Deluxe Corporation (DLX) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Deluxe Corporation Earnings Conference Call. My name is Karen and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Terry Peterson, Vice President, Investor Relations and Chief Accounting Officer. Please proceed.

Thank you, Karen. Welcome to Deluxe Corporation's 2008 first quarter earnings call. I'm Terry Peterson, Deluxe's Vice President of Investor Relations and Chief Accounting Officer. Joining me on the call today are Lee Schram, Deluxe's Chief Executive Officer, and Rick Greene, Deluxe's Chief Financial Officer. Lee, Rick and I will take your questions from analysts after the prepared comments. At that time the operator will instruct you how to ask a question. In accordance with Regulation FD, this call is open to all interested parties. A replay of the call will be available via the telephone and Deluxe's web site. I will provide instructions for accessing the replay at the conclusion of our teleconference. Before I begin, let me make this brief cautionary statement. Comments made today regarding financial estimates and projections and any other statements addressing management's intentions and expectations regarding the company's future performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, these comments are subject to risks and uncertainties which could cause actual future results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those projected are contained in the news release that we issued this morning and on the company's Form 10-K for the year ended December 31, 2007. In addition, the financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which is posted in the Investor Relations section of our web site, www.deluxe.com and was furnished to the SEC on the Form 8-K filed this morning. In particular, any non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release. Now, I will turn the call over to Lee Schram, Deluxe's CEO.

Thank you, Terry, and good morning everyone. In spite of even more challenging economic conditions than expected in the quarter, we were able to successfully deliver on our financial commitments. We reported revenues slightly better than the middle of our expected range and earnings per share at the high-end of our range. Individual segment revenue also was in line with our outlook. We made progress on our new revenue expansion initiatives, continued to stabilize margins in our core check businesses, continued to deliver on our $225 million cost reduction program and made planned investments in e-commerce, verticalization and merchandising for our Small Business Services segment and in loyalty, retention, monitoring and protection solutions for Financial Services. These investments are expected to drive revenue growth in the second half of the year and beyond. We unveiled our new corporate brand identity and have received extremely positive feedback. We also made two very small acquisitions so far this year in the custom full color and logo services spaces, both areas that we expect to grow in double digits in the future. We also repurchased almost $14 million in shares in the quarter. Finally, we continue to better align the company on our strategic direction and drive clear accountability within this framework. In a few minutes, I will discuss more details around our recent progress and next steps. But first, Rick will cover our financial performance.

