Deluxe Corp (DLX) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2012 Deluxe Corporation earnings conference call. My name is Shayla and I'll be your operator for today. At this time, all participants have been placed in a listen-only mode. Towards the end of the conference, we will conduct a question-and-answer session.

(Operator Instructions)

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

Thank you, Shayla. Welcome to the Deluxe Corporation's 2012 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 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 on our Investor Relations website at deluxe.com/investor 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 our fourth outstanding quarter of 2012. We reported revenue at the top end of our outlook, and adjusted earnings per share above the high end of our outlook. Revenue grew 6% over the prior year quarter, driven by Small Business Services revenue growth of 11%, of which 3% came from the OrangeSoda acquisition. Checks and forms both performed well against our expectations, and Marketing Solutions and Other Services revenues grew 26% over the prior year. Adjusted diluted earnings per share grew 14.5% over the prior year. We launched our new brand awareness campaign to help better position our products and services offerings and drive future revenue growth.

We also advanced process improvements and delivered on our $50 million cost reduction commitment, while generating a strong $244 million in operating cash flow for the year. We extinguished higher interest rate 2015 debt and issued new lower interest rate 2020 debt, while also paying off our remaining 2012 debt in mid-December.

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 $0.83, which included losses of $0.07 per share from early debt retirements in the quarter, and restructuring charges of $0.05 per share. Excluding these costs, adjusted EPS from continuing operations of $0.95, exceeded the upper end of our previous outlook and was 14.5% higher than the $0.83 reported in the fourth quarter of 2011. The restructuring charges are primarily for employee severance and infrastructure consolidations.

Revenue for the quarter came in at $388 million and grew 6% over last year, and 2% sequentially from last quarter. All three of our business segments performed well in spite of an estimated negative revenue impact of around $2 million to $3 million from Hurricane Sandy. Small Businesses Services revenue of $254 million grew 11% versus last year on a reported basis, including OrangeSoda which added nearly $8 million of revenue in the quarter. While we continue to operate in a weak environment economically, we delivered growth in Marketing Solutions and Other Services, Checks, and in our online Safeguard distributor and dealer channels. Small Business Services revenue also benefited from previous price increases. Financial Services revenue, up $82 million, was basically flat versus the fourth quarter of last year.

The impact of lower check orders offset the benefits of price increases, revenue from the Citizens Financial Group, and higher non-check services revenue. Direct checks revenue totaled $51 million, which was down 7% on a year-over-year basis. Gross margin for the quarter was 64.5% of revenue, which was flat with 2011. Benefits from price increases, improvements in manufacturing productivity, and delivery initiatives were offset by increased delivery and material rates and performance-based compensation expense in 2012.

SG&A expense increased $10.3 million in the quarter, and was 43.8% of revenue compared to 43.5% of revenue in the same period last year. Increased SG&A associated with commissions on increased revenue, higher performance-based compensation expense, the OrangeSoda acquisition, and higher brand awareness spending was partially offset by benefits from our continuing cost-reduction initiatives. Excluding restructuring charges, the adjusted operating margin for the quarter was 21.1%, which was nearly flat with the 21.4% generated in 2011, but better than our expectations.

All three segments delivered strong operating margins compared to expectations. Excluding restructuring charges, Small Business Services operating margin of 17.9% was down 1 percentage point over last year, due to higher SG&A driven by the OrangeSoda acquisition, and higher brand spending. Financial Services operating margin of 23.8% was up 2.6 points from 2011, due to better product and services mix and cost reductions. Direct Checks operating margin of 32.7% increased 0.8 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. For the year, we increased our cash and cash equivalents balance by $17 million, despite having paid cash for the OrangeSoda acquisition, and repurchasing $27 million of our common stock to offset expected dilution from employee plans and reducing our debt. Total debt at the end of the year was $653 million, down from $742 million at the end of 2011, as we repaid the remaining $86 million due on our 2012 notes in December. As previously announced, we leveraged the favorable high yield market in the fourth quarter, opportunistically strengthening our capital structure. We repurchased $200 million of our 7.375% 2015 notes at a premium plus accrued interest. And we issued $200 million of new 6% senior notes due in 2020.

