Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2019 Deluxe Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Ed Merritt, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Thank you, Jonathan, and welcome, everyone, to Deluxe Corporation's First Quarter 2019 Earnings Call. I'm Ed Merritt, Treasurer and Vice President of Investor Relations. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer; and Keith Bush, our Chief Financial Officer. At the end of today's prepared remarks, Barry, Keith and I will take questions. I'd like to remind you that comments made today regarding financial estimates, projections and management's intentions and expectations regarding the company's strategy and future performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. 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 the 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, 2018. 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. 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 Barry.

Thanks, Ed, and good morning, everyone. We have an extraordinary amount of content to cover today. We're going to recap our first quarter results, provide an update on our focus areas since the last call, introduce some enhanced financial metrics, provide our financial outlook for the remainder of the year and update you on our strategy for the new Deluxe to become a trusted tech-enabled solutions company. This is all consistent with my commitment to provide transparency on our transformation. Not all of our calls will be this long, with this much content. Let's get started with the first quarter results. We had a good start to the year, and I'm pleased to report that we delivered $499 million of revenue in the quarter, squarely within the range we expected. Total first quarter revenue grew 1.5% year-over-year. We delivered diluted earnings per share of $0.93 and revised adjusted diluted earnings per share of $1.54, at the top end of our range after excluding the additional non-GAAP items, which will be discussed later. All segments performed at the levels we expected. Before I get into the details on our strategy and progress, let me turn the call over to Keith for some additional color on the quarter.

Thanks, Barry. We delivered first quarter revenue of $499 million, which represents a 1.5% increase over last year. Organic revenue, which excludes acquisitions, FX and other noncomparable items, declined about 2.7%. Shifting to our current business segments. Small business services revenue was $313.1 million and declined about 1% in total or about 1.9% organically. Financial services revenue was $154.4 million and grew nearly 10% in total, but declined about 2.7% organically. Direct Checks revenue was $31.6 million and declined 9.7% year-over-year, slightly better than our expectations. Barry will outline our strategy framework to become a trusted, tech-enabled solutions company in a few minutes, which will lead to a realignment of our business later in the year. But for now, I want to provide revenue by product category, which conforms to what we have provided in the past. Our largest group of products and services is marketing solutions and other services, or MOS, which delivered revenue of over $214 million, ending at 43% of total revenue. Check revenue ended the quarter at $201 million, representing about 40% of total revenue. And forms and accessories delivered $83.5 million, representing about 17% of total revenue. SG&A expense increased approximately 300 basis points from last year. About 150 basis points of the increase resulted from gains on asset sales in last year's results, and about 110 basis points of the increase resulted from CEO transition costs this year. The remaining expense increase was related to acquisition and other expenses, only partially offset by efficiency and cost savings. Adjusted diluted EPS and adjusted EBITDA, which we will discuss shortly, normalized the impact of these charges, which we believe provides additional helpful metrics you can use to analyze our results. Diluted earnings per share for the first quarter was $0.93 and includes aggregate, non-GAAP adjustments of…

Thanks, Keith. I've now been the CEO of Deluxe for almost five months, and we've made substantial progress reviewing our strategy and operations during that time. Before I outline our future strategy, I want to provide a brief update on the four new day areas of focus I discussed on our last earnings call. First, sales. We've launched a national search for an enterprise chief revenue officer and hope to give you an update on that search soon. We believe we have significant opportunity to sell more to our existing customers; they value our relationship and would deepen that relationship if they know more about our extensive offerings. Accordingly, we're in the final stages of selecting a new enterprise-wide CRM tool and expect to begin the initial scoping very soon. We're confident having a single view of our customer will be critical to unlocking our potential. Second, products and innovation. We've added a new role and hired a Vice President of Strategy and Planning, Amanda Parrilli, who has joined us from Home Depot. Earlier in her career, she had executive roles at Citi and First Data. Amanda has been in her role for about eight weeks and is off to a great start. We've also begun to build out enterprise innovation and product development teams, with processes to ensure we are all well-positioned to translate the insights we gain from customers into tangible, innovative products and services that address their needs. Third, efficiency. Our teams have identified millions of dollars of savings from a structural redesign of our systems architecture, a rationalization of our real estate footprint and many other items. I won't provide specifics in this area yet, but we have identified the areas where we need to become more efficient and are taking action to realize these savings.…

[Operator Instructions]. Our first question comes from the line of Jamie Clement from Buckingham Research.

