Deluxe Corp (DLX) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the third quarter 2014 Deluxe Corporate earnings conference call. My name is Sarah, and I will be your operator for today. At this time all participants are in a listen-only mode. However, later we will open it up for a question and answer session. (Operator Instructions). Just as a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Ed Merritt, Treasurer and Vice President of Investor Relations.

Thank you Sarah, and welcome everyone to the Deluxe Corporation's third quarter 2014 earnings call. I am Ed Merritt, Deluxe Treasurer and Vice President of Investor Relations. Joining me on today's call are Lee Schram, our Chief Executive Officer, and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks, Lee, Terry and I will take questions from analysts.

I would like to remind you that comments made today regarding financial estimates, projections and management's intentions and expectations regarding the Company's future performance are forward-looking in nature, as defined in the Private Securities and 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 press release that we issued this morning, as well as the Company's Form 10-K for the year-ended December 31st, 2013.

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, this information is also furnished to the SEC on Form 8-K filed by the Company this morning. Any reference to non-GAAP financial measures are reconciled in comparable GAAP financial measures in the press release. Now I will turn the call over to Lee.

Thank you Ed. and good morning everyone. We delivered our third outstanding quarter this year, and are well-positioned to grow revenue for the full year 5%, despite a continued sluggish economic environment. If achieved 2014 will represent the fifth consecutive year of growth. The last time we achieved five consecutive years of revenue growth dates back 18 years to 1996. We reported revenue in the third quarter near the upper end of our outlook, and our adjusted earnings per share exceeded the high-end of our outlook. Revenue grew almost 4% over the prior-year quarter, driven by Small Business Services revenue growth of over 7%. Checks and Forms performed well, and Marketing Solutions and other services revenues grew over 19% over the prior year. Adjusted diluted earnings per share grew over 7% over prior year. We generated strong operating cash flow, and we were not drawn on our credit facility during the quarter. Increasing our balance sheet cash position $67 million from last December. We also repurchased over $8 million of common shares in the quarter, and have repurchased $60 million year-to-date.

Today we are also announcing that we closed the acquisition of Wausau Financial Systems, which will enhance our marketing solutions and other services offers, and capabilities in our Financial Services segment. We continued our brand awareness campaign to help better position our products and services offerings, and drive future revenue growth. We also advanced process improvements, and for the second quarter in a row exceeded our cost reduction commitment in the quarter. As a result we now expect our cost reductions to be $60 million for the full year, which is $5 million higher than our previous outlook. In a few minutes I will discuss more details around our recent progress and next steps. But first Terry will cover our financial performance.

Thanks Lee. Earlier today we reported diluted earnings per share of [$0.88 technical difficulties], which included $0.09 per share for noncash asset impairment charges, and $0.06 per share for restructuring charges. Excluding these costs EPS adjusted of $1.03 exceeded the upper end of our previous outlook, and was 7.2% higher than the $0.96 reported in the third quarter of 2013. The asset impairment charges related to intangible assets in the Small Business Services segment specifically associated with our SEM/SEO business and restructuring charges are primarily for employee severance and infrastructure consolidations. Revenue for the quarter came in at $413 million, and grew 3.8% over last year, or approximately 2% excluding the impact of recent acquisitions. Small Business Services revenue up $285 million, grew 7.2% versus last year, with approximately 6% growth in the quarter excluding acquisitions.

While we continue to operate in a week small business economic environment, we delivered growth in checks and in marketing solutions and other services, and in our online Safeguard distributor dealer and major accounts channels. Financial Services revenue of $86 million declined 0.9% versus the third quarter of last year, and would have declined about 7% excluding recent acquisitions. The impact of lower check orders was more than offset by benefits of higher revenue per order. Direct checks revenue totalled $43 million, which was down 6.9% on a year-over-year basis, but ended ahead of our expectations. From a products and services revenue perspective, Checks were $218 million and represented 53% of total revenue. Business products were $93 million, or 22% of total revenue, and marketing solutions and other services were $102 million, which was 25% of total revenue. Gross margin for the quarter was 63.7% of revenue, which was down 0.6 points from 2013, less favorable product mix and increase in material and delivery rates were only partially offset by benefits from price increases earlier in the year, and improvements in manufacturing productivity and delivery initiatives.

