10-Q 1 dlx-20240331.htm DELUXE CORPORATION 10-Q 03.31.2024 dlx-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  __________ to ___________

Commission file number: 1-7945
deluxelogo2020ba01.jpg

DELUXE CORPORATION
(Exact name of registrant as specified in its charter) 
MN41-0216800
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
801 S. Marquette Ave.MinneapolisMN55402-2807
(Address of principal executive offices)
(Zip Code)

(651) 483-7111
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00 per shareDLXNYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes   ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated Filer Smaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No

The number of shares outstanding of registrant’s common stock as of April 24, 2024 was 44,045,836.

1


PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DELUXE CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share par value)March 31,
2024
December 31,
2023
ASSETS  
Current assets:  
Cash and cash equivalents, including securities carried at fair value of $22,000 as of December 31, 2023
$23,544 $71,962 
Trade accounts receivable, net of allowance for credit losses
171,269 191,005 
Inventories and supplies, net of reserve38,665 42,088 
Funds held for customers108,227 383,134 
Prepaid expenses35,054 30,116 
Revenue in excess of billings
31,946 26,107 
Other current assets21,505 16,576 
Total current assets430,210 760,988 
Deferred income taxes8,177 8,694 
Long-term investments
62,278 61,924 
Property, plant and equipment, net of accumulated depreciation of $340,233 and $334,101, respectively
111,094 116,539 
Operating lease assets55,073 58,961 
Intangibles, net of accumulated amortization of $743,140 and $775,190, respectively
374,013 391,744 
Goodwill1,430,558 1,430,590 
Other non-current assets257,193 251,182 
Total assets$2,728,596 $3,080,622 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$159,306 $154,863 
Funds held for customers108,883 386,622 
Accrued liabilities154,884 191,427 
Current portion of long-term debt21,550 86,153 
Total current liabilities444,623 819,065 
Long-term debt1,538,543 1,506,698 
Operating lease liabilities55,389 58,840 
Deferred income taxes18,173 22,649 
Other non-current liabilities63,476 68,754 
Commitments and contingencies (Note 13)
Shareholders' equity:  
Common shares $1 par value (authorized: 500,000 shares; outstanding: March 31, 2024 – 44,046; December 31, 2023 – 43,743)
44,046 43,743 
Additional paid-in capital101,317 99,141 
Retained earnings488,317 491,238 
Accumulated other comprehensive loss(25,837)(30,028)
Non-controlling interest549 522 
Total shareholders’ equity608,392 604,616 
Total liabilities and shareholders’ equity$2,728,596 $3,080,622 


See Condensed Notes to Unaudited Consolidated Financial Statements

2



DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Quarter Ended
March 31,
(in thousands, except per share amounts)20242023
Product revenue$300,312 $310,226 
Service revenue234,643 235,139 
Total revenue534,955 545,365 
Cost of products(114,336)(118,436)
Cost of services (137,082)(132,227)
Total cost of revenue(251,418)(250,663)
Gross profit283,537 294,702 
Selling, general and administrative expense(234,093)(247,630)
Restructuring and integration expense(13,804)(12,941)
Gain on sale of businesses and long-lived assets8,581  
Operating income44,221 34,131 
Interest expense(30,809)(30,016)
Other income, net2,940 2,424 
Income before income taxes16,352 6,539 
Income tax provision(5,522)(3,759)
Net income10,830 2,780 
Net income attributable to non-controlling interest(27)(28)
Net income attributable to Deluxe$10,803 $2,752 
Total comprehensive income$15,021 $37 
Comprehensive income attributable to Deluxe14,994 9 
Basic earnings per share0.25 0.06 
Diluted earnings per share0.24 0.06 


See Condensed Notes to Unaudited Consolidated Financial Statements


3


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)

(in thousands)Common sharesCommon shares
par value
Additional paid-in capitalRetained earningsAccumulated other comprehensive lossNon-controlling interestTotal
Balance, December 31, 202343,743 $43,743 $99,141 $491,238 $(30,028)$522 $604,616 
Net income— — — 10,803 — 27 10,830 
Cash dividends ($0.30 per share)
— — — (13,724)— — (13,724)
Common shares issued, net of tax withholding303 303 (2,993)— — — (2,690)
Employee share-based compensation
— — 5,169 — — — 5,169 
Other comprehensive income
— — — — 4,191 — 4,191 
Balance, March 31, 2024
44,046 $44,046 $101,317 $488,317 $(25,837)$549 $608,392 


(in thousands)Common sharesCommon shares
par value
Additional paid-in capitalRetained earningsAccumulated other comprehensive lossNon-controlling interestTotal
Balance, December 31, 202243,204 $43,204 $79,234 $518,635 $(37,264)$415 $604,224 
Net income— — — 2,752 — 28 2,780 
Cash dividends ($0.30 per share)
— — — (13,395)— — (13,395)
Common shares issued, net of tax withholding217 217 (1,310)— — — (1,093)
Employee share-based compensation
— — 5,876 — — — 5,876 
Other comprehensive loss
— — — — (2,743)— (2,743)
Balance, March 31, 2023
43,421 $43,421 $83,800 $507,992 $(40,007)$443 $595,649 


See Condensed Notes to Unaudited Consolidated Financial Statements


4


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Quarter Ended
March 31,
(in thousands)20242023
Cash flows from operating activities:  
Net income$10,830 $2,780 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation6,049 5,303 
Amortization of intangibles35,698 38,217 
Amortization of prepaid product discounts8,180 8,513 
Employee share-based compensation expense5,121 5,866 
Operating lease expense5,367 5,389 
Amortization of cloud computing arrangement implementation costs4,119 3,268 
Gain on sale of businesses and long-lived assets(8,581) 
Deferred income taxes(6,040)(6,934)
Other non-cash items, net10,153 7,305 
Changes in assets and liabilities:  
Trade accounts receivable16,655 (18,355)
Inventories and supplies1,942 (2,972)
Payments for cloud computing arrangement implementation costs(75)(3,701)
Other current and non-current assets(21,597)(502)
Accounts payable6,217 5,193 
Prepaid product discount payments(10,503)(7,383)
Other accrued and non-current liabilities(36,945)(48,693)
Net cash provided (used) by operating activities26,590 (6,706)
Cash flows from investing activities:  
Purchases of capital assets(20,442)(25,518)
Other(116)34 
Net cash used by investing activities(20,558)(25,484)
Cash flows from financing activities:  
Proceeds from issuing long-term debt and swingline loans, net of debt issuance costs165,557 217,500 
Payments on long-term debt and swingline loans(200,125)(175,938)
Net change in customer funds obligations(272,806)(145,621)
Cash dividends paid to shareholders(13,956)(13,616)
Other(5,249)(4,613)
Net cash used by financing activities(326,579)(122,288)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents
(2,642)612 
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents(323,189)(153,866)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year458,033 337,415 
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)$134,844 $183,549 


See Condensed Notes to Unaudited Consolidated Financial Statements

5

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of March 31, 2024, the consolidated statements of comprehensive income for the quarters ended March 31, 2024 and 2023, the consolidated statements of shareholders’ equity for the quarters ended March 31, 2024 and 2023 and the consolidated statements of cash flows for the quarters ended March 31, 2024 and 2023 are unaudited. The consolidated balance sheet as of December 31, 2023 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles ("GAAP"). In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial statements are included. Adjustments consist only of normal recurring items, except for any items discussed in the notes below. Interim results are not necessarily indicative of results for a full year or future results. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and do not contain certain information included in our annual consolidated financial statements and notes. The consolidated financial statements and notes appearing in this report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K").

