Nov 5, 2013
Executives
Kathleen Guinnessey - Former Member of Plan Benefits Committee Robert Carrigan - Chief Executive Officer, President and Director Richard H. Veldran - Chief Financial Officer and Senior Vice President Emanuele A.
Conti - President of North America Joshua L. Peirez - President of Global Product, Marketing and Innovation
Analysts
Peter P. Appert - Piper Jaffray Companies, Research Division Manav Patnaik - Barclays Capital, Research Division Jeffrey P.
Meuler - Robert W. Baird & Co.
Incorporated, Research Division Andrew C. Steinerman - JP Morgan Chase & Co, Research Division Andre Benjamin - Goldman Sachs Group Inc., Research Division Shlomo H.
Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division Brett Huff - Stephens Inc., Research Division
Operator
Good morning, and welcome to D&B's 2013 Third Quarter Teleconference. This conference is being recorded at the request of D&B.
If you have any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the call over to Ms.
Kathy Guinnessey, North America CFO, Treasurer and leader of Investor Relations. Ms.
Guinnessey, you may begin.
Kathleen Guinnessey
Thank you. Good morning, everyone, and thank you for joining us today.
With me on the call this morning are: Bob Carrigan, our newly appointed President and Chief Executive Officer; Rich Veldran, our CFO; Manny Conti, the President of North America; and Josh Peirez, our President of Global Product, Marketing and Innovation. Here's what you can expect on the call today.
Following my brief remarks, Bob will start the call with some opening comments. Rich will then review our results for the quarter.
After that, we'll open the call to your questions. 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 those forward-looking statements. These documents are available on the Investor Relations section of our website, and we encourage you to review the 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 the business.
For example, when we discuss revenue growth, we'll be referring to the non-GAAP measure of our core 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 any noncore gains and charges.
You can find the reconciliation between these and other non-GAAP financial measures and the most directly comparable GAAP measure in the schedules to our earnings release. They can also be found in the supplemental reconciliation schedule that we post on the Investor Relations section of our website.
Later today, you'll also find a transcript of this call on our Investor Relations site. With that, I'll now turn the call over to Bob Carrigan.
Bob?
Robert Carrigan
Thank you, Kathy, and good morning, everyone. It's great to speak with you today.
As most of you know, I started my new role as President and CEO of D&B on October 7. I'm very appreciative of the warm welcome I have received, and I continue to be highly energized by the enthusiasm shown for D&B and our future.
As I've shared with my D&B colleagues around the globe, my critical priority right now is to gain insight about our business and customers. I'm incredibly passionate about leveraging D&B's global brands, its proud history and our extensive data capabilities to help our customers be successful.
Over the last 4 weeks, I've met with several customers to get their input about how we're doing, what we need to do better and to hear directly from them how they would like to receive our products in the future. These initial conversations have been a terrific way for me to become more familiar with our customers' perspective.
And I believe that input is vital to our success and, frankly, to the success of each of our customers. So I see a few areas where my experiences during my career at IDG Communications can help D&B take advantage of the opportunities that lay ahead and to return us to sustainable growth.
First is the global landscape. For those of you who may not be familiar with my prior company, IDG is the world's largest technology media company with reach that spans to over 90 countries, a truly global company.
I see D&B's global data coverage and our Worldwide Network of data partners as valuable assets that we can expand as we continue to develop new solutions to drive increasing value for customers in high-potential areas such as Data-as-a-Service and mobile delivery. Next is knowhow in the business-to-business or B2B space.
About 2/3 of IDG's business is in the B2B space, so I'm very familiar with this market. D&B is the industry leader in the business information space and manages the world's largest global commercial database.
As you've heard from us before, our goal is to transform D&B from a company that delivers solutions which help customers with transactional in-the-moment decisions to one that is a strategic business partner that helps its customers develop forward-looking plans based on an informed understanding of what is likely to happen next. Our customers are asking for insights and relevant information that's delivered across a multitude of devices and platforms, when and where they need it.
We have some great assets that can fulfill those needs, starting with the world's largest commercial database, which we continually invest in to ensure it remains the gold standard for global insight. But we need to up our game in terms of focus and execution to get to sustainable growth.
That is why I'm here and what I will be focused on. So I'm diving deeply into all areas of our business, from data and product to sales and technology, in order to refine the exact execution plans required to drive long-term success.
