Good day, ladies and gentlemen, and welcome to the Deluxe Corporation Third Quarter Earnings Conference Call. My name is Dave, and I'll be your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes. I'd now like to turn the call over to Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Please proceed, sir

Thank you, Dave, and welcome everyone to Deluxe Corporation's Third Quarter 2013 Earnings Call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on the call today are Lee Schram, our Chief Executive Officer; and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks. Lee, Terry and I will take questions from analysts. I would like to remind you that comments made today regarding financial estimates, projections and management's intentions and expectations regarding the company's future performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. As such, these comments are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those projected are contained in the press release that we issued this morning, as well as in the company's Form 10-K for the year ended December 31, 2012. In addition, the financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which is posted on our Investor Relations website at deluxe.com/investor. This information was also furnished to the SEC on the Form 8-K filed by the company this morning. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release. Now, I'll turn the call over to Lee.

Thank you, Ed, and welcome to Deluxe, and good morning, everyone. We delivered our third outstanding quarter this year and are well-positioned to grow revenue for the full year 4% to 5% despite a continued sluggish economic environment. If achieved, 2013 will represent the fourth consecutive year of revenue growth. The last time we achieved 4 consecutive years of revenue growth dates back 17 years to 1996. We reported revenue in the third quarter near the upper end of our outlook and earnings per share exceeded the high end of our outlook. Revenue grew more than 5% over the prior year quarter. Small Business Services revenue grew almost 9%, and Financial Services revenue grew over 4%. Checks and forms performed well, and marketing solutions and other services revenues grew 18% over the prior year. Adjusted diluted earnings per share grew 13% over prior year. We generated strong operating cash flow, and we were not drawn on our credit facility during the quarter, increasing our balance sheet cash position $55 million from last December. We also repurchased nearly $2 million of common shares in the quarter and have repurchased $34 million year-to-date. We continued our brand awareness campaign to help better position our products and services offerings and drive future revenue growth. We also advanced process improvements and delivered on our cost reduction commitment in the quarter. In a few minutes, I will discuss more details around our recent progress and next steps. But first, Terry will cover our financial performance.

Thank you, Lee. Earlier today, we reported diluted earnings per share for the third quarter of $0.92, which included losses of $0.04 per share from restructuring and related costs. Excluding these costs, adjusted EPS of $0.96 exceeded the upper end of our outlook and was 13% higher than the $0.85 reported in the third quarter of 2012. The restructuring charges are primarily for employee severance and infrastructure consolidations. Revenue for the quarter came in at $398 million and grew 5.2% over last year, including 3.2% of organic growth. Small Business Services revenue of $265 million grew almost 9% versus last year. While we continue to operate in a weak, small business economic environment, we delivered growth in marketing solutions and other services, which included the impact of recent acquisitions, accessories and checks revenue. Our online Safeguard distributor, major accounts and dealer channels, each reported growth in the quarter. Financial Services revenue of $86 million grew over 4% versus last year due to higher marketing solutions and other services revenue. The impact of lower check orders was more than offset by the benefits of a higher revenue per order. Direct Checks revenue totaled $46 million, which was down almost 10% on a year-over-year basis. Moving on to a products and services revenue perspective, checks were $221 million and represented 55% of total revenue. Business products were $91 million or 23% of total revenue, and marketing solutions and other services were $86 million, which represented 22% of total revenue. Gross margin for the quarter was 64.3% of revenue, which was down 0.9 points from 2012. Less favorable product mix and increased material and delivery rates were only partially offset by benefits from price increases, improvements in manufacturing productivity and delivery initiatives. SG&A expense increased $2.2 million in the quarter and was 43.6%…

Thank you, Terry. I will continue my comments with an update on our key revenue growth area, marketing solutions and other services, and insights to-date on our brand awareness campaign. I will then highlight progress in each of our 3 segments, including a perspective on what we hope to accomplish in the fourth quarter. And finally, provide some context looking forward to 2014. Our primary focus for the balance of the year continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues, which represents our most significant revenue growth opportunity. We will continue to assess potential small to medium-sized acquisitions that complement our large customer bases with a focus on marketing solutions and other services. We are adding more products and services to our portfolio and believe our strong small business channel reach, including financial institutions, online, retail, wholesale, feet on the street distributors, dealers, partners and major accounts, is a differentiator for us in the marketplace. Deluxe is now more capable of helping small businesses pursue their passion as a trusted provider of a growing suite of products and services a small business needs to market and operate their business. And helping small to midsized financial institutions with customer acquisition, risk management and other value-add services offers. Here is an update on our 4 subcategories framework for marketing solutions and other services. We ended the third quarter slightly below our expectations for revenue, primarily driven by slower rollouts in the wholesale services space than anticipated. First, small business marketing is expected to represent approximately 40% of revenue in 2013 with expected growth in the low-teens this year. We saw low-teens growth in the third quarter in this category as we cross-sold to our customer base and added new customers through distributors, dealers…

[Operator Instructions] This comes from Charlie Strauzer at CJS Securities.

Well, first of all, congratulations. It seems like the momentum is building nicely in the marketing solutions and other services segments there, and it sounds like you've got some pretty good traction in some of the new offerings there. And, Lee, if we look at the kind of the whole picture and you talk about your 25% of 2014's revenue should come from that segment, what do you think the -- kind of the key growth drivers are going to be? Is it more just getting the brand awareness campaigns to kick in, is it more of the outbound calling centers' upsells? I mean, where do you think you're seeing the best traction now and what do you think it will kind of be next year?

