Dun & Bradstreet Holdings, Inc. (NYSE:DNB) Q4 2023 Earnings Call Transcript
Dun & Bradstreet Holdings, Inc. (NYSE:DNB) Q4 2023 Earnings Call Transcript February 15, 2024
Dun & Bradstreet Holdings, Inc. beats earnings expectations. Reported EPS is $0.32, expectations were $0.3. Dun & Bradstreet Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good morning, and welcome to the Dun & Bradstreet Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Sean Anthony, VP, Corporate FP&A and Investor Relations. Please go ahead, sir.
Sean Anthony: Thank you. Good morning, everyone, and thank you for joining us for Dun & Bradstreet's financial results conference call for the fourth quarter and full year ending December 31, 2023. On the call today, we have Dun & Bradstreet's CEO, Anthony Jabbour; and CFO, Bryan Hipsher. 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. With that, I'll now turn the call over to Anthony.
Anthony Jabbour: Thank you, Sean. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2023 earnings call. On today's call, I'll start with a brief overview of our fourth quarter and full year results followed by a look back at some of our most significant accomplishments in 2023 and a brief view into our plans for 2024. After that, I'll pass the call over to Bryan for an in-depth review of our results and to discuss our guidance expectations for 2024. We'll then open up the call for Q&A and finish up with a few closing comments. With that, let's get started. We finished off 2023 with not only our strongest quarter of the year, but our strongest quarter since going public. We had organic revenue growth of 5.1%, adjusted EBITDA of $261 million and adjusted net earnings of $140 million or $0.32 of EPS.
We beat our guidance in both revenues and earnings. And we're still able to balance continued investment in our new innovations and product enhancements that helped support our 30% vitality index in the quarter. Compared to our original guidance back in February, revenue, organic growth and earnings were all at the high end. And EBITDA came in the middle of our ranges. For the full year, we delivered total revenues of $2,314 million, organic growth of 4.3%, adjusted EBITDA of $892 million and adjusted net earnings of $432 million or $1 of EPS. Our vitality index for the full year finished at 27%, up from 17.5% in 2022 as we continue to deliver new and innovative solutions to clients throughout the world. And whether it was in North America growing 5% with a 29% vitality index or International growing 5.3% with a 34% vitality index in the quarter, our value proposition is resonating with businesses in need of data, analytics and workflow to more efficiently and effectively operate in these rapidly changing environments.
Businesses throughout the world are coming to us to solve some of their biggest challenges. The three most common themes we are seeing right now play directly into the areas that we had prioritized for our investment. First and foremost, Master Data Management has always been a foundational component of having a sound data strategy, and its importance is increasing significantly with the advent of gen AI. We believe that we are in a privileged position because of the pervasiveness of the D-U-N-S Number, our unparalleled business entity resolution capabilities and the largest and most robust commercial data cloud in the world to capitalize on these exciting trends. Master Data Management continues to be at the core of our growth strategy. And by investing in new, expanded and alternative data sets, integrating our Duns Cloud into the most prolific data delivery platforms and collaborating with the top cloud and gen AI companies in the world, we are making a full push throughout 2024 to take advantage of this coming wave of innovation.
Secondly, with the launch of our own AI-powered solutions, we are enhancing our existing products with conversational search, generative insights and improved predictive signals. And we are launching standalone net new capabilities such as AiBE for Hoovers, where clients can utilize conversational search using natural language processing to reduce the friction in helping our clients to more accurately search and target higher propensity prospective companies or ask procurement, which will be in GA at the end of this quarter, where clients can [indiscernible] multiple steps in the sourcing and procurement process, saving days of work and potentially millions of dollars. And while AI is front of mind in our product development prioritization, we aren't ignoring the continued demand for our existing solutions.
While we continue to have leading revenue retention rates at 96%, we're also seeing a continued strong demand for our faster-growing solutions such as those in our third-party and supply chain risk management. We delivered another quarter of strong double-digit growth in that area. And it's no surprise as business leaders, Boards, investors and governments continue to raise the bar on company's understanding of who they are truly doing business with and what the financial, regulatory, social and climate risks associated with those third parties are. Our Duns Cloud now covers 558 million business entities, including UBO data on 352 million shareholders, 270 million businesses with climate risk insights and detailed data-driven ESG ratings on 80 million Duns.
