- Won largest single contract in company history and delivered
strongest quarterly sales performance since One Deluxe program
initiated in late 2019
- Announced acquisition of First American Payment Systems,
accelerating transformation into a payments and Trusted Business
Technology™ company, and which is expected to double the size of
the company’s Payments business
- Reported increase in net income and both GAAP and adjusted EPS,
while adjusted EBITDA margin expanded 340 basis points and adjusted
EPS was up nearly 17 percent from a year ago
- Achieved strong cash flow, improved cash on hand and liquidity,
held total debt steady and reduced net debt to lowest level in
nearly three years amidst the pandemic
- Declared regular quarterly dividend
Deluxe (NYSE: DLX), a Trusted Business Technology™ company,
today reported operating results for its first quarter ended March
31, 2021.
“We had a solid start to 2021, consistent with our expectations.
We achieved significant year-over-year improvement in adjusted
EBITDA and sequential improvement in the total revenue decline
rate,” said Barry McCarthy, President and CEO of Deluxe. “Our
Payments segment again delivered healthy growth, demonstrating its
resiliency in the face of the continued pandemic and severe weather
impacts, and despite a tough comparable with the impact of several
large-scale wins in the same period a year ago. We also saw
acceleration in data-driven marketing, a component of Cloud
Solutions.”
McCarthy continued, “Upon the closing of our recently announced
acquisition of First American Payment Systems, we expect to achieve
even greater transformative acceleration by doubling the size of
our Payments segment. We plan to leverage First American’s scaled
payments platform and impressive distribution channels, allowing us
to provide merchant services to our millions of small business
customers and thousands of financial institution clients, while
also offering new services, such as payroll, receivables and
digital disbursements, to First American’s significant customer
base. Upon closing, Deluxe will be firmly established as a payments
and Trusted Business Technology™ company.”
“Our business continues to recover well, particularly in our
higher growth focus areas. Our ‘One Deluxe’ go-to-market strategy
is delivering impressive results, as evidenced by the signing of
the two largest deals in company history in the last six months,
and nine of the 13 largest wins of the last decade in the last
seven quarters. Healthy customer demand in payments and data is
driving the positive momentum we are seeing, and we expect it to
continue in 2021,” concluded McCarthy.
First Quarter 2021 Financial and Segment Highlights
1st Quarter 2021
1st Quarter 2020
% Change
Revenue
$441.3 million
$486.4 million
(9.3%)
Net Income (Loss)
$24.3 million
($60.1 million)
n/m
Adjusted EBITDA
$90.5 million
$83.3 million
8.6%
Diluted EPS – GAAP
$0.57
($1.45)
n/m
Adjusted Diluted EPS
$1.26
$1.08
16.7%
n/m - not meaningful
- Revenue was $45.1 million lower than the previous year. 2021
results reflect a full quarter of the impact of the COVID-19
pandemic, while prior year results were not affected until late in
the first quarter. The impact is reflected primarily in the
Promotional Solutions, Cloud Solutions and Checks segments.
- The Payments segment delivered revenue growth of 3.2 percent
over the previous year, lapping the impact of two large wins in the
same period a year ago.
- Net income of $24.3 million was impacted by COVID-19 but
benefitted from various cost saving and efficiency programs across
the company.
- Adjusted EBITDA margin remained strong at 20.5 percent, as
management continues to refine the company’s cost structure.
- Cash flow from operations for the first quarter of 2021 was
$39.6 million and capital expenditures were $21.7 million. Free
cash flow, defined as cash provided by operating activities less
capital expenditures, was $17.9 million, an increase of $5.7
million as compared to 2020, largely attributable to working
capital improvements.
- $840.0 million remained outstanding on the revolving credit
facility as of March 31, 2021, the same amount that was outstanding
at the beginning of the year. Net debt of $714.6 million was the
lowest since June 30, 2018 and liquidity was $427.7 million as of
March 31, 2021.
