Deluxe Corp (DLX) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Deluxe Corporation First Quarter Earnings Call. At this time, all participants are in a listen-only mode. (Operator Instructions). Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference may be recorded.

I'd now like to introduce your host for today's conference, Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Sir, please go ahead.

Thank you Liz, and welcome everyone to Deluxe Corporation's first quarter 2016 earnings call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on today's call are Lee Schram, our Chief Executive Officer; and Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks, Lee, Terry and I will take questions.

I'd like to remind you that comments made today regarding financial statements, 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 in the Company's Form 10-K for the year ended December 31, 2015. 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 SEC 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'll turn the call over to Lee.

Thank you Ed and good morning everyone. Deluxe delivered a very strong quarter to start the year. We reported revenue and adjusted earnings per share above the upper range of our outlook in spite of the continued sluggish economy. Revenue grew almost 6% over the prior year quarter, driven by financial services growth of 14% and small business services growth of 5%. Marketing solutions and other services revenues grew over 19% over the prior year and represented over 31% of total first quarter revenue. Adjusted diluted earnings per share grew more than 14% over the prior year quarter. We generated strong operating cash flow of $73 million for the quarter and we were drawn $416 million on our credit facility at the end of the quarter. We repurchased 15 million 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 delivered on our cost reduction commitment for the quarter. In a few minutes, I'll 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 $1.18, which included $0.01 per share for restructuring charges and transaction costs. Diluted EPS in the first quarter of last year included a $0.12 per share charge related to the early redemption of the company's 2019 Senior notes and $0.01 per share for restructuring and transaction costs.

Excluding restructuring charges and transaction costs, adjusted diluted EPS of $1.19 exceeded the upper end of our previous outlook and was 14.4% higher than $1.4 reported in the first quarter of 2015. The increase was driven primarily by stronger operating performance in addition to a lower effective income tax rate, lower average shares outstanding and lower interest expense.

Revenue for the quarter came in at $459 million growing 5.9% over last year. The growth rate excluding the recent data mix and FISC acquisitions and an unfavorable foreign exchange rate with over 3%. Small Business Services revenue of $290 million, grew 4.8% versus last year despite a continuing sluggish economic environment and unfavorable foreign exchange rates, which negatively impacted revenue growth by 0.6 percentage points in the quarter.

We delivered growth in marketing solutions and other services, and from a channel perspective, our online distributor and dealer channels grew. Financial Services revenue of $127 million grew 14.1% versus the first quarter of last year. Excluding revenue from acquisitions, Financial Services would have grown 2.7% in the quarter. Higher marketing solutions and other services revenue driven by WAUSAU, FISC, Datamyx and Deluxe Rewards and price increases more than offset the impact of lower check orders.

Direct checks revenue of $42 million was down 7.3% from last year and in line with our expectations. From a product revenue perspective, checks were $224 million representing 49% of total revenue. Marketing solutions and other services were $144 million, which was 31% of total revenue. And forms and accessories were $91 million or 20% of total revenue. Gross margin for the quarter was 64.2% of revenue, which was down slightly from 64.8% of revenue in 2015. The impact of product revenue mix and higher delivery and material costs were partly offset from benefits of price increases, improvements in services revenue margin and improvements in manufacturing productivity.

SG&A expense increased 3.2% in the quarter and was 43.9% of revenue compared to 45% 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 associated with recent acquisitions and our efforts to grow the small business distributor channel.

Excluding restructuring and transaction related charges in both 2016 and 2015, adjusted operating margin for the quarter was 20.4%, which was up slightly compared with the 19.8% generated in 2015. 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 17.9%, right in line with the prior year. Financial Services' adjusted operating margin of 21.1%, was up 2.5 points from 2015 driven by improvements in WAUSAU and continued cost reductions. WAUSAU and Datamyx were accretive to earnings in the first quarter, but the Financial Services' adjusted operating margin was negatively impacted 1.9 points from Datamyx and FISC.

Direct Checks adjusted operating margin of 35.4%, increased 1.3 percentage points from 2015 driven by cost management initiatives, which more than offset the lower order volume.

Turning to the balance sheet and cash flow statement, total debt at the end of the quarter was $615 million, which was down $14 million or 2.2% from $629 million at the end of 2015. Cash provided by operating activities for the quarter was $72.7 million, a $5.8 million decrease compared to 2015. Driven by higher contract acquisition payments and incentive payment related to a previous acquisition and income tax payments, partially offset by stronger earnings and lower interest payment.

