Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Anastasios Konidaris - Chief Financial Officer and Senior Vice President

Walter Hauck - Chief Information Officer and Senior Vice President of Technology

George Stoeckert - President of North America and Internet Solutions

Kathy Guinnessey - Leader, Treasury and IR

Byron Vielehr - President of Global Risk and Analytics

Sara Mathew - Chief Executive Officer, President and Director

James Delaney - President of Global Sales and Marketing Solutions

David Clarke - Head of US Sales & Marketing Solutions

Emanuele Conti - President of Europe, Latin America and Partnerships

Analysts

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Carter Malloy - Stephens Inc.

Dun & Bradstreet (DNB) Q1 2010 Earnings Call May 10, 2010 1:00 PM ET

Kathy Guinnessey

Good afternoon, everyone, and thanks for joining us today. My name is Kathy Guinnessey, and I'm D&B's Corporate Treasurer and Investor Relations Officer.

Before we get started today, I'd like to make a few comments about our presentation. First, a housekeeping issue. I'd like to ask that everyone, please turn off their cell phones. We get a lot of interference in the room with this, so if you could shut down the phone completely, we'd really appreciate it.

Please take a moment to review the important notices on Page 2 of our presentation, which explain that the presentation contains many forward-looking statements. Our Form 10-Q and 10-K filings highlight a number of important risk factors that could cause our actual results to differ from these forward-looking statements. In addition, this presentation includes non-GAAP financial measures and that is how we manage our business. We've included an appendix to this presentation with the reconciliation between the non-GAAP financial metrics that we used and the most directly comparable GAAP measures.

As many of you may have seen, on April 29, we announced our first quarter results, and these results were in line with our expectations across the board. We also reaffirmed our 2010 guidance of revenue growth of 1% to 3%, operating income of down 2% to up 2%, EPS growth of 1% to 6% before non-core gains and charges and free cash flow of $240 million to $270 million.

Our presentation today will be focused on our strategic direction and drivers of future growth. If you have any questions regarding the first quarter results, we'd appreciate it if you could hold those until the end of the Q&A session and we'll take some of that. Thank you very much. And with that, I'd like to introduce Sara Mathew, our CEO and President.

Sara Mathew

Thank you, Kathy. Good afternoon, everyone. Welcome to D&B's 2010 Investor Day. I'm delighted to have the opportunity to talk to you about D&B, and I'm very glad you are with us. Now there are many of you I've known for many years, but there are some of you I know, who are new to D&B's story. For you, you should know that D&B is a company deep in tradition, that dates back 169 years to its founding in 1841. Back then, credit reports were handwritten, master volume, developed by credit reporters, who traveled hundreds of miles to gain information on the authenticity and viability of a business.

Our reporters chronicle the emergence of commerce across the U.S. and had access to what was then the sea fleet of the burgeoning new U.S. economy. Reporters were encouraged to speak their mind and say their piece. In fact, an entry from 1863, on a merchant named JD Rockefeller state. And I quote, he is not much of a businessman. He has had some capital, it is said, advanced by his father, who is reputed to be well off. There is a subsequent entries, acknowledging his considerable business acumen, despite his privileged upbringing. Our insight has come a long way since then.

Today, D&B is the global leader in commercial information. The D&B brand is the benchmark for high-quality information in the B2B's space. We are the only company that has information in businesses from over 230 countries around the world, and we strive for global consistency in this data from market-to-market, which today is a critical customer need. We have the world's largest commercial database, 158 million business records to be exact. And as we have moved into a era of global commerce, customers increasingly, they come to us to ensure they have the visibility and understanding of their cross-border customers and suppliers.

At the foundation is our unique patented DUNSRight process, which I'm going to describe in more detail shortly. This process allows customers to use D&B data to make more than 100,000 decisions everyday.

Since the launch of D&B as an independent company, we've had a very successful financial track record. As you can see from this chart on the left with the yellow bars, our revenue grew 6% between 2001 and 2008, but was up only slightly in 2009. Over this period, if you look at the chart on the right, the blue bars, EPS grew more than twice the rate of revenue at 16%, and we continue to deliver EPS growth in 2009 despite the slowdown in top line.

Now in 2009, our U.S. performance was impacted by the recession. Beyond the broader declines in GDP, there are two specific secular trends that impact us. First, if you look at this chart, the U.S. commercial and industrial loan volume had an unprecedented double-digit increase between 2005 and 2008. This was followed by double-digit declines that lasted through the first quarter of 2010.

Now our Risk Management business correlates fairly closely with the commercial and industrial loans, since customers use our information primarily for loan origination, that is, when a business comes to our customer to obtain a loan.

But the severe decline in loan volumes reduced customer needs for our products and solutions. Our legacy transactional risk products were particularly hard hit by this trend. At the same time, if you look at the chart on the right, our Sales and Marketing business, which tracks closely with B2B proportional spend also declined. As you can see from the chart, B2B's promotional expenditures increased about 5% between 2005 and 2007 have then began to decline, driven by two factors. First, a heightened shift to digital marketing, which is the most traditional approaches like direct mail, and second, the weaker economy.

Now more recently, the macro economic environment has stabilized, so we believe the worst is behind us. If you take a closer look at the U.S. commercial and industrial loan volume from the prior page, you will see a bottoming out of the trend in March and a slight uptick in early April. While these are only a few data points, we are encouraged by these trends. As such, our internal efforts to drive better execution should begin to pay off.

Later in the presentation, you will hear from George Stoeckert, who will discuss our plans to sharpen execution in North America to take advantage of this recent trend.

Now separately, we initiated a strategic review of our business early in 2009. The review yielded four important findings, two, related to the markets we compete in, and two, related to the basis of competitive advantage. Now regarding markets, we are the undisputed leader, but there is room to enhance our position. More specifically, the explosion of online information creates a unique opportunity for us to innovate and bring new value to customers.

Regarding our value proposition, we reconfirmed that data and the DUNSRight process will remain our foundational asset. We also learned that the power of this asset in an increasingly online world could be significantly enhanced.

Let me provide added context beginning with our market position. This chart, I think provides perspective on our market leadership and commercial insight. D&B today has 158 million records and $1.7 billion in commercial revenue. Our closest competitor, Experian, has less than a quarter of the commercial records and commercial revenue of D&B.

Now there are several other competitors in this chart, like Coface and Graydon in Europe, infoGROUP and Equifax in the U.S. But as you'll see, they are much smaller. In fact, if we were to name our largest competitor, it would be the internal credit departments of our customers. And you've heard us say this before many times, and it has been independently confirmed by a study by the Credit Research Foundation, a premier research group in the credit arena.

As we look ahead, we see opportunity to enhance our position. This information comes from Outsell, an independent research firm. The Outsell leader board shown in this chart evaluates credit and financial information providers along two sectors, the ability to execute and how in-tune they are with the future. As you can see from the chart, D&B is viewed as being a company that is good on execution with some room to improve. However, when it comes to preparedness for the future, there is significant new opportunity ahead. This is where we will focus. It is the underpinning of our strategy, and it is the reason why we made the decision to invest $110 million to $130 million to rebuild our data supply chain and technology infrastructure to prepare for the future. Let me explain in a little more detail. Over the past several years, the types and volume of data that is available online has increased dramatically. To be specific, we will see a tenfold growth in information in just a five-year period ending 2011. The prevailing wisdom is that this pace of growth in information will only accelerate, driven by significantly lower technology costs and the ease with which an individual can engage to drive content and insight. Think about it. Today, Facebook, Twitter, Wikipedia, are all part of our lives. As a content provider, we at D&B, know there is valuable information in these and other sources.

This explosion in available data creates new opportunities for us to innovate and bring value to customers. Today, individuals do not have the capacity to process the sheer volume of information available to them. As a result, a company like D&B that can organize the information into insights has the opportunity to create much more customer value and a far better customer experience.

The value will be created in several ways: By connecting disparate forces of online information to create insight, by integrating this information with customer workflows and by enabling customers to use the information for more jobs, jobs that cannot easily perform today. Now to organize business information, one needs an organizing mechanism, and there is none better than the DUNS Number. As a result, we reaffirmed our biggest opportunities exist within the commercial insight space, and we will leverage the assets we already have to take advantage of it. We are uniquely positioned to win in this space, and we are looking forward to bringing our aspiration to life.

Let me elaborate. Data and the DUNSRight patented process will remain our foundational asset. For those who are new to D&B, let me quickly walk you through the DUNSRight process. We begin with data collection. D&B collects data from approximately 55,000 sources, from government registries, courts and legal filings, as well as proprietary trade data from our customers. Next comes entity matching. Here we use proprietary algorithms to ensure that the right information is attached to the right business. For those entities that they cannot match, we authenticate and then DUNS Number the entity. The DUNS Number is a unique number, much like a Social Security number. It is retained for the life of a business, from cradle to grave and acts as an industry standard for business identification. Then, we use corporate linkage, to connect commercial entities that have a parent-child relationship. Once again, we maintain those linkages over the years. Through linkage, you not only know about the entity itself, but all of the other related entities for a complete view of the customer. Once this process is complete, we generate Insight. We take the proprietary data we have and generate predictive indicators, which help customers understand how a business is likely to perform in the future, so they can decide with confidence. Let me draw your attention to the bar at the bottom. The entire process, end to end, is executed through a technology infrastructure, which is the backbone that enables us to create high-quality information to generate new insight.

As we look ahead, we will focus on three components of DUNSRight to drive even greater competitive advantage: Global data collection, the DUNS Number itself and the technology infrastructure. These enhancements will create new insights for our customers by connecting to a richer set of information. Let me start with global data collection. We will significantly increase the types and volume of data we collect, both proprietary and public. Second, we will enhance the DUNS Number so that it is no longer strictly company-centric. Finally, we will rebuild the technology infrastructure to support these changes. Walt Hauck, our CIO, will discuss all of the above in more detail. From a customer perspective, this will yield three important benefits: Better information quality, new insights and the ability to serve more needs.

Let me give you a quick demonstration of what's possible in the future. And we have set this up in advance of the demo, so you get a little feel for what you're going to see. So just as context, we took a part of our database and put it into a sandbox environment, so we could learn what was possible by enhancing the DUNS Number. And as I said earlier, the demo is placed on a small cut of our data and therefore, it's not scalable. Our intention is to make insights like these broadly available by 2012.

Now what I am about to share with you is real data. But we have disguised it to protect the identity of the business, as well as the people involved. Now the first part of the demo will show you our current DNBi product, which you've already seen at the kiosk outside. I want you to focus on the second part, which demonstrates future possibilities.

What you will see is a user able to gain a whole new level of insight about a company they're researching. The company we've called Doe Custom Technologies. We used our linkage capabilities to connect with outside information and you suddenly see important insights about the owner, John Doe. Now these insights were made possible by enhancing the DUNS Number beyond its current company-centric view. So you should view the demo as a real work in progress as opposed to a polished, finished product, so please, treat is as such. And with that, I'm going to ask you to please roll the tape for the demo.

[Begin Advertisement]

DNBi, one of our flagship products, is geared towards specific job desks. It gives credit analysts a company-centric view of the world, allowing them to quickly make informed business decisions about a company. Here, you can see an overview of a company. We can navigate to the Trade Payments tab to see how good they are at paying their creditors, and the Public Filings tab to see legal activity. But this is a view of a company in isolation. It doesn't allow big-picture discovery, understanding and research. Now we want to go beyond this company-centric view. So we've been experimenting with an information architecture sandbox. We've been building prototypes to see what's possible with a combination of DUNS Numbers linked to all the rest of the world data sources for accruing a rich web of business-related information.

There are people, companies, facilities and so on. These are all things whose existence is pretty much indisputable. We want to give all those things DUNS Numbers, link them together and link them to information from outside Dun & Bradstreet. We created this web demo to expand on what D&B is already doing, to the point where D&B is a portal for all of the world's business information, just like Facebook as a portal for social networking and Amazon as a portal for retail. This demonstrates how expanding the identity space and enhancing DUNSRight, allows us to bring in data from outside D&B and connect facts that couldn't be connected before, providing new insights and meeting customer expectations.

