Deluxe Corporation (DLX) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome the Quarter 1 2014 Deluxe Corporation Earnings Conference Call. My name is Tracy, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I would now like to turn the call over to Ed Merritt, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Thank you, Tracy. And welcome, everyone, to Deluxe Corporation's First Quarter 2014 Earnings Call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on today's call are Lee Schram, our Chief Executive Officer; and Terry Peterson, our Chief Executive 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, 2013. The financial and statistical information that we will be reviewing 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 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 good morning, everyone. In spite of a challenging severe winter weather season and continued sluggish economy, Deluxe delivered an outstanding quarter, hitting on all cylinders to start the year. We reported revenue and adjusted earnings per share above the high end of our outlook. Revenue grew 5% over the prior year quarter, driven by Small Business Services growth of almost 9%. We also saw over 2% revenue growth in Financial Services, which now marks the first time this segment has achieved 3 consecutive quarters of revenue growth ever. Marketing solutions and other services revenues grew 21% over the prior year and represented 22% of total first quarter revenue. Adjusted diluted earnings per share grew 7.7% over the prior year. We generated strong operating cash flow of $73 million. And we were not drawn on our credit facility during the quarter, increasing our balance sheet cash position of $20 million from last December. We also repurchased $32 million of common shares in the quarter. 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 expectations for the quarter. Further, we added a new board member, Tom Reddin, who adds deep development and marketing of digital services and brand management expertise, all of which are central components of our growth strategy. In a few minutes, I will discuss more details around our recent progress and next steps. But first, Terry will cover our financial performance.

