Deluxe Corporation CEO Discusses Q4 2010 Results - Earnings Call Transcript

| About: Deluxe Corporation (DLX)

Deluxe Corporation (NYSE:DLX)

Q4 2010 Earnings Call Transcript

January 27, 2011 11:00 am ET


Jeff Johnson – VP, IR and Treasurer

Lee Schram – CEO

Terry Peterson – CFO


Charles Strauzer – CJS Securities

John Kraft – D.A. Davidson

Jamie Clement – Sidoti


Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2010 Deluxe Corporation Earnings Conference Call. My name is Angela, and I will be your coordinator for today. At this time, all participates are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions)

As a reminder, this conference is being recorded for replay purposes. And now, I would now like to turn the conference over to your host for today’s call, Jeff Johnson, Treasurer, Vice President and Investor Relations. Please proceed.

Jeff Johnson

Thank you Angela. Welcome to Deluxe Corporation's 2010 Fourth Quarter Earnings Call. I'm Jeff Johnson, Deluxe's Vice President, Investor Relations and Treasurer. Joining me on the call today are Lee Schram, Deluxe's Chief Executive Officer; and Terry Peterson, Deluxe's Chief Financial Officer. Lee, Terry, and I will take questions from analysts after the prepared comments. At that time, the operator will instruct you how to ask a question.

In accordance with Regulation FD, this call is open to all interested parties. A replay of the call will be available via telephone and Deluxe's website. I will provide instructions for accessing the replay at the conclusion of our teleconference.

Before I begin, let me make this brief cautionary statement. Comments made today regarding financial estimates and projections and any other statements addressing management's intentions and expectations regarding the company's future performance are forward-looking statements 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 news release that we issued this morning, and in the company's Form 10-K for the year ended December 31st 2009.

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 in the News and Investor Relations section of our website,, and was furnished to the SEC on the Form 8-K filed this morning. In particular, any 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 Schram

Thank you, Jeff, and good morning, everyone. Deluxe delivered another very strong quarter. We reported revenue towards the high-end of our expected range while adjusted earnings per share was well above the high-end of our range.

All three segments delivered strong revenue. Checks and Forms both performed well against our expectations, and new business services revenue grew 17% over the prior year.

We also continue with strong execution against our cost reduction program and spending controls and reported a favorable effective tax rate, all of which drove better than expected adjusted earnings per share.

Adjusted diluted earnings per share from continuing operations grew 11% over the prior year’s quarter and we generated $213 million in operating cash flow for the year. In the quarter, we continued our test-and-learn brand awareness and direct-response advertizing, as well as organic technology initiatives to help better position our new business services offerings and generate future revenue growth.

At the same time, we continued our process improvements and cost reduction all driving strong operating cash flow as we continue our transformation. In few minutes, I’ll discuss more details around our recent progress, and next steps but first, Terry will cover our financial performance.

Terry Peterson

Thank you, Lee. Earlier today, we reported diluted earnings per share for the fourth quarter of $0.68, which included restructuring and related costs of $0.10. Excluding these costs, adjusted EPS from continuing operations of $0.78 was six times favorable to the upper end of our previous outlook and 11% higher than the $0.70 we reported in the fourth quarter of 2009.

Favorable product mix and lower costs drove better than expected EPS performance. Results for the quarter also included a $0.03 per share benefit from a lower effective tax rate. The restructuring costs are primarily driven by infrastructure consolidations, fulfillment operational efficiencies, continued custom direct integrations, and sales and marketing capability improvements.

Revenue for the quarter came in at $351.5 million, which is towards the upper end of the range of our previous outlook. All three of our business segments performed well. Revenue was up 3% from 2009 and grew on a sequential quarterly basis excluding the third quarter contract settlement revenue.

Small business services revenue up $204.2 million was nearly flat versus 2009. While we continue to operate in a weak economic environment, we did deliver growth in new business services, a Safeguard distributor channel in Canada which mostly offset ongoing declines in our core printed products.

Financial services revenue up $88 million was down 7% versus the fourth quarter of last year. The impact of lower check orders was only partially offset by higher non-check services revenue.

Direct checks revenue totaled $59.3 million, up 51% on a year-over-year basis due to the custom direct acquisition. Excluding the impact of the acquisitions, direct checks revenue was down only 4% due to continued strong reorder performance.