So ignore the look and feel and the specific user-interface elements. But pay particular attention to how this information architecture can be used to do some really powerful things. Let's take a look at this company, Doe Custom Technologies. We have the basic company information, but there's also a description that comes automatically from Wikipedia. The facility has it's own link, as well as key employees. I can also now look at an aggregate of a number of different risks source. The PAYDEX from D&B is 45, that's pretty low. But the Better Business Bureau actually shows an A rating. I wonder what the discrepancy is.

Well, instead of looking at it from a company-centric standpoint, let's look at it from a person-centric point of view. John Doe, he has his own personal DUNS Number, biographical summary automatically pulled from Wikipedia, as well as a picture. So I know I'm looking at the right person. There are also professional affiliations associated with John Doe. Notice that he's got a number of different companies where he's been a Founder, a CEO or a Manager. Let's click on Visualize and look at patterns across the companies. Here, we see a precipitous drop in the PAYDEX history of his first company, until the company disappears. And then he starts a different company, which begins dropping as well. So this is a pattern of behavior that's just not visible in a company-centric view of the world. We can also view employee history, revenue history and financial stress. Let's look at employee history.

As we look at the employee turn, we can see an emerging pattern here. John lays off almost all of his employees at one company and then hires a number of people again at a newly created firm. We also see links to related news articles that coincide with the employee history events. We can click on "Doe Custom Technologies Lays Off Staff" and read an industry report about. Look at this, he's done it twice in the last year.

In this demo, we can see deep information from multiple sources, tied to uniquely identified DUNS Numbers for employees, facilities and other real-world phenomena. Maybe more importantly, we can reveal powerful new insights into our customers most important business matters.

[End Advertisement]

[Audio Gap] give you a view of what is possible for D&B. It is just one small example of what we intend to build in 2012. Now there are three important takeaways from this demonstration. First, by enhancing DUNSRight, we can connect our data to the rest of the world data, creating insights far beyond what is available today. In the case of John Doe, the pattern of starting up a new company and then bankrupting it before starting up yet another company was made possible by aggregating people data, something that we cannot do easily today.

Second, these enhancements will allow us to exploit adjacent markets, while also enhancing what we do in credit and sales and marketing. For example, it would be possible to take a view of location data to understand if there is a flight of corporate headquarters from a particular city or state. We could use that data to gain valuable insight into the commercial real estate market, an area where we do not do much business today. The possibilities are immense. Finally, there is no other company better positioned than D&B to deliver on this future, since our DUNS Number, matching and linkage capability in the commercial space are all world-class.

So in summary, our strategy will transform our customers' experience with D&B, from customer information overload to connected information that yields new insights, from a predefined view of data and insights, to a world where customers define their view of their data and their perception of what constitutes the insights.

Finally, I hope you got a view into the ease with which technology can be leveraged to enable this type of innovation. With our strategy established, we have reconfirmed our expectations for 2012. We shared these with you several months ago and they are pretty much unchanged. North America should move from declining revenue to revenue growth in the mid to high single-digit range. International will continue in the low double-digit range, aided partly by tuck-in acquisitions and exposure to high-growth markets in Asia.

We expect 100 basis points or more of managed margin improvement over 2009 once we complete the investments and reap the benefits of a vastly simplified technology infrastructure and data supply chain. Finally, we know we will extend our competitive mode and further distance ourselves from competition.

Now executing on this vision requires a high performing team. On the left, we have the leaders of our operations, George Stoeckert, who leads North America; Manny Conti, who leads Europe and Latin America; and David Emery, who could not be with us today, but who leads Asia Pacific. In the middle, we have a team that drives innovation, Byron Vielehr, leads our Global Risk product line; Jim Delaney leads Sales and Marketing; Walt Hauck is our CIO; and David Clarke is responsible for Data and DUNSRight. On the far right, we have our corporate functions: Tasos Konidaris, our CFO; Jeff Hurwitz, our General Counsel; Rich Veldran, our leader of Strategy and Business Development; and Maria Sharpe, our new HR Officer. Most of this team is with us today. Some of them will be presenting, and others will join me later to address your questions. So with that, let me set up the agenda for the rest of the day.

First, Walt Hauck, our CIO, will discuss foundational capabilities that are required to execute on the strategic vision I just shared with you. Walt is a seasoned CIO, who joined us in 2008, after a long career with Pfizer. Walt has managed several large technology infrastructure transformation, so the re-platforming of our technology is in very good hands. Next, George Stoeckert and Manny Conti will outline plans to drive top line growth in North America and International. As I've said earlier, we believe the worst of the U.S. economy is now behind us, so we have a great opportunity to sharpen execution and gradually improve the performance of our core business. George joined D&B about nine months ago and prior to that, he was a senior executive at ADP for many years. Manny has been with D&B for seven years in various positions. Then, Tasos Konidaris, whom all of you know, will provided a strategic financial review, so you understand how our scalable business model will deliver value for our shareholders. Finally, I will come back and summarize the day. We will close with a question-and-answer session and ensure we stay and address all your questions about our company, our strategic investment and our view of the future. And with that, I'm pleased to present Walt Hauck. Walt?

Walter Hauck

Thank you, Sara. Good afternoon, all. My name is Walt Hauck, CIO of Dun & Bradstreet. I'd now like to walk you through the fundamental capabilities critical to our success. The success of our strategy requires development of two critical capabilities, enhancing DUNSRight and creating a flexible technology infrastructure. We already have the best commercial data in the market, and it will get even better with the investment in these two capabilities. Let me share more on each, starting with DUNSRight.

The dramatic increase in data available online has caused customers to change their expectations. This explosion in data has increased the customers' need for insight. Not necessarily more information, they need the right information to make their decision. Customers expect the information they need to be available all in one place. They want increased data coverage and quality and they will want different types of data over time. Customers want information updated at the pace as it is created. We use the term near realtime, not in the sense of millisecond, but within minutes of the event actually being reported. This is the heart of our Decide with Confidence promise. To meet these demands head on, we are enhancing DUNSRight, with a focus on proprietary data customers cannot get elsewhere. Enhanced global data collection will increase coverage of small businesses and companies in emerging markets, as well as an increase in our trade files. In addition, the DUNS Number will be applied to many more types of commercial entities. Today, there are some entities we simply don't cover, local doctors' office, for example. Tomorrow, we will. These improvements will enable increased linkage and more predictive scores across the board.

The increase in data is designed to deliver significant benefits to our customers. By 2012, we intend to increase the number of covered entities to 250 million. We plan to more than double the number of linked records from 15 million to 40 million and we expect to double the number of trade scores from 14 million to 26 million. Overall, the breadth, depth and quality of D&B data will be dramatically improved.

In addition, to expanding our proprietary sources of data, we are creating the capability to tap into the explosion of online data and enhance the DUNS Number. This includes much more data from the Internet, such as monitoring news feeds, web scraping and sentiment analysis. We will also experiment with customer-contributed information largely through crowd sourcing. We will broaden global data collection to significantly increase the amount and types of data we collect. This includes more robustly collecting information from industry associations and other new sources. At the same time, we are enhancing the DUNS Number, expanding from today's company-centric view, to connect all commercial information. This will allow customers more flexibility to access everything we have in ways that make sense to them. We saw this in the video Sara just showed.

Enhancing DUNSRight will deliver additional value to our customers. First, by increasing the data we collect and connecting it to proprietary data customers can only get from us, we will organize more information around the DUNS Number. By doing so, we hope to help customers tame their information overload. They'll have the right insight and they'll be able to make the decisions when they need to make them.

In addition, our applications can become their single information source, as we integrate proprietary data and online data behind the single user interface. Secondly, through our new data architecture, the enhanced DUNS Number, customers can create their own insight from our data and address new problems. In summary, through an enhanced data collection and enhanced DUNS Number, we expect to create significant new value for customers. Now, let's take a look at our second key capability, a more flexible technology infrastructure.

Rapid advancements in technology have caused customers to change their expectations here as well. First, they want high-quality consumer-grade interfaces for their applications to supporting tools, and they want the flexibility to customize them. People now expect the applications they use at work, to be as good or better than the ones they use at home. Second, they want two-way interactivity, so they can share their data with us through the same tools and data we provide. And finally, they expect our applications and data to be pervasive, available everywhere, always on access and on whatever device they prefer. Over the past few years, the world of technology has changed and our current infrastructure is not going to meet these customer demands.

In response, we initiated a Strategic Technology Investment aimed at rebuilding three core elements of our infrastructure. First, we will create a simplified and redesigned data supply chain, the backbone of DUNSRight. The new supply chain will provide substantial increase in processing capability, and going forward, we will be able to update a company record within minutes. We are completing the design phase now and expect full production by late 2011.

Second, we will build web services to access our data. Today, applications use a variety of custom interfaces to talk to the data supply chain. Tomorrow, we will use one industry-standard interface, greatly simplifying how we develop new applications. Web services will also be complete in late 2011.

Third, to take advantage of the new data supply chain and web services, we will build a number of innovative new flagship products. We'll then consolidate our current applications on to these new products.

The first one will be updated version of dnb.com, the website where our traditional transactional risk applications and data are delivered. This product will really be available on the fourth quarter of 2010. The results of these efforts, drastically increased speed, better flexibility and much higher value products.

The investment will enable innovation and improve our customer value proposition. With the speed of the new data supply chain, we will improve our record update time from as long as 30 days to near realtime. With the flexibility web services provide, we will move from a world, where creating new applications is a time-consuming and expensive process, to one where we can rapidly imagine, test and launch innovative new products.

Finally, by focusing on a few flagship products, customers will gain a better user experience and a much richer features set. Core to our investment is the addition of a new application development center in Ireland. To create the technical capability required for this investment, we are adding an in-source application development team in Ireland. They will be focused on global risk application development. Our need coincides with an opportunity to build in Ireland, where there is a talented workforce and strong software skills. This team will augment our current technical centers in the New York area, London, Austin, San Mateo and with our offshore providers in India. The new facility will be ready for occupancy in May, will produce in full swing. And we expect the first applications delivered from this facility in the fourth quarter of 2010.

For customers, the investment will transform how they experience D&B data and product. There will be more product innovation and consumers will have rich consumer-grade interfaces. Data quality will be dramatically improved. There will be new data set and near-realtime updates. In addition, customers will be able to fully embed D&B in their applications and workflows, and they will be able to use this all everywhere and always on.

In addition to customer benefit, we see the investment creating value for shareholders. We expect increased earnings and cash flow from four factors. First, we will have a much lower cost platform to develop new products. Second, we expect annualized savings of approximately $35 million to $50 million beginning in the latter half of 2012. Third, we should have much lower cost to acquire our new data sources and create new data products. And fourth, by expanding our in-house application development capability in Ireland, there are positive economic benefits that Tasos will describe later.

There are a number of milestones in which to measure our progress over the next few years. In data, you can expect to see global coverage expanding to approximately 250 million records by the end of 2012. Likewise, you'll see similar milestones expanding our linked records and trade scores.

In technology, the first part of the work on the new data supply chain, our move to a new data center will complete in the third quarter of 2010. The first deliverable of web services supports the new dnb.com will also be completed in the third quarter of '10 and the first upgraded flagship product, dnb.com, will be completed in the fourth quarter of this year.

We are confident that we have the right skills and experience to execute this investment. The approach of this program was based on our success with similar products in International and at Hoover's. We have an experienced team executing this initiative. In addition to the existing team, we recently hired a group of seasoned senior program managers and we are committed to building a strong in-house leadership team for the future.

As you would expect, we have implemented a rigorous program management approach for this program and finally, this is not just a technology initiative. It is being led by the business that has the full support of the entire D&B leadership team.

So in summary, an enhanced DUNSRight and a more flexible technology infrastructure will create value for our customers and shareholders. DUNSRight will be enhanced to deal with the exploding world of data and the new infrastructure will allow us to rapidly roll out new and innovative product. In combination, these capabilities will further distance us from the competition and allow us to maintain our market leadership position for years to come. There are clear benefits for shareholders, and we are confident that we have the right skills and experience to execute this program. Thank you. Now, let me introduce my colleague, George Stoeckert, who will provide you an overview of the North American business. George?

George Stoeckert

Thank you, Walt. Good afternoon. My name is George Stoeckert, President of North America, and I've been in this role, as Sara mentioned, for about nine months, having joined D&B after a long career with ADP. And I might say, I'm very pleased to be with D&B.

