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 ~~September~~June 30, ~~2019~~2020



☐	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

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)



MN			41-0216800
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
3680 Victoria St. N.	Shoreview	MN	55126-2966
(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 class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	DLX	NYSE

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 Filer	☒	Accelerated 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 ~~October 16, 2019~~July 21, 2020 was ~~42,101,861.~~41,858,236.

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

~~Item 1. Financial Statements.~~

~~DELUXE CORPORATION~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(in thousands, except share par value)~~

~~(Unaudited)~~

DELUXE CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30, 2019			December 31, 2018
(in thousands, except share par value)							June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	73,472		$	59,740		$	371,951		$	73,620
Trade accounts receivable, net of allowances for uncollectible accounts	142,845			173,862
Trade accounts receivable, net of allowance for uncollectible accounts of $6,726 and $4,985, respectively							140,285			163,421
Inventories and supplies	42,194			46,441			47,525			39,921
Funds held for customers	94,848			100,982
Funds held for customers, including assets carried at fair value of $23,201 and $34,450, respectively							82,582			117,641
Revenue in excess of billings	25,745			30,458			25,014			32,790
Other current assets	46,612			38,563			48,893			44,818
Total current assets	425,716			450,046			716,250			472,211
Deferred income taxes	5,494			2,886			5,929			3,907
Long-term investments	44,616			43,773			44,405			44,995
Property, plant and equipment (net of accumulated depreciation of $376,165 and $367,205, respectively)	92,661			90,342
Property, plant and equipment, net of accumulated depreciation of $361,224 and $377,180, respectively							77,857			96,467
Operating lease assets	41,739			—			45,048			44,372
Intangibles (net of accumulated amortization of $591,450 and $535,627, respectively)	287,498			359,965
Intangibles, net of accumulated amortization of $578,915 and $557,023, respectively							230,745			276,122
Goodwill	800,286			1,160,626			736,748			804,487
Assets held for sale	1,350			1,350
Other non-current assets	189,603			196,108			203,100			200,750
Total assets	$	1,888,963		$	2,305,096		$	2,060,082		$	1,943,311

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	97,588		$	106,978		$	103,639		$	112,198
Funds held for customers							80,672			116,411
Accrued liabilities	264,259			284,281			174,210			179,338
Long-term debt due within one year	—			791
Total current liabilities	361,847			392,050			358,521			407,947
Long-term debt	924,000			911,073			1,140,000			883,500
Operating lease liabilities	32,434			—			34,165			33,585
Deferred income taxes	10,257			46,680			3,243			14,898
Other non-current liabilities	34,898			39,880			38,815			32,520
Commitments and contingencies (Notes 14 and 15)
Commitments and contingencies (Notes 12 and 15)
Shareholders' equity:
Common shares $1 par value (authorized: 500,000 shares; outstanding: September 30, 2019 – 42,099; December 31, 2018 – 44,647)	42,099			44,647
Common shares $1 par value (authorized: 500,000 shares; outstanding: June 30, 2020 – 41,855; December 31, 2019 – 42,126)							41,855			42,126
Additional paid-in capital							4,950			4,086
Retained earnings	540,612			927,345			494,243			572,596
Accumulated other comprehensive loss	(57,184		)	(56,579		)	(55,779		)	(47,947		)
Non-controlling interest							69			—
Total shareholders’ equity	525,527			915,413			485,338			570,861
Total liabilities and shareholders’ equity	$	1,888,963		$	2,305,096		$	2,060,082		$	1,943,311

~~DELUXE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME~~

~~(in thousands, except per share amounts)~~

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

~~DELUXE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(Unaudited)~~

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)

Common shares
Common shares
par value
Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total
Balance, June 30, 2019 42,928
$ 42,928
$ —
$ 904,748
$ (53,527 ) $ 894,149
Net loss —
—
—
(318,493 ) —
(318,493 )
Cash dividends ($0.30 per share) —
—
—
(12,977 ) —
(12,977 )
Common shares issued 51
51
1,472
—
—
1,523
Common shares repurchased (876 ) (876 ) (6,109 ) (32,666 ) —
(39,651 )
Other common shares retired (4 ) (4 ) (200 ) —
—
(204 )
Employee share-based compensation —
—
4,837
—
—
4,837
Other comprehensive loss —
—
—
—
(3,657 ) (3,657 )
Balance, September 30, 2019 42,099
$ 42,099
$ —
$ 540,612
$ (57,184 ) $ 525,527



(in thousands,)	Common shares		Common shares par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Non-controlling interest		Total
Balance, March 31, 2020	41,691		$	41,691		$	—		$	492,230		$	(59,954	)	$	—	$	473,967
Net income	—		—			—			14,859			—			19		14,878
Cash dividends ($0.30 per share)	—		—			—			(12,846		)	—			—		(12,846		)
Common shares issued	209		209			465			—			—			—		674
Common shares retired	(45	)	(45		)	(1,087		)	—			—			—		(1,132		)
Employee share-based compensation	—		—			5,572			—			—			—		5,572
Other comprehensive income	—		—			—			—			4,175			—		4,175
Non-controlling interest, net	—		—			—			—			—			50		50
Balance, June 30, 2020	41,855		$	41,855		$	4,950		$	494,243		$	(55,779	)	$	69	$	485,338

~~DELUXE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)~~

Common shares
Common shares
par value
Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total
Balance, June 30, 2018 47,623
$ 47,623
$ —
$ 1,076,683
$ (49,170 ) $ 1,075,136
Net loss —
—
—
(31,083 ) —
(31,083 )
Cash dividends ($0.30 per share) —
—
—
(14,209 ) —
(14,209 )
Common shares issued 28
28
1,504
—
—
1,532
Common shares repurchased (1,346 ) (1,346 ) (5,246 ) (73,412 ) —
(80,004 )
Other common shares retired —
—
(22 ) —
—
(22 )
Employee share-based compensation —
—
3,764
—
—
3,764
Other comprehensive income —
—
—
—
181
181
Balance, September 30, 2018 46,305
$ 46,305
$ —
$ 957,979
$ (48,989 ) $ 955,295

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)

(unaudited)

Common shares
Common shares
par value
Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total
Balance, December 31, 2017 47,953
$ 47,953
$ —
$ 1,004,657
$ (37,597 ) $ 1,015,013
Net income —
—
—
92,461
—
92,461
Cash dividends ($0.90 per share) —
—
—
(43,012 ) —
(43,012 )
Common shares issued 518
518
18,181
—
—
18,699
Common shares repurchased (1,919 ) (1,919 ) (10,121 ) (107,960 ) —
(120,000 )
Other common shares retired (247 ) (247 ) (17,601 ) —
—
(17,848 )
Employee share-based compensation —
—
9,541
—
—
9,541
Adoption of Accounting Standards Update No. 2014-09 —
—
—
4,966
—
4,966
Adoption of Accounting Standards Update No. 2018-02 —
—
—
6,867
(6,867 ) —
Other comprehensive loss —
—
—
—
(4,525 ) (4,525 )
Balance, September 30, 2018 46,305
$ 46,305
$ —
$ 957,979
$ (48,989 ) $ 955,295



(in thousands,)	Common shares		Common shares par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, March 31, 2019	43,638		$	43,638		$	—		$	908,614		$	(54,689	)	$	897,563
Net income	—		—			—			32,582			—			32,582
Cash dividends ($0.30 per share)	—		—			—			(13,296		)	—			(13,296		)
Common shares issued	13		13			76			—			—			89
Common shares repurchased	(718	)	(718		)	(5,026		)	(23,152		)	—			(28,896		)
Other common shares retired	(5	)	(5		)	(196		)	—			—			(201		)
Employee share-based compensation	—		—			5,146			—			—			5,146
Other comprehensive income	—		—			—			—			1,162			1,162
Balance, June 30, 2019	42,928		$	42,928		$	—		$	904,748		$	(53,527	)	$	894,149



(in thousands,)	Common shares		Common shares par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total
Balance, December 31, 2018	44,647		$	44,647		$	—		$	927,345		$	(56,579	)	$	915,413
Net income	—		—			—			73,772			—			73,772
Cash dividends ($0.60 per share)	—		—			—			(26,467		)	—			(26,467		)
Common shares issued	99		99			1,938			—			—			2,037
Common shares repurchased	(1,757	)	(1,757		)	(7,504		)	(69,635		)	—			(78,896		)
Other common shares retired	(61	)	(61		)	(2,810		)	—			—			(2,871		)
Employee share-based compensation	—		—			8,376			—			—			8,376
Adoption of Accounting Standards Update No. 2016-02	—		—			—			(267		)	—			(267		)
Other comprehensive income	—		—			—			—			3,052			3,052
Balance, June 30, 2019	42,928		$	42,928		$	—		$	904,748		$	(53,527	)	$	894,149

~~DELUXE CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

~~Note 1: Consolidated financial statements~~

NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of ~~September~~June 30, ~~2019~~,2020, the consolidated statements of comprehensive income (loss) ~~income~~ for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~,2019, the consolidated statements of shareholders’ equity for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019 and the consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 are unaudited. The consolidated balance sheet as of December 31, ~~2018~~2019 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (GAAP) ~~in the United States of America.~~. 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 discussed in the notes below. Interim results are not necessarily indicative of results for a full year. 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, ~~2018~~2019 (the ~~“2018~~2019 Form ~~10-K”)~~10-K).

The preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, including the estimated impact of extraordinary events such as the novel coronavirus (COVID-19) pandemic, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. Actual results may differ significantly from our estimates and assumptions, including our estimates of the severity and duration of the COVID-19 pandemic. Further information can be found in Note 15.

~~In November 2016, the Financial~~Non-controlling interest– Effective April 1, 2020, we executed an agreement to form MedPay Exchange LLC (MPX), which delivers payments to healthcare providers from insurance companies and other payers. This entity is a variable interest entity (VIE), as defined in Accounting Standards ~~Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18,~~Codification Topic 810, ~~Restricted Cash~~Consolidation. ~~This standard requires~~As we are the ~~statement~~primary beneficiary of ~~cash flows~~the VIE, we are required to ~~explain the change during the period~~consolidate MPX in our consolidated financial statements. Our partner’s interest in MPX is reported as non-controlling interest in the ~~total of cash, cash equivalents, restricted cash~~consolidated balance sheet within equity, separate from our equity. Net income (loss) and ~~restricted cash equivalents. This standard was effective~~comprehensive income (loss) are attributed to us and the non-controlling interest. The amounts attributable to the non-controlling interest were not significant for ~~us on January 1, 2018 and was required to be applied retrospectively. During~~ the quarter ended June 30, 2020.

Comparability– Amounts on the consolidated balance sheet as of December 31, ~~2018, we identified a misstatement in our statement of~~2019 and amounts within cash flows ~~presentation under this standard. We concluded that the cash~~from operating activities and cash equivalents included in funds held for customers should be included with cash, cash equivalents, restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows, in accordance with ASU No. 2016-18. Additionally, we determined that gross redemptions and purchases of marketable debt securities included in funds held for customers should be presented as cash flows from investing activities inon the ~~statements of cash flows. This misstatement affected our consolidated statements of cash flows as presented in our 2018 Quarterly Reports on Form 10-Q.~~

~~We assessed the materiality of this misstatement on prior periods' financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99,~~ ~~Materiality, codified in Accounting Standards Codification (ASC) 250,~~ ~~Presentation of Financial Statements~~. We concluded that the misstatement was not material to any prior interim period and therefore, amendments of previously filed reports were not required. In accordance with ASC 250, we have corrected the misstatement for all prior periods presented by revising the consolidated financial statements appearing herein. The revisions had no impact on total assets, total liabilities, shareholders' equity, net income or net cash provided by operating activities.

~~The impact of the revisions on our~~ consolidated statement of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 have been modified to conform to the current year presentation. On the consolidated balance sheet, assets held for sale are included within other non-current assets. In the previous year, this amount was ~~as follows:~~

(in thousands) Previously reported Adjustment Revised
Purchases of customer funds marketable securities $ —
$ (3,981 ) $ (3,981 )
Proceeds from customer funds marketable securities —
3,981
3,981
Net cash used by investing activities (231,924 ) —
(231,924 )
Net change in customer funds obligations —
(58 ) (58 )
Net cash provided by financing activities 12,621
(58 ) 12,563
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents (1,188 ) (1,258 ) (2,446 )
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents (1,389 ) (1,316 ) (2,705 )
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year 59,240
69,579
128,819
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period $ 57,851
$ 68,263
$ 126,114

presented separately. Within cash flows from operating activities, loss on sales of businesses and customer lists is included within other non-cash items, net. In the previous year, this amount was presented separately. Within cash flows from investing activities, payments for acquisitions, net of cash acquired, is included within the other caption. In the previous year, this amount was presented separately.

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Note 2: New accounting pronouncements~~

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

~~ASU No. 2016-02~~ ~~– In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leasing~~. This standard is intended to increase transparency and comparability among organizations by requiring the recognition of lease right-of-use assets and lease liabilities for virtually all leases and by requiring the disclosure of key information about leasing arrangements. In July 2018, the FASB issued two amendments to this standard: ASU No. 2018-10, ~~Codification Improvements to Topic 842, Leases, which amended narrow aspects of the guidance in ASU No. 2016-02, and ASU No. 2018-11,~~ ~~Targeted Improvements,~~ which provided an optional transition method under which comparative periods presented in financial statements in the period of adoption would not be restated. In March 2019, the FASB issued ASU No. 2019-01, ~~Codification Improvements~~. This standard addressed areas identified as companies prepared to implement ASU No. 2016-02. We adopted all of these standards on January 1, 2019, using a modified retrospective approach and the optional transition method under ASU No. 2018-11. As such, prior periods have not been restated to reflect the new guidance.

We elected the practical expedient package outlined in ASU No. 2016-02 under which we did not have to reassess whether an arrangement contains a lease, we carried forward our previous classification of leases as either operating or capital leases, and we did not reassess previously recorded initial direct costs. Additionally, we made the following policy elections:

~~we excluded leases with original terms of 12 months or less from lease assets and lease liabilities;~~

~~we separated nonlease components, such as common area maintenance charges and utilities, from the associated lease component for real estate leases, based on their estimated fair values; and~~

~~we used the accounting lease term when determining the incremental borrowing rate for leases with renewal~~

~~options.~~

Adoption of the standards had a material impact on our consolidated balance sheet, but did not have a significant impact on our consolidated statements of comprehensive loss or our consolidated statement of cash flows. The most significant impact was the recognition of operating lease assets of $50,803, current operating lease liabilities of $13,611 and non-current operating lease liabilities of $37,440 as of January 1, 2019. Our accounting for finance leases remained substantially unchanged.

We determine if an arrangement is a lease at inception by considering whether a contract explicitly or implicitly identifies assets deployed in the arrangement and whether we have obtained substantially all of the economic benefits from the use of the underlying assets and direct how and for what purpose the assets are used during the term of the contract. Operating leases are included in operating lease assets, accrued liabilities and operating lease liabilities on our consolidated balance sheet. Finance leases are included in property, plant and equipment, accrued liabilities and other non-current liabilities on our consolidated balance sheet.

Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our lease agreements typically do not provide an implicit rate, we use our incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. Certain of our lease agreements include options to extend or terminate the lease. The lease term takes into account these options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is included in total cost of revenue and in selling, general and administrative (SG&A) expense on the consolidated statements of comprehensive (loss) income, and interest on finance leases is included in interest expense on the consolidated statements of comprehensive (loss) income. Operating lease expense is recognized on the straight-line basis over the lease term. Information regarding our leases can be found in Note 14.Recently Adopted Accounting Standards

ASU No. 2016-13 – In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments. ~~This standard introduces new guidance for the accounting for credit losses on instruments within its scope, including trade and loans receivable and available-for-sale debt securities.~~ Subsequently, the FASB issued several amendments to this standard. ~~In November 2018,~~These standards replace the ~~FASB issued ASU No. 2018-19,~~ ~~Codification Improvements~~incurred loss methodology previously utilized for valuing financial instruments with an expected loss methodology that is referred to ~~Topic 326, Financial Instruments – Credit Losses,~~ ~~which clarifies that receivables arising from operating leases are not within~~as the ~~scope~~current expected credit loss (CECL) methodology. The measurement of ~~ASU No. 2016-13. In April 2019,~~expected losses under the ~~FASB issued ASU No. 2019-04,~~ ~~Codification Improvements~~CECL methodology is applicable to ~~Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives~~financial instruments measured at amortized cost, including accounts and ~~Hedging, and Topic 825, Financial Instruments.~~ ~~This standard provides additional guidance on~~notes receivable. The standards also made targeted changes to the ~~measurement and presentation of credit losses. In May 2019,~~accounting for available-for-sale debt securities. We adopted the ~~FASB issued ASU No. 2019-05,~~ ~~Targeted Transition Relief, which provides transition guidance to entities that elect the fair value option for eligible instruments. All of~~

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~these~~ standards ~~are effective for us~~ on January 1, 2020 ~~and require adoption~~ using athe modified retrospective ~~approach.~~method for financial instruments measured at amortized cost. Under this method, prior period amounts continue to be reported in accordance with previously applicable GAAP. We dorecorded a net decrease in retained earnings of $3,640 as of January 1, 2020 for the cumulative effect of adopting the standards, which consisted primarily of an increase in the allowance for credit losses on loans and notes receivable, net of the related deferred income tax impact. We recorded no allowance for credit losses related to our available-for-sale debt securities. Further information regarding these investments can be found in Note 3.

An allowance for uncollectible accounts is a valuation account that is deducted from an asset's amortized cost basis to present the net amount expected to be collected. Amounts are charged off against the allowance when we believe the

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

uncollectibility of an account is confirmed. In calculating the allowances related to trade accounts receivable and revenue in excess of billings, we utilize a combination of aging schedules with reserve rates applied to both current and aged receivables and roll-rate reserves using historical loss rates and changes in current or projected conditions. In determining the allowance for uncollectible accounts related to loans and notes receivable from distributors, we utilize a loss-rate analysis based on historical loss information, current delinquency rates, the credit quality of the loan recipients and the portfolio mix to determine an appropriate credit risk measurement, adjusted to reflect current loan-specific risk characteristics and changes in environmental conditions affecting our small business distributors. Changes in conditions that may affect our distributors include, but are not ~~expect~~limited to, general economic conditions, changes in the ~~application~~markets for their products and services and changes in governmental regulations. In completing our analysis, we utilize a reversion methodology for periods beyond the reasonable and supportable forecast period, as many of ~~these standards to~~our loans and notes receivable have ~~a significant impact~~longer terms. Further information regarding current risks and uncertainties affecting our loans and notes receivable can be found in Note 15. Further information regarding our allowances for uncollectible accounts can be found in Note 3.

Our trade accounts receivable and unbilled receivables are not interest-bearing. Interest rates on our ~~results of operations or financial position.~~loans and notes receivable generally range from 6% to 8% and reflect market interest rates at the time the transactions were executed. Accrued interest included in loans and notes receivable is not significant.

ASU No. 2018-13 – In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements. This standard removes, modifies and adds certain disclosures related to recurring and nonrecurring fair value measurements. During 2018, we adopted the provisions of the standard that remove and modify disclosure requirements. The additional disclosures ~~required under the guidance are~~were effective for us on January 1, 2020 and are required to be applied prospectively to fair value measurements completed on or after ~~the effective~~that date. Disclosures regarding our fair value measurements can be found in Note 7.

ASU No. 2018-15 – In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new standard. ~~The guidance is effective for us~~We adopted this standard on January 1, 2020, ~~and may be adopted retrospectively or~~applying it prospectively to eligible costs incurred on or after ~~the date the guidance is first applied. This new guidance will~~this date. Adoption of this standard did impact our results of operations and financial position, as we ~~currently expense~~previously expensed these implementation costs as incurred. ~~We plan~~As of June 30, 2020, $12,166 of cloud computing implementation costs were included within other non-current assets on the consolidated balance sheet. These costs primarily relate to ~~adopt~~our planned implementation of a new enterprise resource planning system.

Accounting Standards Not Yet Adopted

ASU No. 2019-12 – In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard ~~prospectively. As such, the impact~~addresses several specific areas of accounting for income taxes. The guidance is effective for us on January 1, 2021. Portions of the standard are required to be adopted prospectively and certain aspects will be adopted using the modified retrospective approach. We do not expect the application of this standard to have a significant impact on our results of operations or financial ~~statements will depend on the transactions that occur subsequent to adoption.~~position.

~~Note 3: Supplemental balance sheet and cash flow information~~

NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

~~Allowance for uncollectible~~Trade accounts receivable – Changes in the allowance for uncollectible accounts included within trade accounts receivable for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


	Nine Months Ended September 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2020			2019
Balance, beginning of year	$	3,639		$	2,884		$	4,985		$	3,639
Bad debt expense	3,718			2,275			3,374			2,549
Write-offs, net of recoveries	(2,537		)	(2,036		)
Write-offs and other							(1,633		)	(1,669		)
Balance, end of period	$	4,820		$	3,123		$	6,726		$	4,519

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Inventories and supplies – Inventories and supplies were comprised of the following:


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Raw materials	$	7,537	$	7,543	$	7,001	$	6,977
Semi-finished goods	7,396		7,273		7,070		7,368
Finished goods	23,719		27,608		30,082		21,982
Supplies	3,542		4,017		3,372		3,594
Inventories and supplies	$	42,194	$	46,441	$	47,525	$	39,921

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

Available-for-sale debt securities – Available-for-sale debt securities included within funds held for customers were comprised of the following:

Funds held for customers:⁽¹⁾

⁽¹⁾Funds held for customers, as reported on the consolidated balance sheet as of ~~September~~June 30, ~~2019~~,2020, also included cash of ~~$64,639.~~$59,381.


