Deluxe Reports Improvement in Q1 Results, Outlook for Full YearApril 23, 2010
Reported diluted EPS increased $0.41 driven by higher operating income, partially offset by $9.3 million of net pre-tax gains on debt repurchases in 2009 and the $3.4 million charge to income tax expense in 2010 due to the impact of recent health care legislation.
First Quarter Performance by Business Segment
Small Business Services revenue was $192.3 million versus $193.3 million in 2009. The decline was due to continued economic softness, mostly offset by revenue contributions from acquisitions and a $2.4 million increase related to the effect of exchange rates on our Canadian operations. Operating income in 2010 increased to $29.1 million from a loss of $6.6 million in 2009. The prior year results included asset impairment charges of $24.9 million and restructuring-related costs of $2.4 million.
Financial Services revenue was $101.4 million compared to $102.0 million in 2009. The decline was primarily due to lower order volumes caused by check usage declines and a weak economy mostly offset by higher revenue per order. Operating income in 2010 increased to $24.0 million from $19.6 million in 2009.
Direct Checks revenue was $41.4 million compared to $44.2 million in 2009. First quarter order volume was down due to the continued decline in check usage and the weak economy. Operating income was $15.9 million, or 38.4 percent of revenue, compared to $14.2 million or 32.1 percent of revenue in 2009.
Cash Flow Performance
Cash provided by operating activities for 2010 totaled $52.7 million, a decrease of $10.3 million compared to 2009. The decrease was due primarily to higher performance-based compensation payments partially offset by lower contract acquisition payments and improved earnings.
The company stated that for the second quarter of 2010, revenue is expected to be between $335 and $345 million, and diluted EPS is expected to be between $0.55 and $0.62. Adjusted diluted EPS is expected to be between $0.58 and $0.65 and excludes an estimated $0.03 per share for transaction- related costs in connection with the April acquisition of Custom Direct. For the full year, revenue is expected to be between $1.36 and $1.40 billion, including approximately $60 million associated with the operations of Custom Direct, and diluted EPS is expected to be between $2.45 and $2.65.
Adjusted diluted EPS from continuing operations is expected to be between $2.55 and $2.75 and excludes the first quarter $0.07 per share charge due to the impact of recent health care legislation and an estimated $0.03 per share for transaction-related costs. The Company also stated that it expects operating cash flow to be between $195 million and $215 million in 2010, including approximately $15 million from the operations of Custom Direct, and capital expenditures to be approximately $40 million.
"Our primary focus is on growing revenue and investing in our future with better products and services offers," Schram stated. "We are playing offense, making positive strategic moves to reposition the Company for sustainable longer-term growth. For the remainder of 2010, we remain focused on stabilizing check revenue, growing business services revenue, and continuing our cost reductions and process improvement initiatives."
About Deluxe Corp.
Deluxe Corp. is a growth engine for small businesses and financial institutions. Through its industry-leading businesses and brands, the Company helps small businesses and financial institutions attract and retain customers. The Company employs a multi-channel strategy to provide a suite of life-cycle driven solutions to its customers. In addition to its personalized printed products, the Company offers a growing suite of business services, including logo design, payroll, web design and hosting, business networking and other web-based services to help small business grow. In the financial services industry, Deluxe sells check programs and fraud prevention, customer loyalty and retention programs to help banks build lasting relationships and grow core deposits. The Company also sells personalized checks, accessories and other services directly to consumers. For more information about Deluxe, visit www.deluxe.com.