Jan 29, 2009
Executives
Kathy Guinnessey – Leader, Treasury and IR Steve Alesio – Chairman and CEO Sara Mathew – President and COO Tasos Konidaris – SVP and CFO
Analysts
Michael Meltz – JPMorgan Carter Malloy – Stephens
Operator
Good morning and welcome to D&B's 2008 fourth quarter teleconference. This conference is being recorded at the request of D&B.
If you have any objections, you may disconnect at this time. All participants will be in a listen-only mode until the question-and-answer session of the call.
(Operator instructions) I would now like to turn the call over to Ms. Kathy Guinnessey, Leader, Treasury and Investor Relations.
Ms. Guinnessey, you may begin.
Kathy Guinnessey
Thank you, Kelly. Good morning, everyone, and thank you for joining us today.
Here is what we will cover on today’s call. Steve Alesio, our Chairman and Chief Executive Officer will begin with some opening remarks.
Sara Mathew, our President and Chief Operating Officer will then provide some insight on our US and international top line results and expectations. Tasos Konidaris, our Chief Financial Officer will then review our earnings results and expectations as well as additional financial highlights and following that some closing remarks by Steve, we will open the call for questions.
To help our analysts and investors understand how we view the business, our remarks this morning will include some forward-looking statements. Our Form 10-K and 10-Q filings, as well as the earnings release we issued yesterday, highlight a number of important risk factors that could cause our actual results to differ from those forward-looking statements.
These documents are available on the Investor Relations section of our website, and we encourage you to review this material. We undertake no obligation to update any forward-looking statements.
During our call today, we will be discussing a number of non-GAAP financial measures, as that is how we manage our business. For example, when we discuss revenue growth, we will be referring to the non-GAAP measure revenue growth before the effect of foreign exchange, unless otherwise noted.
When we discuss operating income, operating margin, and EPS, these will all be non-GAAP – on a non-GAAP basis before non-core gains and charges. Reconciliation between these and other non-GAAP financial measures, and the most directly comparable GAAP measure, can be found on the schedule to our earnings release.
They can also be found in a supplement reconciliation schedule that we post on the Investor Relations section of our website. Later today, you will also find a transcript of this call on our Investor Relations site.
With that, I will now turn the call over to Steve Alesio. Steve?
Steve Alesio
Thanks, Kathy, and hello to all of our team members, shareholders, and analysts on this call today. As you saw from our earnings release we delivered good financial results in 2008 in a challenging economic environment and in spite of losing some revenue momentum in the fourth quarter.
Let me start with our earnings. In terms of our full-year results in 2008 operating income improved by 11% to $501 million, earnings per share was up 16% to $5.21 and we generated free cash flow of $352 million, a 16% increase.
In addition to the strength of these numbers our earnings growth was consistent throughout the year reflecting the strength of our business model and our financial flexibility discipline. From a top line perspective full-year revenue was up 7%.
The two drivers of this revenue growth were first, our international business, which had double-digit growth each quarter and second, the Risk Management segment of our US business, which had mid-single digit growth each quarter. The area of our business that did not perform as we expected primarily in the fourth quarter was our marketing product lines specifically our Sales & Marketing Solutions in the US.
That segment declined by 2% in the fourth quarter and we were expecting it to grow by about 3% to 4%. This shortfall was due to 2 major factors, a deteriorating economy and some of our own execution challenges.
The economy clearly began to impact this segment of our US business in the fourth quarter and from everything that we felt in December and see in January it is continuing to impact us in 2009. The execution challenges have to do with our sales and product processes where we believe we can be much sharper than we have been.
These challenges are solvable to us, but it will take about 4 to 6 months for us to get them where we want to be. And Sara will spend some time discussing these when she speaks about our operating performance.
So with this as a backdrop on 2008, let me share how we are thinking about 2009. First it is clear that we see continued top line pressure in a weak economy.
The outlook for the economy in 2009 is obviously a big question for all companies. We are assuming it will be weak all year.
We factored that in as we’ve estimated top line revenue growth to the best of our ability. Second, we will manage the success of our company over multiple time horizons and specifically make sure that we head into 2010 even stronger competitively.
