Deluxe Corp (DLX) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Deluxe Corporation earnings conference call. My name is Angela and I will be your coordinator for today.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. And now I'd like to turn the conference over to your host for today's call, Jeff Johnson, Treasurer, Vice President, and Investor Relations. Please proceed.

Thank you, Angela. Welcome to Deluxe Corporation's 2010 fourth quarter earnings call. I'm Jeff Johnson, Deluxe's Vice President of Investor Relations, and Treasurer. 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 31, 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. We reported revenue towards the high end of our expected range while adjusted earnings per share was well above the high end of our range. All three segments delivered strong revenue; checks and forms both performed well against our expectations and new business services revenues grew 17% over the prior year.

We also continue with strong execution against our cost reduction program and spending controls and reported a favorable effective tax rate, all of which drove better than expected adjusted earnings per share. Adjusted diluted earnings per share from continuing operations grew 11% over the prior year's quarter and we generated $213 million in operating cash flow for the 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 will discuss more details around our recent progress and next steps, but first, Terry will cover our financial performance.

Thank you, Lee.

Earlier today, we reported diluted earnings per share for the fourth quarter of $0.68 which included restructuring and related costs of $0.10. Excluding these costs, adjusted EPS from continuing operations of $0.78 was $0.06 favorable to the upper end of our previous outlook, and 11% higher than the $0.70 we reported in the fourth quarter of 2009.

Favorable product mix and lower costs drove better than expected EPS performance. Results for the quarter also included a $0.03 per share benefit from a lower effective tax rate. The restructuring costs are primarily driven by infrastructure consolidations, fulfillment operational efficiencies, continued Custom Direct integration, and sales and marketing capability improvements.

Revenue for the quarter came in at $351.5 million which was towards the upper end of the range of our previous outlook. All three of our business segments performed well. Revenue was up 3% from 2009 and grew on a sequential quarterly basis excluding the third quarter contract settlement revenue. Small Business Services revenue of $204.2 million was nearly flat versus 2009.

While we continue to operate in a weak economic environment, we did deliver growth in new business services, our Safeguard distributor channel, and Canada which mostly offset ongoing declines in our core printed products.

Financial Services revenue up $88 million was down 7% versus the fourth quarter of last year. The impact of lower check orders was only partially offset by higher non-check services revenue.

Direct Checks revenue totaled $59.3 million, up 51% on a year over year basis due to the Custom Direct acquisition. Excluding the impact of the acquisition, Direct Checks revenue was down only 4% due to continued strong reorder performance.

Gross margin for the quarter was 64% of revenue, up 1.2% from 2009. Benefits from improvements in manufacturing productivity, plant consolidations, delivery initiatives, and product mix were partly offset by increased delivery and material rates. SG&A expense increased $5.5 million in the quarter and was comparable to last year at 44.9% of revenue. Increased SG&A associated with acquisitions and brand awareness and direct response campaign advertising was partially offset by benefits from continuing to execute against our cost reduction initiatives.

Operating margin for the quarter, excluding restructuring costs, of 19.5% was up from the 19% generated in 2009 and was above our expectations with favorability coming from stronger performance against our cost reduction initiatives and our continued focus on spending controls.

All three segments delivered strong operating margins. Excluding restructuring costs, Small Business Services operating margin of 17.8% was up 2.6% over last year due to continued progress with cost reduction initiatives. Financial Services operating margin of 18.4% was down 0.9% from 2009 due to lower volume, but improved sequentially from the third quarter driven by lower costs and expenses. Third quarter operating margin was 16.3%, excluding $12.5 million of contract settlement revenue. Direct Checks operating margin of 27.3% decreased 10.3 points from 2009, reflecting the acquisition of Custom Direct, but was in line with the third quarter margin as we continued to realize planned synergies from integrating this acquisition.

Turning to the balance sheet and cash flow statement, total debt at the end of the year was $755 million, down 2% compared to $769 million at the end of 2009. During the fourth quarter alone, we reduced our credit facility borrowing by $23 million.

Cash provided by operating activities for the year was $213 million, an increase of $6 million from 2009. This increase was due to higher earnings including the third quarter contract settlement and lower contract acquisition payments in 2010, which were partially offset by higher performance-based compensation payments earned in 2009 and paid out in the first quarter of 2010, and higher income tax payments.

