Dun & Bradstreet's CEO Discusses Q1 2012 Results - Earnings Call Transcript

May. 8.12 | About: Dun & (DNB)

Dun & Bradstreet (NYSE:DNB)

Q1 2012 Earnings Call

May 08, 2012 8:00 am ET

Executives

Kathy Guinnessey -

Sara Mathew - Chairman and Chief Executive Officer

Richard H. Veldran - Chief Financial Officer and Senior Vice President

Byron C. Vielehr - President of North America

Emanuele A. Conti - Chief Administrative Officer and President of International

Analysts

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

Korosh Saba - Stephens Inc., Research Division

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

William A. Warmington - Raymond James & Associates, Inc., Research Division

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Operator

Good morning, and welcome to DNB's 2012 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, 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.

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 this material. We undertake no obligation to update any forward-looking statements.

During our call today, we will be discussing a number of non-GAAP financial measures 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 any 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

Thank you, Kathy, and good morning, everyone. Here's what you can expect on today's call. I'll begin with a brief review of our first quarter results. Next, I will discuss our performance in North America and expectations for the rest of the year. I will close with the recent developments in China. This will provide you with a high-level rationale for the revised guidance expectations in 2012. Once I am done, Rich will follow with a detailed discussion on 2012 with an emphasis on the North American business. Finally, Byron, Manny, Rich and I will be available to take your questions.

Last night, we announced our first quarter results. Core revenue was up 1%; operating income, up 3%; EPS, up 5%; and year-to-date free cash flow was $152 million. Simply put, I am disappointed with our top line performance, especially in North America, which was down 1% to prior year after 2 quarters of growth in the second half of 2011. The shortfall in North America was concentrated in Risk Management Solutions, or RMS, where reported revenue was down 5% in the quarter and partially offset by growth in Sales & Marketing.

Let me begin with the specifics on the RMS miss. As context, we expected RMS to be down 2% in Q1, including a 1 point drag from the accounting changes we discussed with you in the fourth quarter call. Our 5% decline in RMS is 3 points worse than expected, due primarily to sharp declines in project revenue and credit contracts outside of DNBi. The miss occurred late in the first quarter, giving us little time to respond.

I'll begin with DNBi. Our core DNBi performance was in line with expectations. Retention was in the low 90s and lift returned to the mid-single digit range after a dip in the fourth quarter.

Moving to the non-DNBi business. These customers access D&B data through subscription plans, usage-based credit contracts and projects designed to address specific issues. We are seeing 2 trends with these customers. First, an increase in customers moving to smaller usage-based plans in an attempt to save money in the near term. Of note, if they exceed the allotted usage, we will see incremental revenue later in the year. Second, we saw a decline in project-based revenue as project spend is often viewed as discretionary.

Stepping back, the declines in these 2 areas reflect a certain cautiousness in customer spend that we did not see coming, and we believe this could persist throughout 2012. Based on what we've seen to date, we now expect full year RMS revenue trends to be negative, down in the low-single digit range versus our prior expectation of flat performance. Rich will provide additional details in a moment.

Moving to S&MS. We continue to see solid results driven by value-added solutions and growth in our Data-as-a-Service, or DaaS offering. This includes D&B360, a product for the CRM space, and D&B Direct, which allows us to embed our data into existing customer applications, opening up new markets and new opportunities for D&B.

Regarding D&B360, our partnership with Sftc is developing well, and this product is now available on all major CRM platforms. Regarding D&B Direct, we originally envisioned D&B Direct as a marketing solution. However, as we interact with customers on this new product line, we are opening up new opportunities in risk management.

Specifically, customers are using D&B Direct to solve risk management issues for a variety of new use cases, such as business authentication and others, and we are bullish about the prospects ahead. A recent example is a new D&B Direct contract that we signed in the first quarter with a large technology company. This customer now uses the D-U-N-S Number to identify, validate and segment new development partners, a completely new use case for our data.

While we've recorded minimum revenue against this initiative to date, it is a good example of how Data-as-a-Service provides unique new ways to revitalize the RMS business and to do so very profitably. Several other opportunities continue to be identified with our large customers and the D&B Direct pipeline continues to grow in 2012. So in summary, North America is a tale of 2 businesses, Risk Management that is weaker than expected, partially offset by strength in Sales & Marketing.

Moving to International. Q1 revenue growth exceeded expectations on all fronts, with strength across Asia, Europe and Australia. Unfortunately, International growth in 2012 will be impacted by our operations in China due to the recent developments in that market.

