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Dun & Bradstreet (NYSE:DNB)

Q2 2011 Earnings Call

July 29, 2011 8:00 am ET

Executives

Richard Veldran - Chief Financial Officer

Manny Conti -

Kathy Guinnessey - Leader, Treasury and IR

Sara Mathew - Chairman, Chief Executive Officer and President

Byron Vielehr - Head of Strategic Technology Investment and President of North America Operations

Analysts

Michael Meltz - JP Morgan Chase & Co

William Warmington - Raymond James & Associates, Inc.

Daniel Leben - Robert W. Baird & Co. Incorporated

Carter Malloy - Stephens Inc.

Peter Appert - Piper Jaffray Companies

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

Manav Patnaik - Lehman Brothers

Operator

Good morning, and welcome to D&B's 2011 Second 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, Leader, Treasury and Investor Relations. Ms. Guinnessey, you may begin.

Kathy Guinnessey

Thank you. Good morning, everyone, and thank you for joining us today. With me on the call this morning are Sara Mathew, our Chairman and Chief Executive Officer; and Rich Veldran, our Chief Financial Officer. In addition, Byron Vielehr, our President of North America; and Manny Conti, our President of International and Chief Administrative Officer will be available to handle any questions you have.

Here's what you can expect on the call this morning. In a moment, Sara will open the call with a brief overview of our second quarter results and an update on our Strategic Technology Investment. Next, Rich will discuss our second quarter performance in more detail, and then Sara will close with a review of our outlook for the remainder of the year. Then Sara, Rich, Byron, Manny and I will take 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 material. We undertake no obligation to update any forward-looking statements.

During our call today, we will be discussing a number of non-GAAP financial measures 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 noncore gains and charges. A reconciliation between these and other non-GAAP financial measures and the most directly comparable GAAP measure can be found in the schedules to our earnings release. They can also be found in the supplemental reconciliation schedule that we post on the Investor Relations section of our website. Later today, you will also find a transcript of this call on our Investor Relations site.

With that, I'll now turn the call over to Sara Mathew. Sara?

Sara Mathew

Thanks, Kathy, and good morning, everyone. Thank you for joining us. Before I begin, I'd like to take a moment and welcome Rich, Byron and Manny, who are with me on the call today in their new roles. As a reminder, we announced several management changes last month. Byron and Manny now lead execution in North America and International, and Josh Peirez has assumed responsibility for Global Product Marketing and Innovation. These changes are designed to strengthen execution, accelerate innovation and drive sustainable top line growth and shareholder value.

And with that, let me quickly cover our second quarter results. Core revenue grew 6%; operating income grew 2%; EPS was up 10%. And we generated $188 million of free cash flow in the first half of the year. Overall, the second quarter played out mostly as expected. International was in line with expectations, and North America was slightly below, due primarily to the sun setting of legacy products, which I will discuss in a moment. We remain on pace to meet guidance for 2011, and Rich will take you through the details on the quarter in just a moment.

Now let me provide an update on our Strategic Technology Investment, which we began early in 2010. We are now about halfway through this project, and we continue to make excellent progress. As a reminder, there were 3 key components of this program: first, a rebuild of the data supply chain to achieve near real-time data; second, a web service layer to facilitate easy access to this data and a much lower cost to innovate; and finally, the migration of customers to newer higher performing platforms while shutting down our legacy systems.

Regarding the data supply chain, we made the decision late in 2010 to insource the build, which is proving to be a very good call. The project is on schedule, and we currently have an unannounced test of real-time data in a couple of products to test the scalability and stability of our new supply chain. The test confirms our ability to deliver real-time data on demand, and we are on track for a mid-2012 cutover to 100% real-time data access across all D&B products.

In addition, our proprietary data collection process has vastly accelerated the identification of new businesses, and we achieved an important milestone in July. We now have 200 million records in our database as compared to 158 million when we started the project in 2010. And that's an increase of 27%. Customers are noticing these improvements, and we expect further improvement when we deliver real-time data across the board in 2012.

The second component, our web service layer is also proceeding well, and is on track for completion in the first half of 2012. New products we have released thus far, such as DNBi Pro for small customers in RMS and D&B360, our data as a service offering in S&MS have been well received in the market, and we will be bringing additional CRM partners online with D&B360 later this year.

The third workstream, migrating customers to new products and shutting down legacy systems is also underway. As we said last quarter, we have been migrating customers to our new platforms with little or no disruption. We are now aggressively sunsetting all products that have a weak value proposition and poor profitability. The most significant impact from these sunsets is in product lines in our S&MS and Supply businesses. As we evaluated which products would be mapped to our new data supply chain, we made the decision to exit additional legacy products this year.

While this creates about a 1-point drag on the North America top line in 2011, we expect our profitability to improve as we exit these declining businesses. The remaining products will be migrated to D&B Solutions over time.

