Deluxe Corp (DLX) 2015 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Quarter One 2015 Deluxe Corporation's Earnings Conference Call. My name is Kathy and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Thank you, Kathy and welcome everyone to Deluxe Corporation's first quarter 2015 earnings call. I am Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. And 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, if there are any. 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 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, 2014. The financial and statistical information that will be reviewed during this call is addressed in detail in today's press release, which is 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. In spite of foreign exchange headwinds, a higher tax rate and a continued sluggish economy, Deluxe delivered a strong quarter to start the year. We reported revenue and adjusted earnings per share at the high end of our outlook. Revenue grew almost 7% over the prior year quarter and over 1% organically driven by financial services growth of almost 21% and small business services growth of 4%.

Marketing solutions and other services revenues grew more than 31% over the prior year and in low double-digits organically and represented 28% of total first quarter revenue.

Adjusted diluted earnings per share grew more than 6% over the prior year and we generated strong operating cash flow of $78 million for the quarter. We redeemed all of our $200 million senior notes due 2019 on March the 16, 2015. We were drawn $318 million in total on our credit facility and short-term bank loan at quarter end. As expected we did not repurchase any common shares in the quarter. 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 basically delivered on our cost reduction expectations in the quarter.

In a few minutes, I will discuss more details around our recent progress and next steps. But first, Terry will cover our financial performance.

Thank you, Lee. Earlier today, we reported diluted earnings per share for the first quarter of $0.91 which included $0.12 per share for a contractual call premium and associated fees from this early senior notes retirement. And $0.01 from restructuring charges Excluding these costs adjusted EPS of $1.04 was at the upper end of our previous outlook and was 6.1% higher than the $0.98 reported in the first quarter of 2014.

Revenue for the quarter came in at $434 million growing 6.5% over last year. Small Business Services revenue of $277 million grew 3.9% versus last year despite a continuing sluggish economic environment and unfavorable foreign exchange rates, which negatively impacted revenue growth by 0.8 percentage points. We delivered growth in marketing solutions and other services, checks and in our online Safeguard distributor, major accounts and dealers channels.

Small Business Services revenue also benefited from price increases implemented early in the quarter. Financial Services revenue of $112 million grew 20.5% versus the first quarter of last year and would have grown about 2% excluding the Wausau acquisition. Higher marketing and other services revenue driven by Wausau and Destination Rewards, price increases and revenue from Zions Bank more than offset the impact of lower check orders and the impact on pricing from a large customer contract renewal early in the second quarter of 2014.

Direct Checks revenue of $45 million was down 6.0% on a year-over-year basis, but ended ahead of our expectations driven by higher re-orders that were not driven by marketing initiatives. From a product revenue perspective checks were $224 million representing 52% of total revenue, business products were $90 million or 20% of total revenue and marketing solutions and other services were $120 million, which was 28% of total revenue. Gross margin for the quarter was 64.8% of revenue, which was up 0.4 points from 2014. The increase was primarily driven by favorable product and services revenue mix and improvements in manufacturing productivity, partly offset by higher delivery and material costs. SG&A expense increased $17.4 million in the quarter, which was 45.0% of revenue compared to 43.7% 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 recent acquisitions and our efforts to grow the SBS distributor channel. Excluding restructuring and transaction related charges, adjusted operating margin for the quarter was 19.8%, which was down slightly from the 20.7% generated in 2014. All three segments delivered operating margins at least in line with our expectations. Small Business Services adjusted operating margin of 17.9% was up 0.6 percentage points over last year due to higher revenue, a favorable product mix and cost reductions.

Financial Services adjusted operating margin of 18.6% was down 5.7 points from 2014, driven primarily by Wausau purchase accounting expenses, check usage declines and the large customer contract renewal. Wausau's operations reduced Financial Services adjusted operating margin by 5.3 percentage points in the quarter. Direct Checks adjusted operating margin of 34.1% increased 1.2 points from 2014 and was better than we expected. The improvement was driven by better leverage and expense management initiatives.

