Dun & Bradstreet Holdings Inc

NYSE:DNB

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, and welcome to Dun & Bradstreet 2017 Fourth 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. [Operator Instructions].

I would now like to turn the call over to Ms. Kathy Guinnessey, Treasurer, Investor Relations Officer. Ms. Guinnessey, you may begin.

[Kathy Guinnessey, Treasurer & IRO]

Thank you. Good morning everyone, and thank you for joining us today.

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 define as the annual value of committed customer contracts. In addition, we speak from time-to-time about deferred 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. Unless otherwise noted, all metrics on the call will be presented on an "as adjusted" and non-GAAP basis, as further described in our earnings release. You can find the reconciliation between non-GAAP financial measures, and the most directly comparable GAAP measures, in the schedules to our earnings release. They can also be found in a supplemental reconciliation schedule that we post on the Investor Relations section of our website.

Where appropriate, we have reclassified certain prior year amounts to conform to the current year presentation. I'd also like to remind you that we have adopted the new accounting standard ASC 606 effective January 1st, 2018. Beginning with our first quarter results, we will report under the new standard. For ease of comparison, during 2018, we will provide a supplemental schedule with results reported under the prior standard, ASC 605.

Later today, you'll also find a transcript of our prepared remarks as well as a financial model with historical results, on the Investor Relations site.

Now, turning to our call this morning, I'm pleased to be joined on the call by: Rich Veldran, our Chief Financial Officer; Josh Peirez, our President and Chief Operating Officer; and Tom Manning, our newly appointed Chairman of the Board, and Interim CEO. Tom has been on our Board of Directors since 2013, and has served as lead director since 2016. We are looking forward to working with Tom as we continue to execute our strategy.

I'd now like to hand the call over to Tom Manning. Tom?

[Tom Manning, Chairman & Interim CEO]

Thank you, Kathy. Good morning everyone and thank you for joining us today.

As you saw yesterday, we announced that Bob Carrigan, in mutual agreement with the Board of Directors, decided to step down as CEO and Chairman of the Board. As a result, the Board appointed me to serve as Chairman and Interim CEO. I am excited to assume this role and I am looking forward to the work ahead and want to thank Bob for his great work in setting the company's strategy in motion.

As for next steps, the Board is commencing a search for a permanent CEO right away. We expect to engage a leading executive search firm in the very near-term to assist in this process. The Board strongly believes that now is the right time to bring in a new CEO, and I can assure you that we are acting with urgency on this matter. We are looking for a candidate with extensive skills and experience in accelerating top and bottom line growth.

Over the last four years, we have made progress transforming this company. We've improved our data and analytics, developed solutions and capabilities to serve new customer use cases, and modernized our products and platforms. The Board is confident in the strategic direction of the company, and fully believes that this business can deliver sustainable mid-single-digit revenue growth and expanding margins. Our number one priority is accelerating value creation for shareholders.

We believe we should be growing revenue and profit faster. To help accelerate our progress, we engaged management consulting firm McKinsey & Company to undertake a strategic and operational review of our business to help us find ways to speed up the time to realize value. The first phase of their work validated our strategy and identified barriers to growth and cost opportunities. The next phase of their work will include a full portfolio and business assessment and we are open to considering all options for value creation that may be identified.

In the near-term, I am going to be digging in, with management and McKinsey to build a plan to accelerate growth. We are not waiting to make the changes we believe are necessary to move the company toward higher growth and profitability. We've already come up with some important insights from our strategic and operational review. Our strategy is aimed at the right markets; our data is unique and vital to our customers; the newer markets we have chosen to play in are large and growing; and we are positioned to be competitive in those markets. Furthermore, our transition to data-as-a-service helps us meet the demands of today's customers.

However, as we've evolved the business to as-a-service, we've also increased the breadth of our offerings and distribution channels, which has increased the complexity of our company. We expect to simplify and streamline the business.

We also believe there are opportunities to apply more specialization to our selling activities as we go deeper into the sales and marketing space. We are already the market leader in trade credit, and we have a growing compliance and supply business that is a natural extension of our risk offerings. As we expand our sales and marketing value proposition from being primarily a static data supplier to becoming a dynamic player in the digital sales, marketing and advertising space, we are working to make sure that our organization, go-to-market strategy and processes are aligned with that goal.

To further this initiative, I'm pleased to announce that we have hired David Godfrey, who previously ran Global Sales at Gartner, to advise us as we transform our go-to-market strategy and execution. Many of you may be familiar with David's impressive work at Gartner and I look forward to working with him.

