Dun & Bradstreet Corp. Q4 2007 Earnings Call Transcript

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Dun & Bradstreet Corp.(NYSE:DNB)

Q4 2007 Earnings Call

January 31, 2008 10:00 am ET


Richard Veldran - Leader of IR, Treasury

Steve Alesio - Chairman and CEO

Tasos Konidaris - SVP and CFO

Sara Mathew - President and COO


Michael Meltz - Bear Stearns

Fred Searby - JPMorgan

Kyle Evans - Stephens Inc


Good morning and welcome to D&Bs 2007 fourth quarter earnings teleconference call. This conference is being recorded at the request of D&B. If you have any objections, you may disconnect at this time. All participants will in a listen-only mode, until the question-and-answer session of the call. (Operator Instructions).

I would now like to turn the call over to Mr. Richard Veldran, Leader of Treasury and Investor Relations. Mr. Veldran, you may begin.

Richard Veldran

Good morning everyone and thank you for joining us today. Here’s what we'll cover on today's call: Steve Alesio, our Chairman and Chief Executive Officer, will begin with some opening remarks on D&B's strategic progress. Tasos Konidaris, our Chief Financial Officer, will then review our financial results. Sara Mathew, our President and Chief Operating Officer, will then provide some additional insight on our operating performance and our expectations going forward. Following some closing remarks from Steve, we'll then take your questions.

Now to help our analyst and investors understand where this business is headed our remarks for this morning will include forward-looking statements. Our Form 10-K and 10-Q filings, as well as the earnings release we issued yesterday will 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 obligations to update any forward-looking statements. Now 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 let me discuss revenue growth we will be referring to the non-GAAP measure revenue growth, for the effect of foreign exchange, unless otherwise noted.

When we discuss corporate and other expenses, operating income, operating margins, EPS these will all be on a non-GAAP basis before non-core gains to charges. 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 a supplemental reconciliation schedule that we post on the Investor Relations section of the website.

Note also today that we will be discussing results including our Italian Real Estate business. As we noted in the earnings release, we sold this business in late December 2007 and is now being accounted for as a discontinued operation. For transparency, yesterday's earnings release include schedules, which provided detailed review of our 2007 results on a non-GAAP basis with the Italian Real Estate business and on a GAAP business without the Italian real estate business.

In addition, we have updated our five year financial model on the website, which reflects the sale of the Italian Real Estate business. As you know, this model is available on the financial information section of the Investor Relations website, which is accessible on dnb.com. Later today you'll find a transcript of this call on the site as well.

With that I'll now turn the call over to Steve Alesio. Steve?

Steve Alesio

Thanks, Rich, and hello to our shareholders, team members and analysts on the call today. We are glad to be with you this morning.

As you saw from our earnings release, we delivered strong fourth quarter results with revenue growth at 8%, and EPS growth at 15%. These fourth quarter results capped off a strong full year in 2007, as we delivered revenue growth of 7%, operating income growth of 9%, earnings per share growth of 17% and free cash flow of $313 million.

We are pleased with these results, and really proud of continuing to meet our commitments overtime. In fact, 2007 marks the end of a three year planning period for D&B and a good opportunity to review our progress. Back in 2004, we laid out our commitments for the 2005 to 2007 time period, and we have not yet established a track record of constituency of the company. We do, however, have a strategy to deliver on average revenue growth of 7% to 9%, margin improvement of 100 basis point, and EPS growth in the mid to high teens.

Let me wrap up that planning period. We have met or exceeded each of these targets. In addition we generated approximately $900 million in free cash flow over those three years and returned about that same amount to shareholders through share repurchase and dividends. But ultimately we believe we have maintained our focus on the drivers of total shareholder return.

As we look forward specifically into the full year of 2008, we feel good at our prospects for continued growth for three very specific reasons. First, we exited 2007 with solid momentum. Second we expect these strategic investments we’ve made, to fuel growth in 2008. And third we continue to benefit from the competitive advantages that distinguish D&B in the marketplace.

Let me provide a little more color context around these two reasons. First, we exited 2007 with solid momentum, and specifically we increased revenue growth throughout the year, and ended by delivering fourth quarter growth of 8% in the US and 7% International. We expanded subscription penetration within our US risk business to 45%, demonstrating our customer's willingness to continue to increasing spending with us.

