Deluxe Reports Solid Second Quarter 2020 Performance and Declares Regular Dividend
Deluxe, a Trusted Business Technology company, today reported operating results for its second quarter ended June 30, 2020.
Barry McCarthy
“Deluxe delivered stronger than expected second quarter performance. Our cash flow from operations exceeded last year’s quarterly performance, enabling us to pay down $100 million on the revolving credit facility in July, and declare our regular dividend. Our reported revenue partially recovered from the April low, declining $84 million for the second quarter as compared to last year. We believe the company continued its historic sales-driven revenue growth from the first quarter, excluding our estimate of COVID-19 impact. GAAP margins stabilized and Adjusted EBITDA margins rebounded to our pre-COVID-19 range,” said Barry McCarthy, President & CEO of Deluxe. “Our sales-driven ‘One Deluxe’ transformation is working too. We signed 4 of our top 25 prospects and further built our already strong sales pipeline. Our robust financial health has proven to be a significant competitive advantage in these wins,” added McCarthy.
McCarthy continued, “We are grateful to our fellow Deluxers who have unfailingly provided selfless service to our customers as COVID-19 unfolded. We have proven we are agile and innovative at all levels, further evidence our ‘One Deluxe’ strategy is working. We are a trusted business technology company with the ability to generate strong revenue with healthy margins and are confident we will deliver strong shareholder value over the long-term.”
Second Quarter 2020 Financial and Segment Highlights
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- Revenue was $83.6 million lower than last year. COVID-19 negatively impacted our results in the quarter, primarily across our Promotional Solutions, Cloud Solutions and Check segments.
- The Payments segment delivered strong revenue growth of 12.6% over the same period last year, benefiting from Treasury Management revenue growth of 20.5% in the second quarter driven primarily by previously announced and continuing business wins.
- Net income decreased $17.7 million, driven primarily by the challenging business environment resulting from COVID-19, previously disclosed investments in the Company’s business transformation and a pretax asset impairment charge of $4.9 million related to management's ongoing rationalization of the Company's real estate footprint.
- Adjusted EBITDA declined by $33.7 million compared to the prior year quarter, while adjusted EBITDA margin improved from the first quarter 2020 by 330 basis points to 20.4%.
- Cash flow from operations for the period ending June 30, 2020 was $109.7 million and capital expenditures were $27.1 million. Free cash flow, defined as cash provided by operating activities, less capital expenditures, was $82.6 million, an improvement of $9.8 million as compared to last year.
- Cash flow from operations was negatively impacted by the same factors that impacted net income, but was offset by steps taken to maintain liquidity, including various expense reductions and delays in U.S federal income and payroll tax payments provided for under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
- At the end of the second quarter, the Company had $1.14 billion of total debt outstanding under its revolving credit facility, compared to $883.5 million at the beginning of 2020.
- Cash and cash equivalents were $372.0 million at the end of the quarter, resulting in net debt of $768.0 million, a two-year low. Net debt is a non-GAAP financial measure as defined in the reconciliation tables attached.
- As a result of this strong liquidity position, the Company made the decision in July to paydown $100.0 million of debt under its revolving credit facility. The Company’s outstanding balance under this facility was $1.04 billion as of July 17, 2020.
Outlook
Due to the significant ongoing uncertainties in the macro-economic environment, the Company previously withdrew its 2020 outlook, and is not providing third quarter or full year financial guidance at this time.
Observations and Expectations
- Slight sequential total revenue improvement from the second quarter in the back half of the year;
- Payments segment expected to continue to experience year-over-year revenue growth, driven by new client wins and strong demand for our services; margin compression is expected from significant new customer on-boarding expense and COVID-19-related delay in some customers’ initiatives;
- Cloud Solutions segment revenue expected to track with the overall recovery for small businesses, slightly recovering sequentially as the year progresses; this assumes normal demand for data-driven marketing services returns towards the end of the year;
- Promotional Solutions segment has added new products to offset COVID-related declines; expecting revenue to slightly improve sequentially over the remainder of the year; and
- Checks segment expected to decline at a lesser rate in the second half of the year, improving sequentially for the remainder of the year.
The preceding press release was provided by a company unaffiliated with Printing Impressions. The views expressed within do not directly reflect the thoughts or opinions of the staff of Printing Impressions.
