Deluxe Corporation (DLX) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2017 Deluxe Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Ed Merritt, Treasurer and Vice President of Investor Relations. You may begin.

Thank you, Glenda, and welcome everyone to Deluxe Corporation’s fourth quarter 2017 earnings call. I’m Ed Merritt, Deluxe’s Treasurer and Vice President of Investor Relations. And joining me on this call is Lee Schram, our Chief Executive Officer; and Keith Bush, our Chief Financial Officer. At the conclusion of today’s prepared remarks, Lee, Keith and I will take questions. I would like to remind you that the 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 factors that could cause actual results to differ from projections 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, 2016. Portions of the financial and statistical information that will be reviewed during this call are 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 Form 8-K filed by the company this morning. References to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release or as part of this presentation. Now I’ll turn the call over to Lee.

Thank you, Ed, and good morning, everyone. Deluxe delivered a solid quarter to close out a strong 2017. Revenue grew 3% over the prior year quarter, driven by Financial Services growth of 11% and Small Business Services growth of 1%. Marketing solutions and other services revenues grew 15% over the prior year and represented 40% of total fourth quarter revenue. Adjusted diluted earnings per share grew 4% over the prior year quarter. We generated strong operating cash flow of $338 million for the year and we were drawn $708 million on our credit facility at year end. We repurchased $15 million in common shares in the quarter and $65 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 also advanced process improvements and delivered on our $45 million cost-reduction commitment. In a few minutes, I will discuss more details around our recent progress and next steps. But first, Keith will cover our financial performance.

