Ed Merritt - Treasurer and Vice President of Investor Relations Lee Schram - Chief Executive Officer Keith Bush - Chief Financial Officer.

Charlie Strauzer - CJS Securities Chris McGinnis - Sidoti and Company.

Good day, ladies and gentlemen. Thank you for standing-by. And welcome to the Second Quarter 2018 Deluxe Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be provided at that time [Operator Instructions].

And as a reminder, this conference call is being recorded for replay purposes. I’d now like to turn the conference over to Ed Merritt. Please go ahead..

Thank you, James. And welcome everyone to Deluxe Corporation’s second quarter 2018 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 end of today’s prepared remarks, Lee, Keith and I will take questions.

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

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

Additional information about various factors that could cause actual results to differ from 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, 2017.

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 Web site at deluxe.com/investor. This information was also furnished to the SEC on the Form 8-K filed by the Company this morning.

Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release or as part of our presentation during this call. Now, I’ll turn the call over to Lee..

Thank you, Ed and good morning everyone. Deluxe delivered a solid second quarter. We reported revenue in the middle of our outlook range, and adjusted earnings per share well above the high end of our outlook.

Overall, revenue grew about 1% from last year, driven by Small Business Services growth of about 5% with Financial Services down 6% and Direct Checks declining 10%. On an organic basis, revenue declined about 2% and was about in line with our expectations.

Marketing solutions and other services revenues grew about 7% over the prior year, and represented nearly 41% of total second quarter revenue. Adjusted diluted earnings per share grew almost 9% from the prior year. We generated strong operating cash flow of $147 million in the first half of the year.

And we were drawn $765 million on our credit facility at the end of the quarter. We repurchased $20 million in common shares in the quarter, bringing the year-to-date repurchase total to $40 million, $10 million more than the first half of 2017.

We continued our brand awareness campaign to help better position our products and services offering and drive into revenue growth. We also advanced process improvements and delivered on our cost reduction commitment for the quarter.

On June 4th, we completed the small tuck-in Web services hosting acquisition of ColoCrossing, adding more scale to our existing Web services business. In a few minutes, I will discuss more details around our recent progress and next steps.

Before I turn the call over to Keith to cover our financial performance, here is an update on the CEO transition process. It is going well with strong interest in the position, we continue to expect that we will meet the target of finding a new CEO within six months more or less from our late April initial announcement.

Now I’ll turn the call over to Keith..

Thanks, Lee. Revenue for the quarter came in at $488 million, growing 0.6% over last year. Organic revenue, which excludes acquisitions, FX, and other non-comparable items declined about 2% and was about in line with our expectations.

Shifting to our segment, Small Business Services revenue of $318 million grew 4.9% and we delivered continued growth in marketing solutions another services. From a channel perspective, our online major accounts and dealer channels grew.

Financial Services revenue of $139 million declined 5.7% on a reported basis and declined 3.3% organically compared to the second quarter of last year. The revenue decline in Financial Services was driven by the loss of Verizon and Deluxe Rewards and some lower check orders.

Direct Checks revenue of $31 million was down 9.8% from last year, ending slightly better than our expectations. From a product and services revenue perspective, Check revenue was $203 million, representing 42% of total revenue. Marketing solutions and other services was $199 million or about 41% of total revenue.

And forms and accessories were $86 million or over 17% of total revenue. Gross margin for the quarter was 61% of revenue and declined from 63% in 2017. The impact of higher delivery and material costs and acquisitions were only partially offset by the benefits of previous price increases and improvements in manufacturing productivity.

SG&A expense was about flat to last year at $209.6 million and was well leveraged at 42.9% of revenue compared to 43% last year.

Benefits from our continuing cost-reduction initiatives and gains associated with the sales of small business and customer lift were basically offset by increased benefits expense associated primarily with the timing of vacation and planned innovation investment spend.

Excluding non-GAAP adjustments, which are outlined in our press release, adjusted operating margin for the quarter was 18.7%, down 1.5 points from 20.2% in 2017. With the decline driven primarily by Checks and forms usage, partially offset by previous price increases and continued cost reductions.

