Deluxe Reports Q3 2015 Revenue Gains Driven by Financial, Marketing Services

ST. PAUL, Minn.—October 22, 2015—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 third quarter ended Sept. 30, 2015. Key financial highlights include:

Revenue and diluted EPS were within the range of the prior outlook and adjusted diluted EPS exceeded the high-end of the range in the prior outlook driven primarily by stronger than expected operating results in the Financial Services and Direct Checks segments and favorable non-operating expenses.

"We delivered a strong third quarter growing revenue over 6 percent and delivering double-digit growth in earnings per share," said Lee Schram, CEO of Deluxe. "During the quarter, we also repurchased $47 million of common stock and earlier this week we announced the latest addition to Deluxe, Datamyx LLC, a leading provider of integrated information, technology and analytics which will further strengthen the marketing solutions and other services offerings in our Financial Services segment."

Schram continued, "Looking ahead into next year, we believe we are well positioned to deliver a seventh consecutive year of revenue and earnings per share growth and an eighth consecutive year of operating cash flow growth."

Third Quarter 2015 Highlights:

• Revenue increased 6.4 percent year-over-year, primarily due to the Financial Services segment which grew 20.4 percent and included the results of Wausau Financial Systems which was acquired in October 2014. Additionally, the Small Business Services segment grew 3.9 percent.
• Revenue from marketing solutions and other services increased 29.1 percent year-over-year and accounted for 30.1 percent of consolidated revenue in the quarter.
• Gross margin was 63.8 percent of revenue, up slightly from 63.7 percent in the third quarter of 2014. The increase was primarily driven by previous price increases, an increase in service margins and improvements in manufacturing productivity, partially offset by product revenue mix and increased delivery and material costs.
• Selling, general and administrative (SG&A) expense increased 7.9 percent 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 43.1 percent in the quarter compared to 42.5 percent last year.
• Operating income increased 16.6 percent year-over-year and includes restructuring and transaction-related costs in both periods and an asset impairment charge of $6.5 million in 2014. Adjusted operating income, which excludes these items, increased 4.3 percent year-over-year from higher revenue and continued cost reductions.
• Diluted EPS increased 28.4 percent year-over-year. Excluding restructuring and transaction-related costs in both periods and the asset impairment charge in 2014, adjusted diluted EPS increased 12.6 percent year-over-year driven by lower interest expense, stronger operating performance and a lower effective income tax rate.

Segment Highlights

Small Business Services

• Revenue was $289.0 million and increased 3.9 percent year-over-year due primarily to growth in marketing solutions and other services and from a channel perspective experienced growth in the online, Safeguard distributor, dealer and major accounts channels. Previous price increases also benefitted the quarter while unfavorable foreign exchange rates negatively impacted revenue growth by approximately 1.2 percentage points year-over-year.
• Operating income increased 21.0 percent from last year to $51.9 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods and the asset impairment charge in 2014, increased 2.9 percent year-over-year due primarily to cost reductions, partly offset by product revenue mix and investments in revenue-generating initiatives.

Financial Services

• Revenue was $110.9 million and increased 20.4 percent year-over-year. The increase in revenue was primarily due to growth in marketing solutions and other services, which includes Wausau Financial Systems revenue of approximately $19 million, as well as the impact of previous price increases, partially offset by the secular decline in check usage.
• Operating income increased 22.5 percent from last year to $23.4 million. Adjusted operating income, which excludes restructuring and transaction-related costs, increased 13.6 percent year-over-year, reflecting previous price increases and the continued benefits of cost reductions, partially offset by the secular decline in check usage.

Direct Checks

• Revenue of $39.9 million declined 7.0 percent year-over-year due primarily to the secular decline in check usage and the elimination of marketing expenditures that no longer met the Company’s return criteria, partially offset by higher conversion rates from email marketing offers and an improved call center incentive plan.
• Operating income decreased 4.1 percent year-over-year to $14.1 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 nine months of 2015 was $217.9 million, an increase of $14.6 million compared to 2014, driven primarily by improved operating performance and lower interest payments, partially offset by higher income tax and performance-based compensation payments.
• The Company repurchased $47.0 million of common stock in open market transactions in the third quarter.
• At the end of the third quarter, the company had approximately $519 million of total debt outstanding.
• As previously announced, Deluxe acquired 100 percent of Datamyx LLC, a leading provider of data analytics and marketing solutions, for $160 million in cash. The acquisition was funded through a draw on the credit facility following the exercise of an existing expansion right which increased the total financing capacity from $350 million to $525 million. Following the acquisition, the Company had $428 million drawn on its credit facility as ofOctober 16, 2015. Results from this acquisition will be reported in the Financial Services segment.
• On Oct. 21, 2015, the Board of Directors of Deluxe Corp. declared a regular quarterly dividend of $0.30 per common share on all outstanding shares of the company. The dividend will be payable on December 7, 2015 to all shareholders of record at the close of business on Nov. 23, 2015.

Outlook highlights include:

About Deluxe Corp. 
Deluxe is a growth engine for small businesses and financial institutions. Nearly 4.6 million small business customers access Deluxe’s wide range of products and services including customized checks and forms, as well as web-site 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 and financial technology solutions including receivables management and data analytics. Deluxe is also a leading printer of checks and accessories sold directly to consumers.

Source: Deluxe Corp.