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Profits Rise for Deluxe in Q4

Friday, January 24, 2014

Press release from the issuing company

ST. PAUL, Minn. - Deluxe Corporation, a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the fourth quarter ended December 31, 2013. Key financial highlights include:

      Q4 2013   Q4 2012   % Change
Revenue     $417.8 million   $387.6 million   7.8%
Net Income     $45.7 million   $42.6 million   7.3%
Diluted EPS – GAAP     $0.90   $0.83   8.4%
Adjusted Diluted EPS – Non-GAAP     $1.04   $0.95   9.5%

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.

Revenue of $417.8 million was above the mid-point of the range in the prior outlook and adjusted diluted EPS exceeded the high end of the range in the prior outlook. The strong earnings performance was driven primarily by better operating margins in Small Business Services and Financial Services and a lower effective tax rate. GAAP Diluted EPS also includes in 2013, an after tax non-cash asset impairment charge of $0.06 per share related to the write-down of a customer relationship intangible asset in the Small Business Services segment and higher restructuring charges.

"We delivered an outstanding fourth quarter, our fourth consecutive year of revenue growth, and our fifth consecutive year of cash flow from operations growth," said Lee Schram, CEO of Deluxe. "Our transformation continues to deliver strong results. Marketing solutions and other services grew to 22% of total revenue for the year and we expect it to grow to 25% of revenue in 2014 along with expected continued growth in total revenue and earnings per share."

Fourth Quarter 2013 Highlights:

  • Revenue increased 7.8% year-over-year, with the strongest performance in the Small Business Services segment which grew 11.8% followed by Financial Services which grew 5.5%.
  • Revenue from marketing solutions and other services increased 19.8% year-over-year and accounted for 25% of total revenue in the quarter.
  • Gross margin was 63.6% of revenue, down from 64.5% in the fourth quarter of 2012. The primary drivers of the decline were a shift in product and services mix and higher delivery and material costs.
  • Selling, general and administrative (SG&A) expense increased 5.1% from last year primarily driven by additional SG&A expense from acquisitions and spending on other revenue-generating initiatives, partially offset by lower medical expenses.
  • Operating income increased 0.3% year-over-year and includes restructuring and transaction-related costs and a non-cash asset impairment charge due to a write-down of a Small Business Services customer relationship intangible asset. Adjusted operating income, which excludes these items in both periods, increased 8.4% year-over-year from higher revenue per order, continued cost reductions and lower medical expenses.
  • Diluted EPS increased 8.4% year-over-year driven primarily by stronger operating performance and lower interest expense, partially offset by a higher effective tax rate compared to 2012. The 2012 tax rate benefited from favorable discrete items. Results for 2012 also included a charge of $0.07 per diluted share related to the early retirement of debt.

Segment Highlights

Small Business Services

  • Revenue was $284.6 million and increased 11.8% year-over-year due to growth in marketing solutions and other services, including the results of VerticalReponse which we acquired in the second quarter of 2013, as well as growth in accessories and checks and the impact of price increases. Additionally, the Safeguard® distributor and dealer channels grew in the quarter.
  • Operating income increased 2.5% from last year to $44.8 million. Adjusted operating income, which excludes the 2013 asset impairment charge and restructuring-related costs in both periods, increased 16.0% year-over-year due primarily to higher revenue and cost reductions.

Financial Services

  • Revenue was $86.5 million and increased 5.5% year-over-year due to price increases and growth in non-check products and services, partially offset by check usage declines.
  • Operating income increased 4.4% from last year to $19.0 million, reflecting the continued benefits of cost reductions and price increases. Adjusted operating income, which excludes restructuring-related costs in both periods and transaction-related costs in 2013, improved about 7.7% from 2012.

Direct Checks

  • Revenue of $46.7 million declined 8.6% year-over-year. The decline was in line with expectations and a result of lower check order volumes.
  • Operating income declined 10.7% year-over-year as a result of lower revenue, partially offset by cost reductions.

Other Highlights

  • Cash provided by operating activities for 2013 was $261.5 million, an increase of $17.5 million compared to 2012. Higher payments for incentive compensation related to our 2012 performance and higher income tax payments were more than offset by lower VEBA contributions to fund future medical benefits and lower interest expense, as well as lower contract acquisition payments.
  • During the fourth quarter, the Company repurchased $15.0 million of common stock in open market transactions. For the full year, the company repurchased $48.8 million of common stock.
  • The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per common share on all outstanding shares of the Company. The dividend will be payable onMarch 3, 2014 to shareholders of record at the close of business on February 14, 2014.
  • In late December 2013, the Company acquired Destination Rewards in an all-cash transaction for $20.1 million, net of acquired cash. Destination Rewards, a leading customer rewards and loyalty program provider, employs 196 people and will continue to be based in Boca Raton, Florida. The acquisition is expected to generate at least $15 million of revenue in 2014 and be approximately $0.03 dilutive to EPS in 2014 after acquisition-related amortization expense.

Full Release


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