Let me summarize. We believe in the strategy. We also believe we should be growing faster. We are putting the right resources in place to speed up our success. The Board and management team are operating with urgency to enhance value for all shareholders.

As I hope you can appreciate, in light of the CEO transition, as well as the ongoing strategic and operational review, we will not be providing 2018 guidance today, but I plan to update you on our first quarter earnings call.

With that, Rich will now discuss our operational and financial results in more detail, and then we will open the call for your questions. Rich?

[Rich Veldran, CFO]

Thanks Tom and good morning everyone. Let me start by echoing your comments. I greatly appreciate the opportunity to have worked alongside Bob for the past four years. He has been a great partner to learn from and I wish him the very best. Looking ahead, I'm excited to work with Tom in his new role, as well as the Board and the management team to drive revenue growth and profitability.

Now, let me turn to our results. In 2017, revenue increased 3%, with 1% organic revenue growth. We grew operating income 3%, and EPS was flat for the year. We generated $224 million of free cash flow.

With strong cost discipline, we achieved operating income and EPS growth that were each better than we expected at the beginning of the year, and we expanded margin by 10 basis points while continuing to invest in the business. In 2017, we invested about $40 million on key initiatives with a strong focus on transforming our technology platforms in order to meet our customers' modern-day needs.

Modernizing delivery of our solutions is a critical component of our strategy. In 2017, we generated nearly 30% of our revenue in the Americas from modern, as-a-service solutions, which makes our data stickier and more useful for our customers and drives higher-value revenue.

We also continued to upgrade D&B Credit and launched the new D&B Optimizer solutions for both Microsoft and Salesforce, and we invested in security and back-end software system upgrades.

Now let me take you through our revenue results by segment in more detail. Total revenue for the company was $1.75 billion. Americas revenue was $1.46 billion and represented 83% of total company revenue. In the Americas segment, Risk Management full-year revenue was flat, as our Trade Credit business declined low-single-digits, while Other Enterprise Risk increased mid-single-digits.

Within Trade Credit, we've had a key focus on improving performance for the D&B Credit suite, which accounts for about 75% of the category. Our goal going into 2017 was to get revenue from the D&B Credit suite to flat for the year. While we did succeed in getting sales to flat for the year, we were about a point short of where we wanted to be on full-year revenue. I am pleased that we showed meaningful progress in the credit suite, particularly in the fourth quarter, where we had strong sales growth. For the year, we improved D&B Credit suite revenue from down 3% in 2016 to down 1% in 2017. Given the trajectory shift and solid fourth quarter sales performance, we expect to get the product suite to flat, at a minimum, in 2018.

Other Enterprise Risk had organic growth in the mid-single-digits again this year. Compliance and Supply revenue growth was strong again in 2017, and we also saw nice growth in Analytics. Credibility solutions also grew, but at a slower pace than in prior years and actually declined in the fourth quarter. We had some staffing issues earlier in the year which we have now rectified.

Sales and marketing in the Americas was up 6% for the full-year, but was slightly down on an organic basis. The inorganic contribution from Avention within sales acceleration drove the 12% growth in that category. Sales acceleration organic growth was down mid-single-digits as 2016 sales declines of our legacy Hoover’s subscription product impacted our 2017 revenue.

Combined sales of our new D&B Hoovers offering, which leverages the acquired Avention platform and our world-class data, were positive in 2017, which will have a positive impact on 2018 revenue. However, as we discussed last year, Salesforce stopped selling data.com to new customers in August, and we expect data.com revenue to decline in 2018 due to normal attrition. As a result, we expect overall sales acceleration to decline 213 somewhat in 2018 due to the data.com decline.

Lastly, Advanced Marketing finished the year up 2%. If you recall, we had a weak first half of the year. However, revenue was up mid-single-digits in the second half of the year, which was more in line with our normal run rate. While the second half was stronger, we did not make up for the earlier shortfall in our full-year results.

Shifting to non-Americas, 2017 revenue was $294.3 million, which represented 17% of total company revenue. Total revenue was up 3%, and organic revenue grew 7%. The organic revenue growth was due to strong performance of our Worldwide Network Partnerships and direct sales efforts in Asia.