Finally, we expect to be on budget at $130 million and to complete the project by the second half of 2012. So in summary, we're pleased with our progress on this important initiative. We have brought new product to market faster than expected, and we're cleaning out legacy product more aggressively than we originally planned. Given the quality of our pipeline and positive customer reaction to our new products, we expect stronger top line growth as we exit the year and enter 2012. We continue to expect some of our low single-digit revenue growth in North America in 2011 and an acceleration as we enter 2012.

And with that, let me turn the call over to Rich Veldran for a more detailed review of the quarter. Rich?

Richard Veldran

Thank you, Sara, and good morning, everyone. Let me take you through our results in more detail. Core revenue for the quarter was up $417 million, and that's up 6% from last year. North America, representing 69% of revenue was flat and International, representing 31% of revenue was up 24%.

Starting with North America. Our second quarter revenue was slightly lower than expected due to the sunset of low value and legacy products that Sara already mentioned. We expect North America revenue growth to improve modestly in the second half with gradual sequential improvement from the third to fourth quarters. The fourth quarter is seasonally our largest quarter, and it will be our strongest in terms of growth. Risk Management Solutions representing 62% of North America revenue was down 1% compared to prior year, a sequential decline from the first quarter when revenue was flat.

The second quarter decline was due to the exit of an unprofitable product line in supply management. This is reflected in our S&MS results, which were down 7% or roughly $1 million. And core RMS revenue, excluding supply management, was flat versus last year.

DNBi continued to show solid performance and now represents 61% of RMS revenue. Retention is improving, and we continue to see price lifts on renewals in the mid single-digit range. DNBi Pro, our offering for small customers, is also off to a good start. We now have over 500 customers and a little over 3 months from the launch, and we've just added the ability to purchase the product online. Over 90% of the DNBi Pro revenue is from customers that are new to D&B, and those customers are committing for higher average prices than we originally anticipated.

Given this is a lower-dollar product, it will take a little time to generate meaningful top line growth for North America, but we're pleased with our ability to penetrate this previously untapped small customer base.

The growth in DNBi was offset by a decline in non-subscription RMS project spend, as customer spending remains cautious in 2011. As context, we have had very little innovation in RMS VAPS during 2011 as we're focused on completing our new platform before bringing new innovation to market. As such, we expect RMS to be about flat in 2011, unchanged from our previous expectations earlier in the year as growth from DNBi and Pro are offset in the short term by a drag from legacy product sunset and slower product business.

Let me turn now to sales and marketing, which represents 28% of North America revenue. For the quarter, revenue was up 1%, a sequential improvement from a 2% decline in the first quarter. Strong growth in our value added solutions was offset by continued declines in our traditional products, consisting primarily of low-end lift and labels business.

Value added solutions represent 3/4 of our sales in marketing business and the growth continues to be driven by our flagship Optimizer product. One of the key benefits of our strategic technology investment has been the growth of our database. This has improved mass rates, which in turn are driving revenue growth for Optimizer, and our other value-added products, such as Market Insight and Integration Manager.

We are just beginning to see the revenue impact from the launch of D&B360, and our pipeline continues to grow. In fact, the pipeline is up around 80% from the first quarter.

Now due to the ratable recognition of D&B360, the positive impact from revenue from new sales will be felt late in 2011 and into 2012. The decline of our traditional S&MS business, which represents about 1/4 of total S&MS revenue was magnified as we stopped selling legacy products that we will be sunsetting and instead directed new customers to Hoover's. In addition, we're migrating existing customers where possible to Hoover's.

And finally, Internet Solutions, representing 10% of North America revenue, were 6% in the quarter off a small base.

Looking ahead, we continue to expect North America revenue to show modest improvement as the year progresses, gradually stepping up from the third to fourth quarter, and that'll primarily be due to continued strength in S&MS value added solutions and traction from new products, such as D&B360 and DNBi Pro.

Now turning to International. Revenue in the second quarter was up 24% and was flat organically, both in line with expectations. International is comprised of 2 segments: the first, Asia-Pacific, which represents 52% of international revenue was up 69%, benefiting from the acquisition of D&B Australia as well as organic revenue growth of 7%. The organic growth was primarily due to the continued strength in China, which has now grown at a double-digit clip for the past several quarters.

Let me give you a quick update on Japan. Our second quarter results cover the first 3-month period from March to May, and as such, include the initial impact from the earthquake and the tsunami. As expected, underlying demand is down double digits, and this will be reflected in our revenue as the year progresses. As we said last quarter, we continue to expect the total impact of the natural disasters on 2000 operating income to be about $5 million. And as a result, there is no impact to our guidance.

Let me move on to Europe and other International markets, which represent 48% of International revenue. As expected, revenue was down 4% in the second quarter due to continued weakness in the U.K. However, our business continued to grow in the rest of Europe behind our cross-border value proposition. The weakness in the U.K. primarily reflects the difficult macroeconomic environment. As we said last quarter, we are strengthening sales execution, particularly in DNBi where sales have started off slower than expected. Our U.K. sales force is now implementing best practices from Benelux where DNBi growth has been strong.

