- New “One Deluxe” strategy and structure delivered solid
results, despite COVID-19 impact
- Earnings results reported in new segment structure for first
time
- Total revenue declined 2.5% from last year, primarily driven by
COVID-19
- Payments revenue grew 18% over last year
- Prudent steps taken to preserve financial flexibility and
liquidity
- Ended the first quarter with $310 million of cash and
short-term investments
Deluxe Corporation (NYSE: DLX) today reported operating results
for its first quarter ended March 31, 2020. Revenue was $486.4
million, slightly lower than the prior year. GAAP diluted loss per
share was ($1.45), including asset impairment charges of $90.3
million and restructuring, integration and other costs of $19.7
million which were consistent with our previous expectations about
our investments in the Company's transformation. The impairment
charges were in the Promotional Solutions and Cloud Solutions
segments and were driven primarily by the impact of COVID-19.
Adjusted diluted earnings per share (EPS) was $1.08.
1st Quarter
1st Quarter
2020
2019
% Change
Revenue
$486.4 million
$499.1 million
(2.5%)
Net (Loss) Income
($60.1) million
$41.2 million
(245.9%)
Adjusted EBITDA
$83.3 million
$113.7 million
(26.7%)
Diluted EPS – GAAP
($1.45)
$0.93
(255.9%)
Adjusted Diluted EPS
$1.08
$1.54
(29.9%)
“We delivered solid performance in the first quarter despite the
sudden and unprecedented impact of COVID-19. During the first two
months of the year, the Company was delivering sales-driven revenue
growth for the first time in nearly a decade. In the quarter, the
Payments segment led with an 18% increase over the previous year.
Total Company revenue began to soften in March with a significant
decline in our Promotional and Cloud Solutions segments. Revenue
continued to decline across all segments during April as COVID-19
drove more small businesses to close, at least temporarily. Despite
COVID-19, we continued to make progress on our historic
transformation and many of our investments are beginning to deliver
positive returns. Throughout this crisis, we are doing everything
we can to protect the health and well-being of our employees and
their families, while delivering for our customers” said Barry
McCarthy, President and CEO of Deluxe. McCarthy added, “Deluxe has
ample liquidity and a strong financial foundation, which we believe
will enable us to successfully navigate through this period of
uncertainty, just as we have throughout our proud 105-year history.
We have an exceptional team with deep experience in their
respective areas who are protecting the company today, while
advancing our One Deluxe strategy for tomorrow. The team has taken
prudent actions to maintain cash and liquidity, including stress
testing, scenario planning and aligning our expense structure with
revenue trends. These actions will allow us to retain financial
flexibility in the near-term and provide fuel for our rebound post
COVID-19. While the road to recovery will take some time, our
aspirations for the future of Deluxe remain unchanged and we remain
confident our One Deluxe strategy will generate enhanced long-term
shareholder returns.”
First Quarter 2020 Highlights
- Revenue was slightly lower than last year. Strong performance
in the Payments segment drove an increase of 18% over the same
period last year. This strong growth was offset by weakness in the
Promotional Solutions, Cloud Solutions and Checks segments. Through
the first two months of 2020, revenue performance was toward the
high-end of internal projections and we were on track to deliver
sales-driven revenue growth for the first time in a nearly a
decade. Beginning in March, the COVID-19 pandemic began to
negatively affect revenue. Small business closures have reduced
demand for printed and promotional products and certain business
services provided by the Cloud Solutions segment. In addition, some
of our customers suspended their data-driven marketing
campaigns.
- Revenue for the Payments segment benefited from previous deals
and new client wins, and this segment remains operational as a
business essential to U.S. payment processing, growing 18% versus
the previous year.
- Net income decreased $101.3 million, driven by goodwill
impairment charges of $90.3 million resulting primarily from the
COVID-19 impact, a combination of revenue mix changes resulting
from the challenging business environment and additional costs from
previously disclosed investments in the Company’s historic
transformation.
- Adjusted EBITDA decreased $30.4 million from the prior year,
primarily due to the impact of COVID-19, revenue mix changes and
previously disclosed investments in the Company’s business
transformation.
