Nov 2, 2016
Executives
Kathleen M. Guinnessey - Dun & Bradstreet Corp.
Robert P. Carrigan - Dun & Bradstreet Corp.
Richard H. Veldran - Dun & Bradstreet Corp.
Joshua L. Peirez - Dun & Bradstreet Corp.
Analysts
William A. Warmington - Wells Fargo Securities LLC Andrew Charles Steinerman - JPMorgan Securities LLC Peter P.
Appert - Piper Jaffray & Co. Manav Patnaik - Barclays Capital, Inc.
Andre Benjamin - Goldman Sachs & Co. Stephen Hardy Sheldon - William Blair & Co.
LLC Nick J. Nikitas - Robert W.
Baird & Co., Inc. (Broker) Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Operator
Good morning and welcome to Dun & Bradstreet's 2016 Third Quarter Teleconference. This conference is being recorded at the request of Dun & Bradstreet.
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.
I would now like to turn the call over to Ms. Kathy Guinnessey, Treasurer and Investor Relations Officer.
Ms. Guinnessey, you may begin.
Kathleen M. Guinnessey - Dun & Bradstreet Corp.
Thank you. Good morning, everyone, and thanks for joining us today.
With me on the call this morning are Bob Carrigan, our Chief Executive Officer; Rich Veldran, our Chief Financial Officer; and Josh Peirez, our President and Chief Operating Officer. Here's what you can expect on our call.
Following my brief remarks, Bob will provide an overview of our third quarter results and an update on our strategy; Rich will then take you through the highlights of the quarter; and after that, we'll open the call for 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 these forward-looking statements. These documents are available on the Investor Relations section of our website, and we undertake no obligation to update any forward-looking statements.
From time to time, we may refer to sales, which we defined as the value of committed customer contracts. This term is often referred to as bookings or commitments by other companies.
In addition, we speak from time to time about deferred revenue. As a reminder, deferred revenue is a liability that refers to revenue that has not yet been earned and represents products or services that are owed to our customers.
As the products or services are delivered over time, it is recognized as revenue on the income statement. Deferred revenue is an important management – is important to management, because it provides insight into the health of our future revenue.
When we refer to the change in deferred revenue, we mean before foreign exchange, dispositions, acquisitions, and the impact of the write-down of deferred revenue due to purchase accounting, unless otherwise noted. During our call today, we will be discussing a number of non-GAAP financial measures, which we call as-adjusted results, as that's how we manage the business.
For example, when we discuss revenue growth, we'll be referring to the non-GAAP measure revenue growth as adjusted, which is revenue adjusted to eliminate the effect on revenue due to purchase accounting fair value adjustments to deferred revenue and also before the effect of foreign exchange. Additionally, when we discuss organic revenue growth, we are referring to the adjusted revenue before the impact of acquired and divested businesses.
When we discuss operating income, operating margin and EPS, these will all be on a non-GAAP basis, which we call as-adjusted. Additionally, our as-adjusted revenue results exclude the results of discontinued operations.
When we discuss free cash flow, this will be on a non-GAAP basis, excluding the impact of legacy tax matters, potential regulatory fines associated with our ongoing China investigation, and potential payments for legal and other matters. You can find the reconciliation between these and other non-GAAP financial measures and the most directly comparable GAAP measures 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. We do not provide guidance on a GAAP basis, because we are unable to predict, with reasonable certainty, the future movement of foreign exchange rates or the future impact of non-core gains and charges, acquisition and divestiture related expenses, and purchase accounting fair value adjustments to deferred revenue.
These items are uncertain and will depend on several factors, including industry conditions and could be material to Dun & Bradstreet's results computed in accordance with GAAP. Later today, you will also find a transcript of our prepared remarks on our Investor Relations site.
With that, I'll now turn the call over to Bob Carrigan.
Robert P. Carrigan - Dun & Bradstreet Corp.
Good morning, everyone, and thank you, Kathy. Last night, we reported our earnings for the third quarter.
Revenue and operating income each grew 1%. We continue to see growth in deferred revenue, which was up about 3.5% overall in the quarter and 4.5% in the Americas, which was our largest increase since I've been at Dun & Bradstreet.
This growth is due to increased sales of our newer usage and subscription-based products. While deferred revenue was strong overall, revenue for the third quarter was a little behind our expectation.
However, earnings were a little ahead of our expectations. We continue to expect full-year revenue growth of 4% to 6% with 1.5% to 3.5% organic.
As you know, the fourth quarter is our largest quarter and has also been the fastest-growing over the past few years, a trend we expect to continue. As we enter the fourth quarter, let me take a moment to talk about where we are in terms of our strategy and execution.
Last month marked my third anniversary at Dun & Bradstreet. And as I reflect on those three years, I'm really proud of the work our team has been doing.
But there is still more work to be done. When I started, we set out on a strategy to get growth going at Dun & Bradstreet after years of standing still.
To accomplish that, a big part of our strategy has been making Dun & Bradstreet's crown jewel assets, our data, capabilities, and insights, available through modern channels, as-a-service. As-a-service delivery includes Data-as-a-Service, or DaaS, where our data is delivered through APIs as with D&B Direct or embedded in our customer solutions through alliance partners.
As-a-service also includes cloud delivery of data and services. And the benefits of cloud delivery are well-documented and include ease of upgrade and maintenance that lead to lower costs over time.
I'm pleased to say that we have just crossed an important threshold, as 20% of our total revenue in the Americas over the last 12 months has come from our cloud-based and as-a-service solutions. And these products are growing at a much faster rate than the rest of the business, which is a very exciting trend and why modernizing delivery is a cornerstone of our strategy.
