Deluxe Corp (DLX) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2012 Deluxe Corporation earnings conference call.

My name is Stacy and I will be your Conference Moderator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session toward the end of the conference. (Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, to Mr. Jeff Johnson, Treasurer and Vice President of Investor Relations. Please proceed.

Thank you Stacy. Welcome to Deluxe Corporation's 2012 first 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, 2011.

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 at 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. To use a baseball analogy which is timely as the season is just underway, we hit a homerun in the quarter and are off to a fantastic start to the year despite a continued sluggish economic environment.

We reported revenue and adjusted earnings per share well above our expected ranges. Revenue grew 8% over the prior year driven by small business services revenue growth of 15% of which 4% came from the PsPrint acquisition.

This quarterly growth rate is the strongest we have reported since we acquired NEBS in 2004. Financial Services revenue grew 3% over the prior year.

Checks and forms both performed well against our expectations and marketing solutions and other services revenues grew 35% over the prior year and solidly in the mid-teens on an organic basis.

Adjusted diluted EPS grew 17% over a strong prior year. We generated solid operating cash flow and we were not drawn on our credit facility during the quarter, actually increasing our balance sheet cash position $30 million from last December.

We continued to invest in brand awareness to help better position our marketing solutions and other services offerings and drive future revenue growth. We also extended our process improvement and cost reduction initiatives while driving strong operating cash flow as we continue to transform Deluxe.

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 first quarter of $0.86 which included restructuring costs of $0.02 per share. Excluding these costs, adjusted EPS from continuing operations of $0.88 was well above the upper end of our previous outlook and 17% higher than the $0.75 reported in the first quarter of 2011.

Strong revenues and favorable product mix drove better than expected EPS performance. The restructuring charges are primarily for employee severance and infrastructure consolidations.

Revenue for the quarter came in at $378 million which is well above the range of our previous outlook. Revenue was up 8% from 2011 and up 3% on a sequential quarterly basis. All three of our business segments performed well and benefited from one extra business day in the quarter.

Small business services revenue of $230 million grew 15% versus last year on a reported basis of which 4% came from the PsPrint acquisition. While we continue to operate in a weak economic environment we delivered growth in marketing solutions and other services, our Safeguard distributor and dealer channels and in checks and forms.

Our core business also benefited from a routine price increase. Financial services revenue of $91 million grew 3% versus the first quarter of last year and reflected a lower than expected secular check decline rate of just over 5%.

The impact of lower check orders was more than offset by higher revenue per order, higher non-check services revenue, and the migration of Citizens Financial Group.

Direct checks revenue of $58 million was down 6.5% on a year over year basis. Gross margin for the quarter was 66.3% of revenue, up 0.7 percentage points from 2011. Benefit from price increases, improvements in manufacturing productivity, delivery initiatives, and product mix were partly offset by increased delivery and material rates.

SG&A expense increased $11.2 million in the quarter and it was 45.5% of revenue compared to 45.9% of revenue in the same period last year. Increased SG&A associated with commissions on increased revenue, 2011 acquisitions, investments in future revenue generating initiatives, and higher performance based compensation expense was partially offset by benefits from continuing to execute against our cost reduction initiatives and lower amortization related to previous acquisitions.

Excluding restructuring related costs, operating margin for the quarter of 21.1% was up from the 19.7% generated in 2011. It was above our expectations with favorability coming from strong revenue performance including favorable product mix.

All three segments delivered strong operating margins compared to expectations. Excluding restructuring costs, small business services' operating margin of 17.4% was down 0.9 percentage points over last year due to higher expenses associated with the PsPrint acquisition, increased commissions, and investments in revenue generating initiatives which was only partially offset by continued progress with cost reduction initiatives.

Financial services' operating margin of 24.2% was up 5.8 points from 2011 due to higher revenue from price increases as well as continued progress with cost reduction.

