Deluxe Corporation (DLX) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Quarter One 2015 Deluxe Corporation's Earnings Conference Call. My name is Kathy, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to, Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Thank you, Kathy, and welcome, everyone, to Deluxe Corporation's First Quarter 2015 Earnings Call. I am 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 Financial Officer. At the conclusion of today's prepared remarks, Lee, Terry and I will take questions if there are any. 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 the company's Form 10-K for the year ended December 31, 2013. The financial and statistical information that will be reviewed during this call is addressed in 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 will turn the call over to Lee.

Thank you, Ed, and good morning, everyone. In spite of foreign exchange headwinds, a higher tax rate and a continued sluggish economy, Deluxe delivered a strong quarter to start the year. We reported revenue and adjusted earnings per share at the high-end of our outlook. Revenue grew almost 7% over the prior year quarter and over 1% organically, driven by Financial Services growth of almost 21% and small business services growth of 4%. Marketing Solutions and Other Services ' revenues grew more than 31% over the prior year and in low double digits organically and represented 28% of total first-quarter revenue. Adjusted diluted earnings per share grew more than 6% over the prior year and we generate strong operating cash flow of $78 million for the quarter. We redeemed all of our $200 million senior notes due 2019, on March 16, 2015. We were drawn $318 million in total on our credit facility and short-term bank loan at quarter end. As expected, we did not repurchase any 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 basically delivered on our cost reduction expectations 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 first quarter of $0.91, which included $0.12 per share for a contractual call premium and associated fees from this early senior notes retirement and $0.01 from restructuring charges. Excluding these costs, adjusted EPS of a $1.04 was at the upper end of our previous outlook and was 6.1% higher than the $0.98 reported in the first quarter of 2014. Revenue for the quarter came in at $434 million, growing 6.5% over last year. Small Business Services revenue of $277 million, grew 3.9% versus last year, despite a continuing sluggish economic environment and unfavorable foreign exchange rates, which negatively impacted revenue growth by 0.8 percentage points. We delivered growth in Marketing Solutions and Other Services, checks and in our online Safeguard distributor, major accounts and dealers' channels. Small Business Services revenue also benefited from price increases implemented early in the quarter. Financial Services revenue of $112 million grew 20.5% versus the first quarter of last year and would have grown about 2%, excluding the Wausau acquisition. Higher marketing and other services revenue driven by Wausau and Destination Rewards, price increases and revenue from Zions Bank more than offset the impact of lower check orders and the impact on pricing from a large customer contract renewals early in the second quarter of 2014. Direct Checks revenue of $45 million was down 6.0% on a year-over-year basis, but ended ahead of our expectations, driven by higher reorders that were not driven by marketing initiatives. From a product revenue perspective, checks were $224 million, representing 52% of total revenue. Business products were $90 million or 20% of total revenue and Marketing Solutions and Other Services were $120 million, which was 28% of total revenue. Gross margin for the quarter was 64.8% of revenue, which was up 0.4 points from 2014. The increase was primarily driven by favorable product and services revenue mix and improvements in manufacturing productivity, partly offset by higher delivery and material costs. SG&A expense increased $17.4 million in the quarter, which was 45.0% of revenue compared to 43.7% of revenue in the same period last year. Benefits from our continuing cost reduction initiatives in all three segments were more than offset by increased SG&A in Financial Services associated with recent acquisitions and our efforts to grow the SBS distributor channel. Excluding restructuring and transaction-related charges, adjusted operating margin for the quarter was 19.8%, which was down slightly from the 20.7% generated in 2014. All three segments delivered operating margins at least in line with our expectations. Small Business Services' adjusted operating margin of 17.9% was up 0.6 percentage points over last year, due to higher revenue, a favorable product mix and cost reductions. Financial Services adjusted operating margin of 18.6% was down 5.7 points from 2014, driven primarily by Wausau purchase accounting expenses, check usage declines and the large customer contract renewal. Wausau's operations reduced Financial Services' adjusted operating margin by 5.3 percentage points in the quarter. Direct