As we look to the remainder of the year in International, we continue to expect the revenue growth to be driven by the benefit from the Australia acquisition, continued double-digit growth in China, and improving sales execution in the U.K.

Let me turn now to profitability. Total company operating income increased 2% in the second quarter, which was in line with our expectations. The increase was due to the addition of D&B Australia as well as the benefits of our ongoing financial flexibility programs where the impact was primarily in corporate expenses this quarter.

North America operating income was flat year-over-year and International was down 10%, primarily due to the revenue decline in the U.K. as well as the impact in investments in Europe to drive growth.

We expect operating income to accelerate in the second half of the year in both International and North America as revenue improves and as we realize the full benefits from reengineering actions taken in the first half. Our total company EPS was $1.35 per share, which is up 10% over last year, primarily due to higher operating income and a lower tax rate in the second quarter this year.

For the full year, we continue to expect our 2011 tax rate to be between 33% and 34% compared with 34% for the full year 2010.

Now turning to free cash flow and uses of cash. We generated $188 million of free cash flow in the first half of the year compared with $173 million last year. Our free cash flow in the first half of 2011 includes $18 million of spend on the Strategic Technology Investment, and we continue to expect to spend a total of $55 million to $65 million in 2011.

Finally year-to-date, we repurchased 475,000 shares of D&B stock for $38.4 million under our discretionary share repurchase program.

I'd like now to turn the call back over to Sara.

Sara Mathew

Thank you, Rich. So in summary, we're on track to meet our full year guidance. We expect our performance to improve in the second half of the year with double-digit revenue growth in International and low single-digit growth in North America.

We also expect an improvement in operating income in the second half of the year, and we are reconfirming our guidance for the full year. Specifically, core revenue growth of 5% to 8%, operating income between 2% and 6%, EPS growth of 6% to 10% and free cash flow between $240 million and $270 million.

Now with just 6 months left in the year, I wanted to get one question out of the way. Many of you have asked us about our expectations for 2012. Let me address this question right now. When we announced our Strategic Technology Investment last year, we had 2 key goals for 2012, delivering top line growth in the mid to high-single digit range in North America and improving total company margins 100 basis points above 2009. That'd be about 30%. You should know that we remain committed to these goals. Our very early planning suggests a path to the mid-single digit revenue range, and we're working to improve it as we enter our fall planning process.

Regarding margins, we see a path to the 100 basis points in margin improvement, and we will be taking action to secure it in the coming months.

And with that, Rich, Byron, Manny, Kathy and I would be happy to take your questions. Laura, if you could open the lines, please?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from Peter Appert.

Peter Appert - Piper Jaffray Companies

It's Peter Appert of Piper Jaffray. So Sara, you addressed some of this on the call, but I was just wondering if you could maybe, give us just a little bit more color in terms of what you see currently in terms of tone of business, sales cycle, anything that would give us color that -- on whether business trend's improving, deteriorating, et cetera?

Sara Mathew

Sure. The way I would describe it is the tone is unchanged from Q1. Customer spend is a bit cautious. But I'll point to a couple of encouraging trends. Our core business consumption of credit report is moving up, and that's a very encouraging sign. Now just as a reminder, this is consumption. You will not see it in revenue as yet. But it certainly bodes well going into renewal season in the fourth quarter, which is primarily December and January. So that I feel good about. So what we're providing in the marketplace is generating value with customers. But the overall tone, I would say, is mostly unchanged. And I would say where we've got a great value proposition, this would be things like D&B360, market demand is definitely out there. Sales cycle's maybe a tad longer than we originally thought, but it's clear to me that no significant changes yet versus what we saw in the first quarter.

Peter Appert - Piper Jaffray Companies

Okay, that's helpful. You've highlighted -- D&B360 obviously is an important new product. What else is on the agenda in terms of things we could look for over the next 12, 18 months?

Sara Mathew

Yes, Byron's here, so I'm actually going to have him talk about the new products. But I do want to provide some context for the question. For 2011, the bulk of our time was going to be spent on the data supply chain. Because remember, we made the decision to insource it, and it was critical that we get that done, and that's in great shape. And we had a couple of products, such as DNBi Pro as well as D&B360, but there's more to come. And let me turn it over to Byron, and he'll talk to the details. Byron?

Byron Vielehr

As we've mentioned, we've introduced some new products leveraging the Strategic Technology Investment, and they're growing well. The pipeline for D&B360 looks very strong. We're going to continue to invest in that platform. You'll see in the coming months additional CRM platforms for D&B360, so we're excited about that. It expands the market opportunity and will allow us to further grow that pipeline. You're also going to see in the fourth quarter and the first quarter, new releases on DNBi as well, so we're making some investments into the DNBi platform, really to address the growing customer spend.

