Deluxe Corp (DLX) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter Deluxe Corporation earnings conference call. My name is Gena, and I will be your operator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference at which time you may dial one to enter the queue. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Jeff Johnson, Treasurer and Vice-President of Investor Relations. Please go ahead.

Thank you, Gena. Welcome to Deluxe Corporation's 2011 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, 2010.

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 FCC on the form 8-K filed this morning. In particular, any non-GAAP mention measures are reconciled to the comparable GAAP financial measures in the press release. Now, I will turn the call over to Lee.

Thank you, Jeff, and good morning everyone. Deluxe delivered another very strong quarter. We reported revenue and adjusted earnings per share at the high end of our expected ranges. Revenues grew 4% over the prior year quarter driven by small business services revenue growth of 12% of which 4% came from the PsPrint acquisition. This quarterly growth rate is the strongest we have reported since we acquired NEBS in 2004. Checks and forms both performed well against our expectations and marketing and other services revenues grew 25% over the prior year.

Adjusted diluted earnings per share from continuing operations grew 6% over the prior year inspite of a hire than expected tax rate, We continue to invest in brand awareness to help better position our marketing and other services offerings and drive future revenue growth. We also advanced process improvements and delivered on our $60 million cost reduction commitment while generating a better than expected $235 million in operating cash flow for the year. 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 $0.78 which included restructuring and impairment costs of $0.05 per share. Excluding these costs adjusted EPS from continuing operations of $0.83 was at the upper end of our previous outlook and 6% higher than the $0.78 reported in the fourth quarter of 2010. EPS was negatively impacted in the quarter by $0.04 per share due to a higher than expected effective tax rate which was driven primarily by discrete tax adjustments for evaluation allowance and a state tax settlement, plus and unfavorable shift in income between tax jurisdictions.

The restructuring charges are primarily for employee severance and infrastructure consolidations. Revenue for the quarter came in at $366 million, and grew 4% over last year and 3% sequentially from last quarter. All three of our business segments performed well. While business services revenues of $229 million grew 12% versus last year on a reported basis including PsPrint which added nearly $8 million of revenue in the quarter. While we continue to operate in a weak economic environment, we delivered growth in marketing and other services. Our Safeguard distributor and dealer channels and in checks and forms. SBS revenue also benefited from previous price increases. Financial services revenue up $83 million was down 6% 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 $55 million which was down 7% on a year-over-year basis.

Gross margin for the quarter was 64.5% of revenue. Up 0.5 percentage points from 2010. Benefits from price increases, improvements in manufacturing productivity, and delivery initiatives were are partially offset by increased delivery and material rates in 2011. SG&A expense increased $1.5 million in the quarter and was 43.5% of revenue compared to 44.9% of revenue in the same period last year. Increased SG&A associated with acquisitions, brand awareness campaigns, and investments in revenue generating initiatives were partially offset by further cost reductions and lower performance-based compensation. Excluding restructuring and impairment costs, adjusted operating margin for the quarter was 21.4%, up from the 19.5% generated in 2010 and was above our expectations. Compared to last year, favorability came from an improved gross margin and lower SG&A expense. All three segments delivered strong operating margins compared to expectations.

Excluding restructuring and impairment costs, small business services operating margin of 18.9% was up 1.1 percentage points over last year due to previous price increases and continued progress with cost reduction initiatives. Financial services operating margin of 21.2% was up 2.8 points from 2010 due to better product and services mix and cost reductions. Direct check's operating margin of 31.9% increased 4.6 points from 2010 as we continue to realize plant synergies from integrating custom direct and lower acquisition related amortization. Turning to the balance sheet and cash flow statement. Total debt at the end of the year was $742 million, down from $755 million at the end of 2010.

