Deluxe Corp (DLX) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter Deluxe Corporation Earnings Conference Call. My name is Marcella and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jeff Johnson, Treasurer, Vice President of Investor Relations. Please proceed.

Thank you, Marcella. Welcome to Deluxe Corporation's 2010 third quarter earnings call. I'm Jeff Johnson, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on the call today are Lee Schram, Deluxe's Chief Executive Officer and Terry Peterson, Deluxe's Chief Financial Officer. Lee, Terry, and I will take questions from analysts after the prepared comments. At that time, the operator will instruct you how to ask a question.

In accordance with Regulation FD, this call is open to all interested parties. A replay of the call will be available via telephone and Deluxe's website. I will provide instructions for accessing the replay at the conclusion of our teleconference.

Before I begin, let me make this brief cautionary statement. Comments made today regarding financial estimates and projections and any other statements addressing management's intentions and expectations regarding the Company's future performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, these comments are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those projected are contained in the news release that we issued this morning and in the Company's Form 10-K for the year ended December 31st, 2009.

In addition, the financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which is posted in the News and Investor Relations section of our website, www.deluxe.com and was furnished to the SEC on the Form 8-K filed this morning. In particular, any non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release.

Now, I'll turn the call over to Lee.

Thank you, Jeff, and good morning, everyone. Deluxe delivered another very strong quarter. Revenue grew almost 11% or 3% excluding the one-time $25 million contract settlement and finished near the high end of our previous outlook. Small Business Services revenue, excluding the portion of the contract settlement recorded in this segment, grew slightly over the prior year, for the second quarter in a row and sequentially over last quarter as well. Checks and Forms both performed well against our expectations. And New Business Services revenues grew 33% over the prior year.

Diluted earnings per share from continuing operations exceeded the high end of our outlook. We had solid execution against our cost reduction programs and spending controls, which along with strong revenue performance with Small Business Services, drove higher than expected EPS. Excluding the one-time $0.31 per share contract settlement, adjusted diluted EPS from continuing operations grew 13% over prior year.

In the quarter, we continued our test and learn brand awareness and direct response advertising as well as organic technology initiatives to help better position our New Business Services offerings and generate future revenue growth. At the same time, we continued our process improvements and cost reductions while driving strong operating cash flow, as we continue our transformation.

In a few minutes, I'll discuss more details around our recent progress and next steps, but first Terry will cover our financial performance.

Thanks, Lee. Earlier today, we reported diluted earnings per share from continuing operations for the third quarter of $0.99, which was $0.01 favorable to the upper end of our previous outlook, in spite of a tax rate, which was 2 percentage points higher than expected due to a reduction in certain qualified tax deductions and the deferred enactment of expected tax legislation. Results for the quarter also included $0.31 from the previously-announced contract settlement.

Revenue for the quarter came in at $368 million, which was near the top end of the range of our previous outlook and up approximately 11% from 2009 or 3% excluding the impact of the contract settlement. Small Business Services revenue of $207 million was up 7% versus 2009 and still up slightly, excluding the portion of the contract settlement recorded in this segment. Revenues showed solid Business Services growth but was unfavorably impacted by continued economic weakness. Financial Services revenue of $103 million was up 4% versus the third quarter of last year but down 9% excluding the contract settlement. The impact of lower check orders and lower check pricing was only partially offset by higher non-check revenue services or services revenue. Direct check to revenue totaled $58 million, up 48% on a year-over-year basis due to the CDI acquisition. Excluding the impact of the acquisition, Direct Checks revenue was only down 4% due to continued strong reorder performance.

Gross margin for the quarter was 67% of revenue, up 3.7 percentage points from 2009. The contract settlement increased the 2010 gross margin percentage by 2.4 points. In addition, benefits from improvements in manufacturing productivity, plant consolidations, delivery initiatives, and product mix were partly offset by increased delivery rates.

SG&A expense increased $3.5 million in the quarter but was down to 42.9% of revenue compared to 46.4% in the same period last year. Increased SG&A associated with acquisitions and brand awareness in direct response campaign advertising was partially offset by benefits from the continued execution of our cost reduction initiatives.

