February 26, 2019 - 10-K: Annual report pursuant to Section 13 and 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



[X]	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
	December 31, 2018

Commission file number: 1-7945

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)



Minnesota (State or other jurisdiction of incorporation or organization)	41-0216800 (I.R.S. Employer Identification No.)
3680 Victoria St. N., Shoreview, Minnesota (Address of principal executive offices)	55126-2966 (Zip Code)

Registrant’s telephone number, including area code: (651) 483-7111

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



Common Stock, par value $1.00 per share (Title of each class)	New York Stock Exchange (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X] Yes [ ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No

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. [X] 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 for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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 [X]	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 [X] No

The aggregate market value of the voting stock held by non-affiliates of the registrant is $3,119,184,444 based on the last sales price of the registrant's common stock on the New York Stock Exchange on June 29, 2018. The number of outstanding shares of the registrant's common stock as of February 13, 2019 was 43,677,292.

Documents Incorporated by Reference: Portions of our definitive proxy statement to be filed within 120 days after our fiscal year-end are incorporated by reference in Part III.

DELUXE CORPORATION

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2018

TABLE OF CONTENTS



Item				Page
Item 1. Business				3
Item 1A. Risk Factors				11
Item 1B. Unresolved Staff Comments				22
Item 2. Properties				22
Item 3. Legal Proceedings				22
Item 4. Mine Safety Disclosures				22
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities				22
Item 6. Selected Financial Data				24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations				25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk				42
Item 8. Financial Statements and Supplementary Data				43
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure				100
Item 9A. Controls and Procedures				100
Item 9B. Other Information				100
Item 10. Directors, Executive Officers and Corporate Governance				100
Item 11. Executive Compensation				101
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters				101
Item 13. Certain Relationships and Related Transactions, and Director Independence				101
Item 14. Principal Accountant Fees and Services				101
Item 15. Exhibits and Financial Statement Schedules				102
Item 16. Form 10-K Summary				105
Signatures				106

PART I

Item 1. Business.

Deluxe Corporation was founded in 1915 and was incorporated under the laws of the State of Minnesota in 1920. Our principal corporate offices are located at 3680 Victoria Street North, Shoreview, Minnesota 55126-2966. Our main telephone number is (651) 483-7111 and our web address is www.deluxe.com.

COMPANY OVERVIEW

Over 100 years ago, Deluxe Corporation began providing payment solutions. Our longevity is a testament to our innovation and our ability to evolve with our customers. Over the past several years, we have transformed from a check printing company to a provider of trusted technology-enabled solutions. Our vision is to be the best at helping our customers grow, and we have become a partner to businesses and an integral part of the financial services industry by providing a selection of customer life cycle management solutions that help our customers acquire and engage their customers across multiple channels. Over the past 24 months, our Small Business Services segment has provided products and services to approximately 4.8 million customers and our Direct Checks segment has provided products and services to approximately 4.7 million customers. Through our Financial Services segment, we provide products and services to approximately 4,600 customers.

Our product and service offerings are comprised of the following:

Marketing solutions and other services (MOS) – We offer products and services designed to meet our customers' sales and marketing needs, as well as various other service offerings. During 2018, MOS represented 37.3% of our Small Business Services segment's revenue, 59.0% of our Financial Services segment's revenue and 11.1% of our Direct Checks segment's revenue. Our MOS offerings generally consist of the following:


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


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


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


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


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

Checks – We remain one of the largest providers of checks in the United States. During 2018, checks represented 37.1% of our Small Business Services segment's revenue, 38.6% of our Financial Services segment's revenue and 84.0% of our Direct Checks segment's revenue.

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

Revenue, by product and service category, as a percentage of consolidated revenue for the years ended December 31 was as follows:



	2018		2017		2016		2015		2014
Marketing solutions and other services:
Small business marketing solutions	14.6	%	13.3	%	13.1	%	11.8	%	10.0	%
Web services	8.1	%	6.7	%	6.3	%	6.3	%	7.2	%
Data-driven marketing solutions	7.4	%	7.7	%	2.7	%	1.2	%	1.1	%
Treasury management solutions	7.4	%	5.5	%	5.0	%	4.2	%	1.0	%
Fraud, security, risk management and operational services	4.5	%	5.2	%	6.3	%	6.5	%	6.2	%
Total MOS	42.0	%	38.4	%	33.4	%	30.0	%	25.5	%
Checks	40.6	%	43.3	%	46.8	%	49.3	%	52.0	%
Forms, accessories and other products	17.4	%	18.3	%	19.8	%	20.7	%	22.5	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

BUSINESS SEGMENTS

Our business segments are generally organized by the type of customer served and reflect the way we manage the company. Additional information concerning our segments appears under the caption “Note 18: Business segment information” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Small Business Services

Small Business Services operates under various brands, including Deluxe^®, Safeguard^®, PsPrint^®, Hostopia^®, VerticalResponse^®,Digital Pacific^®, Inkhead^®, LogoMix^®, ColoCrossing^®, and MyCorporation^®, among others. This is our largest segment in terms of revenue and operating income and we are focused on profitably growing this segment. We strive to be a leading supplier to businesses, as well as partners and channels that support small businesses, by providing personalized products and services that help them operate and market their businesses. This segment sells products and services in North America, Australia and portions of South America and Europe.

Small Business Services' products are distributed through multiple channels. Our primary customer acquisition methods are direct response mail and internet advertising; referrals from financial institutions, telecommunications clients and other partners; affiliate relationships; networks of distributors and independent dealers; a direct sales force that focuses on selling to and through enterprise accounts; and an outbound telemarketing group. Customer service for initial order support, product reorders and routine service is provided by a network of call center representatives located in the United States, Canada and Australia.

Our Small Business Services strategies are as follows:


•	effectively acquire and retain customers by optimizing each of our sales channels;


•	expand sales of higher growth and recurring MOS offerings to offset the secular decline in check and forms usage;


•	increase our share of the amount small businesses spend on the types of products and services in our portfolio through increased brand awareness, channel coverage, and improved customer acquisition; and


•	Continue to optimize our cost and expense structure.

Key areas that support our Small Business Services strategies include:


1.	Web services:


*	Improve the digital marketing customer experience and cross-sell across all customers and channels, including through our integrated Deluxe Marketing Suite, while continuing to build partnerships and explore acquisition opportunities.


*	Accelerate our brand awareness transformation, building a clear linkage between marketing and revenue-generating capabilities.


*	Focus on scaling payroll services and continue to evaluate early stage businesses and other operational annuity growth solutions.


2.	Payments and marketing solutions:


*	Optimize ePayments, with a focus on building opportunities with financial institutions, health care and insurance payment processors, accounting services and software providers, and other document management and payment solution companies.


*	Focus on core check retention and acquisition and on developing incremental retail customer acquisition channels.


*	Profitably scale integrated marketing-on-demand solutions, with the largest opportunity in enterprise accounts.

In support of our strategies, we expect to continue identifying opportunities to expand sales to our existing customers and to acquire new customers, including the small business customer referrals we receive through our Deluxe Business Advantage^® program. This program provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses. Our relationships with financial institutions are important in helping us more deeply serve unique customer segments, such as contractors, retailers and professional services firms. In addition, we expect to continue to acquire customers through our affiliate partners, telecommunications clients, media partners and enterprise account clients. We invest in our e-commerce and technology platforms to increase opportunities to market and sell online, and we utilize various marketing channels, including internet, direct mail solicitations and television. Our distributor and dealer networks and our enterprise accounts channel increase our distribution reach through dedicated “feet on the street,” resellers and partner operations, and allow us to increase sales to existing customers and acquire new customers via multiple methods.

We continuously evaluate ways to strengthen our portfolio of products and services through acquisitions and internal development. In recent years, we have acquired a number of businesses that have expanded our MOS offerings, including technology-based solutions such as web services, payroll services, web-to-print capabilities and internet marketing services, and we have developed ePayments solutions, including eChecks and eDeposits. Sales of these higher growth products and services are expected to represent an increasing portion of our revenue. Additional information concerning our acquisitions appears under the caption “Note 6: Acquisitions” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. In addition, we track innovations within the marketplace coming from competitors, best-of-breed companies and evolving technology products and communities. When making decisions regarding the technologies and methodologies to employ within our product and service areas, we incorporate leading new techniques when they meet our fundamental need for scale, performance, flexibility and security. We also monitor feedback from our customer channels to ensure we are offering the products and features our customers want.

We continue our efforts within Small Business Services to simplify processes, eliminate complexity and lower costs. Small Business Services outsources the production of many of its products, including certain business forms, promotional products and apparel. In conjunction with our cost reduction initiatives, we strive to further enhance our strategic supplier sourcing arrangements. In addition, the expertise we have developed in logistics, productivity and inventory management has allowed us to reduce the number of facilities we operate, while still meeting customer requirements. During 2018, we closed an administrative facility in St. Petersburg, Florida. During 2017, we closed a retail packaging sales location in Dallas, Texas and during 2016, we closed a call center located in Los Angeles, California, a warehouse located in Houston, Texas and a facility housing general office space in Burnsville, Minnesota. The operations of these facilities were integrated into existing Small Business Services operations.

Financial Services

Financial Services' products and services are sold primarily through a direct sales force, which executes product and service supply contracts with our financial institution clients, including banks, credit unions and financial services companies. Building on our long-standing reputation in the financial services industry as a leading check provider, we have expanded our offerings to include a growing selection of software and cloud-based products and services designed to help financial institutions better address the needs of their customers throughout the customer life cycle. Our sales force is selling these life cycle management solutions through our existing financial institution customer channel to existing clients and to new clients. In addition, certain of our service offerings are sold to clients other than financial institutions.

