- EPS of $0.54 exceeds initial outlook provided in April - Adjusted
EPS of $0.57 excludes restructuring and transaction-related costs
ST. PAUL, Minn., July 23 /PRNewswire-FirstCall/ -- Deluxe
Corporation (NYSE:DLX) reported second quarter adjusted diluted
earnings per share (EPS) of $0.57 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 the recently announced
acquisitions. Reported diluted EPS was $0.54 on net income of $27.8
million in 2009 and $0.63 on net income of $32.6 million in 2008.
Operating results were better than expected for the current period
due to favorable shifts in product mix, lower spending and a lower
effective tax rate. "We had another strong quarter solidly
delivering on our financial commitments," said Lee Schram, CEO of
Deluxe. "More importantly, we saw growth in the quarter in key
strategic areas, including our loyalty, retention, and fraud and
security offerings, as well as new business services. We also
advanced our transformational strategy with the recently announced
acquisition of MerchEngines and execution of a definitive agreement
to purchase Aplus.net's shared hosting business." Second Quarter
Performance Revenue for the quarter was $332.1 million compared to
$364.0 million during the second quarter of 2008. Small Business
Services revenue was $15.9 million lower than the previous year
driven primarily by continued economic softness. Financial Services
revenue was down $9.5 million from the previous year and Direct
Checks revenue decreased $6.5, million both due to lower order
volumes. Gross margin was 61.8 percent of revenue compared to 62.3
percent in 2008. Increased restructuring-related costs in 2009
caused a 0.3 percentage point decrease in gross margin as compared
to the prior year. The benefit of our cost reduction initiatives
was offset by increased materials cost and performance-based
compensation expense. Selling, general and administrative
(SG&A) expense decreased $11.0 million in the quarter compared
to 2008. Increased performance-based compensation expense was more
than offset by benefits from cost reduction initiatives and lower
spending. As a percent of revenue, SG&A increased to 45.7
percent from 44.7 percent in 2008. Operating income was $53.1
million compared to $62.5 million in the second quarter of 2008.
Benefits from cost reduction initiatives and lower spending were
more than offset by the impact of lower revenue levels and
increased performance-based compensation expense, which alone
increased approximately $8 million in the 2009 quarter. Operating
income was 16.0 percent of revenue compared to 17.2 percent in the
prior year. Net income decreased $4.8 million and diluted EPS
decreased $0.09, driven by lower operating income. Second Quarter
Performance by Business Segment Small Business Services revenue was
$191.9 million versus $207.8 million in 2008. The decline was due
primarily to soft economic conditions, declines in sales of checks
and forms, and a $2 million decline from the effect of Canadian
exchange rate changes. These reductions were partially offset by
revenue contributions from the Hostopia acquisition and fraud
protection services. Operating income in 2009 decreased to $20.6
million from $30.3 million in 2008. The 2009 quarter's results
include restructuring and transaction-related costs of $2.1
million. Financial Services revenue was $100.5 million compared to
$110.0 million in 2008. The decline was primarily due to lower
order volumes caused by lower check usage and turmoil in the
financial services industry. The benefit of a price increase
implemented in the fourth quarter of 2008 mitigated the impact of
continued pricing pressure. Operating income in 2009 increased to
$19.3 million from $18.8 million in 2008. Direct Checks revenue was
$39.7 million compared to $46.2 million in 2008. Second 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. Operating income was $13.2 million, or
33.2 percent of revenue, compared to $13.4 million or 29.0% of
revenue in 2008. Year-to-Date Cash Flow Performance Cash provided
by operating activities for the first six months of 2009 totaled
$85.8 million, an increase of $18.8 million compared to last year.
