Q4 2022 Dun & Bradstreet Holdings Inc Earnings Call
Ladies.
Greetings and welcome to the Dun and Bradstreet fourth quarter and full year 'twenty 'twenty earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Sean Anthony Investor Relations with Dun <unk> Bradstreet.
Thank you and you might be doing.
Thank you good morning, everyone and thank you for joining us for Gunnar Bradstreet's financial results conference call for the fourth quarter and full year ending December 31 2022.
On the call today, we have Dun <unk> Bradstreet, CEO , Anthony Jabbour, and CFO Bryan Hipsher.
Before we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call May include forward looking statements related to the expected future results of our company and are therefore forward looking statements. Our actual results may differ materially from the projections due to a number of risks and uncertainties.
The risks and uncertainties. The forward looking statements are subject to are described in our earnings release and other SEC filings.
Today's remarks will also include references to non-GAAP financial measures additional information, including a reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release and supplemental slide presentation.
This conference call will be available for replay via webcast through Dun <unk> Bradstreet's Investor Relations website at Investor <unk> D&B Dot com.
With that I'll now turn the call over to Anthony.
Thank you Sean good morning, everyone and thank you for joining us for our fourth quarter and full year 2022 earnings call on.
On today's call I'll start with a brief overview of our fourth quarter and full year results followed by a look back at some of our most significant accomplishments in 2022.
A brief view into our plans for 2023.
And finally, a preview of our upcoming Investor day.
After that I'll pass the call over to Brian for an in depth review of our results and to discuss our guidance expectations for 2023.
Well, then open up the call for Q&A and finish up with a few closing comments.
With that let's get started.
The fourth quarter was another quarter of solid progress as total company revenues grew two 8% on a constant currency basis and organic revenues grew two 2%.
Our financial risk solutions continued to perform well in both North America and international with particular areas of strength, such as third party and supply chain risk management solutions that achieve double digit growth for an eighth consecutive quarter.
On the sales and marketing side, we continue to see acceleration through the end of November However in December clients got a bit more conservative with their usage and spending levels.
While master data management was solid in the quarter, an iota and net wise continued their strong performance lower than expected volumes in December offset the growth we had previously seen.
As companies grappled with the macro environment uncertainties exiting 2022 we didn't see the normal uplift, we usually do with budget releases and heightened volumes as they prepared for their upcoming sales here.
However, we believe this to be more of an anomaly and have been encouraged by volumes and sales activity beginning to resume to normal levels in January and into early February .
Full year revenues grew five 6% on a constant currency basis, and three 5% organically.
Organic growth for the full year accelerated 30 basis points over 2021 and when excluding the impact of the GSA contract growth accelerated 120 basis points to 4.4%.
Our international business grew five 4% organically driven by 6% growth in our localized finance risk solutions.
And while North America grew 3% organically overall, when excluding the government revenues, which make up about 5% of the segment North America grew 5% and North America finance and risk grew 8%.
With our transformation, well underway and incremental progress towards sustainable mid single digit growth I am pleased with the continued progress we made throughout 2022.
On the sales side, we finished the year with some key wins and renewals in North America and international.
For example, in the fourth quarter, North America closed new business with a leading provider of online financial services in London.
This company is using our finance solutions data and analytics to underwrite small business loan applicant.
Wanted to back test hundreds of thousands of small business applications by using our data to optimize and modernize their analytics and underwriting process.
We were also able to expand our relationship with Pepsi.
It required greater visibility and transparency into their existing third party relationships as well as any new third party stay awarded business too.
We provided an end to end onboarding compliance screening and monitoring solution through our data blocks offering which provides pepsi with what we believe is an unmatched combination of breadth and depth of data delivered through an integrated automated solution.
Definitely was a similar opportunity in that they were looking to monitor and expand their understanding of their large and complex supply chain too.
Through our risk analytics and data blocks offerings naturally is able to assess a more holistic and accurate risk profile of their vendors, including the evaluation of ESG and cyber risk elements.
On the renewal front, we continued to show the stickiness and strength of our long standing client relationships.
Verizon who has been a customer for 24 years expanded their relationship with us through a multi year agreement extension.
With Master data management underpinning much of what they do on the marketing analytics and sales operation side, we were able to bring incremental data and analytics via modern API delivery mechanisms.
Horizon was one of many customers that extended and expanded their relationship in the fourth quarter and we're very pleased with our continued strong retention rates and the ability to expand with our largest customers in North America.
Our international segment continued its strong sales performance for the year with the fourth quarter that included wins, such as Nat West and the United Kingdom entity in Sweden, and a large social media platform in Asia.
Similar to the trends, we just spoke about in North America, not with added our compliance direct plus API solution to bolster their risk and compliance underwriting.
D. A larger consumer packaged goods company out of Stockholm had a direct plus master data management API capabilities to help cleanse match append and organize their massive amount of customer files.
This is an example of how our master data management plays a critical role in an organization's ability to quickly update with reliable organized and up to date information.
And as a social media platform continues to expand and mature they added finance analytics and data blocks to enhance their credit underwriting processes.
Many of these types of businesses start out as a pure b to C play, but as they evolve they expand and b to B and that is where we come in.
Yeah.
In both North America, and international we continue to see strong retention rates and increased customer satisfaction, which is ultimately manifesting itself in accelerated revenue growth.
