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Executives

Kathy Guinnessey - Leader, Treasury and IR

Steve Alesio - Chairman and CEO

Sara Mathew - President and COO

Tasos Konidaris - CFO

Analysts

Michael Meltz - JPMorgan

Kyle Evans - Stephens Inc.

Dun & Bradstreet Corp. (DNB) Q3 2008 Earnings Call October 31, 2008 10:00 AM ET

Operator

Good morning and welcome to D&B's 2008 third quarter teleconference. This conference is being recorded at the request of D&B. If you have any objections, you may disconnect at this time. All participants will be in a listen-only mode until the question-and-answer session of the call. (Operator Instructions)

I would now like to turn the call over to Ms. Kathy Guinnessey, Leader, Treasury and Investor Relations. Ms. Guinnessey, you may begin.

Kathy Guinnessey

Thank you very much. Good morning, everyone, and thank you for joining us today. Here is what we will cover on our call today. Steve Alesio, our Chairman and Chief Executive Officer will begin with some opening remarks. Then, Sara Mathew, our President and Chief Operating Officer will then provide some insight on our US and international top line results and expectations. Tasos Konidaris, our Chief Financial Officer will then review our earnings results and expectations as well as additional financial highlights. Following some closing remarks from Steve, we will then take your questions.

To help our analysts and investors understand where this business is headed, our remarks this morning will include forward-looking statements. Our Form 10-K and 10-Q filings, as well as the earnings release we issued yesterday, highlight a number of important risk factors that could cause our actual results to differ from those forward-looking statements.

These documents are available on the Investor Relations section of our website, and we encourage you to review this material. We undertake no obligation to update any of our forward-looking statements.

During our call today, we will be discussing a number of non-GAAP financial measures, as that is how we manage our business. For example, when we discuss revenue growth, we will be referring to non-GAAP measure revenue growth before the effect of foreign exchange, unless otherwise noted.

When we discuss operating income, operating margin, and EPS, these will be on a non-GAAP basis before non-core gains and charges. A reconciliation between these and other non-GAAP financial measures, and the most directly comparable GAAP measure, can be found in the schedules to our earnings release. They can also be found in a supplement reconciliation schedule that we post on our Investor Relations section of our website. Later today, you will also find a transcript of this call on our Investor Relations site.

With that, I will now turn the call over to Steve Alesio. Steve?

Steve Alesio

Thank you, Kathy, and hello to our team members, shareholders, and analysts on this call today. Before I begin, I would like to welcome Kathy Guinnessey to her first earnings call since returning to D&B as our Treasurer and Investor Relations Officer. Kathy filled a similar role for us in 2003 to 2006, and we are glad to have her back.

It's been about three months since we hosted our Investor Day event this summer and the economic world has certainly changed since then. While the environment has gotten tougher for all companies, including ours, D&B is managing well through these times by focusing on the things that are under our control.

And by this, I mean we are promoting our value proposition to be more helpful to our customers during these times. We are driving sales execution to be as strong as possible, and we are exercising our flexible cost structure. I am very proud of how our team has responded so far and how we continue to perform as a company. This is supported by our solid third quarter results and our guidance for the full year.

We continue to generate solid top line growth and strong earnings across the board, and we feel good about this performance. Third quarter revenue was up 8%. Our operating income in the quarter improved by 12%. Earnings per share grew 14% in the quarter, marking our 32nd consecutive quarter of double-digit earnings growth. And we generated strong free cash flow on $273 million year-to-date, which is up 9%.

On a geographic basis, our US business delivered a solid third quarter, and our international business continues to perform very well, driven by the strength of our Asian business.

Our expectations are that the economic environment will continue to be challenging. This is reflected in our revenue guidance for 2008, as we expect to deliver approximately 8% top line growth for the year. We are satisfied with this outlook, which reflects full year US revenue growth in the 6% to 7% range, and continued strength from our international business which is on track to close the year with double-digit growth.

From a profitability perspective, our top line growth and financial discipline are allowing us to meet all of our full year earnings targets for operating income, earnings per share, and free cash flow.