Capital expenditures for the quarter were $10.2 million and depreciation and amortization expense was $21.9 million. We are strengthening our previous consolidated revenue outlook for the full year to the upper end and now expected to range from $1.845 billion to $1.875 billion. We are raising our expectations for adjusted diluted earnings per share to $4.85 to $5.00. There are several key factors that contribute to our full-year outlook including Small Business Services revenue is expected to increase 4% to 6% as volume declines in core business products 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 9% to 10% driven by continued growth from marketing solutions and other services revenue including Datamyx, WAUSAU, FISC and Deluxe Rewards, partially offset by recurring check order decline of 5% to 6% and some pricing pressure. A Direct Check's revenue decline of approximately 7% to 8% driven by lower check order volume stemming from secular declines in check usage.

The continued sluggish economy, full-year cost and expense reductions of approximately $50 million net of investments, increases in medical expenses, material cost and delivery rates, continued investments and revenue growth opportunities including brand awareness, marketing solutions and other services offers and enhanced internet capabilities, and an effective tax rate of approximately 33%.

We expect to continue generating strong operating cash flows ranging between $320 million and $330 million in 2016, reflecting stronger earnings and lower interest payments, partially offset by higher tax, contract acquisition and employee medical payments. We now expect full year contract acquisition payments to be approximately $20 million. 2016 capital expenditures are expected to be approximately $43 million or the same as 2015, as we 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 $91 million, including approximately $44 million of acquisition related amortization. For the second quarter of 2016, we expect revenue to range from $445 million to $453 million.

Adjusted diluted earnings per share are expected to range from $1.15 to $1.20. In comparison to the first quarter, we expect earnings per share to decline at the midpoint of our range driven by higher brand focused marketing on our Main Street makeover and behind the business initiatives, which collectively represent about $0.03 per share. And lower operating income from lower revenue from Direct Checks, which again historically has their strongest revenue quarter of the year, in first quarter, accounting for another $0.03 per share. These will only be partially offset by revenue and profitability improvement in the other two segments.

Shifting to our capital structure, we expect to maintain our balanced approach of investing organically, enter small to medium-sized acquisitions in order to drive our 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 debt outstanding 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 a solid start to 2016 in the first quarter, as we basically delivered on our expected cost and expense reductions towards our $50 million annual commitment, net of investment. 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 to 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'll turn the call back to Lee.

Thank you, Terry. I will continue my comments with an overall market perspective and implications for Deluxe, an update on MOS revenue and then highlight progress in each of our three segments, using our eight strategic initiatives for perspective and how we progressed in the first quarter, and then what we expect to accomplish during the balance of 2016.

From an overall macroeconomic perspective, clearly pressures continue with challenges from a sluggish US economy, volatile energy, oil and gas prices, and strength of the US dollar as well as an uncertain Central Bank policy, and not to say we are completely immune from these pressures, but we believe the direct impact on us is insignificant.

We have developed an incredible execution-oriented culture that is operated through various market environments and has delivered strong top and bottom line growth for the past six years. We've built our business on large size markets and relationships in the small business and financial institution 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 based provider to our customers. Our solutions allow us to address the broad range of our customers' needs and pain points; further enhances Deluxe as a trusted partner and deeply embeds us in their workflows 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 FinTech 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 subcategories framework for marketing solutions and other services. We ended the first quarter right in line with our expectations in revenue with mix slightly higher in other financial services and slightly lower in small business marketing solutions. First, small business marketing is expected to represent approximately 40% in 2016 with expected growth of approximately 15% to 19%. Key 2016 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 is expected to represent approximately 18% in 2016 with expected growth rates in the low single digits. Key 2016 growth initiatives include scaling web services offers through our Deluxe marketing suite across all channels and customers. Delivering partnerships and acquisitive opportunities that both quote-unquote double down on existing capabilities and address guest within our portfolio. We expect to close 2016 with nearly 1.05 million web hosting customers, which would be an increase of 11% from 2015.

The third category fraud security, risk management and operational services are expected to represent approximately 13% in 2016 with expected flat performance. Key focus areas for growth in this category in addition to our standard fraud and security offerings include performance management by adding Banker's Dashboard customers as well as strategic sourcing new financial institution wins.

