Deluxe Reports Second Quarter 2018 Financial Results
ST. PAUL, Minn. - July 26, 2018 - 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, 2018. Key financial highlights include:
Revenue was in line with the Company’s prior outlook and GAAP diluted EPS was $1.25. Adjusted diluted EPS was $1.40 and excluded aggregate charges of $0.15 per share for non-GAAP adjustments. Adjusted diluted EPS exceeded the high end of the range of the prior outlook driven primarily by a lower income tax rate and lower medical costs, partially offset by lower check and form usage.
“We continued to deliver year-over-year growth in both revenue and earnings,” said Lee Schram, CEO of Deluxe. “Revenue and Diluted EPS results were within our prior outlook and adjusted diluted EPS exceeded the high end of our outlook. Our transformation continues to be well on track with marketing solutions and other services revenue accounting for nearly 41% of total revenue in the second quarter, growing over 7% from last year.”
Second Quarter 2018 Highlights
- Revenue increased 0.6% year-over-year, driven by Small Business Services growth of 4.9% which includes the results of several small tuck-in acquisitions. Financial Services revenue was down 5.7% compared to the prior year.
- Revenue from marketing solutions and other services (MOS) increased 7.2% year-over-year and grew to 40.7% of total revenue in the quarter.
- Gross margin was 61.0% of revenue, compared to 63.0% in the second quarter of 2017. The impact of product and service mix and increased delivery and material costs this year, as well as acquisitions, was only partially offset by previous price increases and continued improvements in manufacturing productivity.
- Selling general and administrative (SG&A) expense as a percent of revenue was well leveraged at 42.9% of revenue in the quarter compared to 43.0% last year. SG&A expense dollars increased $0.9 million compared to last year as continued cost reduction initiatives were offset by additional SG&A expense from acquisitions and the timing of benefit expense. Additionally, SG&A expense included gains of $3.9 million within Small Business Services from sales of a business and customer lists.
- Operating income decreased 10.8% year-over-year. Adjusted operating income decreased 6.9% year-over-year primarily from the continuing decline in check and forms usage partially offset by price increases and continued cost reduction initiatives.
- Diluted EPS increased $0.03 per share year-over-year and included aggregate non-GAAP charges of $0.15 per share. Adjusted diluted EPS increased 8.5% year-over-year. A lower income tax rate in 2018, primarily due to the Tax Cuts and Jobs Act of 2017, contributed to the increase in EPS. This favorable impact was partially offset by the continuing secular decline in check and forms usage and the loss of revenue and operating income from Deluxe Rewards highlighted in previous quarters.
Small Business Services
- Revenue of $317.7 million was in-line with our expectations and increased 4.9% year-over-year due primarily to increased MOS revenue, partially offset by the decline in check and forms usage. Revenue also included benefits from previous price increases.
- Operating income of $58.6 million increased $4.1 million from last year. Adjusted operating income increased $2.9 million and adjusted operating margin was unchanged year-over-year. This increase was due to previous price increases, continued cost reductions and gains of $3.9 million from sales of a business and customer lists. These increases were partially offset by the secular decline in check and forms usage.
- Revenue of $139.3 million was in-line with our expectations and decreased 5.7% year-over-year driven by the secular decline in check usage and the loss of revenue and operating income from the Deluxe Rewards business discussed in previous quarters.
- Operating income of $14.0 million decreased $12.6 million compared to last year. Adjusted operating income decreased $8.3 million and adjusted operating margin decreased 4.8 points year-over-year. This decrease was due primarily to the revenue decline, increased benefits expense and higher delivery rates, partially offset by continued benefits of cost reductions.
- Revenue of $31.2 million was slightly better than our expectations and declined 9.8% year-over-year due primarily to the secular decline in check usage.
- Operating income of $10.2 million decreased $1.5 million or 1.1 points compared to last year. Adjusted operating income decreased $1.4 million and adjusted operating margin decreased 0.8 points year-over-year. This decrease was due primarily to lower order volume, partly offset by cost reductions.
- Cash provided by operating activities for the first six months of 2018 was $146.9 million, a decrease of $4.7 million compared to 2017.
- The Company repurchased $20.0 million of common stock in open market transactions during the quarter, bringing the year-to-date stock repurchase total to $40.0 million. During the first half of 2017, the Company repurchased $30.1 million of common stock.
- At the end of the second quarter, the Company had $766.8 million of total debt outstanding, $765.0 million of which was outstanding under the revolving credit facility.
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 Printing Impressions.