As we look ahead into 2009, we are focused on exiting that year in an even stronger competitive position than we enter it. And we remain committed to the growth objectives we laid out for the '08 to 2010 time frame.

We have a number of factors that are working in our favor as we head into 2009. First, from a customer lens, we have a value proposition that is highly relevant in these times. Our solutions help customers of all sizes improve their cash flow and their profitability, and that's particularly important these days.

Second, we have a business model, as a company, that is heavily driven on a high renewal base of customers across a diverse set of industries.

Third, we are continuing to invest to drive profitable revenue growth. Our plans to drive both organic and inorganic growth, as described at our Investor Day event this summer, are still underway.

Fourth, we are in a strong position financially with a solid balance sheet and ample liquidity.

Fifth, we continue to be proactive in managing our cost structure and we are taking the necessary steps in the fourth quarter of this year to deliver strong profitability for '09.

And finally, we have a team that is passionately committed to winning and has a track record of prevailing despite challenges.

Put it all together, and we believe that we will emerge as an even stronger competitor when next year ends than today.

So with that, I would now like to ask Sara to comment on our US and international businesses, with a particular focus on our top line performance. Then after that, Tasos will comment on our profitability, cash flow, and financial strength. Then, I will come back to offer some closing comments before we open things up to questions. Sara?

Sara Mathew

Thank you, Steve, and good morning everyone. My remarks today will focus on our top line performance in the third quarter, our expectations for the full year, and our trajectory entering 2009.

I will begin with a review of our US business. US revenue grew 7% in the third quarter and 7% year-to-date. As we mentioned in our earnings release, we benefited from the timing of contract renewals in the quarter, as we made a proactive effort to lock deals in early so we could reduce execution risk in the current environment.

We don't expect this to continue in the fourth quarter, and as a result, we expect US revenue growth to be 6% to 7% in 2008. And we see this trajectory sustaining into 2009, as we benefit from our investment to increase our US sales force, most of whom are already in place.

Now within our US business, Risk Management, our largest segment, with 62% of revenue, grew 4% in the third quarter and 5% year-to-date. The primary driver of RMS continues to be our subscription programs, offset, in part, by declines in our legacy products.

Subscription revenue now represents 51% of US RMS revenue, up from 42% a year ago. In addition, customers are increasingly migrating to DNBi, our web-based risk management platform, which continues to grow at a double-digit rate. Our DNBi penetration is now 43%, compared with just 23% a year ago. And we remain on track to deliver DNBi penetration of 60% or greater by 2010.

Our ability to maintain double-digit increases in DNBi revenue commitment are driven by continued penetration of our core product to new customers and the addition of modules, such as account manager and decision maker to existing customers. These two modules perform particularly well in the current environment, as they provide customers with the tools they need to handle the following risk-related activities.

First, the ability to monitor their current portfolio. Second, the ability to proactively manage their overall risk profile. And third, the ability to lower their costs through automation of risk management activities, a value proposition that plays extremely well in the current environment.

Looking ahead, we see opportunities to add to this RMS toolkit by targeting other unmet needs, leveraging once again our core DNBi platform.

Beyond DNBi, we are also making headway in other areas, such as supplier risk. As just one example, we recently signed a supply management contract with Wal-Mart, the world's largest retailer to help reduce its global supply chain risk. This contract is similar to the large general services administration, or GSA contract we signed last year with the government.

That solution allowed the government to leverage two core D&B assets, linkage and validation, to provide supplier registration and risk assessment services to certain government agencies.

While we are still early in the Wal-Mart relationship, and we won't see much benefit until 2009, we think it's an important step in expanding the addressable markets for our supplier risk solution. Next, we see additional runway ahead with other large customers, as global supply chain risk is particularly important today.

So to sum up, our risk business is performing in line with expectations, and we are working to sharpen our value proposition to add more value and functionality to our customers, as we look ahead to 2009.

