Deluxe Corp.'s Q2 2014 Revenue Up 6.3 Percent, Exceeds High-End of OutlookJuly 28, 2014
Both revenue and adjusted diluted EPS exceeded the high end of the range in the prior outlook. The earnings results were driven by strong revenue performance in all segments, each of which met or exceeded revenue expectations, and better than expected cost reductions partially offset by a slightly higher effective tax rate.
“Deluxe delivered another very strong quarter beating our revenue and earnings outlook,” said Lee Schram, CEO of Deluxe. “Our focus on Marketing Solutions and Services continues to deliver strong results and revenue increased 20 percent over last year’s level, now accounting for 23 percent of total revenue in the quarter. In April, we announced a 20 percent dividend increase and have repurchased $52 million of stock year-to-date. As we look ahead, we are well positioned to deliver a fifth consecutive year of revenue growth in 2014.”
Second Quarter 2014 Highlights:
- Revenue increased 6.3 percent year-over-year, with the strongest performance in the Small Business Services segment which grew 8.7 percent, followed by Financial Services which grew 6.5 percent.
- Revenue from marketing solutions and other services increased 19.7 percent year-over-year and accounted for 23.1 percent of total revenue in the quarter.
- Gross margin was 64.0 percent of revenue, down from 65.0 percent in the second quarter of 2013. The decline was primarily driven by a higher services revenue mix and higher delivery and material costs.
- Selling, general and administrative (SG&A) expense increased 5.5 percent from last year primarily due to additional SG&A expense from acquisitions and higher performance-based compensation and medical costs. SG&A as a percent of revenue was 42.8 percent in the quarter compared to 43.1 percent of revenue last year.
- Operating income increased 3.0 percent year-over-year and includes restructuring and transaction-related costs in both periods. Adjusted operating income, which excludes these items, increased 2.3 percent year-over-year from higher revenue per order and continued cost reductions partially offset by higher performance-based compensation and medical costs.
- Diluted EPS increased 5.3 percent year-over-year driven primarily by stronger operating performance and lower shares outstanding.
Small Business Services
- Revenue was $273.8 million and increased 8.7 percent year-over-year due to growth in marketing solutions and other services, which includes the results of VerticalReponse acquired in June 2013, growth in the Safeguard distributor channel and the impact of price increases.
- Operating income increased 5.6 percent from last year to $48.8 million. Adjusted operating income, which excludes restructuring and transaction-related costs, increased 4.9 percent year-over-year due primarily to higher revenue and cost reductions.
- Revenue was $88.5 million and increased 6.5 percent year-over-year due to price increases and growth in non-check services, including the results of Destination Rewards which was acquired late in the fourth quarter of 2013. These increases were partially offset by the secular decline in check usage.
- Operating income increased 3.2 percent from last year to $22.3 million. Adjusted operating income, which excludes restructuring and transaction-related costs, increased 2.7 percent year-over-year, reflecting price increases and the continued benefits of cost reductions, partially offset by check usage declines and acquisition-related costs.
- Revenue of $43.1 million declined 7.3 percent year-over-year due primarily to the secular decline in check usage.
- Operating income declined 5.4 percent year-over-year as a result of lower revenue, partially offset by cost reductions.
- Cash provided by operating activities for the first half of 2014 was $125.8 million, an increase of $23.7 million compared to 2013, driven primarily by changes in working capital, improved earnings, and lower medical and performance-based compensation payments, partially offset by higher income tax payments.
- The company repurchased $20.0 million of common stock in open market transactions in the second quarter and $52.0 million year-to-date.
About Deluxe Corp.
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 and loyalty, fraud prevention and profitability. Deluxe is also a leading printer of checks and accessories sold directly to consumers.
Source: Deluxe Corp.