Deluxe Reports Fourth Quarter 2018 Financial Results
Fourth quarter revenue increased 6.0% over last year
Annual revenue of $1.998 billion sets all-time record
Declares regular quarterly dividend
Expands credit facility to $1.150 billion
ST. PAUL, Minn.--(BUSINESS WIRE)-- Deluxe Corporation (NYSE: DLX), a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the fourth quarter and year ended December 31, 2018. Key financial highlights for the fourth quarter include:
|
4th Quarter |
4th Quarter |
% Change | ||||||||
| Revenue | $524.7 million | $494.9 million | 6.0 | % | ||||||
| Net Income | $63.5 million | $84.7 million | (25.0 | %) | ||||||
| Diluted Earnings per Share – GAAP | $1.39 | $1.75 | (20.6 | %) | ||||||
| Adjusted Diluted EPS – Non-GAAP(1) | $1.54 | $1.40 | 10.0 | % | ||||||
| (1) | 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. Non-GAAP adjustments include restructuring and integration costs, transaction costs, CEO transition costs, asset impairment charges, loss on debt retirement, and one-time impacts of accounting for federal tax reform. | |
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 6.0% year-over-year. Financial Services revenue increased 15.0% 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% and includes the results of several small tuck-in acquisitions.
- Revenue from marketing solutions and other services (MOS) increased 20.1% year-over-year and grew to 45.4% of total revenue in the quarter.
- Gross margin was 59.0% of revenue, compared to 61.4% 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% in the quarter compared to 40.6% 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% 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.
Segment Highlights
Small Business Services
- Revenue of $334.0 million was in line with our expectations and increased 3.6% 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.
Financial Services
- Revenue of $160.2 million was in line with our expectations and increased 15.0% 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.
Direct Checks
- Revenue of $30.5 million was slightly better than our expectations and declined 8.1% 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.
Other Highlights
- 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 January 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 February 19, 2019.
- On January 22, 2019, the existing credit facility was expanded by $200.0 million, bringing the total availability under the credit facility to $1.150 billion.
| First Quarter 2019 |
Current Outlook |
||
| Revenue(1) | $490 to $505 million | ||
| Adjusted diluted EPS | $1.05 to $1.15 | ||
| Full Year 2019(3) |
Current Outlook |
||
| Revenue(1) | low-single digit increase over 2018 | ||
| GAAP diluted EPS | increasing over 2018 | ||
| Adjusted diluted EPS(2) | slight increase over 2018 | ||
| (1) | Assumes no 2019 acquisition revenue in the current outlook for either the first quarter or full year. | |
| (2) | The Adjusted diluted EPS outlook assumes no gains from sales of assets in 2019. 2018 reported adjusted diluted EPS included approximately $0.25 per share in gains on asset sales. Outlook for increasing adjusted diluted EPS is after the adjustment of $0.25 per share in 2018. | |
| (3) | Management intends to provide a more detailed full year earnings outlook in conjunction with the first quarter 2019 earnings release. | |
Earnings Call Information
A live conference call will be
held today at 11:00 a.m. ET (10:00 a.m. CT) to review the financial
results. Listeners can access the call by dialing 1-615-247-0252 (access
code 9815909). A presentation also will be available via a webcast on
the investor relations website at www.deluxe.com/investor.
Alternatively, an audio replay of the call will be available on the
investor relations website or by calling 1-404-537-3406 (access code
9815909).
Upcoming Management Presentations
- March 11th and 12th – Susquehanna Tech Summit (New York)
- March 19th and 20th – Telsey Advisory Group Conference (New York)
About Deluxe Corporation
Deluxe is a growth engine for small
businesses and financial institutions. Nearly 4.4 million small business
customers access Deluxe's wide range of products and services, including
customized checks and forms, as well as incorporation services, logo
design, website development and hosting, email marketing, social media,
search engine optimization and payroll services. For our approximately
4,600 financial institution customers, Deluxe offers industry-leading
programs in checks, data analytics and customer acquisition and treasury
management solutions, including fraud prevention and profitability.