Gross margin for the quarter was 64% of revenue, up 1.2 percentage points from 2009. Benefits from improvements in manufacturing productivity, plant consolidation, delivery initiatives, and product mix were partly offset by increased delivery and material rates.

SG&A expense increased $5.5 million in the quarter and was comparable to last year at 44.9% of revenue. Increased SG&A associated with acquisitions and brand awareness and direct response campaign advertising was partially offset by benefits from continuing to execute against our cost reduction initiatives.

Operating margins for the quarter excluding restructuring cost of 19.5% was up from the 19% generated in 2009 and was above our expectations with favorability coming from stronger performance against our cost reduction initiative and our continued focus on spending controls. All three segments delivered strong operating margins.

Excluding restructuring cost, small business services operating margin of 17.8% was up 2.6 percentage points over last year due to continued progress with cost reduction initiatives.

Financial services operating margin of 18.4% was down 0.9 points from 2009 due to lower volume, but improved sequentially from the third quarter driven by lower cost and expenses. Third quarter operating margin was 16.3% excluding $12.5 million of contract settlement revenue.

Direct Checks operating margin up 27.3% decreased 10.3 points from 2009 reflecting the acquisition of Custom Direct, but was in line with the third quarter margin as we continue to realize planned synergies from integrating this acquisition.

Turing to the balance sheet and cash flow statement. Total debt at the end of the year was $755 million, down 2% compared to $769 million at the end of 2009. During the fourth quarter alone we reduced our credit facility borrowings by $23 million. Cash provided by operating activities for the year was $213 million, an increase of $6 million from 2009.

This increase was due to higher earnings including the third quarter contract settlements and lower contract acquisition payments in 2010 which were partially offset by higher performance based compensation payments earned in 2009 been paid out in the first quarter of 2010, the higher income tax payments.

Operating cash flow was negatively impacted in the quarter by several timing items including an unfavorable shift from 2011 of contract acquisition payments, customer rebates, and weather related customer payment delays as collections were strong in the first week of January. Capital expenditures for the year were $44 million and depreciation and amortization expense was $74 million.

Looking ahead to 2011, we expect consolidated revenues on a full year basis to range from $1.375 billion to $1.415 billion. At the high end of this range, we are only expecting a slight improvement in economic conditions.

Diluted earnings per share are expected to range from $2.85 to $3.10. There are several key factors that contribute to our full year outlook including, small businesses services revenue is expected to increase in the low-to-mid single digits range as declines in core business products are expected to be offset by benefits from our e-commerce investment and double-digit growth in our business services offerings.

We expect financial services revenue to decline in the low-to-mid single digits range driven by check order decline of approximately 7% to 8% driven by increases in other forms of electronic payments, which we expect will be partially offset by higher revenue per order, a new large customer win which is expected to begin contributing volume early in the second quarter, and continued contribution from non-check revenue streams.

Direct Checks revenue increased in the mid single digits driven by a full year of Custom Direct partially offset by check declines in a continued weak economy. Additional cost and expense reduction, employee merit increase which we expect to reinstate, increases and material and delivery rates, continued investments in revenue growth opportunities including Business Services, brand awareness, Direct Response campaigns, web-to-print, and enhanced Internet capabilities, and an effective tax rate of approximately 34%.

We expect to continue generating strong operating cash flows ranging between $205 million and $225 million in 2011 driven by stronger earnings on the upper end of our outlook, continued progress on working capital initiatives with slightly lower contract acquisition payments which we expect to be approximately $20 million.

2011 capital expenditures are expected to be approximately $35 million, down 20% from 2010. We plan 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 $70 million including $21 million of acquisition related amortization.

For the first quarter of 2011, we expect revenue to range from $342 million to $350 million. Diluted earnings per share are expected to range from $0.68 to $0.73. In comparison to 2010, the listed factors affecting our full year outlook are similar to those affecting the first quarter with the exception of the impact of a $0.03 per share benefit from the maturity of a company-owned life insurance policy in the first quarter of 2010.

In addition, the first quarter will not benefit from the new national financial institution client, since we are not expecting to start producing their checks until early second quarter.

Shifting to our capital structure, we expect to maintain our balanced approach of investing organically and through small to medium sized acquisitions in order to drive our growth transformation.