Let me now turn to Sales & Marketing Solutions, or S&MS, which accounts for 29% of US revenue and grew 10% in the third quarter. Within S&MS, our traditional business, which accounts for 45% of revenues, grew 11%, benefiting from two licensing deals. We do not expect this benefit to repeat in the fourth quarter.

As a reminder, traditional S&MS is not a strategic area of focus for us. We expect a slowdown in this segment in the current economic environment, as traditional marketing continues to migrate to more efficient medium, primarily the web.

Our value-added products, or VAPs, accounted for roughly 55% of S&MS revenue in the quarter and grew 10%, benefiting from the timing of contract renewals mentioned previously.

As context, all VAPs deals are generally large projects that customers want fulfilled in conjunction with their marketing campaigns and available spend. In addition, we proactively work with them to maximize value from each sale. This results in some timing shifts from quarter-to-quarter.

Now we have seen a lengthening in the sales cycle and are proactively leading through this change. As a result, our customers continue to buy from us, and we expect to close 2008 and enter 2009 on a strong note.

Let me tell you why. Our S&MS business will be driven by our Customer Data Integration, or CDI, products Optimizer and Purisma. Through Optimizer, we leverage our database to help customers match, cleanse, and enrich their customer records.

Despite the current economic environment, we have seen steady year-over-year retention rates for optimizer, while also driving higher levels of new business. Both these metrics are important indicators of the strength of our value proposition in these tough times.

We are also beginning to benefit from Purisma, which delivers cost-effective CDI software solutions to our customers. We are generating competitive wins in this space, as the pairing of Purisma software with D&B data offers a more complete and up-to-date view of customer relationships. In addition, the platform allows customers to integrate information across the entire organization more cost effectively than the competition.

Our Purisma pipeline has expanded significantly in recent months, and we have demonstrated the ability to price up in this market. This, coupled with the recent additions to our sales force, should result in higher levels of growth from this solution in 2009.

In sum, we expect full year S&MS growth in the high single-digits in 2008, and we believe we are well positioned for continued growth in 2009.

Let me now turn to the US Internet business, which represents 9% of US revenues and grew 15% in the third quarter. Results here were below expectations, as weaker than expected online advertising results tempered our growth. We expect this weakness to continue in the current environment, and this is factored into our thinking for the fourth quarter and the full year.

That said, we have a secular trend in our favor, as traditional media moves to the digital world. So we expect continued double-digit growth from the Internet business in 2008 and the ability to sustain that level in 2009.

Let me now turn to our international business, which delivered a very strong 13% revenue growth in the quarter. As we have outlined at Investor Day, our international strategy is focused on investments to drive growth in Asia and stability in our established markets. We are very pleased with the joint ventures we have established in China and Japan, and this is fueling much of our international growth in 2008.

Outsourcing and manufacturing is becoming increasingly important in this part of the world, and our Asian joint ventures are allowing us to meet global customer demand for higher levels of consumer commercial insight in these emerging markets. We are also seeing improved execution and stability from our established European businesses, such as the UK and Benelux, despite the challenging environment. This is primarily a function of our stronger leadership in those markets and an acute focus on our core DUNSRight value proposition.

So looking ahead, we expect continued strength from our international business in the fourth quarter and that will carry into 2009. We will continue to invest in Asia, focusing on China, India, and Japan, where global customer demand for insight continues to grow. As such, we expect our international business to maintain its double-digit growth trajectory in 2009.

I would like to wrap up with my thoughts on our business, as we close 2008 and enter the new year. At a high-level, the macroeconomic environment has changed. Our customers are dealing with their own budget constraints, especially our small business customers.

That said, our customers want to do business with us and they are buying. They expect clearer demonstration of ROI and want more value from us. So we are getting sharper on demonstrating value on existing products and adding new value where needed to secure the business. As a result, we are generally able to increase our revenue commitment per customer and continue a trajectory of solid top line growth.

We know where we have challenges, and we know what sells in this market. Our automated risk solutions, DNBi, and CDI solutions are clearly playing well. In addition, we have the ability to add value for our customers at low marginal cost, since we leverage the same asset over and over again, our DUNSRight database.