Cash provided by operating activities for the year was $244 million, a $9 million increase from 2011. Compared to last year, stronger operating performance and the discontinuation of our defined contribution pension plan were partially offset by higher income tax payments, a planned contribution to our Viva Trust for future medical costs in first quarter, and higher contract acquisition payments. Capital expenditures for the year were $35 million, and depreciation and amortization expense was $66 million.

Looking ahead to 2013, we expect consolidated revenue on a full year basis to range from $1.535 billion to $1.575 billion. Diluted earnings per share are expected to range from $3.60 to $3.80. There are several key factors that contribute to our full year outlook, including Small Business Services revenue is expected to increase in the 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, dealer, and major accounts channels, and double digit growth in Marketing Solutions and Other Services offerings. We expect Financial Services revenue to decline in the mid-single digits range driven by recurring check order declines of approximately 5% to 6%, and some pricing pressure which we expect will be partially offset by continued growth from non-check revenue streams and price increases.

Direct Checks revenue declined in the mid-to-high single digits, driven by check volume reductions, a continued sluggish economy, additional costs and expense reductions, increases in material and delivery rates, continued investments in revenue growth opportunities including; brand awareness, Marketing Solutions and Other Services offers, and enhanced internet capabilities, and an effective income tax rate of approximately 34%. We expect to continue generating strong operating cash flows ranging between $240 million and $255 million in 2013, reflecting stronger earnings in the mid-to-upper end of our outlook and lower Viva payments for future medical costs offset by higher tax and incentive compensation payments. We expect contract acquisition payments to be approximately $15 million. 2013 capital expenditures are expected to be approximately $35 million, roughly the same as 2012. 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 $62 million, which includes $15 million of acquisition-related amortization.

For the first quarter of 2013, we expect revenue to range from $377 million to $385 million. Diluted earnings per share are expected to range from $0.85 to $0.90. As we indicated on our third-quarter earnings call, there are actually two less business days in the first quarter of 2013 compared to 2012, which will represent approximately $12 million less in revenue year-over-year, resulting in a lower profit. Brand spend is also expected to be higher in the first quarter of 2013. These two factors are driving a potential decline-to-slightly up range in earnings per share in the first quarter of 2013 compared to the first quarter of 2012. Only one of the business days comes back in the year in the third quarter, leaving us with one less business day for the full year in 2013 versus 2012. Also, as a reminder, historically, Direct Checks has their stronger revenue quarter of the year in the first 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, and repurchase shares to offset dilution. To the extent we generate cash flow in excess of these priorities, we plan to accumulate cash in advance of our 2014 senior note maturity. We may also from time to time consider retiring outstanding debt through open market repurchases, privately negotiated transactions, or other means. 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 cost and expense reduction initiatives. Overall, we had another solid year and we delivered on our commitment to reduce our costs and expenses in 2012 by approximately $50 million, bringing our total reductions since mid-2006 to $435 million. Strong performance in the fourth quarter helped offset the impact of restructuring charges. Looking ahead to 2013, we will continue our focus on the revenue growth phase of our transformation, but will not lessen our focus on costs and expense reductions. We expect to drive an incremental $50 million of cost reductions net of investments in 2013.

Approximately 50% of the $50 million in expected reductions will come from sales and marketing, another 35% from fulfillment, and the remaining 15% coming from our shared services organizations. Our focus in sales and marketing for 2013 will be on sales channel optimization, platform and tool consolidation, and leveraging our order streaming and marketing efficiencies. We will also continue to improve the mix of paper catalog and online search engine marketing. In fulfillment, we expect to continue our lean, direct, and indirect spend reductions, further consolidate or manufacturing technology platforms, drive delivery technology and process efficiencies, reduce spoilage, further enhance our strategic supplier sourcing arrangements, and continue with other supply chain improvements and efficiencies.