Small Business Services adjusted operating margin was flat to last year at 19.2% and includes the gains on sales and benefits of cost reductions, but was partially offset by higher acquisition spending, increased benefits expense and increased material and delivery costs.

Financial Services’ adjusted operating margin of 14.4% was down 4.8 points from 2017. In addition to check usage decline and continued check pricing allowances, the loss of the large customer in Deluxe Rewards increased benefits expense and higher delivery rates were only partially offset by continued benefits of cost reductions.

Direct Checks’ adjusted operating margin of 330% decreased 0.8 points from 2017, driven by lower check order volume, increased benefits expense and higher delivery cost, partially offset by cost reductions.

Diluted earnings per share for the second quarter was $1.25; adjusted diluted earnings per share was $1.40, growing 8.5% from the second quarter of 2017, and excluded aggregate charges of $0.15 per share for non-GAAP adjustments.

Second quarter adjusted diluted EPS was $0.05 better than the high end of our outlook, driven by lower tax rate and lower medical expenses. These benefits were partially offset by lower revenue volume and a change in revenue mix. Turning to the balance sheet and cash flow statement.

We were drawn $765 million on our credit facility at the end of the quarter with the increase primarily due to acquisitions.

Cash provided by operating activities for the first half of the year was $147 million, a $5 million decrease compared to 2017, driven by higher earnings that were more than offset by higher prepaid product discount payments, higher interest payments and higher payables.

Capital expenditures in the first half of the year were $28 million and depreciation and amortization expense was $64 million. On June 4th, we completed the acquisition of ColoCrossing for approximately $24 million in cash, financed to withdraw on our credit facility.

For the remainder of 2018, we expect ColoCrossing to contribute approximately $7 million in revenue and be neutral to adjusted earnings per share before transaction and restructuring costs.

Regarding the pending Treasury Management acquisition previously announced, the regulatory conditions to closing have been satisfied and we are working towards satisfying remaining ordinary course closing conditions, including key customer consents. And we’re planning for a third quarter close. Now, moving to our outlook.

We are adjusting our previous consolidated revenue outlook for the full year to range from $2.045 billion to $2.065 billion, which equates to about 4% to 5% overall growth.

The range has been adjusted downward by $10 million, primarily due to the second quarter revenue shortfall at the end of our outlook range that we do not expect to recoup over the balance of the year, lower than expected data driven marketing and eCheck revenue and the impact of negative FX rates.

As a reminder, the full year outlook continues to include expected new acquisition revenue of $57 million, comprised of $36 million for the Treasury Management acquisition and $21 million for other acquisitions.

Assuming to close the Treasury Management acquisition within the expected timeframe, the acquisition is forecasted to generate approximately $70 million of revenue in the third quarter and about $90 million in the fourth quarter. Any delays in closing this transaction or others in our pipeline will impact our expected revenue.

We are tightening our adjusted diluted earnings per share outlook to an expected range from $5.68 to $5.80. Here are several key factors that contribute to our full year outlook. Small business services revenue is expected to increase 4% to 5% with expected growth in our online dealer and major account channels.

Price increases double-digit revenue growth and MOS offerings, a continued small tuck-in acquisition. Partially offsetting our growth are expected volume decline in core print business products.

We expect Financial Services revenue to increase 8% to 9%, driven by continued growth in MOS categories, including data driven marketing solutions and treasury management solution, as well as continued acquisitions.

Partially offsetting Financial Services growth is the previously discussed customer loss in Deluxe Rewards and expected recurring check order decline of 7%, as well as some check pricing pressure. In Direct Checks, we expect revenue to decline approximately 11%, driven by lower check order volume as a result of continued decline with check usage.

While we believe the economy has strengthened, we remain cautious in our monitoring hub businesses and financial institutions plan to spend and invest in tax related savings. We delivered on our second quarter costs and expense reductions commitments, and believe we will run slightly ahead of our statements target.

So we are now expecting full year reduction of approximately $55 million. Approximately 70% of the expected reductions will come from sales and marketing, another 25% from fulfillment and the remaining 5% coming from a shared services organization. We expect to see continued increases in material costs and delivery rates.

