Deluxe Corporation (DLX) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Deluxe Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Ed Merritt, Treasurer and Vice President of Investor Relations. Sir you may begin.

Thank you Shannon, and welcome everyone to the Deluxe Corporation’s fourth quarter 2015 earnings call. I’m Ed Merritt, Treasurer and Vice President of Investor Relations and 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 from analysts. I’d 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, 2014. The financial and statistical information that will be reviewed during this call is addressed in more 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 or as part of our remarks during this call. Now, I’ll turn the call over to Lee.

Thank you, Ed, and good morning everyone. Deluxe delivered our fourth strong quarter of 2015. We reported revenue in the upper range of our outlook in spite of continued foreign exchange headwinds and adjusted earnings per share above the high end of our outlook. Revenue grew more than 3% over the prior year quarter, driven by financial services growth of 7% and small business services growth of 3%. Marketing solutions and other services revenues grew better than 12% over the prior year and represented over 33% of total fourth quarter revenue. Adjusted diluted earnings per share grew 6% over the prior year quarter. We generated strong operating cash flow of $308 million for the year and we were drawn $434 million on our credit facility at year end. We repurchased $13 million in common shares in the quarter and $60 million for the year. We continued our brand awareness campaign to help better position our products and services offerings and drive future revenue growth. We celebrated our 100 year anniversary as a company by ringing the opening bell on November 23, 2015 on the New York Stock Exchange. We also advanced process improvements and delivered on our $50 million cost reduction commitment. On December 1st, we completed a small tuck-in acquisition of FISC Solutions, which will further enhance our financial services, marketing solutions and other services product set by adding treasury management lock box, database, print and mailing and bank processing services. It also adds platform redundancy for WAUSAU, which is critical for risk mitigation. FISC has already been integrated right into WAUSAU. 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 fourth quarter of $1.20, which included $0.06 per share collectively for restructuring charges and transaction cost. Excluding these costs, adjusted EPS of $1.26 exceeded the upper end of our previous outlook and was 5.9% higher than the $1.19 reported in the fourth quarter of 2014. The restructuring charges are primarily for employee severance and infrastructure consolidations and the transaction charges related primarily to the Datamyx and FISC acquisitions. Revenue for the quarter came in at $464 million, growing 3.35% over the last year and over 5% sequentially from last quarter. The growth rate excluding the recent Datamyx and FISC acquisitions and an unfavorable foreign exchange rate was about 2%. Small business services revenue of $304 million grew 3.3% versus last year, despite a continuing sluggish economic environment and unfavorable foreign exchange rates, which negatively impacted revenue growth by 1 percentage point in the quarter. We delivered growth in marketing solutions and other services. And from a channel perspective, our online Safeguard distributor, major accounts and dealer channels grew. Financial services revenue of $120 million grew 7.3% versus the fourth quarter of last year. Excluding revenue from acquisitions, financial services would have been down low single-digits for the quarter. Higher marketing solutions and other services revenue driven by WAUSAU, Datamyx and Deluxe Rewards, price increases and revenue from Zion’s Bank more than offset the impact of lower check orders. Direct Checks revenue of $40 million was down 6.8% from last year and in line with our expectations. From a product revenue perspective, checks were $213 million, representing 46% of total revenue; forms and accessories were $98 million or 21% of total revenue; and marketing solutions and other services were $153 million, which was 33% of total revenue. Gross margin for the quarter was 63% of revenue, which was flat with 2014. The impact of previous price increases, improvements in the services revenue margin, and improvements in manufacturing productivity were offset by product revenue mix and higher delivery productivity, were offset by product revenue mix and higher delivery and material cost. SG&A expense increased 4% in the quarter and was 43.1% of revenue compared to 42.8% of revenue in the same period last year. Benefits from our continuing cost reduction initiatives in all three segments were offset by increased SG&A in financial services associated with the recent acquisitions and our efforts to grow small business direct sales channel. Excluding restructuring and transaction related charges in both 2015 and 2014, and the loss on the sale lease back in 2014, adjusted operating margin for the quarter was 20.5%, which was roughly flat with the 20.6% generated in 2014. Financial services delivered an operating margin better than our exceptions, while small business services and Direct Checks margins were in line with our expectations. Small business services adjusted operating margin was very strong at 18.8% an increased 0.8 percentage points from the prior year. This operating margin is the highest since the fourth quarter of 2013 when we were spending less on brand awareness. Financial services adjusted operating margin of 20% was down 2.7 points from 2014, driven by WAUSAU, Datamyx and FISC acquisition amortization expenses and check usage declines, partially