	December 31, 2018									December 31, 2019
(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses			Fair value		Cost		Gross unrealized gains		Gross unrealized losses			Fair value
Funds held for customers:⁽¹⁾
Domestic money market fund	$	16,000	$	—	$	—		$	16,000	$	18,000	$	—	$	—		$	18,000
Canadian and provincial government securities	8,485		—		(355		)	8,130		9,056		—		(304		)	8,752
Canadian guaranteed investment certificates	7,333		—		—			7,333		7,698		—		—			7,698
Available-for-sale debt securities	$	31,818	$	—	$	(355	)	$	31,463	$	34,754	$	—	$	(304	)	$	34,450

⁽¹⁾Funds held for customers, as reported on the consolidated balance sheet as of December 31, ~~2018~~,2019, also included cash of ~~$69,519~~.$83,191.

Expected maturities of available-for-sale debt securities as of ~~September~~June 30, ~~2019~~2020 were as follows:


(in thousands)	Fair value		Fair value
Due in one year or less	$	24,019	$	16,318
Due in two to five years	3,550		2,861
Due in six to ten years	2,640		4,022
Available-for-sale debt securities	$	30,209	$	23,201

Further information regarding the fair value of available-for-sale debt securities can be found in Note 8.7.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Revenue in excess of billings – Upon adoption of ASU No. 2016-13 and related amendments on January 1, 2020 (Note 2), we recorded an allowance for uncollectible accounts related to revenue in excess of billings. This allowance was not significant upon adoption or as of June 30, 2020. Revenue in excess of billings, net of the allowance for uncollectible acounts, was comprised of the following:


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Conditional right to receive consideration	$	16,032	$	19,705	$	16,839	$	24,499
Unconditional right to receive consideration	9,713		10,753		8,175		8,291
Revenue in excess of billings	$	25,745	$	30,458	$	25,014	$	32,790

~~Assets held for sale~~ – Assets held for sale as of September 30, 2019 and December 31, 2018 consisted of 1 small business customer list with a carrying value of $1,350. We are actively marketing this asset, and we expect the selling price will equal or exceed its current carrying value.

During the quarter ended September 30, 2018, we sold the assets of a provider of printed and promotional products, as well as certain small business customer lists. During the nine months ended September 30, 2018, we also sold the assets of an additional provider of printed and promotional products and a small business distributor, as well as additional small business

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

Intangibles – Intangibles were comprised of the following:


	September 30, 2019							December 31, 2018							June 30, 2020							December 31, 2019
(in thousands)	Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount		Gross carrying amount		Accumulated amortization			Net carrying amount
Amortizable intangibles:
Internal-use software	$	417,098	$	(334,336	)	$	82,762	$	388,477	$	(308,313	)	$	80,164	$	397,913	$	(321,204	)	$	76,709	$	380,905	$	(299,698	)	$	81,207
Customer lists/relationships	357,809		(190,993		)	166,816		379,570		(170,973		)	208,597		310,282		(181,761		)	128,521		348,055		(187,462		)	160,593
Software to be sold															36,900		(21,770		)	15,130		36,900		(19,657		)	17,243
Technology-based intangibles															34,613		(25,313		)	9,300		34,780		(22,122		)	12,658
Trade names	32,361		(27,048		)	5,313		50,645		(26,204		)	24,441		29,952		(28,867		)	1,085		32,505		(28,084		)	4,421
Technology-based intangibles	34,080		(19,772		)	14,308		39,300		(14,007		)	25,293
Software to be sold	36,900		(18,601		)	18,299		36,900		(15,430		)	21,470
Other	700		(700		)	—		700		(700		)	—
Intangibles	$	878,948	$	(591,450	)	$	287,498	$	895,592	$	(535,627	)	$	359,965	$	809,660	$	(578,915	)	$	230,745	$	833,145	$	(557,023	)	$	276,122

During the first quarter ~~ended September 30, 2019,~~of 2020, we recorded asset impairment charges related to ~~customer lists/relationships, trade names and technology-based intangibles.~~certain intangible assets. Further information ~~regarding these asset impairment charges~~ can be found in Note 8.7.

Amortization of intangibles was ~~$26,736~~$21,529 for the quarter ended ~~September~~June 30, ~~2019, $28,505~~2020, $28,314 for the quarter ended ~~September~~June 30, ~~2018, $83,224~~2019, $45,040 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$84,199~~$56,488 for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Based on the intangibles in service as of ~~September~~June 30, ~~2019~~,2020, estimated future amortization expense is as follows:


(in thousands)	Estimated amortization expense		Estimated amortization expense
Remainder of 2019	$	27,463
2020	89,907
Remainder of 2020			$	45,590
2021	68,423		70,492
2022	41,251		50,044
2023	26,533		30,139
2024			15,616

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

The following intangibles were acquired during the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:

(in thousands) Amount
Weighted-average amortization period
(in years)
Internal-use software $ 33,370
3
Customer lists/relationships⁽¹⁾
11,970
8
Acquired intangibles $ 45,340
5

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

⁽¹⁾ ~~These asset purchases did not qualify as business combinations.~~

Goodwill – Changes in goodwill ~~during~~by reportable segment and in total for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were as ~~follows:~~follows :


(in thousands)	Small Business Services			Financial Services			Direct Checks		Total			Payments		Cloud Solutions			Promotional Solutions			Checks		Total
Balance, December 31, 2018:
Balance, December 31, 2019:
Goodwill, gross	$	765,266		$	373,421		$	148,506	$	1,287,193		$	168,165	$	432,984		$	252,834		$	434,812	$	1,288,795
Accumulated impairment charges	(126,567		)	—			—		(126,567		)	—		(357,741		)	(126,567		)	—		(484,308		)
Goodwill, net of accumulated impairment charges	638,699			373,421			148,506		1,160,626			168,165		75,243			126,267			434,812		804,487
Impairment charges (Note 8)	(242,267		)	(115,474		)	—		(357,741		)
Measurement-period adjustments for prior year acquisitions (Note 6)	(340		)	(1,427		)	—		(1,767		)
Impairment charges (Note 7)												—		(4,317		)	(63,356		)	—		(67,673		)
Currency translation adjustment	(832		)	—			—		(832		)	—		—			(66		)	—		(66		)
Balance, September 30, 2019	$	395,260		$	256,520		$	148,506	$	800,286
Balance, June 30, 2020												$	168,165	$	70,926		$	62,845		$	434,812	$	736,748

Balance, September 30, 2019:
Balance, June 30, 2020:
Goodwill, gross	764,094			371,994			148,506		1,284,594			$	168,165	$	432,984		$	252,768		$	434,812	$	1,288,729
Accumulated impairment charges	(368,834		)	(115,474		)	—		(484,308		)	—		(362,058		)	(189,923		)	—		(551,981		)
Goodwill, net of accumulated impairment charges	$	395,260		$	256,520		$	148,506	$	800,286		$	168,165	$	70,926		$	62,845		$	434,812	$	736,748

Other non-current assets – Other non-current assets were comprised of the following:


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Loans and notes receivable from Safeguard distributors	$	67,924	$	78,693
Postretirement benefit plan asset					$	59,457	$	56,743
Loans and notes receivable from Safeguard distributors, net of allowance for doubtful accounts⁽¹⁾					55,255		66,872
Prepaid product discounts	51,748		54,642		43,541		51,145
Postretirement benefit plan asset	45,808		41,259
Deferred sales commissions⁽¹⁾	10,603		6,482
Deferred advertising costs	4,089		5,746
Cloud computing arrangements					12,166		—
Deferred sales commissions⁽²⁾					10,789		9,682
Other	9,431		9,286		21,892		16,308
Other non-current assets	$	189,603	$	196,108	$	203,100	$	200,750

⁽¹⁾Amount Includes the non-current portion of loans and note receivables. The current portion of these receivables is included in other current assets on the consolidated balance sheets and was $3,879 as of June 30, 2020 and $3,511 as of December 31, 2019.

⁽²⁾Amortization of deferred sales commissions was ~~$2,246~~$1,817 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$2,033~~$1,464 for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Upon adoption of ASU No. 2016-13 and related amendments on January 1, 2020 (Note 2), we recorded an additional allowance for uncollectible accounts related to loans and notes receivable from Safeguard distributors. Changes in this allowance for the six months ended June 30, 2020 and 2019 were as follows:



	Six Months Ended June 30,
(in thousands)	2020		2019
Balance, beginning of year	$	284	$	284
Adoption of ASU No. 2016-13 (Note 2)	4,749		—
Bad debt expense	6,623		—
Balance, end of period	$	11,656	$	284

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Bad debt expense for the six months ended June 30, 2020, included loan-specific allowances primarily related to a distributor that was underperforming. In calculating this reserve, we utilized various valuation techniques to determine the value of the underlying collateral. Other past due receivables and those on non-accrual status were not significant as of June 30, 2020.

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 Safeguard distributors, including the current portion, by credit quality indicator and by year of origination, as of June 30, 2020. There were 0 write-offs or recoveries recorded during the six months ended June 30, 2020.



	Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands)	2020		2019		2018		2017		2016		Prior		Total
Risk rating:
1-2 internal grade	$	1,386	$	3,876	$	24,310	$	22,779	$	220	$	4,386	$	56,957
3-4 internal grade	—		2,553		7,508		—		—		3,772		13,833
Loans and notes receivable	$	1,386	$	6,429	$	31,818	$	22,779	$	220	$	8,158	$	70,790

Changes in prepaid product discounts during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:



	Six Months Ended June 30,
(in thousands)	2020			2019
Balance, beginning of year	$	51,145		$	54,642
Additions⁽¹⁾	7,195			12,405
Amortization	(14,174		)	(11,681		)
Other	(625		)	(447		)
Balance, end of period	$	43,541		$	54,919

Nine Months Ended
September 30,
(in thousands) 2019 2018
Balance, beginning of year $ 54,642
$ 63,895
Additions⁽¹⁾
15,275
11,695
Amortization (17,861 ) (16,976 )
Other (308 ) (75 )
Balance, end of period $ 51,748
$ 58,539

⁽¹⁾Prepaid product discounts are generally accrued upon contract execution. Cash payments for prepaid product discounts were ~~$20,370~~$15,806 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$19,125~~$16,182 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~.2019.

Accrued liabilities – Accrued liabilities were comprised of the following:


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Funds held for customers	$	93,337	$	99,818
Deferred revenue⁽¹⁾	39,845		54,313		$	43,271	$	46,098
Employee profit sharing/cash bonus	31,323		31,286
Employee cash bonuses					21,648		36,918
Wages	13,055		6,359		17,389		6,937
Operating lease liabilities	12,840		—		14,320		12,898
Prepaid product discounts due within one year	11,221		10,926		8,810		14,709
Customer rebates	9,845		9,555
Restructuring and integration (Note 9)	6,138		3,320
Other	46,655		68,704		68,772		61,778
Accrued liabilities	$	264,259	$	284,281	$	174,210	$	179,338

⁽¹⁾$~~45,032~~30,594 of the December 31, ~~2018~~2019 amount was recognized as revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

~~Other non-current liabilities~~ ~~– Other non-current liabilities were comprised of the following:~~

(in thousands) September 30,
2019 December 31,
2018
Prepaid product discounts $ 6,860
$ 12,513
Other 28,038
27,367
Other non-current liabilities $ 34,898
$ 39,880

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

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)	September 30, 2019		September 30, 2018		June 30, 2020		June 30, 2019
Cash and cash equivalents	$	73,472	$	57,851	$	371,951	$	66,732
Restricted cash and restricted cash equivalents included in funds held for customers	78,639		68,263		66,381		77,326
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	152,111	$	126,114	$	438,332	$	144,058

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Note 4: (Loss) earnings per share~~

NOTE 4: EARNINGS (LOSS) PER SHARE

The following table reflects the calculation of basic and diluted earnings (loss) ~~earnings~~ per share. During each period, certain stock options, as noted below, were excluded from the calculation of diluted earnings (loss) ~~earnings~~ per share because their effect would have been antidilutive.


	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2019			2018			2019			2018			2020			2019			2020			2019
(Loss) earnings per share – basic:
Net (loss) income	$	(318,493	)	$	(31,083	)	$	(244,721	)	$	92,461
Earnings (loss) per share – basic:
Net income (loss)													$	14,878		$	32,582		$	(45,253	)	$	73,772
Net income attributable to non-controlling interest													(19		)	—			(19		)	—
Net income (loss) attributable to Deluxe													14,859			32,582			(45,272		)	73,772
Income allocated to participating securities	(24		)	(53		)	(79		)	(396		)	(13		)	(60		)	(32		)	(170		)
(Loss) income available to common shareholders	$	(318,517	)	$	(31,136	)	$	(244,800	)	$	92,065
Income (loss) attributable to Deluxe available to common shareholders													$	14,846		$	32,522		$	(45,304	)	$	73,602
Weighted-average shares outstanding	42,533			46,781			43,312			47,340			41,797			43,400			41,946			43,697
(Loss) earnings per share – basic	$	(7.49	)	$	(0.67	)	$	(5.65	)	$	1.94
Earnings (loss) per share – basic													$	0.36		$	0.75		$	(1.08	)	$	1.68

(Loss) earnings per share – diluted:
Net (loss) income	$	(318,493	)	$	(31,083	)	$	(244,721	)	$	92,461
Earnings (loss) per share – diluted:
Net income (loss)													$	14,878		$	32,582		$	(45,253	)	$	73,772
Net income attributable to non-controlling interest													(19		)	—			(19		)	—
Net income (loss) attributable to Deluxe													14,859			32,582			(45,272		)	73,772
Income allocated to participating securities	(24		)	(53		)	(79		)	(394		)	—			(10		)	(32		)	(76		)
Re-measurement of share-based awards classified as liabilities	—			(98		)	—			(274		)	(79		)	(44		)	(853		)	(44		)
(Loss) income available to common shareholders	$	(318,517	)	$	(31,234	)	$	(244,800	)	$	91,793
Income (loss) attributable to Deluxe available to common shareholders													$	14,780		$	32,528		$	(46,157	)	$	73,652
Weighted-average shares outstanding	42,533			46,781			43,312			47,340			41,797			43,400			41,946			43,697
Dilutive impact of potential common shares	—			22			—			178			151			154			40			127
Weighted-average shares and potential common shares outstanding	42,533			46,803			43,312			47,518			41,948			43,554			41,986			43,824
(Loss) earnings per share – diluted	$	(7.49	)	$	(0.67	)	$	(5.65	)	$	1.93
Earnings (loss) per share – diluted													$	0.35		$	0.75		$	(1.10	)	$	1.68
Antidilutive options excluded from calculation	1,422			1,037			1,422			570			2,133			1,439			2,199			1,439

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

~~Note 5: Other comprehensive income~~

NOTE 5: OTHER COMPREHENSIVE INCOME (LOSS)

Reclassification adjustments – Information regarding amounts reclassified from accumulated other comprehensive loss to net income (loss) ~~income~~ was as follows:


Accumulated other comprehensive loss components	Amounts reclassified from accumulated other comprehensive loss												Affected line item in consolidated statements of comprehensive (loss) income	Amounts reclassified from accumulated other comprehensive loss												Affected line item in consolidated statements of comprehensive income (loss)
	Quarter Ended September 30,						Nine Months Ended September 30,							Quarter Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018				2020			2019			2020			2019
Realized gain on interest rate swap	$	81		$	—		$	81		$	—		Interest expense
Tax expense	(21		)	—			(21		)	—			Income tax benefit (provision)
Realized gain on interest rate swap, net of tax	60			—			60			—			Net (loss) income
Realized loss on interest rate swap														$	(281	)	$	—		$	(188	)	$	—		Interest expense
Tax benefit														73			—			49			—			Income tax provision
Realized loss on interest rate swap, net of tax														(208		)	—			(139		)	—			Net income
Amortization of postretirement benefit plan items:
Prior service credit	355			355			1,066			1,066			Other income	355			355			711			711			Other income
Net actuarial loss	(806		)	(721		)	(2,417		)	(2,163		)	Other income	(575		)	(806		)	(1,150		)	(1,612		)	Other income
Total amortization	(451		)	(366		)	(1,351		)	(1,097		)	Other income	(220		)	(451		)	(439		)	(901		)	Other income
Tax benefit	70			47			209			447			Income tax benefit (provision)	12			71			23			140			Income tax provision
Amortization of postretirement benefit plan items, net of tax	(381		)	(319		)	(1,142		)	(650		)	Net (loss) income	(208		)	(380		)	(416		)	(761		)	Net income
Total reclassifications, net of tax	$	(321	)	$	(319	)	$	(1,082	)	$	(650	)		$	(416	)	$	(380	)	$	(555	)	$	(761	)

Accumulated other comprehensive loss – Changes in the components of accumulated other comprehensive loss during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were as follows:


(in thousands)	Postretirement benefit plans			Net unrealized loss on available-for-sale debt securities⁽¹⁾			Net unrealized loss on cash flow hedge⁽²⁾			Currency translation adjustment			Accumulated other comprehensive loss			Postretirement benefit plans			Net unrealized loss on available-for-sale debt securities⁽¹⁾			Net unrealized loss on cash flow hedge⁽²⁾			Currency translation adjustment			Accumulated other comprehensive loss
Balance, December 31, 2018	$	(36,529	)	$	(323	)	$	—		$	(19,727	)	$	(56,579	)
Balance, December 31, 2019																$	(28,406	)	$	(275	)	$	(1,097	)	$	(18,169	)	$	(47,947	)
Other comprehensive income (loss) before reclassifications	—			122			(1,790		)	(19		)	(1,687		)	—			308			(5,395		)	(3,300		)	(8,387		)
Amounts reclassified from accumulated other comprehensive loss	1,142			—			(60		)	—			1,082			416			—			139			—			555
Net current-period other comprehensive income (loss)	1,142			122			(1,850		)	(19		)	(605		)	416			308			(5,256		)	(3,300		)	(7,832		)
Balance, September 30, 2019	$	(35,387	)	$	(201	)	$	(1,850	)	$	(19,746	)	$	(57,184	)
Balance, June 30, 2020																$	(27,990	)	$	33		$	(6,353	)	$	(21,469	)	$	(55,779	)

⁽¹⁾Other comprehensive income before reclassifications is net of income tax expense of ~~$43.~~$107.

⁽²⁾Other comprehensive loss before reclassifications is net of an income tax benefit of ~~$635.~~$1,897.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

~~Note 6: Acquisitions~~

We periodically complete business combinations that align with our business strategy. The assets and liabilities acquired are recorded at their estimated fair values, and the results of operations of each acquired business are included in our consolidated statements of comprehensive (loss) income from their acquisition dates. Transaction costs related to acquisitions are expensed as incurred and are included in SG&A expense in the consolidated statements of comprehensive (loss) income. Transaction costs were not significant to our consolidated statements of comprehensive (loss) income for the nine months ended September 30, 2019 and 2018.

We did not complete any acquisitions during the nine months ended September 30, 2019. Payments for acquisitions, net of cash acquired, for the nine months ended September 30, 2019 were $1,598 and related to holdback payments for prior year acquisitions. During the nine months ended September 30, 2018, we completed the following acquisitions within our Small Business Services segment:

~~In August 2018, we acquired selected assets of REMITCO LLC, the remittance processing business of First Data Corporation. The results of this business are included in our Financial Services segment.~~

Payments for acquisitions, net of cash acquired, for the nine months ended September 30, 2018, included payments of $170,011 for these acquisitions and $20,385 for holdback payments for prior year acquisitions. Further information regarding our 2018 acquisitions can be found under the caption “Note 6: Acquisitions” in the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

During the nine months ended September 30, 2019, we recorded measurement-period adjustments for 2018 acquisitions that decreased goodwill $1,767, with the offset to various assets and liabilities, including a $1,000 increase in customer list intangible assets.

~~Note 7: Derivative financial instruments~~

NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS

As part of our interest rate risk management strategy, in July 2019, we entered into an interest rate swap, which we designated as a cash flow hedge, to mitigate variability in interest payments on a portion of the amount drawn under our revolving credit facility (Note ~~13)~~11). The interest rate swap, which terminates in March 2023 when our revolving credit facility matures, effectively converts $200,000 of variable rate debt to a fixed rate of 1.798%. Changes in the fair value of the interest rate swap are recorded in accumulated other comprehensive loss on the consolidated balance ~~sheet~~sheets and are subsequently reclassified ~~into~~to interest expense as interest payments are made on the variable-rate debt. The fair value of the interest rate swap was ~~$2,506~~$8,584 as of ~~September~~June 30, 2020 and $1,480 as of December 31, 2019 and was included in other non-current liabilities on the consolidated balance ~~sheet.~~sheets. The fair value of this derivative is calculated based on the prevailing LIBOR rate curve on the date of measurement. The cash flow hedge was fully effective as of ~~September~~June 30, 2020 and December 31, 2019 and its impact on consolidated net income (loss) and our ~~2019~~consolidated statements ~~of comprehensive loss and statement~~ of cash flows was not significant. We also do not expect the amount to be reclassified ~~into~~to interest expense over the next 12 months to be significant.

~~Note 8: Fair value measurements~~

NOTE 7: FAIR VALUE MEASUREMENTS

~~Annual asset~~Goodwill impairment analyses – We evaluate the carrying value of goodwill as of July 31 of each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. Our policy on impairment of goodwill and indefinite-lived intangibles ~~and goodwill, which~~ is included under the caption "Note 1: Significant ~~accounting policies"~~Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the ~~2018~~2019 Form 10-K and explains our methodology for assessing impairment of these assets.

