Deluxe Corporation (
Q3 2010 Earnings Call
October 28, 2010 11:00 a.m. ET
Jeff Johnson – VP, IR and Treasurer
Lee Schram – CEO
Terry Peterson – SVP and CFO
Charles Strauzer – CJS Securities
John Kraft – D.A. Davidson
Jamie Clement – Sidoti
David Herbert – Wells Fargo Securities
Previous Statements by DLX
» Deluxe Corporation Q2 2010 Earnings Call Transcript
» Deluxe Corporation Q1 2010 Earnings Call Transcript
» Deluxe Corp. Q4 2009 Earnings Call Transcript
» Deluxe Corp. Q3 2009 Earnings Call Transcript
Good day, ladies and gentlemen, and welcome to the third quarter 2010 Deluxe Corporation earnings conference call. My name is Marcella, and I will be your operator for today. At this time, all participates are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions)
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jeff Johnson, Treasurer, Vice President of Investor Relations. Please proceed.
Thank you, Marcella. Welcome to Deluxe Corporation's 2010 third quarter earnings call. I'm Jeff Johnson, Deluxe's Treasure, and Vice President of Investor Relations. Joining me on the call today are Lee Schram, Deluxe's Chief Executive Officer; and Terry Peterson, Deluxe's Chief Financial Officer. Lee, Terry, and I will take questions from analysts after the prepared comments. At that time, the operator will instruct you how to ask a question.
In accordance with Regulation FD this call is open to all interested parties. A replay of the call will be available via telephone and Deluxe's website. I will provide instructions for accessing the replay at the conclusion of our teleconference.
Before I begin, let me make this brief cautionary statement. Comments made today regarding financial estimates and projections and any other statements addressing management's intentions and expectations regarding the company's future performance are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
As such, these comments are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Additional information about various factors that could cause actual results to differ from those projected are contained in the news release that we issued this morning, and in the company's Form 10-K for the year ended December 31, 2009.
In addition, the financial and statistical information that will be reviewed during this call is addressed in greater detail in today's press release, which is posted in the News and Investor Relations section of our website,
, and was furnished to the SEC on the Form 8-K filed this morning. In particular, any non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release.
Now, I'll turn the call over to Lee.
Thank you, Jeff, and good morning, everyone. Deluxe delivered another very strong quarter. Revenue grown was 11%, or 3% excluding the one-time $25 million contract settlement, and finished near the high end of our previous outlook.
Small business service revenue, excluding the portion of the contract settlement recorded in this segment grew slightly over the prior year for the second quarter in a roll, and sequentially over last quarter as well.
Checks and Forms both performed well against our expectations, and new business services revenue grew 33% over the prior year.
Diluted earnings per share from continuing operations exceeded the high end our outlook. We had solid execution against our cost reduction programs and spending control, which along with strong revenue performance in Small Business Services, drove higher than expected EPS.
Excluding the onetime $0.31 per share contract settlement, adjusted diluted EPS from continuing operations grew 13% over prior year. In the quarter we continued our test-and-learn brand awareness and direct-response advertizing, as well as organic technology initiatives to help better position our New Business Services offerings and generate future revenue growth.
At the same time, we continued our process improvements and cost reductions while driving strong operating cash flow as we continue our transformation. In a few minutes I’ll discuss more details around our recent progress, and next steps but first, Terry will cover our financial performance.
Thanks, Lee. Earlier today, we reported diluted earnings per share for continuing operations for the third quarter of $0.99 which was $0.01 favorable to the upper end of our previous outlook in spite of a tax rate which was 2 percentage points higher than expected, due to a reduction in certain qualified tax deductions in the deferred enactment of expected tax legislation. Results for the quarter also included $0.31 from the previously announced contract settlement.
Revenue for the quarter came in at $368 million, which was near the top end of the range, of our previous outlook, and up approximately 11% from 2009, or 3% excluding the impact of the contract settlement. Small Business Services revenue up $207 million, was up 7% versus 2009, and still up slightly excluding the portion of the contract settlement recorded in this segment.
Revenue shows solid business services growth, but was unfavorably impacted by continued economic weakness. Financial Services revenue of $103 million was up 4% versus the third quarter of last year, but down 9% excluding the contract settlement. The impact of lower check orders, and lower check pricing, was only partially offset by higher non-check revenue service’s – services revenue.
Direct Checks revenue totaled $58 million, up 48% on a year-over-year basis due to the CDI acquisition. Excluding the impact of the acquisition, Direct Checks revenue was only down 4% due to continued strong reorder performance.
Gross margin for the quarter was 67% of revenue, up 3.7 percentage points from 2009. Contract settlement increased the 2010 gross margin percentage by 2.4 points. In addition, benefits from improvements in manufacturing productivity, plant consolidation, delivery initiatives, and product mix were partly offset by increased delivery rates.