The Dun & Bradstreet Corporation Q3 2009 Earnings Call Transcript

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The Dun & Bradstreet Corporation (NYSE:DNB)

Q3 2009 Earnings Call

October 29, 2009 08:00 AM ET


Steven Alesio - Chairman and Chief Executive Officer

Sara Mathew - President and Chief Operating Officer

Anastasios Konidaris - Chief Financial Officer

Kathy Guinnessey - Leader, Treasury and Investor Relations


Carter Malloy - Stephens, Inc.

Michael Meltz - J.P. Morgan

Daniel Leben - Robert W. Baird & Co.

Shlomo Rosenbaum - Stifel Nicolaus


Welcome to D&B’s 2009 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. (Operator Instructions). And now I would like to turn the call over to Kathy Guinnessey - Leader, Treasury, and Investor Relations.

Kathy Guinnessey

Good morning everyone and thank you for joining us today. In a moment we will hear commentary on our third quarter performance as well as on our outlook going forward from Steven Alesio, our Chairman and Chief Executive Officer, Sara Mathew, our President and Chief Operating Officer and Anastasios Konidaris, our Chief Financial Officer.

To help our analysts and investors understand how we view the business, 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 relation section of our website and we encourage you to review this material. We undertake no obligation to update any forward-looking statements.

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

When we discuss operating income, operating margin, and EPS, these will all be on a non-GAAP basis, before our non-core gains and charges. A reconciliation between these and the 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 the supplemental reconciliation schedule that we post on the 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’ll now turn the call over to Steve Alesio. Steve?

Steven W. Alesio

Thanks Kathy and welcome to all of our team members, shareholders and analysts on the call today. Our third quarter financial performance was very much in line with what we expected in the context of this difficult economic environment that has been with us all year.

Our international business delivered another quarter of strong growth and our North American business performed as expected and continues to focus on enhancing our value proposition for the long-term.

To summarize our results briefly for the quarter, revenue grew 2%, operating income declined 3% and earnings per share were up 1%. On a year-to-date basis, those same metrics, our revenue is up 1%, our operating income is up 2% and our earnings per share is up 8%.

These results both from a quarter and a year-to-date perspective still standout on a relative basis when compared to our peers and to the many parts of corporate America. Let me just touch on a few highlights of our third quarter performance.

I’ll start with our international business, which continued to excel with revenue growth of 24% for the quarter and operating income growth of 13%. So this business has now delivered two years of consistent double-digit top line growth and improving margins.

And the teams leading this business and its strong combination of organic and inorganic actions have created a real growth engine for our company, one that we expect to continue into next year.

In our North American business, revenue was down 3% for the quarter, with operating income down 7%. Both of those measures were inline with our expectations.

Within North America, performance among the major product lines was also inline with expectations and we said we continue to invest, to build out our value propositions, and focus on retaining customer relationships both to help our future growth and you will hear it from Sara that we are doing just that.

From a company earnings persecutive, we said we've maintained our focus on profitability with our year-to-date margin growth and continuing EPS growth, we are still on that course.

Let me switch my comments now to the full year of 2009. We expect our performance to play out as we anticipated when we spoke last quarter. In our International business, we expect to grow our top line in the low 20% range with strong margin growth.

In North America, we still expect the full year top line to be down 3 to 5% as we said last quarter. In North America, we expect the revenue decline in the fourth quarter to be somewhat worse than year-to-date levels for the same two reasons we noted last quarter.

The first of those is the impact of lower sales and risk management over the course of 2009 will create a slowdown in net revenues since customer contracts are recognized overtime.

And the second reason is potential variability in our sales and marketing solutions in the fourth quarter, since this is the seasonally high period for this product line and since customer's discretionary spending remains a bit of a cloudy picture we have reflected this in our full year guidance.

From a company earnings perspective we're continuing to flex our cost base, but are also maintaining investments in the future growth of our business.

As a result of all this our guidance for the full year remains unchanged. We're expecting revenue growth down 1% to up 1%. Operating income growth of down 3% to up 1%. EPS growth of up 1% to up 5% and free cash flow for the year of $285 million to $315 million.

So with this as a backdrop Sara will now discuss our revenue results in more detail for the quarter and Tasos will discuss the rest of our financial picture specifically profitability and cash flow. I will then come back and offer some closing comments before we open up things to your questions. Sara?

