Apr 30, 2009
Executives
Kathy Guinnessey - Leader, Treasury and Investor Relations Steven W. Alesio - Chairman and Chief Executive Officer Sara Mathew - President and Chief Operating Officer Tasos Konidaris - Senior Vice President and Chief Financial Officer
Analysts
Michael Meltz - J.P. Morgan Carter Malloy - Stephens Inc.
Rita Spitz - William Blair
Operator
Good morning and welcome to DNB's 2009 First Quarter Teleconference. This conference is being recorded at the request of DNB.
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, Pat. Good morning everyone and thank you for joining us today.
Here is what we'll 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 North America and International top-line results and expectations. Tasos Konidaris, our Chief Financial Officer will then review our earnings results as well as additional financial highlights.
Following some closing remarks from Steve, we'll then take your questions. First, I'd like to point out that beginning in the first quarter, we started reporting the results of our business in Canada as a part of the North America segment.
I'd also like to point out that you will find an additional schedule seven in the press release explaining the change in reporting. To help our analysts and investors understand how we view the business, our remarks this morning will include 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 these 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's how we manage our business.
For example, when we discuss revenue growth, we'll 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 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 measures can be found on the schedules to our earnings release. They can also be found in a supplement reconciliation schedule that we post on the Investor Relations website.
Later today, you will also find a transcript of this call on our Investor Relations site. With that, I'll now turn the call over to Steve Alesio.
Steve?
Steven W. Alesio
Thank you, Kathy. And hello to all of our team members, shareholders, and analysts on this call today.
As you saw from our earnings release for the first quarter, our revenue growth grew 1%, our operating income grew 5%, earnings per share grew 17%, and free cash flow was $108 million. We feel good about these results for the start of this most unusual year.
You might recall in January that we laid out a framework for how we thought 2009 could unfold in the midst of this global recession. We anticipated three items.
First, for the weak economic environment, we put pressure on top-line growth in 2009. Second; that we would continue to focus on our profitability in spite of top-line uncertainty.
And third, that we would invest for long-term growth with a lends (ph) on heading into 2010, a stronger company than we are today. Let me now share with you how we are doing so far relative to these three expectations.
First, our top-line growth of 1% was in line with our expectations. Clearly, if the economic environment is impacting all companies including ours and is still a very relevant factor making top-line growth hard to forecast.
Our North America revenue results of minus 3% were in line with our expectations. We did, however, see a shift in mix by a product line.
In Risk Management, our flagship product DNBi continued to perform and grew very well. That growth was entirely offset by weakness in our legacy transaction products, which declined more than we expected.
And this weakness is a function of lower credit originations due to the current economic slowdown. Our Sales & Marketing Solutions in the U.S.
was down 10%, which was actually a little better than we expected, as the actions we outlined in January are beginning to slowly take hold. As a result, the outlook for our North America revenue is to improve slightly from our Q1 performance, and on a full year basis to be flat to slightly down.
Turning to quite a different story. Our international revenue results grew 19% in the first quarter; very strong and ahead of our own expectations.
International revenue reflected a balanced combination of very strong organic growth as well as growth from our acquisitions in Asia. We now expect strong full year revenue growth from our International business in the range of the mid-teens to the low 20s.
The second part of our framework for 2009 is that we would continue to focus on profitability despite top-line uncertainty. We feel very good about our solid growth in operating income, earnings per share and free cash flow.
Those results were delivered as a function of our strong financial discipline and the power of our business model. Like compare our earnings, our cash flow and our solid capital structure to the rest of corporate America in this moment in time, we really stand out as a strong company.
Before the final piece of our framework for 2009, we said that we would invest for long-term growth even during this environment. We are still very focused on heading into 2010, a stronger company that we are today.
And we expect to increase our level of investment in the second half of 2009. Specifically, we've added about 100 sales people net to our global sales force over the last eight months and are thoughtfully leveraging those people in places where they can make an impact since the environment is shifted a little bit.
We're also continuing to invest to improve our value propositions, specifically, DNBi in risk as well as our value-added products in sales and marketing solutions. We're continuing to invest to improve data quality by adding much more detailed trade data for our risk customers and adding contact information for our sales and marketing customers using as an example of the Alliance with Jigsaw that we announced yesterday.
And finally, we are continuing to invest for organic growth in International as well as acquisitions in Asia. So in the midst of what I expect will be the most difficult economic year of my lifetime, the DNB team is not only weathering the storm, but producing good results, standing firmly on its strength, importantly, preparing for a stronger future.
