Deluxe Corp (DLX) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Deluxe Corporation third quarter earnings conference call.

(Operator Instructions)

As a reminder, today's call is being recorded. I would now like to turn the conference over to Ed Merritt, Treasurer and Vice President of Investor Relations. Sir, you may begin.

Thank you Shannon, and welcome everyone to the Deluxe Corporation's fourth-quarter 2015 conference call. I'm Ed Merritt, Treasurer and Vice President of Investor Relations. And joining me today 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'd 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 in the Company's Form 10-K for the year ended December 31, 2014.

The financial and statistical information that will be reviewed during this call is addressed in more 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 FCC, on the 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, or as part of our remarks during this call. Now, I will turn the call over to Lee.

Thank you Ed, and good morning everyone. Deluxe delivered our fourth strong quarter of 2015. We reported revenue in the upper range of our outlook, in spite of continued foreign exchange headwinds, and adjusted earnings per share above the high end of our outlook.

Revenue grew more than 3% over the prior-year quarter, driven by financial services growth of 7% and small business services growth of 3%. Marketing solutions and other services revenue grew better than 12% over the prior year, and represented over 33% of total fourth-quarter revenue.

Adjusted diluted earnings per share grew 6% over the prior-year quarter. We generated strong operating cash flow of $308 million for the year, and we were drawn $434 million on our credit facility at year end.

We repurchased $13 million in common shares in the quarter, and $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 celebrated our 100 year anniversary as a Company by ringing the opening bell on November 23, 2015, on the New York Stock Exchange. We also advanced process improvements, and delivered on our $50 million cost reduction commitment.

On December 1, we completed a small tuck-in acquisition of FISC Solutions, which will further enhance our financial services marketing solutions and other services product set by adding treasury management lockbox, database, print and mailing, and bank processing services.

It also adds platform redundancy for Wausau, which is critical for risk mitigation. FISC has already been integrated right into Wausau.

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

Thank you, Lee. Earlier today, we reported diluted earnings per share for the fourth quarter of $1.20, which included $0.06 per share, collectively, for restructuring charges and transaction costs. Excluding these costs, adjusted EPS of $1.26 exceeded the upper end of our previous outlook, and was 5.9% higher than the $1.19 reported in the fourth quarter of 2014. The restructuring charges are primarily for employee severance and infrastructure consolidations, and the transaction charges related primarily to the Datamyx and FISC acquisitions.

Revenue for the quarter came in at $464 million, growing 3.3% over last year, and over 5% sequentially from last quarter. The growth rate, excluding the recent Datamyx and FISC acquisitions, and an unfavorable foreign exchange rate, was about 2%. Small business services revenue of $304 million grew 3.3% versus last year, despite a continuing sluggish economic environment and unfavorable foreign exchange rates, which negatively impacted revenue growth by 1 percentage point in the quarter.

We delivered growth in marketing solutions and other services. And from a channel perspective, our online safeguard distributor, major accounts, and dealer channels grew. Financial services revenue of $120 million grew 7.3% versus the fourth quarter of last year. Excluding revenue from acquisitions, financial services would have been down low single digits for the quarter. Higher marketing solutions and other services revenue, driven by Wausau, Datamyx and Deluxe Rewards, price increases, and revenue from Zion's Bank, more than offset the impact of lower check orders.

Direct checks revenue of $40 million was down 6.8% from last year, and in line with our expectations. From a product revenue perspective, checks were $213 million, representing 46% of total revenue. Forms and accessories were $98 million, or 21% of total revenue. And marketing solutions and other services were $153 million, which was 33% of total revenue.

Gross margin for the quarter was 63% of revenue, which was flat with 2014. The impact of previous price increases, improvements in the services revenue margin, and improvements in manufacturing productivity were offset by product revenue mix and higher delivery and material costs.

SG&A expense increased 4% in the quarter, and was 43.1% of revenue, compared to 42.8% of revenue in the same period last year. Benefits from our continuing cost reduction initiatives in all three segments were offset by increased SG&A in financial services, associated with recent acquisitions, and our efforts to grow small business direct sales channel. Excluding restructuring and transaction related charges in both 2015 and 2014, and a loss on the sale-leaseback in 2014, adjusted operating margin for the quarter was 20.5%, which was roughly flat with the 20.6% generated in 2014.

Financial services delivered an operating margin better than our expectations, while small business services and direct checks margins were in line with our expectations. Small business services adjusted operating margin was very strong, at 18.8%, and increased 0.8 percentage points from the prior year. This operating margin is the highest since the fourth quarter of 2013, when we were spending less on brand awareness. Financial services adjusted operating margin of 20% was down 2.7 points from 2014, driven by Wausau, Datamyx and FISC acquisition amortization expenses, and check usage declines, partially offset by continued cost reductions.

