February 21, 2020 - 10-K: Annual report pursuant to Section 13 and 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
	December 31, 2019

Commission file number: 1-7945

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)



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

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

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



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	DLX	NYSE

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. ☒ 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 ☒ 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. ☒ 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). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

The aggregate market value of the voting stock held by non-affiliates of the registrant is $1,736,275,030 based on the last sales price of the registrant's common stock on the New York Stock Exchange on June 28, 2019. The number of outstanding shares of the registrant's common stock as of February 11, 2020 was 42,191,465.

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, 2019

TABLE OF CONTENTS



Item				Page
Item 1. Business				3
Item 1A. Risk Factors				10
Item 1B. Unresolved Staff Comments				19
Item 2. Properties				19
Item 3. Legal Proceedings				19
Item 4. Mine Safety Disclosures				20
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities				20
Item 6. Selected Financial Data				22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations				23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk				43
Item 8. Financial Statements and Supplementary Data				44
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure				96
Item 9A. Controls and Procedures				96
Item 9B. Other Information				96
Item 10. Directors, Executive Officers and Corporate Governance				96
Item 11. Executive Compensation				97
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters				97
Item 13. Certain Relationships and Related Transactions, and Director Independence				97
Item 14. Principal Accountant Fees and Services				97
Item 15. Exhibits and Financial Statement Schedules				98
Item 16. Form 10-K Summary				101
Signatures				102

PART I

ITEM 1. BUSINESS

COMPANY BACKGROUND

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 an integral part of our customers' businesses. We are a Trusted Business Technology^TM company that helps enterprises, small businesses and financial institutions deepen customer relationships through technology-enabled solutions, including marketing services and data analytics, treasury management solutions, website development and hosting, promotional products, electronic checks and deposits ("ePayments"), payroll services and fraud solutions, as well as customized checks and forms. We are also a leading provider of checks and accessories sold directly to consumers. Over the past 2 years, we have provided products and services to over 4,000 financial institutions, approximately 4.5 million other businesses and over 4.0 million consumers. We operate primarily in the U.S., but we also sell our products and services in Canada, Australia and portions of Europe and South America.

As of December 31, 2019, we operated 3 reportable business segments organized by customer type:


•	Small Business Services – This segment primarily serves small businesses and promotes and sells its products and services via internet advertising, direct response mail, partner referrals, networks of Safeguard^® distributors and independent dealers, a direct sales force and an outbound telemarketing group.


•	Financial Services – This segment primarily serves financial institutions, including banks, credit unions and financial services companies, and promotes and sells its products and services primarily through a direct sales force.


•	Direct Checks – This segment is a leading direct-to-consumer check supplier, selling its products and services directly to consumers via direct marketing, utilizing search engine marketing and optimization strategies and print advertising.

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.

PRODUCTS AND SERVICES

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. Our MOS offerings generally consist of the following:


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


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


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


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


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

Checks – We are one of the largest providers of personal and business checks in the U.S.

Forms, accessories and other products – We provide printed business forms, 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. We also offer other customized products, including envelopes, office supplies, ink stamps, labels, deposit tickets, check registers and checkbook covers.

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



	2019		2018		2017		2016		2015
Marketing solutions and other services:
Small business marketing solutions	14.0	%	14.6	%	13.3	%	13.1	%	11.8	%
Treasury management solutions	9.6	%	7.4	%	5.5	%	5.0	%	4.2	%
Web services	8.3	%	8.1	%	6.7	%	6.3	%	6.3	%
Data-driven marketing solutions	7.9	%	7.4	%	7.7	%	2.7	%	1.2	%
Fraud, security, risk management and operational services	4.3	%	4.5	%	5.2	%	6.3	%	6.5	%
Total MOS	44.1	%	42.0	%	38.4	%	33.4	%	30.0	%
Checks	39.0	%	40.6	%	43.3	%	46.8	%	49.3	%
Forms, accessories and other products	16.9	%	17.4	%	18.3	%	19.8	%	20.7	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Additional information concerning our revenue by segment appears under the caption “Note 19: Business segment information” of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

"ONE DELUXE" STRATEGY

Throughout the past several years, as the use of checks and forms continued to decline, we focused on opportunities to increase revenue and operating income and to diversify our revenue streams and customer base. These opportunities included new product and service offerings, brand awareness and positioning initiatives, investing in technology for our service offerings, enhancing our information technology capabilities and infrastructure, improving customer segmentation, extending the reach of our sales channels and reducing costs. In addition, we completed various acquisitions that extended the range of products and services we offer to our customers. Information about our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

