Deluxe Corp. (NYSE:DLX) Q4 2014 Earnings Conference Call - Final Transcript

Jan 22, 2015 • 11:00 am ET

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Deluxe Corp. (NYSE:DLX) Q4 2014 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day ladies and gentlemen, and welcome to the fourth quarter, 2013, Deluxe Corporation earnings conference call. My name is Gwen and I'll be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-Answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host today Mr. Ed Merritt, Treasurer and VP of Investor Relations. Please proceed.

Executive
Ed Merritt

Thank you Gwen and welcome everyone to Deluxe Corporation's fourth quarter 2013 earnings call. I'm Ed Merritt, Deluxe's Treasurer and Vice President of Investor Relations. Joining me on today's call are Lee Schram, our Chief Executive Officer; Terry Peterson, our Chief Financial Officer. At the conclusion of today's prepared remarks Lee, Terry and I will take questions from analysts. (Forward-Looking Cautionary Statements)

Executive
Terry Peterson

charge was primarily related to the Wausau Financial Systems acquisition.

Revenue for the quarter came in at $449 million, growing 7.3% over last year, and 8% sequentially from last quarter. All three of our business segments performed well compared with our expectations. Small business services revenue of $301 million grew 5.8% versus last year, despite continuing sluggish economic environment and an unfavorable Canadian exchange rate. We delivered growth in marketing solutions and other services, checks and in our online Safeguard distributor and dealer channels.

Financial Services revenue of $105 million grew 21.5% versus the fourth quarter of last year and would have declined less than 5%, excluding recent acquisitions. Higher marketing solutions and other services revenue driven by Wausau and Destination Rewards price increases and revenue from Zions more than offset the impact of lower check orders and the impact on pricing from a large customer contract renewal in early 2014. Direct Checks revenue of $42 million was down 9.2% on a year-over-year basis. From a product revenue perspective, checks were $213 million representing 48% of total revenue. Business products were $100 million or 22% of total revenue and marketing solutions and other services were $136 million, which was 30% of total revenue.

Gross margin for the quarter was 63.1% of revenue, which was down 0.5 points from 2013. The decline was primarily driven by an unfavorable product revenue mix and higher material and delivery rates partially offset by a favorable services revenue mix. SG&A expense increased $13.8 million in the quarter, which was 42.8% of revenue, compared to 42.7% of revenue in the same period last year. Benefits from our continuing cost-reduction initiatives, in all three segments, were more than offset by increased SG&A in financial services associated with acquisitions and higher performance-based compensation.

Excluding restructuring, transaction, sale leaseback, and impairment charges, adjusted operating margin for the quarter was 20.6%, which was slightly down from the 21.2% generated in 2013. All three segments delivered strong

Executive
Terry Peterson

operating margins compared expectations. Small Business Services' adjusted operating margin of 17.8% was down 0.8 percentage points over last year due to a revenue mix shift.

Financial Services' adjusted operating margin of