- Delivered solid financial results and accelerated historic
transformation despite COVID challenges
- Sales-driven success continues to drive momentum
- Achieved strong cash flows and increased liquidity; lowest
total and net debt in 2.5 years
- Declares regular quarterly dividend affirming confidence in
financial strength and disciplined stewardship
Deluxe (NYSE: DLX), a Trusted Business Technology™ company,
today reported operating results for its fourth quarter and year
ended December 31, 2020.
“Our One Deluxe strategy, including our new go-to-market
approach, delivered record sales success in 2020, exceeding our
pre-pandemic plan and positioning Deluxe to drive further growth in
2021 and beyond. Our team continues to successfully execute on this
historic transformation, with our newly created Payments business
unit delivering double-digit growth for the full year. We also
strengthened our financial position by reducing net debt to the
lowest level in two-and-a-half years, while achieving our full year
target margin percentage. Through the course of the year, we
continued to pay our regular quarterly dividend, demonstrating our
confidence in the business and commitment to returning value to our
shareholders,” said Barry McCarthy, President and CEO of
Deluxe.
“Given our disciplined stewardship, financial strength,
sales-driven performance and rebounding core revenue expectations,
we are confident in our future and look forward to steady
improvement in 2021,” said McCarthy.
Full Year 2020 Financial and Segment Highlights
Full Year
2020
Full Year
2019
% Change
Revenue
$1,790.8
million
$2,008.7
million
(10.8
%)
Net Income (Loss) Attributable to
Deluxe
$8.8
million
($199.9)
million
n/m
Adjusted EBITDA
$364.5
million
$480.9
million
(24.2
%)
Diluted EPS – GAAP
$0.19
($4.65)
n/m
Adjusted Diluted EPS
$5.08
$6.82
(25.5
%)
n/m - not meaningful
- Revenue was $217.9 million lower than the previous year.
COVID-19 negatively impacted the company's results, primarily
across the Promotional Solutions, Cloud Solutions and Checks
segments.
- The Payments segment formed at the beginning of the year
delivered revenue growth of 12% over the previous year.
COVID-19-related delays in customer implementations impacted the
growth rate in this segment, which will likely continue into Q1
2021.
- Net income of $8.8 million was impacted by COVID-19 and
continued costs in support of the company’s transformation.
- Despite the impact of COVID-19, adjusted EBITDA margin remained
strong at 20.4%, as management continued to implement cost savings
and efficiency programs across the company.
- Cash flow from operations for 2020 was $217.6 million and
capital expenditures were $62.6 million. Free cash flow, defined as
cash provided by operating activities less capital expenditures,
was $155.0 million, a decrease of $65.1 million as compared to
2019.
- In addition to COVID-19, free cash flow was impacted by
previously disclosed expenditures to support the company’s business
transformation and the ongoing secular decline in checks. These
impacts were partially offset by lower income taxes, management’s
cost savings initiatives, and lower capital expenditures.
- Net debt of $716.9 million was the lowest since June 30,
2018.
- During the fourth quarter, the company repaid $200 million on
its revolving credit facility under which it borrowed at the onset
of the COVID-19 pandemic.
- As of December 31, 2020, $840.0 million was drawn on the
revolving credit facility, compared to $883.5 million at the
beginning of 2020. Liquidity was $425.4 million, with cash and cash
equivalents increasing $49.5 million for the year.
Fourth Quarter 2020 Financial and Segment Highlights
4th Quarter
2020
4th Quarter
2019
% Change
Revenue
$454.5
million
$522.1
million
(12.9
%)
Net Income Attributable to Deluxe
$24.7
million
$44.8
million
(44.9
%)
Adjusted EBITDA
$94.9
million
$130.3
million
(27.2
%)
Diluted EPS – GAAP
$0.58
$1.06
(45.3
%)
Adjusted Diluted EPS
$1.38
$1.94
(28.9
%)
- Revenue was $67.6 million lower than last year. COVID-19
continued to negatively impact the company's results, primarily
across the Promotional Solutions, Cloud Solutions and Checks
segments.
- Revenue grew 3% from the third quarter, reflecting new business
and some seasonality in Promotional Solutions.
- The Payments segment delivered revenue growth of 3% over the
same period last year, consistent with management's expectations.
COVID-19-related delays in customer implementations impacted the
growth rate in this segment.
- Net income of $24.7 million was impacted by COVID-19 and
continued costs in support of the company's transformation.
- Adjusted EBITDA margin remained strong at 20.9%, despite the
impact of COVID-19, as management continues to aggressively execute
cost-savings and efficiency programs.
Outlook
Although the specific timing for larger economic recovery
remains uncertain, as a result of increased confidence in the
Company’s financial position and strong execution against its
strategic plan, Deluxe is establishing guidance for the full year
2021:
- Full year 2021 revenue is expected to grow in the range of 0%
to 2% primarily due to the combination of sales transformation and
related wins and steady macro-economic recovery from
COVID-19.
- We expect first quarter financial performance to be a
continuation of fourth quarter 2020 results as we begin to lap the
onset of the pandemic in March 2020.