Thanks, Lee. Earlier today, we reported diluted earnings per share for the first quarter of $0.53, which was at the upper end of the range of our previously communicated outlook. Revenue for the quarter came in at $381.2 million, which registered slightly towards the upper end of our outlook. While we continue to see the impact of economic conditions in our Small Business Services segment, check volume in our Financial Services segment remained strong, increasing almost 2% from last quarter. We also saw solid growth in the custom, full color, digital and web-to-print space. Operating performance once again benefited from continued execution on our cost reduction initiatives, as we achieved our targeted reductions for the quarter and included planned investments in key revenue growth initiatives. Operating cash flow was slightly better than our expectation as solid earnings and continued progress with our working capital initiatives led to operating cash flow of $30 million for the quarter. In the first quarter of 2007, we reported diluted earnings per share of $0.68. Those results included the benefit of higher revenue, including $3 million of direct checks revenue delayed at the end of 2006 due to weather, as well as lower delivery-related expenses and limited investment spending. Companywide revenue in the first quarter totaled $381.2 million, down 5.6% from 2007. Economic softness negatively impacted volume in our Small Business Services segment in 2008. Also, as we have previously noted, the prior year benefited by $3 million from the shift of revenues in direct checks due to weather-related delays at the end of 2006, $3 million of industrial packaging revenues prior to the divestiture of that product line and non-recurring revenue from significant bank conversion activity. Gross margin for the quarter was 61.7% of revenue, down 1.3 points from 2007. Improvements in manufacturing productivity as a result of lean initiatives and higher revenue per order were more than offset by higher delivery-related costs from a mid-2007 postal rate increase and an unfavorable shift in product mix. Selling, general and administrative expense increased $8.8 million in the quarter and was 47.4% of revenue compared to 46.9% in the same period last year. Benefits from continued execution of our cost reduction initiatives, particularly in the areas of information technology infrastructure, finance, real estate and sales operations were offset by investments to drive revenue growth opportunities, including higher marketing expenses. As a result, operating income in the quarter was $54.8 million compared to $69 million last year. As you may recall, last year's operating income also benefited from a $3.8 million pre-tax gain from the divestiture of the industrial packaging product line. Let's now shift our focus to some highlights in each of our three business segments. In Small Business Services, revenue of $215.9 million was down 6.9% or $15.9 million versus 2007. As expected, revenue in this segment was unfavorably impacted by economic softness in the quarter. In addition, the prior year benefited from $3 million of revenue from the divested Industrial Packaging product line, plus pending regulatory changes last year from the Canadian CPA which drove additional check revenue. Partially offsetting these factors was a favorable Canadian exchange rate and double-digit growth this year in our full color, digital and web-to-print offerings. Operating income in this segment was $21.1 million compared to $33.2 million in 2007. The decrease was driven primarily by lower revenue, as well as targeted investments made in the quarter to drive future revenue opportunities. In addition, last year included a one-time gain of $3.8 million from the sale of the Industrial Packaging product line. In Financial Services, revenue was $113.9 million, up 0.4% versus the first quarter last year. The current quarter reflected favorable revenue per order due to a price increase implemented in February 2007. Check volume was strong once again this quarter. Although reported check volumes were down 3.7% compared to last year, in actuality the volume decline was less than 1%, excluding the impact of the one-time bank conversion volume which benefited the first quarter of 2007. Financial Services delivered operating income of $19 million for the quarter or 16.7% of revenue, up from $15.7 million in 2007. Delivery rate increases and investments were more than offset by benefits from cost reduction initiatives and the February 2007 price increase. Finally, in Direct Checks, revenues totaled $51.4 million, down 12.1% on a year-over-year basis. Adjusting for the $3 million of weather-related revenue that shifted into the first quarter 2007, Direct Checks top line was down 7% due to recurring declines in check writing and advertising response rates. Operating income was $14.7 million for the quarter or 28.6% of revenue, down $5.4 million from last year. The decrease was driven by lower revenues, delivery cost increases and the strong margin flow-through in the first quarter for last year associated with the weather-related revenues. Turning to the balance sheet and cash flow statement, total debt at the end of the quarter was $848 million compared to $844 million at the end of 2007. The slight increase was driven primarily by the planned payment of our performance-based employee compensation and share repurchases. Cash provided by operating activities for the quarter was $30 million. This decrease from 2007 was slightly better than we had expected and was driven by $19.7 million of higher payments this year for 2007-related incentive compensation and lower earnings, partly offset by lower income tax payments. Capital expenditures in the quarter were $5.8 million, and depreciation and amortization expense