Let me take a moment and frame the issues in China for you. We are dealing with 2 separate but related issues: first, potential violations of the Foreign Corrupt Practices Act, or FCPA, which we self-reported to the SEC and Department of Justice in March; second, allegations by the Chinese government that certain data collection practices at our Roadway operation may violate local consumer data privacy laws. We are proactively working on both these matters and made a decision to permanently shutter our Roadway business.

Let me provide context about our businesses in China so you understand the implications of these 2 matters. In 2011, our business in China generated approximately $54 million of revenue and $3 million of operating income. Our revenue comes from 3 operating subsidiaries: first, Huaxia D&B, focused on business to business or B2B credit; next, Roadway, a predominantly business to consumer or B2C marketing company; and third, MicroMarketing, our recent acquisition which provides both traditional and online interactive marketing solutions focused on the B2B space.

The shutdown relates only to Roadway, a business that we acquired in June of 2009 for $28 million. While Roadway was predominantly a domestic B2C marketing company, we viewed the acquisition as a way to improve our data quality and broaden our reach with cross-border customers. Since the acquisition, Roadway has been growing rapidly, and at the end of 2011, generated $22 million of revenue and about $2 million of operating income.

Following allegations by the Chinese government that we violated local consumer data privacy laws, we suspended operations in March. Given the time, cost and management bandwidth to resolve these issues and restart the business, as well as a very fluid situation in China in the B2C arena, we did not believe it was prudent to continue to operate Roadway. While we will lose top line growth with this decision, we believe it's in the best interest of shareholders to put this behind us and move forward. In a moment, Rich will provide the financial implications of the shutdown.

The second issue we are working through involves our self-reporting of potential FCPA violations to the SEC and DOJ. These sensitive investigations are currently underway, and as such, I will not be discussing them on the call. I will update you on this matter when it is appropriate.

You should know that we take very seriously our obligation to conduct business with the highest standard of integrity and in compliance with applicable U.S. and local laws. This is evidenced by our actions to voluntarily bring these matters to the U.S. government's attention so they are satisfactorily resolved.

Notwithstanding the current situation, we remain committed to retain data coverage in China on the B2B side, and we will continue to operate Huaxia D&B as well as MicroMarketing. These businesses provide solutions that create value for our customers and will become the foundation for future growth in our Chinese operations.

It is due to the shutdown of Roadway and its impact on our other China operations, as well as the slow start to North America discussed earlier, that requires us to revise our 2012 top line guidance. We now expect 2012 revenue growth to be in the 0% to 3% range compared with our original guidance of 3% to 5%. We expect North America to be about flat, and International is expected to be in the low- to mid-single digit range, reflecting our recent decisions in China.

Now despite the lower revenue outlook, we expect to minimize the impact on the bottom line. Our flexible business model will allow us to resize our expense base to match the lower revenue growth and deliver our profit commitments in 2012. As such, our operating income and EPS guidance remains unchanged. In summary, here's what we now expect: revenue growth of 0% to 3%, operating income growth of 4% to 7% and EPS growth of 8% to 11%.

Our free cash flow will be impacted by onetime charges from China. In a moment, Rich will take you through the rationale for our revised outlook.

Let me conclude my remarks with a quick update on our technology transformation on MaxCV. As discussed in the last quarter, we revised the project plan to deliver a fully functioning data supply chain for one key market by year-end 2012. I'm pleased to report with -- that the progress to date is good and year-end completion remains on track. The teams are working diligently, and we continue to expect a step-function improvement in our data quality and a much faster speed of innovation once we complete this effort.

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

Richard H. Veldran

Thank you, Sara, and good morning, everyone. Let me kick off our review with revenue performance in the first quarter. Core revenue was $390 million, up 1% from last year. North America, which represents 73% of our total company core revenue, was down 1%. As we discussed on the fourth quarter call, our adoption of the new accounting standard, ASU 2009-13, last year resulted in a 1-point drag on first quarter results, and we expect a 1-point headwind for the full year.

Risk Management Solutions, or RMS, declined 5% in the first quarter. As Sara said, DNBi revenue was about flat with continued strong retention in the low 90s. Beyond DNBi, we saw a slowdown in revenue from projects and usage-based subscription products late in the quarter, as customers continue to trim spending in the face of budget constraints. Deferred revenue from North America was down about a point as a result of the weakness in RMS.