Thanks, Lee. Revenue for the quarter came in at $495 million, growing 3.1% over last year. Revenue was about $9 million lower than the high end of our range, primarily driven by $6 million from MOS and $3 million in SBS forms and accessories. The $6 million in MOS was comprised of $3 million in data-driven marketing, where a large financial institution decided not to run a previously expected credit card campaign initiative, $2 million in lower fraud, security and operational services revenue and a $1 million each in small business marketing and treasury management solutions. This was partially offset by $1 million more in web services. Organic revenue, which excludes acquisitions, FX, exited businesses and other non-comparable items, was down almost 2% in the quarter. Small Business Services revenue of $322 million grew 1.3% versus last year overall and about the same organic rates, despite a continuing sluggish economic environment. We delivered growth in checks and marketing solutions and other services. From a channel perspective, our online major accounts in Canada grew. Financial Services revenue of $139 million grew 11% versus the fourth quarter last year. Organically, Financial Services revenue declined about 8% for the quarter, impacted by a lower revenue in both checks and MOS. Direct Checks revenue of $33 million was down 8.8% from last year and right in line with our expectations. From a product and services revenue perspective, check revenue was $206 million, representing 42% of total revenue. Marketing solutions and other services was $198 million or about 40% of total revenue. And forms and accessories were $91 million or about 18% of total revenue. Gross margin for the quarter was 61.4% of revenue and was down from 63.2% of revenue in 2016. The impact of acquisitions and higher delivery in material costs were only partially offset by the benefits of previous price increases and improvements in manufacturing productivity. SG&A expense decreased 3.3% in the quarter, and as a percent of revenue, was well leveraged, ending at 40.6% compared to 43.2% last year. Benefits from our continuing cost-reduction initiatives in all three segments compared to the prior year were partially offset by increased SG&A associated with recent acquisitions. Excluding restructuring, integration and transaction related charges, adjusted operating margin for the quarter was 21.1%, which was slightly higher than the 20.9% generated in 2016. Small Business Services adjusted operating margin was very strong at 20.2% and 1.3 points better than the prior year, driven by price increases, cost reductions and favorable product mix, partially offset by the decline in check and forms usage. Financial Services adjusted operating margin of 19.9% was down 2.2 points from 2016. In addition to check usage declines, even though the recent acquisitions were slightly accretive to operating income, their results contributed 3.7 points to the variance. Direct Checks adjusted operating margin of 34.6% decreased 0.3 points from 2016, driven by lower order volumes that were only partially offset by cost reductions. Diluted earnings per share for the fourth quarter were $1.75, which included $0.42 per share for tax benefits from the passage of the Tax Cuts and Jobs Act, partially offset by a $0.07 of restructuring, integration and transaction charges. Turning to the balance sheet and cash flow statement. At year end, total debt outstanding was $709 million, down from $759 million at the end of 2016. The 2017 ending balance included $413 million drawn against our revolving credit facility and $294 million in the term loan. Cash provided by operating activities for the year was about $338 million, an increase of $19 million compared to 2016. Higher earnings and lower interest payments were partially offset by higher contract acquisition payments, as well as an incentive payment in 2017 from a previous acquisition. Capital expenditures for the year were nearly $48 million, and depreciation and amortization expense was approximately $123 million. Other significant financing and investing activities in 2017 included $139 million in acquisitions, the largest one being RDM, repurchasing $65 million of common stock and distributing $58 million to shareholders through dividends. Looking ahead to 2018, we are raising our expectations from our previous initial outlook for consolidated revenue on a full year basis to range from $2,065,000,000 to $2,105,000,000 or about 5% to 7% overall growth and about 1% organic growth. We are also raising our expectations from our previous initial outlook for adjusted diluted earnings per share to an expected range from $5.55 to $5.80. With the increase in acquisition revenue from what we indicated on our Q3 earnings call, we are expecting some small EPS dilution in 2018 from acquisitions, and we expect EBITDA to continue to grow, delivering more dollars to our shareholders. Here are several key factors that contribute to our full-year outlook, including Small Business Services revenue is expected to increase 4% to 5%, with expected growth in our online, dealer and major accounts channels. Price increases double-digit growth in MOS offerings and continued small tuck-in acquisitions. Partially offsetting our growth are expected volume declines in core business products. We expect Financial Services revenue to increase 11% to 16%, driven by continued growth in MOS categories, including data-driven marketing solutions and treasury management solutions, as well as continued acquisitions. Partially offsetting our growth is the expected loss of about $10 million in Deluxe Rewards revenue, primarily due to the departure of Verizon, recurring check order declines are 7% and some pricing pressure. In Direct Checks, we expect revenue to decline approximately 11%, driven by lower check order volume stemming from secular declines in check usage. While we believe the economy is beginning to strengthen, we are a bit cautious and are monitoring how business and financial institutions plan to spend tax-related savings. We expect full year cost and expense reductions of approximately $50 million net of investments. Approximately 70% of the expected reductions will come from sales and marketing, another 25% from fulfillment and the remaining 5% coming from our shared services organizations. Increases in material costs 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 25%. We continue to assess the overall impact of the tax cuts and Jobs Act, particularly the new international provisions, including the total charge in previously deferred foreign earnings. We are uncertain as to whether there will be any impact from either the global intangible low tax income or base erosion in anti-abuse tax, but believe if there are any impacts that they will be immaterial, and therefore, have assumed no impact on our effective tax rate. We expect to continue generating strong operating cash flow ranging between $360 million and $380 million in 2018, reflecting stronger earnings and lower tax payments, partially offset by higher interest and employee benefits. We expect contract acquisition payments to be approximately $27 million. 2018 capital expenditures are expected to be approximately $55 million, $7 million higher than 2017 as we plan to accelerate growth investments even more in 2018. We plan to continue to invest in key revenue initiatives and make other investments in order fulfillment and IT infrastructure. Depreciation and amortization expense is expected to increase to approximately $146 million, including approximately $92 million of acquisition-related amortization. For the first quarter of 2018, we expect revenue to range from $482 million to $490 million, and adjusted diluted earnings is expected to range from $1.27 to $1.33 per share. Shifting to our capital structure. We expect to maintain our balanced approach of investing organically and through small to medium-sized acquisitions to drive our growth transformation. However, as we have noted, we intend to be moderately more aggressive in our acquisition plans going forward. 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. We believe our increasing cash flow, strong balance sheet and flexible capital structure position us well to continue advancing our transformation. Now I’ll turn the call back to Lee.

