will no longer be deprecating cookies, which should help lift traditional volumes. And third, we are expanding into rapidly growing areas such as connected TV, retail media, and further into social media. Overall, things have largely played out as we expected through the first two quarters of the year. And while we are tweaking our full-year organic revenue guidance to take into account the lower than expected transactional revenues from digital marketing, we are maintaining our previous adjusted EBITDA and adjusted EPS guidance. We will stay close to credibility and digital marketing that comprise the 10% of our revenues that are challenged throughout the remainder of this year and make any changes necessary to be set up to achieve a 2025 growth rate that is within the 5% to 7% range we previously discussed. Another important element in our growth plan is continued innovation. In the second quarter, we introduced Hoover Smart Mail, which allows automated messaging and deployment to high targeted contacts for more individualized content creation. And in combination with Smart Search, launched in Q1, Both now have over 4,000 clients using these new GenAI capabilities. In addition, we have our new chat D&D GenAI assistant. This is the patent pending autonomous AI agent that speaks to all of our data assets. There isn't a question about a business we can't answer. And this new assistant is being used by over 500 internal users and in early adopter testing with our clients. Lastly, Our continued partnership with IBM has the new Ask Procurement Assistant in early trials as well. As a reminder, all of our GenAI solutions are based on ABE, our foundational architecture for quickly building, testing, and launching new solutions. Along with the exciting progress in GenAI, we continue to expand our DUNS and data graphs from the offline world to the online world. Our business to person, or B2P service, combining specific consumer marketing characteristics to our best in class B2B identity graph, creating a uniquely blended offering. Think about the B2P connection as focusing not on the individual as a consumer, but the individual in his or her role within the defined organization. It's still early stages, but we believe this could be a game changer in the ability to effectively market to key business audiences in an ever-evolving landscape. And as we continue to develop and execute within our key product lines, I'm also very pleased in our continued progress to finalize our cloud migration project. Our technology team has made huge progress in the first half of this year, upgrading and migrating our solutions to the cloud, and we look forward to completing a majority of the heavy lifting by the end of this year. Before I update you on some client successes in the quarter, I wanted to provide a quick update on the general buying environment. Similar to the comments you've heard from other industry peers, the general sales environment has stayed relatively stable to the slower one that started late last year. Our belief is that as the Fed begins to take its first actions to reduce interest rates in the late fall, businesses will become more constructive in their spending around new solutions and sales and marketing investments. And now bringing back to Q2, I want to start off with North America in a five-year renewal and expansion with a Fortune 500 company and one of the world's largest industrial supply companies. This client has been with us for over 25 years and continues to leverage the unparalleled breadth and depth of our data and analytics to create predictive risk scoring and automated credit decisioning. By leveraging our data and analytics to support over 2 million customers, This company was able to create increased ROI relative to automated upfront credit limits at onboarding and an analytics-driven onboarding process that is helping to streamline the quote-to-cash process. Another five-year renewal in the F&R segment was with another Fortune 500 company and one of the world's premier providers of technology products and services for business, government, and education. The client has been with us for 25 years and continues to look for new and innovative ways to automate their credit and risk functions. Through the addition of our new capabilities, such as FA, Account Manager, we were able to provide them incremental tools to reduce the friction and ultimately time between sales, credit, and close. The team did a great job solutioning with our client and delivering significant value through our latest D&B finance solutions. We also continue to see strong expansion within our master data management client base. One of the world's largest technology companies has engaged us to assist in continuing to build out the uniform and structured process for sales and marketing programs across their enterprise. The leveraging of our specialized match capabilities, contact management, and support by our unique business to person data on the programmatic and social marketing channels we're able to support them with enhancing their market-leading position. They have one of, if not the premier first-party data sets in the world, and by allowing us a trusted third-party provider to add on to those exceptional capabilities has put them in an even more differentiated position. And before turning to our international segment, I wanted to finish up with a three-year deal in sales and marketing with another Fortune 500 company and one of the largest human resources management software and services providers, who has also