We ended the year with nothing drawn on our credit facility despite $86 million of cash acquisitions during the year. Cash provided by operating activities for the year was $235 million. A $23 million increase from 2010. $25 million contract settlement collected in the third quarter of 2010 was more than offset by benefits from our cost savings initiatives and price increases as well as lower contract acquisition, income tax and severance payments in 2011. Capital expenditures for the year were $36 million, and depreciation and amortization expense was $73 million. Looking ahead to 2012, we expect consolidated revenue on a full year basis to range from $1.42 billion to $1.46 billion. Diluted earnings per share are expected to range from $3.10 to $3.30. There are several key factors that contribute to our full year outlook including small business services revenue is expected to increase in the mid to high single digits range as declines in core business products are expected to be offset by benefits from our E commerce investments, price increases, our distributor and dealer channels, and double-digit growth in marketing and other services offerings.

We expect financial services revenue to decline in the low to mid single digits range driven by recurring check order declines of approximately 7% to 8% which we expect will be partially offset by higher revenue per order, the citizens financial group migration starting next week, and continued growth from non check revenue streams. Direct check's revenue declined in the mid to high single digits driven by check volume reductions in a sluggish economy. Additional cost and expense reductions increases in material and delivery rates, continued investments in revenue growth opportunities, including brand awareness, direct response campaigns, marketing and other services offers and enhanced Internet capabilities and an effective tax rate of approximately 33% for the year.

We expect to continue generating strong operating cash flows ranging from $225 million to $245 million in 2012 reflecting stronger earnings in the mid to upper end of our outlook offset by higher tax payments. We expect contract acquisition payments to be approximately $15 million. 2012 capital expenditures are expected to be approximately $35 million or roughly the same as 2011. We plan to continue 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 $62 million including $15 million of acquisition-related amortization. For the first quarter of 2012, we expect revenue to range from $358 million to $366 million. Diluted earnings per share are expected to range from $0.76 to $0.81.

In comparison to 2011, the listed factors affecting our full year outlook are similar to those affecting the first quarter but as a reminder, historically direct checks has their strongest revenue quarter of the year in the first quarter and the first quarter benefits from one extra business day compared to last year and the send quarter this year. 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 and repurchase shares to offset dilution.

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. Because we exited 2011 with nothing drawn on our credit facility, it is possible we may accumulate larger investments on our balance sheet in 2012 in anticipation of paying off the $85 million of notes maturing in December. We believe our strong cash flow, strength in balance sheet and flexible capital structure position us well to continue advancing our transformation. I will conclude my comments with an update on our costs and expense reduction initiatives.

Overall, we had another solid year and we delivered on our commitment to reduce our costs and expenses in 2011 by approximately $60 million bringing our total reductions into mid 2006 to $385 million. Strong performance in the fourth quarter helped offset the impact of restructuring charges. Looking ahead to 2012, we will continue our focus on the revenue growth phase of our transformation, but we will not lessen our focus on cost reductions. We expect to drive an incremental $50 million of cost reductions net of investments in 2012. Our focus in sales and marketing for 2012 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 online 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. Finally, for the shared services infrastructure, we expect to continue to reduce costs in IT and other areas as more opportunities exist to improve efficiencies. Now, I will turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on what we accomplished in 2011 overall and then where we are headed in 2012. I will then highlight progress in each of our three segments including a perspective on what we plan to accomplish in 2012. Deluxe grew revenue in 2011 for the second consecutive year for the first time since the NEBS acquisition. 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, web-to-print, customer acquisition, regulatory, and fraud and security offerings. We acquired Banker's Dashboard and PsPrint to expand opportunities in higher growth marketing and other services. We also continued to reposition our brand through investments in advertising including radio, online, print, television, and our project rep Small Business marketing lab. In addition to our strong print leadership, we invested in our employment brand and created stronger technology and digital expertise by adding sales, marketing, and technology leaders in marketing and other services.

