- EPS of $0.56 exceeds previous outlook; adjusted EPS of $0.60
without restructuring and transaction-related costs - Increases
cost reduction program to $325 million - Declares regular quarterly
dividend ST. PAUL, Minn., Oct. 22 /PRNewswire-FirstCall/ -- Deluxe
Corporation (NYSE:DLX) reported third quarter adjusted diluted
earnings per share (EPS) of $0.60 compared to $0.65 in the prior
year period. Adjusted EPS for both periods excludes the impact of
restructuring-related costs, and for 2009, also excludes the impact
of transaction-related costs associated with recent acquisitions.
Adjusted EPS for 2008 also excludes asset impairment charges.
Reported diluted EPS was $0.56 on net income of $28.6 million in
2009 and $0.27 on net income of $13.8 million in 2008. Operating
results were slightly better than expected for the current period
due primarily to cost reduction and containment initiatives.
"Although challenges in the economy persist and bank failures
continue, we delivered another solid quarter meeting all our
financial commitments," said Lee Schram, CEO of Deluxe. "We made
good progress integrating our recent acquisitions and advancing our
transformation during the quarter and we took another hard look at
our cost structure. As a result, we now have plans in place to
achieve an additional $25 million of cost reductions over the
balance of 2009 and 2010." Third Quarter Performance Revenue for
the quarter was $332.3 million compared to $362.7 million during
the third quarter of 2008. Small Business Services revenue was
$19.0 million lower than the comparable 2008 quarter driven
primarily by continued economic softness. Financial Services
revenue was down $4.9 million from the 2008 quarter and Direct
Checks revenue decreased $6.5 million, both due to lower order
volumes. Gross margin was 63.3 percent of revenue compared to 58.6
percent in 2008. Restructuring-related costs were higher in 2008,
reducing the 2008 gross margin by 3.6 percentage points. The
benefit of our cost reduction initiatives was partly offset by
increased performance-based compensation expense, materials cost
and delivery rates. Selling, general and administrative (SG&A)
expense decreased $9.0 million in the quarter compared to 2008.
Increased performance-based compensation expense was more than
offset by benefits from cost reduction and containment initiatives.
As a percent of revenue, SG&A increased to 46.4 percent from
45.0 percent in 2008. Operating income was $54.5 million compared
to $30.8 million in the third quarter of 2008. In addition to the
factors previously discussed, restructuring and transaction-related
costs and asset impairment charges of $3.4 million in 2009 were
$28.2 million lower than in 2008. Operating income was 16.4 percent
of revenue compared to 8.5 percent in the prior year. Net income
increased $14.8 million and diluted EPS increased $0.29, driven
primarily by higher operating income partially offset by a higher
effective tax rate in 2009. The 2008 effective tax rate was
significantly lower than in 2009 due to the impact of the
restructuring costs and asset impairment charges on the calculation
and additional one-time benefits. Third Quarter Performance by
Business Segment Small Business Services revenue was $193.9 million
versus $212.9 million in 2008. The decline was due to soft economic
conditions, primarily in the sales of checks and forms. These
reductions were partially offset by revenue contributions from
acquisitions. Operating income in 2009 increased to $23.2 million
from $10.8 million in 2008. Restructuring and transaction-related
costs and asset impairment charges were $18.2 million lower in
2009. Financial Services revenue was $98.9 million compared to
$103.8 million in 2008. The decline was primarily due to lower
order volumes caused by check usage declines and turmoil in the
financial services industry. The benefit of price increases
implemented in the third quarter of 2009 and the fourth quarter of
2008 more than offset the impact of continued pricing pressure.
Operating income in 2009 increased to $18.5 million from $7.1
million in 2008. Restructuring-related costs were $10.0 million
lower in 2009. Direct Checks revenue was $39.5 million compared to
$46.0 million in 2008. Third quarter order volume was down due to
the continued decline in check usage and a weak economy which is
negatively impacting our ability to sell additional products and
services. Operating income was $12.8 million, or 32.4 percent of
revenue, compared to $12.9 million or 28.0% of revenue in 2008.
