Deluxe Corp. Announces Q1 Financials and Succession Plan for Retiring CEO, Lee Schram

ST. PAUL, Minn. - April 27, 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 first quarter ended March 31, 2018. Key financial highlights include:

A reconciliation of diluted earnings per share (EPS) on a GAAP basis and adjusted diluted EPS on a non-GAAP basis is provided after the Forward-Looking Statements.

Revenue exceeded the high end of the range of the Company’s prior outlook driven primarily by strong performance in the Financial Services segment. GAAP diluted EPS was $1.31 and included aggregate charges of $0.08 per share primarily for restructuring, integration and transaction costs, and an asset impairment charge. Excluding these items, adjusted diluted EPS exceeded the high end of the range of the prior outlook driven primarily by the strong results in Financial Services.

“We delivered a very strong first quarter to start off the year,” said Lee Schram, CEO of Deluxe. “Diluted EPS ended at the high-end of our outlook and both revenue and adjusted diluted EPS exceeded our outlook. We grew marketing solutions and other services revenue over 12 percent from last year and it now accounts for over 39 percent of total revenue. Looking ahead, we continue to believe our transformation will deliver a ninth consecutive year of revenue growth.”

First Quarter 2018 Highlights

• Revenue increased 0.8% year-over-year, driven by Small Business Services growth of 2.7% which includes the results of several small tuck-in acquisitions. Financial Services revenue was flat compared to the prior year.
• Revenue from marketing solutions and other services (MOS) increased 12.2% year-over-year and grew to 39.3% of total revenue in the quarter.
• Gross margin was 61.6% of revenue, compared to 63.2% in the first 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 decreased 2.7% from last year primarily due to continued cost reduction initiatives compared to the prior year, re-calendarization of paid time-off and lower legal costs which were partially offset by additional SG&A expense from acquisitions. SG&A as a percent of revenue was well leveraged at 43.0% in the quarter compared to 44.5% last year. Included in 2 SG&A were gains from sales of businesses within Small Business Services of $7.2 million, compared to gains recognized in the first quarter of 2017 of $6.8 million.
• Operating income increased 3.2% year-over-year. Adjusted operating income, which excludes restructuring, integration and transaction costs, as well as asset impairment charges, in both periods, increased 0.9% year-over-year primarily from price increases and continued cost reduction initiatives, partially offset by the continuing decline in check and forms usage.
• Diluted EPS increased $0.15 per share year-over-year and included aggregate net charges of $0.08 per share for restructuring, integration and transaction costs, as well as an asset impairment charge and costs related to the retirement of term loans under our previous credit facility, partially offset by a small favorable adjustment related to federal tax reform. Adjusted diluted EPS, which excludes these items, increased 11.2% year-overyear. Our lower income tax rate in 2018, primarily due to the Tax Cuts and Jobs Act of 2017, contributed $0.10 to the increase in EPS. Additionally, EPS benefitted from favorable operating performance and lower shares outstanding.

Segment Highlights

Small Business Services

• Revenue of $316.3 million was in-line with our expectations and increased 2.7% year-over-year due primarily to increased MOS revenue, partially offset by the decline in check and forms usage. From a channel perspective, revenue increased in online, major accounts, and Canada, and included benefits from previous price increases.
• Operating income of $58.9 million increased $6.6 million from last year. Adjusted operating income, which excludes restructuring, integration and transaction costs, as well as asset impairment charges, increased $4.2 million or 0.8 points year-over-year. This increase was due to price increases and continued cost reductions, which were partially offset by the secular decline in check and forms usage.

Financial Services

• Revenue of $140.6 million was better than our expectations and was flat year-over-year. MOS revenue increased 10.1% year-over-year driven by the acquisition of RDM Corporation in April 2017 and increased data-driven marketing solutions. These increases were offset by the secular decline in check usage.
• Operating income of $18.0 million decreased $2.2 million compared to last year. Adjusted operating income decreased $1.7 million or 1.2 points year-over-year. This decrease was due to the secular decline in check usage and the loss of revenue and operating income from Deluxe Rewards highlighted in previous quarters, partially offset by continued benefits of cost reductions and lower legal costs.

Direct Checks

• Revenue of $35.0 million was in-line with our expectations and declined 10.0% year-over-year due primarily to the secular decline in check usage.
• Operating income of $10.8 million decreased $1.7 million or 1.2 points compared to last year primarily due to lower order volume, partly offset by cost reductions.

Other Highlights

• Cash provided by operating activities for the first quarter of 2018 was $80.8 million, an increase of $6.5 million compared to 2017.
• The Company repurchased $20.0 million of common stock in open market transactions during the quarter.
• In March, the Company executed a new 5-year revolving credit facility, increasing the size slightly to $950.0 million. At the end of the first quarter, the Company had $742.5 million of total debt outstanding, $740.6 million of which was outstanding under the revolving credit facility.

Source: Deluxe Corporation.

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