Deluxe Corporation Reports Third Quarter 2014 Financial Results

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 third quarter ended Sept. 30, 2014.

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 year-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 in 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.