Our efforts earned us a Jobs-to-Web Best Social Media Innovation award, a Talent Board Candidate Experience award, and a Linkedin Recruiting Innovation award. We also moved to the number one ranking on the EPA list of the largest green powered purchasers in the printing industry. In shared services infrastructure we 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 $385 million since mid 2006. We exited the year with more robust products and services, solidified processes, a better infrastructure and improved financial results. Our operating cash flow grew for the third straight year allowing us to maintain our dividend and pay down debt while making two cash acquisitions. In addition, we strengthened our capital structure in March with a debt refinancing at an attractive rate.

We recognize that there is still a tremendous amount of work to do, but we made great strides in 2011. As we enter 2012, our primary focus continues to be profitable revenue growth. We have created more differentiated technology-led check offers through investments in automated flat packaging, digital printing, and online portals and dash boards. We also have significant new solutions growth opportunities and marketing and other services including for small businesses logo design, Web services, social media, Web-to-print, search engine marketing, payroll and fraud and securities services.

And for financial institutions, customer acquisition, regulatory compliance, and profitability offers. We will continue to assess potential small to medium sized acquisitions that complement our large customer bases with the focus on marketing and other services. We have strengthened our channels in small business to include online, retail, wholesale, distributors, dealers and major 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 strategy 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 2012 including a very low single digit expected increase in revenue and EPS range of low to mid single digit growth. Today in spite of a strong finish to 2011, we released ranges in line with these initial perspectives with the revenue outlook range from just over flat to up 3% compared with 2011 and a diluted earnings per share range of flat to up 6%. More specifically, the upper end of our outlook assumes the current economic trends remain sluggish to slightly improving in the second half of the year. That we implement Citizens Financial Group starting next week, and that we generate double digit revenue increases in marketing and other services to approximately $275 million, up from the $222 million in 2011. Plus get some modest growth from our other key initiatives.

On the lower end, we have assumed that not all of our new revenue initiatives and marketing and other services increase as much as expected. And the economy remains sluggish throughout the year. We believe this is a balanced and therefore prudent way to plan. We also expect to prudently invest and increase spending from our 2011 levels in both brand awareness and direct response campaigns. We expect marketing and other services revenues to be approximately $265 million to $275 million in 2012. Up from the $222 million in 2011, with organic growth in the mid teens.

If achieved, this performance would translate to a total revenue mix of around 19% of revenue towards our goal of achieving a 25% mix over the strategic period and up from 16% in 2011 and 12% to 13% the previous two years. Now, shifting to our segments. In small business services in the quarter, as expected, we did not see any notable improvements as the economic climate for small businesses remains sluggish. We had strong performance however as revenue grew 12%, 4% of which came from the PsPrint acquisition and represented the strongest rate we have reported since acquiring NEBS in 2004.

Checks and forms performed well against our expectations with seasonal holiday cards in line in all channels except our dealer channel where they were below 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 balanced and enriched content in online and print-based spend. Average order value and conversion rates remain strong.

Our Safeguard distributor and dealer channels and Canada grew revenue over the prior year. We also saw strong growth in Web, search engine marketing, and payroll services. In the quarter, we won contracts with a very large US Telco as well as a large Central America Telco, both of which we expect will migrate their small business customer Web services in the latter half of 2012. We ended the year with over 500,000 Web hosting customers. We continue to closely monitor the small business market. Optimism indices have improved the last four months which is encouraging. But they still remain in recessionary territory.

Small businesses are starting to -- are slowly starting to hire and planning for capital investments over the next three to six months rose to the highest level in over three years. However, they continue to spend cautiously, scrutinize purchases, and experience tight cash flow. Small businesses expectations for real sales gains turned positive and the outlook for business conditions became less negative. In summary, current optimism indices have been trending upward, but improvements are still small and need to continue and be more pronounced.

The good news is that increasing sales continues to be a small business owner's number one pain point, and our portfolio is significantly more robust now with many offers to help them here. As the economy recovers, with the transformative changes we are making to deliver more services offerings that help small businesses get and keep customers, Deluxe is better positioned as that indispensable partner for growth. Our focus for 2012 in core small business checks and forms is on acquiring new customers, increasing our share of wallet for our enhanced shop Deluxe E commerce site, growing distributor and channel partners, and improving segmentation.