We will share those plans with you early next year. So in closing, I'm enjoying getting to know many people inside and outside of the company, and I'm very proud to be leading D&B.
I look forward to meeting with investors in the future to understand your insights on D&B as well. Finally, I'd like to thank my executive leadership team and our global team members for their commitment to making our business stronger than ever.
And with that, let me turn the call over to Rich to review the quarter's performance. Rich?
Richard H. Veldran
Thank you, Bob, and good morning, everyone. This morning, I'm going to walk you through our third quarter results and provide you with some color on our outlook for the remainder of the year.
Last night, we reported our third quarter results. Core revenue and operating income were both flat year-over-year.
EPS was up 14%. And we delivered year-to-date free cash flow of $263 million.
The year continues to play out largely as we expected, and the flat revenue performance in the quarter was in line with our expectations. North America revenue was down about 1% due to the timing of some large contracts that moved about 1 point of growth from the third quarter last year to the fourth quarter of this year.
If you recall, Manny discussed this at our Investor Day presentation in July. International revenue of 2% growth was also in line with our expectations.
Now let me discuss revenue growth for each segment in a bit more detail, starting with North America, which represents 74% of total company revenue. RMS, which represents 58% of North America revenue, declined 1%.
As you'll recall, RMS is comprised of 3 categories: DNBi, representing 59% of RMS; non-DNBi subscription, representing 8%; and projects and other solutions, representing 33%. I'll touch a bit on each.
DNBi was down 2% during the quarter. We said at the beginning of 2013 that we expected DNBi to decline modestly this year and that we were focused on actions to stabilize it.
Some of the stabilization initiatives that we're focused on include improved data quality and more predictive analytics, bundling new features to create more value and targeted and proactive offers. During the third quarter, we continued to see customer retention in the low 90% range.
While we're holding on to our DNBi customers, pricing was in the low single digits in the third quarter, which is a bit of a slowdown from the low to mid single-digit price increases that we saw at the beginning of the year. Pricing is being impacted by our own targeted, proactive offers aimed at moving customers from annual contracts to multiyear deals, where future growth is built in, as well as by competitive price pressure at the low end of our customer base.
It will take some time for the improvements in data quality and predictiveness and the new features to move the needle on DNBi revenue, but we're getting good feedback from customers as they recognize the changes. Turning to our non-DNBi subscription business.
We saw a 2% decline in the quarter on a small base. Finally, RMS projects and other solutions grew 1% in the quarter, primarily due to the contribution from our newer solutions, D&B Direct and Compliance Check, which together offset a decline in other risk products.
These new solutions are beginning to have a meaningful impact on revenue, contributing about 3 points to total RMS growth and offsetting most of the decline from DNBi and our other risks solutions. As we look to the future, we expect the adoption of these new products, together with a stabilization of DNBi, to be a key driver in restoring RMS to sustainable growth.
Turning to sales and marketing, which represents 42% of North America. Revenue was flat during the quarter, with continued growth in our value-added solutions offsetting weakness in our traditional S&MS product set.
Traditional, which represents 41% of total S&MS, was down 3%, an improvement from the 9% decline during the first half of the year. The 2 largest components are Hoover's and MDR, our educational marketing business.
Both have subscription- and usage-based revenue components, and the weak revenue in the first half of the year can be attributed to sales declines last year. During 2013, underlying sales in both areas have improved, which is playing out in improved revenue trends.
Value-added solutions was up 2% in the quarter. The contract timing shift that I discussed earlier moved about 3 points of VAPs growth out of the third quarter and into the fourth quarter.
Setting aside the timing shift, we were satisfied with the overall solid performance for VAPs in the quarter. Let me say a little bit more about the major growth drivers.
First, Optimizer, our largest VAPs product line, was down slightly due to the contract shift that I mentioned, and we expect it to return to growth in the fourth quarter. Our new DaaS products continued to gain traction, contributing 4 points to VAPs growth and 2 points to total S&MS growth in the quarter.
As we look to the future, we expect our DaaS strategy to be a significant growth driver for our S&MS business. We're going to market with DaaS through a dual approach, leveraging both strategic alliances and our internal sales team.
Alliances, such as our relationship with Salesforce.com, allow us to reach new customers and embed our data into solutions that customers already use, an excellent way to build a franchise and become pervasive in the marketplace. The alliance is growing at a steady rate.
Since the revenue is recognized ratably, we will see increased contribution over time. One thing to note, you don't see the future committed revenue in our deferred revenue balance since the sale is booked by Salesforce.com.
