Ed Merritt - Former VP of IR and Treasurer Lee Schram - CEO Keith Bush - CFO.

James Clement - Macquarie Research Joan Tong - Sidoti & Company, LLC Charles Strauzer - CJS Securities, Inc..

Good day, ladies and gentlemen and welcome to the Q2 2017 Deluxe Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Ed Merritt, Treasurer and Vice President of Investor Relations.

Sir?.

Thank you, Vince and welcome everyone to Deluxe Corporation's Second Quarter 2017 Earnings Call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations and joining me on today's call are, Lee Schram, our Chief Executive Officer; and Keith Bush, our Chief Financial Officer.

At the conclusion of today's prepared remarks, Lee, Keith and I will take questions.

I'd like to remind you that comments made today regarding financial estimates, projections and management's intentions and expectations regarding the company's future performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995.

As such, these comments are subject to risks and uncertainties which could cause actual results to differ materially from those projected.

Additional information about various factors that could cause actual results to differ from projections 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, 2016.

Portions of the financial and statistical information that will be reviewed during this call are 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 reference to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release or as part of this presentation. Now I'll turn the call over to Lee..

Thank you, Ed and good morning, everyone. Deluxe delivered our second very strong quarter of the year. We reported revenue and adjusted earnings per share above the upper range of our outlook in spite of a continued sluggish economy.

Revenue grew 8% over the prior year quarter, driven by Financial Services growth of 19% and Small Business Services growth of 5%. Marketing solutions and other services revenues grew over 26% over the prior year and represented over 38% of total second quarter revenue. Adjusted diluted earnings per share grew almost 8% over the prior year quarter.

We generated strong operating cash flow of $152 million for the first half of the year and we've withdrawn about $719 million on our credit facility at the end of the quarter. We repurchased $15 million in common shares in the quarter.

We continued our brand awareness campaign to help better position our products and services offerings and drive future revenue growth. We also advanced process improvements and delivered on our cost-reduction commitment for the quarter. In a few minutes, I will discuss more details around our recent progress and next steps.

But first, Keith will cover our financial performance..

Thanks, Lee. Revenue for the quarter came in at $485 million, growing 7.7% over We delivered growth in checks and marketing solutions and other services. And from a channel perspective, our online, major accounts and Canada grew. Financial Services revenue of $148 million grew 18.9% versus the second quarter of last year.

Organically, Financial Services revenue declined about 3% for the quarter. Higher growth in marketing solutions and other services revenue more than offset the impact of lower check orders. Direct Checks revenue of $35 million was down 9.4% from last year and right in line with our expectations.

From a product and services revenue perspective, check revenue was $212 million, representing 44% of total revenue. Marketing solutions and other services was $185 million or about 38% of total revenue. And forms and accessories were $88 million or about 18% of total revenue.

Gross margin for the quarter was 63.1% of revenue and was down from 64.5% of revenue in 2016.

The impact of acquisitions and higher delivery material costs and a favorable environmental reserve adjustment in the second quarter of 2016 were only partially offset by the benefits of previous price increases and improvements in manufacturing productivity.

SG&A expense increased 4.8% in the quarter and as a percentage of revenue, was well leveraged, ending at 42.9% compared to 44.1% last year. Benefits from our continuing cost-reduction initiatives in all 3 segments and lower brand awareness spend were more than offset by increased SG&A associated with recent acquisitions.

Excluding restructuring, transaction-related and asset impairment charges, adjusted operating margin for the quarter was 20.3% which was slightly lower than the 20.5% generated from 2016.

Small Business Services adjusted operating margin was very strong at 19.3% and 2 points better than the prior year, driven by price increases, cost reductions, favorable product mix and lower brand awareness spending, partially offset by the decline in check and forms usage and a favorable impact from an environmental reserve adjustment in 2016.

Financial Services adjusted operating margin of 19.3% was down 4.5 points from 2016. In addition to check usage declines, even though the recent acquisitions were slightly accretive to operating income, the impact of their additional SG&A contributed 3.5 points of the variance.