was $15.5 million. Our capital spending this quarter was focused on revenue growth initiatives, primarily in the area of e-commerce. Looking ahead to the second quarter of 2008, we expect revenue to range from $374 million to $384 million. Diluted earnings per share is expected to range from $0.60 to $0.64, which is in line with our previous expectations for the second quarter as we headed into the year. There are several key factors that distinguish our 2008 outlook in comparison to the second quarter of 2007, including continued economic softness in the Small Business Services segment and declines in the personal check businesses, driven primarily by fewer checks being written. In addition, lower revenue per order in Financial Services and weaker advertising response rates in Direct Checks will also be contributing factors. While we do expect that revenue growth initiatives in Small Business Services and Financial Services will begin to deliver results in the quarter, most of the benefit for the year will come in the last two quarters. Lower delivery-related cost in Financial Services because we absorbed the impact of the mid-May 2007 postal rate increase since we did not begin implementing our flat check delivery package until the end of the third quarter. Higher investments in e-commerce, verticalization and merchandising for SBS and in loyalty, retention, monitoring and protection solutions for Financial Services, including our 2008 Expo, to drive revenue growth in the second half of the year and beyond. Continued execution of the $225 million cost and expense reduction initiatives net of investment and a lower effective tax rate due to expected favorable discrete tax events in 2008. For the full year, despite expectations of a continued challenging economic environment and the pressure of lower check usage on our core check businesses, we're still optimistic that we can deliver consolidated revenue ranging from $1.56 billion to $1.59 billion. In addition, we expect to achieve double-digit growth in earnings per share, which translates to an EPS range from $3.00 to $3.15. There are several key factors that contribute to our 2008 full-year outlook. Given the economic uncertainty that we expect will impact our Small Business Services segment, we're being prudent in planning near flat revenue performance, with modest growth expected in the second half driven by program investments we continue to make and channel expansion opportunities. In Financial Services, given contract renewal timing and recent successes in extending existing national contracts, we expect no significant changes in our customer base. In addition, we expect the continuation of 4% to 5% declines in check writing with the related revenue pressure being partially offset by a modest second half ramp of revenues from several new loyalty, retention, monitoring and protection products. We expect the revenue declines in Direct Checks to be more in the high single-digits, driven by declines in check usage, the year-over-year lapping of several new feature and accessory initiatives, although more new initiatives are planned in 2008, and the $3 million revenue benefit in 2007 attributable to the weather issues previously mentioned. Other factors contributing to our 2008 earnings per share outlook include continued progress with the previously announced $225 million cost and expense reduction programs and a full-year effective tax rate of approximately 35%. We are expecting operating cash flows to remain very strong, ranging between $230 million and $250 million for the year. 2008 will continue to benefit from earnings growth and additional working capital improvements, but they will be largely offset by the $19.7 million higher performance based incentive compensation payout completed in the first quarter of 2008, given our strong financial performance from 2007. We expect contract acquisition payments to be approximately $15 million. Capital expenditures in 2008 are expected to be approximately $30 million with continued investment in initiatives which drive manufacturing productivity, business simplification and non-check revenue growth. Depreciation and amortization expense is expected to be approximately $60 million, including $23 million of acquisition-related amortization. To conclude, let me reiterate our views on capital structure and uses of cash going forward. The capital structure we have in place today provides a great deal of flexibility to execute the transformation strategy that we believe will create a vibrant, value-creating Deluxe for the future. Our priorities for uses of cash include investing both organically and in small to medium-sized strategic acquisitions to augment growth as we have been doing so far this year. We also proactively evaluate other opportunities to create shareholder value, which most recently have focused on share repurchases. As such, in the first quarter, we opportunistically repurchased $13.9 million of shares. The level of share repurchases are limited each quarter by the restricted payments covenant in our 2015 notes. During the first quarter, we chose to nearly exhaust our capacity to repurchase shares given what we believe to be extremely attractive stock prices. Our capacity will continue to rebuild as we generate additional net income. However, we do not expect our capacity for share repurchases to exceed $15 million to $20 million for the remainder of the year. We are focused on driving the proper balance between investment to drive long-term value and near-term opportunities the market may present. To the extent we have excess cash after these priorities, we intend to pay down the remaining balance on our credit facilities. I will join Lee and Terry in taking your questions in a few minutes. But first, I will turn the call back to Lee.