Today, I'm going to discuss our plans to return our North American business to its normal levels of growth. The North America business represents about 75% of total company revenue. I will touch on our performance through 2009 and then spend most of my time sharing the near-term actions we are taking to reverse the impact the recession had on our business. I believe that these near-term steps, coupled with the expanding capabilities that Walt talked about, will return our North American business to it's historic levels of growth. As many of you know, through 2008, we were successful at growing revenue with high margins in North America. There were a number of drivers of this success, including a shift towards subscription pricing, the introduction of new value propositions, such as our DNBi product line, a favorable macro-economic environment and financial flexibility, which allowed us to optimize our cost base.

In 2009 however, the recession slowed our top line and margin growth. As Sara mentioned, the credit crunch reduced demand for risk products and declining business-to-business marketing reduced demand for our sales and marketing products.

In addition, the recession highlighted areas where we could execute better. First, we realized we needed to significantly improve our sales execution, as customers were under increasing pressure. It became clear that our sales structure was not aligned well with customers. In addition, we were not well positioned to add new customers, as some of our smaller customers went out of business, were acquired, or canceled contracts. Second, we learned our value proposition needed to be improved to satisfy customers in the prevailing economic environment. In particular, we needed better products for customers under budget pressure and to adapt more quickly to accelerating digital marketing evolution. As a result, we saw a decline in our business, which seemed to have troughed in Q3 2009.

Specifically, one clear measure of customer commitment is how much upfront sales we book. This triggers our balance of deferred revenue. As you can see on this slide, this balance was healthy in 2008, but started to decline, as the year was ending and continued to do so through 2009. The good news is, in the last two quarters, we are experiencing improving trends, not strong trends, but heading in the right direction. This bodes well for our revenue outlook in the second half of 2010. That said, it will take some time to fully recover from the recession. The recovery will be driven by both near and longer-term actions. In the near term, sharper sales execution and improved value proposition will help drive growth through 2011. In the longer term, as you have just heard from Walt, our new data and technology capabilities will come online. These capabilities will dramatically improve our value proposition for customers and will drive accelerating growth in North America.

I will now go on a further detail on the near-term actions. To sharpen our sales execution, we took aggressive action to improve our interactions with customers in a number of areas. First, we simplified and reorganized our sales channels to improve account coverage and new customer acquisition.

Second, we created vertical segmentation for our larger clients to focus expertise. Third, we brought in a number of dynamic, experienced sales leaders and sales team members to improve our talent level.

Fourth, we rolled out a redesigned incentive compensation plan to more closely align the incentives of the sales force with performance. Finally, we are pilot testing several different approaches to new customer acquisitions.

When I first joined D&B, I learned that we were very well set up to renew customers and to cross-sell customers. However, this posed a challenge for growth during the recession, because existing customers had extremely tight budgets. What we needed was to be much better at acquiring brand-new customers. We are in the process of determining the optimum way to identify, acquire and close business with new customers of all sizes. Once our pilot test is complete, we'll move to scale it across the business.

I will now move on to discuss investments we are making to improve our customer value propositions in our two main product lines: Risk Management Solutions, which represents approximately 65% of revenue or about $800 million in North America; and Sales & Marketing Solutions, which represents approximately 35% of revenue, including the Internet Hoover's business.

In Risk Management, our focus is on improving DNBi and migrating non-DNBi customers to higher value solutions. Customers who are using DNBi now represent about 60% of our Risk Management revenue. Going forward, DNBi will continue to be our growth driver. Through the recent recession, demand and customer satisfaction with DNBi held up quite well. We expect this to only improve. The other 40% of our Risk revenue, our non-DNBi products have generally been declining for years. The recession aggravated this trend. But as I will discuss in a moment, we have plans to mitigate some of this decline. I will first discuss our DNBi product line.

There are new features in DNBi, our flagship product, which will continue to drive penetration rate. Our approach continues to be to roll out new high-value feature this year. This allows us to maintain our high renewal rates and consistently increase value for customers. As a result, we expect penetration rate to be 65% to 70% by the end of next year. I would like to highlight two of the new features recently launched in DNBi. The first, is the premium version, launched at the end of 2009. This version has a number of improved scores, more live information, better data and additional features. The second is deeper predictive information, what we call Detailed Trade. Detailed Trade is our most granular data on how companies have paid their bills in the past and provides credit manager additional insight into their risk portfolio. Detailed Trade is in demand from customers who perform deep risk analysis and those who create their own custom models with our information.

By rolling out new features consistently going forward, we expect to maintain pricing power in DNBi. Since its launch in 2007, DNBi has experienced a typical adoption curve for a new product. We had double-digit increases in customer commitment when it first launched, and customers were upgrading from lower value product. Then, early renewals provided high single-digit commitment increases. This has been followed by a more mature stage at its current stable level, supported by the annual introduction of valuable new features.

We expect a mid to high single-digit pricing leverage, going forward. At the same time, we are focused on stemming the decline of non-DNBi customers. We will do this by migrating them to higher-value product. First, we will rebuild products, delivered through dnb.com by Q4 of this year, as Walt mentioned. The upgraded version of dnb.com will have new interfaces and some new functionality. This is aimed at a limited segment of our customers who truly do not need the extensive functionality of DNBi. Second, we launched a much improved version of our Supplier Risk Manager product. This product helps supply chain and procurement professionals analyze the companies they purchased from and sell to. We had a great initial feedback from customers so far and expect growth from this solution over time. Finally, we will consolidate multiple-load value products into a few improved solutions in 2012. This is part of the technology investment, which Walt discussed. As a result of these efforts, we expect to slow the decline in non-DNBi revenue.

Moving on to our Sales & Marketing segment, we are improving value-added products in Hoover's and migrating traditional products to Hoover's. Overall, we view the Sales & Marketing business as having three primary categories: Customers who are using value-added products, or VAP, almost half of the Sales & Marketing revenue; Hoover's customers, which represent about a quarter of revenue; and customers using traditional products, which account for the balance. Going forward, VAP and Hoover's will continue to be our growth drivers. As you have heard from us in past earnings calls, traditional Sales & Marketing products, especially the List and Label business are generally declining. We expect that trend to continue. We have made recent investments in both data and functionality to improve our flagship VAP product, Optimizer. We made this investment to respond to the trend in marketing, which is moving from paper to digital, especially email. The recession accelerated this trend and left us with a gap we needed to close. Sales & Marketing professionals increasingly need the right contact information for individual employees of companies, in order to market with them. We've been investing to dramatically increase our coverage of people data to meet this need. In addition, we have improved coverage in a number of countries available in the product. As you'll hear from Manny in a moment, our global reach is a distinct reason we win with customers. This is true in both North America, as it is in International. Finally, we increased the speed of updates, increasing turnaround times and providing better reporting and analysis.

Also in our VAP product line, we will increasingly embed D&B data and Software-as-a-Service solutions. There is a trend in the market to move from premise-based software like CRM enterprise solutions to Software-as-a-Service, where the applications are accessed via the Internet. Interest in these types of software solutions rapidly accelerated during the recession, because they are more cost effective. We plan to increasingly embed our data directly with the application provider, so users of the software can automatically have the best data from D&B populated right into their own applications. For customers, this means more accurate complete data and a more efficient data management process.

We have also recently re-launched Hoover's with new features and functionality. This was a result of a thorough customer needs assessment, followed by a complete technical re-platforming. Hoover's is now positioned as a leader in the sales and marketing space. There are numerous new features, including better people and company data and a mobile application for the iPhone and iPad, called Hoover's Near Here.

Hoover's Near Here allows a field sales person to find good prospects based on custom criteria near their current location. The program cross-references prospect criteria, our database and their location from GPS in realtime. The product has been very well received. In fact, for a period of time, Apple featured Hoover's Near Here as new and noteworthy in the iTunes App Store. I would now like to show you a promotional video highlighting Hoover's Near Here so you can get a view.

[Begin Advertisement] You're a road warrior. This is your office. Those, were they your prospects? Darn, looks like three just canceled. Now you got a whole lot of extra time in your day. There are more leads out there, my friend. You just have to find them. See what I mean? Let me show you. There's never been anything like Near Here. You could instantly have a tailored list of prospects. In all, there are millions of companies. Search from any location and use filters to narrow your search for prospects nearby according to multiple industries, revenue ranges, employee ranges and keywords. Even save your filters to use again later. View your prospects on a map or in a list. To enlarge a region, adjust the map to the search area that's right for you. Near Here from Hoover's gives you the data you need to figure out if they're worth visiting. Who to call, the number to call and even a map and the step-by-step directions to get there. Find local competitors and save your favorite companies and locations. How good is Near Here? Depends. How many leads can you see in a day? [End Advertisement]

We are very excited about the new features in Hoover's, but there's a bigger message. The Hoover's re-platforming is a good example of whether strategic technology investment will allow us to take the rest of our product line. We'll have a better data and an infrastructure, which enabled innovative applications like Hoover's Near Here.

With S&MS traditional customers, we are focusing on stemming the decline by migrating them to higher value products. Here, the main path is to migrate customers off of our old legacy marketing application to the new Hoover's. We have already started the process. We are getting great results on every level, happier customers and growing revenue. Finally, we will continue to rapidly grow the database, as Walt referred to earlier because this increases value for both RMS and S&MS customers.

By increasing both quality and coverage of the North America database, specifically coverage of smaller businesses, we increase the value of all of our products. Of course, with the completion of the strategic technology investment, coverage and quality will accelerate even further. As a result of better execution and improving value proposition, we see a slowly improving top line trajectory in North America. Specifically, we expect the top line for full year 2010 to be down slightly, with the first two quarters being weak as we get through the overhang of the declining deferred revenue balance in 2009.

We expect the Sales and Marketing segment to rebound quicker than our Risk segment. This is a trend which began in Q4 of 2009. As we approach 2011, we believe trends will continue to improve slowly, that we will have a better full year in 2011 than in 2010. Then in 2012, we expect to see mid- to high-single-digit growth as the better data and the new products enabled by the strategic technology investment become available.

In summary, our goal is to return North America to a growth business. We feel confident we have taken the appropriate action to respond to the macroeconomic and execution challenges we faced last year. Fundamentally, our business is sound. Our solutions are valued by customers, and we operate in good market. In the near term, better sales execution, improved value propositions and the continued growth of the database will provide steadily improving performance. In the longer term, our investments in data and technology will fundamentally improve our products and solutions, creating much more value for our customers. Thank you. Now let me introduce Manny Conti who will provide an update on our International business. Manny?

Emanuele Conti

Thank you, George, and good afternoon. My name is Manny Conti. I'm the President of Europe, Latin America and our partnership. As Sara mentioned, I've been with D&B for seven years in a number of roles including corporate strategy, general management and sales leadership. Today, I'll share with you the good progress we've made in International and the positive outlook we have going forward.

As context, prior to 2003, our International business struggled, both in terms of shareholder returns and customers. From a shareholder perspective, our revenues were shrinking. From a customer perspective, we did not have high-quality data in all the markets in which we operated, weakening the value proposition of our product. To rectify this, we knew we had to fundamentally change our business model.

Beginning in 2003, we transformed our International business to a new model. Specifically, we went from owning 237 countries to owning 76 and partnering the remaining 161. As a result, we created the largest commercial network, which we call our Worldwide Network. This network enables us to have a leading competitive position around the world which no other player can match. As a result, we dramatically increased the size and quality of our database. In fact, we more than doubled the size of our database in 2003, and we now have over 108 million international records. Let me provide you one example on how our Worldwide Network helped us grow the International database.

In May 2008, we established a partnership with Interfax in Russia and the former Soviet Republic. Prior to this partnership, our coverage there was only 1 million records. Since our partnership, it is increased ninefold. This is critical as the size and quality of our database powers all of our products and solutions.

Global data is the foundation for satisfying our customer need for cross-border information. Meaning, information on businesses outside the customers' own country. This is important because positive trends in global trade are causing our customers' cross-border needs to increase. For example, in our European business, cross-border activity drives much of our growth. We are able to uniquely satisfy cross-border needs through three key capabilities.

First, we have the largest commercial database, with coverage in over 230 countries. Second, our global products and platforms offer cross-border consistency. Third, by leveraging our Worldwide Network, we're able to serve our customers, both globally and support them locally, which no other provider does. As a result, our International business is now performing well, with strong revenue growth and margin growth. Our growth has been driven by improved customer value propositions and investment in high-growth markets and segments. We feel our International business is scalable. Our European margins are strong, and we have made conscious decisions to invest in the Asia Pacific region to take advantage of the significant growth prospects we see there.