As part of this thinking we will continue to invest in three key areas despite top line pressure. We have been adding sales people most of whom are now on board.
Secondly we will continue to invest in our value propositions, specifically DNBi in risk management, product enhancements for our Sales & Marketing Solutions, and our database. And third we will continue to invest in our businesses in Asia.
In addition as part of our thinking for 2009, we will continue to focus on profitability. We got a head start on our 2009 operating expenses with our re-engineering efforts that began in the fourth quarter.
And we will continue to be rigorous in expense management in order to ensure our profitability and investment goals can be met. And finally we intend to remain an attractive investment for our shareholders in 2009 and in the years ahead both on an absolute as well as a relative basis.
So taking everything into account about what we see and how we are planning for 2009, our financial guidance for the year is realistic, it allows us to be more competitive as we exit the year and while definitely not up to our normal standards it is quite solid in the context of this environment. So specifically for 2009 full-year, we expect total revenue growth of 2% to 5%, operating income growth of 5% to 8%, earnings per share growth of 9% to 12%.
Because of the declining results in the Sales & Marketing segment of our US business we expect the first half of the year to be closer to the lower end of these ranges while growth in the back half should be closer to the top end of these ranges. And at this point the most sensitive assumption in our thinking for 2009 is the condition of the US economy.
We are assuming it stays weak as we see it today. If it gets stronger our results could improve faster, if it gets weaker we will have to reassess.
We will of course review this guidance position and update it if necessary on a quarterly basis. As for free cash flow for 2009 we are expecting to generate cash in the range of $260 million to $275 million.
In regard to deploying our cash the three priorities we have had for some time remain the same for 2009, though we will be prudent and monitor the credit markets. In that light our priorities are; first, to continue to invest in the business with a higher focus on investments that improve our value proposition; second, we will continue to look at acquisitions as part of our strategy that require higher return hurdles with an increased timing expectation or EPS accretion.
And then finally we will continue to pay a dividend, which we increased this quarter from $0.30 to $0.34, reflecting our expectation of strong cash flow and we will remain opportunistic on discretionary share repurchases targeting 100 million to 150 million of repurchases in 2009. So with all of this as context I will now ask Sara to discuss our revenue results in more detail with a focus on fourth-quarter performance and our expectations for 2009 and as Kathy said Tasos will then discuss our profitability, cash flow and capital strength and I will come back offer some closing comments before we open up things for your questions.
Sara.
Sara Mathew
Thank you, Steve, and good morning everyone. Let me begin by just giving you the headlines of our top line story.
While our 2008 results were good in the aggregate we lost momentum in our US marketing businesses, that is Sales & Marketing Solutions and the Internet and we expect to face continued pressure in these areas through the first-half of 2009. Said another way the bulk of our business, 70%, which includes international and US RMS is in good shape and we have to address weakness on the marketing side which represents roughly 30% of the company's total revenue.
Let me provide the specifics beginning with international. We are very pleased with our International performance in 2008.
International, which now represents 23% of our business, grew 12% in both in the fourth quarter of 2008 and the full year. There were two primary components to our international business, our established markets primarily in Europe and our emerging businesses in Asia.
In Europe, the more mature part of our business, we have achieved stability in 2008 driven by stronger leadership and better execution. While we expect this business will be impacted by a weakening European economy we believe our risk management concentration in these markets should mitigate this impact.
Most specifically risk management represents about 80% of our European business and is showing good resilience in the current environment. Moving to Asia, we are pleased with our performance and the trajectory into 2009.
As a reminder, Asia is an area of strategic focus for us and we have invested to expand our presence in this region. These investments continue to pay off.
In fact in the fourth quarter Asia generated more than 20% of international revenue and it remains central to our long-term growth strategy. Now our expansion in Asia is in response to our customers’ needs for a higher level of commercial insight in this fast-growing past of the world.
The D&B brand is very strong in these markets and we are viewed as the most reliable source of commercial insight by our customers. In addition, the market is still immature in terms of penetration.