Thanks, Lee. Earlier today, we reported diluted earnings per share for the first quarter of $0.93, which included $0.05 per share for restructuring-related charges. Excluding these costs, adjusted EPS of $0.98 exceeded the upper end of our previous outlook and was 7.7% higher than the $0.91 reported in the first quarter of 2013. The restructuring-related charges are primarily for infrastructure consolidations and employee severance. Revenue for the quarter came in at $407 million, growing 5% over last year. Small Business Services revenue of $270 million grew 8.7% versus last year with approximately 6% growth in the quarter, excluding primarily the VerticalResponse acquisition from last year. While we continue to operate in a sluggish economic environment, we delivered growth in marketing solutions and other services, checks and in our online, Safeguard distributor and dealer channels. SBS revenue also benefited from price increases implemented early in the quarter. Financial Services revenue of $89 million grew 2.2% versus the first quarter of last year and would have declined about 4%, excluding recent acquisitions. Price increases, higher marketing and other services revenue and revenue from HSBC more than offset the impact of lower check orders. Direct Checks revenue of $48 million was down 7.9% on a year-over-year basis, but ended ahead of our expectations. From a product revenue perspective, checks were $222 million, representing 55% of total revenue. Business products were $96 million or 23% of total revenue. And marketing solutions and other services were $89 million, which was 22% of total revenue. Gross margin for the quarter was 64.4% of revenue, which was down 1.2 points from 2013. Less favorable product mix and increased material and delivery rates were only partially offset by benefits from price increases and improvements in manufacturing productivity and delivery initiatives. SG&A expense increased $2.7 million in the quarter but was better leveraged at 43.7% of revenue compared to 45.2% of revenue in the same period last year. Benefits from our continuing cost-reduction initiatives in all of 3 segments were offset by increased SG&A associated with the recent acquisitions and our efforts to grow the SBS distribution channel. Excluding restructuring-related charges, adjusted operating margin for the quarter was 20.7%, which was up slightly from the 20.4% generated in 2013. All 3 segments delivered strong operating margins. Small Business Services adjusted operating margin of 17.2% was up 1.4 percentage points over last year due to planned lower brand awareness spending as we had considerable production start-up expenses in the first quarter of 2013. Financial Services adjusted operating margin of 25% was down 1.8 points from 2013 due to higher expenses in acquisition amortization associated with the ACTON and Destination Rewards acquisitions. Direct Checks adjusted operating margin of 32.9% increased 1.4 points from 2013, driven by better leverage and by expense management initiatives, and ended ahead of our expectations. Turning to the balance sheet and cash flow statements. We increased our cash and cash equivalents balance by $19.5 million. This increase is after using cash to repurchase $32 million of common stock. Total debt at the end of the quarter was $643 million. Cash provided by operating activities for the quarter was $73.3 million, a $21.8 million increase compared to 2013. The increase was driven primarily by changes in working capital, lower performance-based compensation and improved earnings. Capital expenditures for the quarter were almost $11 million and depreciation and amortization expense was $16 million. We are tightening our previous consolidated revenue outlook for the full year to the upper end and now expect it to range from $1.62 billion to $1.65 billion. A recent new financial institution check win, anticipated to start late in the third quarter, is expected to offset the unfavorable impact of the Canadian exchange rates. We are increasing our expectations for adjusted diluted earnings per share to a range of $3.97 to $4.12. There are several key factors that contribute to our stronger full year outlook, including Small Business Services revenue is expected to increase 6% to 8% as volume declines in core business products are expected to be offset by benefits from our e-commerce investments, price increases, growth in our distributor, dealer and major account channels and double-digit growth in marketing solutions and other services offerings. We expect Financial Services revenue to be plus or minus 2% or roughly flat at the midpoint, driven by recurring check order declines of approximately 6% and some pricing pressure, which we expect will at least partially offset -- be partially offset by continued growth from non-check revenue streams, including Destination Rewards, higher revenue per order, a full year of HSBC and a quarter plus from a new account win. A Direct Checks revenue decline of approximately 10%, which is slightly better than our previous outlook, driven by check order volume declines. A continued sluggish economy; a full year cost and expense reductions of approximately $55 million, net of investments; increases in medical expenses, material costs and delivery rates; continued investments in revenue growth opportunities, including brand awareness, marketing solutions and other services offers and enhanced Internet capabilities; lower interest expense in the fourth quarter; and an effective tax rate of approximately 34%. We expect to continue generating strong operating cash flows and are increasing our full year 2014 outlook to a range of $270 million to $280 million, reflecting stronger earnings and lower VEBA and incentive compensation payments, offset by higher tax payments. We expect full year contract acquisition payments to be approximately $15 million, which is less than previously expected. 