To go along with the financial and sales execution I'm also pleased with the significant operational progress. We made this year as we continue to execute on our multiyear vision transforming denim bradstreet.
In particular I want to highlight the advancements we completed in terms of data and analytic enhancements technological improvements and product innovations.
On the data and analytics front, we continued to make significant progress and our data breadth depth quality and consistency.
This year alone, we expanded our data cloud to 500 million businesses covered.
An 8% increase versus the prior year.
We expanded our key contact database to 58 million records, a 66% increase versus the prior year.
And reduced client data discrepancy inquiries by over 50%.
On the analytics side, our blended score saw a 15% to 20% lift and predictability and we improved our match rates to 100% across three data clients.
We also acquired 250 additional data sources to strengthen our existing analytics empower our new ones such as ESG intelligence.
For instance, we curated independent utility data greenhouse emissions and several other risks related datasets to expand our public and private company ESG scores across 42 million companies and 176 global markets.
And finally, we have mapped 20% of all supplier connections between customers and their suppliers globally.
Boeing 68 million verified relationships.
We believe that no. Other company has anything close to this level of insight and we intend to continue to drive our leadership in this space to guide businesses and making more informed in real time decisions on who they do business with and whether or not they should continue doing business with them on an ongoing basis.
And while we look to bring more and more datasets into our proprietary cloud. The technology team has been hard at work simplifying our supply chain by reducing complexity by 30% and increasing data throughput by 10 times.
Simultaneously through the elimination and standardization of several legacy components were able to improve our data consistency by nearly 60%.
The technology organization was also instrumental in supporting our product organization with the migration of nearly 17000 clients across North America and international.
While the majority of those came out of D&B Europe . We also migrated around 5000 in the United States and we continue to free the company of an excess of legacy apps.
And while cleaning up legacy applications is important in setting a clear path going forward. We're also able to launch over 100 products in 2022.
This range from brand New solutions in North America to localize offerings in our 20 plus owned markets throughout Europe , the United Kingdom and Asia.
Overall through upgrade investments, new datasets migrations and integrations, we continue to strengthen our solution set and we ended another year much stronger than we began.
Looking ahead to 2023, while we expect the challenging market backdrop overall, we continue to focus on the things, we can control and execute against our strategic priorities.
For the upcoming year, we plan to continue to optimize our solution set and maximize our ability to extract value from our current and future customers.
With the significant investments we have made in technology data and product we have confidence in our ability to garner incremental price, where it makes sense and expand cross sell upsell opportunities within our existing base.
While the worsening economic backdrop will be more challenging for certain client segments. Overall, we have a significant opportunity to drive growth within our existing client base and expect to do so throughout the year.
We also have the opportunity to win new logos in both North America and international.
In North America, we have some of the largest and most well known businesses in the world.
While there are a few more large and mega size prospects to add to our blue chip client base, the real opportunity for us is to break into the small and micro business segment in a more meaningful way.
Due to a variety of factors, including a worse than anticipated impact from the FTC consent order, we have yet to fully capitalize on the small and micro business opportunity.
The legacy credibility business continued to be a headwind through the fourth quarter, which masked the positive momentum we've been building in our digital and other small business strategies.
As we head into 2023 we expect to have less of an impact from the legacy credibility solutions and we expect to see more of our new business investments flow through.
On the international side, we have the opportunity to continue to land small and medium businesses, but the true lift will come from the large and mega size prospects in those regions.
And 2022 we won new business with names like Barclays Volkswagen Siemens the agricultural bank of China and Alibaba.
We expect to continue to build on this momentum in 2023, as we Orient our teams products and datasets to serve this segment.
On our modernization and innovation front, we continue to expand upon our significantly improved vitality index.
As I mentioned earlier migration to modern solutions was a big theme in 2022.
And that will continue in 2023.
Beginning with D&B Europe , while we focus the majority of our efforts on migrating the legacy finance solutions to Dnb Finance analytics. We are now shifting gears to focus on migrating the remaining legacy point solutions across our sales and marketing and finance and risk portfolios in both Europe and the U K I.
Simultaneously, we are enacting a similar program in North America as we continued to migrate clients onto our most modern solutions such as D&B connect D&B direct plus.
Finance analytics and risk analytics.
Through refining our implementation strategies in Europe , we're now able to deliver a much more streamlined and less invasive experience for our customers in all regions of the world, including our North American clients and consequently, this will allow us to more easily deliver our latest innovations such as fraud solutions ESG scores.
And insights supply chain linkage and illumination and alternative data match independent.
On top of the new solutions, we developed and brought to market. In 2022. We're also excited about the new innovations we plan to bring to market in 2023.
We are focused on three primary areas for a near term innovation efforts.
First and foremost supply chain and third party risk continues to be a significant area of interest for our clients and prospects.
We had the opportunity to build upon our solution set today and provide even more robust solutions around the underwriting and monitoring our vendors and suppliers throughout the world.
By deepening and broadening our datasets and delivering those through a comprehensive end to end integrated global platform, we can broaden our ability to solve new and evolving use cases that are being driven out of a shifting legal regulatory compliance and political landscape.
We are well positioned to continue compounding growth in North America.
And the buildup of our localized compliance solutions internationally, which only allow us to continue to accelerate growth in this fast and growing segment.