We also ramped up sales of our commercial data integration offering, delivering strong double digit growth for the fourth quarter and the full year. As a result of all of this momentum we exited 2007 with 14% growth in deferred revenue, a balance of $531 million now going into 2008.

The second reason, we feel good, we expect the strategic investments we made last year to fuel growth in 2008. For example, within our global Risk Management stake we invested in joint ventures in China and Japan, taking advantage of the large and the growing opportunity we see in the these markets.

Within our Commercial Data Integration stake we invested in our Optimizer Solution and acquired Purisma. This will allow us to further penetrate the fast growing CDI marketplace. And within our internet stake, we acquired First Research and AllBusiness.com, which will help us to scale our existing internet business and better meet the needs of professionals doing business on the web.

Each of these investments directly supports our strategic plan and positions us to drive higher levels of growth in 2008 and beyond.

The third reason we feel good about 2008 is that we will continue to benefit from the competitive advantages that distinguish D&B in the marketplace. Let me cite of these advantages.

First it starts with our brand, which is unique in the marketplace, and inspires trust and confidence with customers around the world, in good times and in tough times. Next we've made the fundamental choice to continue to be the world's largest and best provider of commercial information. This is market we understand better than any of our competitors and it provides us wonderful scale advantages.

Third, we also benefit from our financially flexible business model. Under this model, we engage in a process of continuous reengineering. We have the courage to examine all aspects of our business every year to make sure we are creating shareholder value. There are two examples of this as we start this year.

First, as we announced yesterday, we are targeting $75 million to $80 million of cost savings under our 2008 financial flexibility program. We will use most of those funds to invest for growth, returning a portion to our shareholders.

A second example is the recent sale of the Italian real estate business. This business has experienced significant volatility in recent years due to the regulatory environment in Italy. And we have recognized that it will be much less profitable for us in coming years. Given that, the sale of this business improves our predictability and lowers our international risk profile.

A fourth attribute of D&B, is we generate significant free cash flow and equally important to generating the cash, is spending it wisely. We are disciplined in deploying our cash. And we are proud of being able to return significant excess cash to shareholders.

As we think about acquisitions, we continue to follow a clear set of criteria to ensure high shareholder return. As a result of this discipline, virtually every acquisition we have made has performed at or above our expectations.

And finally, D&B is distinguished by our unique culture. We have developed a culture that is focused on winning and developing our talents.

Our team members have been skilled taking on challenges and finding ways to win year after year. Actually for all those team members listening to this call, I want to thank you again for your passion, your commitments and your willingness to continue to develop, as leaders.

In addition to creating our culture, Sara and I focused hard on building a strong bench of talented leaders across the company. One example of this is reflected in the recent promotions we just announced. Specifically we named Jim Burke, President of our US Customer Segments, and Charlie Gottdiener, President of Global Solutions. With both Jim and Charlie, co-leading our US P&L. We have also expanded the responsibilities of our CIO - Byron Vielehr, who will now lead the company's Data Strategy and Operations.

For each of these five unique qualities of D&B, I have just described, our brand, our focus on commercial information, our financial flexibility, our disciplined use of cash, and our culture. All of these set D&B apart in the marketplace. Combined they have served us very well. They have provided shareholder value to-date and they've provide a compelling reason to feel good about our prospects for the future.

To summarize my opening remarks, we are pleased with D&B's 2007 performance and the momentum we have built exiting the year. We have invested in our strategic stakes last year, which will help fuel continued growth in 2008. We will continue to benefit from a number of competitive advantages that set us apart in the marketplace.

Finally we are group of leaders that are committed to deliver on what we say. With that let me turn the call over to Tasos to review our recent results, and outline how we are positioned for the future.

Tasos Konidaris

Thank you, Steve, and good morning everyone. Over the next 10 minutes I will discuss in more detail the following three topics. First, our 2007 financial results, second, our divestiture of the Italian Real Estate business, and third, our 2008 Financial Flexibility program.

From a total company perspective, we delivered full year revenue growth of 7%, which includes a point of growth from acquisitions. It is worthwhile to note, that our revenue reflects a continued and consistent trajectory from 5% growth in Q1 to 8% growth in Q4.