Thank you, Keith. I will continue my comments with the perspective on what we accomplished overall in 2017, look ahead to 2018 and beyond, including framing our pivot for faster growth strategy and review our key revenue growth area, marketing solutions and other services. I will then highlight progress in each of our three segments, including the prospective on what we plan to accomplish in 2018. Deluxe grew revenue in 2017 for the eighth consecutive year for the first time in 21 years. We saw continued stability in our core check and product businesses and improved our mix of faster growing marketing solutions and other services revenues to over 38% of total annual revenue. We acquired RDM, Digital Pacific and Impact Marketing to expand opportunities in higher growth marketing solutions and other services. In addition to our strong print leadership, we continue to invest in our brand, in digital technology and extending our sales, channel reach and in improving our infrastructure. We ended 2017 with 4.4 million small business customers, of which approximately 33% of them are marketing solutions and other services customers. And we now serve approximately 5,600 financial institutions. Operating cash flow grew for the ninth straight year, allowing us to pay our dividend, repurchase shares, refinance our long-term debt and invest in acquisitions. We recognized that there is still a tremendous amount of work to do, but we made great strides in 2017. Looking ahead to 2018 and beyond, we expect to deliver continued growth in MOS and a ninth consecutive year of revenue growth in 2018. It is important to note that 2018 marks the first time in the history of Deluxe that our revenue is expected to exceed $2 billion. Additionally, 2018 represents the first year of our three-year goal through 2020 to pivot for faster organic growth and moderately more aggressive acquisitive growth. Although we are providing high-level targets for 2020 which frame our three-year strategic goals, we are not providing detailed guidance beyond 2018. While accelerating progress toward our three-year strategic goals and growing EBITDA, there may be an impact to operating income and GAAP EPS, depending on the mix of acquisition growth, including acquisition valuations, performance and synergies and the organic performance of MOS. There is a cost to transform more quickly, so we may experience small near-term GAAP EPS dilution. But expect immediate cash flow and cash EPS accretion. We are committed to pursuing a plan that we believe will enhance shareholder value, while continuing to pivot for faster organic and moderately aggressive acquisitive growth. As highlighted earlier, we expect to deliver approximately 1% organic growth in 2018. And our goal for approximately 3% organic growth in both 2019 and 2020. We are also targeting to increase our overall MOS to total company revenue mix to be approximately 60% by year end 2020. To achieve the 60% MOS mix level, we expect to drive more organic growth and make larger investments, principally in data-driven marketing and treasury management solutions and to optimize web services. In 2018, as indicated on our Q3 2017 earnings call, we are planning to incrementally invest approximately $8 million that we will exclude from adjusted earnings as incurred in technology integrations, primarily in data-driven marketing, treasury management and web services. In addition to this, we are now planning to invest $10 million in data-driven marketing and treasury management in talent, technology and process improvements to accelerate strategic sales, drive more development innovation, including treasury management infrastructure for artificial intelligence and machine learning and process improvements, as well as a one-time bonus for all non-management employees and other employee-related initiatives to ensure we remain competitive in the current war for talent in a tight marketplace. We have worked hard to give us some expected sustained core check runway with all large financial institution contracts now extended through at least 2020. And we have about 25% fewer bank contracts up for renewal in 2018 compared to 2017, plus we have more competitive opportunities coming due. In 2018, in marketing solutions and other services, we expect revenue to be approximately $910 million to $940 million, up from $756 million in 2017, with an expected 20% to 24% growth rate, including 4% to 8% organic growth, with about $95 million in new acquisitions and $45 million in carryover acquisitions, partially offset by $15 million in other non-comparable items. The 4% to 8% organic growth rate is driven by data-driven marketing expected growth of 15% to 25%. And treasury management solutions’ expected growth of 3% to 9%, with all three of the other categories expected to grow low-single digits. If achieved, this performance will translate to a total revenue mix of approximately 45% of revenue or above our stated goal of 40%, and up from 38% in 2017 and 33% and 30% the previous two years. We are excited with our progress here and with a more cooperative economy and even more additional acquisitions as catalyst. We could potentially grow MOS even faster. We estimate that approximately 70% of the MOS revenue is recurring, with some of the MOS categories recurring at a rate closer to 95%. And many MOS products and services we have multi-year customer contracts similar to our FI check contracts, annual maintenance services contracts, recurring monthly fees and long-standing customer relationships. We continue to expect the annual overall EBITDA margin rate or MOS to be moderately below the total company average EBITDA margin rate. Here is an update on our five subcategories framework for marketing solutions and other services. We ended the quarter about $6 million below the