Deferred revenue was up 3% for the company, before M&A activity and the impact of foreign exchange. Americas and non-Americas deferred revenue were each up 3%. This growth reflects improved performance in D&B Credit and D&B Hoovers in the fourth quarter, as well as continued growth in our API solution, D&B Direct.

Total company sales during the year were up 3%, with organic sales up 1%. Sales were uneven throughout the year but finished on a strong note in the fourth quarter.

Now let me turn to profitability. Operating income was up 3% for the year, finishing at $462.5 million, with operating margins expanding 10 basis points.

EPS was $7.36 for 2017, up slightly from 2016. EPS came in ahead of our expectations primarily driven by the growth in operating income and lower than planned interest expense. With the prospect of tax reform that would allow us to repatriate foreign cash, we decided not to refinance our senior note that matured in December, avoiding overlap fees and a higher coupon, which were in our original plan. For the full-year, our tax rate was 31.4%, compared with 31.3% in the prior year. As a result of the new tax law, we expect our tax rate to be in the mid-20-percent range going forward.

Turning to the balance sheet, we ended the year with just under $1.7 billion of debt, including about $600 million of fixed rate senior notes and $1.1 billion of floating rate debt. Our cash balance at year end was $442 million, for net debt of $1.2 billion. We expect to repatriate about $265 million of our cash balance this year, based on current FX rates, which will help lower our total debt level.

With that, we'll open up the call for your questions. Operator?

[Operator]

Thank you. [Operator Instructions].

And your first question comes from the line Peter Appert with Piper Jaffray. Your line is open.

[Peter Appert, Piper Jaffray]

Thank you. Good morning. Tom, welcome to your new position.

[Tom Manning, Chairman & Interim CEO]

Thank you, Peter.

[Peter Appert, Piper Jaffray]

I'm wondering you mentioned number one priority creating shareholder value all options to be considered, would those options therefore include things like potential sale of assets, sale of company LBO?

[Tom Manning, Chairman & Interim CEO]

Well, thank you, Peter. As I've said we are focused on accelerating shareholder value creation and immediately considering initiatives to grow revenue and profitability faster so and we're very open-minded about considering all options available to us.

[Peter Appert, Piper Jaffray]

Okay, thank you. And then you also mentioned some points streamlining the business. Can you expand on that set, is that you're considering exiting marketing, changing product mix, et cetera?

[Tom Manning, Chairman & Interim CEO]

Well, the strategic and operational review that McKinsey has provided us thus far which is just concluding the first phase, second phase we will be starting soon that has identified improvement opportunities we're reviewing those now and we expect to really determine how those will impact our go-forward plans.

[Peter Appert, Piper Jaffray]

Okay. And then, Rich, just in terms of the operating results and I'm recognizing you are not at this point giving guidance for 2018, I'm just wondering how you're thinking about the prospects for margin improvement in 2018?

[Rich Veldran, CFO]

Look one of the reasons obviously I said that we're not giving guidance yet is we're looking at our priorities for things that we will do this year that will accelerate. That said, we finished last year with margin expansion. We told you during the year that we were focused hard on taking cost out of the business during the year, while continuing to invest and in fact we did so. I can tell you we are acutely focused now on ensuring that the dollars we spend are the right dollars to spend. So we're looking hard at all areas of the business as we should be doing as proper stewards of the business.

[Peter Appert, Piper Jaffray]

Okay. And then just one last question Rich on the specifics of the operating results credibility down in the fourth quarter after a pretty strong revenue momentum I believe over the last couple of years. Can you -- and you called out some management change but can you just expand on what was going on there?

[Rich Veldran, CFO]

Yes, let me talk a little bit about the emerging business which was the broader business that we acquired. So there's really two parts of it. There's a Telesales Group you'll recall that we put our small business group when we made the acquisition underneath emerging business that group continues to do quite well. So they were selling the DNBi product, the Hoovers product that was actually very good performance under that team.

Where we struggled a bit during the course of this year is as we had people who were ready to be promoted in the credibility group which is the self-awareness product, we promoted some of them up to bigger roles and we didn't do as good a job as we should have in backfilling them. So we had a little bit of a staffing outage and that hurt us in terms of sales. You saw that manifest itself in the fourth quarter because a lot of that is a ratable type business. We're in good shape now though, we filled the staffing as we needed to and we expect that business be an important part of our growth going forward.

[Operator]

Thank you. And your next question comes from the line of Jeff Meuler with Baird. Your line is open.

