Deluxe Corporation (DLX) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Deluxe Corporation First Quarter 2018 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 be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Sir, you may begin.

Thank you, Takia, and welcome everyone to Deluxe Corporation’s first quarter 2018 earnings call. I’m Ed Merritt, Deluxe’s Treasurer and Vice President of Investor Relations. Joining me on today’s call is Lee Schram, our Chief Executive Officer; and Keith Bush, our Chief Financial Officer. At the end of today’s prepared remarks, Lee, Keith and I will take questions. I would like to remind you that comments made today regarding financial estimates, projections and management’s intentions and expectations regarding the company’s future performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. As such, these comments are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from projections are contained in the press release that we issued this morning, as well as the company’s Form 10-K for the year ended December 31, 2017. 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. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release or as part of our presentation during this call. Now, I’ll turn the call over to Lee.

Thank you, Ed, and good morning, everyone. Deluxe delivered a very strong quarter to start the year. We reported revenue and adjusted earnings per share above the high end of our outlook. Overall, revenue grew 1% from last year driven by small business services growth of 3% with Financial Services flat and Direct Checks declining 10%. On an organic basis revenue declined less than 1% and was in-line with our expectations. Marketing solutions and other services revenues grew more than 12% over the prior year and represented over 39% of total first quarter revenue. Adjusted diluted earnings per share grew over 11% from the prior year. We generated strong operating cash flow of $81 million and were drawn about $741 million on our credit facility at the end of the quarter. We renewed our credit facility for another five years and repurchased $20 million in common shares in the quarter. We continued our brand awareness campaign to help better position our products and services offerings and drive future revenue growth. We also advanced process improvements and delivered on our cost-reduction commitment for the quarter. On March 19, we completed the acquisition of LogoMix, which further enhances our small business services, marketing solutions, and other services products set by adding more logo and web services capabilities. Additionally, we are working on another acquisition in the treasury management space, which we expect to close in the second quarter. In a few minutes, I will discuss more details around our recent progress and next steps before I turn the call over to Keith to cover our financial performance. If you did not see our second release issued this morning, here are some highlights. We announced my intention to retire from Deluxe. I have agreed to serve as CEO during the succession process to provide continuity and leadership to facilitate a thoughtful, well-planned, and deliberate transition process. A CEO succession committee of the board has been formed and has engaged a leading executive search firm to assist in the succession planning process, which will consider both internal and external candidates. This is the right time for this transition on many fronts. With $2 billion in expected record revenues for 2018, and a strong strategic and financial momentum, I can begin to explore new interests and opportunities knowing that we have laid the foundation for continued transformational growth and success. It is a true privilege to lead this great company. I look forward to continuing to work with the talented team at Deluxe and with you, our investors, until my successor is named and to provide counsel and support in the transition to new leadership. As I'm not going anywhere yet, and will be here for a while, you can count on me to be working as hard as ever to ensure we continue our great transformational momentum during this transition period. And now, I’ll turn the call over to Keith.

