Deluxe Reports 7.7% Growth for Q2 2017 Financial Results
ST. PAUL, Minn. — July 27, 2017 — Deluxe Corporation, a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the second quarter ended June 30, 2017. Key financial highlights include:
|Q2 2017||Q2 2016||% Change|
|Revenue||$485.2 million||$450.6 million||7.7%|
|Net Income||$59.6 million||$58.4 million||2.1%|
|Diluted EPS – GAAP||$1.22||$1.18||3.4%|
|Adjusted Diluted EPS – Non-GAAP||$1.29||$1.20||7.5%|
Revenue exceeded the Company’s prior outlook driven by strong performance by all three segments. GAAP diluted EPS was $0.01 below the range of the prior outlook and included aggregate charges of $0.07 per share for an asset impairment charge, restructuring and transaction-related costs. The asset impairment charge related to a small business distributor that was sold during the quarter. Excluding these charges, adjusted diluted EPS exceeded the range of the prior outlook due primarily to a favorable product mix in Small Business Services.
“We are pleased with our results in the second quarter, growing both revenue and earnings,” said Lee Schram, CEO of Deluxe. “While there appear to be mixed economic signals at a macro level, our strategy continues to deliver strong results, growing marketing solutions and other services revenue 26% over last year and now comprising over 38% of our total revenue. We believe we are well positioned as we enter the back half of the year to continue to deliver year-over-year growth in revenue, earnings and operating cash flow.”
Second Quarter 2017 Highlights
- Revenue increased 7.7% year-over-year, driven by Small Business Services which grew 5.1% and includes the results of several small tuck-in acquisitions and from growth in Financial Services of 18.9% driven by the results of FMCG Direct and Data Support Systems, which were acquired in the fourth quarter of 2016 and RDM Corporation, which was acquired in April 2017.
- Revenue from marketing solutions and other services increased 26.3% year-over-year and grew to 38.2% of total revenue in the quarter.
- Gross margin was 63.1% of revenue, compared to 64.5% in the second quarter of 2016. The impact of acquisitions, increased delivery and material costs this year, and a favorable adjustment from an environmental reserve in 2016, were only partially offset by previous price increases and continued improvements in manufacturing productivity.
- Selling, general and administrative (SG&A) expense increased 4.8% from last year primarily due to additional SG&A expense from acquisitions which was partially offset by continued cost reduction initiatives in all segments. SG&A as a percent of revenue was 42.9% in the quarter compared to 44.1% last year.
- Operating income increased 2.6% year-over-year. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods and an asset impairment charge in 2017, increased 6.7% year-over-year primarily from price increases and continued cost reduction initiatives, partially offset by the continuing decline in check and forms usage.
- Diluted EPS increased 3.4% year-over-year. Excluding restructuring and transaction-related costs in both periods and the asset impairment charge in 2017, adjusted diluted EPS increased 7.5% year-over-year driven by favorable operating performance.
Small Business Services
- Revenue of $302.9 million was slightly better than our expectations and increased 5.1% year-over-year due primarily to increased marketing solutions and other services revenue, partially offset by the decline in check and forms usage. From a channel perspective, revenue increased in the online, major accounts, and Canada, including benefits from previous price increases.
- Operating income of $54.8 million increased $5.9 million from last year. Adjusted operating income, which excludes restructuring and transaction-related costs in both periods and an asset impairment charge in 2017, increased $8.6 million or 2.0 points year-over-year due to price increases, continued cost reductions, favorable product mix and lower brand awareness spending, partially offset by the decline in check and forms usage and a favorable impact from an environmental reserve adjustment in 2016.
- Revenue of $147.7 million was in line with our expectations and increased 18.9% year-over-year primarily due to growth in marketing solutions and other services, which includes incremental revenue from the acquisitions of RDM Corporation in April 2017 and FMCG Direct and Data Support Systems in the fourth quarter of 2016. Revenue also benefitted from the impact of price increases. These increases in revenue were partially offset by the secular decline in check usage.
- Operating income of $26.8 million decreased $2.2 million compared to last year. Adjusted operating income decreased $1.0 million or 4.5 points compared to last year driven by the secular decline in check usage and the loss of revenue and operating income from Deluxe Rewards highlighted on the fourth quarter earnings call. Recent acquisitions, even though they were slightly accretive to operating income including acquisition amortization, drove 3.5 points of the unfavorable variance. These items were partially offset by continued benefits of cost reductions and price increases.
- Revenue of $34.6 million was in line with our expectations and declined 9.4% year-over-year due primarily to the secular decline in check usage.
- Operating income of $11.7 million decreased $1.3 million or 0.2 points compared to last year primarily due to lower order volume, partly offset by cost reductions.
- Cash provided by operating activities for the first half of 2017 was $151.6 million, an increase of $23.3 million compared to 2016.
- The Company repurchased $15.1 million of common stock in open market transactions during the quarter, bringing the year-to-date stock repurchase total to $30.1 million.
- At the end of the second quarter, the company had $720.5 million of total debt outstanding comprised of approximately $406 million outstanding on the revolving credit facility and $313 million in term loans.
- On July 25, 2017, the Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.30 per share on all outstanding shares of the Company. The dividend will be payable on September 5, 2017 to all shareholders of record at the close of business on August 21, 2017.
|Third Quarter 2017:||(7/27/2017)|
|Revenue||$485 to $493 million|
|Diluted EPS – GAAP||
$1.23 to $1.28
|Adjusted Diluted EPS – Non-GAAP||
$1.23 to $1.28
|Prior Outlook||Current Outlook|
|Full Year 2017:||(4/27/2017)||(7/27/2017)|
|Revenue||$1.945 to $1.975 billion||$1.955 to $1.975 billion|
|Marketing Solutions & Other Services Revenue||$735 to $755 million||$750 to $760 million|
Diluted EPS - GAAP
|$5.06 to $5.21||$5.04 to $5.14|
|Adjusted Diluted EPS - Non-GAAP||$5.15 to $5.30||$5.20 to $5.30|
|Operating Cash Flow||$330 to $350 million||$335 to $345 million|
|Contract Acquisition Payments||approx. $23 million||approx. $27 million|
|Capital Expenditures||approx. $45 million||approx. $45 million|
|Depreciation and Amortization||approx. $123 million||approx. $123 million|
|Acquisition-Related Amortization||approx. $75 million||approx. $75 million|
|Cost and Expense Reductions||approx. $45 million||approx. $45 million|
|Effective Tax Rate||approx. 32.5%||approx. 32.5%|
The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of Printing Impressions.