So we see plenty of runway ahead. As just one example we recently announced our decision to take a majority ownership stake in D&B India, the premier provider of credit information and sales and marketing solutions in that market.
Our increased ownership stake will allow us to guide the continued expansion of the Indian market by leveraging our global resources, products and services as well as local talent in this important market. Of note, within India, D&B India is viewed as the most trusted source of commercial insight and we are enthused by the opportunities that lie ahead.
So our international business is performing well and as we look ahead we expect international to deliver high single to double-digit top line growth in 2009. More than half of this growth will come from Asia.
Let me turn now to our US business. US revenue grew 2% in the fourth quarter and 6% for the full year.
Within the US our Risk Management business representing 60% of revenue is in good shape. We delivered consistent mid-single digit revenue growth in the fourth quarter and 2008 all in line with expectation.
It is clear that Risk Management Solutions have performed well so far. Our customers look to us to help them make the right commercial credit decisions and our products and solutions especially DNBi continued to drive value in the marketplace.
Our strategy in risk management is to move customers up the DNBi continuum. Since DNBi virtually unlimited access to our information on a real-time basis this value proposition continues to resonate with our customers, especially in these tough times.
Let me illustrate the facts. At the end of 2008, subscription revenue represented 53% of US RMS revenue.
This was up 11 points from a year ago. In addition, our DNBi penetration rate ended the year at 45%, up 19 points from the end of 2007 all in line with expectations.
We continue to realize strong revenue lift from customers converting to DNBi but with renewing DNBi customers, this revenue lift has moderated to the high-single digit range and we expect it to stay at this level through 2009. DNBi has also maintained its retention rate in the mid-90s indicating that the customer need for this product is still very strong.
We expect DNBi will continue to drive our risk management business and we will also benefit from our expanded sales force. These sales team members will target new customer acquisition opportunities for this offering to drive continued growth into 2009.
Finally, we will benefit from supplier risk including the recent contract we signed with Wal-Mart. We believe that supplier risk is becoming an important area of focus for our customers and we are uniquely positioned to service this need.
As such, we see opportunities ahead to expand this value proposition to other large customers. So in summary we feel good about our RMS growth and expect it to maintain its mid-single digit growth trajectory in 2009.
Turning to our US marketing businesses that are both Sales & Marketing Solutions and the Internet. Both these businesses experienced top line pressure late in the fourth quarter.
US S&MS grew 5% for the year but declined 2% in the fourth quarter and we are not satisfied with this result. There were two specific factors that drove the fourth quarter weakness, the economy and our own internal execution.
Regarding the economy, we recognized going in that we would experience some pressure on this business since customer budgets were under scrutiny. In aggregate, we did a very good job retaining our customers; however, we saw a sharp decline in available budgets for these projects mostly in December.
This gave us very little time to respond to these changes and as a result many projects were renewed for less than what we had originally expected. The second factor relates to our internal execution that is pipeline management and the relevance of our value proposition.
As a reminder, we continued experiencing a lengthening of our sales cycle throughout the year. We focused on early renewals as one way to counter this trend.
However, it is clear we did not do enough to build or advance the new prospects in our pipeline so we could close them in time to offset the slowing sales cycle. In addition, we did not do a good job anticipating our customers’ need to demonstrate continuously improving ROI's especially in the current environment.
A highly successful Optimizer product which drove strong growth in 2007 was mostly unchanged in 2008. It is clear we could have been more vigilant and proactively improve our value proposition for these customers.
So while our business was impacted by a weakening economy and the resultant pressure on customer budgets we are far more disappointed with our own execution in the marketplace. We know we can do better.
So as you'd expect we are taking aggressive action to improve our US S&MS moving into 2009. We expect customers’ budgetary constraints to continue.
So we will address the execution shortfalls with urgency. We are immediately addressing the S&MS pipeline.
Initially, we will leverage on newly hired sales force against new customer acquisition opportunities as S&MS remains a large and under penetrated market for us. We are also putting processes in place to do a better job of monitoring and measuring our sales pipeline to stay on top of the ever-changing landscape.