Thanks Lee. On behalf of the entire management team, congratulations on your retirement from Deluxe. We all look forward to working with you throughout this transition process. Now back to the call. Revenue for the quarter came in at $492 million, growing to 0.8% over last year. Organic revenue, which excludes acquisitions, FX, and other noncomparable items declined less than 1% and was in-line with our expectations. Shifting to our segments, small business services revenue of $316 million, grew 2.7%, and 3.5% on a day's adjusted basis. And we delivered continued growth in marketing solutions and other services. From a channel perspective, our online, major accounts, Canada and dealer channels grew. Financial Services revenue of $141 million was about flat on a reported basis, as well as organically, compared to the first quarter of last year. Growth in marketing solutions and other services revenue more than offset the impact of lower check orders. Direct Checks revenue of $35 million was down 10% from last year, ending right on our expectations. From a product and services perspective, Check revenue was $210 million, representing 43% of total revenue. Marketing solutions and other services was $193 million or about 39% of total revenue. And forms and accessories were $89 million or about 18% of total revenue. Gross margin for the quarter was 61.6% of revenue and was down slightly from 2017. The impact of higher delivery and material costs and acquisitions were only partially offset by the benefits of previous price increases and improvements in manufacturing productivity. SG&A expense declined $6 million in the quarter, compared to last year and was well leveraged at 43% of revenue, compared to 44.5% last year. Benefits from our continuing cost-reduction initiatives in all three segments and lower legal expenses more than offset SG&A associated with recent acquisition and higher innovation investments spend. Excluding restructuring, integration and transaction costs, and impairment charges adjusted operating margin for the quarter was 18.8% or flat to 2017. Small business services adjusted operating margin was very strong at 19.9%. 0.8% better than the prior year, driven by product mix and cost reductions and lower medical costs, but partially offset by higher acquisition spending and increased material and delivery costs. Financial Services adjusted operating margin of 13.4% was down 1.2 points from 2017. In addition to check usage declines and continued pricing allowances, the loss of revenue and operating income from the Deluxe rewards highlighted on the fourth quarter earnings call, an increased material and delivery rates in 2018 were only partially offset by the benefits of our continuing cost-reduction initiatives, lower legal expenses, due to a settlement in the prior period, and lower medical expenses. Direct Checks adjusted operating margin of 30.9% decreased 1.0 points from 2017, driven by lower check order volume and increased material and delivery cost, only partially offset by cost reductions in lower medical costs. Diluted earnings per share for the quarter was $1.31 and included $0.08 per share, primarily for restructuring, integration, and transaction cost and asset impairment charges. Excluding these items, adjusted diluted EPS was $1.39 growing 11.2% from the first quarter of 2017. Additionally, first quarter adjusted diluted EPS of $1.39 was $0.06 better than the high end of our outlook, driven by lower medical expenses, which contributed $0.03 of the benefit and higher revenue and mix flow through to profit, which contributed $0.02 of the benefit and lower information technology expenses, which contributed $0.01 of the benefit. Both the favorable medical and information technology expenses are timing-related and are expected to be incurred over the balance of the year. Turning to the balance sheet and cash flow statement. We were drawn $741 million on our credit facility at the end of the quarter, primarily due to acquisitions. Cash provided by operating activities for the quarter was $81 million, a $7 million increase compared to 2017. Driven by higher earnings and lower income tax payments, and lower prepaid product discount payments they were partially offset by higher interest rate payments and higher payables. Please note that prepaid product discount payments were previously referred to as contract to acquisition cost. Capital expenditures for the quarter were $40 million and depreciation and amortization expenses was $31 million. On March 19, 2018, we completed the acquisition of LogoMix for approximately $43 million in cash. For the year, we expect LogoMix to contribute approximately $16 million in revenue and be neutral to adjusted earnings per share before transaction and restructuring costs. We financed the acquisition through a draw on the credit facility. Now, moving to our outlook. We are tightening our previous consolidated revenue outlook for the full year to range from $2.065 billion to $2.085 billion, which equates to about 5% to 6% overall growth. The high-end of the range has been adjusted down by $20 million, primarily due to data driven marketing, driven by lower than expected financial institution marketing spend in more complex and elongated pay for performance initiatives, but also due to a delay in closing the treasury management acquisition and FX rates. We’re also tightening our adjusted diluted earnings per share to an expected range from $5.60 to $5.80. 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 revenue growth and MOS offerings, and continued tuck-in acquisitions, partially offsetting our growth, our expected volume declines in core print business products. We expect Financial Services revenue to increase 10% to 12%, driven by continued growth in MOS categories, including data driven marketing solutions and treasury management solutions, as well as continued acquisitions. Partially offsetting Financial Services growth is the previously discussed departure of Verizon and expected recurring check order declines of 7%, as well as some check pricing pressure. In Direct Checks, we expect revenue to decline approximately 11%, driven by lower check order volume stemming from secular checked declines. While we believe the economy is beginning to strengthen, we remain cautious and are monitoring help businesses and financial institutions plan to spend and invest tax-related savings. We delivered on our first quarter cost and expense reductions commitment and expect full year reductions of approximately $50 million net of investments. Approximately 70% of the expected reductions will come from sales and marketing, another 25% from fulfilment, and the remaining 5% coming from our shared services organizations. We expect to see continued increases in material costs and delivery rates. We continue to plan for revenue growth investments, including approximately $8 million that we will exclude from adjusted earnings as incurred in technology and integrations, primarily in data driven marketing, treasury management, and web services. In addition to this, we now plan to invest $8 million, which is slightly lower than previously communicated in data driven marketing and treasury management, in talent technology and process improvements to accelerate strategic sales and drive more development innovation. Additionally, we paid a one-time bonus for all management employees in the first quarter and implemented other employee-related initiatives to ensure we remain competitive in the current war for talent in the tight marketplace. We expect our full-year effective tax rate to be approximately 25%. We are assessing the overall impact of the Tax Cut and Jobs Act, particularly the new international provisions, including the total charge on previously deferred foreign earnings. We currently expect there will be approximately $0.03 per share negative impact from the global intangible low taxed income tax, compared with our earlier guidance of an immaterial impact. We still do not believe there will be any base erosion in anti-abuse tax impact. 