Operating margin for the quarter was 24.1%, up 7.7 percentage points from the 16.4% generated in 2009 and was above our expectations. The 2010 margin included an expected 5.5 percentage point benefit from the contract settlement. In addition, continued progress against our cost reduction plan contributed favorably in all three segments in 2010 as well as the following segment specific factors; excluding the impact of the contract settlement in our Small Business and Financial Services segments in 2010 and the restructuring and transaction-related costs in 2009. Small Business Services operating margin of 17.1% was up 4.2 percentage points over last year and also benefited from a favorable product mix. Financial Services operating margin of 16.3% was down 3.2 points from 2009, driven by lower volume and lower check pricing. Direct check operating margin of 27.6% decreased 6.8 points from 2009, reflecting the acquisition of Custom Direct but was up over the second quarter margin of 26.9% as we began to realize plant synergies from integrating Custom Direct.

Turning to the balance sheet and cash flow statement, total debt at the end of the quarter was $779 million compared to $769 million at the end of 2009. This increase was primarily related to the April cash purchase of Custom Direct for $98 million, which was funded with a draw on our credit facility. During the third quarter alone, we reduced our credit facility borrowing by $69 million.

Cash provided by operating activities through 9 months was $171 million. The increase from last year was due to the contract settlement, higher earnings, and lower contract acquisition payments, which were partially offset by higher performance-based compensation payments earned in 2009 but paid in the first quarter of 2010, and higher income tax payments.

Capital expenditures for the 9 months were $32 million. And depreciation and amortization expense was $55 million.

Looking ahead to the fourth quarter, we are tightening our consolidated revenue outlook to a range of $346 million to $354 million as we are not expecting improvement in economic conditions and we are being cautious about the upcoming holiday season. Adjusted diluted earnings per share are expected to range from $0.65 to $0.72.

On a full-year basis, this results in a consolidated revenue outlook range of $1.397 billion to $1.405 billion, including approximately $60 million for Custom Direct. Adjusted diluted earnings per share from continuing operations are expected to range from $3.05 to $3.12.

There are several key factors that contribute to our fourth quarter outlook in comparison to the fourth quarter of 2009, including Small Business Services revenue is expected to be roughly flat as declines in core business products are expected to be offset by benefits from our ecommerce initiatives, price increases, and double-digit growth in our Business Services offerings. Financial Services revenue is expected to decline in the mid to upper single digits, driven primarily by check order declines of approximately 8%, given increases in forms of electronic payments, and the continued weak economy and lower revenue per check order, which we expect will be partially offset by continued contributions from non-check services revenue streams. Direct Checks revenue is expected to increase nearly 50%, driven by the Custom Direct acquisition and improved reorder volumes stemming from past quantity reductions, which will only be partially offset by check usage declines and the continued weak economy, continued focused execution of our cost reduction initiatives, increases in material and delivery rates, continued investments in revenue growth opportunities including business services, brand awareness, direct response campaigns, web to print and enhanced internet capabilities and an effective tax rate of approximately 33%.

In comparison to the third quarter, diluted EPS, excluding the favorable $0.31 contract settlement in the third quarter, is expected to be in the range of $0.03 lower to $0.04 higher in the fourth quarter, depending upon how much revenue will be but also due to higher investments in growth initiatives, including new Business Services, web to print, and brand awareness and direct response advertising test campaigns that we expect will drive incremental revenue over time but not contribute measurably in the fourth quarter.

We expect strong operating cash flows, ranging between $220 million and $226 million in 2010, driven by the contract settlement, strong earnings, continued progress on working capital initiatives, and lower contract acquisition payments, which we expect to be approximately $20 million. However, performance-based compensation payments were $18 million higher in the first quarter of 2010 as a result of our strong performance in 2009.

2010 capital expenditures are expected to be a little over $40 million. For the remainder of the year, we plan to continue to invest in key revenue growth initiatives, complete automation of our flat check delivery packaging process and make other investments in order fulfillment, delivery productivity, and IT infrastructure.

Depreciation and amortization expense is expected to be $75 million, including $25 million of acquisition-related amortization.