Operating cash flow was negatively impacted in the quarter by several timing items including an unfavorable shift from 2011 of contract acquisition payments, customer rebates, and weather related customer payment delays as collections were strong in the first week of January. Capital expenditures for the year were $44 million and depreciation and amortization expense was $74 million.

Looking ahead to 2011, we expect consolidated revenue on a full year basis to range from $1.375 billion to $1.415 billion. At the high end of the range, we are only expecting a slight improvement in economic conditions. Diluted earnings per share are expected to range from $2.85 to $3.10.

There are several key factors that contribute to our full year outlook including Small Business Services revenue is expected to increase in the low to mid single-digits range as declines in core business products are expected to be offset by benefits from our e-commerce investments and double-digit growth in our business services offerings. We expect Financial Services revenue to decline in the low to mid-single digits range driven by check order declines of approximately 7% to 8% driven by increases in other forms of electronic payments which we expect will be partially offset by higher revenue per order, a new large customer win which is expected to begin contributing volume early in the second quarter, and continued contributions from non-check revenue streams.

Direct Checks revenue increase in the mid-single digits driven by a full year of Custom Direct partially offset by check declines in a continued weak economy; additional cost and expense reductions; employee merit increases which we expect to reinstate; 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 34%.

We expect to continue generating strong operating cash flows ranging between $205 million and $225 million in 2011 driven by stronger earnings on the upper end of our outlook, continued progress on working capital initiatives, and slightly lower contract acquisition payments which we expect to be approximately $20 million.

2011 capital expenditures are expected to be approximately $35 million, down 20% from 2010. We plan to invest in key revenue growth initiatives and make other investments in order fulfillment and IT infrastructure. Depreciation and amortization expense is expected to be $70 million including $21 million of acquisition related amortization.

For the first quarter of 2011, we expect revenue to range from $342 million to $350 million. Diluted earnings per share are expected to range from $0.68 to $0.73. In comparison to 2010, the listed factors affecting our full year outlook are similar to those affecting the first quarter with the exception of the impact of a $0.03 per share benefit from the maturity of a Company owned life insurance policy in the first quarter of 2010. In addition, the first quarter will not benefit from the new national financial institution client since we are not expecting to start producing their checks until early second quarter.

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 e 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 year and we delivered on our commitment to reduce our costs and expenses in 2010 by $65 million bringing our total reduction since mid-2006 to $325 million. Slight favorability in previous quarters plus stronger than expected performance in the fourth quarter helped offset the impact of restructuring charges and allowed us to reinvest even more in the business in the quarter.

Looking ahead to 2011 as we increase our focus on revenue growth phase of our transformation, we will not take our eyes off cost reductions. Even though our formal cost reduction program has come to an end, we will continue to identify new opportunities to make our cost structure more efficient, and in 2011, we expect to drive an incremental $65 million of cost reductions net of investments.

Our focus in sales and marketing for 2011 will continue to be on improving sales and marketing back-end operations through process centralization, simplification, platform and tool consolidation, and leveraging e-commerce capabilities. We will also continue to improve the mix of paper catalog and on-line search engine marketing.

In fulfillment, we expect to continue our lean, product standardization, spoilage reduction, and direct and indirect spend reduction initiatives, plus further consolidate our manufacturing technology platforms, enhance our strategic supplier sourcing arrangements, and continue with other supply chain improvements and efficiencies.

We also expect to realize a full year's worth of savings from having installed our fully automated flat check package processing equipment in 2010, the last installation of which was completed in the fourth quarter.

Finally, for the shared services infrastructure, 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 accomplished in 2010 overall and then where we're headed in 2011. I will then highlight progress in each of our three segments, including a perspective on what we plan to accomplish in 2011.

Deluxe emerged stronger from the continued challenging economic environment in 2010 by growing revenue for the first time in five years and significantly increasing operating earnings. We stabilized our core check and product businesses and invested in future revenue growth areas as we continued our transformation. These investments included organic initiatives like e-commerce, web services, customer acquisition, regulatory, and fraud and security offerings.

We acquired Custom Direct and Cornerstone to solidify our core checks offerings and to expand opportunities in higher growth business services. We also continued to reposition our brand through investments in advertising including radio, on-line, television, mobile event tours, and our Project Rev small business marketing lab sponsorships.