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 in employee medical payments. We expect prepaid product discount payments to be approximately $27 million for the year. 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 growth initiatives and make other investments in order fulfilment and IT infrastructure. Depreciation and amortization expense is expected to be approximately $143 million, including approximately $89 million of acquisition-related amortization. For the second quarter of 2018, we expect revenue to range from $492 million to $499 million and adjusted diluted earnings per share are expected to range from $1.29 to $1.35 per share. We expect to have lower brand spend and higher cost reductions in the second quarter, compared to the first quarter. Shifting to our capital structure, on March 21, 2018, we replaced our five-year revolving credit facility, increasing the size slightly to $950 million. The new facility has an accordion feature that provides us with the option to increase the overall size to $1.425 billion if needed. We expect to maintain our balanced approach of investing organically and through acquisitions 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. We believe our growing cash flow strong balance sheet and flexible capital structure provides 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 a recap of the three-year strategic direction outlined on our last earnings call, and then highlight our progress in each of our segments focusing on the three primary MOS key growth areas to provide a perspective of on how we progressed in the first quarter and outline what we expect to accomplish during the balance of the year. For 2018, we expect to deliver continued growth in MOS revenue and a ninth consecutive year of total revenue growth. If achieved, 2018 will mark the first time in the history of Deluxe that our revenue exceeds $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. While accelerating progress towards 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 or quickly. So, we may experience small near-term GAAP EPS dilution in 2019 and 2020, but we expect immediate cash flow and cash EPS accretion. We are committed to delivering a plan that we believe enhances shareholder value, while we continue to pivot for faster organic and moderately more aggressive acquisitive revenue growth. We expect to deliver slight organic growth in 2018 and 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 45% this year growing to 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. 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. And we have more competitive opportunities that are coming due. In 2018 in marketing solutions and other services, we expect revenue to be approximately $910 million to $925 million, up from $756 million in 2017, with an expected 20% to 22% growth rate, including 4% to 7% organic growth with about $90 million in new tuck-in acquisitions and $45 million in carryover acquisitions, partly offset by $15 million in other noncomparable items. The LogoMix and treasury management acquisition referred to earlier are expected to generate $16 million and $46 million of revenue respectively or $62 million in total for 2018. These two acquisitions are expected to deliver about two-thirds of the $19 million new acquisition revenue. So, we have made good progress thus far, but still have work to do to deliver the remaining $28 million of new acquisition revenue to reach our outlook. The 4% to 7% organic growth is driven by data driven marketing expected organic growth of 11% to 16% and treasury management solutions expected organic growth of 9% to 12% with all three of the other categories expected to grow low single digits. As Keith highlighted, the delayed timing of the treasury management acquisition closed drove some of the MOS revenue reduction at the eye high-end of our outlook, but the primary driver of the reduction was in data driven marketing. We continue to be bullish in this space and are forecasting 11% to 16% organic growth, which is higher than the market growth rate of 9% to 13%. Our focus is on growing existing FI’s through cross-sell and program expansion, acquiring new FI’s an expanding pay for performance. Here is some encouraging color on our accelerating pace of new customers and expanding pay for performance. For all of 2017, we added seven new FMCG customers. So far in 2018, we have added five new FMCG customers. For all of 2017, we only have one pay for performance customer. But have added four more customers in 2018. In spite of these very positive trends we are lowering data driven marketing revenue as we did not see the expected increase in marketing spend from a combination of tax reform, anticipated regulatory relief, and ascending interest rates. All of which typically improved bank earnings. In addition, while pay for performance is generating demand, the sales process is more complex and elongated. If we achieve the $910 million to $925 million, this performance will translate to a total revenue mix of approximately 45%, 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 acquisitions as catalyst, we could potentially grow MOS even faster. Now shifting to our segments, including updates on our key strategic and MOS revenue focus areas. In small business services, Q1 revenue grew approximately 3. As highlighted on our fourth quarter 2017 call, we expect a more favorable economic environment for small businesses in 2018 and saw some signs of this in the first quarter through better performance in small business marketing solutions, which is where more of small businesses discretionary spending occurs. However, the impact of four nor'easter [ph], where we generate approximately 25% of our small business services revenue muted our revenue growth slightly at the high-end of our expectations. Checks, forms, and accessories were slightly below the high end of our expectation, while marketing solutions and web services slightly exceeded our expectations. Our online dealer and major accounts channels grew revenue over the prior year. The NFIB small business optimism index continued to improve throughout