Turning to the balance sheet and cash flow of statement. Total debt at the end of the quarter was $515 million, which was down $38.9 million or 7.0% from December 2014. Cash provided by operating activities for the quarter was $77.7 million, a $4.4 million increase compared to 2014. The increase was driven primarily by improved earnings and lower medical payments partially offset by higher performance based compensation payments. Capital expenditures for the quarter were $9.5 million and depreciation and amortization expense was $17.7 million. We are strengthening our previous consolidated revenue outlook for the full year to the upper end and now expected to range from $1.75 billion to $1.78 billion in spite of an unfavorable impact from foreign exchange rates of approximately $6 million.

We are also strengthening our expectations for adjusted diluted earnings per share to $4.40 to $4.55 despite a higher effective tax rate and unfavorable foreign exchange rates, which collectively negatively impacted diluted EPS by approximately $0.05 per share. Before I describe the factors impacting our outlook, I would like to remind everyone that as we announced in our last 10-K beginning in 2015, we have shifted management of two of our company owned distributors front SBS to FS as we determined that the businesses would be better positioned for long-term growth if they were managed as part of the Financial Services segment given they sell primarily to financial institutions.

Accordingly, we have re-classified revenue of almost $23 million for full year 2014 from Small Business Services to Financial Services to conform to the 2015 presentation. About $4 million of the $23 million is marketing and other services revenue and was previously reported in small business marketing solutions, but will now be included in the fraud, security, risk management and operational services as this portion of the business is performance management service related activity that helps financial institutions improve their business processes through supply chain management expertise, technology, and services solutions.

There are several key factors that contributed to our stronger full year outlook including Small Business Services revenue is expected to increase 5% to 6% as volume declines in core business products, lower SEM, and SEO revenue from our decision announced in the third quarter of 2014 to exit un-profitable business and unfavorable foreign exchange rates are expected to be more than 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 change and unfavorable foreign exchange rates, the growth rate in Small Business Services is expected to be in line with last year's organic growth rates. We expect Financial Services revenue to increase 11% to 14% driven by the 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 8% driven by lower check order volume stemming from secular declines in check usage and eliminating marketing expenditures that no longer meet our return criteria. Our 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 34.0% representing approximately $0.07 of dilution per share compared to 2014's tax rate.

We expect to continue generating strong operating cash flows ranging between $295 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 $75 million including approximately $29 million of acquisition related amortization. For the second quarter of 2015, we expect revenue to range from $424 million to $432 million. Adjusted diluted earnings per share is expected to range from $1.4 to $1.9. In comparison to the first quarter, we now expect earnings per share to improve driven by the lapping of a large financial institution contract renewal, which occurred early in the second quarter of 2014, earlier than expected integration savings from Wausau, lower interest expense and we expect to spend more on brand awareness in the second quarter.

In addition, Direct Checks historically has the strongest revenue quarter of the year in first quarter. We no longer expect Wausau to be dilutive to earnings in the second quarter as our current expectation is for breakeven performance with the accelerated integration savings. We expect strong earnings per share growth in both the third and fourth quarter as revenue should be higher, Wausau should become slightly accretive, interest expense should be lower and 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. On March 16, 2015 we redeemed all of the $200 million, 7% senior notes due 2019. The debt redemption was financed with the [drawer] on the existing credit facility and the issuance of a $75 million short-term bank loan. We may 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, which again are coming from all three of our business segments. Overall, we had a solid start to 2015 in the first quarter as we basically delivered on our expected costs and expense reductions towards our $15 million annual commitment net of investments. 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, leveraging sales and marketing efficiencies including integrations from SBS and FS acquisitions. 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 and 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 are also working opportunities in finance and real estate.

Now, I'll turn the call back to Lee.

Thank you, Terry. I will continue my comments with an update on our overall focus and then highlight progress in each of our three segments, including a perspective on what we hope to accomplish during the balance of 2015 as well as an update on our brand transformation.

Our primary focus in 2015 continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues towards our goal of 40% by 2018. Here we will focus on growing organically as well as continuing to assess potential small to medium-sized acquisitions that complement our large customer basis and add new technologies.

We have strengthened our channels in small business to include financial institutions, online, retail, wholesale, distributors, dealers, and major accounts. Deluxe is now more capable of helping small businesses pursue their passion as a trusted provider of a growing suite of products and services, a small business needs to market and operate their business. And helping financial institutions with customer acquisition, broad, security and risk management and commercial and treasury services offers.