Direct checks' operating margin of 31.3% increased 4.9 points from 2011 as we continue to realize planned synergies from integrating Custom Direct and lower acquisition related amortization.

Turning to the balance sheet and cash flow statement, during the quarter we increased our cash and cash equivalents balance by $30 million. As previously described in our 10-K we leveraged a favorable credit market in the first quarter and opportunistically strengthened our capital structure by amending and extending our $200 million credit facility from a maturity date in 2013 to 2017.

Cash provided by operating activities was in line with our expectations at $52 million. Stronger operating performance and the discontinuation of our defined contribution pension plan were more than offset by planned contributions to our VEBA Trust for future medical costs and higher contract acquisition and interest payments.

Capital expenditures for the quarter were $9 million and depreciation and amortization expense was $17.1 million.

Given our strong performance in the first quarter we are raising our consolidated revenue outlook for the year to a range of $1.445 billion to $1.475 billion. We are not expecting much improvement in economic conditions in the balance of the year.

Adjusted diluted earnings per share are also expected to increase to a range of $3.20 to $3.40 excluding $0.08 related to restructuring related costs.

There are several key factors that contribute to our full year outlook versus 2011 including small business services revenue is expected to increase in the high single digits as benefits from our e-commerce investments, price increases, our distributor and dealer channels, and double digit growth in marketing solutions and other services offerings are expected to offset declines in core business products.

We expect financial services revenue to decline in the low to mid single digits range, driven by secular check order declines which we expect will return to approximately 7% to 8% for the remainder of the year, partially offset by higher revenue per order, the Citizens Financial Group migration, and continued growth from non-check revenue streams.

Direct checks' revenue declines in the mid to high single digits driven by check order volume productions in a sluggish economy, additional cost and expense reductions, increases in material and delivery rate, continued investments in revenue growth opportunities including brand awareness, direct response campaign, marketing solutions and other services offers, and enhanced internet capabilities, and an effective tax rate of approximately 33%.

We expect to continue generating strong operating cash flows ranging between $225 million and $245 million in 2012, reflecting stronger earnings offset by higher income tax payments and contributions to our VEBA Trust. We expect contract acquisition payments to be approximately $15 million for the year.

2012 capital expenditures are expected to be approximately $35 million, 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 $64 million including $15 million of acquisition related amortization.

In the second quarter of 2012 we expect revenue to range from $353 million to $362 million. Adjusted diluted earnings per share are expected to range from $0.76 to $0.81. In comparison to the first quarter, adjusted revenue and EPS is expected to be lower in the second quarter primarily due to three factors.

First, there was one more business day in the first quarter which represents approximately $6 million in revenue. Second, historically, direct checks revenues are strongest in the first quarter. Thus, we expect a sequential revenue decline in this segment. Third, we are prudently planning [FS] secular check rate declines in the 7% to 8% range which is above the first quarter decline rate but in line with our previous projections and historical trends over the last two years.

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.

As you saw in the first quarter 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, strengthened balance sheet, and flexible capital structure position us well to continue advancing our transformation.

I'll conclude my comments with an update on our cost and expense reduction initiative. Overall, we had a solid start to 2012 in the first quarter as we delivered on our expected cost and expense reductions towards our $50 million commitment net of investments in 2012.

Our focus in sales and marketing for 2012 will continue to be on improving sales and marketing backend 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 production standardization, (inaudible) production and direct and indirect spend reduction initiatives plus further consolidate our manufacturing technology platforms, enhance our strategic supplier sourcing arrangement, and continue with other supply chain improvements and efficiencies.

Finally, for the shared services infrastructure, we expect to continue to reduce cost in IT and other areas as more opportunities exist to 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 during the balance of 2012.

A primary focus in 2012 continues to be on profitable revenue growth. We have created more differentiated technology-led check offers through investments in automated flat packaging, digital printing, and online portals in Dashboard.

We also have significant growth opportunities in marketing solutions and other services including for small businesses, logo design, web services, social media, web-to-print, search engine marketing, search engine optimization, payroll, and fraud and security services and for financial institutions -- customer acquisition, risk management, and profitability offers.