Checks adjusted operating margin of 34.1%, increased 1.2 points from 2014 and was better than we expected. The improvement was driven by better leverage and expense management initiatives. Turning to the balance sheet and cash flow statement, total debt at the end of the quarter was $515 million, which was down $38.9 million or 7.0% from December 2014. Cash provided by operating activities for the quarter were $77.7 million, a $4.4 million increase compared to 2014. The increase was driven primarily by improved earnings and lower medical payments partially offset by higher performance based compensation payments. Capital expenditures for the quarter were $9.5 million and depreciation and amortization expense was $17.7 million. We are strengthening our previous consolidated revenue outlook for the full-year to the upper end and now expect it to range from $1.75 billion to $1.78 billion, in spite of and unfavorable impact from foreign exchange rates of approximately $6 million. We are also strengthening our expectations for adjusted diluted earnings per share to $4.40 to $4.55, despite a higher effective tax rate and unfavorable foreign exchange rates, which collectively negatively impacted diluted EPS by approximately $0.05 per share. Before I describe the factors impacting our outlook, I would like to remind everyone that as we announced in our last 10-K, beginning in 2015, we have shifted management of two of our company-owned distributors from SBS to FS, as we determined that the businesses would be better positioned for long-term growth if they were managed as part of the Financial Services segment given the sell primarily to financial institutions. Accordingly, we have reclassified revenue of almost $23 million for the full-year 2014 from small business services to Financial Services to conform to the 2015 presentation. About $4 million of the $23 million is marketing and other services revenue and was previously reported in Small Business marketing solutions, but will now be included in the fraud, security, risk management and operational services as this portion of the business is performance management service-related activity that helps financial institutions improve their business processes through supply chain management expertise, technology and services solutions. There are several key factors that contribute to our stronger full-year outlook, including small business services revenue is expected to increase 5% to 6% as volume declines in core business products, lower SEM and SCO revenue from our decision announced in the third quarter of 2014 to exit unprofitable business and unfavorable foreign exchange rates are expected to be more than offset by benefits from our e-commerce investments, price increases, growth in our distributor, dealer and major accounts channels and double-digit growth in Marketing Solutions and Other Services offerings. For added clarity, without the SEM/SCO change and unfavorable foreign exchange rates, the growth rate in Small Business Services is expected to be in line with last year's organic growth rates. We expect Financial Services' revenue to increase 11% to 14%, driven by recurring check quarter decline of approximately 6% in some pricing pressure, which we expect will be more than offset by continued growth from marketing and other services revenue, including Wausau and Destination Rewards higher revenue per order and a full year of Zions. Direct Checks revenue decline of approximately 8%, driven by lower check order volume stemming from secular declines in check usage and eliminating marketing expenditures that no longer meet our return criteria, a continued sluggish economy, full-year cost and expense reductions of approximately $50 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 and an effective tax rate of approximately 34.0%, representing a product approximately $0.07 of dilution per share compared to 2014's tax rate. We expect to continue generating strong operating cash flows, ranging between $295 million $305 million in 2015, reflecting stronger earnings and lower interest payments, partially offset by higher tax, Viva and performance-based compensation payments. We expect contract acquisition payments to be approximately $15 million. 2015 capital expenditures are expected to be approximately $40 million, about the same as 2014, 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 $75 million, including approximately $29 million of acquisition related amortization. For the second quarter of 2015, we expect revenue to range from $424 million to $432 million, adjusted diluted earnings per share is expected to range from a $1.04 to a $0.09. In comparison to the first quarter, we now expect earnings per share to improve, driven by the lapping of a large financial institution contract renewal, which occurred early in the second quarter of 2014, earlier than expected integration savings from Wausau, lower interest expense and we expect to spend more on brand awareness in the second quarter. In addition, Direct Checks historically has their strongest revenue quarter of the year in first quarter. We no longer expect Wausau to be dilutive to earnings in the second quarter as our current expectation is for breakeven performance, with the accelerated integration savings. We expect strong earnings per share growth in both, the third and fourth quarter as revenue should be higher, Wausau should become slightly accretive, interest expense should be lower and we will have an extra business day in the third quarter. 