Direct Checks adjusted operating margin of 33.8% decreased 0.5 points from 2016, driven by lower order volumes that were only partially offset by cost reductions. Diluted earnings per share for the second quarter were $1.22 which included $0.07 per share for restructuring, transaction and asset impairment charges.

Excluding these items, adjusted diluted EPS was $1.29 and 7.5% above the $1.20 reported in the second quarter of 2016 [indiscernible] $0.01 above the high-end of our previous outlook, primarily driven by favorable product mix. Turning to the balance sheet and cash flow statement.

Total debt at the end of the quarter was $720.5 million, down from $758.6 million at; the end of 2016. Cash provided by operating activities for the first half of the year was $151.6 million, a $23.3 million increase compared to 2016, driven by the timing of tax payments as well as from lower contract acquisition payments.

Capital expenditures for the first half of the year were $22.8 million and depreciation and amortization expense was $60.1 million. Now moving to our outlook. We're tightening our previous consolidated revenue outlook for the full year range from $1.955 billion to $1.975 billion or about 6% to 7% overall growth.

We're also tightening our adjusted diluted earnings per share to an expected range from $5.20 to $5.30.

The second quarter $0.01 EPS over performance above the high end of our outlook range is expected to be offset by higher interest expense in the second half of the year due to the recent Federal Reserve interest rate increase that was not included in our previous outlook.

In addition, there are several key factors that contribute to our full year outlook, including Small Business Services revenue is expected to increase 4% to 5% with expected growth in our online, dealer and major accounts channels, price increases, double-digit growth in MOS offerings, continued small tuck-in acquisitions; partially offsetting our growth, our expected volume declines in core business products, our strategic decision to eliminate around $15 million of low-margin business and a negative impact of foreign exchange rates.

We expect Financial Services revenue to increase 15% to 18%, driven by continued growth in MOS categories, including data-driven marketing solutions and treasury management solutions as well as continued small tuck-in acquisitions.

Partially offsetting our growth is the expected loss of about $10 million in Deluxe Rewards revenue, primarily due to the departure of Verizon. Check order declines of approximate 5% and some pricing pressure.

In Direct Checks, we expect revenue to decline approximately 9%, driven by lower check order volume stemming from secular declines in check usage. We expect a continued sluggish economy and expect full year cost and expense reductions of approximately $45 million net of investments.

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 and an effective tax rate of about 32.5%.

We expect to continue generating strong operating cash flow ranging between $335 million and $345 million in 2017, reflecting stronger earnings and lower interest payments partially offset by higher tax and employee medical payments. We expect contract acquisition payments to be approximately $27 million.

2017 capital expenditures are expected to be approximately $45 million, in line with 2016 as we continue to grow Deluxe. We plan to continue to invest in key revenue growth initiatives and make other investments in order fulfillment and IT infrastructure.

Depreciation and amortization expense is expected to increase to approximately $123 million, including approximately $75 million of acquisition-related amortization. For the third quarter of 2017, we expect revenue to range from $485 million to $493 million and adjusted diluted earnings per share are expected to range from $1.23 to $1.28 per share.

In comparison to the second quarter, we expect earnings per share to be lower primarily by higher brand spend and less cost reductions.

Finally, in comparison to the third quarter, Q4 adjusted diluted earnings per share is expected to be a significantly higher, driven by volume and leverage from our highest revenue quarter of the year, lower employee benefits expense and our highest cost-reduction quarter and significantly lower brand spend. Shifting to our capital structure.

We expect to maintain our balanced approach of investing organically and through small- to medium-sized acquisitions in order to drive our growth transformation. Additionally, we expect to continue paying a quarterly dividend and periodically repurchase common stock.

To the extent we generate excess cash, we plan to reduce the amount outstanding against our credit facility. 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 delivered on our cost and expense reductions in the second quarter towards our approximately $45 million annual commitment net of investments. Approximately 60% of the expected reductions will come from sales and marketing and other 30% from fulfillment and the remaining 10% coming from our shared services organizations.