Sara Mathew

Thank you Steve and good morning everyone. As Steve said revenue in the third quarter grew 2% over the prior year. All products and all markets delivered results that were in line with our expectation. So the second half is unfolding as expected. I begin with the review of our international business, which grew 24% in the third quarter, slightly ahead of expectation.

Organic revenue was once again up 11%, driven by strength in both Europe and Asia. In organic growth 13 points came from acquisitions in India and China. But note the strong revenue growth came with higher margins, up 230 basis points over prior year mostly driven by the divestiture of our low margin low growth Italian business earlier in the year.

So in fact we are pleased with this performance and the way our international strategy is being executed across the region. As a reminder our international strategy is focused on better serving the needs of our cross border customer that is customers are looking to make decisions outside the domestic market.

We have a unique competitive advantage with this customer segment with a high-quality globally consistent data, product and services. To drive cross border revenue, we have single-mindedly focused on data quality. We have been investing since 2008 to improve data quality with an eye towards enhancing shareholder value as we invest.

In established markets like Europe, we investing a variety of ways to drive data quality. The recent example is our partnership with CRIF in Italy that will more than double our data coverage over time while also lowering the cost of our data collection processes.

Yet another example is the acquisition of ICC in the U.K and Ireland to gain access to new sources of data that was otherwise be unavailable to us. With cross border data as our basis for differentiation, we've been leveraging our risk management solutions to drive revenue from our existing customers as well as new customers across European market.

Moving to Asia, which now represents almost 40% of international. Our growth is fueled by three key markets Japan, China and India. In each of these markets we are focus in achieving critical mass through a combination of organic and inorganic investment somehow making good progress against that goal.

Let me say more, in Japan our joint venture with TSR is driving double-digit growth. As JV leverages our cross border data coupled with a highly consulted and selling approach which our local competition cannot match.

In china, our recent acquisitions of Roadway and HC International in the sales and marketing segment are also performing well. We will now focus on consolidating these JVs, maximize efficiency and drive margin expansion.

Finally, we're especially pleased with our performance in India, where we had a simply outstanding third quarter. Our Indian business is unique and that we have leveraged local expertise to enhance our brand resulting in a very strong S&MS and RMS presence.

While all of India’s growth is in organic to D&B in 2009, the acquisition is performing very well and will help fuel organic growth in 2010.

Let me now turn to North America where revenue declined 3% in the third quarter also in line with expectations. Our risk management business or RMS declined 1% in the third quarter in line with what we expected.

Within RMS, our traditional business declined 3% as the strong performance of DNBi was once again offset by weaker performance in our legacy products.

As we told you last quarter, we have seen a decline in demand for our traditional products and services mostly due to the weak economy. Since our RMS business is driven by upfront customer commitment, we have visibility and trends for the second of the year and the year is playing out as expected.

Within RMS, DNBi remains a bright spot and now account for 56% of RMS revenue up from 43% last year. In addition, we continue to realize double-digit revenue lift when customers convert to DNBi.

Our experience with existing DNBi customers is also good. Retention remains strong and we are continuing to see price list in the high single digit range during renewal. This suggests that the existing DNBi customer clearly see value even in the current economic environment.

On the Value Added Product side or VAPs we saw growth in the third quarter driven by our flagship DNBi module, Accounts Manager and Decision Maker, which helps customers make insightful decision across their entire credit portfolio.

Looking ahead we will continue to bring new value to our existing DNBi customers and just announced DNBi Premium, which brings several enhancements to the value proposition of our base DNBi offering.

Let me discuss a few. The first enhancement detail trade risk insight. We'll provide customers with a granular view of our entire database of customer payment behavior. That is 1.5 billion trade experiences, a level unmatched in the industry.

This will enable timely identification of risks and much better insight and predictiveness on delinquency. Of note, we've used this data to retroactively calculate lists and predictiveness and our testing suggest we should be able to double the predictiveness of our existing scores with this new product.

The second enhancement DNBi Credit Network further improves insight by tapping into the existing base of DNBi users leveraging the concept of crowd sourcing.

More specifically any DNBi customer should be able to reach out to the entire DNBi network to get additional insight before making a final decision. Since the DNBi network is the largest footprint of credit professionals online, the quality of the response should be higher allowing them to decide with confidence. We first presented this concept at the National Association of Credit Managers or NACM meeting this summer and customer feedback was overwhelmingly positive.