Finally, we are investing today for 2009 and beyond. In the US, we are expanding our sales force, and in international, we will continue to invest in Asia. So as we look ahead into 2009, we clearly see the challenges, but we also see opportunities. And we are committed to lead through this uncertainty so we will emerge a stronger company at the end of 2009.

Now that concludes my remarks on the business. I will now turn the call over to Tasos to provide financial highlights. Tasos?

Tasos Konidaris

Thank you, Sara, and good morning everyone. Let me first echo Steve's comments by saying how happy we are to have Kathy back with us, and we look forward to her renewed contributions as a member of our finance leadership team.

I would like now to focus my remarks first on our strong third quarter profit results, and second on our underlying financial strength for the future. In regard to profitability, we generated strong operating income growth of 12% and a total company operating margin of 26.5%, up 70 basis points.

As we said at Investor Day, we remain committed to driving ongoing margin expansion of about 50 basis points of average annual margin growth for the 2008 to 2010 period. For 2008, we are on track to meet or exceed that goal. In the US, operating income was up 7%, driven by higher revenue, partially offset by investments that drive top line growth, such as DNBi and Purisma.

In international, operating income was up 36%. This increase was due to high revenue and benefited from 8 points of foreign exchange benefit. In regard to earnings per share, we delivered $1.13, up 14% over the prior year period. Our earnings per share growth was driven by strong operating income growth, and the accretive impact of our share repurchase program partially offset by higher interest expense.

With respect to share repurchase, we bought back 916,000 shares for $86 million, which includes $58 million in discretionary share buybacks. This brings our year-to-date repurchases to 3.8 million shares for $330 million, which includes $248 million in discretionary buybacks. In addition, we paid out $50 million in dividends year-to-date, and we are on track to return about $370 million of costs to shareholders this year.

As to capital expenditures, we incurred $60 million in the quarter, or 3.8% of revenue. This is consistent with our highly capital efficient model and goal of maintaining a CapEx-to-revenue ratio of 5% or less.

Finally, as to free cash flow, we generated $273 million year-to-date, up 9% from the same period last year.

This concludes my summary of the third quarter. Let me now share with you our three main reasons for our confidence in delivering continued earnings in free cash flow growth in Q4 and the year ahead.

First, as Sara has highlighted, we expect to continue delivering solid top line growth. Second, we have a financially flexible business model and the discipline to re-examine every dollar we spend. This is a proven strength for us, and we have a track record of unlocking $70 million to $85 million in annual financial flexibility savings over the last eight years.

Throughout 2008, we have been proactive in managing our cost structure. And as we head into 2009, this will allow us to continue to fund investments in driving profitable revenue growth in the future.

The third reason for our confidence is our strong balance sheet and liquidity position. We continue to see solid growth of deferred revenue, which was up 9% in the quarter to $560 million. And while many companies are struggling with access to capital, we have adequate capacity today to execute our growth plan for the 2008 to 2010 period.

Given how important liquidity is these days, let me be more specific. First, our cash flow remains strong, and we continue to actively monitor our working capital and DSOs. In the third quarter, our DSOs improved.

Second, we ended the third quarter with more than $230 million of cash and cash equivalents on hand.

Third, we have a committed revolver facility of $650 million, and at the end of the third quarter, we had $485 million of capacity. In addition, our revolver is not up for renewal until 2012, and it is backed by 12 banks that have been the stronger performers in the current environment.

Fourth, we have no near-term debt maturities. That is our $300 million, 5.5% interest bonds mature in 2011. Our $400 million, 6% interest bonds mature in 2013.

Let me now touch on the topic of foreign exchange. In addition to the challenging economic conditions, all global companies must also navigate in a highly unpredictable currency environment. Most recently, we have seen significant strength in the US dollar. While we, at D&B, clearly do not control currency fluctuations, it is important to recognize three items.

First, our revenue guidance has always excluded the impact of foreign exchange. Second, our international operating income accounts for less than 20% of our total company operating income. And third, we routinely hedge a portion of our net income exposure to reduce our bottom line volatility.