been a client of ours for 25 years. Through our differentiated data and enhanced match capabilities, we're able to support our clients' lead optimization for customer cross-sell through enhancing the foundations of their market research planning and customer segmentation efforts. By testing our data against other providers and focusing on streamlining to a high quality process, we're able to grow our relationship with this client and create not only significant improvements to their marketing efforts, but reduce costs overall for them by eliminating process inefficiencies driven by a multi-vendor strategy. On the international front, we continue to see strong demand across our European and Asian regions. In early Q2, We signed a three-year deal for D&B DataBlocks for finance with Hoppog Lloyd AG, one of the leading global liner shipping companies, to support their credit management automation. Hoppog Lloyd is among the top five largest shipping and container transportation companies in the world, and we are pleased to support their global need to manage financial risk in a more efficient and effective manner. HVI Global SE. one of the largest insurance companies in Europe signed a three-year contract for D&B DataBlocks to organize and manage its master data management, support sales and marketing, and optimize its risk management. This is a great example of how we can help create efficiencies across several use cases by clients leveraging our master data management capabilities. We also landed new business with a large global energy provider out of Norway, to manage their third-party risk management. This is a three-year contract and represents the largest sale to date of our new RACI, or Risk Analytics Compliance Intelligence Solution. RACI is an intelligent KYC slash KYB monitoring and assessment solution for compliance risk management. It allows clients to streamline their onboarding processes, quickly identify and verify entities and people their company looks to do business with, defines risk relevancy and materiality based on a company's specific risk policies, monitor changes to business partners so they can proactively mitigate risk, and regularly screen business partners against sanctions, watch lists, PEP lists, and adverse media. We are very excited about how the RACI pipeline is building and the early wins we are seeing with this newly introduced solution. And finally in Asia, we expanded our relationship with China Mobile International with our finance analytics and compliance solutions that allow them global coverage of their oversee client credit risk and also drove new business with Reliance Industries in India, a Fortune 500 company and the largest private sector corporation in India to support their potential expansion into new locations. Overall, I'm proud of our team's focused execution against our long-term strategy and the results we are driving. Over the trailing 12 months, 90% of our revenues have grown 6% and with margins close to 40%, putting us in a great position for continued future growth. With that, I'd now like to turn the call over to Brian to discuss our financials in more detail and give a quick update on our outlook for the remainder of the year.

Thank you, Anthony, and good morning, everyone. Turning to slide one, on a GAAP basis, second quarter revenues were $576 million, an increase of 3.9% compared to the prior year quarter, and an increase of 4.2% before the effect of foreign exchange. Net loss for the second quarter was $16 million, or a diluted loss per share of 4 cents, compared to a net loss of $19 million for the prior year quarter. The $3 million decrease in net loss for the three months ended June 30, 2024, compared to the prior year quarter, was primarily due to higher operating income, partially offset by a lower tax benefit, and the amortization loss related to the interest rate swap amendment completed in the third quarter of 2023. Turning now to slide two. I'll now discuss our adjusted results for the second quarter. Second quarter revenues for the total company were $576 million, an increase of 3.9% compared to the prior year quarter and an increase of 4.2% before the effect of foreign exchange. The increase in revenues was attributable to growth in the underlying business, partially offset by the negative impact of foreign exchange and the impact of the divestiture of a business to consumer business in Finland in the fourth quarter of 2023. And therefore, revenues on an organic constant currency basis were up 4.3%. Second quarter adjusted EBITDA for the total company was $218 million, an increase of $12 million, or 6%. This was primarily due to revenue growth partially offset by higher costs driven by cloud infrastructure costs and net personnel expense. Second quarter adjusted EBITDA margin was 38%, an increase of 60 basis points compared to the prior year quarter. Second quarter adjusted net income was $99 million, or adjusted earnings per share of 23 cents, compared to $95 million, or 22 cents per share, in the second quarter of 2023. The increase was primarily attributable to higher adjusted EBITDA and lower interest expense in the current year quarter. partially offset by higher depreciation and amortization and tax expenses. Turning now to slide three, I'll now discuss the results from our two segments, North America and international. In North America, revenues for the second quarter were $405 million, an increase of 3% from prior year quarter and 3.4% on an organic constant currency basis. In finance and risk, revenues were $216 