- We are positioned for recovery to begin in the second quarter,
enabling us to exit the year with revenue growth in mid-single
digits.
- Adjusted EBITDA margin for full year 2021 is expected to be in
the range between 20% to 21%, at the lower end of the company’s
long-term target range.
- We expect our tax rate to continue to be approximately
25%.
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 March
1, 2021 to shareholders of record as of market closing on February
16, 2021.
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 1-615-247-0252 (access code 3364057). 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 February 12, 2021 by dialing 1-404-537-3406
(access code 3364057).
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 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 September 30, 2020.
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (LOSS)
(in millions, except per share
amounts)
(Unaudited)
Quarter Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Product revenue
$322.5
$365.3
$1,230.7
$1,409.1
Service revenue
132.0
156.8
560.1
599.6
Total revenue
454.5
522.1
1,790.8
2,008.7
Cost of products
(125.8
)
(132.5
)
(458.7
)
(531.3
)
Cost of services
(66.2
)
(74.6
)
(272.1
)
(281.6
)
Total cost of revenue
(192.0
)
(207.1
)
(730.8
)
(812.9
)
Gross profit
262.5
315.0
1,060.0
1,195.8
Selling, general and administrative
expense
(207.0
)
(225.9
)
(841.6
)
(891.7
)
Restructuring and integration
expense
(18.9
)
(22.2
)
(75.9
)
(71.2
)
Asset impairment charges
—
—
(98.0
)
(391.0
)
Operating income (loss)
36.6
66.9
44.5
(158.1
)
Interest expense
(4.9
)
(7.4
)
(23.1
)
(34.7
)
Other income
0.7
1.1
9.2
7.2
Income (loss) before income
taxes
32.4
60.6
30.6
(185.6
)
Income tax provision
(7.7
)
(15.8
)
(21.7
)
(14.3
)
Net income (loss)
24.7
44.8
8.9
(199.9
)
Non-controlling interest
—
—
(0.1
)
—
Net income (loss) attributable to
Deluxe
$24.7
$44.8
$8.8
($199.9
)
Weighted average dilutive
shares
42.2
42.3
42.1
43.0
Diluted earnings (loss) per
share
$0.58
$1.06
$0.19
($4.65
)
Adjusted diluted earnings per
share
1.38
1.94
5.08
6.82
Capital expenditures
19.9
16.9
62.6
66.6
Depreciation and amortization
expense
27.7
30.6
110.8
126.0
EBITDA
65.0
98.6
164.4
(24.9
)
Adjusted EBITDA
94.9
130.3
364.5
480.9
DELUXE CORPORATION
CONSOLIDATED CONDENSED BALANCE
SHEETS
(dollars and shares in
millions)
(Unaudited)
December 31,
2020
December 31,
2019
Cash and cash equivalents
$123.1
$73.6
Other current assets
383.5
398.6
Property, plant & equipment
88.7
96.5
Operating lease assets
35.9
44.4
Intangibles
246.8
276.1
Goodwill
736.8
804.5
Other non-current assets
260.1
249.6
Total assets
$1,874.9
$1,943.3
Total current liabilities
$411.8
$407.9
Long-term debt
840.0
883.5
Non-current operating lease
liabilities
28.4
33.6
Other non-current liabilities
53.9
47.4
Shareholders' equity
540.8
570.9
Total liabilities and shareholders'
equity
$1,874.9
$1,943.3
Net debt
$716.9
$809.9
Shares outstanding
42.0
42.1
Number of employees
6,185
6,352
DELUXE CORPORATION
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Year Ended December
31,
2020
2019(1)
Cash provided (used) by:
Operating activities:
Net income (loss)
$8.9
($199.9
)
Depreciation and amortization of
intangibles
110.8
126.0
Asset impairment charges
98.0
391.0
Prepaid product discount
payments
(33.6
)
(25.6
)
Other
33.5
(4.8
)
Total operating activities
217.6
286.7
Investing activities:
Purchases of capital assets
(62.6
)
(66.6
)
Payments for acquisitions
—
(8.2
)
Proceeds from sale of
facilities
9.7
—
Other
(3.2
)
2.4
Total investing activities
(56.1
)
(72.4
)
Financing activities:
Net change in debt
(43.5
)
(26.5
)
Dividends
(50.7
)
(51.7
)
Share repurchases
(14.0
)
(118.5
)
Net change in customer funds
obligations
(0.2
)
12.6
Other
(2.2
)
(6.1
)
Total financing activities
(110.6
)
(190.2
)
Effect of exchange rate change on cash,
cash equivalents, restricted cash and restricted cash
equivalents
3.7
5.4
Net change in cash, cash equivalents,
restricted cash and restricted cash equivalents
54.6
29.5
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 year
$229.4
$174.8
Free cash flow
$155.0
$220.1
(1)
The 2019 statement of cash flows has been
revised from amounts reported in the prior year to reflect certain
holdback payments for acquisitions and asset purchases within other
financing activities. Previously, these amounts were included
within investing activities.