We record revenue monthly as we receive a royalty, and we do not book any deferred portion to our balance sheet. Complementing the alliance strategy, we are currently leveraging our own sales team to distribute D&B360, our product designed for CRMs.
We're having success on both fronts, and we feel good about the progress we're making in this key growth area. Before I discuss our International results, I'd like to spend a moment discussing North America deferred revenue.
At the end of the third quarter, the deferred revenue balance was down 1% before the impact of foreign exchange. As I mentioned, this balance does not reflect sales of our DaaS solution through Salesforce.com.
If we were to adjust our deferred revenue balance for this known committed royalty stream, at the end of the third quarter, the North America deferred would actually shift higher by almost 2 points. I mention this because it's likely to become more material over time if our alliances business grows the way we expect it to.
Now let me turn to International, which represents 26% of company revenue and grew 2% during the third quarter, in line with our expectations. Our Europe & Other segment, which represents 58% of total International revenue, grew 1% during the quarter despite continued economic headwinds.
Asia Pacific, which represents 42% of total International, grew 5% during the quarter, largely due to strong performance in our Australia business. Let me now turn to overall profitability during the quarter.
Total company operating income was flat year-over-year. North America operating income was down 4%, primarily due to investments in data analytics, new product enhancements and the data supply chain.
International was up 5%, driven by the benefits of reengineering. And corporate expenses were lower in the third quarter, with about half of the difference due to the discretionary spending in the quarter and the other half attributable to the reversal of the unrealized equity expense.
Looking ahead, operating income remains on track with our full year guidance. Finally, diluted EPS was up 14% in the third quarter, primarily due to the accretive impact of share repurchases.
Year-to-date, we have repurchased $270 million of shares under our discretionary program at an average price of $88.67. To date, we have repurchased $780 million of our current $1 billion authorization, which we expect to complete in the middle of 2014.
So stepping back. So far, the year is unfolding as we expected with the second half stronger than the first.
As a result, we are on track to deliver our full year guidance of revenue growth of 0% to 3%, operating income down 3% to 6%, EPS up 8% to 11% and free cash flow of $270 million to $300 million. That concludes our prepared remarks, and we'll now open the call for your questions.
Operator?
Operator
[Operator Instructions] The first question comes from Peter Appert with Piper Jaffray.
Peter P. Appert - Piper Jaffray Companies, Research Division
So a couple of things. First, Rich, you mentioned competitive pricing at the low end in the D&B product.
Has the pricing environment changed? Is this just a continuation of what you've been seeing?
And can you speak to, maybe more broadly, what you're seeing from a pricing perspective?
Richard H. Veldran
Yes, let me just -- we have Manny with us today. So let me have him offer his perspective on what he's seeing.
Emanuele A. Conti
Yes, sure. So as it relates to DNBi, we continue to look to stabilize this business.
We're going in a marketplace with a variety of collateral offers, improving our data quality, really looking to stem the pricing pressure that we do see in the marketplace. And that's something that continues.
As a reminder, DNBi is mainly in the low- to mid-sized companies, and so that's something that we've been seeing as a trend over the last couple of years, and it's something that I think we have [indiscernible].
Robert Carrigan
These are the reasons why we're taking the actions that we're doing.
Emanuele A. Conti
The only other thing that I would mention is we are looking to stabilize DNBi and, at the same time, invest in these new risk solutions, which are gaining traction, as Rich mentioned.
Peter P. Appert - Piper Jaffray Companies, Research Division
And in terms of -- how about the pricing dynamic for some of these newer products, any pushback there?
Emanuele A. Conti
I don't know if there's pushback. I mean, constantly, when we're talking to our customers, we're always proving the value proposition.
But to give you 1 data point, if you were to think about our scores, the newest scores that we've launched in the marketplace, we are seeing a 20% lift in terms of price. That's probably the closest that I can give in terms of price reaction.
Peter P. Appert - Piper Jaffray Companies, Research Division
Okay. I know you haven't given guidance for 2014 yet.
But any preliminary thoughts in terms of how the year may play out in terms of how quickly you can get back to positive net revenues? Maybe the question really is in terms of better understanding what the net new sales looked like in recent quarters.
Richard H. Veldran
Yes. Peter, obviously, at this stage, we're not going to comment on 2014 yet.
