Deluxe Reports Third Quarter 2012 Financial Results

  Deluxe Reports Third Quarter 2012 Financial Results

                Revenue grows 7%: exceeds high end of outlook

 Diluted EPS of $0.81 grows 14%; adjusted EPS of $0.85 grows 9% - both exceed
                             high end of outlook

                   Raises full-year revenue and EPS outlook

                     Declares regular quarterly dividend

Business Wire

ST. PAUL, Minn. -- October 25, 2012

Deluxe Corporation (NYSE: DLX) announced its financial results for the third
quarter ended September 30, 2012. Key financial highlights include:

                                                            
                             Q3 2012            Q3 2011            Vs. Q3 2011
Revenue                      $378.3 million     $355.1 million     6.5%
Net income                   $41.5 million      $36.7 million      13.1%
Diluted EPS – GAAP           $0.81              $0.71              14.1%
Adjusted Diluted EPS –       $0.85              $0.78              9.0%
Non-GAAP
                                                                   

A reconciliation between earnings per share on a GAAP basis and adjusted
earnings per share on a non-GAAP basis is provided after the Forward-Looking
Statements discussion.

Revenue and diluted EPS exceeded the high end of the range in the prior
outlook due primarily to better than expected check and forms performance in
Small Business Services and Financial Services and lower discretionary spend.

“We just delivered our third outstanding quarter this year,” said Lee Schram,
CEO of Deluxe. “We exceeded both our revenue and EPS outlook in the third
quarter, with better than expected performance in checks and 23 percent growth
in marketing solutions and other services. We are now well positioned to grow
revenue 6 to 7 percent for the full year, which would represent the third
consecutive year of revenue growth with a fourth year of revenue growth
planned for 2013.”

Third Quarter 2012 Highlights:

  *Revenue for the quarter was $378.3 million compared to $355.1 million
    during the third quarter of 2011. Revenue increased 6.5% compared to 2011,
    driven by 14.0% growth in Small Business Services, which included the
    impact of the OrangeSoda^TM acquisition. Marketing solutions and other
    services revenue increased 22.9% compared to 2011 and represented 19.2% of
    consolidated revenue, up from 16.7% in the third quarter of 2011.
  *Gross margin was 65.2 percent of revenue compared to 65.5 percent in 2011.
    Increased delivery rates, material costs and performance based
    compensation expense in 2012 were partially off-set by favorable impacts
    from price increases and the Company’s continued cost reduction
    initiatives.
  *Selling, general and administrative (SG&A) expense increased $8.6 million
    in the quarter compared to 2011, but as a percent of revenue, was down
    slightly to 45.3 percent. Increased SG&A expense associated with
    commissions on increased revenue, as well as higher performance based
    compensation expense and the OrangeSoda^TM acquisition last quarter was
    partially offset by benefits from continued execution against cost
    reduction initiatives.
  *Operating income in 2012 was $72.7 million compared to $65.6 million in
    the third quarter of 2011. Restructuring and transaction-related costs
    were $2.9 million in 2012 versus $5.1 million in 2011. These costs were
    primarily attributable to the Company’s on-going cost reduction
    initiatives. Operating income was 19.2 percent of revenue compared to 18.5
    percent in the prior year driven primarily by higher revenue per order,
    continued cost reductions and lower restructuring charges, partially
    off-set by higher performance based compensation expense, increased
    delivery rates and material costs, and the OrangeSoda acquisition last
    quarter.
  *Reported diluted EPS increased $0.10 from the prior year driven by
    improved operating performance and lower restructuring charges in 2012.

Segment Highlights

Small Business Services

  *Revenue was $244.5 million versus $214.4 million in 2011. Revenue was
    14.0% higher in the quarter driven by growth in marketing solutions and
    other services revenue and in the Safeguard® distributor, dealer, and
    major account channels. Revenue also benefited from price increases and
    $8.6 million from the OrangeSoda acquisition.
  *Operating income in 2012 increased to $39.6 million from $34.6 million in
    2011.

Financial Services

  *Revenue was $82.8 million compared to $85.2 million in 2011. The impact of
    check usage declines exceeded the benefits of price increases, revenue
    from a new financial institution client, and growth in non-check revenue.
    Secular declines for consumer checks were slightly less than 5% in the
    quarter.
  *Operating income in 2012 increased to $17.7 million from $14.1 million in
    2011.

Direct Checks

  *Revenue was $51.0 million compared to $55.5 million in 2011, primarily
    driven by lower order volume resulting from the continued decline in check
    usage.
  *Operating income in 2012 decreased to $15.4 million from $16.9 million in
    2011.

