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

James Clement - Macquarie Research Charles Strauzer - CJS Securities.

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

Thank you, Terrence, and welcome, everyone, to Deluxe Corporation's Third Quarter 2017 Earnings Call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. And joining me on today's call is 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 would like to remind you that comments made today regarding financial statements and estimates, projections and management's intention 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 references 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 an outstanding quarter. We reported revenue and adjusted earnings per share above the upper range of our outlook despite a continued sluggish economy and multiple weather-related challenges.

Revenue grew over 8% over the prior year quarter driven by Financial Services growth of 28% and Small Business Services growth of 3%. Marketing solutions and other services revenues grew over 30% over the prior year and represented over 40% of total third quarter revenue. Adjusted diluted earnings per share grew over 8% over the prior year quarter.

We generated strong operating cash flow of $226 million for the first 3 quarters of the year, and we had about $756 million of total debt at the end of the quarter. We repurchased $20 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 $498 million, growing 8.5% over last year. Revenue was about $5 million better than the high end of our range, all driven by FMCG as we saw a shift in revenue into Q3 from Q4. Organic revenue, which excludes acquisitions, FX, exited businesses and other noncomparable items, was flat for the quarter.

We are pleased with our revenue performance in the third quarter despite multiple weather-related challenges that we estimate negatively impacted revenue about $2 million in the quarter. Some of this revenue, we believe, will be recaptured later, while a portion of the revenue will be lost permanently.

Small Business Services revenue of $306 million grew 2.5% versus last year despite a continuing sluggish economic environment and the negative impact from the hurricanes. In addition, on a comparable date basis, as there was 1 less business day in the third quarter this year than last year, revenue grew 4.1%.

We delivered growth in checks and marketing solutions and other services, and from a channel perspective, our online major accounts in Canada grew. Financial Services revenue of $157 million grew 28% versus the third quarter of last year. Organically, Financial Services revenue declined less than 1% 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 $34 million was down 8.4% from last year and right in line with our expectations. From a product and services revenue perspective, check revenue was $211 million, representing 42% of total revenue.

Marketing solutions and other services was $200 million or about 40% of total revenue. And forms and accessories were $86 million or about 18% of total revenue. Gross margin for the quarter was 61.2% of revenue and was down from 63.8% of revenue in 2016.

The impact of acquisitions and higher delivery in material costs were only partially offset by the benefits of previous price increases and improvements in manufacturing productivity. SG&A expense increased 2.4% in the quarter and, as a percent of revenue, was well leveraged, ending at 40.8% compared to 43.2% last year.

Benefits from our continuing cost-reduction initiatives in all 3 segments 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 20.6%, which was slightly lower than the 20.7% generated in 2016.

Small Business Services adjusted operating margin was very strong at 19.8%, a 2.2 points better than the prior year, driven by price increases, cost reductions, small gains on distributor sales and favorable product mix, partially offset by the decline in check and form usage.

Financial Services adjusted operating margin of 19.2% 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 results contributed 2.7 points of the variance.

Direct Checks adjusted operating margin of 33.6% decreased 1.5 points from 2016 driven by lower order volumes that were only partially offset by cost reductions. Diluted earnings per share for the quarter were $0.59, which included $0.73 per share for asset impairment, restructuring and transaction charges.

Of the aggregate $0.73 per share charge, $0.46 per share was a noncash goodwill impairment for the Safeguard core checks and forms reporting unit; $0.20 per share was a noncash impairment charge for the discontinued NEBS trade name; $0.05 per share was a noncash impairment charge for an internally developed order management software solution; and $0.02 per share resulted from restructuring and transaction-related costs.

Excluding these items, adjusted diluted EPS was $1.32, an 8.2% above the $1.32 reported in the third quarter of 2016.

This result was $0.04 above the high end of our previous outlook, primarily driven by the pull-forward of FMCG revenue and resulting operating income, which drove $0.03; favorable mix and delayed spending, which drove $0.03, and these were partially offset by a $0.02 higher medical expense driven by high cost claims.

Turning to the balance sheet and cash flow statement. Total debt at the end of the quarter was $756.4 million, down from $758.6 million at the end of 2016.

Cash provided by operating activities for the first 3 quarters of the year was $225.9 million, a $17.8 million increase compared to 2016, driven by the timing of tax payments and working capital changes. Capital expenditures for the first 3 quarters were $34.4 million, and depreciation and amortization expense was $91.3 million.

