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Dun & Bradstreet (NYSE:DNB)

Q1 2014 Earnings Call

April 30, 2014 8:00 am ET

Executives

Kathleen Guinnessey

Robert P. Carrigan - Chief Executive Officer, President and Director

Richard H. Veldran - Chief Financial Officer

Joshua L. Peirez - Chief Operating Officer

Analysts

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Manav Patnaik - Barclays Capital, Research Division

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Andre Benjamin - Goldman Sachs Group Inc., Research Division

Brett Huff - Stephens Inc., Research Division

Nick Nikitas - Robert W. Baird & Co. Incorporated, Research Division

Operator

Good morning, and welcome to D&B's 2014 First Quarter Teleconference. This conference is being recorded at the request of D&B. If you have any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the call over to Ms. Kathy Guinnessey, Treasurer and Investor Relations Officer. Ms. Guinnessey, you may begin.

Kathleen Guinnessey

Thank you. Good morning, everyone, and thank you for joining us today. With me on the call this morning are Bob Carrigan, our President and Chief Executive Officer; Rich Veldran, our Chief Financial Officer; and Josh Peirez, our Chief Operating Officer. Here's what you can expect on the call. Following my brief remarks, Bob will talk about progress on our strategy during the quarter, then Rich will come on to take you through the financial performance. After that, we'll open the call for your questions.

To help our analysts and investors understand how we view the business, our remarks this morning will include forward-looking statements. Our Form 10-K and 10-Q filings, as well as the earnings release we issued yesterday, highlight a number of important risk factors that could cause our actual results to differ from these forward-looking statements. These documents are available on the Investor Relations section of our website, and we encourage you to review the materials. We undertake no obligation to update any forward-looking statements.

During our call today, we will be discussing a number of non-GAAP financial measures as that's how we manage the business. For example, when we discuss revenue growth, we'll be referring to the non-GAAP measure core revenue growth before the effect of foreign exchange, unless otherwise noted. When we discuss operating income, operating margin and EPS, these will all be on a non-GAAP basis before non-core gains and charges. And you can find a reconciliation between these and other non-GAAP financial measures and the most directly comparable GAAP measure in the schedule to our earnings release. And they can also be found in a supplemental reconciliation schedule that we post on the Investor Relations section of our website. Later today, you will also find a transcript of this call on the Investor Relations site.

With that, I'll now turn the call over to Bob Carrigan. Bob?

Robert P. Carrigan

Thank you, Kathy. Good morning, and thanks to all of you for joining us today. Last night, we announced our first quarter earnings of revenue growth of 1%, a decline in operating income of 5%, growth in EPS of 14% and free cash flow of $148.5 million. I am pleased to say our first quarter results were in line with our expectation, and we're starting the year on the right foot. We are on track to deliver our full year guidance of revenue of flat to up 3%, a decline in operating income of 5% to 9%, an EPS decline of 1% to 5%, and free cash flow of $250 million to $280 million. Rich will go into our first quarter results in more detail in a few minutes. Before he does that, I'd like to give you an update on what we have been doing in the last 3 months to execute our strategy and put D&B on a path to sustainable long-term growth.

Since our February earnings call, I've been actively getting out and talking to the investment community, and we've participated at our first investor conferences in March. I encourage you to take a look at the presentation in the Investor Relations section of our website to get more detail on our strategy. Now as I said back on our February earnings call, we plan to return D&B to long-term sustainable growth by becoming one global company, delivering indispensable content through modern channels to serve new customer needs. There are 5 key components to our strategy: the first is investing in our content, which is a combination of data, analytics and insight; second, modernizing delivery of our solutions; third, globalizing the business; fourth, modernizing the brand; and fifth, creating a forward-leaning, outside-in culture. We are making real progress against this strategy, and D&B is now moving at a much faster pace. Over the past few months, we've announced a handful of acquisitions and new alliances. And let me take a few minutes to explain the strategic relevance of this recent activity framed in the context of the strategy.