Stepping back, our RMS business has not turned as we expected it to at this stage, and 2012 will be a difficult year. As a result, we are rethinking our approach and have identified 2 additional areas of focus. First, leveraging our Web service layer through D&B Direct, we will develop new use cases to embed our risk data directly within customer applications. And second, we're investing in new data sets to put new value on the table with certain verticals. These initiatives are currently in test and development, and they won't hit the market until 2013.

Let me turn now to Sales & Marketing where revenue was up 5%, driven by a 10% increase in value-added solutions. Traditional S&MS was down 6% in the quarter, an improvement from the double-digit declines in 2011, as we cycle through the migration of customers from our list and label business over to Hoover's. The 10% growth in value-added solutions was driven by the continued strength of value-added solutions, as well as increasing traction in our new DaaS product, primarily D&B360.

We expect S&MS to be the primary driver of North America growth throughout 2012 as improvements on our global database fuel continued strength in Optimizer and D&B360. Sales of our new value-added products are tied to both the volume of data process and match rates, and therefore, improvements in the database lead to a direct increase in sales for these products.

Internet Solutions grew 5% in the quarter, which was slower than our low-double digit performance in 2011 as we've completed the bulk of the migration from our S&MS traditional products to Hoover's.

Let me turn now to International, which represents 27% of our core revenue. As a reminder, first quarter results in International represent the 3-month period ending February 29. Therefore, the suspension of our Roadway business that occurred during March had no impact on Asia Pacific's first quarter 2012 results. Total International core revenue grew 8% in the first quarter.

Europe and Other, representing 45% of International revenue, grew a better than expected 3%, led by strong DNBi sales across Europe and stronger sales execution in the U.K. While the macro environment in Europe remains challenging, we continue to expect modest growth for the full year by focusing on continued sales of DNBi. Although DNBi is still relatively new in Europe, we continue to see double-digit price lifts as customers shift from legacy risk products. This tracks with the performance that we saw when we launched DNBi in North America a few years back.

Asia Pacific, which represents 55% of International revenue, grew 15% during the quarter. This strong growth was largely due to the better-than-expected growth in DNBi Australia, driven by an uptick in their collections business. We also benefited from the positive impact of the acquisition of MicroMarketing in China.

Turning to first quarter profitability. Total company operating income increased 3%, which was ahead of expectations. North America declined 4%, largely due to higher investment spend, which was anticipated, as well as the lower-than-expected revenue in the quarter. Total International operating income increased by 74%, which was ahead of expectations, benefiting from strong top line growth, the timing of investment activity and the benefit of reengineering, primarily in our Europe and Other region.

Looking at the full year, we expect to be able to drive improved profitability in spite of the top line challenges in China and North America through the strength of our financially flexible business model. As such, we are now accelerating our reengineering plans for 2013 in order to realize incremental benefits in 2012 to offset the impact of our lowered revenue expectation.

As Sara said earlier, we will have additional onetime charges related to China. Our best estimate at this time is that we will have approximately $25 million of charges over the remainder of the year to cover costs related to the shutdown of Roadway, as well as legal, audit and other professional services related to the investigation that we're conducting. The China situation is dynamic, and at this time, we cannot estimate potential penalties stemming from these investigations.

As always, the cash impact of all charges is included in our free cash flow guidance. For 2012, the $25 million of additional charges, as well as $10 million of lost working capital due to lower revenue outlook for North America, will reduce our free cash flow outlook by $35 million. We now expect full year free cash flow in the range of $275 million to $305 million.

Finally, we returned $18 million to shareholders during the quarter through dividend. We did not repurchase shares during the quarter but expect to buy aggressively going forward and remain fully committed to completing our plan to buy between $150 million and $175 million of shares during 2012.

With that, let me turn the call back over to Sara.

Sara Mathew

Thank you, Rich. So in summary, we've had a weak start to the year. Our revenue performance in North America is below expectations, and we've revised top line guidance down to reflect the change. The business environment in North America is tough, and we have not executed well to win in this environment. We are taking steps to strengthen our trajectory in the second half so we exit the year on a better note. Regarding China, we've been decisive and acted quickly to protect shareholder value.

In the near term, our focus in North America is to strengthen our data value proposition while driving growth through Data-as-a-Service, or DaaS solutions. Over the long term, we remain focused on completing our technology transformation to create a step change in the speed and scale of new product innovation. It is this step up in innovation that we believe will ultimately allow us to drive sustainable growth at D&B.

And with that, I'd like to open up the call for your questions. Operator, could we open the lines, please?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Shlomo Rosenbaum, Stifel.