For our customers, delivering our data as-a-service means more of our data is available in their workflows across platforms and updated in real-time. It means having our data always on, in the tools they prefer to use at the time they need it.
That means they have the most up-to-date and accurate data every time they access it rather than waiting for a monthly update. For us, as-a-service delivery makes our data more useful and stickier, enhancing the value of the revenue we generate from newer delivery products.
We're making steady progress towards transitioning our legacy products onto newer platforms. DNBi is one example.
Earlier this year, we launched D&B Credit, a natural step in the evolution of DNBi into the cloud. D&B Credit is a reimagined DNBi with improved features and functions.
Over the second and third quarters, our teams have revved up the sales engine on D&B Credit in both the Americas and the UK, and we're starting to get some traction both converting DNBi customers to D&B Credit and signing new customers. Reported results for DNBi, which includes both traditional DNBi and D&B Credit improved in the third quarter in the Americas and showed nice growth in the Non-Americas, which led to better trade credit performance overall.
DNBi in the Americas was down 2% in the quarter after being down about 4% through the first half of the year. Stabilizing our legacy trade credit product is an important step in our strategy to get the company to growth.
It's still early days for D&B Credit, but we feel good about the conversations we're having with customers, as we gear up for the important renewal season, given that about half of DNBi sales happen between December and March. D&B Credit is a great example of our moving a major revenue stream to as-a-service delivery through the cloud.
Data management is another area, where we are well-positioned to help customers and is also an area that can be energized by our movement to as-a-service. For years now, the focus has been on big data, for good reason, as companies rely on having data available to make critical decisions.
Companies are capturing vast amounts of data about their customers through their operation. But the challenge companies now face isn't just having the right quantity of data, it's ensuring that the data they have is clean and comprehensive.
In other words, they need good data management practices to make the data useful. Our customers' need for clean, structured data is something that we've been talking about since I joined the company.
And by organizing around Dun & Bradstreet's crown jewel assets, the world's largest commercial database, the D-U-N-S Number, linkage and our identity resolution capabilities, our customers can clean and structure their own data and third-party data to enhance their decision-making. We feel very good about our as-a-service strategy.
And as I said, 20% of our revenue in the Americas is delivered as-a-service, and we are working to move the majority of our solutions to as-a-service over the next few years. Now, let me give you an update on how we're doing with our multi-channel sales approach in which we go to market in three ways: through our direct sales channel, through alliance partners, and through our emerging businesses channel.
Now, as a reminder, our direct sales channel comprises large strategic accounts and mid-sized national accounts. Generating new business has been a big focus for us this year, and we're getting traction across both channels, but we still see room for improvement.
Overall, our strategic accounts channel is growing nicely, but our national accounts channel has been a little more challenging. However, we're making progress, and results in national accounts have improved every quarter this year.
In our alliances channel, we've rapidly added new partners to expand the reach of our data into the key software platforms that leading businesses use, such as NetSuite, Informatica, Oracle and others. We are starting to gain traction in some of our newer alliances like Informatica and through our audience solutions products on platforms like Oracle Data Cloud and Adobe Marketing Cloud.
While our sales in these areas are relatively small, they are growing well. Our alliance with Salesforce remained the largest driver of revenue in our alliances channel, though it grew at a slower rate than in the early years of the alliance.
We continue to believe that embedding our data in third-party applications is an effective way to grow revenue while ensuring that our customers have the data they need, when they need it. But while some of our partnerships are growing nicely, others have been slower to develop like our compliance solution for the Foreign Account Tax Compliance Act or FATCA.
We have a good pipeline, but deals have been slow to close as the deadline for FATCA compliance has been delayed until the end of the year, which has created a bit of a drag on our growth in Europe. A key lesson learned in the compliance area is that when we are working in a world of government regulations, we don't control the timeline.
Turning to emerging businesses, we've been really pleased with the progress we've made in serving our small to medium business customers. And as you know, we acquired Dun & Bradstreet Credibility Corp.
in May of 2015. We've been able to integrate the team quickly, and the combined unit has worked so well that we've expanded what we originally envisioned their responsibilities would be.
As an example, we developed D&B Credit on the Credibility platform to move DNBi to the cloud, which was a significant strategic decision we made for the business with our largest product and was not originally contemplated when we made the acquisition. Today, the emerging businesses platform is supporting the entirety of D&B Credit, including enterprise customers as well.
Our emerging businesses channel is playing a major role in the continued modernization of our overall business, and we want to expand the reach of that team and also do much more with their cloud-based platform. I'm happy to be able to say that the performance of the business is ahead of our acquisition economics.
When we acquired Credibility, we put an earnout in place. The structure of the original earnout narrowly define the roles of the emerging businesses team, and as I said, we see additional opportunities for the team and their platform.
We want the flexibility to adjust course to pursue new market opportunities. So, to better capture all of the capabilities we're leveraging with emerging businesses, we decided to evolve the terms of the earnout.
The new earnout accomplishes two goals: one, to have an agreement that allows us to better leverage the capabilities of the team and platform; and two, to enhance opportunities for growth for key individuals with incentives for them to stay at Dun & Bradstreet. So, in summary, we believe the multichannel approach is the best way to serve our customers.
Each of our channels works collaboratively to sell our products and solutions, and they're intended to sell across all channels, so we can eliminate conflict issues that may get in the way of what is right for the customer. In closing, I'm pleased with the work we've done in my first three years at Dun & Bradstreet and the progress we're making as we move to modern delivery of our data, capabilities and insights as a service.