Finally, we are in the process of launching an intense version of the financial stress score or FSS, which predicts the likelihood of business failure. As contest D&B's FSS is one of the most widely used scores in the industry and we have rebuilt our scoring engine from scratch to generate a 26% lift in the predictiveness of this new score.

The bottom line, we’re pleased with DNBi’s performance and the enhancements we continue to make in this area. That said, we continue to face pressure on the non-DNBi side of RMS, where our business is more transactional.

Our results in the third quarter were inline with expectation driven by attrition in our small customer segments and lower usage of our traditional products with our large customers. Both these trends are driven by lower business activity due to the weak economy and will be reflected in the traditional RMS segment as the year unfolds.

Previously discussed, we expect RMS to worsen in the fourth quarter and we have factored this weakening into our guidance for the full year. I’d like to move to S&MS, or Sales and Marketing Solutions where revenue was down 5% in the quarter.

Both our traditional business as well as VAPs, were in line with our expectations and our customers remained cautious with their marketing spend. On the positive side retention rates are holding up well in our VAPs business and our pipeline is large and growing. This bodes well for the future when customer spending resumes.

Our product improvements in Optimizer and the introduction of D&B Professional Contacts powered by Jigsaw are gaining traction in the marketplace and the pipeline remained strong.

Now looking ahead we are acutely aware of the seasonally large fourth quarter in S&MS. These are the large amount of year-end project work that takes place with our customers. We recognize the inherent volatility associated with the seasonal occurrence, and we have factored this thinking into our guidance for the year.

Now let me briefly touch on our smaller segment the Internet, which like S&MS continues to be impacted by the slowdown in marketing activity. Internet revenue declined 8%, inline with our expectation reflecting weakness from the first half subscription sales as well as lower advertising spend.

So in summary, our third quarter was pretty much inline with expectation across the board. We expect the rest of the year to be within the guidance ranges that Steve shared with you earlier.

And with that, let me turn it over to Tasos for his financial review. Tasos?

Anastasios Konidaris

Thank you Sara and good morning everyone. I will cover the following three areas today. First, our earnings and margin performance; second, our Financial Flexibility funds; and third, our cost generation and uses of free cash flow.

Let me start with our earnings and margins. In the third quarter, we delivered $105 million of operating income, down 3%. These results were inline with our expectations and reflect the top line pressure in North America, higher level of investments, and 2 points of negative foreign exchange impact.

In International, our operating income of $18 million was up 13% and our operating margin grew 270 basis points.

We were very pleased with this results which reflect strong organic revenue growth, the positive impact of diverting low-margin domestic Italian business, significant reengineering savings, thereby offsetting approximately $2 to $3 million of negative foreign exchange impact, and supporting further investments in the business.

In North America, our operating income of $105 million was down 7% and our operating margin declined 130 basis points. Our results were inline with our expectations and reflect our choice to increase the level of investment spending in product innovation and technology in the second half of the year, consistent with our discussion last quarter.

Let me now move on to financial flexibility. As a reminder, in 2009 we created $90 to $105 million of flexibility. This one was very important in ensuring we could invest in our business well reducing our year-to-date operating cost by 4% and expanding our year-to-date margins by 120 basis points.

In addition, in the third quarter we began taking additional financial flexibility actions as we are proactively managing the business to drive bottom line performance next year. Our actions are focusing in our technology operations as well as rationalizing operating cost related to various newly acquired companies.

It is just the beginning and you can expect us to share with you more details of our 2010 reengineering plant early next year. Moving onto earnings per share, we delivered 1% growth in line with our expectations and we are on track to deliver our annual guidance of 1% to 5%.

We continue to expect earnings per share growth in excess of operating income growth due to the acquitted impact of our share repurchase program and then annual tax rate between 35% and 36%.

Let me know move to cash. We continue to be strong cash generators at D&B and in the first nine months of the year, we generated free cash flow of $244 million and we are on track to deliver our annual guidance of $285 million to $315 million.

This result was again inline with our expectations and reflects lower collections in North America, due to the lower level of customer commitments we have experienced all year, as well as a high level of investments. These are partially offset by reengineering savings.