In addition to our strong print leadership, we invested in our employment brand and created stronger technology and digital expertise by adding sales and technology leaders from our business services acquisitions plus several proven key leaders in the e-commerce, search engine marketing, and web-to-print spaces. We were recognized by SCORE, a non-profit organization providing business counseling to small businesses, as their top partner of the year, and the EPA ranked us third on their list of the largest green power purchasers in the printing industry.

In shared services infrastructure, we significantly reduced costs and improved the effectiveness of information technology, finance, human resources, real estate, and legal functions. Our intense focus on cost reductions has now delivered savings of $325 million.

We exited the year with more robust products and services, solidified processes, a better infrastructure, and improved financial results. We recognize that there is still a tremendous amount of work to do, but we made great strides in 2010.

As we enter 2011, our primary focus is on revenue growth as we now have what we believe is the best products and services portfolio in the history of the Company. Our improved solutions start with more differentiated, technology-led check offers through investments in automated flat packaging, digital printing, and on-line portals and dashboards. They also include enhanced internet and web-to-print capabilities and offers that help financial institutions with customer acquisition, regulatory compliance, and profitability.

Finally, the most significant new solutions revenue growth opportunity is new business services including web services, logo design, search engine marketing, payroll, and fraud and security services. We will continue to assess potential small to medium-sized acquisitions that complement our large customer bases with a focus on new business services.

In addition to financial institutions and direct to the consumer, we have strengthened our channels in small business to include on-line, retail, wholesale, distributors, dealers, and national accounts. Deluxe is now more capable of helping small businesses get and keep customers and helping small to mid-sized financial institutions with customer acquisition, regulatory compliance, and profitability offers.

These new solutions and channels are driving new, differentiated opportunities for us to execute on our strategic focus, and will further enable us to deliver the best personalized customer experience while offering one of the broadest products and services portfolios in each market we serve.

On our third quarter call, we provided an initial perspective on 2011 including a flat to low single-digit expected increase in revenue and an EPS range of flat to high single-digit growth. These comparisons exclude the $25 million in revenue and $0.31 in EPS from the third quarter financial institution contract settlement and the favorable $0.03 adjustment to tax expense in the fourth quarter.

Today, in spite of a stronger finish in 2010, we released ranges in line with these initial perspectives with the revenue outlook range from flat to up 3% compared to 2010 and a diluted earnings per share range of flat to up 9%. More specifically, the upper end of our outlook assumes the current economic trends improve slightly in the second half of the year, that we secure only one of the competitive national opportunities with revenue starting towards the beginning of the second quarter, and that we generate double-digit revenue increases in new business services to approximately $165 million up from the $122 million in 2010 with more of the growth in the second half of the year, plus get some modest growth from our other key initiatives.

On the lower end, we have assumed that not all our new revenue initiatives and business services increase as much as expected and the economy remains sluggish. We believe this is a balanced and, therefore, prudent way to plan. We also expect to prudently invest and increase spending from our 2010 levels in both brand awareness and direct response campaigns.

Now shifting to our segments. In Small Business Services in the quarter, as expected, we did not see any notable improvements in the economic climate impacting our business. We had solid revenue performance, however, with results right in line with our expectations at roughly flat compared to the prior year quarter. Checks and forms performed a little better than expected, with seasonal holiday cards and retail packaging in line, and new business services a little softer primarily due to some customer migration roll-out delays.

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 balanced and enriched content in on-line and print-based spend. Average order value and conversion rates remained strong.

Our Safeguard distributor channel and Canada showed organic revenue growth over the prior year. We also saw solid growth in web, logo, and payroll services. In the quarter, we won several new North America TelCo wholesale deals and also continued to expand additional value add services on top of our core retail web services offer.

We continue to closely monitor the small business market and can see that the pace of decline has bottomed out. Even though optimism indices have risen four out of the last five months of 2010 with December edging down slightly, they still remain in recessionary territory.

Small businesses remain cautious about hiring and capital investment spending, although improving, remains at record lows. They continue to spend less, scrutinize purchases more, and experience tight cash flow. Encouragingly, confidence in better business conditions and sales looking out three to six months has been growing recently.