Wausau was accretive to earnings in the fourth quarter, but the financial services adjusted operating margin was negatively impacted 4.9 points from Wausau, Datamyx and FISC. Direct checks adjusted operating margin of 35.7% increased 2.2 percentage points from 2014, driven by a higher mix of reorders and lower costs, which more than offset the lower order volume.

Turning to the balance sheet and cash flow statement, at year end, total debt outstanding was $631 million, up from $554 million at the end of 2014. The 2015 amount included $434 million drawn against our credit facility.

Cash provided by operating activities for the year was $307.9 million, a $27.5 million increase compared to 2014. Higher earnings and changes in working capital were partially offset by higher performance-based compensation and income tax payments.

Capital expenditures for the year were $43 million, and depreciation and amortization expense was $77 million. Other significant financing and investing activities in 2015 included refinancing our $200 million notes, due in 2019, with lower rate debt. Investing $213 million in acquisitions, the largest one being Datamyx, using $60 million to repurchase common stock, and distributing $60 million to shareholders through dividends.

Looking ahead to 2016, we expect consolidated revenue, on a full-year basis, to range from $1.835 billion to $1.875 billion. Diluted earnings per share are expected to range from $4.75 to $4.95. There are several key factors that contribute to our full-year outlook, including small business services revenue is expected to increase 4% to 7%, as volume declines in core business products and the negative impact of foreign exchange rates are expected to be offset by growth in our online, distributor, dealer and major accounts channels, price increases, double-digit growth in marketing solutions and other services offerings, and continued small tuck-in acquisitions.

We expect financial services revenue to increase 6% to 8%, driven by continued growth from marketing solutions and other services revenue, including Datamyx, Wausau, FISC and Deluxe Rewards, partially offset by recurring check order declines of 6% to 7%, and some pricing pressure. A direct checks revenue decline of approximately 7% to 8%, driven by lower check order volume, stemming from secular declines in check usage; 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; and an effective tax rate of approximately 33.8%, representing approximately $0.03 of dilution per share, compared to 2015's tax rate.

We expect to continue generating strong operating cash flows, ranging between $315 million and $330 million in 2016, reflecting stronger earnings and lower interest payments, partially offset by higher tax and employee medical payments. We expect contract acquisition payments to be approximately $15 million.

2016 capital expenditures are expected to be approximately $43 million, or the same as 2015, 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 $87 million, including approximately $41 million of acquisition related amortization. For the first quarter of 2016, we expect revenue to range from $448 million to $456 million. Adjusted diluted earnings per share are expected to range from $1.12 to $1.17. This EPS range would drive a very strong eight 8% to 13% growth in the first quarter, year on year.

Lower interest expense from extinguishing the 2019 notes in the first quarter of 2015, partially offset by higher interest expense, driven by the Federal Reserve's recent rate increase action, is expected to be about $0.02 favorable, year on year. Wausau was a little over $0.02 dilutive in the first quarter of 2015, and brand spend is expected to be flat for the first quarter of 2015.

Also, as a reminder, historically, direct checks has their strongest revenue quarter of the year in the first quarter. Adjusting for these items in both years, first quarter's adjusted diluted EPS growth rate would still be a strong 4% to 8%.

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 periodically repurchase common stock. To the extent we generate excess cash, we plan to reduce the amount outstanding against our credit facility. And 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. Overall, we had another solid year, and we delivered on our commitment to reduce our cost and expenses in 2015 by approximately $50 million, bringing our total reduction since mid-2006 to approximately $600 million.

Looking ahead to 2016, 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 2016. Approximately 50% of the $50 million in expected reductions will come from sales and marketing. Another 35% from fulfillment, and the remaining 15% coming from our shared services organizations.

Our focus in sales and marketing for 2016 continues to be on sales channel optimization, platform and tool consolidation, leveraging sales and marketing efficiencies, including integration from recent 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, 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 will turn the call back over to Lee.

Thank you, Terry. I will continue my comments with a perspective on what we accomplished overall in 2015. Look ahead to 2016, including framing our eight strategic focus areas for the year, and review our key revenue growth area, marketing solutions and other services. I will then highlight progress in each of our three segments, including a perspective on what we plan to accomplish in 2016.

Deluxe grew revenue in 2015 for the sixth consecutive year, for the first time since 1996. We saw continued stability in our core check and business products -- and product businesses, and improved our mix of faster growing marketing solutions and other services revenues to 30% of total annual revenue. We acquired Verify Valid, Jumpline, Datamyx and FISC to expand opportunities in higher growth marketing solutions and other services. We also accelerated our brand transformation, and celebrated our 100 year Company anniversary.

In addition to our strong print leadership, we continued to invest in our employment brand and digital technology, and extending our sales channel reach, and in our communities. We ended 2015 with 4.5 million small business customers, of which approximately 27% of them are marketing solutions and other services customers. And we served approximately 5,100 financial institutions.