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

•

~~2019 annual impairment analyses~~– In completing the 2019 annual impairment analysis of goodwill, we elected to perform a qualitative analysis for 4 of our reporting units and a quantitative assessment for 2 of our reporting units: Financial Services Data-Driven Marketing and Small Business Services Web Services. Financial Services Data-Driven Marketing includes our businesses that provide outsourced marketing campaign targeting and execution and marketing analytics solutions. Small Business Services Web Services includes our businesses that provide hosting and domain name services, logo and web design, search engine marketing and optimization, payroll services and business incorporation and organization services.

Effective January 1, 2020, we reorganized our reportable business segments to align with structural and management reporting changes in support of our growth strategy (Note 14). As a result, we reassessed our previously determined reporting units and concluded that a realignment of our reporting units was required. We analyzed goodwill for impairment immediately prior to this realignment by performing a qualitative analysis for all of our reporting units, with the exception of our Direct-to-Consumer reporting unit, which is part of our new Checks reportable business segment. The qualitative analyses evaluated factors, including, but not limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. We also considered the last quantitative analyses completed as of July 31, 2017, which indicated that the estimated fair values of the 4 reporting units exceeded their carrying values by approximate amounts between $64,000 and $1,405,000, or by amounts between 50% and 314% above the carrying values of their net assets.we completed. In completing these assessments, we noted no changes in events or ~~circumstance~~circumstances that indicated that it was more likely than not that the fair value of any reporting unit was less than its carrying amount. The quantitative analysis of our Direct-to-Consumer reporting unit indicated that its fair value exceeded its carrying value by approximately $35,000, or 26% above its carrying value.

~~The~~In completing the realignment of our reporting units, we reallocated the carrying value of goodwill to our new reporting units based on their relative fair values. Immediately subsequent to the realignment, we completed a quantitative analysis for the reporting units that changed as a result of the realignment. This quantitative analysis, as of January 1, 2020, indicated that the estimated fair values of our reporting units exceeded their carrying values by approximate amounts between $37,000 and $954,000, or by amounts between 121% and 189% above the carrying values of their net assets.

On January 30, 2020, the World Health Organization (WHO) announced a global health emergency due to an outbreak of COVID-19 originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. Following the pandemic designation, we observed a decline in the market valuation of our common shares and we determined that the global response to the outbreak negatively impacted our estimates of expected future cash flows. After our consideration of economic, market and industry conditions, cost factors, the overall financial performance of our reporting units and the last quantitative analyses we completed, we concluded that a triggering event had occurred for 2 of our reporting units. As such, we completed quantitative goodwill impairment analyses for our Promotional Solutions and Cloud Solutions Web Hosting reporting units as of ~~July~~March 31, ~~2019~~2020. Our analyses indicated that the goodwill of our ~~Financial Services Data-Driven Marketing~~Promotional Solutions reporting unit was partially impaired and the goodwill of our ~~Small Business Services~~Cloud Solutions Web ~~Services~~Hosting reporting unit was fully impaired. As such, we recorded ~~pretax~~ goodwill impairment charges of ~~$115,474~~$63,356 and ~~$242,267,~~$4,317, respectively. Both impairment charges resulted from a combination of triggering events and circumstances, including underperformance against 2019 expectations and the original acquisition business case assumptions, our decision in the third quarter of 2019 to exit certain customer contracts, the loss of certain large customers in the third quarter of 2019 as they elected to in-source some of the services we provide, and the sustained decline in our stock price. The impairment charges were measured as the amount by which the reporting units' carrying values exceeded their estimated fair values, limited to the carrying amount of goodwill. After the impairment charges, ~~$70,914~~$62,785 of goodwill remained in the ~~Financial Services Data-Driven Marketing~~Promotional Solutions reporting ~~unit.~~unit as of the measurement date.

•

~~2018 annual~~

There were no triggering events during the second quarter of 2020 that required us to analyze goodwill for impairment.

Other nonrecurring asset impairment analyses – Details of our 2018 annual impairment analyses can be found under the caption "Note 8: Fair value measurements" in the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K. These analyses indicated that the goodwill of the Small Business Services Indirect reporting unit was fully impaired, resulting in a pretax goodwill impairment charge of $78,188 during the quarter ended September 30, 2018. In addition, the assets of this reporting unit included an indefinite-lived trade name intangible asset. Our quantitative analysis of this asset indicated that it was also fully impaired (level 3 fair value measurement), resulting in a pretax asset impairment charge of $19,100.

~~Other non-recurring asset impairment analyses –~~ Due to certain triggering events, we assessed for impairment the other long-lived assets of our Financial Services Data-Driven Marketing and Small Business Services Web Services reporting units as of July 31, 2019. As a result of the ~~same factors that resulted in~~impacts of the ~~goodwill~~COVID-19 outbreak, we assessed for impairment ~~charge,~~certain long-lived assets of our Cloud Solutions Web Hosting reporting unit as of March 31, 2020. As a result of these assessments, we recorded ~~pretax~~ asset impairment charges of ~~$31,316~~$17,678 related to certain ~~trade name,~~ customer list, software and ~~technology-based~~ trade name

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

intangible ~~assets in~~assets. With the ~~Small Business Services Web Services reporting unit. We concluded that the long-lived~~exception of certain internal-use software assets, of our Financial Services Data-Driven Marketing reporting unit were not impaired. During the quarter ended September 30, 2019, we also recorded a pretax asset impairment charge of $1,923 related to an additional Financial Services customer list intangible asset. Due to a change in the related forecasted cash flows associated with the asset, we determined that ~~it was~~the assets were fully ~~impaired as of July 31, 2019.~~impaired. We utilized the discounted value of estimated future cash flows to estimate the fair ~~values~~value of ~~these~~the asset ~~groups (level 3 fair value measurements)~~group. In our analysis, we assumed a revenue decline of 31% and a gross margin decline of 5.2 points in 2020, as well as a discount rate of 9%.

During the first quarter ~~ended September 30, 2018,~~of 2020, we assessed for impairment the carrying value of an asset group related to a small business distributor that we previously purchased. Our assessment was the result of customer attrition during the quarter that impacted our projections of future cash flows. Based on our estimate of discounted future cash flows, we determined that the asset group was partially impaired as of February 29, 2020, and we recorded ~~pretax~~an asset impairment charge of $2,752, reducing the carrying value of the related customer list intangible asset. In calculating the estimated fair value of the asset group, we assumed 0 revenue growth, a 1.9 point improvement in gross margin and a discount rate of 11%.

Also during the first six months of 2020, we recorded asset impairment charges of ~~$1,882 for Financial Services customer list intangible assets~~$7,110 related to ~~2 small distributors we acquired in 2015. Based on higher than anticipated customer attrition, we determined that~~ the ~~customer lists were partially impaired~~rationalization of our real estate footprint, as well as internal-use software held for sale as of ~~July~~December 31, ~~2018. During the quarter ended March 31, 2018, we recorded~~2019 and a ~~pretax asset impairment charge of $2,149 related to a Small Business Services customer list intangible asset. Based on changes in the customer base of one of our~~ small business ~~distributors, we determined that the~~ customer ~~list asset was fully impaired as of March 31, 2018. We utilized the discounted value of~~list. These assets were written down to their estimated ~~future cash flows to estimate the~~ fair values ~~of these asset groups (Level 3 fair value measurements).~~less costs to sell.

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Information regarding the~~Asset impairment analyses completed during ~~each year was~~the six months ended June 30, 2020 were as follows:

Fair value measurements using
Fair value as of measurement date Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs Impairment charge
(in thousands) (Level 1) (Level 2) (Level 3)
2019 analyses:
Trade names (Small Business Services) $ 1,834
$ —
$ —
$ 1,834
$ 14,441
Customer lists (Small Business Services) 4,405
—
—
4,405
11,655
Technology-based (Small Business Services) —
—
—
—
5,220
Customer list (Financial Services) —
—
—
—
1,923
Goodwill 357,741
Total impairment charges $ 390,980
2018 analyses:
Indefinite-lived trade name (Small Business Services) $ —
$ —
$ —
$ —
$ 19,100
Customer list (Small Business Services) —
$ —
—
—
2,149
Customer lists (Financial Services)⁽¹⁾
4,223
—
—
4,223
1,882
Goodwill 78,188
Total impairment charges $ 101,319



			Fair value measurements using
	Fair value as of measurement date		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs		Impairment charge
(in thousands)	Fair value as of measurement date		(Level 1)		(Level 2)		(Level 3)		Impairment charge
Cloud Solutions Web Hosting assets:
Customer lists	$	—	$	—	$	—	$	—	$	8,397
Internal-use software	2,172		—		—		2,172		6,932
Other	—		—		—		—		2,349
Cloud Solutions Web Hosting assets									17,678
Small business distributor	7,622		—		—		7,622		2,752
Other assets	11,210		—		—		11,210		7,110
Goodwill									67,673
Total									$	95,213

⁽¹⁾~~The fair value presented is for the entire asset group that includes the impaired customer lists.~~

Recurring fair value measurements – The fair value of accrued contingent consideration is remeasured each reporting period. Increases or decreases in projected revenue or operating income, as appropriate, and the related probabilities of achieving the forecasted results, may result in a higher or lower fair value measurement. Changes in fair value resulting from changes in the timing, amount of, or likelihood of contingent payments are included in SG&A expense on the consolidated statements of comprehensive (loss) income. Changes in fair value resulting from accretion for the passage of time are included in interest expense on the consolidated statements of comprehensive (loss) income.

~~Changes in accrued contingent consideration during the nine months ended September 30, 2019 were as follows:~~

(in thousands) Nine Months Ended September 30, 2019
Balance, December 31, 2018 $ 2,396
Change in fair value 213
Payments (1,284 )
Balance, September 30, 2019 $ 1,325

Funds held for customers included cash equivalents and available-for-sale debt securities (Note 3). The cash equivalents consisted of a money market fund investment that is traded in an active market. Because of the short-term nature of the underlying investments, the cost of this investment approximates its fair value. Available-for-sale debt securities consisted of a mutual fund investment that invests in Canadian and provincial government securities, ~~and~~as well as investments in Canadian guaranteed investment certificates (GICs) with maturities of 1 year or less. The mutual fund is not traded in an active market and its fair value is determined by obtaining quoted prices in active markets for the underlying securities held by the fund. The

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

fair value of the GICs approximated cost due to their relatively short duration. Unrealized gains and losses, net of tax, are included in accumulated other comprehensive loss on the consolidated balance sheets. The cost of securities sold is determined using the average cost method. Realized gains and losses are included in revenue on the consolidated statements of comprehensive income (loss) ~~income~~ and were not significant for the quarters or ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and 2019.~~2018~~.

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
September 30, 2019 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands) Carrying value Fair value (Level 1) (Level 2) (Level 3)
Measured at fair value through net (loss) income:
Accrued contingent consideration $ (1,325 ) $ (1,325 ) $ —
$ —
$ (1,325 )
Measured at fair value through comprehensive (loss) income:
Cash equivalents (funds held for customers) 14,000
14,000
14,000
—
—
Available-for-sale debt securities (funds held for customers) 16,209
16,209
—
16,209
—
Derivative liability (Note 7) (2,506 ) (2,506 ) —
(2,506 ) —
Amortized cost:
Cash 73,472
73,472
73,472
—
—
Cash (funds held for customers) 64,639
64,639
64,639
—
—
Loans and notes receivable from Safeguard distributors 71,189
64,506
—
—
64,506
Long-term debt 924,000
924,000
—
924,000
—



								Fair value measurements using
		June 30, 2020						Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
(in thousands)	Balance sheet location	Carrying value			Fair value					Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Measured at fair value through comprehensive income (loss):
Cash equivalents	Funds held for customers	$	7,000		$	7,000		$	7,000	$	—		$	—
Available-for-sale debt securities	Funds held for customers	16,201			16,201			—		16,201			—
Derivative liability (Note 6)	Other non-current liabilities	(8,584		)	(8,584		)	—		(8,584		)	—
Amortized cost:
Cash	Cash and cash equivalents	371,951			371,951			371,951		—			—
Cash	Funds held for customers	59,381			59,381			59,381		—			—
Loans and notes receivable from Safeguard distributors	Other current and non-current assets	59,134			57,548			—		—			57,548
Long-term debt	Long-term debt	1,140,000			1,140,000			—		1,140,000			—

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

Fair value measurements using
December 31, 2018 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands) Carrying value Fair value (Level 1) (Level 2) (Level 3)
Measured at fair value through net (loss) income:
Accrued contingent consideration $ (2,396 ) $ (2,396 ) $ —
$ —
$ (2,396 )
Measured at fair value through comprehensive (loss) income:
Cash equivalents (funds held for customers) 16,000
16,000
16,000
—
—
Available-for-sale debt securities (funds held for customers) 15,463
15,463
—
15,463
—
Amortized cost:
Cash 59,740
59,740
59,740
—
—
Cash (funds held for customers) 69,519
69,519
69,519
—
—
Loans and notes receivable from Safeguard distributors 81,560
60,795
—
—
60,795
Long-term debt⁽¹⁾
910,000
910,000
—
910,000
—



								Fair value measurements using
		December 31, 2019						Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
(in thousands)	Balance sheet location	Carrying value			Fair value					Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Measured at fair value through comprehensive income (loss):
Cash equivalents	Funds held for customers	$	18,000		$	18,000		$	18,000	$	—		$	—
Available-for-sale debt securities	Funds held for customers	16,450			16,450			—		16,450			—
Derivative liability (Note 6)	Other non-current liabilities	(1,480		)	(1,480		)	—		(1,480		)	—
Amortized cost:
Cash	Cash and cash equivalents	73,620			73,620			73,620		—			—
Cash	Funds held for customers	83,191			83,191			83,191		—			—
Loans and notes receivable from Safeguard distributors	Other current and non-current assets	70,383			68,887			—		—			68,887
Long-term debt	Long-term debt	883,500			883,500			—		883,500			—

⁽¹⁾~~Amounts exclude capital lease obligations.~~

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

~~Note 9: Restructuring and integration expense~~

NOTE 8: RESTRUCTURING AND INTEGRATION EXPENSE

Restructuring and integration expense consists of ~~costs related to the integration of acquired businesses into our systems and processes. It also includes~~ costs related to the consolidation and migration of certain applications and processes, including our financial, sales and human resources management ~~system~~systems. It also includes costs related to the integration of acquired businesses into our systems and ~~certain of our sales and financial systems.~~processes. These costs consist primarily ~~consist~~ of information technology consulting, ~~and~~ project management services and internal labor, as well as other miscellaneous costs associated with our initiatives, such as training, travel and ~~travel.~~relocation. In addition, we recorded employee severance costs related to these initiatives, as well as our ongoing cost reduction initiatives, across functional areas. Our restructuring and integration activities have increased, ~~in 2019,~~ as we are currently pursuing several initiatives designed to focus our business behind our growth strategies and to increase our efficiency. Restructuring and integration expense is not allocated to our reportable business segments.

Restructuring and integration expense is reflected on the consolidated statements of comprehensive income (loss) as follows:



	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Total cost of revenue	$	28	$	155	$	857	$	946
Operating expenses	20,354		17,342		38,008		22,834
Restructuring and integration expense	$	20,382	$	17,497	$	38,865	$	23,780

Restructuring and integration expense for each period ~~consisted~~was comprised of the ~~following components:~~following:

Quarter Ended
September 30, Nine Months Ended
September 30,
(in thousands, except number of employees) 2019 2018 2019 2018
Severance accruals $ 5,124
$ 2,118
$ 10,270
$ 6,766
Severance reversals (91 ) (1,157 ) (476 ) (1,387 )
Operating lease obligations —
291
—
291
Net accruals 5,033
1,252

9,794

5,670
Other costs 22,641
3,852
41,660
8,127
Restructuring and integration expense $ 27,674
$ 5,104

$ 51,454

$ 13,797
Number of employees included in severance accruals 180
75
270
180

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Restructuring and integration expense is reflected in the consolidated statements of comprehensive (loss) income as follows:~~


	Quarter Ended September 30,					Nine Months Ended September 30,				Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2019		2018			2019		2018		2020		2019		2020		2019
Total cost of revenue	$	1,419	$	(31	)	$	2,365	$	882
Operating expenses	26,255		5,135			49,089		12,915
External consulting fees										$	11,337	$	10,101	$	22,238	$	12,247
Employee severance benefits										5,035		2,697		10,118		4,761
Internal labor										1,128		3,789		2,981		5,850
Other										2,882		910		3,528		922
Restructuring and integration expense	$	27,674	$	5,104		$	51,454	$	13,797	$	20,382	$	17,497	$	38,865	$	23,780

~~Restructuring~~Our restructuring and integration accruals ~~of $6,138 as of~~ ~~September 30, 2019~~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. These accruals are ~~reflected~~included in accrued liabilities on the consolidated balance ~~sheet as accrued liabilities. Accruals of~~ ~~$3,461~~ ~~as of~~ ~~December 31, 2018~~ ~~are reflected in the consolidated balance sheet as accrued liabilities of $3,320 and other non-current liabilities of $141.~~sheets. The majority of the related employee reductions are expected to be completed byin the ~~end~~third quarter of ~~2019,~~2020, and we expect most of the related severance payments to be paid by ~~mid-2020. As~~the end of ~~September 30, 2019, approximately 130 employees had not yet started to receive severance benefits.~~2020, utilizing cash from operations.

~~Restructuring~~Changes in our restructuring and integration accruals ~~summarized by year,~~ were as follows:


(in thousands)	2019 initiatives			2018 initiatives			2017 initiatives			Total			Employee severance benefits
Balance, December 31, 2018	$	—		$	3,448		$	13		$	3,461
Balance, December 31, 2019													$	3,459
Charges	9,919			351			—			10,270			10,630
Reversals	(155		)	(308		)	(13		)	(476		)	(512		)
Payments	(3,886		)	(2,949		)	—			(6,835		)	(7,625		)
Adoption of ASU No. 2016-02⁽¹⁾	—			(282		)	—			(282		)
Balance, September 30, 2019	$	5,878		$	260		$	—		$	6,138
Cumulative amounts:
Charges	$	9,919		$	8,487		$	7,355		$	25,761
Reversals	(155		)	(1,720		)	(726		)	(2,601		)
Payments	(3,886		)	(6,225		)	(6,629		)	(16,740		)
Adoption of ASU No. 2016-02⁽¹⁾	—			(282		)	—			(282		)
Balance, September 30, 2019	$	5,878		$	260		$	—		$	6,138
Balance, June 30, 2020													$	5,952

⁽¹⁾~~Upon adoption of ASU No. 2016-02,~~ ~~Leasing,~~ ~~on January 1, 2019 (Note 2), our operating lease obligations accrual was reversed~~The charges and reversals presented in the ~~related operating lease asset was analyzed for impairment in accordance with the new guidance.~~

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~The components~~rollforward of our restructuring and integration accruals ~~by segment, were~~do not include items charged directly to expense as ~~follows:~~

Employee severance benefits Operating lease obligations
(in thousands) Small Business Services Financial Services Direct Checks

Corporate⁽¹⁾
Small Business Services Financial Services Total
Balance, December 31, 2018 $ 1,326
$ 1,397
$ —
$ 456
$ 282
$ —
$ 3,461
Charges 3,309
2,449
168
4,344
—
—
10,270
Reversals (140 ) (108 ) (1 ) (227 ) —
—
(476 )
Payments (1,944 ) (2,570 ) (107 ) (2,214 ) —
—
(6,835 )
Adoption of ASU No. 2016-02⁽²⁾
—
—
—
—
(282 ) —
(282 )
Balance, September 30, 2019 $ 2,551
$ 1,168

$ 60

$ 2,359

$ —
$ —
$ 6,138
Cumulative amounts:⁽³⁾

Charges $ 7,848
$ 8,615
$ 311
$ 8,367
$ 329
$ 291
$ 25,761
Reversals (744 ) (1,315 ) (6 ) (465 ) —
(71 ) (2,601 )
Payments (4,553 ) (6,132 ) (245 ) (5,543 ) (47 ) (220 ) (16,740 )
Adoption of ASU No. 2016-02⁽²⁾
—
—
—
—
(282 ) —
(282 )
Balance, September 30, 2019 $ 2,551
$ 1,168

$ 60

$ 2,359

$ —
$ —
$ 6,138

⁽¹⁾~~As discussed in Note 17, corporate costs~~incurred, as those items are ~~allocated to our business segments. As such, the net corporate charges are~~not reflected ~~in the business segment operating (loss) income presented in Note 17 in accordance with our allocation methodology.~~

⁽²⁾~~Upon adoption of ASU No. 2016-02,~~ ~~Leasing,~~ ~~on January 1, 2019 (Note 2), our operating lease obligations accrual was reversed and the related operating lease asset was analyzed for impairment in accordance with the new guidance.~~

⁽³⁾~~Includes accruals related to our integration and cost reduction initiatives for 2017 through 2019.~~

~~Note 10: Chief Executive Officer transition costs~~

In April 2018, we announced the retirement of Lee Schram, our former Chief Executive Officer (CEO). Mr. Schram remained employed under the terms of a transition agreement through March 1, 2019. Under the terms of this agreement, we provided certain benefits to Mr. Schram, including a transition bonus in the amount of $2,000 that was paid in March 2019, accelerated vesting of certain restricted stock unit awards, and continued vesting and settlement of a pro-rata portion of outstanding performance share awards to the extent such awards were earned based on the attainment of performance goals. The modifications to Mr. Schram's share-based payment awards resulted in expense of $2,088, which was largely recognized in 2018.

