Q1 2010 Earnings Call Transcript
April 22, 2010 11:00 am ET
Jeff Johnson – VP, IR
Lee Schram – CEO
Terry Peterson – CFO
Charlie Strauzer – CJS Securities
Jamie Clement – Sidoti & Company
John Kraft – DA Davidson
Michael Hamilton – RBC Capital Markets
Dennis Xavier [ph] – Wells Fargo
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Good day, ladies and gentlemen, and welcome to the first quarter 2010 Deluxe Corporation earnings conference call. My name is Shenil, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today's call, Mr. Jeff Johnson, Treasurer, Vice President of Investor Relations. Please proceed.
Thank you, Shenil. Welcome to Deluxe Corporation’s 2010 first quarter earnings call. I’m Jeff Johnson, Deluxe’s Vice-President of Investor Relations and Treasurer. 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 31st, 2008.
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, www.deluxe.com, 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 Schram, Deluxe’s CEO.
Thank you, Jeff, and good morning, everyone. In a continued challenging economic environment we delivered a very strong quarter. We reported revenue at the top of our expected range while adjusted earnings per share was well above the high-end of our range. All three segments delivered strong revenue. Checks and forms both performed well against our expectations, and new business services revenues grew 33% over the prior year.
We had strong execution against our cost reduction program and spending controls, which drove better than expected EPS and operating cash flow. Adjusted diluted earnings per share from continuing operations grew 30% over the prior year. We generated strong operating cash flow, and we were not drawn on our credit facility as we ended the quarter.
We completed the acquisition of Custom Direct in early April to extend our direct-to-consumer offerings and enhanced our cash flow generating capabilities. In late March, we started to invest in developing improved brand awareness to help better position our new business services offerings.
We have started to invest more back into the business to drive revenue growth. But, we are continuing our processes improvements and cost reductions while driving strong operating cash flow as we continue to transform Deluxe and execute our turnaround plan. In a few minutes, I will discuss more details around our recent progress and next steps, but first, Terry will cover our financial performance.
Thank you, Lee. Earlier today, we reported diluted earnings per share for the first quarter of $0.65, which included $0.07 related to a one time income tax charged related to healthcare reform legislation. Excluding the one time healthcare reform related charge, adjusted EPS from continuing operation of $0.73 was $0.09 favorable to the upper end of our previous outlook, and 30% higher than the $0.56 reported in the first quarter of 2009.
Revenue for the quarter came in at $335 million, which was at the top-end of the range of our previous outlook and down only 1% from 2009. All three of our business segments delivered strong revenue. Small Business Services revenue of $192 million was down less than 1% versus 2009. Revenue was unfavorably impacted by continued economic weakness, but business services showed solid growth. Financial services revenue of $101 million was also down less than 1% versus the first quarter of last year. The impact of lower check orders was mostly offset by higher revenue per order and higher non-check revenue.
Revenue per order benefited in the 2010 quarter from last year’s price increase and the amortization of a past contract settlements. Direct Checks revenue totaled $41 million down 6.3% on a year-over-year basis, but better than recent quarter due to improved re-order performance.
Gross margin for the quarter was 64.7% of revenue, up 2.8 percentage points from 2009. Benefits from improvements and manufacturing productivity, plant consolidations and delivery initiatives will partly offset by increased delivery rates.