And as we head into the important fourth quarter, we are on track to deliver our guidance for the year: organic revenue growth between 1.5% and 3.5%; total revenue growth between 4% and 6%; operating income growth between 1% and 5%; EPS between minus 2% and plus 3% versus prior year; and free cash flow in the range of $255 million to $285 million. Now with that, I'll turn the call over to Rich Veldran, who will discuss our third quarter results in further detail.
Rich?
Richard H. Veldran - Dun & Bradstreet Corp.
Thank you, Bob. In my comments this morning, I'm going to take you through our results for the third quarter.
As a reminder, we anniversaried the acquisition of Credibility Corp. in the second quarter, so their third quarter revenue is now in our organic phase.
In addition, we closed the Latin America partnership deal that we announced last quarter on September 30, and we expect to close the Benelux deal in the next week. So, revenue from both markets is still included in our organic revenue results for the third quarter.
Our third quarter revenue increased 1% to $413 million, all of which was organic. These results were roughly 1 point behind our expectations primarily due to the loss of a government contract.
The government business can be lumpy as most of the contracts are large and subject to funding approval. Although loss impacted our revenue in the third quarter, growth in the government channel is very strong and ahead of our expectations year-to-date.
Now, let me take you through our revenue by segment. Our Americas segment had revenue of $339 million, which represented 82% of revenue in the quarter and was up 1%.
Within the Americas, Risk Management was up 2% after being down in the low-single digits on an organic basis through the first half of the year. Other Enterprise Risk grew 7% in the quarter, driven by growth in credit-on-self solutions, which are now part of our organic base.
We also had good growth in our data and analytics projects. Revenue in Compliance and Supply was flat, but underlying demand was strong and helped drive the growth in deferred revenue.
As Bob mentioned, trade credit was a little better in the third quarter, declining only 1% in the Americas. DNBi, which includes D&B Credit was down 2%, an improvement over the performance through the first half as revenue from D&B Credit is starting to offset declines in the core DNBi product.
We're pleased with what we're seeing in D&B Credit, especially in the emerging businesses division. We had strong sales of D&B Credit, both in upgrading DNBi customers as well as in new customer acquisition.
We're updating solution every few weeks, bringing more advanced functionality to the platform. And we expect growth from our larger, more sophisticated customers to accelerate as more capabilities come on line.
Revenue in Sales & Marketing was flat in the quarter. Traditional Prospecting was down 6% due to weakness in Hoover's.
Hoover's retention has been steady, but growth from new customers has slowed. Similar to what we've been doing in other parts of the business, we plan to update Hoover's to an as-a-service platform to help drive new business.
Revenue in Advanced Marketing Solutions was up 2% in the quarter due to growth in our DaaS solution, D&B Direct, as well as continued growth in our data integration management tools and DaaS alliances. We had some large deals shipped out of the quarter.
This was expected, but the shift hurt in-quarter performance in Advanced Marketing Solutions by several points. All of the deals in question are shifting to the fourth quarter.
However, in some cases, the customer is switching from Optimizer, where revenue is recognized upfront towards DaaS products like D&B Direct, where revenue recognition is usage-based. As Bob said, we're moving more and more of our revenue to as-a-service delivery like DaaS.
And while the revenue from DaaS is recognized over time, we think it is a more valuable revenue stream, as our data is embedded in the customer's workflow. In Non-Americas, revenue was $74 million in the third quarter, which represented 18% of revenue for the company.
Non-Americas revenue increased 2% in the quarter due to continued strong results from China and our worldwide network partnerships, partially offset by weakness in Europe, particularly the UK. As we mentioned in prior quarters, the deadline for mandatory compliance with FATCA requirements has moved out to December 31, delaying our sales efforts in this area.
Deferred revenue was up about 3.5% for the company before the effect of foreign exchange and M&A. In the Americas, deferred revenue increased about 4.5%.
On a dollar basis, this represents the biggest growth in the deferred balance in the Americas in the last five years. The growth in deferred revenue in the Americas is largely due to sales of our newer products, including D&B Direct, D&B Credit, and Compliance.
Turning to profitability, operating income was up 1% in the third quarter which was a little better than our expectations of about flat. This better-than-expected result is due to expense controls and the timing of investment.
EPS was down 3% in the quarter to $1.79 a share, which was a little better than our expectations due to the operating income performance. The decline from last year is due to a higher tax rate in the quarter compared to our third quarter of 2015 when we had a large release of audit reserves.
We generated $232 million of free cash flow in the first nine months of the year. Turning to the balance sheet, we ended the quarter with $1.6 billion of debt, including about $1 billion of fixed-rate senior notes and $60 million of floating-rate debt.
Our cash balance was $327 million for net debt of approximately of $1.3 billion. And with that, I'll open the call to your questions.
Operator?
Operator
Your first question comes from the line of Bill Warmington with Wells Fargo. Your line is open.
Robert P. Carrigan - Dun & Bradstreet Corp.
Good morning, Bill.
William A. Warmington - Wells Fargo Securities LLC
Good morning, everyone. And so, first of all, congratulations to Bob on the three-year anniversary.
Robert P. Carrigan - Dun & Bradstreet Corp.
Thanks, Bill.
William A. Warmington - Wells Fargo Securities LLC
Okay. So, the question I've been getting this morning is around the growth you need to achieve in Q4 in order to hit the 1.5% to 3.5% organic growth target.
I know that there are some moving pieces in terms of the businesses that are being divested. And so, I just wanted to confirm what the kind of the high – what you need to do in the Q4 to hit the high and the low end of the range?
Robert P. Carrigan - Dun & Bradstreet Corp.
Yeah, Bill. This is Bob.
The Q4 is typically our fastest-growing and our biggest quarter. And yeah, there's a lot of moving pieces, but we do feel like history will repeat from what we've seen in the last couple of years.