Shifting to our capital structure, we expect to maintain our balanced approach of investing organically and through small to medium-sized acquisitions in order to drive our growth transformation. We also expect to maintain our current dividend level. To the extent we generate cash flow in excess of these priorities, we plan to pay down debt in order to further strengthen our balance sheet. We believe our strong cash flow, strengthened balance sheet and flexible capital structure position us well to continue advancing our transformation.

I will conclude my comments with an update on our cost and expense reduction initiatives. Overall, we had another solid quarter and remain on track for delivering our $65 million target for the year. These savings, again, have not been linear through the quarters and do not include expected synergies from the Custom Direct acquisition, which are separately included in the Direct Checks expectations.

In the third quarter, we continued to realign our sales and marketing back end operations, refined our channel management structure, and improved our call center productivity. We realized additional efficiencies from our ongoing shift to online forms of advertising. Our focus for the remainder of 2010 will continue to be on improving sales and marketing back end operations through process centralization, simplification, platform and tool consolidation and leveraging ecommerce capabilities. We will also continue to improve the mix of paper catalog and online search engine marketing.

For fulfillment, we had a very strong quarter with lean productivity improvements and direct spend reductions. We completed our digital press footprint expansion in the third quarter. In the fourth quarter, we also expect to install our fully automated flat check package processing equipment in a final site. We also expect to continue our lean product standardization, spoilage reduction, and direct and indirect spend reduction initiatives plus advance work on moving to a common manufacturing technology platform, enhance our strategic supplier sourcing arrangements, and continue with other supply chain improvements and efficiencies.

Finally, for the shared services infrastructure, we continued to make good progress in managing information technology costs through data center cost reductions and other system utilizations, networking, and voice communication efficiencies. We also made progress in finance, human resources, and real estate. For the remainder of 2010, we expect to continue to reduce costs in all areas as more opportunities exist to centralize, streamline, standardize, and improve efficiencies.

Now, I'll turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on what we are focused on overall and then highlight progress in each of our three segments. I will also include throughout a perspective on what we hope to accomplish in the fourth quarter of 2010, and finally, provide some context looking forward to 2011.

We continued to make progress on our revenue expansion initiatives and key enablers with solid revenue results again in the third quarter. So we are optimistic our focus and actions are continuing to take hold. Our four key enablers to driving revenue growth include strengthening our products and services portfolio, growing new customers, improving technology, and enhancing brand awareness and positioning.

Here are some examples of the progress we have made. We grew New Business Services revenue 33% over the prior year quarter, had our highest Shop Deluxe revenue and growth rate increase this year in the third quarter, advanced our web-to-print platform, and added new distributors and dealers. In addition to organic initiatives to improve our products and services, we continued to assess potential small to medium-sized acquisitions that complement our large customer bases with focuses on Small Business Services and new offerings aimed at helping financial institutions grow.

In addition to our strong print leadership expertise, we have created much stronger technology and digital leadership and expertise. In addition to my and our CIO's technology backgrounds from NCR, our new SBS leader also brings a strong technology background from Microsoft. We also have added technology leaders and experience from our Business Services acquisitions plus added several proven key leaders in the third quarter in the ecommerce, search engine marketing, and web-to-print spaces.

We also continued our test and learn brand awareness and direct response advertisements, including radio, online, television, and our small business hero mobile tour event in six large cities during September and October.

Our project REV small business marketing lab sponsorships designed to build marketing expertise for nine small businesses successfully continued with favorable media exposure. We expect these initiatives will help us drive new customer acquisition and revenue growth over time, as the economy improves. It is still too early to track and measure the success of all these campaigns. But our brand campaign running primarily on radio and online media is beginning to increase awareness as evidenced by engagement on our websites and click-through rates that are more than double the expected rates for awareness campaigns. Our mobile tour has enabled us to reach small business owners where they are and showcased our new Business Services solutions in an exciting and engaging way.