[Jeff Meuler, Baird]

Yes, thank you. So Tom I think some investors [indiscernible] years the company has spent a lot on initiatives, so in that context the progress has been slow, others say well D&B had another CEO that was unable to grow it. So I guess just more basically, what does give you and the Board confidence that the assets can return to the mid-single-digit growth on a sustainable basis and I guess any more specifics in terms of what some of the barriers to grow for anything beyond just leading to simplify that you or McKinsey has identified thus far? And I guess just finally other than I guess what I call day-to-day execution, what needs to change strategically or in terms of tech infrastructure or whatever other, I guess, bigger initiatives you think are out there?

[Tom Manning, Chairman & Interim CEO]

Thanks Jeff. This is Tom. All good questions, appreciate them.

In terms of your first question my view of this is and the Board is in full agreement. The fundamentals of this business are very sound. The strategy has been validated by McKinsey, we believe there is tremendous opportunity in the business if we can accelerate our progress in growing revenue and profitability and we believe that we can, we've identified initiatives that will take us in that direction. Additionally, we felt that the CEO change was critical at this point in time to help us get to that. So combining all of that, we feel that the future is strong and we're committed to making success happen.

[Jeff Meuler, Baird]

Okay. And as a follow-up to Peter's question, is the Board just open to any and all opportunities to create shareholder value or on his question about a potential LBO, is that something that you would be more actively exploring?

[Tom Manning, Chairman & Interim CEO]

Well, I think it's fair to say that we're very committed to the business because of the opportunities we're witnessing through the review, but we are very open-minded. All Boards obviously have a fiduciary responsibility to remain open-minded and to consider all possibilities and we're certainly in that mode.

[Jeff Meuler, Baird]

Okay. And then could you just help size up for us, maybe this is for Rich, just the data.com, how is customer attention running at this point on it and just if you can upsize up the magnitude of the headwind that you expect there? And then I didn't hear, I don't think any comments on Microsoft, how is the launch and order of magnitude is that potentially big enough to offset the data.com headwind?

[Rich Veldran, CFO]

Yes, hi Jeff. Let me take the first and then I'll ask Josh to talk about Microsoft. So data.com actually finished this year about on par with the prior, so to frame it for you, it is about $50 million or so, we have given you the number in the past. We had expected the decline to begin a lot earlier. They began -- they continue to sell, so the Salesforce team continued to sell through August, so we actually ended up being about flat this year.

Going forward, we're expecting a decline; I can't give you what they experienced in terms of attrition rates because they're another publicly traded company, so I can't speak for them. I can tell you what I'm assuming is that I will lose about $15 million or so million dollars, that revenue call it a point to next year. So I'm anticipating a point of headwind as I go into the year. I can't guarantee to you that's the exact number but based on experience of that type of business that we've seen in others businesses [indiscernible] that's what I would expect and that's what we will be thinking about in our calculus as we prepare our guidance to share with you later.

[Josh Peirez, President & COO]

Jeff, it’s Josh. On Microsoft just to finish off your question, it’s still early days but we’re pleased that we got the products and market quickly last year both D&B Hoovers product as well as our D&B Optimizer product from Microsoft and our focus now is getting awareness among the Microsoft sales reps and our co-sale as well as in the customer base and we expect the sales to ramp over the course of the year.

We don't view Microsoft as a replacement for Salesforce in terms of your question, we see both Salesforce and Microsoft as large ecosystems that we're excited to be a part of and we have a plan in place with Salesforce to get customers on to D&B Hoovers and D&B Optimizer for Salesforce and similarly we've a plan with Microsoft to do the same thing. So we see them as both big independent opportunities for us and not one as a replacement for the other.

[Operator]

Thank you. And your next question comes from the line of Andrew Steinerman with J.P. Morgan. Your line is open.

[Michael Cho, J.P. Morgan]

Hi good morning. This is Michael Cho for Andrew.

[Tom Manning, Chairman & Interim CEO]

Hi, Michael.

[Michael Cho, J.P. Morgan]

My first question is -- hi -- I guess, as you look to accelerate the top-line organically looking ahead, I mean, do margins need to go down before organic revenues go up?

[Rich Veldran, CFO]

Look, where as I said, we will do is share with you our plan for the -- for guidance for this year at the proper time, Tom has been in the role for a day, so he does need a little bit of time to get his arms around things. What I can tell you, what I will continue to reiterate is we are looking across all of our cost base to make sure that every dollar we spend, spent in the right way, and there will be cost that we will be taking out and in fact there are things that we are doing as we speak that will take cost out of the business because it is our fiduciary role to make sure that we're spending our assets wisely. But we'll talk to you in 90 days or so in terms of the guidance discussion.