In shared services infrastructure, we reduced costs and improved the effectiveness of information technology, finance, human resources, real estate and legal functions. Our intense focus on cost reductions has now delivered enterprise-wide savings of $600 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 seventh straight year, allowing us to pay our dividend, repurchase shares and invest in acquisitions.

We recognize that there's still a tremendous amount of work to do, but we made great strides in 2015. As we enter 2016, our primary focus continues to be profitable revenue growth, and increasing the mix of marketing solutions and other services revenues. We are poised for continued growth, as we aim for profitable revenue growth in 2016 for a seventh consecutive year.

As we briefly introduced on our Q3 earnings call, we have eight strategic focus areas for 2016, including three for financial services and five for small business services, that we will provide regular updates on throughout the balance of 2016. I will review each of the eight focus areas in a few minutes, during the segment updates.

From an overall macroeconomic perspective, clearly, there are global pressures, with challenges in China, with energy, oil and gas, and the strengthening dollar. And not to say we are completely immune from these, but we believe the direct impact on these for us is insignificant. We have developed an incredible execution-oriented culture that has operated through various market environments, and has delivered strong top and bottom line growth for the last six years.

We have built our business on large-sized markets and relationships in the small business and financial institutions spaces, with broad, robust and growing product offers that we believe sets us up extremely well for 2016 and beyond. As we have continued to grow marketing solutions and other services revenue, both organically and through tuck-in strategic acquisitions, our revenue mix is significantly diversified now.

This has also positioned us to be a solution base provider to our customers. Our solutions allow us to address a broad range of customers' needs and pain points, further enhances Deluxe as a trusted partner, and deeply embeds us in their work flows, and ultimately leads to sticky relationships.

We expect to increase a broadening and more highly diversified marketing solutions and other services revenue stream to 34% of total revenue mix in 2016, towards our goal of MOS representing 40% of revenue by 2018. Within MOS, we also expect over 10% of total Company revenue mix to be in the even higher-growth multiple Thin Tech spaces.

In summary, given this perspective, we believe that the market is not fully understanding or valuing the exceptional strength and positioning of Deluxe right now. Here is an update on our four sub-categories framework for marketing solutions and other services. We ended 2015 at over $532 million in revenue, or right about on our expectation, with mix in the four sub-categories also right in line with our expectation.

First, small business marketing finished 2015 at 39% of total MOS revenue, and is expected to represent approximately 40% in 2016, with expected growth of approximately 16% to 20%. Key 2006 growth initiatives include profitably scaling integrated marketing on demand solution offers, with the largest opportunity in major account verticals, including automotive, financial services, healthcare, hospitality, real estate, service franchises and telcos. 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, web hosting, SEM, SEO, email marketing, social, and payroll services, finished 2015 at 21% of total MOS revenue. And is expected to represent approximately 18% in 2016, with expected organic growth rates in the low single digits. Key 2016 growth initiatives include scaling web services offers through our just-released integrated Deluxe marketing suite across all customers and channels, delivering partnerships and acquisitive opportunities that both double down on existing capabilities and address gaps within our portfolio.

We closed 2015 with approximately 950,000 web hosting customers, which is a 14% increase from 2014. We expect to close 2016 with nearly 1.05 million web hosting customers, an increase of 11% from 2015.

The third category, fraud, security, risk management and operational services, finished 2015 at 16% of MOS revenue, and are expected to represent approximately 14% in 2016, with expected growth in the low single digits. Key focus growth areas in this category, in addition to our standard fraud and security offerings, include performance management, by adding Banker's Dashboard customers, including tablet and new credit union offers, as well as strategic sourcing new financial institution wins.

In addition, we continue to see growth from scaling eChecks, with opportunities both within our traditional direct channels, as well as 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. Q4 was our best revenue quarter ever for eChecks. And for the full year, the eChecks platform processed more than $1 billion of payment value, to more than 400,000 payees. We continue to progress opportunities with financial institutions, medical and insurance payment processors, accounting services and software providers, and other document management and payment solution companies.

We are excited to announce that we just closed two new deals. One with an integrated healthcare payment solutions provider, and another one with an accounting and financial services outsourcing provider. 20% of all eCheck customers are new customers who have not purchased a paper check from Deluxe in the last six years.

Finally, other financial institutions services finished 2015 at 24% of MOS revenue, and are expected to represent approximately 28% in 2016, with expected double-digit growth rates. Key growth initiatives here include scaling Wausau, FISC, Deluxe Rewards and Datamyx.

We expect marketing solutions and other services revenues to be approximately $615 million to $630 million in 2016, up from $532 million in 2015, with organic growth in the low double digits. If achieved, this performance would translate to a total revenue mix of around 34% of revenue, and up from almost 30% in 2015, and 26% and 22% 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 forms and accessories expected to represent approximately 20% of revenue.