Other Highlights

  *Cash provided by operating activities for the first nine months of 2012
    totaled $177.1 million, an increase of $5.9 million compared to 2011.
    Improved operating performance and the discontinuation of payments to our
    defined contribution pension plan were partially offset byhigher income
    tax payments, a planned contributionin the first quarter to our VEBA
    trust for future medical costs, andhigher contract acquisition payments.
  *The Board of Directors of Deluxe Corporation declared a regular quarterly
    dividend of $0.25 per share to all outstanding shares of the Company. The
    dividend will be payable on December 3, 2012 to shareholders of record at
    the close of business on November 19, 2012. The Company had 50,902,714
    shares outstanding as of October 23, 2012.

Outlook

Fourth Quarter 2012:

                                 
                                    Current outlook (10/25/2012)
Revenue                             $381 to $388 million
Diluted EPS – GAAP                  $0.82 to $0.89
Adjusted Diluted EPS – Non-GAAP     $0.85 to $0.92
                                    

Full Year 2012:

                                                    
                               Prior outlook             Current outlook
                               (7/26/12)                 (10/25/2012)
Revenue                        $1.490 to $1.510          $1.508 to $1.515
                               billion                   billion
Diluted EPS – GAAP             $3.20 to $3.35            $3.30 to $3.37
Adjusted Diluted EPS –         $3.30 to $3.45            $3.43 to $3.50
Non-GAAP
Operating cash flow            $235 to $245 million      $239 to $245 million
Capital expenditures           $35 million               $35 million
Depreciation and               $65 million               $65 million
amortization
Effective tax rate             approximately 33%         approximately 33%
                                                         

Editor’s Note

  *Deluxe will hold an open-access teleconference call today at 11:00 a.m. ET
    (10:00 a.m. CT) to review the financial results. All interested persons
    may listen to the call by dialing 1-866-700-7477 (access code 39894246).
  *The presentation also will be available via a simultaneous webcast at
    www.deluxe.com in the news and investor relations section.
  *An audio replay of the call will be available through midnight on November
    1^st by calling 1-888-286-8010 (access code 46672795). The presentation
    will be archived on Deluxe’s web site.

About Deluxe Corporation
Deluxe is a growth engine for small businesses and financial institutions.
Over four 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, logo design and business networking. For financial institutions,
Deluxe offersindustry-leading programs in checks, customer acquisition,
regulatory compliance, fraud prevention and profitability. Deluxe is also a
leading printer of checks and accessories sold directly to consumers.For more
information, visit us at www.deluxe.com, www.facebook.com/deluxecorpor
www.twitter.com/deluxecorp.

Forward-Looking Statements
Statements made in this release concerning the Company’s or management’s
intentions, expectations, outlook or predictions about future results or
events are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements reflect management’s
current expectations or beliefs, and are subject to risks and uncertainties
that could cause actual results or events to vary from stated expectations,
which variations could be material and adverse. Factors that could produce
such a variation include, but are not limited to, the following: the impact
that a further deterioration or prolonged softness in the economy may have on
demand for the Company’s products and services; the inherent unreliability of
earnings, revenue and cash flow predictions due to numerous factors, many of
which are beyond the Company’s control; declining demand for the Company’s
check and check-related products and services due to increasing use of
alternative payment methods; intense competition in the check printing
business; continued consolidation of financial institutions and/or additional
bank failures, thereby reducing the number of potential customers and referral
sources and increasing downward pressure on the Company’s revenue and gross
margin; risks that the Small Business Services segment strategies to increase
its pace of new customer acquisition and average annual sales to existing
customers, while at the same time maintaining its operating margins, are
delayed or unsuccessful; risks that the Company’s recent acquisitions do not
produce the anticipated results or revenue synergies; risks that the Company’s
cost reduction initiatives will be delayed or unsuccessful; performance
shortfalls by the Company’s major suppliers, licensors or service providers;
unanticipated delays, costs and expenses in the development and marketing of
new products and services, including web design, hosting and other services,
logo design, search engine marketing, search engine optimization, digital
printing services, fraud protection services, profitability, regulatory and
compliance programs, and the failure of such newer products and services to
deliver the expected revenues and other financial targets; and the impact of
governmental laws and regulations. The Company’s cash dividends are declared
by the Board of Directors on a current basis and therefore may be subject to
change. Our forward-looking statements speak only as of the time made, and we
assume no obligation to publicly update any such statements. Additional
information concerning these and other factors that could cause actual results
and events to differ materially from the Company’s current expectations are
contained in the Company’s Form 10-K for the year ended December 31, 2011.