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 growth transformation additionally we expect to continue paying a quarterly dividend and repurchase shares in the last half of 2015, to at least offset dilution. On March 16, 2015, we redeemed all of the $200 million, 7% senior notes due 2019. The debt redemption was financed with the draw on the existing credit facility and the issuance of a $75 million short-term bank loan. We may from time-to-time consider retiring additional 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 position us well to continue advancing our transformation. I will conclude my comments with an update on our cost and expense reduction initiatives, which again are coming from all three of our business segments. Overall, we had a solid start to 2015 in the first quarter as we basically delivered on our expected cost and expense reductions towards our $50 million annual commitment net of investments. Approximately 55% of the $50 million in expected reductions will come from sales and marketing, another 40% from fulfillment and the remaining 5% coming from our shared services organizations. Our focus in sales and marketing for 2015 will be of sales channel optimization, platform and tool consolidation, leveraging sales and marketing efficiencies, including integrations from SBS and FS acquisitions. 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 and 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 are also working opportunities in finance and real estate. Now turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on overall focus and then highlight progress in each of our three segments, including the perspective on what we hope to accomplish during the balance of 2015, as well as an update on our brand transformation. Our primary focus of 2015 continues to be profitable revenue growth and increasing the mix of Marketing Solutions and Other Services revenues towards our goal of 40% by 2018. Here we will focus on growing organically as well as continuing to assess potential small to medium size acquisitions that complement our large customer bases and add new technologies. We have strengthened our channels and 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 a small business needs to market and operate their business and helping financial institutions with customer acquisition, fraud, security, and risk management and commercial and treasury services offers. There is an update on our four 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 four subcategories basically in line with our expectations. First, small business marketing is expected to represent approximately 40% in 2015, with expected growth in the mid-20s this year. Key 2015 growth initiatives include scaling web-to-print by cross-selling to our customer base and continuing to add new customers through distributors, dealers and major accounts. In addition to the opportunity to penetrate web-to-print, we also see strong growth opportunities in retail packaging, promotional products and other marketing solutions. In the first quarter, we refreshed our web-to-print website and won several new major account customers that will use our comprehensive marketing solution offers that will begin rollouts in the second quarter. These major account wins are driving the higher expected revenue growth and small business marketing for the year. 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 21% in 2015, with expected decline rates in the mid-single digits, but low single-digit growth excluding our earlier announced decision to exit some unprofitable revenue in the SEM/SEO space. The expected decline in this category is primarily driven by where we have the largest adverse impact of foreign-exchange movement. Key 2015 growth initiatives and performance drivers include adding wholesale web telco and media resellers and partners, cross-selling to our retail base through bundled presence packages, adding more new customers, resellers and partners, reducing web design churn rates and adding payroll services customers and features such as time and attendance applications. This category also is our focus area for tuck-in acquisitions. We closed the first quarter with approximately 843,000 web hosting customers. In the quarter, we also won two new wholesale web telco and media competitive takeaway deals, which we expect to migrate in the second half of the year. The third category, fraud security, risk management and operational services are expected to represent approximately 16% in 2015, with expected growth above flat. Key initiatives include scaling our program services, including adding new features for both, national and community banks and fraud and security offers for small businesses