Deluxe Reports Revenue Increases for 3Q Financial Results

ST. PAUL, MN—October 24, 2013—Deluxe Corp., a leader in providing small businesses and financial institutions with products and services to drive revenue, announced its financial results for the third quarter ended September 30, 2013. Key financial highlights include:

Revenue of $398.1 million was at the higher end 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 stronger performance in Financial Services.

“We just delivered our third outstanding quarter this year,” said Lee Schram, CEO of Deluxe. “Revenue was at the higher end of our outlook and EPS was above our outlook range in the third quarter, with better than expected performance in checks and 18 percent growth in marketing solutions and other services. We are now well positioned to grow revenue 4- to 5-percent for the full year, which would represent the fourth consecutive year of revenue growth with a fifth year of revenue growth planned for 2014.”

Third Quarter 2013 Highlights:

• Revenue increased 5.2 percent year-over-year, with the strongest performance coming out of the Small Business Services segment which grew 8.6 percent.
• Marketing solutions and other services continues to deliver strong results and increased 18.0 percent year-over-year—now comprising 21.6 percent of total revenue.
• Gross margin was 64.3 percent of revenue, down from 65.2 percent in the third quarter of 2012. The primary drivers of the decline were a shift in product mix and higher delivery and material costs.
• Selling, general and administrative (SG&A) expense increased $2.2 million from last year primarily driven by additional SG&A from acquisitions and expenditures on other revenue-generating initiatives.
• Operating income increased 9.6 percent year-over-year from higher revenue per order, continued cost reductions and lower performance based compensation.
• Diluted EPS increased 13.6 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 discrete foreign and state tax items.

Segment Highlights

Small Business Services

• Revenue was $265.5 million and increased 8.6 percent year-over-year. Revenue grew in marketing solutions and other services, including the results of VerticalReponse, which we acquired in the second quarter of 2013, checks and accessories and as a result of price increases. Additionally, the Safeguard distributor, dealer and major accounts channels grew in the quarter.

• Operating income increased 16.9 percent from last year to $46.3 million due primarily to higher revenue and cost reductions.

Financial Services

• Revenue was $86.5 million and increased 4.5 percent year-over-year due to growth in non-check products and services. The impact of check usage declines was offset by the impact of higher revenue per order including price increases.
• Operating income increased 6.2 percent from last year to $18.8 million, reflecting the continued benefits of cost reductions and price increases.

Direct Checks

• Revenue of $46.1 million declined 9.6 percent year-over-year. The decline was in-line with expectations and a result of lower check order volumes.
• Operating income declined 5.2 percent year-over-year as a result of lower revenue, but was partially offset by cost reductions.

Other Highlights

• Cash provided by operating activities for the first nine months of 2013 was $184.0 million, an increase of $6.9 million compared to 2012. Higher payments for performance-based compensation related to our 2012 performance and higher income tax payments were more than offset by lower contributions to fund future medical benefits, as well as lower contract acquisition and interest payments.
• During the third quarter, the Company repurchased $1.8 million of shares of common stock in open market transactions.
• Board of directors declares regular quarterly dividend of $0.25 per common share to all outstanding shares of the Company. The dividend will be payable on December 2, 2013 to shareholders of record at the close of business on November 18, 2013.

About Deluxe Corp.
Deluxe is a growth engine for small businesses and financial institutions. Over four 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.

Source: Deluxe.