Barry, congratulations on providing just as much content as Lee used to provide. Yes. So one thing you mentioned, and I'm curious about this. Because, obviously, in the general scheme of things, you're not a gigantic company. And as you think about partnerships and alliances versus M&A, what do you think the partner on the other side of the table, based on what you've seen so far in your tenure at Deluxe, what do you think they value most about Deluxe in a partnership?

Jamie, I started the conversation talking about our core competencies and our key assets, and we truly have unmatched distribution with 5 million small businesses and 4,800 financial institutions that we can reach and that we talk to every year. So I think our partners, and potential partners, will highly value our ability to reach into that market segment in a very efficient way. I also said we are a trusted brand. We truly are a trusted brand. There are very few organizations on the planet that gets - that have PII data, that banks share in order to run a business. We're one of those. And so our trusted brand, our incredible reach to reach small businesses, enterprises and financial institutions, we think is a very compelling opportunity for any partner that wants to get to those markets.

Okay. Okay, and if I could just - if I could just transfer over to kind of - to guidance and the enhanced metrics and those kinds of things. I think there's a fair amount of confusion this morning. And it always happens when companies changing things up. I had thought that like what you guys said, so basing on the 2018 adjusted EPS number, which when originally reported, so before the legal charge, was I think $5.69? And then there was about 1/4, about $0.25 on the asset sales to knock out of that? Am I on the right track, Keith?

So the way we're looking at that is the original $5.56, after taking into account all of these adjustments, is $6.88.

See, that's where I'm - that's - I'm looking at it the other way, and I think this is why we're a little confused. So like the reported number for 2018 was, I think, $5.69. So less $0.25, that's $5.44. And I thought like - I think - I thought like your preliminary guidance - and obviously preliminary, we didn't take it as like rock solid, full-on guidance, because there was a lot of work to be done, but that you all thought you'd grow off of that number. If I knock out like what looks like your assumption for stock comp and for intangible amortization from your new guidance framework, it looks like the midpoint of that range is like $5.20. Is that right? So in other words, what I'm saying is it sounded like initially you all thought you could grow slightly off of a $5.40-something number. And now the number is lower, and I'm just curious, like I didn't know if that was increased investment spending? That part of this is maybe some of the $30 million to $60 million that you've already identified? I just - there just seems to be some confusion this morning.

Jamie, I think the other piece to factor in here is before the additional investments that we're...

Yes, that's what I was asking. Yes, exactly. That's what I'm asking.

Right. So we've got - we included about $5 million of additional investments in our current guidance that was not there previously. So we've guided before. Now our guidance includes it. So that really explains that differential.

And then so - but going forward, then we should potentially focus on the $30 million to $60 million, some of which may be capitalized, some of which may be expensed in addition to this, right? Is that what - how you're framing this?

That's how we're framing it.

Our next question comes from the line of Charlie Strauzer from CJS Securities.

Just to kind of takeoff where Jamie was left off there and just to further clarify. So the $5 million incremental, I think you said it was a $0.09 hit versus the prior guidance. Is that the way to think about it?

So the way I'm - the way we're thinking about is it translates in our current guidance, is $0.09. So that $5 million is about $0.09.

Right. So an apples-to-apples basis you take the $0.09 back out of there. And then the $30 million to $60 million you're taking about in incremental investments in each of the next two years, is it $30 million to $60 million each year? Or $30 million to $60 million total over the next two years?

Yes. The way to think about that is each year. And that spend has not yet initiated. So we are in the process of evaluating how - what form that will take in terms of either capital or expense and how that will roll through our cash flow and our financials. But that spend has not yet initiated.