We continue to plan for revenue growth investments, including approximately $8 million that we will exclude from adjusted earnings as incurred in technology and integration, primarily in data driven marketing, treasury management and Web services.

In addition to this, we plan to invest $7 million, which is slightly lower than previously communicated; in data driven marketing and treasury management in talent, technology and process improvement, to accelerate strategic sales and drive more development innovation.

This includes a one-time bonus for all of non-management employees paid in the first quarter. And we implemented other employee related initiatives to ensure we remain competitive in the current workforce talent in a tight marketplace. We expect our full year effective tax rate to be approximately 24.5%.

We continue to assess the impact of the Tax Cuts and Jobs Act. We currently expect there will be approximately $0.01 per share negative impact from the global intangible low tax income tax compared with our earlier guidance of $0.03 per share impact.

We expect to continue generating strong operating cash flow, ranging between $360 million and $370 million in 2018, reflecting stronger earnings, lower tax payments and lower medical costs, partially offset by higher interest payments. We expect prepaid product discount payments to be approximately $27 million for the year.

2018 capital expenditures are expected to be approximately $55 million, $7 million higher than 2017, as we plan to accelerate growth investments even more in 2018. We plan to continue to invest in key revenue growth initiatives and make other investments in order fulfillment and IT infrastructure.

Depreciation and amortization expense is expected to be approximately $142 million, including approximately $88 million of acquisition-related amortization. For the third quarter of 2018, we expect revenue to range from $496 million to $504 million and adjusted diluted earnings per share are expected to range from $1.26 to $1.32 per share.

As a reminder, our outlook assumes the Treasury Management acquisition closes in the third quarter and will generate approximately $17 million of revenue. In comparison to the second quarter, the third quarter is expected to have a higher tax rate, higher medical expenses and lower small business gains on sales. Moving on to our capital structure.

We expect to maintain our balanced approach of investing organically and through small to medium size acquisitions to drive our growth transformation. However, as we have noted, we intend to be moderately more aggressive in our acquisition claims going forward.

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

Thank you, Keith.

I will continue my comments with a recap of the first half of the year and implications for the full year; provide a quick refresh of our three year strategic direction outlined on our last earnings call; and then highlight our progress in each of our segments; focusing on the three primary MOS key growth areas to provide a perspective on how we progressed in the second quarter and outline what we expect to accomplish during the balance of the year.

So where we are at operationally and strategically at the half way point in the year and what are the implications for the full year? Our initial outlook for full year revenue at the high end of our range was $2.105 billion with adjusted EPS at $5.80. We have now reduced the high end $40 million to $2.065 billion.

$21 million of this reduction represents the strategic Treasury Management acquisition, which we anticipate would close by now and we remain very excited about. There is about $5 million impact from negative FX rate movement and eCheck customer rollout delays. The most significant revenue reduction is $17 million in data driven marketing.

For the year, at the high end of our outlook, we originally expected data driven marketing organic revenue to grow about 25%, roughly double the market rate of 13%. This assumption was supported by last year’s 28% organic revenue growth, as well as 26% compound annual growth rate from 2014 to 2017.

Our organic outlook assume all existing data driven marketing businesses grew organically over those periods of time even when they were standalone companies. Unfortunately, we now only expect about market rate revenue growth organically to data driven marketing.

Positively, small business marketing solutions and Web services are outperforming our original expectation. And our Check businesses in all three segments have done well in the first half and we expect them to continue to perform well to our original expectations for the year.

Forms and accessories are expected to be about $9 million below expectations, including several new major accounts and partner implementation delays.

To protect the high end of the adjusted diluted EPS outlook, we have prudently increased our cost reductions, worked hard with specific discreet actions to further reduce our income tax rate, and trimmed slightly our innovation investments that we do not believe will drive growth in the medium term.

So the bottom line, outside of a more challenging data driven marketing lower growth rate, which is clearly disappointing to us, we continue to execute extremely well and our business continues to improve, both operationally and strategically.

Given all this, for 2018, we expect to deliver continued growth and MOS revenue and a ninth consecutive year of total revenue growth; that if achieved, will mark the first time in the history of Deluxe that our revenue exceeds $2 billion.