offset by continued cost reductions. WAUSAU was accretive to earnings in the fourth quarter, but the financial services adjusted operating margin was negatively impacted 4.9 points from WAUSAU, Datamyx and FISC. Direct Checks adjusted operating margin of 35.7% increased 2.2 percentage points from 2014, driven by a higher mix of reorders and lower costs, which more than offset the lower order volume. Turning to the balance sheet and cash flow statement, at year-end total debt outstanding was $631 million, up from $554 million at the end of 2014. The 2015 amount included $434 million drawn against our credit facility. Cash provided by operating activities for the year was $307.9 million, a $27.5 million increase compared to 2014. Higher earnings and changes in working capital were partially offset by higher performance based compensation and income tax payments. Capital expenditures for the year were $43 million, and depreciation and amortization expense was $77 million. Other significant financing and investing activities in 2015 included refinancing our $200 million notes due in 2019 with lower rate debt, investing $213 million in acquisitions, the largest one being Datamyx, using $60 million to repurchase common stock and distributing $60 million to shareholders through dividends. Looking ahead to 2016, we expect the consolidated revenue on a full year basis to range from $1.835 billion to $1.875 billion. Diluted earnings per share are expected to range from $4.75 to $4.95. There are several key factors that contribute to our full year outlook including small business services revenue is expected to increase 4% to 7% as volume declines in core business products and the negative impact of foreign exchange rates are expected to be offset by growth in our online distributor, dealer and major accounts channels, price increases, double-digit growth in marketing solutions and other services offerings and continued small tuck-in acquisitions. We expect financial services revenue to increase 6% to 8%, driven by continued growth from marketing solutions and other services revenue including Datamyx, WAUSAU, FISC and Deluxe Rewards partially offset by recurring check order declines of 6% to 7% and some pricing pressure. Our Direct Checks revenue decline of approximately 7% to 8% driven by lower check order volume semi from secular declines in check usage. A continued sluggish economy, full year cost and expense reductions of approximately $50 million net of investments, increases in medical expenses, material cost and delivery rates. Continued investments in revenue growth opportunities including brand awareness marketing solutions and other services offers and enhanced internet capabilities. And an effective tax rate of approximately 33.8%, representing approximately $0.03 dilution per share compared to 2015’s tax rate. We expect to continue generating strong operating cash flows ranging between $315 million and $330 million in 2016, reflecting stronger earnings and lower interest payments, partially offset by higher tax and employee medical payments. We expect to contract acquisition payments to be approximately $50 million. 2016 capital expenditures are expected to be approximately $43 million or the same of 2015 as we continue to grow Deluxe. We planned 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 $87 million, including approximately $41 million of acquisition related amortization. For the first quarter of 2016, we expect revenue to range from $448 million to $456 million. Adjusted diluted earnings per share are expected to range from $1.12 to $1.17. This EPS range would drive a very strong 8% to 13% growth in the first quarter year-on-year. Lower interest expense from extinguishing the 2019 notes in the first quarter of 2015, partially offset by higher interest expense driven by the Federal Reserve’s recent rate increase action is expected to be above $0.02 favorable year-on-year. WAUSAU was a little over $0.02 dilutive in the first quarter of 2015 and brand spend is expected to be flat with the first quarter of 2015. Also as a reminder, historically Direct Checks has their strongest revenue quarter of the year in the first quarter. Adjusting for these items in both years, first quarter’s adjusted diluted EPS growth rate would still be a strong 4% to 8%. Shifting to our capital structure. We expect to maintain our balanced approach of investing organic and through small to medium sized acquisitions in order to drive our growth transformation. Additionally, we expect to continue paying a quarterly dividend and periodically repurchase common stock. To the extent, we generate excess cash we plan to reduce the amount outstanding against our credit facility and 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. Overall, we had another solid year and we delivered on our commitment to reduce our cost and expenses in 2015 by approximately $50 million. Bringing our total reductions since mid-2006 to approximately $600 million. Looking ahead to 2016, we will continue our focus on the revenue growth phase of our transformation, but will not lessen our focus on cost and expense reductions. We expect to drive an incremental $50 million of cost reductions net of investments in 2016. Approximately 50% of the $50 million in expected reductions will come from sales and marketing. Another 35% from fulfillment and the remaining 15% coming from our shared services organizations. Our focus in sales and marketing for 2016 continues to be on sales channel optimization, platform and tool consolidation, leveraging sales and marketing efficiencies including integration from recent acquisitions. In fulfillments, we expect to continue to 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 are also working opportunities in finance and real estate. Now I’ll turn the call back to Lee.