From a bottom line perspective, our annual operating income was up 9%, earnings per share was up 17% and free cash flow increased to $313 million. These metrics were all inline or ahead of our expectations and demonstrate our ongoing ability to deliver in our commitments.

Let me now turn to our US business, which accounted for 75% of our annual revenue in 2007. Our full year US revenue growth of 7% was also inline with our expectations, with continued growth across all solution sets. Furthermore, our US growth rate reflects good momentum as well, as revenue accelerated from 6% in Q1 to 8% growth in Q4.

Our risk management solutions grew 4% for the full year, inline with our mid single-digit projection. During the fourth quarter of 2007, RMS revenue grew 3%, slightly lower than we planned due to the following two reasons.

First, as we said with you last year, we faced tough comparisons against the strong fourth quarter finish in 2006. Second, we faced a delay in launching a new product within the Small Business channel due to technology related challenges, which we are successfully premeditating. With these issues mostly behind, we are confident in our ability to achieve mid single digit growth for our US RMS solution, RMS business in 2008.

Our Sales & Marketing solutions grew 10% for the full year inline with our expectations. We were especially pleased with our revenue growth of 12% in the fourth quarter, which was driven by strong sales effort and continued demand for our Advanced Optimizer solution.

Our E-Business solutions grew 21% for the full year as well as the fourth quarter, also inline with our expectations. The results were driven by subscription growth at Hoover's and the positive impact of our First Research acquisition.

Finally our Supply Management solutions grew 15% for the full year, and 17% in the fourth quarter on a small base.

Turning now to US operating income, we improved 10% for the full year inline with our expectations. This performance was driven by revenue growth, partially offset by acquisition expense and investment to enhance our strategic capabilities.

In summary we are pleased with the continued financial strength of our US business and the solid momentum for build throughout the year.

Let me now turn to our international segment, which accounted for 25% of our annual revenue in 2007. International revenue grew 4% for the year which was also inline with our expectations. In addition we established good momentum as revenue accelerated from 3% growth in Q1 to 7% growth in Q4. Our full year international operating income was $283.4 million, and inline with our expectations.

This performance reflects a positive impact of our reengineering efforts being offset by investments we made in our worldwide network and Huaxia JV in China. Our corporate and other expenses for 2007 were $84 million, essentially on par with the prior year.

Moving on to our sales repurchase activity, in 2007 we bought back 4.5 million shares for a total of $409 million, $298 million of this was related to our discretionary share repurchase program as we opportunistically increased our share buybacks during the second half of the year. The balance was used to mitigate dilution from our equity awards.

In regard to our cash dividend we paid of $58 million to our shareholders during 2007. In addition, and as we shared with you in December we increased our quarterly cash dividend by 20% to $0.30 per share starting with our 2008 first quarter dividend, which will be paid out on March 17th, to holders of record on February 29th.

As a result, our full year 2007 operating income for the company was $465 million, up 9%, earnings per share was $4.64 up 17%, and free cash flow increased to $313 million. All inline or ahead of our expectations.

This concludes my discussion of our 2007 results, and I will now move to the sale of our Italian Real Estate business. As we discussed in the past, our Italian Real Estate business has been a constant source of top line and bottom line volatility over the last three years, due to ongoing legislative changes.

Finally on December 27th, we sold this business and we feel that this was a good transaction from a total shareholder return perspective for the following three reasons. First, the Italian government has announced its intention to enter into the real estate data market in Italy. The fact that the government needs the source of this data creates a significant competitive threat, and causes our 2007 profit levels to be simply unsustainable.

Second, the sale of this business reduces our top line as well as our bottom line volatility. Third, we struck through the deal that truly reflects our objectives of maximizing profits for our investors. We received $9 million in cash plus indemnification for up to $17 million related to potential data reuse fees by the government, which puts this issue behind us in a very substantial way.

As we noted in our press release, with this sale now complete we expect to recognize a small non-core gain in the first quarter of 2008. This concludes my discussion of our Italian Real Estate sale. Let me now comment on our 2008 Financial Flexibility program.

As Steve mentioned, our flexible business model provides us a unique competitive advantage for D&B. Year-after-year it enables us to fund investments for growth and create share holder value to our continuous process of reengineering. As we announced yesterday, our 2008 program extends the effort we launched in 2007, and includes four key components.