Thank you, Rick. I will continue my comments with the perspective on our overall enterprise objects for 2008, highlight each of our three segments including how we are progressing against our key initiatives and close with the progress update on our cost takeout program. At the enterprise level, we have established objectives in four key areas for 2008, including focusing on our customers, growing revenue, improving business processes and improving learning and our culture. We are focused on our customers with passion and precision as we expand and optimize product and service offerings. As we continue to transform Deluxe, we're shifting our emphasis to revenue growth through accelerating and building out better value propositions for our customers, while still maintaining a laser focus on cost, particularly in a period of economic churn. Business process improvement remains a cornerstone of our strategy to deliver sustainable and profitable growth by streamlining, standardizing and improving innovation and efficiencies in everything we do. Finally, we are committed to building a highly engaged winning team and a growth culture grounded in continuous improvement with faster speed to market and a stronger sense of urgency and adaptability to change. Early in the first quarter, we pulled our key leaders and field sales team together to build on our momentum exiting 2007 and to ensure and accelerate alignment as we continued to transform the company. Our reinvention focuses not only on how we can help our customers run and protect their business, but also grow their business. Our focus on customer growth starts with repositioning Deluxe's brand framework released in the first quarter to drive emotional attachment, distinctive customer experiences and proof of our ability to grow loyal customers and strengthen their business performance. We framed how customer experience requirements leverage our position in Financial Services and small businesses. These are key intersection points in reaching more deeply into vertical industry segments and expanding relationships based upon growth needs. Key vertical segments include retailers, contractors, professional services providers, banks, and credit unions. We further discuss how over time we will see more of a transition to two core operating models: a business services model and a premier model. Business services involve taking existing higher cost services and turning them into lower-cost solutions by productizing them for affordability and scale. The premier model provides customized support, expertise, products and services to a well-defined small group of customers because the economic return warrants specialized relations and treatment. In the first quarter, we began to better define the core elements, required systems and value propositions of each of these models, including creating a cost-effective and flexible infrastructure to support both models. All of these then align to create product and service portfolio expansion opportunities focused on helping our customers grow their businesses. Positioning, products, services and content will increasingly be tailored to specific verticals. Services will be expanded and aggressively rolled out, and functionality will be enhanced to improve the customer buying experience. We will still be focused on a lean further simplified stable core business and this great foundation will allow us to more fully realize the potential of our growth initiatives. Now shifting to our segments. In Small Business Services, as expected, economic softness had an impact on our business. However, we had very strong revenue growth in custom color products led by The Johnson Group in imaging promotional products and in payroll services, all areas where we expect to see continued growth throughout the year. We continue to see an increase in conversion rate this quarter for web services from our partnership with Website Pros. And initial results from the new more-focused vertical segmentation framework were better than expected. We also launched late in the quarter the EZShield check protection service across several of our brands, and we expect the full rollout to the remaining brands in the second quarter, with a ramp throughout the balance of the year. Further, the first version of our new state-of-the-art e-commerce shopping site is set to be released this quarter. In addition, we will continue to invest heavily throughout the second quarter in the second version of our e-commerce shopping site, which will add content and capability later in the year, plus additional investment in more vertical segments. We expect these investments will help drive revenue growth in the second half of the year, if economic conditions do not further deteriorate. We also are increasing not only the number of Safeguard distributors, but leveraging them more closely where opportunities exist with financial institutions. In addition, with our recent acquisition of a logo services company, we are further expanding our portfolio to help small businesses grow, plus adding more service-oriented capability. We are also continuing to assess additional business services growth opportunities, such as marketing and other services. In Financial Services, we continued again this quarter to proactively extend several check contracts and now, have all large nationals extended throughout the year. We also acquired a large regional financial institution, which was included in our original outlook that will start in the second quarter and also will positively contribute to our small business referrals and we continued to see strong overall new acquisition rates, especially in the credit union space. Our retention rate also remained strong, in excess of 90%. We continue to simplify our processes and take complexity out of the business while reducing our cost and expense structure. In addition to our strong core check revenue, we made progress in the first quarter in advancing new non-check revenue growth opportunities. Our customer loyalty and retention solutions, including the Impressions suite of products: Deluxe Calling, Welcome Home Tool Kit and Monitoring and Protection Solutions, collectively achieved plan. Although we also grew revenue over the prior year in our stored value gift card program, the results were below our expectations, given some partner launch execution issues, now resolved, and overall gift card softness given the economy. Momentum is clearly building in these new non-check revenue initiatives both inside the company as we build better go-to-market product launch capability and externally with our customers. These new initiatives are helping Deluxe be viewed by financial institutions as not only a check provider, but also a trusted partner. In Direct Checks, our investments in freestanding insert impressions and Internet search engine spends focused on selling additional products such as holiday greeting cards, stored value gift cards and premium priced features and accessories continued to enhance results, although we are starting to see a year-over-year lapping of many of the new feature and accessory initiatives. We also had a solid operating income profile in the quarter, with an operating income to revenue ratio of close to 29%. In addition to these actions in each of our segments, here is an update on our cost and expansion expense reduction initiatives. The plan continues to target a $225 million reduction through 2009, where $70 million is expected to be realized in 2008 on top of the $105 million already realized from 2006 and 2007. Overall, we had another solid quarter, delivering to our target levels against the $70 million expected this year. As we indicated on our fourth quarter 2007 call, the 2008 reductions again will not necessarily be linear through the quarters, with over 60% of the reductions in the second half of the year. Also, approximately 50% to 60% will fall to the bottom line. However, the percentage will be lower in the first half, especially in the first quarter, as we are more aggressively investing in new non-check revenue solutions and key enablers, both of which are expected to drive additional revenue in the second half of 2008 and beyond. Here are some highlights of the key cost reduction activities for the first quarter and continued areas of opportunity as we move forward. These are in addition to the ongoing savings which are occurring each quarter from previously implemented actions. In our go-to-market sales and marketing, our focus continues to be on realigning sales and marketing back-end operations, and refining our channel management structure through process centralization, simplifying business processes, platform and tool consolidation, and leveraging e-commerce and vertical segmentation capabilities. During the quarter, we successfully outsourced and offshored a portion of our backoffice sales support. Also late in the first quarter, we began an externally led review of our call centers with the objective of continuing to improve productivity. For fulfillment, we had a strong quarter with lean productivity improvements. Throughout the remainder of 2008, we will continue to invest in automating our flat check package processing and we expect to continue our lean product standardization and direct and indirect spend reduction initiatives, plus advance our work on realigning to a common manufacturing platform. We also plan to initiate more strategic supplier sourcing arrangements and enhanced value stream mapping improvements and efficiencies. Finally, for shared services infrastructure, we continue to make good progress in information technology, driven by data center cost reductions and other system utilization, networking and voice communication efficiencies. For the balance of 2008, we expect to continue to reduce cost in each of the areas mentioned, as well as better rationalize and standardize applications and technologies and more strategically align IT capability and delivery with our business segments' needs. For our other shared services infrastructure functions, including finance, human resources, real estate and legal, we continued to standardize more of our internal processes and improve efficiencies. Opportunities still exist to centralize, streamline, standardize and improve efficiencies in these functions. As you can see, we again progressed in the first quarter, but we still have a lot of work and opportunities ahead of us in 2008. We expect economic market challenges, especially in the first half of the year, continued strong execution on our cost reduction initiatives, stability in our core check and business products revenues, and more meaningful revenue contributions from our new revenue offers and key enablers. We are confident that, as we continue to execute, we can have another year of strong progress and financial returns. Now, Rick, Terry, and I will take your questions.

