Deluxe Reports Q4 2014 Financial Results: Revenue Up 7.3 Percent Over Previous Year
ST PAUL, MN—January 23, 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 fourth quarter ended Dec. 31, 2014. Key financial highlights include:
Both revenue and adjusted diluted EPS exceeded the high end of the range in the prior outlook. The earnings results were driven by stronger than expected operating results, primarily in the Financial Services segment, as well as a favorable effective tax rate.
"Our transformation continues to move forward with revenue and EPS in the quarter exceeding the high end of our outlook," said Lee Schram, CEO of Deluxe. "On an annual basis, we delivered our fifth consecutive year of revenue growth and our sixth consecutive year of increasing cash flow from operations. Looking ahead to 2015, we will continue to execute our growth strategy and plan to deliver another year of revenue, EPS and operating cash flow growth, and increasing value for our shareholders."
Fourth Quarter 2014 Highlights:
- Revenue increased 7.3 percent year-over-year due to the Financial Services segment which included the results of Wausau Financial Systems, acquired in October 2014, and Destination Rewards, acquired in December 2013, and the Small Business Services segment which grew 5.8 percent.
- Revenue from marketing solutions and other services increased 30.5 percent year-over-year and accounted for 30.4 percent of total revenue in the quarter.
- Gross margin was 63.1 percent of revenue, down from 63.6 percent in the fourth quarter of 2013. The decline was primarily driven by an unfavorable product revenue mix and higher delivery and material costs, partially offset by a favorable services revenue mix.
- Selling, general and administrative (SG&A) expense increased 7.7 percent from last year primarily due to additional SG&A expense from acquisitions and higher performance-based compensation. SG&A as a percent of revenue was 42.8 percent in the quarter compared to 42.7 percent of revenue last year.
- Operating income increased 15.5 percent year-over-year and includes restructuring, transaction-related costs and impairment charges/loss on sale-leaseback in both periods. Adjusted operating income, which excludes these items, increased 4.3 percent year-over-year from higher revenue per order and continued cost reductions partially offset by higher performance-based compensation.
- Diluted EPS increased 28.9 percent year-over-year. Excluding restructuring, transaction-related costs and asset impairment charges/loss on sale-leaseback in both periods, adjusted diluted EPS increased 14.4 percent year-over-year driven by stronger operating performance, a favorable effective tax rate, and lower interest expense and shares outstanding.
Small Business Services
- Revenue was $301.0 million and increased 5.8 percent year-over-year due to growth in marketing solutions and other services, growth in the Safeguard distributor channel and the impact of previous price increases.
- Operating income increased 17.6 percent from last year to $52.7 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods and an asset impairment charge in 2013, increased 1.1 percent year-over-year due primarily to higher revenue and cost reductions.
- Revenue was $105.1 million and increased 21.5 percent year-over-year due to growth in marketing solutions and other services and includes the results of Wausau Financial Systems and Destination Rewards, as well as the impact of previous price increases. The secular decline in check usage and the impact on pricing from a large financial institution contract renewal early in the second quarter partially offset these benefits.
- Operating income increased 26.3 percent from last year to $24.0 million. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods, increased 18.1 percent year-over-year, reflecting previous price increases, higher margin marketing solutions and other services revenue and the continued benefits of cost reductions, partially offset by the secular declines in check usage and the large customer contract renewal.
- Revenue of $42.4 million declined 9.2 percent year-over-year due primarily to the secular decline in check usage and the elimination of marketing investments that no longer met the company’s return criteria.
- Operating income decreased 5.6 percent year-over-year to $13.4 million. Adjusted operating income, which excludes restructuring costs in both periods and a loss on the sale-leaseback of a facility in 2014, decreased 4.1 percent as a result of lower revenue, partially offset by cost reductions.
- Cash provided by operating activities for 2014 was $280.4 million, an increase of $18.9 million compared to 2013, driven primarily by improved earnings, lower medical and performance-based compensation payments, and changes in working capital, partially offset by higher income tax payments and contract acquisition costs.
- The company did not repurchase any common stock in open market transactions in the fourth quarter. For the full year, the company repurchased $60.1 million of common stock.
- On Jan. 20, 2015, the Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.30 per common share on all outstanding shares of the company. The dividend will be payable on March 2, 2015 to all shareholders of record at the close of business on February 17, 2015.
- The company also announced its plan to redeem all of its $200 million 7.00 percent Senior Notes Due 2019 which are callable on March 15, 2015. The early debt retirement will generate a first quarter charge to EPS of approximately $0.12 per share related to a contractual call premium and associated fees. The early debt retirement is expected to be financed primarily with the existing credit facility and the issuance of a short-term bank loan.
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. Deluxe is also a leading printer of checks and accessories sold directly to consumers.