Deluxe Management Discusses Q3 2013 Results - Earnings Call Transcript

| About: Deluxe Corporation (DLX)

Deluxe (NYSE:DLX)

Q3 2013 Earnings Call

October 24, 2013 11:00 am ET


Edward Merritt

Lee J. Schram - Chief Executive Officer and Director

Terry D. Peterson - Chief Financial Officer and Senior Vice President


Charles Strauzer - CJS Securities, Inc.

Randy L. Hugen - Feltl and Company, Inc., Research Division


Good day, ladies and gentlemen, and welcome to the Deluxe Corporation Third Quarter Earnings Conference Call. My name is Dave, and I'll be your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes.

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

Edward Merritt

Thank you, Dave, and welcome everyone to Deluxe Corporation's Third Quarter 2013 Earnings Call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on the call 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 would like to remind you that comments made today regarding financial estimates, projections and management's intentions and expectations regarding the company's future performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. As such, these comments are subject to risks and uncertainties which could cause actual results to differ materially from those projected.

Additional information about various factors that could cause actual results to differ from those projected are contained in the press release that we issued this morning, as well as in the company's Form 10-K for the year ended December 31, 2012.

In addition, the financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which is posted on our Investor Relations website at 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.

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

Lee J. Schram

Thank you, Ed, and welcome to Deluxe, and good morning, everyone. We delivered our third outstanding quarter this year and are well-positioned to grow revenue for the full year 4% to 5% despite a continued sluggish economic environment. If achieved, 2013 will represent the fourth consecutive year of revenue growth. The last time we achieved 4 consecutive years of revenue growth dates back 17 years to 1996.

We reported revenue in the third quarter near the upper end of our outlook and earnings per share exceeded the high end of our outlook. Revenue grew more than 5% over the prior year quarter. Small Business Services revenue grew almost 9%, and Financial Services revenue grew over 4%. Checks and forms performed well, and marketing solutions and other services revenues grew 18% over the prior year.

Adjusted diluted earnings per share grew 13% over prior year. We generated strong operating cash flow, and we were not drawn on our credit facility during the quarter, increasing our balance sheet cash position $55 million from last December. We also repurchased nearly $2 million of common shares in the quarter and have repurchased $34 million year-to-date.

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 in the quarter.

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

Terry D. Peterson

Thank you, Lee. Earlier today, we reported diluted earnings per share for the third quarter of $0.92, which included losses of $0.04 per share from restructuring and related costs. Excluding these costs, adjusted EPS of $0.96 exceeded the upper end of our outlook and was 13% higher than the $0.85 reported in the third quarter of 2012. The restructuring charges are primarily for employee severance and infrastructure consolidations.

Revenue for the quarter came in at $398 million and grew 5.2% over last year, including 3.2% of organic growth. Small Business Services revenue of $265 million grew almost 9% versus last year. While we continue to operate in a weak, small business economic environment, we delivered growth in marketing solutions and other services, which included the impact of recent acquisitions, accessories and checks revenue.

Our online Safeguard distributor, major accounts and dealer channels, each reported growth in the quarter. Financial Services revenue of $86 million grew over 4% versus last year due to higher marketing solutions and other services revenue. The impact of lower check orders was more than offset by the benefits of a higher revenue per order.

Direct Checks revenue totaled $46 million, which was down almost 10% on a year-over-year basis.

Moving on to a products and services revenue perspective, checks were $221 million and represented 55% of total revenue. Business products were $91 million or 23% of total revenue, and marketing solutions and other services were $86 million, which represented 22% of total revenue.

Gross margin for the quarter was 64.3% of revenue, which was down 0.9 points from 2012. Less favorable product mix and increased material and delivery rates were only partially offset by benefits from price increases, improvements in manufacturing productivity and delivery initiatives.

SG&A expense increased $2.2 million in the quarter and was 43.6% of revenue compared to 45.3% of revenue in the same period last year. Benefits from our continuing cost reduction initiatives in all 3 segments were offset by increased SG&A in Small Business Services associated with acquisitions and commissions on increased revenue.