In addition, we continue to see growth from scaling eChecks, including scaling in many areas where we do not sell paper checks today. Finally other financial institution services are expected to represent approximately 29% 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 the growth about 16% to 18%. If achieved, this performance would translate to a total revenue mix of around 34% of revenue and up from almost 30% in 2015, 26% and 22% the previous two years.

We continue to target increasing MOS 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 business services, we have five strategic focus areas for 2016. Before I review these including accomplishments in the first quarter and opportunities through the balance of the year, there is a brief small business market and optimism index perspective.

As expected, we do not see any notable improvements as the economic climate for small businesses remain sluggish, and we also experienced continued foreign exchange headwinds. Optimism indices fell from year-end 2015 monthly through the first quarter of 2016. The index ended the quarter at the lowest levels in over two years and is stuck in a below average run signaling that the economy is basically just lumping along.

The good news is that increasing sales continues to be very high in the list of small business owners' pain points. And our portfolio is significantly robust with many offers to help them here. The economy recovers with the transformative changes we are making to deliver more service offerings to help small businesses get and keep customers, Deluxe is better positioned as an indispensable partner for growth. Now to our focus areas, which I will review from largest to smallest by revenue. First, operate your business products including checks, forms and accessories. Our primary focus is on driving customer acquisition and retention, and improving distributor channel processes and profitability. We ended the first quarter about on our expectation for checks, forms and accessories revenue.

We made progress in improving distributor channel processes and profitability, but we have more work to do here in the balance of the year. Second, market your business products, which include small business marketing solutions. Our focus areas here 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.

We saw three nice size wins in the first quarter with two in healthcare and one in financial services. We also saw our best overall web-to-print quarterly growth rate since the fourth quarter of 2014. Third, market your business services including web services offers and our focused areas are improving operating income by optimizing product portfolio channels and operations, delivering partnerships an acquisitive opportunities that will double down on existing capabilities and address gaps within our portfolio, and providing our integrated Deluxe marketing suite across all customers and channels.

Q1 was our strongest logo service's quarter ever. Eclipsing the previous quarterly record by 18%, we also saw a strong cross sell ramp in logo customers who became web design customers as well. With all marketing services offers now being fulfilled through our Deluxe marketing suite. We also added more seat panel capability through a very small tuck-in acquisition where we simply migrated customers into our technology had strong operating margins.

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

Q1 was our best quarter ever for eChecks, and 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 finished integration plans on the two deals that we announced in the fourth quarter, an integrated healthcare payment solutions provider, and an accounting and financial services outsourcing provider. And eChecks orders should start flowing this quarter.

The fifth SBS focus area is continuing to improve brand awareness. In 2016, we will be telling more stories and packaging great advice for small business owners. As an update to our Q4 earnings call, we have now selected small town finalists for the small business revolution main street contest, which will be announced next week during National Small Business Week, when the public will vote for their favorite town winner.

The winning town will receive $500,000 providing a jolt of revitalization to their main street business community, and upgrades to their public places. We will capture and showcase the town's transformation in a new web series debuting on small business revolution data work in the fall of 2016.

We also just announced a new partnership with Robert Herjavec and the Herjavec group, providing marketing insights and services to the small businesses he invest in on Shark Tank, captured in a new video series called Behind the Business.

In every episode, experts from Deluxe help one of those small businesses conquer common place marketing challenges by providing services such as branding, logo design or email marketing. The Behind the Business videos will be featured alongside a host of other small business resources. Deluxe also will work with Robert's Company, the Herjavec Group to provide enhanced website optimization and search capabilities.

We see these efforts as a great platform to continue to increase our brand awareness with the small business community. In financial services, we have three strategic focus areas for 2016. First, retail banking which includes checks, marketing services and rewards on loyalty.

For checks, our focus is on improving retention rates and gaining share. In the first quarter, we saw the rate of decline of checks performed better than expected at only around 4%, driven by stronger performance in the mid to lower Tier financial institutions. We do not expect this decline rate to continue for the rest of the year, but we now expect the decline rate to be 5% to 6% compared to our previous outlook decline rate of 6% to 7% for the year.

We implemented a small price increase at the start of this year. We had strong overall new acquisition rates and our retention rates were very 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 have now extended all our large contracts through at least year end 2016 and compared to the end of the first quarter of last year to this year, we have about 25% fewer bank contracts left to renew and we have more competitive opportunities coming up.