We're very focused on execution right now and have good visibility through the end of the year, and that's why we're reaffirming our guidance for the year. And we do see Q4 following a similar pattern that we've seen these last few years.
William A. Warmington - Wells Fargo Securities LLC
I know – I mean, I know it's going to be strong, I'm just trying to get the actual percentage growth, say, the kind of the range that you have to do in the fourth quarter in order to hit that 1.5% to 3.5%. Because I know there's some adjustments that I probably will not calculate right in order to get that calculation.
So, I figure Rich probably has the solution to that puzzle.
Richard H. Veldran - Dun & Bradstreet Corp.
Yes. Yeah.
I won't give you a specific range, because obviously in the fourth quarter, we've got large projects. They can move around in timing but also in terms of what they actually buy if they buy it.
For instance, Direct, that'll be deferred versus Optimizer, which will be upfront. What I will tell you is that we're fully comfortable with our fourth quarter numbers to deliver our guidance for the year.
William A. Warmington - Wells Fargo Securities LLC
Okay.
Richard H. Veldran - Dun & Bradstreet Corp.
So, you can rest assure that we're comfortable with that. Arguably, to hit the high end of the range, we have to be a pretty bang-out quarter.
So, you can factor into your calculus, whether you think that's on the table, but we're very comfortable on the range.
William A. Warmington - Wells Fargo Securities LLC
Okay.
Richard H. Veldran - Dun & Bradstreet Corp.
You were also asking implicitly about the couple of deals that we've done, the Benelux and the Latin America. Won't impact the organic rate.
It's about a $4 million hit to the top line. That is factored into the overall total guidance.
But you can figure that number, and that's where it's found.
William A. Warmington - Wells Fargo Securities LLC
So, we take the $4 million out of the Q4 2015 as well?
Richard H. Veldran - Dun & Bradstreet Corp.
Yeah. If you want to get an underlying organic rate, yes, correct.
If you want to think about the P&L, right, and the total revenue, the 4% to 6% range, you can take $4 million out this year.
William A. Warmington - Wells Fargo Securities LLC
Got it. And then, one follow-up for you.
You mentioned the potential for some accelerated growth from some of the larger customers on the Credit side. That seems like a market where you guys have a pretty strong position.
Most of the big players are your clients. So, what's the plan there in terms of being able to reaccelerate that more mature market?
Robert P. Carrigan - Dun & Bradstreet Corp.
Well, it's really centered around D&B Credit, which again is our kind of re-imagined DNBi for the cloud. And we're really coming up against a very important renewal season for DNBi, D&B Credit, December to March event period.
So, the goal there is to obviously stabilize that business. And we've launched this in the Americas this year and also in the UK in July.
And so, we're in full-on sales mode in getting this terrific solution out in the market. And the customers are loving it.
And it's a very modern solution, a step above, a leap forward in the market. And that's been central to the strategy from the very beginning, knowing that, that's been an area that we dominate in, knowing that we had to address this to modernize what we'd offer.
We hadn't upgraded that product in a very, very, very long time. And so, listening to customers, we have now given them something that they seem to be enjoying.
And the goal is always to get them to transition from the old to the new. And we're, again, in full execution mode on that.
But the good news is we have a solution to actually get this trade credit business stabilized.
William A. Warmington - Wells Fargo Securities LLC
Thank you very much.
Robert P. Carrigan - Dun & Bradstreet Corp.
Yeah.
Operator
Your next question comes from the line of Andrew Steinerman with JPMorgan. Your line is open.
Andrew Charles Steinerman - JPMorgan Securities LLC
Hi. It's Andrew.
I wanted to ask about D&B Credit. You mentioned features and capabilities.
And I wanted to ask sort of two related questions. One, what portion of your DNBi data – customer base have you been able to demo D&B Credit to?
And two, what features and capabilities do they see as value-added versus DNBi?
Joshua L. Peirez - Dun & Bradstreet Corp.
Okay. Hi, Andrew.
It's Josh. Thanks for the question.
So, let me try to answer that in a few different ways. First, as you'll recall, our goal when we said we were going to launch D&B Credit in North America first was really around the emerging business channel growing our adoption there, the ability to generate new business there.
So, I'm pleased that we've seen positive early results particularly from that channel. We've also seen some success in the national channel with new business recently.
And I want to highlight a couple of encouraging metrics. I can't give you a number of customers demoed metric, but I can tell you that we're approaching about 10% of the emerging business trade credit revenue base being on the new product in only five months in market.
So, that's very encouraging, given that those contracts – the peak season is the December to March season. And about half of that – half of those customers are new and about half of those were upgrades for existing customers.
So, those are very good things early on, but we're focused on executing in Q4 with the big half of our revenue between December and March. In terms of the other part of your question and features for some of the larger customers that we think will add value, it's one of the key advantages of a cloud-based offering that we have the ability to constantly innovate and roll out new capabilities on a regular basis, including based on customer demand and request as we see them.
So, their – those features are coming out every couple of weeks. What they're looking for are some of our newest scores, which have not been in the old product, so new predictive capabilities; consistency across markets in terms of both the quality and look and feel of the actual reports; and the expansion of that geographic footprint; as well as new features, like more targeted alert capabilities, where they can get very specific information on exactly the clients they want to know about, so that they can action things more quickly wherever they are without having to shuffle through lots and lots of information.
So, those are the things that we know we have in the immediate roadmap for those larger customers. We expect to really be pushing into those larger customers in the 2017 year.
This year was much more about the emerging business client base.
Andrew Charles Steinerman - JPMorgan Securities LLC
Great. Thank you.
Operator
Your next question comes from the line of Peter Appert with Piper Jaffray. Your line is open.
Peter P. Appert - Piper Jaffray & Co.