Going forward, we feel good about our outlook for International business. We're confident, given the continuing positive trends of global trade are driving the demand for cross-border order information and insight. Also, our value propositions are distinctive and differentiated. We can offer customers insight our customers cannot. Lastly, we continue to be enthusiastic about the growth markets in Asia Pacific, and we'll continue to shift our business mix towards the region.

We see opportunities for continued growth by focusing on the same three drivers, which supported our recent success. First, continue to grow our international database, which is a foundation to all of our value propositions. Second, with the data as foundation, we will continue to improve our products and solutions. Third, we will continue to increase our exposure to high-growth markets and segments.

I'll now discuss each of these drivers in more detail. We plan to continue to grow our international database to increase the value of our products for our customers. In fact, we plan increases of about 14% per year through the end of 2011. One recent example, which helped us achieve this goal is the partnership in Italy we announced last year with CRIF. Prior to this partnership, we covered only 33% of the companies in Italy. As a result of our partnership, we'll now cover 100% of the companies in Italy by the third quarter of this year, adding 3.6 million records to our database.

With data as a foundation, we'll continue to improve our customers' value proposition in Europe. We intend to leverage a similar model as we've used in the U.S. We start with pricing innovation and then migrate customers to more valuable products. Let me explain each of these steps.

Over the past several years, we've converted many of our customers from transactional to domestic subscription pricing. In 2005, we introduced domestic subscription pricing, offer similar to the one in the U.S. This delivered more value to customers by providing virtually unlimited access to D&B information at a fixed price. This was very well received by our customers because they could now focus on their business and not have to think about their budget for every credit decision. In exchange for providing more value, we were able to increase commitments for these customers.

As a next step, we recently launched global subscription pricing, giving customers greater access to cross-border data. Building on the success of our domestic-only subscription offer, global subscription pricing provides virtually unlimited access to both domestic and international information. Over time, we see global subscription pricing replacing our domestic-only offer because most of our customers have international needs. The adoption rate has been strong, and we see further growth potential going forward.

Later this year, we'll introduce DNBi, further differentiating us from our competitors in the European marketplace. This is an exciting product for our customers because DNBi provides them with considerably more features and functions than today's products. Overall, our goal is to make DNBi our customers' primarily tool throughout the working day. In sum, our strategy is to continue to move our customers along this continuum where they receive increasing value, allowing us to generate higher revenue commitment. Moving forward, we'll leverage the new data and technology capabilities that Walt discussed to allow us to create new products for customers' emerging needs more quickly and at a lower cost.

The final driver of growth is to continue to increase our exposure to high-growth markets and segments through acquisition. Over the past several years, we've closed on a number of transactions to expand our footprint in the high-growth markets and segments where we see sustainable long-term growth opportunities. Consistent with our approach to prior acquisitions, we will remain disciplined on our use of cash and only consider transactions that meet our acquisition guidelines.

In addition, we'll continue to improve our value propositions in our high-growth markets. Here are some examples. In greater China, we launched an upgraded website called myD&B. We also improved our workflow solutions in Greater China and India, and we launched a new mobile application in Japan. Finally, we continue to roll out our D-U-N-S Registered products in emerging markets. D-U-N-S Registered enables small businesses to certify themselves as D&B verified while providing us with additional data about them.

In summary, we expect to maintain our momentum in International for a number of reasons. First, our business model has been performing well for several years. Second, our global reach and consistency provide a unique competitive advantage. Going forward, we expect low double-digit growth in International by improving our value proposition and increasing our exposure to high-growth markets and segments. Let me now hand it over to Tasos, who'll provide you with a financial overview of the business.

Anastasios Konidaris

Thank you, Manny, and good afternoon, everyone. My name is Tasos Konidaris, and as you may know, I've been with D&B for a little over five years, and I've been its CFO for over three years. In the next few slides, I'll share with you our plans to increase profitability, cost simulation, as well as how we think about our capital structure.

At D&B, we have a scalable business model that has delivered strong margins over time. Our margin growth has been driven by three key factors. First, our data and technology investments in our DUNSRight process can be monetized across multiple solutions. Second, we already have a large global sales force and a high retention rate business. Third, our commitment to financial flexibility. As you may know, financial flexibility is our ongoing process of examining how every dollar is spent to ensure maximum shareholder benefit through revenue growth, higher profitability and improved product quality. While financial flexibility has always been very important, it became critical in driving margin expansion the last few years as we battled the deep recession while continue to invest in new products and completed a number of tuck-in acquisitions.

Strong margins have allowed us to drive free cash flow. In addition, our cost generation is also driven by our capital efficiencies. From a capital efficiency standpoint, we have historically maintained a CapEx-to-revenue ratio of 5% or less, including the strategic technology investment, and we expect this to continue.

Going forward, we intend to grow margins by leveraging a number of key drivers. First, we expect to continue to grow revenue over time. Second, once we complete our technology re-platforming, we will have a much more scalable infrastructure. Third, in 2012, a portion of the $35 million to $50 million of annualized cost savings related to our technology initiative will begin to materialize. Fourth, we will continue to generate savings through financial flexibility, which we expect to be in the range of $40 million to $50 million annually. And finally, a portion of the above savings will be reinvested to drive sustainable top line growth and further enhance our competitive position.

As a result of these drivers, we expect further margin expansion of 100 basis points or more in 2012 compared to 2009. We also intend to grow free cash flow in 2012 and beyond by leveraging four drivers. First, the higher profitability levels that I just discussed will translate into higher operating income and free cash flow. Second, as I mentioned earlier, we will maintain our capital efficiency with CapEx as a percentage of revenue of 5% or less. Third, beginning in 2012, we expect free cash flow to exhibit a positive step-change as the majority of our $110 million to $130 million technology investment costs will be behind us.

Finally, our free cash flow generation should benefit from a reduction in our tax rate. As Walt mentioned earlier, as part of our technology investment, we will load in new application development center in Ireland. This increased global operational presence should enable us to achieve a core corporate tax rate of 34% or lower starting in 2012. This rate is lower than our historical levels of 35% to 37% and over time, should bring us more in line with the S&P 500 average tax rate in the low 30%. As a result of these four drivers, we intend to continue to grow free cash flow in excess of $325 million in 2012, with a continuing positive trajectory thereafter.

Finally, we expect to maintain a conservative balance sheet. Historically, our balance sheet has been conservative with a gross debt-to-EBITDA ratio of 1.8x, which is lower than the S&P 500 average, excluding financials of about 2.4x. In addition, that composes about 20% of our capital structure when utilizing the market value of our equity.

In the near future, we expect our gross debt levels to remain in the $1 billion range and feel this amount of leverage is appropriate at this time. Maintaining a conservative balance sheet will ensure we can efficiently refinance our debt as it matures over the next few years. While we believe our maturities are very manageable, thanks to our strong A- credit rating and strong free cash flow generation, we're mindful of future credit conditions. Specifically, we plan to be conservative, given the significant amount of non-financial corporate bonds and bank debt maturing between now and the end of 2012.

Moving on to our uses of cash, they remain unchanged. Specifically, we will maintain three key priorities. First, as discussed earlier in the presentation, we will continue to invest to drive organic revenue growth. Second, we'll maintain our disciplined approach to acquisitions. As you may know, over the past three years, we have averaged about $100 million annually for tuck-in acquisitions. Going forward, we'll continue to look for opportunities for strategic tuck-in that will drive future growth and increase the long-term value of the company. Third, we'll continue to repurchase shares to offset the effect of option dilution. And finally, we will return excess cash to our shareholders in the form of dividends and discretionary share repurchases.

Regarding dividends, we would expect them to grow in line with operating income growth. Regarding our share repurchases, we are targeting about $100 million annually, considering our upcoming maturities. In addition, we'll continue to be flexible and opportunistic as we monitor the overall credit and market conditions.

In summary, we are confident in our continued financial strength. We are highly profitable, and we expect to further increase our profitability. We generate a lot of cash and have a solid strategy to further increase that. Finally, we have a strong balance sheet, and we'll maintain discipline on our uses of cash. With that, I will turn it back over to Sara to wrap things up.

Sara Mathew

Thank you, Tasos, Walt, George, Manny. We're now in the homestretch. Let me quickly summarize what you heard today. We have a strategy that will win with our customers and distance ourselves from competition. We reaffirmed our choice to focus on commercial insight. Data will remain our foundational asset, and we have planned to enhance it significantly. Specifically, you heard from Walt, how re-architecting DUNSRight and building a flexible technology infrastructure will enable rapid, cost-effective innovation and open new markets to us. George discussed his plan to improve execution in North America. Manny, his plan's to maintain the momentum in International. And Tasos discussed our financial strength as a company. Finally, the muscle we have built over the years with financial flexibility and disciplined execution will ensure we deliver on the strategy and create value for our shareholders.

In closing, I feel it is a rare honor to be at the helm of a company like D&B. I feel both privileged and responsible. Privileged to lead a company that is 169 years old, with a phenomenal brand, a storied past and a bright future. Responsible so I am sure that D&B is just as successful for the next 169 years. As a leadership team, we are determined to successfully transition from an enabler of commerce to an insightful, innovative company that embraces and exploits the information explosion before us. And we're excited about the prospect of providing new insights so our customers can decide with confidence.

So in summary, our intention as a group of about 5,000 committed D&B team members around the world is to lead your company as good custodians of the future. Even as we continue to transform D&B, we remain dedicated to creating shareholder value for you, the owners of our company, through profitable revenue growth and disciplined deployment of capital. So on behalf of the D&B team, I'd like to thank you all and those on the phone for joining us today. We appreciate your belief in our company, and we hope today's meeting gives you a better understanding of our strategic direction and the immense possibilities we see before us.

So with that, that concludes the presentation. And I'd like to invite the D&B presenters up to the team and we can begin our Q&A session, so if we can bring the chairs up. While they're setting up, I'd like to introduce a couple more people on the D&B team. Byron Vielehr, who leads Global Risk. Byron would be joining us up here, and then two other members. It would be too crowded if we got everybody up here. Jim Delaney leads Sales and Marketing, and David Clarke is our Chief Data Quality Officer. So we're now ready to open up for questions. We thought we'll make ourselves comfortable. We're going to be here for a while. Could we get a mike back there, please?

Question-and-Answer Session

Unidentified Analyst

Could you talk a little bit about how the realization that you needed to make these changes, these new investments came about? Was it part of what Walt was hired to do or did it evolve after he got there? Just talk about how you recognized it and some of the process of how it became a forward implementation plan.

Sara Mathew

Sure, it was an evolving process. I would say the first time we realized we have to do more was when we realized that the Optimizer product is a sales and marketing product where we match grands and a pen [ph] for our customers. We found we were somewhat limited that it took three to four weeks to get the job done for our customers. So we moved that over to Acxiom and dramatically increased both processing capability max rate and speed with which we could turn things around. And that got us talking about what's possible with data, and it culminated in a decision to migrate our data center to Acxiom. Around that time, Acxiom, we were in conversation with them, gave us ideas and thoughts about how we could possibly rebuild the data supply chain re-architected and maybe build it up by topic. This was around the time when Byron was our CIO and shortly thereafter, Walt arrived. At that point in time, the conversations got further because we were finding that the rate at which information was increasing and our ability to keep up with that throughput was somewhat limited. So in other words, we have tripled the throughput in the last three years. If we wanted a tenfold increase in the next one or two years, it would be extremely costly for our current systems to actually handle it. So I'm going to pass it on to Walt as Walt, if you have anything else to add to that, and that is really where we started with the data supply chain. And then once you start the work on the data supply chain, there's a wonderful opportunity to provide new applications off of it. So I would say Byron was a part of this before Walt, and it was an evolution as opposed to one day, we will compensate or [ph] (1:23:40) how we have to do this. Walt, anything to that?

Walter Hauck

I just would add that we had two very successful impairments [ph] (1:23:45) under Byron that I could pattern off of. One was working with many of the teams to build up an international data supply chain that was much faster than U.S. version. Having seen that pattern, it was clear what the design could look like. The other piece of this around execution. Could you actually do a big re-platforming? And I think the experience we had at Hoover's over this past year when we bought the new Hoover's platform, along with the Web services later, really showed us the path forward.

