UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2022


☐			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.)
801 S. Marquette Ave.	Minneapolis	MN	55402-2807
(Address of principal executive offices)			(Zip Code)

(651) 483-7111

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each 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 ~~April 27,~~October 26, 2022 was ~~42,990,561.~~43,136,109.


PART I – FINANCIAL INFORMATION


Item 1. FINANCIAL STATEMENTS


DELUXE CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share par value)	(in thousands, except share par value)	March 31, 2022		December 31, 2021		(in thousands, except share par value)	September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	44,059	$	41,231	Cash and cash equivalents	$	45,535	$	41,231
Trade accounts receivable, net of allowance for credit losses	Trade accounts receivable, net of allowance for credit losses	184,335		197,947		Trade accounts receivable, net of allowance for credit losses	195,151		197,947
Inventories and supplies	Inventories and supplies	34,527		34,928		Inventories and supplies	45,249		34,928
Funds held for customers, including securities carried at fair value of $13,027 and $13,307, respectively		156,752		254,795
Funds held for customers, including securities carried at fair value of $7,941 and $13,307, respectively						Funds held for customers, including securities carried at fair value of $7,941 and $13,307, respectively	155,555		254,795
Prepaid expenses	Prepaid expenses	47,964		37,643		Prepaid expenses	34,513		37,643
Revenue in excess of billings	Revenue in excess of billings	33,689		30,393		Revenue in excess of billings	38,350		30,393
Other current assets	Other current assets	16,858		23,536		Other current assets	36,066		23,536
Total current assets	Total current assets	518,184		620,473		Total current assets	550,419		620,473
Deferred income taxes	Deferred income taxes	1,957		2,180		Deferred income taxes	1,915		2,180
Long-term investments	Long-term investments	47,380		47,201		Long-term investments	47,547		47,201
Property, plant and equipment, net of accumulated depreciation of $341,046 and $338,617, respectively		124,270		125,966
Property, plant and equipment, net of accumulated depreciation of $373,481 and $338,617, respectively						Property, plant and equipment, net of accumulated depreciation of $373,481 and $338,617, respectively	122,478		125,966
Operating lease assets	Operating lease assets	53,375		58,236		Operating lease assets	51,295		58,236
Intangibles, net of accumulated amortization of $718,169 and $698,764, respectively		499,531		510,724
Intangibles, net of accumulated amortization of $789,750 and $698,764, respectively						Intangibles, net of accumulated amortization of $789,750 and $698,764, respectively	476,099		510,724
Goodwill	Goodwill	1,430,156		1,430,141		Goodwill	1,431,358		1,430,141
Other non-current assets	Other non-current assets	279,456		279,463		Other non-current assets	276,210		279,463
Total assets	Total assets	$	2,954,309	$	3,074,384	Total assets	$	2,957,321	$	3,074,384
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	146,267	$	153,072	Accounts payable	$	148,474	$	153,072
Funds held for customers	Funds held for customers	155,955		256,257		Funds held for customers	155,369		256,257
Accrued liabilities	Accrued liabilities	201,913		216,832		Accrued liabilities	217,495		216,832
Current portion of long-term debt	Current portion of long-term debt	57,227		57,197		Current portion of long-term debt	64,506		57,197
Total current liabilities	Total current liabilities	561,362		683,358		Total current liabilities	585,844		683,358
Long-term debt	Long-term debt	1,635,191		1,625,752		Long-term debt	1,606,458		1,625,752
Operating lease liabilities	Operating lease liabilities	53,418		56,444		Operating lease liabilities	52,356		56,444
Deferred income taxes	Deferred income taxes	68,324		75,121		Deferred income taxes	56,432		75,121
Other non-current liabilities	Other non-current liabilities	56,999		59,111		Other non-current liabilities	54,159		59,111
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)	0		0		Commitments and contingencies (Note 13)
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Common shares $1 par value (authorized: 500,000 shares; outstanding: March 31, 2022 – 42,923; December 31, 2021 – 42,679)		42,923		42,679
Common shares $1 par value (authorized: 500,000 shares; outstanding: September 30, 2022 – 43,136; December 31, 2021 – 42,679)						Common shares $1 par value (authorized: 500,000 shares; outstanding: September 30, 2022 – 43,136; December 31, 2021 – 42,679)	43,136		42,679
Additional paid-in capital	Additional paid-in capital	62,676		57,368		Additional paid-in capital	73,856		57,368
Retained earnings	Retained earnings	502,125		505,763		Retained earnings	512,342		505,763
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(29,025)		(31,492)		Accumulated other comprehensive loss	(27,648)		(31,492)
Non-controlling interest	Non-controlling interest	316		280		Non-controlling interest	386		280
Total shareholders’ equity	Total shareholders’ equity	579,015		574,598		Total shareholders’ equity	602,072		574,598
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,954,309	$	3,074,384	Total liabilities and shareholders’ equity	$	2,957,321	$	3,074,384

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021			(in thousands, except per share amounts)	2022		2021		2022		2021
Product revenue	Product revenue	$	317,303	$	299,053		Product revenue	$	317,250	$	302,369	$	956,662	$	907,646
Service revenue	Service revenue	238,712		142,211			Service revenue	237,788		229,772		717,344		543,976
Total revenue	Total revenue	556,015		441,264			Total revenue	555,038		532,141		1,674,006		1,451,622
Cost of products	Cost of products	(114,361)		(107,325)			Cost of products	(113,608)		(111,008)		(345,488)		(330,896)
Cost of services	Cost of services	(134,833)		(71,184)			Cost of services	(142,617)		(133,143)		(424,044)		(298,341)
Total cost of revenue	Total cost of revenue	(249,194)		(178,509)			Total cost of revenue	(256,225)		(244,151)		(769,532)		(629,237)
Gross profit	Gross profit	306,821		262,755			Gross profit	298,813		287,990		904,474		822,385
Selling, general and administrative expense	Selling, general and administrative expense	(259,699)		(212,436)			Selling, general and administrative expense	(243,816)		(239,251)		(753,140)		(685,593)
Restructuring and integration expense	Restructuring and integration expense	(16,244)		(14,313)			Restructuring and integration expense	(15,188)		(12,335)		(46,614)		(38,012)
Gain on sale of businesses and facility							Gain on sale of businesses and facility	1,804		—		19,331		—
Operating income	Operating income	30,878		36,006			Operating income	41,613		36,404		124,051		98,780
Interest expense	Interest expense	(20,324)		(4,524)			Interest expense	(23,799)		(21,494)		(65,471)		(35,548)
Other income	Other income	2,004		2,033			Other income	3,075		2,282		7,492		6,443
Income before income taxes	Income before income taxes	12,558		33,515			Income before income taxes	20,889		17,192		66,072		69,675
Income tax provision	Income tax provision	(2,878)		(9,190)			Income tax provision	(6,129)		(4,691)		(19,536)		(20,720)
Net income	Net income	9,680		24,325			Net income	14,760		12,501		46,536		48,955
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	(36)		(33)			Net income attributable to non-controlling interest	(35)		(37)		(106)		(99)
Net income attributable to Deluxe	Net income attributable to Deluxe	$	9,644	$	24,292		Net income attributable to Deluxe	$	14,725	$	12,464	$	46,430	$	48,856
Total comprehensive income	Total comprehensive income	$	12,147	$	25,934		Total comprehensive income	$	12,066	$	10,099	$	50,380	$	50,157
Comprehensive income attributable to Deluxe	Comprehensive income attributable to Deluxe	12,111		25,901			Comprehensive income attributable to Deluxe	12,031		10,062		50,274		50,058
Basic earnings per share	Basic earnings per share	0.23		0.58			Basic earnings per share	0.34		0.29		1.08		1.15
Diluted earnings per share	Diluted earnings per share	0.22		0.57			Diluted earnings per share	0.34		0.28		1.06		1.13

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


(in thousands)	(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total		(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, December 31, 2021		42,679	$	42,679	$	57,368	$	505,763	$	(31,492)	$	280	$	574,598
Balance, June 30, 2022															Balance, June 30, 2022	43,080	$	43,080	$	67,417	$	510,897	$	(24,954)	$	351	$	596,791
Net income	Net income	—	—		—		9,644		—		36		9,680		Net income	—	—		—		14,725		—		35		14,760
Cash dividends ($0.30 per share)	Cash dividends ($0.30 per share)	—	—		—		(13,282)		—		—		(13,282)		Cash dividends ($0.30 per share)	—	—		—		(13,280)		—		—		(13,280)
Common shares issued	Common shares issued	379	379		1,152		—		—		—		1,531		Common shares issued	66	66		713		—		—		—		779
Common shares retired	Common shares retired	(135)	(135)		(4,026)		—		—		—		(4,161)		Common shares retired	(10)	(10)		(213)		—		—		—		(223)
Employee share-based compensation	Employee share-based compensation	—	—		8,182		—		—		—		8,182		Employee share-based compensation	—	—		5,939		—		—		—		5,939
Other comprehensive income		—	—		—		—		2,467		—		2,467
Balance, March 31, 2022		42,923	$	42,923	$	62,676	$	502,125	$	(29,025)	$	316	$	579,015
Other comprehensive loss															Other comprehensive loss	—	—		—		—		(2,694)		—		(2,694)
Balance, September 30, 2022															Balance, September 30, 2022	43,136	$	43,136	$	73,856	$	512,342	$	(27,648)	$	386	$	602,072


(in thousands)	(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total		(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, December 31, 2020		41,973	$	41,973	$	17,558	$	522,599	$	(41,433)	$	141	$	540,838
Balance, December 31, 2021															Balance, December 31, 2021	42,679	$	42,679	$	57,368	$	505,763	$	(31,492)	$	280	$	574,598
Net income	Net income	—	—		—		24,292		—		33		24,325		Net income	—	—		—		46,430		—		106		46,536
Cash dividends ($0.30 per share)		—	—		—		(12,832)		—		—		(12,832)
Cash dividends ($0.90 per share)															Cash dividends ($0.90 per share)	—	—		—		(39,851)		—		—		(39,851)
Common shares issued	Common shares issued	194	194		847		—		—		—		1,041		Common shares issued	646	646		2,470		—		—		—		3,116
Common shares retired	Common shares retired	(63)	(63)		(2,298)		—		—		—		(2,361)		Common shares retired	(189)	(189)		(5,408)		—		—		—		(5,597)
Employee share-based compensation	Employee share-based compensation	—	—		6,199		—		—		—		6,199		Employee share-based compensation	—	—		19,426		—		—		—		19,426
Other comprehensive income	Other comprehensive income	—	—		—		—		1,609		—		1,609		Other comprehensive income	—	—		—		—		3,844		—		3,844
Balance, March 31, 2021		42,104	$	42,104	$	22,306	$	534,059	$	(39,824)	$	174	$	558,819
Balance, September 30, 2022															Balance, September 30, 2022	43,136	$	43,136	$	73,856	$	512,342	$	(27,648)	$	386	$	602,072

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued) (unaudited)


(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, June 30, 2021	42,537	$	42,537	$	41,607	$	505,753	$	(37,829)	$	203	$	552,271
Net income	—	—		—		12,464		—		37		12,501
Cash dividends ($0.30 per share)	—	—		—		(13,117)		—		—		(13,117)
Common shares issued	75	75		1,104		—		—		—		1,179
Common shares retired	(11)	(11)		(452)		—		—		—		(463)
Employee share-based compensation	—	—		7,897		—		—		—		7,897
Other comprehensive loss	—	—		—		—		(2,402)		—		(2,402)
Balance, September 30, 2021	42,601	$	42,601	$	50,156	$	505,100	$	(40,231)	$	240	$	557,866


(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, December 31, 2020	41,973	$	41,973	$	17,558	$	495,153	$	(41,433)	$	141	$	513,392
Net income	—	—		—		48,856		—		99		48,955
Cash dividends ($0.90 per share)	—	—		—		(38,909)		—		—		(38,909)
Common shares issued	744	744		15,655		—		—		—		16,399
Common shares retired	(116)	(116)		(4,518)		—		—		—		(4,634)
Employee share-based compensation	—	—		21,461		—		—		—		21,461
Other comprehensive income	—	—		—		—		1,202		—		1,202
Balance, September 30, 2021	42,601	$	42,601	$	50,156	$	505,100	$	(40,231)	$	240	$	557,866

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	9,680	$	24,325	Net income	$	46,536	$	48,955
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	5,438		4,516		Depreciation	18,595		14,536
Amortization of intangibles	Amortization of intangibles	36,159		23,264		Amortization of intangibles	110,353		88,393
Operating lease expense	Operating lease expense	5,570		4,576		Operating lease expense	14,397		12,897
Amortization of prepaid product discounts	Amortization of prepaid product discounts	8,924		7,440		Amortization of prepaid product discounts	26,258		23,425
Deferred income taxes	Deferred income taxes	(7,524)		5,245		Deferred income taxes	(21,791)		13,733
Employee share-based compensation expense	Employee share-based compensation expense	8,142		6,742		Employee share-based compensation expense	18,766		21,801
Gain on sale of businesses and facility						Gain on sale of businesses and facility	(19,331)		—
Other non-cash items, net	Other non-cash items, net	8,213		2,418		Other non-cash items, net	22,940		10,459
Changes in assets and liabilities:
Changes in assets and liabilities, net of effect of acquisition:						Changes in assets and liabilities, net of effect of acquisition:
Trade accounts receivable	Trade accounts receivable	12,248		23,122		Trade accounts receivable	(878)		15,164
Inventories and supplies	Inventories and supplies	(893)		1,042		Inventories and supplies	(14,540)		3,787
Other current assets	Other current assets	(12,731)		(19,711)		Other current assets	(11,826)		(27,495)
Payments for cloud computing arrangement implementation costs	Payments for cloud computing arrangement implementation costs	(6,391)		(8,915)		Payments for cloud computing arrangement implementation costs	(16,608)		(27,989)
Other non-current assets	Other non-current assets	(3,082)		(953)		Other non-current assets	(11,808)		(7,832)
Accounts payable	Accounts payable	(5,003)		(3,543)		Accounts payable	(1,090)		8,538
Prepaid product discount payments	Prepaid product discount payments	(7,859)		(9,590)		Prepaid product discount payments	(23,920)		(27,049)
Other accrued and non-current liabilities	Other accrued and non-current liabilities	(16,626)		(20,397)		Other accrued and non-current liabilities	(12,635)		(22,094)
Net cash provided by operating activities	Net cash provided by operating activities	34,265		39,581		Net cash provided by operating activities	123,418		149,229
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of capital assets	Purchases of capital assets	(20,844)		(21,670)		Purchases of capital assets	(73,454)		(81,081)
Payment for acquisition, net of cash, cash equivalents, restricted cash and restricted cash equivalents acquired						Payment for acquisition, net of cash, cash equivalents, restricted cash and restricted cash equivalents acquired	—		(956,717)
Proceeds from sale of businesses and facility						Proceeds from sale of businesses and facility	25,248		2,648
Other	Other	515		(180)		Other	(1,144)		(1,211)
Net cash used by investing activities	Net cash used by investing activities	(20,329)		(21,850)		Net cash used by investing activities	(49,350)		(1,036,361)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuing long-term debt and swingline loans	Proceeds from issuing long-term debt and swingline loans	146,500		5,000		Proceeds from issuing long-term debt and swingline loans	511,000		1,852,850
Payments on long-term debt and swingline loans	Payments on long-term debt and swingline loans	(137,938)		(5,000)		Payments on long-term debt and swingline loans	(524,175)		(903,438)
Payments for debt issuance costs						Payments for debt issuance costs	—		(18,153)
Net change in customer funds obligations	Net change in customer funds obligations	(99,240)		1,659		Net change in customer funds obligations	(88,079)		14,913
Proceeds from issuing shares	Proceeds from issuing shares	798		673		Proceeds from issuing shares	2,383		16,031
Employee taxes paid for shares withheld	Employee taxes paid for shares withheld	(4,161)		(2,360)		Employee taxes paid for shares withheld	(5,597)		(4,634)
Cash dividends paid to shareholders	Cash dividends paid to shareholders	(13,317)		(12,932)		Cash dividends paid to shareholders	(39,613)		(38,695)
Other	Other	(2,610)		(1,271)		Other	(5,480)		(7,254)
Net cash used by financing activities		(109,968)		(14,231)
Net cash (used) provided by financing activities						Net cash (used) provided by financing activities	(149,561)		911,620
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	1,320		1,606		Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	(14,107)		(793)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(94,712)		5,106		Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(89,600)		23,695
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	285,491		229,409		Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	285,491		229,409
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)	$	190,779	$	234,515	Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	$	195,891	$	253,104

See Condensed Notes to Unaudited Consolidated Financial Statements


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


NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of ~~March 31,~~September 30, 2022, the consolidated statements of comprehensive income for the quarters and nine monthsended ~~March 31,~~September 30, 2022 and 2021, the consolidated statements of shareholders’ equity for the quarters and nine months ended ~~March 31,~~September 30, 2022 and 2021 and the consolidated statements of cash flows for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021 are unaudited. The consolidated balance sheet as of December 31, 2021 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (GAAP). In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial statements are included. Adjustments consist only of normal recurring items, except for any items discussed in the notes below. Interim results are not necessarily indicative of results for a full ~~year.~~year or future results. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and do not contain certain information included in our annual consolidated financial statements and notes. The consolidated financial statements and notes appearing in this report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the ~~2021~~"2021 Form ~~10-K)~~10-K").

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

Comparability – The consolidated statement of cash flows for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 has been modified to ~~confirm~~conform to the current year presentation. We presented payments for cloud computing arrangement implementation costs separately within cash flows from operating activities. Previously, this amount was included in other non-current assets. Also, we included purchases of and proceeds from customer funds marketable securities within other investing activities. Previously, these amounts were presented separately. During the quarter ended March 31, 2022, we recorded out-of-period correcting adjustments that decreased net income attributable to Deluxe by $2,197. These adjustments were not material to any historical interim or annual period.


NOTE 2: NEW ACCOUNTING PRONOUNCEMENT

In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures. The standard modifies the accounting for troubled debt restructurings by creditors and modifies certain disclosure requirements. The guidance will be applied prospectively, with the exception of the recognition and measurement of troubled debt restructurings, for which we may elect to apply a modified retrospective transition method. The standard is effective for us on January 1, 2023, and we do not expect its adoption to have a significant impact on our financial position or results of operations.


NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

Trade accounts receivable – Net trade accounts receivable ~~were~~was comprised of the following:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Trade accounts receivable – gross	Trade accounts receivable – gross	$	188,534	$	202,077	Trade accounts receivable – gross	$	198,685	$	202,077
Allowance for credit losses	Allowance for credit losses	(4,199)		(4,130)		Allowance for credit losses	(3,534)		(4,130)
Trade accounts receivable – net(1)	Trade accounts receivable – net(1)	$	184,335	$	197,947	Trade accounts receivable – net(1)	$	195,151	$	197,947

(1) Includes unbilled receivables of ~~$50,106~~$51,941 as of ~~March 31,~~September 30, 2022 and $47,420 as of December 31, 2021.