Now shifting to our segments. In Small Business Services, as expected, economic softness continued to impact our business. We had strong performance, however, as we were pleased to report slight revenue growth, excluding the contract settlement for the second consecutive quarter. Checks and Forms were strong versus our expectations. Our results from targeted customer segmentation in the call center improved. We increased new customers from our financial institution Deluxe Business Advantage referral program and through our direct response campaigns. Response rates increased from better balance and a rich content and online and print base spend. Average order value and conversion rates remain strong. Our safeguard distributor and dealer channels showed organic revenue growth over the prior year. We also saw strong growth in web, logo, and payroll services. In the quarter, we won several new Hostopia North America telco wholesale deals and also continued to expand additional value-add services on top of our Aplus.net core web services offer.

We continue to closely monitor the small business market and believe that the pace of decline has bottomed out. However, key small business optimism indices continued to hover at historic lows and remained choppy with July's index down while August and September improved slightly, but ended right at June's result and basically at September 2009 levels. This is clearly an up and down pattern with no sustainable upward trend. Small businesses remained apprehensive about hiring and capital investment spending remains at record lows. They continue to spend less, scrutinize purchases more, and experience tight cash flow. Confidence in better business conditions looking out six months has been declining. Indicators point toward a lingering slowdown that is expected to continue into early 2011.

The good news is that increasing sales continues to be their number one pain point and we now offer many products and services to help them here. As the economy recovers with the transformative changes we are making to deliver more business services offerings that help small businesses get and keep customers, Deluxe is better positioned as that indispensable partner for growth.

A focus for the balance of 2010 in core small business products is on acquiring new customers, increasing our share of wallet through our enhanced Shop Deluxe ecommerce site, further improving segmentation and having a successful holiday season. We will continue to focus on improving the efficiency and effectiveness of our inbound, outbound, and online customer touch points to maximize revenue scale capability.

We also expect to further accelerate expansion of web-to-print capability so we can start to build additional revenue scale here for 2011. In new Business Services, we continued to add web hosting customers on our single unified delivery platform. And we now have close to 430,000 customers. We expect to gain new customers through our Hostopia telco-focused wholesale, field sales model. We further expect to add services for our Aplus.net and Deluxe retail customers, including fax to email, email marketing, mobility, copyrighting, and search engine marketing offers through a combined call center and online sales model, continue to roll out MerchEngines, search engine marketing offers and add logo customers.

The brand awareness radio and online campaigns plus direct response and mobile event testing should help Deluxe-- should help the Deluxe brand more robust-- to get more robustly recognized in the market. All business services including payroll services, loyalty and retention, fraud and security, logo, web, search engine marketing and business networking are still on track to generate approximately $125 million in revenue in 2010, up from $91 million in 2009.

In Financial Services, we retained our final pending contract and now have extended all large contracts through 2011 as well as extended several large contracts that were originally due in 2012. We now have only a few large accounts due in 2012 that we continue to work to extend. Again, this quarter we saw strong overall new acquisition rates and our retention rates remain strong, in excess of 90%.

We recently started working on contract terms for a new large, national, financial institution that will hopefully start some time in the first quarter of 2011. Further, we responded to another large national competitive RFP with a decision pending that will come due in the latter part of 2011. There are also still a significant number of competitive opportunities over the next year.

In the quarter, we did see the rate of decline of checks performed slightly better than our forecasted rate of around 8%. We also simplified our processes and took complexity out of the business while reducing our costs and expense structure. Our new transformed check program complete with simplified check designs, pricing options, new customer self service portals, dashboards, and consultative tools introduced in the second quarter continued to roll out in the third quarter and we will extend to even more financial institutions in the fourth quarter.

We made progress again in the quarter in advancing non-check revenue growth services opportunities. Revenue grew over both last quarter and year in these non-check services, which include loyalty, client communication, regulatory, fraud and security, analytics, deposit-driven acquisition, and rewards checking offers. We continue to sign up financial institutions with rewards checking offers from our exclusive partnership with Bank View. We are also encouraged by the performance of Cornerstone, where we have already closed more financial institution program wins than we expected this year. We also had another strong quarter in providing financial institutions with a comprehensive Reg E offer to assist them in the notification and permission of overdraft practices for their clients, which for us includes printing, call center, and various marketing services.