In conjunction with the CEO transition, we offered retention agreements to certain members of our management team under which each employee will be entitled to receive a cash bonus equal to his or her annual base salary or up to 1.5 times his or her annual base salary if he or she remains employed during the retention period, generally from July 1, 2018 to December 31, 2019, and complies with certain covenants. The retention bonus will be paid to an employee if his or her employment is terminated without cause before the end of the retention period. In addition to these expenses, we incurred certain other costs related to the CEO transition process, including executive search, legal, travel and board of directors fees in 2018. During 2019, we incurred consulting fees related to the evaluation of our strategic plan and we expensed the majority of the current CEO's signing bonus in 2019. CEO transition costs are included in SG&A expense on the consolidated statements of comprehensive (loss) income and were $1,145 for the quarter ended September 30, 2019, $2,622 for the quarter ended September 30, 2018, $8,539 for the nine months ended September 30, 2019 and $4,152 for the nine months ended September 30, 2018. Accruals for CEO transition costs were $3,925 as of September 30, 2019 and were included in accrued liabilities on the consolidated balance ~~sheet. Accruals for CEO transition costs as of December 31, 2018 were $1,972 within accrued liabilities and $1,808 within other non-current liabilities.~~sheets.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

~~Note 11: Income tax benefit (provision)~~

NOTE 9: INCOME TAX PROVISION

The effective tax rate on pre-tax ~~(loss) income~~loss reconciles to the ~~United States~~U.S. federal statutory tax rate ~~of 21%~~ as follows:


	Nine Months Ended September 30, 2019		Year Ended December 31, 2018		Six Months Ended June 30, 2020		Year Ended December 31, 2019
Income tax at federal statutory rate	21.0	%	21.0	%	21.0	%	21.0	%
Goodwill impairment charges (Note 8)	(22.0	%)	7.1	%
State income tax, net of federal income tax benefit	4.9	%	3.0	%
Foreign deferred tax valuation allowance	(3.4	%)	—
Goodwill impairment charges					(27.4	%)	(29.3	%)
Research and development tax credit					(7.1	%)	0.6	%
Change in valuation allowances					—		(4.5	%)
Net tax impact of share-based compensation					(2.7	%)	(1.1	%)
Foreign tax rate differences	1.2	%	0.4	%	8.6	%	1.3	%
Net tax impact of share-based compensation	(0.7	%)	(0.8	%)
Impact of Tax Cuts and Jobs Act	—		(0.8	%)
State income tax expense, net of federal income tax benefit					0.5	%	4.9	%
Other	(0.4	%)	(0.3	%)	2.8	%	(0.6	%)
Effective tax rate	0.6	%	29.6	%	(4.3	%)	(7.7	%)

During the quarter ended September 30, 2019, we recorded asset impairment charges related to certain intangible assets located in Australia. As a result, we placed a full valuation allowance on the intangible-related deferred tax asset of $8,432, as we do not expect that we will realize the benefit of this deferred tax asset.

~~Note 12: Postretirement benefits~~

NOTE 10: POSTRETIREMENT BENEFITS

We have historically provided certain health care benefits for a large number of retired ~~United States~~U.S. employees. In addition to our retiree health care plan, we also have a U.S. supplemental executive retirement ~~plan in the United States.~~plan. Further information regarding our postretirement benefit plans can be found under the caption “Note 14: Postretirement ~~benefits”~~Benefits” in the Notes to Consolidated Financial Statements appearing in the ~~2018~~2019 Form 10-K.

Postretirement benefit income is included in other income on the consolidated statements of comprehensive income (loss) ~~income~~ and consisted of the following components:


	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018			2020			2019			2020			2019
Interest cost	$	682		$	656		$	2,046		$	1,969		$	478		$	682		$	956		$	1,364
Expected return on plan assets	(1,740		)	(1,934		)	(5,218		)	(5,802		)	(1,905		)	(1,740		)	(3,809		)	(3,479		)
Amortization of prior service credit	(355		)	(355		)	(1,066		)	(1,066		)	(355		)	(355		)	(711		)	(711		)
Amortization of net actuarial losses	806			721			2,417			2,163			575			806			1,150			1,612
Net periodic benefit income	$	(607	)	$	(912	)	$	(1,821	)	$	(2,736	)	$	(1,207	)	$	(607	)	$	(2,414	)	$	(1,214	)

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Note 13: Debt~~

NOTE 11: DEBT

Debt outstanding ~~was comprised~~consisted of amounts drawn on our revolving credit facility of $1,140,000 as of June 30, 2020 and $883,500 as of December 31, 2019. In March 2020, in conjunction with our response to the COVID-19 outbreak, we drew an additional $238,000 on our credit facility given the uncertainty in how the commercial capital and credit markets would operate during the pandemic. As of June 30, 2020, we held cash and cash equivalents of $371,951. During July 2020, we repaid $100,000 of the ~~following:~~

(in thousands) September 30,
2019 December 31,
2018
Amount drawn on revolving credit facility $ 924,000
$ 910,000
Capital lease obligations⁽¹⁾
—
1,864
Long-term debt, principal amount 924,000
911,864
Less current portion of long-term debt —
(791 )
Long-term debt 924,000
911,073
Current portion of capital lease obligations⁽¹⁾
—
791
Long-term debt due within one year —
791
Total debt $ 924,000
$ 911,864

⁽¹⁾~~Upon adoption of ASU No. 2016-02,~~ ~~Leasing~~, on January 1, 2019 (Note 2), we reclassified our capital lease obligations, now known as finance lease obligations, to accrued liabilities and other non-current liabilities on the consolidated balance sheet.

~~There are currently no limitations on the~~ amount ~~of dividends and share repurchases~~drawn under the ~~terms of our~~ credit agreement. However, if our leverage ratio, defined as total debt less unrestricted cash to EBITDA, should exceed 2.75 to 1, there would be an annual limitation on the amount of dividends and share repurchases.facility.

As of ~~December 31, 2018, we had a~~June 30, 2020, the total availability under our revolving credit facility ~~in the amount of $950,000. In January 2019, we increased~~was $1,150,000. The facility includes an accordion feature allowing us, subject to lender consent, to increase the credit ~~facility by $200,000, bringing the total availability to $1,150,000, subject to increase under the credit agreement~~commitment to an aggregate amount not exceeding $1,425,000. The credit facility matures in March 2023. Our quarterly commitment fee ranges from 0.175% to 0.35%, based on our leverage ratio. Amounts drawn under the credit facility had a weighted-average interest rate of ~~3.29%~~1.90% as of ~~September~~June 30, ~~2019~~2020 and ~~3.79%~~3.03% as of December 31, ~~2018.~~2019. In July 2019, we executed an interest rate swap to convert $200,000 of the amount drawn under the credit facility to fixed rate debt. Further information can be found in Note 7.6.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Borrowings under the credit agreement are collateralized by substantially all of our personal and intangible property. The credit agreement governing our credit facility contains customary covenants regarding limits on levels of subsidiary indebtedness and capital expenditures, liens, investments, acquisitions, certain mergers, certain asset sales outside the ordinary course of business, and change in control as defined in the agreement. The agreement also requires us to maintain certain financial ratios, including a maximum leverage ratio of 3.5 and a minimum ratio of consolidated earnings before interest and taxes to consolidated interest expense, as defined in the credit agreement, of 3.0. Additionally, the agreement contains customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct in all material respects on the date of the borrowing, including representations as to no material adverse change in our business, assets, operations or financial condition.

There are currently no limitations on the amount of dividends and share repurchases under the terms of our credit agreement. However, if our leverage ratio, defined as total debt less unrestricted cash to EBITDA, should exceed 2.75 to 1, there would be an annual limitation on the amount of dividends and share repurchases.

Daily average amounts outstanding under our credit facility were as follows:


(in thousands)	Nine Months Ended September 30, 2019			Year Ended December 31, 2018			Six Months Ended June 30, 2020			Year Ended December 31, 2019
Revolving credit facility:
Daily average amount outstanding	$	933,934		$	731,110		$	1,034,198		$	925,715
Weighted-averageinterest rate	3.69		%	3.24		%	2.29		%	3.54		%
Term loan facility:⁽¹⁾
Daily average amount outstanding	$	—		$	63,638
Weighted-average interest rate	—			2.97		%

⁽¹⁾ ~~During 2018, we had borrowings outstanding under a variable rate term loan facility. These amounts were repaid in March 2018.~~

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~As of~~ ~~September 30, 2019~~,The following shows amounts ~~were~~ available for borrowing under our revolving credit facility as ~~follows:~~of June 30, 2020. In July 2020, we repaid $100,000 of the amount drawn on the facility. This amount remains available to us for borrowing.


(in thousands)	Total available			Total available
Revolving credit facility commitment	$	1,150,000		$	1,150,000
Amount drawn on revolving credit facility	(924,000		)	(1,140,000		)
Outstanding letters of credit⁽¹⁾	(5,733		)	(5,428		)
Net available for borrowing as of September 30, 2019	$	220,267
Net available for borrowing as of June 30, 2020				$	4,572

⁽¹⁾We use standby letters of credit to collateralize certain obligations related primarily 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.

We have entered into operating leases for the majority of our facilities. These real estate leases have remaining terms of up to 10.0 years, with a weighted-average remaining term of 5.5 years as of September 30, 2019. We utilize leases for these facilities to limit our exposure to risks related to ownership, such as fluctuations in real estate prices, and to maintain flexibility in our real estate utilization. We have also entered into operating leases for certain equipment, primarily production printers and data center equipment. Certain of our leases include options to extend the lease term. The impact of renewal periods was not significant to the amounts recorded for operating lease assets and liabilities.

We have entered into finance leases for certain information technology hardware. The net book value of the related lease assets was $1,164 as of September 30, 2019 and the related lease liabilities were $1,545. The lease obligations are due through December 2022 and do not have a significant impact on our consolidated statements of comprehensive (loss) income or our consolidated statements of cash flows.

Operating lease expense was $6,363 for the quarter ended September 30, 2019 and $15,145 for the nine months ended September 30, 2019. Additional information regarding our operating leases was as follows:

(in thousands) Nine Months Ended September 30, 2019
Operating cash outflows $ 12,329
Lease assets obtained during the period in exchange for lease obligations 5,501

September 30, 2019
Operating lease assets $ 41,739

Accrued liabilities 12,840
Operating lease liabilities 32,434
Total operating lease liabilities $ 45,274
Weighted-average remaining lease term (in years) 5.2
Weighted-average discount rate 3.6 %

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~Maturities of operating lease liabilities were as follows:~~

(in thousands) Operating leases
Remainder of 2019 $ 3,332
2020 14,626
2021 10,954
2022 7,593
2023 3,731
Thereafter 11,334
Total lease payments 51,570
Less imputed interest (6,296 )
Present value of lease payments $ 45,274

~~Note 15: Other commitments and contingencies~~

NOTE 12: 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 significant as of June 30, 2020 or December 31, 2019.

~~Environmental matters~~ Self-insurance– We are currently involved in environmental compliance, investigation and remediation activities at some of our former sites, primarily printing facilities of our Financial Services and Small Business Services segments that have been sold. Remediation costs are accrued on an undiscounted basis when the obligations are either known or considered probable and can be reasonably estimated. Remediation or testing costs that result directly from the sale of an asset and that we would not have otherwise incurred are considered direct costs of the sale of the asset. As such, they are included in our measurement of the carrying value of the asset sold.

~~Accruals for environmental matters were~~ ~~$2,272~~ ~~as of~~ ~~September 30, 2019~~ ~~and~~ ~~$2,755~~ ~~as of~~ ~~December 31, 2018~~. These accruals are included in accrued liabilities and other non-current liabilities on the consolidated balance sheets. Accrued costs consist of direct costs of the remediation activities, primarily fees that will be paid to outside engineering and consulting firms. Although recorded accruals include our best estimates, our total costs cannot be predicted with certainty due to various factors, such as the extent of corrective action that may be required, evolving environmental laws and regulations and advances in environmental technology. Where the available information is sufficient to estimate the amount of the liability, that estimate is used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range is recorded. We do not believe that the range of possible outcomes could have a material effect on our financial condition, results of operations or liquidity. Environmental expense was not significant for the quarters or nine months ended September 30, 2019 and 2018.

~~We maintain an insurance policy that covers up to~~ ~~$10,000~~ of third-party pollution claims through 2032 at certain owned, leased and divested sites. We also maintain a policy that covers up to $15,000 of third-party pollution claims through April 2022 at certain other sites. These policies cover liability for claims of bodily injury or property damage arising from pollution events at the covered facilities, as well as remediation coverage should we be required by a governing authority to perform remediation activities at the covered sites. NaN accruals have been recorded in our consolidated financial statements for any of the events contemplated in these insurance policies. We do not anticipate significant net cash outlays for environmental matters during 2019.

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~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 ~~$7,596~~$8,044 as of ~~September~~June 30, ~~2019~~2020 and ~~$6,627~~$7,576 as of December 31, ~~2018.~~2019. 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 significant as of ~~September~~June 30, ~~2019~~2020 or December 31, ~~2018.~~2019.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

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 ~~quarters or nine months ended September 30, 2019 and 2018,~~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 16: Shareholders’ equity~~

Note 13: 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. NaN shares were repurchased during the second quarter of 2020. During the ~~nine months ended September 30, 2019,~~first quarter of 2020, we repurchased ~~2.6 million~~499 thousand shares for ~~$118,547.~~$14,000. As of ~~September~~June 30, ~~2019, $301,452~~2020, $287,452 remained available for repurchase under the authorization.

~~Note 17: Business segment information~~

NOTE 14: BUSINESS SEGMENT INFORMATION

~~As of September 30, 2019,~~For many years, we operated 3 reportable business segments: Small Business Services, Financial Services and Direct Checks. ~~Our business~~These segments ~~are~~were generally organized by customer type ~~of customer served~~ and ~~reflect~~reflected the way we ~~currently manage~~managed the company. ~~Small Business Services promotes~~Effective January 1, 2020, we reorganized our reportable business segments to align with structural and ~~sells products and services to small businesses via direct response mail and internet advertising; referrals from financial institutions, telecommunications clients and others; networks~~management reporting changes in support of Safeguard distributors and independent dealers; a direct sales force that focuses on selling to and through enterprise accounts; and an outbound telemarketing group. Financial Services' products and services are sold primarily through a direct sales force that executesour growth strategy. We now operate 4 reportable segments, genrally organized by product and service supply contracts with our financial institution clients, including banks, credit unions and financial services companies. Direct Checks sells products and services directly to consumers using direct marketing, including print advertising and search engine marketing and optimization strategies. All 3 segments operate primarily in the United States. Small Business Services also has operations in Canada, Australia and portions of Europe, and Financial Services has operations in Canada.type, as follows:


•	Payments – This segment includes our treasury management solutions, including remittance and lockbox processing, remote deposit capture, receivables management, payment processing and paperless treasury management, in addition to payroll and disbursement services, including Deluxe Payment Exchange and fraud and security services.

~~Our product and service offerings are comprised of the following:~~


•	Cloud Solutions – This segment includes web hosting and design services, data-driven marketing solutions and hosted solutions, including digital engagement, logo design, financial institution profitability reporting, account switching tools and business incorporation services.


•	Promotional Solutions – This segment includes business forms, accessories, advertising specialties, promotional apparel, retail packaging and strategic sourcing services.

~~Marketing solutions and other services (MOS)~~• ~~– We offer products and services designed to meet our customers' sales and marketing needs, as well as various other service offerings. Our MOS offerings generally consist of the following:~~

Small business marketing solutions – Our marketing products utilize digital printing and web-to-print solutions to provide printed marketing materials and promotional solutions, such as postcards, brochures, retail packaging supplies, apparel, greeting cards and business cards.

Treasury management solutions – These Financial Services solutions include remote deposit capture, receivables management, payment processing, and paperless treasury management, as well as software, hardware and digital imaging solutions.

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

Web services – These service offerings include hosting and domain name services, logo and web design, search engine marketing and optimization, email marketing, payroll services and business incorporation and organization services.

Data-driven marketing solutions – These Financial Services offerings include outsourced marketing campaign targeting and execution and marketing analytics solutions that help our customers grow revenue through strategic targeting, lead optimization, retention and cross-selling services.

Fraud, security, risk management and operational services – These service offerings include fraud protection and security services, electronic checks and deposits ("ePayments") and digital engagement solutions, including loyalty and rewards programs and finacial management tools.

Checks – ~~We remain one of the largest providers of~~This segment includes printed personal and business ~~checks in the United States.~~

~~Forms, accessories and other products~~ – Our Small Business Services segment provides printed forms to small businesses, including deposit tickets, billing forms, work orders, job proposals, purchase orders, invoices and personnel forms, as well as computer forms compatible with accounting software packages commonly used by small businesses. Small Business Services also offers other customized products, including envelopes, office supplies, ink stamps and labels. Our Financial Services and Direct Checks segments offer deposit tickets, check registers, checkbook covers, labels and ink stamps.

~~The following tables present revenue disaggregated by our product and service offerings:~~

Quarter Ended September 30, 2019
(in thousands) Small Business Services Financial Services Direct Checks Consolidated
Marketing solutions and other services:
Small business marketing solutions $ 68,258
$ —
$ —
$ 68,258
Treasury management solutions —
45,836
—
45,836
Web services 40,906
—
—
40,906
Data-driven marketing solutions —
39,889
—
39,889
Fraud, security, risk management and operational services 6,171
12,749
3,144
22,064
Total MOS 115,335
98,474
3,144
216,953
Checks 115,392
53,111
24,330
192,833
Forms, accessories and other products 79,484
3,014
1,309
83,807
Total revenue $ 310,211
$ 154,599
$ 28,783
$ 493,593

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

Nine Months Ended September 30, 2019
(in thousands) Small Business Services Financial Services Direct Checks Consolidated
Marketing solutions and other services:
Small business marketing solutions $ 203,192
$ —
—
$ 203,192
Treasury management solutions —
136,782
—
136,782
Web services 125,856
—
—
125,856
Data-driven marketing solutions —
115,469
—
115,469
Fraud, security, risk management and operational services 18,339
37,278
9,899
65,516
Total MOS 347,387
289,529
9,899
646,815
Checks 349,116
165,778
75,587
590,481
Forms, accessories and other products 235,268
9,779
4,302
249,349
Total revenue $ 931,771
$ 465,086
$ 89,788
$ 1,486,645

Quarter Ended September 30, 2018
(in thousands) Small Business Services Financial Services Direct Checks Consolidated
Marketing solutions and other services:
Small business marketing solutions $ 69,490
$ —
$ —
$ 69,490
Treasury management solutions —
35,833
—
35,833
Web services 41,973
—
—
41,973
Data-driven marketing solutions —
39,808
—
39,808
Fraud, security, risk management and operational services 6,383
12,953
3,460
22,796
Total MOS 117,846
88,594
3,460
209,900
Checks 117,918
54,800
25,874
198,592
Forms, accessories and other products 79,835
3,377
1,486
84,698
Total revenue $ 315,599
$ 146,771
$ 30,820
$ 493,190

Nine Months Ended September 30, 2018
(in thousands) Small Business Services Financial Services Direct Checks Consolidated
Marketing solutions and other services:
Small business marketing solutions $ 205,694
$ —
$ —
$ 205,694
Treasury management solutions —
93,591
—
93,591
Web services 120,199
—
—
120,199
Data-driven marketing solutions —
114,275
—
114,275
Fraud, security, risk management and operational services 19,487
37,856
10,761
68,104
Total MOS 345,380
245,722
10,761
601,863
Checks 360,637
170,442
81,425
612,504
Forms, accessories and other products 243,638
10,563
4,781
258,982
Total revenue $ 949,655
$ 426,727
$ 96,967
$ 1,473,349

~~DELUXE CORPORATION~~

~~CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share amounts)~~

~~The following tables present our revenue disaggregated by geography, based on where items are shipped or services are performed.~~

(in thousands) Small Business Services Financial Services Direct Checks Total
Quarter Ended September 30, 2019:
United States $ 286,025
$ 149,575
$ 28,783
$ 464,383
Foreign, primarily Canada and Australia 24,186
5,024
—
29,210
Total revenue $ 310,211
$ 154,599
$ 28,783
$ 493,593
Nine Months Ended September 30, 2019:
United States $ 857,759
$ 451,126
$ 89,788
$ 1,398,673
Foreign, primarily Canada and Australia 74,012
13,960
—
87,972
Total revenue $ 931,771
$ 465,086
$ 89,788
$ 1,486,645

(in thousands) Small Business Services Financial Services Direct Checks Total
Quarter Ended September 30, 2018:
United States $ 290,752
$ 141,979
$ 30,820
$ 463,551
Foreign, primarily Canada and Australia 24,847
4,792
—
29,639
Total revenue $ 315,599
$ 146,771
$ 30,820
$ 493,190
Nine Months Ended September 30, 2018:
United States $ 871,574
$ 411,185
$ 96,967
$ 1,379,726
Foreign, primarily Canada and Australia 78,081
15,542
—
93,623
Total revenue $ 949,655
$ 426,727
$ 96,967
$ 1,473,349

checks.