million, an increase of $5 million, or 3%, due to a net increase in revenue across our third-party risk supply chain management and finance solutions, partially offset by decreased revenues from our credibility solutions. For sales and marketing, revenues were $189 million, an increase of $8 million, or 4%. Sales and marketing growth is primarily driven by higher data sales and higher revenues from our master data management solutions, partially offset by decreased revenues from our other digital marketing solutions. North America's second quarter adjusted EBITDA was $178 million, an increase of $5 million, or 3%, and North America EBITDA margin was 44%, a decrease of 30 basis points from the prior year quarter. This was primarily due to revenue growth partially offset by higher costs driven by cloud infrastructure costs, selling and marketing expenses, as well as personnel costs supporting our overall solution innovation. Turning to slide four. In our international segment, second quarter revenues increased 5% to $172 million, or an increase of 6% before the effect of foreign exchange, and an increase of 6.4% on an organic constant currency basis. Finance and risk revenues were $160 million, an increase of 8% or an increase of 9% before the effect of foreign exchange. All markets contributed to the growth, including higher revenue from our API solutions in the United Kingdom, growth in Europe from third-party risk and compliance, finance analytics, and API solutions, and growth in greater China from finance analytics and API solutions. along with increased revenues from Worldwide Network Alliances due to increased cross-border activity. Sales and marketing revenues were $55 million, a decrease of 0.3% or an increase of 1% before the effect of foreign exchange. On an organic basis, revenues grew 2%, primarily due to higher revenues from the UK driven by growth in our API solutions. Second quarter international adjusted EBITDA of $54 million increased $5 million, or 9.5%. An adjusted EBITDA margin was 31%, an increase of 120 basis points compared to the prior year quarter. The increase in adjusted EBITDA was due to revenue growth from the underlying business, partially offset by higher net personnel costs and foreign exchange loss. And into slide five. Slide 5 contains the details of our capital structure as of the quarter end. At the end of June 30, 2024, we had cash and cash equivalents of $263 million and total principal amount of debt of $3,676 million with a weighted average interest rate of 5.8%. Currently, 87% of our debt is either fixed or hedged, and as of June 30th, 2024, we had $730 million available on our $850 million revolving credit facility. Our leverage ratio was 3.7 times on a net basis, and the credit facility senior secured net leverage ratio was 3.2 times. We expect to be at around 3.5 times on a net basis by the end of this year, as we continue to migrate towards our medium term range of three to three and a quarter times by 2025. Turning now to our share repurchase program. As Anthony mentioned, during the second quarter, we repurchased 961,360 shares of Dun & Bradstreet common stock for $9.3 million net of accrued excise tax at an average price of $9.71 per share. We currently have over 9 million shares remaining under our existing buyback authorization. And now I'll turn to slide six. Our outlook for 2024 is as follows. Total revenues after the effect of foreign currency are expected to be at the low end of our previously communicated range of $2,400 million to $2,440 million, or an increase of approximately 3.7% to 5.4%. This includes an assumption of a modestly increased headwind in the first three quarters of the year, partially offset by a modest tailwind in the fourth quarter due to the effect of foreign currency related to the expected variances between the U.S. dollar, euro, British pound, and Swedish krona. Revenues on an organic constant currency basis are expected to be at the low end of our previously communicated range of 4.1% to 5.1% for the full year. Adjusted EBITDA is expected to continue to be in the range of $930 to $950 million, and adjusted EPS is expected to continue to be in the range of $1 to $1.04. Additional modeling details underlying our outlook are as follows. We expect interest expense to be around $220 million. Depreciation and amortization expense to be in the range of $125 to $135 million, excluding incremental depreciation and amortization expense resulting from purchase accounting. Adjusted effective tax rate of approximately 22% to 23%. Weighted average diluted shares outstanding of approximately $436 million. And for CapEx, we expect approximately $150 million to $160 million of internally developed software. and $45 million of property, plant, and equipment in purchase software, as capitalized spend begins to moderate in the second half of this year. With the exception of some lower transactional revenues in North America, the first two quarters played out largely as expected, and as we head into the second half of the year, our expectations for the cadence of the remaining quarters remains unchanged, with third quarter below the low end of the range and fourth quarter being slightly above the high end of the range. And finally, With a heightened level of investment beginning to abate, we continue to anticipate operating free cash flow conversion as a percentage of adjusting that income excluding the impact of the AR securitization to improve versus the prior year as previously discussed. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A?