Dun & Bradstreet Holdings, Inc.

Good day and welcome to the Dunn and Bradstreet third quarter 2024 earnings conference call. 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. To withdraw your question, please press star, then two. 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 third 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 third quarter results and then pass it over 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 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 presentation. 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 third quarter earnings call. Overall, we delivered another solid quarter on both the top and bottom lines. As we got it at the beginning of the year, there was some timing in North America between on delivery and radically recognized revenues in the third quarter. and I am pleased to report that we delivered organic revenue growth of 3.4% overall, which is slightly above expectations. While international continued its consistent delivery of mid- to high-single-digit organic revenue growth of 5% this quarter, North America came in at 3%, largely due to the timing I mentioned up front. On the profit side, we expanded margin 60 basis points and improved free cash flow conversion to nearly 50%. We also enacted our planned reduction in capitalized software development spend at the end of September, and through the actions taken, and as a result, expect to see lower capitalized software expenditures of around $15 million on an annualized basis. We are coming off an elevated investment period and expect to move towards our medium-term target spend of 6 to 7 percent of revenues on an annual basis. And finally, before moving on to some exciting things happening with new innovations, strategic partnerships, and client successes, I want to take a moment to update everyone on the inbound interest we received late this summer. We've been working with our advisor to evaluate inquiries from both strategic and financial acquirers. While we're not comment on the status of any particular engagement, the team is spending a significant amount of time conducting in-person meetings holding additional functional due diligence sessions, providing detailed responses to the interested parties, and will continue to be responsive and thoughtful in all of our interactions on behalf of our shareholders. Our D&B team continues to impress me, and I would like to thank them for their focus on delivering the quarter, executing the capital reduction, and being responsive to the interest we are currently receiving. And if all of that wasn't enough, we also continue to innovate for our clients. I'll start off with the release of ChatD&D, our patent-pending generative AI assistant. ChatD&D surfaces knowledge across the company's data blocks, delivering actionable insights to its users, ranging from prospecting to company due diligence. Users can ask questions in conversational language, and it has the intelligence to access and analyze the underlying data to deliver the most relevant and accurate output. ChatD&B is fueled by our Dun & Bradstreet Data Cloud, which is renowned for the breadth, depth, and quality of private company data it possesses. And it will also be able to incorporate additional client first-party data, creating the ability to accurately answer questions posed on both private and public companies within seconds. Our autonomous Gen AI agents show their work the data sources, and lineage in ChatD&V, allowing users to have confidence in the quality and accuracy of the information presented. We launched ChatD&V internally with over 1,000 colleagues for testing and quality checks before releasing it to dozens of clients and partners in our early adopter program. These clients shared feedback and insights into how they are using ChatD&V and the benefits of this new assistant in their daily jobs. Results were encouraging and centered around the speed at which data can be accessed, the broad amount of information that is available to query, and the summarization of vast amounts of information in a format that is easy to use, track, and trust. ChatD&D is an exciting evolution for our company, and we look forward to discussing its progress and expansion in the quarters to come. We announced two exciting partnerships this quarter, the first with London Stock Exchange Group, or LSEG, and the second with Intercontinental Exchange, or ICE. With LSEG, we are forming a strategic collaboration to broaden access to private market information. The combination of LSEG's capital markets data, including deals, private equity, news, and research, With our trusted private market data providing visibility on officers and directors, ownership insights, and financial information for millions of companies globally, we'll enable investment in capital market firms to drive better data-driven financial assessments and decisions. Our DUNS number will now be available to LSEG's Workspace's large customer community and therefore increase its reach into the capital market as a new and expanding vertical. Using the DUNS number as the key to unlock data about a business, LSEG's workspace users will be able to easily search for private company data and download the data to improve mapping, discoverability, and interoperability of content on the global public and private companies. The DUNS number provides linkage across business relationships, employees, and subsidiaries, enabling users of LSEG workspace to gain a better view of an enterprise's corporate structure, ownership, and financial health. The collaboration with LSEG marks a new era in providing technology power transparency to private company analysis. With the exponential growth of private markets, Dun & Bradstreet plays a critical role providing clarity and insights to help investors manage risk and discover new investment opportunities. We also partnered with ICE to launch a new climate risk data offering covering private and public companies globally. The new service will be designed to provide transition risk data, including greenhouse gas, scope one, two, and three, and physical risk data