As you can see, momentum continues to build in these non-check revenue initiatives. And we expect all our offers will contribute more to Financial Services revenue in 2010 than they did in 2009.

In Direct Checks, revenue was in line with our expectations, driven by accelerated reorder rates. And we delivered a strong 28 point operating margin in the quarter. We continued to look for opportunities to provide accessories and other check-related products and services to our consumers. We also continue to be very pleased with the integration of Custom Direct thus far as we leverage the best of both Direct Checks and Custom Direct into a best-in-class, direct-to-consumer check experience. We continued to see a ramp in revenue enhancement synergies through our call center scripting and up sale capabilities. In addition, cost reduction activities continue with savings occurring in material, procurement, delivery, media, and marketing expense leverage and other SG&A. We expect continued revenue enhancement and cost reductions in the fourth quarter.

For 2010, we expect revenue growth to be around 30%, driven by the Custom Direct acquisition and accelerator reorder rates, partially offset by declines in consumer usage and a continued weak economy. We expect to reduce our manufacturing costs and SG&A in this segment and drive our operating margins to the high 20% range, including acquisition amortization and transaction cost while generating strong cash flow.

As we exit the third quarter on the heels of a very strong quarterly performance and a continued challenging economy, we made good progress again in transforming Deluxe but we still have a lot of work and opportunities ahead of us. We are prudently planning by not expecting the uncertain economic climate to improve in the fourth quarter, including being a little more cautious about the upcoming holiday season. Our primary focus right now continues to be on revenue growth and we will continue to invest in our future with better product and services offers and supporting brand awareness in direct response campaigns. If the economy improves in the fourth quarter, we should have some upside in Small Business Services revenue as we know it is important for us to continue to demonstrate growth in this segment. At the same time, we will not take our eyes off of cost reductions and process improvements. And we expect to continue to generate strong cash flows and provide a very attractive dividend.

Looking ahead to 2011, our portfolio continues to become better positioned to deliver sustainable future revenue growth. A full year of Custom Direct, the expected on-boarding of a new large national financial institution starting some time in the first quarter and extending our large financial institution contracts through at least 2011 help to stabilize core checks. And we have more competitive opportunities coming due over the next year.

We also are expanding existing organic initiatives such as Shop Deluxe and web-to-print, adding distributors and dealers, and more robust [re-driving] value-add services and new business services. In a more normal economy, we are excited that this could position us for solid, mid single-digit revenue growth and strong low double-digit adjusted diluted earnings per share growth, excluding the contract settlement of $25 million in revenue and $0.31 in EPS in 2010. However, given the continuing uncertain economic climate and lack of directional clarity, it is more prudent for us right now to expect 2011 revenue to range between roughly flat to up low single digits compared to 2010, which is expected to produce adjusted diluted earnings per share ranging from approximately flat to high single digit growth.

Both revenue and adjusted earnings per share in these comparisons exclude the $25 million in revenue and $0.31 in EPS financial institution contract settlement. As part of these estimates, we expect to deliver strong double-digit revenue growth in our new business services offerings and continue to prudently invest in brand awareness and direct response campaigns. However, we believe it is extremely important for us to closely monitor the marketplace over the next three months before providing a more specific outlook for 2011.

Now, Marcella will open the phone lines for questions.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Charlie Strauzer with CJS Securities. Please proceed.

Hi, good morning.

Hi, Charlie.

Hi ,

Two quick questions. One, when you look at the Financial Services segment, the organic declines are probably a little bit more than I was looking for. Can you give me a little bit more granularity there as to what were the drivers there and what are you seeing kind of in current trends versus that?

Yes, certainly Charlie, I'll take that question. Our margin setback just a little bit in that segment this quarter, but given where the revenue levels are in that segment, I think what you can expect to see is that anything really kind of in the upper teens and low 20's is probably a normal range, just because it doesn't take a lot to drive a margin percentage change there. So things like price increases, new contracts, timing of investments that we make in that segment ,that can create some volatility in that margin kind of in that range that I was giving there. So that certainly came through in this quarter too. Plus too in this quarter, we saw a little bit of kind of an unfavorable shift in some of the mix of the types of products that we saw customers ordering, with coming through some of the larger banks to some of the more lower-priced products. So it was really just a combination of a number of those different factors.