Excluding restructuring charges, adjusted operating margin for the quarter was 20.8%, which was up 0.8 points from the 20% generated in 2012 due to lower performance-based compensation. All 3 segments delivered strong operating margins compared to expectations aided by lower costs.

Small Business Services operating margin of 17.9% was up 0.8 points over last year due to cost reduction initiatives.

Financial Services operating margin of 23.8% was up 2 points from 2012 due to higher revenue per order, better product and services mix and cost reductions.

Direct Checks operating margin of 32.1% increased 1.1 points from 2012 as we continue to realize planned synergies from integrating Custom Direct.

Turning to the balance sheet and cash flow statement. We increased our cash and cash equivalents balance by $55 million since year end 2012, after paying $69 million net for investing activities and repurchasing $34 million of our common shares. Total debt at the end of the quarter was $644 million, down $9 million from year end 2012.

Cash provided by operating activities for the first 3 quarters of the year was $184 million, slightly exceeding our expectations and up nearly $7 million from 2012. Comparing cash flows to last year, stronger operating performance, lower contributions to fund medical benefits and lower contract acquisition payments were partially offset by higher performance-based variable compensation earned in 2012 but paid out in the first quarter of 2013.

Capital expenditures for the first 3 quarters were $27 million, and depreciation and amortization expense was $48 million.

Given our strong performance in the third quarter, we are tightening our consolidated revenue outlook range for the year to $1.578 billion to $1.588 billion. We are also raising our adjusted diluted earnings per share to an expected range of $3.78 to $3.85, excluding $0.11 related to restructuring and transaction-related costs.

There are several key factors that contribute to our improved full year outlook, including: Small Business Services revenue is expected to increase 9% to 10% as volume declines and core business products are expected to be offset by benefits from our e-commerce investments, price increases, growth in our distributor, dealer and major accounts channels, and double-digit growth in marketing solutions and other services offerings, including the VerticalResponse acquisition.

We expect Financial Services revenue to be close to flat, driven by recurring check order declines of approximately 5% to 6% and some pricing pressure, which we expect will be partially offset by HSBC, our new national account win, continued growth from non-check revenue streams and higher revenue per order.

Direct Checks revenue decline of approximately 10% driven by check volume reductions, a continued sluggish economy, full year cost and expense reductions of approximately $55 million, increases in material costs and delivery rates, continued investments in revenue growth opportunities, including brand awareness, marketing solutions and other services offers and enhanced Internet capabilities, lower interest expense and an effective tax rate of approximately 34%.

We expect to continue generating strong operating cash flows and are raising our expected range to between $256 million and $262 million in 2013, reflecting stronger earnings. We expect contract acquisition payments to be approximately $12 million for the full year.

2013 capital expenditures are expected to be approximately $35 million, roughly the same as 2012. 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 $65 million for the year and includes $20 million of acquisition-related amortization.

For the fourth quarter of 2013, we expect revenue to range from $411 million to $421 million. We have a slightly wider range than usual due to some uncertainty around the Hurricane Sandy impact year-over-year given the timing of consumer and small business reorders. Adjusted diluted earnings per share are expected to range from $0.95 to $1.02.

In comparison to the third quarter, revenue is expected to be higher in the fourth quarter, primarily due to seasonal holiday spending, tax form offers, some small business healthcare forms rollouts, plus the continued ramp in marketing solutions and other services revenue, primarily driven by migration rollouts in wholesale web services.

Adjusted EPS is expected to increase primarily from higher revenue.

Shifting to our capital structure, we expect to maintain our balanced approach of investing organically and through small to medium-sized acquisitions in order to drive our growth transformation. We also expect to maintain our current dividend level and repurchase shares to offset dilution. To the extent we generate cash flow in excess of these priorities, we plan to accumulate cash in advance of our 2014 senior note maturity. In anticipation of this maturity, we are evaluating repayment strategies, which in addition to using cash on hand, may include renegotiating our credit facility or possibly issuing new debt. We may also, from time to time, consider retiring 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 quarter as we achieved our cost and expected expense reductions towards our $55 million annual commitment, net of investments, in 2013. Year-to-date, we have already achieved approximately $42 million in reductions.