SG&A expense increased $2.3 million in the quarter, but was better leveraged at 42.5% of revenue, compared to 43.6% of revenue in the same periods last year. Benefits from our continuing cost reduction initiatives in all three segments were offset by increased SG&A associated with recent acquisitions, and higher performance based compensation. Excluding restructuring and impairment charges adjusted operating margins for the quarter was 21.2%, which was up 0.4 points from the 20.8% generated in 2013. All three segments delivered strong operating margins. Small Business Services adjusted operating margin of 18.2% was up 0.3 points over last year, due to cost reduction initiatives. Financial Services adjusted operating margin of 24.6% was up 0.8 points from 2013, due to higher revenue per order, better products and services mix, and cost reductions. Direct checks adjusted operating margin of 34.3% increased 2.2 points from 2013, driven by expense management's initiatives.

Turning to the balance sheet and cash flow statements, we increased our cash and cash equivalents balance year-to-date by $66.9 million, after having repurchased $60 million of our common stock. Total debt at the end of the quarter was $645 million. Cash provided by operating activities for the first three quarters of the year was $203.3 million, slightly exceeding our expectations, and up nearly $19.3 million from 2013. The increase was driven primarily by changes in working capital, improved earnings, and lower medical and performance based compensation payments, partially offset by higher income tax payments. Capital expenditures for the first three quarters were $29.6 million, and depreciation and amortization expense was $48.5 million.

On October 22nd we acquired all of the outstanding shares of Wausau Financial Systems, including specific tax attributes which are expected to generate approximately $4 million of incremental cash tax savings, for a net $90 million using a draw on our credit facility. During the remainder of 2014, the acquisition is expected to generate revenue of approximately $12 million, to be approximately $0.01 dilutive to EPS after absorbing acquisition-related amortization expense, and generate a positive operating cash flow. Given our strong performance in the third quarter the addition of Wausau Financial Systems, and adjusting for the unfavorable impact from a stronger US dollar, which causes a negative impact for us, we are raising our consolidated revenue outlook range for the year to $1.657 billion to $1.665 billion. We are also improving our adjusted diluted earnings-per-share to an expected range of $4.08 to $4.14, which excludes $0.22 related to restructuring impairment and transaction related costs.

There are several key factors that contributed to our improved full-year outlook including Small Business Services' revenue is expected to increase 7% to 8%, as volume declines in core business products and the impact of unfavorable foreign exchange rate changes are expected to be offset by benefits from our e-commerce investments, price increases, growth in our distributor, dealer and major accounts channels, and double-digit growth in marketing solutions and other services offerings.

We expect Financial Services revenue to be up about 5%, driven by recurring check order declines of approximately 6%, and some pricing pressure, which we expect will be more than offset by continued growth from non-check revenue streams including Destination Rewards and Wausau Financial Systems. Higher revenue per order, a full year of HSBC, and a quarter from Zions. A direct check revenue decline of approximately 8%, which is slightly better than our previous outlook, driven by check volume reductions. A continued sluggish economy, full year cost and expense reductions of approximately $60 million, which is $5 million higher than our previous outlook, increases in medical expenses, material costs and delivery rates, continued investments in revenue growth, marketing solutions and other services offers, and enhanced Internet capabilities, lower interest expense in the fourth quarter, and an effective tax rate of approximately 34%. We expect to continue generating strong operating cash flows, and with the acquisition of Wausau have raised our full-year outlook to range from $278 million to $285 million.

Versus last year this outlook also reflects stronger earnings and lower medical and incentive compensation payments offset by higher tax payments. We now expect contract acquisition payments to be approximately $19 million for the full year. 2014 capital expenditures are expected to be approximately $40 million, slightly higher than 2013 as we continue to grow Deluxe. 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 $66 million for the year, including $21 million of acquisition-related amortization. For the fourth quarter of 2014 we expect revenue to range from $432 million to $440 million. Adjusted diluted earnings-per-share are expected to range from $1.06 to $1.12. In comparison to the third quarter revenue is expected to be higher in the fourth quarter, primarily due to seasonal holiday spending, tax forms, some small business healthcare forms rollouts, plus a continued ramp in marketing solutions and other services revenue, including again $12 million from the Wausau Financial Systems acquisition. Adjusted EPS is expected to increase primarily from higher revenue.