Got it. Excellent. And then you talked about-- Lee mentioned about this new contract that you're negotiating terms, this is assuming new competitive acquisition that you've just won?

Yes, that we're negotiating.

Got it. Okay, but you've technically been awarded but you just-- you haven't finalized the terms yet?

Correct.

Excellent. And then, Lee, when you talk about-- you talked a little bit about rewards checking as a new offering or relatively new offering. Can you explain a little bit more about what that is and it kind of seems like contrary to what the banks would want to do in terms of-- it sounds like you're rewarding people for using checks? Is that correct? Or is that just something just a terminology?

It's not checks, Charlie. It's checking accounts. But basically what our partnership with Bank View is, is that it's an opportunity for a consumer to earn higher rates of return by how they basically manage themselves and their checking accounts. So it depends on how much they use debit, credit, and whether they take statements electronically versus in paper form. So it's checking, Charlie, but it's not paper checks. It's checking account focus is the way you need to think about it.

Got it. So it's the all-in usage of the account?

That's exactly it.

Got it. Excellent. Thank you very much.

You're welcome, Charlie.

And your next question comes from the line of John Kraft with D.A. Davidson. Please proceed.

Hey, guys.

John.

Hi, John.

I wanted to follow up on the financial institution segment this quarter. There was obviously some puts and takes here. But was the SunTrust migration completed at the very beginning of the quarter or was it some time in the quarter?

Yes, very beginning of the quarter.

So we had a full quarter there. What about the lost client? When did that move out, full quarter of that gone?

No, not a full quarter. That transitioned really throughout the course of the quarter. So, that was in for part of the quarter.

Okay. And the-- on the direct side, the obviously strong orders there, reorders there, was there some particular ad spending or what was driving that?

No, we just did very well. We've had-- one of the positive things with having the Direct Checks and having the CDI piece is being able to look at what works in two different markets for us, John. And then the timing of when our-- some of the changes that we've made to that, the Direct Checks program and then the CDI program is really just allowing us to take advantage of opportunities with consumers as they reorder. So I think that's the way you should think about it.

Okay and then just lastly on the just kind of pending RFPs that you've been talking about, just so I can clarify here. You did win one that should start in Q1. You are in final stages of I guess hearing back from them, one that would happen would migrate potentially the latter part of 2011. And then are there-- there's how many left out there that you're in the process of?

Won't give that number but I will just add that there are more that are coming over the next year.

Okay, thanks guys.

You're welcome, John.

Your next question comes from the line of Jamie Clement with Sidoti. Please proceed.

Hey, good morning, gentlemen.

Hi, Jamie.

Hey, just I guess follow up on Charlie's question. I just I was-- you gave a lot of information in the prepared remarks. Is the way you all think about kind of ongoing apples-to-apples margins in your segments to knock $12.1 million out of the operating income for SBS and $12.5 out of Financial Services?

Yes, that would be correct.

Okay. So just to clarify a little further, that seems like an awfully low margin in Financial Services. So Terry, just a little bit more on kind of what's going on there exactly.

Before you toss it back to Terry, the way I would think about it is, we ended up in I think the 16.3 or 16.4 range I think. And I think you need to be really careful here. We're talking about last year I think we did 19.3 in the quarter. And you're talking about $1 million, $1.5 million of profit here. And there's a lot of mixed things going on between products and there's a lot of-- we also installed the new dashboarding and tools and all that stuff and had a big ramp in the quarter, Jamie for that. So, I think the thing that Terry and I are trying to leave you with is there's a lot of noise and traffic within there but I-- we're not trying to give you something that we're alarmed, that there's a new trend or a lower trend here.

That is exactly what I'm asking, yes. So in other words, I mean the margins that we've seen in that segment over the last couple of years kind of high teens and you've been 20% plus just in the first part of this year, which maybe isn't sustainable or whatever, but there's no fundamental change in your business as a result of losing the one customer or something like that?

No, not at all.

Not at all.