We will continue to assess potential small to medium sized acquisitions that compliment our large customer bases with a focus on marketing solutions 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 midsized financial institutions with customer acquisition, risk management, and profitability offers.

Today, we are introducing a framework that includes four subcategories that we expect to continue to use going forward in 2012 to help provide more insight and clarity for marketing solutions and other services revenue.

First, small business marketing is expected to represent approximately 43% of total marketing solution and other services revenue with expected organic growth rates this year in the mid-teens although expected actual growth rates will be higher this year, closer to the mid-30s given the PsPrint acquisition in July of 2011.

Key growth initiatives include scaling web-to-print by cross-selling to our customer base and adding new customers through major accounts and partners.

Second, web services which includes logo and web design, web hosting, SCM, SCO, email marketing, social, and payroll services and are expected to represent approximately 27% of total marketing solutions and other solutions revenue with expected growth rates this year in the high teens.

Key growth initiatives include adding wholesale telco and major account, cross-selling to our retail base through bundled presence packages, and adding new customers. This category also is our focus area for tuck-in acquisition.

Third, fraud, security, and risk management services are expected to represent approximately 25% of total marketing solutions and other services revenue in 2012 with expected growth rates this year in the low double digits.

Key growth initiatives include scaling our program services for both national and community banks and fraud and security offers for small businesses and direct to our consumers, adding Banker's Dashboard customers as well as adding features for our installed Banker's Dashboard base.

Finally, other financial institution services are expected to represent approximately 5% of total marketing solutions and other services revenue with expected growth rates this year in the low 30s, a very high percent driven by a small starting revenue base.

Key growth initiatives here include adding new Cornerstone, SwitchAgent, and gift and reward card financial institutions. We expect marketing solutions and other services revenues to be approximately $265 million to $275 million in 2012, up from $223 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% in the previous two years.

In addition to the items just mentioned, in order to accelerate revenue growth we are continuing to invest more in brand awareness and positioning. We are continuing to refine our branding strategy and expect to ramp spending more from the first quarter to the second quarter and even more in the third quarter.

Now shifting to our segments, in small business services we had a strong performance despite a continued sluggish economic climate. Revenue grew 15%, 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 expectation as did seasonal tax forms. 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 enriched content in online and print based spend. Average order value and conversion rates remained strong. Our Safeguard distributor and dealer channels grew revenue over the prior year. We announced a partnership with Lowe's to reach our collective small business contractors. We also saw growth in web, SEM, and payroll services.

In the quarter we won a contract with a large South American telco. We expect to migrate their small business customer web services to our platform in the latter half of 2012.

We ended the quarter with over 500 thousand web hosting customers. We continue to closely monitor the small business market. Optimism indices have improved six of the last seven months but moved down in March, keeping the indices at historically low levels.

Small businesses are slowly starting to hire and planning for capital investments over the next three to six months has stabilized. They continue to spend cautiously, scrutinize purchases, and experience tight cash flow. Small businesses' expectations for real sales gains continue to be more positive but the outlook for business conditions has become slightly more pessimistic.

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 the 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 through 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 touchpoint to maximize revenue scale capability.

In marketing solutions 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 by selling bundled web presence packages, add other marketing services, payroll services, and logo customers, and continue to expand our search engine marketing customer base.

For web-to-print we are creating a single best in class integrated platform that combines organic investments we have already made in the front end customer experience with PsPrint's strong backend processes and scale web-to-print offers for our small business customers.

In financial services we saw a secular check decline rate of approximately 5% which was better than our forecasted decline range of 7% to 8%, driven by strength in both the national and community segments although strength in the community segment was more pronounced.

In addition, we began processing checks for Citizens Financial Group as planned in late January. We had strong overall new acquisition rates and our retention rates remain strong on deals pending in the current quarter, well in excess of 90%.