The table below is provided to assist in understanding the comparability of
the Company’s results of operations for the quarters ended September 30, 2012
and 2011. The Company’s management believes that adjusted earnings per share
(EPS) is a useful financial measure because certain items during 2012 and 2011
(restructuring and related costs and transaction-related costs) impact the
comparability of reported net income. The presentation below is not intended
as an alternative to results reported in accordance with generally accepted
accounting principles (GAAP) in the United States of America. Instead, the
Company believes that this information is a useful financial measure to be
considered in addition to GAAP performance measures.

Adjusted EPS reconciles to reported EPS as follows:


                                  Actual
                                    Q3 2012            Q3 2011
                                                         
Adjusted Diluted EPS                $ 0.85               $ 0.78
Restructuring and related costs       (0.04        )       (0.06        )
Transaction-related costs            —                  (0.01        )
Reported Diluted EPS                $ 0.81              $ 0.71         
                                    
                                    
                                    Outlook
                                                         Full Year
                                    Q4 2012              2012
                                                         
Adjusted Diluted EPS                $ 0.85 - $0.92       $ 3.43 - $3.50
Restructuring and related costs       (0.03        )       (0.12        )
Transaction-related costs            -                  (0.01        )
Reported Diluted EPS                $ 0.82 - $0.89      $ 3.30 - $3.37 



Financial Highlights
DELUXE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars and shares in millions, except per share amounts)
(Unaudited)

                         Quarter Ended September 30,
                           2012                      2011
Revenue                    $ 378.3                   $ 355.1     
Cost of goods sold,
including net               (131.7 )     (34.8 %)      (122.6 )     (34.5 %)
restructuring charges
Gross profit                 246.6        65.2  %        232.5        65.5  %
                                                                      
Selling, general and         (171.2 )     (45.3 %)       (162.6 )     (45.8 %)
administrative expense
Net restructuring           (2.7   )     (0.7  %)      (4.3   )     (1.2  %)
charges
Operating income             72.7         19.2  %        65.6         18.5  %
                                                                      
Interest expense             (11.9  )     (3.1  %)       (11.8  )     (3.3  %)
Other income (expense)      0.2         0.1   %       (0.3   )     (0.1  %)
Income before income         61.0         16.1  %        53.5         15.1  %
taxes
                                                                      
Income tax provision        (19.5  )     (5.2  %)      (16.8  )     (4.7  %)
Net income                 $ 41.5        11.0  %      $ 36.7        10.3  %
                                                                      
Weighted average
dilutive shares              51.0                        51.2
outstanding
                                                                      
Diluted earnings per       $ 0.81                      $ 0.71
share
                                                                      
Capital expenditures       $ 8.2                       $ 8.9
Depreciation and             16.2                        17.8
amortization expense
Number of
employees-end of             5,646                       5,761
period
                                                                      
Non-GAAP financial         $ 89.1                      $ 83.1
measure - EBITDA^(1)
Non-GAAP financial
measure - Adjusted           92.0                        88.2
EBITDA^(1)


^(1) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
and Adjusted EBITDA are not measures of financial performance under generally
accepted accounting principles (GAAP) in the United States of America. We
disclose EBITDA and Adjusted EBITDA because we believe they are useful in
evaluating our operating performance compared to that of other companies in
our industry, as the calculation eliminates the effects of long-term financing
(i.e., interest expense), income taxes, the accounting effects of capital
investments (i.e., depreciation and amortization) and in the case of Adjusted
EBITDA, certain items (i.e., restructuring and related costs,
transaction-related costs and loss on debt retirements), which may vary for
companies for reasons unrelated to overall operating performance. In our case,
depreciation and amortization of intangibles and interest expense in the
current year and in previous years have been significantly impacted by
acquisitions. Certain transactions in 2012 and 2011 also impacted the
comparability of reported net income. We believe that measures of operating
performance which exclude these impacts are helpful in analyzing our results.
We also believe that an increasing EBITDA and Adjusted EBITDA depict increased
ability to attract financing and an increase in the value of our business. We
do not consider EBITDA and Adjusted EBITDA to be measures of cash flow, as
they do not consider certain cash requirements such as interest, income taxes
or debt service payments. We do not consider EBITDA or Adjusted EBITDA to be
substitutes for operating income or net income. Instead, we believe that
EBITDA and Adjusted EBITDA are useful performance measures which should be
considered in addition to GAAP performance measures. EBITDA and Adjusted
EBITDA are derived from net income as follows:

                                       
                                          Quarter Ended September 30,
                                            2012         2011  
Adjusted EBITDA                           $  92.0           $ 88.2
Restructuring and related costs              (2.9   )         (4.6  )
Transaction-related costs                   —              (0.5  )
EBITDA                                       89.1             83.1
Income tax provision                         (19.5  )         (16.8 )
Interest expense                             (11.9  )         (11.8 )
Depreciation and amortization expense       (16.2  )        (17.8 )
Net income                                $  41.5          $ 36.7  
                                                            


DELUXE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars and shares in millions, except per share amounts)
(Unaudited)

                       Nine Months Ended September 30,
                         2012                       2011
Revenue                  $ 1,127.3                  $ 1,051.2    
Cost of goods sold,
including net             (386.7  )     (34.3 %)      (363.5  )     (34.6 %)
restructuring
charges
Gross profit               740.6         65.7  %        687.7         65.4  %
                                                                      
Selling, general and
administrative             (510.9  )     (45.3 %)       (480.7  )     (45.7 %)
expense
Net restructuring         (5.4    )     (0.5  %)      (9.9    )     (0.9  %)
charges
Operating income           224.3         19.9  %        197.1         18.8  %
                                                                      
Loss on early
extinguishment of          —             —              (7.0    )     (0.7  %)
debt
Interest expense           (34.9   )     (3.1  %)       (35.9   )     (3.4  %)
Other income              0.5          —             (0.2    )     -
(expense)
Income before income       189.9         16.8  %        154.0         14.6  %
taxes
                                                                      
Income tax provision      (62.1   )     (5.5  %)      (49.2   )     (4.7  %)
Net income               $ 127.8        11.3  %      $ 104.8        10.0  %
                                                                      
Weighted average
dilutive shares            51.1                         51.5
outstanding
                                                                      
Diluted earnings per     $ 2.49                       $ 2.02
share
                                                                      
Capital expenditures     $ 25.6                       $ 28.2
Depreciation and           49.7                         56.5
amortization expense
Number of
employees-end of           5,646                        5,761
period
                                                                      
Non-GAAP financial       $ 274.5                      $ 246.4
measure - EBITDA^(1)
Non-GAAP financial
measure - Adjusted         281.6                        265.0
EBITDA^(1)


^(1) See the discussion of EBITDA and Adjusted EBITDA on the previous page.
EBITDA and Adjusted EBITDA are derived from net income as follows:


                                        Nine Months Ended September 30,
                                          2012             2011
Adjusted EBITDA                           $  281.6           $  265.0
Restructuring and related costs              (6.7   )           (10.7  )
Transaction-related costs                    (0.4   )           (0.9   )
Loss on early debt extinguishment           —                (7.0   )
EBITDA                                       274.5              246.4
Income tax provision                         (62.1  )           (49.2  )
Interest expense                             (34.9  )           (35.9  )
Depreciation and amortization expense       (49.7  )          (56.5  )
Net income                                $  127.8          $  104.8  



DELUXE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
(Unaudited)

                            September 30,   December 31,   September 30,
                              2012              2011             2011
Cash and cash equivalents     $   105.6         $   28.7         $   23.0
Other current assets              165.4             163.9            157.5
Property, plant &                 106.5             113.4            116.8
equipment-net
Intangibles-net                   155.2             157.3            163.7
Goodwill                          789.7             777.0            776.9
Other non-current assets         144.9            148.5          149.5
Total assets                  $   1,467.3       $   1,388.8     $   1,387.4
                                                                 
Short-term debt and
current portion of            $   85.1          $   85.6         $   33.0
long-term debt
Other current liabilities         214.6             214.8            209.6
Long-term debt                    657.2             656.1            742.6
Deferred income taxes             54.8              49.8             51.9
Other non-current                 57.6              79.8             66.9
liabilities
Shareholders’ equity             398.0            302.7          283.4
Total liabilities &           $   1,467.3       $   1,388.8     $   1,387.4
shareholders’ equity
                                                                 