First, improving our organizational design, second simplifying our product and technology environment, third simplifying an automating data collection, and fourth, improving our overall business effectiveness.

On an annualized basis and before implementation costs, we expect these initiatives to generate $75 million to $80 million of funds to invest for growth or improve the bottom line. Over the other amount, we expect to realize approximately $60 million to $65 million in 2008. As a result of these reengineering initiatives, we will take a pre-tax non-core charge of $20 million to $25 million in 2008, and incur transition cost of $13 million to $15 million, for a total cost expenditures of $30 million to $40 million.

Now, I will now turn the call over to Sara who will provide additional insight on our operational performance and outlook.

Sara Mathew

Thank you Tasos and good morning everyone. Thank you for joining us today, I would like to build on Tasos’s comment by providing added insight into our US and international business, as well as our prospects for 2008.

I will start with the US business. As you've heard our US business has established strong momentum exiting 2007, and we are optimistic about our prospects for 2008. More specifically the US will benefits from three key drivers. First, continued penetration of our subscription based DNBi solution within our Risk Management business, second, strong momentum within a Commercial Data Integration or CDI business, and third, continued growth from the internet.

Let me touch on each of these. Within US Risk Management, we continue to drive higher levels of subscription penetration with our customers and we expect that trend to continue. As Steve mentioned we ended the year with a 45% US subscription penetration rate, up from 36% of the end of 2006, and we see additional run rate ahead.

We've seen good adoption rates on our web-based DNBi platform and we've now crossed the 12,000 customer milestone for DNBi. Importantly customer feedback on this product is positive and we are only beginning to benefit from the add-on modules we introduced in 2007.

Looking ahead we see a significant opportunity to further extend the part of DNBi within the small business market. As Tasos has mentioned technology delays in the small business area impacted RMS revenue performance in the fourth quarter.

To help improve the trajectory with small business, we are rolling a DNBi offering during the first half of 2008, which is customized to meet the unique needs of this segment.

More specifically, this offering will consist of two key components. First, DNBi Credit Advisor, which provides a package of credit reports at quantities and price points aimed at the small business user. And second, DNBi self monitor solution, which allows small businesses to monitor their own credit via the power of the DNBi platform. Installations along the growth we expect from our core DNBi and modular offerings will allow us to deliver mid-single digit revenue growth from US RMS, in 2008.

The second key driver of US growth is our Commercial Data Integration business. We continue to see very positive customer response to our Advanced Optimizer product. This is reflected in the 14% growth rate we delivered from S&MS VAPs in 2007 and CDI customers appreciate the enhanced speed, higher processing capacity and improved match rates we can now deliver.

As just have one example, after five years with one of our competitors we recently attracted a large software company to the D&B-CDI franchise. This customer was trying to identify small businesses within a 55 million record customer database. Our competition had attempted to cope up this commercial data and generated a list of small business prospects for the customer.

We recognized early in the process that this was a competitive situation and we would need to demonstrate value to the customer to earn their trust and ultimately their business. So we provided the customer with a direct comparison between our product and the competitor solutions to access the relative merits.

Leveraging the Optimizer solution, we found that our full 40% of the list generated by our competitor had duplicate information. Ultimately the power of DUNSRight combined with the processing capability of Acxiom's grid technology delivered a far more effective marketing campaign for this customer.

As a result, we were rewarded with their business and the customer signed a new contract with us. While this is just one example, we see many similar opportunities, which will allow us to continue to drive Optimizer growth into 2008.

We will also act on our data integration capabilities through our recent Purisma acquisition, which has just been introduced to our sales force. Purisma provides a strong complement to Optimizer, allowing customers to use software in a safe behind their firewall, and further enhance the commercial insight we provide. By putting the Purisma software in the hands of the D&B sales force, we will now have access to a much larger customer set, many of who will need a simple CDI solution to solve their data integration problem.

The third driver of US revenue growth will come from our internet business at the core. This is Hoover's, which crossed the $100 million revenue milestone in 2007, up from around $30 million, when we acquired it 2003. We generated mid-teens revenue growth from Hoover's in 2007, while also enhancing its functionality with the acquisition of First Research. This functionality adds industry perspective for Hoover's customers and has been very well received in the marketplace.