Our focus in sales and marketing for 2017 continues to be on sales channel optimization, platform and tool consolidation, leveraging sales and marketing efficiencies, including integrations from recent acquisitions.

In fulfillment, we expect to continue our lean, direct and indirect spend reductions, further consolidate our manufacturing technology platforms, drive delivery technology and process efficiencies, reduce spoilage, further enhance our strategic supplier sourcing arrangements and continue with other supply chain improvements and efficiencies.

Finally, for shared services infrastructure, we expect to continue to reduce expenses, primarily in IT and we're also working opportunities in finance, legal and real estate. Now I'll turn the call back over to Lee..

Thank you, Keith. I'll continue my comments with a quick reminder of our strategic focus areas, an update on our MOS revenue and then highlight progress in each of our 3 segments using our 4 strategic focus areas for a perspective on how we progressed in the second quarter and then what we expect to accomplish during the balance of 2017.

In 2017, our primary focus continues to be profitable revenue growth for an eighth consecutive year and increasing the mix of marketing solutions and other services revenue.

We continue to focus on 4 strategic areas for 2017, including 2 each for Financial Services and Small Business Services that we will provide regular updates through the balance of 2017. I will review each of the 4 focus areas in a few minutes during the segment updates.

Here is an update on our 5 subcategories framework for marketing solutions and other services. We ended the quarter about $4 million better than the top-end of our previous expectations, driven primarily by strength in small business marketing solutions.

We continue to provide a directional annual EBITDA margin profile in total and for each of the 5 MOS categories and an annual recurring revenue perspective.

Note that we want to be cautious given the extremely competitive landscape in not providing a more precise EBITDA margin profile, but we want investors to understand that as our MOS business approaches 40% of total revenue, our MOS EBITDA margins are also now approaching our overall company average.

We estimate that approximately 70% of the MOS revenue is recurring with some of the MOS categories recurring at a rate closer to 95%. In many MOS products and services, we have multiyear customer contracts similar to our FI check contracts, annual maintenance services contracts, recurring monthly fees and long-standing customer relationships.

Also note that we expect MOS to total company revenue to be approximately 38% this year, including over 16% of total company revenue in the even higher multiple fintech space.

First, small business marketing solutions are expected to represent approximately 35% in 2017 with an expected growth of approximately 7% to 8% and EBITDA margins well below our overall average.

Key 2017 growth initiatives include profitably scaling integrated marketing on-demand solution offers, web to print, retail packaging and promotional products. As mentioned earlier, Q2 revenue was better than our expectations.

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 18% in 2017 with expected growth rates of 15% to 18% and EBITDA margins moderately below our overall average.

Key 2017 growth initiatives includes scaling our integrated Deluxe Marketing Suite across our customers and channels and scaling web and payroll services all is continuing tuck-in capability acquisitions. Q2 revenue met our expectations. On July 4, we closed an acquisition of Digital Pacific for approximately $41 million.

Digital Pacific is an Australian-based web hosting company which further expands our web hosting services capabilities. And we expect it to deliver approximately $9 million of revenue this year, bringing the total acquisition revenue for the year included in our outlook to approximately $30 million.

Moving on to the third MOS category, data-driven marketing solutions is expected to represent approximately 19% in 2017 with expected triple digits growth rates and expected EBITDA margin slightly above the overall average. Key focus areas for growth in this category includes scaling direct marketing analytic print services, Datamyx and FMCG.

Q2 revenue met our expectations. We closed 2 new wins with top 100 financial institutions in the second quarter and also over 20 expansion deals with existing clients. The increase in our outlook range was primarily driven by direct marketing analytic print services.

The fourth category, treasury management solutions, is expected to represent approximately 15% in 2017 with an expected 19% to 21% growth rates and expected EBITDA margins slightly below our overall average. Q2 revenue met our expectations.

