Deluxe reports increase Q1 revenue
Friday, April 29, 2011
Press release from the issuing company
St. Paul, Minn. - Deluxe Corporation reported first quarter revenue of $349.8 million, up 4% compared to the prior year and at the high end of the Company's previous outlook. Adjusted diluted earnings per share (EPS) from continuing operations of $0.75 exceeded outlook and compared favorably to $0.73 in the prior year. Adjusted diluted EPS for 2011 excludes losses on debt repurchases related to the retirement of a portion of the Company's long-term debt due in 2012 and 2014. Adjusted diluted EPS for both periods excludes restructuring costs related to cost reduction initiatives. Adjusted diluted EPS for 2010 also excludes the impact of transaction-related costs associated with acquisitions. Earnings were better than the Company's previous outlook for the current period due primarily to favorable product mix.
Reported diluted EPS was $0.63 on net income of $32.6 million in the first quarter of 2011 and was $0.65 on net income of $33.4 million in the first quarter of 2010. Results for 2011 include pre-tax losses of $8.3 million, or $0.10 per diluted share, related to debt repurchases and $1.5 million, or $0.02 per diluted share, of restructuring-related costs associated primarily with infrastructure consolidations. Results for 2010 included restructuring and transaction-related costs of $0.6 million.
"We delivered another strong quarter and are off to a solid start to the year," said Lee Schram, CEO of Deluxe. "Both Small Business Services and Direct Checks grew over last year, while Financial Services was flat sequentially from the fourth quarter. Checks and forms both performed well against our expectations and services revenue grew 19 percent over the prior year. In addition, we took advantage of a favorable high yield bond market and strengthened our capital structure by refinancing a portion of our long-term debt."
First Quarter Performance
Revenue for the quarter was $349.8 million compared to $335.1 million during the first quarter of 2010 with growth in Small Business Services and Direct Checks offsetting declines in Financial Services. Small Business Services segment revenue of $200.0 million was $7.7 million higher than the comparable 2010 quarter as the benefit of price increases and growth in business services, the Safeguard distributor channel and the Canadian businesses more than off-set the decline in check and form usage. Financial Services revenue was flat compared to fourth quarter 2010 and $13.4 million lower than the first quarter of 2010 due to lower revenue per order and order volume, partially offset by growth in non-check services. Direct Checks revenue increased $20.4 million due to the April 2010 acquisition of Custom Direct, Inc.
Gross margin was 65.6 percent of revenue compared to 64.7 percent in 2010. The favorable impacts of price increases, the Company's continued cost reduction initiatives and product mix were partially offset by increased material costs and delivery rates.
Selling, general and administrative (SG&A) expense increased $12.7 million in the quarter compared to 2010. Increased SG&A expense associated with the Custom Direct acquisition and our brand awareness campaigns were partially offset by benefits from the continued execution of our cost reduction initiatives.
Operating income in 2011 was $67.5 million compared to $69.0 million in the first quarter of 2010. Operating income was 19.3 percent of revenue compared to 20.6 percent in the prior year.
Reported diluted EPS decreased $0.02 from the prior year driven by the loss on debt repurchases and increased restructuring-related costs, partly offset by a $3.4 million charge to income tax expense in 2010 due to the impact of health care legislation, as well as a lower effective tax rate in 2011.
First Quarter Performance by Business Segment
Small Business Services revenue was $200.0 million versus $192.3 million in 2010. Revenue was higher in the quarter as growth in business services, the Safeguard distribution channel and the Canadian businesses, as well as the benefit of price increases, more than offset volume declines in checks and forms. Operating income in 2011 increased to $35.8 million from $29.1 million in 2010.
Financial Services revenue was $88.0 million compared to $101.4 million in 2010. The impact of a price increase and higher non-check services revenue in 2011 was more than offset by the amortization of a 2009 contract settlement in 2010 and lower order volumes caused by check usage declines. Operating income in 2011 decreased to $15.7 million from $24.0 million in 2010.
Direct Checks revenue was $61.8 million compared to $41.4 million in 2010. The Custom Direct acquisition in April 2010 contributed $22.4 million in the quarter which was partly offset by lower order volume resulting from the continued decline in check usage. Operating income in 2011 was $16.0 million, compared to $15.9 million in 2010.
Cash Flow Performance
Cash provided by operating activities for the first quarter of 2011 totaled $61.1 million, an increase of $8.4 million compared to 2010. The increase was due primarily to stronger operating performance partially offset by higher contract acquisition and interest payments.
In early April 2011, the Company purchased Bankers Dashboard, a provider of online tools that provide banks with daily access to their financial position, for $35 million in cash, plus 193,498 shares of restricted common stock. The acquisition is expected to be EPS neutral in 2011, after including acquisition related amortization expense.
The Company stated that for the second quarter of 2011, revenue is expected to be between $340 and $348 million. Adjusted diluted EPS is expected to be between $0.66 and $0.71, including an estimated $0.02 per diluted share of higher interest expense primarily associated with the new 2019 senior unsecured notes. The second quarter outlook excludes $0.03 related to restructuring and transaction costs. For the full year, revenue is expected to be between $1.385 and $1.420 billion, and adjusted diluted EPS is expected to be between $2.90 and $3.10, including an estimated $0.05 per diluted share of higher interest expense primarily associated with the new 2019 senior unsecured notes. The full year outlook excludes $0.17 related to losses on long-term debt repurchases and restructuring and transaction-related costs. The Company also stated that it expects operating cash flow to be between $215 million and $230 million in 2011. Capital expenditures are expected to be approximately $35 million.
"Our focus is on driving profitable revenue growth for the Company," Schram stated. "We saw good momentum in Small Business Services during the first quarter and are gaining confidence that our strategy will enable us to deliver on our growth commitments."
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