Thank you. Good morning.
This is actually an extension of what Josh was just talking about. You've mentioned a lot of it last year, so – about the importance of driving new sales and less reliance on just customer renewals.
And I'm wondering if you have any hard metrics you could give us on that. And I ask this in the context – trying to better understand, the revenue needle really hasn't moved that much yet, so – and I'm trying to figure out how we can really assess if you're getting traction on some of these new sale initiatives.
Robert P. Carrigan - Dun & Bradstreet Corp.
Yeah. This is Bob.
We are seeing really nice traction in new business. But, look, we're in a bit of a transformation, and we're moving from kind of legacy solutions to newer solutions.
And while we're delighted with our progress in new business, and we talked about how we – the main thing we did there, in addition to creating all these great new products and things for our sales people, but we've upgraded our talent, we've modified the comp plans to really shape their behavior, so that much more of their focus is around new business. And again, we're seeing really good progress there.
But we're also dealing with legacy issues, and in some cases, those have been a little harder to deal with. Our priority has been around D&B Credit, and we're glad to have that in the market now.
Hoover's is obviously still a bit of a challenge for us, and that is very much next on our roadmap. And you have to kind of prioritize.
And D&B Credit is, obviously, in terms of its revenue scope, has – really was the priority. So, yes, the new business results are partially obscured by some of the legacy issues, but net-net, we are growing revenue.
We went from years of flat. Five years of no revenue growth.
And if you believe our guidance for the year, this will be the third year of low-single-digit revenue growth. We've seen the largest growth in our deferred revenue balance in the Americas.
At least since I've started here, I think, in about five years, as Rich mentioned. So that would imply that our sales against some of the newer usage-based and subscription-based as-a-service products is taking hold.
And that is exciting. And our reps are really getting excited about a lot of the new things that we're offering them to sell.
Peter P. Appert - Piper Jaffray & Co.
Great. That's very helpful, Thank you, Bob.
Robert P. Carrigan - Dun & Bradstreet Corp.
Sure.
Peter P. Appert - Piper Jaffray & Co.
Rich, can I ask you two-numbers questions? One, on the DBCC earnout, any details in terms of what that's going to look like?
Order of magnitude? And second, you mentioned timing of investment – has timing of some investment spending shifting to the fourth quarter?
Is there some margin impact associated with that in the fourth quarter we should be thinking about?
Robert P. Carrigan - Dun & Bradstreet Corp.
Sure. Yeah.
This is Bob. I'll just start with the emerging businesses earnout, to your question there, the first part of your question.
So, the original earnout was based on financial metrics that kind of became limiting. Because when you do an earnout, you kind of hard-code in time budget and the scope of the accounts and the responsibilities.
And what we've come to realize, and again, we're ahead of our acquisition economics and things have worked out even better than we expected. But we have areas like our national accounts, for instance, there are some accounts within national accounts that could benefit from the emerging businesses offerings and should actually be moved into that channel and vice versa.
There are accounts in emerging businesses that should graduate into more of the field sales approach. So, we want to create kind of the flexibility to be able to do that, plus they have a technology platform that we moved D&B Credit to.
And we have other products that we'd like to move there. So, the new terms, they're really around providing more flexibility.
They're more service-based with retention for the key team members. That's really one of the key focuses.
We wanted to make sure that we gave a lot of those folks incentive to be with us and give them really exciting jobs, so that they continue to grow within Dun & Bradstreet and help us to continue to execute again the good stuff that we're bringing not just to SMB, but even more broadly in the way they're helping us in other channels as well.
Richard H. Veldran - Dun & Bradstreet Corp.
Did that help?
Peter P. Appert - Piper Jaffray & Co.
Yeah. Well, I'll follow up later with maybe more specific questions...
Richard H. Veldran - Dun & Bradstreet Corp.
Yeah. In terms of the absolute numbers, they have not changed.
We haven't changed the amount. So, it's still a fair amount on the same expected timeline.
It's literally – just the trigger is a slightly different set of things that we think are better for us in terms of managing the business.
Peter P. Appert - Piper Jaffray & Co.
I got it. Okay.
Great.
Richard H. Veldran - Dun & Bradstreet Corp.
There's no change in the numbers.
Peter P. Appert - Piper Jaffray & Co.
Got it. Thank you.
And how about in the margin on the investment – the margin impact of the investment spend?
Richard H. Veldran - Dun & Bradstreet Corp.
So, our investment spending this year, we expected – well, beginning of the year, we said we're at $35 million to $40 million. We're on track for that.
About 40% of that's going to hit in the fourth quarter. So, obviously, that just bolt straight to the bottom in terms of margin impact, right.
And it's one of the reasons, as you can see, as we've been in investment mode for the last several years, we've had some pressure on margin. And our full expectation is over time, as you get to, call it, a mid-single digit growth, you're able to expand margin, because you can pay for investments on a go-forward basis.
But you got to get that growth reignited. It's a journey we're on.
As Bob said, we're making progress, and we're just going to keep pushing hard to get to that longer-term mid-single digit growth.
Peter P. Appert - Piper Jaffray & Co.
Got it. Thank you, Bob and Rich.
Robert P. Carrigan - Dun & Bradstreet Corp.
Sure.
Operator
Your next question comes from the line of Manav Patnaik with Barclays. Your line is open.
Manav Patnaik - Barclays Capital, Inc.
Yeah. Good morning, gentlemen.
Robert P. Carrigan - Dun & Bradstreet Corp.
Hi, Manav.
Manav Patnaik - Barclays Capital, Inc.
So, I think – a lot of good commentary around the new initiatives. Obviously, it looks like it's been pulled back a bit by some of your legacy products, as you said.