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. Additionally we expect to continue paying a quarterly dividend. Year-to-date we have repurchased $60.1 million of common stock, compared to $48.8 million during the full year of 2013. As communicated last quarter, our plan for share repurchases is to spend more than we did in 2013, but we expect that the pace in the last half of 2014 will be less than the first half. On October 1st, our 2004 senior notes matured, and were repaid using cash on hand, and an initial draw of $135 million on our $350 million credit facility. We also used our credit facility to fund the Wausau acquisition. As of yesterday October 22nd, we had $208 million drawn against our credit facility, which we expect to reduce by year-end using cash generated from strong fourth quarter operating activities.

Looking ahead we may from time to time consider retiring outstanding debts through open market repurchases, privately negotiated transactions, or other means. We believe our increase in cash flow, strong 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 performance in the third quarter, as we exceeded on our expected cost and expense reductions for the second quarter in a row. As a result we have increased our outlook for the year from our original $55 million annual commitment, to $60 million net of investments in 2014. Year-to-date we have already achieved approximately $48 million in reductions. Approximately 60% of the $60 million in expected reductions will come from sales and marketing, another 30% from fulfillments, and the remaining 10% coming from our shared services organizations.

Our focus on sales and marketing for the remainder of 2014 will be on sales channel optimization, platform and tool consolidation, and leveraging 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 our 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 reducing expenses in IT, but we also have opportunities in finance and real estate. Now I will turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on our key revenue growth area marketing solutions and other services, including some details on our Wausau acquisition. And provide an update on our brand awareness campaign. I will then highlight progress of each of our three segments including a prospect on what we hope to accomplish in the fourth quarter, and finally provide some context looking forward to 2015. Our primary focus for the balance of the year continues to be profitable revenue growth, and increasing the mix of marketing solutions and other services revenues towards our goal of 40% by 2018. As part of this revenue growth focus, we will continue to assess potential small to medium-sized acquisitions that complement our large customer bases, with a focus on marketing solutions and other services. We are adding more products and services to our portfolio, and we continue to strengthen our channel reach. Deluxe is now more capable of helping small businesses pursue their passion, as a trusted provider of a growing suite of products and services of small business needs to market and operate their business. And helping financial institutions with customer acquisition, risk management, and now with the acquisition of Wausau, with a comprehensive suite of payment software, services and outsourcing solutions.

Here is an update on our four subcategories framework for marketing solutions and other services. We ended the third quarter right in line with our expectations in revenue, with mix in the four subcategories basically in line with our expectations. First, small business marketing is expected to represent approximately 40% of revenue in 2014. With expected growth of approximately 20% this year. We saw growth in the third quarter in the web-to-print space, as we cross sold to our customer base, and added new customers through distributors, dealers, and major accounts. We expect to ramp production in the fourth quarter on our new organically built automated business card and postcard production fulfillment system. We also saw very strong double-digit growth in retail packaging solutions, and expect this growth to continue in the fourth quarter.

We also expect to begin a logo promotional marketing and apparel rollout with a large hotel chain including franchises in the fourth quarter, that we expect will ramp further in 2015. The second category web services, which includes logo and web design, web hosting, SEM, SEO, email marketing, [inaudible-technical difficulties] services is expected to represent approximately 29% of revenue in 2014, with expected growth rates in the low double-digits. We saw solid rollouts in wholesale major wellness and healthco major accounts in the third quarter, and also solid growth from the prior year in cross-selling bundled packages to our retail base, and added more new customers, resellers and partners. We released our pay-as-you-go capability as part of our email marketing premium offer, and continue to see an encouraging sign up ramp.