top end of our previous expectations, as highlighted by Keith earlier. First, small business marketing solutions finished 2017 at 35% of total MOS revenue and is expected to represent approximately 32% in 2018, with expected growth of approximately 10%. Key 2018 growth initiatives include profitably scaling integrated marketing on-demand solution offers, with a strong focus on the financial advisor and real estate verticals, web-to-print, retail packaging and promotional products. The second category, web services, which includes logo and web design, web hosting, SEM, SEO, e-mail marketing, social and payroll services finished 2017 at 17% of total MOS revenue and is expected to represent approximately 17% in 2018. Key 2018 growth initiatives include focusing on cross-selling and upselling our offers including using our integrated Deluxe Marketing Suite across both customers and channels, and scaling payroll services as well as continuing tuck-in capability acquisitions. The third category, data-driven marketing solutions, finished 2017 at 20% of total MOS revenue and is expected to represent approximately 22% in 2018. Key focus areas for growth in this category includes scaling direct marketing analytic print services, Datamyx and FMCG. The fourth category, treasury management solutions, finished 2017 at 14% of total MOS revenue and is expected to represent approximately 19% in 2018. The fifth category, fraud security risk management and other operational services finished 2017 at 14% of total MOS revenue and are expected to represent approximately 10% in 2018. Key focus areas in this category in addition to our standard fraud and security offerings include scaling eChecks, profitability, Deluxe Rewards and SwitchAgent. Now shifting to our segments, in Small Business Services, we continue to have two strategic focus areas: Payments and business solutions and web services. Overall for SBS in Q4, as expected, we do not see any notable improvements as the economic climate for small businesses remains sluggish and revenue grew just over 1%. As highlighted earlier, forms and accessories were slightly below the high end of our expectations. Our online dealer and major accounts channels grew revenue over the prior year. We also saw growth in small business marketing solutions and web and payroll services. The NFIB small business optimism index declined slightly from 105 in the first quarter to 104 in the second quarter to 103 in the third quarter and closed out the year at 105. Clearly, there remains strong optimism for the economy with small businesses still signaling that they expect better market conditions, and therefore, increased business activity and capital spending. Small business owners overall remain more optimistic right now. However, they want more proof that positive changes will be implemented. Small business hirings slowed even with some improvement in the economy and the lending index is up, expanding significantly at the end of 2017. As for tax reform, a competitor in the payroll services areas recently surveyed small businesses that have under 50 employees, and found that around 50% expect to benefit from the tax reform, with around 80% of the survey respondents indicating they would invest to savings, while two-third said they will use the savings to increase the wages they are paying. Clearly, in summary, if this more optimistic trend continues, this bodes well for us, and we have increased our SBS revenue growth from 2017 to 2018 now being 4% to 5%. So we expect a more favorable economic environment for small businesses in 2018. Now to our two focus areas, starting with payments and business solutions. We are focused on core check retention and acquisition and developing incremental retail customer acquisition channels. We ended the fourth quarter in line with our expectations for checks. We are also focused on profitably scaling integrated marketing on-demand solution offers with the largest opportunity in major account verticals with the stronger focus on the real estate and financial advisory verticals. Fourth quarter revenue was lower-than-expected at the high end of our previous outlook, driven by shortfalls in major accounts and distributors. Finally, we are focused on scaling eChecks and eDeposits. Our focus on eChecks continues to be in building out opportunities with financial institutions, medical and insurance payment providers, accounting services and software providers and other document management and payment solutions companies. Our second focus area is web services, with a focus on digital marketing services through improved customer experience and cross-sell, including use of our integrated Deluxe Marketing Suite across all customers and channels, while continuing to build out partnership and acquisition web services opportunities. In Q4, we also saw a continued strong cross-sell ramp in logo customers who became web design customers as well with all marketing services offers now being fulfilled through our Deluxe Marketing Suite. In operating services, we are focused on scaling payroll services and continuing to evaluate other operational annuity growth solutions. In Q4, Payce Payroll revenue was in line with our expectations. Finally, we are focused on continuing to accelerate our brand awareness transformation with a clear linkage to marketing and revenue-generating capabilities. In 2018, we are continuing our Small Business Revolution, Main Street town makeover. This year’s towns will be selected by the public from among five final cities. We will be doing a web series, as well as helping small businesses with marketing makeovers. We will be linking Small Business Revolution data work to our resource center and then to deluxe.com as we start to focus on driving revenue-generating capabilities. In Financial Services, we