First, let's talk about content. Last quarter, I talked about how D&B is uniquely positioned to help our customers make sense of big data by bringing together structured data from D&B and our customers and unstructured data from new sources to create insight that is exponentially richer and more valuable than the separate elements on their own. A practical example of this is how we help companies who are struggling to make sense of vast amounts of unstructured data created on the social web. We have recently taken some exciting steps to help our customers use this social data to gain new insights about a company by matching it to our foundational data. A few weeks ago, we acquired the social data matching business of a Bay Area cloud company, Fliptop. Fliptop is a leading aggregator of web and social data. They came to our attention as one of our data exchange partners, and we were quite impressed with their technology. They figured out how to link an individual social profile with a corporate identity, which could bring a whole new level of insight about a company. We acquired that technology and their data social profiles because we can take this capability to the next level to give our customers new insights. By linking unstructured social data with D&B's existing proprietary structured data and organizing it around our D-U-N-S Number, our customers can begin to make sense out of the mass of social chatter and identify opportunities to expand the relationships with their customers. Another example of how we are bringing relevant social data to our customers is through a partnership with a company called FirstRain. We are bringing their social analytics on companies and industries directly into our application in near real-time, giving our customers highly relevant insights on companies, markets and competitors. In both of these cases, we are helping our customers make sense of the mass of information on the social web about their customers and prospects by organizing and matching it with companies in our own database to give them a much richer view.

Now let's talk about the second component of our strategy: the delivery of our content in new and modern ways. I'm pleased to say we are off to a good start in this area as well. Just yesterday, we announced that we acquired a company called Indicee, located in Vancouver, British Columbia. Indicee is a state-of-the-art development shop that builds agile, cloud-based business intelligence applications for B2B customers. Indicee's unique capabilities will allow us to jump-start the development of our cloud-based DNBi solution, and DNBi is just the first step. We are creating a cloud innovation center that will be led by Indicee founder, Mark Cunningham, to leverage our newly acquired expertise in cloud-based technology to deliver D&B's content in new and modern ways. Mark and his team have extensive background in business intelligence development, including Crystal Reports. We're excited to have their entrepreneurial spirit here at D&B. Another way we are modernizing delivery of our content is through alliances. We talked about how important alliances are to our growth. Through alliances, we are embedding our content directly in our alliance partners' applications so customers can access it natively in their workflow tools. We want to add more alliance partners because they enable us to reach more users, and we take the product development off of our platforms and onto our alliance partners' platforms, where they've already got best-in-class applications and a relationship with their customers. During the first quarter, we entered a new alliance with Sugar, a very fast-growing CRM provider. Sugar offers D&B content native in their CRM solution. With over 1.5 million users, the alliance with Sugar opens up a new opportunity for us to reach more customers faster than we could on our own. Sugar also has a very big concentration of small businesses, and this alliance allows us to further penetrate that customer segment.

Now the final 3 areas of our strategy are also progressing but are more long term in nature: globalizing the business, modernizing the brand and creating a forward-leaning, outside-in culture. Now in terms of globalizing the business, as I said on the last call, in the past, we operated a separate regional company, and we weren't fully taking advantage of D&B's large global footprint. Today, we have a truly global strategy that will allow us to capture 3 key benefits: First, we will gain operational efficiency by leveraging common experiences and economies of scale. Second, we will be consistent in what we deliver to customers wherever we do business. And third, and perhaps most importantly, we will better meet our customers' needs by organizing our sales teams the way our customers want to do business with us. Now when it comes to how we go to market, there is a significant opportunity. Many of our customers want to do business with us globally, and we are building a global accounts group to serve them, but some customers want to do business regionally and some, locally. Now we're in the process of mapping our sales structure to serve the various needs of these different customers, how and where they want to buy from us.

So let me finish up with a quick update on the final 2 components of the strategy: modernizing the brand and creating an outside-in, forward-leaning culture. Last quarter, we announced that we hired our first-ever Chief Marketing Officer. Rishi Dave came on board at the end of February, and he's at work, interviewing brand agencies to ensure we select the best partner to help us modernize the brand. And we are reinvigorating our culture. There is a palpable energy in the halls around D&B, and we are moving with a new sense of speed as we begin to execute our strategy. Our team members are acting with more of an outside-in lens, getting more visible on social media, doing more speaking engagements and forums, getting more plugged into market. We also have a strong focus on bringing in new talent to complement our team. We've already filled several key roles and are recruiting right now, in addition to adding new talent to our recent acquisitions, like Indicee. So overall, while it is still early days, I'm pleased with how we are progressing. Our business performance is making progress and on track to deliver our guidance for the year, and we're off to a strong start, executing our strategy.