We also expect to maintain our current dividend level. To the extent we generate cash flow in excess of these priorities; we plan to pay down debt in order to further strengthen our balance sheet. We believe our strong cash flow, strength in 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 initiative. Overall, we had another solid year and we delivered on our commitment to reduce our costs and expenses in 2010 by $65 million bringing our total reductions since mid 2006 to $325 million.

Life favorability in previous quarters plus stronger than expected performance in the fourth quarter helped to offset the impact of restructuring chargers and allowed us to reinvest even more in the business in the quarter.

Looking ahead to 2011, as we increased our focus on revenue through phase of our transformation, we will not take our eyes off cost reductions. Even though our formal cost reduction program has come to an end, we will continue to identify new opportunities to make our cost structure more efficient. In 2011, we expect to drive an incremental $65 million of cost reduction net of investment.

Our focus in sales and marketing for 2011 will continue to be on improving sales and marketing backend operations, through process centralization, simplification, platform and tool consolidation, and leveraging ecommerce capabilities. We will also continue to improve the mix of paper catalogue and online search engine marketing.

Fulfillment, we expect to continue our lean product standardization, spoilage reduction, and direct and indirect spend reduction initiatives plus further consolidate our manufacturing technology platforms, enhance our strategic supplier sourcing arrangement, and continue with other supply chain improvement and efficiencies.

We also expect to realize a full year’s worth of savings from having installed our fully automated flat check package processing equipment in 2010, the last installation of which was completed in the fourth quarter.

Finally for shared services infrastructure, we expect to continue to reduce cost in all areas as more opportunities exist centralized, streamlined, standardize, and improve efficiencies.

Now I’ll turn the call back to Lee.

Lee Schram

Thank you, Terry. I’ll continue my comments with an update on what we accomplished in 2010 overall, and then where we are headed in 2011. I will then highlight the progress in each of our three segments including our perspective on what we plan to accomplish in 2011.

Deluxe emerged stronger from the continued challenging economic environment in 2010, by growing revenues for the first time in five years and significantly increasing operating earnings. We stabilized our core check and product businesses and invested in future revenue growth areas as we continued our transformation.

These investments included organic initiatives like e-commerce, web services, customer acquisition, regulatory, and fraud and security offence. We acquired Custom Direct and Cornerstone to solidify our core check offerings and to expand opportunities and higher growth business services.

We also continue to reposition our brand through investments and advertising including radio, online, television, mobile event tours, and our project reps, small business, marketing labs sponsorships.

In addition to our strong print leadership, we invested in our employment brand and created stronger technology and digital expertise by adding sales and technology leaders from our business services acquisitions plus several proven key leaders in the e-commerce, search engine marketing, and web to print spaces.

We were recognized by SCORE, a non-profit organization providing business counseling to small businesses as their top partner of the year and the EPA ranked us third on their list of the largest green power purchasers in the printing industry.

In shared services infrastructure, we significantly reduced cost and improved the effectiveness of information technology, finance, human resources, real estate, and legal functions. Our intense focus on cost reductions has now delivered savings of $325 million.

We exited the year with more robust product and services, solidified processes, a better infrastructure, and improved financial results. We recognize that there are still a tremendous amount of work to do. So we made great strides in 2010.

As we enter 2011, our primary focus is on revenue growth, as we now have what we believe is the best products and services portfolio in the history of the company. Our improved solutions start with more differentiated technology led check offers through investments and automated flat packaging, digital printing, and online portals and dashboards.

They also include enhanced internet and web-to-print capabilities and offers to help financial institutions with customer acquisition, regulatory compliance, and profitability. Finally the most significant new solutions revenue growth opportunity is new business services including web services, logo design, search engine marketing, payroll, and fraud and security services.

We will continue to access potential small to medium size acquisitions that complement our large customer bases with a focus on new business services. In addition to financial institutions and direct to the consumer, we have strengthened our channels in small business to include online, retail, wholesale, distributors, dealers and national accounts.

Deluxe is now more capable of helping small businesses get and keep customers and helping small-to-mid size financial institutions with customer acquisition, regulatory compliance, and profitability offers.

These new solutions in channels are driving new differentiated opportunities for us to execute on our strategic focus. And will further enable us to deliver the best personalized customer experience while offering one of the broadest products and services portfolios in each market we serve.