Deluxe is also a leading provider of checks and accessories sold
directly to consumers. For more information, visit us at www.deluxe.com,
www.facebook.com/deluxecorp
or www.twitter.com/deluxecorp.
Forward-Looking Statements
Statements made in this release
concerning Deluxe, “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 intentions 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 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 other
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 profit; 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; the risk that
pending and future acquisitions will not be consummated within the
expected time periods or at all; risks that the Company’s recent
acquisitions do not produce the anticipated results or synergies; risks
that the Company’s cost reduction initiatives will be delayed or
unsuccessful; performance shortfalls by one or more of the Company’s
major suppliers, licensors or service providers; unanticipated delays,
costs and expenses in the development and marketing of products and
services, including web services, financial technology and treasury
management solutions; the failure of such products and services to
deliver the expected revenues and other financial targets; risks related
to security breaches, computer malware or other cyber-attacks; risks of
interruptions to our website operations or information technology
systems; risks of unfavorable outcomes and the costs to defend
litigation and other disputes; 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, maybe 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, 2017.
Diluted EPS Reconciliation
Management believes that adjusted
diluted EPS provides useful additional information for investors because
it provides better comparability of ongoing performance to prior periods
given that it excludes the impact of certain items during 2018 and 2017
(i.e., restructuring and integration costs, transaction costs, CEO
transition costs, asset impairment charges, loss on debt retirement, and
one-time impacts of accounting for federal tax reform) that impact the
comparability of reported net income and which management believes to be
non-indicative of ongoing operations. It is reasonable to expect that
one or more of these excluded items will occur in future periods, but
the amounts recognized can vary significantly from period to period and
may not directly relate to the Company’s ongoing operations. 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.
Reported earnings per share reconciles to adjusted EPS as follows:
| Actual | ||||||||||||||||
|
4th Quarter |
4th Quarter |
Total Year |
Total Year |
|||||||||||||
| Reported Diluted EPS | $1.39 | $1.75 | $3.29 | $4.72 | ||||||||||||
| Asset impairment charges |
-- |
-- |
1.96 | 0.81 | ||||||||||||
| Restructuring and integration costs | 0.11 | 0.06 | 0.34 | 0.13 | ||||||||||||
| CEO transition costs | 0.04 | -- | 0.11 | -- | ||||||||||||
| Transaction costs | 0.01 | 0.01 | 0.02 | 0.03 | ||||||||||||
| Loss on debt retirement | -- | -- | 0.01 | -- | ||||||||||||
| Impact of federal tax reform | (0.01 | ) | (0.42 | ) | (0.04 | ) | (0.42 | ) | ||||||||
| Adjusted Diluted EPS | $1.54 | $1.40 | $5.69 | $5.27 | ||||||||||||
| DELUXE CORPORATION | ||||||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF INCOME | ||||||||||||||||
|
(Dollars and shares in millions, except per share amounts) |
||||||||||||||||
|
(Unaudited) |
||||||||||||||||
| Quarter Ended December 31, | ||||||||||||||||
|
2018(1) |
2017(2) |
|||||||||||||||
| Product revenue | $375.7 | $372.1 | ||||||||||||||
| Service revenue | 149.0 | 122.8 | ||||||||||||||
| Total revenue | 524.7 | 494.9 | ||||||||||||||
| Cost of products | (147.0 | ) | (28.0 | %) | (137.2 | ) | (27.7 | %) | ||||||||
| Cost of services | (68.2 | ) | (13.0 | %) | (53.8 | ) | (10.9 | %) | ||||||||
| Total cost of revenue | (215.2 | ) | (41.0 | %) | (191.0 | ) | (38.6 | %) | ||||||||
| Gross profit | 309.5 | 59.0 | % | 303.9 | 61.4 | % | ||||||||||
| Selling, general and administrative expense | (216.2 | ) | (41.2 | %) | (201.0 | ) | (40.6 | %) | ||||||||