Going into this year, at least, you had talked about that mid-single digit growth is your target. Do you think next year is the year to be above this low-single digit range, or do you see more of the same until you try and figure out these legacy issues basically?
Robert P. Carrigan - Dun & Bradstreet Corp.
Well, look, we're definitely figuring out the legacy issue, it's just again in a transformation. You're selling the new, you're dealing with the old, and it can be bumpy.
And some parts of that have been a bit more challenging than I thought, but I'm really heartened by what we're doing in some of the newer areas. This – we were like – when you look at the as-a-service category, again, that's kind of API and direct data delivery of our content and also our cloud-based delivery.
We're now again at that 20% threshold. That was a pretty big threshold for us to cross.
When I started, we were in the low-single digits. And that's really good quality revenue and bodes well for the future.
And a lot of that obviously moves to deferred revenue, given its usage-based and subscription-based. So, I feel very, very good about the mix of all the things we're doing.
And again, we are growing after many years of no growth. So, I'm feeling very good about the key elements, the new business focus, the adoption of these newer products, and again, the growing deferred revenue balance.
I certainly do see this strategy putting us at that mid-single digit growth. I feel very confident about that.
But as I've said at the beginning of this year, I don't want to put a timeframe on that. And especially as I sit here right now, we're very focused on closing out 2016.
We have a big quarter here. We're in full execution mode on that.
We want to finish strong. And we're obviously also in budget planning.
And so, we'll share more early next year. And I look forward to that in February.
Manav Patnaik - Barclays Capital, Inc.
Okay. Got it.
And then just another big picture. I mean, you've done a bunch of divestitures.
Also, the two acquisitions that should help the organic growth, I guess, in transformations. I keep going through, I guess, you got to do those sort of things consistently.
Just curious, is there an M&A pipeline that is noteworthy and – because I think in terms of divestitures, you guys might have said you guys are pretty much down. But just curious on the M&A pipeline.
Robert P. Carrigan - Dun & Bradstreet Corp.
Well, look, I'll just comment overall. We're pleased with the moves we've made.
I think the most recent moves we've made in Europe make a ton of sense for us and leaning into our worldwide network model. We really have great options there, and we're excited about what we can do for our customers on a global basis.
And look, there's really no change to our overall M&A strategy. We're always evaluating what's going on in the market and ways to optimize the business organically and inorganically.
Again, I think the deals that we've done to-date have certainly accelerated our strategy. As I said, with Credibility in particular, our biggest one, we're ahead of our acquisition economics.
So, through that lens, we'll continue to evaluate any opportunities.
Manav Patnaik - Barclays Capital, Inc.
All right. Thanks, Bob, for that.
Robert P. Carrigan - Dun & Bradstreet Corp.
Sure.
Operator
Your next question comes from the line of Andre Benjamin with Goldman Sachs. Your line is open.
Robert P. Carrigan - Dun & Bradstreet Corp.
Good morning, Andre.
Andre Benjamin - Goldman Sachs & Co.
Hey. Good morning.
I guess, my first question back to the cost point. I was wondering if you called out the combination of better cost control as well as the timing of investments in the quarter.
So I was wondering, one, how much of the better 3Q EBIT performance was the cost control versus the shift of investment? And, two, was there anything specific that you can call out, where you actually are seeing the better cost control versus the expectation, like what type of initiatives are actually doing better than you thought?
Richard H. Veldran - Dun & Bradstreet Corp.
Hi. It's Rich.
So, we moved close to $3 million of investment into the fourth quarter, and a lot of that was, quite frankly just in terms of some of the innovation work just taking a little bit longer. So, it's more fourth quarter skewed.
In terms of cost control, we've been cognizant throughout the year, as we always are, that if we see something that looks like it's going a little bit slower. So, obviously in this quarter, we realized during the quarter that we wouldn't sign that one government deal, we'd do tighten the belt where we need to tighten it to make sure that we're going to deliver on our expectations for the year.
So, I wouldn't say that, that's anything fundamentally different than just good management and making sure that you'll live to the expectations you've set for your investors.
Andre Benjamin - Goldman Sachs & Co.
Great. And when I look back over, say, the last three years, four years, we know Sales & Marketing tends to get a nice seasonal uplift that it's probably in the $60 million, $70 million range rise, when I just look back over the last three years.
You did call out some one-time shifts in revenue, so I was wondering should we continue to think about it in that same magnitude in terms of the lift in this year's fourth quarter, or should we think about something significantly larger because of the delays in the third quarter?
Richard H. Veldran - Dun & Bradstreet Corp.
I'd say, look, we do expect a spike in fourth quarter as we typically get. Again, I don't want to give you a specific number simply because it's very project-focused, and we are actually actively trying to get customers to shift to D&B Direct, which you may still have the same sales value, but the revenue could actually be deferred in those cases.
We like that model better, it's more embedded. And it would always be my preference to move someone toward a modern solution, away from more of a batch full of resolutions.
But stepping back from it, expecting with fourth quarter, expect an increase in Sales & Marketing, particularly in the Advanced Marketing Solutions. And as I sit here today, feel good about where we're headed.
Andre Benjamin - Goldman Sachs & Co.
Okay. Thank you.
Operator
Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Stephen Hardy Sheldon - William Blair & Co. LLC
Good morning. Thanks for taking my questions.
First, on the FATCA compliance push-out, I know that's obviously beyond your control, but if the current timeline holds for year-in compliance, would you expect to see some of the delayed revenue come in during the fourth quarter? Is that essentially pushing out revenue more into 2017 for e-solutions?
Joshua L. Peirez - Dun & Bradstreet Corp.
Hey, Stephen. It's Josh.