So to sum up, we feel very good about our financial position today, and we are managing our business to ensure that we maintain our strength and flexibility in the future.

That concludes my remarks. And I will now turn the call back to Steve to wrap things up and lead us into Q&A. Steve?

Steve Alesio

Thanks, Tasos. So just to summarize our comments this morning, we are clearly operating in a tough environment, but believe we are leading well through the challenges. We remain focused on the things that we can control, such as bringing real value to our customers, strong sales execution, managing our expenses, and exercising our leadership muscles.

We feel very good about delivering another solid quarter. We also feel good about how we expect to end the full year. Our updated 2008 guidance reflects this outlook. Specifically, we expect to deliver revenue growth of approximately 8% which we have adjusted really to the low end of the guidance range of 8% to 10% growth that we set out at the beginning of the year.

All of our other metrics for guidance remain unchanged. Specifically, operating income growth of 11% to 13%, diluted earnings per share growth of 14% to 16%, free cash flow of $337 million to $352 million, and a tax rate in the range of 37% to 37.5%.

As we think about next year, we are focused on exiting 2009 in a stronger competitive position than we entered it. The reasons we expect to do so are several. First, as Sara mentioned, we continue to see opportunity from each of our three strategic stakes of Risk Management, Commercial Data Integration, and the Internet. And we will continue to invest to drive profitable revenue growth, both organically and through acquisitions, where appropriate.

We expect continued strength from our international business with a specific focus on our Asian markets. As Tasos said, we are financially healthy, produce strong earnings and cash flow, and continue to benefit from a solid balance sheet and liquidity position.

And finally, we have an important and valuable asset in our corporate culture. We have a group of strong leaders at D&B, who are passionately committed to winning. We have delivered a track record of really extraordinarily consistent and improving results for over seven years running now. I am confident that our team, our culture, and our business model will have us exit 2009 as a stronger company.

For those team members listening to our call this morning, I would like to conclude by acknowledging your contributions. Your commitments to meet our customers' needs is making us a stronger company every day. You are the source of our strength and our consistency. And Sara and I would like to offer our sincere thanks for your continued focus and your continued ownership during these times

With that, I will now open up the phone lines so that Sara, Tasos, Kathy, and myself, can take any questions. So, Operator would you please provide the instructions for asking a question?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Michael Meltz from JPMorgan. Your line is open.

Michael Meltz - JPMorgan

Great, thank you. I have three questions. Steve, I appreciate you kind of reiterating your three year targets. In terms of achieving the revenue growth next year, what are you actually hearing from clients now in some of your bigger verticals? I mean if financial institutions is certainly an area that is troubled. I mean how is that impacting D&B and what are you hearing?

Steve Alesio

Okay. Let me just touch on that. I will touch on the beginning of that and have Sara touch on the back half of that. So what I said is we remain committed to the discussions that we had in Investor Day '08 to '10 in terms of how we are thinking about our strategic stakes, growing our business overseas, specifically in Asia, and the profitability.

Sara in her comments, I think gave some direction in terms of how we see ourselves going in, in the US side, as well as on the international side. So I would take that. Obviously we will refine that direction when we provide guidance, most likely in January.

But to how customers are feeling and interacting with our sales force, let me have Sara just touch on that.

Sara Mathew

Hi, Michael. How are you?

Michael Meltz - JPMorgan

I am doing, great. Happy Halloween, Sara.

Sara Mathew

Hello, and to you the same. In terms of customers, it's a mixed bag. I would say smaller customers are generally struggling a little bit more with budgets than larger customers. But there is one thing Michael that is coming through all of the channels. Our customers want to do business with us, even our small business customers.

In some ways for the small business customers, this is almost sacred spend. But what is happening out there is they are asking us to actually demonstrate ROI and ensure that we actually do deliver value. And so what we are doing is we are getting much sharper on that front. In some cases, we are adding value by providing additional services. We have got a leverageable cost base because when you think about it, everything uses the DUNSRight database at its core. So the marginal cost of providing added value is very low and that is pretty much what I would say we are seeing in general.