And not only do we have unparalleled data on the Company itself, we have also been able to map nearly 35 billion relationships between Tier 1, Tier 2 and Tier 3 suppliers. We are creating a more real-time predictive performance analytics that continue to create demand in the client verticals we have today and even more importantly, in [indiscernible] goals we are entering by capital markets. Capital markets firms have consumed massive amounts of data over the years to create that last bit of alpha in their evaluation of potential company performance. Through the creation of a new set of capital markets-focused solutions, we have launched into the space with an immediate impact. With our ability to link and enrich a capital markets client data through the Duns hierarchy, add deeply correlated performance insights from our alternative data sets on public companies and deliver unparalleled insights into over 500 million product companies throughout the world, we have just begun to scratch the surface on what is possible in this space.
Underpinning these results and the ones that come is a significant progress we continue to make in our back office and cloud migration efforts. We have made significant progress in the completion of our modern quote-to-cash project, which will ultimately allow our go-to-market delivery and finance functions to operate at an even higher level of efficiency and effectiveness. Through the use of best-in-class processes, modern software platforms and artificial intelligence, we will not only save operating expenses but expand revenues through more efficiently closing deals through shortening the time from quote to final signature. We also continue to make large strides in our cloud migration in 2023 and plan to complete even more in 2024. Overall, I am very proud of our team's execution across the Company in both the quarter and the full year.
With organic growth approaching 5%, adjusted EBITDA of nearly $900 million, a strengthened balance sheet through improving operating free cash flow and the refinancing of our secured debt layer last month, I'm very pleased with the progress we are making towards our medium-term targets of organic revenue growth acceleration, expanded profitability, deleveraging and enhanced free cash flow conversion. In the quarter and throughout the year, we engaged our clients with urgency, delivered our data and analytics with precision and created new and innovative solutions to satisfy prospects' growing needs. And by doing these three things, we're also able to finish off the year with some really exciting wins and renewals in the quarter. Beginning with North America, where we had a 95% revenue retention for the quarter and 97% retention for the year, I want to start off with the first win to come in the capital market space.
It was with one of the world's largest multinational alternative asset management, private equity and financial services companies. Through our structured data, corporate linkage and business signals, we are supporting their efforts in merging and mastering their internal data cloud and also helping to predict viable acquisition targets for investment. These use cases, along with several others such as private credit evaluation, are common for private equity firms throughout the globe. And we see this as a huge opportunity for us going forward. On the more traditional finance solutions use case, we are pleased to announce the expansion of our relationship with Johnson Controls. Johnson Controls is a world leader in smart buildings, creating safe, healthy and sustainable spaces.
We expanded our relationship through the addition of a global finance risk solution that was able to eliminate multiple vendors, ultimately demonstrating the scale and value of our integrated solutions. Another great example of a retain-and-expand win was with a leading global aerospace company. This client was rolling off a multiyear agreement, and we work closely with them to execute another multiyear agreement of the same tenure with an expanded set of solutions that includes supply chain risk management, Master Data Management and global trade controls. And we look forward to continuing to help them navigate the increasing global complexities around supply chain and third-party risk management. Speaking of supply chain and global risk management, our International segment, which had 94% revenue retention for the quarter and 93% revenue retention for the year, expanded a relationship with one of the leading ERP providers in the U.K., Sage.
Sage added RACI or risk analytics, compliance and intelligence that supports enhanced workflow in the managing and monitoring of supply chain risk and compliance. We also expanded our relationship with Siemens in Germany, a multinational technology conglomerate, who added our sales acceleration tools through Hoovers and a direct plus API integration. We have seen excellent [indiscernible] share growth with Siemens over the past few years as we continue our strategy of landing and expanding the biggest and best companies globally. We signed another multiyear deal with [Cayon], a multinational manufacturer of materials handling equipment. They are using our data blocks integrated directly through their ERP system to manage the global credit risk decisioning.