An area where we know we could have done a better job in 2008. We are also working to improve our value proposition, developing bundled offers that have low incremental cost to us but which provide immediate value to our customers and we are testing new product offerings that could drive value in the second half.
In the near term we will leverage three existing products, Purisma, Market Insight and DNBi Optimizer to improve our indebtedness with our customers. As context, when customers use Purisma our data is integrated into their daily workflow.
This helps them make more informed decisions and improve the stickiness of our solutions, a win-win all around. With Market Insight we have marketing professionals identify their most promising prospects and by bundling Market Insight with Optimizer we make our data files more actionable and create more immediate value in the marketplace.
Finally, we will drive DNBi Optimizer with our small and mid-sized customers by combining the functionality of Optimizer with the DNBi-based interface. This will allow these customers to tap into the same insight as their larger counterpart.
Beyond these existing products we are testing new product offerings that will play well in the current market. We will target resource constraint companies and helped them expedite their marketing programs with much smaller budgets.
We are still in the early stages of this testing and will have more information to share later this year. So while we are not satisfied with our SMS performance in the fourth quarter, we know what went wrong and know what needs to be fixed.
We expect the economic environment will stay tough, so we will rise to the challenge and get sharper, sharper on execution and sharper on our value proposition. Let me now turn to our smaller segment the Internet, which represents 9% of our US revenue.
This segment grew 11% in the fourth quarter also behind expectations. In the fourth quarter we learnt that our Internet business like S&MS is more economically sensitive than we originally envisioned.
Internet Solutions is a web marketing business and as such it was also affected by your customers’ budget pressures. As a result we saw a decline in renewals and we expect this trend to continue into 2009.
In addition, we faced issues in the Internet similar to those I just described on S&MS. The tough economy has exposed weaknesses in our value proposition as well as our own execution.
And we need to focus on the fundamentals that got this business from $30 million to about $125 million in just five years. We've already made leadership changes in Hoover's and we are now focused on improving execution in the near term.
That said we expect our customers’ budget pressures to continue in the year ahead and it will take some time for our actions in this segment to take hold. So we expect flat revenue growth from the Internet in 2009.
So to sum up, the bulk of our businesses international and US RMS is in good shape. Collectively they represent 70% of our revenue, however, our US marketing business remains under pressure and we expect them to decline in the first half of 2009 before our pipeline and value proposition initiatives gain traction in the second half.
We believe that this fix will take 4 to 6 months, so we expect the US S&MS and Internet businesses to get worse before they get better. And we expect Q1 2009 to be our toughest quarter with gradual improvement as the year unfolds.
As a result, we expect overall US growth to be flat to low single digits for 2009. When I couple this with our expectation of high-single to double-digit growth in International it produces our estimate of 2% to 5% total revenue growth for the company in 2009.
We expect to be in the lower part of that range in the first-half specifically flat in the first quarter and then the higher part of that range in the second half. I would like to close with my personal observations about the overall business as we head into 2009.
We have had many years of strong performance at D&B. That growth was delivered despite numerous setbacks and challenges along the way.
During these times we ensured that we deployed our talent in a way that we could take on these challenges and we have always prevailed. In 2009, we faced a new challenge, the weak economy.
We at D&B rise to these challenges. We recognized that tough business challenges bring out the very best in us.
They make us stronger and even more committed to winning. That is who we are and that is what you should expect from us in 2009.
And with that let me turn the call over to Tasos for a financial review. Tasos?
Tasos Konidaris
Thanks, Sara, and good morning everyone. Today I will like to cover the following three topics.
First, the consistency of our profit performance. Second, our strong free cash flow generation and third, our solid capital structure and liquidity position.
In regard to the consistency of our profit performance from a total company perspective we delivered strong full-year operating income growth of 9%, expanded margins by 80 basis points to their highest levels ever and grew earnings per share by 16%. These results are testimony to our scalable business model and our financial flexibility discipline.
Specifically in the fourth quarter despite US our top line challenges we were able to flex our operating expenses to deliver operating income growth of 9%, margin growth of 240 basis points and earnings per share growth of 14%. Financial flexibility is a core competitive advantage for D&B which has consistently over the last nine years allowed us to drive margin growth.