Here is an update on our four subcategories framework for marketing solutions and other services. We ended the first 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% in 2015. With expected growth in the mid 20s this year. Key 2015 growth initiatives includes scaling web-to-print by cross-selling to our customer base and continuing to add new customers through distributors, dealers, and major accounts.

In addition to the opportunity to penetrate web-to-print, we also see strong growth opportunities in retail packaging, promotional products, and other marketing solutions. In the first quarter, we refreshed our web-to-print website and won several new major account customers that will use our comprehensive marketing solution offers that will begin rollouts in the second quarter.

These major account wins are driving the higher expected revenue growth in small business marketing for the year. The second category, web services, which includes logo and web design, web hosting, SEM, SEO, email marketing, social and payroll services is expected to represent approximately 21% in 2015. With expected decline rates in the mid-single digits, but low single-digit growth excluding our earlier announced decision to exit some unprofitable revenue in the SEM, SEO space.

The expected decline in this category is primarily driven by where we have the largest adverse impact of foreign exchange movement. Key 2015 growth initiatives and performance drivers include adding wholesale web telco and media resellers and partners, cross-selling to our retail base through bundled presence packages, adding more new customers resellers and partners, reducing web design churn rates and adding payroll services customers and features such as time and attendance applications.

This category also is our focus area for tuck-in acquisitions. We closed the first quarter with approximately 843,000 web hosting customers. In the quarter, we also won two new wholesale web telco and media competitive takeaway deals, which we expect to migrate in the second half of the year. The third category broad security risk management and operational services are expected to represent approximately 16% in 2015 with expected growth about flat. Key initiatives include scaling our broadband services including adding new features for both National and Community Banks and fraud and security offers for small businesses and direct to our consumers. It also includes adding bankers dashboard customers and providing both a tablet and new credit union offers. Our new credit union offer was released at the beginning of the second quarter.

This category also now includes some performance management revenue that was previously reported in small business marketing. In addition, we expect to scale eChecks more with opportunities ranging from adding eChecks to our distributor, dealer and major account channels to also scaling in many areas where we do not sell paper checks today.

In the first quarter, we acquired (inaudible) which we believe will help us build more credibility now as Deluxe eChecks. With larger financial institutions, paper rebate, temporary staffing, and other payment solution companies. In the first quarter, in addition to having our strongest quarter selling eChecks to our retail small business customers, we also secured our first commitment from a non-Deluxe financial institution that will begin a roll-out this quarter along with the payment solutions company.

Finally, other financial institution services are expected to represent approximately 23% 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 services 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 this is products excepted to represent approximately 20% of revenue. Here is an update on our brand transformation. Our intent for 2015 is to continue to raise brand awareness by leveraging our 100 year anniversary through a purposeful content based (inaudible) campaign. To celebrate our 100th year, we are telling the stories of 100 small businesses across the country, through a documentary and photo essay series. These stories will be released throughout the year via our social channels and live on small business revolution [data work].

We released three mini documentaries and 21 photo essays in the first quarter. The reaction has been very positive and has resulted in quite a bit of earned media attention with 184 million impressions in over 80 new stories on radio, television, and print. Social media is an important part of this campaign by virally spreading the stories and is responsible for 25% of the traffic to small business revolution [data work]. Starting this month and then with an even higher focus in May during Small Business Week, we have partnered with ABC and specifically Good Morning America and Shark Tank.

Both of these properties allow us to utilize national and local television which reinforces our national and local PR approach. Robert Herjavec from Shark Tank has joined us in the small business revolution and will be an expert in our full-length documentary to be released this fall, along with other small business industry experts. He will also participate in media interviews to help amplify our message and spread the campaign through PR and social.

Our goal is to stretch our spend with impactful content and reach yielding earned media attention to raise brand awareness. We will continue to release documentary campaign elements throughout 2015 to maintain momentum and activate social media and organic sharing of content. We will continue to 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 remained sluggish. We also saw some adverse impact on our results from unexpected severe winter weather and increasing foreign exchange headwinds. We had solid performance however as revenue grew 4%. Checks and forms performed well and our results from targeted customer segmentation in the call center improved. New customers from our financial institution Deluxe Business Advantage referral program and our direct response campaigns remained strong.