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

Changes in the allowance for credit losses for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021 were as follows:


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Balance, beginning of year	Balance, beginning of year	$	4,130	$	6,428	Balance, beginning of year	$	4,130	$	6,428
Bad debt expense (benefit)	Bad debt expense (benefit)	625		(649)		Bad debt expense (benefit)	2,410		(412)
Write-offs and other	Write-offs and other	(556)		(900)		Write-offs and other	(3,006)		(2,555)
Balance, end of period	Balance, end of period	$	4,199	$	4,879	Balance, end of period	$	3,534	$	3,461

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


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Raw materials	Raw materials	$	5,587	$	5,316	Raw materials	$	7,675	$	5,316
Semi-finished goods	Semi-finished goods	6,742		6,708		Semi-finished goods	7,051		6,708
Finished goods	Finished goods	21,555		21,995		Finished goods	29,550		21,995
Supplies	Supplies	6,022		6,041		Supplies	6,496		6,041
Reserves for excess and obsolete items	Reserves for excess and obsolete items	(5,379)		(5,132)		Reserves for excess and obsolete items	(5,523)		(5,132)
Inventories and supplies, net of reserves	Inventories and supplies, net of reserves	$	34,527	$	34,928	Inventories and supplies, net of reserves	$	45,249	$	34,928

Changes in the reserves for excess and obsolete items were as follows for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021:


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Balance, beginning of year	Balance, beginning of year	$	5,132	$	11,748	Balance, beginning of year	$	5,132	$	11,748
Amounts charged to expense	Amounts charged to expense	773		2,013		Amounts charged to expense	2,552		2,884
Write-offs and other	Write-offs and other	(526)		(822)		Write-offs and other	(2,161)		(9,136)
Balance, end of period	Balance, end of period	$	5,379	$	12,939	Balance, end of period	$	5,523	$	5,496

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


		March 31, 2022									September 30, 2022
(in thousands)	(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value		(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Funds held for customers:(1)	Funds held for customers:(1)									Funds held for customers:(1)
Canadian and provincial government securities	Canadian and provincial government securities	$	9,865	$	—	$	(836)	$	9,029	Canadian and provincial government securities	$	8,975	$	—	$	(1,034)	$	7,941
Canadian guaranteed investment certificate		3,998		—		—		3,998
Available-for-sale debt securities	Available-for-sale debt securities	$	13,863	$	—	$	(836)	$	13,027	Available-for-sale debt securities	$	8,975	$	—	$	(1,034)	$	7,941

(1) Funds held for customers, as reported on the consolidated balance sheet as of ~~March 31,~~September 30, 2022, also included cash of ~~$143,725.~~$147,614.


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


	December 31, 2021
(in thousands)	Cost		Gross unrealized gains		Gross unrealized losses		Fair value
Funds held for customers:(1)

Canadian and provincial government securities	$	9,724	$	—	$	(374)	$	9,350
Canadian guaranteed investment certificate	3,957		—		—		3,957
Available-for-sale debt securities	$	13,681	$	—	$	(374)	$	13,307

(1) Funds held for customers, as reported on the consolidated balance sheet as of December 31, 2021, also included cash of $241,488.

Expected maturities of available-for-sale debt securities as of ~~March 31,~~September 30, 2022 were as follows:


(in thousands)	Fair value
Due in one year or less	$	~~6,572~~3,415
Due in two to five years	~~2,708~~2,819
Due in six to ten years	~~3,747~~1,707
Available-for-sale debt securities	$	~~13,027~~7,941

Further information regarding the fair value of available-for-sale debt securities can be found in Note 8.

Revenue in excess of billings – Revenue in excess of billings was comprised of the following:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Conditional right to receive consideration	Conditional right to receive consideration	$	22,657	$	22,780	Conditional right to receive consideration	$	24,147	$	22,780
Unconditional right to receive consideration(1)	Unconditional right to receive consideration(1)	11,032		7,613		Unconditional right to receive consideration(1)	14,203		7,613
Revenue in excess of billings	Revenue in excess of billings	$	33,689	$	30,393	Revenue in excess of billings	$	38,350	$	30,393

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

Intangibles – Intangibles were comprised of the following:


		March 31, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(in thousands)	(in thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount		(in thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Internal-use software														Internal-use software	$	510,141	$	(381,456)	$	128,685	$	456,133	$	(342,656)	$	113,477
Customer lists/relationships	Customer lists/relationships	$	493,510	$	(264,822)	$	228,688	$	493,495	$	(255,178)	$	238,317	Customer lists/relationships	501,411		(299,318)		202,093		493,495		(255,178)		238,317
Internal-use software		471,035		(354,338)		116,697		456,133		(342,656)		113,477
Technology-based intangibles	Technology-based intangibles	98,813		(40,584)		58,229		98,813		(38,553)		60,260		Technology-based intangibles	98,813		(44,646)		54,167		98,813		(38,553)		60,260
Partner relationships	Partner relationships	73,257		(4,323)		68,934		73,095		(2,990)		70,105		Partner relationships	74,399		(7,285)		67,114		73,095		(2,990)		70,105
Trade names	Trade names	44,185		(24,935)		19,250		51,052		(31,277)		19,775		Trade names	44,185		(25,985)		18,200		51,052		(31,277)		19,775
Software to be sold	Software to be sold	36,900		(29,167)		7,733		36,900		(28,110)		8,790		Software to be sold	36,900		(31,060)		5,840		36,900		(28,110)		8,790
Intangibles	Intangibles	$	1,217,700	$	(718,169)	$	499,531	$	1,209,488	$	(698,764)	$	510,724	Intangibles	$	1,265,849	$	(789,750)	$	476,099	$	1,209,488	$	(698,764)	$	510,724


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

Amortization of intangibles was ~~$36,159~~$35,855 for the quarter ended ~~March 31,~~September 30, 2022, ~~and $23,264~~$36,570 for the quarter ended ~~March 31,~~September 30, 2021, $110,353 for the nine months ended September 30, 2022 and $88,393 for the nine months ended September 30, 2021. Based on the intangibles in service as of ~~March 31,~~September 30, 2022, estimated future amortization expense is as follows:


(in thousands)	(in thousands)	Estimated amortization expense		(in thousands)	Estimated amortization expense
Remainder of 2022	Remainder of 2022	$	88,406	Remainder of 2022	$	37,168
2023	2023	117,562		2023	120,753
2024	2024	75,257		2024	81,627
2025	2025	50,306		2025	48,639
2026	2026	40,004		2026	45,553

We acquire and develop internal-use software in the normal course of business. We also, at times, purchase customer list and partner relationship assets. The following intangibles were ~~acquired~~capitalized during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022:

(in thousands) Amount Weighted-average amortization period
(in years)
Internal-use software $ 15,931 3
Customer lists/relationships 10,280 6
Partner relationships 163 1
Acquired intangibles $ 26,374 4


(in thousands)	Amount		Weighted-average amortization period (in years)
Internal-use software	$	55,776	3
Customer lists/relationships	18,924		6
Partner relationships	1,304		2
Acquired intangibles	$	76,004	4

Goodwill – Changes in goodwill by reportable segment and in total were as follows for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022:


(in thousands)	(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Total		(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Total
Balance, December 31, 2021:	Balance, December 31, 2021:											Balance, December 31, 2021:
Goodwill, gross	Goodwill, gross	$	895,338	$	432,984	$	252,874	$	434,812	$	2,016,008	Goodwill, gross	$	895,338	$	432,984	$	252,874	$	434,812	$	2,016,008
Accumulated impairment charges	Accumulated impairment charges	—		(392,168)		(193,699)		—		(585,867)		Accumulated impairment charges	—		(392,168)		(193,699)		—		(585,867)
Goodwill, net of accumulated impairment charges	Goodwill, net of accumulated impairment charges	895,338		40,816		59,175		434,812		1,430,141		Goodwill, net of accumulated impairment charges	895,338		40,816		59,175		434,812		1,430,141

Measurement-period adjustment (Note 6)												Measurement-period adjustment (Note 6)	1,343		—		—		—		1,343
Currency translation adjustment	Currency translation adjustment	—		—		15		—		15		Currency translation adjustment	—		—		(126)		—		(126)
Balance, March 31, 2022		$	895,338	$	40,816	$	59,190	$	434,812	$	1,430,156
Balance, September 30, 2022												Balance, September 30, 2022	$	896,681	$	40,816	$	59,049	$	434,812	$	1,431,358

Balance, March 31, 2022:
Balance, September 30, 2022:												Balance, September 30, 2022:
Goodwill, gross	Goodwill, gross	$	895,338	$	432,984	$	252,889	$	434,812	$	2,016,023	Goodwill, gross	$	896,681	$	432,984	$	252,748	$	434,812	$	2,017,225
Accumulated impairment charges	Accumulated impairment charges	—		(392,168)		(193,699)		—		(585,867)		Accumulated impairment charges	—		(392,168)		(193,699)		—		(585,867)
Goodwill, net of accumulated impairment charges	Goodwill, net of accumulated impairment charges	$	895,338	$	40,816	$	59,190	$	434,812	$	1,430,156	Goodwill, net of accumulated impairment charges	$	896,681	$	40,816	$	59,049	$	434,812	$	1,431,358


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

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


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Postretirement benefit plan asset	Postretirement benefit plan asset	$	88,943	$	87,019	Postretirement benefit plan asset	$	92,802	$	87,019
Cloud computing arrangements implementation costs		66,408		63,806
Cloud computing arrangement implementation costs						Cloud computing arrangement implementation costs	70,519		63,806
Prepaid product discounts	Prepaid product discounts	51,885		56,527		Prepaid product discounts	48,591		56,527
Deferred contract acquisition costs(1)	Deferred contract acquisition costs(1)	20,200		17,975		Deferred contract acquisition costs(1)	21,671		17,975
Loans and notes receivable from distributors, net of allowance for credit losses(2)	Loans and notes receivable from distributors, net of allowance for credit losses(2)	15,970		20,201		Loans and notes receivable from distributors, net of allowance for credit losses(2)	13,525		20,201
Assets held for sale(3)		10,151		7,251
Other	Other	25,899		26,684		Other	29,102		33,935
Other non-current assets	Other non-current assets	$	279,456	$	279,463	Other non-current assets	$	276,210	$	279,463

(1) Amortization of deferred contract acquisition costs was ~~$1,756~~$5,872 for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022 and ~~$972~~$3,366 for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021.

(2) Amount includes the non-current portion of loans and notes receivable. The current portion of these receivables is included in other current assets on the consolidated balance sheets and was ~~$1,162~~$992 as of ~~March 31,~~September 30, 2022 and $1,317 as of December 31, 2021.

~~(3)~~ ~~Relates primarily to the continuing evaluation of our real estate footprint in both periods, as well as the assets of our Australian web hosting business as of March 31, 2022 (Note 6).~~

Changes in the allowance for credit losses related to loans and notes receivable from distributors were as follows for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021:


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Balance, beginning of year	Balance, beginning of year	$	2,830	$	3,995	Balance, beginning of year	$	2,830	$	3,995
Bad debt expense (benefit)	Bad debt expense (benefit)	81		(634)		Bad debt expense (benefit)	1,221		(1,158)
Exchange for customer lists		(402)		—
Other						Other	(402)		—
Balance, end of period	Balance, end of period	$	2,509	$	3,361	Balance, end of period	$	3,649	$	2,837

Past due receivables and those on non-accrual status were not significant as of ~~March 31,~~September 30, 2022 or December 31, 2021.

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.


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

The following table presents loans and notes receivable from distributors, including the current portion, by credit quality indicator and by year of origination, as of ~~March 31,~~September 30, 2022. There were no write-offs or recoveries recorded during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022.


	Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands)	2020		2019		2018		2017		Prior		Total
Risk rating:
1-2 internal grade	$	1,172	$	443	$	4,247	$	8,720	$	985	$	15,567
3-4 internal grade	—		2,599		—		—		—		2,599
Loans and notes receivable	$	1,172	$	3,042	$	4,247	$	8,720	$	985	$	18,166

Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands) 2020 2019 2018 2017 Prior Total
Risk rating:
1-2 internal grade $ 1,201 $ 471 $ 5,283 $ 8,942 $ 1,145 $ 17,042
3-4 internal grade — 2,599 — — — 2,599
Loans and notes receivable $ 1,201 $ 3,070 $ 5,283 $ 8,942 $ 1,145 $ 19,641

~~Changes in prepaid product discounts during the quarters ended March 31, 2022 and 2021 were as follows:~~

Quarter Ended
March 31,
(in thousands) 2022 2021
Balance, beginning of year $ 56,527 $ 50,602
Additions(1)
4,229 7,890
Amortization (8,924) (7,440)
Other 53 (8)
Balance, end of period $ 51,885 $ 51,044

~~(1)~~ Prepaid product discounts are generally accrued upon contract execution. Cash payments for prepaid product discounts were $7,859 for the quarter ended March 31, 2022 and $9,590 for the quarter ended March 31, 2021.

~~Accrued liabilities~~ ~~– Accrued liabilities were comprised of the following:~~

(in thousands) March 31,
2022 December 31,
2021
Deferred revenue(1)
$ 46,908 $ 52,645
Employee cash bonuses, including sales incentives 16,216 45,006
Interest 15,451 4,597
Operating lease liabilities 14,243 14,852
Customer rebates 9,316 9,036
Prepaid product discounts due within one year 8,319 11,866
Other 91,460 78,830
Accrued liabilities $ 201,913 $ 216,832

~~(1)~~ ~~$20,238 of the December 31, 2021 amount was recognized as revenue during the quarter ended March 31, 2022.~~

~~Supplemental cash flow information– The reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the consolidated balance sheets was as follows:~~

(in thousands) March 31,
2022 March 31,
2021
Cash and cash equivalents $ 44,059 $ 125,440
Restricted cash and restricted cash equivalents included in funds held for customers 143,725 109,075
Cash and cash equivalents included in other current assets(1)
400 —
Non-current restricted cash included in other non-current assets 2,595 —
Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 190,779 $ 234,515

~~(1)~~ ~~Represents cash and cash equivalents of our Australian web hosting business that was classified as held for sale as of March 31, 2022 (Note 6).~~


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

Changes in prepaid product discounts during the nine months ended September 30, 2022 and 2021 were as follows:


	Nine Months Ended September 30,
(in thousands)	2022		2021
Balance, beginning of year	$	56,527	$	50,602
Additions(1)	18,721		24,284
Amortization	(26,258)		(23,425)
Other	(399)		(191)
Balance, end of period	$	48,591	$	51,270

(1) Prepaid product discounts are generally accrued upon contract execution. Cash payments for prepaid product discounts were $23,920 for the nine months ended September 30, 2022 and $27,049 for the nine months ended September 30, 2021.

Accrued liabilities – Accrued liabilities were comprised of the following:


(in thousands)	September 30, 2022		December 31, 2021
Employee cash bonuses, including sales incentives	$	38,780	$	45,006
Deferred revenue(1)	36,193		52,645
Wages and payroll liabilities, including vacation	34,679		24,951
Interest	16,021		4,597
Operating lease liabilities	12,672		14,852
Customer rebates	12,140		9,036
Prepaid product discounts	6,568		11,866
Other	60,442		53,879
Accrued liabilities	$	217,495	$	216,832

(1) $41,222 of the December 31, 2021 amount was recognized as revenue during the nine months ended September 30, 2022.

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, 2022		September 30, 2021
Cash and cash equivalents	$	45,535	$	121,064
Restricted cash and restricted cash equivalents included in funds held for customers	147,614		129,180
Non-current restricted cash included in other non-current assets	2,742		2,860
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	195,891	$	253,104


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


NOTE 4: EARNINGS PER SHARE

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021			(in thousands, except per share amounts)	2022		2021		2022		2021
Earnings per share – basic:	Earnings per share – basic:						Earnings per share – basic:
Net income	Net income	$	9,680	$	24,325		Net income	$	14,760	$	12,501	$	46,536	$	48,955
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	(36)		(33)			Net income attributable to non-controlling interest	(35)		(37)		(106)		(99)
Net income attributable to Deluxe	Net income attributable to Deluxe	9,644		24,292			Net income attributable to Deluxe	14,725		12,464		46,430		48,856
Income allocated to participating securities	Income allocated to participating securities	(10)		(19)			Income allocated to participating securities	(10)		(9)		(33)		(36)
Income attributable to Deluxe available to common shareholders	Income attributable to Deluxe available to common shareholders	$	9,634	$	24,273		Income attributable to Deluxe available to common shareholders	$	14,715	$	12,455	$	46,397	$	48,820
Weighted-average shares outstanding	Weighted-average shares outstanding	42,803		42,046			Weighted-average shares outstanding	43,116		42,574		42,974		42,294
Earnings per share – basic	Earnings per share – basic	$	0.23	$	0.58		Earnings per share – basic	$	0.34	$	0.29	$	1.08	$	1.15

Earnings per share – diluted:	Earnings per share – diluted:						Earnings per share – diluted:
Net income	Net income	$	9,680	$	24,325		Net income	$	14,760	$	12,501	$	46,536	$	48,955
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	(36)		(33)			Net income attributable to non-controlling interest	(35)		(37)		(106)		(99)
Net income attributable to Deluxe	Net income attributable to Deluxe	9,644		24,292			Net income attributable to Deluxe	14,725		12,464		46,430		48,856
Income allocated to participating securities	Income allocated to participating securities	(10)		—			Income allocated to participating securities	—		(9)		(22)		(27)
Re-measurement of share-based awards classified as liabilities	Re-measurement of share-based awards classified as liabilities	(39)		—			Re-measurement of share-based awards classified as liabilities	(162)		(329)		(507)		(329)
Income attributable to Deluxe available to common shareholders	Income attributable to Deluxe available to common shareholders	$	9,595	$	24,292		Income attributable to Deluxe available to common shareholders	$	14,563	$	12,126	$	45,901	$	48,500
Weighted-average shares outstanding	Weighted-average shares outstanding	42,803		42,046			Weighted-average shares outstanding	43,116		42,574		42,974		42,294
Dilutive impact of potential common shares	Dilutive impact of potential common shares	429		458			Dilutive impact of potential common shares	234		457		310		453
Weighted-average shares and potential common shares outstanding	Weighted-average shares and potential common shares outstanding	43,232		42,504			Weighted-average shares and potential common shares outstanding	43,350		43,031		43,284		42,747
Earnings per share – diluted	Earnings per share – diluted	$	0.22	$	0.57		Earnings per share – diluted	$	0.34	$	0.28	$	1.06	$	1.13
Antidilutive options excluded from calculation	Antidilutive options excluded from calculation	2,063		2,423			Antidilutive options excluded from calculation	1,815		2,314		1,815		2,314


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


NOTE 5: OTHER COMPREHENSIVE INCOME

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


Accumulated other comprehensive loss components	Accumulated other comprehensive loss components	Amounts reclassified from accumulated other comprehensive loss				Affected line item in consolidated statements of comprehensive income	Accumulated other comprehensive loss components	Amounts reclassified from accumulated other comprehensive loss								Affected line item in consolidated statements of comprehensive income
		Quarter Ended March 31,								Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021							(in thousands)	2022		2021		2022		2021
Realized loss on interest rate swap		$	(318)	$	(334)				Interest expense
Tax benefit		83		87					Income tax provision
Realized loss on interest rate swap, net of tax		(235)		(247)					Net income
Amortization of postretirement benefit plan items:	Amortization of postretirement benefit plan items:										Amortization of postretirement benefit plan items:
Prior service credit	Prior service credit	355		355					Other income		Prior service credit	$	355	$	355	$	1,066	$	1,066	Other income
Net actuarial loss	Net actuarial loss	(225)		(407)					Other income		Net actuarial loss	(225)		(407)		(674)		(1,221)		Other income
Total amortization	Total amortization	130		(52)					Other income		Total amortization	130		(52)		392		(155)		Other income
Tax expense	Tax expense	(77)		(31)					Income tax provision		Tax expense	(79)		(30)		(237)		(93)		Income tax provision
Amortization of postretirement benefit plan items, net of tax	Amortization of postretirement benefit plan items, net of tax	53		(83)					Net income		Amortization of postretirement benefit plan items, net of tax	51		(82)		155		(248)		Net income
Realized loss on debt securities											Realized loss on debt securities	—		—		(8)		—		Revenue
Tax benefit											Tax benefit	—		—		2		—		Income tax provision
Realized loss on debt securities, net of tax											Realized loss on debt securities, net of tax	—		—		(6)		—		Net income
Realized gain (loss) on cash flow hedges											Realized gain (loss) on cash flow hedges	53		(371)		(412)		(1,035)		Interest expense
Tax (expense) benefit											Tax (expense) benefit	(15)		97		109		271		Income tax provision
Realized gain (loss) on cash flow hedges, net of tax											Realized gain (loss) on cash flow hedges, net of tax	38		(274)		(303)		(764)		Net income
Currency translation adjustment(1)											Currency translation adjustment(1)	—		—		(5,550)		—		Gain on sale of businesses and facility
Total reclassifications, net of tax	Total reclassifications, net of tax	$	(182)	$	(330)						Total reclassifications, net of tax	$	89	$	(356)	$	(5,704)	$	(1,012)

(1) Relates to the sale of our Australian web hosting business during the quarter ended June 30, 2022. Further information can be found in Note 6.