| Restructuring and integration expense | (6.8 | ) | (1.3 | %) | (4.9 | ) | (1.0 | %) | ||||||||
| Operating income | 86.5 | 16.5 | % | 98.0 | 19.8 | % | ||||||||||
| Interest expense | (8.2 | ) | (1.6 | %) | (5.6 | ) | (1.1 | %) | ||||||||
| Other income | 2.5 | 0.5 | % | 1.4 | 0.3 | % | ||||||||||
| Income before income taxes | 80.8 | 15.4 | % | 93.8 | 19.0 | % | ||||||||||
| Income tax provision | (17.3 | ) | (3.3 | %) | (9.1 | ) | (1.8 | %) | ||||||||
| Net income | $63.5 | 12.1 | % | $84.7 | 17.1 | % | ||||||||||
| Weighted-average dilutive shares outstanding | 45.5 | 48.1 | ||||||||||||||
| Diluted earnings per share | $1.39 | $1.75 | ||||||||||||||
| Capital expenditures | $19.7 | $13.1 | ||||||||||||||
| Depreciation and amortization expense | 34.2 | 31.4 | ||||||||||||||
| Number of employees-end of period | 6,701 | 5,886 | ||||||||||||||
| Non-GAAP financial measure - EBITDA(3) | $123.2 | $130.8 | ||||||||||||||
| Non-GAAP financial measure - Adjusted EBITDA(3) | 134.3 | 136.6 | ||||||||||||||
| (1) | Effective January 1, 2018, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and related amendments. Adoption of these standards resulted in an increase in revenue of $0.4 million and a decrease in net income of $0.3 million for the quarter ended December 31, 2018. We do not expect these standards to have a significant impact on our results of operations, financial position or cash flows on an ongoing basis. | |
| (2) | Results have been revised to reflect the adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that we revise prior periods to reclassify the net periodic benefit income related to our postretirement plans from cost of revenue and SG&A expense to other income. This revision had no impact on total revenue or net income. | |
| (3) | 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 integration costs; transaction costs; CEO transition costs; asset impairment charges and loss on debt retirement) that 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 impacted by acquisitions. Certain transactions in 2018 and 2017 also impacted the comparability of reported net income. We believe that measures of operating performance that 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 that should be considered in addition to GAAP performance measures. EBITDA and Adjusted EBITDA are derived from net income as follows: | |
|
Quarter Ended |
||||||
| 2018 | 2017 | |||||
| Net income | $63.5 | $84.7 | ||||
| Interest expense | 8.2 | 5.6 | ||||
| Income tax provision | 17.3 | 9.1 | ||||
| Depreciation and amortization expense | 34.2 | 31.4 | ||||
| EBITDA | 123.2 | 130.8 | ||||
| Restructuring and integration costs | 7.4 | 5.4 | ||||
| Transaction costs | 0.6 | 0.4 | ||||
| CEO transition costs | 3.1 | — | ||||
| Adjusted EBITDA | $134.3 | $136.6 | ||||
| DELUXE CORPORATION | ||||||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF INCOME | ||||||||||||||||
|
(Dollars and shares in millions, except per share amounts) |
||||||||||||||||
|
(Unaudited) |
||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
|
2018(1) |
2017(2) |
|||||||||||||||
| Product revenue | $1,451.8 | $1,469.9 | ||||||||||||||
| Service revenue | 546.2 | 495.7 | ||||||||||||||
| Total revenue | 1,998.0 | 1,965.6 | ||||||||||||||
| Cost of products | (547.6 | ) | (27.4 | %) | (529.7 | ) | (26.9 | %) | ||||||||
| Cost of services | (244.1 | ) | (12.2 | %) | (213.1 | ) | (10.8 | %) | ||||||||
| Total cost of revenue | (791.7 | ) | (39.6 | %) | (742.8 | ) | (37.8 | %) | ||||||||
| Gross profit | 1,206.3 | 60.4 | % | 1,222.8 | 62.2 | % | ||||||||||
| Selling, general and administrative expense | (845.6 | ) | (42.3 | %) | (830.1 | ) | (42.2 | %) | ||||||||
| Restructuring and integration expense | (19.7 | ) | (1.0 | %) | (8.6 | ) | (0.4 | %) | ||||||||
| Asset impairment charges | (101.3 | ) | (5.1 | %) | (54.9 | ) | (2.8 | %) | ||||||||
| Operating income | 239.7 | 12.0 | % | 329.2 | 16.7 | % | ||||||||||
| Interest expense | (27.1 | ) | (1.4 | %) | (21.4 | ) | (1.1 | %) | ||||||||
| Other income | 8.6 | 0.4 | % | 5.0 | 0.3 | % | ||||||||||
