D&B Announces Second Quarter 2010 Results; Reaffirms 2010 Guidance and Announces a Strategic Partnership
July 29, 2010
- Diluted EPS Before Non-Core Gains and Charges Up 2%; GAAP Diluted EPS down 23%, Primarily Due to a Gain Associated with the Disposal of The Domestic Portion of our Italian Operations in the Second Quarter of 2009.
- Core Revenue Down 3% Before the Effect of Foreign Exchange (Down 2% After the Effect of Foreign Exchange).
- Total Revenue on a GAAP Basis Down 5% both Before and After the Effect of Foreign Exchange, Reflecting the Impact of the Disposal of The Domestic Portion of our Italian Operations in the Second Quarter of 2009.
- D&B Forms Strategic Partnership for its North American Self Awareness Solutions.
SHORT HILLS, N.J., Jul 29, 2010 (BUSINESS WIRE) -- D&B (NYSE: DNB), the world's leading source of commercial information and insight on businesses, today reported results for the second quarter ended June 30, 2010.
"With the first half of 2010 behind us, we are on track to meet our full-year guidance. International performed well; however, we are experiencing an uneven recovery in North America, especially in Sales & Marketing. We are taking actions to address the weaker parts of North America and the strategic partnership for our Self Awareness Solutions is just one example. Finally, we are making good progress against the key milestones of our Strategic Technology Investment, and expect to have the first new products launched by the end of the year" stated Sara Mathew, D&B's Chairman and CEO. Second Quarter 2010 Results
Diluted earnings per share before non-core gains and charges for the quarter ended June 30, 2010 were $1.23, up 2% from $1.21 in the prior year similar period. On a GAAP basis, diluted earnings per share for the quarter ended June 30, 2010 were $1.10 down 23%, from $1.43 in the prior year similar period, largely due to a one-time gain associated with the disposal of the domestic portion of our Italian operations. See attached Schedule 3 for a reconciliation of diluted earnings per share before non-core gains and charges to earnings per share on a GAAP basis, as well as the definitions of the non-GAAP financial measures that the Company uses to evaluate the business. Core revenue for the second quarter of 2010 was $397.3 million, down 3% from the prior year similar period before the effect of foreign exchange (down 2% after the effect of foreign exchange). Deferred revenue was $535.9 million, up 3% from the similar prior year period, continuing the positive trajectory that began in the fourth quarter of 2009. Core revenue results for the second quarter of 2010 reflect the following by solution set:
- Risk Management Solutions revenue of $263.0 million, down 1% both before and after the effect of foreign exchange;
- Sales & Marketing Solutions revenue of $105.0 million, down 5% before the effect of foreign exchange (down 4% after the effect of foreign exchange); and
- Internet Solutions revenue of $29.3 million, down 6% both before and after the effect of foreign exchange.
See attached Schedules 4, 5 and 6 for additional detail. Total revenue for the second quarter of 2010 was $397.3 million, down 5%, both before and after the effect of foreign exchange, as compared to the prior year similar period. As a reminder, the prior year included the results of the domestic portion of our Italian operations which we divested in the second quarter of 2009. We reclassified revenue associated with the domestic portion of our Italian operations as non-core as of the quarter ending June 30, 2009, due to the sale of substantially all of the assets and liabilities associated with that portion of the business (see the Company's Form 8-K, filed with the Securities and Exchange Commission on June 1, 2009). Total revenue for the second quarter of 2009 included $11.6 million of revenue associated with the domestic portion of our Italian operations, with no revenue from those operations in the second quarter of 2010. Operating income before non-core gains and charges for the second quarter of 2010 was $106.5 million, down 6% from the prior year similar period. On a GAAP basis, operating income was $90.5 million, down 18% from the prior year similar period. Our second quarter 2010 results includes $7.6 million of costs related to the Strategic Technology Investment, announced in February 2010 and a $6.8 million charge for impaired assets related to our QED acquisition resulting from an examination of such assets initiated in connection with recent matters with Federal Trade Commission. Net income attributable to D&B before non-core gains and charges for the second quarter of 2010 was $62.7 million, down 3% from the prior year similar period. On a GAAP basis, net income attributable to D&B for the quarter was $56.0 million, down 27% from the prior year similar period, primarily due to a gain of $12.8 million related to the disposal of the domestic portion of our Italian operations during the second quarter of 2009. See attached Schedule 3 for additional detail. Free cash flow for the first six months of 2010, excluding the impact of legacy tax matters, was $172.5 million, including approximately $8.0 million related to the Strategic Technology Investment, compared with $192.0 million in the prior year similar period. The Company defines free cash flow as net cash provided by operating activities less capital expenditures and additions to computer software and other intangibles. On a GAAP basis, net cash provided by operating activities for the first six months of 2010 was $211.0 million, compared with $234.4 million in the prior year similar period. See attached Schedule 4 for additional detail. Share repurchases during the second quarter of 2010 under the Company's discretionary repurchase program totaled $20.0 million (approximately 0.3 million shares), while repurchases made to offset the dilutive effect of shares issued under employee benefit plans totaled an additional $10.0 million (approximately 0.1 million shares). The Company ended the quarter with $209.7 million of cash and cash equivalents, almost all of which is held in subsidiaries outside the United States. Second Quarter 2010 Segment Results