What I will tell you, as you know, that we are squarely focused on returning the business to long-term sustainable growth. Bob's mission, as he mentioned, over the next several months is to really get his arms fully around the business, dive into it and continue the growth journey.
So really, you'll hear more about that in a holistic fashion as we turn the corner into the new year.
Peter P. Appert - Piper Jaffray Companies, Research Division
Got it. And last thing, on the cost-cutting, Rich, I may have zoned out while you were giving some of these details, but the -- not that your commentary wasn't...
Richard H. Veldran
It wasn't gripping?
Peter P. Appert - Piper Jaffray Companies, Research Division
The decline in the selling and administrative expense was particularly noteworthy. Did I miss what you said on that?
Richard H. Veldran
Yes. There's a couple of things, a couple of one-timers in there.
There was some equity that gets written off. Whenever you have a senior executive retire, there are certain portions of the equity that dealt with that [ph].
You've already expensed that, right, so there were a couple of million bucks in the quarter that went away for that. That was about half the decline.
And the other half was we had some discretionary spending. Last year, it just happened to happen in the third quarter.
That stuff does move around a little bit.
Peter P. Appert - Piper Jaffray Companies, Research Division
Okay. So looking at the fourth quarter, then, the selling and administrative expense would be up more in line with what you've been seeing in the first half of the year?
Richard H. Veldran
Yes. I mean, if you look at corporate -- so it depends.
If you're looking at corporate on the overall summary, that $4 million decline, yes, I would say that gets more back to a more normal level. If you're looking at SG&A, which is all of SG&A, there were also a couple of other pieces that moved around.
We had a $5 million reclass from SG&A to operating expense. We took a look at our International operations and said, "You know what, occupancy cost there is in SG&A; in North America, it's in operating."
So we've normalized all that.
Operator
The next question comes from Manav Patnaik with Barclays.
Manav Patnaik - Barclays Capital, Research Division
Maybe a first question maybe for Bob, just big picture. I mean, I know you mentioned just the basics of IDG.
And a lot of us, I think, are not as familiar with them. Could you maybe give us a few highlights, so just maybe to exemplify or illustrate sort of your management style in terms of what you did at IDG that's sort of applicable or maybe can be transferable here to D&B?
Robert Carrigan
Sure. Well, the central challenge at IDG, like many media companies, was transforming the business from what was primarily a print business in terms of distribution to a digital opportunity, so leveraging the great content of that business to newer channels.
So there's certainly a lot of applicability as we think about the opportunity at D&B. In terms of my style, I'm very customer-focused.
I spent a lot of my time in the field with customers, and I like to manage from the outside-in, so to speak. And I find that customers really tell you all you need to know really.
And so I really have spent a lot of my time in the field with our field sales team. And that really has informed my business strategy.
And I plan to do a similar thing here. In fact, I'm already off to a good start with that.
And I plan to accelerate that as we continue to develop our strategies here.
Manav Patnaik - Barclays Capital, Research Division
Okay, that's helpful. Looking forward to more detail next year.
Just on the DNBi subscription part of the business, I guess the pricing seems to be, I guess, the biggest driver in that deceleration. I think you mentioned that the retention remained in the low 90s.
But I was wondering -- I mean, that's obviously just sort of a general range, but has that moved materially over the last couple of quarters? And when I say material, obviously, is it 93% to 91%?
Or is it stuck in the 90s? How should we think of that?
Emanuele A. Conti
Sure, Manav. This is Manny.
So what we are seeing is retention has been going up. Some of the tactics that we're taking is -- one of them is around these proactive offers.
And what we're doing with customers is offering certain pricing incentives to move to multiyear arrangements, which we've been getting some traction in exchange for those price increases in the future. So we -- some of the pricing is due to some of the actions that we're taking.
And then, of course, some of it is due to market conditions. But the main focus here is to continue to try to move our retention up, put more value on the table for our customers.
And then as I mentioned earlier to Peter, we're continuing to invest in some of our new risk solutions because we do see that as core growth drivers in the future.
Operator
The next question comes from Jeff Meuler with Baird.
Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division
I was wondering if you could be any more specific on the North America deferred revenue. And I understand the headwind from the building book of business with Salesforce.com not being included.
But I ask from the standpoint that, given that there were some timing issues that negatively impacted Q3 and there should be some catch-up in Q4, I just would've expected, I guess, a stronger North America deferred revenue number at the end of Q3. So any help that you could give us there?