So, first, a lot of the effect of revenue is deferred, because it's as the customer needs to use it in order to review their client base. So, it is just something to note depending when they sign.
A lot of that revenue does end up in deferred. But there are two things going on with FATCA, generally.
The first is the delays in the enforcement dates to the end of the year, which we mentioned. They've been delayed twice though, and so, there are banks who are probably sitting there thinking, hey, maybe this'll get delayed again.
There's also a new similar regulation to FATCA that launches in the first half of next year in Europe. It's called the Common Reporting Standards.
And from our conversations with the large banks in Europe where we've seen the biggest pipeline and most success here, they would like to implement one time and cover both sets of regulations. There's a little bit of both going on.
We expect it to be something that we do see driving revenues next year more than this year at this point. But the sales may well come in, in fourth quarter, they could come in early next year as well.
Stephen Hardy Sheldon - William Blair & Co. LLC
Okay. That's helpful.
And then, just wanted to ask. What were overall bookings?
What was overall bookings growth in the quarter?
Joshua L. Peirez - Dun & Bradstreet Corp.
So, we have said that we are not going to provide sales or bookings numbers by quarter. We gave that metric for the first time for the year at the end of last year and said that we would provide that on an annual basis, because we feel that it's a good indicator of the health of the business overall and something we look at.
But the sales metrics can be pretty volatile from quarter to quarter, so we don't share that on a quarterly basis. We do feel good about the acceleration in deferred revenue growth, which is, of course, an indicator of bookings.
And we're off to a good start overall, have a really nice pipeline that's been growing throughout the year. The team's motivated.
And as Bob said, particularly on the new business sales, we're very pleased with where we are.
Stephen Hardy Sheldon - William Blair & Co. LLC
All right. Thanks.
Operator
Your next question comes from the line of Nick Nikitas with Baird. Your line is open.
Nick J. Nikitas - Robert W. Baird & Co., Inc. (Broker)
Yeah. Thanks for taking the questions.
Just looking at the Advanced Marketing line in Q3 and the deceleration, can you guys – I know you mentioned the Salesforce alliance deceleration, as well as some timing with contracts being pushed to Q4, but could you just help size the impact from both of those?
Richard H. Veldran - Dun & Bradstreet Corp.
Yeah. This is Rich.
We had about $4 million or so of contracts that we would normally have come in the third quarter than have shifted out. They'll benefit fourth quarter, some in revenue, some in deferred, right, depends on the ultimate product that they shift – that they get, but – so, we saw that impact, and it happens to be about a 4-point impact as well on the quarter within Advanced Marketing in the Americas, so that will give you some sense of it.
In terms of the alliances piece, there were two things that are going on there. One of them was one of those deals actually that shifted, that happen to be in alliances that actually impacted alliances' growth to a degree.
And then overall, if you think about our – if you think about our – rest of our alliance business, Josh mentioned that we've signed a bunch of new alliances. They're – been taking a little bit of time to take off.
In terms of the one with Salesforce, that's continued to grow, but at a slightly lower rate than we've seen in the past, primarily because of scale, right. So, as it gets larger, you see a little bit less of a growth in the alliance sub-piece.
Nick J. Nikitas - Robert W. Baird & Co., Inc. (Broker)
Okay. That's helpful.
Thanks. And just the government contract that you guys mentioned impacting organic growth, is that something that had previously been delayed and just ended up not going through or was it shifted to a different supplier?
Can you just talk more about that?
Richard H. Veldran - Dun & Bradstreet Corp.
No, it really simply came down to funding. This particular agency was very happy with the solution.
They didn't get funding. The way the government works is you actually have to get the funding through the government.
Sometimes it happens, you don't get your full funding as an agency, and then you have to make cuts. It literally came down to that.
Nick J. Nikitas - Robert W. Baird & Co., Inc. (Broker)
Okay. Thanks, guys.
Richard H. Veldran - Dun & Bradstreet Corp.
Thank you.
Operator
Your next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is open.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Hi. Thank you very much for taking my questions.
I want to follow up a little bit on that last question and just a comment about Salesforce.com. Has that business reached a scale that we're starting to talk about maturity in terms of the growth rates and stuff like that?
Is there some way you can give us some indication of sizing maybe on an annual revenue basis, or how we should be thinking about that?
Robert P. Carrigan - Dun & Bradstreet Corp.
I'll start. Shlomo, it's Bob.
How are you doing? Look, we have a strong relationship and a strong alliance with Salesforce.
It's been in place for many years. The customers really appreciate the solution.
And so, we're – it's true the growth has come down, but they have a large untapped customer base, and we look forward to continuing to work with them to serve those customers.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
So, is there – that's what I'm trying to understand. I would think that given the vast opportunity, there are probably other ways for you to expand with them.
Just I'm surprised we're talking about the slowing. What – it doesn't seem like it's probably a massive needle-mover for you guys at this point.
Joshua L. Peirez - Dun & Bradstreet Corp.
Shlomo, it's Josh. I guess, just talking to your point, during the course of the relationship we've had with them, we are constantly looking at how we continue to penetrate the base of Salesforce users and also how we look to deliver more value to those customers already consuming Data.com.
And I – we agree with you, we think the opportunity and the potential to do more on the platform, and deliver more value, and make more revenue off it is significant. And we continue to look at ways to do that in the moment.
In the quarter, you see the results. And I can't comment on the specifics of our conversations, but we do see the opportunity there to grow faster.
Richard H. Veldran - Dun & Bradstreet Corp.
Yeah. And just to put it into perspective, in terms of the slowdown on the growth rate, we're still 15-or-so percentage growth for that line of business for us.