and direct to our consumers. It also includes adding bankers' dashboard customers and providing both, a tablet and new credit union offers. Our new credit union offer was released at the beginning of the second quarter. This category also now includes some performance management revenue that was previously reported in small business marketing. In addition, we expect to scale e-checks more with opportunities ranging from adding e-checks to our distributor, dealer and major account channels to also scaling in many areas where we do not sell paper checks today. In the first quarter, we acquired VerifyValid, which we believe, will help us build more credibility now as Deluxe e-checks, with larger financial institutions, people rebate, temporary staffing and other payment solution companies. In the first quarter, in addition to having our strongest quarter selling e-checks to our retail small business customers, we also secured our first commitment from a non-Deluxe financial institution that will begin a rollout this quarter along with the payment solutions company. Finally, other financial institution services are expected to represent approximately 23% in 2015, with expected growth rates in very strong double-digits. Key growth initiatives here include adding new financial institution customers and targeting the campaign services, switch agent online account opening and anchoring and scaling Destination Rewards in Wausau financial services. We expect Marketing Solutions and Other Services revenues to be approximately $520 million to $535 million in 2015, up from $427 million in 2014, with organic growth in the low double digits. If achieved, this performance would translate to a total revenue mix of around 30% of revenue and up from almost 26% in 2014 and 22% and 19% the previous two years. We continue to target increasing Marketing Solutions and Other Services as a percent of total company revenue to approximately 40% by 2018, with checks expected to represent approximately 40% of revenue and this is products expected to represent approximately 20% of revenue. Here is an update on our brand transformation, our intent for 2015 is to continue to raise brand awareness by leveraging our 100th year anniversary through a purposeful content-based campaign. To celebrate our 100th year, we are telling the stories of 100 small businesses across the country through a documentary and photo essay series. These stories will be released throughout the year via our social channels and live on Small Business Revolution data work. We released three many documentaries and 21 photo essays in the first quarter. The reaction has been very positive and has resulted in quite a bit of earned media attention, with $184 million impressions in over 80 new stories on radio, television and print. Social media is an important part of this campaign by virally spreading the stories and is responsible for 25% of the traffic to small business revolution data work. Starting this month, and then with an even higher focus in May during small business week, we have partnered with ABC, and specifically Good Morning America and Shark Tank, both of these properties allow us to utilize national and local television, which reinforces our national and local PR approach. Herjavec from Shark Tank has joined us in the small business revolution and will be an expert in our full-length documentary to be released this fall along with other small business industry experts. He will also participate in media interviews to help amplify our message and spread the campaign through PR and social. Our goal is to stretch our spend with impactful content and reach yielding earned media attention to raise brand awareness. We will continue to release documentary campaign elements throughout 2015 to maintain momentum and activate social media in organic sharing of content. We will continue to provide quarterly updates on our progress during our earnings release calls. 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 remain sluggish. We also saw some adverse impact on our results from unexpected severe winter weather and increasing foreign-exchange headwinds. We had solid performance however as revenue grew 4%. Checks and forms performed well and our results from targeted customer segmentation in the call center improved. New customers from our financial institution Deluxe Business Advantage referral program and our direct response campaigns remained strong. 