Richard H. Veldran
Yes, let me take that, Jeff. So I mean, a couple of things.
Generally speaking, your deferred -- and to track a little bit more to your subscription business because that's where most of the business gets deferred. And as you can see, DNBi, our largest subscription business, has been down 2% in the quarter.
One of the bigger growth drivers is the DaaS strategy, is the alliances. And again, as you see with the Salesforce.com example I gave, we don't actually record deferred for that, so you don't really see it.
The future committed dollars, which if it was a deal that we sold ourselves, you'd record some pieces of revenue in the quarter and you'd record the rest of it on the balance sheet as deferred. When it's a royalty stream that comes in, you actually just record the revenue as it comes in.
You don't pick up that deferred piece. So that was the 2 points I referred to there.
Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division
Okay. And then Bob, upfront when you ran through some of the highlights from your clients' discussions, there was a lot of positives there.
So I hate to focus on this point, but couldn't help but notice that you said you need to up your game in terms of focus and execution. I was wondering if that comment was directly coming from some of your client meetings.
And if so, if you could be any more specific in terms of where some of the client feedback may have been constructive in those areas.
Robert Carrigan
Yes. So I've certainly focused my conversations with customers on areas where we can improve, gaps that we might have in our offerings and where we can do more together and where we need to innovate.
But we have a very loyal customer base, and many of them are longtime partners of ours. And they're not shy, and I've been getting and asking lots of direct and honest questions from them.
The up-your-game concept is really just an obvious statement here that we need to get on the track to sustainable long-term growth. And that's really my mission and the reason why I'm hired here.
And that really has nothing to do with what clients are telling us. Our retention rates are very high with clients right now.
And again, we have more -- we have lots of great dialogue going on with them. We're very focused on delivering solutions that meet their objectives.
That's more of a business objective of ours, of mine at D&B, to get growth going again and to do all that it's going to take to make that happen.
Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division
Okay. And then just finally, on the $25 million to $30 million of deployment costs that I think you guys budgeted at the beginning of this year to connect the U.S.
market to the new data supply chain, a couple of questions around that. Did it track within budget?
Is it fully connected now or is there more spend left for Q4? And then looking out to 2014, as you roll additional geographies on to the new data supply chain, should we be thinking about any sort of meaningful cost in 2014?
Richard H. Veldran
Yes, let me -- this is Rich. Let me start, and then I'll turn it over to Josh, who's leading the project for us.
To date, we've spent about $17 million, so we're spending at a lower rate than we had originally anticipated, a bit of a slowdown in the third quarter. We had spent, well, rough numbers, $6 million then $6 million then about $5 million in the third quarter.
Josh will talk a little bit about how the project's going and our thoughts on it.
Joshua L. Peirez
Thanks, Rich. We continue to invest in and take advantage of the Web services layer portion of our project, as well as the investments we've made in improving our foundational data and launching game-changing analytics.
These were the key investments from the project that drive revenue growth and our speed of innovation that, in turn, meets our customer needs, as Bob discussed. Regarding the underlying supply chain infrastructure investment, we're evaluating that investment as part of Bob's overall review that he mentioned in his opening remarks.
And as a result, we've slowed our deployment as of Q3. But we don't expect to see that have any impact on sales or revenue in the foreseeable future, and we'll be able to give you more of an update on that in the next call.
Operator
The next question comes from Andrew Steinerman with JP Morgan Chase.
Andrew C. Steinerman - JP Morgan Chase & Co, Research Division
You kept your full year guidance of 0% to 3% before FX. And as you know, year-to-date, we're at 0%.
And so my question is, is the range of 0% to 3% still applicable because, as you can imagine, to get to 3%, you would need massive growth in the fourth quarter?
Richard H. Veldran
Yes. Here's what I'd say, Andrew, on that.
We don't typically change our ranges and guide within the range. It's not something that is part of our practice.
We set a guidance range for the year, we live within that range and we make sure that we deliver within that range. And to me, that's the right approach.
Otherwise, you're speculating each quarter where you'll be within a range. And this just doesn't add any value.
Andrew C. Steinerman - JP Morgan Chase & Co, Research Division
Okay. And then maybe you could talk -- I know you gave some comment on D&B360.
I surely know it's within your sales and marketing product, and you said it was going pretty well, and you gave comments about you'll sell it directly and you'll sell it through different alliances. My question is, how big in revenues is the D&B360 product today?