Hoover's has proven to be a model acquisition for us and we will apply these lessons to ensure similar positive results from AllBusiness.com, which we acquired last month. As a reminder, AllBusiness is an online media and e-commerce company that operates one of the premier business sites on the web. It leverages a proprietary publishing platform and a broad range of content to help users run their small businesses better.

And it brings a number of exciting new capabilities to D&B, including expertise and search engine optimization as well as search engine marketing. With the combined power of AllBusiness, Hoover's and First Research, we are confident in our ability to continue to drive strong double-digit revenue growth from our internet segment in 2008.

In sum, with the key investments we have made late last year, we believe the US is well positioned to continue its growth trajectory into 2008, and we expect this growth to ramp over the course of the year as our acquisitions gain traction.

Now as we accelerate the top line, we will do so profitably, expanding operating income even as we continue to invest in the future. Given the late year timing of our recent acquisitions, we expect operating income to also ramp throughout 2008, as we will be impacted by dilution and transition costs early in the year.

Let me now turn to our international business, where we expect to benefit from improved stability in our established markets, and increased growth from our emerging markets. Within our established UK market, we have now felt the impact of reduced usage from a key global customer, which depressed our growth in 2007. As a result the UK should return to more normal growth trajectory in 2008. In addition we expect the benefits from the new leadership we recently put in place within our UK operation.

In our emerging markets we made substantial investment over the past year. We will focus on Asia as the need for quality commercial information in that part of the world, is becoming increasingly pronounced. To meet this need we invested in joint ventures in both China and Japan in 20007. This will improve our data quality and drive increased international revenue growth in 2008.

We will also deliver improved operating income from our international business in the year ahead. The most substantial investments in our worldwide network are now behind us and we expect our Asian joint ventures to generate increased profitability as the year progresses.

While we no longer benefits from the operating income contribution of our Italian Real Estate business our financially flexible business model has allowed us to offset this impact in 2008.

So we feel good about opportunities ahead for our international business and we expect to deliver a strong year in 2008. I close by reiterating my observations about D&B and the opportunities that lie ahead. As we've highlighted our US and international businesses are performing well, and our investment should drive increased growth in 2008.

We compete in a large and growing market and we've single-mindedly focused on commercial insight. We have a well defined strategy with clear choices, which we call stakes. These stakes are directly linked to our scalable capabilities, DUNSRight and our highly effective sales force.

And finally we have a culture that is passionate about winning, and a team of leaders who are focused on meeting that commitment and driving shareholder value everyday. With these strong fundamental core capabilities, and a talented team of winners, we look forward to another great year in 2008.

And with that I'll turn things back to Steve for his closing remarks. Steve?

Steve Alesio

Thanks Sara, and thank you also Tasos. As you've heard we're pleased with our 2007 results, and our prospects for 2008. While we are mindful of the current economic environment, and are keeping a close eye on its impacts, as we sit here today we feel good entering 2008.

We have momentum going into the year as we said. We have balanced portfolios of customers and products. We have a strong position with deferred revenue. Ms. Sara and I have said we have a wonderfully talented team of leaders.

All of this is making us a stronger company for the future as we execute our strategy and drive total shareholder return.

We have updated our financial guidance for the year to now reflect the sale of the Italian Real Estate business. So specifically on a continuing basis in 2008 we expect to deliver core revenue growth of 8% to 10%, before the effect of foreign exchange.

We expect, operating income growth of 11% to 13% or $501 million to $510 million, before non-core gains and charges. Diluted earnings per share growth of 14% to 16%, or $5.19 to $5.29 before non-core gains and charges. Free cash flow of $337 million to $352 million, excluding the impact of legacy tax matters, and a tax rate of approximately 37% to 37.5% also before non-core gains and charges.

We're pleased with this outlook for 2008 and it’s consistent with the expectations that we set out for 2008-2010 planning period for which we're just beginning.

With that I’ll now open up the phone lines so that Sara, Tasos, Rich and myself can take any questions. Operator, would you please provide the instructions for asking a question.

Question-and-Answer Session

Question-and-Answer Session


Yes, thank you. We will now begin the question-and-answer session. (Operator Instructions) Michael Meltz of Bear Stearns, your line is open.