2014 capital expenditures are expected to be approximately $40 million, slightly higher than 2013 as we continue to grow Deluxe. We plan to continue to invest in key revenue growth initiatives and make other investments in order fulfillment and IT infrastructure. Depreciation and amortization expense is expected to be $64 million, including approximately $20 million of acquisition-related amortization. For the second quarter of 2014, we expect revenue to range from $393 million to $401 million. Adjusted diluted earnings per share is expected to range from $0.94 to $0.99. In comparison to the first quarter, revenue and adjusted EPS are expected to be slightly lower at the midpoint of the range in the second quarter, primarily due to expected lower Financial Services and Direct Checks revenue and the resulting flow-through to operating income. Shifting to our capital structure. We expect to maintain our balanced approach of investing organically and through small- to medium-sized acquisitions in order to drive our business transformation. Additionally, we expect to continue paying a quarterly dividend. In the first quarter, we repurchased almost $32 million of common stock compared to about $13 million in the first quarter of 2013. Although we plan to repurchase more shares than we did last year, the pace for the balance of the year is expected to be less than the first quarter level. For the foreseeable future, we plan to allocate more funding to common stock repurchases than we have in recent years. To the extent we generate cash flow in excess of these priorities, we plan to accumulate cash in advance of our October 2014 senior note maturity. In February, we amended our credit facility, extending the term by 2 years to 2019 and increasing the size to $350 million, which gives us more financial flexibility. In October, we plan to retire our senior notes as they come due, using cash on hand and a draw on our new credit facility. We may also from time-to-time consider retiring outstanding debt through open market purchases, privately negotiated transactions or other means. We believe our increasing cash flow, strong balance sheet and flexible capital structure positions us well to continue advancing our transformation. I will conclude my comments with an update on our cost and expense reduction initiatives. Overall, we had a solid start to 2014 in the first quarter as we delivered on our expected cost and expense reductions towards our $55 million commitment, net of investments, in 2014. Approximately 60% of the $55 million in expected reductions will come from sales and marketing, another 30% from fulfillment and the remaining 10% coming from our Shared Services organizations. Our focus in sales and marketing for 2014 will be on sales channel optimization, platform and tool consolidation and leveraging order streaming and marketing efficiencies. We will also continue to improve the mix of paper catalog and online search engine marketing. In fulfillment, we expect to continue our lean, direct and indirect spend reductions, further consolidate our manufacturing technology platforms, drive delivery technology and process efficiencies, reduce spoilage, further enhance our strategic supplier sourcing arrangements and continue with other supply chain improvements and efficiencies. Finally, for Shared Services infrastructure, we expect to continue to reduce expenses, primarily in IT. But we also have opportunities in finance and real estate. As an example, in IT, we completed the migration from our current outsourced IT infrastructure provider to a new provider in early March and we expect to receive not only more state-of-the-art technology and security capabilities but also a reduced expense structure. Now I'll turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on our overall focus, and then highlight progress in each of our 3 segments. I will also include throughout a perspective on what we hope to accomplish during the balance of 2014. Our primary focus in 2014 continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues towards our goal of 40% by 2018. We have created more differentiated technology check offers through investments in automated flat packaging, digital printing, high security checks and online portals and dashboards. We also have significant growth opportunities in marketing solutions and other services. 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 have strengthened our channels in Small Business to include financial institutions, online, retail, wholesale, distributors, dealers and major accounts. Deluxe is now more capable of helping small businesses pursue their passion as a trusted provider of a growing suite of products and services that a small business needs to market and operate their business and helping small- to mid-sized 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 first quarter right in line with our expectations in revenue with mix in the 4 subcategories basically in line with our expectations. First, small business marketing is expected to represent approximately 40% in 2014 with expected growth in the mid-teens this year. We saw solid growth in the first quarter in the Web-to-print space as we cross-sold to our customer base and added new customers through distributors, dealers and major accounts. We also saw very strong double-digit growth in retail packaging solutions and