- Cash provided by operating activities was $18.6 million, a
decrease of $26.8 million from 2019, driven primarily by the same
factors that impacted Adjusted EBITDA.
- During the first quarter, the Company recorded asset impairment
charges of $63.3 million related to Promotional Solutions assets
and $22.0 million related to Cloud Solutions assets, driven by the
estimated future impact of COVID-19. We also recorded asset
impairment charges of $5.0 million for other intangible assets,
unrelated to COVID-19.
- At the end of the first quarter, the Company had $1.14 billion
of total debt outstanding under its revolving credit facility,
compared to $883.5 million at the beginning of 2020. The Company
made an additional draw in late March in response to the
uncertainty in the financial markets and expects to maintain the
current level of debt for the near-term. Liquidity remains very
strong with cash and cash equivalents of $310.1 million at the end
of the quarter.
Outlook Due to the significant uncertainties surrounding
the current business environment, the Company previously announced
that it was suspending its 2020 outlook, and it is not providing
second quarter or full year financial guidance at this time.
Management Observations:
- Revenue began to soften in March, and total Company revenue in
April declined 28%, although we have seen some stabilization
exiting April entering May.
- The Payments segment is expected to see year-over-year revenue
growth, driven by new client wins and strong demand for its
services, as more customers look to implement digital payment and
receivables management solutions.
- Cloud Solutions is experiencing revenue declines in data-driven
marketing, but management believes the business will recover
slightly as the year progresses. The decline of web hosting revenue
will largely depend on the resilience of small businesses.
Promotional Solutions is seeing the largest revenue impact of all
segments and will be significantly impacted by the resilience of
small businesses in the current economy.
- Checks is expected to decline in line with the economy in the
near-term due to delayed business and consumer spending throughout
the year. Management currently expects the Company to remain cash
flow positive and continues to take actions to manage expenses in
line with revenue trends via salary reductions, project delays,
furloughs and other actions.
- Management has suspended share repurchases for the second
quarter of 2020.
Earnings Call Information A live conference call will be
held today at 4:45 p.m. ET (3:45 p.m. CT) to review the financial
results. Listeners can access the call by dialing (615) 247-0252
(access code 5357065). A presentation also will be available via a
webcast on the investor relations website. Alternatively, an audio
replay of the call will be available on the investor relations
website or by calling (404) 537-3406 (access code 5357065).
About Deluxe Corporation Deluxe is a Trusted Business
Technology™ company that champions business so communities thrive.
Our solutions help businesses pay and get paid, accelerate growth
and operate more efficiently. For more than 100 years, we’ve been
helping businesses succeed at all stages of their lifecycle, from
start-up to maturity. Our unparalleled global scale supporting
approximately 4.5 million small businesses, over 4,000 financial
institutions and hundreds of the world’s largest consumer brands
uniquely positions Deluxe to be our customers’ most trusted
business partner. To learn how we can help your business, visit us
at www.deluxe.com, www.facebook.com/deluxecorp, www.linkedin.com/company/deluxe, or www.twitter.com/deluxecorp.
