Deluxe Reports Improvement in Q1 Results, Outlook for Full Year
Gross margin was 64.7 percent of revenue compared to 61.9 percent in 2009. Lower restructuring-related costs in 2010 benefited gross margin by 0.6 percentage points compared to the prior year. The impact of increased revenue per order and the Company's cost reduction initiatives were partially offset by increased delivery rates.
Selling, general and administrative (SG&A) expense decreased $10.4 million in the quarter compared to 2009. Benefits from cost reduction and containment initiatives were partially offset by costs resulting from our recent acquisitions. As a percent of revenue, SG&A decreased to 44.2 percent from 46.7 percent in 2009.
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