Thank you, Tarry. I will continue my comments with the perspective on what we accomplished overall in 2015, look ahead to 2016, including framing our eight strategic focus areas for the year and review our key revenue growth area marketing solutions and other services. I will then highlight progress in each of our three segments including a perspective and what we plan to accomplish in 2016. Deluxe grew revenue in 2015 for the sixth consecutive time for the first time since 1996. We saw a continued stability in our core check and business products and product businesses and improved our mix of faster growing marketing solutions and other services revenues to 30% of total annual revenue. We acquired VerifyValid, Jumpline, Datamyx and FISC to expand opportunities in higher growth marketing solutions and other services. We also accelerated our brand transformation and celebrated our 100 year company anniversary. In addition to our strong print leadership we continue to invest in our employment brand, in digital technology and extending our sales channel reach and in our communities. We ended 2015 with 4.5 million small business customers of which approximately 27% of them are marketing solutions and other services customer. And we served approximately 5,100 financial institutions. In shared services infrastructure, we’ve reduced cost and improved the effectiveness of information technology, finance, human resources, real estate and legal functions. Our intense focus on cost reductions has now delivered enterprise wide savings of $600 million since mid-2006. We exited the year with more robust and innovative product and services, solidified processes, a better infrastructure and improved financial results. Our operating cash flow grew for the 7th straight year allowing us to pay our dividend, repurchase shares and invest in acquisitions. We recognize that there is still a tremendous amount of work to do, but we made great strides in 2015. As we enter 2016, our primary focus continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues. We are poised for continued growth as we aim for profitable revenue growth in 2016 for a 7th consecutive year. As we briefly introduced on our Q3 earnings calls, we have eight strategic focus areas for 2016, including three for financial services, and five for small business services that we will provide regular updates on throughout the balance of 2016. I will review each of the eight focus areas in a few minutes during the segment updates. From an overall macroeconomic perspective, clearly there are global pressures with challenges in China with energy oil and gas and a strengthening dollar. And not to say we are completely immune from these. But we believe the direct impact on these for us is insignificant. We have developed an incredible execution oriented culture that has operated through various market environments and has delivered strong top and bottom-line growth for the past six years. We had built our business on large size markets and relationships in the small business and financial institutions spaces with broad, robust and growing product offers that we believe sets us up extremely well for 2016 and beyond. As we have continued to grow marketing solutions and other services revenue both organically and through tuck-in strategic acquisitions our revenue mix is significantly diversified now. This has also positioned us to be a solution base provider to our customers. Our solutions allow us to address a broad range of customers’ needs and pinpoints. Further enhances to us as a trusted partner and deeply embeds us in their workflows and ultimately leads to sticky relationships. We expect to increase a broadening and more highly diversified marketing solutions and other services revenue stream to 34% of total revenue mix in 2016 towards our goal of MOS representing 40% of revenue by 2018. Within MOS we also expect over 10% of total company revenue mix to be in the even higher growth multiple FinTech spaces. In summary given this perspective we believe that the market is not fully understanding or valuing the exceptional strength and positioning of Deluxe right now. Here’s an update on our four sub-categories framework for marketing solutions and other services. We ended 2015 at over $532 million in revenue or right about on our expectation with mix in the four sub-categories also right in line with our expectation. First, small business marketing finished 2015 at 39% of total MOS revenue and is expected to represent approximately 40% in 2016 with expected growth of approximately 16% to 20%. Key 2016 growth initiatives include profitably scaling integrated marketing on demand solution offers with the largest opportunity in major account verticals including automotive, financial services, healthcare, hospitality, real estate, service franchises and telcos. We also see strong growth opportunities in retail packaging, promotional products and specifically in distributor, dealer and major accounts channel. The second category web services which includes logo and web design, web hosting SEM, SEO, email marketing and social and payroll services finished 2015 at 21% of total MOS revenue and is expected to represent approximately 18% in 2016 with expected organic growth rates in the low single-digits. Key 2016 growth initiative include scaling web services offers through our just released integrated Deluxe marketing suite across all customers and channels, delivering partnerships and acquisitive opportunities that pull double down on existing capabilities and address gaps within our portfolio. We closed 2015 with approximately 950,000 web hosting customers, which is a 14% increase from 2014. We expect to close 2016 with nearly 1.05 million web hosting customers, an increase of 11% from 2015. The third category, fraud, security, risk management and operational services finished 2015 at 16% of MOS revenue and are expected to represent approximately 14% in 2016, with expected growth in the low single-digits. Key focused growth areas in this category, in addition to our standard fraud and security offerings include performance management by adding Banker’s Dashboard customers including tablet and new credit union offers as well as strategic sourcing new financial institution wins. In addition, we continue to see growth from scaling eChecks with opportunities both within our traditional direct channels as well as from adding eChecks to our distributor, dealer and major account channels to also scaling in many areas where we do not sell paper checks today. Q4 was our best revenue quarter ever for eChecks, and for the full year the eChecks platform process more than $1 billion of payment value to more than 400,000 payees. We continue to progress opportunities with financial institutions, medical and insurance payment processors, accounting services and software providers and other document management and payment solution companies. We are excited to announce that we just closed two new deals. One with an integrated healthcare payment solutions provider and another one with an accounting and financial services outsourcing provider. 20% of all eCheck customers are new customers who have not purchased a paper check from Deluxe in the last six years. Finally, other financial institution services finished 2015 at 24% of MOS revenue and are expected to represent approximately 28% in 2016 with expected double-digit growth rates. Key growth initiatives here include scaling WAUSAU, FISC, Deluxe Rewards and Datamyx. We expect marketing solutions and other services revenues to be approximately $615 million to $630 million in 2016, up from $532 million in 2015, with organic growth in the low double-digits. If achieved, this performance would translate to a total revenue mix of around 34% of revenue, and up from almost 30% in 2015, and 26% and 22% 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 forms and accessories expected to represent approximately 20% of revenue. 