Let me know move onto our uses of cash. As you know, we have three priorities in deploying our cash. First, we continue to invest to drive organic growth to improve our value proposition and Sara discussed what some of those investments are.

Second, we continued to look for acquisitions to improve our long-term competitive position and growth prospects. Our acquisition strategy is unchanged. We are focusing on investing in high growth markets like international as well as, investments in new capabilities where we may have product gaps in our Q end offerings.

In addition, over the last year, we have increased our required rates of return and reduced our tolerance for dilution.

Third, we remain committed to returning excess cash to share holders through a combination of cash dividends and share repurchases. In the third quarter, we returned a total of $82 million to share holders through dividends and share buybacks.

In regard to dividends, we paid out $80 million in the quarter. In regard to share buybacks, we bought back shares valued at $64 million, $60 million of which was under our discretionary program and the balance was used to mitigate dilution from equity awards.

On a year-to-date basis, we have executed $103 million in discretionary share repurchases. We will continue to be opportunistic and we expect to end the year at the high-end of our guidance range of $100 million to $150 million. Finally, when is the quarter with a deferred revenue balance of $476 million, which reflects a four-point decline in constant dollars?

This again was in line with our expectations and has largely already been factored in our annual revenue guidance. In closing, our overall financial results were in line with our expectations. We are still focused on financial flexibility and we are still generating a lot of costs.

These factors allow us to invest in the long-term growth of our business, while protecting our profitability and returning value to share holders even in this very challenging year. I would now turn the call over to Steve for some closing remarks. Steve?

Steven Alesio

Thanks Anastasios. So what you should have taken away from our comments so far is the following. First our third quarter performance was as expected, second for the full year, our expectations have not changed and we have prudently allowed for items that could impact the last quarter of the year. And as Tasos just covered we’re a strong company finically.

Obviously a big question on many investors mind at the moment is “When does the economy, especially the U.S, economy recover and what does start to look like in 2010?” That of course is a harder question for us to opine on.

It does appear that the U.S has found it’s bottom from what we are all reading, and so that’s the good side of an outlook. But what we cannot see or estimate yet is the slope of an economy recovery. Again from what we all read, it’s not clear yet whether growth in 2010 will be anemic or better than that.

We don’t have insight into that yet. We will need to see a couple of consistent quarters where actual customer spending behavior changes. So without knowing the shape or slope of next year’s economy, there are things we can control and reasons that we should be confident about our future. Let me just sight five of those that we’re in control of.

First of all our products are quite relevant for customers even in these difficult times. You heard from Sara about the continuing strength of our DNBi product line, further investment and enhancement of that product line and some positive signs in our sales and marketing business. Those are good signs for when the economy recovers, because these product lines will benefit.

The second item that we’re in control of is continuing to invest, to build on our leadership position in commercial information. As one example, in the past quarter we hit another significant milestone with our commercial database now holding over 150 million in global business records.

This database has grown from 100 million records only four years ago. And we are continuing to invest not only domestically but in fast growing markets overseas. In fact we now have nearly 20 million company records from the BRIC countries. And we are very proud of our leadership position here and our ability to pursue the pace of business evolution around the globe.

Another reason and item that we are in control of is our strategy in International, which is working quite well. It's become a real growth engine for our company. We believe we are investing in the right geographies and have the right joint ventures to grow along the way and you should expect that we will continue to fuel this portion of our business.

Another item we are in control of is that we are a company that is strong financially. As Tasos said, we generate a lot of free cash flow. Our balance sheet is solid and allows for capacity for additional investment when needed and we continue to maintain discipline around our expense management as Tasos mentioned, already taking actions that will drive financial flexibility into next year.

And finally, we have a talented team of leaders that has gained a lot of experience from this difficult environment in 2009 and while they are a little older for it, they are a lot stronger as they prepare for next year.

In addition, Sara and I continue to add to the team and to organize the team in ways to capture additional growth. So no matter what shape or pace or slope the economy takes going forward, we have a lot to feel confident about and ways to stay in control.

So we hope all this gives you some insight into our current view of the business and now we will open up the phone lines so that we can take any questions. Jane if you would go ahead and please provide instructions for asking a question.

Question-and-Answer Session


(Operators Instructions). Your first question comes from Carter Malloy - Stephens, Inc.

Carter Malloy - Stephens, Inc.

