Dun & Bradstreet Holdings Inc
NYSE:DNB
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Dun & Bradstreet Holdings Inc
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Ladies and gentlemen, thank you for standing by and welcome to the Dun & Bradstreet Second Quarter 2020 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Deb McCann, Treasurer and Senior Vice President of Investor Relations. Thank you. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us for Dun and Bradstreet's Financial Results Conference Call for the Second Quarter ending June 30, 2020. And on the call today, we have Denim Bradstreet's 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 for our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that 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 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 & Bradstreet's Investor Relations website at investor.dnb.com. Anthony will begin with an overview of Dun & Bradstreet, followed by our second quarter highlights. Bryan will then take you through a review of the financials before we proceed to Q&A. With that, I'll now turn the call over to Anthony.
Thank you, Deb. Good morning, everyone, and thank you for joining us for our first earnings call as a public company following our IPO in July. It was great to meet many of you during the course of our IPO roadshow, and we look forward to getting to many more of you in the future. Our recent IPO was a significant milestone for our organization, and we're excited to be a public company once again. As some of you may be new to our story, I would like to spend a few minutes to take you through a brief overview of who we are and what we do, the significant transformation we are undertaking, the market opportunity we see in front of us and the growth strategy we have underway to continue our evolution of this great and storied company.
Please note that this overview will make today's call longer than what will be typical going forward. I'll then provide an overview of our recent progress and performance in the second quarter, and then turn the call over to Bryan for a financial review of the quarter, followed by our expectations for full year 2020. Dun & Bradstreet is a global provider of mission-critical business decisioning, data and analytics. Our strong and iconic brand has been relied upon for 179 years to help businesses grow and thrive through the power of data and analytics through all phases of the business life cycle and in any macroeconomic environment. We manage our business and report our financial results through 2 geographical segments: North America, which includes the United States and Canada, while International includes the United Kingdom and Ireland, Greater China, India as well as our worldwide network.
With those segments are the 2 solution sets that we provide, finance and risk solutions and sales and marketing solutions. Through our finance and risk solutions, we help our clients proactively manage their risk through our solutions that assist finance, compliance and risk organizations to mitigate credit risk, improve collections, protect against compliance penalties, along with a host of other use cases that drive increased efficiencies and help to lower risk exposure.
With our sales and marketing solutions, we assist our client sales and marketing organizations to find new markets, new segments and ultimately, new prospects in a more efficient and effective manner. With the data and analytics we provide, we enable our clients to lower their cost of sales while simultaneously increasing closure rates by focusing on the higher probability, higher propensity prospects. We believe Dun & Bradstreet is a unique company, capable of driving significant and sustainable long-term returns. There are 3 factors that are key, we believe, to distinguish Dun & Bradstreet globally.
First, our data cloud, comprised of the world's most comprehensive business decisioning, data and insights, differentiated by the scale, depth, diversity and accuracy of our constantly expanding data sets, which covers more than 360 million global businesses. We have the most comprehensive commercial data cloud in the world, allowing us to deliver analytics and insights into some of the most critical organizations worldwide that we believe no other company can. Second, the data cloud contains something no other company has, the Dun's Number. The Dun's Number is a 9 digit identifier or corporate fingerprint of businesses. It creates a persistent single thread connecting related business entities throughout the world. Such as business relationships, employees, subsidiaries and more. So our clients can form a holistic view of an enterprise. We are the only scale provider to possess both proprietary and curated public data from 17,000 sources linked together by the Dun's number.
Finally, our data cloud and the Dun's Number together fuel the solutions our clients use every day and are deeply embedded in our clients' most critical workflows and technologies. The Paydex score, which is like a FICO score for businesses is one example. It is widely relied upon as a measure of credit health for businesses and plays a key role in how finance organizations make underwriting and credit terms decisioning. We leverage all of those factors to serve a broad set of clients across multiple industries and geographies.
We also have the ability to have a very comprehensive horizontal solution set, while at the same time, going deep into specific business verticals where we can differentiate through unique data and analytic assets. Today, we are doing business with clients in nearly all segments throughout the globe. And we touch almost every size company in every type of industry. Our diverse client base includes approximately 135,000 customers including 90% of the Fortune 500, and we have long-standing relationships with some of the most recognizable brands in the world. Over the course of our history, we have earned the privileged position of leadership and trust within the industries we serve.
However, an investor consortium led by Bill Foley, identified an opportunity to unlock dun and Bradstreet's potential. In February 2019, this investor consortium acquired Dun & Bradstreet and immediately commenced the transformation to revitalize the business for long-term success. We focused on 5 strategic initiatives that we believe will have Dun & Bradstreet to achieve its fullest potential. First, we realigned the leadership team and the organization. We immediately reorganized into vertically aligned business units with dedicated and leverage cross-functional support. As a result, 18 of the 19 most senior executives are new or in a new role. We broaden talent with extensive experience and a proven track record of driving long-term value creation through transformation and growth initiatives. We also identified and eliminated ineffective headcount and set performance goals.
Results count. Today, ours is the culture of accountability. We continue to optimize our organizational structure and bring on targeted talent to build other teams. Second, we optimize our go-to-market and client service. We aligned our sales force based on segments, solutions and geographical location. We transformed our sales compensation structure to incentivize multiyear contracts and to drive new solution sales, which resulted in an 87% increase in multiyear contracts.