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 remains sluggish and foreign exchange rates continue to deteriorate. Revenue grew over 3% and was negatively impacted by foreign exchange headwinds, which impacted growth by 1%, checks and forms were slightly below the high end of our expectations and seasonal holiday offers performed about in line with our expectations. Results from targeted customer segmentation in the call center improved and visitors 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 small business marketing solutions, web and payroll services, while SEM/SEO services declined in line with our earlier decision to exit some unprofitable channels. Again, we ended the quarter with approximately 950,000 web hosting customers. We continue to closely monitor the small business market. Optimism indices were flat in October and then declined in November and closed slightly higher in December, but ended the fourth quarter down. The index is stuck in a below average ride and signals that the economy is basically just the lumping along. The index ended the year below the highest levels reached in this recovery in late 2014. Although the labor market and capital spending continue to reflect some encouraging signs. In summary, current optimism indices indicate a continued sluggish economy. Other than taxes and regulation the good news is that increasing sales continues to be a small business owners’ number one pinpoint 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 that help small businesses get and keep customers. Deluxe is better positioned as an indispensable partner for growth. For 2016 we have created a four quadrant metrics to frame four of the five strategic focus areas for SBS. First for market your business products, which include small business marketing solutions our focus areas are profitably scaling, integrated marketing on demand solution offers with the largest opportunity in major account verticals including automotive, financial services, healthcare, hospitality, real estate, service franchises and telcos. Second, market your business services, which includes web services offers our focus areas are improving operating income by optimizing product portfolio, channels and operations, delivering partnerships and acquisitive opportunities that both double down on existing capabilities and address gaps within our portfolio and providing our integrated Deluxe marketing suite across all customers and channels. Third, for operate your business products which includes checks, warrants and accessories our primary focus is on driving customer acquisition and retention and improving Safeguard distributor processes and profitability. Fourth, for operate your business services which includes primarily fraud and security, eChecks and payroll services and where our focus is on scaling eChecks, assessing adjacent offer extensions like checks and eChecks for e-deposits, variable check printing and remotely created checks and payroll time tracking and billing as well as continuing to evaluate potential partnership and acquisition operating services opportunities. The fifth SBS opportunity is continuing to improve brand awareness. In 2016 we’ll be telling more stories and packaging great advice for other small business owners from the 100 businesses we featured in 2015. We also will be producing a web series with Robert Herjavec that showcases small businesses, while incorporating marketing lessons from Deluxe. Another exciting partnership with Robert is that he has enlisted Deluxe to provide marketing support to the businesses he invest in on Shark Tank. We are also in the midst of the small business revolution main street contest. For this contest we are soliciting nominations from towns that can benefit from an investment in their main street and we have received nearly 6,700 nominations from more than 1,300 small towns so far. In the second quarter we will announce three small town finalists during National Small Business Week, when the public will vote for their favorite. The winning town will receive $500,000 providing a jolt of revitalization to their main street business community and upgrades to their public spaces. We see these efforts as a great platform to continue to increase our brand awareness within the small business community. In financial services in the fourth quarter we saw the rate of decline of checks perform a little lower than 6%, which translate to the year being a little higher than 6% with rates across our six tier banking categories. We had strong overall new acquisition rate and our retention rates remained strong and deals pending in the current quarter. We simplified our processes and took complexity out of the business, while reducing our cost and expense structure. We made progress again in the quarter in advancing marketing solutions and other services revenue opportunity. WAUSAU revenue was approximately $19 million, which met our expectations and we had strong bookings in the quarter helping us build backlog, which finish the year about 6% higher than backlog last year. So we are encouraged about growing WAUSAU revenue in 2016. WAUSAU ended the fourth quarter and the year about $0.02 accretive per share. As mentioned earlier, we also completed the FISC small tuck-in acquisition, which has been integrated in the WAUSAU. Deluxe Rewards continue to perform very well in the fourth quarter, including closing of new financial institution pilot that may lead to a larger contract as well as we expect to close another financial institution deal as part of a check renewal. So a nice cross sell opportunity. Datamyx is off to a very strong start as revenue came in closer to $8 million or better than expected and about $0.02 dilutive per share. For 2016, we have three strategic focus areas for FS. First retail banking, which includes checks, marketing services and rewards on loyalty. For checks our focus is on improving retention rates and gaining share. We expect check units to be in a decline range of 6% to 7% or in line with 2014 and 2015 declining rates. Please note that we understand that it is important for us to maintain low decline rates. But given the size of the FS checks business now and the growth in MOS every 1% decline in FS checks now only has about a $2.5 million annualized impact on revenue. We have now extended all our large contracts through at least the end of 2016 and we have about 20% fewer community bank contracts up for renewal in 2016 compared to 2015. And we have more competitive opportunities coming up. We also implemented a very small price increase at the start of this year. For marketing services our focus is on leveraging Datamyx, data and analytics together with marketing services campaign execution to acceleration outsource campaign targeting and multi-channel execution. For rewards and loyalty our focus is on profitably growing Deluxe rewards revenue. The second, FS strategic focus area is commercial banking and includes treasury management and profitably growing WAUSAU and FISC revenue and assessing and executing tuck-in acquisitions, along with assessing other adjacent opportunities in commercial banking. The third FS strategic focus area is performance management. And includes scaling Banker’s Dashboard and strategic sourcing. For 2016, we expect marketing solutions and other services revenue to be approximately 45% of total financial services revenue with the following at the midpoint of the FS revenue range. Marketing services including Datamyx be $54 million. Rewards and loyalty $33 million, fraud and security $24 million, treasury management including WAUSAU and FISC $89 million and performance management including Banker’s Dashboard and strategic sourcing $19 million. We still expect Datamyx revenue to be approximately $42 million in 2016 with strong double-digit EBITDA margins and we expect data mix to be about flat per share from an EPS perspective and to be dilutive in total less than six months from the acquisition date. In Direct Checks revenue finished right in line with our expectations. We continue to look for opportunity to provide accessories and another check related products and services to our consumers as well as 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 call center scripting and up sell capabilities as well as synergistic cost and expense reductions. For 2016 we expect Direct Checks revenue to decline in the 7% to 8% range, driven by continued declines in consumer usage and 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 revenues. We expect to reduce our manufacturing cost and SG&A in the segment and continue to deliver operating margins in the low to mid 30% range, while generating strong operating cash flow. As we exit 2015 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 2016. We believe we are well positioned entering 2016 for our seventh consecutive year of revenue growth. Despite the sluggish economy our financial discipline has enabled us to invest in people, technology, products, services and our brand in order 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 2016 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. Before I open the call up for questions, I would like to take this opportunity to thank all the Deluxe employees for their hard work, dedication and simply outstanding performance in 2015. Thank you, Deluxers. Let’s get off to a great start in 2016 as we aim for seventh consecutive year of profitable revenue growth. And now Shannon we’ll open up the line for questions for Terry, Ed and I.