Carter Malloy - Stephens Inc.

Hi, Carter Malloy with Stephens. First question is just around you guys pronounced [ph] (1:24:24) pretty aggressive go over accelerating growth and coverage of your database. I was curious what the strategies there, specifically in small business and what's the source coming [ph] (1:24:30) out of that database?

Sara Mathew

Sure, so I'm going to take that, and I'm going to pass it on to David Clarke who can actually embellish much further. In the small business space, we do have the largest database. But the way we collect data, Walt alluded to it, for example, the doctors, for whatever reason we didn't collect that because it wasn't considered a company. We're going to change all of that. The small business space, which is especially the SOHO which is small office/home office, is where we would say we have the biggest gap. That gap will be closed by the 2010, to why U.S. records will go from roughly 20 unchanged to over 30 million by the end of the year. David, if I got any of my facts wrong or there's anything you want to add to that?

David Clarke

We have 50 million records in the database now in the U.S. in total, of which 24 million are what we call active. We maintain records for a lot of cradle to grave, as they are pretty precise [ph] (1:25:25) number, and therefore 26 million are companies under long graphics. Over the next two years, we'll grow 10 million or 15 million, I mean, small businesses where we traditionally not covered maybe as well. The source is on the Web, our customers and new investors.

Carter Malloy - Stephens Inc.

And there's a lot of questions around -- you guys had a competitor recently had announced is going to be acquired by a private equity, In Vocus [ph] (1:25:54), and specifically, a proven data of asset with a proven collection methodology in small business, with specific strength in small business there. And obviously, what it appears to be, a financially accretive transaction and are seeking to have a hand with some competitors you guys have been with aggressive-driven, irrational pricing. Just curious what was the strategic decision there to pass on that asset?

Sara Mathew

Sure, so you just don't buy just the data assets. So we actually would have some synergies of anything in the data asset. But it's really a whole lot more, which is more like a sea application pointed in a small business space that is going increasingly digital. So our interest in looking at our strategy and what we wanted to get accomplished, we thought we could get accomplished without the level of capital it will take to acquire a company like infoGROUP exactly what we needed by going back to the basics of data, digital, and ensuring we actually look, if anything, for more digital assets. So we feel comfortable with that decision, and we are happy exactly where we are. And I know that it's now in the hands of CCMP.

Unidentified Analyst

Just want to ask if you could discuss a little bit in the new initiative how much of the initiative is extending your business into new customers that you haven't tapped beforehand. And then talking a little bit more detail about the pilot testing for new customer acquisition approaches, what's happening over there, more detail and how much can this broaden your potential market?

Sara Mathew

Sure, so I'll take that up and I'm going to give it to George to talk the specific about new customer pilots. So when we look at growth, especially from North America from declining to getting to mid- to high-single-digit growth, we think it'll come from three sources. A big part of it will be from pricing. This is DNBi. As you heard, we expect that to continue to hold up well, mid- to high-single digits, and we're maintaining that. We'll do that by bringing more value to the table. Beyond that, we have a huge opportunity to cross-sell our sales and marketing solutions into the risk management space where as you know, that's our predominant business. The final piece is new customer acquisition. And what we're doing right now is actually piloting so we can better understand how we might fully get in and understand that space, test and learn before we go with a full-scale launch. And I'll ask George to talk a little bit more about the pilot.

George Stoeckert

Yes, we actually have start-up, we have a pilot going in our small business arena. We also are in the upper large marketplace. We have a pilot going on there, too. Historically, we have a very fine sales force at D&B. The sales force is very, very capable of cross-selling into existing clients, but there's a lot of caretaking [ph] (1:29:01) ability in that sales force. What we're doing is we're changing the motivation system and directing them to new lease on new contacts, which we haven't done very aggressively in the last couple of years. I think the difference here is that we're hiring a different profile right now. We're hiring really pure, a hundred, not people who are equipped to sell it to their existing clients or renew their existing clients. They're also testing out the new approaches to inspect them to make sure we get the models correct. Once we get the models done, which will be during 2010, then we'll work on how we expand that for the rest of the field organization.

Unidentified Analyst

[indiscernible] (1:29:47)

Sara Mathew

Right, between now and 2012, the vast majority will be pricing and cross-sell. There will be a very small component from what we would call completely new customer acquisition because it's so much opportunity just from the cross-sell. And new customers really beyond 2012, I think it'll take a good year or two before we get it final that we really have to learn. For example, people will own a lot more money when you go in and bring completely new business to D&B. All these shifts we got to fully understand. We want to make sure that we take it thoughtfully because we have taken a shot at it in 2008. And it didn't work as well as we would have liked. So in light of where we are from an economic standpoint and in light of all the opportunities before us, we've just prioritized it as the third leg of getting North America to growth.

Unidentified Analyst

Sara, you gave us the 2012 target. Are those the sustainable growth targets going forward? I do view high-single digit revenues and margins up 100 bps as the target they're after?

Sara Mathew

Well, I gave you 2012. That's pretty far out. I don't know how many other companies have gone that far out. And before I start to give you guidance that goes even beyond that, let me try and answer your question because I do think I know where you're coming from. Our intent is to sustain that mid- to high-single-digit top line growth rate. The 100 basis points is a one time, for sure, over 2009. Beyond that, you should know that we got a very scalable model. So the additional revenue from 2012 and beyond and targeting that same rate should come with higher margin expansion. Exactly what that will be once we get closer to 2012, I'm sure we could give you much more granularity, but there will be margin expansion.

Unidentified Analyst

And then a follow-up for Sara and Walt. Can you talk a little bit more about the strategic investment? I think that the data center migration was already occurring so it's happening in phases. Can you just talk a little bit more about the term simplify and redesign data supply chain? What does it mean? What are you actually spending money on and what processes are you working to improve going forward?

Sara Mathew

Sure, so I'm going to ask Walt to talk about the data supply chain in a little more detail. I can understand why it isn't that straightforward. But the first step was the migration because if we are moving our boxes over to Acxiom, which allows us to put our data on their grid, which is significantly more efficient and from a capital standpoint, didn't have to invest a lot of capital to do that because they already had an available grid. In terms of the sequence, let me have Walt talk about what will be done by when.

Walter Hauck

Sure, so I think the heart of this new data supply chain has got to be reduce our unit cost per data element item. It's got to be by a factor of four. It's got to be a factor of ten. And it's got a significantly higher peak capacity over the long term. So we're going to move from a mainframe hub-and-spoke model to a much more grid topology. That's going to allow us to go a lot faster. I also think we get to clean up a bunch of things that'd been in historic data supply chain. We had a long history of doing things a certain way. We're going to consolidate those all down to a very small subset of packages. That's going to give us scalability as we had new data at new data times.

Unidentified Analyst

For George, is there meaning [ph] (1:33:29) from here to go -- I know it's a different world. There was a large discussion about sales force expansion. And I know you've joined subsequent to that. But how do you view the change in sales strategy now versus maybe what the prior strategy was for the company...

Sara Mathew

So why don't I take ownership for 2008 sales force addition, and then I'll pass it back to George and he can talk about it. So what we did in 2008 is we expanded our sales force by approximately 10%. And quite frankly, we couldn't have picked worst timing. So we did that right into probably what was one of the worst recessions that we have had. And the approach we took in adding our people was really around -- we're using bag size and spreading the existing accounts around. I would say in hindsight, clearly, not the best decision that we had made. So what we've done differently since then is now what I will talk about, what George will describe as our go-to-market strategy.

George Stoeckert

What we have, what was done was we reorganized the sales force. And set it up so that we basically accreting NCA opportunities to see the rest of the organization. We're bringing in, as I mentioned before, a different profile to be in that hunter mode, if you will. Secondly, I think that a difference between 2008 from I've seen is that we have created discrete units that we can focus on and track in terms of the progress momentum and make sure that we can fine-tune it in the system. Third, the changes we've made in incentives are fairly substantial, and they really don't, for the NCA group, they don't lend themselves at all to a renewal model. That's going to create a different motivation there. Interestingly enough, we do have a lot of talented sales people in D&B. And interesting enough, just the fact that we've created the first pilots in the sales organization has actually ended up in creating a fairly nice pipeline of additional business sold into the base or being sold into the base because we want people that if you have a small level of spend with a client that, that client can potentially be moved over to NCA if we thought there was a dramatic opportunity to increase such spend with the client. So that's not really a cross-sell. What I'm talking about here is a client that say, $10 billion company where we've got a very modest amount of spend, could be $25,000. To me, that's a big opportunity for us. So that alone has created a lot more activity out of this, if you will, decisiveness by the rest of the sales force as they protect their opportunities. I think we have a very good opportunity here. We just need to make sure that we execute on it properly.

Unidentified Analyst

I just think [indiscernible] (1:36:31) are changing here very fast. But just that they, recently, has it even affected the present situation over there affected your business in Europe as you look forward? And the second thing is just in terms of commercial market share in the Risk Management side here in North America, there's been some talk of some share gains by a competitor of yours, just any comment you have ...

Sara Mathew

Sure, so the first question, I want to make sure I got your question right was about Europe and given the situation in Europe. I should remind you that our International business, in Europe specifically, we have a very small footprint. So when we implemented the partnership strategy that Manny discussed, actually, our only markets in Europe are the U.K., Belgium and Netherlands. Pretty much that's it. Italy, we actually partnered last year. And so it's a small footprint. We are watching it very, very closely, as you could imagine. And the business there primarily is cross-border. So those markets are markets where there are global headquarters of companies looking for information on companies outside their borders. We have a value proposition there that is unique and placed really, really well. That said, we do believe that Europe is going to be something we will watch very closely. We still think it'll in the double-digit range, as we shared with you earlier. So by and large, I would say we're slightly more insulated than maybe someone who had a much broader footprint. Now your second question was about claims by our competitor that they're gaining share. And I think the best way to talk about this is to really think about it in an overall, how big is this market and where could we possibly be losing share? So let me break it up in three parts and talk about it. In the largest customer space, this would be like banks, FIs, et cetera, we and all of our competitors are in there. This is the bank business. They want all our data. They don't swap in and out. They actually think every piece of data is really a valuable. In what I would call the large demand all the way to the high end of small, we do very well with our DNBi platform. That space also we do very well. The place where we've struggled the most, quite frankly, had been the small business space. There were two things that we're going to close. One is the data, which David has already talked about. We should close a small business gap there. The second piece is more online offerings because there are online offerings that significantly lower price in D&B. To counter that, we're going to be having an entry-level DNBi product that will be brought to market. And also, you heard Walt talk and as well as George talk about D&B.com, a transactional risk product that we will rewrite, which should essentially strengthen our position down there. In terms of companies who make claims that they're gaining share, the only piece of share data that I know, it comes from upsell. They actually have a much broader definition of the market. And that market in 2009, I believe, declined about 9%. I know Kathy is around. If that's different, please, let me know. But it was an all business group of upfront. So anything in that environment, which is not what I would say a clear-cut example, we would say we essentially grew share. Competitors making claims about share gains, the small end is underpenetrated and very, very large. So I'm sure they are also making gains in that underserved segment of the market. Did that answer your question? Give you a little bit of a feel on the competition?

Unidentified Analyst

Just a follow-up on Michael's question, I understand the technical side of moving from the mainframe to the grid environment. There's a lot of cost savings there. Help us understand the people side and some of the manual front, physical, along with data collection and in cleansing and so forth. Help us understand how you're managing the cost there.

Sara Mathew

Walt, do you want to take that and then David as well?

Walter Hauck

Right, well, I think the change there is really is not just hard work. There's a lot of built-up process that's going to get simplified. We've had processes for a long time and again, we pattern after Manny's experience of really simplifying the data inspection, processing, getting to a much smaller set of tools. Those can be hardware and people that will generate those cost savings. Let me turn it over to David and talk about the processing people.

David Clarke

A question about manual data collection, that was the biggest we were in, about five to eight years ago. We're not in the manual data collection business really any more. We collect data from 65,000 sources globally, 12,000 sources who are concentrate, and we use those files to flush data, then create and build and verify. We've created the Web. We have every sources you could probably imagine. The manual data collection that Sara spoke about was when I thought it existed a long, long time ago. We're not really doing that anymore. Did that answer your question?