[Michael Cho, J.P. Morgan]

Understood, thanks. And then just one on I think you mentioned that you’re looking to engage an executive search firm but not yet, so I mean how long do you expect the search to last?

[Tom Manning, Chairman & Interim CEO]

Hi Michael, this is Tom. In response to your question we are right at this point engaging an executive search firm that will be completed in the next several days. We have the usual process as you're aware with executive search we're setting forth a spec and moving forward with candidate identification and the like. So I can't really predict the timeframe but these things it will basically take the usual amount of time for search. And we're going to really access the best candidates we have and we’re clearly acting with urgency on this, it is very important to us that we have this underway immediately and the board's resolute making that happen.

[Operator]

Thank you. And our next question comes from the line of Bill Warmington with Wells Fargo. Your line is open.

[Bill Warmington, Wells Fargo]

And Tom, welcome to the CEO role.

[Tom Manning, Chairman & Interim CEO]

Thank you, Bill.

[Bill Warmington, Wells Fargo]

Q4 is normally your strongest quarter organically and I -- at least it has been in the past two years and I’m just struggling to understand what it was that happened this quarter that resulted in it being close to flat?

[Josh Peirez, President & COO]

Hey Bill, it's Josh. So let me just start, as Rich mentioned, our Q4 sales were strong, they were the same rate of growth in 2017 as we obtained in 2016. As we shared on our Q3 call, we did have a slower sales in the earlier part of the year which we expected to impact our Q4 revenues, as we left Q3 with a flat deferred balance after the previous year having been at a plus three coming out of Q3. So that drove a part.

We also mentioned that we had some timing that had benefited Q3 that then obviously came out of Q4.

And then, finally, we saw a little bit of mix change where we had more sales in Q4 that were deferred which is actually good because it was strong sales of things like D&B Credit, D&B Hoovers, and D&B Direct, so the various solutions we want our customers to go to. So we had more sales that had a deferred mix in Q4 which is reflected in the strong deferred balance coming out of Q4 into this year.

[Bill Warmington, Wells Fargo]

And then from a shareholder value perspective, I wanted to ask whether you saw that it made sense to invest more money and time trying to grow the business and I ask that in the context of someone who has covered the company since 2010, who has lived through now two failed turnarounds and has witnessed a lot of money being spent to try to generate some growth. The other thing that we see happening to make it a little more challenging is it looks like increased competition coming your way whether it's from Moody’s VVD some international players like Creditsafe, some smaller players like Cortera, CreditRiskMonitor, it's a tough environment and I think the fact that you had a couple of very qualified CEOs take a swing at it and not be able to achieve it says something. So that's the context for the question.

[Tom Manning, Chairman & Interim CEO]

Bill, this is Tom. I appreciate your question. But let me assure you that the fundamentals of the business remains sound. I've been very close to the McKinsey report which has validated the strategy. And I've been very pleased in the opportunities that the identified. So I’m confident that there is value in this business and there are growth opportunities on both the top and the bottom line. And we intend to get at those very judiciously in the next days and weeks and I’m very eager to report back to all of you in the next call with exactly what those plans will be.

[Rich Veldran, CFO]

And Bill I’ll reiterate that as we pursue driving the top-line against the strategy that we’ve laid out, we will certainly be looking hard at the cost side of the things. So this is not one of the other, it’s both and that's the game we're playing here.

[Bill Warmington, Wells Fargo]

Okay.

[Rich Veldran, CFO]

You wanted to ask a little about competition I will ask Josh to translate on there to complete your set of questions.

[Josh Peirez, President & COO]

Thanks, Rich. Yes, thanks Bill for the question. I think we feel that we’re very well-positioned with our new products in the areas where competitors are focused. So in the D&B Credit Suite we are seeing ourselves win. We’ve seen a trajectory shift in the performance of the product, as Rich said, we did have flat sales for the year which was a very important milestone for us in the move to grow this product line and feel well-positioned there as in our other spaces with our D&B Direct Product or D&B Hoovers product among others.

So we think we’re well-positioned to address the competitive challenges, we’re also pleased that McKinsey has validated that opportunity and that strategy and helping us to make sure that we are packaging and bundling these things properly.