We have the courage to examine all aspects of our business each year to ensure we are allocating our spending to areas with the best opportunity to create shareholder value. As we look into 2009 and given the economic environment, financial flexibility is that much more important to drive higher profit margins.
Specifically, we expect to unlock $90 million to $205 million of financial flexibility in 2009 prior to any reallocation. We recognize that this amount is about $20 million higher than in prior years and that is why we started taking actions earlier than usual in the fourth quarter of last year.
The nature of the increase in savings is primarily driven by greater reduction of non-revenue generating personal, integration of back offices of some of our smaller business units and more aggressive vendor management. As you can see in our earnings release to execute our initiatives we expect to incur pre-tax transition costs of $17 million to $22 million and pre-tax restructuring charges of $22 million to $3o million.
Our flexible business model will allow us to drive 2009 operating income and margin growth two challenges that affect most US companies. The first challenge relates to foreign exchange.
We estimate that the strength of the US dollar against most other currencies will have a $50 million negative impact on international revenue in 2009 which will translate into $12 million negative impact to our international operating income. The second challenge relates to pension income.
As you know in 2007 we froze [ph] our US defined benefit plan. Nevertheless, as a result of the reduction in equity market valuations last year we expect approximately $11 million less in pension income for 2009.
Even with these headwinds from foreign exchange and pension income and the challenging revenue environment our flexible model will allow us to deliver 2009 operating income growth of 5% to 8% and earnings per share growth of 9% to 12% while continuing to invest in the business as Steve outlined earlier. Let me now move to my second topic for today our strong free cash flow generation.
In 2008 we generated record levels of free cash flow of $352 million, up 16%. This growth was ahead of our expectations and was driven by four factors.
First, higher operating income; second, our highly capital efficient model; third, lower cost structure and cost in 2008 compared to 2007 and finally stronger than anticipated collections at the end of 2008. As we look at 2009 we expect continued free cash flow growth in the range of $360 million to $375 million in line with operating income growth.
Let me now move to my final topic, our solid capital structure and liquidity position. First, we finished the year with plenty of liquidity, which includes a cash balance of one $164 million and available capacity in our revolver credit facility of approximately $450 million.
Second, we continue to have a conservative balance sheet. At the end of 2008, we had gross debt of $904 million yielding a 1.6 times debt-to-EBITDA ratio in line with our expectations.
In addition, we had the third revenue of $537 million at year-end. And finally, we have no immediate debt maturities with our outstanding bonds maturing in 2011 and 2013.
As a result, we feel good about our capital structure and liquidity as we enter 2009 and we expect to end the year with approximately the same ratio of debt-to-EBITDA as we saw at the end of 2008. So to sum up we are delivering consistent profitability in a challenging top line environment reflecting the strength of our flexible business model.
We continue to generate significant free cash flow and we have a solid capital structure and liquidity position, and while maintaining our financial discipline and rigor we will position us well to exit 2009 as an even stronger company than we are today. I will now turn the call back to Steve for some closing remarks.
Steve?
Steve Alesio
Thanks, Tasos. So let me just summarize all of our remarks this morning.
Clearly we delivered very good financial results in 2008 in a challenging environment. As we ended 2008 we saw a slowdown in revenue momentum in the part of our US business.
As we enter 2009, we expect the economy to remain weak and put pressure on the top line. As Sara said we will do a better job of leading those execution processes that are under our control.
And we will be realistic about the environment and make smart choices that balance earnings growth and investments with (inaudible) on heading into 2010 as a stronger company. For us heading into 2010 stronger means a few things.
It means that our revenue and earnings growth will be higher in 2010. It means that we'll be innovating in such a way that we are selling more new products in 2010 and it means that we will have used our cash wisely in 2009 to acquire additional products and geographic capabilities.
Like most leaders navigating this year we are in some uncharted territory. However, as we look out longer term our team remains fully committed to driving total shareholder return and remains confident in our strategy.
There are four items I would comment on in this regard. First, we have a culture of leadership and a team that is built to take on adversity.
Many of the leaders have been together for some time now. And we have weathered the impact of a post-9/11 economy.