Our focus in sales and marketing for 2013 is on sales channel optimization, platform and tool consolidation and leveraging order streaming and marketing efficiencies. We also expect to continue improving the mix of paper catalog and online search engine marketing investments.

In fulfillment, we are continuing to focus on our lean, direct and indirect spend reductions; further consolidating our manufacturing technology platforms; driving delivery technology and process efficiencies; reducing spoilage; further enhancing our strategic supplier sourcing arrangements; and continuing with other supply chain improvements and efficiencies.

Finally, for Shared Services infrastructure, we expect to continue reducing costs in IT and other areas as more opportunities exist to improve efficiencies.

Now, I'd like to turn the call back to Lee.

Lee J. Schram

Thank you, Terry. I will continue my comments with an update on our key revenue growth area, marketing solutions and other services, and insights to-date on our brand awareness campaign. I will then highlight progress in each of our 3 segments, including a perspective on what we hope to accomplish in the fourth quarter. And finally, provide some context looking forward to 2014.

Our primary focus for the balance of the year continues to be profitable revenue growth and increasing the mix of marketing solutions and other services revenues, which represents our most significant revenue growth opportunity. We will continue to assess potential small to medium-sized acquisitions that complement our large customer bases with a focus on marketing solutions and other services.

We are adding more products and services to our portfolio and believe our strong small business channel reach, including financial institutions, online, retail, wholesale, feet on the street distributors, dealers, partners and major accounts, is a differentiator for us in the marketplace. Deluxe is now more capable of helping small businesses pursue their passion as a trusted provider of a growing suite of products and services a small business needs to market and operate their business. And helping small to midsized financial institutions with customer acquisition, risk management and other value-add services offers.

Here is an update on our 4 subcategories framework for marketing solutions and other services. We ended the third quarter slightly below our expectations for revenue, primarily driven by slower rollouts in the wholesale services space than anticipated. First, small business marketing is expected to represent approximately 40% of revenue in 2013 with expected growth in the low-teens this year. We saw low-teens growth in the third quarter in this category as we cross-sold to our customer base and added new customers through distributors, dealers and major accounts.

The second category, web services, which includes logo and web design, web hosting, SEM, SEO, e-mail marketing, social and payroll services, is expected to represent approximately 32% of revenue in 2013 with expected organic growth rates in the low-teens, although expected reported growth will be closer to 30%, driven by the VerticalResponse acquisition.

We saw a little slower rollout ramp in wholesale web telco major accounts in the third quarter than anticipated. We saw growth from the prior year in cross-selling bundled presence packages to our retail base and added more new customers, resellers and partners. We continue to reduce web design and SEM campaign cycle times, and churn rates remain low.

We added payroll services customers and many customers added new features, such as time and attendance applications.

VerticalResponse revenue was in line with our expectations and operating income was better. We also are already seeing cross-sell of services like logo design and web services into the VerticalReponse customer base. Our new platform supporting a premium model in VerticalResponse is now expected to be released in the early part of next year. Again, we expect this emerging premium model will allow us to spur a mass trial and subsequent upsell and cross-sell penetration capability, first, into our retail, but then into our wholesale customer base.

We closed the third quarter with approximately 665,000 web-hosting customers, and we expect to close 2013 with nearly 725,000 web-hosting customers, or up 32% from 2012, as we expect more migrations in the fourth quarter.

The third category, fraud, security and risk management services, are expected to represent approximately 22% of revenue in 2013 with expected growth rates in the mid-single digits. We had a solid third quarter as we added program services for new community banks and fraud and security offers for small businesses and direct to our consumers. We added Banker's Dashboard customers as well.

Finally, other financial institution services are expected to represent approximately 6% of revenue in 2013 with very strong double-digit expected growth rates. Key growth initiatives here include adding new targeting and campaign services and SwitchAgent clients.

We expect marketing solutions and other services revenues to be approximately $340 million in 2013, up from $285 million in 2012, with organic growth in the low-teens.