The preparation of our consolidated financial statements requires us to make certain estimates and assumptions affecting the amounts reported in the consolidated financial statements and related notes. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of our assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Actual results may differ significantly from our estimates and assumptions.

Comparability The consolidated statement of cash flows for the quarter ended March 31, 2023 has been modified to conform to the current year presentation. Within net cash provided by operating activities, other current and other non-current assets have been combined. In addition, amortization of cloud computing arrangement implementation costs is presented separately. Previously, this amount was included in other non-cash items, net. Within net cash used by financing activities, employee taxes paid for shares withheld is included in other. Previously, this amount was presented separately. The consolidated statement of shareholders' equity for the quarter ended March 31, 2023 has also been modified to conform to the current year presentation. Common shares retired are included in common shares issued, net of tax withholding. Previously, these amounts were presented separately.


NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

ASU No. 2023-07 – In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Improvements to Reportable Segment Disclosures. which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on the related disclosures within our consolidated financial statements.

ASU No. 2023-09 – In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, which modifies the required income tax disclosures to include specific categories in the income tax rate reconciliation and to require the disclosure of income tax payments by jurisdiction, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The standard is required to be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on the related disclosures within our consolidated financial statements.



6

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

Trade accounts receivable Net trade accounts receivable was comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Trade accounts receivable – gross$178,829 $197,546 
Allowance for credit losses(7,560)(6,541)
Trade accounts receivable – net(1)
$171,269 $191,005 

(1) Includes unbilled receivables of $51,408 as of March 31, 2024 and $43,673 as of December 31, 2023.

Changes in the allowance for credit losses for the quarters ended March 31, 2024 and 2023 were as follows:
Quarter Ended
March 31,
(in thousands)20242023
Balance, beginning of year$6,541 $4,182 
Bad debt expense2,960 1,466 
Write-offs and other(1,941)(824)
Balance, end of period$7,560 $4,824 

Inventories and supplies – Inventories and supplies were comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Finished and semi-finished goods$32,646 $34,194 
Raw materials and supplies16,762 17,339 
Reserve for excess and obsolete items(10,743)(9,445)
Inventories and supplies, net of reserve$38,665 $42,088 

Available-for-sale debt securities – We did not hold any available for sale debt securities as of March 31, 2024. Available-for-sale debt securities held as of December 31, 2023 were comprised of the following:

 December 31, 2023
(in thousands)CostGross unrealized gainsGross unrealized lossesFair value
Cash equivalents:
Domestic money market fund$22,000 $ $ $22,000 
Available-for-sale debt securities$22,000 $ $ $22,000 
 
The domestic money market fund held highly liquid, short-term investments managed by the financial institution. Further information regarding the fair value of available-for-sale debt securities can be found in Note 8.

Revenue in excess of billings – Revenue in excess of billings was comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Conditional right to receive consideration$21,855 $20,680 
Unconditional right to receive consideration(1)
10,091 5,427 
Revenue in excess of billings$31,946 $26,107 

(1) Represents revenues that are earned but not currently billable under the related contract terms.

7

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Intangibles – Intangibles were comprised of the following:
 March 31, 2024December 31, 2023
(in thousands)Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Internal-use software$571,949 $(433,475)$138,474 $554,825 $(412,364)$142,461 
Customer lists/relationships359,375 (242,420)116,955 363,298 (235,557)127,741 
Partner relationships74,562 (14,557)60,005 74,911 (14,031)60,880 
Technology-based intangibles65,700 (23,721)41,979 97,633 (54,251)43,382 
Trade names39,367 (24,317)15,050 39,367 (23,792)15,575 
Software to be sold6,200 (4,650)1,550 36,900 (35,195)1,705 
Intangibles$1,117,153 $(743,140)$374,013 $1,166,934 $(775,190)$391,744 

Amortization of intangibles was $35,698 for the quarter ended March 31, 2024 and $38,217 for the quarter ended March 31, 2023. Based on the intangibles in service as of March 31, 2024, estimated future amortization expense is as follows:
(in thousands)Estimated
amortization
expense
Remainder of 2024$85,055 
202587,044 
202658,798 
202737,871 
202829,071 

In the normal course of business, we acquire and develop internal-use software. We also, at times, purchase customer list and partner relationship assets. During the quarter ended March 31, 2024, we acquired or developed internal-use software of $17,095 with a weighted-average useful life of 3 years. Other intangibles acquired during the quarter were not material.

Goodwill – In conjunction with the realignment of our reportable business segments during the quarter ended March 31, 2024 (Note 15), the goodwill amounts by reportable segment as of December 31, 2023 have been recast to reflect our new segment structure. No goodwill impairment charges were recorded in conjunction with the segment realignment. Changes in goodwill by reportable segment and in total were as follows for the quarter ended March 31, 2024:
(in thousands)Merchant ServicesB2B Payments
Data Solutions(1)
Print(1)
All OtherTotal
Balance, December 31, 2023
$727,688 $160,431 $40,804 $493,924 $7,743 $1,430,590 
Currency translation adjustment— — — (32)— (32)
Balance, March 31, 2024
$727,688 $160,431 $40,804 $493,892 $7,743 $1,430,558 

(1) The Data Solutions and Print balances are net of accumulated impairment charges of $145,584 and $193,699, respectively, for each period.


8

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Other non-current assets – Other non-current assets were comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Postretirement benefit plan asset$96,859 $94,939 
Cloud computing arrangement implementation costs52,252 59,234 
Prepaid product discounts(1)
43,690 40,376 
Deferred contract acquisition costs(2)
21,527 21,103 
Loans and notes receivable from distributors, net of allowance for credit losses(3)
12,773 12,443 
Other30,092 23,087 
Other non-current assets$257,193 $251,182 

(1) Amortization of prepaid product discounts was $8,180 for the quarter ended March 31, 2024 and $8,513 for the quarter ended March 31, 2023.
(2) Amortization of deferred contract acquisition costs was $3,091 for the quarter ended March 31, 2024 and $2,367 for the quarter ended March 31, 2023.

