Dun & Bradstreet Holdings, Inc. (NYSE:DNB) Q4 2024 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a mixed picture: while there are some positive aspects such as international revenue growth and a decrease in net loss, there are also concerns like stagnant Q4 revenue, higher costs, and strategic review distractions. The Q&A section highlights uncertainties, particularly around strategic reviews and client hesitations. The market cap suggests moderate sensitivity to these factors. Overall, the positives and negatives seem balanced, leading to a neutral sentiment.

Key Financial Performance

Q4 2024 Revenues $632 million, less than 1% growth year-over-year; impacted by delays in deal closures and exit from non-strategic partnerships.

Q4 2024 Net Income $8 million, compared to $2 million in the prior year; increase driven by lower net personnel costs, partially offset by a higher tax rate.

Full Year 2024 Revenues $2,382 million, an increase of 3% year-over-year; growth attributed to underlying business performance, offset by a divestiture.

Full Year 2024 Net Loss $29 million, improved from a net loss of $47 million in the prior year; improvement due to revenue growth.

Q4 2024 Adjusted Revenues $632 million, less than 1% growth year-over-year; growth offset by divestiture impact.

Q4 2024 Adjusted EBITDA $260 million, a decrease of $600,000 or less than 1% year-over-year; primarily due to higher cloud infrastructure costs.

Q4 2024 Adjusted EBITDA Margin 41%, a decrease of 10 basis points year-over-year; impacted by higher costs.

Q4 2024 Adjusted Net Income $129 million, down from $140 million or $0.32 EPS in the prior year; decrease due to higher tax expenses and depreciation.

Full Year 2024 Adjusted EBITDA $927 million, an increase of $34.4 million or 4% year-over-year; driven by revenue growth, offset by higher costs.

Full Year 2024 Adjusted EBITDA Margin 39%, an increase of 30 basis points year-over-year; improvement due to revenue growth.

Full Year 2024 Adjusted Net Income $429 million, down from $432 million or $1 per share in the prior year; slight decrease attributed to higher costs.

Q4 2024 North America Revenues $449 million, a decrease of 1.8% year-over-year; impacted by deal timing and exit from non-strategic partnerships.

Q4 2024 North America Adjusted EBITDA $208 million, a decrease of $16 million or 7% year-over-year; primarily due to lower revenues and higher cloud costs.

Full Year 2024 North America Revenues $1,672 million, an increase of 2% year-over-year; growth driven by Master Data Management solutions.

Full Year 2024 North America Adjusted EBITDA $746 million, an increase of $3 million or less than 1% year-over-year; increase due to revenue growth.

Q4 2024 International Revenues $183 million, an increase of 6% year-over-year; growth driven by Finance and Risk solutions.

Q4 2024 International Adjusted EBITDA $58 million, an increase of $3 million or 5% year-over-year; increase due to revenue growth.

Full Year 2024 International Revenues $709 million, an increase of 6% year-over-year; growth driven by API solutions and compliance solutions.

Full Year 2024 International Adjusted EBITDA $235 million, an increase of $20 million or 9% year-over-year; increase due to revenue growth.

Cash and Cash Equivalents $206 million as of December 31, 2024.

Total Debt $3,550 million with a weighted average interest rate of 5.8%; 90% of debt is fixed or hedged.

Leverage Ratio 3.6x on a net basis, down from previous levels; target to reach around 3.25x by end of 2025.

Share Repurchase 961,360 shares repurchased for $9.3 million year-to-date; no repurchases in Q4.

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Operating Highlights

New Product Launches: Introduced new localized offerings, including Risk Analytics compliance intelligence solution, generating significant new sales with hundreds of customers.

Generative AI Solutions: Launched new Gen AI solution, Chat D&B, to enhance sales and marketing strategies for clients.

Market Expansion: Expanded relationships with major clients, including a leading sales and marketing software company and a global fintech leader.

International Growth: Achieved a three-year renewal and upsell of Data Blocks with DB Schenker, supporting finance transformation.

Operational Efficiencies: Completed migrations of flagship platforms and optimized client contracts, enhancing client relationships and operational efficiency.

Capital Structure Improvement: Reduced net leverage to 3.6x at year-end, with plans to reach around 3.25x by the end of 2025.

Strategic Shifts: Adopted a vertical approach to deepen client relationships and launch vertical-specific solutions.

Client Relationship Management: Refined and optimized client contracts to align pricing with value provided, enhancing client experience.

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Risk or Challenges

Earnings Miss: Dun & Bradstreet missed earnings expectations with reported EPS of $0.30 against expectations of $0.32.

Revenue Impact from Deal Delays: A delay in closing significant deals impacted Q4 revenues by $9 million, attributed to distractions from ongoing processes.

Partnership Exits: The exit from two non-strategic partnerships affected Q4 revenues by $6 million and is expected to impact full year 2025 revenues by $14 million.

Timing-Related Delays: Timing-related delays in expected usage and deliveries resulted in a revenue impact of $3 million and $4 million, respectively, with expectations for recovery in early 2025.

Economic Uncertainties: The company is managing ongoing economic uncertainties, which have influenced interest rate exposure and overall financial performance.

Regulatory Challenges: The evolving economic and regulatory landscape presents challenges, necessitating adaptations in client offerings and compliance solutions.