Accumulated other comprehensive loss – Changes in the components of accumulated other comprehensive loss during the ~~quarter~~nine months ended ~~March 31,~~September 30, 2022 were as follows:


(in thousands)	(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		(in thousands)	Postretirement benefit plans		Net unrealized loss on debt securities(1)		Net unrealized loss on cash flow hedges(2)		Currency translation adjustment		Accumulated other comprehensive loss
Balance, December 31, 2021	Balance, December 31, 2021	$	(15,431)	$	(344)	$	(2,261)	$	(13,456)	$	(31,492)	Balance, December 31, 2021	$	(15,431)	$	(344)	$	(2,261)	$	(13,456)	$	(31,492)
Other comprehensive (loss) income before reclassifications	Other comprehensive (loss) income before reclassifications	—		(335)		1,924		696		2,285		Other comprehensive (loss) income before reclassifications	—		(566)		4,712		(6,006)		(1,860)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	(53)		—		235		—		182		Amounts reclassified from accumulated other comprehensive loss	(155)		6		303		5,550		5,704
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(53)		(335)		2,159		696		2,467		Net current-period other comprehensive (loss) income	(155)		(560)		5,015		(456)		3,844
Balance, March 31, 2022		$	(15,484)	$	(679)	$	(102)	$	(12,760)	$	(29,025)
Balance, September 30, 2022												Balance, September 30, 2022	$	(15,586)	$	(904)	$	2,754	$	(13,912)	$	(27,648)

(1) Other comprehensive loss before reclassifications is net of an income tax benefit of ~~$116.~~$197.

(2) Other comprehensive income before reclassifications is net of income tax expense of ~~$679.~~

$1,701.


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


NOTE 6: ACQUISITION AND ~~DIVESTITURE~~DIVESTITURES

Acquisition – On June 1, 2021, we acquired all of the equity of First American Payment Systems, L.P. (First American). Further information regarding this acquisition ~~including the preliminary allocation of the purchase price,~~ can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K. ~~We expect to finalize~~During the quarter ended June 30, 2022, we finalized the purchase price allocation ~~in the second quarter of 2022, when~~for this acquisition and we ~~complete the~~recorded measurement-period adjustments that increased deferred income tax ~~returns for the pre-acquisition period.~~liabilities by $1,343, with a corresponding offset to goodwill.

~~Our results~~The final allocation of ~~operations for~~ the ~~quarter ended March 31, 2022 included revenue of $83,284 and net loss of $510 from the operations of~~ First American ~~including restructuring~~purchase price to the assets acquired and ~~integration costs~~liabilities assumed was as follows:


(in thousands)	Purchase price allocation
Trade accounts receivable	$	27,296
Other current assets	8,533
Property, plant and equipment	9,873
Operating lease assets	24,396
Intangible assets:
Customer relationships	127,000
Partner relationships	72,000
Technology-based intangibles	65,000
Trade names	21,000
Internal-use software	6,111
Total intangible assets	291,111
Goodwill	728,516
Other-non-current assets	350
Accounts payable	(18,475)
Funds held for customers	(9,428)
Accrued liabilities	(23,460)
Operating lease liabilities, non-current	(21,316)
Deferred income taxes	(54,506)
Other non-current liabilities	(4,376)
Payments for acquisition, net of cash, cash equivalents, restricted cash and restricted cash equivalents acquired of $15,841	$	958,514

Further information regarding the acquired First American intangibles can be found under the caption "Note 3: Supplemental Balance Sheet and Cash Flow Information" and "Note 8: Fair Value Measurements," both of ~~$2,222 related primarily~~which are included in the Notes to ~~real estate rationalization. Our results of operations for~~Consolidated Financial Statements appearing in the ~~quarter ended March 31,~~ 2021 ~~included related~~Form 10-K.

First American acquisition transaction costs ~~of $2,765, which~~ are included in selling, general and administrative (SG&A) expense in the consolidated ~~statement~~statements of comprehensive ~~income.~~income and were $208 for the quarter ended September 30, 2021 and $18,816 for the nine months ended September 30, 2021. Operating results for First American were as follows for the nine months ended September 30:


	Nine Months Ended September 30,
(in thousands)	2022		2021
Revenue	$	259,724	$	109,828
Net income attributable to Deluxe	2,902		824

The above results include restructuring and integration costs of $5,209 for the nine months ended September 30, 2022.


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

~~Revised pro~~Pro forma financial information – During the first quarter of 2022, we identified errors in the previously reported pro forma results of operations related to the First American acquisition. These errors related to the amount of historical First American revenue and net income (loss) included for the pre-acquisition periods, as well as errors in the adjustments related to the amortization of acquired intangibles, interest expense on the acquisition financing and transaction costs.

For the quarter and six months ended June 30, 2021 and the nine months ended September 30, 2021, these corrections decreased pro forma revenue by $27,595 from the amounts previously reported. For the years ended December 31, 2021 and 2020, these corrections decreased pro forma revenue by $26,335 and $3,027, respectively, from the amounts previously reported. The corrections to adjusted pro forma net income (loss) attributable to Deluxe ~~as follows~~ from the amounts previously ~~reported:~~reported were as follows:


(in thousands)	Increase (decrease) in pro forma net income ~~(loss)~~ attributable to Deluxe
Quarter ended June 30, 2021	$	7,636
Six Months ended June 30, 2021	5,911
Quarter ended September 30, 2021	2,231
Nine Months ended September 30, 2021	8,142
Year Ended December 31, 2021	10,138
Year Ended December 31, 2020	(9,082)

The following unaudited pro forma financial information summarizes our consolidated results of operations as though the First American acquisition occurred on January 1, 2020:


			As Revised
(in thousands)	Quarter Ended March 31, 2021		Quarter Ended June 30, 2021		Six Months Ended June 30, 2021		Quarter Ended Sept. 30, 2021(1)		Nine Months Ended Sept. 30, 2021		Year Ended December 31, 2021		Year Ended December 31, 2020
Revenue	$	518,104	$	535,493	$	1,053,597	$	532,141	$	1,585,738	$	2,156,313	$	2,079,103
Net income (loss) attributable to Deluxe	19,044		24,579		43,623		14,695		58,318		74,843		(54,489)

(1) Only net income attributable to Deluxe was revised for the quarter ended September 30, 2021.

The unaudited pro forma financial information was prepared in accordance with our accounting policies, which can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K. The pro forma information includes adjustments to reflect the additional amortization that would have been ~~charged~~recorded assuming the fair value adjustments to intangible assets had been applied from January 1, 2020. The pro forma information also includes adjustments to reflect the additional interest expense on the debt we issued to fund the acquisition, and the acquisition transaction costs we incurred during 2021 are reflected in the 2020 pro forma results.


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

This pro forma financial information is for informational purposes only. It does not reflect the integration of the businesses or any synergies that may result from the acquisition. As such, it is not indicative of the results of operations that would have been achieved had the acquisition been consummated on January 1, 2020. In addition, the pro forma amounts are not indicative of future operating results.

~~Divestiture~~Divestitures – In May 2022, we completed the sale of our Australian web hosting business for cash proceeds of ~~$20,000. We determined that~~$17,620, net of costs of the sale of this business would give us more flexibility to further refine our offerings in the North American market, allowing us to better manage our portfolio of businesses and to maximize our cross-sell capabilities.sale. This business generated annual revenue in our Cloud Solutions segment of $23,766 for 2021. ~~We anticipate that~~During the quarter ended June 30, 2022, we ~~will recognize~~recognized a pretax gain of $15,166 on ~~the sale of~~ this ~~business in the second quarter of 2022.~~sale. The assets and liabilities of the business were classified as held for sale in the consolidated balance sheet as of March 31, 2022 within other current assets, other non-current assets and accrued liabilities. The amounts of these assets and liabilitiessold were not significant to our consolidated balance sheet.

In April 2022, we sold the assets of our Promotional Solutions strategic sourcing business, and in August 2022, we sold the assets of our Promotional Solutions retail packaging business. These businesses generated annual revenue of approximately $29,000 during 2021. Neither the gain on these sales nor the assets and liabilities sold were significant to our consolidated financial statements.


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

We believe that the sale of these businesses allows us to focus our resources on the key growth areas of payments and data, while allowing us to optimize our operations.

Facility sale –In May 2022, we sold our former facility located in Lancaster, California for cash proceeds of $6,929, net of costs of the sale, and we recognized a pretax gain on the sale of $2,361 during the quarter ended June 30, 2022. The sale was a result of our continued real estate rationalization process.


NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS


							September 30, 2022		December 31, 2021
(in thousands)	Notional amount		Interest Rate		Maturity	Balance Sheet Location	Fair Value Asset / (Liability)		Fair Value Asset / (Liability)
July 2019 interest rate swap:
	$	200,000	1.798	%	March 2023	Other current assets	$	2,071	$	—
						Other non-current liabilities	—		(3,028)
September 2022 interest rate swap:
	300,000		3.895	%	September 2025	Other non-current assets	1,726		—

Changes in the fair ~~value~~values of the interest rate ~~swap~~swaps are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair ~~value~~values of the interest rate swap was $107 as of March 31, 2022 and was included in accrued liabilities on the consolidated balance sheet. The fair value of the swap was $3,028 as of December 31, 2021 and was included in other non-current liabilities on the consolidated balance sheet. The fair value of this derivative isderivatives are calculated based on the prevailing LIBOR rate curve on the date of measurement. The cash flow ~~hedge was~~hedges were fully effective as of ~~March 31,~~September 30, 2022 and December 31, 2021, and ~~its~~their impact on consolidated net income and our consolidated statements of cash flows was not significant. We also ~~do not~~ expect that the amount tothat will be reclassified to interest expense ~~over~~during the next 12 months towill not be significant.


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


NOTE 8: FAIR VALUE MEASUREMENTS

2022 annual goodwill impairment analysis – Our impairment of goodwill policy can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K. This policy explains our methodology for assessing the impairment of goodwill.

In completing the 2022 annual impairment analysis of goodwill as of July 31, 2022, we elected to perform qualitative analyses for all of our reporting units, with the exception of our Cloud Data Analytics reporting unit. These 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 most recent quantitative analyses completed in prior periods. In completing these assessments, we noted no changes in events or 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 Cloud Data Analytics reporting unit indicated that the estimated fair value of this reporting unit exceeded its carrying value by approximately $46,000, or by 39% above the carrying value of its net assets. As such, no goodwill impairment charges were recorded as a result of our annual impairment analysis.

Recurring fair value measurements –Funds held for customers included available-for-sale debt securities (Note 3). These securities included a mutual fund investment that invests in Canadian and provincial government securities and as of December 31, 2021, also included an investment in a Canadian guaranteed investment certificate (GIC) with aan original maturity of 2 years. The GIC investment matured during the quarter ended June 30, 2022. The mutual fund investment 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 cost of the GIC ~~approximates~~approximated its fair value, based on estimates using current market rates offered for deposits with similar remaining maturities. 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 and were not significant during the quarters and nine months ended ~~March 31,~~September 30, 2022 and 2021.


~~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																		Fair value measurements using
			March 31, 2022				Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)							September 30, 2022					Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(in thousands)	(in thousands)	Balance sheet location	Carrying value		Fair value						(in thousands)			Balance sheet location				Carrying value			Fair value
Measured at fair value through comprehensive income:	Measured at fair value through comprehensive income:													Measured at fair value through comprehensive income:
Available-for-sale debt securities	Available-for-sale debt securities	Funds held for customers	$	13,027	$	13,027		$	—		$	13,027			$	—	Available-for-sale debt securities		Funds held for customers			$	7,941	$		7,941	$	—	$	7,941	$	—
Derivative liability (Note 7)		Accrued liabilities	(107)		(107)		—			(107)			—
Derivative assets (Note 7)														Derivative assets (Note 7)			Other current and non-current assets			3,797			3,797		—		3,797		—
Amortized cost:	Amortized cost:													Amortized cost:
Cash		Cash and cash equivalents	44,059		44,059		44,059			—			—
Cash	Cash	Funds held for customers	143,725		143,725		143,725			—			—	Cash			Cash and cash equivalents			45,535			45,535		45,535		—		—
Cash	Cash	Other current assets	400		400		400			—			—	Cash			Funds held for customers			147,614			147,614		147,614		—		—
Cash	Cash	Other non-current assets	2,595		2,595		2,595			—			—	Cash			Other non-current assets			2,742			2,742		2,742		—		—
Loans and notes receivable from distributors	Loans and notes receivable from distributors	Other current and non-current assets	17,132		16,973		—			—			16,973	Loans and notes receivable from distributors			Other current and non-current assets			14,517			13,090		—		—		13,090
Long-term debt	Long-term debt	Current portion of long-term debt and long-term debt	1,692,418		1,719,732		—			1,719,732			—	Long-term debt			Current portion of long-term debt and long-term debt			1,670,964			1,597,546		—		1,597,546		—


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


						Fair value measurements using
		December 31, 2021				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
Measured at fair value through comprehensive income:

Available-for-sale debt securities	Funds held for customers	$	13,307	$	13,307	$	—	$	13,307	$	—
Derivative liability (Note 7)	Other non-current liabilities	(3,028)		(3,028)		—		(3,028)		—
Amortized cost:
Cash	Cash and cash equivalents	41,231		41,231		41,231		—		—
Cash	Funds held for customers	241,488		241,488		241,488		—		—
Cash	Other non-current assets	2,772		2,772		2,772		—		—
Loans and notes receivable from distributors	Other current and non-current assets	21,518		22,344		—		—		22,344
Long-term debt	Current portion of long-term debt and long-term debt	1,682,949		1,728,515		—		1,728,515		—


NOTE 9: RESTRUCTURING AND INTEGRATION EXPENSE

Restructuring and integration expense consists of costs related to the consolidation and migration of certain applications and processes, including our financial and sales management systems. It also includes costs related to the integration of acquired businesses into our systems and processes. These costs consist primarily of information technology consulting, project management services and internal labor, as well as other costs associated with our initiatives, such as training, travel, relocation and costs associated with facility closures. In addition, we recorded employee severance costs related to these initiatives, as well as our ongoing cost reduction initiatives across functional areas. We are currently pursuing several initiatives designed to support our growth strategy 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 as follows:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Total cost of revenue	Total cost of revenue	$	59	$	899		Total cost of revenue	$	131	$	1,559	$	216	$	3,073
Operating expenses	Operating expenses	16,244		14,313			Operating expenses	15,188		12,335		46,614		38,012
Restructuring and integration expense	Restructuring and integration expense	$	16,303	$	15,212		Restructuring and integration expense	$	15,319	$	13,894	$	46,830	$	41,085


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

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
External consulting fees	External consulting fees	$	7,859	$	7,383		External consulting fees	$	7,670	$	6,432	$	24,670	$	19,355
Internal labor	Internal labor	1,696		2,041			Internal labor	1,877		1,756		6,177		6,276
Employee severance benefits	Employee severance benefits	1,125		857			Employee severance benefits	3,826		1,293		8,232		3,167
Other	Other	5,623		4,931			Other	1,946		4,413		7,751		12,287
Restructuring and integration expense	Restructuring and integration expense	$	16,303	$	15,212		Restructuring and integration expense	$	15,319	$	13,894	$	46,830	$	41,085

Our restructuring and integration accruals are included in accrued liabilities on the consolidated balance sheets and represent expected cash payments required to satisfy the remaining severance obligations to those employees already terminated and those expected to be terminated under our various initiatives. The majority of the employee reductions and the related severance payments are expected to be completed by ~~mid-2022.~~mid-2023.