Okay. Changing gears a little bit, Lee can you talk-- I think I asked the same question three months ago via the direction of your marketing spending on your new services. Can you give us an update on kind of what you have learned through this process in terms of what you're finding effective? What you are tinkering with? That sort of thing.

I think the way that we're approaching this is first and foremost is we're not stopping our print. We find there's certain things that work exceptionally well through print. But we have augmented print first with online. And so we have-- if you look at a percentage increase, we've clearly increased our online spend and profile there. And then what we're doing Jamie is we're testing into various different things, whether it's working with customers and various partnerships or sponsorship relationships that we have for example with entrepreneur.com to the direct response TV testing that we did to the mobile tour events that we did. And what I would tell you is they're all contributing to more customers and then adding the brand awareness initiatives that we're doing. But there are certain things that we clearly see that are better and the print and online still is better than the other ones. But those are newer and so we're going to continue to keep tweaking and testing and getting more robust. Nothing is bad at this point in time. All are contributing. It's just a matter of how do we keep getting better at tinkering with this thing to the--

Okay.

How we'd like it to play out in the long run. So I think that's the way to think about it.

Yes. Okay, okay, that makes sense. And just one final question. Lee, you mentioned that you all were cautious with respect to the holiday period. Are you, just to be specific, I mean are you-- I know one of seasonally the things that you have in the fourth quarter that you don't have in other parts of the year and volume is the greeting card business. So are you-- I'm assuming you're not expecting much out of the greeting card business based on what you're saying here.

I think the way we, Terry and I sat down and looked at this is the way to think about, when we put guidance out for Q3, we said we were expecting a slight improvement over the balance of the year. And now we're kind of saying we haven't seen that. I don't think anybody seeing it this point. So, and all we did was tighten it a little bit.

Right.

And the holiday because of that or because holiday comes in the fourth quarter for us, and by the way holiday for us is not just greeting cards, it's our bags and bows, retail packaging offers--

Okay.

(inaudible) form stuff, kind of we call it, I guess we should call it separate, but that's the buckets that are more at that time of the year. We're just-- we're not seeing anything yet cause it's too early for us.

Got you.

Our big hard ramp actually, Charlie, happens in-- or Jamie happens in November. But we're just because of the uncertainty is we just-- we thought it was prudent to tighten back a little bit.

No that's-- and that's very fair cause they're actually-- there are other companies out there that are in the greeting card business that have given pretty cautious outlooks over the next couple of months. So I just wanted to make sure that you guys were on the same page there.

Yes, I think that's all we've done is tighten it a bit, just given the uncertainty. But we're not-- we'll go at it with the same vigor we always do and we're prepared and obviously we're starting to see some sales already, but the big ramp doesn't occur for us until the mid-November timeframe.

Okay. Thank you all very much for your time.

Welcome, Jamie.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Davis [Herbert] with Wells Fargo Securities. Please proceed.

Good morning, guys. How are you?

Morning.

Just a quick question on the balance sheet. You guys have I guess a little shy of $300 million of the 5% senior notes due in the end of 2012. And you have a couple of other maturities in 2014, 2015. Just curious about your thoughts about how you might address that?

Yes, I mean the 2012 that are the first maturities that come due for us, it's actually the end-- very end of 2012. So we're still a little over a couple years away from having to repay those notes. But we're pretty aware of that right now of the market right now for high yield issuances is pretty strong. And we certainly always look at opportunities and consider our capital strategy. But at this point in time, we've not announced that we're planning to do anything differently with those bonds at this point in time. But certainly continue to look at our options and evaluate alternatives for the company.

Okay, thank you.

Welcome.

This concludes the question and answer portion of today's call. I would now like to turn the call back over to Mr. Lee Schram for closing remarks.

Yes, I'd just like to thank you for participating and for your questions today. And as is my style, we're going to get back to work now and we look forward to providing another positive progress report in January on our next earnings call.

Thank you, Lee. This is a reminder that a replay of this call will be available until November 11th by dialing 888-286-8010. When instructed, provide the access code 15250156. The accompanying slides are archived in the News and Investor Relations section of Deluxe's website at www.deluxe.com. Again, thank you for joining us. Have a good afternoon.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.