Forward-Looking Statements Statements made in this
release concerning Deluxe, “the Company’s” or management’s
intentions, expectations, outlook or predictions about future
results or events are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements reflect management’s current intentions or beliefs
and are subject to risks and uncertainties that could cause actual
results or events to vary from stated expectations, which
variations could be material and adverse. Factors that could
produce such a variation include, but are not limited to, the
following: the impact that further deterioration or prolonged
softness in the economy may have on demand for the Company’s
products and services; the Company’s ability to execute its
transformational strategy and to realize the intended benefits; the
inherent unreliability of earnings, revenue and cash flow
predictions due to numerous factors, many of which are beyond the
Company’s control; declining demand for the Company’s checks,
check-related products and services and business forms; risks that
the Company’s strategies intended to drive sustained revenue and
earnings growth, despite the continuing decline in checks and
forms, are delayed or unsuccessful; intense competition; continued
consolidation of financial institutions and/or additional bank
failures, thereby reducing the number of potential customers and
referral sources and increasing downward pressure on the Company’s
revenue and gross profit; the risk that pending and future
acquisitions will not be consummated within the expected time
periods or at all; risks that the Company’s acquisitions do not
produce the anticipated results or synergies; risks that the
Company’s cost reduction initiatives will be delayed or
unsuccessful; performance shortfalls by one or more of the
Company’s major suppliers, licensors or service providers;
unanticipated delays, costs and expenses in the development and
marketing of products and services, including web services and
financial technology and treasury management solutions; the failure
of such products and services to deliver the expected revenues and
other financial targets; risks related to security breaches,
computer malware or other cyber-attacks; risks of interruptions to
the Company’s website operations or information technology systems;
risks of unfavorable outcomes and the costs to defend litigation
and other disputes; and the impact of governmental laws and
regulations. The Company’s forward-looking statements speak only as
of the time made, and management assumes no obligation to publicly
update any such statements. Additional information concerning these
and other factors that could cause actual results and events to
differ materially from the Company’s current expectations are
contained in the Company’s Form 10-K for the year ended December
31, 2019.
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF (LOSS) INCOME
(in millions, except per share
amounts)
(Unaudited)
Quarter Ended
March 31,
2020
2019
Product revenue
$330.7
$350.6
Service revenue
155.7
148.5
Total revenue
486.4
499.1
Cost of products
(121.5
)
(131.3
)
Cost of services
(80.5
)
(68.4
)
Total cost of revenue
(202.0
)
(199.7
)
Gross profit
284.4
299.4
Selling, general and administrative
expense
(237.2
)
(230.1
)
Restructuring and integration
expense
(17.7
)
(5.5
)
Asset impairment charges
(90.3
)
—
Operating (loss) income
(60.8
)
63.8
Interest expense
(7.0
)
(9.3
)
Other income
4.5
1.7
(Loss) income before income
taxes
(63.3
)
56.2
Income tax benefit (provision)
3.2
(15.0
)
Net (loss) income
($60.1
)
$41.2
Weighted average dilutive shares
outstanding
42.1
44.1
Diluted (loss) earnings per
share
($1.45
)
$0.93
Adjusted diluted earnings per
share
1.08
1.54
Capital expenditures
6.4
14.6
Depreciation and amortization
expense
28.4
32.4
EBITDA
(27.9
)
97.9
Adjusted EBITDA
83.3
113.7
DELUXE CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(dollars and shares in
millions)
(Unaudited)
March 31,
December 31,
March 31,
2020
2019
2019
Cash and cash equivalents
$310.1
$73.6
$61.5
Other current assets
376.1
398.6
369.6
Property, plant &
equipment-net
94.3
96.5
89.9
Operating lease assets
43.9
44.4
48.5
Intangibles-net
240.0
276.1
339.7
Goodwill
736.7
804.5
1,160.8
Other non-current assets
243.4
249.6
252.4
Total assets
$2,044.5
$1,943.3
$2,322.4
Total current liabilities
$358.7
$407.9
$356.4
Long-term debt
1,140.0