Sara, on the S&MS business here in the U.S, if you look at typical seasonality '06, '07 it was up well over 70% each of those years on a sequential basis from 3Q to 4Q. And last year in a pretty unprecedented slow down in the market it was up 55% sequentially.

And so as you’re other competitors and advertisers are looking for overall improvement in the market, a relatively good 4Q. Can you help me to understand why your sequential strength should be slower than last year?

Sara Mathew

So the seasonality of our business is important to look at and that's why we always encourage you to look at prior year as opposed to prior quarter. And the reason we have a fourth quarter seasonal queue is because that's when customers finalize their budgets and plans for the next year.

In terms of what customers are telling us and what we hear, there certainly seems to be a desire or willingness to expand, but we have not seen it translate into money on the table and real customer spend.

So is there any reason not to? Well I would look at the past three quarters and they certainly wanted to, but did not spend. And we won't know until the fourth quarter is over and that is reflected in our thinking and our guidance for 2009.

Carter Malloy - Stephens, Inc.

I understand the conservatives on that. It’s certainly understandable here in this environment. And my other question here was on RMS. I know it's very tough to look out anything more than weeks or months. But as we all try to get our models in line for 2010 and just looking at the core U.S RMS.

If there's a steady state in the economy and your customer pending patterns don't change, s it safe to assume that there will be growth in that segment of the business or will that of remain flattish?

Steven Alesio

I think anything that has to do really with trying to project into '010 specifically from where we will comment on today I think it's a little premature. I think Sara has given clarity about what we're expecting as this year unfolds using your own question there about the sales and marketing.

But I think we have to just wait for customer spending to actually change in a certain way I think I had mentioned we need a couple of consistent quarters before we start to project into '010.

There's things in control of that I mentioned and so I think I'll just leave it for you to kind of think through yourself '010. We would normally towards the end of January or February come out and give you all of our thinking around '010. I'd rather do that then start to kind of leak into '010 comments at this point of time.


Your next question comes from Michael Meltz - J.P. Morgan.

Michael Meltz - J.P. Morgan

Sara, two questions on marketing. Just so I'm clear. This was kind of related to the prior question. But I think you had previously pointed to second half marketing - I don’t want to speak out of term -- that your decline in the fourth quarter will be higher than third quarter but it will be less than the first half, is that fair?

Sara Mathew

I don't remember us giving you quarterly guidance but we generally talk about the second half and that is my recollection. Kathy, Tasos, do I have that right?

Kathy Guinnessey

Yes we said the second half would be slightly better than the pace of the third half.

Anastasios Konidaris

And the first half was down 8%?

Sara Mathew

That’s right.

Michael Meltz - J.P. Morgan

Okay and then secondly Sara, this might have been what the prior question was hitting at. Your products aren’t sourced out of ad budgets because on the advertising side, we're certainly seeing a pickup in demand.

Can you just talk about what you’re actually hearing from customers more out of where there might be, kind of marketing load-ins for the coming year, it might be the data files that folks are buying and certainly then on just like the data mining side as well. I think clarification there will be helpful?

Sara Mathew

Sure. Our sales and marketing business has two components. We have the traditional side, which is primarily prospecting. So these are lists and labels, and as you know that business has been under a fair amount of pressure because people are not prospecting as much on the B2B side. On the value added side, we had a decent third quarter on the value added side.

There is really a group of products that we would describe as integration products where we help cleanse, match and append, and that business is holding up pretty well from a pricing standpoint, from an up-sell standpoint and from a retention standpoint.

If you look at the portion that we wish had done better, it was Purisma which is also part of the integration space, but is one where the sales cycle is certainly long and even though this is not as expensive as other integration products, we are seeing cautiousness around marketing spends.

So when you break this into two parts and think about how should you think about our sales and marketing business, ad spend is very small. It is part of the Hoover’s business and that’s an ad revenue within Hoover’s is an even smaller part. So it is not about ad revenue, it is about prospecting then it is about the integration side, which is a part of the business that we feel pretty good about.

Steven W. Alesio

Something I would Michael to your question on who the buyers are say if not the advertising people, lots of times technology people, marketing information systems people, those are more typically buyers for the value added products that Sara was commenting on.