Our Financial Services strategies are as follows:


•	expand sales of higher growth MOS offerings that differentiate us from our competition,


•	optimize core check revenue streams and acquire new clients, and


•	continue to optimize our cost and expense structure.

Key areas that support our Financial Services strategies include:


1.	Data-driven marketing solutions:


*	Leverage data-driven analytics and marketing capabilities to grow financial institution depository and lending products.


*	Assess potential acquisitions in this market space.


2.	Treasury management solutions:


*	Profitably scale our treasury management solutions.


*	Further integrate previous acquisitions to fully leverage our capabilities.


*	Assess potential acquisitions in this market space.

Despite the secular decline in check usage, checks continue to be an important source of revenue. Our check supply contracts usually range in duration from 3 to 6 years. As part of our check programs, we provide enhanced services, such as customized reporting, file management, expedited account conversion support, fraud protection services, new account support, trackable delivery and billing services. Consumers typically submit their check order to their financial institution, which then forwards the order to us. Consumers may also submit their check orders over the phone or internet. All orders are shipped directly to the consumer. We also continue to leverage our Deluxe Business Advantage program, which is designed to maximize financial institution business check programs. It offers many of the products and services of our Small Business Services segment to the small business customers of financial institutions through a number of service level options. The revenue from the products and services sold through this program is reflected in our Small Business Services segment.

In our ongoing efforts to expand our client relationships with relevant growth services, we offer several solutions designed to help financial institutions operate more effectively and better address the needs of their customers throughout the customer life cycle. All of these offerings build on our reputation as a longstanding and trusted partner of financial institutions, especially when it comes to outsourced solutions and securely managing sensitive customer data. Our service offerings include the following:

•

Deluxe Marketing Solutions – a variety of direct marketing solutions that help financial institutions acquire new customers, deepen existing customer relationships and retain customers. These offerings leverage data and analytics to help our clients execute marketing campaigns for deposit and lending products across multiple contact channels, including direct mail, email, online and other digital media.


•	Deluxe Treasury Management – comprehensive treasury management solutions, including accounts receivable processing and remote deposit capture, available at the customer site and as software-as-a-service and business process outsourced deployment models.


•	Deluxe Rewards – a loyalty and rewards platform that offers multiple touch points that enable our clients to have ongoing engagement with their customers.


•	Deluxe Strategic Sourcing – a comprehensive, outsourced service that enables financial institutions to improve efficiency, financial controls and pricing compared to self-managing multiple supplier relationships.


•	Banker's Dashboard^® – online financial management tools that provide financial institutions with comprehensive daily insights into their financial picture.


•	Provent^® – a comprehensive suite of identity protection services largely complementary to our check offerings.

We continue to advance our Financial Services' MOS offerings both via acquisitions and internal development. In recent years, we have acquired a number of businesses that have expanded our MOS offerings, including data-driven marketing solutions and treasury management solutions. Sales of these higher growth services are expected to represent an increasing portion of our revenue. Additional information concerning our acquisitions appears under the caption “Note 6: Acquisitions” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. We expect that providing a growing selection of products and services will offset the impacts of the secular decline in check usage and the continued pricing pressure we are experiencing in our check programs. As such, we focus on accelerating the pace at which we introduce new products and services, utilizing client feedback and market research to identify client needs and gaps. We have also invested in extending the Deluxe brand to increase brand awareness and loyalty in the financial services market beyond check-related solutions.

Financial Services continues to simplify processes, eliminate complexity and lower costs. During 2018, we closed administrative facilities located in Livonia, Michigan; Nashville, Tennessee; and Henderson, Kentucky. During 2017, we closed administrative facilities located in Omaha and Lincoln, Nebraska, and during 2016, we closed a warehouse located in Nashville, Tennessee. The operations of these facilities were integrated into existing Financial Services operations.

Direct Checks

Direct Checks is the nation's leading direct-to-consumer check supplier, selling under various brand names, including Checks Unlimited^®, Designer Checks^®, Checks.com^®, Check Gallery^®, The Styles Check Company^®, and Artistic Checks^®, among others.

We use a variety of direct marketing techniques to acquire new customers, including newspaper inserts, in-package advertising, statement stuffers and co-op advertising. We also use search engine marketing and search engine optimization strategies to direct traffic to our websites, which include: checksunlimited.com, designerchecks.com, checks.com, checkgallery.com, styleschecks.com, and artisticchecks.com, among others.

Direct Checks competes primarily on price and design. We believe that pricing in the direct-to-consumer channel is generally lower than retail prices charged to consumers in the financial institution channel. We compete on design by seeking to

offer the most attractive selection of images with high consumer appeal, many of which are licensed from well-known artists and organizations.

Our Direct Checks strategies are as follows:


•	maximize the lifetime value of customers by selling new features, accessories and products;


•	continue to optimize our cost and expense structure; and


•	optimize cash flow.

We market our products and services through targeted advertising, with internet advertising being the most cost effective. We continue to explore avenues to expand sales to existing customers through sales of accessories and other check-related products and services, such as the check protection service we offer with EZShield, Inc., which provides reimbursement to consumers for losses resulting from forged signatures or endorsements and altered checks. As in our other two business segments, Direct Checks continues to simplify processes, eliminate complexity and lower costs. We continue to identify additional opportunities to lower our cost and expense structure in all functional areas, particularly in the areas of marketing and fulfillment.

MANUFACTURING AND FULFILLMENT/SUSTAINABLE PRACTICES

We continue to focus on improving the customer experience by providing excellent service and quality, reducing costs and increasing productivity. We accomplish this by embedding lean operating principles in our manufacturing processes, while emphasizing a culture of continuous improvement. We have a shared services approach, which allows our 3 business segments to leverage shared manufacturing facilities to optimize capacity utilization, enhance operational excellence and foster a culture of continuous improvement. We continue to reduce costs by utilizing our assets and printing technologies more efficiently and by enabling employees to better leverage their capabilities and talents.

Our expertise in logistics, productivity and inventory management has allowed us to reduce the number of production facilities we operate, while still meeting customer requirements. During 2018, we closed our Riverside, California and San Antonio, Texas fulfillment operations. During 2017, we closed our Westlake Village, California fulfillment operation, and during 2016, we moved production out of our Lancaster, California manufacturing facility. These operations were moved to other existing locations.

We continue to sponsor “sustainability” initiatives that encompass environmentally-friendly practices. We have aligned with suppliers that promote sustainable business practices and we seek opportunities to eliminate wasted material, reduce cycle times and use more environmentally-friendly materials. More than 90% of our check and forms paper is purchased from Forest Stewardship Council certified supplier mills and we use environmentally-friendly janitorial supplies. Our sustainability initiatives have also benefited our results of operations over the past several years as we focus on reducing our consumption of water, electricity and natural gas, and improving our transportation efficiency. We continue efforts to reduce solid waste sent to landfills, and we have been a member of the Environmental Protection Agency's Green Power Leadership Club since 2010.

CYBERSECURITY

We have a risk-based cybersecurity program dedicated to protecting our data as well as data belonging to our customers and business partners. We utilize a defensive in-depth strategy, with multiple layers of security controls to protect our and our customers' data and solutions. Organizationally, we have a cross-functional Enterprise Risk Council that reviews and advises on standards and policies. We also have an Enterprise Information Risk Management program and Cyber Incident Response teams to ensure compliance with our security policies and protocols. These teams are comprised of experts from across our company, as well as outside experts in some cases, to ensure that we are monitoring the effectiveness of our cybersecurity vulnerability management programs. Additionally, we periodically discuss identified enterprise risks with our board of directors, including cybersecurity risks. For more information on risks related to data security, see Item 1A, "Operational Risks – Security breaches, computer malware or other cyber attacks involving the confidential information of our customers, employees or business partners could substantially harm our reputation and business."

INDUSTRY OVERVIEW

Checks

Check printing continues to be a significant portion of our business. While we believe that there will continue to be a substantial demand for personal and business checks for the foreseeable future, the total number of checks written in the United States has been in decline since the mid-1990s. In 2019, we anticipate check orders will decline at approximately the same rate as in 2018, and we expect that the number of checks written will continue to decline due to the increasing use of alternative payment methods. Further information regarding the decline in check usage can be found in Item 1A, "Strategic Risks – The use

of checks and forms is declining and we may be unable to offset the decline with other sources of revenue." We cannot predict the rate and the extent to which alternative payment methods will replace checks over the long-term, whether as a result of legislative developments, changing payment systems, personal preferences or otherwise.

In addition to the shift to electronic payment methods, consumer spending, employment levels, and housing stock and starts also impact the number of checks consumers use. We estimate that the 2018 growth rates for consumer spending and private sector employment most likely had a slightly positive impact on our personal check businesses. An increase in housing stock and starts also has a positive impact on the number of checks purchased, as new households typically are in need of new checks. According to statistics released by the United States Census Bureau in December 2018, housing units completed in 2018 through November increased approximately 4% as compared to 2017. We cannot predict whether these economic trends will improve, stay the same or worsen in the near future.

Small Business Customers

According to data published by the United States Census Bureau, there were more than 32 million small businesses in the United States in 2016, defined as independent businesses having fewer than 500 employees. According to data published by Statistics Canada in December 2018, there are approximately 4 million small businesses in Canada, defined as employer businesses with fewer than 100 employees.