Average order value and conversion rates increased. Our online, Safeguard distributor, dealer and major accounts channels grew revenue over the prior year. We also saw growth in web and payroll services, while SEO, SEM services declined in line with our earlier decision to exit some unprofitable channels. Again, we ended the quarter with approximately 843,000 web hosting customers. We continue to closely monitor the small business market, optimism indices declined to start the quarter in January, we're basically flat in February, but declined further in March and collectively ended down for the quarter.

Severe winter weather and slower consumer spending were cited as the primary reasons for the sluggish optimism results. Optimism momentum in the fourth quarter of 2014 shifted downward in the first quarter with small business expectations for the future less than exuberant. The percentage of small businesses planning capital outlays over the next three months to six months fell to a weak 24% reading. In summary, current optimism indices remains sluggish and actually trended down in the first quarter.

The good news is that other than taxes and regulation, increasing sales continues to be a small business owner's number one pain point and our portfolio is significantly more robust now with many offers to help them here. As the economy recovers to transformative changes we are making to deliver more services offerings that helps small businesses get and keep customers, Deluxe is better positioned as that 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. For 2015, we expect marketing solutions and other services revenues or 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, we saw the decline of checks perform a little higher than 6% primarily driven by Tier 1 and 2 sized financial institutions. We continue to expect the decline rate for the year will be about 6%. We implemented a price increase at the start of the year, we had strong overall new acquisition rates and our retention rates remained strong and deals depending in the current quarter. We simplified our processes and took complexity out of the business, while reducing our cost and expense structure. We have now extended all our large contracts through at least the third quarter of 2015 with the exception of one which we are working to retain. We also continue to work a number of competitive RFPs.

We made progress again in the quarter in advancing non-check marketing solutions and other services revenue opportunities. Wausau revenue was approximately $17 million, which was lower than expected driven by some customer rollout delays to later in the year that may also extend into 2016 as well. We are also seeing financial institutions taking longer to decide to in-source or outsource Wausau services. Both of these challenges, we expect will have about $5 million adverse impact on total year revenue.

Destination Rewards, which we are now calling Deluxe Rewards continued to perform very well in the first quarter. And in March, we began the rollout of another new major customer Allstate and we are working, many other potential large accounts. Targeting in campaign services and profitability or Banker's Dashboard also continue to perform well in the first quarter. For 2015 we expect non-check marketing solutions and other services revenues to be approximately 40% of total FS revenue driven by Wausau revenue of approximately $75 million, frauds, security, risk management and operational services revenue of approximately $40 million Deluxe Rewards revenue of approximately $30 million and targeting campaign and activation services revenue approximately $20 million. Overall, we continue to be pleased with the Wausau acquisition. Although we have adjusted our revenue expectations down slightly for the year, we have been able to improve operating margins. As expected Wausau was dilutive a little more than $0.02 per share in the first quarter and although we originally expected it to be dilutive again in Q2, we now believe the operating performance will be neutral to EPS due to earlier than expected integration savings and then slightly accretive in the third and fourth quarters and basically close to neutral to earnings per share for the full year.

In Direct Checks, revenue was higher than our expectations, driven by higher initial orders and re-orders. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers. We continue to work 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 an up sell capabilities as well as synergistic cost and expense reductions.

Our Direct Checks expectations for the year are slightly better. Previously we guided to a decline of 9% to 10%, but we now believe the decline will be closer to 8% 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 cost 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 the first quarter on the heels of a strong quarterly performance in a continuing 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 in 2015 for our sixth 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 and operating cash flow. Our technologies in sales channels are stronger. Our digital technology services offer is 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.

Now Cathy, will open the lines up for Terry, Ed and I to take questions.

(Operator Instructions). Tim Klasell, Northland Security.

The first question has to do with Wausau, obviously that seems to be performing better than expected. But was wondering, we have some purchase accounting issues or revenue recognition treatments that we need to do. If we were to back that out, how that have performed during the quarter?

