- Strong positive cash flow from operations with healthy
margins
- Confidence in liquidity–paid down $100M on revolver in
July
- Transformation momentum accelerates with historic sales
successes
Deluxe (NYSE: DLX), a Trusted Business Technology™ company,
today reported operating results for its second quarter ended June
30, 2020.
“Deluxe delivered stronger than expected second quarter
performance. Our cash flow from operations exceeded last year’s
quarterly performance, enabling us to pay down $100 million on the
revolving credit facility in July, and declare our regular
dividend. Our reported revenue partially recovered from the April
low, declining $84 million for the second quarter as compared to
last year. We believe the company continued its historic
sales-driven revenue growth from the first quarter, excluding our
estimate of COVID-19 impact. GAAP margins stabilized and Adjusted
EBITDA margins rebounded to our pre-COVID-19 range,” said Barry
McCarthy, President & CEO of Deluxe. “Our sales-driven ‘One
Deluxe’ transformation is working too. We signed 4 of our top 25
prospects and further built our already strong sales pipeline. Our
robust financial health has proven to be a significant competitive
advantage in these wins,” added McCarthy.
McCarthy continued, “We are grateful to our fellow Deluxers who
have unfailingly provided selfless service to our customers as
COVID-19 unfolded. We have proven we are agile and innovative at
all levels, further evidence our ‘One Deluxe’ strategy is working.
We are a trusted business technology company with the ability to
generate strong revenue with healthy margins and are confident we
will deliver strong shareholder value over the long-term.”
Second Quarter 2020 Financial and Segment Highlights
2nd Quarter
2nd Quarter
2020
2019
% Change
Revenue
$410.4 million
$494.0 million
(16.9
%)
Net Income
$14.9 million
$32.6 million
(54.3
%)
Adjusted EBITDA
$83.8 million
$117.5 million
(28.7
%)
Diluted EPS – GAAP
$0.35
$0.75
(53.3
%)
Adjusted Diluted EPS
$1.15
$1.64
(29.9
%)
- Revenue was $83.6 million lower than last year. COVID-19
negatively impacted our results in the quarter, primarily across
our Promotional Solutions, Cloud Solutions and Check segments.
- The Payments segment delivered strong revenue growth of 12.6%
over the same period last year, benefiting from Treasury Management
revenue growth of 20.5% in the second quarter driven primarily by
previously announced and continuing business wins.
- Net income decreased $17.7 million, driven primarily by the
challenging business environment resulting from COVID-19,
previously disclosed investments in the Company’s business
transformation and a pretax asset impairment charge of $4.9 million
related to management's ongoing rationalization of the Company's
real estate footprint.
- Adjusted EBITDA declined by $33.7 million compared to the prior
year quarter, while adjusted EBITDA margin improved from the first
quarter 2020 by 330 basis points to 20.4%.
- Cash flow from operations for the period ending June 30, 2020
was $109.7 million and capital expenditures were $27.1 million.
Free cash flow, defined as cash provided by operating activities,
less capital expenditures, was $82.6 million, an improvement of
$9.8 million as compared to last year.
- Cash flow from operations was negatively impacted by the same
factors that impacted net income, but was offset by steps taken to
maintain liquidity, including various expense reductions and delays
in U.S federal income and payroll tax payments provided for under
the Coronavirus Aid, Relief, and Economic Security (CARES)
Act.
- At the end of the second 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.
- Cash and cash equivalents were $372.0 million at the end of the
quarter, resulting in net debt of $768.0 million, a two-year low.
Net debt is a non-GAAP financial measure as defined in the
reconciliation tables attached.
- As a result of this strong liquidity position, the Company made
the decision in July to paydown $100.0 million of debt under its
revolving credit facility. The Company’s outstanding balance under
this facility was $1.04 billion as of July 17, 2020.
Outlook
Due to the significant ongoing uncertainties in the
macro-economic environment, the Company previously withdrew its
2020 outlook, and is not providing third quarter or full year
financial guidance at this time.
Observations and Expectations:
- Slight sequential total revenue improvement from the second
quarter in the back half of the year;
- Payments segment expected to continue to experience
year-over-year revenue growth, driven by new client wins and strong
demand for our services; margin compression is expected from
significant new customer on-boarding expense and COVID-19-related
delay in some customers’ initiatives;
- Cloud Solutions segment revenue expected to track with the
overall recovery for small businesses, slightly recovering
sequentially as the year progresses; this assumes normal demand for
data-driven marketing services returns towards the end of the
year;
- Promotional Solutions segment has added new products to offset
COVID-related declines; expecting revenue to slightly improve
sequentially over the remainder of the year; and
- Checks segment expected to decline at a lesser rate in the
second half of the year, improving sequentially for the remainder
of the year.