For marketing services, our focus is on leveraging data mix, data and analytics together with marketing services campaign execution to accelerate outsourced campaign targeting and multi-channel execution. Datamyx is off to a very strong start to the year, as revenue came in above our outlook. From a new customer win perspective, we had 10 new direct customer client wins including circle back lending, a large fast growing non-bank personal loan lender.

For our auto loan growth opportunity, we added multi-vehicle functionality which expands the view into vehicle ownership beyond just one vehicle at the household. This will enable auto dealerships and lenders to double the size of their marketing audiences.

For rewards on loyalty, our focus is on profitably growing Deluxe Rewards revenue, which continue to perform very well in the first quarter. The second financial services strategic focus area is commercial banking and includes treasury management with our focus on profitably growing WAUSAU and FISC revenue and assessing and executing tuck-in acquisitions along with assessing other adjacent opportunities in commercial banking. In the first quarter, we completely integrated FISC into a WAUSAU. And therefore, moving forward, we will collectively only refer to it as WAUSAU. Revenue met our expectations and we had strong bookings in the first quarter, including winning a large three-year licensing contract.

The third FS strategic focus area is performance management and includes scaling Banker's Dashboard and strategic sourcing. Performance management met our expectations for the quarter. For 2016, we expect marketing solution and other services' revenue to be approximately 45% of total FS revenue with the following at the midpoint of the FS revenue range.

Marketing services including Datamyx, $57 million; Rewards and loyalty, $33 million; Fraud and Security, $24 million; Treasury Management, $89 million; and Performance Management including Banker's Dashboard and Strategic Sourcing, $16 million. We now expect Datamyx revenue to be approximately $44 million in 2016, up from our previous outlook of $42 million with strong double-digit EBITDA margins.

And we now expect Datamyx to be slightly accretive per share from an EPS perspective, and to be dilutive in total less than six months from the acquisition date. Indirect checks revenue finish right in line with our expectations. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers as well as work on a number of initiatives to create an integrated best-in-class direct to consumer check experience.

We continue to see a ramp in revenue enhancement synergies through our call center scripting and upsell capabilities as well as synergistic cost and expense reductions. For 2016, we expect direct checks revenue to decline in a 7% to 8% range driven by continued declines in consumer usage in 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 low-to-mid 30% range, while generating strong operating cash flow. As we exit the first quarter on the heels of a very 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 as we position ourselves for a 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 service offers more mature. Our infrastructure is better and our management talent is deeper and aligned to grow revenue.

We know it is critical for us to be able to grow revenue again in 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.

Now Terry, Ed and I will open the call up Liz for questions.

(Operator Instructions) Charles Strauzer, CJS Securities.

Lee, if you could talk a little bit more about the financial services side, some of the recent acquisitions on the Datamyx, FISC, WAUSAU, and Deluxe Rewards. What has been the overall receptivity from the financial institutions that you're working with and also I noticed that you mentioned licensing deals for instance for WAUSAU are there and can you explain a little bit more about that and what the opportunities are for maybe some of the other recent acquisitions as well to do similar type deals.

Yes. Charles, let me start WAUSAU, since kind of back in that already you asked that I believe the first one. When we did the diligence and decided to acquire -- we did a lot of work to look at the brand WAUSAU within the financial services space and we found it to be really positive. And what we also thought at the time was they fit very well culturally with us and a lot of what they focus, how they treat their customers, we actually thought that this was a logical adjacency space that the financial institutions would accept Deluxe in as well. That's exactly what we found. We find that there is a lot of respect for the WAUSAU brand. But -- I would use a word it's almost more respect or Deluxe as a whole, and so that merge between us has been a really powerful one.

It's been integrated quite well, WAUSAU people are just been super, part of jumping onboard of our -- in our culture and getting on the transformation bandwagon, so to speak. And what we're finding is that -- we looked at where do we have relationships, where do they have relationships and clearly the places where both have them are very strong. But there's places where they're getting us into a relationship -- for example the Check side or the Datamyx side where we don't have those relationships, and then vice versa, we're helping them where they are not, and we have, the store Check relationships.