Additionally, we remain on track towards our three year goal through 2020 to pivot for faster organic growth and moderately more aggressive acquisitive growth.

While accelerating progress towards our three year strategic goals and growing EBITDA, there may be an impact to operating income and EPS, depending on the mix and pace of acquisition growth, including acquisition, valuations, performance and synergies, and the organic performance of MOS. There’s a cost to transform more quickly.

So as we have been indicating, we may experience small near term EPS dilution in 2019, but we expect EBITDA growth and immediate cash flow and cash EPS accretion. We are committed to delivering a plan that enhances shareholder value while we continue to pivot for faster organic and moderately more aggressive acquisitive revenue growth.

We are also targeting to increase our overall MOS total company revenue mix to be approximately 44% this year, growing to 60% by year end 2020. To achieve the 60% MOS mix level, we expect to drive organic growth and make larger investments, principally and data driven marketing and treasury management solutions and to optimize Web services.

We have worked hard to give us some expected sustained core check runway with all large financial institution clients now extended through at least 2020.

In 2018, in marketing solutions and other services, we expect revenue to be approximately $895 million to $910 million, up from $756 million in 2017 with an expected 18% to 20% growth rate, including 4% to 6% organic growth; with about $80 million in new tuck-in acquisitions and $45 million in carryover acquisitions, partially offset by $50 million in other non-comparable items.

The LogoMix and ColoCrossing acquisitions are expected to generate revenue of $16 million and $7 million respectively, or $23 million in total for 2018. This leaves us with the Treasury Management acquisition at $36 million and $21 million of other new acquisition revenue to reach our outlook.

The 4% to 6% MOS organic growth is driven by data driven marketing with an expected growth of 7% to 12% and treasury management solutions expected to grow 6% to 10% with all of the other categories collectively expected to grow low-single digits organically.

Our focus in data driven marketing is on growing existing FIs through cross-sell and program expansion, acquiring new FIs and expanding pay for performance. Here is some encouraging color on our accelerating pace of new customers and expanding pay for performance. For all of 2017, we added seven new First Manhattan customers.

So far in 2018, we have added 10 new First Manhattan customers. For all of 2017, we only had one pay for performance customer, but we have added 5 more customers in 2018.

In spite of these very positive trends, we are lowering our data-driven marketing revenue expectations as we have not yet seen an expected increase in marketing spend and as higher rates as historically seen, and as expected from a combination of tax reform, anticipated regulatory relief and ascending interest rates.

All of which typically improve bank earnings. In addition, while pay for performance is generating demand, the sales process is more complex and elongated. If we achieve the $895 million to $910 million, this would translate to a total revenue mix of 44% of revenue, up from 38% in 2017 and 33% and 30% to previous two years.

Now shifting to our segments, including updates on our key strategic and MOS revenue focus areas. In Small Business Service, Q2 revenue grew about 5%. Collectively, check, forms and accessories were slightly below the high end of our expectations, while small business marketing solutions and web services slightly exceeded our expectations.

Our online dealer and major account channels grew revenue over the prior year. The NFIB small business optimism index remained very strong throughout the second quarter, finishing June at 107 and only slightly down from May, so a strong positive indicator.

Clearly, there remains strong optimism for the economy with small businesses signaling they expect better market conditions and therefore, increase business activity, capital spending and hiring. Small business owners overall are more optimistic right now. However, they do not all significantly increase their marketing spend immediately.

As we have seen as the first half advanced and then expect to continue in the second half, we have seen an increase in marketing solutions and services. In summary, if this more optimistic trend continues, this bodes well for us. And we expect SBS revenue growth to increase in 2018 to 4% 5% from 3.7% last year.

Now, to our two focus areas, starting with payments and marketing solutions. Here we are focused on core check retention and acquisition, and developing incremental retail customer acquisition channels and driving e-checks and e-deposits. We ended the second quarter about on our expectations for checks.

Our focus on e-checks and e-deposits continues to be on building out opportunities with financial institutions, medical and insurance, payment processors, accounting services and software providers, and other document management and payment solution companies.