883.5
946.0
Non-current operating lease
liabilities
32.7
33.6
36.1
Deferred income taxes
4.9
14.9
49.6
Other non-current liabilities
34.2
32.5
36.7
Shareholders' equity
474.0
570.9
897.6
Total liabilities and shareholders'
equity
$2,044.5
$1,943.3
$2,322.4
Shares outstanding
41.7
42.1
43.6
Number of employees
6,739
6,352
6,546
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Quarter Ended March
31,
2020
2019
Cash provided (used) by:
Operating activities:
Net (loss) income
($60.1
)
$41.2
Depreciation and amortization of
intangibles
28.4
32.4
Asset impairment charges
90.3
—
Prepaid product discount
payments
(7.3
)
(9.2
)
Other
(32.7
)
(19.0
)
Total operating activities
18.6
45.4
Investing activities:
Purchases of capital assets
(6.4
)
(14.6
)
Other
0.4
(0.2
)
Total investing activities
(6.0
)
(14.8
)
Financing activities:
Net change in debt
256.5
36.0
Dividends
(12.7
)
(13.1
)
Share repurchases
(14.0
)
(50.0
)
Shares issued under employee
plans
1.7
1.5
Net change in customer funds
obligations
(19.4
)
(9.9
)
Other
(1.0
)
(3.9
)
Total financing activities
211.1
(39.4
)
Effect of exchange rate change on cash,
cash equivalents, restricted cash and restricted cash
equivalents
(12.7
)
2.0
Net change in cash, cash equivalents,
restricted cash and restricted cash equivalents
211.0
(6.8
)
Cash, cash equivalents, restricted cash
and restricted cash equivalents, beginning of period
174.8
145.3
Cash, cash equivalents, restricted cash
and restricted cash equivalents, end of period
$385.8
$138.5
Free cash flow
$12.2
$30.8
DELUXE CORPORATION
SEGMENT INFORMATION
(In millions)
(Unaudited)
Quarter Ended
March 31,
2020
2019
Revenue:
Payments
$77.0
$65.2
Cloud Solutions
76.0
78.3
Promotional Solutions
142.8
155.8
Checks
190.6
199.8
Total
$486.4
$499.1
Adjusted EBITDA:
Payments
$18.0
$16.9
Cloud Solutions
14.9
17.1
Promotional Solutions
11.2
23.6
Checks
90.7
102.2
Corporate
(51.5
)
(46.1
)
Total
$83.3
$113.7
Adjusted EBITDA Margin:
Payments
23.4
%
25.9
%
Cloud Solutions
19.6
%
21.8
%
Promotional Solutions
7.8
%
15.1
%
Checks
47.6
%
51.2
%
Total
17.1
%
22.8
%
Effective January 1, 2020, the Company reorganized its
operations into four reportable business segments, based on its
product and service offerings. In addition, management began
utilizing Adjusted EBITDA to determine the allocation of Company
resources and to assess segment operating performance. Adjusted
EBITDA is the measure of segment performance that will be presented
in the Company's Form 10-Q for the quarter ended March 31, 2020, in
accordance with Accounting Standards Codification 280. Corporate
consists of those costs that are not directly attributable to a
business segment, primarily marketing, accounting, information
technology, facilities, executive management, and legal, tax and
treasury costs that support the corporate function. Corporate also
includes other income. Prior period information has been revised to
reflect these changes. A reconciliation of net (loss) income to
total Adjusted EBITDA can be found later in this release.
DELUXE CORPORATION RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (in millions) (Unaudited)
EBITDA AND ADJUSTED EBITDA
Management discloses EBITDA and Adjusted EBITDA because it
believes they are useful in evaluating our operating performance,
as the calculation eliminates the effect of interest expense,
income taxes, the accounting effects of capital investments (i.e.,
depreciation and amortization) and in the case of Adjusted EBITDA,
certain items, as presented below, that may vary for companies for
reasons unrelated to overall operating performance. In addition,
management utilizes Adjusted EBITDA to assess the operating results
and performance of the business, to perform analytical comparisons
and to identify strategies to improve performance. Management also
believes that an increasing EBITDA and Adjusted EBITDA depict an
increase in the value of the company. Management does not consider
EBITDA and Adjusted EBITDA to be measures of cash flow, as they do
not consider certain cash requirements such as interest, income
taxes, debt service payments or capital investments. Management
does not consider EBITDA or Adjusted EBITDA to be substitutes for
operating income or net income. Instead, management believes that
EBITDA and Adjusted EBITDA are useful performance measures that
should be considered in addition to GAAP performance measures.