Michael Meltz - J.P. Morgan

Okay and then within RMS posted in your full year guidance for North America pretty down 3% to 5%. You are just saying the fourth quarter RMS decline year-over-year will be more severe than the third quarter decline. Is that--?

Sara Mathew

That's correct and remember this is the math of what we've seen in the first six to nine months, really playing out, which we pretty much told you last quarter and that's pretty much the math of what's going on.

Michael Meltz - J.P. Morgan

Steve, this isn't a guidance question, but is it fair to say at this point you would hope to do better in 2010 at RMS than you did in 2009 as trender?

Steven Alesio

Well it sounds like a guidance question to me Michael. So I think I will stay with my answer which is I think we are very focused on what we are control, we've got a cloudy picture especially in North America that I think we need some time. I'll flip that over to the international business, we feel quite confident about heading into next year and when we have a better picture of '10 we'll share with everybody.

Michael Meltz - J.P. Morgan

All right, last question for me. Anastasios on foreign exchange what's the -- assuming current rate hold, is that a benefit for you in the fourth quarter?

Anastasios Konidaris

Yeah, Michael good morning how are you?

Michael Meltz - J.P. Morgan


Anastasios Konidaris

Yeah, so FX if the rate stay where they are it will be a slight uplift on the revenue side and on an operating income side it should be about a $1 million to $2 million favorable.


Our next question comes from Dan Leben - Robert W. Baird.

Daniel Leben - Robert W. Baird & Co.

Great, thank you just wanted to jump into the margins on the international side of the business, a little bit. Looking sequentially at just the operating numbers you provided, versus the core revenues excluding Italy, and it looks like the operating expenses jumped up about $8 million sequentially.

Can you help us understand how much of that was acquisitions, and what other drivers maybe in there in terms of investing in the business?

Anastasios Konidaris

Yes. Pretty much the whole thing relates to acquisition. So driving the increase in operating expenses sequentially. So that would be a little bit of it is in the IT’s, it is the China and NICC.

So sequentially this is what’s happening in terms of driving operating expenses. And then also we’re making investments in our international business, DNBi is one of the key investments beyond the acquisitions we have done.

Stepping at a higher level though, international margins year-to-date are up to 120 basis points. A big part of it has been our Italian divestment of our domestic Italian business, we feel great about that and margins for the quarter were up to 130 basis points.

So does that help answer your question?

Daniel Leben - Robert W. Baird & Co. Inc.

Yes, it does. Just shifting over to the DNBi premium that you announced this week, could you help us understand if there’s any pricing ramification from that? Is the premium suite going to be a higher dollar offering and what you would hope to gain from that?

Sara Mathew

So let’s say here to start, step out and give you context for what we’re trying to do here. As DNBi becomes a larger and larger part of our RMS business, it’s critically important that we maintain pricing lift on renewal because as you remember, this has become a very large part of RMS now.

And therefore, we believe, we have to continue to add functionality. If we don’t do that, then the ability to sustain pricing in this segment will be strapped. So what we’re doing with the DNBi Premium is doing just that.

And as I mentioned, there are four parts to it. Detailed trade is essentially giving you a very granular view of how customers are paying. So somebody slows down payment, you know immediately. So you can make a decision on whether or not they’re likely to be delinquent. The redoing of all our bankruptcies code will be called Financial Stress Score is another aspect of it.

The credit network is just allowing that online group to leverage each other to make a credit decision and there are few other enhancements as well. So if you wanted to get stock reports, third party news, we've got a third party provider to bring the data in, actually organize it through headlines so it's not just a random amount of information coming in. So that if you're on DNBi, there’s really no reason to leave.

All of this we believe is critical to continue to drive that DNBi engine into 2010 and beyond. Is that helping you understand what we’re doing there?

Daniel Leben - Robert W. Baird & Co

Yeah, I guess it is the right way to think about it that this is the type of enhancement we should expect kind of every year going forward to try to maintain that price list that you've been talking about.

Sara Mathew

Right, that is correct. And then modules for very specialized needs, so like collections etc will be again another uplift, but that is added to whatever you have on the base DNBi platform, okay?

Daniel Leben - Robert W. Baird & Co

Okay. And then just help us understand the cyclicality of the RMS business again without getting into guidance, if I give you the economics here, everything remains perfectly flat from where we are at now throughout 2010. How should we cyclically expect the RMS business to react, what would it look like in that type of environment?