So should we factor that into our models as we plan out the new kind of way to think about the EPS range. So the EPS range of $6.65, $6.95, does not include that. But should we start to think about that in our numbers?

That is - when you're thinking about that, think about that over the next 8 quarters or the next 24 months. So that is going to - that's an elongated tail there. The other thing I would just, I think, to be aware of is many of these investments are investments in core systems that at some point we needed to make those investments. What we're doing is accelerating the timing of those investments and bringing them online in a rational way.

And is that why - I think we see the CapEx is up $15 million year-over-year to $75 million from $60 million, is that the way to think about that as well?

Correct.

And that's basically baked into this $30 million to $60 million of incremental, is that correct as well?

So the capital investments that are currently in our outlook are before giving effect for this additional incremental investments.

Got it. So that's on top of the CapEx guidance you've already given?

Yes, correct. What we will do is we will maintain a disciplined process as we have historically done in thinking about how we invest cash back into our business. So we will take a look at all of the planned investments that are in our current outlook and we'll prioritize that against our future expected - expectations, so that we're putting the right investments in and in the right sequence. And so there's the potential that a portion of that will be funded through remainder of year capital.

Understood. And then just how should we think about too on the share repurchases in the EPS guidance? Is that - are you expecting more share repurchases? And kind what's the rough sense of the share count we should be using?

Yes. This is Ed, Charlie. We typically don't provide any EPS - or any outlook on share repurchases. We bought quite a few shares last year. We did buy $50 million in the first quarter. We'll continue to monitor that, but we just don't typically provide any kind of a projection on when we will and will not be in the market for share repurchases.

We have time for one last question, and the question comes from Chris McGinnis from Sidoti & Company.

I guess, just one question around the - your talk around acquisitions. Obviously, it's paused now. It sounded like maybe in the earlier comments that maybe that would open back up in the second half of the year. But given kind of the talk around the strategy, it seems like that would be better made for maybe next year, or even later out. Can you just maybe tighten that up a little bit of the acquisition strategy and with the - with kind of the new focus around the new Deluxe?

Absolutely. So we signaled at the Q4 earnings of the first half of this year and reiterating that now. We will not be making any acquisitions in the first half of the year. So it allows us not only to do the work we've shared with you, but finish this thing up on some of the things that we are already working on from an integration perspective. We are signaling to you that we are open to acquisitions again in the back half of this year and going into the future. I think the most important thing to think about there is we'll be very focused in the two areas that we are calling out for our growth, which are payments and cloud. We think both of those leverage our competencies and assets very well and give us additional growth opportunity in markets with good PEs, high growth potential, et cetera.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Barry McCarthy for any further remarks.

Well, thank you all for your participation and questions today. In summary, Deluxe has a strong foundation of core competencies and assets we can leverage to accelerate organic growth. We plan to leverage these assets and compete in four primary areas: payments, cloud, promotional products and checks. We'll invest the reliable cash flow from promotional products and checks into payments and cloud, that are attractive growth markets where we have the ability to win. We'll fundamentally change our go-to-market - how we go to market and operate our business, resulting in one company of products that approaches the market as One Deluxe. We'll continue to be responsible stewards of shareholder assets, committed to simultaneously delivering ongoing efficiency savings and organic revenue growth while paying our dividend. And finally, we'll provide status updates on our progress throughout our transformation as we become a trusted tech-enabled solutions provider. In closing, I'd like to acknowledge my fellow Deluxers, who give their all every day to deliver for our customers and all of our shareholders. I'm grateful for their commitment and confident that now as shareholders, my fellow Deluxers will unlock our incredible transformation potential to become a trusted tech-enabled solutions provider. Now I'll turn the call back to Ed for some final comments.

Thanks, Barry. Before we conclude today's call, I would just like to mention that Deluxe management will be participating at the following conferences in the second quarter. On May 21 and 22, we'll be in New York at the Needham Emerging Technology Conference. And on June 5th and 6th, we will be in New York at the RW Baird 2019 Global Consumer Technology and Services Conference. Thanks for joining us, and that concludes the Deluxe First Quarter 2019 Earnings Call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.