Also importantly we have assessed our progress in the SEM/SEO space, and have made the decision to exit some unprofitable revenue in this offer. Given the changing landscape and heavy influence of Google in this market space. This will have a small impact on both fourth quarter and go forward revenue. But our decision will improve overall profitability. We continue to reduce web design and SEM's campaign cycle times, and churn rates remain low. We added payroll services customers, and many customers added new features, such as time and attendance applications. This category web services is also one of our key focus areas for tuck-in acquisitions. We closed the third quarter with approximately 830,000 web-hosting customers, and we expect to close 2014 with nearly 850,000 web-hosting customers, an increase of 16% from 2013, as we expect migrations to continue through the balance of the year.

The third category broad security risk management and operational services are expected to represent approximately 19% of revenue in 2014, with expected growth rates in the low-single digits. We had a solid third quarter as we added program services for new community banks, and fraud and security offers for small businesses and direct to our consumers.

We added Banker's Dashboard customers as well. Further, although still small at this point, we did have our highest quarterly revenue for e-checks, including seeing our first reorder cycles. Finally, other financial institutions services are expected to represent approximately 12% of revenue in 2014, with very strong double-digit expected growth rates. In the third quarter we saw growth in new financial institution customers in targeting and campaign services, and Destination Rewards revenue exceeded expectations. We also drove a quarterly profit in the third quarter for the first time in Destination Rewards, and now expect total year revenue to be closer to $19 million, up from our previous $15 million outlook. And expect our year-end exit run-rate to be closer to $25 million for 2015. We have signed up a very large national financial institution on our new SwitchAgent 2.0 release, which is our automated solution to help consumers switch banking service providers. Going forward, this category will also include Wausau Financial Systems.

Here is some color on our latest acquisition. Wausau offers a comprehensive suite of payment software services and outsourcing solutions, including integrated receivables, remote deposit capture, and paperless end brand solutions. The Financial Services industry continues to evolve from a preference for in-house deployments to SaaS and business process outsourcing, or BPO deployments. As a result of this ongoing evolution, Wausau Financial Systems SaaS and BPO has quadrupled in the past four years, and with this trend expected to accelerate even more in the future, we believe this creates a growth opportunity going forward. Although the market for revenue in the service is expected to grow in the low-single digits, they have seen higher growth this year, and we expect to see growth rates in the next several years in the mid-to-high single digits. Again, we expect revenue for the balance of 2014 to be approximately $12 million, and expect this to be about $0.01 dilutive to EPS this year.

Next year we expect revenue to be approximately $80 million, and expect it to be dilutive about $0.04 per share. But diluted in total less than a year, so accretive by the fourth quarter of 2015. Strategically this acquisition strengthens Deluxe's commitment to the financial institution market. Marking a meaningful step forward in our evolution to become a more diverse provider of Financial Services Syn-Tech technology solutions to our financial institution clients. Importantly, this enables Deluxe to generate revenue growth in both the retail and commercial side of the financial institution industry. Competing in two of the three (inaudible-technical difficulty) with wealth/asset management being the third.

We believe this provides us with a sizable sticky, growing annuitized services business. In addition to our focus today on the retail side of financial institutions, this gives us an entry point into the commercial and treasury side, helping us not only to diversify through a close adjacency, and strong relationships that we already have with finance institutions, but also with very strong SaaS solutions. They have award winning industry-leading offers in integrated receivables, remote deposit capture, and paperless in brand solutions. Notably their integrated receivables solution leverages data and analytics across a spectrum of payment types, to provide enhanced Receivables decision support.

As a central Wisconsin based company, we also believe there will be a strong cultural fit. Their largest customers include many of our current customers on the check side, including Bank of New York, US Bank, Citi, and Fifth Third, among others. They have relationships with nine of the Top 10 financial institutions, and more than 250 financial institutions clients, as well as they also sell-through government, telcos, retailers, health and insurance companies, where we also have relationships that help with access to small business customers. In summary, with access to a proven player in growing markets, this acquisition enhances Deluxe's competitive position as a thin tech provider, gives us more swings at the plate with our financial institution clients, and will increasingly increase marketing solutions and other services revenue mix. We are really expected about this acquisition, and welcome Wausau employees to the Deluxe team.

We expect marketing solutions and other services revenues to be approximately $420 million in 2014, up from $343 million in 2013, with organic growth in the low double-digits. The key to this performance would translate to a total revenue mix of around 25% of revenue, up from 22% in 2013, and 19% and 16% the previous two years. Here is an update on our brand awareness campaign. We just finished in October our final wave of the year of an intense six-week local market brand awareness campaign, targeting the Chicago, Cleveland, Milwaukee, and Minneapolis St. Paul markets, through television, online digital, and print media. We saw very strong results in these markets compared against other markets where we did not complete brand awareness initiatives.

For example, in Chicago we saw a 474% lift, and in Minneapolis St. Paul a 608% lift in online traffic. As a reminder our objective this year is to continue with our brand awareness campaign to targeted key small business audiences, and to test at various spend levels and media initiatives in different geographies over approximately six week bursts. By doing this, we are able to continue our transformational messaging, as well as gain a better understanding of how our customers react to different scenarios, allowing us to more effectively and optimally plan for 2015 and beyond. In the third quarter we also participated in the annual Score Awards Recognition Program for small businesses, as well as the Entrepreneurial Women's Conference hosted by the Women's Business Development Center, that is attended by over 2,000 women business owners.

Now shifting to our segments. The Small Business Services in the quarter as expected did not see any notable improvements as the economic climate for small businesses remains sluggish. We had strong performance as revenue grew over 7%. Checks and Forms met our expectations. 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. Average order value and conversion rates increased. Our online Safeguard distributor, major accounts and dealer channels grew revenue over the prior year. We also saw strong growth in web, web to print, and payroll services, as well as growth in email marketing. Again, we ended the quarter with approximately 830,000 web-hosting customers. We continue to closely monitor the small business market. Optimism indices in the third quarter were up slightly from second quarter readings, rising slightly in July and August but falling back in September, pessimism about the economy in the future moderated in the quarter. The outlook for expansion continued to be positive. Fails expectations, more owners hired in the third quarter, and are planning to hire in the fourth quarter. And more new firms are starting than failing right now. Small businesses continue to spend cautiously, more in maintenance mode, and continue to scrutinize purchases and experience tight cash flow.

In summary, current optimism indices although still at recessionary levels, trended slightly higher in the third quarter even with the pull back in September, the good news is that other than taxes and regulation, increasing sales continues to be a small business owner's number one ping point, and our portfolio is significantly more robust now, with many offers to help them here. If 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. In Small Business Services our focus for the remainder of 2014 is on accelerating our brand transformation, and significantly improving overall market awareness, while institutionalizing our brand promise for our customers. Creating an effective end-to-end integrated technology customer experience, effectively acquiring and maintaining customers, and optimizing sales channel effectiveness and channel marketing capabilities.

In financial services we saw the check decline rate perform just over 6%. And we continue to expect the decline rate for the year will be approximately 6%. 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%. Designs migration went well a few weeks ago, and we are working several more competitive opportunities. We simplified our processes, and took complexity out of the business, while reducing our costs and expense structure. With approximately 90% of our 2014 community bank contract renewals already completed by the end of the third quarter, we are well ahead of the linear pace for the year.

We made progress again in the quarter in advancing non-check marketing solutions and other services revenue opportunities. We now have offers in the targeting and campaign services space through Acton and Cornerstone to assist financial institutions with customer acquisition and retention. An account activation and anchoring offer and SwitchAgent, an account activation and retention rewards and loyalty offer in Destination Rewards, and now through the Wausau acquisition a comprehensive suite of payment software, services and outsourcing solutions, including integrated Receivables, remote deposit capture, and paperless in brand solutions. In the third quarter we saw continued growth in new financial institutions in our Acton and Cornerstone targeting the campaign services offers. For SwitchAgent, we began 2.0 pilots with financial institutions that further our vision for the most simple and efficient account switching and anchoring experience for financial institution customers.

Banker's Dashboard also continued to perform well in the third quarter. Destination Rewards had another strong quarter, again exceeding our expectations, driven primarily by the success of the Verizon rollout. As you can see strong momentum continues to build, and we expect strong double-digit growth in these marketing solutions and other services in 2014. In Direct checks revenue was higher than our expectations driven by hiring initial orders and reorders, we continue to look for opportunities to provide accessories, and other check related products and services to our consumers.

We continue to work 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 reductions. Our direct checks revenue expectations for the year are slightly better. Previously we guided to a revenue decline rate of 9%, though we now believe the revenue decline rate will be closer to 8%, driven by continued declines in consumer usage, and a sluggish economy. We expect to reduce our manufacturing costs and SG&A in this segment, and continue to deliver operating margins in the lower 30% range while generating strong operating cash flow. As we exit the third quarter on the heels of another outstanding quarter in performance in a continued challenging economy, we made good progress again in transforming Deluxe, but we still have a lot of work and opportunities ahead of us. We are continuing to prudently plan that the economic climate will not improve in the fourth quarter.

We believe we are well-positioned in 2014 to deliver our fifth consecutive year of revenue growth. Our breadth of offers and financial discipline has enabled us to position ourselves for sustainable revenue growth, while continuing to improve profitability (inaudible-technical difficulty). --sales channels are stronger. Our digital technology services offer is more mature, our infrastructure is better, and our management talent is deeper and aligned to grow revenue. We know it is critical for us to be able to grow revenue again in 2014, and improve the mix of our marketing solutions and other services revenue, and we are well-positioned to make this happen. We have delivered 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, there by changing our product mix and resulting stock price multiple.

Looking ahead to 2015, our portfolio is even better positioned to deliver continued sustainable revenue growth. We are planning for what we expect to be a sixth consecutive year of revenue growth. We expect the increase in 2015 revenue to be approximately 5% to 7% including the Wausau acquisition, or around 2% to 4% organic growth compared to 2014 adjusting for the portion of SEM/SEO revenue we are exiting. This is expected to produce adjusted diluted per share growth, EPS growth ranging from approximately 5% to 8% including the expected $0.04 per share dilution from the Wausau acquisition. With the assumption we will invest more in brand awareness, including time in branding efforts with our 100 company anniversary initiatives, benefit from a significant reduction in interest expense, and with the tax rate in 2015 roughly comparable to 2014.

To give some more color on our revenue--, we are planning on consumer checks through financial institutions to decline approximately 6% on a secular basis. On top of this we have extended all large financial institution clients through at least 2015, with the exception of one that we are working to extend that comes due in the fourth quarter of 2015. And we have about the same community bank contract hours up for renewal in 2015 compared to 2014, and as mentioned earlier we have competitive opportunities coming due through 2015. In business products we expect to expand existing organic initiatives in Shop Deluxe, our Canadian business, and to add Safeguard distributors, dealers, and major accounts.

In marketing solutions and other services we expect organic revenue growth roughly in the low double-digits, in spite of a decline in SEM/SEO revenue, given my earlier comments about exiting some unprofitable SEM/SEO or offer. To give some more color on our thinking, if we annualize 2014 expected revenue, organically grow roughly in the low double-digits, and add in revenue from the Wausau acquisition, this would imply a targeted marketing solutions and other services revenue to total revenue mix of approximately 30% for the year. We are excited with our progress here, and with the more cooperative economy and continued possible additional tuck-in acquisitions as catalysts, we could potentially grow marketing solutions and other services even faster toward our goal of 40% of revenue mix by 2018.

We also expect our costs and expense reduction initiatives to continue in 2015. From a housekeeping standpoint each quarter in 2015 with the exception of the third quarter which has one more day, it has the same number of business days as 2014. As a reminder we renewed a large financial institution check contract in early second quarter 2014 at a lower price, and therefore, we expect a more challenging EPS compare year-over-year in the first quarter of 2015, since the higher priced contract was still in place in the first quarter of 2014. It is also extremely important for us to see how the fourth quarter progresses, and to closely monitor the marketplace and the economy over the next three months, before providing a more specific outlook detail for 2015.

Now we're going to open the call up for Terry, Ed and I to take any questions.

(Operator Instructions). Our first question here comes from Charlie Strauzer from CJS Securities.

Hi. Good morning. Almost good afternoon I guess at this point. The question I have I guess is more kind of a more macro question for you Lee, that is with the acquisition now of Wausau, are you signaling that you are kind of happy with the portfolio more on the kind of the small business side, and now there are some opportunities that you want to take advantage of in the Financial ServicesTechnologies, kind of going forward, or are you just saying this was opportunistic, and it's just another way to kind of expand that second segment?