Now let me turn the call over to Rich to go through the quarter in more detail. Rich?

Richard H. Veldran

Thank you, Bob, and good morning, everyone. I'm going to take you through the drivers of our revenue and earnings performance, and then we'll open the call to your questions.

Total company revenue for the first quarter was up 1%, in line with our expectations. These results reflect the solid performance in the areas of the business that we expect to drive growth in the future. Partnerships and alliances, both in North America and international, posted strong growth during the quarter. We also saw a strong growth from large global customers in international. Our newer products, those introduced in the last 3 years, like DaaS and new scores, also contributed to growth in the quarter. These are the areas of our business that we expect to drive our performance as we get the company back to sustainable, long-term growth.

Now let me talk about the segments in more detail. North America, our largest segment, with 73% of revenue in the quarter, declined 1%. This performance was consistent with a pattern that we've seen over the past few years, with a slow start to the year followed by a stronger second half. This can be attributed to the fact that our project and usage-based revenue is growing faster than our subscription-based business, which has been declining, and projects of much bigger part of our mix in the second half of the year. We expect that pattern to continue in 2014, with slower first half offset by higher growth in the back half of the year.

North America risk management was down 1%, with a 4% decline in DNBi partially offset by growth from new products. While DNBi retention continued to be very strong, in the low 90% range, and pricing was up in the low-single digits, we are not getting enough new customers to offset normal attrition. As Bob mentioned, we are taking steps during the course of 2014 to move DNBi to the cloud to make it global and more integrated in our customers' end-to-end workflows. As such, we expect DNBi to continue to be down this year until the cloud upgrade is complete and we can bring additional value to customers. Over the longer term, we expect DNBi to return to growth, with a more significant contribution coming from international markets as we expand the platform around the world. Risk management projects and other revenue grew 7% in the quarter, offsetting most of the decline in DNBi. We continue to see strong performance from our new product, led by our DaaS solution, D&B Direct. In aggregate, new products contributed approximately 2 points of growth to total RMS in the quarter.

Sales and marketing revenue also declined 1% in the first quarter, with a 6% decline in traditional products, offsetting 2% growth in our value-added solutions or VAPS business. The biggest growth driver in VAPS was our DaaS CRM operation led by Data.com, our alliance solution with Salesforce.com, which contributed over 2 points to total S&MS growth in the quarter. In general, our sales and marketing revenue tends to be lumpy quarter-to-quarter given the size and timing of our project business. Overall, our underlying trends are strong, and we continue to expect sales and marketing to be a growth driver in 2014.

North America deferred revenue was down 3% at the end of the first quarter as the parts of the business that are growing most have little reported deferred revenue. As we talked about in the last few quarters, our alliance business, which is subscription-based, is growing nicely. However, committed sales of our Data.com products sold through our alliance with Salesforce are not reflected in our deferred balance and would have added about 2 points.

Let me turn now to international, which represented 27% of revenue in the first quarter. The revenue growth of 8% was due to strong performance in both Europe and Asia. In Europe, which represents 59% of international, revenue was up 6%. We're starting to see customer demand strengthening after several years of a tough macroeconomic environment. Our strong performance was due to solid growth in the U.K., driven by a new project with a large multinational customer, as well as growth in our European partnerships. In Asia, which represented 41% of international revenue, our 11% growth was led by strong results in Australia, where, like Europe, a new project with a large bank drove a good part of the improvement. Growth in revenue from Asia partnerships also contributed to the overall performance. While our overall international business is improving, the growth spike in Q1 benefited from 2 large projects in the quarter, and we do not expect such a high level of growth in future quarters.