I mentioned we had a very strong bookings in the quarter. I mentioned this licensing deal, the way they think about it is, providers are -- financial institutions can -- they sign up for software and on for service with us, and there is a licensing arrangements that they can come with those. And I'm not going to give you the name of the account, but it's a huge account, where you would know and they signed up for a 3-year deal, which we like because it basically locks in a 3-year commitment for the WAUSAU, think of it is the remote deposit capture on the receivable services.

So, the other thing that happened in the quarter, as we very quickly integrated FISC in. And again the people out in Maine and FISC, they've just been a tremendous addition to our team. They got on board, we did it, I call it the right Deluxe way, we've got them on our payroll right away, we've got them on our benefits, just did the right thing and they're enthusiastic for -- what, being part of now WAUSAU and being able to build out a bigger portfolio and platform.

It also helps us, as I mentioned on our previous call with redundancy, we now -- will work to backup capability for all our WAUSAU technologies with the FISC folks. So just a lot to feel good about their right now and we are very accretive in the quarter there. So, we feel we're on our way. As far as Datamyx, again I highlighted, we had a super start to the year. They beat their revenue in the first quarter, we guided up another $2 million from $42 million to $44 million, I announced 10 new direct deals that we won. Again, I can't say enough about [Ben and Kezman] the whole team down in Boca Raton, and what they're doing, they not only jump on board, a tremendous asset for us and just again be part of the transformation. So, I expect that business to continue to perform well as well. Interestingly, they are a lot broader as we mentioned on the call when we announced the deal Charles -- some of their biggest customers are names like Quicken Loans and Capital One, Prosper, market is another one of the new alternative lenders, so it opens up not only areas for us to be able to bring other things that we have, places that we were not really planning in that space, but we're also introducing Datamyx into Deluxe.

So one of the first things that we did right away is we took kind of what we call their financial services sales people and we took them and put them right into the financial services business with Deluxe. So, we integrated them in right away because we like the idea of being able to go and sell Datamyx while we're also selling Cornerstone and Acton and those print marketing services.

So, again, I'm very pleased with the team. I'm very pleased with what we're doing and it's just been an incredible positive experience with bringing Wausau, FISC and Datamyx into the company. So, hopefully that gives you a lot of perspective and obviously can hear the enthusiasm in my voice for, what I believe deserves enthusiasm with the great group of people and products, and lots of opportunity for us.

That's very helpful. Thank you Lee.

And we have time for one more question. Josh Elving, Feltl and Company.

Hi, good morning, nice quarter. So, Terry provided a little bit of color on the guidance for the second quarter and I think I missed some of that. I wanted to just go back to that real briefly, the couple of pieces I heard, little bit of higher brand spend, result about $0.03 comparative decline and then little bit lower revenue from Direct Check, were there any other pieces there that I missed?

You know -- those are the two big ones, and again this is a comparison first quarter to second quarter. Those are the kind of the two big negatives, if you will, in terms of pulling back a little bit. There are some offsets against that -- as you were really comparing kind of first quarter actual results to kind of the mid-point of the range that we provided. So, again going to that mid-point, so that's have profitability improvements and revenue left in some of the other segments. So, those are the other two pieces, really that kind of offset those two negatives.

Yes, Charles. One of the hardest things to always get -- honestly, Ed, Terry and I really try to do this professionally in the right way. Every year, we point out for example that Direct Checks for whatever reason has their strongest quarter this way, I think from my 10 years as CEO in the first quarter and as much as we say that, we kind of all look at each other, once we get the guidance that comes in from all you guys and we [go well], we try, right.

So, it was an expected deterioration. We're not at all bothered by it and then there's always going to be timing on brand. And we are making as you've heard a big blitz next week, you will see us all over CNBC, they are our primary partner next week, where we are going to get out and showcase these talents and we want to get the markets to vote, the public to vote. And it was just a conscious decision, we knew that was tying this way, the way we did our plan. So, again comes as no surprise to us in terms of how we put together the guidance that we put out there.

We thought it would be helpful Josh, which is why Terry went through that to kind of just try to give you a little bit more context, to say, the businesses isn't getting running away from us here in the second quarter. Not at all, it's not how we plan it, it's not how we look at it, and again we feel very good about the balance of the year and obviously with raising guidance for the year that hopefully tells the streets up as well.

And as usual, you do provide a pretty comprehensive overview. So, I get that with the full year, I just did note there was some other timing related items in there, but that's helpful. Thank you. But one other question I just had was, with regards to the pipeline or the current opportunities you see for additional acquisitions, would you characterize it as similar to what you've seen for the past several quarters, valuations changed. Do you continue to anticipate similar pace of tuck-ins and that kind of small medium type size?.