We also continue to see the digitalization of our go to market as a key opportunity for our ability to.
To accelerate and expand throughout the globe.
In North America, we saw digital sales increased materially as our e-commerce capabilities and simplified solution set resonated with small and medium businesses.
A prime example of this was the introduction of the Dun's registered seal in North America.
Originally a solution crafted for our Asian markets, the dun's registered seal.
Our sub $1000 entry solution that allows a small business the ability to show legitimacy and began its journey to build out its maturing credit profile.
The registered seal was a new North America solution that was introduced in Q4 of 2022, and we already have over $1 million in sales and a ramping pipeline.
Similarly light versions of finance analytics risk Guardian in the darn ex Hoover's and an ESG seal will be delivered throughout our own markets and the worldwide network to go after this customer segment and free up resources to go after enterprise accounts.
We're also excited about the opportunity to further leverage our growing advantage in the BTB online digital advertising space.
While our BDC digital advertising has been maturing over the last five to 10 years <unk> is just beginning to come into its own.
So while BDC advertising is ebbing and flowing more with the overall economic conditions <unk> is still a growing opportunity and one that could show even more rapid growth in a more positive macro environment.
Through our unique blend of assets connections and relationships will continue to look to deepen our penetration with existing customers and look to educate and expand with the remainder of our client base and prospects alike.
With tighter budgets and a more conservative approach to sales and marketing budgets in the near term it will be imperative for our clients and prospects to get the most out of their investments.
We believe that digital advertising delivered to the right audience on the right platforms with the right messaging will do just that.
Overall I'm extremely proud of our team's accomplishments this year.
In 2022, we delivered mid single digit total revenue growth accelerated organic revenue growth and nearly 40% EBITDA margins.
Which is a remarkable improvement relative to where we were when we took the business over four years ago.
We stayed focused on our mission and performed at a very high level, despite a challenging market environment.
We also continue to execute on our multiyear vision to transform Dun <unk> Bradstreet and I'm excited by our path and strategy to continue to accelerate revenue growth and expand margins over the next three to five years.
With our Investor day rapidly approaching I look forward to having the opportunity to discuss our longer term growth prospects and the key investments in our core assets along with new areas of strategic growth that we're looking to capitalize on.
Through presentations with our president of North America and international.
Along with a fireside chat featuring our Chief Technology Officer, and Chief data and analytics officer.
I'm also excited for all of you to get some exposure to the team that is going to take us on the next leg of our journey together.
And he and our goals for you at all walk away with an understanding of the successful execution of our transformation to date and why that should lead to a further acceleration in growth and profitability, which should ultimately manifests itself in a strengthened balance sheet and the ability to deliver significant shareholder value creation.
With that I'd now like to turn the call over to Brian to discuss our financial results for 2022 and outlook for 2023.
Thank you Anthony and good morning, everyone today, I will discuss our fourth quarter and full year 2022 results and then our outlook for 2020.
Turning to slide one on a GAAP basis fourth quarter revenues were $595 million, a decrease of 1% compared to the prior year quarter and an increase of 3% before the effect of foreign exchange net.
Net income for the fourth quarter was $23 million or diluted earnings per share of five cents compared to a net loss of $12 million for the prior year quarter.
Increase in net income of $35 million for this quarter was primarily due to lower nonoperating costs related to debt extinguishment in the prior year period, and a higher tax benefit in the current year quarter.
For full year 2022 revenues were 2220 $5 million, an increase of 3% or 6% before the effect of foreign exchange on.
On a full year basis, net loss was $2 million or diluted loss per share of one <unk> compared to a net loss of $72 million for the prior year period.
Turning to slide two.
I will now discuss our adjusted results for the fourth quarter fourth.
Fourth quarter adjusted revenues for the total company were $595 million, a decrease of 1% or an increase of 3% before the effect of foreign exchange.
The impact of acquisitions and divestitures revenues on an organic constant currency basis were up two 2% driven primarily by increased demand, particularly in the international segment.
Fourth quarter adjusted EBITDA for the total company was $250 million, an increase of $8 million or 3% adjusted EBITDA for the quarter included a headwind of $6 million from the impact of foreign exchange, resulting from a strengthening U S. Dollar.
The $14 million of underlying increase was driven by organic revenue growth and lower personnel costs.
Fourth quarter adjusted EBITDA margin was 42% an increase of 150 basis points compared to the prior year quarter.
First quarter adjusted net income was $139 million or adjusted earnings per share of 32% compared to $42 million or 33 cents in the fourth quarter of 2021.
This was primarily driven by higher interest expense and nonoperating expenses, partially offset by higher adjusted EBITDA.
Full year adjusted revenues for the total company for 2220 $5 million an increase of 3%.
Or 6% before the effect of foreign exchange compared to 2021.
Revenue growth before the effect of foreign exchange was driven by finance the risk solutions and the impact of Iota and that was acquisitions, partially offset by the divestiture of our <unk> business in Germany.
Revenues on an organic constant currency basis were up three 5% or four 4% when excluding the impact of the GSA contract.
Full year adjusted EBITDA for the total company was $864 million an increase of 2%.
Higher adjusted EBITDA was primarily due to revenue growth from the underlying business and the impact of acquisitions, partially offset by investments related to higher data and data processing costs and the impact of foreign exchange, resulting from a strengthening U S. Dollar excluding the impact of foreign exchange EBITDA was $878 million or in <unk>.