Peter Appert - Piper Jaffray Companies

And one last thing. Sara, in the context of the improved latency in the data, does that give you leverage in terms of pricing, do you think, for next year?

Sara Mathew

We're already seeing some benefits, so you may have noticed that S&MS VAPS was up strong in the second quarter. Most of that came from the flagship product. The largest product in there is Optimizer, which grew very nicely. And that's because mass [ph] rates improved. So when data quality improves, you're able to satisfy more customer requests. And that translates directly into revenue, so we're seeing that. But you should remember that real-time data access is not available across all product lines. We did see an expansion of the database, the U.S. database expanded by 10 million records. It's in the 30s right now. It was in the 20s when we started this project. And that's all connected to the work that we're doing. So yes, we do believe the core value proposition, the foundation of value proposition comes from data. Beyond that, you need the right products and services to create value, and that's what MAX CV is all about. Did I answer your question, Peter?

Peter Appert - Piper Jaffray Companies

Yes.

Operator

Next we have Michael Meltz from JPMC.

Michael Meltz - JP Morgan Chase & Co

Three questions for you. Can you just clarify the phasing out of products, the sunsetting you mentioned? Specifically, can you perhaps give a bit more detail? Is there more to come or is this kind of done in what we've seen here? This is that one point, which I guess you're saying is like $10 million a drag this year. What's the EBIT impact from that? And then I have 2 follow-ups, please?

Sara Mathew

Sure. So we are mostly behind the major sunsetting. What is left is really quite small. So you should think about the 2 areas of Sales & Marketing and Supply. Supply, we had a couple of products that customers like, but were unprofitable. And so we just got out of those. In terms of S&MS, traditional sales and marketing is a business that we've never had strategic focus on so we decided it was not worth remapping that to a new data supply chain. We decided to discontinue, and it was just better for the long term. That had probably more of an EBIT impact. The others were fairly unprofitable. So there may be a slight pickup to EBIT from all of this.

Michael Meltz - JP Morgan Chase & Co

Okay. And then, the commentary on DNBi -- D&B Pro and 360 was pretty -- I though it sounded pretty upbeat. Can you talk about these new customers that you've added? Are they folks that weren't using anything previously and somehow you've convinced them to use your product? And then I have a separate question on 360. I understand the pricing for Pro. Can you talk finally about what you're charging, what your ballpark numbers for 360, please?

Sara Mathew

Sure. I've just open it and turn it over to Byron. We're really excited about DNBi Pro because bringing new customers into the franchise is what it was designed to do, and it's starting to do just that. Byron, why don't you...

Byron Vielehr

Sure, we're very pleased with DNBi Pro. As we've talked about previously in -- and as we mentioned in the prepared remarks, it's a product that's growing rapidly. We're only few months into the launch, we have 500 new customers. And it's really aimed at people that do not use credit products today. So it's a low-end product, and it has the ability to add more analytics and data into it. And as we mentioned, about 90% of these customers are new to D&B. And we're typically not using anything else. And the focus of Pro is really to grow the market for people that use credit products, and it's just doing exactly what we anticipated. We also have just launched the ability to buy it -- sell it and buy it online. And so we think that's also going to accelerate the customer acquisition for the product.

Sara Mathew

Longer term, as Byron said, you will be able to upgrade some of these customers to DNBi, not all. And there's a lot more functionality that we believe we can add to DNBi Pro. So early growth, early read, we feel good about the product.

Michael Meltz - JP Morgan Chase & Co

Okay, and then the 360 question?

Sara Mathew

Byron, do you want to take that? Why don't you -- you didn't give us the question, Mike.

Michael Meltz - JP Morgan Chase & Co

Roughly, how much are you charging for this product?

Byron Vielehr

The D&B360 product is priced based on seats. From a pricing perspective, it's slightly below what Salesforce.com would charge per seat. We think the data is as valuable as the software.

Michael Meltz - JP Morgan Chase & Co

I don't use Salesforce.com. Can you give me a sense what you're charging?

Sara Mathew

It would be anywhere from $40 all the way up to $80 a seat. It is a range. So the way you want to think about D&B360 is -- and we believe it's probably equivalent value. That's what I believe the market could sustain. And because you have a huge improvement in productivity when you use our data, you eliminate admins and people who key in information manually. So the range really depends on the number of seats. So the price varies, and so it's not easy to pin a particular price, but think of that as being range.

Michael Meltz - JP Morgan Chase & Co

Okay. And then my last question, now that you're half way through with the tech projects and you seem to be feeling pretty good about it, how should we think about M&A activity going forward? There's certainly been a pickup in the broader group. I don't know if you consider them your peers but I consider them your comparables, with Experian, IHS, Equifax, all really stepping up their acquisition activity. What are you thinking in that area?