(3) Amount includes the non-current portion of loans and notes receivable. The current portion of these receivables is included in other current assets on the consolidated balance sheets and was $1,317 as of March 31, 2024 and $987 as of December 31, 2023.

Changes in the allowance for credit losses related to loans and notes receivable from distributors were as follows for the quarters ended March 31, 2024 and 2023:
Quarter Ended
March 31,
(in thousands)20242023
Balance, beginning of year$928 $1,024 
Bad debt expense (benefit)54 (28)
Balance, end of period$982 $996 

Past due receivables and those on non-accrual status were not material as of March 31, 2024 or December 31, 2023.

We categorize loans and notes receivable into risk categories based on information about the ability of borrowers to service their debt, including current financial information, historical payment experience, current economic trends and other factors. The highest quality receivables are assigned a 1-2 internal grade. Those that have a potential weakness requiring management's attention are assigned a 3-4 internal grade.

The following table presents loans and notes receivable from distributors, including the current portion, by credit quality indicator and by year of origination, as of March 31, 2024. There were no write-offs or recoveries recorded during the quarter ended March 31, 2024.

Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands)2024202320202019PriorTotal
Risk rating:
1-2 internal grade$991 $361 $961 $355 $12,404 $15,072 
3-4 internal grade      
Loans and notes receivable$991 $361 $961 $355 $12,404 $15,072 

9

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Accrued liabilities – Accrued liabilities were comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Deferred revenue(1)
$30,586 $35,343 
Employee bonuses, including sales incentives15,739 49,446 
Interest15,308 10,481 
Operating lease liabilities13,388 13,562 
Customer rebates9,699 12,718 
Wages and payroll liabilities, including vacation9,559 8,605 
Restructuring7,436 9,689 
Prepaid product discounts5,542 4,477 
Other47,627 47,106 
Accrued liabilities$154,884 $191,427 
 
(1) Revenue recognized for amounts included in deferred revenue at the beginning of the period was $14,644 for the quarter ended March 31, 2024 and $18,683 for the quarter ended March 31, 2023.

Supplemental cash flow information – The reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the consolidated balance sheets was as follows:
(in thousands)March 31,
2024
March 31,
2023
Cash and cash equivalents$23,544 $24,622 
Restricted cash and restricted cash equivalents included in funds held for customers108,227 149,010 
Cash and cash equivalents included in other current assets(1)
 7,325 
Non-current restricted cash included in other non-current assets3,073 2,592 
Total cash, cash equivalents, restricted cash and restricted cash equivalents$134,844 $183,549 
Non-cash investing activities:
Investment in joint venture(2)
$ $18,392 

(1) Represents the cash and cash equivalents of our former North American web hosting and logo design business, which was classified as held for sale as of March 31, 2023.

(2) In February 2023, we entered into a joint venture focused on launching and marketing a business payment distribution technology platform. We committed to invest $20,000 over a 3-year period and we have option rights to acquire additional non-controlling ownership interest. During the quarter ended March 31, 2023, we recorded $18,392 for our investment in the joint venture and option rights.



10

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 4: EARNINGS PER SHARE

The following table reflects the calculation of basic and diluted earnings per share. During each period, certain share-based awards, as noted below, were excluded from the calculation of diluted earnings per share because their effect would have been antidilutive. 
 Quarter Ended
March 31,
(in thousands, except per share amounts)20242023
Earnings per share – basic:  
Net income$10,830 $2,780 
Net income attributable to non-controlling interest(27)(28)
Net income attributable to Deluxe10,803 2,752 
Income allocated to participating securities(9)(10)
Income attributable to Deluxe available to common shareholders$10,794 $2,742 
Weighted-average shares outstanding43,917 43,317 
Earnings per share – basic$0.25 $0.06 
Earnings per share – diluted:
Net income$10,830 $2,780 
Net income attributable to non-controlling interest(27)(28)
Net income attributable to Deluxe10,803 2,752 
Income allocated to participating securities(9)(10)
Re-measurement of share-based awards classified as liabilities
(37)(19)
Income attributable to Deluxe available to common shareholders$10,757 $2,723 
Weighted-average shares outstanding43,917 43,317 
Dilutive impact of potential common shares570 344 
Weighted-average shares and potential common shares outstanding
44,487 43,661 
Earnings per share – diluted$0.24 $0.06 
Antidilutive potential common shares excluded from calculation1,350 1,644 



11

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 5: OTHER COMPREHENSIVE INCOME (LOSS)

Reclassification adjustments Information regarding amounts reclassified from accumulated other comprehensive loss to net income was as follows:
Accumulated other comprehensive loss componentsAmounts reclassified from accumulated other comprehensive lossAffected line item in consolidated statements of comprehensive income
Quarter Ended
March 31,
(in thousands)20242023
Amortization of postretirement benefit plan items:
Prior service credit$355 $355 Other income
Net actuarial loss(334)(568)Other income
Total amortization21 (213)Other income
Tax (expense) benefit(43)16 Income tax provision
Amortization of postretirement benefit plan items, net of tax(22)(197)Net income
Realized gain on cash flow hedges
915 570 Interest expense
Tax expense
(247)(152)Income tax provision
Realized gain on cash flow hedges, net of tax
668 418 Net income
Total reclassifications, net of tax$646 $221 

Accumulated other comprehensive loss Changes in the components of accumulated other comprehensive loss for the quarters ended March 31, 2024 and 2023 were as follows:
(in thousands)Postretirement benefit plans
Net unrealized gain on cash flow hedges(1)
Currency translation adjustmentAccumulated other comprehensive loss
Balance, December 31, 2023
$(19,824)$(286)$(9,918)$(30,028)
Other comprehensive income (loss) before reclassifications
 5,864 (1,027)4,837 
Amounts reclassified from accumulated other comprehensive loss
22 (668) (646)
Net current-period other comprehensive income (loss)
22 5,196 (1,027)4,191 
Balance, March 31, 2024
$(19,802)$4,910 $(10,945)$(25,837)

(1) Other comprehensive income before reclassifications is net of income tax expense of $2,169.


12

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

(in thousands)Postretirement benefit plans
Net unrealized loss on debt securities(1)
Net unrealized gain (loss) on cash flow hedges(2)
Currency translation adjustmentAccumulated other comprehensive loss
Balance, December 31, 2022
$(26,872)$(909)$2,593 $(12,076)$(37,264)
Other comprehensive income (loss) before reclassifications
 123 (2,872)227 (2,522)
Amounts reclassified from accumulated other comprehensive loss
197  (418) (221)
Net current-period other comprehensive income (loss)
197 123 (3,290)227 (2,743)
Balance, March 31, 2023
$(26,675)$(786)$(697)$(11,849)$(40,007)

(1) Other comprehensive income before reclassifications is net of income tax expense of $43.

(2) Other comprehensive loss before reclassifications is net of an income tax benefit of $1,045.