Finally, for shared services infrastructure ,we expect to continue to reduce costs 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 the perspective on what we accomplished overall in 2012, then provide expectations for 2013 for our key revenue growth area, Marketing Solutions and Other Services, and finally, some thoughts on our new brand campaign. I will then highlight progress in each of our three segments, including a perspective on what we plan to accomplish in 2013.

Deluxe grew revenue in 2012 for the third consecutive year for the first time since 1996. And the 7% revenue growth rate was the highest since 1994, excluding the NEBS acquisition. We stabilized our core check and product businesses and improved our mix of faster growing Marketing Solutions and Other Services revenues to 19% of total revenue. We acquired OrangeSoda to expand opportunities in higher growth Marketing Solutions and Other Services. We also took steps to accelerate our brand transformation with our new Work Happy campaign. We want small business owners to see Deluxe as a genuine passionate partner who gives them everything they need so they can focus on their pursuit of doing what they love and work happy.

In addition to our strong print leadership, we continue to invest in our employment brand, in digital technology, and extending our sales channel reach and in our communities. Our efforts earned us awards and recognition, including the Candidate Experience award, best in show at Finovate, corporation of the year from the Metropolitan Economic Development Association, and the Jefferson award for community service.

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 enterprise-wide savings of $435 million since mid-2006. We exited the year with more robust and innovative products and services, solidified processes, a better infrastructure, and improved financial results. Our operating cash flow grew for the fourth straight year, allowing us to maintain our dividend and pay down debt while paying cash for an acquisition. In addition, we strengthened our capital structure in November with a debt refinancing at an attractive rate and extended term. We recognize that there is still a tremendous amount of work to do, but we made great strides in 2012.

As we enter 2013, our primary focus continues to be profitable revenue growth and increasing the mix of Marketing Solutions and Other Services revenues. We have created more differentiated technology led check offers through investments in automated flat packaging, digital printing and online portals and dashboards. We also have significant growth opportunities in Marketing Solutions and Other Services. We will continue to assess potential small to medium-sized acquisitions that complement our large customer bases with the focus on Marketing Solutions and Other Services. We have strengthened our channels in Small Business to include financial institutions, online, retail, wholesale, distributors, dealers, and major accounts. Deluxe is now more capable of helping small businesses pursue their passion as a trusted provider of everything a small business needs to market and operate their business. And helping small to mid-sized financial institutions with customer acquisition, risk management, and other value-add services offers.

Here is an update on our four sub-categories framework for Marketing Solutions and Other Services. We ended 2012 right in line with our expected $285 million in revenue with mix in the four sub-categories basically in line with our expectations. First, Small Business marketing finished 2012 at 41% of total Marketing Solutions and Other Services revenue, and is expected to represent approximately 40% in 2013, with expected growth in the mid-teens this year. We exited December with our highest monthly growth rate in the web to print space, at 21%, since completing the PsPrint acquisition.

Key growth initiatives include scaling web to print by cross-selling to our customer base and continuing to add new customers through distributors, dealers, and major accounts. The second category, Web Services, which includes logo and web design, web hosting, SEM, SEO, e-mail marketing, social and payroll services, finished 2012 at 30% of total Marketing Solutions and Other Services revenue, and is expected to represent approximately 34% in 2013, with expected organic growth rates in the high teens. Key growth initiatives and performance drivers include adding wholesale web telco, and SEM/SEO major accounts, of which we have already secured about $15 million from deals already closed which will roll out throughout 2013. Cross-selling to our retail base through bundled presence packages, adding more new customers, resellers, and partners, reducing web design and SEM campaign cycle times and churn rates, and adding payroll services customers, including new features such as time and attendance applications. This category is also our focus area for tuck-in acquisitions.

