Q2 2010 Earnings Call Transcript
July 22, 2010 11:00 am 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
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Good day, ladies and gentlemen. And welcome to the second quarter 2010 Deluxe Corporation earnings conference call. My name is Eric. I'll be your audio coordinator for today. At this time, all participates are in a listen-only mode and we will facilitate the question-and-answer session at end of the presentation. (Operator instructions)
As a reminder, the conference is being recorded for replay purposes. I would now like to turn your presentation over to Mr. Jeff Johnson, Treasurer, Vice President, Investor Relations. Please proceed.
Thank you, Eric. Welcome to Deluxe Corporation's 2010 second 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 this time, the operator will instruct you how to ask a question.
In accordance 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 Schram, Deluxe's CEO.
Thank you, Jeff, and good morning, everyone. Deluxe delivered a very strong quarter. We reported revenue and adjusted earnings per share above the high-end of our ranges. Revenue grew overall approximately 5% with all three segments delivering strong revenue and declined less than 1%, excluding the acquisition of Custom Direct.
We are especially pleased that Small Business Services revenue grew slightly over the prior year and for the first time, since the fourth quarter of 2006. Checks and forms both performed well against our expectations. And new business services revenues grew more than 50% over the prior year.
We had solid execution against our cost reduction program and spending controls, which along with strong revenue drove better than expected EPS. Adjusted diluted EPS from continuing operations grew 19% over the prior year and we generated strong operating cash flow.
As indicated on our last call, in the quarter, we began investing in brand awareness and in organic technology initiatives to help better position our new business services offerings, and generate future revenue growth. At the same time, we are continuing our process improvements and cost reductions, while driving strong operating cash flow, as we continue to transform Deluxe and execute our turnaround plan.
I am also pleased that we have hired a permanent leader for our Small Business Services segment. Dave Hemler brings to Deluxe more than 20 years of experience with specific expertise in small business. As President of Best Buy for business, he led the first year of profitable growth for that business in its history. He also turned around Microsoft's lowest-performing subsidiary to its fastest growing, in his role as President of Microsoft Canada. So welcome, Dave, to Deluxe.
At the same time, I want to thank Joanne McGowan, a partner with Aveus, who will continue to support Deluxe for a period of time to transition Dave and work other key growth initiatives. For her leadership and the many significant contributions she has made to Deluxe in her interim role as our Small Business Services segment leader. Thank you, Joanne for your simply outstanding leadership and commitment.
In a few minutes, I will discuss more details around our recent progress and the next steps, but first Terry will cover our financial performance.
Thanks, Lee. Earlier today, we reported diluted earnings per share for the second quarter of $0.65, which included $0.03 of restructuring and transaction-related costs, primarily associated with the CDI acquisition. Excluding the restructuring-related charges, adjusted EPS of $0.68 was $0.03 favorable to the upper end of our previous outlook and 19% higher than the $0.57 reported in the second quarter of 2009.
Revenue for the first quarter came in at $348 million, which was at above the top end of our previous outlook and up approximately 5% from 2009. Consolidated revenue was down less than 1%, excluding the impact of the CDI acquisition. All three of our business segments delivered solid revenue.