In Q2, we continued to rollout with a medical payment processor that is expected to further ramp with a second medical payment processor in the fourth quarter. The expected Q2 initial rollout to insurance company processors has now been delayed until Q4 as these customers require more time to complete systems and compliance integration.

In marketing solutions, 2018 growth initiatives include profitably scaling integrated marketing on-demand solution offers with a strong focus on the financial advisor and retail -- real estate verticals, web to print, retail packaging and promotional products.

Second quarter marketing solutions revenue was better than expected at the high end of our previous outlook, driven by the real estate and retail verticals.

Our second focus area is web services where we are targeting an improved customer experience and cross-selling and up-selling through our integrated Deluxe Marketing suite across all customers and channels, and scaling payroll services as well as adding capabilities through continued tuck-in acquisitions.

In Q2, we continued to ramp our cross-sell for do-it-for-me logo customers, who became web design customers as well. In operating services, we are focused on scaling payroll services and we continue to evaluate other operational annuity growth solutions. In Q2, payroll services revenue was in line with our expectations.

We continue to be very excited about our acquisition of LogoMix, which brings us the highly scalable and robust up-sell and cross-sell e-commerce do-it-yourself platform where we have not previously focused, which complements our existing do-it-for-me solutions.

LogoMix utilize its proprietary artificial intelligence and machine learning technology to deliver highly personalized content, which results in very high customer reactivation rates. We believe we can leverage this technology to further improve our cross-sell and up-sell capabilities.

Finally, we are focused on continuing to accelerate our brand awareness transformation with a clear linkage to marketing and revenue generating capabilities. In 2018, we are continuing our Small Business Revolution Main Street Town makeover.

In the second quarter, we completed the Main Street makeover of Alton, Illinois and help small businesses in the final 10 nominated towns with marketing makeovers. In the fall, we will be doing a Web series as we have in the past highlighting our makeovers.

These Web series are acclaimed as recently we were highlighted as a top 10 television show that every entrepreneur should be watching by bizztor.com. We continue to link smallbusinessrevolution.org to our resource center and then to deluxe.com as we focus on driving revenue generating capabilities.

In Financial Services, Q2 revenue was down about 6% to last year as both MOS due to the loss of Verizon for Deluxe Rewards and Checks decline. We have two strategic focus areas for 2018 for financial institutions, the first area is retail banking, which includes both checks and data driven marketing solutions.

In the second quarter, we saw the rate of check decline perform as expected, down about 7%. Our retention rates remained strong on deals pending in the current quarter and we won new $1 million plus annual revenue customer that will begin in the second half of the year. We simplified our processes while reducing our costs and expense structure.

For 2018, we continue to expect check units decline to be approximately 7%. We understand it’s important for us to maintain low decline rates. But given the size of the FS checks business and the growth in MOS, every 1% decline in FS checks now only has about $2 million annualized impact on revenue.

We also implemented a very small price increase at the start of this year. For data driven marketing, we continue our focus on leveraging data mix, data and analytics, together with FMCG marketing services campaign execution to accelerate outsourced campaign targeting and multi-channel execution.

Lastly, we will continue to assess and execute acquisitions in this space that give us more digital, data and CRM capabilities. We continue to be excited about the opportunities pay for performance brings us, but remain conservative regarding how fast these programs are expected to ramp.

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. Q2 revenue for data driven marketing solutions was below our expectations at the high end of our range, driven by both FMCG and data mix.

We had six new wins in the second quarter with top 100 financial institutions, as well as 18 expansion wins with existing customers in the top 100 financial institutions. The second FS strategic focus area is scaling treasury management solutions.

With our largest opportunity 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 in 2018 is on profitably scaling revenue and integrating acquisitions already completed, plus assessing and executing acquisitions with a focus on payment and relentless processing and cash application spaces within the treasury management’s overall ecosystem.

In Q2, treasury management solution's revenue was in line with our expectations. We have five new wins in the second quarter, as well as six cross-sell wins with existing customers. In direct checks, revenue finished slightly better than our expectations.

We continue to look for opportunities to provide accessory and other cheque related products and services to our consumers, as well as work on several initiatives to create an integrated and efficient direct-to-consumer check experience.

