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Deluxe Reports Second Quarter 2016 Financial Results

Friday, July 29, 2016

Press release from the issuing company

Revenue increases 3.4%; net income increases 4.1%

Diluted EPS Increases 6.3%; adjusted EPS increases 6.2%

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 second quarter ended June 30, 2016. Key financial highlights include:

      Q2 2016     Q2 2015     % Change
Revenue     $450.6 million     $435.9 million     3.4%
Net Income     $58.4 million     $56.1 million     4.1%
Diluted EPS – GAAP     $1.18     $1.11     6.3%
Adjusted Diluted EPS – Non-GAAP     $1.20     $1.13     6.2%

A reconciliation of diluted earnings per share (EPS) on a GAAP basis and adjusted diluted EPS on a non-GAAP basis is provided after the Forward-Looking Statements.

Revenue was in the upper end of the range of the prior outlook and adjusted diluted EPS was at the top end of the range in the prior outlook driven primarily by strong operating results in the Financial Services segment and a favorable effective income tax rate.

“Our transformation strategy continues to deliver strong results as we again saw growth in revenue and earnings,” said Lee Schram, CEO of Deluxe. “While at a macro level there are many events in the news - Brexit, the U.S. presidential election, debates on interest rate hikes and the overall health of the economy - our team continues to be squarely focused on executing our strategy to consistently grow by expanding our marketing solutions and other services offerings while stabilizing our core printed products. Looking ahead we believe we are well positioned as we enter the third quarter to grow 2016 revenue for a seventh consecutive year and continue to enhance shareholder value.”

Second Quarter 2016 Highlights:

  • Revenue increased 3.4% year-over-year, primarily due to growth in the Financial Services (FS) segment which grew 10.2%. The FS segment includes the results of Datamyx LLC and FISC Solutions which were acquired in the fourth quarter of 2015. The Small Business Services segment grew 2.1% in the quarter. Revenue from marketing solutions and other services increased 16.1% year-over-year and accounted for 32.6% of consolidated revenue in the quarter.
  • Gross margin was 64.5% of revenue and increased slightly from 64.2% in the second quarter of 2015. Previous price increases, improvements in manufacturing productivity and a favorable adjustment from an environmental reserve, which was allocated proportionally to each of the three segments, were partially offset by increased delivery and material costs.
  • Selling, general and administrative (SG&A) expense increased 4.6% from last year primarily due to additional SG&A expense from acquisitions and a pre-tax gain in the 2015 quarter from selling four distributors in the Small Business Services Segment that had been classified as held for sale partially offset by continued cost reduction initiatives in all segments. SG&A as a percent of revenue was 44.1% in the quarter compared to 43.6% last year.
  • Operating income increased 2.2% year-over-year and includes restructuring and transaction-related costs in both periods. Adjusted operating income, which excludes these items, increased 2.1% year-over-year from higher revenue and continued cost reductions.
  • Diluted EPS increased 6.3% year-over-year. Excluding restructuring and transaction-related costs in both periods, adjusted diluted EPS increased 6.2% year-over-year driven primarily by stronger operating performance in addition to a lower effective income tax rate and lower average shares outstanding.

Segment Highlights
Small Business Services

  • Revenue was $288.2 million and increased 2.1% year-over-year due primarily to growth in marketing solutions and other services. From a channel perspective the company experienced growth in the online, major accounts and dealer channels and also realized revenue benefits from previous price increases.
  • Operating income increased 1.5% from last year to $48.9 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, increased 0.4% year-over-year due primarily to cost reductions, partly offset by investments in revenue-generating initiatives which includes acquisitions.

Financial Services

  • Revenue was $124.2 million and increased 10.2% year-over-year. The increase in revenue was primarily due to growth in marketing solutions and other services, which includes revenue from the Datamyx and FISC Solutions acquisitions, as well as the impact of previous price increases, partially offset by the secular decline in check usage.
  • Operating income increased 13.7% from last year to $29.0 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, increased 14.8% year-over-year driven by lower incentive compensation expense, the continued benefits of cost reductions and price increases partially offset by the secular decline in check usage.

Direct Checks

  • Revenue of $38.2 million declined 6.6% year-over-year due primarily to the secular decline in check usage.
  • Operating income decreased 14.5% year-over-year to $13.0 million. Adjusted operating income, which excludes restructuring costs in the current quarter, decreased 13.8% year-over-year due to lower order volume and unfavorable mix but was partly offset by cost reductions.

Other Highlights

  • Cash provided by operating activities for the first half of 2016 was $128.3 million, a decrease of $18.6 million compared to 2015, driven primarily by higher income tax payments, higher contract acquisition payments and an incentive payment related to a previous acquisition. partially offset by stronger earnings and lower interest payments.
  • The Company repurchased $15 million of common stock in open market transactions during the quarter, bringing the year-to-date total to $30 million.
  • At the end of the second quarter, the company had $614 million of total debt outstanding which includes approximately $413 million outstanding on the Company’s credit facility.


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