have two strategic focus areas for 2018. First, retail banking, which includes checks and data-driven marketing solutions. In the fourth quarter, we saw the decline rate of checks perform as expected at about 6%, which translated to the year being a little over 5%. Our retention rates remain strong on deals pending in the current quarter. We simplified our processes and took complexity out of the business, while reducing our cost and expense structure. For 2018, we expect check units to decline approximately 7%. We understand 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% in FS checks now only has about a $2 million annualized impact on revenue. We also implemented a very small price increase at the start of this year. Today, we are providing at least one of our key FS solutions to 95 of the top 100 U.S. banks. The market for data-driven marketing spend is expected to grow 9% with digital marketing spend by financial institutions expected to grow on a compound annual growth basis close to 13% through 2020. We are focused here on selectively sourcing value-add data, leveraging it with smart analytics, purpose built solutions to target specific customer segments for specific product offerings with multichannel capability. Think of it as just the right amount of data and analytics to be a difference maker for our customers. We believe there is no marketing solutions provider bringing this deep and sole focus to the Financial Services market right now. Data-driven marketing solutions were below our expectations at the high end of our range, as noted earlier. We had two notable wins in the fourth quarter with top 100 financial institutions, as well as 36 expansion wins with existing customers, including 13 top 100 financial institutions. Our focus in 2018 is on leveraging Datamyx data and analytics, together with marketing services campaign execution to accelerate outsourced campaign targeting and multichannel execution, as well as scaling First Manhattan and leveraging synergistic opportunities with Datamyx, as well as assessing and executing acquisitions that give us more digital, data and CRM capabilities. The second FS strategic focus area is scaling treasury management solutions, with our largest opportunity in managing payment acceptance and risk, irrespective of payment type. Reconciling and matching payments, resolving exceptions and then posting payments to keep receivables current. This receivables management work of automating and outsourcing workflow innovation and solutions for efficiency and effectiveness fits right in our sweet spot. In Q4, treasury management solutions revenue was approximately $29 million, which was in line with our expectations. We had a notable win in the fourth quarter with a top 10 financial institution to provide receivables management services in a SaaS model to their corporate clients, and a top five financial institution renewed a significant sized contract for our Remote Deposit Capture solution. We also introduced advanced receivables management services, utilizing artificial intelligence models to model invoice matching and payment details sent in e-mails and automatically connecting it to electronic payments for straight through processing reconciliation. Our focus in treasury management solutions in 2018 is on profitably scaling revenue and integrating acquisitions already completed, plus assessing and executing acquisitions with the focus on payment and remittance processing and cash applications basis within the treasury management overall ecosystem. We also just launched a strategic treasury advisory service with leading experts in treasury and cash management services to help further drive sales into financial institutions. In Direct Checks, revenue finished right in line with our expectations. We continue to look for opportunities to provide accessories and other 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 our call center scripting and upsell capabilities, as well as synergistic cost and expense reductions. In 2018, we expect Direct Checks revenue to decline in the 11% range, driven by continued declines in consumer usage and the lack of carryover or reorders from our decision in prior years to eliminate marketing expenditures that no longer meet our return on investment criteria. 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 costs and SG&A in this segment and continue to deliver operating margins in the low 30% range while generating strong operating cash flow. We have made tremendous progress in transforming Deluxe. In entering 2018, we believe we can pivot for even faster organic revenue growth and additional revenue growth from a moderately more aggressive acquisition focus. There are signals the economy may be strengthening, but we remain prudently cautious in our expectations for a stronger economy. And we’ll continue to monitor when and where businesses invest benefits from the tax cut and Job Act. We firmly believe now is the time to increase investments in people, technology, processes, products and services to accelerate sustainable revenue growth, while improving profitability and operating cash flow. We have developed a strong MOS platform for long-term growth, with high recurring revenue streams and strong adjusted EBITDA margins as we continue to transform 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 up the call for questions, I would like to take this opportunity to thank all Deluxe employees for their hard work, dedication and simply outstanding performance in 2017. Thank you, Deluxers. Let’s get off to our great start in 2018 as we aim for nine consecutive years of profitable revenue growth. Now Glenda, Keith, Ed and I will open up the call for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Jamie Clement from Macquarie. Your line is now open.