We continue to accelerate our focus on multiyear deals and increase penetration through cross-selling and delivering new solutions to existing clients. Third, we are simplifying and scaling technology. When we arrived at Dun & Bradstreet, we found minimal technological innovation. We immediately recognized that we required a strong foundational infrastructure in order to leverage modern cloud technologies that will allow us to scale and evolve our solutions more rapidly. We also acted quickly to optimize the delivery of our solutions through modern API offerings, allowing clients to more efficiently ingest our data into their existing business processes and technologies. This is a critical element of our transformation, not only for growing revenue but for driving cost savings and reduce risk as we continue to sunset legacy platforms and automate manual processes. Fourth, we are expanding and enhancing data. As we continue to strengthen our foundational infrastructure, the speed and quality with which we ingest, match and deliver the data will greatly improve. We are working diligently to do just that. Ingestion brings together data curated from tens of thousands of sources, including new types of data and organizes it.
Getting this right is critical to the matching process, where the data elements are verified and matched with the correct entity as identified by its dun's number. We can't sell it unless we can match it.
This is what makes our data meaningful and consumable for our clients, allowing them to integrate it into the daily workflows. In addition, we are incorporating new alternative data sets such as foot traffic and digital signals to expand the breadth of companies covered and the depth of information we are able to provide clients. Data accuracy and quality are crucial to maintaining the trust of our clients, and we hold our team accountable to proactively track and address data issues before clients experience them.
Finally, the last piece of our transformation strategy is strengthening our analytics and insights. We have built new insights by incorporating physical, digital and financial activities to address an increasing number of use cases. In February, we announced the availability of D&B Analytics studio, a cloud analytics platform that gives our clients access to alternative data sources such as digital signals. That can be incorporated into predictive models alongside traditional data to provide more sophisticated and accurate business insights. The improvements we're making in analytics are enabling us to create solutions that produce greater insights and more predictive results. This type of insight is where the market is heading and what our clients need. Overall, these transformations have already led to a combination of efficiency and effectiveness gains, part of which have been reflected in our annualized run rate cost savings to date of $220 million, which is up $14 million in the second quarter. We continue to progress towards our revised target of $250 million, and we'll continue to update you on our advancements in future calls. While we are proud of our accomplishments to date, we recognize that there's still more to do to truly unlock our full potential. We have a terrific opportunity in front of us. The total addressable market across credit decisioning governance, compliance and risk as well as sales and marketing is large and is why we are enthusiastic, not only about our current position, but where we can go over the next few years.
As we look ahead, our strategy is squarely aimed at driving sustainable growth in 5 key areas. First is enhancing existing client relationships. We will continue to enhance and grow our strong client relationships through cross-selling and upselling into more of our solutions. Second is winning new clients in targeted markets. We will put our experience to our client base with new logos and expand in key markets such as small and mid-sized businesses.
Third is developing innovative solutions. We will leverage our existing data and bring on new data sets to develop innovative solutions and expand the range of use cases for our clients. Fourth is expanding our international presence. There's a large untapped global market that provides opportunity to expand our international presence and deliver localized solutions to our clients to meet global demand. Finally, we will selectively pursue strategic acquisitions. We are focused on organic growth, first and foremost, but we'll certainly look for bolt-on acquisitions that broaden our client base or further strengthen our solutions. Overall, we continue to make significant progress in our transformation and look forward to updating you today and on future earnings calls. As we continue to advance the ongoing work related to our technology and data enhancements and our acceleration of sustainable growth over the coming years. With that as a backdrop, I would like to now turn to this quarter's performance and strategic progress.
Overall, this was a solid quarter that finished in line with our expectations. The financial results, which Bryan will discuss later in detail, demonstrate that despite facing near-term headwinds and the broader impact of COVID-19, the core fundamentals of our business remain strong. I'm pleased that in spite of this challenging macroeconomic environment, our team has continued to execute on its strategic initiatives. Now I'll provide an update on those strategic initiatives and the steady progress we are making to transform Dun & Bradstreet.