I could not be proud of my colleagues for how they are leading in these historic times. At the beginning of this year, we said we will review our full year guidance position each quarter, based on the prevailing economic conditions of the U.S.
economy as well as the performance of our own business. Given everything we have seen to-date and our outlook for the rest of the year, we are reconfirming our guidance measures.
The components of our guidance have shifted a bit as our International business is expected to perform better than originally thought, and our North America business is expected to perform slightly worse than we originally thought. As a result, we still see core revenue growth for the year of 2% to 5%.
We see operating income growth of 5% to 8% for the year. We expect diluted earnings per share growth of 9% to 12 %.
And we still expect free cash flow of $360 million to $375 million. With that, I'll now ask Sara to discuss our top-line results in more detail for the quarter and relative to our outlook for the full year.
And then Tasos will review our financial performance and our bottom-line expectations. I'll come back to wrap this up and then take us then to Q&A.
Sara?
Sara Mathew
Thanks Steve, and good morning everyone. Let me begin with a review of our North American top-line results.
Our performance in North America continues to be impacted by the weak U.S. economy, with revenue down 3% from the prior year.
While overall performance was in line with expectation, product mix was slightly different. Let me first address risk management where our results were slightly behind expectations.
The strategy we have pursued over the past five years to shift our risk business towards DNBi continues to be very successful. DNBi retention rates remain consistently strong and as a product, DNBi now represents 51% of the risk management business, up from 33% a year ago.
We continue to achieve double-digit price increases on conversions to DNBi and high single-digit increases on renewals. We're gaining traction with modules and see considerable runway ahead to further penetrate the base with core DNBi modules, like account manager and decision maker.
And finally, customer satisfaction with DNBi remains very strong. Next (ph) the core DNBi value proposition remains a key driver of growth and risk management, and we feel very good about the performance of this product.
That said, our other subscription and legacy products declined at a faster rate than we expected, offsetting the growth from DNBi. Now, there are three reasons for this decline.
First, these customers tend to be transactional users of D&B products. They purchase reports to evaluate how much credit to extend to their new customers, what we call loan of credit origination.
In the current economic environment, many of these customers are seeing a lower level of new business activity, and this is resulting in lower usage of D&B products. We did see some of this trend towards lower activity occurring in the fourth quarter.
However, we underestimated its impact in 2009. The second reason for the decline relates to the higher than expected attrition with our smaller customers, mostly due to economic pressures.
And finally, we are experiencing some pricing pressure from our large customers who cutback on the size of their commitments in the first quarter due to a combination of lower credit origination needs as well as internal budget constraints. As a result, we now believe the decline in non-DNBi transaction based revenue will stay with us for the full year continuing to offset the growth we expect from DNBi.
Looking ahead, we believe it will be 2010 before we see risk management revert to its historical solid levels of growth. We are focused on three actions now to drive growth in 2010 and beyond: increasing DNBi penetration through investment in new modules such as collections to broaden our reach; increasing the scalability of the existing DNBi modules, so that they may be used by larger companies to conduct portfolio analysis, a critical need in this environment.
And finally taking a proven supplier risk solution, which is already been implemented with Wal-Mart in the U.S. government to other large customers to help them mitigate operational risk.
Now let me turn to our Sales & Marketing Solutions or S&MS where we had a 10% revenue decline in the first quarter. Of note, this performance was actually better than expected.
As a reminder, S&MS revenue in the first quarter was impacted by the timing of early renewals that we first discussed last call, as we proactively locked in deals in 2008 to reduce execution risk in an uncertain economic environment. In addition, expected declines in our traditional risk and labeled businesses impacted the top-line as customers reduced their direct marketing efforts due to budget constraints.
These declines were partially offset by better than expected performance in our value-added products. Looking ahead, there are three areas of focus to deliver an improved growth trajectory in our S&MS products.
We discussed these with you in the January call and I'm pleased to report that they have seen traction on all fronts towards the investment and additional sales people have expanded our pipeline of opportunity to drive growth in the latter part of the year. Second, we're already in the market with a stronger value proposition, leveraging existing products and services, more specifically the bundle optimize a market inside product is receiving a favorable customer response, and our pipeline continues to grow.
Finally, we are actively working on three major initiatives all of which are designed to accelerate growth as the year unfolds. First, we have planned upgrades to our optimizer product.
For our large customers, who are enhancing functionality to improve ease of use, and for our midsize customers, we're leveraging the DNBi platform to deliver a serious and affordable integration experience. Second, Purisma revenue is growing, largely due to improved customer implementation.
We expect to accelerate the adoption of Purisma as we more fully build out the sales force and improve functionality of the product. Third, our recently announced marketing alliance with Jigsaw will provide our customers with direct e-mail and contact information to further facilitate the digital marketing efforts.