If we were taking it would have -- the $0.02 per share loss, Tim would have been, and we would had a profit. It's the best way to think about it.

Okay.

With the purchase accounting impact, did not create any variance that was that delivered just as we had expected. So they're right, we delivered on our expectations for the quarter.

Okay. Perfect, perfect, thank you. That's very helpful. And then, the next follow-on question. Is the currency impact, it's pretty much all Canadian dollar I'm sure. What were -- how did that affect cash flows?

At the bottom the cash flow statement, you'll see an impact on foreign exchange and I believe it was about $4 million of impact on the cash due to FX.

Jamie Clement, Macquarie.

Terry first question for you then Lee, I'll ask you one if that's okay. Terry, if -- I was trying to jot this stuff down, but if you could maybe just help me just to make the math easier, between currency where you stand today in terms of your projection for 2015 as well as tax-rate year-over-year what's the aggregate delta on EPS from 2014 to 2015, if you could give me those two numbers, if you have them?

So the tax rate year-over-year on a full-year basis is $0.07 per share.

Okay. And currency, based on current assumptions?

And currency today is at just a touch over $10 million of revenue and say roughly about $3 million of pre-tax profit.

On a full year basis or quarter?

That's on a full-year basis, both of those numbers -- all of those numbers I just gave you are for the full year.

So, I thought $3 million it sounded like, that was for the quarter know?

$3 million was closer to the revenue impact for the quarter.

Revenue impact. Okay, got it. Okay, that's what I think, I got a little bit confused. Fair enough.

Just getting back to you Jamie, we had -- some of that tax rate increase in our initial outlook in the year, we got some of that negative rate impact about $4 million of revenue in our initial guidance at the beginning of the year, but certainly as the quarter went on, it worsened. And that's grown from $4 million to now, we see $10 million based on March 31 rates.

Yeah, now that's what I want to clarify, because obviously your revenue -- your earnings guidance strengthened with the release this morning, yet some of that stuff actually appeared to be more negative. So I just wanted to -- wanted to get?

Yes. We are not adjusting our outlook for those headwinds.

Yes, got you . You are baking in those [settlements] that's what I'm saying.

We are baking them in --

Yes, got it.

Those are our issue, not yours.

Got it. Totally understood. Lee, switching to you if I may. So, as you look at some of the strength in the sales channels that you alluded to in the prepared remarks, whether that be Safeguard, dealer, online, large account, from your perspective, if you kind of get your thoughts, the underlying strength in those versus let's say, some other channels, does that tell you anything about where you're doing a particularly good job and sort of the second question is, does that tell you anything kind of about the broader small business economy that you're selling into?

The way we look at it, Jamie, we've been consist on. So we want to win in all these channels and our goal is to maximize cost to acquire and how do we find our customers through whatever channel they want to find (inaudible) those channels to win. So when you hear us talk about growth across those channels and most of the channels, I think we said today we saw growth in the quarter, I think that's a good sign for us. I think it's a good sign for, the offers that we have reaching the market. One area, I want to highlight again that I said in the prepared comments that we've seen even stronger opportunity as the major accounts. We are starting to see larger customers who have again access to small businesses and gain access to small businesses. It's that one to many model that we like where you can get a major account, then they start having those relationships with those small businesses underneath there. We won several deals that we think are significant, especially in the small business marketing solutions areas that we also think over time we can bring more services to. I would highlight that as something that we saw even surprise us in a good way and we want make a number of major deals which hopefully over some time we can start releasing some names. And I'll give you a sense of the magnitude of what these could be for us over time.

Okay. And then last question if I could, (inaudible) eChecks and the situation that you referenced in your prepared remarks, a non-Deluxe financial institution going through I believe you set up a payroll services company. Can you give us some flavor about how exactly they are going to be going to market and what that kind of debt arrangements really going to look like thematically?