expect this growth to continue as we improve our hot stamping e-commerce capability with an improved technology rollout in the second quarter. The second category, Web services, which includes logo and Web design, Web hosting, SEM, SEO, email marketing, social and payroll services, is expected to represent approximately 31% in 2014 with expected organic growth rates in the low double-digits. We saw solid rollouts in both wholesale, Web, telco and SEM, SEO major accounts in the first quarter and also solid growth from the prior year in cross-selling bundled presence packages to our retail base and added more new customers, resellers and partners. In mid-March, we released our new email marketing premium offer and are very encouraged with sign-ups and paying customers so far. We continued to reduce Web design and SEM campaign cycle times and churn rates remain low. We added payroll services customers and many customers added new features, such as time and attendance applications. This category is also one of our key focus areas for tuck-in acquisitions. We closed a very strong first quarter with approximately 785,000 Web hosting customers. And we expect to close 2014 with nearly 850,000 Web hosting customers or up 16% from 2013 as we expect migrations to continue to ramp through the balance of the year. The third category, fraud, security, risk management and operational services, is expected to represent approximately 19% in 2014 with expected growth rates in the low single-digits. We had a solid first quarter as we added programmed services for new community banks and fraud and security offers for small businesses and direct to our consumers. In April, we also released our Banker's Dashboard tablet solution, which we expect will help to secure new financial institution wins through the balance of the year. We also started to see initial orders from our VerifyValid e-check software. Finally, other financial institution services are expected to represent approximately 10% in 2014 with expected growth rates in the very strong double-digits. In the first quarter, we saw strong growth in new financial institution customers in targeting and campaign services and delivered on expected revenue from our latest acquisition, Destination Rewards. Starting in the second quarter, we will begin piloting our enhanced SwitchAgent 2.0 release. We expect marketing solutions and other services revenues to be approximately $400 million to $410 million in 2014, up from $343 million in 2013 with organic growth in the low-teens. If achieved, this performance would translate to a total revenue mix of around 25% of revenue and up from 22% in 2013 and 19% and 16% the previous 2 years. Here is an update on our brand awareness campaign. This week, we will finish our first wave of the year of an intense 6-week local market brand awareness campaign targeting the Raleigh, North Carolina and Columbus, Ohio markets through television, online digital and print media. We have seen very strong results in these 2 markets compared against other markets, where we did not complete brand awareness initiatives. For example, we have seen visitor traffic from these markets increase 424% in Ohio and 363% in North Carolina. And these states have moved from #8 and #13 in traffic to #1 and #3. We expect to complete additional waves later this year in other local markets at various spend levels. Our objective this year is to continue with our brand awareness campaign to targeted key audience small business segments but to test at various spend levels and media initiatives in different geographies over approximately 6-week burst. By doing this, we are able to continue our transformational messaging as well as gain a better understanding of how our customers react to different scenarios, allowing us to more effectively and optimally plan for 2015 and beyond. Now shifting to our segments. In Small Business Services in the quarter, as expected, we did not see any notable improvements as the economic climate for small businesses remained sluggish. We also saw an unexpected severe winter that we know from regional results and also feedback from our small business customers had some adverse impact on our results. We had strong performance, however, as revenue grew almost 9%. Checks were a little short of the high end of our expectations, driven by the impact the severe winter weather and a sluggish economy had on small business owners selling through to other businesses and consumers. Our results from targeted customer segmentation in the call centers improved. New customers from our financial institution, Deluxe Business Advantage Referral Program and our direct response campaigns remained strong. Visitor traffic, average order value and conversion rates increased. Our online, Safeguard distributor, dealer and major accounts channels grew revenue over the prior year. We also saw strong growth in Web, email marketing and Web-to-print services. Again, we ended the quarter with approximately 785,000 Web hosting customers. We continued to closely monitor the small business market. Optimism indices increased slightly to start the quarter in January but then fell off substantially in February and recovered in March, mostly reversing the February decline. But they were still collectively down for the quarter. Severe winter weather was cited for having an impact on slower consumer spending. Fewer small business owners expect sales to increase over the next 3 months and hiring plans fell slightly. They continued to spend more cautiously, more in maintenance mode and small businesses continued to scrutinize purchases and experience tight cash flow. In