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Deluxe Q2 Revenue Grows 7% and Exceeds High End of Outlook

Monday, July 30, 2012

Press release from the issuing company

Deluxe Corporation announced its financial results for the second quarter ended June 30, 2012. Key financial highlights include:

    Q2 2012   Q2 2011   Vs. Q2 2011
Revenue   $371.0 million   $346.3 million   7.1%
Net income   $42.3 million   $35.5 million   19.2%
Diluted EPS – GAAP   $0.82   $0.68   20.6%
Adjusted diluted EPS – Non-GAAP   $0.85   $0.75   13.3%


A reconciliation between earnings per share on a GAAP basis and adjusted earnings per share on a non-GAAP basis is provided after the Forward-Looking Statements discussion.

Revenue and diluted EPS exceeded the high end of the range in the prior outlook, driven by strong operating performance in each of the Company’s segments.

“We had an outstanding second quarter following an outstanding first quarter,” said Lee Schram, CEO of Deluxe. “We exceeded both our revenue and EPS outlook, with strong performance in all three segments. We continued to see a better than expected secular check decline rate while marketing solutions and other services revenue grew 30 percent and are on track to exceed our original growth expectations for the year with enhanced offerings from the OrangeSoda acquisition.”

Second Quarter 2012 Highlights:

  • Revenue for the quarter was $371.0 million compared to $346.3 million during the second quarter of 2011. Revenue increased 7.1% compared to 2011, driven by 14.8% growth in Small Business Services. Marketing solutions and other services revenue increased 29.9% compared to 2011 and represented 17.5% of consolidated revenue, up from 14.4% in the second quarter of 2011.
  • Gross margin was 65.6 percent of revenue compared to 65.1 percent in 2011. Favorable impacts from price increases and the Company’s continued cost reduction initiatives more than offset increased delivery rates, material costs and performance based compensation expense in 2012.
  • Selling, general and administrative (SG&A) expense increased $10.3 million in the quarter compared to 2011, but as a percent of revenue, was down slightly to 45.2 percent. Increased SG&A expense associated with commissions on increased revenue, as well as acquisitions, higher performance based compensation expense and investments in revenue generating initiatives was partially offset by benefits from continued execution against cost reduction initiatives and lower amortization related to previous acquisitions.
  • Operating income in 2012 was $73.6 million compared to $64.0 million in the second quarter of 2011. Restructuring and transaction-related costs were $2.3 million in 2012 versus $5.0 million in 2011. These costs were primarily attributable to the Company’s on-going cost reduction initiatives. Operating income was 19.8 percent of revenue compared to 18.5 percent in the prior year driven primarily by higher revenue per order and continued cost reductions.
  • Reported diluted EPS increased $0.14 from the prior year driven by improved operating performance in 2012. The effective tax rate in both years benefited from favorable discrete items related primarily to state taxes in 2012 and foreign taxes in 2011.


Segment Highlights

Small Business Services

  • Revenue was $233.1 million versus $203.1 million in 2011. Revenue was 14.8% higher in the quarter driven by growth in marketing solutions and other services, the Safeguard distributor and dealer channels, and checks and forms. Revenue also benefited from price increases and $10.5 million from the PsPrint and OrangeSoda acquisitions.
  • Operating income in 2012 increased to $38.2 million from $34.3 million in 2011.

Financial Services

  • Revenue was $85.7 million compared to $86.7 million in 2011. The impact of check usage declines slightly exceeded the benefits of price increases, revenue from a new financial institution client, and growth in non-check revenue.
  • Operating income in 2012 increased to $20.0 million from $13.2 million in 2011.

Direct Checks

  • Revenue was $52.2 million compared to $56.5 million in 2011, primarily driven by lower order volume resulting from the continued decline in check usage.
  • Operating income in 2012 decreased to $15.4 million from $16.5 million in 2011.


Other Highlights

  • Cash provided by operating activities for the first half of 2012 totaled $99.9 million, a decrease of $4.3 million compared to 2011. Improved operating performance and the discontinuation of payments to our defined contribution pension plan were more than offset by higher income tax payments, a planned contribution in the first quarter to our VEBA trust for future medical costs and higher contract acquisition and interest payments.
  • In the second quarter, the Company repurchased $12 million of shares to further off-set dilution from employee equity compensation plans.

Outlook    
     
Third Quarter 2012:    
     
    Current outlook (7/26/2012)

Revenue

  $366 to $375 million
Diluted EPS – GAAP   $0.73 to $0.78
Adjusted Diluted EPS – Non-GAAP   $0.76 to $0.81

Full Year 2012:

         
         
    Prior outlook

(4/26/12)

  Current outlook

(7/26/2012)

Revenue   $1.445 to $1.475 billion   $1.490 to $1.510 billion
Diluted EPS – GAAP   $3.12 to $3.32   $3.20 to $3.35
Adjusted Diluted EPS – Non-GAAP   $3.20 to $3.40   $3.30 to $3.45
Operating cash flow   $225 to $245 million   $235 to $245 million
Capital expenditures   $35 million   $35 million
Depreciation and amortization   $64 million   $65 million
Effective tax rate   approximately 33%   approximately 33%


Editor’s Note

  • Deluxe will hold an open-access teleconference call today at 11:00 a.m. ET (10:00 a.m. CT) to review the financial results. All interested persons may listen to the call by dialing 1-866-770-7051 (access code 29404515).
  • The presentation also will be available via a simultaneous webcast at www.deluxe.com in the news and investor relations section.
  • An audio replay of the call will be available through midnight on August 2nd by calling 1-888-286-8010 (access code 59901479). The presentation will be archived on Deluxe’s web site.

 

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