Deluxe(US:DLX)2022-11-04 14:31Part I – Financial Information This section provides the unaudited consolidated financial statements and related notes for Deluxe Corporation, detailing financial position, performance, and cash flows Financial Statements This section presents Deluxe Corporation's unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $550,419 | $620,473 | | Total Assets | $2,957,321 | $3,074,384 | | Total Current Liabilities | $585,844 | $683,358 | | Total Liabilities | $2,355,249 | $2,499,786 | | Total Shareholders' Equity | $602,072 | $574,598 | Consolidated Statement of Comprehensive Income Highlights (in thousands, except per share amounts) | Metric | Quarter Ended Sep 30, 2022 | Quarter Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $555,038 | $532,141 | $1,674,006 | $1,451,622 | | Operating Income | $41,613 | $36,404 | $124,051 | $98,780 | | Net Income | $14,760 | $12,501 | $46,536 | $48,955 | | Diluted EPS | $0.34 | $0.28 | $1.06 | $1.13 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $123,418 | $149,229 | | Net Cash from Investing Activities | ($49,350) | ($1,036,361) | | Net Cash from Financing Activities | ($149,561) | $911,620 | | Net Change in Cash | ($89,600) | $23,695 | Condensed Notes to Unaudited Consolidated Financial Statements These notes provide detailed explanations for financial statement line items, covering acquisitions, divestitures, debt, segment performance, and restructuring activities - The company finalized the purchase price allocation for the First American acquisition, which occurred on June 1, 2021, and in 2022, divested its Australian web hosting business for $17.6 million, its Promotional Solutions strategic sourcing business, and its retail packaging business475657 - As of Sep 30, 2022, total debt was $1.67 billion, consisting primarily of a senior secured term loan facility ($1.0 billion) and senior unsecured notes ($475 million), with the company in compliance with all debt covenants8083 - The company incurred restructuring and integration expenses of $15.3 million for Q3 2022 and $46.8 million for the nine months ended Sep 30, 2022, primarily related to IT consulting, internal labor, and employee severance7173 - For the nine months ended Sep 30, 2022, revenue was led by Checks ($553.4 million) and Payments ($507.1 million)98106109 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management provides insights into the company's financial performance, condition, and strategic initiatives, including the impact of acquisitions and market conditions Executive Overview This overview discusses the business model, First American acquisition impact, market conditions, and the company's 2022 financial outlook - The company expects revenue to increase 8% to 10% for 2022, with an adjusted EBITDA margin of 18.5% to 19.0%, while business exits are expected to reduce revenue growth by approximately 2.0 percentage points131 - The First American acquisition contributed incremental revenue of $144.2 million and adjusted EBITDA of $30.2 million for the first nine months of 2022117 - The company is experiencing inflationary pressures on labor, delivery, and material costs, which it is addressing with targeted price increases, and also faced supply disruptions in the Promotional Solutions segment120 - Capital allocation priorities include investing in growth, paying dividends, reducing debt, and returning value to shareholders, with total debt at $1.67 billion as of Sep 30, 2022122 Consolidated Results of Operations This section analyzes consolidated financial results, detailing changes in revenue, expenses, and non-GAAP measures, attributing shifts to acquisitions, inflation, and divestitures - Total revenue increased 4.3% in Q3 2022 and 15.3% in the first nine months of 2022 year-over-year, primarily driven by the First American acquisition, which contributed $144.2 million in incremental revenue135 - Cost of revenue as a percentage of revenue increased to 46.0% for the first nine months of 2022 from 43.3% in 2021 due to inflation and the First American acquisition, while SG&A expense increased 9.9% reflecting First American costs and transformational investments137142 - Interest expense for the first nine months of 2022 increased 84.2% to $65.5 million, primarily due to debt issued to fund the First American acquisition and rising interest rates145147 Non-GAAP Reconciliation Highlights (Nine Months Ended Sep 30) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Adjusted Diluted EPS | $3.04 | $3.62 | (16.0%) | | Adjusted EBITDA (in millions) | $305.9 | $290.7 | 5.2% | Segment Results This section details the performance of the Payments, Cloud Solutions, Promotional Solutions, and Checks segments, highlighting revenue drivers and