It's just down from over 30% if you go back last year. Primarily as the base gets larger, you're obviously going to have lower growth off of a larger base.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Okay. And then can you talk a little bit about the movement from – the products did get recognized kind of more on a one-time or upfront versus subscription?
Is – are you having some of your products that are converting to that subscription basis, pushing up the deferred revenue balance but not necessarily driving absolute revenue growth right now, because you're just converting in the way that the revenue is being recognized?
Joshua L. Peirez - Dun & Bradstreet Corp.
Hey, Shlomo. It's Josh.
So, as a general rule, when we're selling in the as-a-service solutions, we are seeing incremental value. We are selling a lot of new, so a lot of the deferred is coming from the newer solutions and are not simply replacements.
There are occasions where you do see a replacement of an older solution, where maybe that particular product doesn't add as much value versus competition today, let's say. And by moving them into something like a Direct from an Optimizer, we're able to actually give them real-time data on a more refresh basis, better elements.
And in doing so, we actually do see a shift. Oftentimes, that shift comes as an add-on, not just as a straight shift.
So, there's a little bit of the phenomenon of some of the traditional products moving over to the newer solution and shifting what would have been revenue to deferred. As Rich mentioned, there's some impact in the fourth quarter we're anticipating.
It's hard to pinpoint exactly the amount, but most of the deferred balance growth is coming from new sales of new product, or incremental sales on a migration of a customer to a newer solution.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Okay. And I haven't heard anything about NetProspex.
Is there any update over there? And are the growth rates of that company and the Credibility, are they still – I mean, Credibility, you said, is ahead of the expectations.
Are they both growing along the lines of what you they were growing when you bought them? Have they accelerated, gone down?
How should we think of that?
Joshua L. Peirez - Dun & Bradstreet Corp.
Sure, Shlomo. So, the – actually, the – let me just start.
You asked quickly about Credibility. As we said, it's above our acquisition economics.
And the product set that was in the Credibility line, at the time we bought it is actually growing faster than it was at the time of the acquisition. In terms of NetProspex, we have fully integrated the NetProspex team and products into our other products.
So, we actually don't have a standalone measure on NetProspex. It has been exceeding our acquisition economics.
And then we fully integrated that this year. So, we're actually not measuring that as a standalone.
It's just baked in with our products.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Okay. Great.
And then just wanted to get a little more detail on the rework of the incentive comp or however you want to phrase that. Is there – you said the absolute numbers are the same, the triggers are changed.
Is the timing changed at all, or is there a pull-forward to some of the timing for some of those things? It's just unusual for people to just agree to rejigger their comp and kind of raise the bar on them.
Just trying to understand that.
Robert P. Carrigan - Dun & Bradstreet Corp.
Well, Shlomo, it's Bob. I'll start with that.
You're referring to the emerging businesses earnout. And, so, again, our goal was to leverage the capabilities of that group and that team to help with other parts of the business, and also just we want to retain those folks and get them excited about a growing portfolio of responsibilities.
And so, no, we haven't reduced their compensation, but we're evolving the goals to reflect what they're actually doing and what we need them to be doing. And we want them to – we don't want to be kind of frozen around artificial revenue boundaries, around artificial product boundaries.
You kind of take a snapshot in time. We did that back in the middle of 2015, when we nailed the earnout, but we've been working really well together.
That team has had a really positive impact on the overall organization. And this new structure rewards them for that, gives them a lot of incentive for continuing to make progress with us and also in their careers with Dun & Bradstreet.
And it also is just right for the business. It's just – it's what makes sense.
And, look, we're really – with M&A, you got to do it right, and you got to make sure that we properly integrate, and that we don't keep – we don't want two companies within a company. We want to make sure that we maintain the focus on serving small to medium business customers, but we leverage those people and those capabilities for all the talents that they bring.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
I'm not disagreeing with the strategy at all. I think that's the right thing to do.
I'm just trying to understand if we're going to see some kind of impact in terms of increased costs somewhere down the line or just something like that. But strategically, it makes sense, I mean, to drive the revenue if you've gotten the employee base...
Robert P. Carrigan - Dun & Bradstreet Corp.
Yeah. There's no increased cost.
The absolute amount of the earnout hasn't changed. There's no increased cost in that, so...
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Is there some stock comps that got added to it or something like that?
Robert P. Carrigan - Dun & Bradstreet Corp.
I'm sorry. What was the question?
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Was there stock comps that got added to it? I mean, it just sounds pretty unusual.
Rijigger the earnout, you guys can have higher targets .
Robert P. Carrigan - Dun & Bradstreet Corp.
No. But it's – but look, we worked on this with them.
And it's not unusual because for them, it creates – and look, for both sides, it opens up the opportunity, right. It opens the aperture a bit.
And here, we're both coming up against – every day, we'd come up against kind of the measurement of the old earnout, and so, we both – again, we're all in one team, but let's say, the Credibility folks that are covering this earnout, I think if you ask them, I think they'll happy that we've kind of removed some of the artificial barriers that were set up within the original earnout. And so there's a lot of incentive on both sides.
It's just trying to get beyond that and create an earnout structure that's mapped to what they're actually doing for us today and what they should be doing more of. And so, it just makes for a better environment, a better opportunity for them.
And so, there is actually mutual incentives to get that done.
Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.
Okay. Great.
Thank you very much.
Robert P. Carrigan - Dun & Bradstreet Corp.
Sure.
Operator
There are no further questions at this time. I turn the call back over to the presenters.
Kathleen M. Guinnessey - Dun & Bradstreet Corp.
Great. Well, thank you very much.
Thank you for your attention. And we'll talk to you after the end of the year.
Bye.
Operator
This concludes today's conference call. All participants may now disconnect.