Deluxe Announces Q1 2016 Financial Results With Revenue Increases of 5.9%

ST. PAUL, Minn. — April 28, 2016 — 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 first quarter ended March 31, 2016. Key financial highlights include:

A reconciliation of diluted earnings per share (EPS) on a GAAP basis and adjusted diluted EPS on a non-GAAP basis is provided after the Forward-Looking Statements.

Both revenue and adjusted diluted EPS exceeded the high-end of the range in the prior outlook driven primarily by stronger operating results in the Financial Services segment. Results from the Small Business Services and Direct Checks segments were near the high end of expectations in the prior outlook. First quarter 2015 diluted EPS on a GAAP basis included a $0.12 per share charge related to the early redemption of the Company’s $200 million 2019 Senior Notes in March 2015.

"We delivered very strong first quarter results in spite of what appears to be an overall continued sluggish economy," says Lee Schram, CEO of Deluxe. "We continue to see growth in marketing solutions and other services which increased over 19% from last year and accounted for over 31% of total company revenue in the quarter. Our transformation to a marketing and financial technology services provider continues to make tremendous progress and we believe we are well positioned to deliver another year of strong revenue, earnings and cash flow growth."

First Quarter 2016 Highlights:

• Revenue increased 5.9% year-over-year, primarily due to the Financial Services segment which grew 14.1% and includes the results of Datamyx LLC and FISC Solutions which were acquired in the fourth quarter of 2015, as well as growth of 4.8% for the Small Business Services segment. Revenue from marketing solutions and other services increased 19.4% year-over-year and accounted for 31.3% of consolidated revenue in the quarter.
• Gross margin was 64.2% of revenue, compared to 64.8% in the first quarter of 2015. Unfavorable product revenue mix and increased delivery and material costs were partly offset by price increases early in the quarter, an increase in service margins and improvements in manufacturing productivity.
• Selling, general and administrative (SG&A) expense increased 3.2% from last year primarily due to additional SG&A expense from acquisitions, but was partially offset by continued cost reduction initiatives in all segments. SG&A as a percent of revenue was 43.9% in the quarter compared to 45.0% last year.
• Operating income increased 8.6% year-over-year and includes restructuring and transaction-related costs in both periods. Adjusted operating income, which excludes these items, increased 9.1% year-over-year from higher revenue and continued cost reductions.
• Diluted EPS increased 29.7% year-over-year. Excluding restructuring and transaction-related costs in both periods and a loss on debt retirement in 2015, adjusted diluted EPS increased 14.4% year-over-year driven primarily by stronger operating performance in addition to a lower effective income tax rate, lower average shares outstanding and lower interest expense.

Segment Highlights
Small Business Services

• Revenue was $290.3 million and increased 4.8% year-over-year due primarily to growth in marketing solutions and other services and, from a channel perspective, growth in the online, distributor and dealer channels. Price increases also benefitted the quarter while unfavorable foreign exchange rates negatively impacted revenue growth by approximately 0.6 percentage points year-over-year.
• Operating income increased 3.2% from last year to $51.1 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, increased 4.4% year-over-year due primarily to cost reductions, partly offset by product revenue mix and investments in revenue-generating initiatives, including acquisitions.

Financial Services

• Revenue was $127.2 million and increased 14.1% year-over-year. The increase in revenue was primarily due to growth in marketing solutions and other services, which includes revenue from the Datamyx and FISC Solutions acquisitions of approximately $13 million, as well as the impact of price increases early in the quarter, partially offset by the secular decline in check usage.
• Operating income increased 30.9% from last year to $26.7 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, increased 30.0% year-over-year driven by price increases and the continued benefits of cost reductions, partially offset by the secular decline in check usage.

Direct Checks

• Revenue of $41.8 million declined 7.3% year-over-year due primarily to the secular decline in check usage, partially offset by higher conversion rates from an improved call center incentive plan.
• Operating income decreased 3.9% year-over-year to $14.8 million, due to lower order volume partly offset by lower costs and a higher mix of reorders.

Other Highlights

• Cash provided by operating activities for the first quarter of 2016 was $72.7 million, a decrease of $5.8 million compared to 2015, driven primarily by higher contract acquisition payments, an incentive payment related to a previous acquisition and income tax payments, partially offset by stronger earnings and lower interest payments.
• The Company repurchased $15 million of common stock in open market transactions during the quarter.
• At the end of the first quarter, the company had $615 million of total debt outstanding.

About Deluxe Corp.
Deluxe is a growth engine for small businesses and financial institutions. 4.5 million small business customers utilize Deluxe's service and product solutions, including website development and hosting, email marketing, social media, search engine optimization and logo design, in addition to its industry-leading checks and forms offerings. Deluxe serves approximately 5,100 financial institutions with a diverse portfolio of financial technology solutions that enable them to grow revenue and manage their customers throughout their lifecycle, including the best-in-class check program solutions. Deluxe is also a leading provider of checks and accessories sold directly to consumers.

Source: Deluxe Corp.