Economic conditions have a significant impact on our small business customers, and the trends were mostly positive during 2018. The National Federation of Independent Business (NFIB) completes monthly surveys that indicate small business owners' views of economic conditions. After record readings in the third quarter of 2018, the index of small business optimism published by the NFIB in December 2018 fell to 104.4, down slightly from 104.9 in December 2017. However, the average index was 106.7 for 2018, up from the 104.8 average in 2017. At the same time, the net percent of small business owners expecting general business conditions to be better in 6 months decreased significantly to 16% in December 2018, as compared to 33% in September 2018 and 37% in December 2017. Although these surveys showed optimism from small business owners for most of 2018, the declines in December indicate some uncertainty. We cannot predict whether small business optimism will trend positively for a sustained period of time or whether such a trend would translate into increased revenue for us. Small businesses are more likely to be significantly affected by economic conditions than larger, more established companies. During a sluggish economy, it may be more difficult for small businesses to obtain credit and small businesses may choose to spend their limited funds on items other than our products and services. If there were a downturn in general economic conditions, the operating results and/or growth opportunities for our Small Business Services segment could be negatively impacted. We cannot predict whether economic trends will improve, stay the same or worsen in the near future.

Sales of business checks and forms have been declining, and we expect this trend to continue. In addition to the decrease in the use of checks due to the availability of alternative payment methods, continual technological improvements have provided small businesses with alternative means to execute and record business transactions. It is difficult to predict the pace at which these alternative products and services will replace standardized business forms.

Financial Institution Clients

Checks are most commonly ordered through financial institutions, including banks, credit unions and other financial services companies. As such, several developments related to financial institutions have affected the check printing portion of the payments industry.

Financial institutions seek to maintain the profits they have historically generated from their check programs, despite the secular decline in check usage. This continues to put significant pricing pressure on our check revenue. In addition, the number of potential financial institution clients in the United States is declining. According to statistics currently available online from the Federal Deposit Insurance Corporation and the Credit Union National Association, the number of financial institutions has been declining for many years. When financial institutions consolidate through mergers and acquisitions, often the newly combined entity seeks to reduce costs by leveraging economies of scale in purchasing, including its check supply contracts. This results in check providers competing intensely on price in order to retain not only their previous business with one of the financial institutions, but also to gain the business of the other financial institution in the combined entity. Financial institution mergers and acquisitions can also impact the duration of our contracts. Normally, the length of our check supply contracts with financial institutions ranges from 3 to 6 years. However, contracts may be renegotiated or bought out mid-term. Banks, especially larger ones, may request prepaid product discounts in the form of cash incentives payable at the beginning of a contract. These payments negatively impact check producers' cash flows at the beginning of these contracts. To the extent financial institution failures and consolidations impact large portions of our customer base, this could have a significant impact on our financial institution check programs.

Competition

Suppliers of small business services and products are highly fragmented and geographically dispersed, with many small local suppliers, large national retailers and internet-based providers. In these markets, the competitive factors influencing a customer's purchase decision are breadth and quality of product and service offerings, ease of use of web and other services,

price, speed of delivery, convenience, the responsiveness and quality of customer support, and past experience with the supplier. Our primary competitors include traditional storefront printing companies, office superstores, companies offering website design and hosting and domain name registration, wholesale printers, online printing companies, email and social media marketing services companies, small business products and services resellers, media directory providers, and suppliers of custom apparel, promotional products and customized gifts. Additionally, the competitive landscape for online small business suppliers continues to be challenging as new internet businesses are introduced and traditional businesses establish an online presence. We believe we are well-positioned in this competitive landscape through our broad customer base, the breadth of our small business product and service offerings, multiple distribution channels, established relationships with our financial institution and telecommunications clients and other partners, competitive pricing tiers, ease of use of our web and other services, our high quality and our dependable service.

In the check printing portion of the payments industry, we face considerable competition from another large check printer in our traditional financial institution sales channel, from direct mail and internet-based sellers of personal and business checks, from check printing software vendors and from some significant retailers. We expect competition to remain intense as check usage continues to decline. Moreover, the check product must compete with alternative payment methods, including credit cards, debit cards, direct deposit, wire transfers, internet-based bill paying services and digital wallet applications. The principal factors on which we compete are product and service breadth, price, quality and check program management. We believe the key items which differentiate us from our competition include our fully automated flat check delivery package, our online performance dashboard and portal analytics tools for financial institution branches, our personalized customer call center experience, and our Deluxe Business Advantage program, which provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses. In addition, our Small Business Services ePayments offerings provide our small business customers with an alternative online payment and deposit solution.

Our check supplier competitors have reduced the prices of their products during the supplier selection process in an attempt to gain greater volume. The corresponding pricing pressure has negatively impacted our profit margins. Pricing pressure will continue to impact our results of operations through lower pricing levels or client losses. Additionally, product discounts in the form of cash incentives payable to financial institutions upon contract execution are a common practice within the industry. Both the number of financial institutions requesting these payments and the size of the payments has fluctuated in recent years. These up-front payments negatively impact check printers' cash flows at the beginning of the contracts, so we attempt to minimize them by structuring new contracts with alternative incentives throughout the duration of the contract.

Our Financial Services MOS offerings also face intense competition, including competition from financial institution core banking software providers, advertising agencies, providers of data and analytics marketing solutions, and numerous financial technology services providers offering services such as customer and account acquisition, fraud and security risk management, receivables management and treasury support services, and rewards and loyalty solutions. We expect the intensity of competition to increase from established and emerging financial technology companies. The competitive factors affecting Financial Services MOS offerings include breadth and quality of services, ease of use, price, solution completeness, responsiveness and quality of customer support, as well as the ability to manage end-to-end financial institution processes.

Seasonality

We experience seasonal trends in sales of some of our products. For example, holiday card and retail packaging sales and revenues from rewards and loyalty solutions, as well as search and email marketing, are typically stronger in the fourth quarter of the year due to the holiday season. Sales of tax forms are stronger in the first and fourth quarters of the year, and check sales for our Direct Checks segment have historically been stronger in the first quarter of the year. In addition, we may experience some fluctuations in revenue driven by our customers' marketing campaign cycles.

Materials, Supplies and Service Providers

The principal materials used in producing our main products are paper, plastics, ink, cartons and printing plate material, which we purchase from various sources. We also purchase stock business forms and promotional apparel produced by third parties. We believe that we will be able to obtain an adequate supply of materials from current or alternative suppliers.

We have entered into agreements with third-party providers for information technology services, including telecommunications, network server and transaction processing services. We also rely upon third parties to provide a portion of the data used to maintain our proprietary and non-proprietary databases, including credit and non-credit data from the national credit bureaus and other data brokers. We believe we would be able to obtain an alternative source of supply if one or more of our service providers failed to perform.

Governmental Regulation

may adopt new laws or regulations at any time. We believe that our business is operated in substantial compliance with all applicable laws and regulations. For further information, please see Item 1A, "Legal and Compliance Risks – Governmental regulation is continuously evolving and could limit or harm our business." At this time, we are not aware of any changes in laws or regulations that will have a significant impact on our business during 2019. In June 2018, the California Consumer Privacy Act (CCPA) was signed into law and is effective on January 1, 2020. Among other requirements, businesses subject to the CCPA will need to proactively explain privacy notices to consumers when personal information is collected. Further amendments to the CCPA are likely and final regulations are yet to be published. We are currently assessing the impact of this law on our business activities.

Intellectual Property

We rely on a combination of trademark and copyright laws, trade secret and patent protection, and confidentiality and license agreements to protect our trademarks, software and other intellectual property. These protective measures afford only limited protection. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products or services that do not infringe on our intellectual property rights, either of which may adversely impact our results of operations. In addition, we may be the target of aggressive and opportunistic enforcement of patents by third parties, including non-practicing entities.

EMPLOYEES

As of December 31, 2018, we employed 5,934 employees in the United States, 660 employees in Canada and 107 employees in Australia and Europe. None of our employees are represented by labor unions, and we consider our employee relations to be good.

AVAILABILITY OF COMMISSION FILINGS

We make available through our investor relations website, Deluxe.com/investor, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after these items are electronically filed with or furnished to the SEC. These reports can also be accessed via the SEC website, sec.gov.

A printed copy of this report may be obtained without charge by calling 651-787-1068, by sending a written request to the attention of Investor Relations, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235, or by sending an email request to investorrelations@deluxe.com.

Further information about Deluxe Corporation is also available at Deluxe.com, facebook.com/deluxecorp and twitter.com/deluxecorp.

CODE OF ETHICS AND CORPORATE GOVERNANCE GUIDELINES

We have adopted a Code of Business Ethics that applies to all of our employees and our board of directors. The Code of Business Ethics is available on our investor relations website, Deluxe.com/investor, and also can be obtained free of charge upon written request to the attention of Investor Relations, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235. Any changes or waivers of the Code of Business Ethics will be disclosed on our website. In addition, our Corporate Governance Guidelines and the charters of the Audit, Compensation, Corporate Governance and Finance Committees of our board of directors are available on our website or upon written request.

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are elected by the board of directors each year. The following summarizes our executive officers and their positions.



Name	Age	Present Position	Executive Officer Since
Pete Godich	54	Senior Vice President, Financial Services	2008
Julie Loosbrock	59	Senior Vice President, Human Resources	2008
Malcolm McRoberts	54	Senior Vice President, Small Business Services	2008
Tracey Engelhardt	54	Senior Vice President, Direct-to-Consumer	2012
Michael Mathews	46	Senior Vice President, Chief Information Officer	2013
Amanda Brinkman	39	Vice President, Chief Brand and Communications Officer	2014
Keith Bush	48	Senior Vice President, Chief Financial Officer	2017
Jeffrey Cotter	51	Chief Administrative Officer, Senior Vice President and General Counsel	2018
Barry McCarthy	55	President and Chief Executive Officer	2018
Amanda Parrilli	40	Vice President, Strategy	2019

Pete Godich was named Senior Vice President, Financial Services in January 2019. From March 2011 to January 2019, Mr. Godich served as Senior Vice President, Fulfillment.

Julie Loosbrock was named Senior Vice President, Human Resources in September 2008.

Malcolm McRoberts was named Senior Vice President, Small Business Services in February 2011.