Sara Mathew

It's pretty much unchanged, Michael, since the last several years, which is we will continue to look at tuck-ins. And our tuck-ins will be targeted towards emerging markets, International. Within developed markets, where we believe it's high growth, and our capabilities would actually create something there that is worthwhile. And we're in the market. We're in it constantly. We clearly know that once we get MAX CV completed post-2012, our ability to integrate acquisitions will change dramatically. And that we'd be able to integrate very quickly at a very low cost. So I just wanted you to know, yes, we watch what our competitors or peers, whatever you want to call them, or comparables are doing. And we are in the market as well. And we are looking but nothing specific to share with you right at this moment.

Operator

Next, we have Shlomo Rosenbaum of Stifel.

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

Sara, I want to just get back to some of what you talked about right away in the beginning of the Q&A session, just the path to 2012 growth in North America. And can you just give us a little bit more detail as to what you think is going to drive the 5% or higher growth? In other words, there's certain specific products you really think are going to push it there?

Sara Mathew

Sure. So if you were to think about how do we get to 2012, there are 2 components in terms of what has to drive that growth. First is the sales trajectory on the underlying business. And that is the upfront commitments that customers make to us, and that becomes critical in the second half. And we -- that is one place. The second is the pace of new product rollout. So let me now take that and talk about each of the product lines. So I'll start with Sales & Marketing Solutions. I believe we have the pipeline, the value propositions to deliver strong growth in this area, and I will tell you this will be the primary driver in 2012. Now let's move on to risk. We believe risk will be a low single-digit grower with potential for upside, and that will unfold based on ideas we have. We haven't actually got all the planning down yet, but as we've told you, we think it's low-single digits. Three factors there, I believe, will drive acceleration. The first, as Byron talked about, was DNBi Pro. I'm not going to repeat what he said, but that will bring new customers into the franchise, and that gives us opportunity to continue to grow and upsell. The second is the core business momentum on risk products being consumed by customers. As you know, the C&I loan volume has gotten better. We are seeing the underlying demand consumption of our products go up, and that's a very encouraging trend. You don't yet see it in revenue or upfront commitments because you don't have these conversations until the annual renewal cycle, which won't be until December. So that's the second piece. The third piece is DNBi, which will be relaunched. And I'm going to pause here and give you a little more color on DNBi. So late last year, we made a pretty tough decision. We decided not to innovate on DNBi for one year while we move the product line to our Ireland facility. As you know, the Ireland facility is our new app development center. And we felt getting the product line to the app development team would position us better for long-term success. That is now complete. It's behind us. The team is doing extremely well, and you should see a relaunch of DNBi in the fourth quarter. So that's the pieces of risk that will actually drive the momentum, and that's how we get to the mid to single -- mid single-digit range. We have ideas at this point about how we could drive it up higher, I'm not in a position to share those with you. Those are the things we will go through as part of the fall planning process. And we'll be able to share more with you. So that's really what we see in terms of the [indiscernible].

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

Can you talk a little bit about China? It seems like things have really picked up in the last quarter, and the growth certainly sequentially, is very noticeable.

Sara Mathew

Oh, yes. Organically, strong double digit, I'm going to ask Manny to say more about China.

Manny Conti

So yes, we've been experiencing very strong growth in China over the last several quarters, and it's really driven by our Sales and Marketing business, but also the credit business. So we're really seeing strong demand from both segments, and if we continue -- it continues to be a place that we are investing, both in Sales & Marketing and risk. So we feel really good about those businesses there in China today.

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

And the credit business, in my understanding, was always that the credit business was very tough in China because of kind of the government regulations with regard to having a credit bureau over there. Has that eased up?

Manny Conti

No, I would say that, that really hasn't changed. However, customers are looking for us to provide business information, and we are able to provide that service legally. So there's no regulations, but binding us from providing it is just getting access to the data. But we've been slowly building our database in China, and we've been experiencing very strong demand from customers, who are looking to extend credit in China.

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

So what exactly -- just for informational purposes, what is the part that was slower that is different in different geographies that you can accelerate it?

Manny Conti

I'm not sure I understand that. Could you rephrase the question, Shlomo? I'm not sure I understood it.

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

Sure. In China, what goes slower? What makes it more tough for you to get the information that in other geographies it's easier to get?

Manny Conti

Well let me give you one really simple example. So for instance in Europe, it is required by law for -- it's required by law for companies to submit their financial statements. But in China, it's not. So getting access to financial statements is not easy in China, but easily accessible in Europe would be one obvious or simple example.

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

Okay. And then lastly, I just want to ask you, Sara, if you can give us a -- what's it called an update on the competitive environment. There's just been other comments from competitors in terms of their own competing products to DNBi, I wanted to know what your perspective is.