Let me go down, Charlie, the 4 subcategories to give you a little perspective here. We have had 2 very strong quarters in a row in the web-to-print space. We are building on the core that they had in getting more customers to buy various web-to-print offers. We also are bringing that solution into our core customer base, as well as into our dealer, our Safeguard, our major account channels. And what I would tell you is we're not nearly penetrated in any of those channels. Some of them, we're not even a 1/4 to 1/3 of the way into those channels at this point. So we see wonderful opportunities in this basis. We also see opportunities within that marketing category in some of the more discretionary products, and I mentioned we're seeing a little sluggishness right now in the economy. We're still growing very nicely there, and we see those opportunities as we move into next year as well. In the web services space, it's a combination where we see opportunities for growth across all the categories in there. So again, I mentioned on the call, it's wonderful already to see logos and web hosting and web services being sold into that 45,000 customer base in VerticalResponse. So we see more opportunities there. We see more opportunities with wholesale telco accounts. We're working accounts now. And unfortunately, as I mentioned in the call, in the prepared comments, we have timing issues that are always moving around a bit, but we've got secure deals that we're migrating in and we see more opportunities in that space next year as well. We also see, obviously, the opportunity when we get this premium model into the market early next year at VerticalResponse, to start building on that e-mail marketing platform as well. Growth opportunities in both search engine marketing and optimization as we get more partners, more resellers on board, and also payroll services opportunities as well. So feel very good about that category. I think we'll see solid growth in the whole risk management, fraud, security across all our 3 segments. I think there's -- the growth rates there are not expected to be as big as the growth rates in the first 2 categories, but I think we'll see strong growth there. And then we are excited, it's a very small acquisition we made in the quarter with ACTON, but what an opportunity for us to take what's starting to become a better opportunity in Cornerstone for us and really build upon that and combine it, obviously, cost reduction efficiencies, but also synergies on how we go to market there. And that data and analytics platform at ACTON is just a wonderful opportunity for us as well. So hopefully, you get a sense that there's really wonderful opportunities across all 4 of those subcategories, and we feel very good about where we are and excited about the fourth quarter and then as we proceed in the next year.

That's very helpful, Lee. Thank you. And I think when you look back a few years, you used to talk about share of wallet with your existing customer base on the check side. And you kind of look in fast forwarding now to where we are today and how you had some success now, are you satisfied where kind of that share of wallet is today versus maybe where it was 5 years ago?

As far as the check share of wallet.

Well, I mean, you talked about taking that share of wallet for the customer that was buying checks from you and increasing it through selling other services. And it sounds like, obviously, as that kind of progressed over time, you've had very good success in the Marketing Solutions side. And now that -- with kind of looking at, in retrospect, are you kind of happy where you are now in terms of expanding kind of your ARPU, if you will, with your existing customers?

Yes, absolutely. I mean, I mentioned we've increased average order value, we've seen conversion rates get better. But Charlie, there's more opportunity here for us. And I want you to think about it and the other investors here on the call, that one of the things that we're starting to build out in a richer way is taking the platform, that core web services platform that we have and bringing all of those other offers that we've added to that web services portfolio suite, whether they'd be the logo area or the e-mail marketing area or the search areas, and really making that a simpler and a more ease-of-use and a better customer experience. And we're working on that. We've done some things to improve there, but we're working hard behind the scenes right now to even build that out in a bigger way. And we think when we get that platform and that ease-of-use, that opportunity to put more of that lift and reach and that cross-sell into our customer base is going to be a nice play for us.

Your next question comes from the line of Randy Hugen at Feltl and Company.

First, I just want to clarify on your EPS thoughts for 3% to 6% growth into 2014. Were you thinking about that from a GAAP basis, from an adjusted basis, or really from both?

Hi, Randy, this is Terry. That's from an adjusted basis, so the adjusted range that we have given is adding on top of that.

All right, perfect. And then in the Financial Services segment, margins were up year-over-year but it looks like they tick down a bit sequentially. So what was behind that sequential decline and how should we think about that segment going forward?

Randy, this is Lee. You might recall that we -- this question actually came up on the last call from somebody and they said as we've seen very strong raise the first couple of quarters, you expect to see that. And Terry commented that we expect to kind of see it in the low to mid-20s as we go through the balance of the year. So this is right in line with what we expected. And think of it as -- we're always timing investments that we're making and we're making investments in improving the check business for the financial institutions. We're also making investments organically in SwitchAgent in the marketing solutions and other services space. And then we had the initial transaction and some costs associated with the ACTON deal that came in. Those are small, but all those kind of contributed, and again, but right in line with what we would have expected.

All right. And then you mentioned something about healthcare reform. Is there a significant opportunity for you guys there to sell forms and others things in small businesses there? I mean, can you kind of quantify how big of an impact that might be?

We have -- it's not healthcare reform. It's health forms. And we have some hospitals that we are -- consider as small business customers, where we have some nice-sized rollouts. And we do this for our customers. We have -- it's actually a combined forms and then some services that we do when they go through their annual enrollment processes. Similar to Deluxe here in the fourth quarter, we have an annual enrollment process, a lot of companies do. So it's an opportunity we have with several hospitals. And are we trying to bring those into more as we get efficient and proficient at this? Absolutely, Randy. It's a nice opportunity for us as we move forward.

Sir, you have no further questions at this time. [Operator Instructions]

Okay, Dave. I think we're going to go to wrap up here. Okay?

Thank you very much, sir. Now I'd like to turn the call back to Mr. Lee Schram for closing remarks.

I thank everybody for your participation today. I want to leave you with a couple of summary thoughts. First of all, we delivered our third outstanding quarter this year. Second, we're now well-positioned to deliver our fourth consecutive year of revenue growth in 2013. And the third thought, we have established a solid foundation to grow our revenue again in 2014. We're now going to roll up our sleeves, get back to work, and we look forward to providing a positive progress report on our next earnings call. Thank you for joining us, and that concludes Deluxe's third quarter 2013 earnings call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.