Tracey Engelhardt was named Senior Vice President, Direct-to-Consumer in March 2017. From July 2012 to March 2017, Ms. Engelhardt served as Vice President, Direct-to-Consumer.

Michael Mathews was named Senior Vice President, Chief Information Officer in March 2017. Mr. Mathews joined us in May 2013 as Vice President, Chief Information Officer.

Amanda Brinkman joined us in January 2014 as Vice President, Chief Brand and Communications Officer.

Keith Bush joined us in March 2017 as Senior Vice President, Chief Financial Officer. Prior to joining us, Mr. Bush was self-employed as a consultant from July 2016 to March 2017. From June 2009 through July 2016, Mr. Bush served as Senior Vice President, Finance for American Airlines.

Jeffrey Cotter was named Chief Administrative Officer in January 2019. Mr. Cotter joined us in June 2018 as Senior Vice President, General Counsel. Prior to joining us, Mr. Cotter served as Senior Vice President and General Counsel for Tennant Company, a provider of cleaning products and solutions, from September 2017 to June 2018. From June 2008 to April 2017, Mr. Cotter served as Vice President, General Counsel for G&K Services, Inc., a provider of branded uniform and facility services programs.

Barry McCarthy joined us in November 2018 as President and Chief Executive Officer. Prior to joining us, Mr. McCarthy held several positions at First Data Corporation, including Executive Vice President and Head of Network and Security Solutions from November 2014 to November 2018 and Executive Vice President and President of Financial Services from January 2013 to October 2014. First Data Corporation is a global leader in commerce-enabling technology and solutions for merchants, financial institutions and card issuers.

Amanda Parrilli joined us in February 2019 as Vice President, Strategy. Prior to joining us, Ms. Parrilli held several positions at The Home Depot, Inc. from July 2014 to February 2019, including Senior Director, Services Lead Generation; Director, Home Decorators Strategy; and Director, Strategic Business Development. From March 2013 to July 2014, Ms. Parrilli served as Vice President of Strategic Programs, Financial Services for First Data Corporation.

Item 1A. Risk Factors.

Our business, prospects, results of operations, financial condition and cash flows could be adversely affected by various risks and uncertainties. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this Annual Report on Form 10-K. We have disclosed all known material risks. Additional risks not presently known to us,

or that we currently believe are immaterial, may also adversely affect us. You should carefully consider all of these risks and uncertainties before investing in our common stock.

STRATEGIC RISKS

We may not be successful at implementing our growth strategies.

We continue to execute strategies intended to drive sustained revenue and earnings growth, despite the continuing secular decline in check and forms usage. We are focused on increasing marketing solutions and other services revenue, particularly treasury management solutions, data-driven marketing solutions and web services, which we believe represent our most significant growth opportunities. We have invested and plan to continue investing in several key enablers to achieve our strategies, including strengthening our portfolio of products and services, particularly technology-based solutions; investing in acquisitions; scaling our service offerings; expanding our data platform capabilities; enhancing brand awareness and positioning; and improving the customer experience. In addition, we are currently evaluating our strategies and our strategic approach to all of our businesses. We can provide no assurance that any changes we may make to our strategies will be successful in the short- or long-term or will provide a positive return on our investment. Our business strategies could fall short of our expectations for many reasons, including, among others:


•	our failure to generate profitable revenue growth;


•	our failure to acquire new customers, retain our current customers and sell more products and services to current and new customers;


•	our inability to implement improvements to our technology and other key assets to increase efficiency, enhance our competitive advantage and scale our operations;


•	our failure to effectively operate, integrate or leverage the businesses we acquire;


•	the failure of our digital services and products to achieve widespread customer acceptance;


•	our inability to promote, strengthen and protect our brand;


•	our failure to effectively manage the growth, expanding complexity and pace of change of our business and operations;


•	our inability to identify suitable acquisition candidates or to complete acquisitions on acceptable terms;


•	unanticipated changes in our business, markets, industry or the competitive landscape; and


•	general economic conditions.

In addition, we are focused on targeting our financial technology solutions to larger financial institutions. These offerings include data-driven marketing solutions, including outsourced marketing campaign targeting and execution; treasury management solutions; and digital engagement solutions, including loyalty and rewards programs. If we are able to increase sales of these services to larger financial institutions, we may experience fluctuations in revenue driven by our clients' marketing campaign cycles. This may adversely affect our ability to accurately predict the timing of revenues and to meet short-term expectations of operating results. In addition, we utilize pay-for-performance models for certain of our data-driven marketing offerings, meaning that our revenue is based on the success of the marketing campaign that we develop for our clients. Factors beyond our control, such as rising mortgage lending rates, could negatively impact the success of some campaigns and result in lower revenue. Rising mortgage lending rates may also result in less lending activity for our financial institution clients, which may cause them to reduce their marketing spending. In addition, by targeting our offerings to larger financial institutions, the resulting customer concentration could increase our sensitivity to any material, adverse developments affecting our significant customers, and our top customers’ purchasing power could, in some cases, give them the ability to make greater demands with regard to pricing and contractual terms in general.

We can provide no assurance that our growth strategies will be successful, either in the short-term or in the long-term, that they will generate a positive return on our investment, or that they will not reduce our operating margins, all of which could adversely affect our business, financial condition and results of operations. Additionally, if our strategies are not successful, or if there is market perception that our strategies are not successful, our reputation and brand may be damaged and our stock price may decline.

If we are unable to attract customers in a cost-effective manner or effectively develop and operate a multichannel customer experience, our business and results of operations would be adversely affected.

We use a variety of methods to promote our products and services, including direct mail advertising, email marketing, purchased search results from online search engines, broadcast media, advertising banners, social media and other online links. The profitability of our Direct Checks segment depends in large part on our ability to secure adequate advertising media placements at acceptable rates. We can provide no assurance regarding the future cost, effectiveness and/or availability of suitable advertising media. Additionally, our Direct Checks segment and portions of our Small Business Services segment have, at times, experienced declines in response rates related to direct mail promotional materials. While we believe that media response rates have declined across a wide variety of products and services, we believe that the declines we have experienced are also attributable to the secular decline in check usage, the gradual obsolescence of standardized forms products and the increasing use of e-commerce by both consumers and small businesses. In an attempt to offset these impacts, we continually modify our marketing and sales efforts and continue to shift a greater portion of our advertising investment to the internet. Competitive pressure may inhibit our ability to reflect increased costs in the prices of our products and new marketing strategies

may not be successful. We can provide no assurance that we will be able to offset a decline in response rates, even with additional marketing and sales efforts.

In addition to print and email advertising, many customers come to our websites through internet search engines. If the search engines on which we rely modify their algorithms or terminate their relationship with us, fewer customers may be directed to our websites. As we analyze our overall advertising strategy, we may be forced to resort to more costly resources to replace lost internet traffic, which would adversely affect our results of operations. In addition, the cost of purchased search engine listings will likely increase as demand for them continues to grow, and further cost increases could negatively affect our profitability.

We also rely on referrals from financial institutions, telecommunications clients and other partners. For example, we receive small business customer referrals through our Deluxe Business Advantage^® program, which provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses. If these referrals were to decline, we would obtain fewer new customers and our results of operations would be negatively impacted.

We believe we must maintain a relevant, multichannel experience for our customers. Customers expect to be able to order products and services from us however they please, whether via the mail, phone or computer. In particular, smart phones and tablet computing devices are increasingly being used as the primary means for accessing the internet and conducting e-commerce. Designing and purchasing custom products on mobile devices is more difficult than doing so with a traditional computer due to limited screen sizes, bandwidth and other variables. Beyond these difficulties, the development of mobile-oriented user interfaces and other technologies is complex and expensive. We are also dependent on the functionality of our systems with web browsers, mobile devices and operating systems that are controlled by third parties. These parties frequently introduce new devices, and from time to time, they may introduce new operating systems or modify existing ones.

Network carriers may also impact the ability to access specified content on mobile devices. With the June 2018 effective date of the repeal of net neutrality rules, network carriers could, at their discretion, negatively impact the speeds of our websites. Network carriers could also institute paid prioritization, under which companies must pay a premium for faster internet speeds. In this situation, any additional fees could negatively affect our profitability.

Although we are constantly making investments to update our technology, we cannot predict the success of these investments. Multichannel marketing is rapidly evolving and we must keep pace with the changing expectations of our customers and new developments by our competitors. If we are unable to implement improvements to our customer-facing technology in a timely manner, or if our customer-facing technology does not function as designed, we could find it increasingly difficult to attract new and repeat visitors to our websites and convert these visitors to customers, which would result in decreased revenue.

We face intense competition in all areas of our business, and we expect that competition will continue to increase.

Although we are one of the leading check printers in the United States, we face considerable competition. In addition to competition from alternative payment methods, we also face intense competition from another large check printer in our traditional financial institution sales channel, from direct mail and internet-based sellers of personal and business checks, from check printing software vendors and from some significant retailers. In addition, the suppliers of small business and financial services products and services are intensely competitive, highly fragmented and geographically dispersed. Current and potential competitors for our Small Business Services segment include traditional storefront printing companies, office superstores, companies offering website design and hosting and domain name registration, wholesale printers, online printing companies, email and social media marketing services companies, small business products and services resellers, media directory providers, and providers of custom apparel, promotional products and customized gifts. Additionally, the competitive landscape for online small business suppliers continues to be challenging as new internet businesses are introduced and traditional businesses establish an online presence. Current and potential competitors for Financial Services service offerings include financial institution core banking software providers, advertising agencies, providers of data and analytics marketing solutions, and numerous financial technology service providers offering services such as customer and account acquisition, fraud and security risk management, receivables management and treasury support services, and rewards and loyalty solutions. In addition, many of our potential financial institution clients have historically developed their key applications in-house and thus, we must compete with their in-house capacities. We offer several solutions designed to help financial institutions operate more effectively and better address the needs of their customers throughout the customer life cycle, building on our reputation as a longstanding and trusted business partner. However, our clients may continue to be reluctant to change suppliers and they may be hesitant to rely on outsourced solutions.