January reaching a very strong 108 in February and ending at 105 in March, basically flat to the beginning of the year beginning of the year, but still a strong positive indicator. Clearly there remains strong optimism for the economy with small businesses signaling they expect better market conditions and therefore increased business activity in capital spending. Small business owners overall remain more optimistic right now. However, they want more proof that positive changes will be implemented. As for Tax Reform, we continue to believe that small businesses will benefit by investing savings and increasing the wages they are paying. In summary, if this more optimistic trend continues, this bodes well for us. And we expect SBS revenue growth to increase in 2018 to 4% to 5% from 3.7% last year. Now, to our two focused areas starting with payments and marketing solutions. Here we are focused on core check retention and acquisition and developing incremental retail customer acquisition channels and driving eChecks and eDeposits. We ended the first quarter slightly below our expectations at the high end for checks. Our focus on eChecks and eDeposits continues to be in building out opportunities with financial institutions, medical and insurance payment process processors, accounting services and software providers, and other document management and payment solutions companies. In Q1, we began an initial rollout with the medical payment processor that has expected to further ramp in the second quarter and the balance of the year. In Q2, we also expect to begin two insurance company processor rollouts. In marketing solutions, 2008 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. First quarter marketing solutions revenue was better than expected at the high-end of our previous outlook, driven by the financial advisory real estate and retail specifically hospitality verticals. Our second focus area is web services, where we are targeting an improved customer experience and cross-selling and upselling through our integrated Deluxe marketing suite across all our customers and channels and scaling payroll services, as well as continuing tuck-in capability acquisitions. In Q1, we continue to ramp our cross-sell or do it for me it for me logo customers who became web design customers as well. In operating services, we are focused on scaling payroll services and we continue to evaluate other operational annuity growth solutions. In Q1, payroll services revenue was in-line with our expectations. We are very excited about our recent acquisition of LogoMix, which brings us a highly scalable and robust upsell and cross sell e-commerce do it yourself platform where we have not previously focused, which complements our existing do it for me solution. LogoMix utilizes proprietary artificial intelligence and machine learning technology to deliver highly personalized content, which results in very high customer reactivation rates. We believe we can leverage this technology to further improve our cross-sell and upsell capabilities. 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 streak talent makeover. In the first quarter, we announced Alton, Illinois as the 2018 talent [ph] winner and have added Ty Pennington of Extreme Home Makeover fame as a partner. We will be doing a web series, as well as helping small businesses in the final 10 nominated towns with marketing makeovers. We will be linking small business revolution.org to our resource center and deluxe.com as we focus on driving revenue generating capabilities. In financial services, Q1 revenue was flat to last year as growth in MOS was offset by declines in checks. We have two strategic focus areas for 2018. For financial institutions, retail banking, which includes checks and data driven marketing solutions. In the first quarter, we saw the rate of check decline performed at about 7%. Our retention rates remain strong on deals pending in the current quarter. We simplified our processes, while reducing our cost and expense structure. For 2018, we continue to 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 and the growth in MOS, every 1% decline 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 the year. For data driven marketing, our focus in 2018 is on leveraging data and analytics together with marketing services campaign execution to accelerate outsourced campaign targeting and multichannel execution. Additionally, we plan to scale FMCG and leverage opportunities with data banks. Lastly, we will continue to assess and execute acquisitions in this space that give us more digital, data and CRM capabilities. We continue to be excited about the opportunities pay for performance brings us but remain conservative regarding how fast these programs are expected to ramp. The market for data driven marketing spend is expected to grow 9% with digital marketing spend by financial institutions expected to grow at a compound annual growth basis close to 13% through 2020. Q1 revenue for data driven marketing solutions was in-line with our expectations at the high-end of our range. We had two notable wins in the first quarter with top 100 financial institutions, as well as 15 expansion wins with existing customers in the top 100 financial institutions. 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. Our focus in Treasury management solutions in 2018 is on profitably scaling revenue and integrating acquisitions already completed, plus assessing and executing acquisitions with a focus on the payment and remittance processing and cash applications basis within the treasury management overall ecosystem. In Q1, treasury management solutions was slightly better than our expectations. We had four notable wins in the first quarter with top 100 financial institutions, as well as five cross-sell wins with existing customers. 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 several initiatives to create an integrated and efficient 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. For 2018, we expect direct checks revenue to decline around 11%, driven by continued declines in consumer usage and lower reorders from our decision in prior years to eliminate marketing expenditures that no longer met our return on investment criteria. We anticipate that MOS revenue, which is primarily fraud and security offers for this segment to be about 10% of Direct Checks revenue. We expect to reduce manufacturing costs and SG&A in the segment and continue to deliver operating margins in the low 30% range, while generating strong operating cash flow. As we exit the first quarter on the heels of a very strong quarterly performance, we continue to make tremendous progress transforming Deluxe, and we believe we can pivot both for even faster organic and moderately more aggressive acquisitive growth. There are signals the economy may be strengthening, but we remain prudently cautious in our expectations for a stronger economy. We firmly believe this continues to be the right 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. And now, Takia will open the line for Ed, Keith, and I to take any questions.