on tens of millions of companies. This will be one of the broadest climate data offerings available on the market. By combining our business intelligence, supply chain, and asset location data, With ICE's geospatial and climate capabilities, and then leveraging ICE's distribution channels, this new service will offer the broader investment community a single source of climate data. This new data solution will become part of ICE Climate, which provides data and analytics that help quantify investment impacts posed by transition and physical climate risks, such as extreme weather events. These are two great examples of how we are picking our spots and partnering with world-class organizations to bring incremental value to these markets. While each of our partnerships are limited in terms of the magnitude of data, scope, and specificity of use case, we continue to balance our time to market and longer-term opportunities to drive maximum value creation. Before turning the call over to Brian, I wanted to touch on a few updates on the commercial side. North America continued to deliver consistent revenue retention of 97% while driving a 32% vitality index. Clients and prospects buying behaviors were generally consistent with the first two quarters of the year, as businesses balanced mixed macroeconomic signals and an impending presidential election. And while business spending remains disciplined more broadly, and sales cycles have lengthened, there were some examples of exciting wins in the quarter. The first is with one of the largest banks in the world that expanded their relationship with us by double digits. The client leverages our data and analytics within their commercial card and business banking portfolio, two areas that are growing at a rapid clip for them. By leveraging our matching and SBFE attributes, The client is making more effective and efficient credit line decisioning, and we look forward to supporting them with their current efforts and their future strategies focused on the leveraging of generative AI solutions. We also had a strong multi-year win with one of the world's largest life insurance companies. The continued improvements in our data and solutions earned us the right to extend a four-year agreement and implement a mid-single-digit pricing increase. They use a bundled set of solutions that are heavily integrated into the customer's platforms and workflow, which allowed a new set of incoming stakeholders to realize the value we are providing across their organization. And before moving on to the international side, I wanted to mention our expanded relationship with Tamr. Our relationship with Tamr expanded through the leveraging of our newly launched consumer marketing data to analytically improve match outcomes for customer-focused data management solutions. Ultimately, we are working together to improve data stewardship and act as a front end for cleaner consumer data sets that drive better business outcomes in sales and marketing use cases related to consumer-to-consumer and consumer-to-business matched records. Turning to Internationale, the team continued on with their strategy of winning with the largest and most strategic players in the regions. With a retention rate of 93% and vitality index of 35%, the team is focused on completing our legacy solution migration efforts while balancing upsell and the addition of new client logos. Beginning with IKEA, they expanded our existing relationship with our data block supplier risk solution by adding more markets to master their data supply chain. IKEA is a great example of our ability to land and expand with the customer through the expansion of data elements, geographies, and number of businesses covered. In the United Kingdom, we had our largest ever sale of Hoovers in our international segment. The cross-sell was a five-year, multimillion-dollar expansion, adding to numerous other finance and risk products being utilized by the client. And finally, in Germany, we secured a contract with international distribution and service company Jetson & Jetson to provide data and analytics to support their financial risk, master data management, and compliance activities. These renewals, expansions, and new wins across our segments are just a handful of examples of how we continue to deliver increased value across our clients' most critical use cases. As I said earlier, I'm very proud of the team's execution this quarter and throughout 2024. We look forward to closing out the year and heading into 2025 with another year of significant progress under our belts. 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, third quarter revenues were $609 million, an increase of 3.5% compared to the prior year quarter and an increase of 3.2% before the effect of foreign exchange. Net income for the third quarter was $3 million for a diluted earnings per share of one cent compared to net income of $4 million for the prior year quarter. The $1 million decrease in net earnings for the three months ended September 30, 2024, compared to the prior year quarter, was primarily due to a lower tax benefit and higher amortization loss related to the interest rate swap amendment completed in the third quarter of 2023. This was partially offset by higher operating income and lower miscellaneous non-operating expenses. primarily driven by lower fees related to our senior credit facility. Turning to slide two, I'll now discuss our adjusted results for the third quarter. Third quarter revenues for the total company were $609 million, an increase of 3.5% compared to the prior year quarter and an increase of 3.2% before the effect of foreign exchange. The increase was attributable to growth in the underlying business and the positive impact of foreign exchange, partially offset by the impact of the divestiture of a business-to-consumer business in Finland in the fourth quarter of 2023. Excluding the impact of the divestiture and the positive impact of foreign exchange, total organic revenue increased 3.4%, reflecting growth across both of our segments. Third quarter adjusted EBITDA for the total company was $247 million, an