We had 2 notable wins in the second quarter; one, with a large financial institution that will be moving from an on premise solution to an outsourced Saas solution at nearly 4 times the value of an on-premise solution. Another large financial institution is moving from on on-premise lockbox solution to a full outsourcing solution.

We also want our first RDM mobile SaaS-based Remote Deposit Capture solution in the second quarter.

The decrease in our outlook range was driven by some lengthening of sales and contracting cycles as FIs are spending more time assessing on-premise to full outsourcing as well as we have seen some shift from on-premise onetime license revenue to more recurring outsource revenue models which are preferred but in the short term, it can lead to less revenue.

The fifth category, fraud, security, risk management and operational services is expected to represent approximately 14% in 2017 with expected declines of around 11% driven by Deluxe Rewards revenue reduction as highlighted earlier and EBITDA margins well above our overall leverage.

Key focus areas in this category, in addition to our standard fraud and security offerings, include scaling profitability, strategic sourcing, eChecks, Deluxe Rewards and SwitchAgent. Q2 revenue met our expectations.

We expect marketing solutions and other services revenue to be approximately $750 million to $760 million in 2017, up from $617 million in 2016 with an expected 22% to 23% growth rate. If achieved, this performance will translate to a total revenue mix of 38% of revenue and up from 33% in 2016 and 30% and 26% to previous 2 years.

We continue to target increasing marketing solutions and other services as a percent of total company revenue to approximately 40% in 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, as expected, we did not see any notable improvements as the economic climate for small businesses remained sluggish in spite of improved optimism. However, revenue grew 5%. Checks were slightly better than our expectations while forms and accessories were below our expectations.

Average order value and conversion rates increased. Our online, major accounts and Canada channels grew revenue over the prior year. We also saw growth in small business marketing solutions and web services. We continue to closely monitor the small business market.

Optimism indices that increased dramatically in December closing at 1 06 and that remained high through the first quarter, finishing at 1 05 in March, remained high through the second quarter, finishing slightly down at 1 04 in June. Clearly, there is a boom in optimism for the economy following the new President.

Small businesses are signaling that they expect better market conditions and therefore, increased business activity and capital spending. Sales expectations looking out 3 months soft. So although small business owners are more optimistic right now, they want to start seeing some proof that positive changes will come.

Clearly, as this more optimistic trend continues, this bodes well for us. However, in summary, although current optimism indices indicate accelerated growing optimism for small-business owners, it is important we see more sustainable trends and then the results manifest in the small business marketplace.

For Small Business Services, our 2 focus areas are payments and marketing solutions and web services. First, for payments and marketing solutions, we're focused on core check retention and acquisition and developing incremental retail customer acquisition channels. We again ended the second quarter slightly better than our expectations for checks.

We also made progress in profitably scaling integrated marketing on-demand solution offers with the second quarter revenue better than our expectations as I mentioned.

In addition, on top of the 2 new wins we mentioned on the first quarter earnings call, we closed 2 more marketing solutions opportunities in the second quarter, one with a large insurance company and the other with a large financial services company. Revenue here will roll out and ramp over the second half of the year.

Finally, we're focused on scaling eChecks, eDeposit and other payment and workflow solutions such as variable check printing and remotely-created checks.

For eChecks, we continue to look to build out opportunities with financial institutions, medical and insurance payment processors, accounting services and software providers and other document management and payment solution companies.

The opportunity we discussed in the first quarter earnings call with a company in the medical and insurance payment processing space is set to begin a rollout in the second half of 2017. We also reached agreement with a top 100 financial institution that will begin promoting eChecks through a pilot in their branches really this year.

And we're in contract talks with another top 100 FI.

Our second small business focus area is web services, where we're growing digital marketing services through improved customer experience and cross sell, including the use of our integrated Deluxe Marketing Suite across our customers and channels while continuing to build out partnership and acquisition web services opportunities.

In Q2, we also saw a continued 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.