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

I just want to start by focusing a little bit again on North American RMS. Could you talk me through why the subscription revenue is down? My understanding is that it's supposed to be particularly sticky revenue.

Sara Mathew

Yes. Let me break that up into 2 pieces, Shlomo. There is the DNBi component and what we would describe as a non-DNBi subscription component. The DNBi component was mostly in line with expectations. Lift returned back to the mid-single digit range. The non-DNBi customers is where we saw a contraction, and it's partly driven by them opting for usage-based contracts, which allow them to save money in the near term, and if the usage goes up, they actually pay more in the long term. And clearly, we see that this is largely driven by, what we would say, budgetary pressure and a certain caution. We haven't seen something like this, this early in the year, and that's what's reflected in our guidance. Now you should know that DNBi subscription is the bulk of the subscription revenue overall.

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

What I'm trying to understand, though, is the move with customers looking in at lowering their pricing by going by usage based. Is there a general focus on my data costs are high, and are you seeing a pressure in the industry on pricing?

Byron C. Vielehr

Shlomo, this is Byron. As Sara said, on the DNBi side, which is 60% of the risk business, lift has returned to mid-single digits and retention's holding up well. We've certainly seen pressure in the project side of the business, and we've not seen a big acceleration of losses, but people have compressed down their spending. There's a cautiousness with which people are spending dollars, and we've resized some of those projects based on that cautiousness. And so we are seeing that in the market.

Sara Mathew

So, Shlomo, I think I get what you're trying to say. Is it pricing pressure, or is it budget pressure? What we're seeing is, people are assuming they're going to use fewer units, so it's less about pricing. And the best way in a subscription plan is to opt for a usage-based contract away from subscription, and that's why we saw a shift in the first quarter.

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

Can you just define for me the difference between what's going on in the project related and what's happening right now in the subscription? In other words, I understand if people are cutting back on their projects, but the focus on subscription, the decline in subscription really sounds like a change in the way that people are thinking in a normal course of business.

Byron C. Vielehr

There has been some shift. As I said, DNBi is holding up relatively well. We have seen some people go to metered products, so on -- we introduced a metered version of DNBi last summer, as well as dandb.com. And so once again, this is the fact that people are managing spend. And as -- if their transaction -- what we've seen in the past is if the transactional volume goes up, if they start consuming more, we'll start to see that because they'll go through their contractual commitment, unlike on DNBi where -- they essentially, on that subscription, they can keep consuming more. If they go to a metered product, once they use up the number of reports or units they have, they'll have to pay us for that. But it is a way for customers to say, "I'm going to consume less reports, and so I want to go to a metered product and spend less." They take the risk if they need more.

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

Okay. And in 4Q, you talked about the innovation in 4Q and DNBi was supposed to drive revenue growth in the business in 2012. How are you thinking about that now? And the efforts you guys put in last year, are you seeing the fruits of that? Or I'm trying to understand is the lowered guidance in the RMS strictly from the non-DNBi, or is it also DNBi?

Byron C. Vielehr

Well, it's primarily from non-DNBi. So as I said, the DNBi core metrics are back to where we've seen them historically, low-90 retention, mid-single digit lift. We do have 2 products that we had introduced, one was DNBi Pro, and we're up to about 2,000 customers on that product over the first quarter. We also introduced a Portfolio Risk Manager, which is off to a bit of a slower start than we had thought, but we think it's going to ramp up through the year. And we've doubled the pipeline on Pro. It doubled from the beginning of the year to the end of the first quarter.

Sara Mathew

I think, Byron, it'll also be helpful to talk about what are we planning to do about this. Because we do know that with DNBi, we have a really good product that our customers love. We get, what we would call, very good pricing lists and high retention. If you look at the absolute number of customers on DNBi, we do believe there's an opportunity to go get other customers like them into the franchise. We know that DNBi holds up better because other subscription accounts are really reports, and DNBi's more of a real time interactive solution that customers are willing to pay for. So the goal is really to get the DNBi into the hands of more customers.

Byron C. Vielehr

We need to acquire more customers on the DNBi platform. As I said, for the customer base that's on it, they're -- we're seeing retention-lift metrics at historic levels, but we have to acquire more customers for that platform. We're focusing on mid-market and up for new customer acquisition. We know it's a good value prop. It has very good lift and retention rates, and so that's one of our major focuses.

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

Okay. And the 0% to 3% revenue growth is off what revenue base for 2012? Are we taking Roadway out for that calculation, or is it including the Roadway?