There are requirements for more sign-offs, so as a result, I think I said this in my prepared remarks, there is a lengthening of the sales cycle. The way we are responding to this is we are focusing on the pipeline. Our pipeline today is, therefore, significantly bigger than it was a year ago, so in the high double digits. And that is the way we counter what we see as a lengthening in the cycle.

You also had a question specifically on financial services, and I will just touch on that because they are in an interesting place. Today about 15% to 16% of our revenue comes from financial services. And even within that vertical, I think you should break it down into two types of firms. The ones that are more affected, the Lehman, Bear, Merrill of the world, and the ones that are less affected. Now, we were fortunate that we had very minimal exposure to the impacted financial services firms.

And with the other firms, they are all continuing to do business with us. But year-to-date, our revenue is flat with this channel. And I would say in the fourth quarter, we are projecting and forecasting a decline. That is factored into our guidance.

So in terms of financial services, that's the way you want to think about it. Does that give you what you need?

Michael Meltz – JPMorgan

It does. So you kind of open it up for that. So what sectors are actually growing?

Sara Mathew

I would say across the board other than if you take this segment out, we are seeing growth in our channel. Now are we seeing growth with every customer? No, it varies. But what we are seeing on average across every one of our channels is we are seeing growth. People are buying and across the board the buying is there. That is I think the single most important thing you should take away, and they want to buy.

Steve Alesio

Michael, you had two other questions?

Michael Meltz - JPMorgan

I think guidance I think at the low end would imply for EBIT margins up 150 basis points in Q4. I think that is the number. When you think about cost savings into next year, can you give us a sense, it sounds like there will be another financial flexibility program in January or February. What are some of the things that come to mind that you are focused on?

Tasos Konidaris

Michael, this is Tasos. So margin expansion is very important to us so we are on track to deliver on our average margin expansion of 50 basis points. Year-to-date, we are at 40, so you should assume there is a greater margin expansion in the Q4. So you do have that right.

In regards to financial flexibility, we are already thinking about next year. We have been proactive all year long. And when I look at the program, the area so a focus, I do not expect a material change. It will be in the areas of organizational efficiency.

How to simplify our infrastructure and delivering more value to our customers with less complex products? How do we simplify our data collection? And how do we continue decreasing our non-selling time? So while we have made a significant amount of investments the last couple of years to simplify our backend processes, so now interaction with our field force. So I expect those to be the general themes.

Michael Meltz - JPMorgan

Okay. And Tasos, one last one for you. I know you pointed out currency. For modeling purposes, I think it was a $4 million to $5 million benefit in Q3. I think it's a drag in Q4. I am coming up to about $8 million. Is that the range?

Tasos Konidaris

So just a couple thoughts, because I don't know where your $4 million to $5 million number. So let me take you on the revenue side, right. So our revenue growth is the FX, that is number one. So it doesn't get affected by currency fluctuation.

On the operating income side, out of the $19.3 million of international Q3 operating income, $1.5 million of that was FX. And as we look at our full year guidance in terms of operating income, we feel confident that we can deliver that no matter what happens to exchange.

Michael Meltz - JPMorgan

Let me ask it this way. You live in a before foreign exchange world because you can't manage it, but we have to model both. So we should be modeling a drag on reported revenues in Q4. Is that correct?

Tasos Konidaris

Are you talking about AFX?

Michael Meltz - JPMorgan

Reported revenues after foreign exchange will be I think $5 million to $10 million drag. Is that fair?

Tasos Konidaris

If you say so Michael, yes. You are asking me to predict the FX

Michael Meltz - JPMorgan

No, if currency ended where it was in the end of the quarter.

Tasos Konidaris

Michael, you are losing me.

Steve Alesio

We will leave your models to you. I think what Tasos' message is, is we have the bottom line well in hand from our perspective.

Michael Meltz - JPMorgan

All right, thanks for your time.

Steve Alesio

You are welcome.