Yes, it's interesting that non-Deluxe account FI wants to go to their small business owners and they principally like to try to implement eChecks to do that. And there, they just might roll it out as a new initiative in something they think is a differentiator for them in the market place. The payment solutions company, what's exciting about these kind of opportunities is that, think of it is solution companies out there that historically issued paper checks to a consumer or to a through a flow of funds through somebody there brokering a relationship with to the consumer. And again, what we're going to be doing is issuing eChecks on their behalf, they'll issuing eChecks in effect. So, we like them, these obviously when they're non-Deluxe FI's and when they're areas that we're not doing paper checks today, Jamie, that's an exciting area for us. So, those are exactly what they are going to be for.

Joan Tong, Sidoti.

I have a couple of questions here. Hi. You know, my question is related to our financial services, if I hear that correctly, I believe that you mentioned, if you exclude the Wausau acquisitions, you are talking about organic growth of 2%. And it's really good results like in light of the continued decline in check business. So I'm just wondering what is driving the strength other than apparently the definition reward is really, really strong as you mentioned in your prepared remark? Any other areas that you can call out in terms of like seeing that organic growth of 2%.

You hit a lot of them, Joan, but we had a really strong quarter in Destination Rewards now what we're going to call Deluxe Rewards going forward. We also did well in some of those other services that the targeting and campaigns services, we had a strong quarter there as well. So filling that out really helped our performance with the check rate decline been about and units been about 6%.

Right. And do you expect that trend line, that organic growth trend line, do it continue going forward?

Yes. One thing to think about on our $120 million on MOS revenue in the quarters, we had a couple of things that happen as the year unfolds. We have deals that we've won, I mentioned major account wins today, I mentioned in both the major accounts area within small business marketing, and within web services winning two competitive deals, takeaway deals. And then we also have seasonality, as you get into the, with some of our offers as you get into the more the holiday season part of the year.

So because of that, we expect those ramps to be bigger. We also expect these rollouts in several of the financial services along with Wausau getting stronger as the year progresses, with deals we've won and now getting in the roll out, same thing with Deluxe Rewards as we go forward, same thing with some of the other FI deals and the targeting and campaign services area. So that's how to think about it as we move through the year.

Okay, great. And then I have questions regarding web services, I think Lee, you mentioned that, one of the strategies going forward is to improve customer's experience. And you mentioned last quarter about like a single sign on platform, consolidating e-mails (inaudible) not. And I think it's on a beta trial, if I'm correct. I'm just wondering, so far how is the feedback and when are you going to roll that or you have already, I don't know, in terms of the actual platform, the single sign on to improve like customer experience going forward.

Right, Joan, we've had a very successful start, what we've done is we've taken all the beta users input at this point in time, and we're making modifications this quarter to all the learnings that we've got, the lovely experience, the simplicity of experience, the lack of complexity when they're looking at it, and intuitiveness of the offer and the solution. So what you'll see is us putting all those, in fact we're doing it right now, we're putting all those takeaways that we learn from the beta into tweaks and refinements to make the offer better and you'll see us come out in after this quarter with more of a full market launch. We are really excited about it right now.

Okay. That's great. And finally maybe just touch on eChecks a little bit. I'm excited about the acquisition, definitely. And I'm just wondering if you can talk about the economics how is it compare to, like a regular paper check profitability wise, pricing wise, if you have any color to share of you. Appreciate it.

Think of it as, we price the check about the price of a eCheck about the price, the eCheck about the price of a postage stamp. So our sales pitches is along those lines and we really have been sticking to our guns on every deal, every consumer deal or every small business deal, every deal that we talk about some of these bank deals in this payment company deal are going to be along the same lines as well.

And so, the economics on this are wonderful, one of the things that's really also compelling if we can get this thing to go in and I want to just remind everybody that this has got to take time to build this market out. We also are working with still many large financial institutions who are also very interested in this. But it will take some time, but one of the great things about this is where we cannot tell today when a small business customer or consumer is getting to the last paper check in their book,

we can tell when somebody has issued those eChecks. And what's great about that is the ability then to seamlessly without no marketing to go back to them or without following up to them to tap them on the shoulder in effect or electronically and say looks like you need more eChecks that we think is going to be a compelling operating margin opportunity for this space as well.

Okay, that's great, and then really just finally, I think Terry mentioned from pricing pressure on the checks businesses within Financial Services. But would you characterize as a stepped-up pricing pressure or it's pretty much pricing is always kind of an issue and it's just a little bit more noticeable this quarter.