Richard H. Veldran

Yes. If you go to -- yes. So the answer is yes. If you go to Schedule 7 of the release, you'll see that laid out pretty clearly.

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

And then if you're keeping the EBIT and EPS growth guidance, it basically sounds like the only way if you keep the revenue the same -- excuse me, you're lowering the revenue and you're just -- you're going to have more cost cuts. Just from a business perspective of it, the reason why you guys don't do them faster on a regular basis is that -- I assume it's the impact it would have on the business and from a long-term perspective. Accelerating those cost cuts, I mean, how are you balancing that with both the culture of what's going on inside the firm and the disruption that can take place by accelerating that?

Sara Mathew

Yes, let me just provide some perspective, and then Rich will go through the mechanics of exactly how we deliver it. So, Shlomo, we are actually accelerating investment into the business beginning in the second quarter. So Byron touched on the new data and the new data sets we're bringing into the market. We're also going to more heavily invest in data and analytics because we believe this is critically important to ensure we get our sales team pointed at the right customers so that we can get the -- get them to acquire DNBi. Now we go into the year with some, as you would describe, conservatism. And I'm going to ask Rich to talk about how do we essentially think of our expense base. So we think of it slightly differently than the way you described it, so I'll have Rich discuss that.

Richard H. Veldran

Yes. So a couple of things. We try to view our business as a truly flexible business, where every dollar has to justify itself, and we do flex it with revenue. Our belief is that if our revenue falls short of our expectations, it is our obligation to flex our cost base appropriately. So let's talk a little bit about the mechanics of how this one works, because I think it's a good instructive example. Because we'll be down to a degree, we have some level of variable costs, so right off the bat, some of that stuff's going to fall out. We always go into the year, though, with a level -- we tend to be a conservative company, with a level of conservatism in our cost base. So we've got some contingency which we hold in the event that things don't work out perfectly. And we always have a continuous pipeline of new work that we're doing because we have a continuous reengineering model, and we typically space those out over time but we can accelerate them. In fact, if you look at last year, I think I mentioned on the last call, we did a Hoover's integration. We ended up doing that in the September period of last year. We'd originally anticipated doing that this year. So oftentimes, we will accelerate programs when it makes sense to do so. If you take a look at the overall impact and what we're covering right now, it's about 1/3 of it is from the [indiscernible] costs, about 1/3 of it is from the conservatism that we've built into the forecast and the last 1/3 is by bringing some of the reengineering programs forward.

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

Okay. And then I'm going to leave you with one last question. Just can you -- do you have any quantitative commentary about either salesforce.com or D&B360, any user accounts or pipelines or anything like that?

Sara Mathew

Sure. Byron will take that.

Byron C. Vielehr

Yes. Let me start with salesforce.com. The relationship's going quite well. They're ahead of our plan. We think they'll be ahead of our full year plan as well. From a revenue perspective, it's a relatively small number because we get paid a royalty on it, and then that royalty is ratable as well. But it's ramping the way we had anticipated. Also, as we look at it, almost 80% of the customers that they've added to data.com are new to D&B, and so we're starting to see lead flow come over to us that allows us to cross-sell them on the rest of our value props. If you look at the DaaS products within our distribution channel, D&B360, D&B Direct, they added about a point of growth to S&MS in the first quarter, and the pipeline for those has doubled from the beginning of the first quarter to the end of the first quarter. So we continue to get traction on that. They're going to continue to drive growth in S&MS.

Operator

Your next question comes from Carter Malloy, Stephens.

Korosh Saba - Stephens Inc., Research Division

It's actually Korosh on for Carter. Just a couple of questions. So first, going back to the project revenue. Could you guys speak about how much of that revenue was, just kind of the magnitude of the revenue in U.S. RMS, and then whether there's any seasonality that goes with that?

Sara Mathew

Sure.

Richard H. Veldran

Yes. So if you look -- actually, if you look in our financial statements, what you'll see is about 20% of the RMS revenue is sort of the VAPs business. That's primarily the projects that we're talking about. And RMS is $170 million in the first quarter, so 20% of that to give you a sense of the project business.

Sara Mathew

And if you look at the trends, you'll find that we -- ended 2011 quite strong, and we really saw a sharp drop-off in the first quarter. We really didn't quite see that coming. And this is discretionary spend. It's when a customer wants something very specific done, and what we're seeing is they're pushing it out and deferring it. I would believe that, that cautiousness will continue.

Byron C. Vielehr

Korosh, the last piece of it is, we saw a lot of that at the end of the first quarter. So people were holding on to their discretionary spend till the end of the first quarter, which surprised us.

