Deluxe Reports 3Q 2014 Financial Results

Deluxe Corporation announced its financial results for the third quarter ended September 30, 2014. Key financial highlights included sales of $413.2 million, up 3.8% from 2013. Net income was down 5.3% to $44.4 million.
 
Revenue was at the high end of the range in the prior outlook, while adjusted diluted EPS of $1.03 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,” Schram added. “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% year-over-year due to the strong performance of the Small Business Services segment, which grew 7.2%. Revenue from marketing solutions and other services increased 19.4% year-over-year and accounted for 24.8% of total revenue in the quarter.
 
Diluted EPS decreased 4.3% 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% 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% 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. Financial Services revenue was $85.7 million and decreased 0.9% year-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. Direct Checks revenue of $42.9 million, declining 6.9% year-over-year due primarily to the secular decline in check usage.
 
On Oct. 22, 2014, Deluxe Corporation acquired Wausau Financial Systems in an all cash transaction for $90 million, net of cash acquired. 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.
 
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.