Operator

(Operator Instructions) Our next question comes from Kyle Evans from Stephens. Your line is open.

Kyle Evans - Stephens Inc.

Good morning everyone.

Steve Alesio

Good morning, Kyle.

Kyle Evans - Stephens Inc.

I would like to start with kind of three big pictures and then maybe some smaller questions as follow-ups. And I will just give you the first three and hold the other ones. The first is, could you talk a little bit about the cyclical and countercyclical nature of your RMS business, as the biggest revenue driver in the model? I would expect you are going to see just fewer businesses in the world. Certainly in the small- to mid-sized, fewer transactions but probably more checks on those. So comments there.

Also pricing as a lever over the last eight quarters, I think it's probably been an important lever. Is there any recent pushback on pricing even with the improved value proposition of DNBi? Last of the big pictures is competition. Steve, you mentioned you would like to enter next year in an even better competitive position. I was curious as to how you plan to achieve that.

Steve Alesio

Okay. So let's go in sequence. So we will have Sara take your first two on cyclicality of RMS and the pricing lever. And I will come back on the competitive question.

Sara Mathew

Good morning, Kyle. How are you?

Kyle Evans - Stephens Inc.

Great.

Sara Mathew

When you think of the RMS business, and we have told you this in the past, it's fundamentally the RMS business. When there is an economic slowdown, you have less new business applications. But people starting wanting to monitor portfolio risk. So what we have with RMS is one that doesn't seem to move much, this is in the time frames that Steve and I have been on this business in the last seven to eight years. And I would say even a few years before that we would say that that trend should hold.

In terms of the things that are really playing well right now, all of our automated solutions, and by the way this is a relatively new module on DNBi which actually helps people do things automatically as opposed to having an entire department handling this for them. That is going very well. DNBi is also as a whole going very well. Remember it's double-digit. We are right in line with our expectations from those businesses.

Our CDA solutions, but that is not RMS, also works very well in this environment. So what happens with RMS is it's in line with expectations. We are I think roughly around 7 for the quarter; this is both US and international. So there are no surprises there. We do see some headway in supplier risk. This is something that we started last with the government and that we have repeated in 2008 with Wal-Mart. And we should see more headway with that as we go to other large companies going into 2009, so that should give you a little bit about RMS.

Kyle Evans - Stephens Inc.

On the supplier side, before we move on, I couldn't tell if you said headwind or headway but it looks like supplier dragged RMS growth down in the period.

Sara Mathew

Okay. So let me say headway, no headwind. And let me put SMS in perspective for you since you asked that question. So the way we had planned for SMS, we knew it would be front-end loaded. And while I don't have the numbers right here with me, I think if you go back and check the facts, you will find that SMS did a very strong first-half, largely driven by the general services administration contract with the government that I referenced in my prepared remarks.

Now we are going into anniversarying that contract as we go into the back half. We do have Wal-Mart, which has just begun. You won't see that really as we going into 2009. But providing a portal for supplier registration and supplier validation is clearly something that we should own just given our core DUNSRight value proposition. So that is just to put SMS in a little bit of a box for you.

Kyle Evans - Stephens Inc.

And will Wal-Mart from a dollar perspective look like the GSA dollar?

Sara Mathew

It could be in that range, yes. We are still early with them, but we do believe if we get it right, it should be, yes. That is our intention.

Steve Alesio

The second question was pricing.

Sara Mathew

The second question you had was pricing, and I am going to start by saying we don't sell widgets. So as you know, we sell a group of bundled solutions to our customers, but I think I get your question. I am going to try and answer it from a customer lens.

Customers are facing budget pressures; that is a fact. That is across all of our customers large to small. They are coming to us and asking us to partner with them and help them. They want to spend the money with us and what we are doing is in many cases helping them actually develop the proof of concept and ROI to take it up their chain to get deals approved.

And in some cases, we are actually adding a little more value so that we can continue to grow our revenue commitment with each customer. So we tend to think of it more in value terms as opposed to pricing, because the things we sell are not like pens etcetera which just go more easily on a price per unit basis. But we are seeing as a result of this lengthening in the sales cycle.