Korosh Saba - Stephens Inc., Research Division

Okay, great. And then on the buyback. I know we didn't see any in the first quarter, but could you guys give us a sense of how you're looking at executing that throughout the other 3 quarters? Is it more even, or how are you guys looking at it?

Richard H. Veldran

Yes, so a couple of things. Well, first, I'll start with saying that we are firmly committed to the $150 million to $175 million. We do not give guidance around the specific buying patterns, so I won't share any of that today.

Operator

Your next question comes from Dan Leben, Robert W. Baird.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

First off, on DNBi Pro. Could you just talk about the 2,000 customers you have on that platform now? How many of those are kind of new to D&B versus people that have traded down from DNBi?

Byron C. Vielehr

Sure, I can talk to that, Dan. 90% of the customers are new to D&B. So it continues to bring new customers into the franchise. We've seen very little movement down from DNBi onto DNBi Pro.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Okay. So with the pricing getting better in the quarter and DNBi, as a whole, flat year-over-year again this quarter like it was last quarter, just talk about the new customer pipeline. Just what's going wrong there bringing in new DNBi customers?

Byron C. Vielehr

The biggest challenge we have is mid-market and up. We had focused down market primarily in the risk space, really, with the Pro product. And what we've seen is that we're just not bringing in enough small customers to make up for the pressures that we're seeing in RMS, particularly on the project side. So we're now looking up market to mid-market and larger customers to drive larger contracts in that part of the market.

Sara Mathew

So essentially, what we're trying to do, Dan, is we know DNBi is such a terrific product. What we're going to do is take that existing customer base and find customers like those that we can actually give them DNBi, and we're going to be on the offense as well with that throughout 2012.

Byron C. Vielehr

And then the last point relative to that, Dan, is we do believe with some of the new Data-as-a-Service product, particularly D&B Direct, it allows us to attack new use cases in the marketplace. And so we have a couple of deals that we've done recently with large technology companies that are verification-use cases. That sits in the Risk business. We'd been thinking about D&B Direct and DaaS and the S&MS space. So we see some real opportunities to take the content and the data from Risk, and plug it into other people's workflows using Web services.

Sara Mathew

The one thing I would add to what Byron has already said is if you look at our pipeline on our new products, it is very, very strong. So even between January and March, we've seen a doubling of the pipe. So part of what is happening is if you think about our Portfolio Risk Manager, it was late in December that we got it out. We probably were a little too aggressive in our assumptions on how fast we could build pipe and close pipe, especially in an environment like this. So the pipe continues to build, and that, we believe, is a very good sign, but unfortunately, won't be until very late in the year, which means revenue will not be realized until 2013.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then last one for me. Just we saw a big uptick in C&I growth in the first quarter. It's something you've been talking about for a couple of years now waiting for that to come back. Kind of why didn't we see any more translation of this into the revenue side? And if you have any metrics along the customers that went to the metered product, if they're running above pace, anything that'd give you visibility in the second half that they're likely to have to come back for another bite later in the year?

Sara Mathew

Well, I'll be really candid, Dan. These -- our revenue trends relative to C&I loan volumes have been a bit of a surprise for us, because we haven't materially changed our trajectory. We believe it's a couple of reasons. Where much of the loan volume is going is within the FI space. You should know our FI business is doing well. We're growing with FI, and that's where we believe the bulk of the growth has come from. We believe also that companies are thinking more of the existing customer base as opposed to completely new customers. They don't want to go out and take more risks, which is why Portfolio Risk are to play in. But other than the fact that we're seeing definite pickup in the FI and maybe a little bit in the insurance space, we're not seeing much anywhere else.

Byron C. Vielehr

Yes. More specifically, if you look into the manufacturing space, which is our largest segment, we've not seen a lot of transactional pickup in that space.

Sara Mathew

In that market.

Operator

Your next question comes from Bill Warmington, Raymond James.

William A. Warmington - Raymond James & Associates, Inc., Research Division

I wanted to ask if you could talk a little bit about how volumes have been, specifically at DNBi. It sounds like the retention's there, and it sounds like the pricing is normal. So is the issue volumes?

Byron C. Vielehr

Sure, I can speak to that. Yes, as we said the retention lift has -- are at historic levels, low 90s and mid-single digits. The transactional volume on DNBi is relatively flat. We've seen -- if you look at some of our products for the financial companies, we've seen some transactional lift on those products. So SBRI, we've seen growth on SBRI.