We were informed in the quarter that we did not win the very large national competitive RFP we discussed on our previous two calls. Positively, there are still opportunities we are pursuing with this financial institution in other areas. While commending us on our value proposition and differentiated offer, the financial institution said they could not afford the disruption of a migration given other competing internal priority.

We continue to work a number of other RFPs none of which are included in our outlook in 2012. We also simplified our processes and took complexity out of the business while reducing cost and expense structure.

Even though the first quarter secular decline rate was approximately 5%, we are prudently planning for check units to remain within a decline range of around 7% to 8% in 2012 for the balance of the year. We also expect retention rates in excess of 90% on deals pending this year and with over half of our 2012 community bank contract renewals already completed by the end of the first quarter we are well ahead of last year's pace. As a reminder, we also implemented a price increase at the start of this year.

We made progress again in the quarter in advancing non-check marketing solutions and other services revenue opportunities. Revenue grew over last year in these non-check services which include customer acquisition, risk management, and other profitability offers.

In customer acquisition and specifically our Cornerstone direct marketing analytics offer we saw continued solid growth in 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. Banker's Dashboard also continued to perform well in the first quarter where we added many new financial institutions.

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 solutions and other services in financial institutions 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 significant progress with the custom direct integration we are still 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 expense reduction.

For 2012 we expect direct checks revenue to decline in the mid to high single digits driven by continued declines in consumer usage in a sluggish economy. We expect to reduce our manufacturing cost and SG&A in this segment and drive our operating margins in the 30% range while generating strong operating cash flow.

As we exit the first quarter on the heels of an exceptionally strong quarterly performance in a continued sluggish economy, we have made tremendous progress in transforming Deluxe but we still have many opportunities ahead of us in 2012. Our outstanding first quarter performance positions us well to grow revenue in 2012 for our third consecutive year. We are conservatively not expecting the economic climate to improve much throughout the year until we get better clarity as the year unfolds more. If the economy improves we should have revenue upside. At the same time, we will not take our eyes off of cost reductions and process improvement and we expect to continue to generate strong cash flows and provide a very attractive dividend.

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 risk. Our technologies and channels are stronger. Our e-commerce offer is more robust, 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.

Now Stacy will open the call up for questions for Terry, Jeff, and I.

(Operator Instructions)

Your first question comes from the line of Charlie Strauzer with CJS Securities. Please proceed.

Terry, for you, what was adjusted net income, not EPS but adjusted net income if you have that number?

Adjusted net income, we don't report adjusted net income externally. I mean, you can back into it with the EPS pieces that we gave you.

And do you know what the tax rate associated with the adjusted EPS was?

It's about the same as what it is on the consolidated.

Alright, so I'll adjust it out that way.

They're almost identical.

No problem and my phone was cutting out a little bit earlier but did you give out segment guidance on operating profit as well as -- I know you gave the sales growth ranges -- did you give any guidance on operating profit? If not, can you give us a little bit of help there?

No, we didn't give you any new perspective there. Our position on margins within the operating segments is that we are really driving this Company to deliver growth in operating income at the segment level and our focus is really to try to hold the margins kind of where they've been at so the growth focus is on the dollars not necessarily the margin growth rate but again, as you get into the segments, small changes in the levels of investment can drive a little bit of a rate change. Usually within a point or two at the segment level of kind of where we've been is about where we expect to stay.

Got it and also, did you get an update on Partner Up in terms of the number of members on that site so far?

We did not, Charlie. It's not a number that we gave out today.

Okay, thank you and then lastly on the RFP side, I know you didn't win the larger one but are there any of your larger contracts coming up for rebid in the next 12 months or so?

We have, as we've said consistently on the last several calls, just a handful of what we would consider the larger ones but they're very small amounts, Charlie, relative to the big, large national and those will be coming due towards the end of the year and we expect to, obviously we expect to be able to maintain those.