Kris of 4%.
Full year adjusted EBITDA margin was 39% a decrease of 20 basis points compared to the prior year due to the impact of acquisitions.
All year 2022, adjusted net income was $472 million or adjusted diluted earnings per share of $1 10.
Compared to 2021, adjusted net income of 471 billion cost or $1 10 per share.
Turning now to slide three I will now discuss the results for our two segments North America and international.
In North America revenues for the fourth quarter were $435 million, an increase of approximately 1% from prior year, excluding the impact of foreign exchange and acquisitions North America organic revenue grew 2%.
And finding the risk revenues were $231 million, an increase of $1 million or less than 1% due to growth in our finance the risk solutions, partially offset by declines in our government and credibility solutions.
Excluding the impact of our government solutions financial risk grew five 2%.
For sales and marketing revenues were $204 million, an increase of $6 million or 3% sales and marketing growth was driven by master data management and digital marketing solutions.
North America fourth quarter, adjusted EBITDA was $215 million, an increase of $4 million or 2%, primarily due to revenue growth and ongoing cost management efforts adjusted EBITDA margin for North America was 49% an increase of 10 basis points from the prior year.
Turning now to slide four.
I will now discuss the full year results for North America.
In North America revenues for 2022, or 1580 $7 million, an increase of $88 million or 6% from prior year.
North America revenues on an organic constant currency basis increased $40 million or two 7%.
North America finance or our full year revenues were $867 million, an increase of $32 million or 4%, primarily attributable to new business and higher customer spend third party risk and supply chain risk management solutions.
Fully offset by lower revenues from our government solutions, excluding the impact of our government solutions North America finance the risk grew eight 4%.
North America sales and marketing full year revenues increased $56 million or 8% with $720 million. This was primarily driven by the full year impact of our iota and that was acquisition.
Full year, adjusted EBITDA for North America increased $3 million or less than 1% to $718 million, primarily due to higher revenues, partially offset by investments waiting for higher data and data processing costs.
Adjusted EBITDA margin for North America was 45% a decrease of 250 bps compared to the prior year.
Turning to slide five.
In our international segment fourth quarter revenues decreased 6% to $160 million or an increase of 6% before the effect of foreign exchange and organic revenues on a constant currency basis increased 7%.
Turning to risk revenues were $106 million, a decrease of 4% or an increase of 7% before the effect of foreign exchange all markets have positive underlying growth, including double digit increases in our agent owned markets. We continue to see strong demand for our latest finance solutions, such as finance analytics data blocks.
Plus API.
Sales and marketing revenues were $54 million, a decrease of 9% or an increase of 4% before the effect of foreign exchange.
Excluding the impact of the divestiture of our <unk> marketing business in Germany sales and marketing growth of 8% was attributable to higher data and API solutions sales and our United Kingdom market.
Fourth quarter International adjusted EBITDA of $49 million increased $3 million or 7% versus fourth quarter 2021. The increase was driven by the underlying revenue growth, partially offset by a foreign exchange loss, resulting from a strengthening U S. Dollar adjusted EBITDA margin was 31% and <unk>.
<unk> of 350 basis points compared to prior year.
Turning to slide six and our international segment full year 2023 revenues were $638 million, a decrease of 5% or an increase of 5% before the effect of foreign exchange international organic revenues increased $36 million or five 4%.
International financial risk full year revenue of $419 million decreased 3% or a 6% increase before the effect of foreign exchange.
The growth was driven by mid single digit growth across our worldwide network.
The United Kingdom, and European markets, along with double digit growth in our Asian owned markets.
Our modern ATI and finance analytics grew nicely in both Europe , and Asia and the worldwide network contributed higher data and product royalty sales.
International sales and marketing full year revenues of $218 million decreased 9% or an increase of 4% before the effect of foreign exchange and the divestiture of our German <unk> business, primarily from higher data sales in the U K increased worldwide network product royalties and increased API solution sales.
In Europe .
All year 2022 international adjusted EBITDA was $202 million, an increase of $8 million.
Or 4% versus 'twenty or 'twenty one.
The improvement in adjusted EBITDA was primarily due to revenue growth from the underlying business, partially offset by foreign exchange loss, resulting from a strengthening U S. Dollar adjusted EBITDA margin was 32% an increase of 280 basis points.
Adjusted EBITDA for the corporate segment was a loss of $57 million an improvement of $6 million.
Primarily attributable to lower personnel costs.
Turning to slide seven I'll now walk through our capital structure at the end of December 31, 2022, we had cash and cash equivalents of $208 million, which when combined with $800 million of capacity on our $850 million revolving line of credit through 2025 represents total liquidity.
<unk> of nearly 1000 and $8 million.
As of December 31, 2022, total debt principal was 3640 $7 million and our leverage ratio was four point over time on a net basis and the credit facility senior secured net leverage ratio was three four times.
We are pleased with our efforts throughout 2022 and in early 2023 to significantly reduce the cost of our debt.
<unk> 2021 2022 we took multiple actions, which reduced the cost of our debt. However, as the fed continues to raise rates aggressively throughout the year. We ended the fourth quarter at $55 million in interest expense and a nearly $60 million per quarter run rate heading into 2023.