Outlook for Stand-Alone Deluxe
Based on our first quarter results, the outlook remains
unchanged and the company continues to expect the following for the
full year 2021:
- Revenue growth in the range of 0% to 2% primarily due to the
combination of sales transformation and related wins, as well as a
steady macro-economic recovery from COVID-19
- Adjusted EBITDA margin in a range between 20% to 21%
- To exit the year with a growth rate in mid-single digits,
without benefit of acquisitions, a significant transformation
milestone
- Tax rate to continue to be approximately 25%
- Capital expenditures to be approximately $90 million
In second quarter 2021, we expect to deliver continued
improvement in revenue performance, with solid margins. This
includes the impact of headwinds from temporary COVID-related
salary and benefit reductions implemented in April 2020. These
actions benefited the full second quarter of 2020 and were
substantially restored in third quarter 2020.
First American and Combined Outlook
We will provide more insight into First American financials
after the transaction closes which is expected to be later this
quarter, and we plan to update full year guidance, including First
American, during our second quarter 2021 earnings call in early
August.
Capital Allocation and Dividend
The Board of Directors recently approved a regular quarterly
dividend of $0.30 per share. The dividend will be payable on June
7, 2021 to shareholders of record as of market closing on May 24,
2021.
Earnings Call Information
A live conference call will be held today at 8:30 a.m. ET (7:30
a.m. CT) to review the financial results. Listeners can access the
call by dialing 1-866-393-4306 (access code 8787131). A
presentation also will be available via a webcast on the investor
relations website at www.deluxe.com/investor. Alternatively, an audio
replay of the call will be available after 11:30 a.m. ET and
through midnight on May 13, 2021 by dialing 1-855-859-2056 (access
code 8787131).
About Deluxe Corporation
Deluxe, a Trusted Business Technology™ company, champions
business so communities thrive. Our solutions help businesses pay
and get paid, accelerate growth and operate more efficiently. For
more than 100 years, Deluxe customers have relied on our solutions
and platforms at all stages of their lifecycle, from start-up to
maturity. Our powerful scale supports millions of small businesses,
thousands of vital financial institutions and hundreds of the
world’s largest consumer brands, while processing more than $2.8
trillion in annual payment volume. Our reach, scale and
distribution channels position 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/deluxe.
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: potential continuing negative impacts from pandemic
health issues, such as the coronavirus / COVID-19, along with the
impact of government restrictions or similar directives on our
future results of operations, our future financial condition and
our ability to continue business activities in affected regions;
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 the acquisition of First American Payment
Systems and/or other future acquisitions will not be consummated;
risks that any such 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, regulations or investigations. 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, 2020 and
other filings made with the SEC. The company undertakes no
obligation to update or revise any forward-looking statements to
reflect subsequent events, new information or future
circumstances.
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (LOSS)
(in millions, except per share
amounts)
(Unaudited)
Quarter Ended
March 31,
2021
2020
Product revenue
$299.1
$330.7
Service revenue
142.2
155.7
Total revenue
441.3
486.4
Cost of products
(107.3
)
(121.5
)
Cost of services
(71.2
)
(80.5
)
Total cost of revenue
(178.5
)
(202.0
)
Gross profit
262.8
284.4
Selling, general and administrative
expense
(212.5
)
(237.2
)
Restructuring and integration
expense
(14.3
)
(17.7
)
Asset impairment charges
—
(90.3
)
Operating income (loss)
36.0
(60.8
)
Interest expense
(4.5
)
(7.0
)
Other income
2.0
4.5