Changes in our restructuring and integration accruals were as follows:


(in thousands)	Employee severance benefits
Balance, December 31, 2021	$	5,672
Charges	~~1,629~~8,928
Reversals	~~(504)~~(696)
Payments	~~(3,759)~~(7,502)
Balance, ~~March 31,~~September 30, 2022	$	~~3,038~~6,402

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


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


NOTE 10: INCOME TAX PROVISION

The effective tax rate on pretax income reconciles to the U.S. federal statutory tax rate as follows:


		Quarter Ended March 31, 2022		Year Ended December 31, 2021			Nine Months Ended September 30, 2022		Year Ended December 31, 2021
Income tax at federal statutory rate	Income tax at federal statutory rate	21.0	%	21.0	%	Income tax at federal statutory rate	21.0	%	21.0	%
Change in valuation allowance	Change in valuation allowance	100.4	%	0.1	%	Change in valuation allowance	10.2	%	0.1	%
Tax impact of share-based compensation	Tax impact of share-based compensation	11.7	%	0.9	%	Tax impact of share-based compensation	4.0	%	0.9	%
State income tax expense, net of federal income tax benefit	State income tax expense, net of federal income tax benefit	2.5	%	2.4	%	State income tax expense, net of federal income tax benefit	2.8	%	2.4	%
Non-deductible executive compensation	Non-deductible executive compensation	2.5	%	1.7	%	Non-deductible executive compensation	2.2	%	1.7	%
Foreign tax rate differences	Foreign tax rate differences	1.7	%	1.7	%	Foreign tax rate differences	1.5	%	1.7	%
Tax on repatriation of foreign earnings	Tax on repatriation of foreign earnings	1.4	%	4.9	%	Tax on repatriation of foreign earnings	1.5	%	4.9	%
Non-deductible acquisition costs	Non-deductible acquisition costs	0.1	%	1.5	%	Non-deductible acquisition costs	0.1	%	1.5	%
Basis difference in Australian web hosting business		(117.6	%)	—
Sale of business (Note 6)						Sale of business (Note 6)	(12.5	%)	—
Research and development tax credit	Research and development tax credit	(1.1	%)	(0.9	%)	Research and development tax credit	(1.0	%)	(0.9	%)
Other	Other	0.3	%	(0.2	%)	Other	(0.2	%)	(0.2	%)
Effective tax rate	Effective tax rate	22.9	%	33.1	%	Effective tax rate	29.6	%	33.1	%

~~During the quarter ended March 31,~~


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

In May 2022, we ~~executed an agreement for~~completed the sale of our Australian web hosting business, and we ~~completed the sale in May 2022. The assets and liabilities of this business were classified as held for sale in the consolidated balance sheet as of March 31, 2022, and we~~ recognized a ~~deferred~~capital loss on the transaction for tax ~~asset of $14,764 for the difference between the book and tax basis of our investment in this business.~~purposes. We ~~also~~ recorded a valuation allowance ~~of $12,601 against this deferred tax asset~~ for the portion ~~that~~of the capital loss carryover we do not currently expect to realize.


NOTE 11: POSTRETIREMENT BENEFITS

We have historically provided certain health care benefits for ~~a large number of~~eligible retired U.S. employees. In addition to our retiree health care plan, we also have a U.S. supplemental executive retirement plan. Further information regarding our postretirement benefit plans can be found under the caption “Note 13: Postretirement Benefits” in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Interest cost	Interest cost	$	280	$	242		Interest cost	$	280	$	242	$	841	$	726
Expected return on plan assets	Expected return on plan assets	(1,866)		(1,875)			Expected return on plan assets	(1,866)		(1,875)		(5,596)		(5,623)
Amortization of prior service credit	Amortization of prior service credit	(355)		(355)			Amortization of prior service credit	(355)		(355)		(1,066)		(1,066)
Amortization of net actuarial losses	Amortization of net actuarial losses	225		407			Amortization of net actuarial losses	225		407		674		1,221
Net periodic benefit income	Net periodic benefit income	$	(1,716)	$	(1,581)		Net periodic benefit income	$	(1,716)	$	(1,581)	$	(5,147)	$	(4,742)


NOTE 12: DEBT

Debt outstanding was comprised of the following:


(in thousands)	September 30, 2022		December 31, 2021
Senior, secured term loan facility	$	1,001,813	$	1,072,125
Senior, unsecured notes	475,000		500,000
Amounts drawn on senior, secured revolving credit facility	210,000		130,000
Total principal amount	1,686,813		1,702,125
Less: unamortized discount and debt issuance costs	(15,849)		(19,176)
Total debt, net of discount and debt issuance costs	1,670,964		1,682,949
Less: current portion of long-term debt, net of debt issuance costs	(64,506)		(57,197)
Long-term debt	$	1,606,458	$	1,625,752


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


~~NOTE 12: DEBT~~

~~Debt outstanding was comprised of the following:~~

(in thousands) March 31,
2022 December 31, 2021
Senior, secured term loan facility $ 1,057,687 $ 1,072,125
Senior, unsecured notes 500,000 500,000
Amounts drawn on senior, secured revolving credit facility 153,000 130,000
Total principal amount 1,710,687 1,702,125
Less: unamortized discount and debt issuance costs (18,269) (19,176)
Total debt, net of discount and debt issuance costs 1,692,418 1,682,949
Less: current portion of long-term debt, net of debt issuance costs (57,227) (57,197)
Long-term debt $ 1,635,191 $ 1,625,752

Maturities of long-term debt were as follows as of ~~March 31,~~September 30, 2022:


(in thousands)	(in thousands)	Debt obligations		(in thousands)	Debt obligations
Remainder of 2022	Remainder of 2022	$	43,312	Remainder of 2022	$	14,438
2023	2023	72,188		2023	72,188
2024	2024	86,625		2024	86,625
2025	2025	101,062		2025	101,062
2026	2026	907,500		2026	937,500
Thereafter	Thereafter	500,000		Thereafter	475,000
Total principal amount	Total principal amount	$	1,710,687	Total principal amount	$	1,686,813

Credit facility – In June 2021, we executed a senior, secured credit facility consisting of a revolving credit facility with commitments of $500,000 and a $1,155,000 term loan facility. The revolving credit facility includes a $40,000 swingline sub-facility and a $25,000 letter of credit sub-facility. Proceeds from the credit facility were used to terminate our previous credit facility agreement and to fund the acquisition of First American (Note 6). Loans under the revolving credit facility may be borrowed, repaid and re-borrowed until June 1, 2026, at which time all amounts borrowed must be repaid. The term loan facility will be repaid in equal quarterly installments of $14,438 through June 30, 2023, $21,656 from September 30, 2023 through June 30, 2025, and $28,875 from September 30, 2025 through March 31, 2026. The remaining balance is due on June 1, 2026. The term loan facility also includes mandatory prepayment requirements related to asset sales, new debt (other than permitted debt) and excess cash flow, subject to certain limitations. No premium or penalty is payable in connection with any mandatory or voluntary prepayment of the term loan facility.

Interest is payable under the credit facility at a fluctuating rate of interest determined by reference to the eurodollar rate plus an applicable margin ranging from 1.5% to 2.5%, depending on our consolidated total leverage ratio, as defined in the credit agreement. A commitment fee is payable on the unused portion of the revolving credit facility at a rate ranging from 0.25% to 0.35%, depending on our consolidated total leverage ratio. Amounts outstanding under the credit facility had a weighted-average interest rate of ~~2.99%~~5.30% as of ~~March 31,~~September 30, 2022 and 2.67% as of December 31, 2021, including the impact of an interest rate ~~swap~~swaps that effectively ~~converts $200,000~~convert $500,000 of our variable-rate debt to fixed rate debt. Further information regarding the interest rate ~~swap~~swaps can be found in Note 7.

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


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

requirements regarding our consolidated total leverage ratio and our consolidated secured leverage ratio, as defined in the credit agreement. These ratios may not equal or exceed the following amounts during the periods indicated:

Fiscal Quarter Ending

Consolidated total leverage ratio

Consolidated secured leverage ratio

~~March 31, 2022~~

~~5.00 to 1:00~~

~~4.00 to 1:00~~

~~June~~September 30, 2022 through March 31, 2023

4.75 to 1:00

3.75 to 1:00

June 30, 2023 through March 31, 2024

4.50 to 1:00

3.50 to 1:00

June 30, 2024 and each fiscal quarter thereafter

4.25 to 1:00

3.50 to 1:00

In addition, we are required to maintain a minimum interest coverage ratio of at least ~~2.75 to 1.00 through March 31, 2022 and~~ 3.00 to 1.00 ~~thereafter.~~throughout the remaining term of the credit facility. Failure to meet any of the above requirements would result in an event of default that would allow lenders to declare amounts outstanding immediately due and payable and would allow the lenders to enforce their interests against collateral pledged if we are unable to settle the amounts outstanding. We were in compliance with all debt covenants as of ~~March 31,~~September 30, 2022.

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


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

Daily average amounts outstanding under our current and previous credit agreements were as follows:


(in thousands)	(in thousands)	Quarter Ended March 31, 2022			Year Ended December 31, 2021			(in thousands)	Nine Months Ended September 30, 2022			Year Ended December 31, 2021
Daily average amount outstanding	Daily average amount outstanding	$	1,196,720		$	1,109,819		Daily average amount outstanding	$	1,477,841		$	1,109,819
Weighted-average interest rate	Weighted-average interest rate	2.73		%	2.43		%	Weighted-average interest rate	4.00		%	2.43		%

As of ~~March 31,~~September 30, 2022, amounts ~~were~~ available for borrowing under our revolving credit facility were as follows:


(in thousands)	~~Total available~~Available borrowings
Revolving credit facility commitment	$	500,000
Amounts drawn on revolving credit facility	~~(153,000)~~(210,000)
Outstanding letters of credit(1)	~~(7,806)~~(7,823)
Net available for borrowing as of ~~March 31,~~September 30, 2022	$	~~339,194~~282,177

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

Senior unsecured notes – In June 2021, we issued $500,000 of 8.0% senior, unsecured notes that mature in June 2029. The notes were issued via a private placement under Rule 144A of the Securities Act of 1933. Proceeds from the offering, net of discount and offering costs, were $490,741, resulting in an effective interest rate of 8.3%. The net proceeds from the notes were used to fund the acquisition of First American in June 2021 (Note 6). Interest payments are due each June and December. During the quarter ended September 30, 2022, we settled $25,000 of these notes via open market purchases. We realized a pretax gain of $1,726 on these debt retirements that is included in interest expense in the consolidated statements of comprehensive income for the quarter and nine months ended September 30, 2022.

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


NOTE 13: OTHER COMMITMENTS AND CONTINGENCIES

Indemnifications – In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. These indemnification provisions generally encompass third-party claims arising from our products and services, including, without limitation, service failures, breach of security, intellectual property rights, governmental regulations and/or employment-related matters. Performance under these indemnities would generally be triggered by our breach of the terms of the contract. In disposing of assets or businesses, we often provide representations, warranties and/or indemnities to cover various risks, including, for example, unknown damage to the assets, environmental risks involved in the sale of real


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

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 ~~March 31,~~September 30, 2022 or December 31, 2021.

First American indemnification – Pursuant to the First American acquisition agreement, we are entitled to limited indemnification for certain expenses and losses, if any, that may be incurred after the consummation of the transaction that arise out of certain matters, including a Federal Trade Commission (FTC) investigation initiated in December 2019 seeking information to determine whether certain subsidiaries of First American may have engaged in conduct prohibited by the Federal Trade Commission Act, the Fair Credit Reporting Act or the Duties of Furnishers of Information. As fully set forth in the merger agreement, our rights to indemnification for any such expenses and losses are limited to the amount of an indemnity holdback, which ~~will be~~is our sole recourse for any such losses. ~~Neither any fines nor any asset~~

The First American subsidiaries entered into a Stipulated Order for Permanent Injunction, Monetary Judgment, and Other Relief (the “Order”) with the ~~related~~FTC, which was approved by the FTC on July 29, 2022. The parties subsequently entered into an amended Order. Pursuant to the Order, among other things, the First American defendants are required to pay $4,900 to the FTC within 7 days of the entry of the Order. The First American defendants also agreed to certain injunctive relief. The above


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

description is qualified in its entirety to the terms of the Order, which was filed as Exhibit 10.1 to the Current Report on Form 8-K that we filed on July 29, 2022. The revised Order is attached as Exhibit 10.1 to this report. The payment of the above-referenced amount, together with post-closing expenses that we and First American incurred in connection with this matter, will be withdrawn from the holdback ~~are expected to~~referenced above. As such, the payment of such amount will not have a material impact on our consolidated financial statements.

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 ~~$8,376~~$10,130 as of ~~March 31,~~September 30, 2022 and $7,401 as of December 31, 2021. 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 ~~March 31,~~September 30, 2022 or December 31, 2021.

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

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


NOTE 14: SHAREHOLDERS' EQUITY

In October 2018, our board of directors authorized the repurchase of up to $500,000 of our common stock. This authorization has no expiration date. No shares were repurchased under this authorization during the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 or ~~March 31,~~September 30, 2021, and $287,452 remained available for repurchase ~~under this authorization~~ as of ~~March 31,~~September 30, 2022. During the quarter ended June 30, 2021, we issued 294 thousand shares to employees of First American in conjunction with the acquisition (Note 6), resulting in cash proceeds of $13,000 during the second quarter of 2021.


NOTE 15: BUSINESS SEGMENT INFORMATION

We operate 4 reportable segments, generally organized by product type, as follows:

•Payments – This segment includes our merchant in-store, online and mobile payment solutions; treasury management solutions, including remittance and lockbox processing, remote deposit capture, receivables management, payment processing and paperless treasury management; ~~merchant in-store, online and mobile payment solutions;~~ payroll and disbursement services, including Deluxe Payment Exchange; and fraud and security services.

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

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

•Checks – This segment includes printed business and personal checks.


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

The accounting policies of the segments are the same as those described in the Notes to Consolidated Financial Statements included in the 2021 Form 10-K. We allocate corporate costs for our shared services functions to our business segments when the costs are directly attributable to a segment. This includes certain sales and marketing, human resources, supply chain, real estate, finance, information technology and legal costs. Costs that are not directly attributable to a business segment are reported as Corporate operations and consist primarily of marketing, accounting, information technology, facilities, executive management and legal, tax and treasury costs that support the corporate function. Corporate operations also includes other income. All of our segments operate primarily in the U.S., with some operations in Canada. In addition, Cloud Solutions has


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

operations in ~~Australia and~~ portions of Europe, as well as partners in Central and South ~~America.~~America, and had operations in Australia until May 2022 when this business was sold (Note 6).

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

Segment information for the quarters and nine months ended ~~March 31,~~September 30, 2022 and 2021 was as follows:


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2022		2021		2022		2021
Payments:	Payments:						Payments:
Revenue	Revenue	$	166,208	$	79,438		Revenue	$	169,787	$	160,268	$	507,149	$	343,045
Adjusted EBITDA	Adjusted EBITDA	36,435		18,329			Adjusted EBITDA	36,184		31,598		107,605		71,125
Cloud Solutions:	Cloud Solutions:						Cloud Solutions:
Revenue	Revenue	69,497		62,220			Revenue	66,739		69,497		204,824		199,784
Adjusted EBITDA	Adjusted EBITDA	17,326		17,209			Adjusted EBITDA	16,034		19,036		50,869		55,047
Promotional Solutions:	Promotional Solutions:						Promotional Solutions:
Revenue	Revenue	133,243		124,507			Revenue	136,081		130,330		408,600		389,825
Adjusted EBITDA	Adjusted EBITDA	16,945		17,714			Adjusted EBITDA	18,255		17,673		49,795		56,804
Checks:	Checks:						Checks:
Revenue	Revenue	187,067		175,099			Revenue	182,431		172,046		553,433		518,968
Adjusted EBITDA	Adjusted EBITDA	82,797		83,534			Adjusted EBITDA	80,478		77,254		245,838		240,979
Total segment:	Total segment:						Total segment:
Revenue	Revenue	$	556,015	$	441,264		Revenue	$	555,038	$	532,141	$	1,674,006	$	1,451,622
Adjusted EBITDA	Adjusted EBITDA	153,503		136,786			Adjusted EBITDA	150,951		145,561		454,107		423,955

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


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Total segment adjusted EBITDA	$	150,951	$	145,561	$	454,107	$	423,955
Corporate operations	(46,359)		(42,832)		(148,159)		(133,259)
Depreciation and amortization expense	(42,304)		(41,906)		(128,948)		(102,929)
Interest expense	(23,799)		(21,494)		(65,471)		(35,548)
Net income attributable to non-controlling interest	35		37		106		99
Restructuring, integration and other costs	(15,319)		(13,894)		(46,830)		(41,085)
Share-based compensation expense	(5,728)		(7,434)		(18,766)		(21,801)
Acquisition transaction costs	(51)		(208)		(112)		(18,816)
Certain legal-related benefit (expense)	1,659		(638)		814		(941)
Gain on sale of businesses and facility	1,804		—		19,331		—
Income before income taxes	$	20,889	$	17,192	$	66,072	$	69,675


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

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

Quarter Ended March 31,
(in thousands) 2022 2021
Total segment adjusted EBITDA $ 153,503 $ 136,786
Corporate operations (53,883) (46,281)
Depreciation and amortization expense (41,597) (27,780)
Interest expense (20,324) (4,524)
Net income attributable to non-controlling interest 36 33
Restructuring, integration and other costs (16,303) (15,212)
Share-based compensation expense (8,142) (6,742)
Acquisition transaction costs (49) (2,765)
Certain legal-related expense (683) —
Income before income taxes $ 12,558 $ 33,515

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


		Quarter Ended March 31, 2022											Quarter Ended September 30, 2022
(in thousands)	(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated		(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	Checks	$	—	$	—	$	—	$	187,067	$	187,067	Checks	$	—	$	—	$	—	$	182,431	$	182,431
Merchant services and other payment solutions	Merchant services and other payment solutions	108,270		—		—		—		108,270		Merchant services and other payment solutions	108,255		—		—		—		108,255
Forms and other products	Forms and other products	—		—		70,316		—		70,316		Forms and other products	—		—		71,797		—		71,797
Marketing and promotional solutions	Marketing and promotional solutions	—		—		62,927		—		62,927		Marketing and promotional solutions	—		—		64,284		—		64,284
Treasury management solutions	Treasury management solutions	57,938		—		—		—		57,938		Treasury management solutions	61,532		—		—		—		61,532
Data-driven marketing solutions	Data-driven marketing solutions	—		41,843		—		—		41,843		Data-driven marketing solutions	—		46,993		—		—		46,993
Web and hosted solutions	Web and hosted solutions	—		27,654		—		—		27,654		Web and hosted solutions	—		19,746		—		—		19,746
Total revenue	Total revenue	$	166,208	$	69,497	$	133,243	$	187,067	$	556,015	Total revenue	$	169,787	$	66,739	$	136,081	$	182,431	$	555,038