Gentlemen, good morning and thanks for taking my questions.

Hi, Jamie.

So looking at 2018 guides, I think you said organic growth approximately 1%. I just want to make sure I understand what’s assumed in guidance with respect to acquisitions that haven’t been announced yet. So just if I use a pure 1% number, am I right in assuming you got about $80 million to $140 million of incremental revenue from acquisitions that have not been made yet? Is that right?

Yes. The 1% is absolutely the right number that you should use for organic.

Okay.

The way to think about it in the – let me go in the context of what we’ve included in there. So as far as acquisitions, there’s $95 million that’s new acquisitions included and $45 million of carry over from acquisitions last year.

Perfect.

So $140 million is the way to think about it, $45 million carryover, $95 million new.

And with respect to acquisition intangibles, I think you called out an estimated $92 million for 2018. It’s obviously, that’s non-cash. What was the number in the fourth quarter? I don’t think you have that in your earnings release, I think we’d have to wait for the K, but if you have it, I’d appreciate it.

I don’t have it. Keith, do you have it in front of you?

We don’t have it in front of us, Jamie.

Okay. But as the year goes by and you announced these deals, I mean, you’ve got it – you feel you have enough of a cushion in your non-GAAP, in your EPS numbers, your EPS guidance to account for any kind of near-term dilution you may see from those deals to get you the additional $95 million of revenue?

Yes. Let me – in the comments, again, we made a comment that we – from what we originally guided back in October to where we’re guiding today, because we elevated the overall amount of revenue that we expect from acquisitions, we’ve also taken some dilutive – additional dilutive impact into consideration. So yes, we expect based on – this is always your best shot, Jamie, when you’re out with the companies, but we believe that we have that covered in the guidance we’re providing.

Okay. Okay, great. I appreciate it. And I wonder just – I’ll back in the queue after this. But on tax reform, what are you looking for in terms of chatter from your many, many, many small business customers that would suggest that they may consider spending an extra couple of thousand dollars in 2018 on redesigning a website or e-mail marketing campaign or something like that. What are you looking for?

Yes, right now, again, I think the thing that we put out in the prepared comments is that, I think, as I said, one of the competitors did a really nice job on the survey. It’s what we’re seeing right now, it’s like everybody right now. We watched everybody that’s gone before us and what are they doing with tax reform. We’ve kept our eye on that. And we’re going through and looking at is where do we want to do, what do we think the right things that we need. And small businesses are doing the same thing. How much am I going to get back to my employees? How much of my going to reinvest in my business? How much am I going to go spend and putting to the economy, so to speak or putting them new offers, my new services, whatever. We’re hearing small businesses that we talked to going through those same decisions. And we don’t have perfect clarity, which is why we put the words that we put in our prepared remarks. But I’d tell you this, we do see and feel there is more bullishness out there. And because of that, we’ve also raised our revenue growth, I think we could finish the year about 3.5% or 3.7% last year, and we expect 4% to 5% this year. So we feel it, we see it. And again, if it gets more clarity, could that be even stronger? It could be. But right now, we will see.