Shares outstanding                50.9              50.8             50.8
                                                                 


DELUXE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

                                                    Nine Months Ended
                                                      September 30,
                                                      2012        2011
Cash provided (used) by:
Operating activities:
Net income                                            $ 127.8       $ 104.8
Depreciation and amortization of intangibles            49.7          56.5
Contract acquisition payments                           (15.0 )       (10.0  )
Other                                                  14.6        19.9   
Total operating activities                             177.1       171.2  
Investing activities:
Purchases of capital assets                             (25.6 )       (28.2  )
Payments for acquisitions                               (32.6 )       (83.2  )
Payments on company-owned life insurance policies       —             (6.4   )
Other                                                  0.3         (2.7   )
Total investing activities                             (57.9 )      (120.5 )
Financing activities:
Net change in debt                                      —             11.0
Dividends                                               (38.1 )       (38.4  )
Share repurchases                                       (12.0 )       (23.6  )
Shares issued under employee plans                      9.6           7.6
Other                                                  (2.7  )      (0.6   )
Total financing activities                              (43.2 )       (44.0  )
Effect of exchange rate change on cash                 0.9         (1.1   )
Net change in cash and cash equivalents                 76.9          5.6
Cash and cash equivalents: Beginning of period         28.7        17.4   
Cash and cash equivalents: End of period              $ 105.6      $ 23.0   



DELUXE CORPORATION
SEGMENT INFORMATION
(In millions)
(Unaudited)

                          Quarter Ended September 30,
                            2012                2011
Revenue:
Small Business Services     $    244.5            $ 214.4
Financial Services               82.8               85.2
Direct Checks                   51.0              55.5
Total                       $    378.3            $ 355.1
                                                  
Operating income: ^(1)
Small Business Services     $    39.6             $ 34.6
Financial Services               17.7               14.1
Direct Checks                   15.4              16.9
Total                       $    72.7             $ 65.6
                            
                            
                            Nine Months Ended September 30,
                            2012                  2011
Revenue:
Small Business Services     $    707.1            $ 617.6
Financial Services               259.1              259.9
Direct Checks                   161.1             173.7
Total                       $    1,127.3          $ 1,051.2
                                                  
Operating income: ^(1)
Small Business Services     $    116.7            $ 104.8
Financial Services               59.6               43.0
Direct Checks                   48.0              49.3
Total                       $    224.3            $ 197.1


The segment information reported here was calculated utilizing the methodology
outlined in the Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2011.

^(1) Operating income includes the following restructuring and
transaction-related costs:

                                           
                            Quarter Ended       Nine Months Ended
                            September 30,       September 30,
                            2012    2011      2012     2011
Small Business Services     $ 2.1     $ 2.5     $  4.5     $ 5.4
Financial Services            0.4       2.3        0.7       5.2
Direct Checks                0.4      0.3       1.9      1.0
Total                       $ 2.9     $ 5.1     $  7.1     $ 11.6
                                                           

The table below is provided to assist in understanding the comparability of
the Company’s results of operations for the quarters and nine months ended
September 30, 2012 and 2011. The Company’s management believes that operating
income by segment, excluding restructuring and transaction-related costs in
each period, is a useful financial measure because these items impacted the
comparability of reported operating income during 2012 and 2011. The
presentation below is not intended as an alternative to results reported in
accordance with generally accepted accounting principles (GAAP) in the United
States of America. Instead, the Company believes that this information is a
useful financial measure to be considered in addition to GAAP performance
measures.


DELUXE CORPORATION
SEGMENT OPERATING INCOME
EXCLUDING RESTRUCTURING AND RELATED COSTS AND
TRANSACTION-RELATED COSTS
(In millions)
(Unaudited)

                                  Quarter Ended September 30,
                                    2012                2011
Adjusted operating income: ^(1)
Small Business Services             $     41.7            $  37.1
Financial Services                        18.1               16.4
Direct Checks                            15.8              17.2
Total                               $     75.6            $  70.7
                                    
                                    
                                    Nine Months Ended September 30,
                                    2012                  2011
Adjusted operating income: ^(1)
Small Business Services             $     121.2           $  110.2
Financial Services                        60.3               48.2
Direct Checks                            49.9              50.3
Total                               $     231.4           $  208.7
                                                          

^(1) Operating income excluding restructuring and transaction-related costs
reconciles to reported operating income as follows:


                           Quarter Ended           Nine Months Ended
                             September 30,             September 30,
                             2012       2011         2012        2011
Adjusted operating           $ 75.6       $ 70.7       $ 231.4       $ 208.7
income
                                                                     
Restructuring and
transaction-
related costs:
Small Business Services        (2.1 )       (2.5 )       (4.5  )       (5.4  )
Financial Services             (0.4 )       (2.3 )       (0.7  )       (5.2  )
Direct Checks                 (0.4 )      (0.3 )      (1.9  )      (1.0  )
Total                         (2.9 )      (5.1 )      (7.1  )      (11.6 )
                                                                     
Reported operating           $ 72.7      $ 65.6      $ 224.3      $ 197.1 
income


Contact:

Deluxe Corporation
Jeff Johnson, 651-787-1068
Treasurer and VP Investor Relations
 
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