We overcame our own very slow start in 2003. We beat back a possible $30 million regulatory challenge we had with our Italian real estate business in 2005.
We are good at making the hard decisions, and as Sarah said ending up in a stronger place as a result of adversity. We expect that to be the case this time as well.
Second we are in a great competitive position. We are the world's largest and best provider of commercial insight with a great brand and we will continue to invest to sustain this strength and improve our competitive position.
Third, our financial and cash flow guidance for 2009 should make us a strong performing company on an absolute and relative basis in what portends to be a very difficult economic year for all companies. And finally with regard to our 2008 to 2010 growth objectives, which we put out there in 2006 it is fair to say that we are not a normal economic times.
So in the moment we are focused on delivering our best one year at a time. As leaders, we remain committed to making this a great company and as we previously communicated we do believe that in normal times D&B can achieve 8% to 10% revenue growth and even higher growth than that in operating income and earnings per share.
For those key members on the call today Sara and I would like to thank you for your commitment and your passion that you bring to work everyday. We acknowledge the challenges of this new environment and really appreciate your continued focus on our customers and making us a great company.
We are proud to lead the company with a group of colleagues who know how to win. With that I will now open up the phone lines so that we can take any questions.
Kelly, would you please provide the instructions for doing so.
Operator
Thank you. (Operator instructions) Our first question comes from Michael Meltz from JPMorgan, your line is open.
Michael Meltz – JPMorgan
Thank you. I think I have three questions.
Sara you – during your commentary you went through all those segments. Sales and marketing you did not actually give guidance for ‘09 but if I back into the numbers it sounds like you're saying down 5% to 10%.
Is that – is that the target at this point?
Sara Mathew
No. For the full year it should be about flat Michael, both sales and marketing and the Internet businesses we are seeing about flat.
Michael Meltz – JPMorgan
Okay.
Sara Mathew
So then you have mid-single digit growth for US risk management and you will have high-single to double-digit for International and you will find that should be in the 2 to 5 range.
Michael Meltz – JPMorgan
Okay and then related to that what – can you talk more about verticals. You say you talk about you saw softness in December, which isn’t a surprise but where – what types of customers, are financials worse than everybody else or what are you seeing?
Sara Mathew
Our financials definitely worsened in the fourth quarter. We actually anticipated that to be clear, so you know financials performed right in line with our expectations, we caught that.
What we didn't quite see coming was really more broad-based weakness on what we would call our Optimizer Sales and Marketing products and what happened is we were getting very strong double-digit growth on that product. What happened is we really did get that.
We got single digit growth on it. It still grew and it still retained very well.
It wasn't what we expected and in the meantime we did not have enough pipeline that was advanced far enough along that we could have closed it and that's really, you know, when we talk about an execution miss that's really what caught us a bit off guard in the fourth quarter.
Michael Meltz – JPMorgan
Sara Mathew
No it's actually integration, so it pretty much is across-the-board.
Michael Meltz – JPMorgan
Okay. I – on the guidance and I don't know if this is a Tasos or Steve question, if I take your revenue guidance you are basically saying on a reported basis revenues flat to up a little bit year-over-year.
You're saying EBIT will be up $25 million to $40 million after $20 million of drag from currency and pension. Can you give us more detail on the FF program, how many FTEs are impacted here?
I think we need a little bit more detail on exactly what you have done so far and what is your confidence on the cost side here?
Steve Alesio
Let us just focus Michael at the moment on the confidence on the cost side and I have Tasos speak to that from perspective of our reengineering.
Tasos Konidaris
Hi Michael, good morning.
Michael Meltz – JPMorgan
Hi.
Tasos Konidaris
So you know we have been, you know, financial flexibility is something we do day in and day out for the last nine years and every single year we have delivered on our savings targets and re-allocation of those. As I look at the – as I look at the ‘09, the program first is I have a high-level of confidence on the execution of that.
The initiatives are similar to prior year, so we know how to do those and if this really targeting as I mentioned around greater reduction of non-revenue generating personnels, we are integrating a lot of our back offices and we're going after our supply chain costs primarily around eliminating duplicate infrastructure and so forth. We got an early start last Q4.