In summary, although improving, current optimism indices are still below end of 2007 levels. The good news is that increasing sales continues to be a small business owners 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.

Our focus for 2011 in core small business products is on acquiring new customers, increasing our share of wallet through our enhanced ShopDeluxe e-commerce site, growing distributor and channel partners, implementing web-to-print offers, and improving segmentation. We will continue to improve the efficiency and effectiveness of our in-bound, out-bound, and on-line customer touch points to maximize revenue scale capability.

In new business services, we expect to gain new customers through our TelCo-focused wholesale model; add customers and services in our retail model; add marketing services, payroll services, and logo customers; and continue to expand search engine marketing offers.

We also will look for opportunities to add more business services on our unified technology platform. All new business services are expected to generate approximately $155 million to $165 million in revenue in 2011, up from $122 million in 2010, so we continue to build scale capability here.

In Financial Services, we have continued to proactively extend contracts and now have only two smaller sized national 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 remained strong, in excess of 90%. We are finalizing contract terms for a new large national financial institution that we expect will start early in the second quarter that is included in our outlook. We expect a decision in the first quarter on another large national competitive opportunity. Plus, there are still a significant number of competitive opportunities through 2012.

In addition, we have also recently won several brokerage-type check deals in basically a new space for us allowing us to extend our reach in the Financial Services industry. We also implemented a price increase at the start of this year.

In the quarter, we did see the rate of decline of checks perform better than our forecasted rate of around 8%. Also , we have read the recently issued Federal Reserve payment study including a report on written check decline rates of 6.1% compounded between 2006 and 2009. Our own performance over this same period of time is just slightly more favorable.

We also simplified our processes and took complexity out of the business while reducing our cost and expense structure. Our new transformed customer self-service portal and dashboard tools introduced in the second quarter of 2010 have now been deployed to about 90% of our financial institutions with the remaining ones expected to be deployed in the first quarter of 2011.

We made progress again in the quarter in advancing non-check revenue growth services opportunities. Revenue grew over last year in these non-check services which include customer acquisition analytics, loyalty, client communication, regulatory compliance, fraud and security, and rewards checking offers.

December was our largest month of the year for the number of rewards checking sign-ups from our financial institutions from our exclusive partnership with BancVue. We also continued to see solid results from our Cornerstone acquisition.

Although the initial Reg E wave ended in the third quarter, we continued to see add-on regulatory and compliance business in the fourth quarter. As you can see, momentum continues to build in these non-check revenue initiatives. We expect to see strong double-digit growth in these growth services in 2011 as well, with the largest growth opportunities in customer acquisition analytics, fraud and security, rewards checking, and regulatory and compliance.

In Direct Checks, revenue was in line with our expectations driven by accelerated re-order rates and we delivered a strong 27.3% operating margin in the quarter excluding a restructuring related cost. We continue to look for opportunities to provide accessories and other check-related products and services to consumers. We also continue to be very pleased with the integration of Custom Direct 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-sell capabilities. In addition, cost reduction activities continue with savings accruing in material, procurement, delivery, media and marketing expense leverage, and other SG&A. We expect continued revenue enhancements and cost reductions in 2011.

For 2011, we expect revenue growth in the mid-single digits range driven by the Custom Direct acquisition and accelerated re-order rates partially offset by declines in consumer usage in a continued weak economy. We expect to reduce our manufacturing costs and SG&A in this segment and maintain our operating margins in the high-20% range including acquisition amortization while generating strong cash flow.

As we exit 2010 on the heels of a very strong quarterly performance in a continued weak economy, we have made tremendous progress in transforming Deluxe, and we still have many opportunities ahead of us in 2011. We believe that we are entering the year better positioned to grow revenue now through clear alignment on our strategic direction, focus on our customers, diversity in our channels, and an extensive depth and breadth of our product and services offerings.

Deluxe is poised to be an indispensable partner in helping our customers get and keep their customers. Our technologies are stronger, our e-commerce offers are more mature, our infrastructure better, and we are making more intelligent data-driven decisions. Our focus continues to be on providing simple, easy-to-use, innovative solutions that fulfill customer needs while using continuous improvement principles to operate with a focused sense of urgency on a daily basis. If the economy improves even more, we should have 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 generate strong cash flows and provide a very attractive dividend.