Now moving to our outlook. We are tightening our previous consolidated revenue outlook for the full year to a range from $1.965 billion to $1.975 billion or about 6% to 7% overall growth. We are also tightening our adjusted diluted earnings per share to an expected range from $5.25 to $5.30.

The third quarter $0.04 adjusted diluted EPS over-performance above the high end of our outlook range is expected to be completely offset in the fourth quarter by the timing, again, of FMCG revenue and resulting operating income of $0.03 per share pulled into the third quarter by spending delayed from the third quarter of $0.01 and by an additional $0.01 for higher expected medical expenses due to high cost claims.

Partially offsetting this is about a $0.01 mix improvement expected from higher data-driven marketing revenue, partially offset by a lower web services driven by a small previously expected tuck-in acquisition that we no longer anticipate closing in the fourth quarter. Treasury management and forms and accessories revenue.

The - in addition, there are several key factors that contribute to our full year outlook, including, small Business Services revenue is expected to increase 4% with expected growth in our online, dealer and major accounts channels; price increases, double-digit growth in MOS offerings and continued tuck-in acquisitions.

Partially offsetting our growth are expected volume declines in core business products, our previously discussed strategic decision to eliminate around $15 million of low-margin business and the negative impact of foreign exchange rates.

We expect Financial Services revenue to increase 17% to 18% driven by continued growth in MOS categories, including data-driven marketing solutions and treasury management solutions.

Partially offsetting our growth is the expected loss of about $7 million in Deluxe Rewards revenue, primarily due to the departure of Verizon, check order declines of approximately 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 the 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 $340 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 $26 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 fourth quarter of 2017, we expect revenue to range from $494 million to $504 million.

Compared to the third quarter, we expect higher revenue, primarily from seasonal holiday and tax form increases to be partially offset by the continued secular declines in checks across all segments and lower expected data-driven marketing. Adjusted diluted earnings per share is expected to range from $1.39 to $1.44. 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 growth through the 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 third quarter towards our approximately $45 million annual commitment net of investments. Approximately 60% of the expected reductions will come from sales and marketing, another 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 spending reductions, further consolidate our manufacturing technology platforms, drive delivery technology and process efficiencies, reduce spoilage, further enhance our strategic supplier sourcing arrangements and continue with other supply chain improvements and efficiencies.

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

Thank you, Keith. And I will continue my comments with an update on MOS revenue, highlight progress in each of our 3 segments using our 4 strategic initiatives for a perspective on how we progressed in the third quarter and then provide some context looking forward to 2018.

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 by the pull-forward of FMCG revenue highlighted earlier.

We continue to provide a directional annual EBITDA margin profile in total and for each of our 5 MOS categories in 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 multi-year 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 39% this year, including 17% of total company revenue in the even higher multiple fintech space.

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

Key fourth quarter 2017 growth initiatives include profitably scaling integrated marketing on-demand solution offers, Web-to-print and seasonal retail packaging, holiday cards and promotional products. Q3 revenue was in line with 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 17% in 2017, with expected growth rates of 13% to 14% and EBITDA margins moderately below our overall average.

Key fourth quarter 2017 growth initiatives include scaling our integrated Deluxe Marketing Suite across all customers and channels and scaling web and payroll services as well as continuing to assess tuck-in capability acquisitions. Q3 revenue met our expectations.

As Keith mentioned, total year web services revenue is now expected to be slightly lower than our prior outlook. As previously expected, small tuck-in acquisitions are not anticipated to close. Moving on to the third MOS category, data-driven marketing solutions.

It is expected to represent approximately 20% in 2017, with expected triple digit growth rates and expected EBITDA margins slightly above the overall average. Key focus areas for growth in this category includes scaling direct marketing analytic print services, Datamyx and FMCG. Q3 revenue exceeded our expectations.

We closed 2 new wins with top 100 financial institutions in the third quarter and also 35 expansion deals with existing clients, including 10 top 100 financial institutions. The increase in our outlook range was primarily driven by FMCG.

The fourth category, treasury management solutions, is expected to represent approximately 14% in 2017 with an expected 18% to 19% growth rate and expected EBITDA margins slightly below our overall average. Q3 revenue met our expectations.