Sara Mathew

Absolutely. We take all competition seriously, and one of the best ways to compete is providing better value. And actually, segmenting the market and providing products specific to that segment's needs. And that's what Max CV really enables. Quite frankly, I don't believe you've seen what MAX CV can truly produce as yet other than a few products we talked about. But I think the most obvious ones would be Biz IQ [BusinessIQ], which I'm going to have Byron talk about. This is the Experian product. Of course, there's always Equifax. They have a large business, what we would call a repository with the banks, which is the biggest part of their commercial business. And then, you have very low end competitors like, Cortera. So I'm going to just ask Byron to talk a bit about each of these.

Byron Vielehr

Sure. Thanks, Sara. We have not seen an acceleration of competitive losses to our competition. As we look on a year-over-year basis, we track it relatively closely. We're not seeing any type of an acceleration. The DNBi Pro product continues to work very well, as I mentioned earlier. And just a little bit below the Biz IQ product from Experian. And it's doing exactly what -- it's attracting large numbers of new customers. My understanding, Biz IQ is predominantly growing on the back of migrations of existing customers onto their platform and isn't driving a lot of new customers into the franchise. This is just from their comments in their earnings release. If I compare Biz IQ, then upmarkets to DNBi DNBi is a more sophisticated feature-rich platform. The workflow is significantly more sophisticated. The alerting capabilities and it's 100% live data. And so we've also not seen Biz IQ having any real impact on DNBi either.

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

Any of the other competitors that you've seen any changes in on Equifax or Cortera on the low end, or however, you want to segment that?

Byron Vielehr

Yes, no real changes. Not much has changed over the course of the last quarter or the last couple of quarters.

Sara Mathew

I think, Shlomo, the thing you want to take away is for the longest time, we had just one real product to compete in the market, and that's DNBi. We learned that, that product is terrific for a certain segment of the market, but there were many other parts of the market that we had an exposed flank. And what we're going to be doing is actually close those flanks, and that's really what the product's all about. Byron, do you have anything from that perspective to add?

Byron Vielehr

Just one additional comment. We also recently introduced a metered version of DNBi which has given us additional flexibility for our exiting customers, who have been buying static reports off the dnb.com. They can now get access to DNBi and live data on a transactional basis. It also just gives us another weapon in our arsenal as we look out at the marketplace and look for people who want a more robust product, but on a transactional basis.

Operator

Next we have Carter Malloy, Stephens.

Carter Malloy - Stephens Inc.

So the first question I had is just on the U.K. I mean very clearly, obvious reasons for drag there, but how large is that as a percent of your overall -- that piece of international?

Sara Mathew

Manny?

Manny Conti

Sure. The U.K. represents about 50% of our business in Europe, so it's sizable. And it's a business that, as we mentioned in the last quarter, we were experiencing some challenges, and we expected that to continue into Q2. Although we have been focused on sales execution and making investments. So we do expect to begin to see some turnaround in the U.K. as we get into the second half.

Carter Malloy - Stephens Inc.

Okay, and likelihood for positive growth there in early 2012?

Manny Conti

Yes.

Carter Malloy - Stephens Inc.

Okay, great. And then you also talked about deemphasizing some of the traditional products in Sales & Marketing Services, Solutions, but that's probably as close to $100 million business line. So are you talking about deemphasizing across the board or just really letting it wind down? And then the bigger question there is as you move people into Hoover's, should we expect to see that much revenue over time moving into Hoover's and thus a pretty dramatic acceleration there?

Sara Mathew

That -- you about summed it up yourself. So what we're doing is, we're not winding it down, we just stopped selling it. So in that case, you can call it a wind down, which is some of the products we decided to sunset. But the ones that we believe really have value, we're going to move over to Hoover's. You should also know that in traditional S&MS, we have a product line called, MDR. This is a business that actually plays in the education space, and that's a bulk of what's left. That will stay as a separate product line. We do not plan to migrate that over to Hoover's, but that is an important area where we have wonderful information on the education for teachers, universities. And we're going to continue to keep that business as is as a standalone platform.

Carter Malloy - Stephens Inc.

And is that a strategic business for D&B to be in long term?

Sara Mathew

Yes, it is. As we see it right now, we believe it's a high margin. And we think there's a lot of potential, in terms of what we can do with that business. So as of right now, we do see it, yes.

Carter Malloy - Stephens Inc.

Okay, great. And then also, when you talked about the supply, your Supply Chain Management business, exiting a few lines, is that a majority of that business or are you talking about just a small part?

Sara Mathew

A very small part of the business, but within a supply, which is a small product line, it adds up. And you can see it in our results for the quarter. And that was kind of a consulting-based business that we decided, was just not something we want to be in. It's just not very profitable relative to the types of businesses we could be in. So if you look at -- we've got an online portal on supply, and we look at the other supply solutions, we see them as being far more synergistic with the data asset that we have.

Carter Malloy - Stephens Inc.