As a result, we expect to reestablish positive growth in S&MS in the second half of the year and are investing in 2009 to deliver even stronger growth in 2010. Let me briefly discuss the Internet business, which is small and today represents less than 10% of North American revenue.
Overall, our results were in line with expectations with revenue up slightly in the first quarter. As context, Hoover's is primarily offered to small customers, who are experiencing many of the same pressures that is impacted the S&MS business discussed earlier.
New customer acquisition remains stable year-over-year, but it is insufficient to make up for the declines in the base due to lower renewal rates. As such, we expect continued pressure on the top-line as the year unfolds.
To summarize on the U.S., back in January, we said we were expecting revenue growth in the range of flat to low single-digits for North America. Based on what we know today, we now expect North America revenue growth to be flat to down slightly for the full year.
Looking ahead, it will be 2010 before we get to more solid growth. Let me now move on to International, where we had a very strong start to the year.
International first quarter revenue was up 19% over the prior year and ahead of our expectations. This performance was driven by 9 points of organic revenue growth across both Europe and Asia and 10 points of inorganic growth from our acquisitions in China and India.
Looking ahead, we expect International to continue its performance of strong top-line growth and have revised our expectations upward. We now expect top-line growth in International to be in the mid-teens to low 20s for 2009.
Many of you maybe wondering, how International can deliver such strong results in the current economic environment? Let me explain this in more detail.
First, we're seeing benefits from the International Alliance strategy implemented several years ago. Both reduced our exposure to lower growth geographies and increased exposure in higher growth markets plus India and China.
In addition, the acquisitions we made late in 2008 are performing very well. Today the high growth Asian region accounts for 34% of International revenue compared with just 22% a year ago.
Second, the International markets are different. As an example, the risk management space in Europe is dominated by credit insurers.
Unlike the U.S. where customers opt to make these decisions own their own.
More recently, we're seeing European customers willing to explore other alternatives. And in the current environment, many of them are moving to D&B products and services and we are benefiting from this trend.
Third, many of our International customers do business outside their domestic market and this requires consistent global data. We at D&B are uniquely provisioned to satisfy this need.
Our global dumped numbering process and core capabilities and linkage, matching and scoring have customers make insightful across board their decision for their business. The fourth factor that will sustain International growth is the talent in these markets.
We have season leaders in both Europe and Asia and a strong team below them. These leaders understand their markets, and I will some execution, which have also help to create sustained growth in International after many years of volatility.
To summarize, the length into the year expecting international revenue growth of high single to low double-digits, based on everything we see today, we now expect revenue growth for the year to be much higher in the mid teens to low 20s. As we look ahead, we expect the strong International growth trajectory to continue in the years ahead.
We're seeing numerous opportunities in our established markets, where we can take our proven products in the U.S., products such DNBi and optimizer to fuel organic growth. And in emerging markets, we are under penetrated.
So we see significant runway ahead for both organic and inorganic growth. We recognized that the GDP growth in these emerging markets has slowed.
However, the risk side of this business is very early in its development cycle and the appetite for our products and services remain strong. So, to sum up, we now expect North America growth to be flat to down slightly, while our International business should be in the mid-teens to low 20s for 2009.
In its totality, this should result in top-line revenue growth in the range of 2% to 5% for 2009. Let me close with a few final thoughts on our business.
We are operating in a very uncertain environment, yet we are blessed with a business that is holding up well given the circumstances. We're also blessed with a team that is determined to win despite the headwind we face.
The work we have been doing over the years to stabilize and get international to sustain growth is clearly paying dividends. And we still have a large under penetrated market opportunity before us in North America.
Over the next six to nine months, we intend to double down and finish strong in North America. We know what needs to be done and we have the resources and the talent that should get this business back to growth in the second half.
And with that, I'll now turn the call over to Tasos, who will provide an overview of our earnings results and our financial performance. Tasos?
Tasos Konidaris
Thank you, Sara and good morning everyone. There are several reasons to feel good about our financial performance at the end of Q1.
First, we delivered strong operating income and earnings per share as our scalable business model and our financial flexibility program continue to drive margin expansion. Second, we continue to be efficient in our use of capital and generate significant free cash flow.
Third, our financial position remains strong, providing us flexibility in a weak economy. I will speak in more detail about each of these regions.
And let me start with my first point. We are very pleased with our total company operating income growth of 5% and our operating margin growth of 180 basis points to 28.5% as our financial flexibility program allowed us to improve margins even as we experienced top-line pressure.
In North America, our operating income was flat and our margin improved by 140 basis points. These results were in line with our expectations and reflect reengineering savings offsetting the revenue decline as well as the funding of investments in the business.