| Income before income taxes | 221.2 | 11.1 | % | 312.8 | 15.9 | % | ||||||||||
| Income tax provision | (65.3 | ) | (3.3 | %) | (82.6 | ) | (4.2 | %) | ||||||||
| Net income | $155.9 | 7.8 | % | $230.2 | 11.7 | % | ||||||||||
| Weighted-average dilutive shares outstanding | 47.0 | 48.4 | ||||||||||||||
| Diluted earnings per share | $3.29 | $4.72 | ||||||||||||||
| Capital expenditures | $62.2 | $47.5 | ||||||||||||||
| Depreciation and amortization expense | 131.1 | 122.7 | ||||||||||||||
| Number of employees-end of period | 6,701 | 5,886 | ||||||||||||||
| Non-GAAP financial measure - EBITDA(3) | $379.4 | $456.9 | ||||||||||||||
| Non-GAAP financial measure - Adjusted EBITDA(3) | 511.4 | 523.3 | ||||||||||||||
| (1) | Effective January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers, and related amendments. Adoption of these standards resulted in an increase in revenue of $0.7 million and an increase in net income of $0.6 million for the year ended December 31, 2018. We do not expect these standards to have a significant impact on our results of operations, financial position or cash flows on an ongoing basis. | |
| (2) | Results have been revised to reflect the adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that we revise prior periods to reclassify the net periodic benefit income related to our postretirement plans from cost of revenue and SG&A expense to other income. This revision had no impact on total revenue or net income. | |
| (3) | See the prior discussion of EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are derived from net income as follows: | |
| Year Ended December 31, | ||||||
| 2018 | 2017 | |||||
| Net income | $155.9 | $230.2 | ||||
| Interest expense | 27.1 | 21.4 | ||||
| Income tax provision | 65.3 | 82.6 | ||||
| Depreciation and amortization expense | 131.1 | 122.7 | ||||
| EBITDA | 379.4 | 456.9 | ||||
| Restructuring and integration costs | 21.2 | 9.1 | ||||
| Transaction costs | 1.8 | 2.4 | ||||
| CEO transition costs | 7.2 | — | ||||
| Asset impairment charges | 101.3 | 54.9 | ||||
| Loss on debt retirement | 0.5 | — | ||||
| Adjusted EBITDA | $511.4 | $523.3 | ||||
| DELUXE CORPORATION | ||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||
|
(In millions) |
||||||
|
(Unaudited) |
||||||
|
December 31, |
December 31, |
|||||
| Cash and cash equivalents | $59.7 | $59.2 | ||||
| Other current assets | 390.7 | 333.8 | ||||
| Property, plant and equipment-net | 90.3 | 84.6 | ||||
| Intangibles-net | 360.0 | 384.3 | ||||
| Goodwill | 1,160.6 | 1,130.9 | ||||
| Other non-current assets | 243.1 | 216.0 | ||||
| Total assets | $2,304.4 | $2,208.8 | ||||
| Current portion of long-term debt | $0.8 | $44.0 | ||||
| Other current liabilities | 382.2 | 381.8 | ||||
| Long-term debt | 911.1 | 665.3 | ||||
| Deferred income taxes | 48.7 | 50.5 | ||||
| Other non-current liabilities | 39.9 | 52.2 | ||||
| Shareholders' equity | 921.7 | 1,015.0 | ||||
| Total liabilities and shareholders' equity | $2,304.4 | $2,208.8 | ||||
| Shares outstanding | 44.6 | 48.0 | ||||
| DELUXE CORPORATION | ||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||
|
(In millions) |
||||||||
|
(Unaudited) |
||||||||
| Year Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash provided (used) by: | ||||||||
| Operating activities: | ||||||||
| Net income | $155.9 | $230.2 | ||||||
| Depreciation and amortization of intangibles | 131.1 | 122.7 | ||||||
| Asset impairment charges | 101.3 | 54.9 | ||||||
| Prepaid product discount payments | (23.8 | ) | (27.1 | ) | ||||
| Other | (25.2 | ) | (42.3 | ) | ||||
| Total operating activities | 339.3 | 338.4 | ||||||
| Investing activities: | ||||||||
| Purchases of capital assets | (62.2 | ) | (47.5 | ) | ||||
| Payments for acquisitions | (214.3 | ) | (139.2 | ) | ||||
| Other | 1.1 | 5.8 | ||||||
| Total investing activities | (275.4 | ) | (180.9 | ) | ||||
| Financing activities: | ||||||||
| Net change in debt | 201.2 | (51.2 | ) | |||||
| Dividends | (56.7 | ) | (58.1 | ) | ||||
| Share repurchases | (200.0 | ) | (65.0 | ) | ||||
| Shares issued under employee plans | 7.5 | 9.0 | ||||||