We will continue to improve the efficiency and effectiveness of our inbound, outbound, and online customer touch points to maximize scale, revenue scale capability. In marketing and other services, we expect to continue to gain new customers through our Telco focused wholesale Web services model, add customers and services in our retail model, add marketing services, payroll services, and logo customers, and continue to expand our search engine marketing customer base.

For Web-to-print, we expect to create a single best in class integrated platform that combines organic investments we have already made in a front-end customer experience with PsPrint's strong backend processes and scale Web- to-print offers for a combined small business customers. In financial services, we saw the rate of decline of checks perform closer to the lower end of our forecasted decline range of around 7% to 8%. We had strong overall new acquisition rates and our retention rates remain strong on deals pending in the current quarter of approximately 90%. We now expect a decision later this quarter to the very large national competitive RFP we initially responded to in the third quater of 2011. There are two more RFPs we responded to. One late in the fourth quarter of 2011 and the other, early in the first quarter of 2012, that we expect decisions in 2012.

None of these three RFPs is included in our outlook in 2012. We also simplified our processes and took complexity out of the business while reducing our cost and expense structure. Looking ahead to 2012, we expect check units to remain within a decline range of around 7% to 8%, retention rates in excess of 90% on deals pending this year, for Citizen's Financial Group production to begin next week, and we have approximately 20% fewer community bank contracts up for renewal in 2012 compared to 2011.

We also implemented a price increase at the start of this year. We made progress again in the quarter in advancing non check marketing and other services revenue opportunities. Revenue grew over last year in these non check services which include customer acquisition, regulatory compliance, value added services, checking, and other profitability offers. In customer acquisition and specifically our Cornerstone direct marketing analytics offer, we saw a very strong ramp to close 2011, adding new financial institutions that will roll out in 2012.

We also saw a continued ramp both in adding financial institutions and the number of switches completed for our new SwitchAgent service. Again, this proprietary new service allows consumers to easily in an automated way switch from one financial institution to another. We already have several commitments from large financial institutions to pilot SwitchAgent in 2012. In regulatory compliance, we now have nine paying customers and also nine bank association endorsements for our offer.

But we continue to see decisions take longer by financial institutions as they sort through Dodd Frank and implications on their community bank compliance programs. The Banker's Dashboard acquisition continued to perform well in the fourth quarter, and we expect strong revenue growth in 2012. As you can see, although not as fast as we had hoped in some areas, momentum continues to build, and we expect strong double-digit growth in these marketing and other services in 2012.

In direct checks, revenue was in line with our expectations driven by accelerated reorder rates and strong custom direct-accessories revenue. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers. Although we have made a lot of progress with the custom direct integration, we still are working on a number of initiatives to create an integrated best in class direct to consumer check experience.

We continue to see a ramp in revenue enhancement synergies through our call center scripting and upsell capabilities, as well as synergistic costs and extra-expense reductions. For 2012. we expect revenue to decline in the mid to high single digits driven 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 in the 30% range while generating strong operating cash flow.

As we exit 2011, on the heels of a very strong quarterly performance and a continued sluggish economy, we have made tremendous progress in transforming Deluxe, but we still have many opportunities ahead of us in 2012. We have built the foundation to be an indispensable partner in helping small businesses get and keep customers by offering everything from printed products to affordable logo design, Web services and search engine marketing. We help small business compete against big business and win. In financial services we are growing beyond checks into a broad set of solutions that help banks acquire customers, improve profitability and manage regulatory compliance, our technologies and channels are stronger, our E commerce offer is more mature, our infrastructure better, and our management talent is deeper and aligned to grow revenue.

We have developed a strong platform for long-term growth with the objective of transforming Deluxe to more of a growth services provider from primarily a check printer, thereby changing our product mix and resulting stock price multiple. We believe we are well positioned entering 2012 for our third consecutive year of revenue growth.