Year-to-Date Cash Flow Performance Cash provided by operating
activities for the first nine months of 2009 totaled $150.2
million, an increase of $5.0 million compared to last year. Higher
contract acquisition and severance payments were more than offset
by significantly lower performance-based compensation and income
tax payments. Business Outlook The Company stated that for the
fourth quarter of 2009, revenue is expected to be between $326 and
$341 million, and diluted EPS is expected to be between $0.53 and
$0.63. Adjusted diluted EPS is expected to be between $0.54 and
$0.64, which excludes an estimated $0.01 of transaction-related
costs. For the full year, revenue is expected to be between $1.330
and $1.345 billion, and diluted EPS is expected to be between $1.87
and $1.97. Adjusted diluted EPS is expected to be between $2.27 and
$2.37 which excludes an estimated $0.40 related to asset impairment
charges, restructuring and transaction-related costs and net gains
on repurchases of long-term debt. The Company also stated that it
expects operating cash flow to be between $190 million and $200
million in 2009 and capital expenditures to be approximately $45
million. "We are hopeful that the recession's negative impact on
our business continues to stabilize as we head into the fourth
quarter," Schram stated. "We are managing our cost structure
aggressively, which has allowed us to increase our EPS outlook for
the year. Given the weak economic climate and current lack of
directional clarity, we believe it is prudent to expect 2010
revenue to be down low to mid-single digits as compared to 2009,
which is expected to produce adjusted diluted EPS ranging from a
low single digit decline to low single digit growth. As part of
these estimates, we expect to deliver strong double-digit revenue
growth in our new business services offerings as we continue to
advance our transformation. However, we believe it is important for
us to monitor the marketplace over the next three months before
providing a more specific outlook for 2010." Quarterly Dividend The
Board of Directors of Deluxe Corporation declared a regular
quarterly dividend of $0.25 per share on all outstanding shares of
the Company. The dividend will be payable on December 7, 2009 to
shareholders of record at the close of business on November 16,
2009. The Company had 51,204,096 shares outstanding as of October
20, 2009. Conference Call Information Deluxe will hold an
open-access teleconference call today at 11:00 a.m. EDT (10:00 a.m.
CDT) to review the financial results. All interested persons may
listen to the call by dialing 1-866-713-8395 (access code
51403286). The presentation also will be available via a
simultaneous webcast at http://www.deluxe.com/ in the news and
investors relations section. An audio replay of the call will be
available through midnight on October 29th by calling
1-888-286-8010 (access code 15299747). The presentation will be
archived on Deluxe's Web site. About Deluxe Corporation Deluxe
Corporation is a growth engine for small businesses and financial
institutions. Through its industry-leading businesses and brands,
the Company helps small businesses and financial institutions
attract and retain customers. The Company employs a multi-channel
strategy to provide a suite of life-cycle driven solutions to its
customers. In addition to its personalized printed products, the
Company offers a growing suite of business services, including logo
design, payroll, web design and hosting, business networking and
other web-based services to help small business grow. In the
financial services industry, Deluxe sells check programs and fraud
prevention, customer loyalty and retention programs to help banks
build lasting relationships and grow core deposits. The Company
also sells personalized checks, accessories, stored value gift
cards and other services directly to consumers. For more
information about Deluxe, visit http://www.deluxe.com/.