And finally, SEB, a leading Swedish bank added our Master Data Management solutions to support their overall data transformation efforts. SEB is a great example of how companies throughout the world are accelerating their transformation efforts and using D&B as the backbone of their data management strategy. As I said before, if you want to leverage the true power of AI, it starts with rich, reliable, trusted and timely data. And while we have what we believe to be the premier commercial data cloud in the world, we want to continue to strengthen our position through investments in data, cloud capabilities and our most recent gen AI initiatives. Coming off a strong year of financial, sales and operational performance, we are excited about 2024 and continuing the momentum we have been building.
We will continue focusing on innovating with urgency, delighting our clients, expanding strategic relationships with key partners, driving a disciplined investment strategy and turning the vast amounts of opportunities in front of us into enhanced results. We plan to build on our areas of strength in third-party and supply chain risk management and Master Data Management, capitalize on new opportunities such as capital markets and gen AI and extract the appropriate amount of value from the investments and enhancements we have made to our existing solutions. We expect another year of accelerated organic growth, increased earnings and continued deleveraging through enhanced profitability and improving free cash flow while balancing near-term financial performance with the proper level of investment in new solution development, enhancements to [indiscernible] solutions, back-office upgrades and gen AI initiatives.
In summary, we are on track with achieving the medium-term guidance we set forth at our Investor Day. And we are excited about the opportunities ahead of us in 2024. With that, I'd now like to turn the call over to Bryan to discuss our financial results for 2023 and outlook for 2024.
Bryan Hipsher: Thank you, Anthony, and good morning, everyone. Today, I will discuss our fourth quarter and full year 2023 results and then our outlook for 2024. Turning to Slide 1. On a GAAP basis, fourth quarter revenues were $630 million, an increase of 6% compared to the prior year quarter and an increase of 5% before the effect of foreign exchange. Net income for the fourth quarter was $2 million or a diluted earnings per share of less than $0.01 compared to a net income of $23 million for the prior year quarter. The $21 million decrease in net income for the three months ended December 31, 2023, compared to the prior year quarter was primarily due to a higher tax provision in the current year quarter. For full year 2023, revenues were $2,314 million, an increase of 4% compared to the prior year and an increase of 4% before the effect of foreign exchange.
On a full year basis, net loss was $47 million or a diluted loss per share of $0.11 compared to a net loss of $2 million for the prior year. Turning to Slide 2. I'll now discuss our adjusted results for the fourth quarter. Fourth quarter adjusted revenues for the total company were $630 million, an increase of 6% or an increase of 5% before the effect of foreign exchange. The increase in adjusted revenues was attributable to balanced growth in our segments along with the positive impact of foreign exchange. Revenues on an organic constant currency basis were up 5.1%. Fourth quarter adjusted EBITDA for the total company was $261 million, an increase of $10 million or 4% primarily due to organic revenue growth, partially offset by associated data and data processing costs and higher benefit expenses as we returned to a more normalized run rate as employees begin to use their health care benefits more than in the prior years.
Fourth quarter adjusted EBITDA margin was 41%, a decrease of 80 basis points compared to the prior year quarter, which included a 140 basis point negative impact from the increased health care costs I just mentioned. Fourth quarter adjusted net income was $140 million or adjusted earnings per share of $0.32 compared to $131 million or $0.30 in the fourth quarter of 2022. This was primarily attributable to higher adjusted EBITDA and higher tax benefits in the current year quarter, partially offset by higher depreciation and amortization, higher interest expense and higher nonoperating expenses. Full year adjusted revenues for the total company were $2,314 million, a [indiscernible] of 4% or 4% before the effect of foreign exchange compared to 2022.
The increase was attributable to growth in the underlying business, partially [indiscernible] by the negative impact of foreign exchange and the impact of the divestiture of our business consumer business in Germany in the second quarter of 2022. Revenues on an organic constant currency basis were up 4.3%. Full year adjusted EBITDA for the total company was $892 million, an increase of 3%. Higher adjusted EBITDA was primarily due to revenue growth and lower costs related to professional fees and facilities, partially offset by associated data and data processing costs, higher health care and management incentive plan expenses as well as the negative impact of foreign exchange. Excluding the impact of foreign exchange, EBITDA increased 4%. Full year adjusted EBITDA margin was 39%, a decrease of 20 basis points compared to the prior year, which included $16 million of increased health care and incentive compensation or a negative impact of 30 basis points.