Yes, Josh. We give some more color added, some target areas when I went through my prepared comments and yes, we are always looking for opportunities to expand partnerships that we have as well as things that on the acquisitive front that makes sense and can strengthen either capabilities or get us into a newer space, that's close to what we're doing, or do some doubling down. Again the last best example I can give you that is when we bought FISC in December and we kind of called it a double down or the WAUSAU deal, so the market is still out there. I consider the market to be good. I think one of the things that -- I think you all shown a lot of confidence in us, this is the respect we have, we're trying to do smart deals. So, we never want to overpay for something where it is so dilutive for such a long period of time that it doesn't make sense for us, but our goal is not to do that as we move forward. But now we try to be smart about what we're looking for in the market and where things are at, but I would tell you, it's the same process, the same pipeline, the same -- yes, I'm looking at things now partnerships and on acquisitions, but I would tell you that, I've been always looking for them.

Sure, thank you very much.

You're welcome.

We have time for one more question. Tim Klasell, Northland Securities.

Hi guys, just one quick question, I've asked this in the past, but with the continued strong success in financial services, that had been an area where you hadn't done a lot of acquisitions. Let's say, up until a little while ago, now the last couple, really seemed you've done quite well. Does that make you guys maybe rethink of how aggressive you're going to go after financial services, maybe moved that up on the priority list relative to some of your other areas.

Tim let me, you did ask this, and I'm going to stay true to my colors here. We met Datamyx probably three years ago. We like them. We tried to create a relationship with them. They became a partner to help us with our Cornerstone and Acton offers, and we tried to acquire them back then. We just couldn't come together, just sometimes that's the way it works. And so if I would have done that three years ago -- so it is not that we haven't been looking. Sometimes, it's just the timing of when things -- when things occur. So, a great example is, we just did -- I mentioned a small tuck-in C-panel acquisition in the first quarter or last one I just did now was -- was a small business one. So, what we're trying to do is get -- continue to get stronger in both of those segments. And as we've been public before Tim, I now believe that once this year laps and we get Datamyx behind us and head into the 17-year, that the two largest segments for the company which will be over 90% of our revenue, now has the opportunity to organically grow and I would say, for the first time, certainly since I've been with the company. Doesn't mean it will, because we got to execute, but I believe the opportunity is there. So, we will continue to look and it's balanced in my prepared comments Tim, both in financial services as well as in small business services for those opportunities. Right.

Okay, great. Thank you, that's very helpful. Then one quick follow-on, you said all of your large Check deals or you don't have any until the end of this year. How should we look at 2017? Are there multiples coming-in in 2017 or should it be a fairly balanced year?

Yes, there is one that we probably be considered, you know, large, another that's bigger, but not significant. And we're already working those to renew as well. So, I would call it a -- probably less than what we normally see in a year. You're having one big one and another one kind of sitting there.

Since that concludes today's question-and-answer session, I'd like to turn the call back to Mr. Lee Schram for closing remarks.

Let me just thank everybody for your participation and your questions, and I want to summarize the call in three thoughts. First, we delivered a very strong quarter to start the year. Second, marketing solutions and other services revenue did grow 19% and our mix improved towards our 34% of total company revenue in 2016 and again towards our goal of 40% by 2018. And third, we established the solid base line first quarter which we believe propels us towards revenue growth again for 2016 and we are targeting to do this for seventh consecutive year. As I always say, we're now going to roll our sleeves up and we're going to get back to work, and we look forward to providing another positive progress report at our next call. And now I want to turn it over to Ed for some final housekeeping.

Thanks Lee. Before we conclude today's call, I'd like to mention that Deluxe management will be participating will be participating in several upcoming events in the second quarter where you can hear more about our transformation. On May 10th, we will be in San Francisco at the SunTrust Robinson Humphrey Internet & Digital Media Conference; on May 18th, we will be in New York at the Needham Internet and Software Conference; on June 2nd, we will back in New York at the Macquarie Global Emerging Leaders Conference; and then on June 8th, we will be in New York at the R.W. Baird Consumer, Technology and Services Conference. Thanks for joining us and that concludes the Deluxe first quarter 2016 earnings call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.