We can provide no assurance that we will be able to compete effectively against current and future competitors. Our competitors may develop superior products or technologies and may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Consolidation in the financial technology industry could limit our ability to complete acquisitions in this market or could force us to compete against larger companies with more services to bundle. In recent years, our revenue has benefited from price increases in all 3 of our business segments. We can provide no assurance that we will be able to increase prices in the future while remaining competitive. Pricing is becoming more competitive for product and service providers, as the internet allows customers to easily compare prices, and pricing also continues to be competitive in

our financial institution sales channel, as financial institutions seek to maintain their previous levels of profitability, even as check usage declines. Several of our large financial institution check supply contracts are scheduled to expire in 2021 and 2022, and the pricing levels included in any contract renewals could be lower than our current pricing levels. Continued competition could result in price reductions, reduced profit margins, loss of customers and an increase in up-front cash payments to financial institutions upon contract execution or renewal, all of which would have an adverse effect on our results of operations and cash flows.

We face uncertainty regarding the success of recent and future acquisitions, which could have an adverse impact on our operating results.

We have acquired over 25 companies in the last 3 years, the details of which appear under the caption “Note 6: Acquisitions” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. We have invested in acquisitions that offer marketing solutions and other services and that extend the range of products and services we offer, including treasury management, data-driven marketing solutions and web services. In addition, over the past several years, we have purchased the operations of many small business distributors with the intention of growing revenue in our enterprise accounts and dealer channels. The integration of any acquisition involves numerous risks, including, among others:


•	difficulties and/or delays in assimilating operations, products and services, including effectively scaling revenue and ensuring a strong system of information security and controls is in place;


•	failure to realize expected synergies and savings or to achieve projected profitability levels on a sustained basis;


•	diversion of management's attention from other business concerns and risks of managing an increasingly diverse set of products and services across expanded and new industries;


•	unanticipated integration costs;


•	difficulty in maintaining controls, procedures and policies, especially when the acquired business was a non-public company and may not have employed the same rigor in these areas as required for a publicly traded company;


•	decisions by our customers or the customers of the acquired business to temporarily or permanently seek alternate suppliers;


•	difficulty in assimilating the acquired business into our corporate culture;


•	failure to address legacy distributor account protection rights;


•	increased compliance and other complexity;


•	unidentified issues not discovered during our due diligence process, including product or service quality issues, intellectual property issues and tax or legal contingencies; and


•	loss of key employees.

One or more of these factors could impact our ability to successfully operate, integrate or leverage an acquisition and could negatively affect our results of operations.

We expect to continue to invest in acquisitions, although we do not plan to complete any acquisitions during the first half of 2019 as we intend to focus on integrating our acquisitions from 2018 and working on scaling our strategy, sales and product efforts. This will temporarily slow our revenue growth, but we believe we will have a stronger and more scalable company going forward and will be better positioned to deliver new organic solutions, as well as more easily integrate future acquisitions to take advantage of our scale.

The time and expense associated with finding suitable businesses, technologies or services to acquire can be disruptive to our ongoing business and may divert management’s attention. We cannot predict whether suitable acquisition candidates can be identified or acquired on acceptable terms or whether any acquired products, technologies or businesses will contribute to our revenue or earnings to any material extent. We may need to seek financing for larger acquisitions, which would increase our debt obligations and may not be available on terms that are favorable to us. Additionally, acquisitions may result in additional contingent liabilities, additional amortization expense related to acquired intangible assets and/or non-cash asset impairment charges, and thus, could adversely affect our business, results of operations and financial condition.

The use of checks and forms is declining and we may be unable to offset the decline with other sources of revenue.

Check printing continues to be a significant portion of our business. Revenue generated by the sale of checks was 40.6% of our consolidated revenue in 2018. We sell checks for personal and small business use and believe that there will continue to be demand for these checks for the foreseeable future, although the total number of checks written in the United States has been in decline since the mid-1990s. According to the most recent Federal Reserve study released in December 2016, the total number of checks written declined 4.8% each year between 2012 and 2015. We believe that the number of checks written will continue to decline due, in part, to the increasing use of alternative payment methods, including credit cards, debit cards, direct deposit, wire transfers, internet-based bill paying services and digital wallet applications.

In addition, steps have been taken in the development of a real-time payments system in the United States. The Federal Reserve established the Faster Payments Task Force with the objective of identifying and evaluating approaches for implementing a faster payments system. In late 2017, The Clearing House Payments Company, LLC implemented a clearing

and settlement system allowing consumers and businesses to send and receive payments in real-time directly from their accounts at financial institutions. The National Automated Clearing House Association adopted Same-Day ACH rules to speed up the processing of ACH payments, and systems such as PayPal^®, Zelle^®, Venmo^®, Apple Pay^® and various other mobile applications allow individuals to transfer funds to other users. In addition, cryptocurrencies have been gaining acceptance in the marketplace.

The rate and the extent to which alternative payment methods will achieve acceptance and replace checks, whether as a result of legislative developments, changing payment systems, personal preference or otherwise, cannot be predicted with certainty. Increased use of any of these alternative payment methods, or our inability to successfully offset the secular decline in check usage with other sources of revenue, would have an adverse effect on our business and results of operations.

The use of business forms sold by our Small Business Services segment has also been declining. Continual technological improvements, including the lower price and higher performance capabilities of personal computers, printers and mobile devices, have provided small business customers with alternative means to execute and record business transactions. Additionally, electronic transaction systems, off-the-shelf business software applications, web-based solutions and mobile applications have been designed to replace pre-printed business forms. Greater acceptance of electronic signatures also has contributed to the overall secular decline in printed products. It is difficult to predict the pace at which these alternative products and services will replace standardized business forms. If small business preferences change rapidly and we are unable to develop new products and services with comparable operating margins, our results of operations would be adversely affected.

We may not succeed in promoting and strengthening our brand, which could prevent us from acquiring customers and increasing revenue.

The success of our businesses depends, in part, on our ability to attract new and repeat customers. For this reason, a component of our business strategy is the promotion and strengthening of the Deluxe brand. We believe that the importance of brand recognition is essential for the success of our service offerings because of the level of competition for these services. Customer awareness of our brand, as well as the perceived value of our brand, will depend largely on the success of our marketing efforts and our ability to provide a consistent, high-quality customer experience. To promote our brand, we have incurred, and will continue to incur, expense related to advertising and other marketing efforts. We can provide no assurance that these efforts will be successful or that our revenue will increase at a level commensurate with our marketing expenditures. There is also the risk that negative information about Deluxe, even if based on rumor or misunderstanding, could adversely affect our business. In early 2018, we entered into a partnership with television personality Ty Pennington, who appears in our online series, Small Business Revolution – Main Street. Previously, we had a partnership with Robert Herjavec of the television show Shark Tank, and his episodes of the Small Business Revolution series remain available online. If these or other business partners or key employees are the subject of adverse news reports or negative publicity, our reputation may be tarnished and our results of operations could be adversely affected.

A component of our brand promotion strategy is establishing a relationship of trust with our customers, which we believe can be achieved by providing a high-quality customer experience. We have invested, and will continue to invest, resources in website development, design and technology, and customer service and production operations. Our ability to provide a high-quality customer experience is also dependent on external factors, including the reliability and performance of our suppliers, telecommunications providers and third-party carriers. If we are unable to provide a high-quality customer experience for any reason, our reputation may be harmed and our efforts to develop brand loyalty could be adversely impacted. The failure of our brand promotion activities to meet our expectations could adversely affect our ability to attract new customers and maintain customer relationships, adversely harming our business and results of operations.

If we do not adapt to changes in technology in a timely and cost-effective manner, our ability to sustain and grow our business could be adversely affected.

Changes in the nature of technology solutions used by small businesses and their customers may occur rapidly. In addition, the markets for many of the services provided by our Financial Services segment are characterized by constant technological change. The introduction of competing products and services using new technologies, the evolution of industry standards or the introduction of more attractive products or services could make some or all of our products and services less desirable, or even obsolete. These potential changes are magnified by the intense competition we face. To be successful, our technology-based products and services must keep pace with technological developments and evolving industry standards, address the ever-changing and increasingly sophisticated needs of our customers, and achieve market acceptance. Additionally, we must differentiate our service offerings from the in-house capabilities of our customers and from those of our competitors. We could lose current and potential customers if we are unable to develop products and services that meet changing demands in a timely manner. Additionally, we must continue to develop our skills, tools and capabilities to capitalize on existing and emerging technologies, and this requires us to incur substantial costs. Any of the foregoing risks could result in harm to our business and results of operations.

Our cost reduction initiatives may not be successful.

Intense competition, secular declines in the use of checks and business forms, the commoditization of web services and external factors affecting our data-driven marketing business compel us to continually improve our operating efficiency in order to maintain or improve profitability. Cost reduction initiatives have required, and will continue to require, up-front expenditures related to items such as redesigning and streamlining processes, consolidating information technology platforms, standardizing technology applications, further enhancing our strategic supplier sourcing arrangements, improving real estate utilization and funding employee severance benefits. We can provide no assurance that we will achieve future cost reductions or that we will do so without incurring unexpected or greater than anticipated expenditures. Moreover, we may find that we are unable to achieve business simplification and/or cost reduction goals without disrupting our business or negatively impacting efforts to grow our business. As a result, we may choose to delay or forgo certain cost reductions as business conditions require. Failure to continue to improve our operating efficiency could adversely affect our business if we are unable to remain competitive.

OPERATIONAL RISKS

Security breaches, computer malware or other cyber attacks involving the confidential information of our customers, employees or business partners could substantially harm our reputation and business.