Forward-Looking Statements Statements made in this release
concerning the Company's or management's intentions, expectations,
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; further declines in the Company's
market capitalization which could trigger additional non-cash asset
impairment charges; 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 revenues and gross
margins; 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 increase 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
new e-commerce, customer loyalty and business services, and the
failure of such new 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, 2008. The
table below is provided to assist in understanding the
comparability of the Company's results of operations for the
quarters ended September 30, 2009 and 2008 and our outlook for
2009. The Company's management believes that adjusted earnings per
share (EPS) is a useful financial measure because the unusual items
during 2009 and 2008 (asset impairment charges, restructuring and
related costs, net gain on repurchases of debt, and
transaction-related costs) impacted 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: Outlook Actual Outlook Third Qtr. (provided on Third Third
Fourth Total July 23, Qtr. Qtr. Qtr. Year 2009) 2009 2008 2009 2009
---- ---- ---- ---- ---- Adjusted EPS $0.51 to $0.59 $0.60 $0.65
$0.54 to $0.64 $2.27 to $2.37 Asset impairment charges - - (0.12) -
(0.40) Restructuring and related costs (0.02) (0.03) (0.26) -
(0.08) Transaction-related costs (0.03) (0.01) - (0.01) (0.03) Net
gain on repurchases of debt - - - - 0.11 --- --- --- --- ----
Reported EPS $0.46 to $0.54 $0.56 $0.27 $0.53 to $0.63 $1.87 to
$1.97 ============== ===== ===== ============== ==============
Financial Highlights DELUXE CORPORATION CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (Dollars and shares in millions, except per
share amounts) (Unaudited) Quarter Ended September 30, 2009 2008
---- ---- Revenue $332.3 $362.7 Restructuring charges 0.4 0.1% 12.6
3.5% Other cost of goods sold 121.5 36.6% 137.5 37.9% ----- -----
Gross profit 210.4 63.3% 212.6 58.6% Selling, general and
administrative expense 154.1 46.4% 163.1 45.0% Restructuring and
asset impairment charges 1.8 0.5% 18.7 5.2% --- ---- Operating
income 54.5 16.4% 30.8 8.5% Interest expense (11.5) (3.5%) (12.7)
(3.5%) Other income 0.2 0.1% 0.2 0.1% --- --- Income before income
taxes 43.2 13.0% 18.3 5.0% Income tax provision 14.6 4.4% 4.2 1.2%
---- --- Income from continuing operations 28.6 8.6% 14.1 3.9% Net
loss from discontinued operations (0.3) (0.1%) - ---- Net income
$28.6 8.6% $13.8 3.8% ===== ===== Weighted average dilutive shares
outstanding 51.0 50.9 Diluted earnings (loss) per share: (1)
Continuing operations $0.56 $0.27 Discontinued operations (0.01)
Net income 0.56 0.27 Continuing operations: Capital expenditures
$11.3 $6.7 Depreciation and amortization expense 16.2 15.9 Number
of employees-end of period 6,383 7,422 Non-GAAP financial measure -
EBITDA(2) $70.9 $46.9 Non-GAAP financial measure - Adjusted
EBITDA(2) 74.3 78.5 (1) Earnings per share amounts for continuing
operations, discontinued operations, and net income are calculated
individually and may not sum due to rounding differences. (2)
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 unusual items
(i.e., asset impairment charges, restructuring and related costs,
and transaction-related costs), which may vary for companies for
reasons unrelated to overall operating performance. In our case,
depreciation and amortization of intangibles, as well as interest
expense, were significantly impacted by the acquisitions of New
England Business Service, Inc. (NEBS) in June 2004 and Hostopia.com
Inc. in August 2008. Additionally, interest expense in previous
years was significantly impacted by borrowings used for our share
repurchase programs and the unusual items in 2009 and 2008 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 income from continuing operations as follows: Quarter
Ended Sept. 30, 2009 2008 ---- ---- Adjusted EBITDA $74.3 $78.5