In International, we delivered strong operating income growth of 35% and we expanded margins by 300 basis points. These results were ahead of our expectations and reflect the strong International revenue growth that Sara reviewed, and the timing of investments which were more front end loaded last year.
Let me now move to our financial flexibility program, which as you know is a competitive advantage for D&B and allows us to consistently drive margin growth. In January, we shared with you our goal to unlock $90 million to $105 million of financial flexibility in 2009.
Our plan is on track and we continue to be confident about delivering our financial flexibility targets for the year and driving operating income and margin growth while still investing in the business. Let me give you a very timely example of our financial flexibility program.
We have recently combined our Canadian and U.S. administrative operations to improve efficiencies and reduce costs by observing the Canadian functions into the U.S.
In addition to reducing costs, our Canadian customers will now experience accelerated release of your products, improved information quality. And we'll continue to be served by our Canadian sales organization, which remains fully in place.
I will now move on to earnings per share, which was up 17% in the quarter, ahead of our expectations. This very strong performance was primarily driven by three factors.
First, five points of operating income growth. Second, seven points of growth due to share repurchases, which was larger last year and more front end loaded than this year.
And finally, five points of growth due to a discrete tax benefit of $0.05, which we do not expect to repeat in future quarters. We are extremely pleased with a successful resolution of this International tax item and our ability to deliver this value to our shareholders.
As we look to the remainder of 2009, we expect our earnings per share growth to moderate due to lower benefits from share repurchase, the discrete tax benefit not repeating as well as our desire to continue to invest in the business. All of this is contemplated in our full year earnings per share guidance of 9% to 12% growth.
Moving on to the second reason to feel good about our performance, I will address our free cash flow. Our strong earnings, capital efficiency and flexible business model help us to generate a lot of cash every year.
In the first quarter, we got off to a good start as we generated free cash flow of $108 million. That represented almost a third of our full year guidance range of $360 million to $375 million of free cash flow.
As you know, we have three priorities in deploying our cash. First, we continue to invest in the business to improve our value proposition, and Steve and Sara discussed that we are investing to drive future revenue growth.
Second, we continue to look at acquisitions that require higher returns and quicker earnings per share accretion. In the first quarter, we purchased QED for $29 million, which compliment our educational of marketing solutions.
From a financial perspective, the acquisition is earnings per share neutral this year and accretive in 2010 meeting the high requirements within acquisitions. Third, we will continue returning cash to shareholders through a combination of cash, dividend and share repurchases.
With respect to dividends, we paid $18 million in the first quarter. With respect to share repurchases, in the first quarter we bought back shares value at $42 million.
$15 million of which was due to a discretionary program, while the balance was used to mitigate illusion from equity awards. Looking ahead, we continue to target a total of $150 million in discretionary share repurchases in 2009, which is consistent with our discussion in January.
Let me now move to the third and final reason we feel good about our results in this challenging environment, our strong financial position. First, we finished the quarter with a cash balance of $180 million and available capacity under our revolving credit facility of approximately 450 million or available liquidity of $630 million.
Second, we continue to have a conservative balance sheet. At the end of the first quarter, we had gross debt of $900 million, using a 1.6 times debt-to-EBITDA ratio in line with our expectations.
Third, we have no immediate debt maturities without outstanding bonds maturing in 2011 and 2013. Fourth, we have no required contributions to our U.S.
defined benefit pension plan in 2009. And fifth, we ended the quarter with a deferred revenue balance of $575 million, which reflects three points of growth in constant dollars and five points of negative foreign exchange impact.
As a result, we are proud of our financial strength, especially what continues to be a challenging environment. In fact, last week Standard & Poor's reaffirmed our A minus credit rating with stable outlook.
While we don't have a need to access the capital markets any time soon, we're pleased with these validation of our strong financial condition. So, in summary, there are three big reasons to feel confident about our financial position.
First, we delivered strong profitability as our scalable business model and our financial flexibility programs drive margin expansion. Second, we're efficiently now using capital and generate significant free cash flow.
And third, we're financially strong providing us flexibility in a weak economy. I will now turn the call back to Steve for some closing remarks.
Steve?
Steven W. Alesio
Thank you, Tasos and thank you Sara. And so we came into 2009 anticipating an economic environment that would challenge top-line growth.
We also expected to deliver the bottom-line and continue to invest for the long-term. So far, I would say 2009 is playing out mostly as we expected, and we are positioning ourselves to end the year stronger.
The top-line has some components that are meeting or exceeding our expectations, such as our entire International business as Sara described as well as our growth in DNBi in the U.S. and the positive traction in the value-added marketing products in the U.S.