		Quarter Ended March 31, 2021											Quarter Ended September 30, 2021
(in thousands)	(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated		(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	Checks	$	—	$	—	$	—	$	175,099	$	175,099	Checks	$	—	$	—	$	—	$	172,046	$	172,046
Merchant services and other payment solutions	Merchant services and other payment solutions	20,302		—		—		—		20,302		Merchant services and other payment solutions	103,014		—		—		—		103,014
Forms and other products	Forms and other products	—		—		71,781		—		71,781		Forms and other products	—		—		68,646		—		68,646
Marketing and promotional solutions	Marketing and promotional solutions	—		—		52,726		—		52,726		Marketing and promotional solutions	—		—		61,684		—		61,684
Treasury management solutions	Treasury management solutions	59,136		—		—		—		59,136		Treasury management solutions	57,254		—		—		—		57,254
Data-driven marketing solutions	Data-driven marketing solutions	—		33,646		—		—		33,646		Data-driven marketing solutions	—		41,956		—		—		41,956
Web and hosted solutions	Web and hosted solutions	—		28,574		—		—		28,574		Web and hosted solutions	—		27,541		—		—		27,541
Total revenue	Total revenue	$	79,438	$	62,220	$	124,507	$	175,099	$	441,264	Total revenue	$	160,268	$	69,497	$	130,330	$	172,046	$	532,141


	Nine Months Ended September 30, 2022
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	553,433	$	553,433
Merchant services and other payment solutions	328,144		—		—		—		328,144
Forms and other products	—		—		211,517		—		211,517
Marketing and promotional solutions	—		—		197,083		—		197,083
Treasury management solutions	179,005		—		—		—		179,005
Data-driven marketing solutions	—		134,307		—		—		134,307
Web and hosted solutions	—		70,517		—		—		70,517
Total revenue	$	507,149	$	204,824	$	408,600	$	553,433	$	1,674,006


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


	Nine Months Ended September 30, 2021
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
Checks	$	—	$	—	$	—	$	518,968	$	518,968
Merchant services and other payment solutions	170,431		—		—		—		170,431
Forms and other products	—		—		218,622		—		218,622
Marketing and promotional solutions	—		—		171,203		—		171,203
Treasury management solutions	172,614		—		—		—		172,614
Data-driven marketing solutions	—		115,120		—		—		115,120
Web and hosted solutions	—		84,664		—		—		84,664
Total revenue	$	343,045	$	199,784	$	389,825	$	518,968	$	1,451,622

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


		Quarter Ended March 31, 2022											Quarter Ended September 30, 2022
(in thousands)	(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated		(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	United States	$	156,268	$	60,624	$	127,242	$	179,088	$	523,222	United States	$	159,160	$	64,111	$	129,697	$	175,481	$	528,449
Foreign, primarily Canada and Australia		9,940		8,873		6,001		7,979		32,793
Foreign, primarily Canada												Foreign, primarily Canada	10,627		2,628		6,384		6,950		26,589
Total revenue	Total revenue	$	166,208	$	69,497	$	133,243	$	187,067	$	556,015	Total revenue	$	169,787	$	66,739	$	136,081	$	182,431	$	555,038


		Quarter Ended March 31, 2021											Quarter Ended September 30, 2021
(in thousands)	(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated		(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	United States	$	68,484	$	53,512	$	119,148	$	169,014	$	410,158	United States	$	150,594	$	60,778	$	124,571	$	166,339	$	502,282
Foreign, primarily Canada and Australia	Foreign, primarily Canada and Australia	10,954		8,708		5,359		6,085		31,106		Foreign, primarily Canada and Australia	9,674		8,719		5,759		5,707		29,859
Total revenue	Total revenue	$	79,438	$	62,220	$	124,507	$	175,099	$	441,264	Total revenue	$	160,268	$	69,497	$	130,330	$	172,046	$	532,141


	Nine Months Ended September 30, 2022
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	475,368	$	188,494	$	389,824	$	531,260	$	1,584,946
Foreign, primarily Canada and Australia	31,781		16,330		18,776		22,173		89,060
Total revenue	$	507,149	$	204,824	$	408,600	$	553,433	$	1,674,006


	Nine Months Ended September 30, 2021
(in thousands)	Payments		Cloud Solutions		Promotional Solutions		Checks		Consolidated
United States	$	312,874	$	173,555	$	373,042	$	501,152	$	1,360,623
Foreign, primarily Canada and Australia	30,171		26,229		16,783		17,816		90,999
Total revenue	$	343,045	$	199,784	$	389,825	$	518,968	$	1,451,622


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

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

•Executive Overview that discusses what we do, our operating results at a high level and our financial outlook for the upcoming year;

•Consolidated Results of Operations; Restructuring, 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, financial commitments, capital structure and financial position; and

•Critical Accounting Estimates that discusses the estimates that involve a significant level of uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Please note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K") outlines known material risks and important information to consider when evaluating our forward-looking statements and is incorporated into this Item 2 of this report on Form 10-Q as if fully stated herein. The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. When we use the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” “outlook,” "forecast" or similar expressions in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission, in our press releases, investor presentations and in oral statements made by our representatives, they indicate forward-looking statements within the meaning of the Reform Act.

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


EXECUTIVE OVERVIEW

We help businesses deepen customer relationships through trusted, technology-enabled solutions that help businesses pay and get paid, accelerate growth and operate more efficiently. Our solutions include merchant services, marketing services and data analytics, treasury management solutions, website development and hosting, promotional products, and fraud and payroll solutions, as well as customized checks and business forms. We support millions of small businesses, thousands of financial institutions and hundreds of the world’s largest consumer brands, while processing approximately $3.0 trillion in annual payment volume. Our reach, scale and distribution channels position us to be a trusted business partner for our customers.

~~Recent acquisition~~Acquisition – On June 1, 2021, we acquired all of the equity of First American Payment Systems, L.P. (First American) in a cash transaction for $958.5 million, net of cash, cash equivalents, restricted cash and restricted cash equivalents ~~acquired, subject to customary adjustments under the terms of the acquisition agreement.~~acquired. First American is a large-scale payments technology company that provides partners and merchants with comprehensive in-store, online and mobile payment solutions. The results of First American are included in our Payments segment and ~~included~~contributed incremental revenue of ~~$83.3~~$144.2 million and ~~a contribution~~incremental adjusted EBITDA of ~~$18.2~~$30.2 million ~~to Payments adjusted EBITDA~~ for the first ~~quarter~~nine months of 2022. The acquisition was funded with cash on hand and proceeds from new debt. Further information regarding the acquisition can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K and under the caption "Note 6: Acquisition and ~~Divestiture"~~Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Information regarding our debt can be found under the caption "Note 12: Debt" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

~~COVID-19 impact~~Recent market conditions – The impact of the global coronavirus ("COVID-19") pandemic on our business and historical results of operations can be found in the Executive Overview section appearing in Part II, Item 7 of the 2021 Form 10-K. The ~~pandemic continues~~

environment surrounding COVID-19 and any countermeasures taken to ~~disrupt several segments of the economy~~reduce its spread may impact our future performance and ~~has contributed~~remains difficult to predict.

In 2021, we began experiencing increased inflationary pressures on our labor, delivery and material costs. ~~We implemented~~In response to the inflationary environment, we began implementing targeted price increases in all of our segments in ~~response to the current inflationary environment.~~late 2021. Despite the price changes, we ~~continued~~continue to experience strong revenue volumes, demonstrating the strength of our business and the continued strong demand for our products. During 2022, we began experiencing some supply disruptions impacting certain higher margin printed products in our Promotional Solutions segment. We ~~also~~ continue to closely monitor our supply chain to promptly address any further delays or ~~disruptions.~~

disruptions, and we did see some improvement in the third quarter of 2022. We have also been experiencing labor supply issues in certain portions of the business. It remains difficult to estimate the severity and duration of the ~~impact of the COVID-19 pandemic and the~~ current inflationary environment or supply chain and labor issues on our business, financial position or results of operations. ~~The magnitude~~

In 2022, our interest expense began increasing as a result of the ~~impact~~rising interest rate environment. We executed an interest rate swap during the third quarter of 2022 to effectively convert an additional $300.0 million of our variable-rate debt to a fixed rate. As of September 30, 2022, nearly 60% of our debt was fixed rate, which will ~~be determined by the duration and span of the pandemic, subsequent COVID-19 variants and their severity, and operational disruptions, including those resulting~~partially insulate us from ~~government actions, as well as global supply chain conditions and the overall impact on the economy.~~future interest rate increases.

Cash flows and liquidity – Cash provided by operating activities ~~remained stable~~ for the first ~~quarter~~nine months of 2022 ~~decreasing only $5.3~~decreased $25.8 million as compared to the first ~~quarter~~nine months of ~~2021, despite~~2021. The decrease reflects a ~~$22.7~~$32.8 million increase in interest payments as a result of debt issued to complete the First American acquisition and rising interest rates, as well as a $22.8 million increase in employee cash bonus payments related to our 2021 operating performance. During 2021, a portion of our cash bonuses were paid in the form of restricted stock units and the bonus payments in 2021 were unusually low because of the impact of the COVID-19 pandemic on our 2020 performance. Operating cash flow was also negatively impacted by a $17.7 million increase in income tax payments, as well as inflationary pressures, supply chain disruptions in our Promotional Solutions segment, and the continuing secular decline in checks, business forms and some business ~~accessories,~~accessories. The increase in income tax payments was primarily driven by the provisions of the Tax Cuts and ~~Promotional Solutions product mix. In addition, interest payments increased $3.9 million as a result~~Jobs Act of ~~debt issued to complete~~2017 that became effective in 2022 and that require the ~~First American acquisition.~~capitalization of research and development and cloud computing arrangement expenditures for income tax purposes. We were able to substantially offset these ~~impacts~~decreases in operating cash flow through the incremental contribution of the First ~~American's operations, pricing actions~~American acquisition, price increases in response to the current inflationary environment, ~~new business wins and~~ continued cost saving ~~actions.~~actions, and revenue growth from new business and strong demand for our products. In addition, we incurred acquisition transaction costs of $18.8 million for the first nine months of 2021 related to the First American acquisition that did not recur in 2022. Free cash flow decreased ~~$4.5~~$18.2 million for the first ~~quarter~~nine months of 2022, as compared to the first nine months of 2021. During the third quarter of ~~2021. We expect free cash flow to increase for the full year, as compared to 2021, as the investments in~~2022, we retired $25.0 million of our ~~major technology platform modernization initiatives will decrease meaningfully later in the year.~~$500.0 million senior, unsecured notes, realizing a pretax gain of $1.7 million. Total debt was ~~$1.69~~$1.67 billion and net debt was ~~$1.65~~$1.63 billion as of ~~March 31,~~September 30, 2022. We held cash and cash equivalents of ~~$44.1~~$45.5 million as of ~~March 31,~~September 30, 2022, and liquidity was ~~$383.3~~$327.7 million. Our capital allocation priorities are to responsibly invest in growth, pay our dividend, reduce debt and return value to our shareholders. ~~We will continue to evaluate future share repurchases on an opportunistic basis.~~

2022 earnings vs. 2021 – ~~Numerous~~Multiple factors drove the decrease in net income for the first ~~quarter~~nine months of 2022, as compared to the first ~~quarter~~nine months of 2021, including:

•a ~~$15.8~~$29.9 million increase in interest expense resulting from debt issued to complete the First American ~~acquisition;~~

•~~a $10.7 million increase in~~ acquisition ~~amortization, driven by~~and the ~~First American acquisition;~~effect of increasing interest rates on our variable-rate debt;

•increased transformational investments, primarily costs related to our technology ~~infrastructure;~~infrastructure, as well as an increase in restructuring and integration costs of $8.6 million;

•inflationary pressures on hourly wages, materials and ~~delivery;~~delivery and supply chain disruptions within the Promotional Solutions segment that impacted certain of our higher margin printed products during 2022;

26•a $12.9 million increase in acquisition amortization, driven primarily by the First American acquisition; and

•the continuing secular decline in checks, business forms and some Promotional Solutions business ~~accessories; and~~

•~~product mix within the Promotional Solutions segment resulting in the sale of higher cost outsourced products.~~accessories.

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

•price increases in response to the current inflationary environment;

•pretax gains of $19.3 million from the sale of businesses and a facility during the first nine months of 2022;

•acquisition transaction costs of $18.8 million for the first nine months of 2021 related to the First American acquisition that did not recur in 2022;

•actions taken to reduce costs as we continually evaluate our cost structure, including workforce adjustments, real estate rationalization and marketing optimization; and

•revenue growth from new business in all of our segments and strong ongoing demand for our products, reflecting the continued success of our One Deluxe ~~strategy;~~

•~~pricing actions in response to the current inflationary environment; and~~

•~~actions taken to reduce costs as we continually evaluate our cost structure, including workforce adjustments, real estate rationalization and marketing optimization.~~strategy.

Diluted EPS of ~~$0.22~~$1.06 for the first ~~quarter~~nine months of 2022, as compared to ~~$0.57~~$1.13 for the first ~~quarter~~nine months of 2021, reflects the decrease in net income as described in the preceding paragraphs, as well as higher average shares outstanding in 2022. Adjusted diluted EPS for the first ~~quarter~~nine months of 2022 was ~~$1.05~~$3.04 compared to ~~$1.26~~$3.62 for the first ~~quarter~~nine months of 2021, and excludes the impact of non-cash items or items that we believe are not indicative of our current period operating performance. The decrease in adjusted diluted EPS was driven ~~primarily~~ by the increase in interest expense resulting from the debt issued to complete the First American acquisition and the effect of increasing interest rates on our variable-rate debt, increased transformational investments, inflationary pressures on our cost structure, Promotional Solutions supply chain disruptions and the continuing secular decline in checks, business forms and some business ~~accessories, and Promotional Solutions product mix.~~accessories. These decreases in adjusted EPS were partially offset by price increases in response to the current inflationary environment and the contribution from First American, as adjusted EPS excludes the associated acquisition amortization of ~~$12.7~~$35.2 million for the first ~~quarter~~nine months of ~~2022.~~2022 compared to $15.9 million for the first nine months of 2021. In addition, adjusted EPS benefited from ~~the revenue growth in the quarter, pricing actions in response to the current inflationary environment and~~ various cost saving actions across functional ~~areas.~~areas, as well as revenue growth from new business in all of our segments and strong ongoing demand for our products. A reconciliation of diluted EPS to adjusted diluted EPS can be found in Consolidated Results of Operations.

"One Deluxe" Strategy

A detailed discussion of our strategy can be found in Part I, Item 1 of the 2021 Form 10-K. We have made significant progress in the integration of our various technology platforms, developed an enterprise-class sales organization, assembled a talented management team, and built an organization focused on developing new and improved products. As a result, we have realized the benefit of significant new client wins in all of our segments. We also completed the acquisition of First American in June 2021, and we believe that First American's end-to-end payments technology platform is providing significant leverage that will continue to accelerate organic revenue growth. Since the acquisition and the implementation of our One Deluxe model, First American revenue growth has been exceeding our expectations.

Divestitures – In May 2022, we completed the sale of our Australian web hosting business for cash proceeds of ~~$20.0 million. We determined that~~$17.6 million, net of costs of the sale of this business would give us more flexibility to further refine our offerings in the North American market, allowing us to better manage our portfolio of businesses and to maximize our cross-sell capabilities.sale. This business generated annual revenue in our Cloud Solutions segment of $23.8 million during 2021, and we recognized a pretax gain of $15.2 million on this sale during the second quarter of 2022. The assets and liabilities sold were not significant to our consolidated balance sheet.

In April 2022, we sold the assets of our Promotional Solutions strategic sourcing business and in August 2022, we sold the assets of our Promotional Solutions retail packaging business. These businesses generated annual revenue of approximately $29.0 million during 2021. Neither the gain on these sales nor the assets and liabilities sold were significant to our consolidated financial statements.

We believe that the sale of these businesses allows us to focus our resources on the key growth areas of payments and data, while allowing us to optimize our operations.

Outlook for 2022

We expect revenue to increase 8% to 10% for 2022, including a full year of revenue from First American and the impact of business exits, as compared to revenue of $2.022 billion for ~~2021, and we~~2021. Business exits are expected to reduce full year 2022 revenue growth by approximately 2.0 percentage points. We expect that adjusted EBITDA margin for the full year will be approximately ~~20.0%~~18.5% to 19.0%, as compared to 20.2% for 2021. We expect that adjusted EBITDA margin will improve throughout the year, as compared to the first quarter of 2022, primarily due to the timing of certain employee benefit costs and investments and seasonality for some of our products and services. These estimates are subject to, among other things, ~~prevailing~~uncertain macroeconomic conditions, ~~anticipated continued supply chain constraints,~~ labor supply issues, inflation and the impact of ~~our recent divestiture.~~divestitures.

As of ~~March 31,~~September 30, 2022, we held cash and cash equivalents of ~~$44.1~~$45.5 million and ~~$339.2~~$282.2 million was available for borrowing under our revolving credit facility. We anticipate that capital expenditures will be approximately $105.0 million for the full year, as compared to $109.1 million for 2021, as we continue with important innovation investments and building scale across our product categories. We also expect that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations, including our contractual obligations and debt service requirements, for the next 12 months. We were in compliance with our debt covenants as of ~~March 31,~~September 30, 2022, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.


CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue


		Quarter Ended March 31,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2022		2021		Change	2022		2021		Change
Total revenue	Total revenue	$	556,015	$	441,264	26.0%		Total revenue	$	555,038	$	532,141	4.3%	$	1,674,006	$	1,451,622	15.3%

The ~~increase~~increases in total revenue for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven, in part, by ~~the acquisition and strong performance of First American, which contributed~~ revenue ~~of $83.3 million for the first quarter of 2022. In addition, revenue grew~~growth from new business in all of our segments and strong ongoing demand for our products, reflecting the success of our One Deluxe strategy. ~~Pricing actions~~Price increases in response to the current inflationary environment also contributed to the revenue increase, primarily in our Checks and Promotional Solutions segments. For the first nine months of 2022, the revenue increase also reflected the acquisition and ~~Checks segments.~~strong performance of First American, which contributed incremental revenue of $144.2 million for the first nine months of 2022. Partially offsetting these increases in revenue was the continuing secular decline in order volume for checks, business forms and some Promotional Solutions business ~~accessories.~~

accessories, as well as the divestitures discussed in
Executive Overview

~~Service~~, which resulted in a decrease in revenue ~~represented 42.9%~~ of ~~total revenue~~$11.6 million for the ~~first~~third quarter of 2022 and ~~32.2%~~$19.0 million for the first ~~quarter~~nine months of ~~2021.~~ 2022.