Full year 2023 adjusted net income was $432 million or adjusted diluted earnings per share of $1 compared to 2022 adjusted net income of $440 million or $1.02 per share. Turning now to Slide 3. I will now discuss the results for our two segments, North America and International. In North America, revenues for the fourth quarter were $457 million, an increase of approximately 5% from prior year quarter and also 5% on an organic constant currency basis. In Finance and Risk, revenues were $241 million, an increase of $10 million or 4% due to a net increase in revenue across our third-party and supply chain risk management and finance solutions. For Sales and Marketing, revenues were $215 million, an increase of $12 million or 6%. Sales and Marketing growth was primarily driven by our Master Data Management solutions.
North America fourth quarter adjusted EBITDA was $224 million, an increase of $9 million or 4% primarily due to revenue growth and associated data and data processing costs. Adjusted EBITDA margin for North America was 49%, a decrease of 40 bps from the prior year quarter. Turning now to Slide 4. I will now discuss full year results for North America. In North America, revenues for 2023 were $1,644 million, an increase of $57 million or 4% from the prior year. North America revenues on an organic constant currency basis increased 3.7%. North America Finance and Risk full year revenues were $888 million, an increase of $21 million or 2% primarily attributable to a net increase in revenues across our third-party risk, supply chain management and finance solutions, partially offset by decreased revenue from our credibility solutions and from the public sector primarily as a result of the expiration of a government contract in April 2022.
North America Sales and Marketing full year revenues increased $36 million or 5% to $756 million. This was primarily driven by growth from our Master Data Management solutions. Full year adjusted EBITDA for North America increased $25 million or 4% to $743 million. The increase was primarily due to revenue growth and associated data and data processing costs, lower net personnel costs and lower costs related to professional fees in facilities, partially offset by the negative impact of foreign exchange associated with our offshore technology team. Full year adjusted EBITDA margin for North America was 45%, flat to the prior year. Turning to Slide 5. In our International segment, fourth quarter revenues increased 8% to $174 million, an increase of 5% before the effect of foreign exchange.
And organic revenues on a constant currency basis increased 5.3%. Finance and Risk revenues were $116 million, an increase of 10% or an increase of 7% before the effect of foreign exchange. This was attributable to growth across all markets, including increased revenues from our U.K. market attributable to growth in our third-party risk and compliance solutions as well as finance analytics, higher revenues from our Worldwide Network alliances related to increased cross-border data fees and higher revenues from Europe driven by growth in finance analytics and our latest API solutions. Sales and Marketing revenues were $57 million, an increase of 6% or an increase of 3% before the effect of foreign exchange. This was primarily due to higher revenues from United Kingdom and European markets driven by higher data sales delivered via our latest API solutions.
Fourth quarter International adjusted EBITDA was $55 million, an increase of $6 million or 13%. The increase was driven primarily due to revenue growth from the underlying business, partially offset by higher personnel and data processing costs. Adjusted EBITDA margin was 32%, an increase of 120 basis points compared to the prior year quarter. Turning now to Slide 6. In our International segment, full year 2023 revenues increased 5% to $670 million or an increase of 5% before the effect of foreign exchange. And organic revenues on a constant currency basis increased 5.8%. International Finance and Risk full year revenues of $449 million increased 7%, both after and before the effect of foreign exchange. All markets contributed to growth with strong demand for finance analytics and API solutions in the United Kingdom and Europe and higher revenues from Worldwide Network alliances related to increased cross-border data fees.
International Sales and Marketing full year revenues of $221 million increased 1% or an increase of 2% before the effect of foreign exchange. Excluding the negative impact of foreign exchange of $2 million and the impact of the divestiture in 2022 of our business-to-consumer business in Germany of $1.8 million, organic revenues increased 3%. Growth was primarily driven by higher revenues from the U.K. and Europe driven by new to market and localized solutions such as Hoovers as well as higher data sales delivered via our latest API solutions. Full year 2023 International adjusted EBITDA was $215 million, an increase of $13 million or 7%. The improvement in adjusted EBITDA was primarily due to revenue growth from the underlying business, partially offset by higher costs related to personnel and data processing costs.