Let me turn now to profitability. Operating income declined 5% in the quarter, which is at the favorable end of our guidance range of negative 5% to 9%. This was due to the timing of investments as we spent less than 10% of the $70 million to $80 million program during the first quarter. Our investment spending will ramp up significantly beginning in the second quarter. EPS grew 14% in the quarter. The 19-point spread between EPS growth and operating income was due to a tax benefit that we got in the first quarter, which contributed 12 points of the growth, as well as the impact of share repurchases. Regarding the tax benefit, we closed out our 2007 through 2009 audit years, and as a result, released $6 million in interest that had been accrued to our core tax rate. This benefit was expected when we set our earnings guidance for 2014, although we did not have certainty as to which quarter it would hit. We expect our full year tax rate to be 32% to 32.5%.

Turning to the balance sheet. We ended the quarter with debt of $1.5 billion and cash of $268 million. During the quarter, we repurchased $85 million of our stock under our discretionary program, which leaves us approximately $80 million remaining under the current authorization, which we expect to complete sometime this summer. We will update you on our future capital allocation plan after completing the current authorization.

So as Bob said, we're off to a good start to the year, both in terms of our strategy execution and our progress in the business. We will now open the call for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Andrew Steinerman of JPMorgan.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Bob, I wanted to ask a question if you thought of anything that investors could track as we spend the investment dollars this year, to assess if it's being effective before you see the lift in organic revenue growth. Or is really organic revenue growth the only way to see the return on investment?

Robert P. Carrigan

Look, as I said, Andrew, we're all about organic revenue growth. And this year, we're very involved with executing on implementing the strategy. And so we expect next year that we'll be growing revenue and operating income. So really, that's ultimately we're going to be looking for.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

And could you just mention anything about the sales force. Have you got sales force incentives aligned with the strategy yet? Or is that still evolving?

Robert P. Carrigan

Well, it's still evolving. Look, we're -- as I said in my remarks, we're very focused on mapping our sales coverage and talent to where the customer opportunity is. And we now have a truly global sales team, and this is a big departure for D&B. So when you think about servicing customers on a global basis, regional basis, local basis, we're going through that process now. And certainly, compensation will go hand-in-hand with that as we think about how to incent the right sales talent to go after the right opportunity.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

And I also want to take Roger Sachs for his help over the years.

Robert P. Carrigan

Indeed.

Operator

Our next question is from Manav Patnaik with Barclays.

Manav Patnaik - Barclays Capital, Research Division

So the first question is just on DNBi, your comment on you're not getting enough new customers. I was wondering, so what gets you to those new customers? I mean, I know you have the cloud initiatives to maybe make it easier to use, but it can't just be as simple as putting it on cloud and all of a sudden, you get the new ones, right. So just curious if you could elaborate a little bit more on what needs -- why those new customers are not signing up with you guys?

Joshua L. Peirez

Manav, it's Josh. Let me take that for you. So first, to emphasize, we did grow 1% overall in the quarter even with the DNBi decline, consistent with our expectations, our guidance and our strategy. And our growth is being driven in our strategic areas, where we expect it to grow. As we've said on DNBi, we do expect to stabilize and have low growth in the business. Moving DNBi to the cloud is a tool to do that for a few reasons: First, it allows us to expand into some additional adjacent workflows, like collection and Salesforce integration, and also to provide modern delivery, like mobile delivery, which is not resident on the product today. We expect that to help us with lift on existing clients where we've not been able to justify that thus far. Then also by moving to the cloud, we're able to globalize the product almost immediately. And in doing so, we see 2 opportunities: First, we can service existing clients by providing them the ability to use the same product for their colleagues around the globe so that they can have an interoperable product around the globe. We expect that to drive new dollars. And then we expect, by expanding into new markets with the product, that we're able to drive growth in 2 ways: first, new business in those markets, where you will see us get new clients; and also, by migrating existing clients, who are not on a subscription product today, over to a subscription product like DNBi, where we've seen traction in Europe and where, historically, we saw that traction in the U.S. So now, we're driving that overall -- now we're going to drive that overall around the globe. So that's how we see the modern delivery really driving the growth, the cloud is the way we're going to do that, and it allows us to get the benefits of the investments that are made by the providers of those clouds.

Manav Patnaik - Barclays Capital, Research Division

Okay. And I guess is there a timeline that you guys have in terms of when you can get this converted to the cloud?