That certainly makes sense. Okay, and then lastly on the Data-as-a-Service side, you guys talked last quarter about having some -- and I know you gave us a little bit of an update today about having some pretty nice-sized customers in the pipeline there. Can you just talk about what the pipeline looks like and the conversions you're seeing out of that?

Sara Mathew

Sure. Byron?

Byron Vielehr

Sure, the pipeline today, over $50 billion. As we've mentioned, it's grown over 80% from the first quarter. They're all Salesforce.com users. We've closed a couple of pretty significant 7-figure deals, which we feel very good about. From a revenue perspective, a small amount shows up in the second quarter, probably less than $1 million. But over time, you'll start to see that in our results in S&MS. We're also, just to expand the marketplace, we are adding the other CRM platforms to the D&B360 capabilities, which will allow us to grow the pipe even more.

Operator

Next, we have Dan Leben, Robert W. Baird.

Daniel Leben - Robert W. Baird & Co. Incorporated

First, could you start off talking about the DNBi relaunch, just the opportunities around the relaunch to help drive revenue growth?

Sara Mathew

Sure. Pieces of it, we've started with, as Byron mentioned, the DNBi metered. The best person really to talk about it is Byron.

Byron Vielehr

Sure. We continue to invest in the DNBi platform. As I've mentioned, we launched a metered version of it a couple of months ago, which is having a positive impact in the underlying business. And it's also driving a deeper customer discussions from a needs basis. We are building a Q4 release and a Q1 release, and we're focusing on a couple of categories. One is areas where customers have said they want a different capability in the product. We've spent a lot of time doing research with our customers, identifying places where they'd find more value. We've identified a couple of areas. And I don't want to go into specifics for competitive reasons, but a couple of areas where we could create a lot of value for the existing DNBi customers. And you'll see that in the fourth quarter and in the second launch in the first quarter.

Daniel Leben - Robert W. Baird & Co. Incorporated

Okay. And then on the DNBi launch in Europe, could you talk about some of the challenges there in the U.K. that you've had with the launch and kind of customer feedback, things that you need to work on to make sure that launch is successful?

Sara Mathew

Manny?

Manny Conti

Yes, sure, Dan. The key issue that we were experiencing is, is given the economic backdrop was really getting our sales force to be able to position the value proposition, given the budget constraints that customers were experiencing because we were looking to get increasing commitments from customers, given the value that we're providing. So we saw a slower adoption just to the fact that our sales people just weren't as sharp on positioning the proposition. So we've been doing a lot of training on the product, and we've also been getting best practices from other parts of the market in Europe, which has been experiencing very good adoption. So we expect that over time, our sales teams will get much better at positioning this with the customers and demonstrating more tangibly the value that it can create for our customers. And quite frankly, we believe that DNBi is actually a great product in this economic backdrop, just given the fact that it not only provides more value for credit positioning, but also adds productivity-enhancing attributes that can help the businesses today.

Daniel Leben - Robert W. Baird & Co. Incorporated

Great. And then last one from me, just can you give us an update on where we're at with the Strategic Technology Investment on the spending side, kind of where we're at versus planned? And if there have been any changes to the overall scale of the investment?

Richard Veldran

Sure, I'll take that, Dan. The -- this is Rich. We are about on track with what we've said. To date, we're a little over halfway done with spending across the entire spectrum of the program. So we feel good about where we are at this stage.

Operator

Next we have Bill Warmington, Raymond James.

William Warmington - Raymond James & Associates, Inc.

I have a question for Byron and his new role as President of North America. I just wanted to ask what do you see as your -- the biggest near-term challenges that you've got to address? And then also how you're going to drive innovation at the company?

Byron Vielehr

Sure. There's really 2 ways I would think about it: one is execution; the second one is products. We have some new products that we've launched that we need to continue to scale. We've done a good job of building pipe. And as Sara had mentioned, the sales cycle is a little bit longer than we'd anticipated. So continuing to focus on converting the pipe in to closed deals on D&B360 and then really ramping DNBi Pro with the online provisioning, are going to be critical from a product perspective. And then continuing to focus on stronger execution with the broader sales team and matching the execution with the products will be the drivers for the back half of this year. And then, additional product releases into the fourth quarter with the DNBi relaunches as well as additional platforms for D&B360. The last comment I would make is about a year ago, we started Innovation Lab. And that Innovation Lab is percolating some new ideas. And we think for 2012, they could make material difference to the business. We're in market test on some of those ideas. And as we think about bringing them to market, we'll obviously discuss that more broadly.

William Warmington - Raymond James & Associates, Inc.

And then a question for Rich on the margin expansion target and how -- what you feel are going to be the key components in terms of hitting that 100 basis point margin target.

Richard Veldran

Sure. Yes, let me talk about that. There is really 3 things that I'd say are the big drivers: first is generating some organic revenue growth that we've talked about; the second is our ongoing financial flexibly program, so we're currently underway with a number of programs that are geared to help next year; and then the third is the ongoing savings that we expect to derive from the Strategic Technology initiative itself. The combination of those should put us on track.