We closed 2012 with approximately 550,000 web hosting customers and we expect to close 2013 with nearly 750,000 web hosting customers, or up 36% from 2012. The third category, Broad Security and Risk Management Services, finished 2012 at 24% of total Marketing Solutions and Other Services revenue, and are expected to represent approximately 21% in 2013, with expected growth rates in the mid-single digits. Key growth initiatives include scaling our program services, including adding new features for both national and community banks, and fraud and security offers for small businesses and direct to our consumers. It also includes adding Banker's Dashboard customers as well as adding features for our installed Banker's Dashboard base.

Finally, Other financial Institution Services finished 2012 at 5% of total Marketing Solutions and Other Services revenue. And are expected to represent approximately 5% again in 2013, with expected growth rates in the high single digits. 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 $330 million to $340 million in 2013, up from $285 million in 2012, with organic growth in the mid-teens. Achieved, this performance would translate to a total revenue mix of around 22% of revenue, including a year-end exit run rate well above 25% of revenue towards our 25% mix goal, and up from 19% in 2012, and 16% and 13% the previous two years.

Here is an update on our new brand awareness campaign. We spent considerable energy in 2012 examining our marketing strategies. Held focus groups, looked at large research studies, and shadowed small business owners while they worked. Through this process, we uncovered insights to help us connect with our customers on a more emotional level. We learned that the primary motivator of today's small business owner has shifted from business growth to personal satisfaction. This insight formed the basis of our new brand campaign, the redesign of deluxe.com, and training for our dedicated call center sales representatives. And it will be at the core of our Small Business marketing efforts and products and services offers going forward.

Deluxe wants small businesses to pursue their individual unique passions by not letting their dream jobs become work, so we can provide them everything from websites to printing to marketing. Our expertise is at the small business owners command. We are at their service and our objective is to simply allow them to work happy. We kicked off the advertising campaign in late 2012 with three television commercials. The campaign continues throughout January on television and also in print ads, digital online, and radio. All these media will continue at variation times throughout 2013 in three primary bursts weighted more heavily towards the first half of the year. We believe the outcome of our brand transformation is messaging that is compelling, emotional, edgy, memorable, and differentiated, but simple. A real rallying cry for our brand and our people. For competitive reasons, we will not disclose investment levels other than to indicate that it is a multi-million dollars campaign and all planned spending is included in our current outlook ranges.

We have established return on investment criteria based on the number of impressions, expected site visits, online leads, and calls, as well as we expect to see an increase in brand search traffic, social media mentions, and positive social sentiment, and more YouTube video views. We will use results against these metrics to guide us as we progress on this new brand journey. It is important to remember that this campaign is primarily focused on improving brand awareness and not a targeted direct response campaign. So far, I can share with you that we are very pleased with our results to date. At the launch of the campaign, we were seeing click through rates 50% above those of prior campaigns, and significantly above benchmarks. Traffic to deluxe.com is up significantly in double-digit percentages. YouTube views of the three commercials are now over 300,000, and we are closing new business both online and in our dedicated call centers.

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 11%, 3% of which came from the OrangeSoda acquisition. Checks and Forms performed well and seasonal holiday cards performed slightly better than our expectations. Our results from targeted customer segmentation in the call center improved. New customers from our financial institution Deluxe Business Advantage Referral program and through our direct response campaigns remain strong. Response rates increased from better balanced and enriched content and online and print based spend.

Average order value and conversion rates remain strong. Our online SafeGuard distributor and dealer channels and Canada grew revenue over the prior year. We also saw strong growth in web, SEM, SEO, and payroll services. In the quarter, we won contracts with additional US, South American, and European telcos, all of which we expect will migrate and organically build out small business customer web services in 2013. Again, we ended the year with approximately 550,000 web hosting customers.