challenges - Payments Segment revenue for the first nine months of 2022 increased 47.8% to $507.1 million, and adjusted EBITDA increased 51.3% to $107.6 million, primarily due to the First American acquisition175 - Cloud Solutions Segment revenue for the first nine months of 2022 increased 2.5% to $204.8 million, with growth in data-driven marketing partially offset by the sale of the Australian web hosting business and churn in North American hosting177178 - Promotional Solutions Segment revenue for the first nine months of 2022 increased 4.8% to $408.6 million due to new clients and price increases, but adjusted EBITDA decreased 12.3% due to inflation and supply chain disruptions181183 - Checks Segment revenue for the first nine months of 2022 increased 6.6% to $553.4 million, driven by new client wins and price increases, which offset secular declines186 Cash Flows and Liquidity This section analyzes cash flows, noting a decrease in operating cash due to higher payments, reduced investing cash without major acquisitions, and net debt repayments in financing activities - Net cash provided by operating activities decreased by $25.8 million for the first nine months of 2022 compared to 2021, driven by higher interest payments (+$32.8 million), bonus payments (+$22.8 million), and tax payments (+$17.7 million)190191 - Net cash used by investing activities was $49.4 million in the first nine months of 2022, compared to $1.04 billion in the same period of 2021, primarily due to the $956.7 million net payment for the First American acquisition in 2021189193 - Net cash used by financing activities was $149.6 million in the first nine months of 2022, compared to net cash provided of $911.6 million in 2021, with the 2021 period including large debt proceeds to fund the acquisition189194 Capital Resources This section details the company's capital structure, including total debt, available liquidity, and the status of its share repurchase authorization - Total debt principal was $1.69 billion as of Sep 30, 2022, with nearly 60% of debt at a fixed rate due to interest rate swaps121198200 - As of Sep 30, 2022, the company had $282.2 million available for borrowing under its revolving credit facility203 - The company has a $500 million share repurchase authorization from October 2018, with $287.5 million remaining available as of September 30, 2022, and no shares repurchased under this plan during the nine months ended Sep 30, 202297201 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on variable-rate debt, mitigated by swaps, with foreign currency risk deemed insignificant - The company is exposed to interest rate risk from its variable-rate credit facility, where a hypothetical one percentage point change in the weighted-average interest rate would have resulted in a $7.3 million change in interest expense for the first nine months of 2022212219 - The company uses interest rate swaps to mitigate interest rate variability, effectively converting $500.0 million of its variable-rate debt to a fixed rate218 - Exposure to foreign currency exchange rates, primarily the Canadian dollar, is not expected to have a significant impact on earnings and cash flows221 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective222 - No changes in internal control over financial reporting were identified during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls223 Part II – Other Information This section addresses legal proceedings, risk factors, and unregistered equity sales, noting no material legal liabilities or significant changes to risk factors Legal Proceedings The company asserts that recorded liabilities for legal matters are not material to its financial position, operations, or liquidity - The company believes that recorded reserves for legal matters are adequate and that currently identified claims or litigation will not materially affect its financial position, results of operations, or liquidity226 Risk Factors There have been no significant changes to the company's risk factors since the filing of its 2021 Annual Report on Form 10-K - There have been no significant changes in the company's risk factors since the filing of the 2021 Form 10-K227 [Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company did not repurchase shares in Q3 2022 but withheld 10,570 shares for tax obligations on employee equity awards, with $287.5 million remaining for future repurchases - No shares were repurchased under the publicly announced plan during Q3 2022228229 - The company withheld 10,570 shares at an average price of $21.14 to satisfy tax obligations on vested equity awards for employees228 - $287.5 million remained available for repurchase under the board's authorization as of September 30, 2022229