Thank you. [Operator Instructions] Our first question is from Jamie Clement with Macquarie. You may begin.

Hi, Lee, Terry, Ed, good morning and thanks in advance for taking my questions.

Hi Jamie.

Hi, Jamie.

Lee, perhaps I should have asked question three months ago given the stock action after last quarter and the Datamyx acquisition. It seems to me that some people took that deal announcement as a sign of change in strategy by the company. Yet, if you look at what you’ve invested in, in SBS in 2015 again maybe the deals weren’t that big, but I agree you still spent a lot of money. So if it’s possible if you could like just indulge this a little bit and if you could treat kind of all of the spending in SBS in 2015 as if it was kind of one acquisition, can you share with us what you think you kind of what you accomplished, what you added to the business and what the opportunities are going forward?

So specific to SBS, what we’re trying to do is again as I said in my comments get more of a solution focus so when you think about those four quadrants Jamie, what we’re trying to do now is obviously historically it’s been more of the operate your business products category the checks in front. But we are trying not only to get stronger in the web services space, but there is a huge opportunity for us in the small business marketing solutions space as well. And we are not sure we like eChecks, we clearly from my comments we made some progress here including some a couple of just brand new wins that we have. So we see that as helping as in the operate your business services space as well. So we are trying for more balance and we filled in gaps that we had and we mentioned the seek panel Jumpline deal that we did, we are looking to still fill in gaps where we see them, see fit to fill in gaps. But the thing that we are trying to do with the company we said this on the third quarter call and you can feel it more today is get FS growing as well and if we can do that Jamie the view we have is that we got 90% plus now the company been able to say we can organically get grow. We just see opportunities over there, balance with the great opportunities that we have in the small business space and bringing these all together cross-selling more and just having more richness and robustness in the collective MOS portfolio and I think that balances what we are trying to do. Stay smart in the SB, but add capability in FS.