We continue to closely monitor the small business market. Optimism indices, after barely rising in October, declined to one of the lowest levels ever in November and edged up only slightly in December, clearly in recessionary territory. November and December 2012 readings marked the lowest levels since March of 2010. 70% of small business owners characterize the current period as a bad time to expand. 45% of small business owners believe conditions will be worse six months from the end of 2012 with only 10% believing they will be better. They continue to spend cautiously, more in maintenance mode, scrutinize purchases, and experience tight cash flow. Small Business' expectations for real sales gains for 2013 lifted only slightly as we ended the year.

In summary, current optimism indices have been trending downward and at roughly three year lows. The good news is that other than taxes and regulation, 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's better positioned as that indispensable partner for growth. Our focus for 2013 is on accelerating our brand transformation and significantly improving overall market awareness while institutionalizing our brand promise for our customers. Profitably integrating and extending our Marketing Solutions and Other Services portfolio, effectively acquiring and retaining customers across multiple channels, building a more effective retail services sales model, scaling major accounts and strategic channel partner relationships, and improving our customer experience.

In Financial Services, we saw the rate of decline of checks perform slightly above the higher end of our forecasted decline range of around 5% to 6%. However, including our estimated negative impact from Hurricane Sandy, we saw decline rates closer to 5%, and December was less than 5%. We had strong overall new acquisition rates and our retention rates remained strong on deals pending in the current quarter in excess of 90%. We also simplified our processes and took complexity out of the business while reducing our cost and expense structure.

Looking ahead to 2013, we expect check units to be in a decline range of around 5% to 6%, retention rates to be in excess of 90% on deals pending this year. We have already extended all our large contracts through the end of 2013. We have fewer community bank contract dollars up for renewal in 2013 compared to 2012. And we also continue to work a number of competitive RFPs, and expect a decision on one this quarter. 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 at the highest organic rate of any quarter in 2012 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 growth in new financial institutions. We have seen strong demand for our SwitchAgent offering since formally unveiling our bill-pay capability at Finovate late last year. We are engaged with our customers and prospects to continue advancing our offering going forward in a way that responsive to market needs. We believe it will be an important tool for banks beyond acquisition to anchoring profitable clients.

Banker's Dashboard also continued to perform well in the fourth quarter. 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 2013. In Direct Checks, revenue was in line with our expectations, driven by strong revenue per order 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.

In the fourth quarter, we completed the integration of our japa custom direct fulfillment into Deluxe fulfillment sites. We continued to see a ramp in revenue enhancement synergies through our call center scripting and upsell capabilities, as well as synergistic cost and expense reductions. For 2013, we expect Direct Checks revenue to decline in the mid-to high single digits driven by continued declines in consumer usage and a 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 2012 on the heels of an outstanding 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 2013. We believe we are well-positioned entering 2013 for our fourth consecutive year of revenue growth. Despite the sluggish economy, 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. Our technologies and channels are stronger. Our digital technology services offers, more mature. Our infrastructure better, and our management talent is deeper and aligned to grow revenue.

We know what is critical for us to be able to grow revenue again in 2013 and improve the mix of our Marketing Solutions and Other Services revenues, and we are well positioned to make this happen. 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. 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 simply outstanding performance in 2012. Thank you, Deluxers, let's get off to a great start in 2013. And now, Shayla will open the line for questions for Terry, Jeff, and I.

(Operator Instructions)

Your first question comes from the line of Charles Strauzer with CJS.

Good morning.

Hello, Charlie.

Thank you first of all for that thorough detail on the quarter and the outlook, Terry and Lee. I just wanted to touch base on a couple things here if I could. When you look at some of the new initiatives on the marketing side that you've launched and you said that you've got some very significant increases in page views and things like that. What are some of the things you've heard more anecdotally that things that are resonating with some of these potential customers?

As far as the new campaign, Charlie?

Correct, yes.

Clearly what we're seeing is people that -- I would argue people that didn't know Deluxe did as much as we do, we're seeing. So we're seeing people coming to the story and might have heard of us before but didn't have the reach which is great we believe for cross selling and we're seeing that. Clearly, what we're also seeing is more in the newer spaces and services. Specifically I would say web services would probably be at the top of the list along with the search engine marketing and the search engine optimization spaces.