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 growth in web and payroll services, while SEO/SEM services declined in line with our earlier decision to exit some unprofitable channels. Again, we ended the quarter with approximately $843,000 web hosting customers. We continue to closely monitor the small business market. Optimism indices declined to start the quarter in January, basically flat in February, but declined further in March, and collectively ended down for the quarter. Severe winter weather and slower consumer spending were cited as the primary reasons for the sluggish optimism results. Optimism momentum in the fourth quarter of 2014 shifted downward in the first quarter with small business expectations for the future less than exuberant. The percentage of small businesses planning capital outlays over the next three to six months fell to a weak 24% reading. In summary, current optimism indices remain sluggish and actually trended down in the first quarter. The good news is that other than taxes and regulation, increasing sales continues to be a small business owners' number one pain point and our portfolio is significantly more robust now with many offers to help them here. As the economy recovers, the transformative changes we are making to deliver more services offerings that help small businesses get and keep customers, Deluxe is better positioned as that indispensable partner for growth. Our focus for 2015, is on profitably growing marketing solutions and other services revenue, with key drivers including accelerating our brand transformation and significantly improving overall market awareness while institutionalizing our brand promise for our customers, delivering an effective end-to-end integrated technology customer experience, effectively acquiring and retaining customers and optimizing sales channel effectiveness and channel marketing capabilities. For 2015, we expect Marketing Solutions and Other Services revenues for Small Business Services segment to represent almost 30% of segment revenue, driven by small business marketing solutions and web services with the balance being fraud, security and operational services. In Financial Services, we saw the decline of checks performed a little higher than 6%, primarily driven by Tier 1 and Tier 2 size financial institutions. We continue to expect the decline rate for the year will be about 6%. We implemented a price increase at the start of the year. We had strong overall new acquisition rates and our retention rates remain strong on deals pending in the current quarter. We simplified or 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, with the exception of one which we are working to retain. We also continue to work a number of competitive RFPs. We made progress again in the quarter in advancing non-check Marketing Solutions and Other Services revenue opportunities. Wausau revenue was approximately $17 million, which was lower than expected, driven by some customer rollout delays to later in the year that may also extend into 2016 as well. We are also seeing financial institutions taking longer to decide to in-source or outsource Wausau services. Both of these challenges, we expect will have about a $5 million adverse impact on total year revenue. Destination Rewards, which we are now calling Deluxe Rewards, continued to perform very well in the first quarter. In March, we began the rollout of another new major customer Allstate, and we are working many other potential large accounts. Targeting and campaign services and profitability or Bankers Dashboard, also continued to perform well in the first quarter. For 2015, we expect non-check marketing solutions and other services revenues to be approximately 40% of total FS revenue, driven by Wausau revenue of approximately $75 million, fraud, security risk management and operational services revenue of approximately $40 million, Deluxe Rewards revenue of approximately $30 million and targeting campaign and activation services revenue of approximately $20 million. Overall, we continue to be pleased with the Wausau acquisition. Although we have adjusted our revenue expectations down slightly for the year, we have been able to improve operating margins. As expected, Wausau was dilutive a little more than $0.02 per share in the first quarter. Although we originally expected it to be dilutive again in Q2, we now believe the operating performance will be neutral to EPS, due to earlier than expected integration savings and then slightly accretive in the third and fourth quarters and basically close to neutral to earnings per share for the full year. 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 consumers. We continue to work 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 guided to a decline of 9% to 10%, but we now believe the decline will be closer to 8%, driven by continued declines in consumer usage in a sluggish economy. We anticipate that Marketing Solutions and Other Services revenue, which is primarily fraud and security offers for this segment to be about 10% of Direct Checks revenue. We expect to reduce our manufacturing cost and SG&A in this segment and continue to deliver operating margins in the lower 30% range while generating strong operating cash flow. As exit the first quarter on the heels of a strong quarterly performance in a continued sluggish economy, we have made tremendous progress in transforming Deluxe, but we still have many opportunities ahead of us in 2015. We believe, we are well positioned in 2015 for our sixth consecutive year of revenue growth. 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 offers 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 2015 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, Kathy, we will open the lines up for Terry, Ed and I to take questions.