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

The first question, I guess just to clarify the, and maybe dig into a little bit more the distribution subsets. Obviously, you've got the newer retail and the telcom and the legacy financial services and I've talked a bunch with Jeff about how I think some of these are sort of underappreciated. Is there a way you can give us a feel for the new customers you're gaining, the contribution from each of these segments? Is there a breakdown there that you could provide us?

John, if I follow where you're heading you're talking about in small business services, the mix of the 500 thousand web service customers. Is that what you're --?

Yes, and the new wins, the new customers that you're gaining, are they predominately still coming from the business advantage platform through the financial services or is it a pretty good mix between those --?

Let me give you a framework of where we're seeing new customers and let me start, we are still obviously as I mentioned in the prepared comments, gaining customers through our Deluxe Business Advantage program but at the same time we are also gaining customers outside of that program.

What I would tell you is that the growth rate over last year was about the same. Think very strong double digit growth rates in both the DBA and the non-DBA, okay? Then what I would tell you is the mix between, we are also getting new wholesale customers as well as through our telco arrangements that we have and we are also seeing strong growth in the retail side so we're actually getting strength, John, in DBA, non-DBA, and then also in the wholesale and the retail mix of the services space.

Okay, that's helpful. It sounds like it's across the board there. And then if we could also just dig into a little bit the decline in the industry or the decline in the decline on the check side of 5% in the quarter. Now, you did exclude Citizens from that, right?

The way to think about this is we continue to look at this thing. Obviously, we know it's a hot button for ourselves let alone externally and so we do what we call a pure same-store sales or apples to apples compare so think of Citizens since it wasn't in a year ago, we take them out of the compares of that approximate 5%.

Sure, but you did say that there was some strength in the community bank side of things and I guess my question was if you just could guess whether maybe there is a migration of customers from the larger banks to the community banks maybe due to that bank switch day or is it coming fairly evenly across the larger and the small banks?

Let me describe it. I said in my comments, John, that we saw the rate of decline, that 7% to 8% we've been seeing, it was better for both the national and the community segments but it was stronger in the community segment. What I will add as some additional color is that we saw the community segments in the southeast, the northeast, and the west as far as regions in the United States perform better than the remaining regions and what I will also add is that we also saw the same strength in those same southeast, northeast, and west in our direct to consumer part of the business, or the segment.

We start obviously thinking about those we knew were regions more impacted economically in terms of the downturn. Lots of thoughts go through our head, John. Nothing that I can tell you in a quarter that is extremely more conclusive at this point but obviously you can tell we're on this. We're watching it and we're going to continue to assess this as we head into the second quarter.

Okay, that's interesting. Thank you. And then just one last follow up if I could, really in response to Charlie's question and Terry's answer, as I look at the trends in the operating segment margins there are certainly some trends but what stands out for me at least is the financial services jump this quarter really to the highest I think I've ever seen. Is that something that we can expect, a 24-ish percent we can expect going forward?

John, I would tell you that rate is probably on the high end of what would be kind of in our normal range. Remember too, I think Lee in his prepared comments mentioned or reminded us that we did put a price increase at the beginning of this first quarter so that certainly helps.

And the other thing too is that when we had a lower decline rate in the check volumes than what we had expected we really saw some nice leverage on our cost structure there. Think of the manufacturing work that we've done to right-size that capacity. We really saw some great leverage coming in that segment in particular with a lesser decline rate in the check so it's really those factors that tell you again, we haven't assumed that same decline rate going forward so some of that leverage would go away as we move into second quarter with a higher decline rate.

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

Lee, I know you all don't talk in specific terms about margins by product line but given the growth in the marketing and other services that you all have seen recently as well as in the last couple years, can you talk about just directionally the market trends there because obviously you're balancing it with investment spending in our own brand.