[Operator]

Thank you. And our next question comes from the line of Shlomo Rosenbaum with Stifel. Your line is open.

[Shlomo Rosenbaum, Stifel]

Hi thank you very much for taking my questions. Hey, Tom, could you share with us little bit about what McKinsey told you that is so attractive that leads you to believe that someone else can get the mid-single-digit growth, just how about some specifics in why this is attractive and why some of the things that Bill was just referencing are not really what's impacting the business right now?

[Tom Manning, Chairman & Interim CEO]

Shlomo, Tom here. Thank you for your question. I would say right at this point the key thing is that we see potential for continued growth and McKinsey's validation of our strategy has been very impressive to us. I don't want to get into a lot of specifics in this regard but we're going to have an opportunity to talk through this with you more thoroughly soon.

I’m also heartened by David Godfrey joining us on the sales side and he is going to be advising me personally on our sales effort and how to really accelerate that process and improve our execution there. So that's another aspect that we probably haven’t apart from our prepared remarks have not really emphasized sufficiently. But I think that’s going to make real difference for us too.

[Shlomo Rosenbaum, Stifel]

Okay. And then can you go little bit through what’s going on in the D&B Hoovers and the growth trajectory over there some of the puts and takes based on what you’re seeing now, I mean what kind of growth is a reasonable growth rate in 2018 and beyond over there?

[Josh Peirez, President & COO]

Hey Shlomo, it's Josh. So I think as we said we’ve been seeing low-single-digit growth in the D&B Hoovers suite which includes Avention customers that have moved over as well our Legacy Hoovers and the new D&B Hoovers product.

That’s been consistent throughout the year, we’re pleased with it, we finished along that same trajectory. We do expect to be able to accelerate that. We think our products are far better than anything else in market. We continue to see the overwhelming majority of customers that are buying our D&B Hoovers product buying the higher level of the product with the integrations and to CRM, so that's extremely encouraging for us. And we in Q4 alone converted more than 10% of the legacy base onto the new product. So we’re actually started to move very aggressively in getting the customers upgraded. So we’re pleased about that.

I think that as Rich mentioned in his remarks when we report on the sales acceleration line more generally we do include data.com in there which as he mentioned does have a drag of about a point for the company that we see in 2018. So that will be a drag on the line, but as we’re looking forward to the future, we do expect the D&B Hoovers, Suite and Product to be a grower and we do expect it to accelerate from the low-single-digit we saw in only our first year here. So we're encouraged very much by what we're seeing.

[Shlomo Rosenbaum, Stifel]

Thank you. If you don't mind I wanted to squeeze one more in. Has McKinsey been a consultant to you guys through the year as well or is this is a new thing that you’re bringing them in, I’m just trying to understand have they been consulting and they have not been and we have a fresh set of eyes or this kind of just a continuation of their ongoing relationship with the company which would end if you guys sold the company.

[Rich Veldran, CFO]

Hi, Shlomo, it's Rich. This is a brand new engagement, they've been with us about two months, we have not used them prior to this, nor have we used any of the large firms. So we felt it's important and the board felt it's important. Two, take a hard look at the strategy, look at the execution, it was the right time to do that. So and that's when they brought them in.

[Operator]

Thank you. Our next question comes from the line from Tim McHugh with William Blair. Your line is open.

[Tim McHugh, William Blair]

Yes, thanks. Just a more specific numbers questions. One end I missed your comments on the debt I guess so you didn’t refinance the debt and you're onshoring some cash, so can you talk us through your plans for financing? And then, can you talk at all about free cash flows and I guess for the year ended up coming in sort of weaker than I would have expected?

[Rich Veldran, CFO]

Yes, so a couple things, in terms of the debt we have a little more floating than we might normally have right, so it's about a $1.01 billion.

We looked at our repatriation; we are bringing back about $265 million that's our estimate. So we decided to not refinance the bond at the time. We may swap more that out to fixed as we go into the year, I don't want as much floating exposure perhaps as we have in the moment, but we wanted to get through the repatriation before we made any final decisions on what we did, so that's the piece on that.

In terms of free cash flow, you may recall there's a couple of things that impacted us this year that were in some ways one-timers. We had a settlement of a lawsuit that was part of the credibility acquisition we knew about it at the time of the acquisition we ended up paying that this year, it was about $10 million. We also had higher sort of interest this year. So we had some more interest expense and we had the credibility earnout payment was also roughly $9 million higher than in the prior year. We mentioned all of those coming into the year and those were the biggest pieces of the difference.

