Deluxe (DLX) Q4 2017 earnings summary

Executive summary

• 2017 revenue rose 6.3% to $1.966B, extending revenue growth to eight consecutive years; MOS reached 38.4% of revenue, up from 33.4% in 2016.

• Strategy centers on faster organic growth in web services, data-driven marketing and treasury management, supported by technology investment and acquisitions.

• 2018 outlook targets MOS at ~45% of revenue, ahead of checks at ~38%, and a ninth consecutive year of revenue growth.

Financial highlights

• Revenue was $1.966B, up 6.3%; net income was $230.2M versus $229.4M; diluted EPS rose 1.5% to $4.72.

• Operating income declined to $331.2M from $368.7M, including $54.9M of asset impairment charges in 2017; earnings also benefited from a $20.5M tax-reform benefit.

• Operating cash flow rose 6% to $338.4M; net cost reductions were $45.0M, and acquisitions contributed ~$173M of 2017 revenue.

• MOS revenue increased 22% to $755.7M; service revenue rose to 25.2% of total revenue from 20.3% in 2016.

Outlook and guidance

• 2018 revenue guidance: $2.065B–$2.105B; diluted EPS: $5.42–$5.67, including estimated integration charges of $0.13/share.

• 2018 operating cash flow guidance is $360M–$380M; effective tax rate is expected to be ~25%, with tax payments ~$25M below 2017.

• Expected 2018 net cost reductions are ~$50M; capital spending is projected at ~$55M, and contract acquisition payments at ~$27M.

• Segment revenue outlook: Small Business Services +4%–5%; Financial Services +11%–16%; Direct Checks down ~11%.