summary, current optimism indices remain sluggish and actually trended lower in the first quarter. The good news is that, other than taxes and regulation, increasing sales continues to be a small business owner's #1 pain point and our portfolio is significantly more robust now, with many offers to help them here. As the economy recovers, with the transformative changes we are making to deliver more services offerings to help small businesses get and keep customers, Deluxe is better positioned as that indispensable partner for growth. Our focus for 2014 is on accelerating our brand transformation and significantly improving overall market awareness while institutionalizing our brand promise for our customers, creating an effective end-to-end, integrated technology customer experience, effectively acquiring and retaining customers and optimizing sales channel effectiveness and channel marketing capabilities. In Financial Services, we saw the rate of decline of checks perform a little worse than we expected in the high 7% range, driven by weakness in both the Northeast and Southeast regions, both of which suffered severe winter weather and where we saw double-digit declines in, in-branch traffic in many financial institutions as well as we are coming off a difficult compare to the first quarter of 2013, when the decline rate was below 4%. We ended the quarter in March with a monthly decline rate closer to 6%. And so far in April, we are seeing an even better decline rate of less than 5%. And so we continue to expect the decline rate for the year will be about 6%. We implemented a price increase at the start of this year. We had strong overall new acquisition rates and our retention rates remain strong in deals pending in the quarter in excess of 90%. We simplified our processes and took complexity out of the business while reducing our cost and expense structure. We have now extended all our large contracts through at least the third quarter of 2015, including the extension of several for 7 to 8 years. We also continued to work a number of competitive RFPs. And we are pleased to announce that we have been selected and are finalizing contract terms for a new large financial institution that we expect to start late in the third quarter that is included in our outlook. We made progress again in the quarter in advancing non-check marketing solutions and other services revenue opportunities. We now have offers in the targeting and campaign services space through ACTON and Cornerstone to assist financial institutions with customer acquisition and retention; an account activation and anchoring offer in SwitchAgent; and now an account activation and retention rewards and loyalty offer in Destination Rewards. In the first quarter, we saw continued growth in new financial institutions in our ACTON and Cornerstone targeting and campaign services offers. For SwitchAgent, we worked closely with our financial institutions and have implemented product enhancements for pilot offers that will start this quarter that further our vision for the most simple and efficient account switching and anchoring experience for financial institution customers. Banker's Dashboard also continued to perform well in the first quarter, and we are introducing our tablet offer this quarter. Destination Rewards is off to a good start in the first quarter, including initiating implementations with several new large accounts that we expect will scale over the balance of 2014. As you can see, strong momentum continues to build and we expect strong double-digit growth in these marketing solutions and other services in 2014. In Direct Checks, revenue was higher than our expectations, driven by higher initial orders and reorders. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers. We continue to work on a number of initiatives to create an integrated best-in-class direct-to-consumer check experience. We continue to see a ramp in revenue enhancement synergies through our call center scripting and up-sell capabilities as well as synergistic cost and expense reductions. Our Direct Checks expectations for the year are slightly better. Previously, we had guided to a decline of 10% to 11%. But we now believe the decline will be closer to 10%, driven by continued declines in consumer usage and a sluggish economy. We expect to reduce our manufacturing costs and SG&A in this segment and deliver operating margins of about 30% while generating strong operating cash flow. As we exit the first quarter on the heels of an outstanding quarterly performance and a continued sluggish economy, we have made tremendous progress in transforming Deluxe, but we still have many opportunities ahead of us in 2014. We believe we are well positioned in 2014 for our fifth consecutive year of revenue growth. Our broad -- our breadth of offers and financial discipline has enabled us to position ourselves for sustainable revenue growth while continuing to improve profitability and operating cash flow. Our technologies and sales channels are stronger. Our digital technology services offer is more mature, our infrastructure better and our management talent is deeper and aligned to grow revenue. We know it is critical for us to be able to grow revenue again in 2014 and improve the mix of our marketing solutions and other services revenue, and we are well positioned to make this happen. We have developed a strong platform for long-term growth with the objective of transforming Deluxe to more of a growth services provider from primarily a check printer, thereby changing our product mix and resulting stock price multiple. Now Tracy, we're going to open the line for questions.