(Operator instructions) Your first question comes from the line of Charles Strauzer with CJS Securities. Please proceed. Charles Strauzer – CJS Securities: Hi, good morning everyone.

Hi, Charlie, good morning. Charles Strauzer – CJS Securities: If you could just take a little step back and look at the guidance for the balance of the year and given the Q2 guidance, Terry and Rick and everyone, what has kind of given you the confidence in the back half of the year that you are going to get to the full-year guidance? Give me a little more color on that if you can.

–: –: –: –: Charles Strauzer – CJS Securities: –:

I would say we're working exceptionally hard. I have been commenting for several quarters now that I believe that all great companies are constantly looking at organic ways to grow, acquisitive ways to grow, partnering ways to grow. We have brought a tremendous amount of new talent into the company that we believe is helping us move the whole organic, acquisitive and partnering looks that we are doing today and what have we done? I mean, we partnered up, as we have mentioned, with Website Pros. I mentioned that we did a couple of small tuck-in acquisitions so far this year, adding to our full color capability and really getting into the whole logo design services space. So, I would say that our process is, again, what Rick outlined in the use of capital, is we are organically investing. I think we have been consistent with that. We are looking at how do we extend and really work the great partnerships that we have and then how do we also look for small to medium-sized tuck-in acquisitions that will help us as well. Charles Strauzer – CJS Securities: Great. Thanks, Lee. Just one quick housekeeping for Rick. What was the amount of shares bought back in the quarter again?

It was $13.9 million. The total shares bought back were 580,000. Charles Strauzer – CJS Securities: Great. Thank you very much.

The next question comes from the line of John Kraft. Please proceed. John Kraft – D.A. Davidson: Good morning, gentlemen.

Hi, John.

Good morning. John Kraft – D.A. Davidson: I don't want to beat a dead horse here, but I did want to follow-up on the confidence and the outlook question. Just to clarify here, as you look out to the year, you certainly said that you expect economic conditions to remain challenging sort of consistent at least into Q2. But, are you expecting an improvement in overall economic conditions in the back half, or is that the difference in your change of outlook this time, that now you expect it to basically remain kind of flat for the whole year?

–: –: –: John Kraft – D.A. Davidson: Okay, I think that's fair. And specifically for some of these revenue initiatives, the e-commerce initiative, is the primary goal here to attract new Internet users, or is the goal to lower distribution costs or both?

–: –: John Kraft – D.A. Davidson: –:

Again, as I mentioned in my comments, we expect approximately a 35% tax rate for the year. John Kraft – D.A. Davidson: 35, sorry I missed that. And do you have a targeted debt level for end of the year '08?