Michael Meltz - Bear Stearns

Great, I think I have three questions. One, can you talk a little bit more about RMS, I understand what you said about the top comp and the delay, however I had thought the subscription shift helps you as you get later in the year. And a little bit more specifically, well 4% growth is I guess by definition mid single-digit, I don't think is what we had been hoping for? Can you talk a little bit about exactly about what you're expecting in 08 and then I have a follow-up from that?

Sara Mathew

Hi, Michael, how are you?

Michael Meltz - Bear Stearns

I'm good, Sara.

Sara Mathew

Very quickly, I'll start by saying that RMS in the fourth quarter was slightly below expectation, kind of the same way that our S&MS business was slightly above expectations. And there were really two primary factors just as Tasos said the tough comp and then the execution issues. I don't want to underplay.

So, I will try and put it in perspective, by talking about the way our Small Business Credit shapes out relative to RMS’s. It's a fairly significant portion of our RMS business and we were trying to actually launch a product that will actually meet those needs better.

We had technical problems and as a result we were not able to sell the way we had hoped to in the fourth quarter and Tasos also mentioned we are mediating that and you should see that come back as we go into 2008.

Michael Meltz - Bear Stearns

Is it taking care of as of today?

Sara Mathew

Yes, it is mostly behind us, and we should be going into 2008 with two products. I touched on that in my prepared remarks, which I think should actually help. In terms of expectations for 2008 it's mid single.

Michael Meltz - Bear Stearns

Okay. I think previously you had actually said 6% or better.

Sara Mathew

I don't think so. I will make sure that one of us goes out and checks to see if we said it. As I recall, we had said mid single. The one other thing I want to talk about in 2008, which may also help provide perspective on RMS. This is two parts, right. There is a US, which will be mid single and the second part of it is International. So, what you will see from us is benefit from a much stronger growth rate in RMS in International next year. The UK should start to normalize back to a more normal pattern.

Michael Meltz - Bear Stearns

Which is what?

Sara Mathew

It should be in the mid single range, and then if you want to think about joint venture with TSR in Japan, that should actually be added. So, while the US is mid single, International should be above that. And we expect to exit 2008 on the right trajectory to get us back to 7 to 9, which is our commitment and our intention more than anything else for the '08 to '10 period.

Michael Meltz - Bear Stearns

Got it.

Sara Mathew


Steve Alesio

Second question Michael?

Michael Meltz - Bear Stearns

You essentially listed lifted, not essentially you did lift your EBIT guidance because you are losing $14 million, $15 million from the Italy divestiture, where is that coming from? Besides just simply financial flexibility, can you give us a little bit more detail as to -- it sounds like the margin, are the margin improvement was great at the US in the fourth quarter. Can you talk about where the boost is going to come from to replace that lost income?

Steve Alesio

Michael let me just touch on that and have Tasos touch on it, so I just want to clarify also something that we said so. The operating income in the Italian Real Estate business for '07 we did not consider or see as sustainable. So as we're thinking about '08 that's same level operating income was not going to happen. So while something was going to happen but nearly that large, so I just want to kind of be transparent in that. With that let me have Tasos add on a few comments on it.

Michael Meltz - Bear Stearns

Sure, thanks Steve

Tasos Konidaris

Hi Michael good morning.

Michael Meltz - Bear Stearns


Tasos Konidaris

So it's going to come from a couple of different places. First is, as you look at next year, meaning this year '08, you should expect both the US as well as international to improve margins. I guess it's going to come from both places. As I look at international there was a significant amount of investments we made in 2007, primarily in Worldwide Network to improve our capability to how we server our several global customers and also how do we serve, how do we work without partners.

In addition we made investments in Huaxia JV. So we have been talking about those two major investments throughout 2007. Those are now mostly behind us. So as I look at our international operating income in 2008 on a continuous space, we do expect to see double-digit operating income growth, so that's where it's going to be coming from. Clearly, in the US we will be expecting margins and as Steve mentioned, we knew and we planned all along in our 2008 planning period about the unsustainable nature of real estate. So we had time to prepare for that. Does that help?

Michael Meltz - Bear Stearns

That does help. And my final question, can you remind us the M&A expected dilution that is in your guidance for ’08. please.

Tasos Konidaris

I will go back to where we said I think, at the third quarter call we expected about $0.10 per dilution in 2008.

Michael Meltz - Bear Stearns

So you are looming inside the guidance.

Tasos Konidaris

Yes, which is -- we have just as we talked before.