[Operator Instructions] Please stand by for your first question, which comes from the line of Tim Klasell of Northland Securities.

Yes. Good morning and thank you for taking my question. The first question has to do with Wausau. Obviously that seems to be performing better than expected, but I was wondering we have some purchase accounting issue or revenue recognition treatments that we need to do. If we were to back that out, how that had performed during the quarter?

The $0.02 per share loss, Tim, would have been, then we would had a profit. It is the best way to think about it, but the purchase accounting impact did not create any variance. That was that delivery just as we had expected, so thereby we delivered on our expectations for the quarter.

Okay. Perfect. Thank you. That is very helpful. Then the next follow-on question, the currency impact, it is pretty much all Canadian dollar I am sure. How does that affect the cash flows?

At the bottom of the cash flow statement, you have seen impact of foreign exchange and I believe it was about $4 million of impact on cash, due to FX.

Okay. Great. Thank you very much and I will pass it on.

You are welcome, Tim.

Thank you. The next question comes from the line of Jamie Clement of Macquarie.

Good morning, gentlemen.

Hi, Jamie.

Terry, first question is you then Lee, I will ask you one if that is okay. Terry, I was trying to chop this stuff down, but if you could maybe just help me just make the math easier.

Yes.

Between currency, where you stand today in terms of your projection for 2015 as well as tax rate year-over-year, what is the aggregate delta on EPS from 2014 to 2015, if you could give me those two numbers if you have them.

The tax rate year-over-year on a full-year basis is $0.07 per share.

Okay. Currency, based on current assumptions?

Currency, today is at just a touch over $10 million in revenue and say roughly about $3 million of free cash profit.

On a full-year basis or quarter?

That is on a full-year based. All of those numbers I just gave you are for the full-year.

I thought $3 million, it sounded like that was for the quarter. No?

$3 million was closer to the revenue impact for the quarter.

Revenue impact? Okay got it. Okay. That is where I think I got a little bit confused. Fair enough.

Jamie, some of that tax rate increased in our initial outlook in the year. Some of that negative impact, about $4 million of revenue in our initial guidance at the beginning of year, but certainly as the quarter went on, it worsened and that has grown from $4 million to now we see $10 million based on March 31 rates.

Yes. That's what I want to clarify, because obviously your earnings guidance strengthened with the release this morning, yet some of that stuff actually appeared to be more negative, so I just wanted to get.

We are not adjusting our outlook for those headwinds.

Yes. Got you. You are baking in those headwinds that is what I am saying. Yes. I have got it.

Baking them in, those are our issue not yours.

Got it. Totally understood. Lee, switching to you if I may, so as you look at some of the strength in the sales channels that you alluded to in the prepared remarks, weather that would be Safeguard deal or online large account, from your perspective if we kind of get your thoughts, the underlying strength in those versus let's say some other channels, does that tell you anything about where you are doing a particularly good job and sort of the second question there is, does that tell you anything kind of about the broader small business economy that you are selling into?

The way we look at it, Jamie, we have been consistent, so we want to win all these channels. Our goal is to maximize cost to acquire and you know how to we find our customers through whatever channel they want to find us, so to speak - channels, so when you hear us talk about growth across those channels and most of those channels, I think we said today, we saw growth in the quarter. I think that is a good sign for us and I think it is a good sign for offers that we have reaching the market. One area I want to highlight again and I said in the prepared comments that we are seeing even stronger opportunity as the major accounts. We are starting to see larger customers who have, again, access to small businesses and gain access to small businesses, it is that one of the many model that we like where you can get a major account and they start having those relationships with those small business underneath there, we won several deals that we think are significant, especially in a Small Business marketing solutions area and we also think over time we can bring more services to. I would highlight that as something that we saw even surprise us in a good way and we want to make a number of major deals, which hopefully over some timing we can start releasing some names and I will give you a sense of the magnitude of what these could be for us over time.

Okay. Then last question if I could. VerifyValid, e-checks and the situation that you referenced in your prepared remarks, a non-Deluxe financial institution going, so I believe you said a payroll services company, can you give us some flavor about how exactly they are going to be going to market and what that kind of that arrangement is really kind of going to look like thematically?

Yes. It is interesting that non-Deluxe account, FI wants to go to their small business owners and they principally like to try to implement e-checks to do that and they just want to rollout it out as a new initiatives and something they think is a differentiator for them in the marketplace. The payment solutions company, what is exciting about these kind of opportunities is that think of it as solutions companies out there that historically issued paper checks to a consumer or through a flow of funds through something they are brokering a relationship with to the consumer. Again, what we are going to be doing is issuing e-checks on their behalf, so they will be issuing e-checks in effect, so we like these obviously when they are non-Deluxe FIs and there are areas that were not doing paper checks today. Jamie that is an exciting area for us, so those are exactly what they are going to be for.

Okay. Great. Thanks very much for your time.

You are welcome, Jamie.

Thank you. The next question comes from the line of Joan Tong of Sidoti.