Capital Allocation and Dividend The Company’s Board of
Directors approved a regular quarterly dividend of $0.30 per share
on all outstanding shares of the Company. The dividend will be
payable on September 8, 2020 to all shareholders of record as of
the close of business on August 24, 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 1-651-247-0252
(access code 6675834). 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 8:00 p.m. ET and through midnight on August
6, 2020 by dialing 1-404-537-3406 (access code 6675834).
About Deluxe 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: potential continuing negative impacts from pandemic
health issues, such as the coronavirus / COVID-19, along with the
impact of government stay-at-home orders or other similar
directives on our future financial 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
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 and
regulations. The Company’s cash dividends are declared by the Board
of Directors on a current basis and therefore may be subject to
change. 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 and in the Company's Form 10-Q for the quarter ended March
31, 2020.
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (LOSS)
(in millions, except per share
amounts)
(Unaudited)
Quarter Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Product revenue
$278.7
$347.1
$609.4
$697.6
Service revenue
131.7
146.9
287.4
295.5
Total revenue
410.4
494.0
896.8
993.1
Cost of products
(102.9
)
(133.8
)
(224.4
)
(265.1
)
Cost of services
(59.4
)
(68.7
)
(139.9
)
(137.1
)
Total cost of revenue
(162.3
)
(202.5
)
(364.3
)
(402.2
)
Gross profit
248.1
291.5
532.5
590.9
Selling, general and administrative
expense
(198.5
)
(222.4
)
(435.8
)
(452.5
)
Restructuring and integration
expense
(20.4
)
(17.3
)
(38.0
)
(22.8
)
Asset impairment charges
(4.9
)
—
(95.2
)
—
Operating income (loss)
24.3
51.8
(36.5
)
115.6
Interest expense
(6.1
)
(9.2
)
(13.2
)
(18.5
)
Other income
1.8
2.2
6.3
3.9
Income (loss) before income
taxes
20.0
44.8
(43.4
)
101.0
Income tax provision
(5.1
)
(12.2
)
(1.9
)
(27.2
)
Net income (loss)
$14.9
$32.6
($45.3
)
$73.8
Weighted average dilutive shares
outstanding
41.9
43.6
42.0
43.8
Diluted earnings (loss) per
share
$0.35
$0.75
($1.10
)
$1.68
Adjusted diluted earnings per
share
1.15
1.64
2.24
3.18
Capital expenditures
20.7
17.7
27.1
32.3
Depreciation and amortization
expense
26.7
32.5
55.1
64.9
EBITDA
52.8
86.5
24.9
184.4
Adjusted EBITDA
83.8
117.5
167.2
231.2
DELUXE CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(dollars and shares in
millions)
(Unaudited)
June 30,
December 31,
June 30,
2020
2019
2019
Cash and cash equivalents
$372.0
$73.6
$66.7
Other current assets
344.3
398.6
378.3
Property, plant & equipment
77.9
96.5
91.5
Operating lease assets
45.0
44.4
44.0
Intangibles
230.7
276.1
325.7
Goodwill
736.8
804.5
1,158.8
Other non-current assets
253.4
249.6
249.0
Total assets
$2,060.1
$1,943.3
$2,314.0
Total current liabilities
$358.5
$407.9
$349.6
Long-term debt
1,140.0
883.5
951.0
Non-current operating lease
liabilities
34.2
33.6
33.5
Deferred income taxes
3.3
14.9
51.9
Other non-current liabilities
38.8
32.5
33.9
Shareholders' equity
485.3
570.9
894.1
Total liabilities and shareholders'
equity
$2,060.1
$1,943.3
$2,314.0
Shares outstanding
41.9
42.1
42.9
Number of employees
6,623
6,352
6,485
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Six Months Ended June
30,
2020
2019
Cash provided (used) by:
Operating activities:
Net (loss) income
($45.3
)
$73.8
Depreciation and amortization of
intangibles
55.1
64.9
Asset impairment charges
95.2
—
Prepaid product discount
payments
(15.8
)
(16.2
)
Other
20.5
(17.4
)
Total operating activities
109.7
105.1
Investing activities:
Purchases of capital assets
(27.1
)
(32.3
)
Other
1.8
(0.5
)
Total investing activities
(25.3
)
(32.8
)
Financing activities:
Net change in debt
256.5
41.0
Dividends
(25.5
)
(26.2
)
Share repurchases
(14.0
)
(78.9
)
Shares issued under employee
plans
2.4
1.6
Net change in customer funds
obligations
(31.4
)
(10.7
)
Other
(2.4
)
(4.3
)
Total financing activities
185.6
(77.5
)
Effect of exchange rate change on cash,
cash equivalents, restricted cash and restricted cash
equivalents
(6.5
)
4.0
Net change in cash, cash equivalents,
restricted cash and restricted cash equivalents
263.5
(1.2
)
Cash, cash equivalents, restricted cash