Despite the economic challenges and headwinds, our financial discipline has enabled us to invest in people, technology, products, services, and our brand, in order to position ourselves for sustainable revenue growth while continuing to improve profitability and operating cash flow. We know it is critical for us to be able to grow revenue again in 2012 and improve the mix of our marketing and other services revenue and, we are well positioned to make this happen.

Before I open the call for questions I would like to take this opportunity to thank all Deluxe employees for their hard work, dedication and solid performance in 2011. Thank you, Deluxers. Let's get off to a great start in 2012, and remember to put your heart into it. Now, Gena will open the line up for questions.

Thank you. Ladies and gentlemen (Operator Instructions). Your first question comes from the line of Charlie Desrosiers with DJS Securities. Please go ahead.

Hi, good morning.

Hi, Charlie.

First of all, thank you for that extensive run through, that was thorough and I appreciate the added clarity there. Lee, if you can talk a little bit more in a little bit more color into what would happen with the small business services side, the marketing services side I should say, if the economy were to continue to uptick and kind of be above what your expectations, would that fast track could you think those growth expectations from the mid teens to maybe more like you saw this year?

Yes, that is the way I would look at it, is if we get a more cooperative economy, I believe we can drive a larger growth rate, Charlie in marking and other services. But I think for now we have done a good job with the way we have thought about the -- where the economy is and where the range is, and again I think we are very comfortable with our organic growth of being in the mid teens.

Got it. And then talking a little bit more about your own contracts that are kind of potentially up for rebid over the next call it 24 months or so. Give us a little more insight. I know you have done a good job of locking up or extending contracts. Any big wins that are RFPs out there right now for you on the rebid side?

Oh, in fact, there is just a handful that are coming due this year, and they are very small in terms of the size of the annual revenues, and they are what you would consider to be large nationals, but they are not the biggest ones, Charlie -- We do not have a lot that are doing it. As I said in my prepared comments, we also have 20% fewer community bank contracts that are up for renewal this year than 2011. So the way to think about it, and the way Terry and I are thinking about it is, this gives us more stability in that check and be predictive around where the check declines are going to be, and how we level load our factories and, how we run our business. We are very encouraged, and honestly it is all due to the Financial Services Sales team really working the contracts hard and getting out in front of these. I can't say enough positive about the performance and what they are doing.

That is encouraging. Thank you very much.

You're welcome.

Your next question comes from the line of Jamie Clements with Sidoti. Please go ahead.

Good morning, gentlemen.

Hi, Jamie.

Terry, If I could, I just wanted to just one housekeeping item. The charts towards the bottom of your press release which shows the segment breakdown of restructuring and impairment charges.

Yes.

That number, and I apologize, I actually lost my -- that number actually -- excuse me -- differs from the number that is in the text by a little bit. So I think we see $4.3 million in the chart. And then I think you highlight $3.1 million earlier. So I assume the difference is the $1.2 million impairment charge.

That is the difference entirely.

And Terry, what segment is that in?

The impairment charge actually will come through in the Small Business Services segment.

Small Business Services, okay. Just wanted to clear that up. And Lee, more important issues, I have asked this question or similar themed question before. As you all have continued to build the marketing services business, the just the non print businesses in general, can you give us an update on, what you have learned about building the Deluxe brand among the small business customers and particularly looking out to 2012, where your marketing dollars are going to go in terms of advertising and brand building? What has worked and maybe what hasn't worked.

I think what we are finding is that it starts with a general brand awareness that Deluxe can do more than just be a great check ,and we put what we call Jamie put general dollars into that, and we believe it is working. We have also put money into most of the money other than that into demand generation and direct marketing capability. And the way to think about it, again, is we are -- we believe that a combination of radio which has been the primary way we spent the money but continued -- we will continue to look at the television market to see if that makes sense because we have gotten some benefit from that. We will look at the partnerships that we have and the relationships we have. I will use the example of entrepreneur.com has been a wonderful partner for us. And we will continue to do the print things that we do, and we think that we do well.