The accounting policies of the segments are the same as those described in the Notes to Consolidated Financial Statements included in the ~~2018~~2019 Form 10-K. We allocate corporate costs for our shared services functions to our business segments ~~including~~when the costs ~~of our executive management,~~are directly attributable to a segment. This includes certain sales and marketing, human resources, supply chain, real estate, finance, information technology and legal ~~functions. Where costs incurred~~costs. Costs that are ~~directly attributable to a business segment, those costs are charged directly to that segment. Those costs~~ not directly attributable to a business segment ~~primarily certain human resources costs,~~ are ~~allocated to the segments based on the number of employees in each segment.~~reported as Corporate ~~assets are not allocated to the segments~~operations and ~~consisted~~consist primarily of ~~long-term investments and assets related to our corporate shared services functions of manufacturing,~~marketing, accounting, information technology, facilities, executive management and ~~real estate, including property, plant~~legal, tax and ~~equipment; internal-use software; operating lease assets;~~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. In addition, Cloud Solutions has operations in Australia and ~~inventories~~portions of Europe, as well as partners in Central and ~~supplies.~~South America.

~~We are~~Under the new segment structure, our chief operating decision maker (i.e., our Chief Executive Officer) reviews earnings before interest, taxes, depreciation and amortization (EBITDA) on an ~~integrated enterprise, characterized by substantial intersegment cooperation, cost allocations~~adjusted basis for each segment when deciding how to allocate resources and ~~sharing of assets. Therefore, we do not represent that these segments, if operated independently, would report the~~to assess segment operating ~~(loss)~~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, integration and other ~~financial~~costs; CEO transition costs; share-based compensation expense; acquisition transaction costs; certain legal-related expense; and gains or losses on sales of businesses and customer lists. Our Chief Executive Officer does not review segment asset information ~~shown.~~when making investment or operating decisions regarding our reportable business segments.

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

The following is our segment information ~~as of and~~ for the quarters and six months ended ~~September~~June 30, 2020 and 2019. The segment information for 2019 has been revised to reflect our current segment structure.



	Quarter Ended June 30,				Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Payments:
Revenue	$	72,171	$	64,104	$	149,211	$	129,254
Adjusted EBITDA	15,583		17,972		33,606		34,838
Cloud Solutions:
Revenue	53,897		78,914		129,842		157,202
Adjusted EBITDA	14,159		19,086		29,069		36,146
Promotional Solutions:
Revenue	117,946		155,545		260,739		311,374
Adjusted EBITDA	13,854		22,288		25,051		45,878
Checks:
Revenue	166,391		195,423		357,036		395,221
Adjusted EBITDA	82,724		99,871		173,438		202,105
Total segment:
Revenue	$	410,405	$	493,986	$	896,828	$	993,051
Adjusted EBITDA	126,320		159,217		261,164		318,967

The following table presents a reconciliation of total segment adjusted EBITDA to consolidated income (loss) before income taxes:



	Quarter Ended June 30,						Six Months Ended June 30,
(in thousands)	2020			2019			2020			2019
Total segment adjusted EBITDA	$	126,320		$	159,217		$	261,164		$	318,967
Corporate operations	(42,502		)	(41,732		)	(94,011		)	(87,774		)
Depreciation and amortization	(26,663		)	(32,517		)	(55,093		)	(64,936		)
Interest expense	(6,171		)	(9,239		)	(13,171		)	(18,540		)
Pre-tax income attributable to non-controlling interest	26			—			26			—
Asset impairment charges	(4,883		)	—			(95,213		)	—
Restructuring, integration and other costs	(20,490		)	(17,693		)	(40,123		)	(23,976		)
CEO transition costs⁽¹⁾	(190		)	(1,906		)	(10		)	(7,394		)
Share-based compensation expense	(5,477		)	(5,369		)	(9,095		)	(8,660		)
Acquisition transaction costs	—			(3		)	(9		)	(180		)
Certain legal-related expenses	—			(6,005		)	2,164			(6,417		)
Loss on sales of customer lists	(18		)	—			(18		)	(99		)
Income (loss) before income taxes	$	19,952		$	44,753		$	(43,389	)	$	100,991

⁽¹⁾ ~~and~~ ~~2018~~:In 2019, includes adjustments to share-based compensation expense related to the modification of certain awards in conjunction with our CEO transition.

Reportable Business Segments
(in thousands) Small Business Services Financial Services Direct Checks Corporate Consolidated
Total revenue from external customers: 2019 $ 310,211
$ 154,599
$ 28,783
$ —
$ 493,593
2018 315,599
146,771
30,820
—
493,190
Operating (loss) income: 2019 (243,193 ) (105,691 ) 8,201
—
(340,683 )
2018 (45,254 ) 17,612
10,360
—
(17,282 )
Depreciation and amortization expense: 2019 14,497
15,220
777
—
30,494
2018 17,173
15,424
809
—
33,406
Asset impairment charges: 2019 273,583
117,397
�� —
—
390,980
2018 97,288
1,882
—
—
99,170
Total assets: 2019 809,058
560,405
155,487
364,013
1,888,963
2018 1,056,086
753,240
157,806
300,235
2,267,367
Capital asset purchases: 2019 —
—
—
17,335
17,335
2018 —
—
—
14,526
14,526

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

The following tables present revenue disaggregated by our product and service offerings. In conjunction with the realignment of our reportable segments on January 1, 2020, we refined the disaggregation of our revenue by product and service offering. As such, certain amounts reported in the prior year have been revised from previously reported amounts.

The following is our segment information as of and for the nine months ended September 30, 2019 and 2018:

Reportable Business Segments
(in thousands) Small Business Services Financial Services Direct Checks Corporate Consolidated
Total revenue from external customers: 2019 $ 931,771
$ 465,086
$ 89,788
$ —
$ 1,486,645

2018 949,655
426,727
96,967
—
1,473,349
Operating (loss) income: 2019 (163,805 ) (86,134 ) 24,853
—
(225,086 )
2018 72,288
49,565
31,396
—
153,249
Depreciation and amortization expense: 2019 47,730
45,231
2,469
—
95,430

2018 48,765
45,740
2,418
—
96,923
Asset impairment charges: 2019 273,583
117,397
—
—
390,980
2018 99,437
1,882
—
—
101,319
Total assets: 2019 809,058
560,405
155,487
364,013
1,888,963
2018 1,056,086
753,240
157,806
300,235
2,267,367
Capital asset purchases: 2019 —
—
—
49,679
49,679
2018 —
—
—
42,566
42,566



	Quarter Ended June 30, 2020
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	166,391	$	166,391
Forms and other products	—		—		75,431		—		75,431
Marketing and promotional solutions	—		—		42,515		—		42,515
Treasury management solutions	54,793		—		—		—		54,793
Data-driven marketing solutions	—		19,422		—		—		19,422
Web and hosted solutions	—		34,475		—		—		34,475
Other payments solutions	17,378		—		—		—		17,378
Total revenue	$	72,171	$	53,897	$	117,946	$	166,391	$	410,405



	Quarter Ended June 30, 2019
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	195,423	$	195,423
Forms and other products	—		—		84,663		—		84,663
Marketing and promotional solutions	—		—		70,882		—		70,882
Treasury management solutions	45,475		—		—		—		45,475
Data-driven marketing solutions	—		38,796		—		—		38,796
Web and hosted solutions	—		40,118		—		—		40,118
Other payments solutions	18,629		—		—		—		18,629
Total revenue	$	64,104	$	78,914	$	155,545	$	195,423	$	493,986



	Six Months Ended June 30, 2020
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	357,036	$	357,036
Forms and other products	—		—		157,243		—		157,243
Marketing and promotional solutions	—		—		103,496		—		103,496
Treasury management solutions	111,660		—		—		—		111,660
Data-driven marketing solutions	—		58,419		—		—		58,419
Web and hosted solutions	—		71,423		—		—		71,423
Other payments solutions	37,551		—		—		—		37,551
Total revenue	$	149,211	$	129,842	$	260,739	$	357,036	$	896,828

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)



	Six Months Ended June 30, 2019
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	395,221	$	395,221
Forms and other products	—		—		171,369		—		171,369
Marketing and promotional solutions	—		—		140,005		—		140,005
Treasury management solutions	90,946		—		—		—		90,946
Data-driven marketing solutions	—		75,580		—		—		75,580
Web and hosted solutions	—		81,622		—		—		81,622
Other payments solutions	38,308		—		—		—		38,308
Total revenue	$	129,254	$	157,202	$	311,374	$	395,221	$	993,051

The following tables present revenue disaggregated by geography, based on where items are shipped from or where services are performed:



	Quarter Ended June 30, 2020
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	64,230	$	46,091	$	113,757	$	161,801	$	385,879
Foreign, primarily Canada and Australia	7,941		7,806		4,189		4,590		24,526
Total revenue	$	72,171	$	53,897	$	117,946	$	166,391	$	410,405



	Quarter Ended June 30, 2019
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	56,098	$	70,178	$	148,290	$	189,818	$	464,384
Foreign, primarily Canada and Australia	8,006		8,736		7,255		5,605		29,602
Total revenue	$	64,104	$	78,914	$	155,545	$	195,423	$	493,986



	Six Months Ended June 30, 2020
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	132,588	$	114,161	$	250,570	$	346,096	$	843,415
Foreign, primarily Canada and Australia	16,623		15,681		10,169		10,940		53,413
Total revenue	$	149,211	$	129,842	$	260,739	$	357,036	$	896,828



	Six Months Ended June 30, 2019
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	113,042	$	139,629	$	297,713	$	383,905	$	934,289
Foreign, primarily Canada and Australia	16,212		17,573		13,661		11,316		58,762
Total revenue	$	129,254	$	157,202	$	311,374	$	395,221	$	993,051

DELUXE CORPORATION

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

NOTE 15: RISKS AND UNCERTAINTIES

The impact on our business of the COVID-19 outbreak continues to evolve. As such, we are uncertain of the impact on our future financial condition, liquidity and results of operations. This uncertainty affected several of the assumptions made and estimates used in the preparation of these consolidated financial statements. As discussed in Note 7, the COVID-19 outbreak resulted in a goodwill impairment triggering event during the first quarter of 2020, as the adverse economic effects of the outbreak materially decreased demand for the products and services we provide to our customers, particularly through our Promotional Solutions and Cloud Solutions segments. The extent to which the outbreak will continue to impact our business depends on future developments, including the severity and duration of the outbreak, business and workforce disruptions and the ultimate number of businesses that fail. Our evaluation of asset impairment required us to make assumptions about these future events over the life of the assets being evaluated. This required significant judgment and actual results may differ significantly from our estimates. As a result of the continuing effects of COVID-19, we may be required to record additional goodwill or other asset impairment charges in the future.

We held loans and notes receivable from our Safeguard distributors of $59,134 as of June 30, 2020. These distributors sell their products and services primarily to small businesses, which have been significantly impacted by the COVID-19 outbreak. As of June 30, 2020, our allowance for expected credit losses on these receivables was $11,656, although the majority of this amount was not driven by impacts of the pandemic. We utilized all available information in determining this allowance, as well as allowances related to our trade accounts receivable and unbilled receivables. If our assumptions prove to be incorrect, we may be required to record additional bad debt expense in the future. Additionally, uncertainty surrounding the impact of the COVID-19 outbreak could affect estimates we made regarding inventory obsolescence and workers' compensation liabilities and thus, could result in additional expense in the future.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

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

~~The following Management’s~~Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the consolidated unaudited financial statements and related notes included in Part I, Item 1 of this Form 10-Q. 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 discussed herein. Interim results are not necessarily indicative of results for a full year.

~~Our 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 year;~~

~~Consolidated Results of Operations; Restructuring, Integration and Other Costs; CEO Transition Costs and Segment Results that include a more detailed discussion of our revenue and expenses;~~

~~Cash Flows and Liquidity, Capital Resources and Other Financial Position Information that discusses key aspects of our cash flows, capital structure and financial position;~~

~~Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations that discusses our financial commitments; and~~

~~Critical Accounting Policies that discusses the policies we believe are important to understanding the assumptions and judgments underlying our financial statements.~~


•	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, Integration and Other Costs; and Segment Results that includes a more detailed discussion of our revenue and expenses;


•	Cash Flows and Liquidity, Capital Resources and Other Financial Position Information that discusses key aspects of our cash flows, capital structure and financial position;


•	Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations that discusses our financial commitments; and


•	Critical Accounting Policies that discusses the policies we believe are most important to understanding the assumptions and judgments underlying our financial statements.

Please note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~"2018~~2019 Form ~~10-K")~~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. Updates to the risk factors discussed in the ~~2018~~2019 Form 10-K are included in Part II, Item 1A of this report on Form 10-Q. The Private Securities Litigation Reform Act of 1995 (the ~~"Reform Act")~~Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. ~~We make the following cautionary statement in connection with the Reform Act.~~ 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 ~~United States of America~~U.S. (GAAP). In addition, we discuss free cash flow, adjusted diluted earnings per share (EPS) and consolidated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which ~~is a~~are non-GAAP financial ~~measure.~~measures. We believe that ~~this~~these non-GAAP financial ~~measure,~~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 period operating performance. For this reason, our internal management reporting also includes ~~adjusted diluted EPS,~~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 ~~measure of adjusted diluted EPS~~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 ~~detailed~~ reconciliation of ~~diluted EPS~~our non-GAAP financial measures to ~~adjusted diluted EPS~~the most directly comparable GAAP financial measures can be found in Consolidated Results of ~~Operations.~~Operations.

Our unaudited consolidated statement of cash flows for the nine months ended September 30, 2018 has been revised to correct a misstatement associated with the presentation of restricted cash and restricted cash equivalents included in funds held for customers on our consolidated balance sheet. Further information regarding this misstatement can be found under the caption "Note 1: Consolidated financial statements" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

EXECUTIVE OVERVIEW

~~EXECUTIVE OVERVIEW~~

~~As of September 30, 2019,~~Realignment – For many years, we operated 3 reportable business segments: Small Business Services, Financial Services and Direct Checks. ~~Our~~These segments were generally organized by customer type and reflected the way we managed the company. Effective January 1, 2020, we reorganized our reportable business segments to align with structural and management reporting changes in support of our growth strategy. We now operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments are generally organized by product type ~~of customer served~~ and reflect the way we currently manage the company. Further information regarding our segments and our product and service offerings can be found under the caption "Note ~~17:~~14: Business ~~segment information"~~Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

~~Net~~COVID-19 impacton 2020 results – The COVID-19 pandemic began to impact our operations late in the first quarter of 2020. During the second quarter of 2020, total revenue declined 16.9%, as compared to the second quarter of 2019. While revenue benefited from sales-driven growth during the quarter, it was not sufficient to overcome the impact of COVID-19. The pandemic primarily impacted revenue volumes in our Promotional Solutions, Checks and Cloud Solutions segments. Within Promotional Solutions, many of our business customers have been significantly impacted by the response to the outbreak. Demand for promotional products declined sharply, as our customers stopped virtually all promotional activities when they were forced to close or limit their operations, and as travel declined and events were canceled. In Checks, we saw a decline in business check usage in line with the slow down in the economy resulting from government-mandated shutdowns. Personal check volumes also slowed, but at a lesser rate. The impact in Cloud Solutions was primarily related to a decline in data-driven marketing solutions, as clients suspended their marketing campaigns. Partially offsetting the volume declines was new revenue of $26.0 million during the second quarter of 2020 from sales of personal protective equipment (PPE) in our Promotional Solutions segment.

Our results for the second quarter of 2020 were better than we anticipated. The impact of COVID-19 on our revenue was most severe in April and began to improve through the remainder of the second quarter. Adjusted EBITDA margin for the second quarter of 2020 was 20.4%, consistent with the low-end of our annual expectations prior to the pandemic, and 330 basis points higher than the first quarter of 2020. As for our liquidity, we drew an additional $238.0 million on our $1.15 billion revolving credit facility in March 2020, we suspended share repurchases for the second quarter of 2020, and we plan to repurchase less stock in 2020 than in previous years. We also took steps to reduce discretionary spending and other expenditures in line with revenue declines. These steps included temporary salary reductions for all salaried employees, including our leadership team and board of directors, project delays, furloughs, and other actions. We also delayed U.S. federal income and payroll tax payments under the Coronavirus Aid, Relief and Economic Security (CARES) Act. As a result of these actions and our stronger than expected second quarter performance, free cash flow for the first half of 2020 was $82.6 million, compared to $72.8 million for the first half of 2019, and cash on hand grew $61.8 million from March 31, 2020. This allowed us to end the temporary salary reduction, effective July 1, 2020, and to repay $100.0 million of the amount drawn on our revolving credit facility during July 2020. Our financial priority is to maintain our financial strength, while simultaneously continuing our business transformation. While we reduced certain expenditures during the first half of 2020, we have made the decision to selectively resume certain capital projects and to continue important systems implementation work, including our enterprise resource planning and sales technology implementations. Also, in July 2020, our board of directors approved our regular quarterly dividend of $0.30 per share, payable in September 2020.

We continue to monitor the impact of COVID-19 on all aspects of our business, including our operations, suppliers, customers, industry and workforce. We are keeping 2 primary goals in mind: protecting employees, customers and their respective families and continuing to serve the customers who rely on us. The situation surrounding COVID-19 remains fluid, and the potential for additional negative impacts on our results of operations, financial condition and liquidity increases the longer the virus impacts activity levels in the U.S. and the other countries in which we operate. During the first quarter of 2020, we successfully activated our business continuity plan to ensure uninterrupted operations and services. We have not experienced any significant interruptions in our supply chain to-date, and we currently do not expect significant future interruptions. Many of our facilities remain open and employees who have the ability to work from home continue to do so. During the second quarter, we continued to evaluate opportunities to consolidate our real estate footprint. Based on the success of our work-from-home model, we accelerated the closure of 20 of our facilities, some of which were closed during the second quarter of 2020, with most of the remainder expected to be closed by the end of the year.

2020 results vs. 2019 – Numerous factors drove the change in net loss for the first ~~nine months~~half of ~~2019 of $244.7 million,~~2020, as compared to ~~net income of $92.5 million for~~ the first ~~nine months~~half of ~~2018, reflected an increase in~~ 2019. Factors that increased net loss included:

•asset impairment charges of ~~$289.7~~$95.2 million ~~(as described below), an~~in the first half of 2020;

•the loss of revenue resulting from the impact of the COVID-19 outbreak;

various investments of approximately $25.0 million to advance our One Deluxe strategy, including costs related to onboarding new treasury management clients announced in the fourth quarter of 2019 and various information technology and sales investments;

a $16.1 million increase in restructuring, integration and ~~integration expense of $37.7 million~~other costs in support of our ~~growth strategies~~strategy and to increase our ~~efficiency, as well as continued volume reductions~~efficiency;

mix changes resulting from the continuing secular decline in ~~personal and business~~ checks and forms due primarily to the secular decline in check and forms usage. Additionally, medical costs increased approximately $11.0 million, interest expense increased $8.3 million, organic web services and treasury management revenue declined, and the ~~Small Business Services commission rate increased. Stock-based compensation increased $5.6 million, driven by an increase~~loss of web hosting revenue in the ~~level~~third quarter of ~~equity awards~~2019;

bad debt expense of $6.6 million related to notes receivable from our Safeguard distributors;

incremental costs of approximately $6.0 million resulting from our response to COVID-19, including a Hero Pay premium provided to employees working on-site during the second quarter of 2020, costs related to enabling employees to work from home and additional facility cleaning costs; and

the change in ~~2019, Chief Executive Officer (CEO) transition costs increased $4.4 million, and check pricing allowances within Financial Services continued. We also recognized gains from sales~~our effective income tax rate, including the non-deductible portion of ~~businesses and customer lists within Small Business Services of $12.9 million in the first nine months of 2018. These~~goodwill impairment charges.

Partially offsetting these increases in net loss were ~~partially offset by a benefit of approximately $35.0 million from continuing initiatives~~the following factors:

actions taken to reduce costs in line with reduced revenues and the continuing evaluation of our cost structure, ~~primarily within our~~including savings of approximately $15.0 million from the temporary salary reduction, suspension of the 401(k) plan employer matching contribution and furloughs;

a decrease in acquisition amortization of $9.4 million, driven in part by asset impairment charges;

a decrease in legal-related costs of $8.6 million;

non-recurring CEO transition costs of $7.4 million in 2019; and

revenue growth, including increased treasury management revenue, increases in certain data-driven marketing campaigns in the first quarter of 2020 prior to the COVID-19 outbreak, and new revenue from sales ~~marketing and fulfillment organizations,~~of PPE during the ~~benefit~~second quarter of ~~Small Business Services price increases and incremental earnings from businesses acquired in 2018.~~2020.

Diluted loss per share of $1.10 for the first ~~nine months~~half of ~~2019 of $5.65,~~2020, as compared to diluted EPS of ~~$1.93~~$1.68 for the first ~~nine months~~half of ~~2018,~~2019, reflects the ~~decrease~~increase in net ~~income~~loss as described in the preceding ~~paragraph,~~paragraphs, partially offset by lower average shares outstanding in ~~2019.~~

2020. Adjusted diluted EPS for the first ~~nine months~~half of ~~2019~~2020 was ~~$4.88,~~$2.24, compared to ~~$5.01~~$3.18 for the first ~~nine months~~half of ~~2018,~~2019, and excludes the impact of non-cash items or items that we believe are not indicative of ongoing operations. A reconciliation of diluted earnings (loss) ~~earnings~~ per share to adjusted diluted EPS can be found in Consolidated Results of Operations.