In operating services, we're focused on scaling payroll services and continuing to evaluate early-in business and other operational annuity growth solutions. In Q2, Payce Payroll revenue and profitability was roughly in line with our expectations.

Finally, we're focused on continuing to accelerate our brand awareness transformations with a clear linkage to marketing and revenue-generating capabilities. In 2017, we're continuing our small business revolution focus and partnership with Robert Herjavec from Shark Tank as well as our Main Street town makeover.

In Q2, we've spent considerable time and captured all of the marketing makeover work in Bristol Borough, Pennsylvania where the web series that will begin in late September.

We also continued to integrate the experience between the smallbusinessrevolution.org to our resource center and then to Deluxe.com as we start to focus on driving revenue-generating capabilities. In Financial Services, we have 2 strategic focus areas for 2017. First, retail banking which includes checks and data-driven marketing solutions.

In the second quarter, we saw the rate of decline checks performed a little bit better than we expected at a little over 4%. For 2017, we now expect check units to decline about 5%. Declining at a faster rate as the year progresses. And overall, slightly higher than 2016 decline rates.

We understand it is important for us to maintain low decline rates, but given the size of the FS checks business now and the growth in MOS, every 1% decline in FS checks now only has about a $2 million annualized impact on revenue. Our retention rates remain strong on deals pending in the current quarter.

We simplified our processes and took complexity out of the business while reducing our costs and expense structure. We have now extended all our large contracts to at least the end of 2017 and we're running at a little better pace than the second quarter of 2016 on renewing bank contracts and we have more competitive opportunities coming up.

We also implemented a small price increase as a reminder at the start of this year. Today, we're providing at least one of our key FS solutions to 95 of the top 100 U.S. banks.

The market for data-driven marketing spend is expected to grow 9% with digital marketing spend by financial institutions expected to grow on a CAGR basis close to 13% through 2020.

We're focused here on selectively sourcing value-add data, leveraging it with smart analytics purpose-built solutions to target specific customer segments for specific product offerings with multichannel capability. Think of it as just the right amount of data and analytics to be a difference-maker for our customers.

We believe there is no other marketing services provider bringing this deep and sole focus to the Financial Services market right now. Again, data-driven marketing solutions performed well in the quarter, meeting our expectations.

Our focus for 2017 is on leveraging both Datamyx data and analytics, together with marketing services campaign execution to accelerate outsourced campaign targeting and multichannel execution as well as scaling FMCG and leveraging synergistic opportunities with Datamyx.

With the addition of FMCG, we're very excited about the data-driven marketing solution space and continued prospects to grow revenue. The second FS strategic focus area is commercial banking and includes scaling treasury management solutions.

In treasury management solutions, our largest opportunity is in managing payment acceptance and risk irrespective of payment type, reconciling and matching payments, resolving exceptions and then posting payments to keep receivables current.

This receivables management work of automating and outsourcing workflow innovation and solutions for efficiency and effectiveness that's right in our sweet spot. Our focus in treasury management solutions in 2017 is on profitably scaling revenue and integrating acquisitions already completed, plus assessing and executing tuck-in acquisitions.

For 2017, we expect marketing solutions and other services revenues to be approximately 55% of total FS revenue with the following at the midpoint of the FS revenue range.

Data-driven marketing solutions, including Datamyx and FMCG, approximately $144 million; treasury management solutions, including WAUSAU, FISC, DSS and RDM, approximately $111 million; and fraud, security and risk management and operational services approximately $62 million. In Direct Checks, revenue finished right in line with our expectations.

We continue to look for opportunities to provide accessories and other check-related products and services to our consumers as well as work on a number of initiatives to create an integrated best-in-class direct-to-consumer check experience.

We 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 2017, we expect Direct Checks revenue to decline in the 9% range, driven by continued declines in consumer usage and a sluggish economy and lower reorders from our earlier decision to eliminate marketing expenditures that no longer met our return on investment criteria.

We anticipate that marketing solutions and other services revenue which is primarily fraud and security offers for this segment to be about 10% for Direct Checks revenue.