We continue to see a ramp in revenue enhancement synergies through our cost and restricting in up-sell capabilities, as well as synergistic cost and expense reductions.

For 2018, we expect direct checks revenue to decline around 11%, driven by continued declines in consumer usage and lower reorders from our decision in prior years 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% our direct checks revenue. We expect to reduce manufacturing costs and SG&A in the segment, and continue to deliver operating margins in the low-30% range while generating strong operating cash flow.

As we exit the second quarter on the hills of a solid quarterly performance, we continue to make tremendous progress transforming Deluxe. And we believe we can pivot both for even faster organic and moderately more aggressive acquisitive growth.

The economy is strengthening but we remain prudently cautious in our expectations that this strength will translate into very near term much higher marketing spending for small businesses and financial institutions.

We firmly believe this continues to be the right time to increase investments in people, technology, processes, products and services to accelerate sustainable revenue growth, while improving profitability and operating cash flow.

We have developed a strong MOS platform for the long term growth with high recurring revenue streams and strong 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 multiples.

And now James will open the call up for questions..

Thank you [Operator Instructions]. Our first question comes from Charlie Strauzer with CJS Securities. Your line is now open..

So let's just talk about, a little bit about the changes in the outlook now versus previous. I believe you gave us some very good detail there, specifically on the data driven marketing side some of the delays there that you're seeing.

Are they more of a combination delays and pushback from customers or just customers changing their mind? And if you can give us a little bit more color as to what causes some of those delays?.

So here's what's going on, Charlie. We are continuing to see new costumers and then we're seeing expansions with the customers that we have. Here's the fundamental issue.

We're not seeing them -- when the new customers come on, we're not seeing the number of campaigns that they're driving, taking off and doing as many as we originally expected in projecting when we put the guidance together at the beginning of the year. That is really what's going on in the First Manhattan space.

And by the way, we're continuing to grow on that part of the business, double digit growth rates, but we're not seeing the expansion -- new customers are coming as we highlighted. But when they're running campaigns, we expected them to get more campaigns and go faster than what we're seeing from now.

In the data mix side, which is a much more as we’ve talked about focused and them in the mortgage and in the auto space, we're not seeing the leak or the jump that we expected in the mortgage area.

So some of the large customers who continue to be our customers are simply not jumping up and spending as much to attract new mortgage customers as we expected. And remember we’ve talked about this.

We've got interest rate and non-interest rate sensitive areas; interest rate sensitive more in the case of data mix; non-interest rate more in the case of First Manhattan. So the balancing is there. The challenge we have right now is we're seeing a little bit of a pullback in what we expected in the mortgage area.

And then we're not seeing the rate of growth in the number of campaigns and the size of the campaigns. We look at this as a near term challenge. And because if we're getting the customers to buy and the campaigns are working, which they are, then we just got to stay at this and let the campaigns keep playing out.

And then allow that growth rate in terms of number of campaigns and the size of the campaigns to play out as we move forward. So that is fundamentally what we're seeing right now..

And when you talk to these customers who are doing these campaigns, it all would be larger.

I think can you give any specific reasons as to why they're keeping the range tight?.

Each one of these scenarios, Charlie, is different. When you look at a large -- these are the top 200 financial institutions, many of the top 500. They may go and do a program and they run like crazy and then they'll right away do a lot more. They may pause and take their time as they're going through that.

All I can tell you from really watching and understanding all of these customers is, they don't all just take off and you put a program together and they all scale and run them up at the same time. The good news again is we're seeing them buy into us. They're not moving to somebody else.

They're not buying other campaigns, are just taking their time to ramp the size of the campaign, whether it’d be a business deposit program, whether it’d be a consumer deposit program, a consumer loan program, they're just taking more time to see the ramp than what we originally expected..

And then just looking at the guidance for Q3, perhaps if you can give us a little bit more color by segments, by each product line as to what we should expect in Q3 in terms of revenue and margin direction?.

I don't have that and Keith doesn't have it in front of us. I think Keith did a really nice job explaining what’s going on in Q3. So if you think about the year and how the year is playing out for us. One of the things that’s happening is -- and you guys don’t like this, but it’s just the reality that we live in.