Before I open the call up for questions, I would like to take this opportunity to thank all Deluxe employees for their hard work, dedication, and solid performance in what was clearly a challenging 2010. Thank you Deluxers. Let's get off to a great start in 2011. Let's make it happen.

And now Angela, Terry, Jeff, and I will open the line for

Thank you, sir.

(Operator Instructions)

Charles Strauzer, CJS Securities.

Can we just dive into the segment margins just a little bit, just to kind of get a little bit more granularity there. When you look at Small Business Services, it had a very strong margin there versus historical, and Financial Services was probably a tad weaker than I was expecting there. Can you give me a little bit more color as to what's driving the pluses and minuses there.

Obviously we're very pleased with the performance actually, Charlie, in both of the two segments. We've seen an accelerating improvement through the year, as you know, in the Small Business Services margins and we expected that, as the cost reductions actually kick in and have been strong, we also mentioned in Terry's part of the script that we had better performance overall in cost reductions in the fourth quarter so we got a little extra lift there. And that also actually helped in Financial Services as well.

We know there was disappointment coming out of the third quarter and we weren't disappointed because, as we said on the call last time, we're always making investments in each of the segments and we probably invested a little bit more in Financial Services in the third quarter than people expected and then we got that pop back up and it didn't do as much in that space in the fourth quarter, got the cost and expense savings that we expected and therefore the performance improved.

So I would say we're very pleased with both Small Business and the margins that we had in Financial Services. And again, it's going to happen quarter to quarter. Sometimes we have timing of when we invest in certain areas. And we are, as you know, fully allocated, we don't leave at corporate -- on an unallocated bucket. So that can tend sometimes to spike things around in some of the segments. But again, Charlie, I'm very pleased with the results. Terry, I don't know if you want to add anything?

Price increases in Financial Services, especially, are another dynamic. And we haven't had a price increase for several quarters now. And as Lee mentioned in his prepared comments, we do have a price increase that went in to effect in FS in January now. So that will begin to benefit in First Quarter next year.

So that should help margins a little bit I would think this year as the margins progress along the year?

The price increase will, absolutely.

Just in general, when you look at the three segments in terms of your guidance in terms of the how should we look at the margins and how should they progress as the year goes on, any thoughts you can share with us there?

I think again, we haven't got in, we didn't make the comments about cost reductions being lumpy, Charlie, because we're getting a little tired of saying that all the time to be honest. The way -- everybody likes them to be exactly linear as they go throughout the year. I would expect you're going to see a pattern similar to that this year where there will be some quarters we'll get more out than others. By the way, we are very pleased that we have been able to come up with $65 million, and what it's allowing us to do is to reinvest back in to help the future revenue growth potential of the Company. And I'm just -- the work that Terry and the whole team has done here to come up with these numbers, and again, I'm just very, very pleased with that number. And it's going to help us as we work through the year.

Yes, we don't see any significant anomalies throughout the year. And our practice as been, if we do see something odd that will really impact a particular quarter, we'd provide some information about that. But nothing abnormal at this point that would really skew one particular quarter.

Great, and then just looking at the Q1 guidance, can you give us a little bit more granularity on your margin expectations there segment by segment?

No, we're not going to do that, Charlie. Again, I wouldn't expect they're going to move substantially and what we put out overall in the comments that we made for the year and where we're trending, we're going to stick to that right now.

Okay, very good. Thank you very much.

You're welcome, Charlie.

John Kraft, DA Davidson.

Good morning gentlemen and congratulations on the progress.

Thank you, John.

I just wanted to ask a little bit more about the Business Advantage Program, to me that seems like a pretty important referral avenue. Is there a way to put a metric on penetration, either what percent of your financial institution customers are participating in that program or what percent of your customers are buying more than simply business checks?

John, I don't have and I know Terry doesn't have, sitting here, any specific statistics on it. Here's a couple of things that might help for you.

It's broad based in that it's national and community banks that are participating. And we also are very pleased that the community bank market is actually been contributing more in the space. So think of it as we're getting more community banks in line in the program and more of the community banks are getting their small businesses locked into the program as well.