Joshua L. Peirez

We expect to be in market this year, towards the end of the year. It's part of why we made the acquisition of Indicee. We believe they are going to drive way more than DNBi for us. They are going to be our center -- cloud innovation center, and we're going to drive migration of many of our products and new products from there, but their first order of business will be to get the cloud version of DNBi live. They have a number of business intelligence tools they've already built on the Amazon cloud and integrated into the Salesforce cloud, and so we believe we'll be able to really accelerate that development through the acquisition, it was one of the drivers.

Manav Patnaik - Barclays Capital, Research Division

Okay. And just one more on your Sugar, I guess, CRM deal. It's -- on the high level it sounds a lot like your Salesforce.com deal. I was just wondering if you could maybe provide a little more color on the relationship there. And from the 1.5 million user base you guys talked about, what's the overlap there with either your base and/or the Salesforce.com base?

Joshua L. Peirez

Yes. Thanks, Manav. So first of all, we're really excited about our new relationship with Sugar. We're actually out at SugarCon right now, speaking at their conference with their users. We do see this as exactly the kind of strategic alliance we want, where the partner is building the capability, maintaining the capability within their system, integrating our data and our analytics right there for the clients to use, and they are the ones selling it. So we don't bear those cost of sales. It's just an add-on for their -- for their sales force. In the case of Sugar, they do use VAR networks, not just their own sales force, which is a little different than what you would see with Salesforce.com, but the model for us is very similar. The economics will vary by deal, and we don't go into the specific economic arrangements of any of these, but we do see this as very much on strategy. We also, like Sugar, they, on their website, advertise themselves as the fasting-growing CRM provider and they are largely in the small business space, where our penetration's very low. So to the last part of your question, we expect and see very little overlap. We see these as new clients for us.

Operator

Our next question is from Bill Warmington with Wells Fargo.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

So first question I want to ask was, with adding new capabilities like Fliptop, how does that fit into the revenue model? Is it to become part of the overall offering, where it becomes -- it helps with retention and renewal? Are you able to charge that separately? How does that play out?

Robert P. Carrigan

Yes, this is Bob. So look, we've talked about how content is at the core of what we do, and so Fliptop will really enable us to bring this additional kind of modern insight into that core proposition that we offer for customers. So it's central to our strategy, announced that as 1 of the 5 key pillars, and so it will manifest itself in many ways in terms of enabling the strategy. The same goes for -- we talked about modern delivery as another key pillar of the strategy, and the Indicee acquisition will help us to deliver our content in new and modern and lighter weight ways, which is critical to be successful today. And our customers are looking forward to us being able to deliver for them in modern ways. And this is a critical focus of our strategy, and all this is intended to result in revenue growth in 2015 and beyond.

Joshua L. Peirez

And I think that I could give you a little more color, perhaps, on where you'll see it because when you look at some of these social data tools, they do give us real time and early indicators that we think give us true, predictive lifts on our analytics. So you will see it help us with analytics, including new types of analytics, like marketing effectiveness analytics that we've not previously sold. So it will be bundled in lines that you see, but it will be new product lines in that regard. We also see opportunities to actually sell marketing products and advertising products to clients that we've not historically sold because they can now map an individual who works at a business, and understand their social footprint and contact them through any number of ways, not just through an e-mail or a mail campaign. And so you will see that as a new business line.

William A. Warmington - Wells Fargo Securities, LLC, Research Division

Okay. And one other question for you on the SMS -- S&MS business. The -- how should we think about the growth rates for those 2 business lines? The traditional one we know has been contracting, but offsetting that has typically been the value-added products. I know the growth rates there moved around a bit. Just trying to gauge how we should look at the different business lines and how they offset on a net basis.

Robert P. Carrigan

Sure, let me take that one. The -- a couple of things. The traditional business, as you've seen, has been under some pressure for a while. It's the older type business. We've got a small educational business, which has been under some pressure, as well as Hoover's, which -- again, we expect those to continue to be low to slightly down over time. The big play is in the other part of the business, the more project-oriented. That's where you see, first of all, the CRM integration. So the big strength is going to be there. And then you've got your projects, like Optimizer, which tend to be a little bit lumpy, but overall, that's a very growing business. So over time, we expect sales and marketing to really be a very nice growth driver for us with real strength in that VAPS side, offsetting more tepid growth on the traditional side.