Some areas are really being impacted by economic conditions. Those were mostly our transactional products in risk and marketing in the U.S.
And we're working through this environment and I believe that our sales people around the world are doing a great job that demonstrating our value propositions to some of the customers really suffering economic pain. On the earnings and cash flow side, the discipline that our leaders have demonstrated in executing our flexible business model combined with our overall financial strength as Tasos described, let me provide a competitive advantage today that is allowing us to invest for the future.
We are determined to enter next year 2010, an even stronger company than we are today. And we are still very much committed to making D&B a great company over the course of time.
So, with that I'll now open the phone lines so that we can take any questions. So, Pat, if you can please provide the instructions for asking a question.
Operator
Yes, thank you. We will now begin the question-and-answer session.
(Operator Instructions). Mr.
Michael Meltz with J.P. Morgan, your line is open.
Michael Meltz - J.P. Morgan
Thank you. Three questions I think.
On RMS, you mentioned a few things, a few reasons as to why it was a little soft in the quarter and you expect to persist. You mentioned pricing push backs from larger transaction customers.
Can you talk a little bit there. Is it sector specific?
Have you seen this in the past and just give us a little bit more clarity. And then I have two follow-ups.
Sara Mathew
Sure. Hi, Mike.
How are you?
Michael Meltz - J.P. Morgan
I'm great, Sara.
Sara Mathew
Good. So let me look at this from both a customers' standpoint and I'll add to its label from a product standpoint, I think it's helpful to look at it both ways.
Yes, in our RMS business, we've larger customers. We take primarily FIs in that case.
We are seeing some pricing pressure from them. This is really because of the financial situation we are in.
And we think it's mostly economic. I'm going to separate and distinguish that from reductions in usage because new loan origination is down and therefore they're just doing less business with us from that perspective.
But, I'm trying to handle this just purely from a pricing standpoint. In the other place that we're seeing some pricing is S&MS, on the commodity list and labels business and Hoover's.
That is really not really different from what we expect. So, there is no surprises there.
These are commodity products and to some extent can be viewed as discretionary, and this again is along pricing. The area where we feel really good is our flagship product and DNBi and as you know that's targeted primarily to mid-sized customers and to certain extent but at a very smaller extent larger customers.
Pricing is holding up extremely well. We are what we would, where we thought we would be; double-digits for conversions to DNBi and then high-singles if you were to look at renewals.
So in a net shell, if I were to sum this all up, we are seeing a bit more pricing pressure in certain areas than we normally face. But on the area that really matter to us we feel pretty good about where we are.
Does that answer your question?
Michael Meltz - J.P. Morgan
Yes, my question is somewhat, are these on... perhaps you have outstanding renewals or these kind of inter...
just folks are coming back to you saying we just want to lower price.
Sara Mathew
Right, right. So, I'm talking primarily from renewals, right?
Because that's when I have a base deal to compare it from. In terms of a completely new customer, I guess it's at price what I want to set it.
So, this is primarily around renewals, which I think is a best way to think about pricing in our business and as you know, we're a high retention, high renewal business to begin with. So yes, this was the un-renewal and I tried to cut through all the different product lines.
Michael Meltz - J.P. Morgan
Okay, okay.
Sara Mathew
The DNBi very good. You got what you need.
Michael Meltz - J.P. Morgan
All right. Two other questions for you.
On Sales & Marketing you're saying you think you can go from down 10 plus to positive territory in the second half. I know you walked through some of the products, but it's still a long way to go.
So I mean, do you have a pipeline building, do you have... not to say why should we believe you, but what's confidence...
why do you have such confidence and that you can turn that around?
Sara Mathew
Sure. So I'm going to take the extreme end of your question of why should you believe us.
So, I would start by reminding you of a couple of things that we talked about in the January call and in 2008, which was in my prepared remarks. One is, we were impacted by timing in the first quarter.
So, timing in and off itself was about 10 points in the first quarter of 2009. So we should actually see that go away.
Beyond that, we expect continued pressure on risk and label, so I want to just track that that will continue to have pressure in the marketplace. But I do believe our value propositions are starting to play well and our pipeline is beginning to grow on them and this is the bundle products we discussed.
This is something we said we were going to do in January and the Sales & Marketing team has really done a great job executing against them. So, when you look at what we expect from S&MS, we expect growth in the second half and that is really what is factored into the guidance overall for North America that we also shared with you.
Does that help?
Michael Meltz - J.P. Morgan
Yes. And last question.
And you're talking, I think... I can't recall if Steve said or Tasos said it's stepped up investments in the second half.