But we're actually favorably surprised so far with the -- just the number and amount and interest in the Company and it's coming through again all our channels. People are seeing the television ads. They're hearing us on the radio. They're seeing us on print. They're seeing us online. And they're coming to us through -- into the call centers, into the online world, into the -- we've even gotten comments through the banking channel. We've gotten comments through our distributor, our dealer, and our major accounts channels as well. So, what we want out of this is at least early on, Charlie, because obviously it's early on is it's starting to happen.

So, Lee, so what's the next step then? You're getting some of this interest coming in. How do you then capitalize more on that? Is it more an outbound basis with your call centers or your partners? Clarify a little bit more what's the next step, if you could?

Yes, we're early. We put money in initiatives in the past. We've never done as far, what I would call far reach, in terms of the television world so to speak. But, as I mentioned in my prepared comments and I think it's consistent with what I said on the third-quarter call, we're going to stay at this right now. It's very early in the campaign. We clearly believe it's starting to work for us and starting to get us the brand recognition outside of being, as we all know, more of that check provider.

And now reaching more and more into the Marketing Solutions and Other Services space. So we're going to stay after this. We're committed to it. We put it in our guidance. And we're going to do the three bursts that I talked about. And you'll see more of it in the first half of the year, Charlie, than the second half of the year. But, obviously, if it continues to work, we'll consistently look at return on investment criteria and we'll make decisions that are smart and we'll keep the investment community informed as to how we see this playing out.

But, so far, again, it's amazing to be out in the community. We had some local good coverage here. It's just -- people commenting on it. And just commenting very favorably. What I would say is interesting is that it's what I call emotionally compelling and different from some of the competitive ads that are out there. And that was the intent when we launched this. So, that's what I can comment on at this point.

Great. Thank you very much. That's very helpful.

You're welcome.

Your next question comes from the line of James Clement with Sidoti.

Lee, Terry, Jeff, good morning.

Hello, Jamie.

Lee, first major question here. You started 2012 as well as the previous couple of years looking for a 7% to 8% organic decline in check usage. Numbers actually started off the year closer to 5%. You adjusted your guidance to 5% to 6% for the year. And now you're still looking for 5% to 6% for the upcoming 12 months and I believe on the last conference call you said you all were still doing some internal work and that, obviously, a forward projection would be upcoming in this conference call which you gave.

What have you all learned this year to bring that assumption down from the 7% to 8% to that 5% to 6% range? Do you think this is a long term sustainable range? Is it something maybe related to the housing recovery? Just a little bit more color on that switch because that 7% to 8% was something you were sticking to for years.

Jamie, we've done a lot of work here. And I would argue that we have to stay at this and stay paranoid with it every day and we do. And what do I mean by that? We're constantly watching the trends that are out there. And for us, it's working with our financial institutions and seeing where they see trends and how they're working and we're working with the consumer. It also is looking at metrics around housing stock and electronicification, mobility. I'm not going to give you specific formulas that we use other than we've gotten good at it because I know my competitors are out listening to this call.

But, I believe we are getting better and better at markers around these things and, you know, but I will tell you, Jamie, we got to stay on top of this because those things can move, and when they move we believe they can move those percentages of decline around. But we wouldn't have guided right now 5% to 6% declines for this year if we weren't comfortable that the current markers that we see for that are in that range. They are right now and because of that, that's where we believe we should guide.

And if they change up or down, meaning if they get better than that or lower rate of decline or slip back, we will keep, again, keep the investment community informed of that. But right now, we're as strong as we ever have been at improving how we look at this. But, again, I'm as paranoid as ever and I think I will stay that way and keep after that.