The increase in 2009 primarily relates to significantly lower
performance-based compensation payments, as well as benefits from
working capital initiatives in the current year, which also have
reduced the Company's exposure to credit losses from customer
accounts receivable. Business Outlook The Company stated that for
the third quarter of 2009, revenue is expected to be between $325
and $340 million, and diluted EPS is expected to be between $0.46
and $0.54. Adjusted diluted EPS is expected to be between $0.51 and
$0.59, which excludes an estimated $0.05 of restructuring and
transaction-related costs. For the full year, revenue is expected
to be between $1.32 and $1.36 billion, and diluted EPS is expected
to be between $1.75 and $1.95. Adjusted diluted EPS is expected to
be between $2.15 and $2.35, 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 $185 million and $200 million in 2009 and capital
expenditures to be approximately $40 million. Included in the full
year estimates are approximately $7 million of revenue from the
recently announced transactions to purchase Aplus.net and
MerchEngines. The impact of these transactions on EPS is
insignificant after recording transaction and customer migration
expenses. For 2010, on a full year basis, these transactions are
expected to generate revenue of approximately $20 million and be
accretive to EPS. "We are not expecting the economic climate to
improve in the last half of 2009, but are hopeful that the pace of
decline is slowing down," Schram stated. "We believe Deluxe has
demonstrated its value as a disciplined, stable company in these
challenging economic times. Our transformational strategy continues
to advance as we reposition the Company for sustainable growth
long-term." 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 1-866-272-9941 (access code
14912131). 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 August 7th by calling 1-888-286-8010
(access code 89715561). 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, 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 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. 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 June 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, 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 earnings
per share as follows: Outlook Actual Outlook Second Qtr. Second
Second Third Total (provided on Qtr. Qtr. Qtr. Year Apr. 23, 2009)
2009 2008 2009 2009 Adjusted EPS $0.43 to $0.51 $0.57 $0.65 $0.51 -
$0.59 $2.15 - $2.35 Asset impairment charges - - - - (0.40)
Restructuring and related costs (0.02) (0.02) (0.02) (0.02) (0.07)
Transaction-related costs - (0.01) - (0.03) (0.04) Net gain on
repurchases of debt - - - - 0.11 Reported EPS $0.41 to $0.49 $0.54
$0.63 $0.46 - $0.54 $1.75 - $1.95 Financial Highlights DELUXE
CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Dollars
and shares in millions, except per share amounts) (Unaudited)
Quarter Ended June 30, 2009 2008 Revenue $332.1 $364.0 Cost of
goods sold, including restructuring charges 127.0 38.2% 137.2 37.7%
Gross profit 205.1 61.8% 226.8 62.3% Selling, general and
administrative expense 151.7 45.7% 162.7 44.7% Restructuring
charges 0.3 0.1% 1.6 0.4% Operating income 53.1 16.0% 62.5 17.2%
Interest expense (11.6) (3.5%) (12.4) (3.4%) Other income 0.2 0.1%
0.4 0.1% Income before income taxes 41.7 12.6% 50.5 13.9% Income
tax provision 13.9 4.2% 17.1 4.7% Income from continuing operations
27.8 8.4% 33.4 9.2% Net loss from discontinued operations (0.8)
(0.2%) Net income $27.8 8.4% $32.6 9.0% Weighted average dilutive
shares outstanding 50.9 51.0 Diluted earnings (loss) per share:
Continuing operations $0.54 $0.65 Discontinued operations (0.02)
Net income 0.54 0.63 Continuing operations: Capital expenditures
$13.8 $9.4 Depreciation and amortization expense 17.9 15.5 Number
of employees-end of period 6,461 7,417 Non-GAAP financial measure -
EBITDA(1) $71.2 $78.4 Non-GAAP financial measure - Adjusted
EBITDA(1) 73.5 80.4 (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, 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 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 depicts increased ability
to attract financing and increases the valuation of our business.
We do not consider EBITDA and Adjusted EBITDA to be a measure 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 a substitute 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 June 30, 2009 2008 Adjusted EBITDA $73.5
$80.4 Restructuring and related costs (1.7) (2.0)
Transaction-related costs (0.6) - EBITDA $71.2 $78.4 Income tax
provision (13.9) (17.1) Interest expense (11.6) (12.4) Depreciation
and amortization expense (17.9) (15.5) Income from continuing
operations $27.8 $33.4 DELUXE CORPORATION CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (Dollars and shares in millions, except per
share amounts) (Unaudited) Six Months Ended June 30, 2009 2008
Revenue $671.6 $741.1 Cost of goods sold, including restructuring
charges 256.2 38.1% 280.1 37.8% Gross profit 415.4 61.9% 461.0
62.2% Selling, general and administrative expense 310.1 46.2% 342.0
46.1% Restructuring and asset impairment charges 25.0 3.7% 1.0 0.1%
Operating income 80.3 12.0% 118.0 15.9% Gain on early
extinguishment of debt 9.8 1.5% Interest expense (24.0) (3.6%)
(25.1) (3.4%) Other income 0.5 0.1% 0.9 0.1% Income before income