We had a notable win in the third quarter with the top 20 financial institution moving from an in-house Remote Deposit Capture solution to a fully outsourced model. The migration started in the third quarter of 2017 and will be complete over the next year.

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 average.

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. Q3 revenue met our expectations.

We are increasing our expected marketing solutions and other services revenue to be approximately $757 million to $762 million in 2017, up from $617 million in 2016, with an expected 23% to 24% growth rate.

If achieved, this performance will translate to a total revenue mix of 39% of revenue and up from 33% in 2016 and 30% and 26% the previous 2 years. Now shifting to our segments.

In Small Business Services, and as expected, we did not see any notable improvements as the economic climate for small businesses remain sluggish in spite of improved optimism, and we had several weather-related challenges. However, revenue grew 3%.

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 in Canada channels grew 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 declined slightly from 105 in the first quarter to 104 in the second quarter to 103 in the third quarter but remain high by historical standards.

Clearly, there remains a boom in optimism for the economy with small businesses, still signaling that they expect better market conditions and, therefore, increased business activity and capital spending. Small business owners overall remain more optimistic right now, however, they want to start seeing some proof that positive changes will come.

Clearly, if 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 that 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 payment and marketing solutions, we are focused on core check retention and acquisition and developing incremental retail customer acquisition channels. We ended the third quarter slightly better than our expectations for checks.

We also made progress in profitably scaling integrated marketing on-demand solution offers with third quarter revenue on our expectations. Finally, we are focused on scaling eChecks, eDeposit and other payment and workflow solutions, such as variable check printing and our 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 payment solution companies.

The opportunity we discussed on previous earnings calls regarding a company in the medical and insurance payment processing space is set to begin a rollout in the fourth quarter of 2017. The top 100 financial institution that we mentioned on our second quarter call will begin promoting eChecks through a pilot in their branches in the fourth quarter.

And we are in contract talks with another top 100 FI. We also just signed a contract with Hanover Insurance where they will be using eChecks in place of paper checks for claims processing settlements.

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

In Q3, 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 are focused on scaling payroll services and continue to evaluate early in business and other operational annuity growth solutions.

In Q3, Payce Payroll revenue and profitability was roughly in line with our expectations. Finally, we are focused on continuing to accelerate our brand awareness transformation with a clear linkage to marketing and revenue-generating capabilities.

In 2017, we are continuing our small business revolution focus and partnership with Robert Herjavec from Shark Tank as well as our Main Street town makeover. In Q3, we completed our makeover work in Bristol Borough, Pennsylvania, and on September 28, we released the first 2 of 8 webcast series.

The balance of these will be released throughout the fourth quarter. We also announced that we will have a third Main Street town makeover next year. We also continue to integrate the experience between 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 third quarter, we saw about a 7% unit decline in checks, which was approximately 1% worse than originally expected, all driven by the hurricanes.

For 2017, we 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 FS checks business right 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 through at least the end of 2017, and we are running at a little better pace than the third quarter of 2016 on renewing bank contracts, and we have more competitive opportunities coming up.

Today, we are 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 are 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 multi-channel 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, third quarter data-driven marketing solutions exceeded our expectations. 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 fits right in our sweet spot. Our focus in treasury management solutions 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 revenue 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 $153 million; treasury management solutions, including WAUSAU, FISC, DSS and RDM, approximately $110 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 in 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 revenues, which is primarily fraud and security offers for this segment, to be about 10% of 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.

Looking ahead to the fourth quarter and into 2018, we believe our portfolio is even better positioned to deliver continued sustainable revenue growth as our technologies and sales channels are stronger, our digital technology services offers more mature, our infrastructure better and our management talent is deeper revenue.

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.

In 2018, we are planning for what we expect to be a 9th consecutive year of revenue growth of approximately 2% to 4% compared to 2017, including, importantly, some small organic growth.

This is expected to produce adjusted diluted earnings per share growing - growth ranging from approximately 3% to 6%, with the assumption that we will continue to invest in brand awareness, have higher interest expense and have a tax rate higher than 2017.

In addition, to these revenue and adjusted EPS growth objectives, we see opportunities to pivot to even faster growth in certain MOS areas.

So, in 2018, we are planning to incrementally invest approximately $8 million that we will call out as incurred in technology and integrations, primarily in data-driven marketing, treasury management and web services. We also expect operating cash flow growth for a 10th consecutive year.