Okay, that's very fair. Question, I don't know, Lee, whether you want to take this. It was really during Terry's prepared remarks. I was a little bit confused about some of the commentary around the outlook with respect to price competition versus price increases. I believe there were price increases mentioned in the Small Business Services sector. And then both price increases as well as price pressure referenced in Financial Services.

I could have that backwards. If I'm wrong about that, please correct me. But, where are you seeing the price improvements and then where are you seeing the price pressure?

Yes, Jamie, I'll take that one. You are absolutely right. We do have price increases that we've actually already put into the marketplace in Small Business Services. And we also did put a price increase into our list price for Financial Services that also went in, just early now in this first quarter of 2013.

And the pricing pressure that we also referenced related to Financial Services, that really has to do with when we're renewing contracts. It's really the discounts that we are having to absorb as we renew contracts and as we bring on new businesses. That discount that provides a counter-pressure to those price increases that we did.

Okay. So, to the extent that you -- to the extent that you continued to renew contracts ahead of time -- and is that still a strategy here? I mean, are you still actively looking to renew these contracts before they get to RFP?

Yes, absolutely, as much as we can.

Okay. All right, thanks very much for the time. I appreciate it.

Thanks, Jamie.

(Operator Instructions)

Your next question comes from the line of Wayne Archambo of Monarch.

Yes, Wayne Archambo of Monarch Partners. Could your just give us some assessment of what the OrangeSoda acquisition has met your expectations? Pluses and Minuses? Just give us some reading of what your experience has been there?

We're really pleased so far. We've owned them a little over a half of a year now. And we've actually given markers here on revenue the last two quarters. I think both quarters were in the $8 million range. And it's pretty much right where we expected to be. Maybe a little bit better on the revenue side. Culturally, it's everything we thought they were going to do for us.

They're teaching us how to reach customers and get customers found online in a better way. So, they're bringing us customers that we then can sell other products and services to. They have -- the other nice thing about the deal, and we mentioned it earlier on when we acquired, is they also have some of the same partners and relationships that we have. And so we've been able to get stronger on those and more holistic with offering the products and services through those partners. So, I would just tell you that so far we are extremely pleased with the deal.

And do you find in the marketplace there are other OrangeSoda type transactions out there that are for sale? Is that a one-off? Is it an active M&A market out there?

Wayne, what -- I will stay consistent. I've said this on many calls before. I look with the team that I have. And I have some outside help. Constantly at partnerships and potential acquisitive opportunities. I mentioned in my prepared comments that we will continue to look at small to medium sized opportunities for acquisition. Yes, primarily in the Marketing Solutions and Other Services space and more specifically in that categorization of web services. So, I think I would just choose right now to leave it there.

Okay, great. Thank you.

You're welcome.

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

Hey, guys. Quick question and a follow-up to Jamie's. Can you help us think about visibility into the business like giving full year guidance here? You mentioned if your equations change as the year goes on maybe you'll adjust up or downward. I'm just trying to think about how much confidence we should put behind that? What the visibility you have into contractual revenues might be?

As far as the rate of decline on checks, again, Ben?

Yes. So, the key drivers or your assumption on the rate of decline on checks and I'm curious -- is there a way to have much visibility into the business?

Yes, I think the way to think about it, Ben, is we made some comments in the prepared comments. Between locking in all the big deals for the year, so that should give you, the investor, some comfort that we have that runway established for the year. We have to lock in our community bank contracts that come up every year. If we do at the rates above the 90% that I talked about, that and then it's down to what the consumer is going to write checks for.

But, if you add up all those pieces, I think the positive news is we're trying to take the variables that we can control off the table as best we can. I think we've done that. And then we're at the mercy of what consumers are writing checks for. Obviously, they write more checks when the economy is better. And then down to housing stock, electronicification, mobility, and switches and payment methods, and all that. Again, the best I can do for you is, I think we're thorough on our assessment of this. And we wouldn't have guided to this if we didn't expect it to be in this range right now. And again, Ben, I think that's the best we can do at this point.