Asset impairment charges – Net loss for the first ~~nine months~~half of ~~2019~~2020 was driven primarily by the impact of ~~pretax~~pre-tax asset impairment charges ~~in the third quarter~~ of ~~2019 of $391.0~~$95.2 million, or ~~$7.92~~$1.42 per share. The impairment charges related primarily to the goodwill of our ~~Small Business Services~~Promotional Solutions and Cloud Solutions Web ~~Services and Financial Services Data-Driven Marketing~~Hosting reporting units, as well as amortizable ~~intangible assets, primarily in~~intangibles of our ~~Small Business Services~~Cloud Solutions Web ~~Services~~Hosting reporting unit. Further information regarding these impairment charges can be found in ~~Critical Accounting Policies. This compares to asset impairment charges of $101.3 million, or $1.95 per share, in the first nine months of 2018. Further information regarding the 2018 asset impairment charges can be found in~~ ~~Critical Accounting Policies~~ ~~in the MD&A section of the 2018 Form 10-K.~~

~~"New Deluxe" Strategy~~

Throughout the past several years, as the use of checks and forms has continued to decline, we have focused on opportunities to increase revenue and operating income and to diversify our revenue streams and customer base. These opportunities have included new product and service offerings, brand awareness and positioning initiatives, investing in technology for our service offerings, enhancing our information technology capabilities and infrastructure, improving customer segmentation, extending the reach of our sales channels, and reducing costs. In addition, we invested in various acquisitions that extended the range of products and services we offer to our customers. Information about our acquisitions can be found under the caption "Note ~~6: Acquisitions" in~~7: Fair Value Measurements" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in ~~the 2018 Form 10-K.~~Item 1 of this report.

~~We have moved beyond diversification as part~~"One Deluxe" Strategy

A detailed discussion of our ~~transformation into a Trusted, Tech-Enabled Solutions Company~~^TM~~. Our growth~~ strategy ~~focuses on organic growth, supplemented by acquisitions, rather than being dependent on acquisitions for growth. The shift~~can be found in our strategic focus requires us to fundamentally change our go-to-market strategy, operating model and organizational design. We expect that fully integrating past acquisitions and consolidating and standardizing our technology platforms will enable us to operate as one Deluxe, selling allPart I, Item 1 of the 2019 Form 10-K. In support of our ~~products and services to any customer. We plan to invest between $40.0 million and $45.0 million in 2019 and between $30.0 million and $60.0 million in 2020~~strategy, we are investing significant resources to build out our technology ~~platforms, including~~platforms. This includes sales technology that ~~will enable~~enables a single view of our ~~customer,~~customers, thereby providing for deeper cross-sell opportunities. We implemented a human capital management system in January 2020, and we are also investing in our ~~human capital management~~financial tools, including an enterprise resource planning system and a financial ~~management~~planning and ~~planning systems to enable integration and replacement of duplicative and aging collaboration tools and platforms.~~analysis system. Strategically, we believe these enhancements will allow us to better assess and manage our business at the total company level and will make it easier for us to quickly integrate any future acquisitions. ~~These investments will consist of capital and expense items, which~~While we reduced certain expenditures in the near-term during the COVID-19 outbreak, we plan to ~~fund from structural cost savings and free cash flow. However, we expect that timing differences will impact our ability to self-fund through efficiency savings alone.~~continue investing in these initiatives.

AsEffective January 1, 2020, we ~~move forward, we intend to focus~~began managing the company based on ~~growth businesses with recurring revenue streams, scalable~~our product and service offerings, focusing on our 4 new business models, attractive cost structures, data-rich business models and strong price-to-earnings ratios. We will first focus on accelerating revenue growth organically and then supplement growth with selective, strategic acquisitions. While we will continue to sell to enterprise, small business, financial services and individual customers, our business will not be organized by customer type in the future. Instead, we intend to focus our efforts on 4 primary business areas:segments: Payments, Cloud Solutions, Promotional ~~Products~~Solutions and Checks. We expect to reinvest free cash flow into the 2 areas we view as our primary platforms for growth: Payments and ~~Cloud. Our intent is~~Cloud Solutions. Realignments such as this take time, considerable senior management effort, material "buy-in" from employees and significant investment. We continue to ~~realign~~make progress on our ~~business segments~~transformation and ~~have the capability~~many of our investments are beginning to ~~report our operating results under the new structure, both internally and externally, in early 2020.~~deliver positive results. During the ~~transition period,~~first 2 months of 2020, prior to the COVID-19 outbreak, we ~~plan~~were on track to ~~implement~~deliver consolidated sales-driven revenue growth. Even during the pandemic, treasury management revenue grew over 22% for the first half of 2020, as compared to the first half of 2019. Despite the pandemic, we continue to execute sales contracts and drive successful tele-sales efforts. We were able to quickly enter the

PPE market and generated revenue of approximately $26.0 million in our Promotional Solutions segment during the second quarter of 2020. In Cloud Solutions, we entered into a partnership to provide our small business customers with advisory and tax preparation services, as well as assistance with online applications for government funds through CARES Act programs. While still early in our transformation, we are finding that our new ~~strategy while delivering on~~One Deluxe structure is able to quickly respond to our ~~annual plan~~customers' needs and ~~consistently paying a dividend to shareholders.~~drive profitable revenue growth.

Outlook for ~~2019~~2020

Due to the significant uncertainties surrounding the current business environment, we are not providing detailed financial guidance at this time. We currently anticipate a slight improvement in revenue in the second half of the year, as compared to the second quarter decline of 16.9%, unless there are worsening economic impacts. We anticipate that ~~consolidated~~our Payments segment will generate year-over-year revenue growth, driven by new client wins and some increase in demand for its services as more customers look for digital payment and receivables management solutions during and we expect, after the COVID-19 pandemic. We anticipate modest margin compression for the Payments segment, due to significant onboarding costs for new clients and delays in some customer initiatives until 2021 as a result of the pandemic. In Cloud Solutions, we anticipate continued revenue declines, with modest recovery later in the year as our customers prepare to launch their marketing campaigns in 2021. Our Promotional Solutions segment is experiencing the largest revenue decline of all of our segments. It will continue to be negatively impacted during the economic downturn, the extent of which will depend on the post COVID-19 impact on both small businesses and our enterprise customers, including the number of businesses that close and when our customers resume purchasing promotional products at previous levels. Within our Checks segment, we currently expect that check volume and the associated revenue will partially track with the recovery in the macro economy in the second half of 2020 and ultimately return to traditional secular decline trends in 2021.

In response to the pandemic, we took actions to manage expenses in line with revenue declines, including temporary salary reductions for all salaried employees, including our leadership team and board of directors, project delays, furloughs and other actions. Based on our second quarter results, we ended the temporary salary reduction, effective July 1. Furloughs continue in certain facilities that lack product demand to remain open. In late June, we exited approximately 250 employees as we look to our post-COVID-19 operating model and to match our expected future volumes, along with efficiencies gained. Also during the second quarter of 2020, we announced the closing of 20 facilities, some of which were closed during the second quarter of 2020, with most of the remainder expected to be atclosed by the ~~low~~ end of ~~our previous outlook range~~the year. These facilities contain primarily sales and administrative functions and most of ~~$2.005 billion~~the impacted employees will convert to ~~$2.045 billion for 2019, compared to~~ ~~$1.998 billion~~ ~~for 2018.~~a work-from-home model. We ~~expect that 2019 adjusted diluted EPS will be at the low end~~anticipate annual savings of ~~our previous outlook range of $6.65 to $6.95, compared to $6.88 for 2018.~~approximately $6.0 million from these facility closures, once they are complete.

We held cash and cash equivalents of $372.0 million as of June 30, 2020. In July 2020, we repaid $100.0 million of the amount drawn on our revolving credit facility. This amount remains available to us for borrowing, with $1.04 billion drawn on the facility after this repayment. Our credit facility includes an accordion feature allowing us, subject to lender consent, to expand the facility to $1.425 billion. We anticipate 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 provided by operating activities will be between $270.0 million and $285.0 million in 2019, compared to $339.3 million in 2018, driven primarily by increased restructuring and integration activities in support of our growth strategies and to increase our efficiency, the continuing secular decline in check and forms usage, the

payment of certain legal-related expenses, including $12.5 million accrued in the prior year and paid in the first quarter of 2019, and higher interest payments, partially offset by benefits from our cost savings initiatives and lower income tax payments. We believe that cash generated by ~~operating activities,~~operations, along with the cash and cash equivalents on hand and availability ~~under~~on our ~~revolving~~ credit facility, will be sufficient to support our operations and to meet our financial commitments for the next 12 ~~months, including capital expenditures~~months. We were in compliance with our debt covenants as of ~~approximately $75.0 million, dividend payments, required interest payments,~~June 30, 2020, and periodic share repurchases, as well as possible acquisitions. As of September 30, 2019, $220.3 million was available for borrowing under our revolving credit facility. We expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth, both organically and through acquisitions. Wewe anticipate that we will remain in compliance with our ~~board of directors will maintain our current dividend level. However, dividends are approved by~~debt covenants throughout the board of directors on a quarterly basis, and thus are subject to change. To the extent we generate excess cash, we expect to opportunistically repurchase common shares and/or reduce the amount outstanding under our credit facility.next 12 months.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue

Quarter Ended September 30, Nine Months Ended September 30,
(in thousands, except per order amounts) 2019 2018 Change 2019 2018 Change
Total revenue $ 493,593
$ 493,190
0.1 % $ 1,486,645
$ 1,473,349
0.9 %
Orders⁽¹⁾
11,925
11,595
2.8 % 35,295
35,555
(0.7 %)
Revenue per order $ 41.39
$ 42.53
(2.7 %) $ 42.12
$ 41.44
1.6 %



	Quarter Ended June 30,					Six Months Ended June 30,
(in thousands)	2020		2019		Change	2020		2019		Change
Total revenue	$	410,405	$	493,986	(16.9%)	$	896,828	$	993,051	(9.7%)

⁽¹⁾~~Orders is our company-wide measure of volume and includes both products and services.~~

The ~~slight increase~~decreases in total revenue for the ~~third~~second quarter and first half of ~~2019,~~2020, as compared to the ~~third quarter of 2018, was~~same periods in 2019, were driven primarily by ~~incremental~~volume declines resulting from the impact of the COVID-19 outbreak, primarily in our Promotional Solutions, Checks and Cloud Solutions segments. In addition, revenue ~~of approximately $11.3 million from businesses acquired in 2018, as well as Small Business Services price increases and an increase of approximately $5.0 million related~~continued to ~~1 additional business day in 2019. Information regarding our acquisitions can~~ be ~~found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K. These increases in revenue were partially offset~~impacted by the ~~continuing~~secular decline in order volume for ~~both personal~~checks and ~~business checks, as well as forms and accessories sold by Small Business Services. In addition, Small Business Services~~forms. Cloud Solutions web ~~services volume, excluding incremental~~hosting revenue ~~from a business acquired~~also declined due to our decision in ~~2018, declined approximately $2.0 million. Revenue was also negatively impacted during~~ the third quarter of 2019 ~~by continued check pricing allowances within Financial Services.~~

~~The increase in total revenue for~~to exit certain customer contracts, the ~~first nine months~~loss of 2019, as compared to the first nine months of 2018, was driven primarily by incremental revenue of approximately $62.2 million from businesses acquired in 2018, as well as Small Business Services price increases. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K. These increases in revenue were partially offset by the continuing decline in order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, Small Business Services web services and Financial Services treasury management volume, excluding incremental revenue from businesses acquired in 2018, declined approximately $6.0 million and $4.0 million, respectively. Revenue was also negatively impacted during the first nine months of 2019 by continued check pricing allowances within Financial Services.

~~The number of orders increased~~certain large customers in the third quarter of 2019 as ~~compared~~they elected to in-source some of the ~~third~~services we provide, and previous underinvestment in this business. These decreases in revenue were partially offset by $26.0 million of new revenue from sales of PPE in our Promotional Solutions segment during the second quarter of ~~2018, as~~2020 and an increase in treasury management revenue within our Payments segment of 20.5% for the ~~impact~~second quarter of 2020 and 22.8% for the first half of 2020, related primarily to lockbox processing outsourcing wins in the fourth quarter of 2019. In addition, for the first half of 2020, revenue benefited from new data-driven marketing campaigns and growth in pay-for-performance marketing ~~solutions and other services (MOS) revenue, including the impact of~~campaigns in our ~~2018 acquisitions, exceeded~~Cloud Solutions segment, prior to the impact of the continuing secular decline in check and forms usage. The number of orders decreased for the first nine months of 2019, as compared to the first nine months of 2018, due primarily to the continuing secular decline in check and forms usage, partially offset by growth in MOS, including the impact of our 2018 acquisitions. The decrease in revenue per order for the third quarter of 2019 and the increase in revenue per order for the first nine months of 2019, as compared to the same periods in 2018, were primarily driven by the mix of product and service revenue in each period, as well as the benefit of Small Business Services price increases and the negative impact of continued check pricing allowances in Financial Services.COVID-19 outbreak.

Service revenue represented ~~29.8%~~32.0% of total revenue for the first ~~nine months~~half of ~~2019~~2020 and ~~27.0%~~29.8% for the first ~~nine months~~half of ~~2018. As such, the majority of our revenue is generated by product sales.~~2019. We do not manage our business based on product versus service revenue. Instead, we analyze our ~~revenues~~revenue based on the ~~following categories:~~product and service offerings shown under the caption: "Note 14: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. Our revenue mix by business segment was as follows:

Quarter Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Marketing solutions and other services:
Small business marketing solutions 13.8 % 14.1 % 13.7 % 14.0 %
Treasury management solutions 9.3 % 7.3 % 9.2 % 6.3 %
Web services 8.3 % 8.5 % 8.4 % 8.2 %
Data-driven marketing solutions 8.1 % 8.1 % 7.8 % 7.8 %
Fraud, security, risk management and operational services 4.4 % 4.6 % 4.4 % 4.6 %
Total MOS 43.9 % 42.6 % 43.5 % 40.9 %
Checks 39.1 % 40.3 % 39.7 % 41.5 %
Forms, accessories and other products 17.0 % 17.1 % 16.8 % 17.6 %
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %



	Quarter Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Payments	17.6	%	13.0	%	16.6	%	13.0	%
Cloud Solutions	13.1	%	16.0	%	14.5	%	15.8	%
Promotional Solutions	28.7	%	31.5	%	29.1	%	31.4	%
Checks	40.6	%	39.5	%	39.8	%	39.8	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%

Consolidated Cost of Revenue


	Quarter Ended September 30,								Nine Months Ended September 30,								Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2019			2018			Change		2019			2018			Change		2020			2019			Change	2020			2019			Change
Total cost of revenue	$	203,723		$	197,634		3.1	%	$	605,875		$	576,594		5.1	%	$	162,283		$	202,528		(19.9%)	$	364,332		$	402,151		(9.4%)
Total cost of revenue as a percentage of total revenue	41.3		%	40.1		%	1.2	pts.	40.8		%	39.1		%	1.7	pts.	39.5		%	41.0		%	(1.5) pts.	40.6		%	40.5		%	0.1 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 ~~increases~~decreases in total cost of revenue for the ~~third~~second quarter and first ~~nine months~~half of ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, were primarily attributable to ~~incremental costs~~the decrease in revenue volume resulting from the COVID-19 impact. In addition, cost of ~~businesses acquired~~revenue decreased as a result of the continued secular decline in ~~2018~~checks and forms and changes in client mix in the Cloud Solutions segment. Benefits from cost reductions and efficiencies in our fulfillment area, unrelated to the COVID-19 outbreak, reduced cost of ~~$5.9~~revenue approximately $2.0 million for the ~~third~~second quarter of 2020 and $4.0 million for the first half of 2020, while actions taken to reduce costs in response to COVID-19 reduced cost of revenue approximately $3.0 million in each period. Partially offsetting these decreases in cost of revenue were costs related to the $26.0 million of new revenue from PPE sales in the second quarter of 2020, costs related to new treasury management clients announced in the fourth quarter of 2019 and ~~$31.4 million for the first nine months of 2019, as well as increased shipping and material rates and higher medical~~incremental costs in 2019. In addition, restructuring and integration expense increased $1.5 million for both the third quarter and first nine months of 2019. Partially offsetting these increases in total cost of revenue was the impact of the lower order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, manufacturing efficiencies and other benefits resulting from ~~our continued cost reduction initiatives resulted in a reduction in total cost of revenue~~COVID-19 of approximately ~~$3.0~~$4.0 million ~~for the third quarter of 2019 and $8.0 million for the first nine months of 2019.~~in each period. Total cost of revenue as a percentage of total revenue ~~increased in both periods~~decreased for the second quarter of 2020, as compared to ~~2018,~~the second quarter of 2019, due, in large part, ~~due~~ to the ~~increase~~change in ~~service revenues, including~~revenue mix driven by the loss of lower margin revenue resulting from COVID-19. For the first half of 2020, the positive impact of ~~our 2018 acquisitions, as well as~~ the ~~increased shipping, materials, medical, restructuring and integration costs, partially~~change in mix driven by COVID-19 was offset by ~~Small Business Services price increases.~~costs related to the new treasury management clients.

Consolidated Selling, General & Administrative (SG&A) Expense


	Quarter Ended September 30,								Nine Months Ended September 30,								Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2019			2018			Change		2019			2018			Change		2020			2019			Change	2020			2019			Change
SG&A expense	$	213,318		$	208,533		2.3	%	$	665,787		$	629,272		5.8	%	$	198,570		$	222,292		(10.7%)	$	435,774		$	452,469		(3.7%)
SG&A expense as a percentage of total revenue	43.2		%	42.3		%	0.9	pts.	44.8		%	42.7		%	2.1	pts.	48.4		%	45.0		%	3.4 pts.	48.6		%	45.6		%	3.0 pts.

The ~~increase~~decreases in SG&A expense for the ~~third~~second quarter and first half of ~~2019,~~2020, as compared to the ~~third quarter of 2018, was~~same periods in 2019, were driven by ~~incremental costs~~lower commissions in both periods on the lower order volume resulting from COVID-19, as well as the benefit of $4.9 million from businesses acquired in 2018, including acquisition amortization. In addition, information technology costs related to infrastructure investments increased, we incurred business transformation costs of $2.0approximately $12.0 million in both periods from organizational actions taken in response to COVID-19, including the ~~third quarter~~temporary salary reduction and the suspension of ~~2019, share-based compensation~~the 401(k) plan employer matching contribution. Also lowering SG&A expense ~~increased approximately $2.0 million, driven by an~~

~~increase in the level of equity awards in 2019, and medical costs continued~~were various cost reductions, unrelated to increase. Also, during the third quarter of 2018, we recognized gains from sales of businesses and customer lists within Small Business Services of $1.8 million. Further information regarding these asset sales can be found under the caption "Note 3: Supplemental balance sheet and cash flow information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.COVID-19. These ~~increases~~decreases in SG&A expense were partially offset by ~~various expense reduction initiatives~~investments of approximately ~~$9.0 million, primarily within our sales and marketing organizations. Also, amortization expense related to acquisitions prior to 2018 decreased approximately $5.0~~$10.0 million for the ~~third~~second quarter of ~~2019 compared to the third quarter of 2018.~~

The increase in SG&A expense for the first nine months of 2019, as compared to the first nine months of 2018, was driven by incremental costs of $26.1 million from businesses acquired in 2018, including acquisition amortization, medical costs increased approximately $6.0 million, information technology costs related to infrastructure investments2020 and the average Small Business Services commission rate increased, and share-based compensation expense increased approximately $5.0 million, driven by an increase in the level of equity awards in 2019. In addition, CEO transition costs increased $4.4 million, and legal-related expenses increased approximately $4.0 million. Also, during the first nine months of 2018, we recognized gains from sales of businesses and customer lists within Small Business Services of $12.9 million. Further information regarding these asset sales can be found under the caption "Note 3: Supplemental balance sheet and cash flow information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. These increases in SG&A expense were partially offset by various expense reduction initiatives of approximately $27.0 million, primarily within our sales and marketing organizations. Also, amortization expense related to acquisitions prior to 2018 decreased approximately $9.5$25.0 million for the first ~~nine months~~half of 2020, in support of our One Deluxe strategy. These costs related to onboarding our new treasury management clients announced in the fourth quarter of 2019 ~~compared~~and various consulting and sales force expenses related to activities such as transforming our brand and our website and expanding our sales capabilities, as well as ongoing new costs related to software-as-a-service solutions we are employing throughout the company. In addition, we incurred commission expense related to new revenue from the sales of PPE during the second quarter of 2020. During the first half of 2020, we also recorded bad debt expense of $6.6 million in our Promotional

Solutions segment related to notes receivable from our Safeguard distributors, primarily one distributor that was underperforming prior to the ~~first nine months of 2018.~~COVID-19 outbreak.

In addition to the above factors, SG&A expense was also impacted by changes in the following items:



	Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2020		2019		Change			2020			2019		Change
Acquisition amortization (SG&A portion)	$	10,674	$	15,949	$	(5,275	)	$	21,339		$	32,051	$	(10,712	)
Legal-related costs	—		6,005		(6,005		)	(2,164		)	6,417		(8,581		)
CEO transition costs	190		1,906		(1,716		)	10			7,394		(7,384		)

Restructuring and Integration Expense


	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended June 30,						Six Months Ended June 30,
(in thousands)	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Restructuring and integration expense	$	26,255	$	5,135	$	21,120	$	49,089	$	12,915	$	36,174	$	20,354	$	17,342	$	3,012	$	38,008	$	22,834	$	15,174

Restructuring and integration expense increased for the ~~third~~second quarter and first ~~nine months~~half of ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, as we are currently pursuing several initiatives designed to focus our business behind our growth ~~strategies~~strategy and to increase our efficiency. Further information can be found under Restructuring, Integration and Other Costs.

