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

Dun & Bradstreet (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

Presentation

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 this 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 will 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 roughly 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 of 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. This 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 revenues 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.

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