[Operator Instructions] Our first question comes from the line of Charlie Strauzer with CJS Securities. Your line is now open.

Hi, good morning.

Hi, Charlie.

So, a couple of things, obviously you talked a little bit about the tempering of the organic growth expectation for the year driven by kind of data mix etcetera, you know what would you say would have to happen [indiscernible] go lower again or maybe exceed that new kind of slight organic growth guidance?

I think it’s just a question of the marketing spend and will it get any lower, I think we appropriately put the right range in there Charlie. So, I feel very comfortable with that right now in terms of where we are, you know hitting that overall range that we’ve laid out there, not only within the MOS table, but also obviously for the total company. And what could generate it to go higher is just getting through the pace of CMOs deciding to spend and spend more quickly, and campaigns taking of therefore more quickly within there, and also whether we can get, we’ve already seen a movement in pay for performance. We’ve seen it, we highlighted that today. Can we get that even moving more quickly at this point? And I think what we're seeing is what we’ve talked about earlier Charlie around the lumpiness of some of this staff. Two great solution that we believe we are growing faster the market we believe, we are going to continue to grow faster the market, it’s just this tempering of how fast people spend in the FI’s and what we saw on the quarter is just a pace not what we expected when we first put the initial guidance together for the year.

Got it. And then maybe this is for Keith, but the Deluxe rewards contract that’s lapping, when does that, you know kind of moved passed you from a comp basis?

We’ve lapsed that amount. So, this will be the final quarter that we would see that.

Got it. So, next quarter should be clean. Got it. And then just shifting gears to the check side, Lee talked about some competitive opportunities that could be out there and the check decline rates, you know kind of being more at the higher end of the ranges that you have given in the past and do you see that those rates climbing further in the out years and what are your thoughts on actual competitive biddings, is that a real thing anymore.

We wouldn’t – we guide exactly where we feel it is going to be. You know it from past discussion that we have a lot of ways that we try to get at this, we talk to the financial institutions we try to understand what are they – what is their commitment to the check program. We use a lot of statistical work both internal and external work to try to determine where we think those rates are, and we, I think we’re actually somewhere around 6.5% in the quarter. We just call it seven. So that’s in line with what we expected and seven is the number and we had said earlier, we expected this to pop-up a little bit, I think we talked about in the first quarter or the fourth quarter call and principally just because there is so much out there with this for the consumer it is almost like he or she is almost a confused consumer with all the different electronification things that are out there right now, and with the new payment rail being flown around a lot as well, we just felt that all the indicators that we were seeing and talking to FIs and then some of the statistical nature of the trends we are seeing kind of lead us to that. I can't speak to past right now and this year Charlie, that would be going way too far on a lim [ph] right now, but I don't – we’ve been asked questions where they will ask them to open lower at this point. I think the best they can tell you is that the range that we are at, at this point about the seven. We feel comfortable with and again the great story for us is, as this becomes less a dependency on us it means that small blips in this space don't have the material movement, again remember, analyze every 1%, so if it went from 7% to 8% that would be $2 million in a total year. So – and as far as deals that are out there, yes, we are still competing. We are still seeing opportunities. There are things that are out there. You know banks, you have seen this already from us, banks are inclined, not to generally switch, switch from us, switch from competitors on average, but no there are still things and there are still opportunities that we’re bidding on right now, and we’re and those are not, everybody thinks they are just price, they are not, can you bring me new things with my program? Can you bring me new technologies, new ways of thinking about the check production, new ways of thinking about how to work with my clients, and those are all things that were in the middle of and then thinks that we’re working.