So we are constantly looking at this, Jamie, and trying to figure out all of the time how do we get better and how do we make sure we understand the return we get on the investments that we are making there, and we will continue to do that in 2012, and we he as I said in the prepared comments, we are going to put more money into that in 2012 than we did 2011, but we will also keep looking for what we believe is the right returns on investment, and that is how we are approaching it.

Okay. And just, if I could ask one follow-up, Lee as you talk about returns on investment, you are now getting to the point where the next maturity likely could be taken care of in cash. As you think about the balance sheet and you think about acquisition opportunities and what you want your balance sheet to look like, do you think there is any benefit to delivering the balance sheet to have a balance sheet that looks more like a services company than print manufacturer? Does that enter at all into the thinking?

I think our capital structure today really isn't driving into we are trying to do with the transformation, and what we are trying to do with the strategy. We also recognize to that for many parts of our business, we are still generating a lot of cash flow.

Absolutely.

Cash flow to the levels that are probably in excess of our needs.

Exactly.

And with the way we are looking out, we do anticipate that we will continue over time to reduce that debt level some just like we have been over the past four or five years as well. So I would expect that pattern and that trend to continue. But again, I just want to make sure that people understand that our capital structure is no way limiting or driving the direction we go with the transformation.

And Terry, just to sort of clarify my question. I was really asking that question more from the fact that you are in a position of strength now with respect to where you are, and you actually have probably more flexibility than you certainly had three years ago.

Yes, we did. Going forward when we decide we want to pay down debt it is not as easy with the credit facility because our public notes don't trade quite as heavily as we might like.

Right.

In order to be able to pay down the days we want to pay down.

Understood. Thanks. As always, for your time.

Thank you, Jamie.

Your next question comes from the line of John Kraft, D.A. Davidson. Please go ahead.

Hi, guys. Hope you can hear me well. I'm on a cell phone here. I just had a couple of follow-ups. The first regarding something I think Lee you just said, and I just wanted to make sure I heard it right. I have been hearing a lot of ads, obviously you have ramped up your marketing spending. Did you say you are going to ramp it further?

Yes. We plan to spend more on what I would call on brand and demand creation and the direct marketing campaign initiatives in 2012 than we did in 2011.

Okay. Certainly seems like it is working for you. And then on the large Telco wins, can you talk a little bit more about what the Telcos are doing or what they had been doing before and kind of their motivations for switching over to you?

Yes, we are really excited about these. At some point we hope to be able to release the specific names, but think of it as they have used others to start their small business Web hosting and Web services, and they decided to come to Deluxe. Both what we are excited about both from a migration of the base, as well as what really got them excited is, we are good at doing this, and also the opportunity to bring more of the services that we have in our portfolio than other providers that they have used in the past. So, I think of it as the strength, John, of the migration capability of a great development and engineering team that we have got, as well as the products and services that we can wrap around that and are richer in our portfolio and that is really the reasons why they made the move. So, we expect or these migrations as you know we have done some in the past, they take time but we expect these to come onboard in the latter hall of the year.

So they were competitive takeaways?

Yes.

Nice. That's all I have got. Thanks, Lee.

You're welcome, John.

Your next question comes from the line of David Lebowitz with Horizon Kinetics Please go ahead.

Good afternoon. A few quick questions. One what is the status of your underfunded pension plan at the end of the year versus a year ago?

We are fully funded on the -- the benefit plans we are fully funded for the portion that those assets can be used for. There is a small pool of benefits out there that the asset pool does not relate to, but you we are even as we look at it overall we are nearly fully funded.

And what is the size of the stock repurchase program still left to be utilized?

I believe we have roughly about a half a million -- or 5 million shares still outstanding.

And do you have any intention this year of making significant purchases or is this more stock price related or acquisition related?