To give some more color on our revenue thinking, we are planning on unit business checks to decline approximately 5% and unit consumer checks through financial institutions to decline approximately 7.5% on a secular basis.

On top of this, we have extended all large financial institution contracts through at least 2018, and we have about 25% fewer bank contracts up for renewal in 2018 compared to 2017. And we have more competitive opportunities coming due.

In forms and accessories, we expect to expand existing organic initiatives in Shop Deluxe, our Canadian business and grow our dealer and major account businesses. In marketing solutions and other services, we expect revenue growth roughly in the 13% to 16% range.

This includes organic growth of approximately 4% to 8%, with about $50 million in new tuck-in acquisitions and $25 million in carryover acquisitions, partially offset by $10 million in other noncomparable items.

This would imply a targeted marketing solutions and other service revenue to total revenue mix of approximately 43% for the year or above our stated goal of 40%.

We are excited with our progress here, and with a more cooperative economy and even additional acquisitions as catalyst, we could potentially grow marketing solutions and other services even faster. We also expect to our cost and expense reduction initiatives to continue in 2018.

Also, as a reminder, the first quarter is traditionally Direct Checks' strongest revenue quarter of the year. As we have seen this year, we could see continued quarterly volatility in data-driven marketing revenue resulting from financial institutions campaign executing - execution timing decisions.

We also believe it is 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 2018. Now Terrence, we'll open up the call for Keith and I to take any questions..

[Operator Instructions]. And our first question comes from Jamie Clement from Macquarie..

Keith, can you help me understand - or sorry, Lee, could you help me understand the data capture market a little bit better? In terms of like - I don't know if you have numbers in terms of like top 100 FIs, how many in-source versus how many outsource? How much of an opportunity, whether there's a trend between in-source and outsource and whether that's an opportunity? Can you just help me understand that marketplace a little bit better?.

So, you're talking specifically data-driven marketing, Jamie, yes?.

Yes. Well, yes. I mean, well, you were mentioning data capture, specifically, in some of your prepared remarks and some specific opportunity that I think you all had won and how short term, the revenue can be a little bit less, but it's more recurring going forward. I just was trying to understand that business a little bit better..

Okay. So, if you think about what we're calling data-driven marketing, think of that as our combined now Cornerstone, ACTON, Datamyx and First Manhattan deals, and then the organic work that we had done leading up to all those.

And what we believe the market opportunity is right now is on the kind of the print side, about 9% growth on the - all the way up to 13% on the digital side kind of on a CAGR basis through 2020. This is a market, also, as you can see on our table, where we have EBITDA margins that are slightly better than the overall margins of the company.

So, we look at this as a wonderful opportunity for us.

The focus is clearly, Jamie, and more what I would call the top 100 to probably into the - over time, into the top 200 financial institutions, our general market who we compete against there is we compete against what a bank thinks that they can do on their own by driving marketing campaigns to drive deposits, to drive credit - they may want more credit cards.

They may want more deposits or loans for small businesses. They might want those same things for consumers.

So what we have to do is we have to go in and be able to say, look, if you follow our formula and if data-driven analytics, it's our information, our data sources, our knowledge of all the expertise that we have with our chief scientists and all the people that you have in the space, Jamie, what happens is we bring all that to bear, and we say, look, we can think we can drive an ROI that looks like x.

And if that ROI is a match with the Chief Marketing Officer of an FI, they'll generally start with a campaign or 2 in pilot, and then they'll ramp campaigns if we're successful over time. And what you saw on the third quarter is they did a little bit more in the ramps than we expect them to do.

You try to predict this when you started the quarter, and lo and behold, they ramped a little more than we thought they would, which is good news. But again, there's going to be some spikes, we think, as this thing continues on, but we also raised our overall data-driven marketing for the year.

So that gives you some confidence in the fact that we think this is a rich space for us. The driver, Jamie, is the ROI. If we're able to improve that, that is the formula for how this one works..

Okay. And then just - as I think about some of the acquisitions that have been done over the last year or so, it's not totally clear to me what the proper seasonality of some of your treasury management solutions businesses are.

And maybe just sort of answer it by saying some of this stuff can - maybe you're going to say it can be a little spiky or something like that.

But can you maybe help me - I mean, should it be even across the quarter? Or should it be - how should we think about that over time, not just 2017 and 2018 but over time?.