All I can tell you is I don't have the statistics off the top of my head of what are only check-only customers versus customers that buy two or more products, three or more products, and so on and so forth, but what I would tell you is that the pace of DBA, or Deluxe Business Advantage, customers buying more than checks is increasing and continues to increase. And I think -- again, neither Terry or I have the stats in front of us, but that's the way I think you should think about it.

And the only thing I would add to that, John, is that the DBA program continues to be the single largest source of new customers coming into Small Business Services, and that's the way it's always been since we've had -- really since we've [it as in] place even.

Okay, thanks, that is helpful. And I guess just a couple of follow-ups here, the price increase you mentioned, Lee, is that all customers across the board?

Again, the challenge with always addressing this is it's never the same rate everywhere because of the contracts we have and then what we can raise price in terms of the types of things that we're doing. But do we try to get it out there everywhere we can possibly get it consistently? The answer is absolutely yes.

Okay, and then lastly, in the past you've done some segmentation for us where you've broken out, not by your official segments but just by check printing versus non-check printing. Can you give us those updated numbers?

That will be in the 10-K, John, when it gets filed. You'll see us with a -- we'll do the same split again, that's our intent to be able to give you that check mix versus the business products mix and then the services mix. So if you can hold until we issue the 10-K here in a few weeks, you'll see that information.

That's fair, thanks.

(Operator Instructions)

Jamie Clement, Sidoti.

Lee, I actually had a similar question to one of the previous ones but kind of just coming from a little bit of a different direction. Can you talk a little bit about small business customer acquisition and the channels that those customers have come through, let's say three years ago versus where you think they are coming from three years from now given the additional services that you guys have added along with a different way of accessing the marketing world.

I think what we -- Jamie, we rely basically on the DBA program and then the basic brands that came with NEBS probably looking three years back. And where we are now is we are, to Terry's point, we're still working that DBA program hard, but we are seeing a significant increase in non-DBA customers, and they're coming from our on-line work that we're doing, our call center work, our e-mail work that we do. They're coming from our proactive reaching out through our outbound call center work that we're doing. And they're also coming through the work that are both -- that's happening with our Safeguard distributor channel, and then what we call our dealer channel, and then also we're starting to see small business come through national accounts that we're working through and that's basically a sell-through to the end small business customer. I think as we get into this year we will probably start to feature some of those names as we are allowed to release them.

And what we see as we go forward is more of an on-line extension, which is why we are putting the brand and the direct response advertising out there, but they'll come back through all media. So they'll come back through our call centers, they'll come back through our distributor channels, they'll come back through our dealer channels and national account. We expect those areas all to actually increase over the next, I'll use your words, three years as you look forward.

Again in my comments, we're reaching broader areas and partnering better and clearly what it's doing is allowing us to reach -- get the breadth of our products and services offers out into more parts of the market, Jamie.

Okay, and Lee, switching gears a little bit, looking at the eventual small business recovery. For a business like yours, and I know it includes a lot of different product and service lines, from your perspective, do you think new hiring is relatively more important than new business formation, or vice versa, because I can imagine a scenario where one of those things improves at a different pace than the other going forward.

They're both important. If we get -- what we find as we get more new formulations of businesses, Jamie, you get more opportunities right up front to put the start with the branding and the logo process and then carry it into the they need to get themselves found on-line.

So that's an important one, but as small businesses hire more people, obviously they're probably going to be reaching more customers and therefore having more money to spend on initiatives and therefore they're more likely to look at other products and services that we have to help them get and keep customers. So I would argue both of them are important to us.

Sure, absolutely. Okay. Thank you all very much for your time as always.

You're welcome, Jamie.

And ladies and gentlemen, that does conclude the question-and-answer session. I would like to turn the call back over to Lee Schram for the closing comments.

Again, thank you for everybody out there that's participating and for your questions today. And again, I want thank everybody at Deluxe here who's also listening in, just for, again, your effort and your great performance in 2010. We're now going to roll up our sleeves, get back to work, and again we look forward to providing a positive progress report on our next earnings call.

Thank you, Lee. This is a reminder that a replay of this call will be available until February 10 by dialing 888-286-8010. When instructed, provide the access code 10727550. The accompanying slides are archived in the News and Investor Relations section of Deluxe's Web site at www.deluxe.com. Again, thank you for joining us. Have a good afternoon.

And ladies and gentlemen we thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.