One would think you already added a 100 sales people since July. I would think you've already made a lot of investments now.
What else is their ahead of you as you go into the second half?
Steven Alesio
Yes, Mike let me just touch on that. So the sales people are in, but obviously now the full scale of that expense will be with us the rest of the year for sure.
But we also mentioned more on the DNBi. I think Sara gave you specifics on that.
We mentioned continued on Sales & Marketing, trying to get back to your believe ability question. And clearly given what's going on in international, we're going to keep fueling growth there.
So, I will look at those last three items as I said continuing to ramp up. The sales is probably now steady but the others will continue to ramp up.
Michael Meltz - J.P. Morgan
Okay. Thank you, Steve.
Steven Alesio
Yes.
Operator
Thank you. Mr.
Carter Malloy with Stephens Inc. Your line is open.
Carter Malloy - Stephens Inc.
Thanks. Mike asked a few of my questions.
But returning back to the Sales & Marketing, can you talk about maybe in the traditional side, Steve, linear progression to the quarter. Did that deteriorate much towards the end of the quarter and kind of how you're looking at 2Q for that traditional (ph) business?
Sara Mathew
It will stop at the facts right. It is down about 19%.
It was impacted by timing as well. So, there was timing impacts in there.
But this is a business that is economically sensitive. So, if you think about it, Cater, we really provide listen labels to markets to customers.
So in this environment, if people are not buying, you would expect them to cut back. So if you look at the progression, its right about where we would have expected it to be.
The place where we were positively surprised was the value-added products. That was about down 4% and quite frankly it was slightly better than we thought.
And that's again is what I talked about earlier, its bundle value propositions, working better execution, pretty much in line with the things we have set in place in the beginning of the quarter. So, the list on label will stay down.
It will stay down double-digits over the course of the year. It is a smaller part of our business right now and that's the good news.
It is shrunk quite a bit, since we've not been focused on that area strategically.
Carter Malloy - Stephens Inc.
Okay. And then specifically, with value add you guys at last quarter said that optimizer had slowed from double-digit to kind of high single-digit growth.
What's the growth profile on that?
Sara Mathew
Actually to write-off the top of my head. I don't remember the growth of the optimizer product.
So, I'm not going to give that to you, I'm going to just ask Tasos to follow up on it. The things that we look at which is retention was sequentially up from the fourth quarter.
So, we feel good about that. And we are only starting to other value-added components.
So, we talked about a Jigsaw alliance. We will now be able to take...
optimize our file which is what customers use to claim matching a pen. So essentially to do basic integration and now we'll be able to have a Dun's number Jigsaw contact name available.
So if you are a customer trying to reach somebody very specific within another company you will be able to do this. So these would really start to gain traction only we believe in the back half, since we just signed the alliance and it takes a while before these efforts will take hold in the marketplace.
So, in terms of trajectory, we should see optimize our benefits continue to play out. Two things you should know about Optimizer which I did talk about in my prepared remarks on the base Optimizer for larger customers will provide you dashpots etcetera that will help improve ease of use as supposed to previously you just got flat files which were not as easy to navigate.
And then we're going to take this to middle-market customers with DNBi Optimizer. And Carter, I don't know if you were at Investor Day last year, we actually had demo of DNBi Optimizer, which showed you how easy it is for middle market customers to get this experience in a more affordable fashion.
Carter Malloy - Stephens Inc.
Yes, absolutely. It's an impressive product.
Okay, thanks for the color there. I'll move on to next question.
Within your U.S. RMS business, I was a little surprised at the strength of subscription.
Can you speak to what drove the sequential increase there? Was it more sales force or cubic wins in the quarter?
Sara Mathew
I would say...
Steven Alesio
Are you referring to DNBi?
Carter Malloy - Stephens Inc.
Yes.
Steven Alesio
Okay.
Sara Mathew
I would say DNBi has a value proposition that really resonates in the marketplace because... we have customer feedback that clearly says that it's significantly preferred because real time access, it allows the basic manipulation of data and the more we bring it in front of the customers, the more willing they are to adopt.
The reason why it is happening is we are driving it, we would like to drive our business through DNBi. So, what you're seeing is really execution in play.
It's not a one or two deal, remember that revenue recognition for this product is ratable so you actually have it recognized overtime. So, what you're as a percentage is just continued push to make this a bigger part of our risk business.
And we're pleased with the progress we've made.
Carter Malloy - Stephens Inc.
Okay, great. And then, you guys have spoken a little bit about using your balance sheet to acquire.
Are us still looking typically in S&MS to acquire there maybe on the digital side. Can you maybe give us an idea as what type of tools you've looked at?