As we mentioned, the priorities for cash as we continue to look at investing organically and with small and medium-sized strategic acquisitions to help us, we feel very comfortable with the level of debt, particularly given the amount of cash flow that we do generate. With our current outlook and we have approximately $72 million currently drawn on the credit facilities, we will generate enough cash flow to continue to pay that down by the end of the year. But, we are not specifically targeting a debt level by the end of the year. John Kraft – D.A. Davidson: Okay, that's fair. And then just could you also remind me when specifically in the quarter the divestiture of the industrial packaging business anniversary?

Late in January, John, of 2007. John Kraft – D.A. Davidson: Late January, okay great, and nice work on the bank win.

Thank you, John.

Your next question comes from the line of Jamie Clement with Sidoti & Co. Please proceed. Jamie Clement – Sidoti & Co.: –:

Yes, I think it depends on the initiative to some extent, Jamie. But, yes, I think what we're doing here and we spent a little bit of time on it in the first quarter and I really talked about it in my shareholder letter, is that we are getting stronger at creating that true product management capability, which is everything from going and working with the customer to putting a great process behind it of getting the right people inside Deluxe then involved with making sure that we are testing and piloting and then really listening to the customer and then really launching the product launch. So, I think some of them require a little bit longer time frames for depending on which customer they are, whether they are small business owners or they are financial institutions or even some of our consumers, because we launched some new initiatives there. So, Jamie, all I would argue is that it depends a little bit on those audiences. But, I would tell you that we are getting smarter at it, we are getting better at it, and that is why we are becoming more confident that when we put these things out there that we are able to get the promise of them, so to speak, as we put them in place. Jamie Clement – Sidoti & Co.: Yes, and if could just editorialize for a second, I mean I think that one of the concerns that people have is that they are concerned that this is maybe a "if we build it they will come" situation. And I mean it seems that with the piloting and the testing and all that kind of stuff that you have done, it sounds like you have an appropriate level of confidence in the second half with respect to those things.

–: Jamie Clement – Sidoti & Co.: Sure. A follow-up question on just reinvesting in the business, actually looking outside the company, obviously Johnson Group has been a success. I think that the terms you used were potential small and medium-sized acquisitions. If I remember correctly, your two credit facilities mature 2009 and 2010. When you say small to medium, are you talking about businesses that could be purchased within the guidelines of those credit facilities?

Yes. Jamie Clement – Sidoti & Co.: Okay.

–: Jamie Clement – Sidoti & Co.: –:

Correct. Jamie Clement – Sidoti & Co.: Okay. So 55% to 60% of that, I'm not breaking out my calculator, but you are basically talking $40 million to realize in the second half, right, ballpark?

Once all implemented at the end of the year, you mean, Jamie? Jamie Clement – Sidoti & Co.: –:

That is right. Jamie Clement – Sidoti & Co.: Okay. And then, what is it as of now, another what is it, 50 in 2009?

That is right. Jamie Clement – Sidoti & Co.: Am I right? Okay, so thank you very much.

Thank you, Jamie.

Your next question comes from the line of Piyush Sharma with Longbow Research. Piyush Sharma – Longbow Research: Good morning guys. Piyush Sharma – Longbow Research: Firstly, I know you guys had mentioned the new initiatives will benefit Financial Services segment by about 2% to 4% on the top line this year. But, how do you quantify the impact of your initiatives and small business services revenues specifically in the second half of this year?

We haven't specifically, other than to try to give you what we said in the year in terms of the total guidance being kind of a flat revenue stream for the full year, and you've got a sense of where we have been the first quarter and the comments we had around the second quarter. So I think that is the way to think about it, Piyush. We have not specifically given a number at this point and we're not planning on doing that right now. Piyush Sharma – Longbow Research: Okay. And then secondly, just a housekeeping question, could you give us your fixed versus variable cost breakup again? Also how different is the composition fixed versus variable in the small business segment that is if it is at all?

–: –: Piyush Sharma – Longbow Research: Okay. And then finally, you guys have talked about repurchases, of course, and I know that this question has been asked before, but have you guys given thought again to your dividend payout? In these five years, your payout has gone from about 40% to about 35% now.

Given any thought to … Piyush Sharma – Longbow Research: Dividend payout, increasing dividend payout.

Piyush, that is something that our Board reviews on a quarterly basis and we look at metrics regarding that. But, at the present time, we have no intention of changing that. And particularly, you look at the dividend yield where we are today at right around 5%, it is still a fairly attractive dividend yield. Piyush Sharma – Longbow Research: Sure. All right, thank you guys.