There are 2 drivers of the lower expected revenue from our prior outlook range. First, given the more sluggish economy, we have seen lower spend on more discretionary marketing items like promotion and apparel. And we expect this trend to continue in the fourth quarter, which is normally a seasonally higher quarter. Second, as mentioned earlier, we saw slower wholesale web services telco rollouts in the third quarter that, again, we expect to carry over into the fourth quarter. However, we have confidence that these rollouts will come in the first quarter 2014, and this will have a positive impact on 2014.

If achieved, this performance would translate to a total revenue mix of almost 22% of revenue, including a year end exit run rate around 25% of revenue, towards our 25% mix goal, and up from 19% in 2012 and 16% and 13% the previous 2 years.

In spite of a reduction in our outlook for marketing solutions and other services revenue, we are still guiding near the high-end of our previous revenue outlook, primarily driven by stronger small business checks and forms and higher Financial Services rate and conversion activity than expected in our previous outlook.

Now shifting to our brand awareness campaign. We just completed our third wave and have outperformed publishers' benchmarks for online ad click-thru rates. We have seen strong traffic to continuing to be up to 20%, and total video views of all commercials are now close to 8.8 million over all 3 waves. Inbound call leads are converting to sales at a very strong rate, more than 4x that of our more conventional lead sources. Our next step on our brand journey is to complete another brand awareness customer study in the fourth quarter. We will use the results of this in our return on investment criteria to help determine focus areas and spend levels as we exit the year and enter 2014.

Now shifting to our segments. In Small Business Services in the quarter, as expected, we did not see any notable improvement as the economic climate for small businesses remained sluggish. We had strong performance as revenue grew almost 9%. Checks and forms performed quite well. Our results from targeted customer segmentation in the call center improved. New customers from our financial institution, Deluxe Business Advantage Referral Program, and through our direct response campaigns remain strong. Average order value and conversion rates improved. Our online Safeguard distributor, major accounts and dealer channels grew revenue over the prior year. We also saw strong growth in web, e-mail marketing and payroll services.

Again, we ended the quarter with approximately 665,000 web-hosting customers.

We continue to closely monitor the small business market. Optimism indices in the third quarter remained roughly flat each month from second quarter readings, so no real new direction up or down right now. Expectations for improved business conditions over the next 6 months did deteriorate, but there was a noticeable increase in the number of small business owners expecting higher sales as the third quarter close. More owners are planning to hire in the coming months, and more new firms are starting rather than failing right now. They continue to spend cautiously, more in maintenance mode, scrutinize purchases and experience-type cash flow.

In summary, current optimism indices have been sluggish and trending flat over the last several quarters. The good news is that other than taxes and regulation, increasing sales continues to be a small business owner's #1 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.

Our focus for the remainder of 2013 is on accelerating our brand transformation and significantly improving overall market awareness while institutionalizing our brand promise for our customers; profitably integrating and extending our marketing solutions and other services portfolio, including our VerticalResponse acquisition; effectively acquiring and retaining customers across multiple channels; building a more effective retail services sales model; scaling major accounts and strategic channel partner relationships; and improving our customer experience.

Here's an update on our e-checks partnership that we announced with VerifyValid on our last earnings call. As a reminder, VerifyValid is a leading provider of electronic payment solutions that transforms how businesses and banks use and accept checks. Small business customers can securely make and receive check payments online, utilizing a virtual lockbox and virtual remote deposit capture systems. We saw a very favorable response from presenting with VerifyValid at the September fall Synovate conference, and we'll be launching this product in early November to a portion of our Small Business customer base. In our initial pilot, we saw customers purchasing normal quantities of printed checks and then encouragingly, incremental e-checks.

In Financial Services, the year-to-date secular check decline rate is just under 6%, with the decline rate about 6% in the third quarter versus our outlook of 5% to 6%, with rates consistent across both the national and community segments. We had strong overall new acquisition rates, and our retention rates remain strong on deals pending in the current quarter, well in excess of 90%.