Cloud Infrastructure Costs: Higher cloud infrastructure costs have been a factor affecting adjusted EBITDA margins.

Debt Management: The company has a significant debt load of $3.55 billion, with a leverage ratio of 3.6x, which poses financial risk.

Currency Fluctuations: Expected modest headwinds in the first half of 2025 due to foreign currency fluctuations affecting revenue projections.

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Guidance & Outlook

Organic Revenue Growth: Achieved 3% organic revenue growth in 2024, with expectations of 3% to 5% growth for 2025.

EBITDA Margin: Expanded EBITDA margins by 30 basis points in 2024, with expectations of adjusted EBITDA in the range of $955 million to $985 million for 2025.

Client Migration: Successfully migrated tens of thousands of clients to new solutions in North America, enhancing client relationships and flexibility.

Vertical Approach: Introducing a vertical approach to deepen client relationships and launch vertical-specific solutions in 2025.

Generative AI Solutions: Plans to enable generative AI solutions through API and native integrations in 2025.

Revenue Guidance: Total revenues expected to be in the range of $2,440 million to $2,500 million for 2025, reflecting a 2.5% to 5% increase.

Adjusted EPS Guidance: Adjusted EPS expected to be in the range of $1.01 to $1.07 for 2025.

CapEx Guidance: Expected CapEx of approximately $145 million to $155 million for internally developed software and around $45 million for property, plant, and equipment.

Free Cash Flow Conversion: Anticipating improved free cash flow conversion as a percentage of adjusted net income in 2025.

Net Leverage Target: Targeting a net leverage metric of around 3.25x by year-end 2025.

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Shareholder Return Plan

Share Repurchase Program: Year-to-date, we repurchased 961,360 shares of Dun & Bradstreet common stock for $9.3 million, net of accrued excise tax at an average of $9.71 per share. We currently have over 9 million shares remaining under our existing buyback authorization.

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Key Q&A

Q:How should we think about the distractions and revenue push-outs due to the ongoing strategic review?

A:Some deals have pushed out, with clients waiting to see potential acquirers. Most of the revenue impact will hit earlier in the quarter, with some partnerships walked away from affecting revenue but benefiting EBITDA.

Q:Have you seen any uptick in demand for your products due to geopolitical shifts?

A:The demand environment is strong, particularly for solutions addressing tariffs and supply chain issues. The decline in Finance and Risk revenues is not due to lack of demand but shifts in client budgets.

Q:Can you elaborate on the timing of revenue growth and assumptions behind it?

A:Growth in Q1 should be closer to the low end of the range, while Q4 should be closer to the high end. The ongoing process impacts timing and client decisions.

Q:Are the exits of nonstrategic partnerships done, and what is their financial impact?

A:For the most part, exits are done, with a revenue impact of $6 million in Q4 and $14 million in 2025, but with positive EBITDA.

Q:Can you provide more details on the types of partnerships exited?

A:The partnerships were evaluated based on royalties and servicing costs, leading to the conclusion that they were not financially viable.

Q:What options are on the table for the strategic review process?

A:The board is open to various structures to create shareholder value, but specific details cannot be disclosed.

Q:How is the sales pipeline and demand environment compared to last year?

A:The pipeline and demand are consistent, but there is some client hesitation due to the ongoing process.

Q:What percentage of revenue comes from contract structures tied to deliveries and usage?

A:About 75% of the business is daily ratable revenues, 15% is on delivery, and 10% is usage-based.

Q:How are you thinking about margins in North America going forward?

A:Margins are expected to expand as migrations are largely complete, with a potential 30 to 50 basis points increase.

Q:What partnerships remain a priority for D&B's Sales and Marketing solutions?

A:D&B is focusing on direct client relationships while remaining open to complementary alliances.

Q:How much of the distraction is from clients holding off on contracts?

A:The distraction includes clients waiting for more information before signing new contracts, which has been factored into guidance.

Q:Why is the strategic review process taking so long?

A:The process began in response to inquiries from other companies, and the board felt it was their responsibility to explore these opportunities.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific options on the table for the strategic review process and the details of the Bloomberg article.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reflects a positive sentiment with strong financial performance, including a high return on equity and net fees, increased shareholder returns through dividends and buybacks, and a strategic focus on organic growth and AI solutions. Despite some uncertainties in asset quality and interest rate sensitivity, the company's robust financial health and consistent dividend policy suggest a positive stock price movement.

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The earnings call presents a mixed picture. Basic financial performance shows moderate growth, but net income decreased. Product development and market strategy highlight new initiatives and partnerships, which are positive. However, expenses and financial health reveal high debt and leverage, raising concerns. Shareholder returns are supported by a buyback program. The Q&A section reflects cautious optimism, but lack of clear guidance on some issues tempers enthusiasm. Given the market cap, the stock price is likely to remain neutral, moving within -2% to 2%.

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The earnings call reveals solid financial performance with revenue growth and margin expansion. The share repurchase program and strong customer retention are positive indicators. Despite some challenges, management's optimistic guidance and strategic investments, including AI partnerships, suggest potential growth. The Q&A highlights proactive strategies to address macro challenges, with analysts appearing generally satisfied. Considering the market cap, the stock is likely to react positively, with a potential price increase of 2% to 8% over the next two weeks.

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