So if you look at our Q4 in terms of personnel being eliminated when you look at our 10-Q that we filed in Q3, we talked about 500 actual positions. So you are sure to expect 500 actual people which now ought to drive about $50 million worth of savings this year and you would assume – you need to assume that this is locked already.
So out of the $90 million to $105 million, 50 of that $1 million is already locked with people actions which we already have taken and those ex-colleagues of us have left in the business. In addition, there is probably another $20 million we have already locked us.
We have already renegotiated contracts with our vendors. So there is a remaining $30 million that we need to go – that we need to realize over the remaining 11 months of the year, and I would say that we feel good about that and that is ahead of where we have been in prior years.
Does that give you enough context and detail Michael?
Michael Meltz – JPMorgan
Yes, yes. It definitely does.
One final question, Sara said something about DNBi pricing. Was your point there, you've been pushing for double-digit increases.
You settled on high-single digit increases but you're still getting nice increases. Is that – I don't think I understood you Sara.
Sara Mathew
So let me just break it apart into two pieces. When a customer converts to DNBi from one of our legacy products we get very strong double-digit conversion.
That is continuing. That is in line with what we have seen in the past and there is no issues there.
But as you remember more and more of our DNBi customers are now renewing off of existing DNBi. That has moved to the high-single digit.
In the fourth quarter it was still double-digit, but we anticipate it's going to be in the high-single digits for 2009 and that's based into our planning and the reason is again you go back and say you've been using DNBi for a while and we're not going to continue those strong double-digit growth that we have seen in the past. So does that give you the clarity you need on DNBi.
Michael Meltz – JPMorgan
But you're still getting price increases and all that.
Sara Mathew
Oh yes. Absolutely we are.
Michael Meltz – JPMorgan
Okay. And last question from me.
Going back to your sales and marketing guidance I guess I still don't understand why it would – RMS sales and marketing flat, Hoover’s is flat, I get US up over 2% which seemed you know that's not the flat you had pointed to in your commentary. So and if Q4 weakened – if Q4 was down 2% and it weakened at the end of the year why wouldn't it be worse than that in 09?
Sara Mathew
So there were two parts to that. One is S&MS will be flat to up in the low singles.
I just rounded the two Internet to call it that. The US will be in round terms we would say flat to 3%.
Steve Alesio
Michael, this is Steve. I just wanted to kind of put things in one box.
So what Sara said was we expect the US to be in the range of 0 to 3. I just want to describe that.
You said you've done math of 2. Sara said 0 to 3.
So we just want to describe that.
Sara Mathew
Okay and then international adds to it. That's how we get to the number 2 to 5, okay.
That is the math on total guidance. Now let me go back and answer your second question which was why wouldn't S&MS be a whole lot worse given where we ended up in the second quarter.
And the way it ended I think that's a very fair question. I'd start by saying that there were really two factors impacting us.
One is the economy and the other is execution. We are assuming the economy stays where it is.
Right now GDP is negative 4% and that is the assumption we have for 2009. Now in terms of what will allow us to actually do better than where we ended up in the fourth quarter is really a function of three factors.
The first is customer appetite for our products in this economy and I would say that is very good. Even in the fourth quarter, we did a very good job of retaining customers.
We didn't see a drop-off on retention, okay. However, we believe that they will essentially retain for flat to up slightly.
That is also something we've seen and that is right in line we saw with the fourth quarter. What is going to shift is in two areas.
We are under penetrated in sales and marketing so there are available opportunities for us. We have a new sales force that can actually go out and prospect these new opportunities and then the third piece is we are going to go back to good old fashioned pipeline execution when we just lost the drumbeat there a little bit.
We are going to start immediately with bundling which is products we have and we can do that fairly rapidly to improve immediate value and then what we're going to do is ensure that prospects move through the pipe which is what we call execution in general. That is what will shift the tide.
That said we will see it get worse in the first quarter because it will not impact the first quarter, so the first quarter will be worse than the fourth quarter and thereafter you ought to see an improvement in S&MS leading to that overall number that I gave you for the full year.