And if I may follow up on that I know you gave us some numbers in terms of some of the MOS components of FI. I just couldn’t quite frankly write them down fast enough. But what is the -- I don’t know if you want to give a fourth quarter number or full year 2015, what percentage of FI was Jackson I don’t know if you can pro forma that for Datamyx and for FISC and all that. But just so that we can attempt to maybe model on organic growth rate of FI going forward.

Yeah, here is the way to think about it and if you think where we close the year 2015 about 37% of FS was MOS. So about 63% would be checks or checks and accessories mostly be. This year Jamie we expect the MOS to move to 45%. So when I rattle off all those parts of the portfolio and we do that because you and investors are interested in those areas of the portfolio. That’s the 45% and therefore the checks component we expect to be about 55% this year.

Okay. Alright, thank you very much. I’ll hub back in the queue. Thank you very much.

You're welcome.

Thank you. Our next question is from Joan Tong with Sidoti and Company. You may begin.

Good morning. A couple of questions and just kind of maybe follow-up with Jamie’s question regarding organic growth how we see it going forward for financial services? Obviously your comments very positive there and FinTech is about what 10% revenue of marketing solutions right now and yet we saw like -- I thought that I heard that organic growth for FS is down this particular quarter. But how should we view it over the long-term especially in 2016?

Here is the way Joan to think about it and of course you’ve got -- we try to be as straightforward as you know and given you fair comps here. But the way to think about it is if we execute to the $42 million that we’ve laid out for Datamyx and all the other numbers that I gave you for those MOS components for FS and then we carry forward into what we believe are the opportunities from the business cases that we develop when we did the various acquisitions looking into 2017 we believe given the rate of decline of check at that 6% to 7% in FS that the collective segment should be able to grow in the low single-digits and that then becomes organic. So we have to flush this year at 6% to 8% which doesn’t now organic, inorganic obviously, right? Because of Datamyx acquired and FISC acquired in the fourth quarter of 2015. But when you look out and you reach out, and you get through the year and we believe we’ll execute to what we laid out and you look into 2017 that’s the energy and excitement that we’ve got. We now have SP growing and now we have what we believe Joan is that FS will be able to get some organic growth as well and therefore again the 90% plus the company organically growing.

Okay, that’s great. So we are definitely looking out there in 2017, which is not too far away. And I’m not sure if I actually got it right it seems like in terms of your different channels obviously Deluxe is known for that very good expensive channel coverage. And for me it seems like your major accounts like clients list is like growing and growing and you just name like another vertical market for example on the automobile side. And can you just give us an update on that?

Yeah we continue -- you see the extensive growth rate that we predicted for the small business marketing solutions that first component of the four components within MOS and we said 16% to 20% growth. What’s happening right now Joan is we continue to see in the fourth quarter what we’ve seen in the previous several quarters as well that we’re starting to be able to go out to -- we call major accounts, which in effect act like small business customers. So we’ll go out to a financial advisor network. And we like Sutera as an example, they’re a nice customer. And they have somewhere between maybe 8,000 to 15,000 in effect financial advisors. And those advisors all need everything from marketing materials and business cards and what and they’re now buying those from us kind of from what we call a central store front. So let’s say Terry and Ed are advisors that work for Sutera and they don’t want to go in and figure out how to go find their own cards and marketing material. So they go through a central storefront we’ve created for them. And then they know they can access that and get whatever they need and personalize to their what they want to target as an advisor for their clients. So it’s an example where is this is happening in all of those other verticals that I mentioned. And we see this getting bigger and we see the potential to put other services cross-sell things into there as well. So for example in my example of Terry and Ed may want to start using email marketing to talk to their clients as well. And so right now this is a hugely interesting opportunity for us.

Right, that’s great. And Lee if I have to quantify sort of like that SMB like opportunity like should I say let’s say you have $4.6 million small customers right now small medium business customers right now. How many of those are actually using two or three different services of products versus just checks? And can I just extrapolate like the cross-sell like upsell opportunity through that numbers that you can potentially give me?

Joan the way to think about it is what we said publicly the $4.5 million small business customers and we ended the year with 27% of them considered MOS customers. So we believe the opportunity is to continue to fill out those four quadrant offers between products and services that we have both to help them in their marketing as well as to help them in how they operate. So that’s the best way to look at it. We're very leery on giving specific products and here is why when we see competitors of ours who say well seven products and what we see is sometimes it ends up being four different domains. We don’t -- we look at it as a product to us is a pure product that we’re selling into there. We don’t look at it is four domains of suddenly four products or something like that. So the opportunity that we see is that just been able to build out that 27% mix and getting that mix to be higher overall. I just would remind you and the other investors Joan to that we don’t get all of our customers anymore coming to us through checks. Some of them don’t even know we’re a check company anymore. They come through logos, they come through email marketing, they come through web hosting in that small business place. And then they might or checks is an extension or a cross-sell. It doesn’t start anymore this is the incredible breadth and diversity of the portfolio that we’re starting to get as well.