And are there alliances besides for Salesforce.com that are meaningful? I think you've mentioned Microsoft along the way.
Joshua L. Peirez
Yes, it's Josh. I'll take that.
So as Rich had mentioned, within the S&MS area, we're very pleased with the trajectory of our Data-as-a-Service products, which include our CRM Direct products, as well as our alliances. And so what Rich mentioned is that you're seeing 2 points of growth on the S&MS line as a result of those products.
We don't break out the specifics of one versus the other. In terms of the alliances strategy, as we shared at Investor Day, we do see a number of other alliance partners, both in the S&MS space as well as in the risk space, where we think we can bring tremendous value and open up new customer sets with new use cases.
And we remain focused on that. We're obviously not going to comment prematurely on any of those arrangements.
As they're inked, we will let you know.
Andrew C. Steinerman - JP Morgan Chase & Co, Research Division
Right. So the main alliance that's moving the needle today is Salesforce.com.
There's not another alliance that's meaningful yet.
Joshua L. Peirez
That's correct, along with our direct sales.
Operator
The next question comes from Andre Benjamin with Goldman Sachs.
Andre Benjamin - Goldman Sachs Group Inc., Research Division
First question I have is about the sales process. So I know you indicated retention is currently in the low 90s.
How much of a push to reaccelerate revenue growth is bringing back the customers that may have chosen on to move to other solutions versus pulling in new customers at D&B? And how would you characterize your current success selling to those different customer segments?
Richard H. Veldran
Let me ask Manny to handle that.
Emanuele A. Conti
Yes. So let me break that down into, I think, 2 components.
I think you had a question around -- one around DNBi and our thoughts around retaining those customers and then crossselling and upselling them, and then there was a new customer acquisition. So first, around DNBi, clearly, we have a very loyal customer base there.
But we continue to focus on keeping even more of them. And those are the tactics that we discussed at I Day and we'll continue to do.
We do see growth opportunities to satisfy the risk needs that go beyond a solution like DNBi. And we're actively in the market selling those products.
And we already talked about, in the quarter, we had about a 3 point contribution from those new solutions. So we're encouraged by our progress with these new risk solutions.
More broadly around new customer acquisition, that is an area of focus for us. As a company, we have struggled to acquire new customers.
And what we did is, at the beginning of the year, created a dedicated team to put in place a series of pilots and tests to see how best we can scale new customer acquisition here at the company. The first 2 quarters, it seems really just building relationships in the marketplace.
And we've started to see an acceleration in pipeline building. And as we continue to drive success there, we'll look forward to sharing with you a little bit more insight around what's working and what's not.
But so far, that team is beginning to scale. So more to come on that.
But if you were to look at our overall results, clearly, new product solutions sold to existing customers is driving more of our performance to date. And we'll look to shift that a bit going forward.
Andre Benjamin - Goldman Sachs Group Inc., Research Division
And I know companies always want to keep their latest innovation kind of close to the chest. But to the degree that you could indicate at least where -- maybe buckets of innovation, if you can't speak to specific products, that we should be looking for the future for you to continue to move forward.
I know you had D&B360 and Direct updates recently with data exchange and predictive analytics and other stuff earlier in the year. So I mean, where should we expect D&B to continue to move to...
Richard H. Veldran
I'll let Josh talk about what's going on in innovation.
Joshua L. Peirez
So as you mentioned, we did just release new versions of D&B Direct and D&B360. The main benefits there were a significantly simplified user interface and easier usage and adoption for customers.
We will continue to be enhancing the products we have. So I just want to make sure I make that point before going into brand-new things.
In terms of buckets, the areas I think you should expect us to focus on will be integration into existing software platforms, both through embedded solutions and through solutions that can be integrated by the customer regardless of the partner's cooperation. Mobility, so look for us in the mobile space to be playing a bigger and bigger role and continuing to enhance the value we can bring through high-end analytics and new and creative data solutions, where we can bring brand-new value.
Those would be big categories. And of course, we do have a couple of things up our sleeve I'm not going to talk about on this call.
Operator
The next question comes from Shlomo Rosenbaum with Stifel.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Just a couple of things. Most of my questions have been answered, but I want to go through some kind of housekeeping stuff.
And one thing I just want to ask you to clarify, Josh, so that we don't have some unnecessary speculation on this. What exactly do you mean when you're saying you're reviewing the supply chain hookup and slowed it down, pending a review by Bob?