Michael Meltz – JPMorgan
Okay.
Sara Mathew
Does that help?
Michael Meltz – JPMorgan
Fair enough. Thank you for your time.
Sara Mathew
Sure you’re welcome.
Operator
Carter Malloy – Stephens
Yes, thanks for taking my questions guys. First question I have is Sara you talked a little bit about the new sales force here in the US and can you kind of give us an update on what progress maybe looks like among the new sales force and may be how progress is coming on?
Sara Mathew
Okay. So we have them all in-house.
They mostly arrived in the third and the fourth quarter and many arrived in the fourth quarter and then it takes a certain amount of time to get them up to speed. The amount of time depends upon the channel they are in.
So if they are in the smallest channel, telesales channel, you will start to see them become productive in 3 to 6 months. In the larger channels, it is usually 6 to 9 months.
That is also the reason why we see a ramp through the course of 2009. But they are all here; it is a 10% roughly speaking expansion in our sales force.
Carter Malloy – Stephens
Great. Thank you for your clarification there, and then also last quarter you said that pricing on Purisma actually I guess improving.
Can you kind of give us some update on if that is holding or if you have seen it continue to make sense?
Sara Mathew
Pricing on Purisma is holding very well. Actually the comparison customers make with Purisma and other available products because it does have competition is Purisma allows a very quick ROI.
It is much easier to implement versus the very long drawn out integration, you know, data warehouse implementation within the company to quite frankly Purisma pricing is doing very well. We are pleased with it.
Carter Malloy – Stephens
Okay great. And then the last question, I will get back in the queue is with your supply management contract with Wal-Mart.
How far along are you on your work with them and then all so what does the pipeline look like?
Sara Mathew
Okay. Very early stage, very nascent type.
We have to build the pipe to be on honest Carter. So we do not, you know, we have prospects in the pipe but they have not advanced enough to really see much benefit in the first-half for sure.
We're just beginning to develop pipe for this idea.
Carter Malloy – Stephens
Okay. And how long would you think it would take to get that Wal-Mart contract up to full speed?
Sara Mathew
We won’t see benefit from Wal-Mart in 2009. That we are very sure of because that was the contract we signed last – last year, but in terms of new prospects that is something that, you know, this is a long cycle item because we are essentially taking over a certain process for our customers, you know, to help them actually validate the people they do business with from the get go.
So being the front end for a large customer. So this is a longer lead time for new prospects.
Carter Malloy – Stephens
Okay great. And maybe I want to sneak one last one in here.
In speaking with your customers it seems Experian has been coming after the midmarket fairly aggressively with their internal sales force and can you just comment on if you’ve seen them and or (inaudible) anybody else you know coming after you guys and specifically within the midmarket?
Sara Mathew
Yes sure. Especially in the midmarket Carter we see competition Equifax and Experian in with our customers every day.
In general and this is probably the best way to describe it when we look at what we provide versus what our competition provides in commercial credit, which is especially in the middle market space, we always tend to win shootouts. There are times when they undercut us on price, and we have chosen not to play.
In those times they take the business from us and that happens periodically. I can certainly think of one instance at least in the fourth quarter – in the third quarter where that happened and you know a few in the fourth quarter but by and large I would say that is not the major factor that is impacting our results.
It is much less about competition. It is much more about our own execution and of course a much weaker economy that is putting customer budgets under pressure.
Steve Alesio
And Carter one thing I would add to that is twofold. I think those players who really are players more on the risk side than the marketing side and to the medium-term I know we are focused on really growing our competitive positions.
So we're busy adding salespeople which I am not sure everybody is doing. We have DNBi, which continues to do very well in that space and so you should just assume we are on the (inaudible).
Carter Malloy – Stephens
Okay great. Thanks guys for taking my questions.
Operator
(Operator instructions)
Steve Alesio
Anything else coming. Anything out there?
Operator
There are no further questions at this time.
Steve Alesio
Okay then, we'll sign off. There are no more questions.
Thank you all for joining us and goodbye for now.
Operator
Thank you for participating in today's call and have a great day.