NOTE 6: DIVESTITURES

In September and December 2023, we executed agreements allowing for the conversion of our U.S. and Canadian payroll and human resources services customers to other service providers. During the quarter ended March 31, 2024, we recognized related income of $7,581, which is included in gain on sale of businesses and long-lived assets on the consolidated statement of comprehensive income. Recognition of the remaining income will be based on actual customer conversion and retention activity, which we expect to be completed during 2024. These businesses generated annual revenue of approximately $27,000 during 2023. Our U.S. and Canadian payroll and human resources businesses comprise a reporting unit that had a goodwill balance of $7,743 as of March 31, 2024. We evaluated this goodwill for impairment as of March 31, 2024, and, based on our quantitative analysis, we concluded that it was not impaired as of that date. In conjunction with our phased transition out of these businesses, we expect that this goodwill will be fully impaired during 2024, at the point when the remaining cash flows generated by these businesses in 2024 no longer support the carrying value of the reporting unit. During the quarter ended March 31, 2024, we also recognized a gain of $1,000 on the sale of a small business distributor customer list.

In June 2023, we completed the sale of our North American web hosting and logo design businesses. These businesses generated revenue of approximately $28,000 during 2023, through the sale date. Further information regarding this sale can be found under the caption "Note 6: Acquisition and Divestitures" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.


13

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

As part of our interest rate risk management strategy, we have entered into interest rate swaps, which we designated as cash flow hedges, to mitigate variability in interest payments on a portion of our variable-rate debt (Note 12). Our derivative instruments were comprised of the following:

March 31,
2024
December 31,
2023
(in thousands)Notional amountInterest rateMaturityBalance sheet locationFair value
asset / (liability)
Fair value
asset / (liability)
June 2023 amortizing interest rate swap:
$255,417 4.249 %June 2026Other non-current assets and other non-current liabilities$887 $(2,158)
March 2023
interest rate swap:
200,000 4.003 %March 2026Other non-current assets2,289 287 
September 2022 interest rate swap:
300,000 3.990 %September 2025Other non-current assets3,590 1,519 

Changes in the fair values of the interest rate swaps are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair values of the derivatives are calculated based on the applicable reference rate curve on the date of measurement. The cash flow hedges were fully effective as of March 31, 2024 and December 31, 2023, and their impact on consolidated net income and the consolidated statements of cash flows was not material. We also expect that the amount that will be reclassified to interest expense during the next 12 months will not be material.


NOTE 8: FAIR VALUE MEASUREMENTS

Recurring fair value measurements – Cash and cash equivalents included available-for-sale debt securities at December 31, 2023 (Note 3), which consisted of a domestic money market fund. The cost of the fund, which was traded in an active market, approximated its fair value because of the short-term nature of the underlying investments. The fair value of derivative instruments (Note 7) is calculated based on the applicable reference rate curve on the date of measurement.


14

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Information regarding the fair values of our financial instruments was as follows:
 Fair value measurements using
March 31, 2024Quoted prices in active markets for identical assets
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
(in thousands)Balance sheet locationCarrying valueFair value
Measured at fair value through comprehensive income:
Derivative assets (Note 7)Other non-current assets$6,766 $6,766 $— $6,766 $— 
Amortized cost:
CashCash and cash equivalents23,544 23,544 23,544 — — 
CashFunds held for customers108,227 108,227 108,227 — — 
CashOther non-current assets3,073 3,073 3,073 — — 
Loans and notes receivable from distributors
Other current assets and other non-current assets14,090 14,159 — — 14,159 
Long-term debtCurrent portion of long-term debt and long-term debt1,560,093 1,531,878 — 1,531,878 — 


15

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

 Fair value measurements using
December 31, 2023Quoted prices in active markets for identical assets
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
(in thousands)Balance sheet locationCarrying valueFair value
Measured at fair value through comprehensive income:
Available-for-sale debt securities
Cash and cash equivalents$22,000 $22,000 $22,000 $— $— 
Derivative assets (Note 7)Other non-current assets1,806 1,806 — 1,806 — 
Derivative liability (Note 7)Other non-current liabilities(2,158)(2,158)— (2,158)— 
Amortized cost:
CashCash and cash equivalents49,962 49,962 49,962 — — 
Cash
Funds held for customers383,134 383,134 383,134 — — 
Cash
Other non-current assets2,937 2,937 2,937 — — 
Loans and notes receivable from distributors
Other current assets and other non-current assets13,430 13,249 — — 13,249 
Long-term debt
Current portion of long-term debt and long-term debt1,592,851 1,554,028 — 1,554,028 — 


NOTE 9: RESTRUCTURING AND INTEGRATION EXPENSE

Restructuring and integration expense consists of costs related to initiatives to drive earnings and cash flow growth and also includes costs related to the consolidation and migration of certain applications and processes. These costs consist primarily of consulting, project management services and internal labor, as well as other costs associated with our initiatives, such as costs related to facility closures and consolidations. In addition, we have recorded employee severance costs across functional areas. Restructuring and integration expense is not allocated to our reportable business segments.

We are currently pursuing several initiatives designed to support our growth strategy and to increase our efficiency, including several initiatives that we collectively refer to as our North Star program. The goal of these initiatives is to further drive shareholder value by (1) expanding our earnings before interest, taxes, depreciation and amortization ("EBITDA") growth trajectory, (2) increasing cash flow, (3) paying down debt, and (4) improving our leverage ratio. Our various initiatives include a balanced mix of structural cost reductions focused on organizational structure, processes and operational improvements, in addition to workstreams to drive revenue growth. We have already combined like-for-like capabilities, reduced management layers and consolidated core operations to run more efficiently and to create the ability to invest in high impact talent to accelerate our growth businesses of payments and data. The associated expense, which consisted primarily of consulting costs, was approximately $12,000 during the quarter ended March 31, 2024. To date, we have incurred expense of approximately $60,000, and we anticipate that we will incur an additional $60,000 to $80,000 of North Star restructuring and integration expense through 2025.


16

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Restructuring and integration expense is reflected on the consolidated statements of comprehensive income as follows:
 Quarter Ended
March 31,
(in thousands)20242023
Total cost of revenue$933 $1,153 
Operating expenses13,804 12,941 
Restructuring and integration expense$14,737 $14,094 

Restructuring and integration expense for each period was comprised of the following:
 Quarter Ended
March 31,
(in thousands)20242023
External consulting and other costs$7,969 $7,692 
Employee severance benefits1,972 186 
Internal labor838 2,122 
Other3,958 4,094 
Restructuring and integration expense$14,737 $14,094 

Our restructuring and integration accruals are included in accrued liabilities on the consolidated balance sheets and represent expected cash payments required to satisfy the remaining severance obligations to those employees already terminated and those expected to be terminated under our various initiatives. The majority of the employee reductions, as well as the related severance payments, are expected to be completed by the end of 2024.