William A. Warmington - Raymond James & Associates, Inc., Research Division

So it would seem at this point in the cycle, that you would start to see some pickup in the volumes. And that's the thing I want to know, if -- what's happening with the volumes? Are they going to other products within D&B? There's talk about increased competitive pressure. Is that where the volumes are going, or is it just the -- I'm just looking for some help there.

Byron C. Vielehr

Sure. So from a competitive perspective, as I said, DNBi is holding up quite well. It doesn't look like the customers are acquiring as many new customers, and one of the primary use cases we play into is we're extending a line of credit to a new customer. It's also why we've built the Portfolio Risk product, to allow our customers to manage their portfolios, so they're more focused on their existing portfolios than customer acquisition. We've just not seen that acceleration in customer acquisition, which typically then goes along with higher transactional volumes.

Sara Mathew

Bill, let me give you a sense for how we're thinking about the issue and how we're going to triage and solve the problem. So what we have done is we've taken a look at the entire business to see if there are certain markets, certain areas where we're seeing growth. And what we found, and this is in particular one market, the path to growth is actually bringing new customers in. We're at the higher end. And in the market that we're actually doing this, in that particular channel, we're seeing double-digit growth. So it's not that we can't do this. It's around focusing our efforts around the best products we have, and the best products we have on the risk side is DNBi. We have to go to new customers. The question is how penetrated are we within the market in order to be able to go to new customers, and we're not very deeply penetrated in DNBi. So we really think with DNBi and PRM, which is our added bolt-on module, you pretty much, as a midsized company, have a platform on which to manage most of your risk positions. Beyond that, if you are larger or if you're extremely small and riding on another platform like salesforce.com, we believe that D&B Direct will allow us to put our data right within a transaction in order to make either the business decision right on an existing platform and to do it with relatively low friction and fairly high profitability. So as we look at the opportunities before us, we see the opportunities there. We just got off to a really weak start in Q1, and we own that. So the opportunity is out there, and our intention is to really level set in 2012 and go after it.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Would you mind reviewing for us the revenue exposure by industry vertical? You mentioned manufacturing being the largest, financials being another large. If you could give us a sense of how that breaks down.

Sara Mathew

So I can give you like in rough terms, I believe financials are about 15%.

Richard H. Veldran

15%, about 15%.

Sara Mathew

Rich, do you have the...

Richard H. Veldran

Yes. I have it right here. So financials -- the single largest one is manufacturing. So I'll give you U.S. numbers, which is about 26%. And then you have services, which is 26%. Financials is 15% and then it goes down to the single digit.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Got you. That's helpful. All right. I want to also ask about -- on the operating income side, in terms of the plans to make up the shortfall. It sounded like a couple of million would come from Roadway to make up. And then how much needs to be made up for the U.S. business for RMS, and what is that going to give us as total operating income that we would need to make up by going through the 3 plans that you had enumerated before?

Richard H. Veldran

Sure, Bill. Let me frame it in rough numbers, just based on the things we've put out there to give you some framing. So if you think of our guidance revenue which was 3% to 5% and it's now 0% to 3%, let's use the low end, for the sake of argument. Say there's -- that's about 3 points to the company, right? So 3 on 1 7 is $35 million, put it in that range, of revenue, right? Now the Roadway business was not profitable, right? I mean, it was very marginally profitable. So there's a chunk of that, that just naturally goes away. Of the remaining piece, as I mentioned: about 1/3 of it is from variable costs, so things like commissions. There's certain royalties, as well as other variable costs; about 1/3 of it is contingency that we naturally build into the plan; so the rest is accelerated reengineering. So we're not talking about an enormously large number. If you recall, going into this year, we said we were going to do $80 million to $90 million of cost-savings projects. This will bring the number a little over $100 million. So it's certainly within the purview of the kind of things that we typically do.

William A. Warmington - Raymond James & Associates, Inc., Research Division

Got you. That's helpful. And then the -- I wanted to ask on data.com. If you could help us understand or how you guys think about the potential opportunity with Salesforce in terms of how you size the market there or the market potential?

Byron C. Vielehr

Bill, this is Byron. We continue to think that's a very big opportunity. As I said, it's growing ahead of our plan. If you look at their business and how they're pricing the data.com seats, it prices at about the same as the software. So they have $1.7 billion of revenue. If you sold all the seats, you'd end up with $1.7 billion of data.com. At a 20% penetration, that's a $300 million or $400 million data business for them, and we get paid a pretty significant royalty on that business. And so we think this is a big opportunity for us going forward. We're pleased with the early results and the acceleration that they're showing in the product, and their product's going to get better. The product they have in market is still an interim product. They have a couple more releases that are coming out this summer, so we think we'll probably see some additional acceleration on the back of their product investments as well.