[Operator Instructions] And your first question comes from the line of Charles Strauzer from CJS Securities.

Could you add a little bit more color on the new large check customer win that you expect to start in Q3? Is this a regional bank or a national bank?

I'm going to leave it as a large financial institution, Charlie, until we get done with the contract, until we can actually put the name or the logo out there.

Got it. But you anticipate maybe, I mean, some more information maybe on the next call?

Yes.

Very good. And then you talked about a growing portfolio of services to small business customers. And obviously, you've been adding some new things like Destination Rewards recently. When you look at the portfolio today, where do you think you need to either expand or add in certain areas to kind of get the portfolio a little bit more complete?

I think, Charlie, let me split it into the 2 largest segments. So think of it for Small Business Services, one of the comments I made about what we're trying to do or focus for 2014 is to really bring the brand and align the brand and the awareness of all the offers that we have there with this, what we call an integrated technology customer experience. So our focus is on bringing all of those offers that we've either organically developed or acquisitively done over the last several years and bring them into a simpler, more intuitive offer for our customer base. So it's less about adding capability there and new things, it's more about adding technology capabilities that allow us to integrate those offers and make those suites of offers better for our customers. It doesn't mean we won't continue to invest and look for other things that make sense as far as new services. But the focus is on getting those to be more intuitive and effective for our customers. Now shifting to the Financial Services space, we do see more opportunities to -- the primary focus is clearly in the customer activation and retention and acquisition space. We have added offers there. We're going to continue to look for other services offers that we believe can add capabilities there. The good news that we have right now, Charlie, is that more of those are now coming in the form of organically looking at capabilities that we've had. We've got a development team now in that organization who is starting to not only come up with enhancements to offers likes SwitchAgent for one, and then our tablet solution for Banker's Dashboard. But they're also looking at, along with my product management folks in that segment, for other offers and other services that can add to that customer acquisition space. So I would think there's more opportunity, Charlie, to bring more new technologies and services to that segment right now in terms of how we're thinking.

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

Could you give us some idea of what components of marketing services are driving the largest year-over-year dollar increases in revenue?

Yes. If we go kind of down the 4 categories, we had a super quarter in Q1 in the small business market. And not only do we have again strong growth, Randy, in the Web-to-print space, but we had a really strong quarter in the retail marketing solutions. And as I've mentioned in my prepared comments, we expect that to grow even more as the rest of the year unfolds because we're introducing new e-commerce capabilities and technologies there. And within the kind of the Web services space, the largest areas for expansion are in Web -- that Web hosting and the migrations that we're doing and in the email marketing space would probably be the top 2. But there's also opportunity in our search engine marketing and search engine optimization space. And we're adding customers, as I mentioned, in payroll services as well. But probably the biggest 2 would be more of the Web hosting and the email marketing space. And then we're adding fraud -- services in the fraud space. I mentioned a comment about e-checks. We're pleased with our progress. We finally got kind of the core working better, the call center working better. We're now introducing it into some of our other channels. We've also got a couple of more exciting opportunities. I'm going to hold on making any further comments yet until we see how some of those things play out in the quarter. But what I'll tease you with right now, Randy, is they're in check areas that we're not in today. So it doesn't do anything on the question of whether we would cannibalize anything on the paper check side with what we're doing with the e-check side. So we're excited about it. But I want to leave it at that until we get a little deeper into that into the quarter. And then finally, yes, we absolutely expect the scale, as we've mentioned, the Destination Rewards. We picked up some new accounts that we were aware of when the acquisition was done in December and the good news there, Randy, is those are starting to ramp already in the first quarter. And we expect to see further ramps as we move through the year. So the great news with that whole portfolio, Randy, is that we're not dependent on any one area or any one offer. Yes, some are going to grow faster than others, we believe. But the depth and the breadth of what we're offering -- our offerings there, we think, is going to really help us as we move forward.

And just as a reminder to you, Randy, the 2 categories that right now in the first quarter are still benefiting from acquisitions are the Web services with VerticalResponse from last year, and then the other FI services, which is really the Destination Rewards from the end of last year.

All right. I'm looking forward to hearing more about the check opportunity in the future. For Destination Rewards, is there anything -- any particular company that you can name?

We don't have the liberty to name. A couple of the names there are -- you would know them in 30 seconds. So we're just at a point where we're not able to disclose who those names are at this point. But we're working to get their acknowledgment or support to be able to do that. And I think when you see who they are and we can talk about them more, they'll add more confidence on what we're doing in that whole rewards and loyalty space as we move forward. So hopefully, as we -- I can't say it will be exactly on the next call, Randy, but as we get -- we work these in a little bit more and get the scale and work with these customers, we'll be able to get some of the names released.

Your next question comes from the line of Tim Klasell from Northland Securities.