That is factored into our thinking for guidance for the year and factored into our, what we expect going into '09 and which we are as you know in the middle of planning. Now I am going to turn it back to Steve on the competition.

Steve Alesio

So your third question was really I think behind my comment about exiting '09 stronger competitively. I would give you three aspects that is how we think about that. First of all, we are a company singularly focused on commercial information. So in today's world, we are not hampered or burdened by the consumer sector, which I think is just under more heavy pressure. So I think that singular focus helps us.

Second, we are staying committed to what we said we wanted to do in the '08 to '10 time frame from an investing perspective. So as Sara mentioned, we are investing for growth. We have added more salespeople in the US as this year is ending. We continue to invest in DNBi. We continue to invest in Asia. So our investment strategy continues in that singular focus. And we are a strong company. We are strong from a balance sheet perspective, strong from a free cash flow perspective, and we know the levers of profitability. So I just feel like we are going into '09, as described with a clear focus, a clear plan and on our toes.

Kyle Evans - Stephens Inc.

Great. I do have follow-ups, but I tell you what I will share the call and I will get back in queue with those and let somebody else get in here.

Steve Alesio

Thank. We appreciate that.

Kyle Evans - Stephens Inc.

Thanks.

Operator

There are no further questions at this time.

Steve Alesio

You are back on Kyle.

Sara Mathew

You are back, Kyle.

Kyle Evans - Stephens Inc.

That is what I get for trying to share. So some of the smaller questions I was going to ask. Steve, what exactly did you do to your Sales & Marketing Solution sales force after that first quarter? Because the growth rate has shot up and you have been talking about contract timing in the second and third quarter released primarily due to that business. You must have really lit fire under that sales force.

Steve Alesio

So I think I will just touch it. I think really what we said at the end of the first quarter I believe is that we weren't really happy with our own execution as a leadership team. This is beyond the sales force, it's the whole leadership team. And we had to adjust to a new environment. And so we took time out of the leadership team in April to do exactly that and we have refocused ourselves. We rethought how we are going to market.

As Sara has mentioned, we encouraged our salespeople to when customers could actually do something sooner than later to try to grab that. We would deal with all the timing nuances and that's it. But I would come back to it's the culture of this company including the sales organization to just take things head-on, adjust as fast as we can to the environment. That's one of the assets of D&B is the culture of this company.

Kyle Evans - Stephens Inc.

Great. The ad dollar contribution to Internet Solutions, I know it's not something you have given and usually you don't give what you haven't already given in the past. But if you could give us some rough sense for the contribution of that revenue stream within Internet Solutions.

Sara Mathew

Let's call it in the neighborhood of 10%. It's a small part of our business because remember the bulk of our business is Hoover's. But that said, we had expected this to go better and you should know that we are working to address what is the issue within advertising.

Advertising is up because of the secular trends. Essentially traditional media is going digital. So there is actually some stuff in our favor. The old business asset we believe can actually be reapplied more completely to Hoover's and we just haven't gotten to do that as yet. And again that is something you will see us do in 2009. It goes back to execution Kyle. And ultimately that is the name of the game.

Kyle Evans - Stephens Inc.

Great, and you guys give so many numbers and this has been a long week, and so if it's in there I apologize. But did you give an organic common currency growth number for the overall business?

Steve Alesio

For Q3?

Kyle Evans - Stephens Inc.

Yes.

Tasos Konidaris

Kyle, that would be 6%.

Kyle Evans - Stephens Inc.

Great, and I will hold on my FX questions how about that?

Tasos Konidaris

Okay.

Kyle Evans - Stephens Inc.

All right. I appreciate it. Thanks guys.

Operator

There are no further questions at this time.

Steve Alesio

Okay. Then I thank you all for joining us. Goodbye for now.

Operator

Thank you for participating in today's call and have a great day.

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Source: Dun & Bradstreet Corp. Q3 2008 Earnings Call Transcript
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