Michael Meltz - Bear Stearns

Okay. Thank you.


Fred Searby of JP Morgan. Your line is open.

Fred Searby – JP Morgan

Hey guys, Thank you very much. Congratulations on the results. A couple of questions. One DNBi I am cognizant of the sensitivity, but can you give us some sense as to what percent growth or in accounts that are on DNBi, I supposed this the absolute number, just kind of an almost meaningless number, because I did. You don’t have the context to really think about the sizes, individual accounts. So what percent of your major accounts or what kind -- whether the growth rate is accelerating or decelerating.

Secondly I wondered if, thinking about from a 10,000 feet kind of conceptual, the extension of credit, obviously credit is contracting, can you give me some thoughts as to on the core kind of, what I have always thought on the industrial kind of -- just looking at the receivables and extending credit, that is not going to contract. But can you just give us some thoughts from a macro-perspective on that point as well. Thanks.

Steve Alesio

Fred I will have Sara take the first one, I will take the second.

Sara Mathew

Okay. So, let me start the DNBi and I want to make sure I answer your question and you're probably trying to say give us a little more sense how DNBi is doing. In my prepared remarks, I talked about 12,000 customers, if you want to think about it, from a penetration standpoint, we have about 45,000 customers. So that's about what 25% to 30% penetrated. That's one way to think about it.

But in some ways that is also a little misleading, because I excluded small business customers, if I add in our small business customers, we would have close to 250,000 customers. So we would be 4% penetrated. This is why we believe there is a runway ahead. Now you should know one thing with our small business customers, you'd have a much smaller dollar range. So the product that we'll introducing with that segment, is primarily focused on much lower price points, so that we can actually penetrate this group, which we think is very, very under penetrated.

In terms of customer commitments to us, I think we've said this before we'll say it again. It tends to double-digit increase in revenue commitment to us and we watch this as you can imagine very closely and this is both with DNBi or which is going to is probably a single most important platform across this entire customer set.

Fred Searby - JP Morgan

That's very helpful. Sara, is it in the fourth quarter and I guess also what you think the first quarter is, the penetration kind of staying the same in terms of growth, is it accelerating or decelerating?

Sara Mathew

It continues to build. Well, it really does. I mean that's essentially, where we are at, the part that we wanted to get after, and we wish we could master it soon with the small business space. Because, one, it provides more predictability, it's easy to launch and use, and that is an underserved customer segment we believe, that we should go after with a DNBi type of platform and product.

Steve Alesio

Got Fred?

Fred Searby - JP Morgan

Yeah, that's the first question. The second one was that more macro economic, in terms of thinking about true credits clearly contracting, but that's more consumer-oriented, but just and it also it looks like maybe more of also a business oriented now. I just wanted to think through beyond your financial customers maybe reigning in the first strings and what impact it could have if any on you guys as we go into -- as we continue in this kind of credit freeze.

Steve Alesio

Sure. Let me just touch on this, as you said from 10,000 feet. The feeling we have at the moment again, first of all Sara and I have been here for around 7 or a little bit of 8 years and so. Our experience at D&B is in mild recessions and even mild booms. We have not seen our business kind of get impacted almost either negatively or positively from it. That's our history. So, that's one thing I would say.

The second thing is as we go into '08, what we see and what we are, is we have a very balanced portfolio of customers and products. And I just use customers wherever to help this conversation. So, in the US, a third of our customers are small businesses, a third are medium size, and a third are large. So, that balance I think also helps us to some extent as things get little rough.

Underneath that, you had mentioned financial service companies. They are about 14% of our businesses, as an example. So, not small, but not large either. So, in many ways if you look at the customer balance we have, the product of balance we have, at the moment, given that and here the deferred revenue going in, are focused on commercial. We are not tied up in the mortgage issue. At the moment, as much as we can see at the moment, we feel good about our prospects as we have described in our guidance for 2008. That helped a little bit?

Fred Searby - JP Morgan

Great, yeah.

Steve Alesio

We feel same way. Thank you.


Kyle Evans of Stephens Inc. Your line is open.

Kyle Evans - Stephens Inc

Hi, good morning guys.

Steve Alesio

Good morning Kyle

Kyle Evans - Stephens Inc

Steve you broke out financial services, if you have it in front of you there, I would love to know the rest of your end market exposure, if you can give it?