I mean, you seem like to be almost all the way through the process. What's going on there?
Joshua L. Peirez
Sure, Shlomo. I think, as I mentioned in some prior calls, we have a number of different ways we could choose to deploy the supply chain.
We also have some good momentum in the market from some of the solutions that we're launching on our services layer, which is not dependent on the supply chain. So as we're looking at our portfolio of investments going forward, exactly how that deployment should fit in.
And it's not just a dollars question, it's also a focus of the organization, requirements to migrate customers on to a new platform, put them through that pain as we migrate our products. We're just using the time with Bob coming onboard and reviewing our strategic focus to make sure that we make the investments that are best going to benefit our customers and our bottom line.
And so we are taking the time to do that. We have the opportunity, given where we are in the deployment right now, to slow down that investment and take the time to look at it in the broader portfolio with a focus on growth.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
So how far along are you in terms of hooking that up? I would have thought, at this point in time, you're almost all the way there, and that's -- I'm just surprised about that.
I thought that kind of next year, we were more on the focus of building stuff off of that.
Joshua L. Peirez
Yes. I believe, as we had shared earlier in the year, our plan was to have deployment for the U.S.
and Europe by the middle of next year. So there is still, from that initial plan, a year's worth of work to be done there.
That, of course, also had migration after that. So this was to have all the data loaded and fully operational within the supply chain.
And of course, we would then have to really be moving all the existing products and customer sets over. So it continues to be a longer-term requirement which was always in the plan.
So we are on plan as of the middle of the year. And in Q3, we've managed to take the time now with Bob joining.
It is important, Shlomo, we don't build products on the supply chain. We build our products on the services layer, where we're continuing to make the investment.
We're not slowing any of that work. In fact, we have accelerated some of our innovation in that regard.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay, great. And then I guess this is for Manny.
The offers that you're making in DNBi in terms of offering pricing for longer-term contracts, are you able to track how much that's driving retention, and since you guys started this up, just to see how material of an impact you guys could have with that strategy?
Emanuele A. Conti
Yes. I mean, we do look at it by segment.
And we are seeing an uptick in retention. Obviously, this is kind of a new approach for us that we started this year, so we're constantly testing the offers by segment and seeing our uptakes.
But we do see a correlation between the offers and retention.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then just along those lines, how material would you say, in terms of the overall scope of your business, is the area that you think is more competitively impacted?
Obviously, there's parts, like compliance in the DaaS business, that really you guys are in areas that nobody else is there. But the part where there's competitive pricing, what would you say is a percentage of your overall company that, that really represents?
Emanuele A. Conti
Yes. Well, the way I think about it is, obviously, price is always a question with all customers.
And what they're really trying to figure out is price to value. As you get to smaller businesses, they're under more strain just in general.
But as you get into larger customer segments, you find there that they have a -- their ability to assess data quality and calculating ROIs is much more sophisticated. And so much of our strategy, especially as you start to think about DaaS alliances and whatnot, these players are very interested in data quality.
And it allows us to compete on areas where we have strength, which we talked about before, our identity resolution, the breadth of our data quality, et cetera. So we're really -- our strategy is to move as much as we can upmarket to have a value discussion with the customers, and then they allow us to reach the lower end of the market, similar to what we've done with Salesforce.com.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
So what -- was that 20%, 30%? Just getting back to the question.
Emanuele A. Conti
In terms of what percentage of our business is with small businesses versus large customers?
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Yes. I mean, you guys identified an area that you want to work on for pricing.
And it seems like an appropriate way to go after that, I mean, just making offers for longer-term contracts and making sure that you're offering it that way. I'm just wondering what percentage of the business is segmented as of today.
I understand you're moving upmarket. But what percentage of the business are you looking to address in that plan?
Emanuele A. Conti
Yes. I think if you were to look at -- I think the best way to look at it is really just talking about DNBi because that's where this notion of price per seat or price per user is most relevant.
You're talking about the low end, and that's probably about 20% of the base, something like that.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
So 20% of DNBi base?
Emanuele A. Conti
Yes.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. So a much smaller subsegment of the overall company is what you're saying.
Emanuele A. Conti
Yes. As it relates to customers' decision-making being really price-oriented.
But like I said, it's a hard thing to quantify because in every single conversation we have with customers, they're always going to be talking about price. The real question is how they're able to calculate and evaluate the return on investments that our higher-quality data provides them.