DELUXE CORPORATION
SEGMENT INFORMATION
(In millions)
(Unaudited)
Quarter Ended December
31,
Year Ended December
31,
2020
2019
2020
2019
Revenue:
Payments
$78.0
$75.7
$301.9
$269.6
Cloud Solutions
59.2
81.2
252.8
318.4
Promotional Solutions
144.0
172.7
529.6
640.9
Checks
173.3
192.5
706.5
779.8
Total
$454.5
$522.1
$1,790.8
$2,008.7
Adjusted EBITDA:
Payments
$17.8
$22.3
$68.1
$74.4
Cloud Solutions
16.1
20.8
61.6
77.2
Promotional Solutions
20.1
32.5
66.6
101.3
Checks
83.3
101.8
341.7
402.7
Corporate
(42.4
)
(47.1
)
(173.5
)
(174.7
)
Total
$94.9
$130.3
$364.5
$480.9
Adjusted EBITDA Margin:
Payments
22.8
%
29.5
%
22.6
%
27.6
%
Cloud Solutions
27.2
%
25.6
%
24.4
%
24.2
%
Promotional Solutions
14.0
%
18.8
%
12.6
%
15.8
%
Checks
48.1
%
52.9
%
48.4
%
51.6
%
Total
20.9
%
25.0
%
20.4
%
23.9
%
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 2020 Form 10-Qs 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)
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 December
31,
Year Ended December
31,
2020
2019
2020
2019
Net income (loss)
$24.7
$44.8
$8.9
($199.9
)
Non-controlling interest
—
—
(0.1
)
—
Interest expense
4.9
7.4
23.1
34.7
Income tax provision
7.7
15.8
21.7
14.3
Depreciation and amortization expense
27.7
30.6
110.8
126.0
EBITDA
65.0
98.6
164.4
(24.9
)
Asset impairment charges
—
—
98.0
391.0
Restructuring, integration and other
costs
21.6
25.8
80.7
79.5
CEO transition costs
—
0.9
—
9.4
Share-based compensation expense
6.5
5.1
21.8
19.2
Acquisition transaction costs
—
—
—
0.2
Certain legal-related (benefit)
expense
—
—
(2.2
)
6.4
Loss (gain) on sales of businesses and
customer lists
1.8
(0.1
)
1.8
0.1
Adjusted EBITDA
$94.9
$130.3
$364.5
$480.9
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 December
31,
Year Ended December
31,
2020
2019
2020
2019
Net income (loss)
$24.7
$44.8
$8.9
($199.9
)
Non-controlling interest
—
—
(0.1
)
—
Net income (loss) attributable to
Deluxe
24.7
44.8
8.8
(199.9
)
Asset impairment charges
—
—
98.0
391.0
Acquisition amortization
13.8
16.5
55.9
70.7
Restructuring, integration and other
costs
21.6
25.8
80.7
79.5
CEO transition costs
—
0.9
—
9.4
Share-based compensation expense
6.5
5.1
21.8
19.2
Acquisition transaction costs
—
—
—
0.2
Certain legal-related (benefit)
expense
—
—
(2.2
)
6.4
Loss (gain) on sales of businesses and
customer lists
1.8
(0.1
)
1.8
0.1
Adjustments, pre-tax
43.7
48.2
256.0
576.5
Income tax provision impact of pre-tax
adjustments(1)
(10.2
)
(10.6
)
(49.9
)
(81.9
)
Adjustments, net of tax
33.5
37.6
206.1
494.6
Adjusted net income
58.2
82.4
214.9
294.7
Income allocated to participating
securities
—
(0.1
)
(0.1
)
(0.4
)
Re-measurement of share-based awards
classified as liabilities
—
—
(0.8
)
0.1
Adjusted income attributable to Deluxe
available to common shareholders
$58.2
$82.3
$214.0
$294.4
Weighted-average dilutive shares
42.2
42.3
42.1
43.0
Adjustment(2)
—
—
—
0.2
Adjusted weighted-average dilutive
shares
42.2
42.3
42.1
43.2
GAAP Diluted EPS
$0.58
$1.06
$0.19
($4.65
)
Adjustments, net of tax
0.80
0.88
4.89
11.47
Adjusted Diluted EPS
$1.38
$1.94
$5.08
$6.82
(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 adjustment to total weighted-average
dilutive shares is due to the net loss reported for the year ended
December 31, 2019. 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
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.
December 31,
2020
December 31,
2019
Total debt
$840.0
$883.5
Cash and cash equivalents
(123.1
)
(73.6
)
Net debt
$716.9
$809.9
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.
Year Ended December
31,
2020
2019
Net cash provided by operating
activities
$217.6
$286.7
Purchases of capital assets
(62.6
)
(66.6
)
Free cash flow
$155.0
$220.1
DELUXE CORPORATION RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (continued) (in millions) (Unaudited)
LIQUIDITY
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.
December 31,
2020
Cash and cash equivalents
$123.1
Amounts available for borrowing under
revolving credit facility
302.3
Liquidity
$425.4
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210204005761/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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