Steven Alesio

Be specific as to what you are looking for Kyle.

Kyle Evans - Stephens Inc

Well the financial service was 14% what's the other 86%.

Steven Alesio

Yes now we have not prepared that, I was just trying to really help the question because there are so many people focused on financial service. Customer's feedback is going on, so we just kind of pull that apart just to help people. But this is relatively diverse, that's the take away you'd have from us again, and my first point is a third small, a third middle, a third large. So we're quite diverse on our customer portfolio.

Kyle Evans - Stephens Inc

Is your financial services the largest end-market?

Sara Mathew

Well it would depend, I mean it would depend on how broadly you define it. So what we try to do is stick with the norms in financial services, and we really decide to take a hard look at it because that is the sector that's been hit pretty hard. So I think the fourth quarter is a good way to look at our performance relative to that sector. Actually our business skews are little bit heavier in the fourth quarter to financial services, and then we look at your overall US performance.

So we feel very good about the results we delivered in the US. The most important thing to take away Kyle, is that everyone of those customers continue to spend with us, for we provide value, and in addition in many cases we are embedded within their operations. So that was one that increased, that one that decreased, but all in all we're just -- Steve I thought summarized this really well in terms of our breadth of exposure and the fact that what we do is a value to customers.

Kyle Evans - Stephens Inc

Okay, would you please comment on the competitive landscape or just out of the Experian analyst day, they highlighted their business information practice there and their hopes to grow it, similar things from Acxiom you've talked earlier in your call about scale advantage and the brand advantage. Could you help us to understand how you maintain a competitive advantage going forward? And then one last follow-up.

Steve Alesio

Sure. Let me start with that and maybe I will have Sara elaborate more from the international perspective. But again we said that we're unique and that we're focused on commercial information and we're the best at it around the world. And that to us is the most important competitive advantage that we have and we try to make sure that what we provide to our customers is the best in that space for them.

So the aspect that we call DUNSRight is really what gives us the leverage to be the best for customers in the marketplace. And we're so at scale in most of the markets that we're in. So in the US, our commercial information presence really outweighs any of our competitors by 5 to 1, 10 to 1, it's just an enormous scale advantage. That scale is still through in many of the markets outside the United States, but not the same ratio.

So that's really my primary answer. So anything else you want to hear from us Sara could touch on it. International was relevant but actually I want to say the focus on commercial information and the scale advantages we have in that in most of our owned markets, is really an enormous advantage for us.

Kyle Evans - Stephens Inc

Okay. Great. And one last question. What's your internal view on the ceilings for penetration on subscription revenues in the RMS business and then can you talk a little bit about sub revenue in the other businesses? Thanks.

Sara Mathew

Sure. I mean that's a hard question. I can tell you how I personally feel is that we don't want to rest until I am a 100% penetrated but I also know that that's not realistic. We know that ultimately we have to design products and services that meet our customer needs, and in some cases the DNBi platform won't work for them.

So we still think there is tremendous runway and I think in the small business space, I believe, there are real opportunities to make a meaningful difference to this customer segment, that largely goes underserved when you think about what they struggled with everyday. So there is more runways fore sure and you can expect to see our number, we talked about 45% continue to growth into 2008. We definitely see that.

Kyle Evans - Stephens Inc

And subscription outside of the RMS business, can you comment on that as well please?

Sara Mathew

We really preferred DNBi as a preferred platform, because we think it has actually more functionality. So, if you're thinking of RMS, it would be primarily DNBi. If you're thinking outside RMS, I think Hoover's is a great example and we believe internet provides unique opportunity as well.

If you think about our Optimizer product, which is in the S&MS space, that is not a subscription based offering. It is essentially where you're trying to help the customer design a marketing campaign. So, given the needs of the customer is fitting that into a subscription program. I don't think works. It is just doesn't work. So, ultimately our design is based on what our customers want.

Kyle Evans - Stephens Inc

Okay. Thanks.

Sara Mathew

Good, Evans.


At this time we are showing no further questions.

Steve Alesio

Okay. Let's give it 10 more seconds. Okay. Then I want to thank all of you for taking the time to listen and discuss our progress. We will speak at the end of our first quarter. Operator you can end the conference call now.


Thank you for participating in today's conference call and have a good day.

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