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Deluxe Q1 Net Income Up 3%

Friday, April 25, 2014

Press release from the issuing company

Revenue increases 5.0% and exceeds high end of outlook

Diluted EPS of $0.93 increases 4.5%; adjusted EPS of $0.98 increases 7.7% exceeding high end of outlook

Raises Full Year Outlook for Adjusted EPS and Operating Cash Flow

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 first quarter ended March 31, 2014. Key financial highlights include:

      Q1 2014     Q1 2013    

 % Change 

Revenue     $407.0 million     $387.6 million     5.0 %
Net Income     $47.3 million     $45.9 million     3.1 %
Diluted EPS – GAAP     $0.93     $0.89     4.5 %
Adjusted Diluted EPS – Non-GAAP     $0.98     $0.91     7.7 %

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.

Both revenue and adjusted diluted EPS exceeded the high end of the range in the prior outlook. The strong earnings performance was driven primarily by higher than expected revenue in our Direct Checks segment and a slightly lower effective tax rate.

“We delivered an outstanding first quarter, hitting on all cylinders in spite of the impact from severe winter weather and a continued sluggish economy,” said Lee Schram, CEO of Deluxe. “We have established a solid baseline first quarter to propel us towards profitable revenue growth again in 2014 for a fifth consecutive year. Marketing solutions and other services grew 21% and represented 22% of total revenue towards our 25% of revenue objective for the full year. We improved our earnings and operating cash flow outlook for the year, we were more aggressive on share repurchases, and we remained disciplined in maintaining financial flexibility in our capital structure by amending and extending our credit facility to 2019.”

First Quarter 2014 Highlights:

  • Revenue increased 5.0% year-over-year, with the strongest performance in the Small Business Services segment which grew 8.7%, followed by Financial Services which grew 2.2%.
  • Revenue from marketing solutions and other services increased 20.5% year-over-year and accounted for 22% of total revenue in the quarter.
  • Gross margin was 64.4% of revenue, down from 65.6% in the first quarter of 2013. The decline was primarily driven by a higher services revenue mix and higher delivery and material costs.
  • Selling, general and administrative (SG&A) expense increased 1.5% from last year primarily due to additional SG&A expense from acquisitions and spending on other revenue-generating initiatives. SG&A as a percent of revenue was 43.7% in the quarter compared to 45.2% of revenue last year.
  • Operating income increased 4.0% year-over-year and includes restructuring-related costs in both periods. Adjusted operating income, which excludes these items, increased 6.7% year-over-year from higher revenue per order and continued cost reductions.
  • Diluted EPS increased 4.5% year-over-year driven primarily by stronger operating performance and lower shares outstanding partially offset by a higher effective tax rate.

Segment Highlights
Small Business Services

  • Revenue was $269.9 million and increased 8.7% 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, and the impact of price increases. Additionally, the Safeguard® distributor channel grew in the quarter.
  • Operating income increased 13.0% from last year to $43.6 million. Adjusted operating income, which excludes restructuring-related costs in both periods, increased 17.8% year-over-year due primarily to higher revenue and cost reductions.

Financial Services

  • Revenue was $89.1 million and increased 2.2% year-over-year due to price increases and growth in non-check services, including the results of Destination Rewards which we acquired very late in the fourth quarter of 2013. These increases were partially offset by slightly higher check usage declines.
  • Operating income decreased 5.7% from last year to $21.6 million, reflecting check usage declines and a planned loss from the Destination Rewards acquisition, partially offset by price increases and the continued benefits of cost reductions.

Direct Checks

  • Revenue of $48.0 million declined 7.9% year-over-year due primarily to lower check order volumes.
  • Operating income declined 3.7% year-over-year as a result of lower revenue, partially offset by cost reductions.

Other Highlights

  • Cash provided by operating activities for the first quarter of 2014 was $73.3 million, an increase of $21.8 million compared to 2013, driven primarily by changes in working capital, lower performance-based compensation payments and improved earnings.
  • During the first quarter, the Company repurchased $31.9 million of stock in open market transactions.


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