Changes in our restructuring and integration accruals were as follows:
(in thousands)Employee severance benefits
Balance, December 31, 2023
$9,689 
Charges2,042 
Reversals(70)
Payments(4,225)
Balance, March 31, 2024
$7,436 

The charges and reversals presented in the rollforward of our restructuring and integration accruals do not include items charged directly to expense as incurred, as those items are not reflected in accrued liabilities on the consolidated balance sheets.


NOTE 10: INCOME TAX PROVISION

The effective income tax rate for the quarter ended March 31, 2024 was 33.8%, consistent with the effective tax rate of 34.1% for the year ended December 31, 2023. The reconciliation of our effective tax rate for 2023 to the U.S. federal statutory tax rate can be found under the caption "Note 10: Income Tax Provision" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.


NOTE 11: POSTRETIREMENT BENEFITS

We have historically provided certain health care benefits for eligible retired U.S. employees. In addition to our retiree health care plan, we also have a U.S. supplemental executive retirement plan. Further information regarding our postretirement benefit plans can be found under the caption “Note 12: Postretirement Benefits” in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.

17

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Postretirement benefit income is included in other income on the consolidated statements of comprehensive income and consisted of the following components:
Quarter Ended
March 31,
(in thousands)20242023
Interest cost$435 $496 
Expected return on plan assets(2,099)(1,830)
Amortization of prior service credit(355)(355)
Amortization of net actuarial losses334 568 
Net periodic benefit income$(1,685)$(1,121)

NOTE 12: DEBT

Debt outstanding was comprised of the following:
(in thousands)March 31,
2024
December 31,
2023
Senior, secured term loan facility$790,562 $877,187 
Senior, unsecured notes475,000 475,000 
Amounts drawn on senior, secured revolving credit facility239,750 252,000 
Securitization obligations64,969  
Total principal amount1,570,281 1,604,187 
Less: unamortized discount and debt issuance costs(10,188)(11,336)
Total debt, net of discount and debt issuance costs1,560,093 1,592,851 
Less: current portion of long-term debt, net of debt issuance costs(21,550)(86,153)
Long-term debt$1,538,543 $1,506,698 

Maturities of long-term debt were as follows as of March 31, 2024:
(in thousands)Debt obligations
2025$101,062 
2026929,250 
202764,969 
2028 
2029475,000 
Total principal amount$1,570,281 

Credit facilityIn June 2021, we executed a senior, secured credit facility consisting of a revolving credit facility with commitments of $500,000 and a $1,155,000 term loan facility. The revolving credit facility includes a $40,000 swingline sub-facility and a $25,000 letter of credit sub-facility. Loans under the revolving credit facility may be borrowed, repaid and re-borrowed until June 1, 2026, at which time all amounts borrowed must be repaid. The term loan facility is required to be repaid in equal quarterly installments of $21,656 through June 30, 2025 and $28,875 from September 30, 2025 through March 31, 2026. The remaining balance is due on June 1, 2026. The term loan facility also includes mandatory prepayment requirements related to asset sales, new debt (other than permitted debt) and excess cash flow, subject to certain limitations. No premium or penalty is payable in connection with any mandatory or voluntary prepayment of the term loan facility.

18

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Interest is payable on the credit facility at a fluctuating rate of interest determined by reference to the Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.5% to 2.5%, depending on our consolidated total leverage ratio, as defined in the credit agreement, and a commitment fee is payable on the unused portion of the revolving credit facility. Amounts outstanding under the credit facility had a weighted-average interest rate of 6.71% as of March 31, 2024 and 6.83% as of December 31, 2023, including the impact of interest rate swaps that effectively convert a portion of our variable-rate debt to fixed-rate debt. Further information regarding the interest rate swaps can be found in Note 7.

Borrowings under the credit facility are collateralized by substantially all of the present and future tangible and intangible personal property held by us and our subsidiaries that have guaranteed our obligations under the credit facility, subject to certain exceptions. The credit agreement contains customary covenants regarding limits on levels of indebtedness, liens, mergers, certain asset dispositions, changes in business, advances, investments, loans and restricted payments. The covenants are subject to a number of limitations and exceptions set forth in the credit agreement.

The credit agreement also includes requirements regarding our consolidated total leverage ratio and our consolidated secured leverage ratio, as defined in the credit agreement. During each remaining quarterly period, the consolidated total leverage ratio may not equal or exceed 4.25 to 1:00 and the consolidated secured leverage ratio may not equal or exceed 3.50 to 1:00. In addition, we must maintain a minimum interest coverage ratio of at least 3.00 to 1.00 throughout the remaining term of the credit facility. Failure to meet any of the above requirements would result in an event of default that would allow lenders to declare amounts outstanding immediately due and payable and would allow the lenders to enforce their interests against collateral pledged if we are unable to settle the amounts outstanding. We were in compliance with all debt covenants as of March 31, 2024.

The credit agreement contains customary representations and warranties and, as a condition to borrowing, requires that all such representations and warranties be true and correct in all material respects on the date of each borrowing, including representations as to no material adverse change in our business, assets, operations or financial condition. If our consolidated total leverage ratio exceeds 2.75 to 1.00, the aggregate annual amount of permitted dividends and share repurchases in connection with incentive-based equity and compensation is limited to $60,000.

As of March 31, 2024, amounts available for borrowing under our revolving credit facility were as follows:
(in thousands)Available borrowings
Revolving credit facility commitment$500,000 
Amounts drawn on revolving credit facility(239,750)
Outstanding letters of credit(1)
(8,036)
Net available for borrowing as of March 31, 2024
$252,214 

(1) We use standby letters of credit primarily to collateralize certain obligations related to our self-insured workers' compensation claims, as well as claims for environmental matters, as required by certain states.These letters of credit reduce the amount available for borrowing under our revolving credit facility.

Senior unsecured notes – In June 2021, we issued $500,000 of 8.0% senior, unsecured notes that mature in June 2029. The notes were issued via a private placement under Rule 144A of the Securities Act of 1933. Proceeds from the offering, net of discount and offering costs, were $490,741, resulting in an effective interest rate of 8.3%. The net proceeds from the notes were used to fund the acquisition of First American in June 2021. Interest payments are due each June and December. During 2022, we settled $25,000 of these notes via open market purchases.

The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to, among other things, incur additional indebtedness and liens, issue redeemable stock and preferred stock, pay dividends and distributions, make loans and investments and consolidate or merge or sell all or substantially all of our assets.