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


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
		2022		2021				2022		2021		2022		2021
Payments	Payments	29.9	%	18.0	%		Payments	30.6	%	30.1	%	30.3	%	23.6	%
Cloud Solutions	Cloud Solutions	12.5	%	14.1	%		Cloud Solutions	12.0	%	13.1	%	12.2	%	13.8	%
Promotional Solutions	Promotional Solutions	24.0	%	28.2	%		Promotional Solutions	24.5	%	24.5	%	24.4	%	26.9	%
Checks	Checks	33.6	%	39.7	%		Checks	32.9	%	32.3	%	33.1	%	35.7	%
Total revenue	Total revenue	100.0	%	100.0	%		Total revenue	100.0	%	100.0	%	100.0	%	100.0	%

Consolidated Cost of Revenue


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Total cost of revenue	Total cost of revenue	$	249,194		$	178,509		39.6%		Total cost of revenue	$	256,225		$	244,151		4.9%	$	769,532		$	629,237		22.3%
Total cost of revenue as a percentage of total revenue	Total cost of revenue as a percentage of total revenue	44.8		%	40.5		%	4.3 pts.		Total cost of revenue as a percentage of total revenue	46.2		%	45.9		%	0.3 pts.	46.0		%	43.3		%	2.7 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 ~~increase~~increases in total cost of revenue for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven, in part, by the ~~additional costs resulting from the First American acquisition of $50.7 million, including acquisition amortization, as well as the~~ revenue growth ~~in all of our segments. In addition,~~noted above, and we experienced some inflationary pressures on hourly wages, materials and ~~delivery, and Promotional Solutions product mix resulted~~delivery. For the first nine months of 2022, the increase in total cost of revenue also reflected incremental costs resulting from the ~~sale~~First American acquisition of ~~higher cost outsourced products.~~$88.7 million, including acquisition amortization. Partially offsetting these increases in total cost of revenue ~~were~~was reduced revenue ~~volumes~~volume from the continuing secular decline in checks, business forms and some Promotional Solutions business ~~accessories. Total~~accessories, and Promotional Solutions was impacted by supply chain disruptions for certain higher margin print products, although there were improvements in supply availability in the third quarter of 2022, as compared to the second quarter of 2022.

For the third quarter of 2022, total cost of revenue as a percentage of total revenue increased ~~for~~only slightly as compared to the third quarter of 2021, as the inflationary impacts and unfavorable changes in product mix noted above were offset by our pricing actions. For the first ~~quarter~~nine months of 2022, total cost of revenue as a percentage of total revenue increased as compared to the first ~~quarter~~nine months of 2021, ~~driven by~~as the inflationary impacts and unfavorable changes in product mix noted above exceeded the

benefit of our price increases. For the first nine months of 2022, the impact of the First American acquisition, including acquisition amortization, also increased total cost of revenue as ~~well as the inflationary pressures on our cost structure and product mix, partially offset by pricing actions in response to the current inflationary environment.~~a percentage of total revenue.

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


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
SG&A expense	SG&A expense	$	259,699		$	212,436		22.2%		SG&A expense	$	243,816		$	239,251		1.9%	$	753,140		$	685,593		9.9%
SG&A expense as a percentage of total revenue	SG&A expense as a percentage of total revenue	46.7		%	48.1		%	(1.4) pts.		SG&A expense as a percentage of total revenue	43.9		%	45.0		%	(1.1) pts.	45.0		%	47.2		%	(2.2) pts.

The ~~increase~~increases in SG&A expense for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven, in part, by the operating costs of First American of $17.7 million for the first quarter of 2022 and the related increase in acquisition amortization of $10.3 million, as compared to the first quarter of 2021. Additionally,increased costs related to our continued transformational investments, ~~increased,~~ primarily ~~driven by~~ investments in our technology infrastructure, including sales and financial management ~~tools. Commission~~tools, and commission expense ~~also~~ increased, primarily as a result of increased volume from new clients in our Checks segment. For the first nine months of 2022, the increase in SG&A expense also reflected the incremental operating costs of First American of $30.6 million. The First American acquisition also drove an increase in acquisition amortization of $19.3 million for the first nine months of 2022, as compared to the first nine months of 2021, and bad debt expense increased $5.2 million for the first nine months of 2022, driven by reserve reversals in 2021 as the impact of the COVID-19 pandemic lessened. Partially offsetting these increases in SG&A expense were various cost reduction actions, including workforce adjustments, real estate rationalization and marketing ~~optimization.~~optimization, and during the first nine months of 2021, we incurred acquisition transaction costs of $18.8 million that did not recur in 2022.

Restructuring and Integration Expense


		Quarter Ended March 31,						Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		Change			(in thousands)	2022		2021		Change		2022		2021		Change
Restructuring and integration expense	Restructuring and integration expense	$	16,244	$	14,313	$	1,931		Restructuring and integration expense	$	15,188	$	12,335	$	2,853	$	46,614	$	38,012	$	8,602

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

Gain on Sale of Businesses and Facility


	Quarter Ended September 30,						Nine Months Ended September 30,
(in thousands)	2022		2021		Change		2022		2021		Change
Gain on sale of businesses and facility	$	1,804	$	—	$	1,804	$	19,331	$	—	$	19,331

As discussed in Executive Overview, during the third quarter of 2022, we sold the assets of our Promotional Solutions retail packaging business, and during the second quarter of 2022, we completed the sale of our Australian web hosting business and a former facility. Net cash proceeds from these sales were $25.2 million during the first nine months of 2022.

Interest Expense


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Interest expense	Interest expense	$	20,324		$	4,524		349.2%		Interest expense	$	23,799		$	21,494		10.7%	$	65,471		$	35,548		84.2%
Weighted-average debt outstanding	Weighted-average debt outstanding	1,696,720			840,165			102.0%		Weighted-average debt outstanding	1,944,604			1,833,408			6.1%	1,974,445			1,286,368			53.5%
Weighted-average interest rate	Weighted-average interest rate	4.3		%	2.0		%	2.3 pts.		Weighted-average interest rate	5.6		%	4.1		%	1.5 pts.	5.0		%	3.3		%	1.7 pts.

The increase in interest expense for the ~~first~~third quarter of 2022, as compared to the ~~first~~third quarter of 2021, was ~~driven primarily by~~due to the rising interest rate environment, as well as the increase in ~~our~~ weighted-average debt outstanding as we funded operations and investments.

The increase in interest ~~rate~~expense for the first nine months of 2022, ~~due in part~~as compared to the ~~$500.0 million notes issued in June~~first nine months of 2021, ~~with an interest rate of 8.0%. The~~was due primarily to the increase in the amount of debt outstanding in 2022, driven by the issuance of debt to fund the First American acquisition in June 2021. Also negatively impacting interest expense for the first nine months of 2022 was the increase in our weighted-average interest rate, due to the $500.0 million notes we issued in June 2021 ~~also negatively impacted~~with an interest ~~expense.~~rate of 8.0% and the rising interest rate environment. Further information regarding our debt can be found under the caption "Note 12: Debt" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Based on the daily average amount of variable-rate debt outstanding during the first ~~quarter~~nine months of 2022, a one percentage point change in the weighted-average interest rate would have resulted in a ~~$2.5~~$7.3 million change in interest expense.

Income Tax Provision


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Income tax provision	Income tax provision	$	2,878		$	9,190		(68.7%)		Income tax provision	$	6,129		$	4,691		30.7%	$	19,536		$	20,720		(5.7%)
Effective income tax rate	Effective income tax rate	22.9		%	27.4		%	(4.5) pts.		Effective income tax rate	29.3		%	27.3		%	2.0 pts.	29.6		%	29.7		%	(0.1) pts.

The increase in our effective income tax rate for the third quarter of 2022, as compared to the third quarter of 2021, was driven primarily by an increase in the tax impact of share-based compensation and the impact of the repatriation of current year earnings from our Canadian subsidiaries in 2022.

The slight decrease in our effective income tax rate for the first ~~quarter~~nine months of 2022, as compared to the first ~~quarter~~nine months of 2021, was driven primarily by the ~~recognition of a deferred tax asset during the first quarter of 2022 for the difference between the book and tax basis~~impact of the ~~investment in~~sale of our Australian web hosting ~~business, which was sold in May 2022, partially offset by~~business. For tax purposes, we recognized a ~~related~~capital loss on the transaction, and we recorded a valuation allowance for the portion of the ~~deferred tax asset~~capital loss carryover we ~~currently~~ do not currently expect to realize. These impacts ~~decreased~~reduced income tax expense ~~$2.2~~$1.6 million ~~and decreased~~for the first nine months of 2022, reducing our effective income tax rate by ~~17.2 points for the first quarter of 2022. This decrease~~2.3 points. In addition, nondeductible acquisition transaction costs in 2021 increased our 2021 tax rate by 2.8 points. These decreases in our effective income tax rate ~~was partially~~were offset by a ~~9.6~~3.2 point increase in the tax impact of share-based compensation ~~a 1.6 point increase related to nondeductible executive compensation~~ and a ~~1.4~~1.5 point increase from the repatriation of current year earnings from our Canadian subsidiaries.

Net Income / Diluted Earnings Per Share


		Quarter Ended March 31,					Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	(in thousands, except per share amounts)	2022		2021		Change		(in thousands, except per share amounts)	2022		2021		Change	2022		2021		Change
Net income	Net income	$	9,680	$	24,325	(60.2%)		Net income	$	14,760	$	12,501	18.1%	$	46,536	$	48,955	(4.9%)
Diluted earnings per share	Diluted earnings per share	0.22		0.57		(61.4%)		Diluted earnings per share	0.34		0.28		21.4%	1.06		1.13		(6.2%)
Adjusted diluted EPS(1)	Adjusted diluted EPS(1)	1.05		1.26		(16.7%)		Adjusted diluted EPS(1)	0.99		1.10		(10.0%)	3.04		3.62		(16.0%)

(1) Information regarding the calculation of adjusted diluted EPS can be found in the following section entitled Reconciliation of Non-GAAP Financial Measures.

Multiple factors drove the increases in net income and diluted EPS for the third quarter of 2022, as compared to the third quarter of 2021, including the benefit of price increases, actions taken to reduce costs, and revenue growth from new business in all of our segments and strong ongoing demand for our products, as well as a $3.5 million decrease in acquisition amortization and a $2.3 million year-over-year benefit in 2022 related to certain legal-related expenses. Partially offsetting these increases in net income and diluted EPS were inflationary pressures and increased transformational investments. Also, net income was impacted by an unfavorable change in product mix driven by the impact of Promotional Solutions supply chain disruptions for certain higher margin printed products and growth in Cloud Solutions's data-driven marketing revenue combined with declines in the higher margin web hosting business. In addition, net income and diluted EPS were negatively impacted by the continuing secular decline in certain of our products and a $2.3 million increase in interest expense.

The decrease in adjusted EPS for the third quarter of 2022, as compared to the third quarter of 2021, was driven primarily by inflationary pressures on our cost structure, increased transformational investments, unfavorable product mix, the continuing secular decline in certain of our products and the increase in interest expense. These decreases in adjusted EPS were partially offset by the benefit of price increases, cost saving actions, and the revenue growth from new business and strong demand for our products.

The decreases in net income, diluted EPS and adjusted diluted EPS for the first ~~quarter~~nine months of 2022, as compared to the first ~~quarter~~nine months of 2021, were driven by the factors outlined in Executive Overview - 2022 earnings vs. 2021.

Adjusted EBITDA


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	99,620		$	90,505		10.1%		Adjusted EBITDA(1)	$	104,592		$	102,729		1.8%	$	305,948		$	290,696		5.2%
Adjusted EBITDA as a percentage of total revenue (adjusted EBITDA margin)(1)	Adjusted EBITDA as a percentage of total revenue (adjusted EBITDA margin)(1)	17.9		%	20.5		%	(2.6) pts.		Adjusted EBITDA as a percentage of total revenue (adjusted EBITDA margin)(1)	18.8		%	19.3		%	(0.5) pts.	18.3		%	20.0		%	(1.7) pts.

(1) Information regarding the calculation of adjusted EBITDA and adjusted EBITDA margin can be found in the following section entitled Reconciliation of Non-GAAP Financial Measures.

~~Adjusted~~The increases in adjusted EBITDA for the third quarter and first ~~quarter~~nine months of 2022, ~~benefited from the contribution from the First American acquisition of $18.2 million, revenue growth in all of our segments, pricing actions in response~~as compared to the ~~current inflationary environment and~~same periods in 2021, were driven by price increases, actions taken to reduce costs as we continually evaluate our cost ~~structure.~~structure, and revenue growth from new business in all of our segments and strong ongoing demand for our products. For the first nine months of 2022, the increase in adjusted EBITDA also reflected the incremental contribution from the First American acquisition of $30.2 million. Partially offsetting these increases in adjusted EBITDA were inflationary pressures on hourly wages, materials and delivery; increased costs related to our continued transformational investments, primarily investments in our technology infrastructure, including sales and financial management tools; an unfavorable change in product mix driven by the impact of Promotional Solutions supply chain disruptions for certain higher margin printed products and growth in Cloud Solutions's data-driven marketing revenue combined with declines in the higher margin web hosting business; and the continuing secular decline in checks, business forms and some business accessories; inflationary pressures on hourly wages, materials and delivery; and product mix within Promotional Solutions that resulted in the sale of higher cost outsourced products. Additionally, commission expense increased, primarily as a result of new clients in our Checks segment. accessories.

Adjusted EBITDA margin decreased for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, driven by ~~the~~inflationary pressures, planned technology investments ~~inflationary pressures, increased commissions~~ and the unfavorable product ~~mix,~~mix. These decreases in adjusted EBITDA margin were partially offset by ~~pricing~~price increases, cost saving actions and ~~cost savings actions. The lower adjusted EBITDA margin for~~operating leverage from the ~~first~~revenue growth. For the third quarter of 2022, ~~was expected,~~our pricing actions substantially offset the impacts of inflation and ~~we anticipate that adjusted EBITDA margin will improve throughout~~ the ~~year, primarily due to the timing of certain employee benefit costs and investments and seasonality for some of our products and services.~~unfavorable changes in product mix.

Reconciliation of Non-GAAP Financial Measures

Free cash flow – We define free cash flow as net cash provided by operating activities less purchases of capital assets. 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. A limitation of using the free cash flow measure is that 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 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 dividends, mandatory and discretionary debt reduction, acquisitions or other strategic investments, and share repurchases.

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


		Quarter Ended March 31,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	34,265	$	39,581	Net cash provided by operating activities	$	123,418	$	149,229
Purchases of capital assets	Purchases of capital assets	(20,844)		(21,670)		Purchases of capital assets	(73,454)		(81,081)
Free cash flow	Free cash flow	$	13,421	$	17,911	Free cash flow	$	49,964	$	68,148

Net debt – Management believes that net debt is an important measure to monitor leverage and to evaluate the balance sheet. In calculating net debt, cash and cash equivalents are subtracted from total debt because they could be used to reduce our debt obligations. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.

Total debt reconciles to net debt as follows:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Total debt	Total debt	$	1,692,418	$	1,682,949	Total debt	$	1,670,964	$	1,682,949
Cash and cash equivalents	Cash and cash equivalents	(44,059)		(41,231)		Cash and cash equivalents	(45,535)		(41,231)
Net debt	Net debt	$	1,648,359	$	1,641,718	Net debt	$	1,625,429	$	1,641,718

Liquidity – We define liquidity as cash and cash equivalents plus the amount available for borrowing under our revolving credit facility. We consider liquidity to be an important metric for demonstrating the amount of cash that is available or that could be available on short notice. This financial measure is not a substitute for GAAP liquidity measures. Instead, we believe that this measurement enhances investors' understanding of the funds that are currently available. Liquidity was as follows:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	September 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	44,059	$	41,231	Cash and cash equivalents	$	45,535	$	41,231
Amount available for borrowing under revolving credit facility	Amount available for borrowing under revolving credit facility	339,194		362,619		Amount available for borrowing under revolving credit facility	282,177		362,619
Liquidity	Liquidity	$	383,253	$	403,850	Liquidity	$	327,712	$	403,850

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

Diluted EPS reconciles to adjusted diluted EPS as follows:

Quarter Ended
March 31,
(in thousands, except per share amounts) 2022 2021
Net income $ 9,680 $ 24,325
Net income attributable to non-controlling interest (36) (33)
Net income attributable to Deluxe 9,644 24,292
Acquisition amortization 23,937 13,193
Restructuring, integration and other costs 16,303 15,212
Share-based compensation expense 8,142 6,742
Acquisition transaction costs 49 2,765
Certain legal-related expense 683 —
Adjustments, pretax 49,114 37,912
Income tax provision impact of pretax adjustments(1)
(10,974) (8,456)
Income tax impact of Australian web hosting business held for sale(2)
(2,163) —
Adjustments, net of tax 35,977 29,456
Adjusted net income attributable to Deluxe 45,621 53,748
Income allocated to participating securities (33) (41)
Re-measurement of share-based awards classified as liabilities (40) —
Adjusted income attributable to Deluxe available to common shareholders $ 45,548 $ 53,707
Weighted average shares and potential common shares outstanding 43,232 42,504
Adjustment(3)
— (32)
Adjusted weighted average shares and potential common shares outstanding 43,232 42,472
GAAP diluted EPS $ 0.22 $ 0.57
Adjustments, net of tax 0.83 0.69
Adjusted diluted EPS $ 1.05 $ 1.26


	Quarter Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Net income	$	14,760	$	12,501	$	46,536	$	48,955
Net income attributable to non-controlling interest	(35)		(37)		(106)		(99)
Net income attributable to Deluxe	14,725		12,464		46,430		48,856
Acquisition amortization	21,704		25,202		68,665		55,730
Restructuring, integration and other costs	15,319		13,894		46,830		41,085
Share-based compensation expense	5,728		7,434		18,766		21,801
Acquisition transaction costs	51		208		112		18,816
Certain legal-related (benefit) expense	(1,659)		638		(814)		941
Gain on sale of businesses and facility	(1,804)		—		(19,331)		—
Gain on debt retirements	(1,726)		—		(1,726)		—
Adjustments, pretax	37,613		47,376		112,502		138,373
Income tax provision impact of pretax adjustments(1)	(9,187)		(12,027)		(25,280)		(32,199)
Income tax impact of sale of business (2)	(2)		—		(1,552)		—
Adjustments, net of tax	28,424		35,349		85,670		106,174
Adjusted net income attributable to Deluxe	43,149		47,813		132,100		155,030
Income allocated to participating securities	—		(35)		(65)		(116)
Re-measurement of share-based awards classified as liabilities	(167)		(339)		(522)		(339)
Adjusted income attributable to Deluxe available to common shareholders	$	42,982	$	47,439	$	131,513	$	154,575

Weighted average shares and potential common shares outstanding	43,350		43,031		43,284		42,747
Adjustment(3)	—		—		—		(11)
Adjusted weighted average shares and potential common shares outstanding	43,350		43,031		43,284		42,736

GAAP diluted EPS	$	0.34	$	0.28	$	1.06	$	1.13
Adjustments, net of tax	0.65		0.82		1.98		2.49
Adjusted diluted EPS	$	0.99	$	1.10	$	3.04	$	3.62

(1) The tax effect of the pretax adjustments considers the tax treatment and related tax rate(s) that 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 share-based compensation expense, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable effective tax rate(s) in those jurisdictions.

(2) Represents the recognition of a ~~deferred tax asset for~~capital loss carryover arising from the ~~difference in the book and tax basis~~sale of ~~the investment in~~ our Australian web hosting business, ~~which was classified as held for sale as of March 31, 2022,~~ partially offset by a related valuation allowance ~~against the deferred tax asset~~ for the portion of the carryover we do not currently expect to realize.