We expect to reduce our manufacturing costs and SG&A in this segment and continue to deliver operating margins in the low to mid-30% range while generating strong operating cash flow.

As we exit the second quarter on the heels of a very strong quarterly performance and a continued sluggish economy, we have made tremendous progress in transforming Deluxe but we have many opportunities ahead of us in 2017. We believe we're well positioned in 2017 for our eighth consecutive year of revenue growth.

Despite the sluggish economy, our financial discipline has enabled us to invest in people, technology, products, services and our brand in order to position ourselves for sustainable revenue growth while continuing to improve profitability and operating cash flow. Our technologies and sales channels are stronger.

Our digital technology services offers are more mature, our infrastructure better and our management talent is deeper and aligned to grow revenue.

We have developed a strong MOS platform for long term growth with high recurring revenue streams and improving adjusted EBITDA margins as we continue to transform Deluxe to more of a growth services provider from primarily a check printer, thereby changing our product mix and resulting stock price multiple.

Now Vince will open the line up for questions..

[Operator Instructions]. Our first question is from Jamie Clement of Macquarie..

Lee, in terms of terminology, I'm just not familiar with.

Your referenced variable printed checks and remote checks, what exactly does that mean?.

What we're doing is we're working through how do we take an electronic check that we have and basically process it through the remote deposit capture. We actually have to print the check out and then truncate the check. And that's a -- think of it as using variable printing to be able to do that, Jamie, is pretty much simply what it is.

So we think that the technology we got, first with the WAUSAU acquisition and enhanced it with the RDM acquisition is just going to allow us to be able to do this as electronification of check becomes an option for our customers..

Got it.

And with respect to the eCheck pilot that you mentioned, can you give us a little bit more flavor of what that's going to look like? Are they going to target towards consumers? Are they going to target towards businesses, a mix of both? What is your initial sense of what that's going to look like?.

Think of it this way. What we've learned over the last year or so, we've got it deeply entrenched over a lot of these providers, Jamie. What's going on today is let's say that you go to the doctor and you make your co-pay, hopefully you're paying by check or it will be wonderful for us.

But as you do that and then as you get the services from your physician, what happens is there is a paper check transfer between your insurance company and your and the physician. And what we've learned this there's million of checks, paper checks that gets disbursed today to do this.

There are handful of companies that are involved in doing this today. And what we're doing is we're working with several of them to actually take the paper check and replace that paper check with any check.

And that provides -- if we can get this going, Jamie, it provides 2 things for us, number 1, a completely new stream for us that we don't plan today; and number 2 obviously, a nice revenue stream for us.

And so that's what we're working and it's going to start with a pilot because that's how the company that we're working with and we're not at liberty to reduce -- to give you the name yet but that's the work that's going to go on..

Okay, okay. And then last one and then I'll get back in queue.

With respect to the FI segment operating margin going forward, is a high teen rate kind of where you are now, a little bit below 20%? Is that the right way to think about this going forward based on the asset mix now, in the acquisitions that you've done? Or over time, do you think you can kind of get back to that low 20% kind of number?.

Yes, yes. So you've got it what. And a simple math, I think we've provided this in the last call but I'll do it as a reminder for you and then for all other investors.

If you think about the $80 million to $85 million that we've got out there for First Manhattan, you'd think about the $0.02 dilution that we've continue to -- we mentioned that we contained the forecast.

And Jamie, if you that just do the math on that and take it out on last year and you start backing your way in pretty much to that high teens operating margin for the segment right now. And that's -- and there's going to be timing things depending on when we roll something out, that's a treasury management versus a data-driven marketing and all that.

That is -- you're absolutely thinking about it the right way. Do we expect this to improve over time? Yes, we do. We think as we scale our MOS offers in that space that we will improve the operating margin performance of the segment over time as well.

Whether it will get back up to the low 20s, exactly where -- I haven't mapped that out, I got it, committed to that, but yes, that should be the expectations, as we're improving from that, that leap-up point that we have this year..