Good morning. How you guys doing? I have a couple of question here. Hi. My question is related to Financial Services. If I hear that correctly, I believe, that you mentioned, if you exclude at a Wausau acquisition, you are talking about organic growth of 2%. The only good results like in light of the continued decline in Checks business, so I am just wondering what is driving the strength other than apparently the Destination Rewards to be really, really strong as you mentioned in your prepared remark. Any other areas that you can call out in terms of like seeing that organic growth of 2%?

Yes. You hit a lot of Joan, but we had a really strong quarter and Destination Rewards now, what we are going to call Deluxe Rewards going forward. We also did well in some of those other services, the targeting and campaign services. We had a strong quarter there as well, so filling that out really helped our performance with that the checks rate declined being about and units being about 6%.

Right. Do you expect that organic growth trend line would continue going forward?

Yes. One thing to think about on our $120 million on MOS revenue in the quarters, we have a couple of things that happened as the year unfolds. We have the deals that we won I mention major account wins today. I mentioned in both, the major accounts area within small business marketing and within web services winning two competitive deals, takeaway deals. Then we also have seasonality as you get into the some of our offers, as you get into the more of the holiday season part of the year, so because of that we expect those ramps to be bigger. We also expect these rollouts in several of the financial services along with Wausau getting stronger as the year progresses, with deals we won and now getting the rollout. Same thing with Deluxe Rewards as we go forward, same thing with some of the other FI deals in the targeting and campaign services area, so that is how to think about it is as we move through the year.

Okay. Great. Then I have a questions regarding web services. I think, Lee, you have mentioned that one of the strategies is going forward is to improve customers experience and you mentioned last quarter about like a single sign-on the platform consolidating e-mails, so [ph] or not and I think it is on a beta trial if I am correct. I am just wondering so far how is the feedback and when are you going to rollout or you have already I do not know in terms of the actual platform, the single sign-on to improve like you know customer experience going forward?

Right. Jo, we have had a very successful start. What we have done is, we taken all the beta users input at this point in time and we are making modifications this quarter to all the learnings that we have got. They love the experience, the simplicity of experience, the lack of complexity when they are looking at intuitiveness of the offer and the solution, so while you will see is us putting all those and in fact we are doing it right now, we are putting all those takeaways that we have learn from the beta in new tweaks and refinements to make the offer better and you will see us come out after this quarter with more of a full market launch. We are really excited about it right now.

Okay. That is great. Finally maybe just touch on e-checks a little bit. I am excited about the acquisition definitely and I am just wondering if you can talk about the economics, how is it compared to like a regular paper check, profitability-wise, pricing-wise. If you have any color to share or view, appreciate it?

Think of it as, we price the e-check about the price of a postage stamp, so our sales niche is along those lines and we really have been sticking to our guns on every deal, every consumer deal or every small business deal or every deal that we talk about some of these bank deals and this payment company deal are going to be along the same lines as well, so the economics on this are wonderful. One of the things that is really also compelling if we can get this thing to go and I want to just to remind everybody that this is going to take time to build this market out. We also are working with still many large financial institutions who are also very interested in this, but it will take some time but one of the great things about this is where we cannot tell today when a small business customer or consumer is getting to the last paper check in their book. We can tell when somebody issue those e-checks and what is great about that is, the ability then to seamlessly without marketing to go back to them or without following up to them to tap them on the shoulder and or electronically and say looks like anymore e-checks. That we think is going to be a compelling operating margin opportunity for this space as well.

Okay. That is great. Then really just finally, I think, Terry mentioned some pricing pressure on the Checks business within Financial Services, but would you characterize as a stepped up pricing pressure or it is pretty much the pricing is always kind of an issue and it is just a little bit more noticeable this quarter?

I do not think. I think, we are trying to make sure that our investors understand it is out there. I do not think it got any worse this quarter across all three of our segments [ph] sell, checks, but it is out there and it is just something that we are trying to be remindful to the investor about.

Okay. All right. Great. Thank you so much.

You are welcome.

Thank you. The next question comes from Josh Elving of Feltl.

Hey, good morning guys.

Hi, Josh.

