Deluxe Releases Q1 2020 Results, Reports 2.5% Decrease in Total Revenue Due to COVID-19

Deluxe Corporation reported operating results for its first quarter ended March 31, 2020. Revenue was $486.4 million, slightly lower than the prior year. GAAP diluted loss per share was ($1.45), including asset impairment charges of $90.3 million and restructuring, integration and other costs of $19.7 million which were consistent with our previous expectations about our investments in the Company's transformation. The impairment charges were in the Promotional Solutions and Cloud Solutions segments and were driven primarily by the impact of COVID-19. Adjusted diluted earnings per share (EPS) was $1.08.

“We delivered solid performance in the first quarter despite the sudden and unprecedented impact of COVID-19. During the first two months of the year, the Company was delivering sales-driven revenue growth for the first time in nearly a decade. In the quarter, the Payments segment led with an 18% increase over the previous year. Total Company revenue began to soften in March with a significant decline in our Promotional and Cloud Solutions segments. Revenue continued to decline across all segments during April as COVID-19 drove more small businesses to close, at least temporarily. Despite COVID-19, we continued to make progress on our historic transformation and many of our investments are beginning to deliver positive returns. Throughout this crisis, we are doing everything we can to protect the health and well-being of our employees and their families, while delivering for our customers” said Barry McCarthy, President and CEO of Deluxe. McCarthy added, “Deluxe has ample liquidity and a strong financial foundation, which we believe will enable us to successfully navigate through this period of uncertainty, just as we have throughout our proud 105-year history. We have an exceptional team with deep experience in their respective areas who are protecting the company today, while advancing our One Deluxe strategy for tomorrow. The team has taken prudent actions to maintain cash and liquidity, including stress testing, scenario planning and aligning our expense structure with revenue trends. These actions will allow us to retain financial flexibility in the near-term and provide fuel for our rebound post COVID-19. While the road to recovery will take some time, our aspirations for the future of Deluxe remain unchanged and we remain confident our One Deluxe strategy will generate enhanced long-term shareholder returns.”

First Quarter 2020 Highlights

• Revenue was slightly lower than last year. Strong performance in the Payments segment drove an increase of 18% over the same period last year. This strong growth was offset by weakness in the Promotional Solutions, Cloud Solutions and Checks segments. Through the first two months of 2020, revenue performance was toward the high-end of internal projections and we were on track to deliver sales-driven revenue growth for the first time in a nearly a decade. Beginning in March, the COVID-19 pandemic began to negatively affect revenue. Small business closures have reduced demand for printed and promotional products and certain business services provided by the Cloud Solutions segment. In addition, some of our customers suspended their data-driven marketing campaigns.
• Revenue for the Payments segment benefited from previous deals and new client wins, and this segment remains operational as a business essential to U.S. payment processing, growing 18% versus the previous year.
• Net income decreased $101.3 million, driven by goodwill impairment charges of $90.3 million resulting primarily from the COVID-19 impact, a combination of revenue mix changes resulting from the challenging business environment and additional costs from previously disclosed investments in the Company’s historic transformation.
• Adjusted EBITDA decreased $30.4 million from the prior year, primarily due to the impact of COVID-19, revenue mix changes and previously disclosed investments in the Company’s business transformation.
• Cash provided by operating activities was $18.6 million, a decrease of $26.8 million from 2019, driven primarily by the same factors that impacted Adjusted EBITDA.
• During the first quarter, the Company recorded asset impairment charges of $63.3 million related to Promotional Solutions assets and $22.0 million related to Cloud Solutions assets, driven by the estimated future impact of COVID-19. We also recorded asset impairment charges of $5.0 million for other intangible assets, unrelated to COVID-19.
• At the end of the first quarter, the Company had $1.14 billion of total debt outstanding under its revolving credit facility, compared to $883.5 million at the beginning of 2020. The Company made an additional draw in late March in response to the uncertainty in the financial markets and expects to maintain the current level of debt for the near-term. Liquidity remains very strong with cash and cash equivalents of $310.1 million at the end of the quarter.

Outlook
Due to the significant uncertainties surrounding the current business environment, the Company previously announced that it was suspending its 2020 outlook, and it is not providing second quarter or full year financial guidance at this time.

Management Observations:

• Revenue began to soften in March, and total Company revenue in April declined 28%, although we have seen some stabilization exiting April entering May.
• The Payments segment is expected to see year-over-year revenue growth, driven by new client wins and strong demand for its services, as more customers look to implement digital payment and receivables management solutions.
• Cloud Solutions is experiencing revenue declines in data-driven marketing, but management believes the business will recover slightly as the year progresses. The decline of web hosting revenue will largely depend on the resilience of small businesses. Promotional Solutions is seeing the largest revenue impact of all segments and will be significantly impacted by the resilience of small businesses in the current economy.
• Checks is expected to decline in line with the economy in the near-term due to delayed business and consumer spending throughout the year. Management currently expects the Company to remain cash flow positive and continues to take actions to manage expenses in line with revenue trends via salary reductions, project delays, furloughs and other actions.
• Management has suspended share repurchases for the second quarter of 2020.

Source: Deluxe Corporation