Income (loss) before income
taxes
33.5
(63.3
)
Income tax (provision) benefit
(9.2
)
3.2
Net income (loss)
$24.3
($60.1
)
Weighted-average dilutive
shares
42.5
42.1
Diluted earnings (loss) per
share
$0.57
($1.45
)
Adjusted diluted earnings per
share
1.26
1.08
Capital expenditures
21.7
14.3
Depreciation and amortization
expense
27.8
28.4
EBITDA
65.8
(27.9
)
Adjusted EBITDA
90.5
83.3
DELUXE CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(dollars and shares in
millions)
(Unaudited)
March 31, 2021
December 31,
2020
March 31, 2020
Cash and cash equivalents
$125.4
$123.1
$310.1
Other current assets
379.1
383.5
376.1
Property, plant & equipment
87.8
88.7
94.3
Operating lease assets
41.3
35.9
43.9
Intangibles
254.2
246.8
240.0
Goodwill
736.9
736.8
736.7
Other non-current assets
268.6
260.1
243.4
Total assets
$1,893.3
$1,874.9
$2,044.5
Total current liabilities
$404.6
$411.8
$358.7
Long-term debt
840.0
840.0
1,140.0
Non-current operating lease
liabilities
34.3
28.4
32.7
Other non-current liabilities
55.6
53.9
39.1
Shareholders' equity
558.8
540.8
474.0
Total liabilities and shareholders'
equity
$1,893.3
$1,874.9
$2,044.5
Net debt
$714.6
$716.9
$829.9
Shares outstanding
42.1
42.0
41.7
Number of employees
5,893
6,185
6,739
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Quarter Ended March
31,
2021
2020(1)
Cash provided (used) by:
Operating activities:
Net income (loss)
$24.3
($60.1
)
Depreciation and amortization of
intangibles
27.8
28.4
Asset impairment charges
—
90.3
Prepaid product discount
payments
(9.6
)
(7.3
)
Other
(2.9
)
(24.8
)
Total operating activities
39.6
26.5
Investing activities:
Purchases of capital assets
(21.7
)
(14.3
)
Other
(0.2
)
0.4
Total investing activities
(21.9
)
(13.9
)
Financing activities:
Net change in debt
—
256.5
Dividends
(12.9
)
(12.7
)
Share repurchases
—
(14.0
)
Net change in customer funds
obligations
1.7
(19.4
)
Other
(3.0
)
0.7
Total financing activities
(14.2
)
211.1
Effect of exchange rate change on cash,
cash equivalents, restricted cash and restricted cash
equivalents
1.6
(12.7
)
Net change in cash, cash equivalents,
restricted cash and restricted cash equivalents
5.1
211.0
Cash, cash equivalents, restricted cash
and restricted cash equivalents, beginning of year
229.4
174.8
Cash, cash equivalents, restricted cash
and restricted cash equivalents, end of year
$234.5
$385.8
Free cash flow
$17.9
$12.2
(1) The 2020 statement of cash flows has
been revised from amounts reported in the prior year to correct the
presentation of purchases of capital assets and other operating
cash flows.
DELUXE CORPORATION
SEGMENT INFORMATION
(In millions)
(Unaudited)
Quarter Ended
March 31,
2021
2020
Revenue:
Payments
$79.5
$77.0
Cloud Solutions
62.2
76.0
Promotional Solutions
124.5
142.8
Checks
175.1
190.6
Total
$441.3
$486.4
Adjusted EBITDA:
Payments
$18.3
$18.0
Cloud Solutions
17.2
14.9
Promotional Solutions
17.7
11.2
Checks
83.6
90.7
Corporate
(46.3
)
(51.5
)
Total
$90.5
$83.3
Adjusted EBITDA Margin:
Payments
23.0
%
23.4
%
Cloud Solutions
27.7
%
19.6
%
Promotional Solutions
14.2
%
7.8
%
Checks
47.7
%
47.6
%
Total
20.5
%
17.1
%
The segment information reported here was
calculated utilizing the methodology outlined in the Notes to
Consolidated Financial Statements included in the company's Annual
Report on Form 10-K for the year ended December 31, 2020.
DELUXE CORPORATION RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (in millions) (Unaudited)
Note that the company has not reconciled adjusted EBITDA for
full year 2021 to the directly comparable GAAP financial measure
because the company does not provide outlook guidance for net
income or the reconciling items between net income and adjusted
EBITDA. Because of the substantial uncertainty and variability
surrounding certain of these forward-looking reconciling items,
including asset impairment charges, restructuring, integration and
other costs, and certain legal-related expenses, a reconciliation
of the non-GAAP financial measure outlook guidance to the
corresponding GAAP measure is not available without unreasonable
effort. The probable significance of certain of these reconciling
items is high and, based on historical experience, could be
material.