North America
Core and total revenue for the second quarter of 2010 was $300.9 million, down 6% from the prior year similar period both before and after the effect of foreign exchange. We saw a sequential year-over-year improvement in Risk Management Solutions revenue; however, our Sales & Marketing Solutions weakened versus the prior quarter. We attribute the weakness to tight budget constraints with our customers, especially on the prospecting side. We continue to expect our revenues will improve during the back half of the year as we work through the lower upfront sales commitments experienced during 2009 and we are taking actions to improve certain weaker segments of our businesses. North America core and total revenue results for the second quarter of 2010 reflect the following:
Operating income before non-core gains and charges for the second quarter of 2010 was $105.2 million, down 5% from the prior year similar period. On a GAAP basis, operating income was $98.4 million, down 11% from the prior year similar period. The result was primarily due to lower revenue and a $6.8 million charge for impaired assets related to our QED acquisition resulting from an examination of such assets initiated in connection with recent matters with Federal Trade Commission. International
Core revenue for the second quarter of 2010 was $96.4 million, up 11% (inorganic activity contributed 8 points of the growth) from the prior year similar period before the effect of foreign exchange (up 14% after the effect of foreign exchange). International continues to perform very well as we realize the benefits from our exposure to high growth emerging markets and strong demand for our cross border and value added products. International core revenue results for the second quarter of 2010 reflect the following:
- Risk Management Solutions revenue of $70.7 million, up 9% before the effect of foreign exchange (up 11% after the effect of foreign exchange);
- Sales & Marketing Solutions revenue of $24.9 million, up 19% before the effect of foreign exchange (up 23% after the effect of foreign exchange); and
- Internet Solutions revenue of $0.8 million, down 22% before the effect of foreign exchange (down 19% after the effect of foreign exchange).
For full-year 2010, we continue to expect total International revenue to grow at a low double digit rate, driven by the launch of DNBi International and sustained high growth in our emerging markets. Total revenue for the second quarter of 2010 was $96.4 million, down 2% from the prior year similar period before the effect of foreign exchange (flat after the effect of foreign exchange). The results of the domestic portion of our Italian operation, which we divested in the second quarter of 2009, are included in the prior year similar period total revenue. See attached Schedules 4, 5 and 6 for additional detail. Operating income for the second quarter of 2010 was $19.3 million, down 15% from the prior year similar period. The decrease is primarily due to a tough comparison to the second quarter 2009 (in which operating income benefitted from lower expenses prior to the sale of our domestic Italian operation), partially offset by growth in our underlying business. Strategic Technology Investment
As a reminder, in February 2010, D&B announced a Strategic Technology Investment program aimed at strengthening its leading position in commercial data and improving its current technology platform to meet the emerging needs of customers. The Company anticipates spending $110 million to $130 million over the approximate two-year life of the program. In the second quarter of 2010, the Company incurred $7.7 million of total pre-tax expense (or $0.11 per diluted share) on the Strategic Technology Investment, which was included in the Non-Core Gains and Charges noted below, and $3.8 million of capital expenditures and additions to computer software and other intangibles related to the Strategic Technology Investment. Year to date, we have incurred $12.5 million of total pre-tax expense (or $0.19 per diluted share) on the Strategic Technology Investment, which was included in the Non-Core Gains and Charges noted below, and $3.8 million of capital expenditures and additions to computer software and other intangibles related to the Strategic Technology Investment. The program continues to be on pace to meet our previous estimate for total pre-tax spend during 2010 of $45 million to $55 million, with approximately 60% of the amount recognized as an increase to D&B's non-core expenses and the remainder as capital expenditures (see attached Schedule 3 for additional detail). During the second quarter, D&B achieved the following results regarding the milestones outlined during our 2010 Investor Day: i) opened a new application development center in Ireland that is focused on global applications development, ii) largely completed the migration of our Data Center to a new facility located in Conway, Arkansas and iii) increased the number of records in our data bases to 168 million (on track to reach our 2010 year-end goal of 175 million). In addition, D&B is preparing for the fourth quarter 2010 release of the following: i) our replatformed version of DNB.com to enhance the value proposition for legacy transactional customers and ii) the launch of web services for our large customers to help them configure our data to embed into their workflows. Non-Core Gains and Charges
During the second quarter of 2010 and 2009, the Company recorded:
- A net pre-tax, non-core charge of $15.9 million in the second quarter of 2010, and a net pre-tax, non-core gain of $13.0 million in the second quarter of 2009; and
- A net after-tax, non-core charge of $6.7 million in the second quarter of 2010, and a net after-tax, non-core gain of $12.1 million in the second quarter of 2009.