Unidentified Analyst

Yes, that's helpful. First, there was a couple of slides where you talked about transitioning legacy products. Is this getting customers on a new product or just kind of getting reticent products? Do you have [indiscernible] (1:41:41) that? And then secondly, for Manny, help us understand the pricing jumps when you go to the domestic, in the global subscription then the DNBi. Just help us understand how much that adds on the pricing side.

Sara Mathew

Sure, so yes, we will be moving customers to the new data platforms. And actually, we've got pretty good track record doing it. A great example of one we lasted is DNBi. The DNBi is now 60% of our Risk Management business, and we've successfully moved customers. And we moved because we got a significantly better value proposition, and they liked the product and the value it provided. So what we will be doing is much the same; we repeated once more with Hoover's. Hopefully, you got a chance to see that. That's completely re-platform. We moved customers over. And then we'll do the same with D&B.com. Byron, anything you would add to that?

Byron Vielehr

No, the only thing I would add is that we are going to consolidate parts of the product line. So Walt has spoken about we're improving the data supply chain on the back. The products are going to get migrated onto that. As part of that, we want to make sure that we create as much customer value as possible in accessing the new data. And so we're going to consolidate some of the redundant products.

Sara Mathew

And the only thing I would, just close it out, say is this is a pretty significant change management process for people, for our sales people, for our customers. So what we do is we drive an ongoing communication so that people know what's coming, when it's coming so that it's accepted, it's expected and it's anticipated. As a company, we have, if you just look at what we shared with you today, jumped with an immense amount of change in the last nine years. So this is something our people are pretty good at. And they're fairly resilient in terms of moving from A to B to C to D. So we feel pretty good about where we are and our ability to lead through the change.

Byron Vielehr

A question posed to me regarding the price increases. Yes, so I can give you the averages. It depends where the customer's coming from but on average, customers moving towards global subscription pricing, we're going to be getting double digit growth. And then we expect to get double digit on top of that moving through DNBi.

Sara Mathew

So pretty much the same adoption cycle we saw in the U.S.

Unidentified Analyst

So in going from 2007 to 2012, I think DNBi prices going to go up about 30%. I didn't get as much of a sense today about why customers -- we know they've gotten the price increases. But why, going forward, you're so confident that you can keep guiding those? Maybe if you could go over the modules discussion a little bit if that's a key part. You did say DNBi continues to be the North American growth driver. Just trying to drive home what gives you such confidence you have the pricing power there?

Sara Mathew

Sure, I will kick it off and then I'll have Byron add his commentary. So you have to look at how the customer interacts with D&B on a transactional basis to really appreciate what tremendous value DNBi brings them. So early in the adoption cycle, double digits was actually not an issue at all. In some cases, we were getting over 20%. It depends on what you were doing before. And this product is realtime. It allows you to actually save things and then it integrates into your workflow. So the base business actually continue to move forward as a result of that. We got a big bump when we did the conversion, and then it's more like mid- to high-single digit range. The way we keep that up is new value. I think George talked about several things, DNBi Premium, DNBi Enterprise, DNBi Detailed Trade. So let me have Byron just give you a little bit of a flavor how each of those add something new, which is why we believe we can continue to maintain those pricing levels, that's a critical part of the equation. Byron?

Byron Vielehr

The DNBi customers are really focused on [indiscernible] of the solution. And the way we've been able to maintain pricing power seems to deliver more value to them. So improvements in scores, allowing them to more effectively run their credit shops, so the credit managers continue to be under, as I said, a lot of that functions of budgetary pressures. We allow them to offset manual resources with an automated decisioning product line. The module certainly play into that, whereas as a collections module or a decision maker allowing us to set up a rules engine that have decision leverage scores that all the efficiency for the DNBi customers. So we're going to continue to invest and will continue to expand the realm of the value that we can bring to them, make them more efficient and more effective, really through the tool itself and then improving the quality of the data that's going into. And as David talked about, we're going to put more and more data into DNBi and to allow them to get higher MAT rates and put on information on more customers.

Unidentified Analyst

So maybe, taken from the MAT rate concept, the number of range records that you have now and then you mentioned that as a target for the future, why can you not have all of the records linked, for one? And two, how do you monetize that? Can you charge a customer for knowing that they're getting records that have more length? How do you actually sell that as a product?

Sara Mathew

What I'll do is I'll give you the overview and then I might ask David to embellish. You should think about all of this working together. So DUNSRight is a process which is collecting the data, matching it, numbering it, ensuring that it's linked, is all part of ensuring you got a complete view of the customer. So you know parent-child, sister affiliate, you saw the little demo that I gave you, that's what linkage does. So we don't sell a linkage product per se. But let's say you were a customer and you're trying to find out how many unique customer relationships you have. It's important because you want to make sure your sales force is targeted appropriately in different parts of the U.S. You would send us a raw file of all your data. And what we would do is we would match it, we would get rid of the duplicates, we would say, "Really, this is the same company." Many times, customers don't even know this. And that's really the way it plays out. And I'll try and give you a simple example of how linkage would work. I don't know how many of you remember Tandy Corporation, with a company that has long bonded, which I think acquired by Compaq. Compaq was acquired by HP. But in customers' payable systems, it's quite possible that there is a Tandy Corp. legal entity, maybe maintained for tax reasons or some other purpose, and the bill that comes to the customer will say Tandy Corporation. What we do with our linkage is be able to connect that right all the way up to HP. So you truly understand the complete view of the customer, 360-degree view, and that's really the way we use linkage. Does that help in terms of giving you a sense for what linkage does?

Unidentified Analyst

[indiscernible]

Sara Mathew

So when you think of 25 million, the vast majority would be small businesses, but you don't have any parent-child entities, so to speak. So if you are a small business, I don't know, David Clarke Bakery Shop or something like that, unlikely, you may have branches but you may not. So linkage does not apply to the entire database. Many of the records are not even linked, especially on the small end. Am I making sense

Unidentified Analyst

[Question Inaudible]

Sara Mathew

Because linkage is so important to get a complete view. So you remember John Doe, Doe Custom Technologies, allow with linkage using people. So you could see how many a different businesses an individual was engaged in. So that was an example of linkage at work. So linkage really does matter and very few people do it, as well as we do.

Unidentified Analyst

I guess where I'm getting is while you're doing this, the world around you of course is increasingly linked, and I'm just wondering how whether you're going to be doing enough to tie all these entities together versus what might be evolving around you?

Sara Mathew

What we have today is so far ahead of our closest competitor. The world is not getting linked. The world is throwing out a lot of data. The data is not linked, it's disparate. And that's why it's hard for people to understand. So is your thinking the world is getting linked, I wouldn't say that, that is happening. Our linkage today and, David, maybe you can speak a little bit more to it, or give you a sense of how far ahead we are.

David Clarke

So end of last year, we closed with 15 million linked record globally. We will be at somewhere north of 17 million this year as global gross 40 million linked record. If you look at all of the legal companies around the world, on average, $0.15 [indiscernible] linked. Let me say, we have some affiliations with some other companies. The reason we don't link all records, nor all companies are linked. Why it came to our confidence? There are forms of linkage that we haven't necessarily done well. We've been very good at the legal linkage sold to parent and we haven't necessarily down franchise it dealerships, things like that. So we are expanding dramatically to give our customers the complete new at risk or the complete opportunity. From a sales and marketing perspective, it's the complete view of opportunity; on the credit side, the complete solution, that's what's important.

Unidentified Analyst

[indiscernible].

Sara Mathew

It's about 10, right, 10%?

David Clarke

[indiscernible] So about 10%. As of the competition, the largest competitor anywhere in the world has about 3 million in record.

Sara Mathew

So we have a huge advantage. What we're talking about is making that advantage even greater.

There's now new to the business. I wanted to make sure you got it.

Unidentified Analyst

Maybe building on that, can you just talk about all the things that you're doing now? Can you give us examples of some of your conversations with larger customers? What do you hear from AmEx or JPMorgan, or whoever else? Did they say if you did this, we'd spent more with you? I mean, did you try to updating your databases just for the heck of it? Talk a little bit about the background.

Sara Mathew

The reason why we are doing this because it coming through loud and clear from customers there. Here's what our large customers want: They want better data quality, they want more data, they wanted realtime, they wanted embedded and they wanted globally and globally consistent. So when we talk about data and data and DUNSRight being foundational asset, that is the reason why we are doing this. In terms of building linkage, that comes from our customers. In terms of increasing customer coverage in India and China, that comes from our customers. Why? Because that is where they are struggling the most to get understanding into exactly what's going on with an entity. So the investments and data quality, India and China will go from -- David do you have the numbers for that?

David Clarke

From 7.5 million to 15 million this year and then on the 20 million records by 2012.

Sara Mathew

So the foundation of data investments is all based on responding to customers' needs. They would like to just go to one source, have it all and not have to go multiple places. The next piece, which is embeddedness, comes from the flexible technology infrastructure, which will allow us to plug and play more easily with that system, so they will be able to consume it fairly well. Yes, Shlomo?

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Sara, can you talk a little bit more about what did you made to address some of the secular decline in sales and marketing side of the business? You talked a little bit about merging a little bit with Hoover's, and it wasn't that clear as to what's the end goal over there. Is that going to continue to decline, just at a slower pace, or are you going to try to do something to grow that?

Sara Mathew

So when you look at the sales and marketing business, there's two parts to it. There is one I would call a value added product, Optimizer, our flagship brand there. And then there are other traditional product. So let me very quickly cover the Optimizer. Optimizer is where linkage really is plays and some of the DUNS Number really plays. This is where we help customers match, plans their files, we append additional information and we give it to them. Today, what we're doing is we've added dashboards to enhance analytics and the ability to look at the information and actually make sense of it as opposed to just as a data file. And beyond that, we're doing a whole lot more. We've added email names and things to essentially meet their needs in an increasingly digital environment. All of this is responsible for the strength of the Optimizer business. So that part of the business is doing pretty well. The traditional side, and what we would call the Traditional Lists and Labels business, is struggling because of a secular trend. Direct mail, I mean, think about even yourself, how much direct mail do you get? Look at the way the post office is struggling. You don't need to send somebody a direct piece of collateral or marketing in order to be successful. So what we're doing is that we're trying to convert those to more digital asset. And since we've re-platformed Hoover's, there's no better place migrate it than actually the Hoover's platform. Some very small pieces of evidence that it works just that we can actually do it with an uplift. Why? Because it's a significantly better platform. If you didn't get a chance, I hope you got a chance to go outside and look at the kiosk and see how it completely integrates such a workflow? You can save your own numbers of them. You have a Rolodex of information. And that's the reason why we think that's going to be the best thing for that traditional business. Jim, anything you would add to that? Do you think I covered all?

James Delaney

Sara, I think you covered it all.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Just to make sure I understand, that you definitely want to rest of the decline but you're hoping that you'll be able to grow that as well as we move in there?

Sara Mathew

Absolutely, that would be right.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

And just on international, longer-term double-digit growth, is that an organic expectation or is that an overall expectation?

Sara Mathew

No. Manny?

Emanuele Conti

No, we were talking about low double-digit growth overall. We would say about half of that would be organic and half would be inorganic.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

As you move further down market where you sort of kind of under-penetrated much between you guys and the two other competitors, are you going to need more consumer data to get further down? In other words, those smaller businesses, a lot of the important principle behind the business, and how does is that -- could you, vis-à-vis, other competitors really do better business?

Sara Mathew

Sure. We don't need consumer data per se, but it's certainly a fact. We actually can get access to small business data by getting trade from customers who tend to do business in the small business end. And David Clarke is actually actively working that program. I don't think I can give you anything more than trust us. We will the have the gap closed by the end of the year. We would not want to tip our hand in terms of exactly how we get that gap closed, but there are two or three different ways, and it gives us a lot of confidence that they will close the gap in 2010. And that again, to Michael, your question earlier, came to clearly, a feedback especially from our larger customer. Because when we don't match every single record they give to us, that is something that we should never return an unmatched record. We should be able to identify, and that is what David is actually driving for as.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

So getting to linkage a little bit more, when you're pulling in data from publicly but very disparate sources on the Internet, does that raise issues of quality and security? And are you moving that data to your own services to store it forever? Or you're just constantly accessing it Wikipedia, and if something goes wrong with those websites that you're accessing, how do you deal with the reliability issues or things like that?