The investments we're making in technology, data and analytics are key to laying the foundation for innovation and to bringing new solutions to market that meet our clients' growing need for differentiation through the utilization of data and analytics. In the second quarter, we kicked off a key initiative called Project [ Ascent ]. Project [ Ascent ] will allow us to speed data ingestion, increase match rates and reduce latency across our data supply chain. We are taking a thoughtful approach that will replace specific core components of the data supply chain over the next few years. Currently, the project is focused on leveraging our inherent data, along with some of the assets and techniques we acquired to the ORB intelligence acquisition, which allows us to build upon our foundational data and be more flexible and rapid in the ingestion phase of our processes. We have made significant progress with Project [ Ascent ], and we look forward to its initial release of functionality in the fourth quarter of this year. In support of the data supply chain work, we have also continued to make significant progress in rationalizing and industrializing our underlying technology infrastructure. As discussed in our transformation section earlier, we continue to drive savings through our data center consolidation strategy, and I'm pleased to report that we are on track and showing significant returns in terms of platform stability and lower latency rates. We continue to optimize the mix of private and public cloud resources and have increased our percentage of cloud utilization to over 70% of our overall infrastructure. We believe that a modern infrastructure is the foundation for our ability to deliver the current solutions we have today more consistently. And efficiently while simultaneously allowing us to bring on vastly more and different types of data to drive new solution innovation. With the changes we have made to date, we've already begun to bring on new data sets in both our finance and risk and sales and marketing solution sets. On the finance and risk side, we are ingesting foot traffic data and analytics to complement our more traditional data sets to help our clients increase their underwriting accuracy. To understanding demand of foot traffic flowing into a certain business, an underwriter can better predict future sales and therefore, make a more informed decision when issuing credit to a potential loan candidate. Also, in the sales and marketing space, we have added an extremely valuable set of data related to buyer intent. D&B buyer intent helps clients to more accurately predict their highest probability prospects to transact and therefore allows chance to more efficiently deploy their scarce sales resource. We believe we can provide clients a significant uplift in their top line performance by not only identifying the right businesses to focus on, but the right individuals within the business who ultimately have the authority to transact. By continuing to add nontraditional data sets to our solutions, we are looking to drive continuous improvement in our analytics and help our clients increase their profitability and decrease the risk profile. These significant transformations in technology and data become the foundation of our top line growth algorithm. We are intent in increasing customer satisfaction and maintaining our impressive client retention rates in order to drive longer-term contractual relationships. We had significant renewals in the second quarter with clients in the private and public sectors globally, including a multinational delivery services company, a professional services firm in the United States and the United Kingdom and a global credit insurer. We were able to not only maintain the revenue with those clients, but increase our revenues with them through the cross-sell and upsell of our solutions. While our largest clients utilize our products across both finance and risk and sales and marketing. Overall, we currently have less than 5% of our clients using both solution sets. And we're laser-focused on increasing that number as it helps create deeper, stickier relationships. We also won new business, including a multinational financial services company who turned to us to help manage the compliance verification process; a national food services client, who selected our sales and marketing solution to help identify opportunities for cross-sell and improve retention; and a 5-year program level contract with United States Department of Defense. From a new product perspective, I'd like to call out the release of our analytics studio solution. Since its launch, we have proof of concepts underway with 10 clients and recently signed a deal with a Fortune 500 financial software company, who has turned to D&B Analytics studio to analyze its client and product marketing strategy. D&B Analytics studio is an example of the greater value clients can realize with analytics, and we look forward to onboarding more clients in the second half of this year. In our sales and marketing business, in June, we released our next-generation account based marketing, or ABM platform, which has new features and capabilities to help marketers engage and convert buyers with built-in account-based ads and account-based engagement reporting and analytics. Clients are showing interest in our ABM platform, and I look forward to sharing our progress in this space. Along with our in house development, we are pleased to announce that our latest acquisition, coAction, is now fully integrated. With coAction, we are already in market with this new software solution, specializing in credit to cash workflows that help our clients streamline their collections processes. Since we acquired the assets of coAction in March, we quickly began building a sales pipeline by looking for upsell opportunities within our finance Solutions clients. During the second quarter, we signed 3 deals, and we expect this momentum will continue. In summary, we are pleased with the progress of our ongoing business transformation. Our team has adapted seamlessly in the face of the current global pandemic and continues to work hard, innovate and ultimately serve our clients during these challenging times. We are excited about the opportunities that lie ahead as we work to drive long-term value and sustained growth. Thank you for your time and continued support. I'll now turn the call over to Bryan to discuss our financial results for the quarter and guidance for the year.
Thank you, Anthony, and good morning, everyone. Today, I'm going to discuss our second quarter 2020 results and then our full year guidance.
Turning to Slide 1. On a GAAP basis, second quarter revenues were $421 million, an increase of 5.4% or 5.6% on a constant currency basis compared to the prior year quarter. This includes the net impact of the lower purchase accounting deferred revenue adjustment of $36 million. We had a net loss of $207 million for the second quarter or a diluted loss per share of $0.66 compared to a net loss of $94 million for the prior year quarter primarily driven by expenses related to the redemption of the preferred stock and a partial paydown of the senior unsecured notes and higher equity-based compensation costs. This was partially offset by the net impact of the lower deferred revenue adjustment.
Turning to Slide 2. I'll now discuss our adjusted results for the second quarter. Second quarter adjusted revenues for the total company were $421 million, an increase of 5.4% or 5.6% on a constant currency basis. The increase was driven by the lower purchase accounting deferred revenue adjustment of $36 million. This increase was partially offset by known headwinds as previously communicated. These headwinds were driven by a decision we made in the second half of 2019 to make structural changes within the legacy credibility business, lower royalty revenues from the wind-down of the data.com partnership and nonrecurring revenues in the worldwide network and our [ UKI ] businesses. The total impact of these known headwinds was $16 million. Additionally, we saw some impact from COVID-19 that contributed to lower usage-based revenues of approximately $6 million across the segments.
However, excluding these unique items, revenues grew approximately 2% primarily from growth in our subscription-based revenues. Adjusted EBITDA for the total company was $176 million. An increase of 18.5% primarily driven by the lower purchase accounting deferred revenue adjustments reflected in the corporate segment. This was partially offset by lower revenues I just discussed. Net of reduced net personnel and travel expenses due to ongoing cost management efforts. Adjusted EBITDA margin was 41.9%. We had an adjusted net income of $82 million or adjusted diluted earnings per share of $0.26.