Now shifting to our segments. In small businesses services in the quarter, as expected, we did not see any notable improvements, as the economic climate for small businesses remains sluggish and foreign-exchange rates continue to deteriorate.

Revenue grew over 3%, and was negatively impacted by foreign exchange headwinds, which impacted growth by 1%. Checks and forms were slightly below the high end of our expectations, and seasonal holiday offers performed about in line with our expectations.

Results from targeted customer segmentation in the call center improved, and visitors, 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 small business marketing solutions, web and payroll services, while SEM, SEO services declined, in line with our earlier decisions to exit some unprofitable channels. Again, we ended the quarter with approximately 950,000 web hosting customers.

We continue to closely monitor the small business market. Optimism indices were flat in October, and then declined in November and closed slightly higher in December, but ended the fourth quarter down.

The index is stuck in a below average rut, and signals that the economy is basically just slumping along. The index ended the year below the highest levels reached in this recovery, in late 2014, although the labor market and capital spending continued to reflect some encouraging signs.

In summary, current optimism indices indicate a continued sluggish economy. 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 that indispensable partner for growth.

For 2016, we have created a four-quadrant matrix to frame four of the five strategic focused areas for SBS. First, for market your business products, which includes small business marketing solutions, our focused areas are profitably scaling integrated marketing on demand solution offers, with the largest opportunity in major account verticals, including automotive, financial services, healthcare, hospitality, real estate, service franchises and telcos.

Second, market your business services, which includes web services offers, our focus areas are improving operating income, by optimizing product portfolio, channels and operations. Delivering partnerships and acquisitive opportunities that both double down on existing capabilities and address gaps within our portfolio and providing our integrated Deluxe marketing suite across all customers and channels.

Third, for operate your business products, which includes checks, forms and accessories, our primary focus is on driving customer acquisition and retention, and improving safeguard distributor processes and profitability.

Fourth, for operate your business services, which includes primarily fraud and security, eChecks and payroll services. And where our focus is on scaling eChecks, assessing adjacent offering extensions like checks and eChecks for e-deposit, variable check printing, and remotely created checks, and payroll time tracking and billing. As well as continuing to evaluate potential partnership and acquisition operating services opportunities.

The fifth SBS opportunity is continuing to improve brand awareness. In 2016, we will be telling more stories and packaging great advice for other small business owners, from the 100 businesses we featured in 2015.

We also will be producing a web series with Robert Herjavec that showcases small businesses, while incorporating marketing lessons from Deluxe. Another exciting partnership with Robert is that he has enlisted Deluxe to provide marketing support to the businesses he invests in on Shark Tank.

We are also in the midst of the Small Business Revolution Main Street contest. For this contest, we are soliciting nominations from towns that can benefit from an investment in their Main Street, and we have received nearly 6,700 nominations from more than 1,300 small towns so far. In the second quarter, we will announce three small-town finalists during national small business week, when the public will vote for their favorite.

The winning town will receive $500,000, providing a jolt of revitalization to their Main Street business community, and upgrades to their public spaces. We see these efforts as a great platform to continue to increase our brand awareness within the small business community.

In financial services in the fourth quarter, we saw the rate of decline of checks perform a little lower than 6%, which translates to the year being a little higher than 6%, with rates across our six tier banking categories. We had strong overall new acquisition rates, and our retention rates remained strong on deals pending in the current quarter. We simplified our processes and took complexity out of the business, while reducing our cost and expense structure. We made progress again in the quarter in advancing marketing solutions and other services revenue opportunities.

Wausau revenue was approximately $19 million, which met our expectations, and we had strong bookings in the quarter, helping us build backlog, which finished the year about 6% higher than backlog last year. So we are encouraged about growing Wausau revenue in 2016. Wausau ended the fourth quarter and the year about $0.02 accretive per share.

As mentioned earlier, we also completed the FISC small tuck-in acquisition, which has been integrated into Wausau. Deluxe Rewards continued to perform very well in the fourth quarter, including closing a new financial institution pilot that may lead to a larger contract, as well as we expect to close another financial institution deal as part of a check renewal, so a nice cross-sell opportunity.

Datamyx is off to a very strong start, as revenue came in closer to $8 million, or better than expected, and about $0.02 dilutive per share. For 2016, we have three strategic focus areas for FS. First, retail banking, which includes checks, marketing services, and rewards and loyalty.

For checks, our focus is on improving retention rates and gaining share. We expect check units to be in a decline range of 6% to 7%, or in line with 2014 and 2015 decline rates. Please note that we understand it is important for us to maintain low decline rates. But given the size of the FS checks business now, and the growth in MOS, every 1% decline in FS checks now only has about a $2.5 million annualized impact on revenue. We have now extended all our large contracts through at least the end of 2016, and we have about 20% fewer community bank contracts up for renewal in 2016 compared to 2015, and we have more competitive opportunities coming up.