So my first question is just really on the large financial institution that you signed on the check side. Has that contract been signed and you just don't have permission to go public with it? Or are you still in the negotiation phase?

We are finalizing it. We've been informed, it is our deal [ph], we are finalizing the contract terms. I don't expect any issues with getting the contract signed. But until I get the contract signed, both parties have decided it's best not to release the name. But it's going to happen. I'm confident in that. I just got to get the final Ps and Ts done, and then we can get it announced.

Okay, good. And we're getting some leverage on the sales and marketing side. And I'm sort of focusing in on Safeguard. Is Safeguard all incremental as Safeguard grows? Or are you moving maybe some business into that channel as it's just more efficient?

No. Again one of the great bedrocks, I think, that we have in terms of our differentiation is our channels. And so the goal, Tim, as we told the market is for us to grow in our financial institution channel, in our dealer channels, our partners that we have, our major accounts, our online channels, and then also in the distributor channel. So are we going to look -- we're always looking at where we get the lowest cost to acquire across all those channels and obviously targeting to get more efficient as we do that. But no, we're not moving something from one -- a program or an offer from one into another, and that includes what we're doing in Safeguard. We're trying actually to get all of them to grow.

In the Safeguard channel, the nice thing about that, too, is that our distributors are out there still growing through acquisitions, which ultimately benefits us. But we're also able to take some of our offers that originated in other parts of the business like our PsPrint Web-to-print offers. And we're able to take those to our Safeguard distributors and give them something else to sell. So we're seeing some really nice traction on both of those fronts.

Okay, great. And then on the brand awareness campaign, I mean, the results there look pretty fantastic from the traffic. Can you share with us anything about the monetization of that? Or is it just too early to be able to tell?

I think it's too early. I'm trying to give a little bit more color, Tim. We ran a national campaign, kind of just did it for 6 weeks at a time. We did 3 of them last year, as we reported. And what we're trying to do this year is go into specific targeted cities and do the whole campaign but do it at a more intensive spend levels and different spend levels. And then although it includes television, it includes online digital, it includes print, trying to change and modify as we do them, we're looking to get smarter and smarter at this. I mean, we were pleased with what we did last year. We're pleased with what we're doing now. But we want to get smarter and smarter on this. And that's the approach we're taking and we're committed to doing that as the balance of the year unfolds. And yes, so far, it's been very encouraging to see the awareness improve. We're also going to do a couple of surveys this year. In fact, we just finalized our thinking on that over the last couple of weeks. And once we get a little further into this, I'll describe how we're going to do that. And obviously, we hope to get some learnings for how the awareness is improving and again use that to allow us to continue to target those small businesses and the segments of small business to allow us to improve our revenue growth as we go forward.

Thank you for your question, Tim. I would now like to turn the call over to Lee Schram.

I just like to thank everybody for your participation and thank you for the questions today. And I want to leave you with 3 summary thoughts. First, we delivered an outstanding first quarter to start the year. Second, marketing solutions and other services revenue grew 21% and the mix improved towards our goal of 25% this year and 40% in 2018. And we also believe that we established a solid baseline first quarter to propel us towards revenue growth again in 2014 for our fifth consecutive year. We're going to roll up our sleeves, get back to work. And we look forward to providing another positive progress report on our next earnings call. And I'm going to turn it back to Ed for some closing housekeeping comments.

Thanks, Lee. Before we conclude today's call, I'd like to mention that Deluxe management will be participating in a few upcoming events in the second quarter, where you can hear more about our transformation. On May 7, we'll be in the Chicago at the R.W. Baird Growth Stock Conference. On May 13, we'll be in New York at the Wedbush Technology Conference. On June 3, we'll be in New York at the Stephens Spring Investment Conference. And also on June 3, we'll be in San Francisco at the Bank of America Merrill Lynch Technology Conference. Thank you for joining us. And that concludes the Deluxe First Quarter 2013 Earnings Call.

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