Right, okay. I’ll get back in queue. Thank you so much for your time.

You’re welcome.

Thank you. [Operator Instructions] And our next question comes from the line of Charlie Strauzer from CJS Securities. Your line is now open.

Hi, good morning.

Hi, Charlie.

So a couple of questions on guidance and if you think about the tax savings you’re going to have, it sounds like you’re reinvesting a fair amount of that back into the business, as you mentioned. And first of all, can you talk about the difference between the $8 million of reinvestment versus the $10 million of investments spend that you – you called it things like bonuses, et cetera? What are the kind of key differences there between the two buckets? And why is one being adjusted and one is not being adjusted?

Yes, let me give you the framework that I know you want to know and other investors are going to want to know as well. So just clear the air right now. So if you think about what we put out in October, we said that we expected a 2% to 4% revenue growth, which is now 5% to 7%. And we expect a 3% to 6% adjusted EPS growth. If you purely go out and you plugged it into your models as well as other investors today and you adjust the tax rate from the 32% to the 25%, it’s about 15% to 16%, that we could have to say, just – that’s the number. What we’ve done and you can do the math on this, Charlie, as well as other investors can, is take that $10 million that we’ve decided to invest, and I’ll give you some clarity around what that is. And take the dilutive impact from the deals that were – we’ve now added, and that would take you down to the high end of the – I’m using the high end here, that gets you right – lands the plane right at 10%. It’s crystal clear, that that’s the math, that’s what we’ve decided to do. Now as far as what all the pieces are, the way to think about it is the $8 million is onetime integration and activities. And they range from things like, and I mentioned this on the last call, Charlie, they range from things like getting everybody that’s in treasury management from the four acquisitions that we’ve done, all integrated in same technology, same platforms that they communicate with, location, considerations that we’ve taken and about things like that, that are onetime in nature, more integration related. We’ve actually started that work, a little bit of that work and we call that word integration out and what Keith had in his prepared remarks. So a lot of it is just those kind of things right now. And then the new $10 million is really, and the language that I used in the release, is really things that are much more talent to make sure we can get the right people we need, add those people to the equation. So think about strategic sales talent in both data-driven marketing and treasury management. We are putting a lot more money into development innovation. I mentioned artificial intelligence and machine learning and treasury management. We’re also putting – we have had success with pay for performance. Our First Manhattan team, which has just been an incredibly positive acquisition. They’ve done a phenomenal job. And one of the things that they’ve been able to do is use pay for performance with the banks. We’re going to put some dollars aside within that $10 million to go try to do that within Datamyx and within the cornerstone Act on piece as well. We’re also spending money on accelerating the adoption of receivables management within treasury management. And what we’re doing is we’re adding business processing outsourcing go-to-market sales capabilities. So we have just decided that these are great areas that we believe we can win, we believe we can add differentiating capability that will give us sustainable competitive advantages as we move forward and we just think now is the right time to make those investments. So hopefully, that gives you some additional color on our thinking and the clarity.

That’s very helpful. That give us a lot of information to process in a short period of time. So thank you for that. And then I know you don’t want to get into the specifics in the 2020 goal of 50% MOS revenue and starting at 1% guided – organic growth guidance for this year. How should we think kind of bigger picture about what organic growth might look like if you achieve those goals by the end of 2020?

Yes, we mentioned in the prepared comments, Charlie, we’re looking at 3% in both 2019 and 2020 as that – those numbers.

Got it. That’s perfect. And then Keith, what should we be using for interest rate assumption in 2018.

Yes, this is Ed actually. Probably right now, rates are around 3%. Now if there are more fed hike increases, obviously that flows through, but right now rates for us are right around 3% all in.

So how should we think about it, the expense for the full year? Up slightly from last year?