We also implemented a very small price increase at the start of this year. For marketing services, our focus is on leveraging Datamyx data and analytics, together with marketing services campaign execution, to accelerate outsourced campaign targeting and multi-channel execution. For rewards and loyalty, our focus is on profitably growing Deluxe Rewards revenue.

The second FS strategic focus area is commercial banking, and includes treasury management and profitably growing Wausau and FISC revenue, and assessing and executing tuck-in acquisitions, along with assessing other adjacent opportunities in commercial banking. The third FS strategic focus area is performance management, and includes scaling Banker's Dashboard and strategic sourcing.

For 2016, we expect marketing solutions and other services revenue to be approximately 45% of total financial services revenue, with the following at the midpoint of the FS revenue range. Marketing services, including Datamyx, $54 million; rewards and loyalty, $33 million; fraud and security, $24 million; Treasury management, including Wausau and FISC, $89 million; and performance management, including Banker's Dashboard and strategic sourcing, $19 million.

We still expect Datamyx revenue to be approximately $42 million in 2016, with strong double-digit EBITDA margins. And we expect Datamyx to be about flat per share from an EPS perspective, and to be dilutive, in total, less than six months from the acquisition date.

In direct checks, revenue finished 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 continued to see a ramp in revenue enhancement synergies through our call center scripting and up-sell capabilities, as well as synergistic cost and expense reductions.

For 2016, we expect direct checks revenue to decline in the 7% to 8% 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 cost and SG&A in this segment, and continue to deliver operating margins in the low to mid 30% range, while generating strong operating cash flow.

As we exit 2015 on the heels of a strong quarterly performance in a continued sluggish economy, we have made tremendous progress in transforming Deluxe. But we still have many opportunities ahead of us in 2016. We believe we are well positioned, entering 2016, for our seventh 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 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 2016, 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 up for questions, I would like to take this opportunity to thank all Deluxe employees for their hard work, dedication and simply outstanding performance in 2015. Thank you, Deluxe-ers. Let's get off to a great start in 2016, as we aim for seven consecutive years of profitable revenue growth.

And now, Shannon, we will open up the line for questions for Terry, Ed and I.

Thank you.

(Operator Instructions)

Our first question is from Jamie Clement with Macquarie. You may begin.

Lee, Terry, Ed, good morning and thanks in advance for taking my questions.

Hi, Jamie.

Lee, perhaps I should have asked this question three months ago, given the stock reaction after the last quarter and the Datamyx acquisition. It seems to me that some people took that deal announcement as a sign of a change in strategy by the Company. Yet if you look at what you have invested in, in SBS, in 2015, yes, maybe the deals weren't that big. But aggregate, you still spend a lot of money. So if it's possible, if you could just indulge this a little bit, and if you could treat all of the spending in SBS in 2015 as if it was one acquisition, can you share with us what you think you accomplished? What you added to the business? And what the opportunities are, going forward?

Specific to SBS, what we're trying to do is -- again, as I said in my comments -- get more of a solution focus. So when you think about those four quadrants, Jamie, what we're trying to do now is obviously, historically, it's been more of the operate your business products category, the checks and forms. But we're trying not only to get stronger in the web services space, but there is a huge opportunity for us in the small business marketing solutions space, as well.

And we're not sure. We like eChecks. We -- clearly, from my comments, we've made some progress here, including some -- a couple of brand-new wins that we have. So we see that as helping us in the Operate Your Business Services space, as well. So we're trying for more balance, and we filled in gaps that we had in the -- and we mentioned the C Panel Jumpline deal that we did. We are looking to still fill in gaps where we see them -- see fit to fill in gaps.

But the thing that we're trying to do with the Company -- and we said this on the fourth -- or the third quarter call, and you can feel it more today is, get FS growing, as well. And if we can do that, Jamie, the view we have is that we've got 90% plus now of the Company being able to say, we can organically get growth. And we see opportunities over there balance with the great opportunities that we have in the small business space, and bringing these all together, cross-selling more, and just having more richness and robustness in the collective MOS portfolio. And I think that balance is what we're trying to do. Stay smart in SB, but add capability in FS.

And if I may follow-up on that, you gave us some numbers, in terms of some of the MOS components of FI, I just couldn't quite, frankly, write them down fast enough. But what is the -- I don't know if you want to give a fourth-quarter number, or a full-year 2015. What percentage of FI was checks? And I don't know if you can pro forma that for Datamyx and for FISC, and all that. But just so that we can attempt to maybe model an organic growth rate of FI going forward.

Yes, here's the way to think about it. And if you think where we closed the year 2015, about 37% of FS was MOS. So about 63% would be checks, or checks and accessories, mostly.