Yes. And you've mixed two, so I'm going to give you some clarifications back. So, if you think about data-driven marketing, what generally happens as we get that pilot, we do some test campaigns and then in it ramps over time.

But that CMO - and so if we get enough good things going, Jamie, we should be growing this business and ramping it on an annual basis. Could it be between quarters that a bank do more campaigns and another bank do less campaigns? The answer is yes.

But overall, you should see this, if you look at it over the total-year period of time, that expected growth should be in that 9% to 13% market range. And as you know, we're actually even growing faster right now than that just given our performance. Now let me jump, too, you also brought up treasury management.

Treasury management, right now, that - once we get in and do a - if you have a lock-box relationship, that's generally a very level-loaded. Every month, you get that same amount of business. On integrated receivable, part of that business will be very much level-loaded as well.

The Remote Deposit Capture is generally based on seats and how many seats you get in, and that can ramp-up over time as well.

But what is happening right now is that finance - large financial institutions are looking at treasury management, and they're saying to themselves, "Do I want to have this continue in-house?" And we can provide everything in-house for them. Or do I want to outsource that to somebody like us? And we can do that, too.

And so, they're kind of sitting, they're going do I want to in-source, do I want to outsource, do I want to in - and so we're stuck right now a little bit in this decision-making process. We don't believe we're losing anything right now. In fact, we - I mentioned we had a nice win in this space that was an outsourced win for us.

And we're just seeing the decision-making right now not as fast as we'd all like it to be. But we - we're working with an FI in terms of do you want to in-source it, which we could do, or do you want to outsource it. So, there's been a little bit more variability in that.

But again, over the long term, as we've shown in our numbers as well, we expect that to grow in the 5%, 7%.

So just say - think of it over the course of the year is how to think about that, okay?.

Okay. Yes. And then final question, I'll just get back in the queue. Looks like you spent about $47 million or $48 million on acquisitions in the quarter. I'm just taking the number in the press release and subtracting it from the 6 months number.

What did you guys add to?.

What we've previously announced, the biggest piece of it was the Digital Pacific deal, Jamie. We actually announced it on a prior call because....

Call. Okay, right..

That's it..

[Operator Instructions]. And our next question comes from Charlie Strauzer from CJS Securities..

Just a couple of questions for you.

When you look at the - and this is maybe for Keith, the impairment charges in the quarter and specifically on Safeguard, what drove the impairment charge there in the quarter?.

Sure. Well, first of all, we have - this is Keith. Thanks. Every year, we go through an evaluation of our carrying value on goodwill, and that takes place in July 31 of each year. And that also correlates with our annual strategic planning process in the third quarter.

And so, this year, in evaluating the Safeguard unit, which is primarily focused on checks and forms, what we see is that with the continuing decline in those areas, the market trends are no longer supporting the goodwill value that was on the balance sheet.

And so that was a full impairment of the goodwill for the Safeguard unit, primarily driven to - driven by the market changes in check and form..

Charlie, this is Lee, I'll just add. Think of that, that came with the NEBS acquisition back in 2004, right? And the reporting unit for - the way our accounting team under Keith does reporting unit is that Safeguard reporting unit, there's a lot more to Safeguard now.

We are - we have a lot more products and services that are in that Safeguard organization now. We're promotional products. We're selling a lot more different kinds of forms. We're bringing payroll services to that market. We're bringing eChecks to that market.

So, market there is a lot bigger, but the way that, that operating unit was setup, the reporting unit was setup, was specifically through checks and forms. And you know what's been happening to the checks and forms market.

And we couldn't have looked back and - all the way back to 2004, 13 years later now and said, when that was established that way and the goodwill came with it, it was specifically assigned into that reporting unit but very specific at that time to the checks and forms portion only..

Got it. That make sense.

And then just shifting up to kind of the - if you look at the larger acquisitions you've made over the last year or so, FMCG and data analytics and all the other ones that are - Datamyx and things like that, how are they performing overall since you've had them and then in kind of a year-over-year basis just in terms of expectations of there? And then maybe - I don't know if there's any thoughts about how those have done organically just in terms of percentages, if you can share anything there, too..

Well, let me start with the First Manhattan because you mentioned first the biggest one we've done. Because we acquired it at literally at the - right at the end of last year, Charlie, we don't have a compare back to the prior year other than what I would tell you is we know what the actual results for that - for FMCG was in the prior year.