Securitization facility – In March 2024, Deluxe Receivables LLC, a wholly-owned subsidiary, entered into a receivables financing agreement (the “Securitization Facility”) with a group of financial institutions with a termination date of March 12, 2027, unless extended in accordance with its terms. The maximum amount available under the Securitization Facility is $80,000, subject to certain borrowing base adjustments. Under the agreement, we sold and will continue to automatically sell certain of our accounts receivable to the subsidiary as collateral for borrowings under the facility. Borrowings bear interest at SOFR plus an applicable margin, and a commitment fee is payable on the unused portion of the facility. Interest and fees are due monthly. As of March 31, 2024, $64,969 was outstanding under the facility at an interest rate of 6.87%. We utilized the proceeds from these borrowings to prepay amounts due under our secured term loan facility.

The Securitization Facility is accounted for as a collateralized financing activity, rather than the sale of assets. As such, the subsidiary is consolidated, and the receivable balances pledged as collateral are presented as accounts receivable on the

19

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

consolidated balance sheet, and the borrowings are presented as long-term debt. Cash receipts related to the underlying receivables are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within the consolidated statement of cash flows.


NOTE 13: OTHER COMMITMENTS AND CONTINGENCIES

Indemnifications – In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. These indemnification provisions generally encompass third-party claims arising from our products and services, including, without limitation, service failures, breach of security, intellectual property rights, governmental regulations and/or employment-related matters. Performance under these indemnities would generally be triggered by our breach of the terms of the contract. In disposing of assets or businesses, we often provide representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal matters related to periods prior to disposition. We do not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, we do not believe that any liability under these indemnities would have a material adverse effect on our financial position, annual results of operations or annual cash flows. We have recorded liabilities for known indemnifications related to environmental matters. These liabilities were not material as of March 31, 2024 or December 31, 2023.

Self-insurance – We are self-insured for certain costs, primarily workers' compensation claims and medical and dental benefits for active employees and those employees on long-term disability. The liabilities associated with these items represent our best estimate of the ultimate obligations for reported claims plus those incurred, but not reported, and totaled $9,319 as of March 31, 2024 and $9,024 as of December 31, 2023. These accruals are included in accrued liabilities and other non-current liabilities on the consolidated balance sheets. Our workers' compensation liability is recorded at present value. The difference between the discounted and undiscounted liability was not material as of March 31, 2024 or December 31, 2023.

Our self-insurance liabilities are estimated, in part, by considering historical claims experience, demographic factors and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future events and claims differ from these assumptions and historical trends.

Litigation – Recorded liabilities for legal matters, as well as related charges recorded in each period, were not material to our financial position, results of operations or liquidity during the periods presented, and we do not believe that any of the currently identified claims or litigation will materially affect our financial position, results of operations or liquidity, upon resolution. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, it may cause a material adverse impact on our financial position, results of operations or liquidity in the period in which the ruling occurs or in future periods.


NOTE 14: SHAREHOLDERS' EQUITY

In October 2018, our board of directors authorized the repurchase of up to $500,000 of our common stock. This authorization has no expiration date. No shares were repurchased under this authorization during the quarters ended March 31, 2024 or March 31, 2023, and $287,452 remained available for repurchase as of March 31, 2024.


NOTE 15: BUSINESS SEGMENT INFORMATION

Effective January 1, 2024, we reorganized our reportable business segments to align with structural and management reporting changes that better reflect our portfolio mix and offerings. We now operate the following reportable segments, generally organized by product type:

Merchant Services – provides electronic credit and debit card authorization and payment systems and processing services primarily to small and medium-sized retail and service businesses.

B2B Payments – provides treasury management solutions, including remittance and lockbox processing, remote deposit capture, receivables management, payment processing and paperless treasury management, as well as fraud and security services and Deluxe Payment Exchange.


20

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Data Solutions – provides data-driven marketing solutions, including digital engagement, financial institution profitability reporting and account switching tools, and business incorporation services.

Print – provides printed personal and business checks, printed business forms, business accessories and promotional products.

The accounting policies of the segments are the same as those described in the Notes to Consolidated Financial Statements included in the 2023 Form 10-K. We allocate corporate costs for our shared services functions to our business segments when the costs are directly attributable to a segment. This includes certain sales and marketing, supply chain, real estate, finance, information technology and legal costs. Costs that are not directly attributable to a business segment are reported as Corporate operations and consist primarily of marketing, accounting, information technology, human resources, facilities, executive management and legal, tax and treasury costs that support the corporate function. Corporate operations also includes other income. All of our segments operate primarily in the U.S., with some operations in Canada. Until June 2023, we also had web hosting business operations in portions of Europe and partners in Central and South America.

Our chief operating decision maker (i.e., our Chief Executive Officer) reviews EBITDA on an adjusted basis for each segment when deciding how to allocate resources and to assess segment operating performance. Adjusted EBITDA for each segment excludes depreciation and amortization expense, interest expense, income tax expense and certain other amounts, which may include, from time to time: asset impairment charges; restructuring and integration expense; share-based compensation expense; acquisition transaction costs; certain legal-related expense; and gains or losses on sales of businesses and long-lived assets. Our Chief Executive Officer does not review segment asset information when making investment or operating decisions regarding our reportable business segments.

The following is our segment information for the quarters ended March 31, 2024 and 2023. The segment information for 2023 has been recast to reflect our current segment structure.

Quarter Ended March 31,
(in thousands)20242023
Merchant Services:
Revenue$96,477 $89,105 
Adjusted EBITDA21,437 18,427 
B2B Payments:
Revenue69,418 75,196 
Adjusted EBITDA13,261 13,475 
Data Solutions:
Revenue59,712 44,353 
Adjusted EBITDA14,869 10,256 
Print:
Revenue303,334 314,040 
Adjusted EBITDA90,956 95,201 
Total reportable segments:
Revenue$528,941 $522,694 
Adjusted EBITDA140,523 137,359 
All other:(1)
Revenue6,014 22,671 
Adjusted EBITDA3,636 9,803 
Total:
Revenue$534,955 $545,365 
Adjusted EBITDA144,159 147,162 

(1) Includes our North American web hosting and logo design businesses, which were sold in June 2023, and our payroll and human resources services business, which we are in the process of exiting (Note 6).