Asset Impairment Charges


	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended June 30,						Six Months Ended June 30,
(in thousands)	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Asset impairment charges	$	390,980	$	99,170	$	291,810	$	390,980	$	101,319	$	289,661	$	4,883	$	—	$	4,883	$	95,213	$	—	$	95,213

During the ~~third~~second quarter of ~~2019,~~2020, we recorded ~~pretax~~pre-tax asset impairment charges of ~~$391.0~~$4.9 million, resulting from the rationalization of our real estate footprint. During the first quarter of 2020, we recorded pre-tax asset impairment charges of $90.3 million related primarily to the goodwill of our Promotional Solutions and ~~certain trade name, customer list and technology intangible assets.~~Cloud Solutions Web Hosting reporting units, as well as amortizable intangibles of our Cloud Solutions Web Hosting reporting unit. Further information regarding these charges can be found in ~~Critical Accounting Policies~~.

~~During~~under the third quarter of 2018, we recorded pretax asset impairment charges of $99.2 million related to Small Business Services goodwill and an indefinite-lived trade name, as well as certain customer list intangible assets within Financial Services related to 2 small business distributors we acquired in 2015. During the first quarter of 2018, we recorded a pre-tax asset impairment charge of $2.1 million related to a Small Business Services customer list intangible asset. Further information regarding these charges can be found in ~~Critical Accounting Policies~~ ~~in the MD&A section~~caption "Note 7: Fair Value Measurements" of the ~~2018 Form 10-K.~~Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

The ~~increases~~decreases in interest expense for the ~~third~~second quarter and first ~~nine months~~half of ~~2019,~~2020, as compared to the same periods in ~~2018,~~2019, were primarily driven by our ~~higher~~lower weighted-average interest rate in ~~both periods, as well as the higher weighted-average debt level arising, in part, from our share repurchase activity and financing for acquisitions completed throughout 2018.~~2020.

Income Tax ~~(Benefit)~~ Provision

The ~~changes~~decrease in our effective tax rate for the second quarter of 2020, as compared to the second quarter of 2019, was due primarily to lower expense related to the tax impacts of share-based compensation.

Although our effective income tax rate decreased for the first half of 2020, as compared to the first half of 2019, this had a negative impact on our income tax provision due to the pre-tax loss resulting from the asset impairment charges recorded during 2020. The non-deductible portion of goodwill impairment charges resulted in an 27.4 point decrease in our tax rate and the tax

impact of share-based compensation resulted in a 4.5 point decrease, as compared to the first half of 2019. Further information regarding our effective income tax rate for the ~~third quarter and~~ first ~~nine months~~half of 2019, as compared to the same periods in 2018, were driven primarily by the nondeductible portion of the goodwill impairment charges in each period, combined with the impact of asset impairment charges on pretax (loss) income in each period. The nondeductible portion of the goodwill impairment charges resulted in tax expense of $54.2 million in the third quarter of 2019 compared to $15.9 million in the third quarter of 2018. In addition, during the third quarter of 2019, we placed a full valuation allowance of $8.4 million on the intangible-related deferred tax asset generated by the impairment of intangible assets located in Australia. Further information regarding our effective tax rate for the first nine months of 20192020, as compared to our ~~2018~~2019 annual effective income tax rate, can be found under the caption: "Note ~~11:~~9: Income ~~tax benefit (provision)"~~Tax Provision" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

Diluted ~~EPS~~Earnings (Loss) Per Share

~~The increase in~~⁽¹⁾See the following Reconciliation of Non-GAAP Financial Measures section, which illustrates how we calculate adjusted diluted loss per share for the third quarter of 2019, as compared to the third quarter of 2018, was driven primarily by the $291.8 million increase in asset impairment charges in the third quarter of 2019, a $22.6 million increase in restructuring and integration expense in support of our growth strategies and to increase our efficiency, continued volume reductions in checks, forms and accessories and increased information technology costs related to infrastructure investments, as well as an increase in business transformation costs, share-based compensation expense and medical costs. These increases in diluted loss per share were partially offset by lower shares outstanding in 2019, benefits from our cost reduction initiatives of approximately $12.0 million, Small Business Services price increases and a $4.0 million decrease in acquisition-related amortization, including the impact of our 2018 acquisitions.EPS.

The decrease in diluted EPS for the ~~first nine months~~second quarter of ~~2019,~~2020, as compared to the ~~first nine months~~second quarter of ~~2018,~~2019, was driven primarily by the ~~$289.7 million increase~~impact of the COVID-19 outbreak, the continuing secular decline in checks and forms, the loss of web hosting revenue in the third quarter of 2019 and various investments in our One Deluxe strategy. In addition, we recorded asset impairment charges ~~in 2019, a $37.7~~of $4.9 million ~~increase in restructuring and integration expense in support~~during the second quarter of our growth strategies and to increase our efficiency, continued volume reductions in checks, forms and accessories, and the gain on sales of Small Business Services businesses and customer lists of $12.9 million in 2018. Additionally, medical costs increased approximately $11.0 million, interest expense increased $8.3 million, organic web services and treasury management revenue declined, and information technology costs related to infrastructure investments and the Small Business Services commission rate increased. Stock-based compensation increased $5.6 million, driven by an increase in the level of equity awards in 2019, CEO transition costs increased $4.4 million, and check pricing allowances within Financial Services continued.2020. These decreases in diluted EPS were partially offset by savings of approximately $15.0 million from actions taken in response to COVID-19, a $6.0 million decrease in legal-related costs, various cost reductions unrelated to COVID-19, primarily in our sales, marketing and fufillment organizations, and a $5.2 million decrease in acquisition amortization, driven by asset impairment charges. Also, interest expense decreased $3.1 million due to lower interest rates and average shares outstanding was lower in ~~2019, benefits from our cost reduction initiatives~~the second quarter of ~~approximately $35.0 million, the benefit of Small Business Services price increases and incremental earnings from businesses acquired~~2020.

The change in ~~2018.~~

~~The decreases in adjusted~~ diluted ~~EPS~~loss per share for the ~~third~~first half of 2020, as compared to the first half of 2019, was driven by the factors outlined in Executive Overview – 2020 results vs. 2019. In addition, average shares outstanding was lower in the first half of 2020.



	Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2020			2019			Change	2020			2019			Change
Adjusted EBITDA⁽¹⁾	$	83,818		$	117,485		(28.7%)	$	167,153		$	231,193		(27.7%)
Adjusted EBITDA margin	20.4		%	23.8		%	(3.4) pts.	18.6		%	23.3		%	(4.7) pts.

⁽¹⁾See the following Reconciliation of Non-GAAP Financial Measures section, which illustrates how we calculate adjusted EBITDA.

Adjusted EBITDA decreased for the second quarter and first ~~nine months~~half of ~~2019,~~2020, as compared to the same periods in ~~2018, were~~2019, driven primarily by the ~~continuing decline in~~impact of the COVID-19 outbreak. In addition, adjusted EBITDA was negatively impacted by mix changes resulting from the contraction of legacy products and services, primarily checks and forms, and ~~accessories, increased medical costs~~the loss of web hosting revenue in the third quarter of 2019. During both periods, we also continued to advance our transformation in line with our One Deluxe strategy by investing in various consulting and ~~interest expense, lower organic web services~~sales force expenses related to activities such as transforming our brand and ~~treasury management revenue, increased information technology~~our website and expanding our sales capabilities, as well as ongoing new costs related to ~~infrastructure investments, a higher average Small Business Services commission rate, continued check pricing allowances within Financial Services~~software-as-a-service solutions we are employing throughout the company. We also incurred expenses related to onboarding new treasury management clients announced in the fourth quarter of 2019. Additionally, during the first half of 2020, we recorded bad debt expense of $6.6 million related to notes receivable from our Safeguard distributors, and ~~increased material and shipping rates.~~we incurred incremental costs resulting from COVID-19 of approximately $6.0 million in each period. These decreases in adjusted ~~diluted EPS~~EBITDA were partially offset by ~~lower shares outstanding~~actions taken to reduce costs in ~~2019, benefits~~line with the reduced revenue, including savings of approximately $15.0 million from the temporary salary reduction, suspension of the 401(k) plan employer matching contribution and furloughs. In addition, we realized the benefit of various cost reductions unrelated to COVID-19, primarily in our sales, marketing and fulfillment organizations.

Reconciliation of Non-GAAP Financial Measures

Free cash flow – We believe that free cash flow is an important indicator of cash available for debt service and for shareholders, after making capital investments to maintain or expand our asset base. Free cash flow is limited and not all of our free cash flow is available for discretionary spending, as we may have mandatory debt payments and other cash requirements that must be deducted from our ~~cost~~cash available for future use. We believe that the measure of free cash flow provides an additional metric to compare cash generated by operations on a consistent basis and to provide insight into the cash flow available to fund items such as share repurchases, dividends, mandatory and discretionary debt reduction ~~initiatives, Small Business Services price increases~~ and ~~incremental earnings from businesses acquired in 2018.~~acquisitions or other strategic investments.

~~Non-GAAP Financial Measure~~

Net cash provided by operating activities reconciles to free cash flow as follows:



	Six Months Ended June 30,
(in thousands)	2020			2019
Net cash provided by operating activities	$	109,649		$	105,104
Purchases of capital assets	(27,085		)	(32,344		)
Free cash flow	$	82,564		$	72,760

WeAdjusted diluted EPS – By excluding the impact of non-cash items or items that we believe are not indicative of ongoing operations, we believe that adjusted diluted EPS provides useful comparable information ~~for investors by excluding~~to assist in analyzing our current period operating performance and in assessing our future operating performance. As such, adjusted diluted EPS is one of the ~~impact~~key financial performance metrics we use to assess the operating results and performance of ~~items that we believe are not indicative of ongoing operations.~~the business and to identify strategies to improve performance. It is reasonable to expect that one or more of ~~these~~the excluded items will occur in future periods, but the amounts recognized ~~will~~may vary significantly.

Diluted ~~EPS~~earnings (loss) per share reconciles to adjusted diluted EPS as follows:

CEO transition costs⁽¹⁾

Income tax provision impact of pre-tax adjustments⁽²⁾

Adjusted diluted EPS⁽³⁾

~~Note~~⁽¹⁾ In 2019, includes adjustments to share-based compensation expense related to the modification of certain awards in conjunction with our CEO transition.

⁽²⁾ The tax effect of the pre-tax adjustments considers the tax treatment and related tax rate(s) that ~~we have not reconciled~~apply to each adjustment in the applicable tax jurisdiction(s). Generally, this results in a tax impact that approximates the U.S. effective tax rate for each adjustment. However, the tax impact of certain adjustments, such as asset impairment charges, share-based compensation expense and CEO transition costs, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable effective tax rate(s) in those jurisdictions.

⁽³⁾ The total of weighted-average shares and potential common shares outstanding used in the calculation of adjusted diluted EPS ~~outlook guidance~~ for ~~full year 2019 to~~the first half of 2020 was 132 thousand shares higher than that used in the GAAP diluted ~~EPS because we do not provide outlook guidance on diluted EPS or the reconciling items between diluted EPS and this non-GAAP financial measure.~~loss per share calculation. Because of the ~~substantial uncertainty~~net loss for the first half of 2020, the GAAP calculation excluded a higher number of share-based compensation awards because their effect would have been antidilutive.

Adjusted EBITDA – We believe that adjusted EBITDA is useful in evaluating our operating performance, as the calculation eliminates the effect of interest expense, income taxes, the accounting effects of capital investments (i.e., depreciation and ~~variability surrounding certain of these forward-looking reconciling items, including asset impairment charges, restructuring, integration and other costs,~~

amortization) and certain ~~legal-related expenses, a reconciliation~~items, as presented below, that may vary for companies for reasons unrelated to overall operating performance. In addition, management utilizes adjusted EBITDA to assess the operating results and performance of the ~~non-GAAP financial~~business, to perform analytical comparisons and to identify strategies to improve performance. We also believe that an increasing adjusted EBITDA depicts an increase in the value of the company. We do not consider adjusted EBITDA to be a measure ~~outlook guidance~~of cash flow, as it does not consider certain cash requirements such as interest, income taxes, debt service payments or capital investments.

Net income (loss) reconciles to adjusted EBITDA as follows:



	Quarter Ended June 30,					Six Months Ended June 30,
(in thousands)	2020			2019		2020			2019
Net income (loss)	$	14,878		$	32,582	$	(45,253	)	$	73,772
Pre-tax income attributable to non-controlling interest	(26		)	—		(26		)	—
Depreciation and amortization expense	26,663			32,517		55,093			64,936
Interest expense	6,171			9,239		13,171			18,540
Income tax provision	5,074			12,171		1,864			27,219
Asset impairment charges	4,883			—		95,213			—
Restructuring, integration and other costs	20,490			17,693		40,123			23,976
CEO transition costs⁽¹⁾	190			1,906		10			7,394
Share-based compensation expense	5,477			5,369		9,095			8,660
Acquisition transaction costs	—			3		9			180
Certain legal-related expense	—			6,005		(2,164		)	6,417
Loss on sales of customer lists	18			—		18			99
Adjusted EBITDA	$	83,818		$	117,485	$	167,153		$	231,193

⁽¹⁾ In 2019, includes adjustments to share-based compensation expense related to the ~~corresponding GAAP measure is not available without unreasonable effort. The probable significance~~modification of certain ~~of these items is high and, based on historical experience, could be material.~~awards in conjunction with our CEO transition.

RESTRUCTURING, INTEGRATION AND OTHER COSTS

Restructuring and integration expense ~~consisted~~consists of ~~costs related to the integration of acquired businesses into our systems and processes. It also includes~~ costs related to the consolidation and migration of certain applications and processes, including our financial, sales and human resources management ~~system~~systems. It also includes costs related to the integration of acquired businesses into our systems and ~~certain of our sales and financial systems.~~processes. These costs primarily ~~consisted~~consist of information technology consulting, ~~and~~ project management services and internal labor, as well as other miscellaneous costs associated with our initiatives, such as training, travel and ~~travel.~~relocation. In addition, we recorded employee severance costs related to these initiatives, as well as our ongoing cost reduction initiatives, ~~primarily within our sales, marketing and fulfillment functions.~~across functional areas. Our restructuring and integration activities ~~have~~ increased in ~~2019,~~2020, as we are currently pursuing several initiatives designed to focus our business behind our growth ~~strategies~~strategy and to increase our efficiency. Further information regarding restructuring and integration expense can be found under the caption "Note 9:8: Restructuring and ~~integration expense"~~Integration Expense" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. In addition to restructuring and integration expense, we also recognized certain business transformation

The majority of the employee reductions included in our restructuring and integration accruals are expected to be completed in ~~2019,~~the third quarter of 2020, and we expect most of the related severance payments to be paid by ~~mid-2020.~~the end of 2020. As a result of our employee reductions, we expect to realize cost savings of approximately ~~$2.5~~$17.0 million in SG&A expense and $3.0 million in total cost of revenue ~~and $15.0 million~~ in ~~SG&A expense in 2019,~~2020, in comparison to our ~~2018~~2019 results of ~~operations, which~~operations. This represents a portion of the total net cost reductions we expect to realize in ~~2019.~~2020.

~~CEO TRANSITION COSTS~~

~~In April 2018,~~For many years, we ~~announced~~operated 3 reportable business segments: Small Business Services, Financial Services and Direct Checks. These segments were generally organized by customer type and reflected the ~~retirement of Lee Schram,~~way we managed the company. Effective January 1, 2020, we reorganized our ~~former CEO. Mr. Schram remained employed under the terms of a transition agreement through March 1, 2019. Under the terms of this agreement, we provided certain benefits~~reportable business segments to ~~Mr. Schram, including a transition bonus~~align with structural and management reporting changes in the amount of $2.0 million that was paid in March 2019. In addition, modifications were made to certain of his share-based payment awards. In conjunction with the CEO transition, we offered retention agreements to certain memberssupport of our management team under which each employee is entitled to receive a cash bonus equal to his or her annual base salary or up to 1.5 times his or her annual base salary if he or she remains employed during the retention period, generally from July 1, 2018 to December 31, 2019, and complies with certain covenants. In addition to these expenses, we incurred certain other costs related to the CEO transition process, including executive search, legal, travel and board of directors fees in 2018. During the first nine months of 2019, we incurred consulting fees related to the evaluation of our strategic plan and we expensed the majority of the current CEO's signing bonus. CEO transition costs are included in SG&A expense on the consolidated statements of comprehensive (loss) income and were $1.1 million for the third quarter of 2019, $2.6 million for the third quarter of 2018, $8.5 million for the first nine months of 2019 and $4.2 million for the first nine months of 2018.growth strategy. We estimate that these costs will total approximately $9.0 million for 2019, compared to $7.2 million for 2018. We anticipate that the remaining management retention bonuses will be paid in the first quarter of 2020. Accruals for CEO transition costs were included within accrued liabilities on the consolidated balance sheet and were $3.9 million as of September 30, 2019.now operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions

~~Additional~~and Checks. These segments are generally organized by product type and reflect the way we currently manage the company. The financial information ~~regarding~~presented below for our reportable business segments ~~appears~~is consistent with that presented under the caption ~~“Note 17:~~"Note 14: Business ~~segment information”~~Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this ~~report.~~report, where information regarding our product and service offerings can also be found.

~~Small Business Services~~Payments

Results for our ~~Small Business Services~~Payments segment were as follows:

The ~~decrease~~increases in total revenue for the third quarter of 2019, as compared to the third quarter of 2018, was driven by lower order volume, primarily related to checks, forms and accessories, as secular check and forms usage continues to decline. In addition, web services volume decreased approximately $2.0 million, excluding the effect of a 2018 acquisition, due primarily to a reduction in search and email marketing volume. These decreases in revenue were partially offset by the benefit of price increases and revenue of approximately $4.0 million due to one additional business day in 2019, as well as incremental revenue of approximately $1.8 million from the acquisition of My Corporation Business Services, Inc. in December 2018. Information about this acquisition can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

The decrease in total revenue for the first nine months of 2019, as compared to the first nine months of 2018, was driven by lower order volume, primarily related to checks, forms and accessories, as secular check and forms usage continues to decline. Web services volume also decreased approximately $6.0 million, excluding the effect of 2018 acquisitions, due

The increase in operating loss for the third quarter of 2019, as compared to the third quarter of 2018, was driven primarily by an increase in asset impairment charges of $176.3 million and a $16.6 million increase in restructuring and integration expense in support of our growth strategies and to increase our efficiency, as well as the lower order volume for checks, forms and accessories. Further information regarding the asset impairment charges can be found in ~~Critical Accounting Policies~~. In addition, medical costs and material and shipping rates increased in 2019. Also, during the third quarter of 2018, we recognized gains from sales of businesses and customer lists of $1.8 million. Partially offsetting these increases in operating loss were price increases and benefits of our cost reduction initiatives.

The increase in operating loss for the first nine months of 2019, as compared to the first nine months of 2018, was driven primarily by an increase in asset impairment charges of $174.1 million and a $27.7 million increase in restructuring and integration expense in support of our growth strategies and to increase our efficiency, as well as the lower order volume for checks, forms and accessories and an increase in the average commission rate. Further information regarding the asset impairment charges can be found in ~~Critical Accounting Policies~~. In addition, CEO transition costs allocated to this segment increased $2.4 million, share-based compensation expense increased, driven by an increase in the level of equity awards in 2019, and medical costs and material and shipping rates all increased in 2019. Also, during the first nine months of 2018, we recognized gains from sales of businesses and customer lists of $12.9 million. Partially offsetting these increases in operating loss were price increases and benefits of our cost reduction initiatives.

~~Financial Services~~

~~Results for our Financial Services segment were as follows:~~

Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2019 2018 Change 2019 2018 Change
Total revenue $ 154,599
$ 146,771
5.3% $ 465,086
$ 426,727
9.0%
Operating (loss) income (105,691 ) 17,612
(700.1%) (86,134 ) 49,565
(273.8%)
Operating margin (68.4 %) 12.0 % (80.4) pts. (18.5 %) 11.6 % (30.1) pts.

~~The increase in total revenue for the third~~second quarter and first ~~nine months~~half of ~~2019,~~2020, as compared to the same periods in ~~2018, was~~2019, were driven by ~~incremental~~an increase in treasury management revenue ~~from~~of 20.5% for the ~~acquisition~~second quarter of ~~REMITCO LLC~~2020 and 22.8% for the first half of 2020, primarily related to lockbox processing outsourcing wins in ~~August 2018~~the fourth quarter of ~~approximately $9.5 million~~2019. Partially offsetting these increases was a decrease in payroll services revenue driven by the impact of COVID-19.

The decreases in adjusted EBITDA for the second quarter and first half of 2020, as compared to the same periods in 2019, were driven by increased costs in support of our One Deluxe strategy, including costs related to onboarding our new treasury management clients and investments in our client operations area. Partially offsetting these decreases was the revenue generated by the lockbox processing outsourcing wins in the fourth quarter of 2019. The impact of COVID-19 on this segment was minimal, as our Hero Pay premium and the lost revenue were offset by actions taken to reduce costs in response to the pandemic. Adjusted EBITDA margin decreased for both periods as a result of the investments in our One Deluxe strategy.

Results for our Cloud Solutions segment were as follows:



	Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2020			2019			Change	2020			2019			Change
Total revenue	$	53,897		$	78,914		(31.7%)	$	129,842		$	157,202		(17.4%)
Adjusted EBITDA	14,159			19,086			(25.8%)	29,069			36,146			(19.6%)
Adjusted EBITDA margin	26.3		%	24.2		%	2.1 pts.	22.4		%	23.0		%	(0.6) pts.