Information security risks have increased in recent years, in part because of the proliferation of new technologies and increased use of the internet, as well as the increased sophistication and activities of hackers, terrorists and activists, some of which may be linked to hostile foreign governments. We use internet-based channels that collect customers’ account and credit card information, as well as other sensitive information, including proprietary business information and personally identifiable information of our customers, employees, contractors, suppliers and business partners. We process hundreds of millions of records containing data related to individuals and small businesses. The secure and uninterrupted operation of our networks and systems, and of the processing and maintenance of this information, is critical to our business operations and strategy. We rely on various security procedures and systems to ensure the secure storage and transmission of information, including encryption and authentication technology licensed from third parties. Computer networks and the internet are, by nature, vulnerable to unauthorized access. An accidental or willful security breach could result in unauthorized access and/or use of customer information, including consumers' personally identifiable information. Our security measures could be breached by third-party action, computer viruses, accidents, employee or contractor error, or malfeasance by rogue employees. In addition, we depend on a number of third parties, including vendors, developers and partners that are critical to our business and to which we may grant access to our customer or employee data. While we conduct due diligence on these third parties with respect to their security and business controls, individuals or third parties may be able to circumvent these controls and/or exploit vulnerabilities that may exist, resulting in the disclosure or misuse of sensitive business and personal customer or employee information and data.

Because techniques used to obtain unauthorized access, disable or degrade service, or sabotage computer systems change frequently, may be difficult to detect immediately, and generally are not recognized until they are launched against a target, we may be unable to implement adequate preventive measures. Unauthorized parties may also attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities, fraud, trickery or other means of deceiving employees and contractors. We have experienced distributed denial of service attacks by hackers aimed at disrupting internet traffic and/or attempting to place illegal or abusive content on our or our customers’ websites. Additionally, our customers and employees have been and will continue to be targeted by parties using fraudulent "phishing" emails to misappropriate personal information or to introduce viruses or other malware through "trojan horse" programs to our users' computers. To-date, these various threats have not materially impacted our business or financial results. However, we can provide no assurance of a similar result in the future.

Despite our significant cybersecurity efforts, a party that is able to circumvent our security measures could misappropriate our or our customers' personal and proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation, all of which could deter clients and consumers from ordering our products and services, and result in the termination of client contracts. Additionally, it is possible that there could be vulnerabilities that could impact large segments of mobile, computer or server architecture. Any of these events would adversely affect our business, financial condition and results of operations.

In addition, if we were to experience an information security breach, we may be required to expend significant amounts of management time and financial resources to remedy, protect against, or mitigate the effect of the breach, and we may not be able to remedy the situation in a timely manner, or at all. Furthermore, under payment card association rules and our contracts with debit and credit card processors, if there is a breach of payment card information that we store or that is stored by third parties with which we do business, we could be liable to the payment card issuing banks for their cost of issuing new cards and other related expenses. We could also lose our ability to accept credit and debit card payments from our customers, which would likely result in the loss of customers and the inability to attract new customers. We could also be exposed to time-consuming and expensive litigation, government inquiries and/or enforcement actions. If we are unsuccessful in defending a claim regarding information security breaches, we may be forced to pay damages, penalties and fines, and our insurance coverage may not be

adequate to compensate us fully for any losses that may occur. Contractual provisions with third parties, including cloud service providers, may limit our ability to recover losses resulting from the security breach of a business partner.

In addition, there are federal, state and international laws requiring companies to notify individuals of information security breaches involving their personal data, the cost of which could negatively affect our financial results. These mandatory disclosures regarding an information security breach often lead to widespread negative publicity. If we were required to make such a disclosure, it may cause our clients and customers to lose confidence in the effectiveness of our information security measures. Likewise, general publicity regarding information security breaches at other companies could lead to the perception among the general public that e-commerce is not secure. This could decrease traffic to our websites, negatively affect our financial results and limit future business opportunities.

Interruptions to our website operations or information technology systems, or failure to maintain our information technology platform, could damage our reputation and harm our business.

The satisfactory performance, reliability and availability of our information technology systems is critical to our reputation and our ability to attract and retain customers. We could experience temporary interruptions in our websites, transaction processing systems, network infrastructure, service technologies, printing production facilities or customer service operations for a variety of reasons, including, among others: human error, software errors, security breaches, power loss, telecommunications failures, equipment failures, vandalism, fire, flood, extreme weather, terrorism, and other events beyond our control.

Furthermore, as we focus resources on our growth strategies, we have reduced our investment in the development of the legacy systems that support our check and forms businesses, with a focus on sustaining and maintaining such systems. These legacy systems operate with minimal or no vendor support, contain hardware and software that we are not able to update and are difficult to maintain, yet any interruption caused by a failure or breach of these systems could create disruption in these core businesses. In addition, our technology, infrastructure and processes may contain undetected errors or design faults that may cause our websites or operating systems to fail.

Over the past 3 years, we shifted a substantial portion of our applications to a private cloud-based environment. While we maintain redundant systems and backup databases and applications software to ensure continuous access to cloud services, it is possible that access to our software capabilities could be interrupted and our disaster recovery planning may not account for all eventualities. The failure of our systems could interfere with the delivery of products and services to our customers, impede our customers' ability to do business and result in the loss or corruption of critical data. In addition to the potential loss of customers, we may be required to incur additional development costs and divert technical and other resources, and we may be the subject of negative publicity and/or liability claims, all of which would adversely affect our reputation and operating results. Our business interruption insurance coverage may not be adequate to compensate us fully for any losses that may occur.

In addition, our continued development and implementation of new generation software solutions and information technology infrastructure may take longer than originally expected and require the acquisition of additional personnel and other resources, which may adversely affect our business, results of operations and financial condition. Any inability to deploy new generation information technology throughout our organization would result in operating multiple platforms, which would increase costs.

If third-party providers of certain significant information technology needs are unable to provide services, our business could be disrupted and the cost of such services could increase.

We have entered into agreements with third-party providers for information technology services, including telecommunications, network server, cloud computing and transaction processing services. In addition, we have agreements with companies to provide services such as online payment solutions. A service provider's ability to provide services could be disrupted for a variety of reasons, including unauthorized access, computer viruses, accidental or intentional actions, electrical disruptions, labor issues, or other conditions. In the event that one or more of our service providers is unable to provide adequate or timely information technology services, our ability to deliver products and services to our customers could be adversely affected. Although we believe we have taken reasonable steps to protect our business through contractual arrangements with our service providers, we cannot completely eliminate the risk of disruption in service. Any significant disruption could harm our business, including damage to our brand and loss of customers. Additionally, although we believe that information technology services are available from numerous sources, a failure to perform by one or more of our service providers could cause a material disruption in our business while we obtain an alternative service provider. The use of substitute third-party providers could also result in increased expense.

If we are unable to attract and retain key personnel and other qualified employees, our business could suffer and our stock price could decline.

The success of our business depends on the contributions and abilities of key employees, especially in our digital services businesses and specifically in sales, marketing, product management, data analytics and information technology. If we are unable to retain our existing employees and/or attract qualified personnel, we may not be able to grow and manage our business effectively. We can provide no assurance that we will be successful in attracting and retaining such personnel.

The cost and availability of materials, delivery services and energy could adversely affect our operating results.

We are subject to risks associated with the cost and availability of paper, plastics, ink, retail packaging supplies, promotional materials, other raw materials, delivery services and energy. Paper costs represent a significant portion of our materials cost. Paper is a commodity and its price has been subject to volatility due to supply and demand in the marketplace, as well as volatility in the raw material and other costs incurred by our paper suppliers. There are also relatively few paper suppliers and these suppliers are under financial pressure as paper use declines. As such, when our suppliers increase paper prices, we may not be able to obtain better pricing from alternative suppliers. Historically, we have not been negatively impacted by paper shortages because of our relationships with paper suppliers. However, we can provide no assurance that we will be able to purchase sufficient quantities of paper if such a shortage were to occur.

We depend upon third-party providers for delivery services and for outsourced products and services. Events resulting in the inability of these service providers to perform their obligations, such as work slowdowns or extended labor strikes, could adversely impact our results of operations by requiring us to secure alternate providers at higher costs. Postal rates are dependent on the operating efficiency of the United States Postal Service (USPS) and on legislative mandates imposed upon the USPS. Postal rates have increased in recent years and the USPS has incurred significant financial losses. This may result in changes to the breadth and/or frequency of USPS mail delivery services in the future. In addition, fuel costs have fluctuated over the past several years. Increased fuel costs can increase the costs we incur to deliver products to our customers, as well as the price we pay for outsourced products and services. Competitive pressures and/or contractual arrangements may inhibit our ability to reflect increased costs in the price of our products. Any of the foregoing risks could result in harm to our business and results of operations.

We could lose access to data sources, which could harm our ability to provide certain of our products and services.

We rely on data from external sources to maintain our proprietary and non-proprietary databases, including data received from customers, strategic partners and various government and public record sources. This data includes credit and non-credit data from the national credit bureaus and other data brokers. Although we have not experienced material issues in this regard, our data sources could stop providing data, they could provide untimely data, or they could fail to adhere to our quality control standards, causing us to incur additional expense to appropriately utilize the data. In addition, our data sources could increase the cost of their data for a variety of reasons, including legislatively or judicially imposed restrictions on use, a perception that our systems are insecure, or for competitive reasons. Any increase in the cost of obtaining data would negatively impact our profitability.

If a substantial number of data sources or certain key data sources were to withdraw their services, if we were to lose access to data or have our usage of data curtailed due to government regulation, if we were to lose exclusive right to the use of data, or if the collection of data were to become uneconomical, our ability to provide certain of our products and services could be negatively impacted. We can provide no assurance that we would be able to identify and contract with suitable alternative data suppliers and integrate these data sources into our product and service offerings, which would adversely affect our business and results of operations.