I don't think, I think it's that, we are trying to make sure that our investors understand it's out there, I don't think it got any worse this quarter across all three of our segments, that all sell checks, but it is out there. And it's just something that we're trying to be remindful to the investor about.

Josh Elving, Feltl.

Just had one quick question, a couple of mine have been answered. But perhaps I missed it, but I wanted to get a better sense, obviously there were some moving parts within Financial Services with regards to acquisitions, realignment, some accounting issues per items. How do I think about that, operating margin for that segment going forward. I know that there was a big decline year-over-year. Can you kind of give me some ideas of how to think about the rest of the year?

One of the things that we try to point out because we were a little worried, that we thought we were clear with this when we stepped out the last quarter, but I think Terry did a nice job in his comments, Josh, is that, the 18.6% margin we had also had the 5.3 point impact from Wausau. So think about it as almost 24 points, we think we performed quite well, little slightly down versus the prior year, but remember that we had to absorb the large contract pricing decline that we had last year beginning in the April, in the April timeframe.

So the way to think about it going forward is that, if you think about Wausau being basically neutral for the year and $75 million of revenues that we told you, adjust your models for that and you should expect the business before that adjustment to be about in line with what we did last year. And so, yes, it's going to bring it down in the near-term, but we like this and we think we will continue to get more affective at improving the profit on that Wausau business as we go forward. And as we get some of this, the accounting treatment of things behind us.

Jamie Clement.

Lee, was just curious. I'm wondering whether over the last couple of years with some of the acquisitions that you've made and also the area of businesses, the areas of business where you're a little bit more evolved. Is there perhaps a little bit more seasonality in favor of 4Q and away from 1Q than perhaps was the case with the last five years ago?

Need to think about it. I don't know, and I guess I haven't thought about it in those terms. The biggest issue we always have in Q1 is for whatever reason our direct-to-consumer business is our strongest revenue quarter every year. I don't think it's materially different in Q2, and sometimes depending on when the Easter holidays falls whether that's in March or April, Jamie, those things around little bit. I wouldn't -- I can't tell you there's something wildly different other than --

I'll tell you what I was getting at was, some of the small business marketing services that you just -- you have more services, you're better at it than you were four or five years ago. I'm wondering if that like lends more seasonal strength to the fourth quarter around the holidays?

Fourth quarter for sure.

Yes, that's what I was saying, like I was saying in other words fourth quarter stronger than it has been historically is what I was really meaning to say. Do you get my (inaudible). So in another words as we model this out and we look at it, is the fourth quarter a lot stronger relative to the first than it maybe what's five years ago.

Yes. And then I think the way you should think about is, go back and look at what we reported on MOS in each of the quarters last year. I think with Joan's question, I mentioned that we'll keep ramping as the year runs on to that $520 million to $535 million range on revenue. So, yes, absolutely, Jamie.

So, I didn't ask the original question appropriately. But yes, that's what I was getting at.

Yes. And we're right with you on that.

Very good. Thanks very much for your time.

You're welcome. Okay. Let me just wrap up by, first of all, thanking everyone for their participation in the questions today. And I just got three summary comments that I want to make, first of all, we delivered a strong first quarter to start the year. Our marketing solutions and other servicing revenue grew over 31% and the mix improved towards our goal of 30% this year and 40% by 2018 and we also believe that we established the strong base line first quarter that we believe propels us towards revenue growth again in 2015 for the sixth consecutive year. So as we normally say we're going to get back, roll up our sleeves, get back to work and we look forward to providing another positive progress report on our next call. And I'm going to turn it over to Ed for some final housekeeping.

Thank, Lee. Before we conclude the call today, I just like to mention that Deluxe management will be participating at a few upcoming events in the second quarter where you can hear more about transformation. On May 6th we'll be in Chicago at the R.W. Baird Growth Stock Conference, on May 11th, we'll be in New York at the Macquarie Business Services one-on-one conference and then June second we'll be in New York at the Stephens Annual Investor Conference. Thank you for joining us. And that concludes the Deluxe first quarter 2015 earnings call.

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