taxes 66.6 9.9% 93.8 12.7% Income tax provision 26.3 3.9% 32.6 4.4%
Income from continuing operations 40.3 6.0% 61.2 8.3% Net loss from
discontinued operations (1.3) (0.2%) Net income $40.3 6.0% $59.9
8.1% Weighted average dilutive shares outstanding 50.8 51.1 Diluted
earnings (loss) per share: Continuing operations $0.79 $1.18
Discontinued operations (0.02) Net income 0.79 1.15 Continuing
operations: Capital expenditures $23.7 $15.2 Depreciation and
amortization expense 34.8 30.9 Number of employees-end of period
6,461 7,417 Non-GAAP financial measure - EBITDA(1) $125.4 $149.8
Non-GAAP financial measure - Adjusted EBITDA(1) 145.3 151.3 (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 gains on repurchases of long-term
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
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 depicts increased ability to attract financing
and increases the valuation of our business. We do not consider
EBITDA and Adjusted EBITDA to be a measure 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 a substitute 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: Six
Months Ended June 30, 2009 2008 Adjusted EBITDA $145.3 $151.3 Asset
impairment charges (24.9) - Restructuring and related costs (4.2)
(1.5) Transaction-related costs (0.6) - Gain on early
extinguishment of debt 9.8 - EBITDA $125.4 $149.8 Income tax
provision (26.3) (32.6) Interest expense (24.0) (25.1) Depreciation
and amortization expense (34.8) (30.9) Income from continuing
operations $40.3 $61.2 DELUXE CORPORATION CONSOLIDATED CONDENSED
BALANCE SHEETS (In millions) (Unaudited) June 30, December 31, June
30, 2009 2008 2008 Cash and cash equivalents $18.1 $15.6 $17.8
Other current assets 150.8 151.5 158.1 Property, plant &
equipment-net 126.5 128.1 132.1 Intangibles-net 137.4 154.1 135.7
Goodwill 633.1 653.0 585.8 Other non-current assets 137.0 116.7
133.7 Total assets $1,202.9 $1,219.0 $1,163.2 Short-term debt &
current portion of long-term debt $75.7 $79.4 $62.2 Other current
liabilities 197.9 204.2 179.6 Long-term debt 742.9 773.9 774.3
Deferred income taxes 15.6 9.5 12.6 Other non-current liabilities
96.0 98.9 66.8 Shareholders' equity 74.8 53.1 67.7 Total
liabilities & shareholders' equity $1,202.9 $1,219.0 $1,163.2
Shares outstanding 51.1 51.1 51.5 DELUXE CORPORATION CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Six
Months Ended June 30, 2009 2008 Cash provided (used by): Operating
activities: Net income $40.3 $59.9 Depreciation and amortization of
intangibles 34.8 30.9 Asset impairment charges 24.9 - Contract
acquisition payments (15.5) (4.6) Other 1.3 (19.2) Total operating
activities 85.8 67.0 Investing activities: Purchases of capital
assets (23.7) (15.2) Payments for acquisitions - (1.7) Other (4.7)
0.1 Total investing activities (28.4) (16.8) Financing activities:
Dividends (25.6) (25.8) Share repurchases (1.3) (13.9) Shares
issued under employee plans 1.0 1.6 Net change in debt (24.9) (7.7)
Other (4.1) (7.8) Total financing activities (54.9) (53.6) Effect
of exchange rate change on cash 0.5 (0.2) Net cash used by
discontinued operations (0.5) (0.2) Net change in cash 2.5 (3.8)
Cash and cash equivalents: Beginning of period 15.6 21.6 Cash and
cash equivalents: End of period $18.1 $17.8 DELUXE CORPORATION
SEGMENT INFORMATION (In millions) (Unaudited) Quarter Ended June
30, 2009 2008 Revenue: Small Business Services $191.9 $207.8
Financial Services 100.5 110.0 Direct Checks 39.7 46.2 Total $332.1
$364.0 Operating income: (1) Small Business Services $20.6 $30.3
Financial Services 19.3 18.8 Direct Checks 13.2 13.4 Total $53.1
$62.5 Six Months Ended June 30, 2009 2008 Revenue: Small Business
Services $385.2 $419.5 Financial Services 202.5 224.0 Direct Checks
83.9 97.6 Total $671.6 $741.1 Operating income: (1) Small Business
Services $14.0 $52.2 Financial Services 38.8 37.7 Direct Checks
27.5 28.1 Total $80.3 $118.0 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 Six Months Ended June 30, June 30, 2009 2008 2009
2008 Small Business Services $2.1 $1.6 $29.5 $1.4 Financial
Services 0.1 0.2 0.2 (0.1) Direct Checks 0.1 0.2 - 0.2 Total $2.3
$2.0 $29.7 $1.5 The table below is provided to assist in
understanding the comparability of the Company's results of
operations for the quarters and six months ended June 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 June 30, 2009
2008 Adjusted operating income: (1) Small Business Services $22.7
$31.9 Financial Services 19.4 19.0 Direct Checks 13.3 13.6 Total
$55.4 $64.5 Six Months Ended June 30, 2009 2008 Adjusted operating
income: (1) Small Business Services $43.5 $53.6 Financial Services
39.0 37.6 Direct Checks 27.5 28.3 Total $110.0 $119.5 (1) Operating
income excluding asset impairment charges, restructuring and
related costs, and transaction-related costs reconciles to reported
operating income as follows: Quarter Ended Six Months Ended June
30, June 30, 2009 2008 2009 2008 Adjusted operating income $55.4
$64.5 $110.0 $119.5 Asset impairment charges, restructuring and
transaction-related costs: Small Business Services (2.1) (1.6)
(29.5) (1.4) Financial Services (0.1) (0.2) (0.2) 0.1 Direct Checks
(0.1) (0.2) - (0.2) Total (2.3) (2.0) (29.7) (1.5) Reported
operating income $53.1 $62.5 $80.3 $118.0 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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