Great. Thank you very much. It’s very helpful.

You’re welcome Charlie.

Thank you. [Operator Instructions] Our next question comes from the line of Chris McGinnis with Sidoti & Company. Your line is now open.

Good morning. Thanks for taking my questions and Lee congratulations on the announcement, even though it is my first call. Quickly, I guess two questions. Just around the 8 million of investments spend related to the data driven and treasury management, can you maybe just talk a little bit about how that’s being spent then also if you spend maybe a little bit more could you help drive those growth rates even higher?

Yes. If you think about what we’re doing within, it really is a strong focus in data driven marketing and Treasury management and what we’re doing is, we’re spending it on sales and marketing to try to get more strategic sales people. I’ll give you great example. We are so fortunate. We got somebody from the industry that we have been working with and the Treasury management space for years. He is a proven expert in treasury solutions and he came on board and its people like that so that they can go out and help as we’re trying to bring more solutions in the marketplace, same thing on the data driven marketing side. We are also expanding in capabilities around our product, as our products evolve in data driven marketing and treasury management Chris, we want to make sure that we’re spending more there. We’re spending more on committing to pay for performance in the data driven marketing space. We’ve had success in that in first Manhattan and we're bringing that also now into the data mix front as well. So, those are examples of where, you know how we're spending. We think it’s smart spending and we think it’s spending that’s going to pay off in the long run for us to have, you know to help us drive more organic growth.

All right, thank you, and if you increase that spend could that help drive that even quicker or you think it is just the appropriate number right now?

I think it’s balanced and I think it’s appropriate. I think if we felt that we could drive this even further, do I think it would drive stuff into 2018, probably not immediate, but more for 2019, but I think we feel very good about where we are in the balance that we have in there, you know if we believe that it makes good sense to continue here, we would do it and we will pull back in other areas is how we’re looking at it.

Great. And then second question, just around the acquisition base revenue for the expectation for the year, you are two thirds of the way there. Any risk on the treasury acquisition maybe not going through, and then just looking at that one-third that you still have further to meet that outlook, any risk to that at all or do you feel pretty comfortable. I know it’s pretty earlier in the year. So…

I feel that the treasury deal will get done. As we both, Keith and I mentioned in our comments that it’s not getting done at the pace that we would like, but it’s not for both parties not doing a super job trying to work through to get that done. So, but yes, I think both of us see a very clear line of sight with the team to get this done. So, I’ve got a good degree of confidence there. As far as the balance, the 28 million we need, you know obviously we’ve got to get a lot more done to get that. You know, the way Keith and I look at it, is to say, well if that is come in the second half of the year that means that we got to have a $56 million stream on an annualized basis to make that happen. And we have a rich pipeline of opportunities that are out there right now, and that we’re working. So, we wouldn’t guide to that right now if we didn’t think that we could get it done, and I think that’s the best way to think about it right now. The areas that we’re targeting right now outside of what we’ve done are in the data driven marketing space and as well as that continued capability smart moves that we may – we love the LogoMix. It has done really well so far, and by the way, I would just give a shout out to my new term at LogoMix. They are doing a super job so far in the first month or so, but things like that from more of a tuck-in standpoint we’re also looking at as well.

Great. Thanks for the additional color and good luck in Q2.

You’re welcome. Thank you, Chris. Takia?

Thank you. And I’m showing no further questions in queue at this time. I would like to turn the conference back over to Lee Schram, the company's CEO for closing remarks.

Thank you, Takia. Thank you everyone for your participation and thanks to Charlie and Chris for your questions today. Just three things I want to leave you with. First, we delivered a very strong quarter to start the year. Second, marketing solutions and other services revenue grew more than 12%, and the mix improved to 39% of total company revenue towards our goal this year of 45% for the total year and then approximately 60% in 2020. And lastly, we have established a solid baseline first quarter to propel us towards revenue growth again in 2018 for a ninth consecutive year. We are 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 in our next earnings call and I’m going to turn it over to Ed for some final housekeeping.

Thanks Lee. Before we conclude today's call, I’d like to mention that Deluxe management will be participating in the following conferences in the second quarter. We can hear more about our transformation. On May 16, we will be attending the Needham Emerging Technology Conference in New York, and on June 5 we’ll be attending the R.W. Baird Consumer Technology and Services Conference in New York. Thank you for joining us, and that concludes the Deluxe first quarter 2018 earnings call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.