That's very helpful. The other question I had is, if you could help us think any more about, and I know you guys were thinking about what you do want to disclose, but some of the growth rates are so impressive in the Marketing and Other Services segments and sub-segments. Just to help us think about incremental margins on revenue relative to the traditional check business which appears to be at very high incremental margins.

Yes, let me start with this. We're consistently getting pushed from how do I get more and more comfort to the investor for the growth and how can we hit mid teens organic growth and revenue here. And we gave you some markers today I think are important. We communicated that we had the best month that we've ever seen since we acquired PsPrint in December.

We gave you markers around the number of web hosting customers that we ended the year which was bigger and was our biggest lift in any quarter last year, the fourth quarter. We also gave you a marker for the end of this year. And we gave you another marker that said -- and I've been mentioning this on calls -- we gave you a number, actually, today of $15 million of business that we've already secured that will roll out.

And the timing of that is dependent on when telcos and the media and other major accounts, and between the web and the search engine marketing optimization worlds roll out. But, those are firm deals and, depending on how well we time those with working with them, all those give us confidence that we can get to that -- the growth rates that we put out there. And, again, we wouldn't have done it if we didn't have confidence right now that, that's the best way to guide to the investor where we are.

Got it. Thanks.

You're welcome.

Your next question comes from the line of Paul Karos with Whitebox.

Hello, how are you?

Hello Paul.

Quick question for you. Would you mind with the Marketing Solutions area, just giving us the landscape of the competition? What are the type of companies you compete against? And how do you see a Deluxe fitting into that landscape?

It depends on the category. And you have to decompose each one of them. So, we have various players in the Financial Services space that we compete. They're all smaller. And I'm not going to mention all those on the call here, give that out.

Not the names, just more general characterizations.

There are smaller players in the profitability models and metrics. There are smaller players that are in direct marketing analytic spaces. There are lots of players in the fraud and security and risk management areas, as well, that we compete. But there's no one big player that we compete against there.

In the web services space, you know, I'll mention a few companies out there. Obviously Web.com, GoDaddy are players in the space. There are the Constant Contacts and the E-Mail Marketing space. Vistaprint and so on and so forth. But there's no one big player that dominates the market and the space. And, obviously, there's a lot of players in the marketing spaces. Smaller companies that do everything from promo and apparel to larger web to print companies. Again, Vistaprint would probably be the most recognized one out there.

But, nobody dominates. There's a lot of market opportunity and there's a lot of fragmentation in the market. And that's actually something that we believe plays to our favor. And if we can, pull and keep improving getting the brand more recognized for Deluxe, we think that bodes well for us and gives us an opportunity to work with the customers we have and then get new customers.

So, usually when there's a lot of fragmentation, the risk is, obviously, that people get really aggressive on pricing. Do you view the fragmentation more as a positive in the market share gain sense of it? Or, how do those two offset each other would you say?

Yes, I view it as real positive. No one dominates and controls price, and I just view it as a real opportunity for us.

Great, thanks.

You're welcome.

And there are no further questions at this time. This concludes your Q&A portion. I would like to now turn the call over to Lee Schram. Please proceed, sir.

I just want to, again, thank everybody for participating and for the questions today. And, again, hats off. I know there are a lot of Deluxers out there listening in on the call as well. And, again, I just want to commend you for a great year. And, again, we did it. We've got to get out and earn our keep and do it again in 2013. And, again, as I mentioned earlier, it's important we get off to a great start.

So, we're going to get back to work, roll up our sleeves, and get going. And we look forward to providing another progress report on our next call. And I'll turn it over to Jeff for some closing housekeeping comments.

Thank you, Lee. This is a reminder that a replay of this call will be available until February 7 by dialing (888) 286-8010. When instructed, provide the access code 93002809. The accompanying slides are archived on our Investor Relations website at Deluxe.com/investor. Again, thank you for joining us and have a great afternoon.

Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect. Have a great day.