Sara Mathew

Sure. Our authentication is really a three-part set of golden rules that we follow. So we just don't pick it up from the web and say, "Guess what? we saw it on the web, so there it is." What I'm going to do is if you could, David, at a very high-level just tell us how do we ensure it is a real valid business?

David Clarke

I think the question was, the position we're taking from the web and what we do if something happens to that website. Once we take the data, we'd go to our traditional business rules, we validate and authenticate and then we would append it. It goes through the DUNSRight process. So it's another form of global data collection, we'll do the matching, we'll append it to a DUNS Number or a brand-new DUNS Number to the new the case, then we'll add the other data elements and then store it in our database. And then we will start to gain and constantly update. Am I answering the question?

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

And also we've talked a lot about the products today, but Dun & Bradstreet has always been a very aggressive. But sales has been a big part of your effort, and want to talk about a little bit how has the percentage of the sales force changed in the last three years as a percent of the whole company? Where is that going to go? Is it going to hold steady? And as far as your product development percent of employees, how does that change? Where's that going, possibly a little bit of difference between the two pools of employees a little bit?

Sara Mathew

Sure. So I'll let George talk into that in a minute. But I would say that one of our real competitive advantage is the very large sales force. We have a large footprint. We are all over the U.S. And then with our partners, we're just about in every country around the world. In terms of what we've changed recently, I'll going to pass it on to George to talk about how we restructured, reoriented the sales force in 2010.

George Stoeckert

The way our sales force is setup, we have a very high-end group, which is the verticals I mentioned before, which handles our very largest client. We have a what I would call a large client group, which is our largest sales organization in terms of dollars of sales. And then we have a small client group. We have some other sales organizations that handle things like government. And inside that, the way we have structured is to drive growth as we get the MTA model built to us, grew the MTA channels inside those groups. So what we'll do is as we well to new clients, those new clients will stay with MTA sales person for a period of time and then move over to a more traditional D&B salesperson who has great expertise in client retention renewal and cross-sell and upsell of products into those clients. So the idea to expand the MTA channel going forward and you'll see the balance -- and we'll balance how we move around the growth of each of those channels depending on our success rate. We'll obviously put the pedal into right and the channels that make the most sense for going forward.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

[indiscernible]

Sara Mathew

What? That technology side, in source versus outsource ?

Emanuele Conti

So I think we had moved to a largely outsourced type of innovation. And we look at building the

new set of flagship products, it feels like the tangible needs to come back a little bit. Today, we're probably 10:1 outsourced. We'll probably move that closer to 5:1 with the addition Ireland, Olsten being the primary tech hub and then progress on the capacity basis in the other centers.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

I'm curious about crowd sourcing, you mentioned that as a way of acquiring more data try to do more about that. Also I'm curious about the acquisition Jigsaw and so forth, how that relates to crowd sourcing concept? And finally, a very big picture, as to what extent do you feel at all if there is an element that D&B is somewhat the Encyclopedia Britannica of commercial information and new sources of gathering information, could be like the Wikipedia and how do you view that as a threat or opportunity?

Sara Mathew

I'll start by saying crowd sourcing is a way of getting data, and it's most valuable when it seen in the context of other information. SO if you bring crowd source data, D&B data and think of possibly a pure network of people you really trust, and you have three types of data, you as a decision-maker, a significantly enhanced in terms of figuring out what you want to make out of all that information. So we see crowd outsourcing as one element. We do not see it as a replacement. We believe proprietary elements, I think, can be enhanced through crowd outsourcing. So the stuff that can be crowd sourced are the stuff that are not critical to make a decision. So if you want to get information like picture of the gentleman that we showed up there, that came right off of Google images. You don't have to sort that, it's easily available. So why don't just put crowd sourcing in it's appropriate context and by itself, we don't believe it is sufficient. In terms of the Jigsaw relationship and the Jigsaw acquisition by SMBC, we see that as a real opportunity. It is the first recognition by software as a service provider, which as you know is a concept that don't exist 10 years ago. The data is very important to their model. When we look at the implication for us, we have really good relationship to Jigsaw and with salesforce.com. What we're trying to do as being much broader and bigger than just Jigsaw alone. Ultimately, we want to get all the information we need, which means we may need more than just Jigsaw. So we have arrangements that are currently being worked with them, but that is not by itself sufficient relative to the vision that we are trying to achieve. Now I know you have a third question in there that I may not have answered. So I want to come back and ask you that I thought there was.

Unidentified Analyst

Just a theoretical question how would you say there's any comparison with the Britannica versus Wikipedia?

Sara Mathew

We are not the Encyclopedia Britannica. I could say that with not just conviction but a whole lot more. If you look at decisions that customers make, we are by and far way ahead of anybody else. The only thing that only even comes close is their own internal credit department. And we slowly happened to slicing the internal credit department. But oftentimes, the internal credit department tend to rely to us and use us. So no, I would say we're not even close but I appreciate it for bringing that up.

Unidentified Analyst

One simple at the beginning, this quarter, you didn't hold a conference call, you've released your earnings, any reason for that? I mean, you're the only company we know that did that?

Sara Mathew

We thought it was a hole quarter. There was nothing unique. It was pretty much all in line, we're going to meet with all of you, so if you have any question on the quarter, we're happy to take them right now. So this is nothing more than an efficiency measure more than anything else. We will have a second quarter call, you can count on it.

Unidentified Analyst

And the second question is getting to your earnings, what about spending this investment program this year and yet, company kept the earning estimates in line with what they were expecting in revenues and operating income and EPS. And I think some of the criticisms some analysts have was that they don't think you're going to make the numbers. They pick your revenue, they take your investment spending, they get $0.50 or $1 lower. Can you give some insights in the deltas of those two?

Sara Mathew

I have to leave the models to the analysts in how they calculate them. What we tried to do is make sure we are running this company appropriately and we put guidance out based on everything we see at any point in time. So we confirmed guidance when we release the first quarter earnings. We reconfirmed a today. And you'll have to get a little more specific with me in terms of where do you see a gap, we can may be between top of my self and the team here help answer that for you.

Unidentified Analyst

The simple gap is you've kept your revenue estimates and then you're spending all this money. I mean, I think it's positive you're spending money, but you're spending all this money, therefore, you take revenues and you minus this incremental spending, unless you get a lower number?

Sara Mathew

I see, I think I understand better. What you're saying is we reported this as a separate number as opposed to putting it in our base number. We actually did that for complete transparency because let's we don't spend all that money we spend less. If in actually in base fee, we'd never know that. We were actually trying to be completely transparent. We did feel this was a right investment to make. I would stand by that decision. We are reporting it with and without, so you should be actually able to put that in and report. In on the number, all we were trying to do was really be completely transparent. Was I not quite get your answer?

Unidentified Analyst

Let me restate it. Why wouldn't the earnings come down if you're spending this incremental money? What are you doing to keep the earnings up?

Sara Mathew

What are we doing? I'm not following the question exactly, which year are we talking about? Is it 2010?

Unidentified Analyst

Yes, 2010

Sara Mathew

Tasos, why don't you try that?

Anastasios Konidaris

Let me try. We look at this couple of different ways. The technology investment, which we said this year will be $45 million to $55 million, 60% of which is running through our operating income. So lets call it $30 million. Operating income guidance is not minus two to plus two, it is minus eight to minus something else, so it's down. And to your point that would have been one way to communicate guidance, there's technology investment in it. And then I guarantee you, 50% of you incomes average excluding this one-sided revenue investment, I guarantee you. So what we decided to do is give you our underlying because, that is underlying business because we see this business in advance approximate two-year program, so you know what's going to happen in what we expect in what's model going forward. And then explicitly to serve what our expectations, so we give you all necessary. So we give you all the thesis that took care a lot of your operating income, it can not run free cash flow with completed transparency. So you can critique me for excluding it. I guarantee you have done it the other way or you can say, "Yup, got it." You're giving us all the transparency that we did to model this. And our way to Sara's point, if you understand here, we have been able to kind of go between the two underlying business and the one investment. So other than that, I don't know what else to tell you.

Sara Mathew

I want to make sure that we did answer your question. Did we...

Unidentified Analyst

Yes. Into the quarterly revenue basically in line and your earnings up $0.07 to $0.12 higher. What was the reason for be higher-than-unexpected earnings?

Anastasios Konidaris

It was primarily on tax rate. When you look at it in the quarter, there was one discrete item. So we don't expect the really a timing of our tax planning. So I feel like our overall tax rate for the year to be 35% over the expected tax rate will in the lot of quarters will be higher than Q1. And as you know, it's typically our Q4 tax rate because North America is not a proportionate amount of our operating income should be even higher.

Sara Mathew

So we don't provide quarterly guidance, as you know.

Unidentified Analyst

George, are you planning on increases sales force this year? Or could you go over that?

George Stoeckert

We are not presently planning an increase in sales force this year. What we're planning on doing is running our testing through the end of the year for free cash flow. We will start on our executing on our plans to add the sales force before we get to year end. I think we are going to have people trained ready to go at the outset of the first quarter for 2011. But they won't be actively filling any in the sales force organization this year.

Unidentified Analyst

And when you look at your growth plans for the next couple of years, we're building the sales force driver to get you there?

George Stoeckert

In terms of size?

Unidentified Analyst

Yes.

George Stoeckert

We are going to determine that based on where we are with our overall plan and what we see the effective models using for next year. We'll do that in line with what our expectations to be made out of what we see in 2011.

Unidentified Analyst

And then just one question on international. What other opportunities exist like that one you gave on Italy as far as new partnerships?

Anastasios Konidaris

I'll give you the recent one. We just recently signed, two weeks ago, a deal in Turkey. So now we will expand our coverage and investment in that area. A partnership we have in the Middle East were actually expand the partnership into Turkey. No capital on our side, it's same partnership model we have. But it dramatically increased the coverage from around 60% to nearly 100% over the next couple of years. After that, we're constantly looking at various markets around the world, trying to understand where we could improve our data quality, because that's foundational to everything that we do. And if we have find the right sources, right partners, we would like to keep those deals in the future.

Unidentified Analyst

How many countries are there where you have that immense opportunity as far as the percentage as still being so low?

George Stoeckert

I think in terms of size, I'll certainly let David expand on this, but we still have significant opportunities in the market that we own and are investing in Asia. By no means are we finished there. So I think there is some new markets that are out there but I think the investments that we're making Asia and even in the U.S. we'll still see significant opportunity.

Sara Mathew

So there are emerging markets, Lithuania, there are several of the Asian republics which are all cover there as we would describe as distributed. There are markets in Latin America where we could possibly do similar arrangements like Turkey. What we try to do is make sure we find a partner who's interested in investing behind the brand and actually getting us to 100% coverage. And as I suppose somebody just want to brand in the market and if they're just have the D&B brand, we look for somebody very specific as in the case of Turkey, our middle east partner, have a strong interest and there's actually a reason why they can get to a full coverage. We have two or three partners expressed interest in Turkey. It is just beginning to really rise up and get attention from others. And we picked a middle east partner very, very powerful. Manny actually led that and then just got done. So there is still upside there. And remember, when you get that partnership going, the entire world actually benefits.

Unidentified Analyst

There's been a lot of changes in Europe and international over the few years with Italy and with Great Britain and with Asia growing. There are a lot of universal product changes, which I guess are also affecting international, DNBi gross becomes more global. I guess what I'm trying to understand is how this will over the longer term affect the margins. The margins in the international always sort of being half of the DNBi in North America? And I'm wondering as we go down this road, is there anything structural will prevent those from getting closer to the North America margins, or what should we expect?

Sara Mathew

Sure, I'll have Manny talk about developed markets and then the developing markets and international, so you'll understand the structure of our margins.

Emanuele Conti

A couple of things. First of all, there's a breakout international into two basic regions: Europe, which is our developed market; and Asia, which is our high-growth market. Europe has higher margins than Asia. We're investing in Asia. Given the fact we've seen such large opportunities to scale and grow that business. So we expect our margins in international to continue to expand. I think as we look through 2012, do I see closing the gap to North America happening? No, I don't see that. But I'd certainly see opportunity to continue to scale and expand margin.