Thank you.

Your next question comes from the line of Mike Hamilton with RBC. Please proceed sir. Mike Hamilton – RBC: Good morning everyone. First one detail for Rick, you mentioned in your comments anticipation of some discrete tax events in '08. Is there anything worth noting in there in terms of timing or what will be going on?

We mentioned that as discrete tax events in the second quarter, in talking about the second quarter versus 2007 that our effective tax rate will be slightly lower in the second quarter due to some discrete tax events this year. Mike Hamilton – RBC: Slightly lower than last year's rate?

That is correct. Mike Hamilton – RBC: –:

–: Mike Hamilton – RBC: Is the potential there for SG&A to be not materially higher than the first quarter number by the time we get to fourth quarter?

–: Mike Hamilton – RBC: That's right. And then just finally on that to make sure I've beaten it to death, you'd anticipate that the majority of the leverage comes off the SG&A line?

–: Mike Hamilton – RBC: Fair enough. I appreciate the help. Thank you, guys.

Thank you, Mike

Your next question comes from the line of Todd Morgan with Oppenheimer & Co. Please proceed. Todd Morgan – Oppenheimer & Co.: Thank you, good morning.

Hi, Todd. Todd Morgan – Oppenheimer & Co.: Hi. I was trying to reconcile the $70 million or so of EBITDA that you reported for the first quarter of this year with kind of a same station or same-store number from last year. I think I need to adjust for the industrial packaging divestiture. I think I also need to adjust for the Direct Check timing difference. But you had talked about a pretty good flow-through margin there. Can you suggest the number I should use?

No, we don't disclose specific margins within any of our business segments. Todd Morgan – Oppenheimer & Co.: Okay. I guess it was about a 30% EBITDA margin for the year last year. I am assuming something like that is what I should be thinking about here?

–: –: Todd Morgan – Oppenheimer & Co.: –:

That is why Rick has done a good job of highlighting that, so that gives the investor a better peak on how to really think about it operationally. Todd Morgan – Oppenheimer & Co.: All right. And I guess if I'm looking at that, call it $10 million difference for argument's sake, can you guys give me a sense of how much of that difference is made up of increased investments in some of the productivity things you talked about and what portion of that is related to Direct Checks or whatever else that may be a little bit slower than last year?

–: –: Todd Morgan – Oppenheimer & Co.: –:

That is not something we have specifically identified as well. But, the only way I can leave it for you is that it is a much bigger number in the first quarter of 2008 compared to the first quarter of 2007. Todd Morgan – Oppenheimer & Co.: Okay. All right. Moving on then, I guess the revolving credit balance is probably up a couple of million. Is that the difference in the debt levels between this quarter and last quarter?

Yes, as I mentioned, our debt was up about $4 million from the end of 2007, and that would be based on our draw on the facility given our first quarter payment for incentive compensation that we had planned, as well as the share repurchase that we did in the quarter. Todd Morgan – Oppenheimer & Co.: All right. And the last question, you talked about the flat check delivery implementation program. Can you give me a sense of where you stand, how far along that is, and when that would be complete?

The way to think about this is we started with this back when the Postal Service changed their rates in May and we're going to continue on, and we have improved the process and we will keep improving the process. But I won't give you an end date at this point. Todd Morgan – Oppenheimer & Co.: But is it a question of needing to acquire and install more equipment or just simply convert processes?

It is both. It is continuing to get better at our process, and it is just something that we expected to do from the outset. We expected this to be a conversion, initially to get it out there more on what we call a manual basis and then continue to fully automate it. I just think it is we are continuing to execute there and as we do obviously, it will improve our delivery capabilities and also improve our cost structure. Todd Morgan – Oppenheimer & Co.: Okay, good. Well, thanks for the help. Good luck.

Thanks, Todd.

Thank you.

Your next question comes from the line of Chris Smith with SCM Advisors. Please proceed. Chris Smith – SCM Advisors: Good morning. Thanks for taking the call.

Hi, Chris. Chris Smith – SCM Advisors : Just one question and then a couple of follow-ups. Just to confirm, the incentive comp in Q1 was $19.7 million, is that right?

No, that was the increase from last year. Chris Smith – SCM Advisors: Okay, that is the delta.