(3) The total of weighted-average shares and potential common shares outstanding used in the calculation of adjusted diluted EPS for the first ~~quarter~~nine months of 2021 differs from the GAAP calculation due to differences in the amount of dilutive securities in each calculation.

Adjusted EBITDA and adjusted EBITDA margin – We believe that adjusted EBITDA and adjusted EBITDA margin are useful in evaluating our operating performance, as they eliminate the effect of interest expense, income taxes, the accounting effects of capital investments (i.e., depreciation and amortization) and certain items, as presented below, that may vary for ~~companies for~~

reasons unrelated to current period operating performance. In addition, management utilizes these measures to assess the operating results and performance of the business, to perform analytical comparisons and to identify strategies to improve performance. We also believe that an increasing adjusted EBITDA and adjusted EBITDA margin depict an increase in the value of the company. We do not consider adjusted EBITDA to be a measure of cash flow, as it does not consider certain cash requirements such as interest, income taxes, debt service payments or capital investments.

We have not reconciled our adjusted EBITDA margin outlook ~~guidance~~ for 2022 to the directly comparable GAAP financial measure because we do not provide outlook guidance for net income or the reconciling items between net income and adjusted EBITDA. Because of the substantial uncertainty and variability surrounding certain of the forward-looking reconciling items, including asset impairment ~~charges,~~charges; restructuring, integration and other ~~costs,~~costs; gains and losses on sales of businesses and facilities; and certain legal-related expenses, a reconciliation of the non-GAAP financial measure outlook guidance to the corresponding GAAP ~~measures~~measure is not available without

unreasonable effort. The probable significance of certain of these reconciling items is high and, based on historical experience, could be material.

Net income reconciles to adjusted EBITDA and adjusted EBITDA margin as follows:


		Quarter Ended March 31,						Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021				(in thousands)	2022			2021			2022			2021
Net income	Net income	$	9,680		$	24,325			Net income	$	14,760		$	12,501		$	46,536		$	48,955
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	(36)			(33)				Net income attributable to non-controlling interest	(35)			(37)			(106)			(99)
Depreciation and amortization expense	Depreciation and amortization expense	41,597			27,780				Depreciation and amortization expense	42,304			41,906			128,948			102,929
Interest expense	Interest expense	20,324			4,524				Interest expense	23,799			21,494			65,471			35,548
Income tax provision	Income tax provision	2,878			9,190				Income tax provision	6,129			4,691			19,536			20,720
Restructuring, integration and other costs	Restructuring, integration and other costs	16,303			15,212				Restructuring, integration and other costs	15,319			13,894			46,830			41,085
Share-based compensation expense	Share-based compensation expense	8,142			6,742				Share-based compensation expense	5,728			7,434			18,766			21,801
Acquisition transaction costs	Acquisition transaction costs	49			2,765				Acquisition transaction costs	51			208			112			18,816
Certain legal-related expense		683			—
Certain legal-related (benefit) expense									Certain legal-related (benefit) expense	(1,659)			638			(814)			941
Gain on sale of businesses and facility									Gain on sale of businesses and facility	(1,804)			—			(19,331)			—
Adjusted EBITDA	Adjusted EBITDA	$	99,620		$	90,505			Adjusted EBITDA	$	104,592		$	102,729		$	305,948		$	290,696
Adjusted EBITDA margin	Adjusted EBITDA margin	17.9		%	20.5		%		Adjusted EBITDA margin	18.8		%	19.3		%	18.3		%	20.0		%


RESTRUCTURING, INTEGRATION AND OTHER COSTS

Restructuring and integration expense consists of costs related to the consolidation and migration of certain applications and processes, including our financial and sales management systems. It also includes costs related to the integration of acquired businesses into our systems and processes. These costs consist primarily ~~consist~~ of information technology consulting, project management services and internal labor, as well as other costs associated with our initiatives, such as training, travel, relocation and costs associated with facility closures. In addition, we recorded employee severance costs related to these initiatives, as well as our ongoing cost reduction initiatives across functional areas. Further information regarding restructuring and integration expense can be found under the caption "Note 9: Restructuring and Integration Expense" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

The majority of the employee reductions included in our restructuring and integration accruals as of ~~March 31,~~September 30, 2022, as well as the related severance payments, are expected to be completed by ~~mid-2022.~~mid-2023. As a result of our employee reductions, we expect to realize cost savings of approximately ~~$19.0~~$20.0 million in SG&A expense in 2022, in comparison to our 2021 results of operations. In addition, we anticipate cost savings from facility closures of approximately $4.0 million in 2022, in comparison to our 2021 results of operations. Note that these savings ~~will~~may be ~~partially~~ offset by increased labor and other costs, including costs associated with new employees as we restructure certain activities and strive for the optimal mix of employee skill sets that will continue to support our growth strategy.


SEGMENT RESULTS

We operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments are generally organized by product type and reflect the way we manage the company. The financial information presented below for our reportable business segments is consistent with that presented under the caption "Note 15: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report, where information regarding revenue from our various product and service offerings can also be found.

Payments

Results for our Payments segment were as follows:


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Total revenue	Total revenue	$	166,208		$	79,438		109.2%		Total revenue	$	169,787		$	160,268		5.9%	$	507,149		$	343,045		47.8%
Adjusted EBITDA	Adjusted EBITDA	36,435			18,329			98.8%		Adjusted EBITDA	36,184			31,598			14.5%	107,605			71,125			51.3%
Adjusted EBITDA margin	Adjusted EBITDA margin	21.9		%	23.1		%	(1.2) pts.		Adjusted EBITDA margin	21.3		%	19.7		%	1.6 pts.	21.2		%	20.7		%	0.5 pts.

The ~~increase~~increases in total revenue for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven, in part, by ~~the acquisition~~volume increases in our major payments products, primarily lockbox processing services and ~~strong performance of First American, which contributed revenue of $83.3 million for the first quarter of 2022,~~digital payments, as well as growth in ~~our core payments businesses, primarily digital payments and lockbox processing.~~merchant services. Revenue also benefited from price increases in response to the current inflationary environment. For the first nine months of 2022, the revenue increase also reflected the acquisition and strong performance of First American, which contributed incremental revenue of $144.2 million for the first nine months of 2022. Longer term, we expect high ~~single-digit~~single digit percentage revenue growth for this segment.

The ~~increase~~increases in adjusted EBITDA for the third quarter and first ~~quarter~~nine months of 2022, as compared to the same periods in 2021, were driven, in part, by price increases and the revenue growth in our payments and merchant services businesses. In addition, for the first ~~quarter~~nine months of ~~2021, was driven by~~2022, adjusted EBITDA benefited from the incremental contribution of ~~$18.2 million from~~ the First American acquisition ~~as well as the revenue growth and pricing actions in our core payments businesses.~~of $30.2 million. These increases in adjusted EBITDA were partially offset by continued sales and information technology investments and inflationary pressures on our cost structure, primarily labor costs in our lockbox processing business. Adjusted EBITDA margin ~~decreased for the first quarter of 2022,~~increased in both periods, as compared to ~~the first quarter of~~ 2021, as the benefit of the revenue increases exceeded the impact of the investments in the business and the inflationary ~~pressures exceeded~~pressures. For the ~~benefit of the revenue increases. We~~full year, we expect adjusted EBITDA margin to be in the low 20% ~~range for the full year.~~range.

Cloud Solutions

Results for our Cloud Solutions segment were as follows:


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Total revenue	Total revenue	$	69,497		$	62,220		11.7%		Total revenue	$	66,739		$	69,497		(4.0%)	$	204,824		$	199,784		2.5%
Adjusted EBITDA	Adjusted EBITDA	17,326			17,209			0.7%		Adjusted EBITDA	16,034			19,036			(15.8%)	50,869			55,047			(7.6%)
Adjusted EBITDA margin	Adjusted EBITDA margin	24.9		%	27.7		%	(2.8) pts.		Adjusted EBITDA margin	24.0		%	27.4		%	(3.4) pts.	24.8		%	27.6		%	(2.8) pts.

The decrease in total revenue for the third quarter of 2022, as compared to the third quarter of 2021, was driven by the sale of our Australian web hosting business in the second quarter of 2022, which resulted in a a $5.9 million reduction in revenue, as well as customer churn in our North American web hosting business. Partially offsetting these decreases in revenue was growth in data-driven marketing of $5.0 million for the third quarter of 2022, driven by relationship expansion with key customers and sales wins resulting, in part, from technology investments that made the platform easier for our customers to use.

The increase in total revenue for the first ~~quarter~~nine months of 2022, as compared to the first ~~quarter~~nine months of 2021, was driven by growth ~~of 24.4%~~ in data-driven marketing ~~revenue~~of $19.2 million for the first nine months of 2022, resulting from ~~new~~relationship expansion with key clients, sales wins and increased marketing ~~efforts~~spend by ~~key clients. We continue to add new data-driven marketing clients, which will benefit~~our customers. Partially offsetting the revenue ~~going forward. As discussed under~~ ~~Executive Overview, we sold~~increases was the sale of our Australian web hosting business, which resulted in ~~May 2022. This business generated annual~~a $9.9 million revenue reduction for the first nine months of ~~$23.8 million during 2021, which we~~2022, and customer churn in our North American web hosting business. We expect ~~will be partially offset by continued growth in data-driven marketing. For~~a low single digit percentage revenue decline for the full year, ~~we expect~~reflecting a ~~flat to low single-digit revenue decline rate, including~~decrease of $16.0 million from the ~~impact of this sale.~~business divestiture.

Adjusted EBITDA ~~was virtually unchanged~~decreased for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, asdriven by the ~~impact~~sale of the ~~revenue growth was offset by various~~Australian web hosting business and investments in our data-driven marketing platform, partially offset

by the ~~business.~~growth in data-driven marketing revenue. Adjusted EBITDA margin decreased ~~for the first quarter of 2022,~~in both periods, as compared to ~~the first quarter of~~ 2021, driven by ~~these~~changes in product mix resulting from growth in data-driven marketing combined with declines in the higher margin web hosting business, as well as the platform investments ~~and client mix.~~in the data-driven marketing business. We expect that adjusted EBITDA margin for the full year will be in the ~~low-to-mid 20% range for the full year.~~low to mid-20% range.

Promotional Solutions

Results for our Promotional Solutions segment were as follows:


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Total revenue	Total revenue	$	133,243		$	124,507		7.0%		Total revenue	$	136,081		$	130,330		4.4%	$	408,600		$	389,825		4.8%
Adjusted EBITDA	Adjusted EBITDA	16,945			17,714			(4.3%)		Adjusted EBITDA	18,255			17,673			3.3%	49,795			56,804			(12.3%)
Adjusted EBITDA margin	Adjusted EBITDA margin	12.7		%	14.2		%	(1.5) pts.		Adjusted EBITDA margin	13.4		%	13.6		%	(0.2) pts.	12.2		%	14.6		%	(2.4) pts.

The ~~increase~~increases in total revenue for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven primarily by ~~strong ongoing demand for our products, including promotional and apparel products, as well as~~ the impact of new clients, ~~and~~

~~pricing actions~~relationship expansion with existing clients, price increases in response to the current inflationary ~~environment.~~environment, and strong ongoing demand for our promotional and apparel products. Partially offsetting these revenue increases ~~was~~were lower sales of certain printed products due to supply chain disruptions, as well as the continuing secular decline in business forms and some accessories. ~~We anticipate~~As discussed in Executive Overview, we sold our strategic sourcing business during the second quarter of 2022 and our retail packaging business during the third quarter of 2022. These divestitures resulted in a revenue decline of $5.7 million for the third quarter of 2022 and $9.1 million for the first nine months of 2022. We expect that revenue for the full year will decline approximately $15.5 million as a result of these business exits.

The increase in adjusted EBITDA for the third quarter of 2022, as compared to the third quarter of 2021, was driven by price increases and the revenue growth ~~rate in the low-single digits~~noted above, partially offset by inflationary pressures on materials and delivery and supply chain disruptions for ~~2022.~~certain higher margin printed products as a result of paper and other supply disruptions.

Adjusted EBITDA for the first ~~quarter~~nine months of 2022 decreased compared to the first ~~quarter~~nine months of 2021, driven by ~~changes in product mix that resulted in the sale of higher cost outsourced products and~~ inflationary pressures on materials and delivery ~~as well as various information technology investments. These decreases in adjusted EBITDA were~~and supply chain disruptions for certain printed products, partially offset by ~~pricing actions~~price increases in response to the current inflationary environment and the revenue ~~growth.~~ growth noted above.

Adjusted EBITDA margin decreased slightly for the third quarter of 2022, as compared to the third quarter of 2021, as inflationary cost pressures and supply chain disruptions were substantially offset by price increases. Adjusted EBITDA margin for the third quarter of 2022 increased from 10.5% in the second quarter of 2022, as we benefited from improvements in supply availability and pricing actions began to offset inflationary cost pressures.

Adjusted EBITDA margin decreased for the first nine months of 2022, as compared to the first nine months of 2021, as the impact of inflation and supply chain disruptions for certain higher margin printed products exceeded the impact of the price increases and revenue growth. We anticipate a higher adjusted EBITDA margin in the fourth quarter of 2022, as compared to the ~~first~~third quarter of ~~2021, as the impact of product mix, inflation~~2022, due to further improvements in supply availability, operational improvement initiatives and ~~investments in the business exceeded the impact of the pricing actions. We anticipate that adjusted EBITDA margin for the full year will be in the mid-teens.~~our typical seasonal patterns.

Checks

Results for our Checks segment were as follows:


		Quarter Ended March 31,							Quarter Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2022			2021			Change		(in thousands)	2022			2021			Change	2022			2021			Change
Total revenue	Total revenue	$	187,067		$	175,099		6.8%		Total revenue	$	182,431		$	172,046		6.0%	$	553,433		$	518,968		6.6%
Adjusted EBITDA	Adjusted EBITDA	82,797			83,534			(0.9%)		Adjusted EBITDA	80,478			77,254			4.2%	245,838			240,979			2.0%
Adjusted EBITDA margin	Adjusted EBITDA margin	44.3		%	47.7		%	(3.4) pts.		Adjusted EBITDA margin	44.1		%	44.9		%	(0.8) pts.	44.4		%	46.4		%	(2.0) pts.

The ~~increase~~increases in total revenue for the third quarter and first ~~quarter~~nine months of 2022, as compared to the ~~first quarter of~~same periods in 2021, ~~was~~were driven primarily by the impact of new client wins, price increases and ~~pricing actions in response to the current inflationary environment.~~strong demand for business checks. These increases in revenue were partially offset by the continuing secular decline in ~~checks.~~overall check volumes. We ~~do not expect this level of growth throughout the remainder of 2022, as 2021 revenue benefited from onboarding new clients later in the year. For the remainder of the year, we~~ anticipate that the percentage ~~decline in~~ revenue ~~will be in the low-single digits.~~

~~Adjusted EBITDA was virtually unchanged~~decline for the ~~first~~fourth quarter of 2022, as compared to the ~~first~~fourth quarter of 2021, will be consistent with previous secular declines, as we have now lapped the ~~pricing~~benefit of new clients that were onboarded beginning late in the third quarter of 2021.

The increases in adjusted EBITDA for the third quarter and first nine months of 2022, as compared to the same periods in 2021, were driven by the price increases, cost saving actions, the impact of new ~~client wins~~clients and ~~various cost savings actions were~~strong demand for business checks, partially offset by inflationary pressures on delivery and materials and the secular decline in ~~checks and increased information technology investments.~~overall check volumes. Adjusted EBITDA margin decreased ~~for the first quarter of 2022,~~in both periods, as compared to ~~the first quarter of~~ 2021, as ~~increased commissions and other costs driven by new clients,~~ inflationary cost pressures and ~~investments in~~ the ~~business~~addition of lower margin new clients exceeded the benefit of the pricing and cost savings actions. We expect margins for this business to remain in the mid-40% range.


CASH FLOWS AND LIQUIDITY

As of ~~March 31,~~September 30, 2022, we held cash and cash equivalents of ~~$44.1~~$45.5 million, as well as restricted cash and restricted cash equivalents included in funds held for customers and other non-current assets of ~~$146.3~~$150.4 million. The following table shows our cash flow activity for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021 and should be read in conjunction with the consolidated statements of cash flows appearing in Part I, Item 1 of this report.


		Quarter Ended March 31,							Nine Months Ended September 30,
(in thousands)	(in thousands)		2022		2021		Change			(in thousands)	2022		2021		Change
Net cash provided by operating activities	Net cash provided by operating activities		$	34,265	$	39,581	$	(5,316)		Net cash provided by operating activities	$	123,418	$	149,229	$	(25,811)
Net cash used by investing activities	Net cash used by investing activities		(20,329)		(21,850)		1,521			Net cash used by investing activities	(49,350)		(1,036,361)		987,011
Net cash used by financing activities			(109,968)		(14,231)		(95,737)
Net cash (used) provided by financing activities										Net cash (used) provided by financing activities	(149,561)		911,620		(1,061,181)
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		1,320		1,606		(286)			Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	(14,107)		(793)		(13,314)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	Net change in cash, cash equivalents, restricted cash and restricted cash equivalents		$	(94,712)	$	5,106	$	(99,818)		Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	$	(89,600)	$	23,695	$	(113,295)
Free cash flow(1)	Free cash flow(1)		$	13,421	$	17,911	$	(4,490)		Free cash flow(1)	$	49,964	$	68,148	$	(18,184)

(1) See ~~the~~ Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section, which defines and illustrates how we calculate free cash flow.

Net cash provided by operating activities decreased ~~$5.3~~$25.8 million for the first ~~quarter~~nine months of 2022, as compared to the first ~~quarter~~nine months of 2021, driven by a ~~$22.7~~$32.8 million increase in interest payments as a result of debt issued to complete the First American acquisition and rising interest rates, as well as a $22.8 million increase in employee cash bonus payments related to our 2021 operating performance. During 2021, a portion of our cash bonuses were paid in the form of restricted stock units and the bonus payments in 2021 were unusually low because of the impact of the COVID-19 pandemic on our 2020 performance. Operating cash flow was also negatively impacted by a $17.7 million increase in income tax payments, inflationary pressures, supply chain disruptions in our Promotional Solutions segment, and the continuing secular decline in checks, business forms and some business ~~accessories~~accessories. The increase in income tax payments was primarily driven by the provisions of the Tax Cuts and ~~Promotional Solutions product mix. In addition, interest payments increased $3.9 million as a result~~Jobs Act of ~~debt issued to complete~~2017 that became effective in 2022 and that require the ~~First American acquisition.~~capitalization of research and development and cloud computing arrangement expenditures for income tax purposes. We were able to substantially offset these ~~impacts~~decreases in operating cash flow through the incremental contribution offrom the First ~~American's operations, pricing actions~~American acquisition, price increases in response to the current inflationary environment, ~~new business wins and~~ continued cost saving ~~actions.~~actions, and revenue growth from new business and strong demand for our products. In addition, we incurred acquisition transaction costs of $18.8 million for the first nine months of 2021 related to the First American acquisition that did not recur in 2022.