Turning now to Slide 3. I will now discuss the results for our 2 segments: North America and International. In North America, revenues for the second quarter decreased 1.8% to $354 million. Finance and risk revenues decreased $7 million or 3.6%, 3.5% on a constant currency basis to $194 million. The decrease was primarily driven by a decision we made in the second half of 2019 to make structural changes within the legacy credibility solutions. And this represented approximately $6 million of the decreased revenue. We also saw the impact of COVID-19, which contributed to lower usage revenues across our solutions of approximately $4 million. These declines were partially offset by an increase in our subscription-based revenues of approximately $3 million. Sales and marketing revenues increased less than 1% to $161 million. This increase was primarily due to revenues of $4.7 million from the acquisition of Lattice, which was acquired at the beginning of the third quarter of 2019. This was partially offset by lower royalty revenues of approximately $4 million from the data.com legacy partnership. Adjusted EBITDA for North America decreased $5 million or 2.8% primarily due to lower revenues. Adjusted EBITDA margin for North America was 48%.
Turning to Slide 4. In our International segment, second quarter revenues decreased 9.9% or 8.9% on a constant currency basis to $68 million. Finance and risk revenues declined $8 million to $56 million. Excluding the approximate $1 million impact from foreign exchange, the remaining decrease was driven primarily by nonrecurring revenues in the worldwide network in our [ UKI ] business of approximately $6 million and the impact of COVID-19 on usage volumes in our owned Asian markets of approximately $2 million. Sales and marketing revenues increased $0.4 million hundreds to $13 million, driven primarily by increased product royalties from our worldwide network. International adjusted EBITDA of $20.2 million declined versus Q2 2019 primarily due to lower revenues, with adjusted EBITDA margins of 29.5%. Adjusted EBITDA for the corporate segment increased $39.9 million primarily due to the net impact of lower purchase accounting, deferred revenue adjustments of $36 million. Turning to Slide 5. I'll now walk through our capital structure.
At the end of June 30, 2020, we had cash and cash equivalents of $99.8 million, which when combined with our $313 million available borrowing capacity under our $400 million revolving line of credit due 2024, represents total liquidity of more than $400 million.
Total debt principal as of June 30 was $4,061 million, and our leverage ratio was 5.6x on a gross basis and 5.5x on a net basis. On July 6, 2020, we completed the initial public offering and concurrent private placement, which raised net proceeds of $2.2 billion after deducting underwriting discounts and IPO-related expenses. We use the majority of these proceeds to redeem the full amount of preferred stock and 40% or $300 million of our senior unsecured notes.
As of today, our current debt principle is $3,674 million, consisting of $2,524 million of term loan, $700 million of secured notes and $450 million of unsecured notes. In addition, we have approximately $600 million of cash and cash equivalents.
In conjunction with the IPO, we also had a 25 basis point step down to our term loan spread, taking it from 400 basis points to 375 basis points. This step down will save us approximately $6 million of annualized interest. The revolver spread also reduced as a result of the step down from 350 basis points to 325 basis points.
Turning now to Slide 6. I'll walk you through our updated outlook for full year 2020. For the year, revenue on a constant currency basis is expected to be in the range of $1,729 million, to $1,759 million. Adjusted EBITDA is expected to be in the range of $704 million to $724 million. Revenue and adjusted EBITDA both include a negative $21 million impact from deferred revenue purchase accounting in both the low and high ends of the range. Adjusted EPS is expected to be in the range of $0.89 to $0.93. Again, adjusted EPS includes a negative $0.04 impact from deferred revenue purchase accounting in both the low and high ends of the range. Additional modeling details underlying our outlook are as follows: These estimates include an additional $2 million of public company costs per quarter with the largest component being corporate insurance. We expect interest expense of approximately $265 million, depreciation and amortization expense of approximately $60 million, excluding incremental depreciation and amortization expense resulting from purchase accounting. Adjusted effective tax rate of approximately 24%, and weighted average shares outstanding of 367 million. And finally, CapEx of approximately $120 million.
Although we do not provide quarterly guidance, I want to provide you with some color on how we expect to progress through the remainder of the year. We expect adjusted revenues year-over-year in the third quarter to be flat to slightly down in the fourth quarter, returning to growth. The third quarter includes a shift in timing of revenues for the fourth quarter related to a $4 million government contract that included some on-site deliverables that were delayed due to COVID-19 restrictions. From an EBITDA perspective, we would expect it to follow revenues in a similar pattern, and therefore, expect Q3 to be flat to slightly down in Q4 to be up. Overall, we are pleased with the progress we are making in our transformation and the core performance of the business. With that, we're now happy to open the call for questions. Operator, will you please open up the line for Q&A.
[Operator Instructions]Our first question comes from the line of Manav Patnaik from Barclays.
My question -- my first question is just around how we should think about the new product pipeline that you guys have, the consumer Bureau stock, 60 to 100 new products a year. I know it's a completely different business and so forth. But any internal targets or guide rails you guys used to talk about new product pipelines for the coming years?