The HSBC migration has gone very well, and we are working several more competitive opportunities. We simplified our processes and took complexity out of the business while reducing our cost and expense structure. We are planning for checks to remain within a decline range of around 5% to 6% for the balance of the year. We also expect retention rates an excess of 90% on deals pending this year. And with approximately 90% of our 2013 community bank contract renewals already completed by the end of the third quarter, we are well ahead of the linear pace for the year.

We made progress again in the quarter in advancing marketing solutions and other services revenue opportunities. Revenue grew over last year in these non-check services, which includes customer acquisition, risk management and other profitability offers. In customer acquisition and specifically our Cornerstone direct marketing analytics offer, we saw continued strong growth in new financial institutions. As the economy is starting to improve, mid-market financial institutions are beginning to invest again in customer acquisition. To further support this strategic opportunity, we completed a small tuck-in acquisition of ACTON Marketing in the third quarter. ACTON is similar to Cornerstone in that they are one of the pioneers in providing direct marketing campaign-targeting and execution services to financial institutions. This acquisition will help grow marketing solutions and other services revenue for Financial Services by combining the Cornerstone and ACTON businesses and bringing the best of their collective programs to their customer bases.

It is a natural fit as ACTON and Cornerstone provide very similar and complementary services for the customers they serve, plus ACTON brings us a data and analytics platform. We have already synergistically begun the migration of Cornerstone into ACTON's offices.

For SwitchAgent, our all-branch rollout with a large financial institution continues to perform well. And financial institutions that use SwitchAgent continue to realize a more profitable new account base, due in part to the roles of SwitchAgent in activating key payment services. We are closely collaborating with our financial institutions to identify and execute product enhancements that further our vision for the most simple and efficient account switching and anchoring experience for financial institution customers.

Banker's Dashboard also continued to perform well in the third quarter. As you can see, momentum continues to build, and we expect strong double-digit growth in these marketing solutions and other services in 2013.

In Direct Checks, revenue was right in line with our expectations. We continue to look for opportunities to provide accessories and other check-related products and services to our consumers. Although we have made significant progress with the Custom Direct integration, we are still working on a number of initiatives to create an integrated, best-in-class, direct-to-consumer check experience. As an example, we now have one integrated process for producing all direct-to-consumer checks. 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 2013, we expect Direct Checks' revenue to decline right around 10%, driven by continued declines in consumer usage in a sluggish economy. We expect to reduce our manufacturing cost and SG&A in this segment and hold our operating margins in the 30% range while generating strong operating cash flows.

As we exit the third quarter on the heels of another outstanding quarterly performance in a continued challenging economy, we made good progress again in transforming Deluxe, but we still have a lot of work and opportunities ahead of us. We are continuing to prudently plan that the economic climate will not improve in the fourth quarter. Our primary focus continues to be on revenue growth, especially in marketing solutions and other services and on brand positioning. We expect to continue the trend of revenue growth in the fourth quarter with strong high-single digit growth. At the same time, we will not take our eyes off the cost reductions and process improvements, and we expect to continue to generate strong cash flows and provide a very attractive dividend.

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.

Looking ahead to 2014, our portfolio is better positioned to deliver continued sustainable revenue growth. We are planning for what we expect to be a fifth consecutive year of revenue growth. Given the continuing sluggish economic climate, we believe it is prudent right now to expect the increase in 2014 revenue to be approximately 2% to 4% compared to 2013, which is expected to produce adjusted diluted earnings per share growth ranging from approximately 3% to 6%, with the assumption that we will continue to spend on brand awareness and also have a slightly higher tax rate in 2014 compared to 2013.

To give some more color on our revenue thinking, we are planning on consumer checks through our financial institutions to decline 5% to 6% on a secular basis. On top of this, we have extended all large financial institution contracts through at least 2014, with the exception of one that we are working to extend. And we have about the same community bank contract dollars up for renewal on 2014 compared to 2013. And as mentioned earlier, we have more competitive opportunities coming due through to 2014.

In business products, we expect to expand existing organic initiatives in Shop Deluxe, our Canadian business, and add Safeguard distributors, dealers and major accounts.

