Deluxe (DLX) Q4 2015 earnings summary

Executive summary

• 2015 revenue rose 5.9% to $1.773B, the sixth consecutive year of growth; marketing solutions and other services (MOS) reached 30% of revenue, up from 25.5% in 2014.

• Diluted EPS increased more than 10% to $4.36; operating cash flow grew nearly 10% to $308M, marking its seventh consecutive annual increase.

• Strategic focus remained on transforming toward a growth-services provider through MOS expansion, acquisitions, technology investment, distributor growth and cost efficiency.

Financial highlights

• Revenue was $1.773B versus $1.674B in 2014; net income was $218.6M versus $199.8M, and operating income was $354.3M versus $332.6M.

• MOS revenue grew $105M, including acquired businesses; increases from pricing and distributor expansion were partly offset by lower check volumes, contract renewal allowances and an $11M unfavorable currency impact.

• Gross profit was $1.134B; adjusted for the $8.9M pretax early debt extinguishment loss, restructuring and acquisition transaction costs, diluted EPS was reported at $4.36, including $0.23 per share of charges.

• Operating cash flow reached $307.9M; acquisition payments, net of cash acquired, totaled $213.0M, while capital asset purchases were $43.3M.

Outlook and guidance

• 2016 revenue guidance: $1.835B–$1.875B; diluted EPS guidance: $4.75–$4.95, versus $4.36 in 2015.

• Expected 2016 net cost reductions are ~$50M; approximately 65% are expected in SG&A and 35% in cost of revenue.

• 2016 operating cash flow guidance is $315M–$330M; expected capital spending is ~$43M, contract acquisition payments ~$15M and effective tax rate ~33.8%.

• Small Business Services revenue is expected to grow 4%–7%, Financial Services 6%–8%, and Direct Checks to decline 7%–8%.