21

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

The following table presents a reconciliation of total segment adjusted EBITDA to consolidated income before income taxes:
Quarter Ended
March 31,
(in thousands)20242023
Total segment adjusted EBITDA$144,159 $147,162 
Corporate operations(43,701)(46,726)
Depreciation and amortization expense(41,747)(43,520)
Interest expense(30,809)(30,016)
Net income attributable to non-controlling interest27 28 
Restructuring and integration expense(14,737)(14,094)
Share-based compensation expense(5,121)(5,866)
Certain legal-related expense(300)(429)
Gain on sale of businesses and long-lived assets8,581  
Income before income taxes$16,352 $6,539 

The following tables present revenue disaggregated by our product and service offerings:
Quarter Ended March 31, 2024
(in thousands)Merchant ServicesB2B
Payments
Data
Solutions
PrintAll
Other
Consolidated
Checks$— $— $— $178,484 $— $178,484 
Merchant services96,477 — — — — 96,477 
Forms and other business products— — — 63,792 — 63,792 
Promotional solutions— — — 61,058 — 61,058 
Treasury management solutions
— 55,077 — — — 55,077 
Data-driven marketing— — 54,325 — — 54,325 
Other— 14,341 5,387 — 6,014 25,742 
Total revenue$96,477 $69,418 $59,712 $303,334 $6,014 $534,955 
Quarter Ended March 31, 2023
(in thousands)Merchant ServicesB2B
Payments
Data
Solutions
PrintAll
other
Consolidated
Checks$— $— $— $178,647 $— $178,647 
Merchant services89,105 — — — — 89,105 
Forms and other business products— — — 65,490 — 65,490 
Promotional solutions— — — 69,903 748 70,651 
Treasury management solutions
— 60,474 — — — 60,474 
Data-driven marketing— — 39,282 — — 39,282 
Other— 14,722 5,071 — 21,923 41,716 
Total revenue$89,105 $75,196 $44,353 $314,040 $22,671 $545,365 




22



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") includes the following sections:

Executive Overview that discusses what we do, our operating results at a high level and our financial outlook for the upcoming year;
Consolidated Results of Operations; Restructuring and Integration Expense; and Segment Results that includes a more detailed discussion of our revenue and expenses;
Cash Flows and Liquidity and Capital Resources that discusses key aspects of our cash flows, financial commitments, capital structure and financial position; and
Critical Accounting Estimates that discusses the estimates that involve a significant level of uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Please note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties, including, but not limited to, our 2024 outlook, market impacts and expectations regarding our strategy and performance. Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K") outlines known material risks and important information to consider when evaluating our forward-looking statements and is incorporated into this Item 2 of this report on Form 10-Q as if fully stated herein. The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. When we use the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” “outlook,” "forecast" or similar expressions in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission, in our press releases, investor presentations and in oral statements made by our representatives, they indicate forward-looking statements within the meaning of the Reform Act.

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). In addition, we discuss free cash flow, net debt, liquidity, adjusted diluted earnings per share ("EPS"), consolidated adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") and consolidated adjusted EBITDA margin, all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide useful information to assist investors in analyzing our current period operating performance and in assessing our future operating performance. For this reason, our internal management reporting also includes these financial measures, which should be considered in addition to, and not as superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and therefore, may not result in useful comparisons. The reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Consolidated Results of Operations.

EXECUTIVE OVERVIEW

We help businesses deepen customer relationships through trusted, technology-enabled solutions that help businesses pay and get paid, accelerate growth and operate more efficiently. Our solutions include merchant services, marketing services and data analytics, treasury management solutions, and promotional products, as well as customized checks and business forms. We support millions of small businesses, thousands of financial institutions and hundreds of the world’s largest consumer brands. Our reach, scale and distribution channels position us to be a trusted business partner for our customers.

Our Strategy

A detailed discussion of our strategy can be found in Part I, Item 1 of the 2023 Form 10-K. Having substantially completed our infrastructure modernization initiatives, we have shifted our focus to growth investments, primarily in our payments and data businesses, so that we can continue to drive scale, with the goal of growing profits faster than revenue. Our operations continue to benefit from our disciplined pricing actions and overall cost management. During the third quarter of 2023, we announced our North Star program, the goal of which is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) driving increased cash flow, (3) paying down debt, and (4) improving our leverage ratio. Further information can be found in Restructuring and Integration Expense.

Realignment – During the first quarter of 2024, we realigned our organizational structure to better reflect our portfolio mix and offerings, and we updated our reportable segments to correspond with these changes. We did not operate under the new segment structure during 2023. Information regarding our realigned reportable segments for the first quarter of 2024 and 2023

23



can be found under the caption "Note 15: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Business exits – In June 2023, we completed the sale of our North American web hosting and logo design businesses. These businesses generated annual revenue of approximately $28 million during 2023, through the sale date. In September and December of 2023, we executed agreements allowing for the conversion of our U.S. and Canadian payroll and human resources services customers to other service providers. These businesses generated annual revenue of approximately $27 million during 2023. Further information regarding these business exits can be found under the caption "Note 6: Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report and under the caption "Note 6: Acquisition and Divestitures" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K. We believe that these business exits allow us to focus our resources on the key growth areas of payments and data, while allowing us to optimize our operations.

2024 Financial Results

2024 earnings vs. 2023 – Multiple factors drove the increase in net income for the first quarter of 2024, as compared to the first quarter of 2023, including:

price increases in response to the continued inflationary environment;

the benefit of actions taken to optimize our cost structure, including workforce adjustments, marketing refinement and real estate rationalization;

gains of $8.6 million from sales of businesses and long-lived assets; and

growth in the Data Solutions and Merchant Services segments.

Partially offsetting these increases in net income were the following factors:

the continuing secular decline in checks, business forms and some business accessories;

continued inflationary pressures on hourly wages, materials and delivery; and

the impact of business exits.

Diluted EPS of $0.24 for the first quarter of 2024, as compared to $0.06 for the first quarter of 2023, reflects the increase in net income as described in the preceding paragraphs. Adjusted diluted EPS for the first quarter of 2024 was $0.76 compared to $0.80 for the first quarter of 2023, and excludes the impact of non-cash items or items that we believe are not indicative of our current period operating performance. The decrease in adjusted diluted EPS was driven by the continuing secular decline in checks, business forms and some business accessories, continued inflationary pressures on our cost structure, and the impact of business exits, which we estimate reduced adjusted diluted EPS by approximately $0.07 year-over-year. These decreases in adjusted diluted EPS were partially offset by price increases in response to the continued inflationary environment, the benefit of various cost optimization actions across functional areas, and growth in the Data Solutions and Merchant Services segments. A reconciliation of diluted EPS to adjusted diluted EPS can be found in Consolidated Results of Operations.

Cash flows and liquidity – Net cash provided by operating activities increased $33.3 million for the first quarter of 2024, as compared to the first quarter of 2023, driven, in large part, by positive working capital changes as we focus on optimizing cash flows from accounts receivable, inventory and accounts payable. In addition, payments for income taxes decreased $6.1 million due to the timing of payments and performance-based compensation payments decreased $5.0 million compared to the prior year. Partially offsetting these increases in operating cash flow was the impact of our business exits and a $5.1 million increase in interest payments as a result of rising interest rates. Free cash flow increased $38.4 million for the first quarter of 2024, as compared to the first quarter of 2023. Total debt was $1.56 billion and net debt was $1.54 billion as of March 31, 2024. We held cash and cash equivalents of $23.5 million as of March 31, 2024, and liquidity was $275.8 million. Our capital allocation priorities are to reduce our debt and net leverage, deliver high return internal investments and pay our dividend. We continue to responsibly invest the free cash flow generated by our Print business into our growth businesses. A reconciliation of free cash flow, net debt and liquidity to the comparable GAAP financial measures can be found in Consolidated Results of Operations.