On our third quarter call, we provided an initial perspective on 2011, including a flat-to-low single digit expected increase in revenue and an EPS range of flat-to-high single digit growth. These comparisons exclude the $25 million in revenue and $0.31 in EPS from the third quarter financial institution contract settlement and the favorable $0.03 adjustment to tax expense in the fourth quarter.

Today, in spite of a stronger finish in 2010, we released ranges in line with these initial perspectives with the revenue outlook range from flat to up 3% compared to 2010 and diluted earnings per share range of flat to up 9%.

More specifically, the upper end of our outlook assumes the current economic trends improve slightly in the second half of the year, that we secure only one of the competitive national opportunities with revenue starting towards the beginning of the second quarter and that we generate double-digit revenue increases in new business services to approximately $165 million up from the $122 million in 2010, with more of a growth in the second half of the year plus get some modest growth from our other key initiatives.

On the lower end, we have assumed that not all of our new revenue initiative and business services increase as much as expected and the economy remains sluggish. We believe, this is balanced and therefore a prudent way to plan. We also expect to prudently invest and increase spending from our 2010 level in both brand awareness and direct response campaign.

Now, shifting to our segments. In Small Business Services in the quarter as expected, we did not see any notable improvements in the economic climate impacting our business. We had solid revenue performance however, with results right in line with our expectations had roughly flat compared to the prior year quarter.

Checks and forms performed a little better than expected with seasonal holiday cards and retail packaging in line and new business services a little softer primarily due to some customer migration rollout delays.

Our results from targeted customer segmentation in the call center improved. We increased new customers from our financial institution, Deluxe Business Advantage Referral Program, and through our Direct Response campaigns.

Response rates increased from better balance and in rich content in online and print based spent. Average order value and conversion rates remain strong. Our safeguard distributor channel in Canada showed organic revenue growth over the prior year. We also saw solid growth in web, logo, and payroll services.

In the quarter, we won several new North America, TelCo wholesale deals, and also continued to expand additional value added services on top of core retail web services offer.

We continue to closely monitor the small business market and can see that the pace of decline has bottomed out. Even though optimism indices have risen four out of the last five months of 2010 with December hedging down slightly, they still remain in recessionary territory.

Small businesses remained cautious about hiring and capital investment spending although improving remains at record lows. They continue to spend less, scrutinize purchases more and experience tight cash flow. Encouragingly, confidence and better business conditions and sales looking out three to six months has been growing recently.

In summary, although improving current optimism indices are still below and up 2007 levels. The good is that increasing sales continues to be a small business owners’ number one theme point. We now have – we now offer many products and services to help them here. As the economy recovers with the transformative changes we are making to deliver more business services offering that help small businesses get keep customers, Deluxe is better positioned as a indispensible partner for growing.

Our focus for 2011 in core small business products in on acquiring new customers, increasing our shared wallet through our enhanced Shop Deluxe e-commerce site, growing distributor and channel partners, implementing web-to-print offers, and improving segmentation. We will continue to improve the efficiency and effectiveness of our inbound, outbound, and online customer touch points to maximize revenue scale capabilities.

In New Business Services, we expect to gain new customers through our TelCo focused wholesale model, add customers and services in our retail model, add marketing services, payroll services and logo customers, and continue to expand search engine marketing offers.

We also will look for opportunities to add more business services on our unified technology platform. All New Business Services are expected to generate approximately $155 million to $165 million in revenue in 2011 up from $122 million in 2010. So we continue to build scale capability here.

In Financial Services, we have continued to proactively extend contracts and now have only two smaller size national accounts due in 2012 that we continue to work to extend. Again this quarter we saw strong overall new acquisition rates and our retention rates remain strong in excess of 90%.

We are finalizing contract terms for a new large national financial institution that we expect will start early in the second quarter that is included in our outlook. We expect a decision in the first quarter on another large national competitive opportunity. Plus there are still a significant number of competitive opportunities through 2012.

In addition, we have also recently won several brokerage type check deals and basically a new space for us allowing us to extend our reach in the financial services industry. We also implemented a price increase at the start of this year. In the quarter, we did see the rates of decline of checks perform better than our forecasted rate of around 8%. Also, we have read the recently issued Federal Reserve Payment study including a report on written check decline rates of 6.1% compounded between 2006 and 2009. Our own performance over the same period of time is just slightly more favorable.