Sara Mathew

So we as a company, we have a principle that as we get higher revenue, it's a scale of our model, margin should expand. And the only thing holding Asia back, by the way, Asia is also expanding margins, has really continued investment back in the days because it's just a small part that we have covered. There's so much opportunity, and if we get our base firmly established, then I think we actually get really significant leverage as when you look in the out years, which I would say 2015, '20 and beyond.

Unidentified Analyst

A couple of quick balance sheet questions for Tasos. The gross debt number has increased over the past four to five years. And you mentioned that you want to keep it stable around $1 billion, just the rationale behind it, and is that the 1.8 leverage target is your long-term leverage target that you want to stick to, or is this a short-term goal?

Anastasios Konidaris

I will expect the leverage question, very timely. A couple of thoughts. Number one, there is no point over the last few years, we increased leverage and we brought our gross to about $1 billions. There's nothing really kind of magical about that. We are not sitting here today kind of looking at our uses of cash, looking to kind of make sure we continue to invest in the business, continue to secure an organic growth and also looking at our long maturities that are coming up. So $300 million bond are coming due next year. Our $650 million revolver is due in 2011. Our $400 million bond, 2012. So look at all of those things and we'll say, "Okay, now is not the right time, we don't think it's the right time to start any higher." We see how the credit uncertainty is playing out in the next couple of years. In terms of that is going to work through in our thinking right now to say kind of $1 billion. We feel comfortable at this level for the next couple of years. In terms of the growth rate to EBITDA ratio, right now, we are at 1.8. We expect our free cash flow to grow over time. So the 1.8 at the end of year 2012 should come down slightly. Okay? So to that point in time call once we're done with all the refinancing of making sure that gets refinanced efficiently, we will continue to look at that. Did that address your question?

Unidentified Analyst

I guess I'm trying to also figure out, is there a long-term leverage target that you have in mind?

Anastasios Konidaris

Yes, we tend to look at it every single time, but one of the things every couple of years was look at it and we make adjustments. But the one thing though for us is going to cut through all that is that we will continue to always be conservative. Okay? So I don't know if that helps you. We're not looking to level up. We see to that level up the company about three years ago, it ended up being the right in keeping with the happen in the credit markets. So overall, we continue to believe in a conservative balance sheet position.

Unidentified Analyst

And given the volatility in the credit markets, do you foresee refinancing and pre-funding some of the like revolver or the 2011 bonds earlier?

Anastasios Konidaris

Yes, a couple of things. We have had these conversations with our treasurer. Right now, we're very confident about what those things are yield and been able to refinance them at that point in time. Also, we're mindful, to refinance for example, earlier some of our next year bonds can come with higher interest expense and so forth. So we are looking to balance for our shareholders the entire interest expense, we've got the right time for good interest rates.

Unidentified Analyst

I just wanted to ask about the financial flexible program. I know you guys have been engaged in that for several years now. And my understanding was that a lot of the gains there came from outsourcing some of the technological development, and now that it sounds like with the implementation of Ireland, you're going the other way to some degree. Can you talk about how much opportunity there is for corporate efficiency? And I know every company always said, there's always room for more efficiency. But can you talk about some of the sources of where that will come from and how that may be different from where it's come from the past?

Sara Mathew

Sure, financial facility I guess as a concept and I'll pass it on to Tasos. Is the process whereby we look at every dollar that we spent and then we decide whether or not we should continue to invest in that area or not. And so as we look at the time frame between now and 2012, Tasos has spent a lot of time thinking about this. And I'll ask Tasos to go ahead and share that thinking would you.

Anastasios Konidaris

Yes, when you look at how financial flexibility has evolved over time, the very early days, 2001, '02 and '03, that's where the majority of the outsourcing took please. Since then, the things have evolved. Now the question is what other opportunities that you have? So as I mentioned, we're targeting about $40 million to $50 million annually, which is down from where we would typically would do is about $70 million $80 million. The reason for that is the technology investment is really tackling a part of the infrastructure called data and technology costs. So what's left is something less than that. That's why we brought down the expected number. Area of opportunities, SG&A continues to be an area of opportunity. So we spend, even though over time, our G&A cost would come down over time. But since that's an area of opportunity. That is number one. Number two is over time, we've acquired various businesses, primarily in Asia. So that gives us another expense base to the engineer that can help drive margin growth. And again, our North America business as we look at layers spending control of monitors and how we can empower them to more efficiently drive decision making. So we're very busy right now kind of focusing on what the financial flexibility actions will be for next year.

Unidentified Analyst

Over the last several years, there's been a lot of discussion about Moody's and S&P and the quality of their credit ratings and what they really mean or don't mean. What kind of studies you've done about how predictive your scoring really is in a sense of you can say with confidence that you've really been going back retrospectively to see that your score was correct?

Sara Mathew

We do a lot of what we would describe as retro scoring. In a minute, I'll ask Byron to talk about how we use retro scoring to constantly improve our scores. With Moody's and S&P does, it's quite different the actual rate done. They have a complete insider view of a company and then they make decisions. We see our business as complementary more than anything else, and we certainly have plenty of opportunity right where we are, with the business we have and the assets we have, between now and 2012. But to answer your question in how confident we are about our scores, we just completely get all of our scores in 2009. So Byron, you want to talk about that?

Byron Vielehr

AS i was saying, the customer portfolios around the scores to them. We take that snapshot of assessment portfolio from six months ago to see how predictable scores are. As we see changes going on in the marketplace, and we update the scores. In the fourth quarter, we came out with our system with the first quarter is more predictive than the previous one. And a lot of the insight into that was based on going and doing a retro score in assets. We also look at the data that's going into scores. So we constantly evaluate new sources of data that are out there and try to drive up the predictiveness of the scores. It's a fairly regular activity for us in the U.S., as well as the rest of the markets. So we at Canadian scores and European scores and try to update them. And make sure we're getting input from customers on currently what's working and what's not working.

Unidentified Analyst

Certainly, when you have internal credit groups of companies, if the internal credit department can't do as good job as you, and that's obviously a good chance for yourselves to go in there. I expect that there are cases where you have business go the other way, where you got a company that's using you an also got their own team and somehow they come up with a view that your scoring hasn't been as accurate as you prophesied it to be?

Sara Mathew

It doesn't go the other way. Most companies are actually going towards using D&B's scores. If you look at companies like Dell, they're actually run entirely on a D&B system. So there are certainly the trend going a certain way. But we partner with the credit department. We don't try to just put them just out of business. We help to say if you use D&B data and you use our processes, you're actually able to do more with less. So in other words, they'd be able to meet your budgets constraints as a credit department. And actually will sum up this over to our automatic decision engines or some of our scores. Byron, you want to add something to that?

Byron Vielehr

The other thing that happens is people use our scores as inputs into their model. And the biggest thing, we took them on a cost of spring is. They have a lot of data internally. And they bring us to work with customers and the leverage our data as well as our other internal they may have, demand deposit data or account receivable data. They'll leverage that as part of their internal scoring engine.

Sara Mathew

In fact, earlier in the first quarter, we had a very large -- this is a good example since somebody had asked about competitive wins. We just won over an over $2 million, three-year deal with a very large utility company. 2009 a year ago, they chose to go with one of our competitors, it doesn't matter which competitor but one of our competitors who offered them something of $200,000. 2009 was a rough year and so they took the deal. We held on price. After sales team with a customer, the day after they lost the deal about understanding what we could've done better, we were clearly told it with our price. Three months later, the customer was still talking with the D&B sales team. Six months later, we knew we were getting the deal back. Nine months later, we were starting to lay out a side-by-side comparison, we signed with the dealer first quarter. And that's just one example. But the times when we focused on losses and focused on winbacks, we actually do very well because that's the quality of the data and what we provide. And sometimes customers do go to a competitor. And then our job is obviously to prove the value. And yes, we signed the deal at over $2 million over three years of a significant premium.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

I just want to get back a little bit more on the competitive front. Some of your competitors are talking about taking some markets share. As you guys moving your clients onto some of your newer product lines, how concerned are you that some of your competitors are going to try and get in there and say, if you're moving to other product, try and look at our product that we have right now. That's usually when a company becomes kind of vulnerable and how are you going to live it that way?

Sara Mathew

Sure. We're going to a very thoughtful about the transition and I'm going to talk about how we're going to handle Web services, a web-based platform are generally tend to be easier. And we've got a great there with D&B. The number we actually transitioned a whole bunch of people over with DNBi and up sell and really no risk. In fact, I'm so glad I got it done because it helped us weather the economy really, really well. But Byron's leading the charge here and he will talk about the way we're approaching this to ensure that we don't have any issues in the migration with that customer?

Byron Vielehr

Regarding the DNBi migration, which is 50% of our overall Risk business afloat some of the wins we had around when we migrated optimizers. If you add enough additional value to the migration, they tend to grow very slowly. So we thought it DNBi as we migrated customers across what they were using as to what the new platform, we had a great experience of the customer, and actually created revenue lift as we went through that. It's the exactly same experience with optimizers. Sara has mentioned the difference is the products. But beyond that, the online product that we have a lot of experience migrating is we know that we have customers that are solutions for value-added services. And then we have some of our largest customers are using some of our higher volume gateways products. So those are really going to make sure that the migration is seamless. So it will be zero exit migration for them and will give them access to a much higher value capabilities on our back end. Once again, we're very focused on how do you create more customer value through the migration. That is going to fuel the migration for us.

Sara Mathew

So I want to touch in something called Web services. If you just spend a minute, the term may have been lost on some of the issue. side is to talk a little bit about how Web services will transform that customer experience.

Emanuele Conti

Do a part of the product is what we call migration toolkit is a proprietary technology and a lot of banks that's consuming our data, huge volume, there's been large talk about change. I think if you fast-forward the technology 20 years, there's this whole service-oriented architecture Web services layer that's out there keep on building application you look at salesforce.com, you look at iTunes and that's kind of service layer makes you feel the application is quick and clean. So we're going to provide both style of interfaces, one for the legacy customers and one with Web services. In fact, Byron strategy is to take the old services and put them on top of the new and customers can choose what over time and they will migrate.

Sara Mathew

And next week, Manny and I will be meeting with all our worldwide partners because these Web services now provide new capabilities for our worldwide partners in their domestic market. And we just had a very, very preliminary review of what we're planning to do them and they're really quite excited because it gives them a platform in which they can innovate. And that gets D&B brand to be more first-rate around the world.

Unidentified Analyst

I was just curious if you talk about how you migrated this fabs and web services and a lot of this stuff been around for five years or so. You're all moving it to a one-time technology upgrade. As you think about spending that money three years from now, you're going to have this total evolution. So what gives you confidence that this is the big one and you just need to maintain from there?

Sara Mathew

I think the best way to look at that is to look at the life of this project. Where do we see it as a light and we see as light not if I call it seven maybe 10. It is a one-time or because we are building, re-architecting our data supply chain, that should have probably the longest life. The applications is a flexible platform. So quite frankly, the cost renovate it is going to be significantly lower. So to bring something out to market today with our current infrastructure, what would you say, the costs relative to what we would be able to do post 2012?

Emanuele Conti

We we're hoping for 5x.

Sara Mathew

There you go. So in terms of much lower costs and actually much faster to market because of how flexibility we're building the infrastructure. So this is truly what we would say as one time, not something that we see every two to three years. We're going to have another or it won't be one-time any more.

Unidentified Analyst

If 5x might cost you today, what is it cost Google or a Amazon or something like that? I mean, is there any different business, right? You know what the cost for engineering unit is of maybe something closer like that of a PayPal. Have you benchmarked against that and where your on what it cost to do that?

Emanuele Conti

No, we have not. I'll give you an example for an application. That was an application build in eight weeks, one with a very small a bit of manpower and I think that application compared well to what we see as published cost of application development on the actual. As we were talking less than $50,000 application. So I think we're moving into that environment where once you got the structure in place and web services on top of them, you can build it in a much lower rate. you were building part of the MBIA in a multi-million-dollar range and removing $50,000. That's the kind of economics we're talking about here.

Sara Mathew

Well, I'm seeing no more questions. I just want to say thank you very much. Thank you for coming. I hope this gives you just a small view into what we're doing. And hopefully, we'll see you back in another year. With that, I'll call the meeting adjourned.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Dun & Bradstreet Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts