Deluxe Corp (DLX) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2014 Deluxe Corporation earnings conference call. My name is Sean and I will be your operator today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Ed Merritt, Treasurer and Vice President to investor relations. Please proceed.

Thank you, Sean, and welcome, everyone, to Deluxe Corporation's fourth-quarter 2014 earnings call. I am Ed Merritt, Treasurer and Vice President, 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 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 or contained in the press release that we issued this morning as well as the Company's Form 10-K for the year ended December 31, 2013.

The financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which was posted on our investor relations website at deluxe.com/investor. This information was also furnished to the SEC on Form 8-K filed by the Company this morning. Any references to 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, Ed, and good morning, everyone. Deluxe delivered our fourth outstanding quarter of 2014. We reported revenue and adjusted earnings per share well above the high end of our outlook.

Revenue grew more than 7% over the prior-year quarter, driven by financial services growth of almost 22% and small business services growth of 6%. Marketing solutions and other services revenues grew more than 30% over the prior year and represented over 30% of total fourth-quarter revenue.

Adjusted diluted earnings per share grew more than 14% over the prior year. We generated strong operating cash flow of $280 million for the year and we were drawn $160 million on our credit facility at year end.

We did not repurchase any common shares in the quarter, but repurchased $60 million for the year. 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 delivered on our $60 million cost reduction commitment.

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 $1.16, which included $0.03 per share collectively for restructuring charges, a loss on a sale-leaseback, and transaction costs. Excluding these costs, adjusted EPS of $1.19 exceeded the upper end of our previous outlook and was 14.4% higher than the $1.04 reported in the fourth quarter of 2013.

The restructuring charges are primarily for employee severance and infrastructure consolidations, the loss on a sale-leaseback related to a facility in our direct check segment, and the transaction charge was primarily related to the Wausau Financial Systems acquisition.

Revenue for the quarter came in at $449 million, growing 7.3% over last year and 8% sequentially from last quarter. All three of our business segments performed well compared with our expectations.

Small business services revenue of $301 million grew 5.8% versus last year, despite a continuing sluggish economic environment and an unfavorable Canadian exchange rate. We delivered growth in marketing solutions and other services, checks, and in our online Safeguard distributor and dealer channels. Financial services revenue of $105 million grew 21.5% versus the fourth quarter of last year and would've declined less than 5%, excluding recent acquisitions.

Higher marketing solutions and other services revenue, driven by Wausau and Destination Rewards, price increases, and revenue from Zions more than offset the impact of lower check orders and the impact on pricing from a large customer contract renewal in early 2014. Direct checks revenue of $42 million was down 9.2% on a year-over-year basis.

From a product revenue perspective, checks were $213 million, representing 48% of total revenue; business products were $100 million, or 22% of total revenue; and marketing solutions and other services were $136 million, which was 30% of total revenue. Gross margin for the quarter was 63.1% of revenue, which was down 0.5 points from 2013. The decline was primarily driven by an unfavorable product revenue mix and higher material and delivery rates, partially offset by a favorable services revenue mix.

SG&A expense increased $13.8 million in the quarter, which was 42.8% of revenue compared to 42.7% of revenue in the same period last year. Benefits from our continuing cost reduction initiatives in all three segments were more than offset by increased SG&A in financial services, associated with acquisitions and higher performance-based compensation.

Excluding restructuring, transaction, sale-leaseback, and impairment charges, adjusted operating margin for the quarter was 20.6%, which was slightly down from the 21.2% generated in 2013. All three segments delivered strong operating margins compared to expectations.

Small business services adjusted operating margin of 17.8% was down 0.8 percentage points over last year due to a revenue mix shift. Financial services adjusted operating margin of 23.6% was down 0.7 points from 2013, driven by check usage declines and the large customer contract renewal, while direct checks adjusted operating margin of 33.5% increased 1.8 points from 2013, driven by costs in expense management initiatives.

Turning to the balance sheet and cash flow statement, for the year, our cash and cash equivalents balance decreased by $59.6 million and we were drawn on our credit facility $160 million on December 31. Significant uses of cash in 2014 included $254 million to pay off our 2014 debt maturity; $105 million for acquisitions, the most significant one being Wausau Financial Systems; and $60 million to repurchase common stock.

Total debt at the end of the year was $554 million, down from $641 million at the end of 2013. Cash provided by operating activities for the year was $280.4 million, an $18.9 million increase compared to 2013.

Higher earnings and changes in working capital were partially offset by higher contract acquisition costs and income tax payments. Capital expenditures for the year were $41 million and depreciation and amortization expense was $66 million.

Looking ahead to 2015, we expect consolidated revenue on a full-year basis to range from $1.74 billion to $1.78 billion. Adjusted diluted earnings per share are expected to range from $4.35 to $4.55.

There are several key factors that contribute to our full-year outlook, including small business services revenue is expected to increase 4% to 6% as volume declines in core business products; lower SEM and SEO revenue from our decision announced in the third quarter to exit unprofitable business; and unfavorable foreign exchange rates 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. For added clarity, without the SEM, SEO, and FX rate impacts, our growth rate in small business would be in line with past years' organic growth rates.

We expect financial services revenue to increase 12% to 15%, 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 marketing and other services revenue, including Wausau and Destination Rewards, higher revenue per order, and a full year of Zions; a direct checks revenue decline of approximately 9% to 10%, driven by lower check order volume stemming from secular declines in check usage; and eliminating marketing investments that no longer meet our return criteria; a continued sluggish economy; full-year cost and expense reductions of approximately $50 million net of investments; increases in medical expenses, material costs, and delivery rates; continued investments in revenue growth opportunities, including brand awareness, marketing solutions, and other services offers and enhanced Internet capabilities; lower interest expense; and an effective tax rate of approximately 33.5%, representing approximately $0.05 of dilution per share as compared to 2014's tax rates.

We expect to continue generating strong operating cash flows ranging between $290 million and $305 million in 2015, reflecting stronger earnings and lower interest payments, partially offset by higher tax, Viva, and performance-based compensation payments. We expect contract acquisition payments to be approximately $15 million.

2015 capital expenditures are expected to be approximately $40 million, about the same as 2014, 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 $76 million, including approximately $29 million of acquisition-related amortization.

For the first quarter of 2015, we expect revenue to range from $426 million to $434 million. Adjusted diluted earnings per share are expected to range from $0.99 to $1.04 and excludes approximately $0.12 per share of costs related to retiring the debt early.

As we indicated on our third-quarter earnings call, each quarter in 2015 has the same number of business days as in 2014, with the exception of the third quarter, which has one more day in 2015.

There are also several other items that I will highlight that drive some meaningful year-over-year quarterly comparison challenges in the first half of the year.

First, as we indicated on previous calls, we renewed a large financial institution check contract early in the second quarter of 2014 at a lower price, with the original price still being in place in the first quarter of 2014. Second, we expect Wausau to be dilutive in the first quarter of 2015. The large contract renewal and Wausau, collectively, are expected to reduce first-quarter earnings per share by approximately $0.07 as compared to the prior year.

Also as a reminder, historically, direct checks has their strongest revenue quarter of the year in first quarter.

As Lee will highlight in a few minutes, we also expect to spend more on brand awareness in the second quarter of 2015 compared to the second quarter of 2014 and, again, expect Wausau to be diluted to earnings. We expect second-quarter earnings to be similar to the first quarter, after reflecting higher brand spend and Wausau, which collectively are expected to negatively impact second-quarter earnings per share by approximately $0.06 as compared to the prior year.

We expect strong earnings-per-share growth in both the third and fourth quarter as revenues should be higher, Wausau should become accretive, interest expense should be lower, and as noted earlier, we will have an extra business day in the third 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. Additionally, we expect to continue paying a quarterly dividend and repurchase shares in the last half of 2015 to at least offset dilution. Earlier today, we announced our plans to redeem all of the $200 million, 7% senior notes due 2019, which become callable on March 15, 2015.

We expect to record a charge in the first quarter related to the redemption of about $0.12 per share. This charge is reflected in the GAAP diluted EPS outlook we presented today. The debt redemption is expected to be financed with a draw on the existing credit facility and the issuance of a short-term bank loan.

We may also, from time to time, consider retiring additional outstanding debt through open market purchases, privately negotiated transactions, or other means. We believe our increasing 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 year and we delivered on our commitment to reduce our cost and expenses in 2014 by approximately $60 million, bringing our total reduction since mid-2006 to approximately $550 million.

Looking ahead to 2015, we will continue our focus on the revenue growth phase of our transformation, but will not lessen our focus on cost and expense reductions. We expect to drive an incremental $50 million of cost reductions net of investments in 2015.

Approximately 55% of the $50 million in expected reductions will come from sales and marketing, another 40% from fulfillment, and the remaining 5% coming from our shared services organizations.

Our focus in sales and marketing for 2015 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 to reduce expenses primarily in IT, but we also have opportunities in finance and real estate.

Now I'll turn the call back to Lee.

Thank you, Terry. I will continue my comments with a perspective on what we accomplished overall in 2014, frame expectations for 2015 for our key revenue growth area -- marketing solutions and other services -- as well as provide an update on our longer-term strategic revenue mix and provide an update on our brand transformation. I will then highlight progress in each of our three segments, including a perspective on what we plan to accomplish in 2015.

Deluxe grew revenue in 2014 for the fifth consecutive year for the first time since 1996. We saw continued stability in our core check and product businesses and improved our mix of faster growing marketing solutions and other services revenues to almost 26% of total annual revenue. We acquired Wausau Financial Systems and Gift Box to expand opportunities in higher growth marketing solutions and other services.

We also accelerated our brand transformation. In addition to our strong print leadership, we continued to invest in our employment brand in digital technology and extending our sales channel reach and in our communities.

We ended 2014 with nearly 4.6 million small business customers, of which approximately 25% of them are marketing solutions and other services customers. And we served approximately 5,600 financial institutions.

In shared services infrastructure, we reduced cost 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 $550 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 sixth straight year, allowing us to raise our dividend, pay down debt, and pay cash for acquisitions. We recognize that there is still a tremendous amount of work to do, but we made great strides in 2014.

As we enter 2015, our primary focus continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues. This year will also mark the hundred year celebration of our Company.

Deluxe has been a steady partner to our clients over the years, ensuring financial institutions, small businesses, and consumers have the products and services they need to compete and thrive in an ever-changing marketplace. Deluxe found its niche in inventiveness to survive and thrive through depressions, recessions, world wars, and a technological revolution.

As we look towards the next 100 years, we are poised for continued growth as we aim for profitable revenue growth in 2015 for a sixth consecutive year.

The linchpin of our 100 year anniversary is something we are calling the Small Business Revolution. We will be telling the stories of 100 small businesses from across the country, with the goal of driving more people to support and get into small business and positioning Deluxe as champions of them and the American dream.

Through the Small Business Revolution platform, we will share 12 mini documentaries and 88 photo essays of unique and special businesses, rolling these out monthly throughout the year. We will be sharing this great effort with the general public through social media, news outlets, and word-of-mouth.

The businesses featured will be invited and encouraged to share their stories with their customers, friends, and family. We truly believe this will start a small business revolution.

Here is an update on our four subcategories' framework for marketing solutions and other services. We added total revenue dollars for both 2014 actuals and our 2015 outlook in addition to mix percentages of total revenue. We ended 2014 at $427 million in revenue, stronger than our expectations, with mix in the four subcategories basically in line with our expectations, with the exception of other financial services, which was higher.

First, small business marketing finished 2014 at 40% of total marketing solutions and other services revenue and is expected to represent approximately 38% in 2015, with expected growth in the upper teens this year. Key 2015 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.

As some additional color, we have only penetrated web-to-print in about 5% of our distributor and dealer end customers, so they remain considerable penetration opportunities. We also see strong growth opportunities in retail packaging, promotional products, and specifically in distributor, dealer, and major accounts channels.

The second category, web services, which includes logo and web design, webhosting, SEM, SEO, email marketing, social, and payroll services finished 2014 at 29% of total marketing solutions and other services revenue and is expected to represent approximately 23% in 2015, with expected organic growth rates in the flat to mid single digits, but low double digits, excluding our earlier announced decision to exit some unprofitable revenue in the SEM, SEO space.

Key 2015 growth initiatives and performance drivers include adding wholesale web telco and media resellers and partners, selling -- 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, plus new features such as time and attendance applications. This category is also our focus area for tuck-in acquisitions.

We closed 2014 with approximately 837,000 webhosting customers, which is a 15% increase from 2013. We expect to close 2015 with nearly 950,000 or up over 14%from 2014.

The third category, broad security risk management and operational services, finished 2014 at 18% of total marketing solutions and other services revenue and are expected to represent approximately 14% in 2015, with expected growth to be about flat. Key initiatives include scaling our program services, including adding new features for both national and community banks and fraud and security offers for our small businesses and direct to our consumers.

It also includes adding Bankers Dashboard customers and providing both a tablet and new credit union solutions. In addition, we expect to scale e-checks more, with opportunities ranging from adding e-checks to our distributor, dealer, and major accounts channels, to also scaling in many areas where we do not sell paper checks today.

For example, several large financial institutions are assessing their use in treasury, commercial, online, and lockbox areas, none of which we produce paper checks for today. Also, companies that issue paper rebate, temporary staffing, and other payment solution checks today.

Finally, other financial institution services finished 2014 at 13% of total marketing solutions and another services revenue and are expected to represent approximately 25% in 2015, with expected growth rates in the very strong double digits. Key growth initiatives here include adding new financial institution customers in targeting and campaign services, switch agent online account opening and anchoring, and scaling Destination Rewards and Wausau Financial Services.

We expect marketing solutions and other service revenues to be approximately $520 million to $535 million in 2015, up from $427 million in 2014, with organic growth in the low double digits. If achieved, this performance would translate to a total revenue mix of around 30% of revenue and up from almost 26% in 2014 and 22% and 19% the previous two years.

We continue to target increasing marketing solutions and other services as a percent of total Company revenue to approximately 40% by 2018, with checks expected to represent approximately 40% of revenue and business products accessories expected to represent approximately 20% of revenue.

Here is an update on our brand transformation. In 2014, we completed three local waves of television, online digital, and print advertising at various theoretical national spending levels. We learned that local saturation is effective, as these programs outperformed publishers' benchmarks for online ad click through rates and drove strong traffic to deluxe.com.

Our intent for 2015 is to continue our brand awareness campaign, including television, online digital and print media, that have higher spend levels, both nationally and locally, and with more sticky content.

As I mentioned earlier, we will combine our 100 year of Company celebration with a Small Business Revolution documentary and surprise and delight campaign focus. We have already signed up some key national media partnerships and we will have a heavy investment focus in the second quarter, especially during Small Business Week in May.

Our goal is to stretch our spend with impactful content and yield -- and reach, yielding earned media attention to raise brand awareness. We will release documentary campaign elements throughout 2015 to maintain momentum and activate social media and organic sharing of content. We will provide quarterly updates on our progress during our earnings release calls.

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 remain sluggish. Although encouragingly, small business optimism improved throughout the quarter.

We had a solid performance as revenue grew 6%. Checks and forms performed well, and seasonal holiday offers 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. Average order value and conversion rates increased. Our online Safeguard distributor and dealer channels grew revenue over the prior year.

We also saw solid growth in web, payroll, and web-to-print services. Again, we ended the year with approximately 837,000 webhosting customers.

We continue to closely monitor the small business market. Optimism indices improved consistently from October to November and again in December and closed the quarter at the highest level since October 2006. The drivers for improved optimism were expectations for improved business conditions in six months and real sales volumes.

But there was much broader strength across many categories. Hopefully, this is a good sign that 2015 could finally be a breakout year for small businesses.

Encouragingly, in summary, current optimism indices are trending up and at the highest level since the Great Recession exiting 2014. Other than taxes and regulation, the good news is that increasing sales continues to be a small business owner's number one pain point and our portfolio is significantly more robust now, with many offers to help them here.

As the economy recovers, with the transformative changes we are making to deliver more services offerings that help small businesses get and keep customers, Deluxe is better positioned as an indispensable partner for growth.

Our focus for 2015 is on profitably growing marketing solutions and other services revenue, with key drivers including accelerating our brand transformation and significantly improving overall market awareness, while institutionalizing our brand promise for our customers; delivering an effective end-to-end integrated technology customer experience; effectively acquiring and retaining customers; and optimizing sales channel effectiveness and channel marketing capabilities.

At the end of January, we will be releasing our new integrated customer experience solution, which includes single-sign-on capability for web, social, and email marketing offers. Looking ahead to 2015, we expect marketing solutions and other services revenue for the small business services segment to represent almost 30% of segment revenue, driven by small business marketing solutions and web services, with the balance being fraud, security, and operational services.

In financial services, for the year, we saw the rate of decline of checks perform above 6%, with rates a little lower in the community market compared to the nationals. We had strong overall new acquisition rates and our retention rates remain strong on deals pending in the year, well in excess of 90%. We also simplified our processes and took complexity out of the business, while reducing our costs and expense structure.

Looking ahead to 2015, we expect check units to be in a decline range of over 6% or in line with 2014 decline rates, retention rates to be in excess of 90% on deals pending this year. We have already extended all of our large contracts through the least the end of 2015, except one, which we are working to finalize and comes due in the fourth quarter.

We have about the same Community Bank contracts up for renewal in 2015 compared to 2014 entering the new year. We also continue to work a number of competitive RFPs. We also implemented a price increase at the start of this year.

We made progress again in the quarter in advancing noncheck marketing solutions and other services revenue opportunities. Wausau revenue was better than expected at $17 million, much of which was driven by lower deferred revenue adjustments than originally expected. But overall sales and integration has gone well and we are very excited entering 2015 about our latest acquisition.

Destination Rewards continued to perform very well in the fourth quarter. And revenue for the year was almost $20 million, higher than our beginning of 2014 expectation of $15 million.

Targeting and campaign services and profitability, or Bankers Dashboard, also continued to perform well in the fourth quarter.

Looking ahead to 2015, we expect noncheck marketing solutions and other services revenue to be approximately 40% of total FS revenue, driven by a Wausau revenue of approximately $80 million; fraud, security, risk management, and profitability revenue of approximately $35 million; Destination Rewards revenue of approximately $27 million; and targeting, campaign, and activation services revenue of approximately $25 million.

We expect Wausau to be dilutive to earnings per share in the first and second quarters and accretive in the third and fourth quarters and basically close to neutral to earnings per share for the year. This is better than our original outlook of $0.04 dilutive for the year.

In direct checks, revenue was right in line with our expectations. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers as well as 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.

For 2015, we expect direct checks revenue to decline in a 9% to 10% range, driven by continued declines in consumer usage and a sluggish economy. We anticipate that marketing solutions and other services revenue, which is primarily fraud and security offers for this segment, to be about 10% of direct checks revenue. We expect to reduce our manufacturing costs and SG&A in the segment and continue to deliver operating margins in the lower 30% range, while generating strong operating cash flow.

As we exit 2014 on the heels of an outstanding quarterly performance and a continued sluggish economy, we have made tremendous progress in transforming Deluxe, but we still have many opportunities ahead of us in 2015. We believe we are well positioned entering 2015 for our sixth 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 sales channels are stronger, our digital technology services offers are more mature, our infrastructure 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 2015 and improve the mix of our marketing solutions and other services revenue 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 for questions, I would like to take this opportunity to thank all Deluxe employees for their hard work, dedication, and simply outstanding performance in 2014. Thank you, Deluxers. Let's get off to a great start in 2015 and blitz for six -- for six consecutive years of profitable revenue growth.

And now, Sean, I will let you open the lines and Terry and I will take questions.

(Operator Instructions) Jamie Clement, Macquarie.

Lee, first question. When you were talking about the brand marketing and brand awareness initiatives upcoming in 2015, you used a term sticky content. I'm just curious what you meant by that.

You know, historically what we've done is we've put more just print out there -- basic print out there. Things online, digital.

What we're trying to do now, Jamie, is make it more -- have more teeth to it. And this whole idea of the Small Business Revolution, we think is just going to create -- gravitate small businesses a lot more to what we're doing. Make it a lot more unique than what we have historically done.

And candidly, Jamie, we've already moved on this. We have our first photo essay out there. We are in the process of doing our second one right now. And we are seeing hits to Small Business Revolution and the comments that are coming back into those customers and through our employees and the social media, it's just a lot stronger and it's just resonating a lot better. So that's the stickiness we mean is trying to really personalize it a lot more than we have traditionally done.

Okay, that's very helpful. And switching to the balance sheet, if I may. From a credit metric perspective, wow. You are a lot better than you were five or six years ago.

And -- depending on where exactly you come into 2015, you are well less than 1 1/2 times EBITDA -- net debt to EBITDA. As you look for -- over the next 3 to 5 years, what do you think the appropriate leverage ratio range is for this business? Obviously being cognizant of the switch more towards small business services and away from just traditional checks, from a percentage of revenue perspective?

Jamie, this is Terry. I'm going to go ahead and take a stab at answering that question. Our goals around capital structure are really very clear and very crisp at maintaining that flexibility to really support all the needs that this transformation has so that we can keep being successful there. So certainly in the horizon that you referenced there, that will continue to be our focus there.

If you were to go back a few years, like you mentioned, our leverage ratio has been higher. It's never ever been even close to a level that we have been uncomfortable with as a management team or never ever at a level that we have felt like it's constrained us from an ability to invest in our transformation.

So in terms of looking ahead and in terms of what an appropriate ratio is, I think all of the scenarios that we can see in terms of how we invest in this transformation, none of them are going to take us outside of a range that we have seen in the past or something that would kind of put us at the outer limits of what we feel we are really comfortable with.

So I don't have a specific target saying that we will never go above a certain level, but at the same time, too, in the wide ranges that we have played in, it's nothing is ever been close to making us uncomfortable.

Okay. And then just sort of a follow-up on that. No shares repurchased during the fourth quarter and it sounds like that program, it sounds like will probably more resume midyear or second half of 2015.

Is there anything that kind of causes you to pause as a result of maybe calling the bonds? Anything like that? I'm curious why you would be feel that you wouldn't be in the market maybe in the first half?

Yes, the brief pause that you've picked up on there is -- certainly as we are anticipating preparation for the call of the $200 million, there will be a little bit of a premium there. So it's actually -- when you consider the interest payment that's also due on that date and the premium -- it's about a $214 million payment that we will have to make. So we've certainly been preparing for that.

Yes, no, that makes perfect sense. I just wanted to make sure there was nothing else going on. Thanks very much for your time, as always.

Jamie, I would also add that we continue to be very committed to the repurchase market, so to speak. Again, I think you used the words well. It's a smart -- we think it's a smart pause as we head towards pulling the 2019s back, so to speak, and then move on as we go through the year.

Exactly what levels we'll completely do, again, as we said in our prepared remarks, it will be at least to cover dilution. But we will continue to be active in the market. We continue to believe that it's a good return for our investors.

No, that makes perfect sense. I just wanted to make sure we weren't missing anything.

Randy Hugen, Feltl Company.

So financial services had really strong results in the quarter. Were there any areas that came in a lot better than you are expecting? Was that driven by Wausau?

Yes, Randy, we had better results with Wausau. The challenge we had when we guided in the deal originally in October last year, we came out, was just trying to really get our arms around how much -- because it's new for the Company, not new for many of us who have technology backgrounds, but trying to get that deferred revenue right.

So we actually weren't exactly sure, so we -- obviously, we were trying to be conservative. So we did a little better there, but we also performed a little better overall. Things have gone quite well.

Also in the prepared comments, I talked about Destination Rewards. If you remember back in the third quarter call, we talked about moving the $15 million up to the $19 million for the year and we actually ended up finishing closer to $20 million there as well. So those really were the two key drivers, although we had strength in some of the other MOS spaces within FS as well.

Perfect, thanks. And then could you give an update on your currency exposure? Are you still basically 100% US and Canada?

We are mostly US-based. We do have an operation up in Canada, both in the -- it's all in the small business segment. And very little over in Europe, but there is some website business that's over in Europe.

So it's not a significant part of our revenue stream, but certainly meaningful enough when the rates move like they have in the past several months to have some impact.

And I will just add on. We have a little bit of business that we've been expanding on in South America as well, in the webhosting space. So those were all the big currency impact. But as Terry said, the biggest one really is Canada.

All right. And then one last question here. Do you find yourself more likely or increasingly considering larger acquisitions?

We never would not consider and keep an open mind in terms of what we are doing. We also don't have that as part of the get to the 40%.

We get asked that question quite a bit, Randy. Is it something big that we would do or need to do to get there. At this point in time, it's not assumed in there, but we always keep an eye on what's out there and we always should assess whether or not something bigger makes sense. We do that and what I would tell you is we will continue to do that as well.

All right, thanks a lot.

Tim Klasell, Northland Securities.

Hey. Good morning, everybody. Congrats on the quarter.

Just have a set of questions here. So let's start with the high level macro. I know it's been a while since we've came out of a recession -- maybe we've been in this one for too long.

But your businesses, do they have a tendency to lead or lag coming out of a recession? Maybe you could talk to us maybe what you would think high by segment, what we should expect to see, because indicators are in the positive direction right now, leading in --

Yes, you know, we've really -- it's a great question, Tim. We've been really wrestling with this. We exited -- we watched the optimism indices in small business in October get better, November and then December. And then we are watching what's going on as we start the new year.

And I am challenging my small business team to really understand what are the signs of life for things that are there that tell us it's getting better than it has? And what we try to do is look for everything from the number of small businesses that we do payroll services for. What are we -- the dialogues that we are having in the call center on marketing, the dialogues that we are having with the need or the desire to have more services in a small business portfolio.

What I will tell you is that those are more encouraging right now as we weave through the tailwind of the year and started a new year. But Tim, it's really hard yet to declare victory here. Are we through it?

I still believe it is sluggish at this point in time. And I think what we've tried to guide is rates -- adjusting for some of the things that Terry talked about on the SEM and SEO and the exchange rates there, where we've seen the business the last couple of years organically.

Could we have upside if things continue to get better? The answer is of course. But right now, I think it's too early for us to really tell what's happening there.

As you step into the banking world and the MOS space, I can't tell you that I -- that a lot of what we're doing right now is a stronger view of the consumer, so to speak. A lot of what our offers are are more traditional through the commercial and the retail sides of the Bank and more for the benefit of the Bank than all the way down in all cases to the consumer. So a little harder for us to get a read on that.

But this is obviously something that everybody's going to be wrestling with right now. But I would tell you I think there is more upside right now if things continue to improve and sustain improvement than down side, but I think we have appropriately balanced our guidance in terms of our ranges for where we think things are at right now. Terry, I don't know if you want to add anything.

No, I think that's well said.

Okay, good. And then just real quickly on your SEO and SEM products that you're -- or services that you are discontinuing. Part of the Deluxe brand has been able to walk in with a pretty broad platform.

Has that impacted your sales cycles or your sales efforts? Or are they not strategic to your customers? What are you finding out so far?

Tim, the areas that we stepped away from were more channels. Not the SEM, SEO products, but just channels, where we were -- we've just been grinding for some time and we talked about this a bit on the third quarter call as well. We just felt were just unprofitable opportunity.

Remember, we target direct. We target enterprises, we target resellers, partners, and what we try to do is decompose where we were targeting and who's willing to pay for good search services and who's not. So that's more what we did. It wasn't taking the products out, per se; it was just how we target the channels that we're going after.

Okay, good. And then on Wausau, some old performance, but some of that was driven by, let's say, an accounting treatment. How about on a bookings basis? How is Wausau doing relative to your initial expectations?

Yes, it's a great question. The number one thing when you really understand these businesses, Tim, is where do they close the year on bookings compared to -- I call it how did they end their backlog for 2014 compared to 2013 so that we know what we got to get from a sew-and-build basis going forward.

And what I would tell you is that we closed very well or right in line with what we expected. So we still got big numbers to get from a book or so in bill ratio this year. But no, we finished, I would say, right where we wanted to be, maybe slightly better, and I think that projects well for our commitment to deliver the $80 million this year.

Perfect, perfect. And then one for you, Terry. Tax rates relative to my model is down 50 basis points for 2015. What drove that and is there room for further improvement in the near term?

There's always the one-off things that will happen in taxes that can cause that rate to bounce around a little bit. But we've done a pretty good job in terms of thinking through 2015 and what some of those one-time items might be as we look through the year and try to build that in.

So the difference between what we've seen in the past and how we see it going forward is more driven by some of those one-time benefits and costs versus any significant change in unitary tax rates or any significant mix change between what jurisdictions we're operating in.

And Tim, one of the comments that I would add and [get on portion] Terry and his team and actually our whole Company on how we can get better at lowering our tax rate. One of the challenges that we ended up having is when we guided preliminary in the third quarter, we -- I said it was flat year on year. We now have ended the year, 2014, with a better -- a lower tax rate.

So that gives us $0.05 -- I think Terry referenced on the call that is dilutive to last year. So yes, our job is to keep after this and see if there's other things that we can do. And the way I would look at it is just smart moves in the business and looking at, like Terry said, at those discrete items. So another area of focus for us and hopefully something that we can get better at, but I think we are comfortable right now with that 33.5% rate.

Okay, perfect. Thank you.

Charlie Strauzer, CJS Securities.

Two questions. Just to take up on Jamie's questions on leverage and just the decision to call your bonds -- the 2019 bonds now versus maybe wait until you build some cash.

Yes, the 2019 notes were at -- are at 7% of stated rate. It's the only issuance that we've had outstanding for a while that we have not had hedged. So it has been for quite some time and by quite a bit our most expensive debt.

And the decision to refinance that now is purely the opportunity to lower that rate that we are paying. We had expanded our credit facility last year from the normal $200 million level that we've had up to $350 million and just certainly with a favorable rate. We were anxious to do that as quickly as we could and chose not to resize that back down to the $200 million level.

And on the context of repaying that and the sufficiency of cash that we have, one of the reasons that we are financing a little bit of that repurchase with a new bank note is not because we don't have enough cash to repurchase it, it's really because we want to maintain just a healthy level of cushion in there. Because our credit facility has historically been there to fund acquisitions that come up, so that we are not having to issue debt every time we do $20 million, $30 million, $40 million acquisition. So we wanted to maintain that level of cushion so that we could continue on with that strategy and not tighten ourselves to get ourselves too tight there.

Got it, that makes some sense. And secondly, just if you could, I know you gave out kind of a blended dilution number that includes the marketing spend on brand awareness. Can you isolate that a little bit further, just as to what the brand awareness component dilution might be?

Yes, you're talking about the reference in second quarter, where we said it was $0.06 dilution for the Wausau piece and the brand spend?

Correct. And also if you could give us a sense for the full year, a range of what you might be looking to spend there.

Yes. The extra spending that we will be doing there, we will carry through on a four-year basis. We will be spending at a higher level than we did for all of 2014 as well.

We have not published or we've not given out that specific number, but just because that second quarter was just more of an anomaly than we typically will have, we felt it was necessary to call that out.

Got it.

But it's been a piece of that $0.06.

And obviously, you're spending a little bit more, it sounds like, because it sounds like you're getting some decent traction from that.

Yes. Yes, we are very happy with -- again, we are very early with the Small Business Revolution spend that we are doing this year, but we feel really good about the start we've seen.

Great. Thank you very much.

Thank you. I would now like to turn the call over to Lee Schram for closing remarks.

Yes. I would just like to thank everybody for your participation and questions today. And I would like to summarize just on three points.

First, we delivered our fourth outstanding quarter of 2014. We also delivered our fifth consecutive year of revenue growth. And we have established what we believe is a solid foundation to grow our revenue again in 2015 for the sixth consecutive year.

So we're going to get back to work, roll up our sleeves, and I look forward to providing a positive progress report on our next call. And I'm going to close with -- let Ed close with some housekeeping.

Thanks, Lee. Before we conclude today's call, I would just like to mention that Deluxe management will be participating in quite a few upcoming events in the first quarter, where you can hear more about our transformation.

On February 23 and 24th, we will be at the J.P. Morgan Global High Yield and Leveraged Finance Conference in Miami. On February 25th, we will be at the Robert W Baird and Company 2015 Business Solutions Conference in New York.

On March 11, we will be in New York at the Credit Suisse Global Services Conference. On March 17, we will be at the Sidoti & Company conference in New York. March 18, we will be at the Northland Capital Growth Conference in New York, and on March 25, we will be attending the Telsey Advisory Group, the TAG Spring Consumer Conference.

Thank you for joining us and that concludes the Deluxe fourth-quarter 2014 earnings call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.