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Deluxe Q3 Profits Rise, Lifts Full Year Guidance

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 revenue, announced its financial results for the third quarter ended September 30, 2013. Key financial highlights include:

    Q3 2013   Q3 2012   % Change
Revenue   $398.1 million   $378.3 million   5.2%
Net income   $46.9 million   $41.5 million   13.0%
Diluted EPS – GAAP   $0.92   $0.81   13.6%
Adjusted Diluted EPS – Non-GAAP   $0.96   $0.85   12.9%

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 $398.1 million was at the higher end 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 stronger performance in Financial Services.

“We just delivered our third outstanding quarter this year,” said Lee Schram, CEO of Deluxe. “Revenue was at the higher end of our outlook and EPS was above our outlook range in the third quarter, with better than expected performance in checks and 18 percent growth in marketing solutions and other services. We are now well positioned to grow revenue 4 to 5 percent for the full year, which would represent the fourth consecutive year of revenue growth with a fifth year of revenue growth planned for 2014.”

Third Quarter 2013 Highlights:

  • Revenue increased 5.2% year-over-year, with the strongest performance coming out of the Small Business Services segment which grew 8.6%.
  • Marketing solutions and other services continues to deliver strong results and increased 18.0% year-over-year -- now comprising 21.6% of total revenue.
  • Gross margin was 64.3% of revenue, down from 65.2% in the third quarter of 2012. The primary drivers of the decline were a shift in product mix and higher delivery and material costs.
  • Selling, general and administrative (SG&A) expense increased $2.2 million from last year primarily driven by additional SG&A from acquisitions and expenditures on other revenue-generating initiatives.
  • Operating income increased 9.6% year-over-year from higher revenue per order, continued cost reductions and lower performance based compensation.
  • Diluted EPS increased 13.6% 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 discrete foreign and state tax items.

Segment Highlights

Small Business Services

  • Revenue was $265.5 million and increased 8.6% year-over-year. Revenue grew in marketing solutions and other services, including the results of VerticalReponse, which we acquired in the second quarter of 2013, checks and accessories and as a result of price increases. Additionally, the Safeguard® distributor, dealer and major accounts channels grew in the quarter.
  • Operating income increased 16.9% from last year to $46.3 million due primarily to higher revenue and cost reductions.

Financial Services

  • Revenue was $86.5 million and increased 4.5% year-over-year due to growth in non-check products and services. The impact of check usage declines was offset by the impact of higher revenue per order including price increases.
  • Operating income increased 6.2% from last year to $18.8 million, reflecting the continued benefits of cost reductions and price increases.

Direct Checks

  • Revenue of $46.1 million declined 9.6% year-over-year. The decline was in-line with expectations and a result of lower check order volumes.
  • Operating income declined 5.2% year-over-year as a result of lower revenue, but was partially offset by cost reductions.

Other Highlights

  • Cash provided by operating activities for the first nine months of 2013 was $184.0 million, an increase of $6.9 million compared to 2012. Higher payments for performance-based compensation related to our 2012 performance and higher income tax payments were more than offset by lower contributions to fund future medical benefits, as well as lower contract acquisition and interest payments.
  • During the third quarter, the Company repurchased $1.8 million of shares of common stock in open market transactions.
  • Board of directors declares regular quarterly dividend of $0.25 per common share to all outstanding shares of the Company. The dividend will be payable on December 2, 2013 to shareholders of record at the close of business on November 18, 2013.

Full Release


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