Sure, Manav, yes, it's actually a really important question you're asking a real important initiative for us. We've got it on everyone's quarterly reviews in terms of having a constant flow of new innovative solutions that help our clients grow revenue, improve margins and stay compliant. And it helps for a lot of reasons. Obviously, it helps in terms of growing our revenues, but it also helps in terms of creating the stickiness of the relationships with our clients by selling more and doing more for them. And it also -- that steady flow of innovation gives your frontline salespeople, the energy and the passion to be in front of their clients more often sitting up-straight in their chairs, sharing the excitement about what it is that we're doing that can help them. And we're off to a great start. We launched, as I mentioned in my prepared remarks, our Analytics Studio, which has a lot of growth tangents from it, our coAction capability on cash flows on the collection side. We had COVID Offerings, offerings that we really went deep and quickly and just doing a lot, in general. I'd say, I can go on, but localizing our sales and marketing solutions in parts of Asia that hadn't been done before us having new products and capabilities in -- same products, sorry, but in a new market for us to sell and grow and a very significant upgrade in our account-based marketing solutions that we recently launched. So it's a great question, very much top of mind for us and very focused on it.
Got it. And just the other one I had was around -- similarly around the M&A pipeline. Bryan, can you just confirm if the $4.7 million Lattice was the only inorganic contribution this quarter? And just some thoughts on how important the M&A pipeline is to revitalizing the story here?
Yes, Manav, so I'll answer that one quickly and then kick it over to Anthony for the M&A pipeline. But the only other acquisitions were really ORB and coAction that were prior to. Manav, they were really de minimis from that perspective. So a few hundred thousand dollars. Ultimately, the way we thought about it were they were really extensions of product offerings, so both kind of early-stage from that perspective. And frankly, even those companies, on a combined basis, were a drag on EBITDA. But the way we thought of them was more of a buy versus build scenario, and they helped us accelerate some solutions that are going to create longer-term recurring revenues, especially in the sales and marketing space. So Lattice was certainly the most material from that perspective, and it actually laps out after this quarter.
Yes. The only thing I'd add to that would be the initial parts of these M&A transactions that we did recently was getting the flywheel turning on innovation. While we're in the process of transforming our technology, our data and analytics, having something in parallel for us to hit the ground running with. And like I said, there are more product functionality type acquisitions versus buying revenue and certainly not buying EBITDA..
Our next question comes from the line of Gary Bisbee from Bank of America.
Well our next question comes from the line of Hamzah Mazari from Jefferies.
My first question is just on pricing and how you're thinking about your pricing model longer term? And the reason I ask is there's been a quick turnaround, you've cleaned up the product. You've invested a lot in Capex. You spoke about new products a little earlier. And when we look at the credit bureaus, pricing there tends to be a little bit lower when you look at the information services universe. And so just curious how you stack up and whether you think that, that's an opportunity longer term? I realize you have to fix the product, fix the sales force, do the turnaround and then pricing comes later on. But just any thoughts around that?
Yes, absolutely, Hamzah. It's a great question. It is one that we're focused on in terms of -- we look at all of that and really increasing the revenue per client, price is certainly a part of it, cross-selling and upselling is a part of it as well. But from a pricing perspective, we do see that we have very unique data and can solve unique problems. And therefore, it's not as commoditized as a solution. And so it is something that we're looking at long term. We do think that, as you can imagine, across the whole universe that we serve, there are parts where I'd say we're probably pricing fairly in parts where we're probably not pricing fairly in terms of we could and should get more for the value that we're helping our clients create. And we're looking through that, like I said, holistically, what we want to do always is grow the relationships with our clients and from a pricing perspective, I always want to make sure that we give up the last dollar of price, for example, to cross-sell additional capabilities and broaden the relationship. And in terms of changing price, it takes a lot of things to occur, right? Customer service will benefit it, cross-selling more and having stickier relationships will benefit, innovating new solutions and our clients seeing us as a partner, they have to be with -- will improve it. So we're very focused on all of those in addition to just the specifics of pricing.
Yes. Hamzah, one thing I would add just structurally there, too, is as we enter into more of these multiyear contracts, which is a real specific strategy from our perspective, one of the things we're building in is a systematic price escalator. And so again, rather than having these kind of 1 year subscriptions that are renewing on an annual basis. We're building in more of the kind of 3 to 4 year deals, right? And again, with the small price escalators, we add in the kind of base functionality from that perspective. So again, making it more repeatable and consistent.
That's very helpful. And my follow-up question, I'll turn it over. Is just on the sales and marketing side. I think historically, you've classified that business is more offense than defense, versus the financial risk. Just if you could give any high-level thoughts how investors should think about how mission-critical that offering is and how that offering is different than -- I think we have data, and it was a different company back in '09, that business in North America, in '09 fell 9% or so organically.'09 is a long a time ago. But maybe just help us understand how that business is mission critical? And any thoughts there?
No, Hamzah, another great question. And like you said, comparing it the DNA of our business is very different than what it was in 2009, and we're seeing it in the results. But we're very focused on broadening out the capabilities for our clients that they can be more efficient in how they attract prospects and how they sell more to existing clients with a lower cost, right? So if you look it from a COVID perspective, we also feel that in a COVID and post COVID world, there are going to be less conferences, less trade shows, less ways of traditional selling taking place. And so the importance of what we're doing in ways that we can help our clients, we really think should be a tailwind for us.
And certainly, we're a very different company than we were in 2009 when we had basic print campaigning capabilities and ours is much more sophisticated right now and much more valuable to our clients.
Our next question comes from the line of Gary Bisbee from Bank of America.
You guys hear me?
We can hear you now.
We can.