Operator

Next call is from -- our next question is from Peter Appert with Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So just continuing for a second on what Bill is asking about the social media initiatives, are quite interesting. Is there any possibility to frame how you think about the specific revenue opportunity? I mean, do you think this is something that could move the needle in 2015 from a revenue perspective? Or maybe talk about the time frame to see impact from these initiatives?

Joshua L. Peirez

Sure, Peter. It's Josh. I'll take that. So if you look at the initiatives here, they're baked into our plans around our core content strategy. We see them as one of the key ways that we want to enrich our content. To give you a sense, we have over 100 different types of data that we're currently testing in our R&D shop, which is only about 1 year old now. And we're looking for a predictive lift that comes from those data sets, and we're focused on what the customers want and are asking for. So it's very much based on the outside-in needs and requirements. On these particular assets that we're talking about here in terms of the social delivery, we do expect that to provide lift on our products next year. It's also an important part of how we look at our overall value proposition, which is our foundational data plus additional data sets, like social here. And in particular, for our sales-oriented and marketing-oriented products, these have tremendous value. So we think this will help us further scale our alliances, get new alliances because it's more unique value we can bring to their clients, as well as our own sales and marketing projects.

Peter P. Appert - Piper Jaffray Companies, Research Division

So these become specific identifiable products or just part of the broader offering of Dun & Bradstreet?

Joshua L. Peirez

It will be both. So the -- today, we do sell already, through our data exchange, the ability to buy the additional fields that you can get from the Fliptop data set. We will now have all of that revenue. We will drive those sales separately. It's a business we'll be in, but it will also be an add-on to existing products, where we would get lift by providing additional data.

Peter P. Appert - Piper Jaffray Companies, Research Division

Got it. And the Indicee acquisition, are there products and revenues associated with that? Or is that strictly a development business?

Robert P. Carrigan

Yes, it was really acquired for the development capability. These are pretty early stage things, and no material revenue to speak of. It's all about the capabilities and all about the strategy.

Peter P. Appert - Piper Jaffray Companies, Research Division

Got it. And last thing, the -- Bob, the increased focus on acquisition and partnerships, can you just talk about how that -- or what the implications of that might be for your capital allocation strategies? I'm obviously, specifically, asking if this means you have to sort of shut down the pace of buyback activity to fund these initiatives.

Robert P. Carrigan

Look, we -- I talked about the priorities around capital allocation. First, we're investing in the business. Next, we're looking at acquisitions, where it absolutely supports the strategy, not looking by revenue per se, but looking at how it enables the strategy to drive long-term organic growth; and then lastly, return any excess cash to shareholders. And so that's the priority in which we look at it. We believe the best way to drive long-term shareholder value is through driving sustainable organic growth. And the opportunity we feel is substantial, and that's the focus of our strategy.

Operator

Our next call is from Shlomo Rosenbaum with Stifel.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

I want to focus a little bit more about the DNBi and moving into the cloud and some of the expectations. I thought I heard 2 things in terms of how it's going to help with the revenue: one, that you'll be able to enhance it better, so you'll be able to make it more valuable to clients; and number two, that you'll be able to take it internationally. Are those the -- kind of the key leverage points over there? Just to make sure I understand it properly.

Joshua L. Peirez

Yes. So thanks, Shlomo. It's Josh. So we view it as upgrading the product, and the upgrade does have those 2 primary components, which is new functionality. But you should think about that as enriching the existing product with mobile and other things that just benefit our clients, not expecting major lift just from that. That's normal expectation, but adding new workflow capabilities, whether it be integration with Salesforce or things like collections, we'll be able to do that very quickly, rapidly, based on what clients want. That, we do expect to see lift. And then the global piece, we expect to see growth both from our existing North American clients, who would like to be able to have their global associates use the product. We'll get growth from that, as well as from penetrating new markets and having new customers move on to the product there.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. So the -- there's a certain amount of upgrade that you're seeing that's not kind of a lifting, but then there's -- or a standard upgrade and then there's a significant enhancement functionality, which you think can garner a higher price in addition to being able to sell to global clients or someone who use -- wants to use it globally. So I just want to make sure I understand.