Right.

This year, Jamie, we expect the MOS to move to 45%. So when I rattled off all those parts of the portfolio, we do that because you and investors are interested in those areas of the portfolio. That is the 45%. And therefore, the checks component, we expect to be about 55% this year.

Okay. All right. Thank you very much.

I will hop back in the queue. Thank you very much, though.

You are welcome.

Thank you. Our next question is from Joan Tong with Sidoti & Company.

Good morning. A couple of questions, and maybe a follow-up with Jamie's questions regarding organic growth, how we see it, going forward, for financial services. Obviously, your comments, very positive there, and [syntac] is about, what, 10% revenue of marketing solutions right now. And yes, we saw -- thought that I heard that organic growth for FS is down this particular quarter. But how should we view it, over the long-term, especially in 2016?

Here's the way, Joan, to think about it. And of course, you've got -- we try to be as straightforward, as you know, in giving you fair comps here. But the way to think about it is, if we execute to the $42 million that we've laid out for Datamyx, and all of the other numbers that I gave you for those MOS components for FS. And then we carry forward into what we believe are the opportunities from the business cases that we developed when we did the various acquisitions, looking into 2017.

We believe, given the rate of decline of check at that 6% to 7% in FS, that the collective segment should be able to grow in the low single digits, and that then becomes organic. So we have to flesh this year at the 6% to 8%, which doesn't -- it's not organic, obviously, right? Because the Datamyx acquired and FISC acquired in the fourth quarter of 2015 But when you look out, and you reach out, and you get through the year, and we believe we will execute to what we laid out, and you look into 2017, that's the energy and excitement that we've got.

We now have SB growing, and now we have what we believe, Joan, is that FS will be able to get some organic growth, as well. And therefore, again, the 90% plus of the Company organically growing.

Okay. That is great.

So we are definitely looking out, in the out year, in 2017, which is not too far away. And I'm not sure if I actually got it right. It seems like, in terms of your different channels, obviously Deluxe is known for that very good, expensive channel coverage. For me, it seems like your major accounts, like client list, is growing and growing. You just named a vertical market, for example, on the automobile side. And can you just give us an update on that?

Yes, we continued -- you see the extensive growth rate that we predicted for the small business marketing solutions, that first component of the four components within MOS, and we said 16% to 20% growth. What's happening right now, Joan, is we continue to see in the fourth quarter what we have seen in the previous several quarters, as well. That we are starting to be able to go out to what we call major accounts, which in effect ask like small business customers.

So we will go out to a financial advisor network, and will -- like Cetera, as an example. They're a nice customer. And they have somewhere between maybe 8,000 to 15,000, in effect, financial advisors. And those advisors all need everything from marketing materials and business cards, and they're now buying those from us, from what we call a central storefront.

So let's say Terry and Ed are advisors that work for Cetera. And they don't want to go in and figure out how to go find their own cards and marketing materials, so they go through a central storefront we have created for them. And then they know they can access that, and get whatever they need, and personalize it to what they want to targeted, as an advisor for their clients. So it's an example where this is happening in all of those other verticals that I mentioned, and we see this getting bigger. And we see the potential to put other services cross-sell things into there, as well.

So for example, in my example, Terry and Ed may want to start using email marketing to talk to their clients, as well. And so right now, this is a hugely interesting opportunity for us.

Right. That is great. And Lee, if I have to quantify that SMB opportunity, should I say that say -- let's say you have 4.6 million small customers right now, small, medium business customers right now. How many of those are actually using two or three different services or products, versus just checks? And can I just extrapolate the cross-sell, up-sell opportunity through the numbers that you can potentially give me?

Joan, the way to think about it is what we said publicly, the 4.5 million small business customers, and we ended the year with 27% of them considered MOS customers. So we believe the opportunity is to continue to fill out those four quadrant offers, between products and services that we have, both to help them in their marketing, as well to help them in how they operate. So that's the best way to look at it.

We're very leery on giving specific products, and here's why. We see competitors of ours who say, we are seven products. And what we see is that sometimes, it ends up being four different domains. We don't -- we look at it as, a product to us is a pure product that we're selling into there. We don't look at it as, four domains is suddenly four products, or something like that. So the opportunity that we see is that just being able to build out that 27% mix, and getting that mix to be higher overall.

I just would remind you, and the other investors, Joan, too, that we don't get all of our customers anymore coming to us through checks. Some of them don't even know we are a check company anymore. They come through logos. They come through email marketing. They come through web hosting, in that small business place. And then they might order checks as an extension or a cross-sell. It doesn't start anymore -- this is the incredible breadth and diversity of the portfolio that we're starting to get, as well.