Quarter Ended
March 31,
2020
2019
Net (loss) income
($60.1
)
$41.2
Interest expense
7.0
9.3
Income tax (benefit) provision
(3.2
)
15.0
Depreciation and amortization expense
28.4
32.4
EBITDA
(27.9
)
97.9
Asset impairment charges
90.3
—
Restructuring, integration and other
costs
19.7
6.3
CEO transition costs
(0.2
)
5.5
Share-based compensation expense
3.6
3.3
Acquisition transaction costs
—
0.2
Certain legal-related expense
(2.2
)
0.4
Loss on sales of businesses and customer
lists
—
0.1
Adjusted EBITDA
$83.3
$113.7
DELUXE CORPORATION RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (continued) (in millions) (Unaudited)
ADJUSTED DILUTED EPS
By excluding the impact of non-cash items or items that may not
be indicative of ongoing operations, management believes that
Adjusted Diluted EPS provides useful comparable information to
assist in analyzing the Company's current and future operating
performance. As such, Adjusted Diluted EPS is one of the key
financial performance metrics used to assess the operating results
and performance of the business and to identify strategies to
improve performance. It is reasonable to expect that one or more of
the excluded items will occur in future periods, but the amounts
recognized may vary significantly. Management does not consider
Adjusted Diluted EPS to be a substitute for GAAP performance
measures but believes that it is a useful performance measure that
should be considered in addition to GAAP performance measures.
Quarter Ended
March 31,
2020
2019
Net (loss) income
($60.1
)
$41.2
Asset impairment charges
90.3
—
Acquisition amortization
14.8
19.0
Restructuring, integration and other
costs
19.7
6.3
CEO transition costs
(0.2
)
5.5
Share-based compensation expense
3.6
3.3
Acquisition transaction costs
—
0.2
Certain legal-related expense
(2.2
)
0.4
Loss on sales of businesses and customer
lists
—
0.1
Adjustments, pre-tax
126.0
34.8
Income tax provision impact of pre-tax
adjustments(1)
(19.2
)
(7.9
)
Adjustments, net of tax
106.8
26.9
Adjusted net income
46.7
68.1
Income allocated to participating
securities
(0.1
)
(0.1
)
Re-measurement of share-based awards
classified as liabilities
(0.8
)
—
Adjusted income available to common
shareholders
$45.8
$68.0
GAAP Diluted Loss per Share
($1.45
)
$0.93
Adjustments, net of tax
2.53
0.61
Adjusted Diluted EPS(2)
$1.08
$1.54
(1)
The tax effect of the pretax
adjustments considers the tax treatment and related tax rate(s)
that apply to each adjustment in the applicable tax
jurisdiction(s). Generally, this results in a tax impact that
approximates the U.S. effective tax rate for each adjustment.
However, the tax impact of certain adjustments, such as asset
impairment charges, share-based compensation expense and CEO
transition costs, depends on whether the amounts are deductible in
the respective tax jurisdictions and the applicable effective tax
rate(s) in those jurisdictions.
(2)
The total of weighted-average shares and
potential common shares outstanding used in the calculation of
adjusted diluted EPS for the first quarter of 2020 was 155 thousand
shares higher than that used in the GAAP diluted loss per share
calculation. Because of the net loss in the first quarter of 2020,
the GAAP calculation excluded a higher number of share-based
compensation awards because their effect would have been
antidilutive.
DELUXE CORPORATION RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (continued) (in millions) (Unaudited)
FREE CASH FLOW
Management believes that free cash flow is an important
indicator of cash available for debt service and for shareholders,
after making capital investments to maintain or expand the
Company’s asset base. Free cash flow is limited and not all of the
Company’s free cash flow is available for discretionary spending,
as the Company may have mandatory debt payments and other cash
requirements that must be deducted from its cash available for
future use. Free cash flow is not a substitute for GAAP liquidity
measures. Instead, management believes that this measurement
provides an additional metric to compare cash generated by
operations on a consistent basis and to provide insight into the
cash flow available to fund items such as share repurchases,
dividends, mandatory and discretionary debt reduction and
acquisitions or other strategic investments.
Quarter Ended March
31,
2020
2019
Net cash provided by operating
activities
$18.6
$45.4
Purchases of capital assets
(6.4
)
(14.6
)
Free cash flow
$12.2
$30.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507005908/en/
Ed Merritt, VP of Corporate Finance, Treasurer 651-787-1370
Ed.Merritt@Deluxe.com
Deluxe (NYSE:DLX)
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