We also simplified our processes and took complexity out of the business while reducing our cost and expense structure. Our new transformed customer self service portal and dashboard tools introduced in the second quarter of 2010 have now been deployed to about 90% of our financial institutions with the remaining ones expected to be deployed in the first quarter of 2011.

We made progress again in the quarter in advancing non-check revenue growth services opportunities. Revenue grew over last year in these non-check services which include customer acquisition analytics, loyalty, client communication, regulatory compliance, fraud and security, and rewards checking offers.

December was our largest month of the year for the number of rewards checking signups from our financial institutions from our exclusive partnership with (inaudible). We also continue to see solid results from our Cornerstone acquisition.

Although the initial (inaudible) wave ended in the third quarter, we continue to see add-on regulatory and compliance in the fourth quarter. As you can see, momentum continues to build in these non-check revenue initiatives. We expect to see strong double-digit growth in these growth services in 2011 as well, with the largest growth opportunities in customer acquisition analytics, fraud and security, rewards checking, and regulatory compliance.

In Direct Checks, revenue was in line with our expectations driven by accelerated reward rates, and we delivered a strong 27.3 point operating margin in the quarter excluding restructuring related cost. We continue to look for opportunities to provide accessories and other check related product and services to consumers. We also continue to be very pleased with the integration of Custom Direct as we leverage the best of both Direct Checks and Custom Direct into a best in class direct to consumer check experience.

We continue to see a ramp in revenue enhancement synergies through our call center scripting and up sell capabilities. In addition, cost reduction activities continue with savings incurring in material, procurement, delivery, media and marketing expense leverage, and other SG&A.

We expect continued revenue enhancements and cost reductions in the 2011. For 2011, we expect revenue growth in the mid single digits range driven by the Custom Direct acquisition and accelerated reward rates, partially offset by declines in consumer usage in a continued weak economy.

We expect to reduce our manufacturing costs and SG&A in this segment and maintain our operating margins in the high 20% range, including acquisition amortization while generating strong cash flow.

As we exit 2010, on the heels of a very strong quarterly performance and a continued weak economy, we have made tremendous progress in transforming Deluxe and we still have many opportunities ahead of us in 2011. We believe that we are entering the year better positioned to grow revenue now through clear alignment on our strategic direction, focus on our customers, diversity in our channels, and an extensive depth and breadth of our product and services offerings.

Deluxe is poised to be an indispensable partner in helping our customers get and keep their customers. Our technologies are stronger, our e-commerce software are more mature, our infrastructure better and we are making more intelligent data driven decisions.

Our focus continues to be on providing simple EDUs, innovative solution that fulfill customer needs while using continuous improvement principles to operate with the focus sense of urgency on a daily basis.

If the economy improves even more, we should have upside in Small Business Services revenue as we know it is important for us to continue to demonstrate growth in this segment. At the same time we will not take our eyes off of cost reductions and process improvements and we expect to continue to generate strong cash flows and provide a very attractive dividend.

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 solid performance and what was clearly a challenging 2010. Thank you Deluxers, let’s get off to a great start in 2011, let’s make it happen.

And now, Angela, Terry, Jeff and I will open the line for questions.

Question-and-Answer Session


Thank you, sir. (Operator Instructions) Gentlemen, your first question will come from the line of Charles Strauzer with CJS Securities. Please proceed.

Charles Strauzer – CJS Securities

Hi, good morning. Can we just dive into the segments margin just a little bit, just to kind a get a little bit more granularity there? When you look at Small Business Services, it had a very strong margin there, first is historical and financial services is probably had weaker than I was expecting there. Can you just give me a little bit more colors as to kind of what’s driving the pluses and minuses there?

Lee Schram

Obviously we are very pleased with the performance essentially in both of the two segments. We’ve seen an accelerating improvement through the year as you know on the Small Business Services margins and we expected that as the cost reductions actually kick in and have been stronger.

