Deluxe (DLX) Q4 2016 earnings summary

Executive summary

• Revenue rose 4.3% in 2016, the seventh consecutive year of growth; marketing solutions and other services (MOS) reached 33.4% of revenue.

• Strategy centered on growing higher-growth MOS, expanding digital and financial technology offerings, integrating acquisitions, and continuing cost reductions.

• Served 4.4 million small businesses and ~5,600 financial institutions; operating cash flow increased for an eighth consecutive year.

Financial highlights

• Revenue was $1.849B; gross profit $1.182B; operating income $368.7M; net income $229.4M; diluted EPS $4.65.

• Operating cash flow increased 3% to $319.3M; net cost reductions were ~$50M, net of investments.

• Revenue growth reflected ~$114M of acquired-business revenue and prior price increases, partly offset by lower check and forms volume and Financial Services pricing allowances.

• MOS revenue increased 16% to $617M; service revenue was 20.3% of total revenue, up from 18.1% in 2015.

Outlook and guidance

• 2017 revenue guidance: $1.935B–$1.975B, including pending RDM acquisition; diluted EPS guidance: $5.10–$5.30 vs. $4.65 in 2016.

• 2017 operating cash flow expected at $335M–$355M; capital spending ~$45M; contract acquisition payments ~$23M.

• Expected 2017 net cost reductions of ~$50M; effective tax rate expected at ~33%.

• 2017 segment revenue outlook: Small Business Services +3%–5%; Financial Services +13%–16%; Direct Checks down 9%–10%.

• Expected check order declines of 5%–6%; FMCG Direct expected to add $80M–$85M revenue and dilute 2017 EPS by $0.05.