Very good. And then finally, Terry, can you -- I think last year, when you talked about brand awareness, especially on the spending, might be some heightened spending in marketing and all of that. And you gave us some trajectory, how we should think about each quarter. Can you provide that information for 2016?

Yes, our -- as we indicated for first quarter, in particular, that is a lower quarter for us. But it is a pretty comparable spend level, in relation to what we had for the 2015 time period. And then as you look at the distribution out for the balance of the quarters, it's really stayed pretty comparably to last year. As we enter into small business week in the second quarter, that tends to more draw more of our spend, as we try to leverage what is happening at a national level, there. And the third quarter is also another higher quarter, and then it starts to taper off again towards the end of the year. So first and fourth quarters are lighter, and the heavier spend will again be in that second and third quarter.

Joan, to add on, and Terry did a nice job summing it up. To add on that, if you go back to my comments in the prepared comments. So we're going to be bringing out some of the energy and excitement around the continuation of the Small Business Revolution and Main Street stuff. And then you will see, in the third quarter, us announcing the winner, and then really ramping this web series, marketing web series. You're going to see us doing, in effect, web television, so to speak. Where are on with Robert, and we're working with clients.

We have already started this, in fact. We have seen several of Robert's businesses he invested in have now using our suggestions on SEM, or SEO, or email marketing. And then we are seeing their lift, almost immediate, in terms of their revenue lift coming in. So we've -- and I know Robert is really enthused with what we're doing, and obviously, those customers are enthused. So you're going to see that in the second and third quarter, be a little bit stronger, in terms of where we spend money. But that does match pretty much what we did last year, as well.

Okay, great. Thank you so much.

You're welcome.

Thank you. Our next question is from Tim Klasell with Northland Securities. You may begin.

I wanted to circle back. Wanted to circle back to that 4.5 million customers that you have, and the 20% in percent number that you threw out. How was that for, let's say, 2014 and 2013? How has that trended over time?

It was 25% in 2014. I think it was 20% in 2013, Tim. So it is growing nicely for us.

Okay, great. And maybe you could talk to us on what specific products that seem to be driving that? I know there's probably more than one. But if you could keep it down to maybe a shorter list, so we can know what products to focus in on?

It's really -- the real significant reach, right now, is in that small business solutions, when we're bringing together a package of marketing materials. And it's -- we call that small business solutions, Tim, is the way to think about it. But we're also bringing -- think about, we just increased the hosting customers from 850,000 in 2014 to 950,000 in 2015.

So we goosed that up by 14%, and we expect, this year, to add roughly another 100,000. So it is coming in a lot of different areas, is the way to think about it. But you can see where we have the largest growth rate right now within SB, in the mix of MOS, Tim, is going to be more in that small business solutions bucket.

Okay, great.

And then jumping over to web services, I think, in your prepared remarks, you mentioned that there were some gaps or some areas where you wanted to round that solution out. Can you give us any indication of where that might be? Not, obviously, specific product sets, but in a general area where you want to focus some of your efforts this year?

Here's the way to think about it. When we did this Jumpline deal, we have been looking for a C Pound capability for quite some time. And I don't know how many different companies we looked at, and we latched on to Jumpline. They're out of St. Petersburg, Florida, and Andy and his team have just done a super job so far. And so what we're looking is, how do we -- is there a way that we can bring that capability on more and more? And bring more -- migrate more customers in? Because we think they've done a great job up until now, and we think we can give them more muscle, so to speak, to do this even in a bigger way.

So we see it as partnerships latching on, maybe other tuck-ins that we can do, that we think will give us more scale. And we don't -- the way to think about it, Tim, we don't want all of the baggage, so to speak, that comes with that. We just want to get those customers, put them on our system, and we think we can profitably scale that in a lot better way. So that's an example where -- what I mean in that web services space.

Okay, great. And then Terry, quick question for you. Tax rates has obviously gone up a bit here. Is that 33.8% -- is that still a good number to go into 2017? Or will there be some -- maybe a greater impact in 2017, with -- once you've annualized all the acquisitions?

Yes, and we've seen more consistency in that tax rate in recent years, in the 33%. It is up a little bit for 2016. It will cost us about $0.03 per share. But in that range, with the product mix, and where we operate today, that's probably the best you can do, is just extrapolate from where we are.

Okay, very good. I appreciate it. Have a good day.

Thanks, Tim.

Thank you. Our next question comes from Josh Elving with Feltl and Company. You may begin.

Hi, good morning.

Hey, Josh.

Congratulations on your continued execution of the transformation.

Thank you, appreciate that.

I had one quick question, and you're already touched a little bit on organic growth. I just wanted to see if I could summarize it, from a consolidated basis? If I look at the midpoint of the revenue guidance for 2016, it around 4.5% revenue growth. Is there any currency impact considered in 2016?

Yes, we have assumed that there will be a negative currency impact, going into next year.

And so if I assume -- go ahead.