Steven Alesio
Yes, I would say this... Carter, this is Steve, a couple of things.
So as Tasos said, we continue to want to use cash for that purposes and spaces that makes sense. And I think nothing has generically changed for us and so, we look at wanting to use capital specifically in Asia as we've said before and then in the U.S.
wherever we believe there are gaps in our product line, we would be using it as well. So, yes, as an example on the marketing space there are some gaps in digital which is an example.
And we're also continuing to look in the risk base. But that's how we look at the portfolio in terms of the use of capital specifically.
And that really hasn't fundamentally changed much in the last couple of years. Does that answer your question?
Carter Malloy - Stephens Inc.
Sure, thanks.
Steven Alesio
One other thing I was going to address to a common question that, Carter, that you and Michael had, I just come back to this question of the U.S. and looking at S&MS.
So, what Sara and I believe is that Q1 in the U.S. which was minus 3, we believe that's the low point for the year and as we both said should improve slightly such it'll be flat to slightly down for the year.
The specifics of S&MS, one of the biggest drivers of growth or the decline in the first quarter was all these early renewals getting behind us and I think I just want to reinforce that combined with what Sara described as the focus on the value-added product. So, I just want to kind of wrap that also, so to bring clarity back to that as well.
Carter Malloy - Stephens Inc.
Okay. Thank you.
Operator
Thank you. (Operator Instructions).
Our next question comes from Mr. Michael Meltz with JPMorgan.
Your line is open.
Michael Meltz - J.P. Morgan
I'm sorry for the follow-up. You mentioned you're looking at more...
trying to get more supplier in submission type deals. It's similar or somewhat similar to the Wal-Mart deal.
It's been about six months since that was announced. Do you have kind of cost backing out.
They are now looking for these things. I mean, what's the pipeline look in that regard?
Sara Mathew
Sure Michael. The pipeline is building.
Wal-Mart is fully implemented. It's about, I would say 80% compete, I think you understand how it works which is suppliers come in and register.
And then we at D&B ensure that there is just somebody you should do business with. We are seeing on the manufacturing sector, a lot of interest and supplier risk, much more so than we have ever seen in the past.
And I think that's actually connected to the weak economy. What we need to do is actually go after this opportunity and we believe this will help us in the back half.
But really the full benefits, I don't believe we'll see until 2010. So what's reflected in our guidance is a modest traction in S&MS, but we believe there is much more that we could do in this space in 2010.
Michael Meltz - J.P. Morgan
All right. Thank you.
Unidentified Analyst
Are there any more questions out there?
Operator
Yes. We do have one question Ms.
Rita Spitz with William Blair. Your line is open.
Rita Spitz - William Blair
Thank you. I had two questions.
One was, how long do you think it will take you to develop some of the enhancements you're trying to for the RMS Group such us the scalability for the portfolios and new modules you talked about?
Sara Mathew
Sure, Rita. On the Risk Management DNBi scalability that should be done by the end of the second quarter, and hopefully in the market by the third quarter and beyond, so it's going to be more to the back half.
In terms of supply, it was really we have a portal that's up and running that could be replicated. In terms of our Sales & Marketing Solutions, Optimizer upgrades, they're already out there, and being actively worked.
Jigsaw alliance was just announced. So, we still have work to do before we can really get benefits from that.
So you may want to think of this is more towards the back half of the year. Does that answer your question?
Rita Spitz - William Blair
There's one aspect...
Sara Mathew
Sure.
Rita Spitz - William Blair
When you talk modules, are those really vertical applications or is it more like the Jigsaw enhancement?
Sara Mathew
The way we think of modules is you have core DNBi platform that allows you to do basic work around understanding your consumers. We don't have a series of modules.
So for example, we have something called decision maker, which helps you make better immediate credit decisions on new applicants. We have something called account manager that helps you make credit decisions on your existing portfolio of customers.
So, what you think of, this is an additional -- an addition to the core platform. The one I discussed which is a new module, which will really be, which is already in the marketplace, but its very early, its collections, which is an integrated collections solution to help customers collect money sooner.
So, if you think about it there is core functionality and customers can choose between these modules in order to enhance and do more of their work with D&B versus with other solutions products and services. So, that's the way we think of DNBi.
So scalability as you can imagine is a very important part of what we're working on. And that we believe will actually allow us to take it to larger customers and actually have more customers use products and services.
Steven Alesio
So, Rita, I would just add to that. We're focused on building out the processes so from the customers workflow, more so than verticals which is where you came from with your question.
Rita Spitz - William Blair
Okay. Thank you.
And then I don't believe you spoke to the current tone of online advertising as it relates to your businesses and I wondered if you could touch on that?