Well, you need to build – probably, yes. Year-on-year they’re definitely going to be up. But you’ll need to make your own assumption, I guess, as to whether there are going to be some more hikes in the rates from that.

Got it. And what do you basically assuming in your calculations?

I mean, we’re assuming that there are some hikes in there. We don’t give a detailed number on what the interest expense assumptions are, but are assuming rates are going to up this year.

And then one more housekeeping, just share count assumption for the year. Do you have a range for that?

Yes, but we don’t talk about share buybacks. So, I mean, if we buy back a little bit of stock, I think share counts could be flat, flattish maybe. But we don’t usually preannounce what kind of share buyback activity we’re going to have.

Got it. Okay, thank you very much.

You’re welcome.

Thank you. And we have a follow-up question from the line of Jamie Clement from Macquarie. Your line is now open.

Hey, Lee. You called out for, with respect to the fourth quarter, a little bit of a shortfall versus budget-related to you on FY that didn’t go through. I think you said with the credit card solicitation kind of campaign. Was that the right? Did I hear that properly?

Yes. And this is – we actually called it in October that we’re going to see some of this go on. And what we saw last year is we had more get done in the first quarter in First Manhattan than we thought. And it was either the second or third quarter we saw the same thing. Well, lo and behold in the fourth quarter, when – and the way I think about it, Jamie, is all these FIs they line up all these campaigns that they’re going to do. And there’s a lot of them. And one of our – one large institution decided, I don’t want to now do a credit card campaign. It doesn’t mean we didn’t have – by the way, one of the things I’ll put out there as well is our First Manhattan revenue ended up being almost $91 million last year. So when we called $80 million to $85 million at the beginning of the year, we ended up doing better than we thought. So our challenge is we’re going to see a little of this lumpiness go on. And yet, when you look at the whole year, the team in First Manhattan just did a super job. So that’s what happened.

Well the reason that I bring it up was even if you listen to new stuff that comes out of the U.S. Postal Service, it seems that credit card solicitation in general actually started declining earlier on in the year when you are actually seeing some strength in the first quarter. And have been kind of a little bit sluggish over the last couple of quarters, but it sounds like there is a little bit of an optimism that there may be a turnaround in that in 2018. So I just wanted to make sure how much your business was leveraged to that kind of process? That’s why I’m asking the question.

If you think about First Manhattan, credit card is not the first thing that generally we’re out working with FIs on.

Yes, I didn’t think so.

Yes, it’s generally – let’s go back to make sure we stay grounded. This is generally going to be consumer deposit and consumer loan-related and business deposit and business loans. But we do, do credit card things.

Okay.

And customer that we’re talking about here, we do all those other things with. So this is a super customer. And they wanted to do this and then they just – the CMO just decided not to do it.

Okay. Got it. Yes, because I’ve heard some optimism around that with respect to the next couple of quarters. And who knows if they’ll play out that way, but it sounds like sort of this time, this year, is that a little bit better with respect to forward-looking than maybe this time last year on that subject. But who knows will be right. But thank you.

You’re welcome.

Thank you. And that concludes the question-and-answer session today. I would like to turn the call back over to Lee Schram, Chief Executive Officer for closing remarks.

So just thank you, everybody, for participating. And Charlie and Jamie for your questions. And I just want to leave you with three things. We delivered a strong 2017 financial performance, we delivered our eighth consecutive year of revenue growth and we are pivoting for even faster growth in the future, starting in 2018, with expected revenue growth again in 2018 for the ninth consecutive year. We’re now going to roll up our sleeves, we’re going to get back to work and we look forward to providing a positive progress report on our next earnings call. And I’m going to turn it over to Ed for some final housekeeping.

Thanks, Lee. So before we conclude this call today, I just want to mention that Deluxe management will be participating at the following conferences in the first quarter, where you can hear more about our transformation. On March 14, we’ll be at the Susquehanna Seventh Annual Technology Conference in New York; and on March 20, we’ll be attending the Telsey Advisory Group’s Spring Conference in New York. Thanks for joining us, and that concludes the Deluxe Fourth Quarter 2017 Earnings Call.