In marketing solutions and other services, we expect organic revenue growth roughly in the low to mid-teens. To give some more color on our thinking, if we annualize 2013 expected revenue, adjusting for a full year of VerticalResponse and organically grow roughly in the low to mid-teens, this would imply a targeted marketing and other services revenue to total revenue mix of approximately 25% for the year. We expect to exit the fourth quarter of 2013 closer to this 25% mix given the seasonal business.

We are excited with our progress here. And with a more cooperative economy and continued possible additional tuck-in acquisitions as catalyst, we could potentially grow marketing services -- marketing solutions and other services even faster. We also expect our costs and expense reduction initiatives to continue in 2014. From a housekeeping standpoint, each quarter in 2014 has the same number of business days as in 2013. It is also extremely important for us to see how the fourth quarter progresses and to closely monitor the marketplace and the economy over the next 3 months before providing more specific outlook details for 2014.

And now, Dave, we're going to open the line up for questions.

Question-and-Answer Session


[Operator Instructions] This comes from Charlie Strauzer at CJS Securities.

Charles Strauzer - CJS Securities, Inc.

Well, first of all, congratulations. It seems like the momentum is building nicely in the marketing solutions and other services segments there, and it sounds like you've got some pretty good traction in some of the new offerings there. And, Lee, if we look at the kind of the whole picture and you talk about your 25% of 2014's revenue should come from that segment, what do you think the -- kind of the key growth drivers are going to be? Is it more just getting the brand awareness campaigns to kick in, is it more of the outbound calling centers' upsells? I mean, where do you think you're seeing the best traction now and what do you think it will kind of be next year?

Lee J. Schram

Let me go down, Charlie, the 4 subcategories to give you a little perspective here. We have had 2 very strong quarters in a row in the web-to-print space. We are building on the core that they had in getting more customers to buy various web-to-print offers. We also are bringing that solution into our core customer base, as well as into our dealer, our Safeguard, our major account channels. And what I would tell you is we're not nearly penetrated in any of those channels. Some of them, we're not even a 1/4 to 1/3 of the way into those channels at this point. So we see wonderful opportunities in this basis. We also see opportunities within that marketing category in some of the more discretionary products, and I mentioned we're seeing a little sluggishness right now in the economy. We're still growing very nicely there, and we see those opportunities as we move into next year as well. In the web services space, it's a combination where we see opportunities for growth across all the categories in there. So again, I mentioned on the call, it's wonderful already to see logos and web hosting and web services being sold into that 45,000 customer base in VerticalResponse. So we see more opportunities there. We see more opportunities with wholesale telco accounts. We're working accounts now. And unfortunately, as I mentioned in the call, in the prepared comments, we have timing issues that are always moving around a bit, but we've got secure deals that we're migrating in and we see more opportunities in that space next year as well. We also see, obviously, the opportunity when we get this premium model into the market early next year at VerticalResponse, to start building on that e-mail marketing platform as well. Growth opportunities in both search engine marketing and optimization as we get more partners, more resellers on board, and also payroll services opportunities as well. So feel very good about that category. I think we'll see solid growth in the whole risk management, fraud, security across all our 3 segments. I think there's -- the growth rates there are not expected to be as big as the growth rates in the first 2 categories, but I think we'll see strong growth there. And then we are excited, it's a very small acquisition we made in the quarter with ACTON, but what an opportunity for us to take what's starting to become a better opportunity in Cornerstone for us and really build upon that and combine it, obviously, cost reduction efficiencies, but also synergies on how we go to market there. And that data and analytics platform at ACTON is just a wonderful opportunity for us as well. So hopefully, you get a sense that there's really wonderful opportunities across all 4 of those subcategories, and we feel very good about where we are and excited about the fourth quarter and then as we proceed in the next year.

Charles Strauzer - CJS Securities, Inc.

That's very helpful, Lee. Thank you. And I think when you look back a few years, you used to talk about share of wallet with your existing customer base on the check side. And you kind of look in fast forwarding now to where we are today and how you had some success now, are you satisfied where kind of that share of wallet is today versus maybe where it was 5 years ago?