I guess the last piece I'll probably mention is we did take a lot of costs last year our restructuring costs which are considered in our free cash flow were a bit higher than they had been in prior years. So you take all those together those were really the pieces that brought free cash flow towards somewhat the lower end of the guidance range.

[Tim McHugh, William Blair]

Okay. And then on Trade Credit can you talk about the medium-sized clients I think that was part of the discussion last quarter in terms of where you had seen weaker trends than you had expected. Have you seen or have you've been able to turnaround the performance in that part of the client base.

[Josh Peirez, President & COO]

Hey, Tim, it's Josh. So we were very pleased with our Q4 sales they were strong sales for the quarter and it allowed us to finish the year at flat sales, as Rich said, which was an improvement from the first three quarters year-to-date as well as over any other year in the recent history. And in fact if you look at the overall metrics, we saw our capture rate which again is how we calculate our combined retention plus price lift on existing customers for the year we saw in the mid-90s range which is a bit of an improvement from what we had been seeing and we also did over $16 million of new business including a lot in the small and mid-sized categories.

So we feel really good about where we came out of Q4, it is one of our two really big quarters for the product as you know and we're hopeful that those trends are going to continue in Q1 and into the rest of the year which is why, as Rich said, we're comfortable that we should be from a revenue perspective at least flat, if not better through 2018.

[Operator]

Thank you. And our next question comes from the line of Manav Patnaik with Barclays. Your line is open.

[Manav Patnaik, Barclays]

Thank you. Good morning gentleman. My first question is it sounds --

[Tom Manning, Chairman & Interim CEO]

Good morning, Manav.

[Manav Patnaik, Barclays]

Hey, it sounds, like McKinsey has validated your strategy which you’ve said several times. So is the -- has the issue then just seen been execution of that strategy and I guess my question related to that is obviously we applied -- applaud the David Godfrey hire who we're actually looking forward to working with again, but I was just curious like are you planning other hires or changes along the way are you going to let the new CEO do that?

[Tom Manning, Chairman & Interim CEO]

Thank you, Manav. This is Tom Manning. I appreciate your questions. First of all in terms of the approach, excuse me for one second. Sorry, Rich do you want to continue?

[Rich Veldran, CFO]

Yes, sure.

[Tom Manning, Chairman & Interim CEO]

Tom is joking there a bit. I don't want to get caught.

[Rich Veldran, CFO]

Yes, so look couple things that are the most important. If you think about the overall strategy, think McKinsey has worked with us and validated at the places that we're playing, all the market spaces are the right places to play. There is lots of opportunity and the assets that we bring to bear are considerable and they do make a difference. Our execution has been subpar. Like we all know that they've given us lots of ideas around how to fix that up, so we're planning to do that. And then in terms of David Godfrey obviously he's got a tremendous track record. We were very fortunate to be able to bring him on to help us think about our own sales execution and we're pretty excited about it. I'll give it back to Tom now to add anything.

[Tom Manning, Chairman & Interim CEO]

Thanks Rich. My throat can never go appreciate that. Hi, yes, Manav I would just reiterate Rich's point essentially the validation of our strategy confirms that the market is there. Our products are there. The business model works it's producing cash, it's producing momentum but it's not producing enough momentum, so what is the cause of that we do think execution is a culprit. We want to get at that, it's one of the reasons we want to further streamline and simplify our business, so that we can speed up execution and speed up time to realization of value.

So we're much more confident as a result of this set of findings and we want to convey that to you. Additionally, I'm very excited to work with David, because I think he's going to bring some fresh perspectives to us that will be very useful, sounds like you know him or know of his success, so you can appreciate what I'm saying and additionally in terms of the rest of the organization we're going to continue to match the needs that we have to what the marketplace requires as we always have over time, so thank you.

[Manav Patnaik, Barclays]

Got it. And then in the first phase of the McKinsey study I guess did they take a look at your technology infrastructure and so forth and did they have any comments there that you could share and I was just curious when do you expected the next phase to be completed by?

[Tom Manning, Chairman & Interim CEO]

They took a look at the entire set of operations throughout the company including technology. We've had numerous discussions about the direction of technology; they've confirmed the direction we're moving in is correct. And we feel that there are opportunities obviously for further simplification over time and we intend to get at those. The next phase is getting underway now. And we'll have more to report on that on our next call.