Included in net cash provided by operating activities were the following operating cash outflows:


		Quarter Ended March 31,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2022		2021		Change
Interest payments								Interest payments	$	50,986	$	18,179	$	32,807
Performance-based compensation payments(1)	Performance-based compensation payments(1)	$	34,865	$	12,180	$	22,685	Performance-based compensation payments(1)	34,972		12,192		22,780
Interest payments		7,902		4,033		3,869
Income tax payments								Income tax payments	34,515		16,768		17,747
Prepaid product discount payments	Prepaid product discount payments	7,859		9,590		(1,731)		Prepaid product discount payments	23,920		27,049		(3,129)
Income tax payments		5,139		3,330		1,809
Payments for cloud computing arrangement implementation costs								Payments for cloud computing arrangement implementation costs	16,608		27,989		(11,381)
Severance payments	Severance payments	3,759		5,701		(1,942)		Severance payments	7,502		8,632		(1,130)

(1) Amounts reflect compensation based on total company performance.

Net cash used by investing activities for the first ~~quarter~~nine months of 2022 was ~~$1.5~~$987.0 million lower than the first ~~quarter~~nine months of 2021, driven ~~primarily~~ by the acquisition of First American in 2021 and proceeds of $25.2 million from sales of businesses and a ~~down payment received on the pending sale of one of our facilities.~~facility during 2022.

Net cash used by financing activities for the first ~~quarter~~nine months of 2022 was ~~$95.7~~$1,061.2 million higher than the first ~~quarter~~nine months of 2021, driven by the net proceeds from debt issued in 2021 to fund the First American acquisition, as well as the net change in customer funds obligations in each period, primarily related to the portion of First American's business under which property tax payments are collected in December and are paid on behalf of customers in the following quarter. ~~This increase~~In addition, proceeds from issuing shares were $13.6 million lower in ~~cash used by financing activities was partially offset by net borrowings~~2022, as certain employees of ~~$8.6 million under~~First American purchased our ~~credit facility~~stock during 2021 in conjunction with the ~~first quarter of 2022.~~acquisition.

Significant cash transactions, excluding those related to operating activities, for each period were as follows:


		Quarter Ended March 31,							Nine Months Ended September 30,
(in thousands)	(in thousands)	2022		2021		Change		(in thousands)	2022		2021		Change
Net change in debt	Net change in debt	$	8,562	$	—	$	8,562	Net change in debt	$	(13,175)	$	949,412	$	(962,587)
Net change in customer funds obligations	Net change in customer funds obligations	(99,240)		1,659		(100,899)		Net change in customer funds obligations	(88,079)		14,913		(102,992)
Purchases of capital assets	Purchases of capital assets	(20,844)		(21,670)		826		Purchases of capital assets	(73,454)		(81,081)		7,627
Cash dividends paid to shareholders	Cash dividends paid to shareholders	(13,317)		(12,932)		(385)		Cash dividends paid to shareholders	(39,613)		(38,695)		(918)
Payments for debt issuance costs								Payments for debt issuance costs	—		(18,153)		18,153
Proceeds from sale of businesses and facility								Proceeds from sale of businesses and facility	25,248		2,648		22,600
Proceeds from issuing shares								Proceeds from issuing shares	2,383		16,031		(13,648)

As of ~~March 31,~~September 30, 2022, our foreign subsidiaries held cash and cash equivalents of ~~$44.2~~$45.4 million. During 2022, we ~~will begin~~began repatriating Canadian current year earnings, ~~on an annual basis,~~ as we believe the accumulated and remaining cash of our Canadian subsidiaries is sufficient to meet their working capital needs. We intend to use the repatriated earnings to reduce outstanding debt. The historical unremitted Canadian earnings as of December 31, 2021, as well as the accumulated and future unremitted earnings of our European subsidiaries, will continue to be reinvested indefinitely in the operations of those subsidiaries. Deferred income taxes have not been recognized on these earnings as of ~~March 31,~~September 30, 2022. ~~In May 2022, we sold all of our Australian subsidiaries.~~ If we were to repatriate our foreign cash and cash equivalents into the U.S. at one time, ~~excluding the amount in Australia,~~ we estimate that we would incur a foreign withholding tax liability of approximately ~~$2.0~~$1.8 million, notwithstanding any tax planning strategies that might be available.

In assessing our cash needs, we must consider our debt service requirements, lease obligations, other contractual commitments and contingent liabilities. Information regarding the maturities of our long-term debt and our contingent liabilities can be found under the captions “Note 12: Debt” and "Note 13: Other Commitments and Contingencies," both of which appear in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Information regarding our lease obligations can be found under the caption "Note 15: Leases" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K, and information regarding our contractual obligations can be found in the MD&A section of the 2021 Form 10-K, under the section entitled Cash Flows and Liquidity. There were no significant changes in our lease or contractual obligations during the first ~~quarter~~nine months of 2022.

As of ~~March 31,~~September 30, 2022, ~~$339.2~~$282.2 million was available for borrowing under our revolving credit facility. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations, including our contractual obligations and debt service requirements, for the next 12 months. 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.


CAPITAL RESOURCES

The principal amount of our debt obligations was ~~$1.71~~$1.69 billion as of ~~March 31,~~September 30, 2022 and $1.70 billion as of December 31, 2021. Further information concerning our outstanding debt, including our debt service obligations, can be found under the caption “Note 12: Debt” in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Our capital structure for each period was as follows:


		March 31, 2022				December 31, 2021							September 30, 2022				December 31, 2021
(in thousands)	(in thousands)	Amount		Weighted- average interest rate		Amount		Weighted- average interest rate		Change		(in thousands)	Amount		Weighted- average interest rate		Amount		Weighted- average interest rate		Change
Fixed interest rate(1)	Fixed interest rate(1)	$	700,000	6.9	%	$	700,000	6.9	%	$	—	Fixed interest rate(1)	$	975,000	6.6	%	$	700,000	6.9	%	$	275,000
Floating interest rate	Floating interest rate	1,010,687		2.8	%	1,002,125		2.4	%	8,562		Floating interest rate	711,813		5.3	%	1,002,125		2.4	%	(290,312)
Debt principal	Debt principal	1,710,687		4.5	%	1,702,125		4.2	%	8,562		Debt principal	1,686,813		6.1	%	1,702,125		4.2	%	(15,312)
Shareholders’ equity	Shareholders’ equity	579,015				574,598				4,417		Shareholders’ equity	602,072				574,598				27,474
Total capital	Total capital	$	2,289,702			$	2,276,723			$	12,979	Total capital	$	2,288,885			$	2,276,723			$	12,162

(1) The fixed interest rate amount includes the amount of our variable-rate debt that is subject to an interest rate swap ~~agreement.~~agreements. The related interest rate includes the fixed rate under the ~~swap of 1.798%~~swaps plus the credit facility spread due on all amounts outstanding under our credit facility.

In October 2018, our board of directors authorized the repurchase of up to $500.0 million of our common stock. This authorization has no expiration date. We have not repurchased any shares under this authorization since the first quarter of 2020, when we suspended share repurchases in order to maintain liquidity during the COVID-19 pandemic. ~~We will continue to evaluate future share repurchases on an opportunistic basis.~~ As of ~~March 31,~~September 30, 2022, $287.5 million remained available for repurchase under this authorization. Information regarding changes in shareholders' equity can be found in the consolidated statements of shareholders' equity appearing in Part I, Item 1 of this report.

As of ~~March 31,~~September 30, 2022, total commitments under our revolving credit facility were $500.0 ~~million and the credit facility matures in June 2026.~~million. Our quarterly commitment fee ranges from 0.25% to 0.35%, based on our total leverage ratio, as defined in the credit agreement. Further information regarding the terms and maturities of our debt, as well as our debt covenants, can be found under the caption "Note 12: Debt" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Under the terms of our credit facility, if our consolidated total leverage ratio exceeds 2.75 to 1.00, the aggregate annual amount of permitted dividends and share repurchases is limited to $60.0 million. We were in compliance with our debt covenants as of ~~March 31,~~September 30, 2022, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.

As of ~~March 31,~~September 30, 2022, amounts ~~were~~ available for borrowing under our revolving credit facility were as follows:


(in thousands)	~~Total available~~Available borrowings
Revolving credit facility commitment	$	500,000
Amounts drawn on revolving credit facility	~~(153,000)~~(210,000)
Outstanding letters of credit(1)	~~(7,806)~~(7,823)
Net available for borrowing as of ~~March 31,~~September 30, 2022	$	~~339,194~~282,177

(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.


OTHER FINANCIAL POSITION INFORMATION

Information concerning items comprising selected captions on our consolidated balance sheets can be found under the caption "Note 3: Supplemental Balance Sheet and Cash Flow Information" appearing in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Funds held for customers – Funds held for customers of ~~$156.8~~$155.6 million as of ~~March 31,~~September 30, 2022 decreased ~~$98.0~~$99.2 million from December 31, 2021, and the related current liability for funds held for customers of ~~$156.0~~$155.4 million as of ~~March 31,~~September 30, 2022 decreased ~~$100.3~~$100.9 million from December 31, 2021. These decreases were driven by the seasonal nature of a portion of First American's business under which property tax payments are collected in December and are paid on behalf of customers the following year.

Prepaid product discounts – Other non-current assets include prepaid product discounts that are recorded upon contract execution and are generally amortized on the straight-line basis as reductions of revenue over the related contract term.

Changes in prepaid product discounts during the ~~quarters~~nine months ended ~~March 31,~~September 30, 2022 and 2021 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 Part I, Item 1 of this report. Cash payments for prepaid product discounts were ~~$7.9~~$23.9 million for the first ~~quarter~~nine months of 2022 and ~~$9.6~~$27.0 million for the first ~~quarter~~nine months of 2021.

The number of checks written has been declining, which has contributed to increased competitive pressure when attempting to retain or acquire clients. Both the number of financial institution clients requesting prepaid product discount payments and the amount of the payments has fluctuated from year to year. Although we anticipate that we will selectively continue to make these payments, we cannot quantify future amounts with certainty. The amount paid depends on numerous factors, such as the number and timing of contract executions and renewals, competitors’ actions, overall product discount levels and the structure of up-front product discount payments versus providing higher discount levels throughout the term of the contract.

Liabilities for prepaid product discounts are recorded upon contract execution. These obligations are monitored for each contract and are adjusted as payments are made. Prepaid product discount payments due within the next year are included in accrued liabilities on the consolidated balance sheets. These accruals were ~~$8.3~~$6.6 million as of ~~March 31,~~September 30, 2022 and $11.9 million as of December 31, 2021.


CRITICAL ACCOUNTING ESTIMATES

A description of our critical accounting estimates was provided in the MD&A section of the 2021 Form 10-K. There were no changes in the determination of these estimates during the first nine months of 2022. Information regarding the annual goodwill impairment analysis completed during the third quarter of ~~2022.~~2022 can be found under the caption "Note 8: Fair Value Measurements" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

New accounting pronouncement – Information regarding the new accounting pronouncement that we have not yet adopted can be found under the caption “Note 2: New Accounting Pronouncement” in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk – We are exposed to changes in interest rates primarily as a result of the borrowing activities used to support our capital structure, maintain liquidity and fund business operations and investments. We do not enter into financial instruments for speculative or trading purposes. The nature and amount of debt outstanding can be expected to vary as a result of future business requirements, market conditions and other factors.

Interest is payable on amounts outstanding under our credit facility at a fluctuating rate of interest determined by reference to the eurodollar rate plus an applicable margin ranging from 1.5% to 2.5%, depending on our total leverage ratio, as defined in

the credit agreement. We also had ~~$500.0~~$475.0 million of 8.0% senior, unsecured notes outstanding as of ~~March 31,~~September 30, 2022. Including the related discount and debt issuance costs, the effective interest rate on these notes is 8.3%.

As of ~~March 31,~~September 30, 2022, our total debt outstanding was as follows:


(in thousands)	(in thousands)	Carrying amount(1)		Fair value(2)		Interest rate(3)		(in thousands)	Carrying amount(1)		Fair value(2)		Interest rate(3)
Senior, secured term loan facility	Senior, secured term loan facility	$	1,047,973	$	1,057,687	3.0	%	Senior, secured term loan facility	$	993,664	$	1,001,813	5.3	%
Senior, unsecured notes	Senior, unsecured notes	491,445		509,045		8.0	%	Senior, unsecured notes	467,300		385,733		8.0	%
Amounts drawn on revolving credit facility	Amounts drawn on revolving credit facility	153,000		153,000		3.0	%	Amounts drawn on revolving credit facility	210,000		210,000		5.3	%
Total debt	Total debt	$	1,692,418	$	1,719,732	4.5	%	Total debt	$	1,670,964	$	1,597,546	6.1	%

(1) The carrying amount has been reduced by unamortized discount and debt issuance costs of ~~$18.3~~$15.8 million.

(2) For the amounts outstanding under our credit facility agreement, fair value approximates carrying value because the interest rate is variable and reflects current market rates. The fair value of the senior, unsecured notes is based on quoted prices in active markets for the identical liability when traded as an asset.

(3) The interest rate presented for total debt includes the impact of the interest rate ~~swap~~swaps discussed below.

As part of our interest rate risk management strategy, we entered into an interest rate ~~swap in July 2019,~~swaps, which we designated as a cash flow ~~hedge,~~hedges, to mitigate variability in interest payments on a portion of our variable-rate debt. The interest rate ~~swap, which terminates in March 2023,~~swaps effectively ~~converts $200.0~~convert $500.0 million of variable-rate debt to a fixed rate. Further information regarding the interest rate swaps can be found under the caption "Note 7: Derivatives" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of ~~1.798%.~~this report. Changes in the fair value of the interest rate ~~swap~~swaps are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair value of the ~~interest rate swap~~swaps was ~~$0.1~~$3.8 million as of ~~March 31,~~September 30, 2022 ~~and $3.0 million as of December 31, 2021~~ and was included in ~~accrued liabilities~~other current and other non-current ~~liabilities, respectively,~~assets on the consolidated balance ~~sheets.~~sheet. The fair value of the swap held at December 31, 2021 was $3.0 million and was included in other non-current liabilities on the consolidated balance sheet.

Based on the daily average amount of variable-rate debt outstanding during the first ~~quarter~~nine months of 2022, a one percentage point change in the weighted-average interest rate would have resulted in a ~~$2.5~~$7.3 million change in interest expense.

Our credit agreement matures on June 1, 2026, at which time any amounts outstanding under the revolving credit facility must be repaid. The term loan facility requires periodic principal payments through June 1, 2026, and the senior, unsecured notes mature in June 2029. Information regarding the maturities of our long-term debt can be found under the caption "Note 12: Debt" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Foreign currency exchange rate risk – We are exposed to changes in foreign currency exchange rates. Investments in, loans and advances to foreign subsidiaries and branches, as well as the operations of these businesses, are denominated in foreign currencies, primarily Canadian ~~and Australian~~ dollars. The effect of exchange rate changes is not expected to have a significant impact on our earnings and cash flows, as our foreign operations represent a relatively small portion of our business. We have not entered into hedges against changes in foreign currency exchange rates.


ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures – As of the end of the period covered by this report, ~~March 31,~~September 30, 2022 (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the ~~Exchange Act)~~"Exchange Act")). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting – There were no changes in our internal control over financial reporting identified in connection with our evaluation during the quarter ended ~~March 31,~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3944

PART II – OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

We record accruals with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable outcomes. As of ~~March 31,~~September 30, 2022, recorded liabilities were not material to our financial position, results of operations or liquidity, 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.


ITEM 1A. RISK FACTORS

Our risk factors are outlined in Part I, Item 1A of the 2021 Form 10-K. There have been no significant changes in these risk factors since we filed the 2021 Form 10-K.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table shows purchases of our common stock that were completed during the ~~first~~third quarter of 2022:

Period
Total number of shares purchased(1)
Average price paid per share(1)
Total number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs(2)
January 1, 2022 –
January 31, 2022
37,071 $ 29.67 — $ 287,452,394
February 1, 2022 –
February 28, 2022 62,926 31.32 — 287,452,394
March 1, 2022 –
March 31, 2022 35,092 31.08 — 287,452,394
Total 135,089 30.80 — 287,452,394


Period	Total number of shares purchased(1)	Average price paid per share(1)		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs(2)
July 1, 2022 – July 31, 2022	3,170	$	23.06	—	$	287,452,394
August 1, 2022 – August 31, 2022	3,253	23.28		—	287,452,394
September 1, 2022 – September 30, 2022	4,147	17.99		—	287,452,394
Total	10,570	21.14		—	287,452,394

(1) Under the terms of our ~~2020 Long-Term~~2022 Stock Incentive Plan, as well as our previous long-term incentive plans, participants may surrender shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of the exercising or vesting of such awards. During the ~~first~~third quarter of 2022, we withheld ~~135,089~~10,570 shares in conjunction with the vesting and exercise of equity-based awards.

(2) In October 2018, our board of directors authorized the repurchase of up to $500.0 million of our common stock. This authorization has no expiration date. No shares were repurchased under this authorization during the ~~first~~third quarter of 2022 and $287.5 million remained available for repurchase as of ~~March 31,~~September 30, 2022.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS


Exhibit Number						Description
~~2.1~~10.1						~~Share Sale Agreement, dated~~Stipulated Order for Permanent Injunction, Monetary Judgment and Other Relief, as ~~of March 8, 2022, between us and Web.com AUS Holdco Pty Ltd~~
~~2.2~~						~~Amendment Agreement, dated as of April 29, 2022, to the Share Sale Agreement between us and Web.com AUS Holdco Pty Ltd~~amended
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)


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			DELUXE CORPORATION (Registrant)

Date: ~~May 6,~~November 4, 2022			/s/ Barry C. McCarthy
			Barry C. McCarthy President and Chief Executive Officer (Principal Executive Officer)

Date: ~~May 6,~~November 4, 2022			/s/ ~~Scott~~William C. ~~Bomar~~Zint
			~~Scott~~William C. ~~Bomar~~Zint Senior Vice President, Chief Financial Officer (Principal Financial Officer)

Date: November 4, 2022			/s/ Chad P. Kurth
			Chad P. Kurth Vice President, Chief Accounting Officer ~~and~~ (Principal Accounting Officer)


(in thousands)	March 31, 2022		March 31, 2021
Cash and cash equivalents	$	44,059	$	125,440
Restricted cash and restricted cash equivalents included in funds held for customers	143,725		109,075
Cash and cash equivalents included in other current assets(1)	400		—
Non-current restricted cash included in other non-current assets	2,595		—
Total cash, cash equivalents, restricted cash and restricted cash equivalents	$	190,779	$	234,515