Our next question is from Joan Tong of Sidoti & Company..

A couple of questions you. First of all, he asked you about syntax. Obviously, they are contributing a bigger piece of the pie now. You talked about 16% of your revenues from fintech.

I just want -- and within that segment and you have digital -- you have data analytics as well as treasury management, just once you get your view in terms of how we see like M&A going forward, would that be in these two areas since like your carved out these two areas to focus on? And that's one question.

And then the next one is related to specifically, the treasury and management side. You talked about there's some near term lengthening in contract cycle. I just want to drill down there a little bit more..

Yes. So Joan, the first question, if you think about where we're targeting acquisitions, we've said clearly 3 areas, web services and you saw that we announced today another small tuck-in there; the second the space is data-driven marketing; and the third the space is treasury management.

And so the last one as you know, we did there was actually in the quarter, April, we announced it previously but that would be the RDM deal. So those are going to be the continued 3 primary focus areas as we think about our tuck-in acquisitions as we move forward.

And then you saw that we, when we went through it here, that we reduced our revenue and treasury management and by no means are we at all, down on this at all. We're very positive on it, but what we've seen is -- and we announced a couple of deals today, they are nice-sized wins but they're in the outsourcing space.

And what's happening is that banks are taking longer to decide, do I want to put my solution for treasury management into my FI or do I want you to do it for me in an outsourced environment. And what's happening is it's slowing down the decisions -- we're not losing deals, it's just a slowing down the decisions from how we originally planned it.

But once they go to the outsourcing, it will create a really wonderful annuity stream for us as we go forward. So a lot of this is, the work through a timing as a place out this year and the next several years.

And ultimately, Joan, we actually like that better but it puts us in a position where it reduces what we expected to be at the revenue this year a little bit versus the trade-off of getting the annuity stream going forward.

So as the classic that I could eat the fish for the day or I can teach you how to fish for a lifetime and that's how kind of how we've been talking about it internally inside the company..

Okay, got it, got it. And then just looking out a little bit longer term because you gave out that 3-years plan a couple of years ago, 40% of the revenue is going to come from MOS by 2018. And next year, we have there and you're at 38% right now, sitting at 38% right now, making some very nice progress there.

So at this point, you think about maybe in the near term, you would provide another 3-year plan, like looking out? And I just want to get your thoughts on that..

Yes, it's a great question and we've been getting this question more from investors. And the answer that we've been providing them, Joan, is that we have our annual strategic plan review with the board coming up here. And we want to take the board through all of our strategic work.

And once we do that, I -- my expectation in all likelihood is we'll probably come out in the -- when we do the third quarter release and put a new mark out there. I think our people are getting more and more confident that, that 40% is going to happen next year and therefore, not only that, but where are you heading.

And obviously goal here, Joan, is to continue to increase the mix and that's probably the best that I can leave you with the right now. We want to get our strategic work through with the board and get on everybody unified inside the company and then with our board before we would do that.

But that's kind of what my thinking is right now and that's what Keith and I have talked about..

Okay. And then quickly finally, the Australian-based web hosting acquisition.

Do you mentioned it's $9 million revenue for this year, so the annual revenue base is $20 million?.

Yes..

Okay.

And then you paid about $40 million for that and closed on July 4, right?.

Yes. I know it's a strange day, but remember in Australia, they don't celebrate it. So yes, we closed it on July 4..

And our last question is Charlie Strauzer of CJS Securities..

Just picking up on Jamie's conversation about the eChecks and just -- it's really an intriguing topic because I think that's essentially it's a whole new payment avenue but just your thoughts initially on talking to somebody, FIs out there about this offering and whether you're seeing acceptance versus pushbacks.

What was driving the pushback and what's driving the acceptance of maybe trying some of these things?.

Yes. Charlie, it's really interesting right now.

As you would expect, the large banks and the small business owners that do their banking to the large banks are the ones that are using more of the eChecks today and what's interesting is one market for us that we're filing -- we're finding pretty interesting is that there are large financial institutions and I'm not going to name them, but you know who we have and we don't have from a check, paper check standpoint that are actually having customers are using eChecks today.