| Other | (12.1 | ) | (11.7 | ) | ||||
| Total financing activities | (60.1 | ) | (177.0 | ) | ||||
| Effect of exchange rate change on cash | (3.3 | ) | 2.1 | |||||
| Net change in cash and cash equivalents | 0.5 | (17.4 | ) | |||||
| Cash and cash equivalents: Beginning of period | 59.2 | 76.6 | ||||||
| Cash and cash equivalents: End of period | $59.7 | $59.2 | ||||||
| DELUXE CORPORATION | ||||||||||||||||
| SEGMENT INFORMATION | ||||||||||||||||
|
(In millions) |
||||||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Quarter Ended |
Year Ended December 31, |
|||||||||||||||
|
2018(1) |
2017(2) |
2018(1) |
2017(2) |
|||||||||||||
| Revenue: | ||||||||||||||||
| Small Business Services | $334.0 | $322.4 | $1,283.6 | $1,239.7 | ||||||||||||
| Financial Services | 160.2 | 139.3 | 587.0 | 585.3 | ||||||||||||
| Direct Checks | 30.5 | 33.2 | 127.4 | 140.6 | ||||||||||||
| Total | $524.7 | $494.9 | $1,998.0 | $1,965.6 | ||||||||||||
| Operating income:(3) | ||||||||||||||||
| Small Business Services | $56.0 | $61.9 | $128.3 | $181.5 | ||||||||||||
| Financial Services | 20.4 | 25.0 | 69.9 | 101.1 | ||||||||||||
| Direct Checks | 10.1 | 11.1 | 41.5 | 46.6 | ||||||||||||
| Total | $86.5 | $98.0 | $239.7 | $329.2 | ||||||||||||
| Operating margin:(3) | ||||||||||||||||
| Small Business Services | 16.8 | % | 19.2 | % | 10.0 | % | 14.6 | % | ||||||||
| Financial Services | 12.7 | % | 17.9 | % | 11.9 | % | 17.3 | % | ||||||||
| Direct Checks | 33.1 | % | 33.4 | % | 32.6 | % | 33.1 | % | ||||||||
| Total | 16.5 | % | 19.8 | % | 12.0 | % | 16.7 | % | ||||||||
The segment information reported here was calculated utilizing the methodology outlined in the Condensed Notes to Unaudited Consolidated Financial Statements included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
| (1) | Effective January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers, and related amendments. Adoption of these standards resulted in an increase in revenue of $0.4 million and a decrease in net income of $0.3 million for the quarter ended December 31, 2018 and an increase in revenue of $0.7 million and an increase in net income of $0.6 million for the year ended December 31, 2018. We do not expect these standards to have a significant impact on our results of operations, financial position or cash flows on an ongoing basis. | |
| (2) | Results have been revised to reflect the adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that we revise prior periods to reclassify the net periodic benefit income related to our postretirement plans from cost of revenue and SG&A expense to other income. This revision had no impact on total revenue or net income. | |
| (3) | Operating income includes the following restructuring and integration, transaction and CEO transition costs, as well as asset impairment charges: | |
|
Quarter Ended December 31, |
Year Ended December 31, |
|||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| Small Business Services | $6.8 | $2.9 | $115.2 | $60.4 | ||||||||
| Financial Services | 4.0 | 2.6 | 15.8 | 5.6 | ||||||||
| Direct Checks | 0.3 | 0.3 | 0.5 | 0.4 | ||||||||
| Total | $11.1 | $5.8 | $131.5 | $66.4 | ||||||||
The table below is provided to assist in understanding the comparability of the Company’s results of operations for the quarters and years ended December 31, 2018 and 2017. Management believes that operating income by segment, excluding restructuring and integration, transaction and CEO transition costs, as well as asset impairment charges, provides useful additional information for investors because it provides better comparability of ongoing performance to prior periods given that it excludes the impact of items that affect the comparability of reported operating results and which management believes to be non-indicative of ongoing operations. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company’s ongoing operations. 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, Management believes that this information is a useful financial measure to be considered in addition to GAAP performance measures.