Joshua L. Peirez

And also, to penetrate new markets, Shlomo, for local users around the globe. So we see a great opportunity to either migrate existing customers to a subscription product, where we don't have one today, and acquire new customers who will come to us for that subscription product in those markets based on the customer demand that we see. So there's that piece as well.

Shlomo H. Rosenbaum - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then just the dynamic on DNBi right now in terms of dealing with that in the interim while you're bridging the gap in terms of moving it to the cloud, is there any change from last quarter, where there was kind of a strategy of saying -- giving the clients, say, in exchange for long-term contracts and pricing flexibility over there? Is that kind of continuing right now while you're bridging the move to the cloud?

Joshua L. Peirez

Yes. For this year, we're continuing to execute against the same strategy. We're seeing very consistent retention and price lifts in the low-single digits, so not a change there. And we're continuing to execute against that, although now, we can show the clients what they can expect next, which we do find making the conversation a little easy over time -- a little easier over time.

Operator

Our next call is from Andre Benjamin with Goldman Sachs.

Andre Benjamin - Goldman Sachs Group Inc., Research Division

My first question is about a topic you've discussed a bit in the past, the core DNBi product. I know you said you expect that to decline until the cloud initiative gets up and running. Could you maybe give a little color on how much of that product is kind of at that lower end of the spectrum that you consider to be more competitive versus the more differentiated, higher or more global product that you've said should be the part that should see some growth?

Joshua L. Peirez

Yes. Thanks, Andre. It's Josh. Let me just start by, again, emphasizing that consistent with our expectations, guidance and what we've shared before, we did grow 1% in the quarter, even with the DNBi decline. It's as we expected. We have not seen any change in the competitive environment or any price pressure there. We do continue to have a product. Now we have very, very few users of DNBi among really small companies. So we don't really service the sort of under-15, under-50-type employee customers with the product, in general. We do have mainly mid-market and some of the higher end of small business clients. In those places, again, we're seeing retention rates hold in the 90s. We're seeing single-digit, low-single-digit price lifts there. That is very consistent year-over-year. So we're not seeing a significant change there, and we do expect as we expand the product, to be able to stabilize and grow at low-single digits, but we do not see DNBi as the main future driver of growth. We see the new products, our DaaS products, the analytics, the alliances, all of which did grow. And I do just want to emphasize in the end, this is the third straight quarter where we have seen at least a 2-point contribution of growth in North America from those new products, which is a trend that we're really focused on expanding.

Andre Benjamin - Goldman Sachs Group Inc., Research Division

And if I could just follow up with one more question on the Indicee acquisition. Did you guys always know that you wanted to or needed to go out and, say, acquire some technology and talent in order to help you move forward with the cloud initiatives? Or should we view this as more opportunistic? And then maybe talk a bit about whether or not you think you'll need to do some additional deals to continue to get to where you're trying to get in terms of your technology platform.

Robert P. Carrigan

Yes, this is Bob. Look, we talked about the importance of moving to more flexible, lighter-weight delivery of our content, more modern ways to deliver our content, and that will open up new opportunities for us. Specifically, with DNBi, we've talked a lot today on this call about the opportunity to create a go-to-market solution that's more globally adaptable, that can be updated and deployed more easily and will give us opportunity to add new functionality and grow. So the idea behind the Indicee acquisition was to put a focus around that and to bring in some capabilities that will augment some of the capabilities we already have, but, obviously, moving to a new platform, a new cloud-based pure play platform is -- requires some expertise. And I'll just go back to what I've been saying all along, if it makes sense and supports the strategy, which is about driving organic growth, we'll, in some cases, pursue acquisitions where it makes sense. And that's the reason why we pursued the Indicee acquisition, specifically with regard to establishing a cloud innovation center, kind of a center of excellence for us, putting a real focus around this, with DNBi as the early priority for that group.

Andre Benjamin - Goldman Sachs Group Inc., Research Division

Should we assume that you'll -- I mean, you're saying we shouldn't be surprised if you continue to do a few other small acquisition to continue to build out your capabilities?

Robert P. Carrigan

Yes, I mean, again, our focus is on driving organic growth. We're not looking to buy companies just to buy revenue. These are enabling acquisitions that will help us drive the core business, all right. So that's the filter through which we're looking at M&A activity.