The decreases in total revenue for the second quarter and first half of 2020, as compared to the same periods in 2019, were driven by the impact of the COVID-19 outbreak, primarily in data-driven marketing solutions as clients suspended their marketing campaigns, with some impact on web hosting revenue. In addition, web hosting revenue declined due to our decision in the third quarter of 2019 ~~and $47.5 million for~~to exit certain customer contracts, the ~~first nine months~~loss of ~~2019. Partially offsetting this increase~~certain large customers in revenue, was a decrease in treasury management volume of approximately $4.0 million for the first nine months of 2019, excluding the incremental revenue from the acquisition, due to a customer electing to bring its services in-house, as well as a reduction in software maintenance revenue. In addition, revenue was negatively affected by lower check order volume, due primarily to the continued secular decline in check usage, as well as continued check pricing allowances.

~~The increase in operating loss for~~ the third quarter of 2019 as they elected to in-source some of the services we provide, and previous underinvestment in this business. For the first half of 2020, data-driven marketing revenue increased approximately $7.0 million in the first quarter of 2020, prior to the COVID-19 outbreak, driven by new campaigns and growth in pay-for-performance marketing campaigns.

The decreases in Adjusted EBITDA for the second quarter and first half of 2020, as compared to the same periods in 2019, were primarily due to the impact of COVID-19, increased information technology costs in support of our One Deluxe strategy and the loss of web hosting and data-driven marketing revenue related to the events that occurred in the third quarter of 2018, was primarily due to a $115.5 million increase in asset impairment charges in 2019 and a $4.6 million increase in restructuring and integration expense in support of our growth strategies and to increase our efficiency, as well as increased information technology costs related to infrastructure investments, lower check order volume and continued check pricing allowances. Further information regarding the asset impairment charges can be found in ~~Critical Accounting Policies. In addition, medical costs and material and shipping rates increased in~~ 2019. Partially offsetting these ~~increases~~declines in ~~operating loss~~adjusted EBITDA were ~~benefits~~various cost reductions unrelated to COVID-19, primarily sales and marketing costs, and the benefit of ~~our continuing cost reduction initiatives.~~

~~The~~actions taken in response to COVID-19. For the first half of 2020, adjusted EBITDA also benefited from the increase in ~~operating loss~~data-driven marketing revenue in the first quarter, prior to the COVID-19 outbreak. Adjusted EBITDA margin increased for the second quarter of 2020, as compared to the second quarter of 2019, as the cost reductions outpaced the revenue decline and revenue mix was favorable. Adjusted EBITDA margin for the first ~~nine months~~half of ~~2019,~~2020, as compared to the first ~~nine months~~half of ~~2018, was primarily~~2019, declined slightly due to ~~a $115.5 million increase~~the mix of data-driven marketing campaigns in ~~asset impairment charges~~the first quarter of 2020.

Promotional Solutions

Results for our Promotional Solutions segment were as follows:



	Quarter Ended June 30,							Six Months Ended June 30,
(in thousands)	2020			2019			Change	2020			2019			Change
Total revenue	$	117,946		$	155,545		(24.2%)	$	260,739		$	311,374		(16.3%)
Adjusted EBITDA	13,854			22,288			(37.8%)	25,051			45,878			(45.4%)
Adjusted EBITDA margin	11.7		%	14.3		%	(2.6) pts.	9.6		%	14.7		%	(5.1) pts.

The decreases in total revenue for the second quarter and first half of 2020, as compared to the same periods in 2019, ~~a $7.4~~were driven primarily by the impact of the COVID-19 outbreak as our small business and enterprise customers struggle in the current economic environment and demand for promotional products declined sharply, as our customers stopped virtually all promotional activities in response to the outbreak. Partially offsetting the volume decline was $26.0 million ~~increase~~of new revenue from sales of PPE in ~~restructuring~~the second quarter of 2020. The continuing secular decline in business forms and ~~integration expense~~some accessories also negatively impacted revenue in each period.


	Quarter Ended September 30,						Nine Months Ended September 30,						Quarter Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(in thousands, except per share amounts)													2020			2019			2020			2019
Product revenue	$	346,315		$	352,767		$	1,043,896		$	1,076,110		$	278,709		$	347,061		$	609,396		$	697,580
Service revenue	147,278			140,423			442,749			397,239			131,696			146,925			287,432			295,471
Total revenue	493,593			493,190			1,486,645			1,473,349			410,405			493,986			896,828			993,051
Cost of products	(133,807		)	(132,996		)	(398,869		)	(400,700		)	(102,861		)	(133,798		)	(224,450		)	(265,061		)
Cost of services	(69,916		)	(64,638		)	(207,006		)	(175,894		)	(59,422		)	(68,730		)	(139,882		)	(137,090		)
Total cost of revenue	(203,723		)	(197,634		)	(605,875		)	(576,594		)	(162,283		)	(202,528		)	(364,332		)	(402,151		)
Gross profit	289,870			295,556			880,770			896,755			248,122			291,458			532,496			590,900
Selling, general and administrative expense	(213,318		)	(208,533		)	(665,787		)	(629,272		)	(198,570		)	(222,292		)	(435,774		)	(452,469		)
Restructuring and integration expense	(26,255		)	(5,135		)	(49,089		)	(12,915		)	(20,354		)	(17,342		)	(38,008		)	(22,834		)
Asset impairment charges	(390,980		)	(99,170		)	(390,980		)	(101,319		)	(4,883		)	—			(95,213		)	—
Operating (loss) income	(340,683		)	(17,282		)	(225,086		)	153,249
Operating income (loss)													24,315			51,824			(36,499		)	115,597
Interest expense	(8,710		)	(7,244		)	(27,251		)	(18,953		)	(6,171		)	(9,239		)	(13,171		)	(18,540		)
Other income	2,183			2,356			6,118			6,081			1,808			2,168			6,281			3,934
(Loss) income before income taxes	(347,210		)	(22,170		)	(246,219		)	140,377
Income tax benefit (provision)	28,717			(8,913		)	1,498			(47,916		)
Net (loss) income	$	(318,493	)	$	(31,083	)	$	(244,721	)	$	92,461
Comprehensive (loss) income	$	(322,150	)	$	(30,902	)	$	(245,326	)	$	87,936
Basic (loss) earnings per share	(7.49		)	(0.67		)	(5.65		)	1.94
Diluted (loss) earnings per share	(7.49		)	(0.67		)	(5.65		)	1.93
Income (loss) before income taxes													19,952			44,753			(43,389		)	100,991
Income tax provision													(5,074		)	(12,171		)	(1,864		)	(27,219		)
Net income (loss)													14,878			32,582			(45,253		)	73,772
Net income attributable to non-controlling interest													(19		)	—			(19		)	—
Net income (loss) attributable to Deluxe													$	14,859		$	32,582		$	(45,272	)	$	73,772
Total comprehensive income (loss)													$	19,053		$	33,744		$	(53,085	)	$	76,824
Comprehensive income (loss) attributable to Deluxe													19,034			33,744			(53,104		)	76,824
Basic earnings (loss) per share													0.36			0.75			(1.08		)	1.68
Diluted earnings (loss) per share													0.35			0.75			(1.10		)	1.68


		Nine Months Ended September 30,							Six Months Ended June 30,
		2019			2018
(in thousands)								(in thousands)	2020			2019
Cash flows from operating activities:	Cash flows from operating activities:							Cash flows from operating activities:
Net (loss) income	Net (loss) income	$	(244,721	)	$	92,461		Net (loss) income	$	(45,253	)	$	73,772
Adjustments to reconcile net (loss) income to net cash provided by operating activities:	Adjustments to reconcile net (loss) income to net cash provided by operating activities:							Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	Depreciation	12,206			12,724			Depreciation	10,053			8,448
Amortization of intangibles	Amortization of intangibles	83,224			84,199			Amortization of intangibles	45,040			56,488
Operating lease expense	Operating lease expense	15,145			—			Operating lease expense	10,038			8,782
Asset impairment charges	Asset impairment charges	390,980			101,319			Asset impairment charges	95,213			—
Amortization of prepaid product discounts	Amortization of prepaid product discounts	17,861			16,976			Amortization of prepaid product discounts	14,174			11,681
Deferred income taxes	Deferred income taxes	(38,549		)	(12,157		)	Deferred income taxes	(10,886		)	2,718
Employee share-based compensation expense	Employee share-based compensation expense	14,580			9,481			Employee share-based compensation expense	9,095			9,224
Loss (gain) on sales of businesses and customer lists		224			(12,855		)
Other non-cash items, net	Other non-cash items, net	9,858			5,482			Other non-cash items, net	14,383			7,323
Changes in assets and liabilities, net of effect of acquisitions:
Changes in assets and liabilities:								Changes in assets and liabilities:
Trade accounts receivable	Trade accounts receivable	27,505			1,466			Trade accounts receivable	20,054			18,881
Inventories and supplies	Inventories and supplies	2,728			(2,009		)	Inventories and supplies	(8,719		)	(836		)
Other current assets	Other current assets	(3,213		)	(13,030		)	Other current assets	2,073			(11,975		)
Non-current assets	Non-current assets	(3,346		)	(5,116		)	Non-current assets	(6,646		)	(2,249		)
Accounts payable	Accounts payable	(10,779		)	(5,453		)	Accounts payable	(16,023		)	(12,621		)
Prepaid product discount payments	Prepaid product discount payments	(20,370		)	(19,125		)	Prepaid product discount payments	(15,806		)	(16,182		)
Other accrued and non-current liabilities	Other accrued and non-current liabilities	(45,309		)	(35,261		)	Other accrued and non-current liabilities	(7,141		)	(48,350		)
Net cash provided by operating activities	Net cash provided by operating activities	208,024			219,102			Net cash provided by operating activities	109,649			105,104
Cash flows from investing activities:	Cash flows from investing activities:							Cash flows from investing activities:
Purchases of capital assets	Purchases of capital assets	(49,679		)	(42,566		)	Purchases of capital assets	(27,085		)	(32,344		)
Payments for acquisitions, net of cash acquired		(1,598		)	(190,396		)
Purchases of customer funds marketable securities	Purchases of customer funds marketable securities	(3,817		)	(3,981		)	Purchases of customer funds marketable securities	(3,701		)	(3,778		)
Proceeds from customer funds marketable securities	Proceeds from customer funds marketable securities	3,817			3,981			Proceeds from customer funds marketable securities	3,701			3,778
Other	Other	1,398			1,038			Other	1,837			(456		)
Net cash used by investing activities	Net cash used by investing activities	(49,879		)	(231,924		)	Net cash used by investing activities	(25,248		)	(32,800		)
Cash flows from financing activities:	Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuing long-term debt	Proceeds from issuing long-term debt	203,500			1,189,500			Proceeds from issuing long-term debt	309,000			154,000
Payments on long-term debt	Payments on long-term debt	(189,500		)	(1,009,139		)	Payments on long-term debt	(52,500		)	(113,000		)
Net change in customer funds obligations	Net change in customer funds obligations	(8,711		)	(58		)	Net change in customer funds obligations	(31,351		)	(10,677		)
Proceeds from issuing shares under employee plans	Proceeds from issuing shares under employee plans	3,159			7,300			Proceeds from issuing shares under employee plans	2,411			1,637
Employee taxes paid for shares withheld	Employee taxes paid for shares withheld	(3,076		)	(7,969		)	Employee taxes paid for shares withheld	(1,889		)	(2,872		)
Payments for common shares repurchased	Payments for common shares repurchased	(118,547		)	(120,000		)	Payments for common shares repurchased	(14,000		)	(78,896		)
Cash dividends paid to shareholders	Cash dividends paid to shareholders	(39,068		)	(42,943		)	Cash dividends paid to shareholders	(25,464		)	(26,253		)
Other	Other	(1,654		)	(4,128		)	Other	(597		)	(1,440		)
Net cash (used) provided by financing activities		(153,897		)	12,563
Net cash provided (used) by financing activities								Net cash provided (used) by financing activities	185,610			(77,501		)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	2,604			(2,446		)	Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	(6,490		)	3,996
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	6,852			(2,705		)	Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	263,521			(1,201		)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	145,259			128,819			Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	174,811			145,259
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	$	152,111		$	126,114		Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	$	438,332		$	144,058



(in thousands)	Previously reported			Adjustment			Revised
Purchases of customer funds marketable securities	$	—		$	(3,981	)	$	(3,981	)
Proceeds from customer funds marketable securities	—			3,981			3,981
Net cash used by investing activities	(231,924		)	—			(231,924		)
Net change in customer funds obligations	—			(58		)	(58		)
Net cash provided by financing activities	12,621			(58		)	12,563
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	(1,188		)	(1,258		)	(2,446		)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(1,389		)	(1,316		)	(2,705		)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	59,240			69,579			128,819
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	57,851		$	68,263		$	126,114



	Quarter Ended September 30,						Nine Months Ended September 30,
(in thousands, except number of employees)	2019			2018			2019			2018
Severance accruals	$	5,124		$	2,118		$	10,270		$	6,766
Severance reversals	(91		)	(1,157		)	(476		)	(1,387		)
Operating lease obligations	—			291			—			291
Net accruals	5,033			1,252			9,794			5,670
Other costs	22,641			3,852			41,660			8,127
Restructuring and integration expense	$	27,674		$	5,104		$	51,454		$	13,797
Number of employees included in severance accruals	180			75			270			180



(in thousands)	Nine Months Ended September 30, 2019
Operating cash outflows	$	12,329
Lease assets obtained during the period in exchange for lease obligations	5,501

	September 30, 2019
Operating lease assets	$	41,739

Accrued liabilities	12,840
Operating lease liabilities	32,434
Total operating lease liabilities	$	45,274
Weighted-average remaining lease term (in years)	5.2
Weighted-average discount rate	3.6		%



(in thousands)	Operating leases
Remainder of 2019	$	3,332
2020	14,626
2021	10,954
2022	7,593
2023	3,731
Thereafter	11,334
Total lease payments	51,570
Less imputed interest	(6,296		)
Present value of lease payments	$	45,274



	Quarter Ended September 30, 2019
(in thousands)	Small Business Services		Financial Services		Direct Checks		Consolidated
Marketing solutions and other services:
Small business marketing solutions	$	68,258	$	—	$	—	$	68,258
Treasury management solutions	—		45,836		—		45,836
Web services	40,906		—		—		40,906
Data-driven marketing solutions	—		39,889		—		39,889
Fraud, security, risk management and operational services	6,171		12,749		3,144		22,064
Total MOS	115,335		98,474		3,144		216,953
Checks	115,392		53,111		24,330		192,833
Forms, accessories and other products	79,484		3,014		1,309		83,807
Total revenue	$	310,211	$	154,599	$	28,783	$	493,593



	Quarter Ended September 30, 2018
(in thousands)	Small Business Services		Financial Services		Direct Checks		Consolidated
Marketing solutions and other services:
Small business marketing solutions	$	69,490	$	—	$	—	$	69,490
Treasury management solutions	—		35,833		—		35,833
Web services	41,973		—		—		41,973
Data-driven marketing solutions	—		39,808		—		39,808
Fraud, security, risk management and operational services	6,383		12,953		3,460		22,796
Total MOS	117,846		88,594		3,460		209,900
Checks	117,918		54,800		25,874		198,592
Forms, accessories and other products	79,835		3,377		1,486		84,698
Total revenue	$	315,599	$	146,771	$	30,820	$	493,190

	Nine Months Ended September 30, 2018
(in thousands)	Small Business Services		Financial Services		Direct Checks		Consolidated
Marketing solutions and other services:
Small business marketing solutions	$	205,694	$	—	$	—	$	205,694
Treasury management solutions	—		93,591		—		93,591
Web services	120,199		—		—		120,199
Data-driven marketing solutions	—		114,275		—		114,275
Fraud, security, risk management and operational services	19,487		37,856		10,761		68,104
Total MOS	345,380		245,722		10,761		601,863
Checks	360,637		170,442		81,425		612,504
Forms, accessories and other products	243,638		10,563		4,781		258,982
Total revenue	$	949,655	$	426,727	$	96,967	$	1,473,349



		Reportable Business Segments
(in thousands)		Small Business Services			Financial Services				Direct Checks		Corporate		Consolidated
Total revenue from external customers:	2019	$	310,211		$	154,599			$	28,783	$	—	$	493,593
	2018	315,599			146,771				30,820		—		493,190
Operating (loss) income:	2019	(243,193		)	(105,691		)		8,201		—		(340,683		)
	2018	(45,254		)	17,612				10,360		—		(17,282		)
Depreciation and amortization expense:	2019	14,497			15,220				777		—		30,494
	2018	17,173			15,424				809		—		33,406
Asset impairment charges:	2019	273,583			117,397			��	—		—		390,980
	2018	97,288			1,882				—		—		99,170
Total assets:	2019	809,058			560,405				155,487		364,013		1,888,963
	2018	1,056,086			753,240				157,806		300,235		2,267,367
Capital asset purchases:	2019	—			—				—		17,335		17,335
	2018	—			—				—		14,526		14,526



	Quarter Ended September 30,						Nine Months Ended September 30,
(in thousands, except per order amounts)	2019		2018		Change		2019		2018		Change
Total revenue	$	493,593	$	493,190	0.1	%	$	1,486,645	$	1,473,349	0.9	%
Orders⁽¹⁾	11,925		11,595		2.8	%	35,295		35,555		(0.7	%)
Revenue per order	$	41.39	$	42.53	(2.7	%)	$	42.12	$	41.44	1.6	%


	Quarter Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,			Quarter Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2018
Diluted EPS	$	(7.49	)	$	(0.67	)	$	(5.65	)	$	1.93		$	3.16
(in thousands)																2020			2019			2020			2019
Net income (loss)																$	14,878		$	32,582		$	(45,253	)	$	73,772
Net income attributable to non-controlling interest																(19		)	—			(19		)	—
Net income (loss) attributable to Deluxe																14,859			32,582			(45,272		)	73,772
Asset impairment charges	8.06			1.93			7.92			1.95			1.96			4,883			—			95,213			—
Acquisition amortization	0.49			0.33			1.13			0.88			1.23			13,689			18,852			28,413			37,857
Restructuring, integration and other costs	0.53			0.09			0.93			0.22			0.34			20,490			17,693			40,123			23,976
CEO transition costs	0.02			0.04			0.15			0.07			0.11
CEO transition costs⁽¹⁾																190			1,906			10			7,394
Share-based compensation	0.10			0.05			0.29			0.16			0.21			5,477			5,369			9,095			8,660
Acquisition transaction costs																—			3			9			180
Certain legal-related expense	—			0.03			0.11			0.03			0.15			—			6,005			(2,164		)	6,417
Acquisition transaction costs	—			—			—			0.01			0.02
Gain on sales of businesses and customer lists	—			(0.03		)	—			(0.22		)	(0.27		)
Loss on debt retirement	—			—			—			0.01			0.01
Impact of federal tax reform	—			(0.03		)	—			(0.03		)	(0.04		)
Adjusted diluted EPS	$	1.71		$	1.74		$	4.88		$	5.01		$	6.88
Loss on sales of customer lists																18			—			18			99
Adjustments, pre-tax																44,747			49,828			170,717			84,583
Income tax provision impact of pre-tax adjustments⁽²⁾																(11,168		)	(10,958		)	(30,344		)	(18,843		)
Adjustments, net of tax																33,579			38,870			140,373			65,740
Adjusted net income attributable to Deluxe																48,438			71,452			95,101			139,512
Income allocated to participating securities																—			(23		)	(77		)	(130		)
Re-measurement of share-based awards classified as liabilities																(76		)	(44		)	(863		)	(44		)
Adjusted income attributable to Deluxe available to common shareholders																$	48,362		$	71,385		$	94,161		$	139,338

GAAP diluted earnings (loss) per share																$	0.35		$	0.75		$	(1.10	)	$	1.68
Adjustments, net of tax																0.80			0.89			3.34			1.50
Adjusted diluted EPS⁽³⁾																$	1.15		$	1.64		$	2.24		$	3.18



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs
July 1, 2019 – July 31, 2019	—	$	—	—	$	341,103,728
August 1, 2019 – August 31, 2019	681,897	44.67		681,897	310,642,888
September 1, 2019 – September 30, 2019	193,790	47.43		193,790	301,452,391
Total	875,687	45.28		875,687	301,452,391



Exhibit Number		Description
~~3.1~~		~~Bylaws, as amended on August 21, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on August 27, 2019)~~
~~10.1~~		Deluxe Corporation Severance Plan for Certain Executive Level Employees, effective July 30, 2019*
31.1		CEO Certification of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		CFO Certification of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		CEO and CFO Certification of Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished)
101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover page interactive data file (formatted as Inline XBRL and contained in Exhibit 101)



	DELUXE CORPORATION (Registrant)

Date: ~~October 25, 2019~~July 31, 2020	/s/ Barry C. McCarthy
	Barry C. McCarthy President and Chief Executive Officer (Principal Executive Officer)

Date: ~~October 25, 2019~~July 31, 2020	/s/ Keith A. Bush
	Keith A. Bush Senior Vice President, Chief Financial Officer (Principal Financial ~~Officer and~~ Officer)

Date: July 31, 2020	/s/ Ronald Van Houwelingen
	Ronald Van Houwelingen Vice President, Corporate Controller (Principal Accounting Officer)

(in thousands)

Weighted-average amortization period
(in years)

Internal-use software

Customer lists/relationships

Acquired intangibles