Although we continue to monitor the market for opportunities to optimize our debt structure on February <unk> 2023, we entered into a $1 5 billion swap or for years to fix our floating rate portion at 90% through March of 'twenty 'twenty, four at which point our billion dollar swap roles, all and we come back to 60% fixed.
Versus floating.
Turning now to slide eight.
I'll now walk through our outlook for 2023.
Total revenues after the effect of foreign currency are expected to be in the range of 2000 $260 million for 2000 and $300 million for.
For an increase of one 6% to three 4%.
This includes an assumption of a headwind in the first three quarters of the year, partially offset by a tailwind in the fourth quarter.
Due to the effect foreign currency related to the expected variances between.
The U S dollar euro British pound and Swedish krona.
Revenues on an organic constant currency basis are expected to be in the range of 3% to four 5% for the full year.
It is important to note that the total and organic growth rates take into account.
Conclusion of the existing GSA contract at the end of April 2023.
The impact of organic growth for the full year as a headwind of 30 basis points with a 110 basis point headwind in the first quarter.
Adjusted EBITDA is expected to be in the range of 870 $920 million.
The adjusted EBITDA range also takes into account the conclusion of the GSA contract.
And a $5 million negative impact from the strengthening of the euro versus the US dollar in comparison to the relative flatness of the British pound and Swedish krona.
Adjusted EPS is expected to be in the range of 92 to.
To one dollar.
As described on slide 14 in our earnings presentation.
We previously reported a noncash pension gain or loss and our adjusted earnings results.
Due to the nature of the line item being non operational and non cash we have decided to exclude it from our 2023 adjusted net earnings results going forward with revisions for the prior periods to reflect the same adjustment for comparability purposes.
Additional modeling details underlying our outlook are.
<unk>.
We expect interest expense to be approximately $240 million depreciation and amortization expense of approximately $100 million excluding.
Excluding incremental depreciation and amortization expense, resulting from purchase accounting.
Adjusted effective tax rate of approximately 24% way.
Weighted average diluted shares outstanding of approximately $433 million and for Capex, we expect approximately $130 million to $150 million of internally developed software and around $30 million of property plant and equipment.
And purchased software.
And while we don't give quarterly guidance I did want to provide some color on how we expect the year progressed.
With three months of impact from the GSA and the first quarter and one month in the second quarter, along with what we expect to be a slower environment, but first half we expect the first quarter can be around the low end of our organic growth range, and then second and third quarter to be closer to the midpoint.
We then expect the fourth quarter to reflect a more normalized environment and therefore seen revenues around the higher end of our range.
While EBIT margins are expected to slightly expand in the first quarter, the GSA impact along with the quarter traditionally being our lowest of the year, we'll put it under our full year expected expansion of around 50 basis points as.
As we head into the second quarter and beyond we would expect to be at or above the 50 basis point expansion.
Yeah.
In conclusion, we are well positioned to capture the significant growth opportunities in front of us and we expect to continue to accelerate our revenue growth in 2020 despite.
Despite a challenging macro environment and the conclusion of the GSA headwind at the end of April .
With improving profitability and cash flows we will also focus on deleveraging the balance sheet and focusing capital allocation strategies on driving increased shareholder return.
With that we're now happy to open the call for your questions. Operator will you. Please open up the line for Q&A.
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One moment, please while we poll for questions.
Our first question is from the line of Kevin Mcveigh with Credit Suisse. Please go ahead.
Good morning.
I don't know it should be for Anthony or Brian , but just Brian you started last year with kind of a wider range on the organic growth I think 3% to 5% and that eventually narrow at about 100 basis points. This year, it's a tighter range kind of 3% to 4.5% could you maybe help us.
Some of the puts and takes and it was real good commentary on the GSA, but any any.
Any other impacts to think about in terms of pricing or the impact of net wise I owe to so on and so forth just as we're thinking about that organic growth over the course of the year.
Yeah, Yeah sure Kevin Thanks for the question and so as we think about it certainly the first quarter has been most impacted by the GSA, we have three or four months and so it's about 110.
Beth headwind and then we have a month of that in the second quarter. So after you get through that.
To the point you have the continued pricing.
Pricing power right in the base that we brought in I think multiyear contracts that continue to be around 50 plus percent.
North American pricing strategies have been implemented while and we're starting to see that now on the international side.
And that was an iota continue their strength through the end of the year and so they lapped in as organic in November and December and so we will see them throughout.
2023 from that comparison, and so really it's about the continued progression.
Into 2023 off of.
A good balance in 2022.
Great and then just.
Really good guidance in terms of spec.
Specificity.
Any way to think about free cash flow in 'twenty three.
Yeah. So.
The headwind to free cash flow is obviously going to be the increase in interest expense from that side of the equation, but outside of that a lot of the things that we've had in the past some of the restructuring some of the M&A costs et cetera are starting to fall away. So we'd expect an increase in improvement of free cash flow and then clearly.
From a capital allocation perspective.
We'll be looking to invest in the business as you see from the Capex guidance, that's coming down almost 25% and so tightening up from that perspective, but continuing to focus on innovation.
Dividend will continue to pay and then it's going to come down too.
With Alan's got really attractive I would say you know M&A target out there or something from that perspective, we will focus on delevering the business.
We're at about four times net leverage now in certain way through this year, we'll look to get below four times.