and restricted cash equivalents, beginning of year
174.8
145.3
Cash, cash equivalents, restricted cash
and restricted cash equivalents, end of period
$438.3
$144.1
Free cash flow
$82.6
$72.8
DELUXE CORPORATION
SEGMENT INFORMATION
(In millions)
(Unaudited)
Quarter Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Revenue:
Payments
$72.2
$64.1
$149.2
$129.3
Cloud Solutions
53.9
78.9
129.9
157.2
Promotional Solutions
117.9
155.6
260.7
311.4
Checks
166.4
195.4
357.0
395.2
Total
$410.4
$494.0
$896.8
$993.1
Adjusted EBITDA:
Payments
$15.6
$18.0
$33.6
$34.8
Cloud Solutions
14.1
19.1
29.1
36.2
Promotional Solutions
13.9
22.3
25.1
45.9
Checks
82.7
99.8
173.4
202.1
Corporate
(42.5
)
(41.7
)
(94.0
)
(87.8
)
Total
$83.8
$117.5
$167.2
$231.2
Adjusted EBITDA Margin:
Payments
21.6
%
28.1
%
22.5
%
26.9
%
Cloud Solutions
26.2
%
24.2
%
22.4
%
23.0
%
Promotional Solutions
11.8
%
14.3
%
9.6
%
14.7
%
Checks
49.7
%
51.1
%
48.6
%
51.1
%
Total
20.4
%
23.8
%
18.6
%
23.3
%
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 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, 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 income (loss) 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 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
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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net income (loss)
$14.9
$32.6
($45.3
)
$73.8
Interest expense
6.1
9.2
13.2
18.5
Income tax provision
5.1
12.2
1.9
27.2
Depreciation and amortization expense
26.7
32.5
55.1
64.9
EBITDA
52.8
86.5
24.9
184.4
Asset impairment charges
4.9
—
95.2
—
Restructuring, integration and other
costs
20.5
17.7
40.1
24.0
CEO transition costs
0.2
1.9
—
7.4
Share-based compensation expense
5.4
5.4
9.1
8.7
Acquisition transaction costs
—
—
—
0.2
Certain legal-related expense
—
6.0
(2.1
)
6.4
Loss on sales of customer lists
—
—
—
0.1
Adjusted EBITDA
$83.8
$117.5
$167.2
$231.2
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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net income (loss)
$14.9
$32.6
($45.3
)
$73.8
Asset impairment charges
4.9
—
95.2
—
Acquisition amortization
13.7
18.8
28.4
37.8
Restructuring, integration and other
costs
20.5
17.7
40.1
24.0
CEO transition costs
0.2
1.9
—
7.4
Share-based compensation expense
5.4
5.4
9.1
8.7
Acquisition transaction costs
—
—
—
0.2
Certain legal-related expense
—
6.0
(2.1
)
6.4
Loss on sales of customer lists
—
—
—
0.1
Adjustments, pre-tax
44.7
49.8
170.7
84.6
Income tax provision impact of pre-tax
adjustments(1)
(11.2
)
(10.9
)
(30.3
)
(18.9
)
Adjustments, net of tax
33.5
38.9
140.4
65.7
Adjusted net income
48.4
71.5
95.1
139.5
Income allocated to participating
securities
—
—
(0.1
)
(0.2
)
Re-measurement of share-based awards
classified as liabilities
—
(0.1
)
(0.8
)
—
Adjusted income available to common
shareholders
$48.4
$71.4
$94.2
$139.3
GAAP Diluted EPS
$0.35
$0.75
($1.10
)
$1.68
Adjustments, net of tax
0.80
0.89
3.34
1.50
Adjusted Diluted EPS(2)
$1.15
$1.64
$2.24
$3.18
(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 six months ended June 30, 2020 was 132
thousand shares higher than that used in the GAAP diluted loss per
share calculation. Because of the net loss in the first half of
2020, the GAAP calculation excluded a higher number of share-based
compensation awards that were antidilutive.
DELUXE CORPORATION RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (continued) (in millions) (Unaudited) NET
DEBT
Net debt is not a GAAP financial measure. Nevertheless,
management believes that net debt is an important measure to
monitor leverage and 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 and that there is less Company debt than the most
comparable GAAP measure indicates.
June 30, 2020
December 31, 2019
June 30, 2019
Total debt
$1,140.0
$883.5
$951.0
Cash and cash equivalents
(372.0
)
(73.6
)
(66.7
)
Net debt
$768.0
$809.9
$884.3
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.
Six Months Ended
June 30,
2020
2019
Net cash provided by operating
activities
$109.7
$105.1
Purchases of capital assets
(27.1
)
(32.3
)
Free cash flow
$82.6
$72.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200730005734/en/
Jane Elliott, Chief Communications and HR Officer 770-833-3500
investorrelations@Deluxe.com
Cam Potts, VP, Communications 651-233-7735
Cameron.Potts@Deluxe.com
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