No, the share repurchases that we have been doing for the past couple of years have been focused on offsetting dilution from the employee plan activity. We actually have limitations in a couple of our note agreements that limit -- that limit some of the share repurchase capabilities for the company. So I would not say that we would be looking to step that up beyond just the needs to offset that dilution.

And lastly, do you have a target for free cash flow this year versus 2011?

We do. I mean we actually don't issue specific guidance on free cash flow, but we do give you the components. We have indicated operating cash flow of 225 to 245 and then CapEx of about $35 million. So.

That would seem to leave a lot of room to possible be increase the dividend rather than just announce it will be maintained. Is there any reason why the board has chosen not to increase the dividend?

One of the -- our top priority right now from a free cash flow usage today is really to make sure that we have made the right organic investments and the right small to medium sized tuck-in acquisitions to really keep this transformation moving forward and to make sure that we get it to a level where it is really sustaining a changed revenue profile for this company. So that really continues to be our top priority, and I believe I could speak for the board in saying that until we have advanced that transformation further along, we don't anticipate that redeploying more capital towards dividends at this time is the right move for us.

Plus, David, think about the dividend yield that we are giving today. We think is a very competitive market rate as well. So, that is how we look at where we are with the dividend.

Just one observation on your last comment. The fact that your dividend yield is a function of stock price as much as what you are paying out in dividend, so it could be argued that perhaps being a little more liberal with the shareholders would give you a higher stock price which would then reduce the yield on the stock. But again that is just an observation based on what you said. And let me thank you for the time.

You're welcome, David.

Your next question comes from the line of Joe Roban with Provident. Please go ahead.

Hi, guys. Congratulations on a good quarter.

Thank you, Joe.

Thank you, Joe.

Just on a clarification of 2012 looks like implied adjusted EBITDA flat year-over-year. Just wondering why that is given the revenue growth and the $50 million of net cost savings?

As we done in the past our cost savings on a net basis, we don't just let those drop down to the bottom line dollar-for-dollar. We do use some of that to provide investments back into the business to help the transformation. We also, we also have a little bit less D&A coming in next year as part of that as well. And I think those are kind of the top things that come to mind quickly.

And could you share the revenue contribution from the acquisitions in Q4 and 2012 guidance?

Well, we did indicate that the largest of the acquisitions that are coming through this quarter that weren't there a year ago was the PsPrint acquisition and that was just about $8 million for the quarter.

And for 2012?

For 2012, we don't have any -- we don't have any guidance built in for future possible acquisitions.

Okay. Thank you.

You're welcome.

You have a follow-up question. It is from the line of John Kraft, D.A. Davidson. Please go ahead.

Just one additional question. And that was on the price increase in small business services. Can you give us some details I guess specifically how much that contributed to the growth? And as well as specifically where those price increases were most prominent?

John, we won't get into the real specifics competitively but think about what we continue to do is we look at where our products and services are priced and versus what is going on in the marketplace. And we take advantage where we can to make sure that we continue to be what we would call market competitive. So that is the way to think about it. By the way, it works no different in financial services as well.

As well as I guess then maybe a follow-up on that. Would you anticipate this is kind of a one-time reset of your pricing, or would you potentially have something planned going forward with that as well?

We are always looking at this, John. We continue -- we have done this for the last several years. We have gotten better and better at understanding where the competitors are, where we can raise price and what we can race price for and how key do it and it is not a one size fits all formula where we slap something out there. It very scientific with a process we have to go through and that is probably the best I can do in giving you a frame work for it.

That's helpful. Thanks, guys.

You're welcome, John.

That concludes the Q&A session. I would like to turn the call back over to Mr. Lee Schram for closing.

I would just like to thank everybody for your participation and questions. We actually got more questions today which is terrific and, we going to go back to work, and we will get back to you and hopefully be able to provide a positive progress report in -- and our next earnings call. I will turn it back to Jeff for house keeping close.

Thank you, Lee. This is a reminder that a replay of the call will be available until February 9 by dialing 888-286-8010. When instructed, provide the access code 98465171. 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 and have a good afternoon.

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