[Manav Patnaik, Barclays]

Okay. And then just last question for you maybe Rich the 606 impact, any color directionally or quantitatively, how we should think of that?

[Rich Veldran, CFO]

Yes, so here's just, as a starter let me tell you what we're going to do. We will report both ways because you need to understand the apples-to-apples right. So the fact that accounting is changing we're not going to give you new set of results that you can't understand from the old set. So when we not ultimately give guidance we will show apples-to-apples guidance. We will report both ways so you'll be able understand both. What I would expect to happen is more of our Optimizer business will become ratable over time exactly ultimately a good thing.

As part of that, we'll see a little bit of a push out in the fourth quarter of some revenue into the next year. So in the -- in this year alone you'll see call it maybe a point that will push out but the underlying in the 605 to 605 basis is what we will discuss because that's what you really need to understand what is the progress on an apples-to-apples basis.

The other nuance of that is some of your commissions will also be pushed out. So in terms of operating income we expect that to be a little bit more neutral because you'll push out a little revenue, you'll put out a little cost, free cash flow should be relatively unchanged because that's not impacted really by the change in accounting, so hopefully that helps. So I'll give you more color on that in the first quarter.

[Operator]

Thank you. And our final question comes from the line of George Tong with Goldman Sachs. Your line is open.

[George Tong, Goldman Sachs]

Hi, thanks. Good morning. I want to go back to McKinsey’s initial findings around the business you’ve indicated you have identified barriers to growth and cost opportunities. Can you elaborate on what some of those barriers to growth specifically are and whether those findings are incremental and new to the management team?

[Tom Manning, Chairman & Interim CEO]

George, this is Tom. The McKinsey effort identified opportunities for us to streamline and simplify our processes and those insights are going to be very useful to us in really taking out cost and accelerating how we go to market. So we're very keen on pursuing those, we’ll have more to report on that on our next call.

[George Tong, Goldman Sachs]

Got it. In recent quarters, there has been a lag around converting middle market customers to D&B Credit due to discrepancies around product features; can you provide an update around the S&B migration to D&B Credit?

[Josh Peirez, President & COO]

Hey George, it’s Josh. So I think as I shared earlier, we did see Q4 have a trajectory shift from what we had seen in the middle of the year in Q2 and Q3 which we were pleased about in sales and it was reflected in our overall ability to actually have flat sales year-over-year and the product that included improvements in mid-market and it's actually a big part of our plan for this year to be more aggressive in starting to move those customers more assertively to our new product.

What I can tell you is that we have more than 40% of our combined DNBi, D&B Credit customer base now on the new product D&B Credit, it reflects about 20% of the total revenue of the product. So we're moving up market now, so the customers who do have a higher annual value and we expect to be able to do well in moving those customers to the new product.

One other, I think important point as we're doing that is that we continue to also see strong new sales and so we've grown the customer count in this product for the last two years which was something that had been declining pretty significantly before that. So as we've launched the product, we were happy to turn the tide on customer growth in 2016. We actually saw an acceleration in that new customer growth in a significant way in 2017 which gives us good confidence, so it's not just about upgrading those mid-market customers. It's also about those new sales which is the lifeblood of course of any successful company.

[George Tong, Goldman Sachs]

Got it, very helpful. And then I guess last question in the past you've targeted delivering margin expansion when you see mid-single-digit revenue growth that seems to have shifted somewhat to margin expansion even with low-single-digit revenue growth, can you discuss what's changed structurally to enable you to drive margin expansion even with lower top-line growth?

[Rich Veldran, CFO]

Yes, George. It comes very simply down to this and it some ways we share the same frustration with the pace of our revenue growth that you have. We took a look at our business and said look we are not moving the top-line fast enough. We need to actually take a hard look right now and we've began doing this in Ernst during last year and take cost out of the business while we invest in a much bigger way.

So the expansion even in the lower single digit world will come from driving more and more efficiencies, doing more and more process reengineering, and making sure that we tighten things up to the max. So that's we've been focused on. Because at the end of the day, profitability we all know matters greatly and we can't wait while we're getting to the revenue growth that we expect to capture, so it just comes down to that.

[Operator]

And there are no further questions at this time. I'll turn the call back over to the presenter for closing remarks.

[Kathy Guinnessey, Treasurer & IRO]

Okay, great. Well, thank you very much and we look forward to talking to you again next quarter.

[Operator]

Ladies and gentlemen this concludes today's conference call. You may now disconnect.