We are subject to customer payment-related risks, which could adversely affect our business and financial results.

We may be liable for fraudulent transactions conducted on our websites, such as the use of stolen credit card numbers. While we do have safeguards in place, we cannot prevent all fraudulent transactions. To date, we have not incurred significant losses from payment-related fraud. However, such transactions negatively impact our results of operations and could subject us to penalties from payment card associations for inadequate fraud protection.

LEGAL AND COMPLIANCE RISKS

Third-party claims could result in costly and distracting litigation and, in the event of an unfavorable outcome, could have an adverse effect on our business, financial condition and results of operations.

From time to time, we are involved in claims, litigation and other proceedings relating to the conduct of our business, including purported class action litigation. Such legal proceedings may include claims related to our employment practices; claims alleging breach of contractual obligations; claims asserting deceptive, unfair or illegal business practices; claims alleging violations of consumer protection-oriented laws; claims related to legacy distributor account protection rights; or claims related to environmental matters. In addition, third parties may assert patent and other intellectual property infringement claims against us and/or our clients, which could include aggressive and opportunistic enforcement of patents by non-practicing entities. Any such claims could result in litigation against us and could also result in proceedings being brought against us by various federal and state agencies that regulate our businesses. The number and significance of these claims and proceedings has increased as our businesses have evolved and expanded in scope. These claims, whether successful or not, could divert management's

attention, result in costly and time-consuming litigation, or both. Accruals for identified claims or lawsuits are established based on our best estimates of the probable liability. However, we cannot accurately predict the ultimate outcome of any such proceedings due to the inherent uncertainties of litigation and other dispute resolution mechanisms. Any unfavorable outcome of a material claim or material litigation could require the payment of monetary damages or fines, attorneys' fees or costly and undesirable changes to our products, features or business practices, which would result in a material adverse effect on our business, financial condition and/or results of operations.

Governmental regulation is continuously evolving and could limit or harm our business.

We are subject to numerous international, federal, state and local laws and regulations that affect our business activities in several areas including, but not limited to, labor, advertising, taxation, data privacy and security, digital content, consumer reports, consumer protection, online payment services, real estate, e-commerce, intellectual property, health care, environmental matters, and workplace health and safety. The cost of complying with these laws and regulations is significant. In addition, regulators may adopt new laws or regulations at any time, including triggering enforcement actions, or their interpretation of existing laws may change and/or differ from ours. For example, in June 2018, the California Consumer Privacy Act (CCPA) was signed into law and is effective on January 1, 2020. Among other requirements, businesses subject to the CCPA will need to proactively explain privacy notices to consumers when personal information is collected. Further amendments to the CCPA are likely and final regulations are yet to be published. We are currently assessing the impact of this law on our business activities.

The various regulatory requirements to which we are subject could impose significant limitations on our business activities, require changes to our business, restrict our use or storage of personal information, or cause changes in our customers' purchasing behavior, which may make our business more costly and/or less efficient and may require us to modify our current or future products, services, systems or processes. We cannot quantify or predict with any certainty the likely impact of such changes on our business, prospects, financial condition or results of operations.

Portions of our business operate within highly regulated industries and our business results could be significantly affected by the laws and regulations to which we are subject. For example, federal, state and international laws and regulations regarding the protection of certain consumer information require us to develop, implement and maintain policies and procedures to protect the security and confidentiality of consumers' nonpublic personal information. Portions of our business are subject to regulations affecting payment processing, including ACH, remote deposit capture, and lockbox services. These laws and regulations require us to develop, implement, and maintain certain policies and procedures related to payment processing. We are also subject to additional requirements in certain of our contracts with financial institution clients and communications service providers, which are often more restrictive than the regulations, as well as confidentiality clauses in certain of our contracts related to small businesses’ customer information. These regulations and agreements typically limit our ability to use or disclose nonpublic personal information for other than the purposes originally intended, which could limit business opportunities. Proposed privacy and cyber security regulations may also increase the cost of compliance for the protection of collected data. The complexity of compliance with these various regulations may increase our cost of doing business and may affect our clients, reducing their discretionary spending and thus, reducing their capacity to purchase our products and services.

Due to our increasing use of the internet for sales and marketing, laws specifically governing digital commerce, the internet, mobile applications, search engine optimization, behavioral advertising, privacy and email marketing may have an impact on our business. Existing and future laws governing issues such as digital and social marketing, privacy, consumer protection or commercial email may limit our ability to market and provide our products and services. Changing data protection regulations may increase the cost of compliance in servicing domestic and international markets for our wholesale and retail business services channels. More restrictive legislation, such as new privacy laws, search engine marketing restrictions, “anti-spam” regulations, or email privacy rules, could decrease marketing opportunities, decrease traffic to our websites, and/or increase the cost of obtaining new customers.

Because of additional regulatory costs, financial institutions may put significant pricing pressure on their suppliers, including their check and service providers. The increase in cost and profit pressure may also lead to further consolidation of financial institutions. Additionally, some financial institutions do not permit offers of add-on services, such as bundled products, fraud/identity protection, expedited check delivery or rewards programs, to their customers. It would have an adverse impact on our results of operations if we were unable to market such services to consumers or small businesses through the majority of our financial institution clients. Additionally, as our product and service offerings become more technologically focused, and with expanded regulatory expectations for supervision of third-party service providers, additional portions of our business could become subject to direct federal regulation and/or examination. This would increase our cost of doing business and could slow our ability to introduce new products and services and otherwise adapt to a rapidly changing business environment.

We are subject to environmental risks which, if realized, could have an adverse impact on our operating results. Our printing facilities are subject to many federal, state and local regulations designed to protect the environment, including those related to air emissions, wastewater discharge, waste disposal, and remediation of contaminated sites. We have sold former printing facilities to third parties and, in some instances, have agreed to indemnify the buyer of the facility for certain environmental liabilities. Unforeseen conditions at current or former facilities could result in additional liability and expense beyond our insurance coverage.

Sales and other tax collection requirements could have an adverse effect on our business. We currently collect sales, use and similar taxes in jurisdictions where our legal entities have a physical or economic presence, in accordance with landmark decisions of the United States Supreme Court and the requirements of state and local jurisdictions. In many cases, we expand the collection requirements of our acquired businesses as compared to their practices prior to acquisition, potentially increasing the cost to our customers. This may discourage them from purchasing our products and services, which would have an adverse effect on our business. Furthermore, if one or more state or local jurisdictions successfully asserts that we should have collected sales or other taxes in the past, but did not, we could incur a substantial liability for uncollected taxes. In addition, federal and state income tax laws and regulations are subject to change and could impact our consolidated results of operations and financial position.

We may be unable to protect our rights in intellectual property, which could harm our business and ability to compete.

We rely on a combination of trademark and copyright laws, trade secret and patent protection, and confidentiality and license agreements to protect our trademarks, software and other intellectual property. These protective measures afford only limited protection. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products or services that do not infringe on our intellectual property rights. Policing unauthorized use of our intellectual property is difficult. We may be required to spend significant resources to protect our trade secrets and to monitor and police our intellectual property rights. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business and ability to compete.

Activities of our customers or the content of their websites could damage our reputation and/or adversely affect our financial results.

As a provider of domain name registration, web hosting services and customized business products, we may be subject to potential liability for the activities of our customers on or in connection with their domain names or websites, for the data they store on our servers, including information accessible through the "dark web," or for images or content that we produce on their behalf. Customers may also launch distributed denial of service attacks or malicious executables, such as viruses, worms or trojan horses, from our servers. Although our agreements with our customers prohibit illegal use of our products and services and permit us to take appropriate action for such use, customers may nonetheless engage in prohibited activities or upload or store content with us in violation of applicable law. Our reputation may be negatively impacted by the actions of customers that are deemed to be hostile, offensive or inappropriate, or that infringe the copyright or trademark of another party. We do not proactively monitor or review the appropriateness of customers’ use of our products and services, and we do not have control over customer activities. While we have safeguards in place, these mechanisms may not be sufficient to avoid harm to our reputation.

Laws relating to the liability of online services companies for information, such as online content disseminated through their services, are subject to frequent challenges. In spite of settled law in the United States, claims are made against online services companies by parties who disagree with the content. Where our online content is accessed on the internet outside of the United States, challenges may be brought under foreign laws that do not provide the same protections for online services companies as in the United States. These challenges in either United States or foreign jurisdictions may give rise to legal claims alleging defamation, libel, invasion of privacy, negligence, or copyright or trademark infringement, based on the nature and content of the materials disseminated through our services. Certain of our products and services include content generated by users of our online services. Although this content is not generated by us, claims of defamation or other injury may be made against us for that content. If such claims are successful, our financial results would be adversely affected. Even if the claims do not result in litigation or are resolved in our favor, the time and resources necessary to resolve them could divert management’s attention and adversely affect our business and financial results.

FINANCIAL RISKS

Asset impairment charges would have a negative impact on our results of operations.

Goodwill represented 50% of our total assets as of December 31, 2018. On at least an annual basis, we assess whether the carrying value of goodwill is impaired. This analysis considers several factors, including economic, market and industry conditions. Circumstances that could indicate a decline in the fair value of one or more of our reporting units include, but are not limited to, the following:


•	changes in our business strategies and/or the allocation of resources;


•	the failure of our acquisitions to achieve expected operating results;


•	changes in market conditions;


•	a decline in our stock price for a sustained period;


•	a downturn in economic conditions that negatively affects our actual and forecasted operating results; or


•	a material acceleration of order volume declines for checks and forms.