Okay. All right. That I'm working without power and internet after these storms and the cellphone coverage is spotty, so I apologize. The -- first of all, congratulations on a successful completion of the IPO. And following up on Manav's question around innovation. One of the things we've seen others that have such extensive and quality [indiscernible] to do well over time is come up with new use cases to drive new revenue streams off of the extensive data you've got. I know it's early, but where are you in the process of, sort of, studying and trying to find new use cases and building those? Is there opportunity that you think about organic data can really improve decision making in other end markets than the core?
Yes. I'm going to repeat the question in case others couldn't hear. And this is -- I hope you're doing well, Gary, with the impacts here. It's the new norm. We're all living in as well in day-to-day. But it was really more around -- are there -- from an innovation perspective, new use cases and revenue streams that we can get from it, where are we in the journey. And what I'd say is we have a lot of possibilities there. And we've already started some of them. So if you look from an alternate data source perspective, we're doing a lot of really exciting work there on, say, foot traffic. Or in our sales and marketing perspective, getting digital signals such as buyers' intent, intent to purchase and bringing those in and integrating them to have another view of a situation for an underwriter for example, to see the foot traffic and have that integrated with our existing data set. And the power that we have here and where we've got a lot of excitement, why we're implementing project Ascent for us to bring on more than 100 alternative data sources over the next couple of years is really for us to create more use cases from it. And having the ability of being able to match and link to the Dun’s number is incredibly powerful, much more powerful than I realized prior to coming to Dun & Bradstreet. But it's a very powerful tool in terms of being able to bring new and unstructured sources of data in and connecting it to a Dun’s number to a specific client. And I think in this complex world, we'll be able to be a good source of that for our clients because we can make it easy for them to buy from us. And so it very much is an area that we're looking at. We're excited about. And it's one candidly when we look from a competition perspective, people asking us about competitors, we really look at our game plan, and we have high confidence in our game plan, and that's what we're very focused on executing is our game plan because we see lots of opportunities out here versus traditionally what we had been doing.
And so we've got a lot of energy behind that, Gary. And that's why you're seeing a lot of the investments in the infrastructure work that we've got going on and that we talked about leading up to the Road Show and the roadshow itself.
And then the follow-up, typically with these information or data source companies, when we see investment in upgrading infrastructure and driving innovation, but there's a period of significant investment followed by efficiency. I know you've delivered meaningful cost savings, but what's the risk involved in this strategy that you need to step up spending to deliver the long-term performance that you're targeting?
Sure. I'll start, then I'll pass it on to Bryan. We're not -- we're not believers in doing 1 enormous project, so monolithic project. The track record across all of history and industries is not a positive one. Ours is always one of componentization and adding capabilities. So such as product Ascent, we're coming out immediately with that in terms of abilities that we're going to benefit from starting in Q4 this year. But at the same time, like I mentioned, over the next couple of years, bringing on over 100 alternative data sources and really speeding up our ability to ingest and curate unstructured data much, much faster than we can today. So it's really breaking it down that way, and we've got that filtered in. So you'll see our capital spend increase from what it was historically, but no major enormous steps that we've got to take. So we'll probably finish this year about $120 million of Capex. And so we'll be, relatively speaking, on that type of run rate focusing on bringing componentized capabilities across everything that is that we're focused on versus One giant, like I said, monolithic project that we're going to call out that is in the $1 billion range or anything like that. Bryan, do you want to add to that?
Yes. Anthony, I think you said it right. We've certainly stepped up the investment, especially investment in growth, and that's where you've seen the CapEx number step-up from something that was in the $30 million to $40 million range. Last year, we spent about $80 million. And this year, it's going to be in that, as Anthony said, around $100 million to $120 million. And so very focused again on that growth initiative and certainly have made some significant progress. We're currently now about 70% in utilization from a cloud perspective. We think over time, that will shift probably closer to something to 80% to 85%. But as we always think about these savings, we do think about them on a net basis. And so we have continued to make investments while simultaneously creating those efficiencies within the organization.
Our next question comes from the line of Kevin McVeigh from Crédit Suisse.
Great. Congratulations on the IPO. I wonder, Anthony, Bryan. Maybe help us frame conduct where retention sits within context of the 0% to 3% organic growth. And then ultimately, as you get to that 3% to 6% what should we expect in terms of retention in the business as we're working a way through those milestones?
Sure, Kevin. Thank you. Our retention is strong, and I'll start and I'll pass it on to Bryan. It had been historically strong. And we saw in the quarter that we increased it about another 0.5% from an already very high number. So we're very pleased with the progress that we're making in terms of retention and not just retaining clients as part of the renewal, but increasing the relationship with them also at the same time. So it's an area that, like I said, we've been very focused on. And again, of all the initiatives that we have across this broad transformation are all impacting our ability to retain much stronger. Bryan, do you want to add...
Yes. Absolutely. Kevin, to Anthony's point, retention is now running around that 96% to 97% from that perspective. What we see is that the strategic account level, it's nearly 100%. Really, on an annual basis, where we're seeing the churn is that the SMB spot some of those businesses, especially in the micro side may exist 1 year, but don't the next. And clearly, we're refilling that right with the number that approaches each and every year from that perspective. And so it's a really strong base to operate off of. And as Anthony said, with the multiyear contracts and with some of the changes we made in go to market, we've been able to actually increase that retention already up another 0.5 point in the second quarter this year.