And ultimately continue to drive that lower in the years to come.
Great. Thank you.
Our next question is from the line of.
Peterson with Needham and company. Please go ahead.
Great.
Thanks, guys for taking the questions.
Wanted to touch a little bit.
The kind of slowdown in December you know that you guys talked about a.
Great to hear it seems like things have kind of normalized and reverse course again kind of year to date here, but you know whats that slow down and you know pretty broad based or were there any kind of recurring themes or trends seem across whether it's verticals or for <unk>.
You know that jumped out to you guys.
Sure Kyle Thanks for the question Yeah, no it was a.
Fairly isolated to our sales and marketing and primarily our master data management, which.
As we said as we look to two.
January and February so far we saw the results of.
Snapping back to normal so typically what happens at the end of the year, you know people have a budget and they'll use it and prepare themselves for the following year and I think you know on what happened.
With many companies and you see it on many of the other earnings calls that you've been on theirs.
Theres, a real locked down on.
Not spending what budget what was there, but you know bring it back to the bottom line I think that was the cause but when we look at the full year now we're pleased really with the momentum that we see and.
And also pointing to our <unk>.
<unk> data management, it's really not tied to as much as sales event as clients, who are already clients of ours and using the software just not using it as much and I think that's what we saw at the quick snapback in January if it was the sales effort. It would take time to sell it contracted implemented use it bill it and then see.
From it so.
So let's work scope.
Good about it and and also just our overall strength in our <unk> portfolio that we have certainly stronger as we enter twenty-three then it was we enter 2022.
Got it.
That makes sense and then just one quick follow up for me just thinking about as we kind of head into 'twenty three at least on the organic kind of FX neutral growth outlook, how should we kind of think about the building blocks in between.
Potential pricing upsell and cross sell versus the addition of new logos as we head into opening here.
Yeah, Karl from that side I think our retention continued to be very strong and very high. So I think the full year ended up again over 96% and saw the first.
Its continuing to leverage off of that.
Price ended up.
So we exited the year getting closer to a couple of points.
So when we think about progressing from that perspective into 2023.
That's kind of the first building block for us now, which Houston to not be frankly, when we got in here.
Neurologists done a nice job on the international side with a lot of migrations and integrations. They went through in 2022 that set the foundation and the groundwork for our.
International businesses, the U K or Europe to start to pay price from that perspective.
After that it's really about a combination of the upsell cross sell.
A couple of vintages of new solutions that we're certainly excited about especially as it focuses in on supply chain and third party risk and compliance.
And so penetrating those into our large existing client base, especially in North America is important.
The new logo side for North America, certainly we started to kind of.
Ill turn the tide in terms of the digitalization in some of the new products, we're introducing it into the small and medium size businesses, but really throughout 2022, we're overcoming the tail on about that FTC order, which was something that frankly came out of 2016 2017, so that side of it.
It's really the mix, we're looking to drive growth and then on the international side frankly, the localization of new products.
Continuing to penetrate markets throughout Asia, and Europe , and then frankly, they've done a nice job of getting some of those large and mega size clients that Dun <unk> bradstreet's known for and sorry, Anthony mentioned I'll look to those on the on the call, but continue to expand with the largest and most significant players in Europe and Asia.
Definitely our strategy as we go forward.
Yeah, the only thing I'll add to that as you know, we really think about it as two forces right there Matt.
Macro force that's out there.
Infecting many companies and then we have our positive transformational force, which is helping us fight through in.
And having us control more more of our destiny than just.
Turning it up into the wind and seeing where the macro environment takes us and it's really the combination of those two that we overlaid here.
That's really helpful color. Thanks, guys.
Thanks, Kevin.
Thank you.
Next question is from the line of Andrew Jeffrey with Dougherty.
Please go ahead.
Hi, Good morning, I appreciate you taking the question.
Anthony.
Can you talk a little bit about especially in the context of some of the more enterprise focused wins that you've talked about can you talk a little bit about I guess, the pipeline and sales cycles.
In light of the macro environment anything thats influencing your outlook in that regard.
Sure Andrew.
For the most part we continue to build momentum.
With clients in the enterprise space in a number of areas. One is the number well first of all I just step back just the continued improvement that we're making in the business and every facet of the business technology data product analytics.
Client service responsiveness et cetera, again, a much stronger company than we were just a year ago, even and and where we're deeply entrenched in our enterprise accounts, they're highly reference hirple.
Incredibly sticky and so.
We have the opportunity to to drive some of our new solutions into those accounts.
New solutions, such as ESG for example.
Our risk analytics some of them are modern updates, where we've migrated clients onto from from more legacy point solutions.
And I'd say.
As we continue to get more and more.
Success in that space, that's helping on the new logo side from an enterprise perspective.
In North America, we have many right we've got a very large penetration.
The largest enterprises in North America. So far there is continue to get the remaining ones, but also drive more <unk>.
Solution sales into those accounts broaden and deepen them and international where there's so much greenfield and we're bringing so much capability into those markets. Our leadership team is really doing a great job driving it into large enterprise clients, there as well and we just every quarter and assigned more and more exciting logos.
Okay.
Appreciate that and could you just drill down a little bit.
On on pricing trends it sounds like you're you're migrating some of the pricing rationalization from the U S to rest of world is that just sort of catch up or is that where we've seen pricing evolve around some of the new capabilities that you're talking about.