Operator

Next we have Manav Patnaik from Barclays.

Manav Patnaik - Lehman Brothers

Just if I could ask just a breakdown on deferred revenue growth. Obviously you guys continued the positive momentum there, but a breakdown by region maybe of that growth and maybe organically as well if you could?

Richard Veldran

Sure, Manav, let me take that. Let me just start with the recorded number that you see up there, it's 4%. But let me tell you how we think about it in order to get to the underlying state of the business. Since last year, we bought Australia, we divested our self awareness business last year that you may recall. We have some positive impact of FX. So if you strip all of those things out, we're about 3% for the quarter, which we feel pretty good about. From a regional basis, the North America, really on that same basis with the same impacts removed, is also about 3% . International is a tad higher, but it's a relatively smaller base once you strip out Australia. Does that help?

Manav Patnaik - Lehman Brothers

Got it. Yes, that definitely helps. I guess just on the APAC region, I was just wondering if you could maybe give us some -- I guess you gave us a directional comments internationally, but specific to APAC in terms of the profitably there obviously, relative to first quarter, you're obviously in the green. But for the second half of the year, should we expect this sort of 11% margin run rate and maybe if you could just help us understand if there's any seasonality involved with that shift?

Richard Veldran

Sure, let me talk about it. We're actually expecting some improvement in profitability across-the-board in the second half. We're continuing to driving growth. We're continuing to look hard at margins in all areas. One of the things Manny's looking at is not just driving the top line, but really getting in and driving the bottom line improvement in all regions. So you should actually expect some improvement as we go on.

Manav Patnaik - Lehman Brothers

And my final question is just around, I guess, share repurchases. Just wondering in the light of what you discussed on your M&A activity and I guess the investments coming to a close and especially at current levels if they -- any thoughts around making share repurchases a little more aggressive. I know you guided to a $60 million to $80 million for the year. Just some thoughts around that?

Richard Veldran

Sure, I'll take that. A couple of things and let me just step back and talk about our principal uses of cash. As I think we've talked about in the past, we first invest in the business with our cash. The second thing we do is look for value-creating acquisitions, primarily tuck-ins where they make sense for us; and third is we return excess cash to shareholders via both dividend and share repurchase. We've said we do a range, I think of about $60 million to $80 million this year. As we sit here and as we look at the economic environment, we're comfortable with our debt levels. And we're comfortable with returning essentially in that same ballpark. So hopefully, that helps.

Operator

Next question comes from Shlomo Rossenbaum, Stifel.

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

Just to clarify, the 2012 growth, you've specifically said that it was mid-single digits in North America. Should we expect that the whole company should also be growing in the mid-single digits? Or is there going to be some kind of focus in North America that should make that different?

Sara Mathew

Well all we did, Shlomo, is we gave you a set of expectations in 2012, and we specifically focused on North America. I think that's a reasonable assumption. And we still have work to do over the rest of the year to continue to figure out how we improve on that mid single-digit range. So what I wanted to do, however, is let people know that we're not coming off those commitments we made, and we're actually aggressively working towards them. So I think that's a reasonable assumption if that's what you're planning for.

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

Reasonable assumption for the whole company to grow that way?

Sara Mathew

That is correct. Because International, quite frankly, is so much smaller. It doesn't make that much of a material difference to the overall total.

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

And also just to confirm, this is an organic number, right? This is because of the growth initiatives you guys are putting in this year and a little last year?

Sara Mathew

That is correct. And again, I want to say the focus is on North America primarily. When I think of International, I got one part that is economically stressed and other part that is actually doing extremely well. This is Asia versus Europe, but I don't think that will materially change the numbers.

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

And then just kind of a housekeeping thing. I know your bank revolver is coming up for renewal. Do you guys have any plans to build up cash in advance of that, like some companies do? Or will you be treating the capital structure any differently in advance of that?

Sara Mathew

That's one for Rich.

Richard Veldran

Sure. As you know, the revolver comes up next April. I'm assuming in the course of business over the next number of months, we're going to model the market. And we're going to -- we will renew the revolver. But we're not going to build up excess cash in many other -- in fear of anything.

Sara Mathew

Our capital structure's fairly conservative. Shlomo, you know that. We're not over-levered. And it looks like it's the right place to be given everything going on around us.

Operator

[Operator Instructions] .

Sara Mathew

Okay. Well in that case, we don't hear any more questions, I want to bring the call to a close. I want to very quickly thank the team members on the call, who are with us today. Thank you so much for the first half, and we all know what we have to deliver in the second half. And for everyone else on the call, thank you for your participation. Have a wonderful summer, and we'll be talking once again in the fall.

Operator

That does conclude today's presentation. Thank you, all, for joining. You may now disconnect.

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