The tax rate moves around quarterly based on discrete items. So we already told you that the second quarter, we just got better -- lower tax rate. And what Keith said, we’re going to have a higher tax rate in the third quarter. I’d love the tax rate to be 24.5% every quarter. It just doesn’t work that way.

And the complications with what we’re all going through, I mean we all companies with what’s happening because of the jobs cut and tax rate change is that items float around within what we’re working and then the states come up with different things. And therefore, Charlie, the rates move around.

And what’s happening is we did not project the second quarter to be as good as we ended up, and we do not project third quarter to be as the higher rate. And then the other issue that we have and again, you’re used to this, is we are self-insured on medical expenses and we are seeing lots of movement on medical.

And the good news is, as we’ve seen in the first couple of quarters perform pretty well, we know that there are high cost claims that are out there. I can’t find out that for my employees and I don’t want to find out for my employees what’s going on. I do know they are out there.

And therefore, we’re going to have claims in the third quarter that we expect that are going to raise our medical expense. This is why if all want to look quarter-to-quarter and balance it all out -- and we try to do our best obviously with running the company and managing it.

But these things are causing the shifts between the second and third quarter, and not allowing it to just come out in a very formulaic way. And they’re big enough, size wise that you’re going to see movement like this.

And then we had a larger gain, as Keith highlighted, in Small Business in the second quarter and we’re going to have a little more gain in the third quarter from some of the work that we’re doing to just continue to get more -- it’s more efficient on getting some of the major distributor things that we’ve done in the right hands into our network and allowing those people to really own those.

It doesn’t change revenue. It just gets into a more managed approach and decentralized rather than centralized. So those are the movements that we’re seeing, or you would have seen a lower Q2, still a good performance, we would have been at the high end and you’re going to see a little less in Q3 compared to how we originally thought about it.

I know you don’t like it, but that’s the reality of where we’re at..

Thank you. Our next question comes from the line of Chris McGinnis with Sidoti & Company. Your line is now open..

Can you maybe just talk about the rebranding effort and how -- are you seeing any positive data points to help drive that? It seems like it may be helping a little bit with small business. Thanks..

Chris, e view this was a long journey, you just don’t flip a switch and change your brand, especially for small businesses who have always thought of the company more as a check company. But there is a lot of incredible reach and excitement that we see right now in the brand.

The hard work that’s going on behind the scenes for us right now is to take all that content that we have, and the content is incredible. When you go out to smallbusinessrevolution.org and you see all the businesses and the towns that we’re makingover, we’re using that content now to drive online sales and transactions on the small business side.

We're seeing early signs that this is working. We just need to let this continue to run its course and continue to see the explosion of this hopefully as we get started getting more on the second half of the year as we get into '19 as well.

I pointed out that comment from Bizztor, because one of the exciting things for the people here that are working on this is that we're getting mentioned with the profits and shark tanks of the world. And come watch Deluxe and Small Business revolution and what we're doing.

So this is something that we believe is helpful and will continue to be helpful as we get ourselves out there and keep trying to stretch and improve the brand..

And then if I missed this I apologize.

Can you just maybe talk about where you’re at with the acquisition today and how much on the revenue side? And then how much you need to make up for the year and how many acquisitions do you actually still have to make and how comfortable do you feel around that strategy for the remainder of the year?.

One of the things -- you could obviously tell is driving us nuts is we’ve been working on this Treasury Management deal for some time. And we had a lot of debate inside the company as to whether or not -- how much do we put in acquisitions and into our guidance. And we felt that this would get done quicker, and sometimes things just don’t.

And this is a super business that we're going to acquire. We're really excited about. It's got great people. It's got great technologies. And right now, we're just going through the process now to get it knock down and done. And both sides are doing all the right things.

It just we’ve got to get through some of the comments that Keith made about the ordinary close stuff and customer consensus, so on and so forth. So we need to get that one done.

And then we got $21 million other than that and we are continuing to look in primarily in the data-driven marketing space, in the treasury management space and then in the web-services spaces to get something done. Something could be more than one thing within that $21 million, Chris. We got things in the pipeline.

We're actively moving and working them. Again, it comes down to how fast can we get those things through the pipeline.