Very good. And then finally Terry, can you I think last year when you talk about brand awareness especially on the spending like maybe some heightened spending in marketing and all of that and you gave us some sort of trajectory how we should think about each quarter. Can you just kind of provide the information for 2016?

Yeah as we indicated at the first quarter in particular that is a lower quarter for us, but it is pretty comfortable spend level in relation to what we had for the 2015 time period. And then as you look at the distribution out for the balance of the quarters it’s really staged pretty comparably to last year as we enter into small business week in the second quarter that tends to draw more of our spend as we try to leverage what’s kind of happening at a national level there. And third quarter is also another higher quarter and then starts to taper off again towards the end of the year. So first and fourth quarters are lighter and the heavier spend will again be in that second and third quarters.

Yeah Joan to add on Terry to add on that if you go back my comments in the prepared comments so we’re going to bringing out some of the energy and excitement around the continuation of the small business revolution on main street stuff. And then you’ll see in the third quarter us announcing the winner and then really ramping this web series marketing web series, you’re going to see us doing in fact web television so to speak where we are on with Robert and we’re working with our clients we’ve already started this in fact, we’ve seen several Robert’s businesses we invested in have now using our suggestions on SEM or SEO or email marketing and there we’re seeing they’re lift almost immediate in terms of their revenue lift coming in. So and I know Robert is really enthused with what we’re doing and obviously those customers are enthused. So you’re going to see that to come in the second and third quarter be a little bit stronger in terms of where we will spend money, but that does match pretty much what we did last year as well.

Okay, great. Thank you so much.

You’re welcome.

Thank you. Our next question is from Tim Klasell with Northland Securities. You may begin.

Yeah I just sort of want to circle back and hi guys. Want to circle back to that 4.5 million customers that you have in the 27% number that you threw out. How that was for let’s say 2014 and 2013 how was that trended overtime?

It was 25% in 2014, I think it was 20% in 2013 Tim. So it’s growing nicely for us.

Okay, great. And maybe you could sort of talk to us on what specific products that seem to be driving that? I know there’s probably more than one, but if we keep it down to maybe a shorter list so we can know what products to sort of focus in on?

It’s really -- the real significant reach right now is in that small business solutions where we’re bringing together a package of marketing materials and we call that small business solutions Tim is the way to think about it, but we’re also bringing, think about we just increased the hosting customers from 850,000 in 2014 to 950,000 in 2015 so we boost that up by 14% and we expect this year to add roughly another 100,000. So it’s coming in a lot of different areas, is the way to think about it, but you can just see where we have the largest growth rate right now within SP and the mix of MOS Tim it’s going to be more in that small business solutions bucket.

Okay, great. And then jumping over to web services, I think in your prepared remarks you mentioned that there were some gaps or some areas where you wanted to sort of more round that solution out can you give us any indication of where that might be not obviously specific product sets, but sort of in general area where you want to focus some of your efforts this year?

Yeah here’s a way to think about it, when we did this Jumpline deal we’ve been looking for sea panel capability for quite some time and I don’t know how many different companies we looked at and we latched on to Jumpline they’re out of St. Petersburg Florida, Andy and his team have just done a super job so far. And so what we’re looking is how do we -- is there a way that we can bring that capability on more and more and bring more -- migrate more customers in because we think they’ve done a great job up till now and we think we can give a more muscle so to speak to do this even in a bigger way. So we see it as partnerships latching on, many other tuck-ins that we can do that we think will give us more scale and the way to think about it we don’t want all the baggage so to speak that comes with that. We just want to get those customers put them on our system and we think we can profitably scale that in a lot better way. So that’s an example where what I mean in that web services space.

Okay great. And then Terry a quick question for you tax rates obviously gone up a bit here. Is that -- 33.8% is that still a good number to go into 2017 or will there will be some maybe a greater impact to 2017 with when you annualized all the acquisitions?

Yeah we’ve seen kind of market consistency in that tax rate in recent years kind of the in the 33% it is up a little bit for 2016. So will cost about $0.03 per share, but in that range kind of with the product mix and kind of where we operate today that’s probably the best you can do is just kind of extrapolate from where we are.

Okay, very good appreciate. Have a good day guys.

Thanks, Tim.

Thank you. Our next question comes from Josh Elving with Feltl and Company. You may begin.

Hi, good morning.

Hey, Josh.

Hey congratulations on your continued execution of the transformation.

Thank you.

I guess I had one quick question and you’ve already kind of touched a little bit on organic growth. And I just want to see if I could summarize it maybe from a consolidated basis. If I look at the kind a midpoint of the revenue guidance for 2016 it’s about 4.5% of revenue growth. Is there any currency impact considered in 2016?

