Deluxe Corp. Reports Q3 2014 Financial Results with Revenue Increase of 3.8 Percent
ST. PAUL, MN— October 24, 2014—Deluxe Corp., provider of products and services for small businesses and financial institutions to drive customer revenue, announced its financial results for the third quarter ended Sept. 30, 2014.
Key financial highlights include:
|Q3 2014||Q3 2013||% Change|
|Revenue||$413.2 million||$398.1 million||3.8%|
|Net Income||$44.4 million||$46.9 million||(5.3%)|
|Diluted EPS – GAAP||$0.88||$0.92||(4.3%)|
|Adjusted Diluted EPS – Non-GAAP||$1.03||$0.96||7.3%|
A reconciliation of earnings per share on a GAAP basis and adjusted earnings per share on a non-GAAP basis is provided after the Forward-Looking Statements.
Revenue was at the high end of the range in the prior outlook, while adjusted diluted EPS exceeded the high end of the range in the prior outlook. The earnings results were driven by stronger operating results in each of the Company’s segments and better than expected cost reductions partially offset by a slightly higher effective tax rate.
“Our positive transformation continues as we delivered revenue and adjusted EPS growth over the prior year,” said Lee Schram, CEO of Deluxe. “Our approach to diversifying and growing top-line revenue, while at the same time aggressively managing our expense structure continues to deliver strong operating income and cash flow growth. During the quarter, we paid out our regular quarterly dividend, repurchased common stock and increased cash which was subsequently used to retire debt in October. Looking ahead, we are excited about our latest addition, Wausau Financial Systems, as we continue to execute on our services growth strategy. We expect to see revenue, operating cash flow and earnings growth continue in 2014 and 2015, increasing value for our shareholders.”
Third Quarter 2014 Highlights:
- Revenue increased 3.8 percent year-over-year due to the strong performance of the Small Business Services segment which grew 7.2 percent.
- Revenue from marketing solutions and other services increased 19.4 percent-over-year and accounted for 24.8 percent of total revenue in the quarter.
- Gross margin was 63.7 percent of revenue, down from 64.3 percent the third quarter of 2013. The decline was primarily driven by a higher services revenue mix and higher delivery and material costs.
- Selling, general and administrative (SG&A) expense increased 1.3 percent from last year primarily due to additional SG&A expense from acquisitions in the prior year and higher performance-based compensation. SG&A as a percent of revenue was well leveraged at 42.5 percent in the quarter and compared to 43.6 percent of revenue last year.
- Operating income decreased 3.8 percent year-over-year and includes a non-cash asset impairment charge in the third quarter of 2014 related to various intangible assets directly associated with the Company’s decision to reduce the revenue base of its search engine marketing and optimization business in order to improve its financial performance, as well as restructuring and transaction-related costs in both periods. Adjusted operating income, which excludes these items, increased 5.8 percent year-over-year from higher revenue per order and continued cost reductions partially offset by higher performance-based compensation.
- Diluted EPS decreased 4.3 percent year-over-year. Excluding the asset impairment charge in the third quarter of 2014 and restructuring and transaction-related costs in both periods, adjusted diluted EPS increased 7.3 percent year-over-year driven by stronger operating performance and lower shares outstanding, partially offset by a slightly higher effective tax rate.
Small Business Services
- Revenue was $284.6 million and increased 7.2 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 decreased 6.7 percent from last year to $43.2 million. Adjusted operating income, which excludes the asset impairment charge in the third quarter of 2014 and restructuring and transaction-related costs in both periods, increased 9.3 percent year-over-year due primarily to higher revenue and cost reductions.
- Revenue was $85.7 million and decreased 0.9 percent-over-year due to the secular decline in check usage, partially offset by growth in non-check services, including the results of Destination Rewards which was acquired late in the fourth quarter of 2013, as well as the impact of previous price increases.
- Operating income was flat compared to last year at $18.8 million. Adjusted operating income, which excludes restructuring and transaction- related costs, increased 2.4 percent year-over-year, reflecting previous price increases and the continued benefits of cost reductions, partially offset by check usage declines.
- Revenue of $42.9 million declined 6.9 percent-over-year due primarily to the secular decline in check usage.
- Operating income increased 0.7 percent year-over-year as a result of cost reductions, partially offset by lower revenue.
- Cash provided by operating activities for the first nine months of 2014 was $203.3 million, an increase of $19.3 million compared to 2013, driven primarily by improved earnings, changes in working capital, and lower medical and performance-based compensation payments, partially offset by higher income tax payments.
- The Company repurchased $8.2 million of common stock in open market transactions in the third quarter and $60.1 million year-to-date.
- On Oct. 21, 2014, 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 Dec. 1, 2014 to all shareholders of record at the close of business on Nov. 17, 2014.
Acquisition of Wausau Financial Systems
On Oct. 22, 2014, Deluxe Corp. acquired Wausau Financial Systems in an all cash transaction for $90 million, net of cash acquired. The purchase included specific tax attributes which are expected to generate approximately $4 million of incremental cash tax savings. The company, headquartered in Mosinee, WI, provides software-based solutions for receivables management, lockbox processing, remote deposit capture and paperless in-branch solutions to a broad list of financial institutions, utilities, government agencies and telecommunications companies. The company will provide new access for Deluxe into the commercial and treasury side of financial institutions through a strong SaaS-based technology offering. The acquisition was financed through a draw on the Company’s existing credit facility and is expected to add approximately $12 million of revenue to fourth quarter 2014 results and be dilutive to EPS by approximately $0.01 per share over the same period. In 2015, Wausau Financial Systems is expected to generate approximately $80 million of revenue and be dilutive to EPS by approximately $0.04 per share on a full year basis, turning slightly accretive to earnings in the fourth quarter of 2015. This new acquisition will be reported in the Financial Services segment and its revenue will be included in Marketing Solutions and Other Services revenue.
Earnings Call Information
A live conference call will be held today at 11:00 a.m. ET (10:00 a.m. CT) to review the financial results. Listeners can access the call by dialing 1-857-244-7312 (access code 71354059). A presentation also will be available via a simultaneous webcast on our investor relations Website at www.deluxe.com/investor.
Alternatively, an audio replay of the call will be available on the investor relations Website or by calling 1-617-801-6888 (access code 19165993).
About Deluxe Corp.
Deluxe is a growth engine for small businesses and financial institutions. Over four and a half 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. Deluxe is also a leading printer of checks and accessories sold directly to consumers.
Source: Deluxe Corp.