And you know us, we're not going to go do something that doesn't make sense, both from a -- will it or help us organically grow in the long term, and will it be a smart deal, meaning we're not sitting on something that's dilutive for a long period of time.

One of the things we didn’t say specifically but it's on the chart that we showed is the Treasury Management deal is neutral to -- it's not accretive or dilutive. So we're not buying that business and we don't expect that to be a hit to us as we go -- as we get this done in the balance of the year.

So that's the way to think about and we're doing all of the continued things that we've always done, hustling along, looking at the areas that make sense, got things in the pipeline, they're all being worked, it’s just be a question of how quickly can we get things done at this point..

And then just one last question, just in relation to this, I'm not going to say slowdown in the data driven but just the changes you have seen. So does that make you think about the business -- investing in that business a little bit different or you need to just expand on that just -- and thinking about the acquisition side of the business….

I think the way we look at it is and what we’ve done is we’ve looked and said, are there things within there that are just too long term or more medium term focus and maybe pull little back there. But no, we are continuing to invest.

And all we did was trim that a little bit, because we just looked at it and said, you know, given where we are, it's more also a distraction for the organization. If we want you to be focused on certain areas, especially the sales and the sales growth, we don't want to be distracting on some of the development things as much.

So think of it is just a little bit of pullback, but we are continuing to innovate, want to innovate and believe in the space tremendously..

Thank you. And we have time for one more question from the line of Jamie Clement with Buckingham. Your line is now open..

Lee, big picture question for you and really it’s a follow up from some of your prepared remarks, early on in the presentation. As you think about the opportunity seems right for a push to maybe try to accelerate the top line more, and certainly you talked about the acquisition program.

I couldn't tell if you were talking about the organic aspects of the business.

Also, were you hinting that it might be the time to ratchet up development spending, hiring that kind of thing in which you already own as well because the time is right to look to accelerate?.

We're doing both. So as I said in the prepared comments, Jamie, I’ll just give a little more color and clarity. So we believe that -- we're close, slightly down on organic, we're expecting now for the year and the pull back has simply been because of the data driven marketing pull back. But we expect to be able to get organic growth in 2019 and 2020.

And it's in these areas that we focused on, the data driven marketing area, the treasury management area, and the web services area. And we also believe on the small business marketing solutions, which has been a nice organic play for us this year and will continue.

And then yes, can we get more done in those first three areas that allow us to scale those for the long-term more quickly. And as we also said, there's a cost to doing that.

And if we absorb them and if something bigger and you guys know the multiples that are in somebody’s businesses right now, we're not going to do something foolish but we do think the time is right to continue to really get at those and we're looking at those right now. Some of the deals have gotten played in the market, we looked at them.

We just said those don't -- we don't think those are going to grow for us and we don't think those make good financial sense as well. We’re in a game. We're playing in the right places, including some of the areas that have some of the bigger deals are going down.

And we're just trying to make sure that we're prudent as we as you would expect us to be as we look at opportunities..

Thank you. And that concludes our question-and-answer session. So I'd like to turn it back for closing remarks..

So I just want to thank everybody again for your participation, and thank the analysts for their questions today.

And I got three things to summarize the quarter; so we delivered a solid second quarter; we have marketing solutions and other services revenues that grew about 7%; and we improved our mix to 41% of total company revenue in the quarter towards our goal of 44% this year and 60% towards 2020; and we have established a solid baseline first half to propel us to revenue growth again in 2018 for the ninth consecutive year.

We're going to roll up our sleeves as we traditionally do. We’re going to get back to work. We look forward to providing positive progress report on our next call. And I am going to turn it over to Ed for some final housekeeping..

Thanks, Lee.

Before we conclude today's call, I’d just 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 August 12th and 13th, we’ll be attending the KeyBanc Capital Markets 20th Annual Technology Leadership Forum in Vail, Colorado; and on September 13th, we’ll be at the C.L.

King & Associates 16th Annual Best Ideas Conference in New York. Thank you for joining us. And that concludes the Deluxe second quarter 2018 earnings call..

Thank you. That concludes today's conference, ladies and gentlemen, you may now disconnect. Have a wonderful day..