Asset impairment charges - (9.7) Restructuring and related costs
(2.9) (21.9) Transaction-related costs (0.5) - ----- --- EBITDA
70.9 46.9 Income tax provision (14.6) (4.2) Interest expense (11.5)
(12.7) Depreciation and amortization expense (16.2) (15.9) ------
------ Income from continuing operations $28.6 $14.1 ===== =====
DELUXE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars and shares in millions, except per share amounts)
(Unaudited) Nine Months Ended September 30, 2009 2008 ---- ----
Revenue $1,003.9 $1,103.8 Restructuring charges 2.7 0.3% 13.1 1.2%
Other cost of goods sold 375.4 37.4% 417.1 37.8% ----- ----- Gross
profit 625.8 62.3% 673.6 61.0% Selling, general and administrative
expense 464.1 46.2% 505.1 45.8% Restructuring and asset impairment
charges 26.9 2.7% 19.7 1.8% ---- ---- Operating income 134.8 13.4%
148.8 13.5% Gain on early extinguishment of debt 9.8 1.0% Interest
expense (35.5) (3.5%) (37.8) (3.4%) Other income 0.7 0.1% 1.1 0.1%
--- --- Income before income taxes 109.8 10.9% 112.1 10.2% Income
tax provision 41.0 4.1% 36.8 3.3% ---- ---- Income from continuing
operations 68.8 6.9% 75.3 6.8% Net loss from discontinued
operations (1.6) (0.1%) --- ---- Net income $68.8 6.9% $73.7 6.7%
===== ===== Weighted average dilutive shares outstanding 50.9 51.0
Diluted earnings (loss) per share: Continuing operations $1.34
$1.45 Discontinued operations (0.03) Net income 1.34 1.42
Continuing operations: Capital expenditures $35.0 $21.9
Depreciation and amortization expense 51.0 46.9 Number of
employees-end of period 6,383 7,422 Non-GAAP financial measure -
EBITDA(1) $196.3 $196.8 Non-GAAP financial measure - Adjusted
EBITDA(1) 219.6 229.9 (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
unusual items (i.e., asset impairment charges, restructuring and
related costs, transaction- related costs, and gain on early
extinguishment of debt), which may vary for companies for reasons
unrelated to overall operating performance. In our case,
depreciation and amortization of intangibles, as well as interest
expense, were significantly impacted by the acquisitions of New
England Business Service, Inc. (NEBS) in June 2004 and Hostopia.com
Inc. in August 2008. Additionally, interest expense in previous
years was significantly impacted by borrowings used for our share
repurchase programs and the unusual items in 2009 and 2008 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 income from continuing operations as follows: Nine
Months Ended Sept. 30, 2009 2008 ---- ---- Adjusted EBITDA $219.6
$229.9 Asset impairment charges (24.9) (9.7) Restructuring and
related costs (7.0) (23.4) Transaction-related costs (1.2) - Gain
on early extinguishment of debt 9.8 - --- --- EBITDA 196.3 196.8
Income tax provision (41.0) (36.8) Interest expense (35.5) (37.8)
Depreciation and amortization expense (51.0) (46.9) ------ ------
Income from continuing operations $68.8 $75.3 ===== ===== DELUXE
CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In millions)
(Unaudited) September 30, December 31, September 30, 2009 2008 2008
---- ---- ---- Cash and cash equivalents $14.1 $15.6 $18.0 Other
current assets 163.3 151.5 163.0 Property, plant &
equipment-net 123.8 128.1 128.2 Intangibles-net 151.2 154.1 157.3
Goodwill 658.5 653.0 656.7 Other non-current assets 132.7 116.7
129.0 ----- ----- ----- Total assets $1,243.6 $1,219.0 $1,252.2
======== ======== ======== Short-term debt & current portion of
long-term debt $63.3 $79.4 $111.6 Other current liabilities 223.6
204.2 219.2 Long-term debt 744.0 773.9 773.8 Deferred income taxes
21.6 9.5 21.6 Other non-current liabilities 94.8 98.9 61.5
Shareholders' equity 96.3 53.1 64.5 ---- ---- ---- Total
liabilities & shareholders' equity $1,243.6 $1,219.0 $1,252.2
======== ======== ======== Shares outstanding 51.2 51.1 51.1 DELUXE
CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In
millions) (Unaudited) Nine Months Ended September 30, 2009 2008
---- ---- Cash provided (used by): Operating activities: Net income
$68.8 $73.7 Depreciation and amortization of intangibles 51.0 46.9