See attached Schedule 3 for additional explanations and details of these charges. D&B's restructuring charges may be viewed as recurring as they are part of its Financial Flexibility initiatives. In addition to reporting GAAP results, the Company reports results before restructuring charges and other non-core gains and charges because they do not reflect the Company's underlying business performance and they may have a disproportionate positive or negative impact on the results of its ongoing business operations. For additional information, see the section titled "Use of Non-GAAP Financial Measures" below. D&B Announces Strategic Partnership
D&B announced it has entered into an agreement for the sale of substantially all of the assets and liabilities of its North America Self Awareness Solutions business, in a deal valued at approximately $100 million. Under the terms of the agreement, D&B will receive $10 million in cash at closing and is entitled to annual royalty payments from the buyer for data and brand licensing. The transaction is subject to customary closing conditions and is expected to close on July 30, 2010. The sale is part of a strategic relationship whereby the buyer will operate the acquired business under the name of Dun & Bradstreet Credibility Corp., and distribute D&B-branded products to the micro customer segment.
The deal is expected to reduce full-year 2010 core revenue by approximately $51 million and full-year 2009 core revenue by approximately $70 million. There will be no impact to total company operating income and our overall 2010 guidance remains unchanged. As a reminder, D&B's North American Self Awareness Solutions business provides credit on self products for small and micro businesses. This transaction provides D&B with the ability to better focus our resources on our core customer segments and maximize shareholder value. See schedule 7 for additional detail on the effect this Strategic Partnership will have on our core revenue for 2009 and 2010 year-to-date period. Full Year 2010 Guidance
D&B today reconfirmed its financial guidance for the full year 2010:
- Core revenue growth of 1% to 3%, before the effect of foreign exchange;
- Operating income down 2% to up 2%, before non-core gains and charges;
- Diluted EPS growth of 1% to 6%, before non-core gains and charges; and
- Free cash flow of $240 million to $270 million, excluding the impact of legacy tax matters, but including the new Strategic Technology Investment.
As a reminder, the impact of our Strategic Technology Investment has been excluded from our operating income and diluted EPS guidance and included in our free cash flow guidance, which is consistent with our treatment of non-core items. D&B does not provide guidance on a GAAP basis because D&B is unable to predict, with reasonable certainty, the future movement of foreign exchange rates or the future impact of non-core gains and charges, such as restructuring charges and legacy tax matters, which are a component of the most comparable financial measures calculated in accordance with GAAP. Non-core gains and charges are uncertain and will depend on several factors, including industry conditions, and could be material to D&B's results computed in accordance with GAAP. Use of Non-GAAP Financial Measures
D&B reports non-GAAP financial measures in this press release and the schedules attached. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - How We Manage Our Business" in the Company's Annual Report on Form 10-K for the year ending December 31, 2009, filed February 25, 2010 with the SEC, for a discussion of how the Company defines these measures, why it uses them and why it believes they provide useful information to investors. Additionally, these measures are defined in Schedule 3 attached to this press release. Second Quarter 2010 Teleconference
As previously announced, D&B will review its second quarter financial results in a conference call with the investment community on Friday, July 30, 2010, at 8 a.m. ET. Live audio, as well as a replay of the conference call and other related information, will be accessible on D&B's Investor Relations Web site at http://investor.dnb.com. ************** About Dun & Bradstreet(R) (D&B)
Dun & Bradstreet (NYSE:DNB) is the world's leading source of commercial information and insight on businesses, enabling companies to Decide with Confidence(R) for 169 years. D&B's global commercial database contains more than 168 million business records. The database is enhanced by D&B's proprietary DUNSRight(R) Quality Process, which provides our customers with quality business information. This quality information is the foundation of our global solutions that customers rely on to make critical business decisions. D&B provides solution sets that meet a diverse set of customer needs globally. Customers use D&B Risk Management SolutionsTM to mitigate credit and supplier risk, increase cash flow and drive increased profitability; D&B Sales & Marketing SolutionsTM to increase revenue from new and existing customers; and D&B Internet SolutionsTM to convert prospects into clients faster by enabling business professionals to research companies, executives and industries, over the web. For more information, please visit www.dnb.com. Forward-Looking and Cautionary Statements
This press release, including, in particular, the section titled "Full Year 2010 Guidance," contains projections of future results and other forward-looking statements that involve a number of trends, risks and uncertainties, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following important factors could cause actual results to differ materially from those projected in such forward-looking statements.