I think what you should expect as we go forward is we are clearly trying to be smart and prudent on what we invest in the brand and demand-gen as we're trying to drive more customers and more volume in all of the services areas but at the same time we're clearly getting some of the larger acquisition amortization that is weaning itself out and so the general trend right now is we're improving the margins collectively. We really don't break that out internally the way we run it right now but the trend is an improvement right now because the amount we're putting in on brand and demand-gen is net not as much as we're putting in on the, or getting out on the efficiencies as we're getting better at this across all our cost reductions and in the gains that we pick up from the amortization running out. That is generally the way that I would think about it right now.

Have the channels that you all are using to promote the brand, has that mix changed much over the last four quarters or do you have a pretty good sense now a couple years into the transformation where your money should go?

What we're trying to do and I'm challenging Malcolm, my Small Business Head, is I want to win in every channel. We want to win in retail. We want to win in wholesale. We want to win with the distributors, with our dealers, with our partners and with major accounts. What I would tell you is, and we are growing -- you can hear in the prepared comments, all those channels are continuing to gain momentum. The one area that we have been targeting a little bit more is the major accounts. We are big believers that if we can gain more access to small businesses through major accounts who in effect many of those are actually franchises and actually are small business owners themselves, or can gain us access to small businesses, those are areas that we think are going to help us even more and you can see that in the table I talked about that we added this time around, major accounts and partners. I would say there a little bit more but we're trying to get strength, Jamie, across all channels.

Okay, that is very helpful. Thank you Lee, as always, for your time.

(Operator Instructions)

Your next question comes from the line of Ben Glaze with Apollo. Please proceed.

Just a quick question, maybe a high level question on how we should think about the driver of check volumes between I guess new account openings and reorders? Is there a way to help us there or -- if that makes sense?

In which segment, or overall?

Yes, I guess if you could break it down between small business and consumer check that would be great. I'm just curious if there is a mix we can think about as being the driver of check volumes for you guys.

I'm just trying to think about how best to answer that. First, in the direct to consumer, the way the market works there, Ben, is it's an initial order and it's all on the internet so it's generally lower priced and then a reorder that is a higher price once the first order is taken. I can't tell you how -- I use a 12 to 18 month period of time between initial order and reorder. Obviously, it depends on how many a consumer buys and then how many they write but that is kind of the way that market works and the pricing through the bank channel is dependent upon how the bank's price to the, because it's a -- our arrangement with the banks is a wholesale arrangement so generally though, I believe the banks just charge on average the same whether you're an initial order or a reorder. Hopefully that helps you a little bit. I'm not sure if I'm helping answer your question but I think that's the way to think about it.

The other thing I would add to that, specific to new account openings, certainly new account openings at a bank are going to drive new check orders but that's really a level of data that we don't get good, clear information on from the banks. The banks supply us with the orders that are coming from their banks but they're not necessarily tagging that or identifying that as from a new order or a reorder or what the different drivers of that order come from.

Okay, got it. That's very fair and I appreciate the comments. And my other question was just kind of a follow up to Jamie's which I thought was a good one and would be helpful. You guys mentioned the operating leverage on check and some benefit as a result of better volume performance. Is there a way to help us think about what decremental margins or incremental margins on volume would be?

In the check space again, Ben?

Yes, just pure check, if we were to look at the check product.

We don't give that out. It's not something we've historically done but I think the way you want to think about is if we perform better, if we get a 5% decline as opposed to a 7% to 8% decline we're going to be able to kick in more operating margin on average and it depends on believe it or not the mix of banks, the mix of checks that consumers are buying. It's not a perfect answer but the best I think we can do is to say that's going to give you some better leverage in that operating margin.

And at this time I would like to turn the presentation back over to Lee Schram for closing remarks.

Okay, again thanks everybody for participating and for your questions today and we're now going to get back to work and we look forward to providing a positive progress report on our next earnings call and I'll turn it over to Jeff for wrap-up.

Thank you, Lee. This is a reminder that a replay of this call will be available until May 3 by dialing 888-286-8010. When instructed, provide the access code 97921126. 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.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect and have a great day.