No. Charlie the way to think about it is we've been talking about the opportunity to continue to build on and grow in the Financial Services space, and when Ed, Terry and I are out on the road, one of the consistent messages that we've been talking about is, we feel good about where we're going, and we're still looking to invest, and still looking at acquisition opportunities in Small Business Services. But the tipping point to get the Company to grow even faster is getting the Financial Services segment to grow as well, and so we've been looking, and we added the Destination Rewards play in December, and now adding the Wausau play. So again, I think it's very much in line with what we have been saying. We continue to be extremely enthusiastic about small business, continue to look for opportunities there to gets our technology better. In the prepared comments you heard me talk about that being our focus area still for small to mid-sized tuck-in acquisitions. So hopefully that gives you a sense of how we're thinking about, and I think it's very similar to what we have talked about.

Yes. That's very helpful actually. I think it kind of gives you a better picture that your Small Business is kind of showing you the growth that you would like, more comfortable there. It sound like there's some pretty good opportunities facing you out here on financial services, and kind of taking it from there. I mean in small business I know one of the things that has been discussed over the last couple of years, has been you get to a certain point where you can start to cross-sell more, upsell more, just taking your basic check customer and then you are providing them with more services they may not have known were available through Deluxe. Where are you today versus maybe a couple of years ago in that kind of product life cycle, or sales cycle I should say?

Charlie, we're getting better and better, but I think the exciting for us is we believe we still have a nice opportunity here, and again, listen to some of my comments in the prepared remarks around this integrated end-to-end customer technology experience. We're working on this, we've been working on it, and we think this is going to be an opportunity to pull a lot of those offers that we have in the services space, as well as in the print space together over time, and make it easier, I use the word simple and intuitive for our small business customer to really get at whatever they want, whether it's a logo, or a web design, or a website, or email marketing, social, so we're working on that. We'll talk more about that as we exit the year this year, and on the fourth quarter call, but we have got a lot of room to go here, and again, I think that bodes very well for us, and leaves us again with a level of confidence that we're on the right track, and we've got opportunity to continue to get the cross-sell to be stronger.

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

You are welcome, Charlie.

Okay. Our next question comes from Randy Hugen from Feltl and Company

Thanks. I just wanted to clarify on I guess the initial 2015 guidance, on the EPS growth rate is that a GAAP earnings growth rate, or is that also a GAAP and adjusted?

Well, that growth rate is from the adjusted EPS. It's kind of anchoring off of the 2014 adjusted EPS, and it's a growth rate off of that, and at this point that would represent our views on both GAAP and adjusted for 2015, but it's clearly anchored off of the 2014 adjusted.

Alright. That's helpful. And so despite I guess a 1% headwind from the Wausau acquisition, you're still hoping to grow earnings faster than revenue next year?

Yes. On the top end by about 1% is what we signaled.

Alright. Perfect. And then on the asset impairment and the I guess revenue reduction for SEM/SEO, that's just one particular part of the business, you're still planning on continuing the activities for the rest of the business, and this is just a particular product that you're shutting down?

Yes. Let me give you a little more color here, Randy. We're still believe in the SEM/SEO space, it is as an important part of our portfolio, but when you look at all of the elements that we were going after the market, whether it's, we call it enterprise space, a direct space, white label areas, reseller areas, how we get at the small business, there were parts of that we were proving to be unprofitable for us, and as the algorithms with Google have changed over time, we have been at this for a while, and just decided this is not making sense for us. This isn't a big amount of revenue, but yes, we still believe in the space, it is a needed space an important part of our portfolio, but again at this point in time we're basically think of it as stepping away from some of the unprofitable revenue as part of that collective offering.

Yes. Just to be clear, too, Randy, we are not paring back on the product offering, or the technology that we use to deliver that product. So that's still all going to be an important part of our portfolio.

It's more of the channels of where we're going.

Yes, exactly.

Okay. That's helpful. And then I guess related to both, some of those offerings as well as your brother check offering, obviously we have seen kind of a steady stream of these data breaches over the past year, and that's probably somewhat helpful for the check business. Have you seen any negative impact on your products to your customers as a result?