And what I would tell you is we are up substantially, think double-digit growth from what they did last year to now that they're part of us and what they're doing with us. And we just raised the data-driven marketing guidance.

So, when we put out that $80 million to $85 million number for First Manhattan, think of now in that number has turned into the 90s now. So, we are very pleased with where that business has been going. In the Datamyx business, that business has done well for us as well. It's growing every year.

The challenge there, as you know, and just because into the market, is interest rates and how interest - because it's more of an interest rate-sensitive market than the First Manhattan market is.

So, when mortgage rates are higher or when auto loans are higher, because of interest rates going up or moving up and you know, we've seen a little bit of them moving up, still lower rates on average but still moving up, that can bring down the revenue streams a bit.

But those also are growing nicely compared to we're getting organic, reorganic growth in Datamyx as well. And the other thing that's really organically growing well for us underneath all this is our direct marketing analytic.

So, our Cornerstone and ACTON businesses, a gentleman that works for us, Ben Waldshan, who came with the Datamyx acquisition, has all of these solutions. And Ben and his team have just done a super job of really scaling this whole direct marketing. What they're doing, Charlie, is they're putting analytics now on top of the print stuff.

And what I could tell is that we're seeing that growing now strong double digits as well. So, these are all working quite well. The slowest of the growth right now is the Datamyx, although it's nicely growing for us, but the other two are just - have just been booming for us..

That's excellent. And then, just lastly, Lee, some of your parting comments where you talked about MOS, and you could do some things to grow that faster. And maybe you can explain a little bit more on some of the things that you might be able to do there if you wanted to kind of pull those levers..

Yes. I think what we're signaling today, Charlie, is an important thing. We believe - as a starting point, this 43% is a really compelling number for investors. We've committed 40%. We're going to end at 39% this year in the mix. And to get to 43% is a - we think is a powerful and a positive story.

It will mean that it will become the largest collective offer, set of offers that we have in the company. It will surpass checks next year as our largest part of our business.

And because of that, and because of what we just - I just talked about, about some of these growth opportunities, like in data-driven marketing, we are signaling, and we are - we mentioned it today, we're going to put some more investment in people, in technology and integration into these strategic bad areas.

We're not saying yet that as those go in during the year that we're going to raise now above the guidance we gave, but we think that those will help us. Could we get some additional lift next year? Maybe. But think of it as an investment to be able to even scale listing up more.

What's really important here and what we're also signaling, Charlie, is that we've always been investing. We've always been doing some work here. But we're seeing we're incrementally going to do some more things, and we think now is the opportunity to do that, so to drive more organic growth.

And then, obviously, if we think - see things outside of just the $50 million we call today that are kind of our normal tuck-in acquisitions, we're going to take a look at those as well and see if those make sense. So that's the signal today that we're trying to leave with the investor.

And you'll hear more from Ed and Keith and I as we head out on the road here over the next - until the next earnings calls..

And at this time, I'm showing no further questions. I'd like to turn the call back to Lee Schram for any closing remarks..

Thank you, Terrence, and thank you, everyone, for your participation today and for your questions. I want to leave you with 3 thoughts. We delivered a strong third quarter. We delivered revenue and adjusted earnings per share above the high end of our outlook.

Second, marketing solutions and other services revenues grew 30% in the quarter with the mix of MOS growing and now on track to account for about 39% of total revenue this year, and we called now 43% of total revenue by the end of 2018.

And finally, looking ahead into next year, we believe we continue to be well positioned to deliver another year of growth in revenue, earnings and cash flow from operations. We're now going to roll up our sleeves. We're going to get back to work, and we look forward to providing a positive progress report on our next earnings call.

And I'll turn it over to Ed for some final housekeeping..

Thanks, Lee. Before we conclude today's call, I would like to mention that Deluxe management will be participating at several upcoming events before our next earnings release where you can hear more about our transformation. On November 28, we'll be in Scottsdale at the Crédit Suisse 21st Annual Technology Conference.

On December 4, we'll be in New York at the Global Mizuho Security Conference. On December 5, we'll be in Deer Valley for the Wells Fargo Tech Summit. On December 14, we will be in New York at the SunTrust Robinson Humphrey Fin Tech Business & Government Services Conference.

And finally, on January 17, 2018, we will be in New York at the Needham 20th Annual Growth Conference. Thanks for joining us today, and that concludes the Deluxe Third Quarter 2017 Earnings Call..

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