Sara Mathew
Sure. So, online advertising, there is two components, right.
We have acquisition called Argosis (ph) and we have Hoover's. From an advertising standpoint, our business did extremely well, very strong double-digit.
Hoover's did not. It was actually down.
So the reason is there is more we need to do with Hoover's especially the free site so we can get more unique visitors to that site. Once we get that in place which will not be until the back half of the year, you should actually see us do a better job in the Hoover's site.
Right now we manage these two properties as one. So we kind of have merged them because they are really one set of properties where customers can come and potentially advertise on our sites.
So, this is still work to be done in the back half and we are not optimistic about the online advertising scenario that is booked into our guidance.
Rita Spitz - William Blair
Okay. My last question is about your tracking of customer satisfaction and what customers are telling you they value most in the current environment that might be different than it was maybe nine months ago.
Steven Alesio
Yes, I'll just take that, Rita. So we do, as you said, continue to track customers satisfaction in some businesses on a monthly basis but almost in our cases on a thrice a year basis.
I would say and we've always been told consistently that the nature of how our people wiling to our customer is important, the quality of information is important and the innovation of product is important and those three things haven't changed. What have changed more acutely in last six months is customer's expectations of the ROI that they are getting from our value propositions.
And that is much more acute in the moment than we've ever heard before and that puts pressure on us to continue to innovate and that's where we're hunting and also what you've heard from Sara is going down that stream. And that some...
the first part of it is also where some of the pricing pressure comes from. I think Michael and Sara were talking about briefly earlier.
So, does that answer your question?
Rita Spitz - William Blair
Yes, thanks.
Steven Alesio
You got it.
Operator
Thank you. Ms.
Suzan McGary with Granahand (ph). Your line is open.
Unidentified Analyst
Hi. I was wondering if you could go into a bit more detail about the growth in International.
For example, in Risk Management, how much of it came from Asia, how much from Europe, same thing with Sales & Marketing. And Sara if you could go into a little more detail about what's going on in Risk Management in Europe.
You talked a little bit about it but it would be interesting to hear more.
Sara Mathew
Sure. So I'll ask Tasos to give you the numbers on Risk Management in International.
It's in the schedule. So in the meantime I'll just get moving about what we're doing in International and talk about the risks space.
The risk space is unique and different in Europe. Credit insurers tend to dominate and if you think about it there are multiple ways you can make a risk decision.
We actually outsource a decision by insurance, get it from somebody else and then that should be sufficient. In the U.S.
the market is one where customers like to get enough data and make their own decision. What we're seeing in the current economy and by the way Europe is impacted just as the U.S.
is. People are actually showing a willingness to try other products and solutions.
We're benefiting from this trend. So, Risk Management in Europe actually showed nice growth.
You should also remember that we had a couple of acquisitions in China and India which have also helped. And if you think about my prepared remarks and you may not be familiar with our strategy which we started implementing in 2005.
We've shifted away from lower growth markets and we have a much greater portion of our business in places like Asia. So Asia is now 34% of International.
The risk business in Asia is nascent; it is very, very early in its development cycle, so people are very, very interested in what we have to offer. The final thing that is unique, if you look at international, it is not one market like the U.S.
there are multiple small countries. Most of the people in that country do business outside their home or domestic markets.
So that means you need to get data on markets that are outside your home markets. We are in many ways uniquely positioned to fulfill that need.
So what we have is we got a dumped numbering process and we got core capabilities and linkage scoring etcetera that allow you get a consistent view of your risk between, say, Germany, and we do through alliances, and places like UK, which is actually an old market for us. So this business what we call our cross border customers, is one where our core competitive advantages play really well, and it is a customer need.
So all of this is coming together very well, and there's runway ahead. So you should remember DNBi is not in International yet, Optimizer is not in International yet.
So we are uniquely benefiting from the economic environment, more so in International than we are in the U.S. Does that answer your question?
Is that helpful a little bit more?
Unidentified Analyst
Yes. And just a follow-up.
Do you have any more clarity on when you will introduce DNBi internationally?
Sara Mathew
Hopefully, not long but its most likely be 2010. We're working on it right now as you can imagine.
It's going to '10.
Steven Alesio
We had a question about some information. I think relative to how it breaks.
So, I think those are all... it's all on the schedules and if you need Kathy or somebody could follow-up with you.
I think it's all written on the schedules.
Unidentified Analyst
Okay. Thanks.
Operator
Thank you. And at this time, I am showing nothing further.
Steven Alesio
Okay. Then if there are no more questions.
Thanks all of you joining us and good bye for now.
Operator
Thank you for participating in today's call and have a great day.