Yes, I think from a pricing it's a couple of things Andrew. The first is just the general improvement we continue to make in the business and supporting our clients.
You earn the right for price there, but also in.
More fundamentally as we're migrating our clients from our legacy systems to R.
Our next generation systems, there's an opportunity there on the price side as well and more. So in addition, I know you asked about price with.
With that being on a more modern platforms is an easier opportunity for us to cross sell a module into it. So for example, if a client's on risk analytics, which is our most modern version of the solution.
They can.
They can acquire ESG data, which is one of the most used data sets for example, and risk analytics and it's easier for them to.
<unk> implemented et cetera.
So it's really a combination of.
The two and as we again spend more time with clients and look at the value that we're driving for them we believe that.
Even in spite of this macro environment, that's in front of us, we're providing real value and and.
And have support on the pricing side.
I appreciate it thank you.
Thank you Andrew.
Okay.
Thank you our.
Next question is from the line of Manav Patnaik with.
Barclays. Please go ahead.
Thank you.
My first question is you know just the top line growth I guess, three or four 5% can you help us.
With you know kind of what do you expect between North America, and international and just to confirm the does the outlook assume a tougher backdrop like you saw in December .
It's back to normal.
Yeah, Manav, what I would say is that as we looked into 2023 and I think you've heard this pretty consistently across the board that we expect a tougher backdrop in 2023, and so certainly while we have and we knew about the GSA right coming into it.
Overall macro environment is one that we're just expecting to be I would say relatively challenging throughout 2023, and so as Anthony said, we're kind of balancing that potentially tougher macro environment overall with the transformation and the new innovation, we're bringing from that perspective, if we look at North America versus.
International we're expecting international to grow I would say a little bit faster than North America, but not significantly more from that perspective, So I think more like a point.
From the differential between the two segments.
Got it and just.
Just a bigger picture question like how connected is finance and risk to sales and marketing.
In terms of.
The data sharing technology et cetera, and they can they coexist separate from each other or how tied up on me.
They are really.
Not tightly connected and that's why we've kind of aggregated in the way we did finance risk is obviously.
From the use case for solving for for the executives who are selling to an Ah Ah.
Corporation and sales and marketing.
So those two are lumped together.
There's value, obviously and some synergy in terms of the data that we have overall such as you know from an MDM perspective.
No.
Having.
Organization's key off the dun's number funds or data enrich it et cetera.
The visibility that we have into all of these companies is incredibly powerful as well right. So we talked about all the the customer and supplier relationships that we have I mean, it's incredibly.
Impressive I think and and so whether you use that for financial risk use cases of our sales and marketing that's kind of how we got in but the two businesses are really I'd say fundamentally different from.
From that perspective.
Got it thank you.
Thanks Manav.
Thank you. Our next question is from the line of.
So first of all with.
RBC capital.
Please go ahead.
Hi, This is Josh filling in for Ashish could you just touched on kind of a longer term road a runaway for supply chain K Y C and maybe just also ESG and kind of what we're seeing today and really how much Oh. These revenues do you expect to continue in 'twenty three and how should we think about the growth of those thanks.
Well, Jonathan those areas have been in a really great successful drivers for us and we will continue to be because.
The demand for them continues to grow so.
Supply chain visibility and illumination is a key one know your customer the bar continues to be elevated there.
And we believe.
We've got the data and insights at such a deep level that we can provide differentiation.
And with ESG I know some think it may be a flash in the pan but we believe it's here to stay and it's going to continue and so like I said. It you know ESG is one of our most used date.
Data sets in our risk analytics portfolio. So we think those areas are.
Really.
In demand, we think we have a real unique differentiation.
And then and are going to have a lot of success in the coming year and years selling.
That's great color. Thank you and maybe just quickly touching on technology could you just mentioned that kind of what inning, we're in and really how much of the heavy lifting has already been done and maybe just any other kind of preview given the upcoming investor day.
Sure and look I'm excited for us to have our Investor day next week and for Us to go.
Go into a lot more detail on all the improvements that we've made.
<unk>.
Now we have.
Really one of the world's most sophisticated data ingestion and modeling engines and Dun <unk> Bradstreet and the team has done a remarkable job continuing to improve it I said in my prepared remarks.
Simplifying it speeding speeding up 10 times with a 30%.
Simplification, so it's really exciting to see what the team is doing that way and.
And at Investor Day, we'll go into a lot more detail around that to give you more color not just on the technology, but also the data and the operations that go behind it.
And really give a good snapshot of.
Where we are as a company versus where we were.
I'm really proud of the accomplishments of the team and and especially as we continue to to grow.
Organically and the foundation that we lay fruit for ourselves every year.
I look back at the beginning of last year.
I am pleased that we stayed inside of our original guidance that we gave at the beginning of 2022. It was a very turbulent lear not many companies stayed inside the range. So as proud of how the team.
Thought that way and.
And also as I look at our goal of getting to mid single digits.
If you look at 2022, we had three 5% growth adjusted for the GSA, a four 4%, we're knocking on the door of 5%.
And I also look at it a different way as well, where if I look at the two.
I'll say Chad.
Challenges that we took on when we took over the company with the GSA and the FTC order and our credibility business.
Extracting those two areas, which is just under 10% of our total company revenue growth.