Recent market conditions – Interest expense has increased in recent quarters as a result of the rising interest rate environment. As of March 31, 2024, we held interest rate swaps that effectively convert $755.4 million of our variable-rate debt to a fixed rate. As a result, 78% of our debt had a fixed rate of 7.0% as of March 31, 2024, which partially insulates us from future interest rate increases.


24



We continue to monitor inflationary pressures on our labor, delivery and material costs. In response to the inflationary environment, we implemented targeted price increases, primarily in our Print segment. Despite the price changes, we continue to experience healthy revenue volumes, demonstrating the strength of our business and continued demand for our products. We have, at times, experienced some supply disruptions impacting certain printed products in our Print segment. We continuously monitor our supply chain to avoid delays or disruptions. We have also experienced labor supply issues in certain portions of our business. It remains difficult to estimate the severity and duration of the current inflationary environment or supply chain and labor issues on our business, financial position or results of operations.

Outlook for 2024

We expect that revenue for 2024 will be between $2.14 billion and $2.18 billion, excluding revenue from the payroll and human resources services business that we are currently in the process of exiting, compared to 2023 revenue of $2.19 billion. The 2023 amount included revenue of approximately $56 million from our various business exits. We expect that adjusted EBITDA for the full year will be between $400 million and $420 million, excluding the payroll and human resources services business that we are currently in the process of exiting, as compared to $417 million for 2023. The 2023 amount included adjusted EBITDA of approximately $26 million from our business exits. These estimates are subject to, among other things, prevailing macroeconomic conditions, global unrest, labor supply issues, inflation and the impact of business exits. Information regarding our revenue and Adjusted EBITDA outlook information can be found in Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section.

As of March 31, 2024, we held cash and cash equivalents of $23.5 million and $252.2 million was available for borrowing under our revolving credit facility. We anticipate that capital expenditures will be approximately $100 million for the full year, as compared to $101 million for 2023, as we continue with important innovation investments and building scale across our product categories. We also expect that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations, including our contractual obligations and debt service requirements, for the next 12 months, as well as our long-term capital requirements. We were in compliance with our debt covenants as of March 31, 2024, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.


CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue
 Quarter Ended March 31,
(in thousands)20242023Change
Total revenue$534,955 $545,365 (1.9%)

The decrease in total revenue for the first quarter of 2024, as compared to the first quarter of 2023, was driven, in part, by the business exits discussed in Executive Overview, which resulted in a decrease in revenue of approximately $17 million for the first quarter of 2024. Also contributing to the decrease in revenue was the continuing secular decline in order volumes for checks, business forms and some business accessories, as well as a $5.4 million decrease in treasury management revenue due to reduced lockbox processing volumes and the transition from our dependency on one-time, non-recurring revenue to a recurring revenue model. Partially offsetting these decreases in revenue was growth in our Data Solutions and Merchant Services segments and price increases in response to the continued inflationary environment, primarily in our Print segment.

We do not manage our business based on product versus service revenue. Instead, we analyze our revenue based on the product and service offerings shown under the caption "Note 15: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.


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Our revenue mix by business segment was as follows:
 Quarter Ended
March 31,
20242023
Merchant Services18.0 %16.3 %
B2B Payments13.0 %13.8 %
Data Solutions11.2 %8.1 %
Print56.7 %57.6 %
All other1.1 %4.2 %
Total revenue100.0 %100.0 %

Consolidated Cost of Revenue
 Quarter Ended March 31,
(in thousands)20242023Change
Total cost of revenue$251,418 $250,663 0.3%
Total cost of revenue as a percentage of total revenue
47.0 %46.0 %1.0 pts.

Cost of revenue consists primarily of raw materials used to manufacture our products, shipping and handling costs, third-party costs for outsourced products and services, payroll and related expenses, information technology costs, depreciation and amortization of assets used in the production process and in support of digital service offerings, and related overhead.

The slight increase in total cost of revenue for the first quarter of 2024, as compared to the first quarter of 2023, was driven by the revenue growth from new business, primarily in our Data Solutions and Merchant Services segments, as well as continued inflationary pressure on hourly wages, materials and delivery. In addition, cost of revenue for the first quarter of 2024 included additional amortization expense of $3.1 million related to the acceleration of amortization on the assets of our payroll and human resources business, which we are currently in the process of exiting. Almost entirely offsetting these increases in total cost of revenue was reduced revenue volume from the continuing secular decline in checks, business forms and some business accessories, as well as the benefit of our various cost optimization initiatives. In addition, total cost of revenue decreased approximately $6 million due to the business exits discussed under Executive Overview. Total cost of revenue as a percentage of total revenue for the first quarter of 2024 increased as compared to the first quarter of 2023, as the inflationary impacts, changes in marketing campaign and client mix in Data Solutions, and the accelerated amortization expense more than offset the benefit of our pricing and cost optimization actions.

Consolidated Selling, General & Administrative (SG&A) Expense
 Quarter Ended March 31,
(in thousands)20242023Change
SG&A expense$234,093 $247,630 (5.5%)
SG&A expense as a percentage of total revenue
43.8 %45.4 %(1.6) pts.

The decrease in SG&A expense for the first quarter of 2024, as compared to the first quarter of 2023, was driven, in part, by various cost optimization actions, including workforce adjustments, marketing optimization and real estate rationalization, as well as a decrease related to the business exits discussed under Executive Overview of approximately $3 million for the first quarter of 2024. Additionally, acquisition amortization decreased $5.6 million for the first quarter of 2024, as certain of our intangible assets are amortized using accelerated methods. These decreases in SG&A expense were partially offset by increased costs related to investments in our technology infrastructure.

Restructuring and Integration Expense
 Quarter Ended March 31,
(in thousands)20242023Change
Restructuring and integration expense
$13,804 $12,941 $863 


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We continue to pursue several initiatives designed to focus our business behind our growth strategy and to increase our efficiency. The amount of restructuring and integration expense is expected to vary from period to period as we execute these initiatives. Further information regarding these costs can be found in Restructuring and Integration Expense in this MD&A discussion.

Gain on Sale of Businesses and Long-Lived Assets

 Quarter Ended March 31,
(in thousands)20242023Change
Gain on sale of businesses and long-lived assets$8,581 $— $8,581 

As discussed in Executive Overview, we are currently in the process of exiting our payroll and human resources services business, and we recognized related income of $7.6 million during the first quarter of 2024. Further information regarding this business exit can be found under the caption "Note 6: Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Interest Expense
 Quarter Ended March 31,
(in thousands)20242023Change
Interest expense$30,809 $30,016 2.6%
Weighted-average debt outstanding1,600,910 1,683,153 (4.9%)