Adjusted EBITDA margin was 32%, an increase of 50 basis points. Adjusted EBITDA for the corporate segment was a loss of $66 million, an additional loss of $10 million primarily attributable to higher health care and performance-based incentive plan costs. Turning to Slide 7. I'll now walk through our capital structure as of year-end, and then we'll discuss on a pro forma basis taking into effect the debt transactions we recently executed. At the end of December 31, 2023, we had cash and cash equivalents of $188 million and total principal amount of debt of $3,589 million. The $3,589 million in principal was made up of $460 million of unsecured notes at 5%, which mature in 2029; term loans of $2,652 million at SOFR plus CSA plus 2.75 that mature in 2026; $452 million at SOFR plus 300 that matures in 2029; and borrowings of $25 million under our revolver.
Turning to Slide 8. On January 29, 2024, we successfully refinanced our term loan [indiscernible] credit facilities in a leverage-neutral transaction, which repriced and extended maturities on the entire secure layer of our capital structure. On a pro forma basis, the $3,589 million in principal is made up of $460 million of unsecured notes at 5%, which mature in 2029; a single term loan tranche of $3,104 million repriced at SOFR plus 275 that matures in 2029; and borrowings of $25 million under our revolver repriced at SOFR plus 250 and subject to our leverage-based pricing grid. The revolver maturity was also extended to February 2029. We have a total of $2,750 million floating to fixed interest rate swaps, $250 million effective to February 2025 at 1.69%, $1 billion effective to March 2025 at 3.214% and $1.5 billion to February 2026 at 3.695%.
We also have three cross-currency swaps at $125 million each that settle in July of 2024, 2025 and 2026. Currently, 89% of our debt is either fixed or hedged. As of December 31, 2023, we had $825 million available on our $850 million revolving credit facility, and our weighted average interest rate was 6.3%. Our leverage ratio was 3.8x on a net basis, and the credit facility senior secured net leverage ratio was 3.3x. We are pleased with our efforts throughout 2023 and in early 2024 to take advantage of favorable market opportunities to proactively address our capital structure's maturities and reduce the cost of our debt. Turning to Slide 9. I'll now walk through our outlook for 2024. Total revenues after the effect of foreign currency are expected to be in the 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 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 in the range of 4.1% to 5.1% for the full year. Adjusted EBITDA is expected to be in the range of $930 million to $950 million. Adjusted EPS is expected 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 approximately $220 million; depreciation amortization expense to be in the range of $125 million to $135 million, excluding incremental depreciation and amortization expense resulting from purchase accounting; and adjusted effective tax rate of approximately 22% to 23%.
Our effective tax rate takes into account the introduction of the Pillar II minimum tax rate throughout Europe and most significantly in Ireland, where our prior rate was approximately 9%, weighted average diluted shares outstanding of approximately 433 million. And for CapEx, we expect approximately $150 million to $160 million of internally developed software and $45 million of property, plant and equipment and purchased software. While we don't give quarterly guidance, I did want to provide some color on how we expect the year to progress. We expect the first quarter to be closer to the midpoint of our range, second quarter to be around the high end, third to be below the low end and fourth to be around the high end of our range. The lower growth in the third quarter is due to some of our revenues shifting from on delivery to more ratable recognition throughout the year.
We expect margins to be flat in the first quarter and then move relative to the revenue growth for the remaining quarters. We are also anticipating operating free cash flow conversion as a percentage of adjusted net income excluding the impact of the AR securitization to improve versus the 51% we had in 2023 and make progress towards our target of 80% over the medium term. Overall, we expect 2024 to be another year of stronger financial results with accelerated growth in organic revenues, EBITDA, net earnings, free cash flow and a net leverage metric of around 3.5x by year-end. The team is focused on delivering against our operational and financial objectives. And we look forward to updating you on all the progress in our upcoming calls. With that, we're now happy to open the call for your questions.
Operator, will you please open up the line for Q&A?
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