Kathleen Guinnessey
Shlomo, it's Kathy. I just want to clarify something that was in the script.
When Manny was talking about the pricing pressure and the multiyear offers, that was purely he was in the DNBi base when he was talking about that.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay, great. And then just in terms of the operating margin in North America, had a nice lift sequentially.
Is that -- and can you just talk about some of that? Is some of that the slowing down the investments?
Is some of that, that you're getting more revenue? Is some of that better sales in Salesforce.com?
Can you just talk about that a little bit more?
Richard H. Veldran
Yes, and I'll take it. No, it was -- if you go back to the beginning of the year, one of the things we mentioned is that the first half of the year would be down about 13%.
And I think on the second half, it would actually be slightly up. And it was a dynamic driven by a couple of things.
And that's what you're seeing playing out in the cost base and the margins in North America, is that the reengineering activities we did this year ramped as the year went on, so you get a little bit more savings in the second half. But also, if you go back to 2012, your base period, we've ramped up investment in the second half of 2012.
So as we went into '13, you had a much bigger impact on margin in the first half of '13 than you see in the second half. It's a little more normalized now.
But in terms of our overall level of investment, that's actually been pretty constant throughout this year.
Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then one last thing just -- and I'll leave with that.
Can you talk about the bookings trends through the quarter? And just how did that work?
Did you feel like you were comfortable with that, what you expected, and are there certain things that you felt are starting to gain traction that we don't yet see in the revenue but you are seeing in your sales?
Richard H. Veldran
Yes. Manny will talk a little bit about what he's seeing in North America, which is really what's you're asking about.
Emanuele A. Conti
Yes, sure. I think we're encouraged by the underlying trends of many of the new solutions.
I think Rich, in his prepared remarks, pointed to the fact that in the area of our new risk solutions, we saw a 3 point contribution from those products. And obviously, for us, fourth quarter is a really big quarter, so we're aimed at closing out the year, and that will confirm what we're seeing.
But overall, the year is playing out as, for the most part, how we expected.
Operator
[Operator Instructions] The next question comes from Brett Huff with Stephens Inc.
Brett Huff - Stephens Inc., Research Division
There were some questions about attrition. And as a newer person to the story, I just wanted to understand the high -- or the low 90s retention is great, and obviously, lots of loyal customers.
But when people do leave you, what is the typical conversation and what are the drivers? I mean, I know there are some competitive solutions out there in some of your segments.
Can you just give us a sense of what that is? And then it sort of follows on, I think somebody may have alluded to this before, is how do we solve those objections and get those folks back on the train?
Emanuele A. Conti
Yes, sure. Yes, let me address that.
So yes, for the most part, we see, when customers leave us, it's primarily due to price, and especially when you get into the low end. So if you were to look at our attrition, it's mainly small customers.
When you get into larger customers, those customers tend to stay with us. So more of our churn activity is on the low end, and they're just more price-sensitive.
So for us, that's what we experienced. Sometimes, they go to competition, but sometimes they just choose not to use the solution, depending upon their situation.
So for us, we're active in getting back in front of those customers, trying to find solutions that better meet their needs. And in other cases, we spend time trying to justify how specifically our solutions create the value for them.
And so that's typically what we try to do. But the best way to think about it is attrition is mainly on the smaller side of things.
Larger end, it's a different dynamic.
Brett Huff - Stephens Inc., Research Division
That's helpful. And just one other question for me.
And again, I'm trying to make sure I understand this. The $25 million to $30 million investment that Josh has helped detail, it sounds like $17 million of it has been spent.
Do we expect that $25 million to $30 million to be completed by this year? But I also thought I heard -- maybe Josh said that it was going to go into next year.
And again, can you just familiarize me with that? What I'm trying to get to is, what is the cost step-down in this investment next year that we might see in margins?
Richard H. Veldran
Yes, and I'll take that. So what we're looking at right now is -- and as I mentioned, I'd expect to be a little bit below that range for the year just because we've slowed things down a bit.
It is one of the many investments that we're looking at as a strategic review with Bob for next year. So I don't have a view on next year yet.
We really won't have that until we go through our full strategic assessment over the next several months. So we'll really come back to you in the beginning of the year with that.
Operator
There are no other questions in the queue at this time.
Kathleen Guinnessey
Okay, great. Operator, thank you very much.
Look forward to talking to you all at the end of the year. Bye.
Operator
Thank you for your participation in today's conference call. The call has concluded.
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