We also mentioned in Terry’s part of the script that, we had better performance overall in cost reductions in the fourth quarter, so we got little extra list there. And it also actually helped in financial service as well. We know there was some disappointment coming out of the third quarter, we weren’t disappointed, because as we said on the call last time, we’re always making investments in each of the segments and could probably invest a little bit more in financial services in third quarter, that people expected and then we got that popped back up and we didn’t do as much in that space in the fourth quarter adjusted cost and expense savings that we expected and therefore the performance improved.

So, I would say we are very pleased with Small Business and the margins that we had in Financial Services, I think that’s the way. And again if this is going to happen quarter-to-quarter, sometimes we have timing of when we invest in certain areas and we are as you know fully allocating. We don’t leave anything at corporate unallocated pocket. So that consents sometimes despite things around some of the segments, but again Charlie I am very, very pleased with the results.

Terry Peterson

Yes price increases in financial services especially are another dynamic and we haven’t had a price increase for several quarters now. As Lee mentioned in his prior comments that we do have a price increase that led into effect in January now. So that will be into benefit in first quarter next year.

Charles Strauzer – CJS Securities

Especially help margins a little bit, I would think this year as though – that the margins grew progressive along the year?

Lee Schram

The price increase will absolutely.

Charles Strauzer – CJS Securities

Got you. And just in general, just when you look at the three segments in terms of, you guidance, in terms of the – how should we look at the margins and how should they progress as the year goes on. Any thoughts you can share with us there?

Lee Schram

Yes I think again, we haven’t got in, I think we didn’t make the comments about cost reductions being lumpy Charlie because, we are getting a lot tired of saying that all the time. I mean the way – we are – not everybody likes to be exactly linear as they go throughout the year. So, I would expect you are going to see a pattern similar to that this year where there will be some cores, will get more out than others, but by the way we are very pleased that we’ve been able to come up with $65 million and what it’s allowing us to do is to reinvest back in to help the future revenue growth potential to company and I am just, the work that Terry and the whole team had done here to come up with these numbers and again I am just very, very pleased with that number. It’s going to help as we work through the year.

Terry Peterson

Yes, we don’t see any significant anomalies throughout the year, in our (inaudible) if we do see something odd that will – really at that particular quarter, we’d provide some information about that, but nothing abnormal at this point that would really one particular quarter.

Charles Strauzer – CJS Securities

Great and then just sort of looking at the Q1 guidance there, can you give us a little bit more granularity on your margin expectations on some other segment.

Lee Schram

No, we are not going to do that Charlie. Again I wouldn’t expect they are going to move substantially and what we put out as overall, and in the comments that we made for kind of the year and we are trending, we are going to stick to that right now.

Charles Strauzer – CJS Securities

Okay, very good, thank you very much.

Lee Schram

You are welcome Charlie.


And gentlemen your next question comes from the line of John Kraft with D.A. Davidson, please proceed.

John Kraft – D.A. Davidson

Good morning gentlemen and congratulations on the progress.

Terry Peterson

Thank you John.

Lee Schram

Thank you John.

John Kraft – D.A. Davidson

I just wanted to ask a little bit more about the business advantage program, to me that seems like a pretty important referral avenue. Is there a way to put a metric on penetration, I guess either, what percent of your financial institution customers are participating in that program or what percent of your customers are buying more than simply business checks.

Lee Schram

John we don’t. I don’t have and I know Terry doesn’t have sitting here any specific statistics on it. Here is though some couple of things that might be helpful for you. Its broad based and that it’s national and community banks that are participating. And we also are very pleased that the community bank market is actually being contributing more in the space. So think of it as we are getting more community banks lined in the program and more of the community banks are getting their small businesses locked into the program as well.

All I can say is, I don’t have the statistics off the top of my head or what are only check only customers versus, customers that buy two or more products three or more products and so on and so forth. But what I’d tell you is that the pace of DBA or Deluxe Business Advantage customers buying more than checks is increasing and continuous to increase. And I think – again either Terry or I have those stats in front of us, but that’s the way I think you should think about.

Terry Peterson

And now I think I would add to that John is that, the DBA program continues to be a single largest source of new customers coming into Small Business Services and that’s the way it’s always been since we had, really since (inaudible) season.

John Kraft – D.A. Davidson

Okay, thanks. That is helpful. And I guess, just a couple of follow ups here. The price increase you mentioned Lee, is that all customers across the Board?