EBITDA AND ADJUSTED EBITDA
Management discloses EBITDA and Adjusted EBITDA because it
believes they are useful in evaluating the company's operating
performance, as the calculations eliminate 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 not
be indicative of current period 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,
2021
2020
Net income (loss)
$24.3
($60.1
)
Interest expense
4.5
7.0
Income tax provision (benefit)
9.2
(3.2
)
Depreciation and amortization expense
27.8
28.4
EBITDA
65.8
(27.9
)
Asset impairment charges
—
90.3
Restructuring, integration and other
costs
15.2
19.7
CEO transition costs
—
(0.2
)
Share-based compensation expense
6.7
3.6
Acquisition transaction costs
2.8
—
Certain legal-related benefit
—
(2.2
)
Adjusted EBITDA
$90.5
$83.3
DELUXE CORPORATION RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (continued) (in millions, except per
share amounts) (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,
2021
2020
Net income (loss)
$24.3
($60.1
)
Asset impairment charges
—
90.3
Acquisition amortization
13.2
14.8
Restructuring, integration and other
costs
15.2
19.7
CEO transition costs
—
(0.2
)
Share-based compensation expense
6.7
3.6
Acquisition transaction costs
2.8
—
Certain legal-related benefit
—
(2.2
)
Adjustments, pre-tax
37.9
126.0
Income tax provision impact of pre-tax
adjustments(1)
(8.5
)
(19.2
)
Adjustments, net of tax
29.4
106.8
Adjusted net income
53.7
46.7
Income allocated to participating
securities
—
(0.1
)
Re-measurement of share-based awards
classified as liabilities
—
(0.8
)
Adjusted income available to common
shareholders
$53.7
$45.8
Weighted-average dilutive shares
42.5
42.1
Adjustment(2)
—
0.1
Adjusted weighted-average dilutive
shares
42.5
42.2
GAAP Diluted EPS
$0.57
($1.45
)
Adjustments, net of tax
0.69
2.53
Adjusted Diluted EPS
$1.26
$1.08
(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 and share-based compensation expense, depends on
whether the amounts are deductible in the respective tax
jurisdictions and the applicable effective tax rate(s) in those
jurisdictions.
(2)
The adjustment to total
weighted-average dilutive shares for the quarter ended March 31,
2020 is due to the net loss reported for the period. The GAAP EPS
calculation for this period excluded a higher number of share-based
compensation awards because their effect was antidilutive.
DELUXE CORPORATION RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (continued) (in millions)
(Unaudited)
NET DEBT
Management believes that net debt is an important measure to
monitor leverage and to evaluate the balance sheet. In calculating
net debt, cash and cash equivalents are subtracted from total debt
because they could be used to reduce the company’s debt
obligations. A limitation associated with using net debt is that it
subtracts cash and cash equivalents, and therefore, may imply that
management intends to use cash and cash equivalents to reduce
outstanding debt. In addition, net debt suggests that our debt
obligations are less than the most comparable GAAP measure
indicates.
March 31, 2021
December 31,
2020
Total debt
$840.0
$840.0
Cash and cash equivalents
(125.4
)
(123.1
)
Net debt
$714.6
$716.9
FREE CASH FLOW
Management defines free cash flow as net cash provided by
operating activities less purchases of capital assets. 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,
2021
2020
Net cash provided by operating
activities
$39.6
$26.5
Purchases of capital assets
(21.7
)
(14.3
)
Free cash flow
$17.9
$12.2
DELUXE CORPORATION RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (continued) (in millions)
(Unaudited)
LIQUIDITY
Management defines liquidity as cash and cash equivalents plus
the amount available for borrowing under our revolving credit
facility. Management considers liquidity to be an important metric
for demonstrating the amount of cash that is available or that
could be readily available to the company on short notice. This
financial measure is not a substitute for GAAP liquidity measures.
Instead, management believes that this measurement enhances
investors’ understanding of the funds that are currently available
to the company.
March 31, 2021
December 31,
2020
Cash and cash equivalents
$125.4
$123.1
Amounts available for borrowing under
revolving credit facility
302.3
302.3
Liquidity
$427.7
$425.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210506005138/en/
Tom Morabito, VP, Investor Relations 470-607-5567
tom.morabito@deluxe.com
Cam Potts, VP, Communications 651-233-7735
cameron.potts@deluxe.com
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