Also on the cash flow.

The payout of it.

The payout was the increase over what we paid out last year. Chris Smith – SCM Advisors: Okay, thanks. It sounds like at least my interpretation on the last call was that you were expecting to pay down the entire revolver balance by the end of the year, and it sounds like this year that may not be or is not necessarily the case anymore.

–: –: Chris Smith – SCM Advisors: –:

I think your earlier question was, do you have enough capacity within the revolver to do this, and I think my answer was twofold. It was, I don't think we need to do something the size of NEBS, which is bigger than that, and yet – and my answer then is, yes, I think we would be able to stay within that capacity. So I did not give a specific number on that. I think that is the way I would like to leave it in terms of thinking about it. Chris Smith – SCM Advisors: Okay. Last question. In terms of cost save, just to bring us current as far as cost saves realized, I think when you announced the additional $75 million of cost save opportunity on the third quarter call, I think at that time you said that 60% of the original $150 million was expected to be realized in '07 and 40% in '08. Where are we on that original $150 million as far as realized and yet to be realized?

You heard that correctly and as we mentioned, with what we accomplished here in the first quarter, we are on track with delivering the full $225 million, which includes that original piece of the $150 million that was remaining in 2008, plus the incremental $75 million. So what we had planned and where we said we would get a total of $70 million of the $225 million this year, it included the remaining piece of the $150 million. And in the first quarter, we delivered to our targeted amount to achieve the full $70 million.

–: –: Chris Smith – SCM Advisors: Okay, great. Thanks.

Operator, I think we have time for one more question.

And your final question comes from the line of Hardin Bethea with I(dea) Group. Please proceed. Hardin Bethea – I(dea) Group: Hey, Lee.

Hardin, long time no talk. Hardin Bethea – I(dea) Group: Yes, how are you?

Great. Hardin Bethea – I(dea) Group: –:

The $19.7 million I believe is what you may be referring to? That is actually a cash payment related to 2007's performance. So that was not something that was charged or expensed in this quarter. That was on our balance sheet at the end of last year. It was just simply funded this quarter. Hardin Bethea – I(dea) Group: –:

No, that payment was tied to our operating performance in relation to our targets related to our incentive plans. Hardin Bethea – I(dea) Group: –:

I can go back and help you here. If you remember, we had very low variable compensation payouts in 2005 and 2006 because we as a Company were not executing. When we performed in 2007, we increased the amount of variable compensation. It is important because in order for us to attract and keep talent here, obviously we need to pay people. So that's the increase from 2007 over 2006 and then therefore the payout of that comes in the first quarter 2008 is the way to think about it. Hardin Bethea – I(dea) Group: Right. So I mean is it tied to operating performance solely, or is there a share price perspective [ph]?

–: Hardin Bethea – I(dea) Group: In 2008, what component or how should we look at that plan as I guess delivering against that plan and the comparable metrics that might be paid in '09?

I think the way to think about it is quite simple. We expect to have a variable compensation program and to deliver to that variable compensation program through our performance. So we haven't and we won't get into specifics on how we're doing it this year on the call. But I think the way you want to think about it is we're not planning for that to go away in 2008. Hardin Bethea – I(dea) Group: Got it. What is the current rate on your credit facility? LIBOR plus what?

–: Hardin Bethea – I(dea) Group: –: –:

That is 4.8% at the moment, yes. Hardin Bethea – I(dea) Group: –:

–:

So it is pretty straight calculation, just 50% of net income and fund the dividends.

That is something else that is out on public record that you can take a peak at. I think if there are any clarifying questions, you can certainly reach Terry. We need to stop here. Unfortunately, we're getting long at the call here. Thank you, Hardin.

I would now like to turn the presentation over to Lee Schram for closing remarks.

I just want to close by saying we are pleased with our first quarter operational and financial performance and I hope you get a sense and we know it too, we have a lot of work to do. Our objective again is to continue to execute and improve what we're doing each day and deliver against the commitments we've put out there. We really appreciate your participating today and your questions, and we're going to get back to work and we look forward to providing another positive progress report on our next earnings call.

This is a reminder that a replay of this call will be available until May 1 by dialing 888-286-8010. When instructed, provide the access code 67339464. The company slides are archived in the Investor Relations section of Deluxe's web site at www.deluxe.com. Again, thank you for joining us and have a good afternoon.

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