Lee Schram

It, again the way – the challenge as always addressing this is, it’s never the same rate everywhere because of the contracts we have and then what we can raise price in terms of the types of things that we are doing. But do we try to get it out there everywhere we can possibly get it consistently, the answer is absolutely yes.

John Kraft – D.A. Davidson

Okay. And then lastly, in the past you’ve done some segmentation of course we have sort of broken out not by your official segments but just by check printing versus non-check printing. Can you give us those updated numbers?

Lee Schram

That will be in the 10-K John, like it’s filed. You’ll see us with a – we’ll do the same split again, that’s our intent to be, we’ll give you that, check mix versus the other – kind of business products mix and then the services mix. So, if you can hold till we issue the 10-K here in a few weeks, that you’ll see that information.

John Kraft – D.A. Davidson

That’s fair. Thanks guys.


(Operator Instructions) Your next question will come from the line of Jamie Clement with Sidoti. Please proceed.

Jamie Clement – Sidoti

Lee, Terry, Jeff, good morning.

Lee Schram

Hi, Jamie.

Jeff Johnson

Good morning Jamie.

Terry Peterson

Hi, Jamie.

Jamie Clement – Sidoti

We actually had a similar question to one of the previous ones but kind of just I guess coming from a little bit of different direction. Can you talk a little bit about Small Business customer acquisitions and the channels that those customers have come through, let’s say, three years ago versus where you think they’re coming from three years from now given the additional services that you guys have added along with a different way of accessing the marketing pools.

Lee Schram

I think what we – Jamie, we relied basically on the DBA program and then the basic brands that came with NEBS probably looking for the years back. And then, where we are now as we are very – we’re still working that DBA program hard. But we are seeing a significant increase in non-DBA customers and are coming from our online work that we’re doing, our call center work, our email work that we do, they’re coming from proactive reaching out through our outbound call center work that we’re doing, and they’re also coming through the work that are both – that’s happening with our Safeguard distributor channel and then what we call our dealer channel and then also we’re starting to see Small Business come through, national accounts that we’re working through and that’s basically a sell through to the end Small Business Customer end.

I think as we get into this year we’ll probably start to feature some of those names as we’re allowed to release them. What we see as we go forward is more of an online extension which is why we’re putting the brand and the direct response advertising out there, but they’ll come back through all medias, they will come back through our call centers, they will come back through their our distributer channels, they’ll come back through our dealer channels and national com. We expect those areas all to actually increase over the next, I will use your words, three years if you kind of look forward. So again in my comments we were reaching broader areas and partnering better and clearly what it’s doing is it’s allowing us to reach, get the breath of our products and services offers out in the more parts of the market Jamie.

Jamie Clement – Sidoti

Lee switching gears a little bit, looking at the eventual Small Business Recovery, for a business like yours and I know it includes a lot of different products and service lines, from your perspective do you think new hiring is relatively more important than new business formation or vice versa, because I could imagine a scenario where one of those things improve today had it replaced [ph] than the other going forward.

Lee Schram

They are both important, I mean if we get, what we find is, we get more new formulations of businesses Jamie, you get more opportunities right upfront to put the – start with the branding and the logo process, so then carry it into, they need to get themselves found online and. So if that’s an important one, but as small businesses hire more people obviously they are probably going to be reaching more customers and therefore having more money to spend on initiatives and therefore they are more likely to look at other products and services that we have to help them get key customers. So, I would argue both of them are important to us.

Jamie Clement – Sidoti

Yes sure, absolutely. Okay, thank you all very much for your time as always.

Lee Schram

You are welcome Jamie.


And ladies and gentlemen that does conclude the question and answer session. I would like to turn the call back over to Lee Schram for the closing comments.

Lee Schram

Yes, thank you for everybody out there that’s participating and for your question today and again I want to thank everybody at Deluxe here that’s also listening in. Just for again your effort and your great performance in 2010. We are now going to roll up our sleeves, get back to work and again we look forward to, for providing a positive progress report on our next earnings call.

Jeff Johnson

Thank you Lee, this is a reminder that a replay of this call will be available until February 10th, by dialing 888-286-8010. When instructed, provide the access code 10727550. The accompanying slides are archived in the news and investor relations section of Deluxe's website at Again thank you for joining us, have a good afternoon.


Ladies and gentlemen, we thank you for your participation in today’s conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.

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