| DELUXE CORPORATION | ||||||||||||||||
| ADJUSTED SEGMENT OPERATING INCOME | ||||||||||||||||
|
(In millions) |
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|
(Unaudited) |
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|
Quarter Ended December 31, |
Year Ended December 31, |
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|
2018(1) |
2017(2) |
2018(1) |
2017(2) |
|||||||||||||
| Adjusted operating income:(3) | ||||||||||||||||
| Small Business Services | $62.8 | $64.8 | $243.5 | $241.9 | ||||||||||||
| Financial Services | 24.4 | 27.6 | 85.7 | 106.7 | ||||||||||||
| Direct Checks | 10.4 | 11.4 | 42.0 | 47.0 | ||||||||||||
| Total | $97.6 | $103.8 | $371.2 | $395.6 | ||||||||||||
| Adjusted operating margin:(3) | ||||||||||||||||
| Small Business Services | 18.8 | % | 20.1 | % | 19.0 | % | 19.5 | % | ||||||||
| Financial Services | 15.2 | % | 19.8 | % | 14.6 | % | 18.2 | % | ||||||||
| Direct Checks | 34.1 | % | 34.3 | % | 33.0 | % | 33.4 | % | ||||||||
| Total | 18.6 | % | 21.0 | % | 18.6 | % | 20.1 | % | ||||||||
| (1) | Effective January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers, and related amendments. Adoption of these standards resulted in an increase in revenue of $0.4 million and a decrease in net income of $0.3 million for the quarter ended December 31, 2018 and an increase in revenue of $0.7 million and an increase in net income of $0.6 million for the year ended December 31, 2018. We do not expect these standards to have a significant impact on our results of operations, financial position or cash flows on an ongoing basis. | |
| (2) | Results have been revised to reflect the adoption of ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires that we revise prior periods to reclassify the net periodic benefit income related to our postretirement plans from cost of revenue and SG&A expense to other income. This revision had no impact on total revenue or net income. | |
| (3) | Reported operating income reconciles to adjusted operating income as follows: | |
|
Quarter Ended December 31, |
Year Ended December 31, |
|||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| Reported operating income | $86.5 | $98.0 | $239.7 | $329.2 | ||||||||
| Non-GAAP adjustments: | ||||||||||||
| Small Business Services | 6.8 | 2.9 | 115.2 | 60.4 | ||||||||
| Financial Services | 4.0 | 2.6 | 15.8 | 5.6 | ||||||||
| Direct Checks | 0.3 | 0.3 | 0.5 | 0.4 | ||||||||
| Total | 11.1 | 5.8 | 131.5 | 66.4 | ||||||||
| Adjusted operating income | $97.6 | $103.8 | $371.2 | $395.6 | ||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190124005164/en/
Ed Merritt
Treasurer and VP of Investor Relations
(651)
787-1068
Source: Deluxe Corporation
Released January 24, 2019