That's super helpful. And then just in terms of -- so one of the keys, you folks have executed well is the technology investments. But are there any kind of milestones you'd point us to as you kind of increase the path because ultimately, I think definitely helps boost the product innovation as you're able to leverage some of the technology investments across the enterprise.
I'd say in terms of milestones, Kevin, there are a number of them kind of throughout all the different initiatives that we have right now. So like I said, one of the major ones we have with Project Ascent is Q4 will be one of the first in terms of us having some improved capabilities coming out of that project. And then we've got very detailed project plans that will walk through the different milestones across many of the initiatives. But I don't think there's any -- unless, Bryan, you can think of one like a milestone across the whole company of technology initiatives. There are a number of projects that are being measured really with individual accountabilities and specific targets.
Yes. Anthony, I think that's right. The way, certainly, we've approached it in the way that you, Steve and I think about it, right, is not a let's rip out everything and replace it one time. Those large kind of massive projects generally have a really high failure rate from that perspective. And so we've taken, as Anthony said, a very componentized approach and one of the first pieces of Ascent is going live in the fourth quarter. But that's just the first of multiple phases where we'll continue to take out and optimize specifically around the data supply chain. So that's really the way we're thinking about it.
[Operator Instructions] Our next question comes from the line of Seth Weber from RBC Capital Markets.
There's been a large turnover on your sales force. I think the number was something like 30%. Can you just talk to where you feel like the sales force is on a productivity level and just and relative to where you think it could get to?
Sure. Seth, thank you for the question. Yes, our sales, we went through a significant sales transformation. Starting with, I'd say, senior level leadership as well as individual sellers. And we've been very pleased with the change in the progress that we're making that way. We've increased the number of multiyear contracts, which is an area that we're very focused on, and it's increased even since the road show. We're up to about approximately 30% of our revenue is under multiyear contracts right now. So the team is doing a great job in extending relationships with our clients and cross-selling more capability to them. And sales is I'd say we're business as usual in sales right now in that we went through the massive transformation within it. And now we'll continue to tweak the dials on the dashboard as we want to see different results and we'll change -- we'll tweak the org structure, tweak the incentive plans in a more steady state manner they would expect. But we're very pleased with the progress that we're making in that regard.
Okay. Just a follow-up question on the incremental cost cuts that you talked to here in the second quarter. Any color as to where they occurred? And just how we should think about the pathway to the $250 million, is that a -- do you think that's a fiscal 2020 number? Or will that lead into 2021?
Sure. So the primary components of the $14 million in the quarter were around actually the technology side. And so we had some legacy third-party arrangements with some outsourced providers that weren't really attractive from a pricing perspective and from a utilization perspective. And so we did a lot of work from -- on that side, and we're able to drive out some pretty significant savings from that perspective. The other components, again, we're remaining around, again, some of the back-office functions that we're still rationalizing as we implement new kind of corporate software for all intents and purposes. And so definitely heavier on the tech side for this quarter. As we think about the remainder -- the last, kind of, $30 million, it's really 2 pronged. And so as we talked about previously, some of the large-scale infrastructure changes we've made in this evolution into the cloud as provided some pretty significant savings from that perspective. And so by the end of this year, we would expect kind of the phase 2 for that to be completed, and we would start to recognize the savings from that in really 2021. The last component is where we look at our delivery in the automation of the delivery, along with, again, our right showing in offshoring of certain functions throughout the organization. So that's the only piece I would say that we have planned for later in Q4. Some of the areas that we're looking at geographically are still struggling from a COVID perspective. So that could spill over into early the early part of 2021. But we will look to have a majority of the $250 million annualized run rate savings complete by the end of this year.
Our next question comes from the line of Ashish Sabadra from Deutsche Bank.
So a question on the international market. Can you just talk about, Anthony, the time line for creating more localized products for the international market as well as diffusing -- diffusion of IP from the U.S., like, for example, rollout of Analytics Studios in U.K., Ireland and rest of the world?
Thank you, Ashish. Yes, it's a really important part of our strategy in terms of internationalizing our products. And the team has done a great job with that. We've launched more products internationally, I'd say, this past year than we have probably in the last 5 years, loosely speaking. So it's an important area. We've -- because it's really the -- it's just finding more shelf space for our existing products. And we've got the right type of technology talent and business leadership to really find which would be bigger wins for us in which markets and accelerating those plans. So that absolutely is a top priority for us. So I look forward to continuing to update you on our quarterly calls. With the progress that we're making by region and by product..
And then, Anthony, as you called out, Project Ascent, I think that should definitely help the depth and quality of your data. And so my question here was specifically on the sales and marketing side, some of the misstep from the prior management team had put you maybe -- how does the project Ascent help your competitive positioning in that particular market and help regain some of the lost share in that market? Any color on that front?
