Deluxe Reports Revenue Growth in Q4
ST. PAUL, MN—January 23, 2014—Deluxe Corp., a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the fourth quarter ended December 31, 2013. Key financial highlights include:
Revenue of $417.8 million was above the mid-point 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 better operating margins in Small Business Services and Financial Services and a lower effective tax rate. GAAP Diluted EPS also includes in 2013, an after tax non-cash asset impairment charge of $0.06 per share related to the write-down of a customer relationship intangible asset in the Small Business Services segment and higher restructuring charges.
"We delivered an outstanding fourth quarter, our fourth consecutive year of revenue growth, and our fifth consecutive year of cash flow from operations growth," said Lee Schram, CEO of Deluxe. "Our transformation continues to deliver strong results. Marketing solutions and other services grew to 22 percent of total revenue for the year and we expect it to grow to 25 percent of revenue in 2014 along with expected continued growth in total revenue and earnings per share."
Fourth Quarter 2013 Highlights:
- Revenue increased 7.8 percent year-over-year, with the strongest performance in the Small Business Services segment which grew 11.8 percent followed by Financial Services which grew 5.5 percent.
- Revenue from marketing solutions and other services increased 19.8 percent year-over-year and accounted for 25 percent of total revenue in the quarter.
- Gross margin was 63.6 percent of revenue, down from 64.5 percent in the fourth quarter of 2012. The primary drivers of the decline were a shift in product and services mix and higher delivery and material costs.
- Selling, general and administrative (SG&A) expense increased 5.1 percent from last year primarily driven by additional SG&A expense from acquisitions and spending on other revenue-generating initiatives, partially offset by lower medical expenses.
- Operating income increased 0.3 percent year-over-year and includes restructuring and transaction-related costs and a non-cash asset impairment charge due to a write-down of a Small Business Services customer relationship intangible asset. Adjusted operating income, which excludes these items in both periods, increased 8.4 percent year-over-year from higher revenue per order, continued cost reductions and lower medical expenses.
- Diluted EPS increased 8.4 percent 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 favorable discrete items. Results for 2012 also included a charge of $0.07 per diluted share related to the early retirement of debt.
Small Business Services
- Revenue was $284.6 million and increased 11.8 percent 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, as well as growth in accessories and checks and the impact of price increases. Additionally, the Safeguard distributor and dealer channels grew in the quarter.
- Operating income increased 2.5 percent from last year to $44.8 million. Adjusted operating income, which excludes the 2013 asset impairment charge and restructuring-related costs in both periods, increased 16.0 percent year-over-year due primarily to higher revenue and cost reductions.
- Revenue was $86.5 million and increased 5.5 percent year-over-year due to price increases and growth in non-check products and services, partially offset by check usage declines.
- Operating income increased 4.4 percent from last year to $19.0 million, reflecting the continued benefits of cost reductions and price increases. Adjusted operating income, which excludes restructuring-related costs in both periods and transaction-related costs in 2013, improved about 7.7 percent from 2012.
- Revenue of $46.7 million declined 8.6 percent year-over-year. The decline was in line with expectations and a result of lower check order volumes.
- Operating income declined 10.7 percent year-over-year as a result of lower revenue, partially offset by cost reductions.
- Cash provided by operating activities for 2013 was $261.5 million, an increase of $17.5 million compared to 2012. Higher payments for incentive compensation related to our 2012 performance and higher income tax payments were more than offset by lower VEBA contributions to fund future medical benefits and lower interest expense, as well as lower contract acquisition payments.
- During the fourth quarter, the Company repurchased $15.0 million of common stock in open market transactions. For the full year, the company repurchased $48.8 million of common stock.
- The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per common share on all outstanding shares of the Company. The dividend will be payable on March 3, 2014 to shareholders of record at the close of business on February 14, 2014.
- In late December 2013, the Company acquired Destination Rewards in an all-cash transaction for $20.1 million, net of acquired cash. Destination Rewards, a leading customer rewards and loyalty program provider, employs 196 people and will continue to be based in Boca Raton, Florida. The acquisition is expected to generate at least $15 million of revenue in 2014 and be approximately $0.03 dilutive to EPS in 2014 after acquisition-related amortization expense.
Deluxe is a growth engine for small businesses and financial institutions. Over four and a half million small business customers access Deluxe’s wide range of products and services including customized checks and forms, as well as Website development and hosting, search engine marketing, search engine optimization, and logo design. For financial institutions, Deluxe offers industry-leading programs in checks, customer acquisition, fraud prevention and profitability. Deluxe is also a leading printer of checks and accessories sold directly to consumers.