Operator

Our next question is from Brett Huff with Stephens Inc.

Brett Huff - Stephens Inc., Research Division

Two questions. One, just last question on the DNBi. When the conversations happen with customers and the pricing comes up, is the price lift sort of like-for-like functionality? Or is there more value add provided when that price lift happens? And can you tell us more about the -- how the percentage of prices that are longer-term contracts now?

Joshua L. Peirez

Sure, Brett. It's Josh. So we have about 1/3 of the DNBi business currently on multiyear contract, just to take that part first. In terms of the conversations with customers, we have been adding more value for customers through the new scores that we deployed on the product last year, as well as through some of the functionality we had added 1 year before. It's just too expensive for us to do that in the current environment on the product versus what we see when we move the product to the cloud. Also, our ability to provide the global servicing is next to nonexistent right now. So for us, as we have those conversations with customers, we have been adding that additional value, and I think, as one of the earlier questions indicated, we do also have the strategy to move to multiyear where we were prepared to take a little less pricing in Year 1 in order to lock clients up, and we're at about 1/3 of the business right now.

Brett Huff - Stephens Inc., Research Division

Okay. And then the second follow-up is just a follow-up on the SugarCRM. Obviously, you guys have had great success in the CRM vertical. What's the next big vertical you guys see as an alliance focus or maybe 1 or 2 verticals where we should keep our eyes open for success in new alliance partners?

Joshua L. Peirez

Sure, Brett. It's Josh. So first of all, I think you should think of our alliances as part of our core strategy to liberate our content and to pull it up and be able to deliver it where our clients want it, when they want it in the tools they're already using without requiring them to go get some additional tool and learn how to use that. So the alliance strategy allows us to do that in a way that also happens to have a very good client uptake thus far and very nice margins for us. In terms of additional places, you should think of the strategy that we have in alliances in 2 different ways: first, going to the world's largest software companies and embedding directly in their delivery through an OEM-type strategy, similar to what you've seen in the CRM space. I don't necessarily want to give a roadmap to some of my competitors of exactly where we're having those conversations, but in all major software tools that are used by businesses where business intelligence can be delivered, you should assume we're in those discussion. And then also, in some discrete vertical markets, where, today, we don't deliver value, but we do see our content playing a role, we believe, by liberating our content from our environment and delivering it in the environment that clients would consume it, that we could have some added value through the abilities we have around identity resolution, linkage and some of the analytics that are quite predictive in those spaces. So we'll share more on that as we have those partnerships locked up, but it is a space where we're very active, and there are a number of different places that you will likely see us play.

Operator

[Operator Instructions] Our next question comes from Nick Nikitas with Baird.

Nick Nikitas - Robert W. Baird & Co. Incorporated, Research Division

Just looking at the deferred revenue, given the softer trend during Q1, I realize it doesn't include some of your data partnerships, but could you just talk about your expectations for the revenue build throughout the year given that?

Richard H. Veldran

Yes. Look, the deferred tends to follow the subscription business more. And given that subscription business has been lighter, I don't expect to see a huge turn in the deferred. The biggest piece that will head to that is the stuff that doesn't get recorded in it, so things like the Salesforce relationship, right, where we are seeing growth, but it doesn't get recorded in the deferred. So it's less of a leading indicator in some ways than it used to be.

Nick Nikitas - Robert W. Baird & Co. Incorporated, Research Division

Okay. That's fair. And then there's been, obviously, a lot of talk on the M&A and recent acquisitions, but just taking the opposite end of things, would you consider potentially divesting any assets? Or have you guys looked into that at all?

Robert P. Carrigan

Look, we always look at our portfolio, right. So as you know, over the years, we've done some things. A big part of any growth strategy is taking a look at parts of the business that may not fit. No burning plans at the moment, but we always look at our portfolio to kind of look at things.

Operator

There are no further questions in the queue at this time, sir.

Kathleen Guinnessey

Okay, great. Well, thank you very much for joining us, everyone, and we'll talk to you next quarter.

Operator

Thank you for joining. This concludes the conference call. All parties may disconnect at this time.

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