Lee J. Schram

As far as the check share of wallet.

Charles Strauzer - CJS Securities, Inc.

Well, I mean, you talked about taking that share of wallet for the customer that was buying checks from you and increasing it through selling other services. And it sounds like, obviously, as that kind of progressed over time, you've had very good success in the Marketing Solutions side. And now that -- with kind of looking at, in retrospect, are you kind of happy where you are now in terms of expanding kind of your ARPU, if you will, with your existing customers?

Lee J. Schram

Yes, absolutely. I mean, I mentioned we've increased average order value, we've seen conversion rates get better. But Charlie, there's more opportunity here for us. And I want you to think about it and the other investors here on the call, that one of the things that we're starting to build out in a richer way is taking the platform, that core web services platform that we have and bringing all of those other offers that we've added to that web services portfolio suite, whether they'd be the logo area or the e-mail marketing area or the search areas, and really making that a simpler and a more ease-of-use and a better customer experience. And we're working on that. We've done some things to improve there, but we're working hard behind the scenes right now to even build that out in a bigger way. And we think when we get that platform and that ease-of-use, that opportunity to put more of that lift and reach and that cross-sell into our customer base is going to be a nice play for us.


Your next question comes from the line of Randy Hugen at Feltl and Company.

Randy L. Hugen - Feltl and Company, Inc., Research Division

First, I just want to clarify on your EPS thoughts for 3% to 6% growth into 2014. Were you thinking about that from a GAAP basis, from an adjusted basis, or really from both?

Terry D. Peterson

Hi, Randy, this is Terry. That's from an adjusted basis, so the adjusted range that we have given is adding on top of that.

Randy L. Hugen - Feltl and Company, Inc., Research Division

All right, perfect. And then in the Financial Services segment, margins were up year-over-year but it looks like they tick down a bit sequentially. So what was behind that sequential decline and how should we think about that segment going forward?

Lee J. Schram

Randy, this is Lee. You might recall that we -- this question actually came up on the last call from somebody and they said as we've seen very strong raise the first couple of quarters, you expect to see that. And Terry commented that we expect to kind of see it in the low to mid-20s as we go through the balance of the year. So this is right in line with what we expected. And think of it as -- we're always timing investments that we're making and we're making investments in improving the check business for the financial institutions. We're also making investments organically in SwitchAgent in the marketing solutions and other services space. And then we had the initial transaction and some costs associated with the ACTON deal that came in. Those are small, but all those kind of contributed, and again, but right in line with what we would have expected.

Randy L. Hugen - Feltl and Company, Inc., Research Division

All right. And then you mentioned something about healthcare reform. Is there a significant opportunity for you guys there to sell forms and others things in small businesses there? I mean, can you kind of quantify how big of an impact that might be?

Lee J. Schram

We have -- it's not healthcare reform. It's health forms. And we have some hospitals that we are -- consider as small business customers, where we have some nice-sized rollouts. And we do this for our customers. We have -- it's actually a combined forms and then some services that we do when they go through their annual enrollment processes. Similar to Deluxe here in the fourth quarter, we have an annual enrollment process, a lot of companies do. So it's an opportunity we have with several hospitals. And are we trying to bring those into more as we get efficient and proficient at this? Absolutely, Randy. It's a nice opportunity for us as we move forward.


Sir, you have no further questions at this time. [Operator Instructions]

Lee J. Schram

Okay, Dave. I think we're going to go to wrap up here. Okay?


Thank you very much, sir. Now I'd like to turn the call back to Mr. Lee Schram for closing remarks.

Lee J. Schram

I thank everybody for your participation today. I want to leave you with a couple of summary thoughts. First of all, we delivered our third outstanding quarter this year. Second, we're now well-positioned to deliver our fourth consecutive year of revenue growth in 2013. And the third thought, we have established a solid foundation to grow our revenue again in 2014. We're now going to roll up our sleeves, get back to work, and we look forward to providing a positive progress report on our next earnings call. Thank you for joining us, and that concludes Deluxe's third quarter 2013 earnings call.


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

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