We have 90% of revenues of our company growing at over mid single digits, it's growing above five almost 6%.
Gross so we've got 90% growing in that range, we want to get another 10% and and the type of team that we have we've proven we knock things off the list and we're focused on it will knock these off the list as well.
Great color. Thank you.
Okay.
Thank you. Our next question is from the line of.
Understood.
J P. Morgan. Please go ahead.
I wanted to focus in on the fourth quarter, North American finance and risk.
Growth, which decelerated from the third quarter, both had that I assume that's the same drag from the GSA contract you could imagine if the drag.
What was different but I wanted to know why.
North American financial risk business decelerated in the fourth quarter year over year, and particularly if you could talk to something like a client retention rate has client retention rate.
Changed in North American risk I know you talked a lot about renewals, but how how is the north American financial risk or if you want to talk to overall our client.
Client retention rate and 22 compared to the year before.
Yes, Andrew.
It really came down to the two pieces that are actually Anthony just called out and so when we look at the financial risk business and kind of bifurcated third party risk and compliance of the supply chain continued to grow very strongly right and so we talked about another double digit plus.
So from that perspective.
<unk> solutions continued and so think about that as like the finance solutions for medium and larger size businesses again has the pricing multiyear contracts. So it's very consistent go to really high retention rates really strong from that perspective.
<unk> business I mean, frankly, as we progressed through and something that we saw with that the FCC order and the impact from that perspective, especially on the renewal side that impacted us and so where originally when we went into the year, we had anticipated that starting to improve by the fourth quarter as we progress we saw.
Paul I mean, it was still a continued decline Andrew in Q4, and then the drop from the government side was the GSA. It also when we look at that government business. It has a mix of kind of ratable renewable contract, but then it has contracts with existing customers that have more flex in.
Our spend in any given quarter. So it becomes more project based from that perspective, so while we were losing customers from that side. We certainly had a few customers that have less project spend in the quarter.
Those were really the impacts about financial risk business and so while the core finance solutions for third party risk and compliance continue to be strong. It was really those two elements of the legacy credibility in the government solutions side that where the drag.
That makes sense and the GSA drag was the same REIT fourth quarter and third quarter.
Okay drive was the same and then there were some other business again that was not necessarily a customer that went away, but a customer that utilize less and spent less in the fourth quarter than they did on a prior year basis.
Thanks for the answer I appreciate it.
Okay.
Okay.
Thank you. Our next question is from the line of George Tong with Goldman Sachs. Please go ahead.
Alright. Thanks, Good morning, your full year organic revenue growth guidance of three to four 5% is relatively wide can you elaborate on what macro and company specific conditions would get you to the upper versus lower end of the guidance range.
Yes, George so it's a little tighter than last year. So as Anthony said, we're always looking to improve the business from that side by Dol.
As we go into any given year.
We're looking at that.
A range of outcomes from a macro perspective, so obviously manav mentioned earlier, we're looking at 2023 is a pretty challenging macro environment from that perspective, so what could put us at for instance, the higher end of the range. The adoption of some of the new solutions that we've driven from that perspective.
Earlier in the year, a little bit better of an overall macro environment budget and spending environment.
All these things while our revenue is not necessarily tied in the very short term to an immediate sale clearly are a sale earlier in the year allows for higher compounding from a ratable revenue perspective as it grows throughout the year and so if we get some improving conditions and we see a little bit better penetration on the cross sell up sell.
From our GTS strategy, we've been certainly it could be towards towards the higher end when.
When you look at the lower end again kind of what we saw from that perspective, its where it is.
Some of the usage right or we see a little bit heavier churn for instance on the credibility side. That's not made up from that perspective. Those are the types of things that give you a little bit of variability.
In any given year, a button to Anthonys point, the place where we saw you know.
A small amount of volatility in December and it's something that already in January and early February we've seen bounce back to more normalized levels. So we'll keep an eye on it from that perspective, George but we always want to give that range of outcome knowing that while it's relatively tight from a dollar perspective.
There is a little bit of flex.
Based off of based off of.
Sales around the edges and then some usage.
Got it that's helpful. You touched on how the slowdown in client spend in <unk> was mainly in sales and marketing can you provide your organic growth expectations for sales and marketing versus finance and risk for 2023.
Yeah. So overall, what I would say is that in North America, George we're expecting financial risk to grow.
A little bit faster than the sales and marketing side.
And then in the international side, it's a little bit different that the international business is much more financing risk oriented already so I think it's about 80% of the revenues our financial risk and saw that smaller base, while we're introducing new solutions into those markets, it's actually growing a little bit faster right.
Then the financing risk side, but if you are blending the two overall I would say financial risk for Dun <unk> Bradstreet total is expected to outpace sales and marketing in 2023.
Got it thank you.
Okay.
Thank you.
That was the last question for the question and answer session I would like to turn the floor tobacco Atlanta Jabbour for closing comments.
Thank you as always I'd like to thank my Dun <unk> Bradstreet colleagues for their exceptional efforts to sustainably grow our business for the years to come and to our great clients for their partnership and guidance. Thank you for your interest in denim Bradstreet and we hope and we look forward to seeing many of you next week hopefully have a wonderful rest of your day.
This concludes today's teleconference. You may disconnect your lines at this time.
For your participation.
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