I would just say, essentially, what we do, we don't pretend like we can forecast or predict big increases or big decreases in the exchange rate. And we typically just level it out from where we are at the time we're really going out with our outlook and forecast. And really assume that's steady throughout the year. But given where it is and where it's been, on average, versus each of the quarters last year, it is down a little bit.

So if I just assume, call it, $80 million plus of revenue growth at the midpoint, back out maybe $40 million-ish for the Datamyx and some of the other small tuck-in acquisitions, I get to a couple of percent organic growth, plus whatever you have backed out or assumed for currency, getting me comfortably into the low-single-digit organic revenue growth. Is that the right way to think about it, from a top line perspective?

Yes, I think that's fair. I think the thing you've got to think about, though, is the growth coming in MOS, the huge levels that offset the rate of decline in the check part of the business, though, right? So that's the --

Absolutely.

That's the thing that you have got to balance out.

Absolutely. Thank you very much.

You're welcome, Josh.

We have time for one more question, and that will be from Charlie Strauzer with CJS Securities. You may begin.

Hi, good day. Just a couple of quick questions, if we could talk a little bit more esoterically about some of the recent larger acquisitions, like Wausau and Datamyx. And just when you look the growth rates you're expecting for 2016 from 2015, where are they, in your expectation of bandwidth? In terms of when you first bought them, to where they are trending now? And what has the -- been the go to market strategy, and has that changed at all?

Yes I'm going to start with Wausau. We, as I said in my prepared comments, Charlie, we finished the year really strong. We had great bookings in the fourth quarter. I just was over this earlier this week. We have all of our sales -- feet on the street salespeople in town for training. And that's now the Datamyx people, the Wausau people, and then the core people. And I thanked them, because they finished the year really strong.

And again, as I said, the backlog ending 6% higher. Do we expect to get growth in this? Yes, we expect it. If you go back to when we did this, October a year ago, we expected to get some growth. And I would tell you right now, we're doing really well. I think it's going to perform really well. Can we goose that up a little bit more this year, above the 6%, as we get more bookings coming in? I hope that is the case.

Datamyx is brand spanking new. We've only been with these folks a short period of time. They were at the meeting. I was extremely enthused about their progress, where they're at. I'm expecting that to grow, clearly, double digits, if you look at full-year 2015 to full-year 2016. So I feel very good about what we're doing, and I really like the camaraderie in adding these things. And how do we work with our sales force, getting them into accounts and vice versa? And I'm just really enthused, Charlie, about what we're doing right now.

That's great. Thanks. And then if you look at MSO revenue as a whole, in continued to grows very nicely this year, as a percent of revenue. Are you at a point where you can give us a little bit better sense of the overall margin picture, either the EBITDA margin or EBIT margin, for that bucket?

Yes, we are solidly now, solidly, in the double-digit EBITDA space at this point, and we expect to -- we're going to -- if you think of that curve that we put in our investor deck, the line, we are getting more and more to the point, this year, if we can execute where we think the can, of moving that up yet another notch in 2016. So very much on that trail. And you can see it in some of the prepared comments, where we're focused on the certain areas, and getting more profitability out of them. But right now, Charlie, I'm very encouraged, and we're buttoned down. To put a $50 million number out, for cost reductions again, we're getting it.

A lot of people think it's all in the check and the form side. It isn't. It's getting in these deals, and getting them integrated, and getting them scaling, and then getting the cost structure and those aligned better. And that's going to give us more of a lift this year in that sales bucket, if you think about how Terry described the split of the $50 million. So I'm very encouraged. Obviously, we have got to execute, but that is something we do well. So I'm hopeful that, as we do this year, we will be able to move those up even more.

Thank you. That is very helpful, and thanks for all the extra transparency this time. Thank you.

You're welcome. (multiple speakers) Yes, Shannon, let me just close with thanking everybody for their participation today, and I want to leave you with three thoughts. First of all, we feel we delivered four strong quarters in 2015. We also delivered our sixth consecutive year of revenue growth. We also feel that we've established a strong foundation for growth again this year. And our goal, again, as I said, is to grow revenue for seven consecutive years. We're going to get back to work, roll up our sleeves. We will come back, and hopefully provide a positive progress report on our next call. And I'm going to turn the call over to Ed for some final housekeeping.

Thanks, Lee. Before we conclude today's call, I just want to mention that Deluxe Management will be participating in a few upcoming events in the first quarter, where you can hear more about our transformation. On February 29 and March 1, we will be at the JPMorgan global high-yield leverage finance conference in Miami. On March 9, we will be in New York, at the Northland Capital's Growth conference. And on March 23, we will attending the Telsey Advisory Group's Spring Consumer Conference in New York. Thank you for joining us, and that concludes the Deluxe fourth-quarter 2015 earnings call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.