Just had one quick question, a couple of mine have been answered. Perhaps I missed it, but I wanted to get a better sense. Obviously, there were some moving parts within Financial Services with regards to acquisitions realignment, some accounting issues or items. How do I think about that operating margin for that segment going forward? I know that there was a big decline year-over-year. Can you kind of give me some idea as to think about it for the rest of the year?

One of the things that we try to point out, because we were a little worried. We thought we are clearly with this when stepped on a last quarter book. I think, Terry did a nice job in his comments, Josh, is that the 18.6% margin we had also had the 5.3 point impact from Wausau, so think about it as almost 24 points. We think we performed quite well a little slightly down versus the prior year, but remember that we had to absorb the large contract of pricing decline that we had last year beginning in the April timeframe. The way to think about it going forward is that, if you think about Wausau being basically neutral for the year on $75 million of revenue that we told you, adjust your models for that and you should expect the business before that adjustment to be about in line with what we did last year, so yes it is going to bring it down in the near-term, but we like this and we think we will continue to get more effective at improving the profit on that Wausau business as we go forward and as we get some of the accounting treatment of things behind us.

Okay. That is helpful. That is my only question. Thank you.

You are welcome.

Thank you. We have time for one last question. It is follow-up questions from Jamie Clement.

Yes. Hey, gentlemen.

Yes. Hi, Jamie.

Hello. Hey, Lee, I was just curious, I am wondering whether of the last couple of years with somebody acquisitions that you have made and also the area of businesses, the areas of business where you are a little bit more evolved, is there perhaps a little bit more seasonality in favor of 4Q and away from 1Q than perhaps was the case with the [ph] last five years ago?

I do not know and I guess I have not thought about it in those terms. The biggest issue we always have in Q1 is for whatever reason our direct to consumer business is our strongest revenue quarter every year. I do not think it is materially different in Q2. Sometimes depending on when the Easter holiday falls, whether it is March or April, Jamie.

Right.

Move things around a little bit, but I cannot tell you there is something wildly different other than.

I will tell you what I was getting at. Some of the Small Business Marketing Services, you just you have more services your better at than you were four or five years ago. I am wondering if that late lends some seasonal strength for the fourth quarter around the holidays?

Fourth quarter for sure.

Yes. That is what I was saying. Like, I was saying in other words, is the fourth quarter stronger than it has been historically is what I was really meaning to say. Do you get my drift? In other words, as we model this out, we look at it, is the fourth quarter a lot stronger relative to the first than it maybe was five years ago?

Yes. I think the way we should think about is, go back and look at what we reported on MOS in each of the quarters last year. Again, I think was Joan's question I mentioned that we will keep ramping as the year runs onto that 520 to 535 ranges on revenue, so yes absolutely, Jamie.

Sorry. I did not ask you the original question appropriately, but yes that is what I was getting at.

Yes. We right with you on that.

Very good, thanks very much for your time.

You are welcome.

Okay. Let me just ramp up by, first of all thanking everyone for their participation and the questions today and I just got three summary comments there I want to make. First of all, we delivered a strong first quarter to start the year. Our Marketing Solutions and Other Services' revenue grew over 31%, and the mix improved towards our goal of 30% this year and 40% by 2018, and we also believe that we established the strong baseline first quarter that we believe propels us towards revenue growth again in 2015 for the year the sixth consecutive year. As we normally say, we are going to get back, roll up our sleeves, get back to work and we look forward to providing another positive progress report on our next call and I am going to turn it over to Ed for some more final housekeeping.

Thanks, Lee. Before we conclude the call today, I would just like to mention that Deluxe Management will be participating at a few upcoming events in the second quarter. We can hear more about the transformation. On May 6th, we will be in Chicago with our R. W. Baird Growth Stock Conference. On May 11th, we will be in New York at the Macquarie Business Services One-On-One Conference and on June 2nd, we will be in New York, Stephen's Annual Investor Conference. Thank you for joining us and that concludes the Deluxe First Quarter 2015 Earnings Call.