No. No. We haven't seen any impact, or any negativity at all, Randy.

Alright. Okay. Thanks a lot.

You are welcome.

Thanks, Randy.

Alright. Great. We do have time for one more question, and it comes from Tim Klasell from Northland Securities.

Yes. Hi guys. Congratulations on the good quarter. The first question has to go with the Wausau acquisition. Clearly it's a little bit dilutive on an earnings basis, but how about on a cash hold basis? How should we be thinking about that, and will there be any change to the seasonality around that? Is this it looks like it might be a business that might be a little bit more back end weighted in the year. How should we think about that?

From a cash flow basis, it's the amortization from all of the purchase accounting that kind of creates the dilution on an EPS basis, but on a cash flow basis, this for us will be accretive on a cash flow basis really right out of the gate, just beginning here in fourth quarter, and certainly continuing into next year, and that positive cash flow, that is not just because of those tax attributes that we said would create positive cash tax savings of $4 million. It's the normal operations that will generate positive cash flow on top of those tax attributes. So that piece is good. That business, we don't expect it to have a significant impact on seasonality. It's more of a SaaS-based, so there's monthly restructuring revenue streams that come in from that business. So we don't see it, aside from the fact that we just have one quarter of that business that will be part of our results for 2014, but going forward we don't see that having a big impact on seasonality.

Tim, remember we are a Company that just believes in fully allocating and burdening everything back. We generally don't as you know, play games with adjusted EBITDAS and all of this stuff. So we have to swallow the acquisition amortization, and we go through a rigorous process to do that. We are actually excited. We think this is a very short period of dilution at roughly, call it a year or slightly less than a year. So in terms of things that are out there and the things that are as you know pretty expensive in the market, we think we did well with this deal.

Okay. Great. And then on that rigorous analysis you guys are obviously shutting down a business that is not as profitable as you would like it to be. Can you give us any sort of a framework of how you think about that? I'm sure you look at other portions of your business on a regular basis. Is there a threshold you have as far as profitability, or maybe you can walk us through that a little bit?

Yes first of all, Tim, we are not shutting the whole business down. Again back to the comments that Randy asked, and we tried to clarify here. It's parts of how we go-to-market and the various channels we go-to-market, and some of those channels just were proving to be unprofitable for us, and so we looked at that, we've been at it, and obviously a goal that we have in anything that we do is to make money at it. So yes, if there is something else that wouldn't be doing well, we would always look to assess, take action, and move through something. But right now there's nothing else that's in our portfolio. Also you're newer to the story, but when we bought these businesses over time, they were never expected to be high profit margin businesses, but we needed them as part of our complete offer for services to that small business. So unfortunately this just became a little bit teetering in the wrong direction too much for us to stomach, and again not big revenues, but just in a area we thought doesn't make sense for us to be charging any more, and not really required for us in terms of what we're doing.

Okay. Thank you. That's very helpful.

You are welcome, Tim.

Alright. Great. No time for further questions, so I will turn the call back over to Lee Schram for closing remarks,

Thank you everybody for participation today, and also for your questions, and let me leave you with four thoughts. First, we delivered our third outstanding quarter this year. Second, we are now positioned to deliver our fifth consecutive year of revenue growth. Third, we added Wausau Financial Systems, which enhances our marketing solutions and other services portfolio. And fourth, we have established a solid foundation to grow revenue again in 2015. We're now going to roll up our sleeves, get back to work. And we look forward to providing a positive progress report on our next earnings call, and I am going to turn it over to Ed for some final housekeeping.

Thanks Lee. Before we conclude today's call, I would just like to mention that Deluxe management will be participating at a few upcoming events in the fourth quarter, where you can hear more about our transformation. On November 11th and 12th, we will be in New York at the Barclays Mid Cap Conference, on November 18th and 19th we'll be at the UBS Global Technology Conference in Sausalito, California, and finally on December 3rd and 4th, we'll be in Scottsdale, Arizona at the Credit Suisse 18th Annual Technology Conference. Thank you for joining us, and this concludes the Deluxe third quarter 2014 earnings call.