Sure. When we look at, again, our ability here in terms of executing against our game plan. We see how we're positioned. We've got a very broad and deep capability in our sales and marketing solution set. And to the extent that we can continue to ingest and curate more and more data and match it we're excited about the use cases that we can drive from it, such as like the buyer intent, which we just announced recently. Or the account-based marketing solution set that we've recently made a significant upgrade on. The -- we kind of look at everything running in parallels. When we looked at the projects and the milestones that we have, Steve has a very detailed run book across all the different initiatives and really with everything we're trying to do is not have something dependent on something else. So all the things we can do in sales and marketing in parallel while we're working on project descent, that puts us in a position to leverage that scale of data ingestion and curation matching. So it's one where we are very excited about, and we feel very good about our long-term prospects with what we can do in this space. And also cross-selling that into our existing client base. Like I said, we're single-digit percentage wise in terms of cross-sell. So when you look from a, I'll say, a [ TAM ] perspective within our client base, there's a lot of opportunities for us to cross-sell. And my belief from every company I've worked in every industry is clients -- if you can make their life simpler because everyone's busy, and you can bring in more capabilities and integrate it and make it easy to do business. Everybody wants to do that. And we're doing business with a lot of companies that it's on us to be able to make it easier and easier for them to expand their relationships with us, including sales and marketing.
And our final question today will come from the line of Andrew Jeffrey from Truist Securities.
Appreciate this coin here at Anthony, you were just commenting on cross-sell efforts in some of those initiatives. I wonder if you could maybe frame up and maybe Bryan can get way into. Just kind of frame up the timing with what you think you're going to gain cross-sell benefits. I mean there's a big spread in number of solutions that your largest customers use versus even some of your larger strategic customers. Do you think there's a good cadence of cross-sell and uptake of solutions this year? Or is it more of a sort of '21, '22 time frame?
Well, I think with anything, Andrew, it's going to grow over time. So we're -- like I said, we're still transforming the company and our cross-sells are up. And we feel confident with how we're progressing in that regard. And obviously, and it's tied to the previous question as well on product innovation. So the more products, the more opportunities you have to cross-sell. So it all ties together. And what I'd say is as time goes on, in '21, '22 we'll constantly be in a stronger and stronger position in terms of cross-selling. But we've got a lot of product right now that is not being -- that had not been cross-sold that we're focusing on. And as we continue to create more new innovative solutions, we're excited about how that will strengthen our cross-sell ability. Bryan, do you want to add on to that?
Yes, I would agree. If you look at the overall total number of clients, right, it's only around 5-ish percent, right, that are really kind of cross-sell across finance and risk and sales and marketing. And so where we see that deeper, Andrew, is in the strategic customers right now, once you kind of get into the medium and the larger size and especially as you go down, it just wasn't a kind of a historical effort from that perspective. So as Anthony said, the bar is relatively low. So we've already started to see some benefits from cross sell. But really, we'll see that accelerate as the transformation continues to take hold and our underlying assets and our delivery mechanisms, et cetera, become that much more accessible.
Yes. And maybe I'll add on a bit more. Some of the early cross-sells have been with our API solution set that we've revitalized. And the beauty of that is when we're using APIs as we continue to add more APIS, it makes for an easier and easier cross-sell of using more of our capabilities. So as I said, with hopefully, what you're seeing is with every one of these areas, we're focused on the holistic approach to how to solve it versus a singular approach.
And we do have time for another question. Our next question will come from the line of Bill Warmington from Wells Fargo.
Yes. Under the wire. Thank you very much.
Bill, we apologize with the opening. And as Anthony said, our prepared remarks were a little longer this time. So we're happy to get you on.
Well, thank you very much. I wouldn't want to get in the way of your opening remarks. So a couple of quick questions then for you. Maybe talk a little bit about how the momentum on the new selling side was in July. I would expect that you guys probably saw a pretty -- some improved momentum during the quarter, but I want to know how July was looking.
Yes. So Bill, I think what we've seen is a bit of a return, I would say, to somewhat normalized levels from that perspective. And so we're still seeing the overall kind of broader impact of COVID. We expect that in the third and fourth quarters. We talked about the impact on our revenues. So we think about it in a similar way for the time being, at least the remainder of this year.
Got it. And then I wanted to ask about the plans for moving down market into the small and midsized business segment. New products, sales force changes, pricing, anything like that?
Yes. No, there's significant changes that we've made there in terms of from an inside sales force, we've moved that to our center Valley location, be closer with a larger population of our company. And we've also had a major focus on our digital channels. So historically, what we had going on were SMB businesses were coming to us to get their credit builder score. It's 1,000 -- over 1,000 a day are coming to us, but they're coming to us to get a duns number or they're coming because they want to be a supplier for a large organization and it needs to be vetted through us or they want the loan, they need to improve their credit. They were coming all across our company, and we weren't really bringing it all together in an integrated way to then be able to cross-sell and do more for them. And so we're looking at ways from our digital channels, how we can complement the selling that we've been doing with inside sales with the digital channel that will enable commerce and give many of these small, medium businesses, which are self-navigators, ability for them to see what we have to offer natural adjacencies for them to leverage from us. So we had a very strong focus on that. It won't be business as usual here for the SMB marketplace.
All right. And again, congratulations on making it out public.
Thank you so much, Bill.
Thanks, Bill.
I would now like to turn the call over to Anthony Jabbour for closing remarks.
Thank you, Lisa. In summary we're pleased with our progress to transform Dun & Bradstreet. Our recent IPO was a significant milestone for the company, and we recognize is just another step forward as part of a longer journey. We have a great company, and we'll continue to be focused on maximizing shareholder value as well as client value. As always, I'd like to thank my Dun & Bradstreet colleagues for their exceptional efforts and our clients for their strong partnerships. Thank you for your interest in Dun & Bradstreet and for joining us on the call today. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.