Such situations may require us to record an impairment charge for a portion of goodwill. We are also required to assess the carrying value of other long-lived assets, including intangible assets and assets held for sale. Information regarding our 2018 impairment analyses can be found under the caption "Note 8: Fair value measurements" of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. If we are required to record additional asset impairment charges for any reason, our consolidated results of operations would be adversely affected.

Certain economic conditions could have an adverse effect on operating results in each of our business segments.

Certain economic conditions have affected, and will continue to affect, our results of operations and financial position. Current and future economic conditions that affect consumer and business spending, including unemployment levels, the availability of credit, and small business confidence, as well as the financial condition and growth prospects of our customers, may adversely affect our business and results of operations.

A significant portion of our business relies on small business spending. As such, the level of small business confidence and the rate of small business formations and closures impact our business. We believe small businesses are more likely to be significantly affected by economic downturns than larger, more established companies. During a sluggish economy, it may be more difficult for small businesses to obtain credit and small businesses may choose to spend their limited funds on items other than our products and services. The National Federation of Independent Business (NFIB) publishes the results of monthly surveys that provide an indication of small business owners' view of economic conditions. After record readings in the third quarter of 2018, the index of small business optimism published by the NFIB in December 2018 fell to 104.4, down slightly from 104.9 in December 2017. However, the average index was 106.7 for 2018, up from the 104.8 average in 2017. At the same time, the net percent of small business owners expecting general business conditions to be better in 6 months decreased significantly to 16% in December 2018, as compared to 33% in September 2018 and 37% in December 2017. Although these surveys showed optimism from small business owners for most of 2018, the declines in December indicate some uncertainty. We cannot predict whether small business optimism will trend positively for a sustained period of time or whether such a trend would translate into increased revenue for us.

Within our personal check printing businesses, consumer spending, employment levels, and housing stock and starts impact the number of checks consumers use. We estimate that the 2018 growth rates for consumer spending and private sector employment most likely had a slightly positive impact on our personal check businesses. An increase in housing stock and starts has a positive impact on the number of checks purchased, as new households typically are in need of new checks. According to statistics released by the United States Census Bureau in December 2018, housing units completed in 2018 through November increased approximately 4% as compared to 2017. We cannot predict whether these economic trends will improve, stay the same or worsen in the near future.

Mergers and acquisitions in the financial services industry may affect our results of operations. As a result of global economic conditions in past years, a number of financial institutions sought additional capital, merged with other financial institutions and, in some cases, failed. The failure of one or more of our larger financial institution clients, or large portions of our customer base, could adversely affect our operating results. In addition to the possibility of losing a significant client, the inability to recover prepaid product discount payments made to one or more of our larger financial institution clients, or the inability to collect accounts receivable or contractually required contract termination payments, could have a significant negative impact on our results of operations. There may also be an increase in financial institution mergers and acquisitions during periods of economic uncertainty or as a result of other factors affecting the financial services industry. Such an increase could adversely affect our operating results. Often the newly combined entity seeks to reduce costs by leveraging economies of scale in purchasing, including its check supply and business services contracts. This results in providers competing intensely on price in order to retain not only their previous business with one of the financial institutions, but also to gain the business of the other party in the combined entity. In addition, we are focused on targeting our financial technology solutions to larger financial institutions. The resulting customer concentration could increase our sensitivity to any material, adverse developments affecting our significant customers, including adverse economic conditions. Although we devote considerable effort toward the development of a competitively-priced, high-quality selection of products and services for the financial services industry, there can be no assurance that significant financial institution clients will be retained or that the impact of the loss of a significant client can be offset through the addition of new clients or by expanded sales to our remaining clients.

A decline in the value of our postretirement medical plan assets and/or a significant increase in the number of participants in our postretirement medical plan could adversely affect our operating results and cash flows.

The fair value of our postretirement medical plan assets is subject to various risks, including credit, interest and overall market volatility risk. If the equity markets were to experience a significant decline in value, the fair value of our plan assets would decrease. This would affect the funded status of our plan and result in higher postretirement benefit expense in the future. Although our obligation is limited to funding benefits as they become payable, future declines in the fair value of our plan assets could also result in the need to contribute increased amounts of cash to fund benefits payable under the plan.

The number of participants in our postretirement medical plan could increase significantly. For the 2019 plan year, 45% of those eligible to participate in our postretirement medical plan have elected not to participate. If a significant portion of those not participating were to opt-in to our plan, our benefit obligation would increase, which would result in increased expense. Although our plan is currently overfunded, a significant increase in plan participants could require us to contribute increased amounts of cash to fund benefits payable under the plan, which would adversely affect our liquidity.

Our variable-rate indebtedness exposes us to interest rate risk.

Borrowings under our credit facility are subject to variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our interest expense would increase, negatively affecting earnings and reducing cash flows available for working capital, capital expenditures and acquisitions.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal executive office is an owned property located in Shoreview, Minnesota. As of December 31, 2018, we occupied 70 facilities throughout the United States, 7 facilities in Canada, 2 facilities in Europe and 2 facilities in Australia, where we conduct printing and fulfillment, call center, data center and administrative functions. Because of our shared services approach to most of our business functions, many of our facilities are utilized for the benefit of more than one of our business segments. Approximately 15% of our facilities are owned, while the remaining 85% are leased. These facilities have a combined floor space of approximately 3.0 million square feet. None of our owned properties are mortgaged or are held subject to any significant encumbrance. We believe that existing leases will be renegotiated as they expire or that suitable alternative properties will be leased on acceptable terms. We also believe that our properties are sufficiently maintained and are adequate and suitable for our business needs as presently conducted.

Item 3. Legal Proceedings.

We record provisions 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. 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 future periods.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the New York Stock Exchange under the symbol DLX. Dividends are declared by our board of directors on a quarterly basis, and therefore, are subject to change. As of December 31, 2018, the number of shareholders of record was 6,533.

The following table shows purchases of our own common stock, based on trade date, which were completed during the fourth quarter of 2018:



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum approximate dollar value of shares that may yet be purchased under the plans or programs
October 1, 2018 - October 31, 2018	—	$	—	—	$	500,000,000
November 1, 2018 - November 30, 2018	1,219,252	49.21		1,219,252	439,999,983
December 1, 2018 - December 31, 2018	445,786	44.86		445,786	419,999,995
Total	1,665,038	48.05		1,665,038	419,999,995

In May 2016, our board of directors approved an authorization for the repurchase of up to $300.0 million of our common stock. In October 2018, our board of directors increased our share repurchase authorization to $500.0 million, inclusive of the remaining amount outstanding under the prior authorization. This authorization has no expiration date and $420.0 million remained available for purchase as of December 31, 2018.

While not considered repurchases of shares, we do at times withhold shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of the exercise or vesting of such awards. During the fourth quarter of 2018, we withheld 182 shares in conjunction with the vesting and exercise of equity-based awards.

The table below compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return of the S&P MidCap 400 Index and the Dow Jones U.S. Support Services (DJUSIS) Index.

Comparison of Five-Year Cumulative Total Return

Assumes Initial Investment of $100

December 2018

The graph assumes that $100 was invested on December 31, 2013 in each of Deluxe common stock, the S&P MidCap 400 Index and the DJUSIS Index, and that all dividends were reinvested.

Item 6. Selected Financial Data.

The following table shows certain selected financial data for the five years ended December 31, 2018. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 7 of this report and our consolidated financial statements appearing in Item 8 of this report. These items include discussion of various factors that affect the comparability of the selected financial data, including the Tax Cuts and Jobs Act of 2017, asset impairment charges and business acquisitions. Historical results are not necessarily indicative of future results. Statement of income data for prior periods has been revised to reflect the adoption of Accounting Standards Update (ASU) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, and statement of cash flows data for prior periods has been revised to reflect the adoption of ASU No, 2016-18, Restricted Cash. Further information regarding these standards can be found under the caption "Note 2: New accounting pronouncements" of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.



(dollars and orders in thousands, except per share and per order amounts)	2018			2017			2016			2015			2014
Statement of Income Data:
Total revenue	$	1,998,025		$	1,965,556		$	1,849,062		$	1,772,817		$	1,674,082
As a percentage of total revenue:
Gross profit	60.4		%	62.2		%	63.9		%	63.9		%	63.7		%
Selling, general and administrative expense	42.7		%	42.2		%	43.7		%	43.8		%	43.0		%
Operating income	11.6		%	16.7		%	19.8		%	19.8		%	19.7		%
Operating income	$	231,221		$	329,176		$	366,887		$	351,634		$	330,449
Net income:	149,630			230,155			229,382			218,629			199,794
Per share - basic	3.18			4.75			4.68			4.39			3.99
Per share - diluted	3.16			4.72			4.65			4.36			3.96
Balance Sheet Data:
Cash and cash equivalents	$	59,740		$	59,240		$	76,574		$	62,427		$	61,541
Return on average assets⁽¹⁾	6.6		%	10.5		%	11.4		%	12.4		%	12.3		%
Total assets	$	2,305,096		$	2,208,827		$	2,184,338		$	1,842,153		$	1,683,682
Long-term obligations⁽²⁾	911,864			709,300			758,648			629,018			549,603
Statement of Cash Flows Data:
Net cash provided by operating activities	$	339,315		$	338,431		$	319,312		$	309,631		$	285,098
Net cash used by investing activities	(275,414		)	(180,891		)	(279,511		)	(251,140		)	(139,949		)
Net cash (used) provided by financing activities	(39,825		)	(182,956		)	5,998			(30,237		)	(199,290		)
Purchases of capital assets	(62,238		)	(47,450		)	(46,614		)	(43,261		)	(41,119		)
Payments for acquisitions, net of cash acquired	(214,258		)	(139,223		)	(239,664		)	(212,990		)	(105,029		)
Payments for common shares repurchased	(200,000		)	(65,000		)	(55,224		)	(59,952		)	(60,119		)
Other Data:
Cash dividends per share