- D&B relies significantly on third parties to support critical components of its business model in a continuous and high-quality manner, including third-party data providers, strategic third party members in its Worldwide Network, and third parties with which it has outsourcing arrangements.
- D&B's ability to implement and derive the benefits of its strategic technology investment program announced in February 2010.
- Demand for D&B's products is subject to intense competition, changes in customer preferences and economic conditions which impact customer behavior.
- D&B's solutions and brand image are dependent upon the integrity and security of its global database and the continued availability thereof through the Internet and by other means, as well as our ability to protect key assets, such as our data centers.
- D&B's ability to maintain the integrity of its brand and reputation, which it believes are key assets and competitive advantages.
- D&B's ability to renew large contracts, the related revenue recognition and the timing thereof, or a shift in product mix, may impact its results of operations from period to period.
- As a result of the macro-economic challenges currently affecting the global economy, D&B's customers or vendors may experience cash flow problems. This may cause its customers to delay, cancel or significantly decrease their purchases from D&B and impact their ability to pay amounts owed to D&B. In addition, D&B's vendors may substantially increase their prices without notice. Such behavior may adversely affect D&B's earnings and cash flow. In addition, if economic conditions in the United States and other key markets deteriorate further or do not show improvement, D&B may experience material adverse impacts to its business, operating results, or access to credit markets.
- D&B's results are subject to the effects of foreign economies, exchange rate fluctuations, legislative or regulatory requirements, such as the adoption of new or changes in accounting policies and practices, including pronouncements by the Financial Accounting Standards Board or other standard-setting bodies, and the implementation or modification of fees or taxes that it must pay to acquire, use, and/or redistribute data.
- D&B's ability to introduce new solutions or services, including in a seamless way and without disruption to existing solutions, such as DNBi.
- D&B's ability to acquire and successfully integrate other complementary businesses, products and technologies into its existing business, without significant disruption to its existing business or to its financial results.
- The continued adherence by third party members of the D&B Worldwide Network to D&B's quality standards, its brand and communication standards and to the terms and conditions of its commercial services arrangements.
- D&B's future success requires that it attract and retain qualified personnel, including members of its sales force and technology teams, in regions throughout the world.
- The profitability of D&B's International segment depends on its ability to identify and execute on various initiatives, such as the continued implementation of subscription plan pricing and successfully managing its D&B Worldwide Network, and its ability to identify and contend with various challenges present in foreign markets, such as local competition and the availability of public records at no cost.
- D&B's ability to successfully implement its growth strategy requires that it successfully reduce its expense base through its Financial Flexibility initiatives, and reallocate certain of the expense-base reductions into initiatives that produce desired revenue growth.
- D&B is involved in various tax matters and legal proceedings, the outcomes of which are unknown and uncertain with respect to the impact on D&B's cash flow and profitability. See the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and notes to the financial statements included therewith, for a more detailed description of these matters.
- D&B's ability to repurchase shares is subject to market conditions, including trading volume in its stock, and its ability to repurchase shares in accordance with applicable securities laws.
- D&B's projection for free cash flow is dependent upon its ability to generate revenue, its collection processes, customer payment patterns, the timing and volume of stock option exercises and the amount and timing of payments related to the tax and other matters and legal proceedings in which it is involved, as referenced above and as more fully described in the Company's filings with the SEC, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and notes to the financial statements included therewith.
For a more detailed discussion of the trends, risks and uncertainties that may affect D&B's operating and financial results and its ability to achieve the financial objectives discussed in this press release, readers should review the Company's most recent filings with the SEC, including the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Copies of the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are available on its Web site at www.dnb.com and on the SEC's Web site at www.sec.gov. D&B cautions that the foregoing list of important factors is not complete and except as otherwise required by federal securities laws does not undertake any obligation to update any forward-looking statements. For the D&B financials, please click here.
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