You say, well, how does that happen? Well, I cut somebody that they're working within a small business, send it to them and said, hey, what is this? I said this is kind of interesting and they start using them. And there's also some of our paper check banks that are large, that are still working through.

I call it the compliance and is this really a check and it is a check and we have white papers written by experts on it. They're just trying to work through all this and honestly, the humorous thing with all this is while they're doing that, we keep reminding them that their small business owners are using eChecks.

What we announced today is one, that is committed and they're going to roll out with the pilot of top 100 in their branches. You'll see it -- and we're seeing some of the work with there, how they're going to promote it. And we've got a second one that were finalizing the master service agreement with.

So we're starting to see FIs and as well as what I mentioned earlier, on the on some of these other -- the medical payments companies that is more and more intrigued and starting to move on this. I know we've been talking about it for a while but we like this and we think there's lots of potential opportunity here.

It's not material today but as of these things start to play out, Charlie our hope is that these start to become a bigger part of our revenue stream..

Excellent. And then I know Keith mentioned a lot about kind of lower brand spend in the coming quarter and the rest of the year.

Just thoughts on what's driving the lower spend, is it just the timing of the -- some of the marketing expenses that's out there?.

Just think of it this way. The way it simply works is when do we go in and do the work of picking the time we're going to make over and then once the production done, when's the advertising that's going to go on, the web series.

And I wish I could tell you that they're all time, every quarter, every year, we do the same way, with the same dollars or whatever. It just doesn't work that way. We time things differently, depending on when small business week is, depending on when we can get into the town, get the production behind it, do the actual taping.

And so it's just happens to bump up and down and as you know, believe it or not, as that moves around a bit, it allows the quarters, the earnings per shares within those quarters to move around a bit as well.

But that's all it is and that's when we -- we like to reference it because we think it's a fair reference when you consider movement between the quarters on earnings per share. And so that's why we have -- Keith and I believe some quarter for out..

Right. So it's just basically timing, that you're not going to get return or you're canceling things..

No, no. We've been feeling like we said in the prepared comments, we feel good about what we're doing. And it's just merely timing quarter-over quarter and what we did last year in the quarter versus this year. Some quarters, we're doing more of this year than last year. Some quarters we're doing less this year than last year.

It was just kind of how it's mapping itself out..

Got it.

And then just lastly, just thinking about the guidance, the organic growth in the quarter was down, roughly 1%, is that kind of a good kind of assumption to is the back half of the year as well, kind of continued working the growth a modest decline there?.

We said in the last update and then we published before Keith and I went on the road in the second quarter, that we expect this year's organic growth to be roughly flat.

So if you think about the first half of the year down in probably the 1% to 2% range, we would expect the second half of the year to start getting closer to 0 to probably even showing a little bit of growth and getting the fattening roughly flat number for the year, Charlie. So that's the way you should think about it.

We're focal very focused on this right now..

At this time, there's no other questions in queue. alternate to Mr. Schram for closing remarks..

I just like to thank everybody for your participation to the sell side as for questions today. I would just like to summarize the quarter and as follows, we delivered a very strong second quarter.

Second market solutions and other service revenue grew 26% and our mix improved to 38% of total company revenue towards our goal of the 38% this year and 40% next year. And we have established a solid baseline first half of the year and we believe propels us towards revenue growth again in 2017 for an eighth consecutive year.

We're now going to roll up our sleeves, we're going to get back to what and we look forward to providing a positive progress report on our next call. I'm going to turn it over to Ed for just some final housekeeping comments..

Thanks, Lee. Before we conclude the call today and like to mention that Deluxe management will be participating in the following conferences in the third quarter where you can hear more about our transformation. On September 14, we will be at the CL King Best Ideas Conference in New York.

Thanks for joining us and that concludes the Deluxe second quarter 2017 earnings call..