Sara Mathew

Well, generally speaking RMS is less cyclical than S&MS. And the reason is because we get upfront commitments that we essentially satisfy with products and services all the time. There’s slight skew towards the fourth quarter but it's not material. So the way you want to think about seasonality and - it's primarily the S&MS business.

Daniel Leben - Robert W. Baird & Co

But re-lagging in the economy, how do you view that?

Steven Alesio

So, what we said I think before on this is kind of you look at these two product lines in the U.S, what we would expect and this will determine over the course of next couple of quarters and when the economy recovers we'd expect to see it earlier and on the sales and marketing side.

And then that, of course what customers will start to do and then that will kick in more credit originations and other thing and then that, then we would see it more on the risk management side, that’s what we expect to occur.

Again the copy of that is, we've never seen this economy, so we haven’t seen ourselves come out of the economy but just to kind of give you sense of what we'd expect by those two product lines as what we said before.


(Operator Instruction) Your next question comes from Shlomo Rosenbaum - Stifel Nicolaus.

Shlomo Rosenbaum - Stifel Nicolaus

Can you just talk about the pricing environment in both side of the business? You talked about DNBi, so could you talk a little bit more about some of the products and sales and marketing.

And just, has anything changed in this pricing environment in either side of the business through the quarter, this quarter versus last quarter?

Sara Mathew

Relative to last quarter I would say pricing is about the same. But I’m going to pass that question Shlomo. I know you are new the D&B and our story.

We don’t sell widget, so fundamentally other than DNBi which I've already discussed, we sell products and solutions that can be actually have less variables or more depending on what a customers needs.

So we talked about DNBi optimizer, I think I mentioned earlier upsell was good and actually pricing is holding well on that product line and Hoover’s, which should be the product line. Our selling price is actually holding up well. So, we don’t have pricing issues per se. However, when customers have less money to spend, we resize and re-scope that product down with few deliverables.

So, we give them less, so that we actually can retain them through this tough economy and ensure that they are able to do something with their marketing spend, which is albeit limited in this environment. Have I helped you the pricing question.

Shlomo Rosenbaum - Stifel Nicolaus

Are you finding yourself bundling more in order to make sales as the year goes on or is that really pretty much the same, as it was last quarter?

Sara Mathew

We bundle, we have always bundled and we continue to bundle. We may bundle fewer things than we did in the past, but that is why I go back to saying, it is not a widget piece and because it is primarily data and services in the sales and marketing side and this is the business I am talking about.

Bundling is required depending on what exactly they need. And one other thing Shlomo you should remember is that, the marginal cost of this is extremely low. However, we want to ensure that customers see the value in what we provide. So, we just don’t give it away because our marginal cost is low and that is what we have balanced very carefully.

Shlomo Rosenbaum - Stifel Nicolaus

Is that more bundling in order to drive the sale less or the same, in general?

Sara Mathew

I would say we keep our value that we provide to the customer in terms of the revenue we get them and the services we deliver the same. We make sure that we don’t degrade value.

Shlomo Rosenbaum - Stifel Nicolaus

Just to make sure I understood, this is sort of a housekeeping question. If you would strip out the acquisitions out of the international revenue, you would have had organic growth of 11% year-over-year, is that correct?

Sara Mathew

Yes, correct.

Shlomo Rosenbaum - Stifel Nicolaus

There was a decent step-down in deferred revenue and I understand that’s - is a part of their slowness in their upfront commitments that you guys had been talking about.

Is the deferred revenue decline sort of in line with what you guys were thinking of in this quarter and given what's happened, is it more likely that you guys come in at the low end of free cash flow range for the year?

Anastasios Konidaris

So the deferred revenue step down was exactly in line with what we shared with you and that was out. Certainly we expected that. That’s why in the previous quarter we kind of guided down on the revenue and that’s why we are going to guide it down in terms of free cash flow because we expect lower levels of collection in Q3 which we experienced as well as in Q4.

Now, I wouldn’t comment whether or not we should be at the low end or the high end of our guidance range on free cash flow. It's a range and we have a tendency to try to avoid guiding on one side or the other side.


(Operator Instructions) - I am showing no further questions at this time.

Steven Alesio

Okay Jane, if there are no more questions, then I thank everybody on the call for joining us today and good-bye for now.


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