Sara Mathew

Now the only thing, Bill, just remember, Salesforce is about 15% of the market. It's growing share maybe 1% or 2% a year. We also have products with all the other suppliers, all the major CRM suppliers. D&B360 is now available, and the pipeline is only beginning to build.

Byron C. Vielehr

So Microsoft, SAP and Oracle, we have in market with products in our channels today.

Operator

[Operator Instructions] Your next question comes from Edward Atorino, Benchmark.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

I got a couple of questions. One, on MaxCV, are those costs going to get stretched out at all, 2012, '13? Will they still be treated off the income statement, or will there be some change in the way you're going to treat those costs?

Sara Mathew

So no change versus what we told you in the last call, which is 2012, it is still a noncore charge because it is truly onetime, and it should be in the neighborhood of $60 million roughly is what we've told everybody. And the following year, there will be a slight overhang, but we will absorb that as part of our normal ongoing operating expense. So there will be no more noncore charges for 2012.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Okay. And on the -- back to DNBi for a second. Is there any sense that you might be losing a little business to smaller competitors, either on a price basis or a product basis or any other way?

Byron C. Vielehr

From a DNBi perspective, the retention rate has actually come up a little bit from Q4 to Q1. So it's in the low 90s, and lift is hanging in there. So we're not seeing any acceleration of -- or deterioration in the retention rates on the product.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

And on to China, are there -- I know when the business shuts down, you'd lose the operating income. Are there any sort of residual costs or fixed costs or any other nonoperating costs that you've got to absorb, or can you treat those as nonrecurring as well?

Richard H. Veldran

Yes. So what we'll do is we'll shut the business down. There's a couple of months of wind down, but that's all included in the onetime stuff that I talked about as noncore.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Okay. As then -- I guess are you going to get out of China now, or is this sort of a systemic problem there?

Richard H. Veldran

No, absolutely not. The -- and, Manny, you can talk about it in a moment. But you'll recall, we have 3 businesses in China. The other 2 are B2B businesses, one's in the marketing space, one's in the risk space, and those are very important businesses to us. But let me ask Manny to comment a little bit about his view of how important China is.

Emanuele A. Conti

Yes. Sure, Ed. China remains an important market to us on a couple of dimensions. First, our global customers continue to demand and look for us to provide insight into companies that operate in China. And then secondly, obviously, it's a very large and growing domestic economy. So for those 2 reasons, we remain committed, and we have 2 businesses there that we continue to scale going forward.

Operator

Your next question comes from Shlomo Rosenbaum, Stifel.

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

I just want to ask a little bit about the focus of growth in new customers. A number of years ago, you hired somebody from a very large organization with experience in growing mature companies, and you had a concerted effort, at that time, in terms of driving the growth. I want to ask you, what were the fruits of those efforts? And how is what you're doing now going to be different from what you did back then?

Sara Mathew

Sure. What we did is we made a decision to focus new customer acquisition at the small end. And by the way, as Byron just discussed, we're doing really well on that small end. We are bringing a lot of customers in, but the dollars are too small to have a material difference to the top line. So what we're going to do is in addition to what we already have in that small business, we want to take our efforts more up market, where there are larger dollars. And we will go after that leveraging the products we have that we know really work well in the space, DNBi and then our D&B Direct and Data-as-a-Service solutions, and that's where we've actually got the most traction. There are channels where we've actually done this successfully. So we know it can be done. We're not just shooting in the dark here.

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

So have you changed around the sales force at all to do this? Have you hired anybody else? I mean, what's -- what are the mechanics of this?

Sara Mathew

Rich -- Byron?

Byron C. Vielehr

Sure. We're in the process of working through that, Shlomo. Our plan is to really focus a dedicated team on driving new customer acquisition in mid-market and up.

Operator

This does conclude the Q&A session of the conference. I will now turn the meeting back to Sara Mathew for closing remarks.

Sara Mathew

Thank you, operator. I want to thank everybody on the call for joining us today. It is not the best start to the quarter. But I do believe for all the team members in the call, we've now got the base where we need it to be, and this is the base on which we need to ensure that we deliver a commitment for 2012.

Thank you everybody, and we will talk to you in about 90 days.

Operator

This does conclude today's conference. Thank you for attending. You may disconnect at this time.

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