Asset impairment charges 24.9 9.7 Contract acquisition payments
(17.9) (7.7) Other 23.4 22.6 ---- ---- Total operating activities
150.2 145.2 ----- ----- Investing activities: Purchases of capital
assets (35.0) (21.9) Payments for acquisitions (30.8) (104.8) Net
purchases of marketable securities (3.7) Other (3.4) 4.2 ---- ---
Total investing activities (72.9) (122.5) ----- ------ Financing
activities: Dividends (38.5) (38.6) Share repurchases (1.3) (21.8)
Shares issued under employee plans 2.0 2.8 Net change in debt
(37.3) 41.2 Other (4.6) (9.5) ---- ---- Total financing activities
(79.7) (25.9) Effect of exchange rate change on cash 1.4 (0.6) Net
cash (used) provided by discontinued operations (0.5) 0.2 ---- ---
Net change in cash (1.5) (3.6) Cash and cash equivalents: Beginning
of period 15.6 21.6 ---- ---- Cash and cash equivalents: End of
period $14.1 $18.0 ===== ===== DELUXE CORPORATION SEGMENT
INFORMATION (In millions) (Unaudited) Quarter Ended September 30,
2009 2008 ---- ---- Revenue: Small Business Services $193.9 $212.9
Financial Services 98.9 103.8 Direct Checks 39.5 46.0 ---- ----
Total $332.3 $362.7 ====== ====== Operating income: (1) Small
Business Services $23.2 $10.8 Financial Services 18.5 7.1 Direct
Checks 12.8 12.9 ---- ---- Total $54.5 $30.8 ===== ===== Nine
Months Ended September 30, 2009 2008 ---- ---- Revenue: Small
Business Services $579.1 $632.4 Financial Services 301.4 327.8
Direct Checks 123.4 143.6 ----- ----- Total $1,003.9 $1,103.8
======== ======== Operating income: (1) Small Business Services
$37.2 $62.9 Financial Services 57.3 44.9 Direct Checks 40.3 41.0
---- ---- Total $134.8 $148.8 ====== ====== 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, 2008.
(1) Operating income includes the following asset impairment
charges, restructuring and related costs and transaction-related
costs. Quarter Ended Nine Months Ended Sept. 30, Sept. 30, 2009
2008 2009 2008 ---- ---- ---- ---- Small Business Services $1.8
$20.0 $31.3 $21.4 Financial Services 0.8 10.8 1.1 10.7 Direct
Checks 0.8 0.8 0.7 1.0 --- --- --- --- Total $3.4 $31.6 $33.1 $33.1
==== ===== ===== ===== 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,
2009 and 2008. The Company's management believes that operating
income by segment, excluding the asset impairment charges,
restructuring and related costs and transaction-related costs in
each period, is a useful financial measure because the unusual
items during 2009 and 2008 impacted the comparability of reported
operating 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. DELUXE CORPORATION SEGMENT OPERATING INCOME
EXCLUDING ASSET IMPAIRMENT CHARGES, RESTRUCTURING AND RELATED COSTS
AND TRANSACTION-RELATED COSTS (In millions) Quarter Ended September
30, 2009 2008 ---- ---- Adjusted operating income: (1) Small
Business Services $25.0 $30.8 Financial Services 19.3 17.9 Direct
Checks 13.6 13.7 ---- ---- Total $57.9 $62.4 ===== ===== Nine
Months Ended September 30, 2009 2008 ---- ---- Adjusted operating
income: (1) Small Business Services $68.5 $84.3 Financial Services
58.4 55.6 Direct Checks 41.0 42.0 ---- ---- Total $167.9 $181.9
====== ====== (1) Operating income excluding asset impairment
charges, restructuring and related costs, and transaction-related
costs reconciles to reported operating income as follows: Quarter
Ended Nine Months Ended September 30, September 30, 2009 2008 2009
2008 ---- ---- ---- ---- Adjusted operating income $57.9 $62.4
$167.9 $181.9 Asset impairment charges, restructuring and
transaction- related costs: Small Business Services (1.8) (20.0)
(31.3) (21.4) Financial Services (0.8) (10.8) (1.1) (10.7) Direct
Checks (0.8) (0.8) (0.7) (1.0) ---- ---- ---- ---- Total (3.4)
(31.6) (33.1) (33.1) ---- ----- ----- ----- Reported operating
income $54.5 $30.8 $134.8 $148.8 ===== ===== ====== ======
DATASOURCE: Deluxe Corporation CONTACT: Terry D. Peterson, VP,
Investor Relations and Chief Accounting Officer of Deluxe
Corporation, +1-651-787-1068 Web Site: http://www.deluxe.com/
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