Yeah we have assumed that there will be a negative currency impact going into next year.

And so if I assume go ahead.

I just want to say I mean essentially what we do I mean we don’t pretend like we can forecast or predict big decreases in the exchange rate and we typically just kind of level it out from where we are at time we’re really going out with our outlook and forecast and really assume that’s steady throughout the year. But given where it is where it’s been on average versus each of the quarters last year. It is down a little bit.

And so if I just assume call it $80 million plus of revenue growth at the midpoint back outs maybe $40 million for Datamyx and some of the other small tuck-in acquisitions. I get to couple of percent organic growth plus whatever you’ve kind of backed out or I assume for currency getting me comfortably into the kind of low single-digit organic revenue growth. Is that the right way to think about from a top-line perspective?

I think that’s fair, yeah. I think the thing you got to think about those the growth coming in MOS the huge levels to offset the rate of decline in the check part of the business so right. So that’s the thing that you got to balance out.

Absolutely. Thank you very much.

You're welcome Josh.

Thank you. We have time for one more question and that will be from Charles Strauzer with CJS Securities. You may begin.

Hi good day. Just a couple of quick questions if we could talk a little bit more as historically about some of the recent larger acquisitions like WAUSAU and just and Datamyx and just when you look at the growth rates you’re expecting for 2016 from 2015. Where are they kind of in your expectation bandwidth in terms of when you first bought them to kind of where they are trending now and what’s kind of the go-to-market strategy and has that changed at all?

Yeah let start with Wausau, we as I said in my prepared comments Charles, we finished the year really strong, we had great bookings in the fourth quarter I just was over this earlier this week we have a -- all our sales feet on the street sales people in town for training and that’s now the Datamyx people, the WAUSAU people and then the core people. And I thank them because they finished the year really strong and again as I said the backlog ending 6% higher do we expect to get growth in this. Yeah we expect it if you go back when we did this October a year ago, we expected to get some growth and I would tell you right now we’re doing really well and I think it’s going to perform really well. Can we grow that up a little bit more this year above the six as we get more bookings coming in? I hope that’s the case, Datamyx is brand speaking you I mean we’ve only been with these folks short period of time that they were at the meeting. I was extremely enthusiast about their progress where they’re at, I’m expecting that to grow clearly double-digits. If you look at full year 2015 to full year 2016. So I feel very good about what we are doing and I really like the camaraderie and adding these things and how do we work with our sales force getting them into accounts and vice versa and I’m just really enthusiast Charley about what we are doing right now.

That's great. Thanks and then if you look at MSO revenue was a whole lot you seems to grow very nicely each year as a percent of revenue. Are you at a point where you can kind of give us a little bit better sense of the overall margin texture like EBITDA margin or EBIT margin for that bucket?

We are solidly now solidly in the double-digit EBITDA space at this point and we expect it -- if you think of that curve that we put in our investor deck the line we are getting more and more to the point this year if we can execute where we think we can, moving that up yet another notch in 2016. So very much on that trail and you can see it in some of the prepared comments where we are focused on the certain areas and getting more profitability out but right now Charley I’m very encouraged and we’re button down to put a $50 million number out for cost reductions again. We are getting -- a lot of people think it’s all in the check and the form side it didn’t, it’s getting in these deals and getting them integrated and getting them scaling and then getting the cost structure and those aligned better and that’s going to give us more of a lift this year in that sales bucket, if you think about how Terry described the split of the $50 million. So I’m very encouraged obviously we got to execute. But that’s something we do well. So I’m hopeful that as we do this year we’ll be able to move those up even more.

Thank you. That's very helpful and thanks for the extra transparency this time. Thank you.

You're welcome.

Thank you.

Shannon let me just close with thanking everybody for the participation today and I want to leave you with three thoughts. First of all we feel we delivered four strong quarters in 2015, we also delivered our six consecutive year of revenue growth. We also feel that we’ve established the strong foundation for growth again this year and our goal again as I said is to grow revenue for seven consecutive years. We are going to get back to work, roll up our sleeves we’ll come back and hopefully provide a positive progress report on our next call and I’m going to turn the call over to Ed for some final housekeeping.

Thanks, Lee. Before we conclude today’s call just wanted to mention that Deluxe management will be participating in a few upcoming events in the first quarter where you can hear more about our transformation. On February 29th and March 1st we’ll be at the JP Morgan Global High Yield Leverage Financial Conference in Miami. On March 9th we’ll be in New York at the Northland Capital’s Growth Conference and on March 23rd we’ll be attending the Telsey Advisory Group’s Spring Conference in New York. Thank you for joining us and that concludes the Deluxe fourth quarter 2015 earnings call.