Deluxe's Q3 net income down 27.8% year-over-year to US$36.7M on favorable product mix; sales down 3.4% to US$355.1M, as 2010 revenue included US$24.6M contract settlement

ST. PAUL, Minnesota , October 27, 2011 (press release) – Diluted EPS of $0.71; adjusted EPS of $0.78 exceeds high end of outlook

--Declares regular quarterly dividend

Deluxe Corporation announced its financial results for the third quarter ended September 30, 2011. Key financial highlights include:

                                                                         Q3 2011          Q3 2010       Vs. Q3 2010
                                                                     --------------   --------------   ------------
        Revenue                                                      $355.1 million   $367.6 million    -3.4 %
        Net income                                                    $36.7 million    $50.8 million   -27.8 %
        Diluted EPS - GAAP                                                    $0.71            $0.98   -27.6 %
        Adjusted diluted EPS from continuing operations - Non-GAAP            $0.78            $0.99   -21.2 %

A reconciliation between earnings per share on a GAAP basis and adjusted earnings per share on a non-GAAP basis is provided in the table on page 4.

Revenue of $355.1 million and diluted earnings per share (EPS) of $0.71 were within the range provided in the Company's prior outlook, while adjusted diluted EPS of $0.78 per share exceeded the prior outlook. Earnings per share were better than expected primarily due to a favorable product mix and lower average shares outstanding as the Company opportunistically repurchased $5.6 million of shares during the quarter.

"Deluxe delivered another solid quarter despite the ongoing sluggish economy," said Lee Schram, CEO of Deluxe. "Excluding the impact of last year's $25 million contract settlement and the recent PsPrint acquisition we grew revenue and delivered on our cost reduction initiatives. We also delivered strong operating cash flow and repurchased additional shares. With three quarters complete, we are confident in our ability to deliver the full year revenue and EPS objectives established in January despite added challenges from the economy."

Third Quarter 2011 Highlights:

-- Revenue for the quarter was $355.1 million compared to $367.6 million during the third quarter of 2010. Revenue in 2010 included a contract settlement of $24.6 million. Excluding the contract settlement, revenue increased 3.5% compared to 2010, with growth in Small Business Services more than offsetting declines in the personal check businesses.

-- Gross margin was 65.5 percent of revenue compared to 67.0 percent in 2010. The contract settlement in 2010 had a favorable impact of 2.4 percentage points on 2010 gross margin. Favorable impacts from price increases and the Company's continued cost reduction initiatives more than offset increased material costs and delivery rates in 2011.

-- Selling, general and administrative (SG&A) expense increased $5.0 million in the quarter compared to 2010. Increased SG&A expense associated with acquisitions and investments in revenue generating initiatives was partially offset by benefits from continued execution against cost reduction initiatives.

-- Operating income in 2011 was $65.6 million compared to $88.5 million in the third quarter of 2010. The decrease was driven primarily by the $24.6 million contract settlement in 2010. Restructuring and transaction-related costs were $5.1 million in 2011 versus $0.1 million in 2010. The 2011 costs were primarily attributable to the Company's on-going cost reduction initiatives and the July acquisition of PsPrint. Operating income was 18.5 percent of revenue compared to 24.1 percent in the prior year driven primarily by the 2010 contract settlement.

-- Reported diluted EPS decreased $0.27 from the prior year driven by the 2010 contract settlement of $0.31 per share, offset by improved operating performance and a lower effective tax rate primarily from actions taken to restore a portion of the deferred tax asset related to Medicare Part D subsidies.

Segment Highlights

Small Business Services

-- Revenue was $214.4 million versus $206.6 million in 2010, which included an allocation of $12.1 million related to last year's contract settlement. Excluding the contract settlement, revenue was 10.2% higher in the quarter driven by growth in the web-to-print channel, primarily due to the PsPrint acquisition, the Safeguard distributor and dealer channels, and in marketing and other services. Revenue also benefited from price increases.

-- Operating income in 2011 decreased to $34.6 million from $45.3 million in 2010 due to the $12.1 contract settlement last year.

Financial Services

-- Revenue was $85.2 million compared to $102.6 million in 2010, which included an allocation of $12.5 million related to last year's contract settlement. Excluding the contract settlement, the impact of price increases in 2011 was more than offset by lower order volumes caused by check usage declines. Revenue declined 5.4% excluding the contract settlement in the prior year.

-- Operating income in 2011 decreased to $14.1 million from $27.2 million in 2010, due to the $12.5 contract settlement last year.

Direct Checks

-- Revenue was $55.5 million compared to $58.4 million in 2010, primarily driven by lower order volume resulting from the continued decline in check usage.

-- Operating income in 2011 increased to $16.9 million from $16.0 million in 2010.

Other Highlights

-- Cash provided by operating activities for the first nine months of 2011 totaled $171.2 million, an increase of $0.7 million compared to 2010. The $24.6 million contract settlement collected in 2010 and higher interest payments in 2011 were more than offset by the benefits from our cost savings initiatives and price increases as well as lower income tax and severance payments.

-- In the third quarter, the Company repurchased $5.6 million of shares to further off-set dilution from employee equity compensation plans.

-- In early July 2011, the Company purchased PsPrint, a leading web-to-print service provider for $45 million in cash. The acquisition is expected to generate an incremental $15 million in revenue for the last half of 2011 and be neutral to Diluted EPS after including transaction costs and acquisition-related amortization expense.

-- The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per share to all outstanding shares of the Company. The dividend will be payable on December 5, 2011 to shareholders of record at the close of business on November 21, 2011. The Company had 50,817,360 shares outstanding as of October 25, 2011.


Fourth Quarter 2011:

                                             Current outlook (10/27/2011)
           Revenue                                   $359 to $369 million
           Diluted EPS - GAAP                              $0.76 to $0.83
           Adjusted diluted EPS - Non-GAAP                 $0.77 to $0.84

Full Year 2011:

                                                        Prior outlook            Current outlook
                                                          (7/28/2011)               (10/27/2011)
                                             ------------------------   ------------------------
           Revenue                           $1.410 to $1.435 billion   $1.410 to $1.420 billion
           Diluted EPS - GAAP                          $2.77 to $2.92             $2.78 to $2.85
           Adjusted diluted EPS - Non-GAAP             $3.00 to $3.15             $3.05 to $3.12
           Operating cash flow                   $218 to $228 million       $224 to $230 million
           Capital expenditures                           $35 million                $35 million
           Depreciation and amortization                  $74 million                $73 million
           Effective tax rate                       approximately 33%          approximately 32%

Editor's Note

-- Deluxe will hold an open-access teleconference call today at 11:00 a.m. ET (10:00 a.m. CT) to review the financial results. All interested persons may listen to the call by dialing 1-866-202-0886 (access code 40019020).

-- The presentation also will be available via a simultaneous webcast at in the news and investor relations section.

-- An audio replay of the call will be available through midnight on November 10th by calling 1-888-286-8010 (access code 61870952). The presentation will be archived on Deluxe's web site.

About Deluxe Corporation Deluxe is a growth engine for small businesses and financial institutions. Four million small business customers access Deluxe's wide range of products and services including customized checks and forms as well as web-site development and hosting, search engine marketing, logo design and business networking. For financial institutions, Deluxe offers industry-leading programs in checks, customer acquisition, regulatory compliance, fraud prevention and profitability. Deluxe is also a leading printer of checks and accessories sold directly to consumers. For more information, visit us at , or .

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