Deluxe Reports Fourth Quarter 2018 Financial Results
Deluxe Corporation, which provides small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the fourth quarter and year ended Dec. 31, 2018. Key financial highlights for the fourth quarter include:Revenue was within the company’s outlook range of $522 to $532 million and GAAP diluted earnings per share was at the high end of the outlook range of $1.32 to $1.39. During the quarter, the company recognized non-GAAP adjustments of $0.15 per share. Of this amount, charges for restructuring, integration and CEO transition costs totaled $0.16 per share, and the company recorded a benefit of $0.01 per share related to federal tax reform. Adjusted diluted EPS was at the high end of the outlook range as the business segments performed well against expectations, the income tax rate was favorable and expense management initiatives continued.
“I am honored to join Deluxe at this critical moment in the company’s history,” said Barry McCarthy, president and CEO of Deluxe. “Our strong fourth quarter performance and record full year revenue reflect the solid foundation from which we will accelerate our ongoing transformation to a technology-enabled solutions provider. Looking ahead, I will continue my deep dive into the business as we refine our strategic plan while remaining focused on driving long-term revenue growth and enhancing shareholder value.”
Fourth Quarter 2018 Highlights
- Revenue increased 6 percent year-over-year. Financial Services revenue increased 15 percent compared to the prior year and includes the results of the REMITCO acquisition which closed in August 2018. Small Business Services revenue grew 3.6 percent and includes the results of several small tuck-in acquisitions.
- Revenue from marketing solutions and other services (MOS) increased 20.1 percent year-over-year and grew to 45.4 percent of total revenue in the quarter.
- Gross margin was 59.0 percent of revenue, compared to 61.4 percent in the fourth quarter of 2017. The impact to margin from product and service mix, acquisitions and increased delivery and material costs this year 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 41.2 percent in the quarter compared to 40.6 percent last year. SG&A expense dollars increased $15.2 million compared to last year as continued cost reduction initiatives and gains from asset sales of $2.8 million within Small Business Services were more than offset by additional SG&A expense from acquisitions, a favorable legal settlement in the prior year, costs related to the CEO transition process this year and higher average commissions in Small Business Services.
- Operating income decreased $11.5 million year-over-year. Adjusted operating income decreased $6.2 million year-over-year primarily from the continuing decline in check and forms usage, partially offset by previous price increases and continued cost reduction initiatives.
- Diluted EPS decreased $0.36 per share year-over-year and included aggregate non-GAAP charges of $0.15 per share. Adjusted diluted EPS increased 10.0 percent year-over-year. A lower income tax rate in 2018, primarily due to the Tax Cuts and Jobs Act of 2017, and lower shares outstanding contributed to the increase in adjusted EPS and were partially offset by the continuing secular decline in check and forms usage.
Small Business Services
- Revenue of $334.0 million was in line with our expectations and increased 3.6 percent year-over-year due primarily to increased MOS revenue and benefits from previous price increases, partially offset by the decline in check and forms usage.
- Operating income of $56.0 million decreased $5.9 million compared to last year. Adjusted operating income decreased $2.0 million and adjusted operating margin decreased 1.3 points year-over-year. This decrease was due to the secular decline in check and forms usage, partially offset by previous price increases and continued cost reductions.
- Revenue of $160.2 million was in line with our expectations and increased 15.0 percent year-over-year driven by the acquisition of REMITCO in August 2018 and increased Treasury Management revenue, partially offset by the secular decline in check usage.
- Operating income of $20.4 million decreased $4.6 million compared to last year. Adjusted operating income decreased $3.2 million and adjusted operating margin decreased 4.6 points year-over-year. This decrease was due primarily to the check decline, a favorable legal settlement in the prior year and higher delivery rates, partially offset by continued benefits of cost reductions.
- Revenue of $30.5 million was slightly better than our expectations and declined 8.1 percent year-over-year due primarily to the secular decline in check usage.
- Operating income of $10.1 million decreased $1.0 million and operating margin decreased 0.3 points year-over-year. This decrease in operating income was due primarily to lower order volume, partly offset by cost reductions.
- Cash provided by operating activities for 2018 was $339.3 million, an increase of $0.9 million compared to 2017.
- The company repurchased $80.0 million of common stock in open market transactions during the fourth quarter, bringing the full year stock repurchase total to $200.0 million.
- At the end of the fourth quarter, the company had $911.9 million of total debt outstanding, $910.0 million of which was outstanding under the revolving credit facility.
- On Jan. 22, 2019, the board of directors declared a regular quarterly dividend of $0.30 per share on all outstanding shares of the company. The dividend will be payable on March 4, 2019 to all shareholders of record at the close of business on Feb. 19, 2019.
- On Jan. 22, 2019, the existing credit facility was expanded by $200.0 million, bringing the total availability under the credit facility to $1.150 billion.
For more information, visit www.deluxe.com.
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