increase of $12 million, or 5%. This was primarily due to revenue growth, partially offset by associated personnel and data acquisition costs. Third quarter adjusted EBITDA margin was 41%, an increase of 60 basis points compared to the prior year quarter. Third quarter adjusted net income was $116 million, or adjusted earnings per share of 27 cents, compared to $116.2 million, or 27 cents per share, in the third quarter of 2023. The slight decrease in adjusted net income was primarily attributable to higher tax expense and higher depreciation and amortization, partially offset by higher adjusted EBITDA and lower interest expense in the current year fourth. Turning now to slide three. I'll now discuss the results for our two segments, North America and international. In North America, revenues for the third quarter were $433 million, an increase of 2.6% from prior year quarter and 2.7% on an organic, constant currency basis. In finance and risk, revenues were $238 million, an increase of $3 million, or 1%. due to a net increase in revenue across our third-party risk and supply chain management, partially offset by decreased revenues from our finance solutions due in part to the timing of revenues shifting from on-delivery to routable. For sales and marketing, revenues were $195 million, an increase of $8 million, or 5% before the effect of foreign exchange. Sales and marketing growth was due to higher revenue from our master data management solutions, partially offset by decreased revenues from our digital marketing solutions. And while our digital marketing solutions declined in the quarter, they improved sequentially and, as expected, versus the first half of 2024. North America's third quarter adjusted EBITDA was $208 million, an increase of $12 million, or 6%, In North America, even a margin was 48%, an increase of 160 basis points from the prior year quarter. This was primarily due to revenue growth and lower net personnel costs, partially offset by higher cloud infrastructure costs and data acquisition costs. Turning to slide four. In our international segment, third quarter revenues increased 5.7% to $177 million, or an increase of 4.7% before the effect of foreign exchange. and an increase of 5.1% on an organic, constant currency basis. Finance and risk revenues were $122 million, an increase of 7%, or an increase of 6% before the effect of foreign exchange. All markets contributed to the growth, including strong contributions from newer API solutions across our own markets and third-party risk and compliance solutions in Europe. Our worldwide network alliances also have increased revenue due to higher product royalties. Sales and marketing revenues were $55 million, an increase of 3%, or an increase of 1% before the effect of foreign exchange. On an organic basis, revenues grew 2.4%, primarily due to higher product loyalty revenues from our worldwide network alliances and continued demand for our master data management solutions. International third quarter adjusted EBITDA was $59 million, an increase of $4 million, or 7%, and an international adjusted EBITDA margin was 34%, an increase of 30 basis points from the prior year quarter. The increase in adjusted EBITDA was primarily due to revenue growth from the underlying business, partially offset by higher personnel and data acquisition costs and foreign exchange law. Turning to slide five, Slide five contains the details of our capital structure as of quarter end. At the end of September 30th, 2024, we had cash and cash equivalents of $289 million in total principal amount of debt of $3,681 million with a weighted average interest rate of 6.0%. Currently, 87% of our debt is either fixed or hedged, and as of September 30, 2024, we have $717 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 continue to expect to be around 3.5 times on a net basis by the end of this year as we continue to migrate down towards our medium-term range of 3 to 3.25 times in 2025. To manage our floating rate exposure, ahead of the $1,250 million of swaps that's immature during the first quarter of 2025, we executed $600 million of forward-starting interest rate swaps. $350 million at 3.229%, and $250 million at 3.24%. These become effective at the end of March of 2025 and mature in March of 2028. Additionally, we terminated $1 billion in swaps with maturity in February of 2026 and entered into a new billion-dollar swap with a March 2028 maturity at a rate of 3.2463%. In regards to our share repurchase program, we did not execute any share repurchases in the third quarter due to the ongoing process related to the inbound interest we received earlier this year. Year-to-date, 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 turning to slide six. Our outlook for 2024 is as follows. Total revenues after the effect of foreign currency continue to be expected 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 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 continue to be expected at the low end of our previously communicated range of 4.1% to 5.1% for the full year. Adjusted EBITDA continues to be expected in the range of $930 to $950 million. An 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 now expect interest expense to be approximately $215 million. Depreciation and amortization expense is now expected to be in a range of $130 to $140 million. including 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 continue to expect approximately $150 million to $160 million of internally developed software and $45 million of property, plant, and equipment and purchase software as capitalized spend begins to moderate around the second half of the year. And finally, with the heightened level of investment beginning to evade, we continue to anticipate operating free cash flow conversion as a percentage of investment in that income, excluding the impact of the AR securitization to improve versus the prior year as previously discussed. The team is pushing hard to finish out the year as strong as possible and preparing for another year of improvement in 2025. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A?