We have now moved beyond product and service diversification and have transformed into a Trusted Business Technology^TM company. Our One Deluxe growth strategy focuses on profitable organic growth, supplemented by acquisitions, rather than being dependent on acquisitions for growth. This shift in our strategic focus requires us to fundamentally change our go-to-market strategy, operating model and organizational design. We expect that fully integrating past acquisitions and consolidating and standardizing our technology platforms will enable us to operate as one Deluxe. Previously, we operated as a "company of companies," and we are now transforming into a "company of products." We plan to:


•	leverage our existing core competencies and assets, including our broad customer base, our highly respected and trusted brand, our efficient cost structure and our extensive catalog of products and services, to accelerate organic revenue growth;


•	fundamentally change how we go to market and operate, selling all of our products and services to any customer and unifying our existing brands;


•	compete in 4 primary areas: Payments, Cloud Solutions, Promotional Solutions and Checks; and


•	continue our commitment to the responsible management of shareholder assets, delivering ongoing efficiency savings and organic revenue growth while continuing to pay a dividend.

In support of our strategy, we are investing significant resources to build out our technology platforms, including sales technology that enables a single view of our customers, thereby providing for deeper cross-sell opportunities. We implemented a human capital management system in January 2020, and we are also investing in our financial tools, including an enterprise resource planning system and a financial planning and analysis system. Strategically, we believe these enhancements will allow

us to better assess and manage our business at the total company level and will make it easier for us to quickly integrate any future acquisitions.

Initially, our focus will be to accelerate revenue growth organically, which we then plan to supplement with selective, strategic acquisitions and partnerships. While we will continue to sell to enterprise, small business, financial services and individual customers, our business is no longer organized by customer type. Instead, effective January 1, 2020, we began managing the company based on our product and service offerings, focusing on the 4 primary areas mentioned earlier: Payments, Cloud Solutions, Promotional Solutions and Checks. We expect to reinvest free cash flow into the 2 areas we view as our primary platforms for growth: Payments and Cloud Solutions. We appointed general managers for each of the 4 new focus areas and we continue to refine our new organization. Realignments such as this take time, considerable senior management effort, material "buy-in" from employees and significant investment. Beginning in the first quarter of 2020, the 4 focus areas become our reportable business segments, and we will begin reporting financial results under this new segment structure.

We are also continuing our efforts to simplify processes, eliminate duplicative processes and lower costs. As part of our cost reduction initiatives, we expect to continue enhancing our strategic supplier sourcing arrangements and assessing our real estate footprint. During 2019, we closed 9 facilities, integrating these operations into existing locations.

OUR CUSTOMERS

Traditionally, our customers have consisted of small businesses, financial institutions and consumers. While we do sell our products and services to other business enterprises, the 3 primary customer groups are discussed here.

Small Businesses

According to the latest data published by the U.S. Census Bureau, there were more than 33 million small businesses in the U.S. in 2017, defined as independent businesses having fewer than 500 employees. According to the latest data published by Statistics Canada, there were approximately 4.0 million small businesses in Canada as of December 2019, defined as businesses with fewer than 100 employees.

Economic conditions have a significant impact on our small business customers. We believe that 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 they may choose to spend their limited funds on items other than our products and services. As such, the level of small business confidence and the rate of small business formations and closures impact our business. The index of small business optimism published by the National Federation of Independent Business (NFIB) was 102.7 in December 2019, consistent with the average index for 2019 of 103.0, but down from the average index of 106.7 reported in 2018. At the same time, the net percent of small business owners expecting general economic conditions to be better in 6 months, as published by the NFIB, held steady at 16% in December 2019, the same as in December 2018. Additionally, consumer spending and employment levels remained strong throughout 2019. Overall, the small business economy appeared to be healthy in 2019. However, we cannot predict whether economic trends affecting small businesses will improve, stay the same or worsen in the near future.

Financial Institutions

A significant portion of our business relies upon the health of the financial services industry. According to statistics currently available online from the Federal Deposit Insurance Corporation and the National Credit Union Administration, 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 and service provider contracts. This results in suppliers 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. In addition, despite the secular decline in check usage, financial institutions may seek to maintain the profits they have historically generated from their check programs. This also puts significant pricing pressure on check suppliers. Nonetheless, we continue to work with our large financial institution clients to renew our check supply agreements for the long term.

Consumers

Over the past 2 years, we have provided check-related products and services to over 4.0 million consumers directly, and to millions more through our financial institution clients. In addition to the prevalence of alternative payment methods, personal check orders are also affected by consumer confidence, unemployment levels, consumer spending and housing stock and starts. Consumer spending and employment levels remained strong throughout 2019. According to statistics released by the U.S. Census Bureau in January 2020, housing units completed in 2019 through November increased approximately 5.6% as

compared to 2018. While it is likely that these economic trends had a slightly positive impact on our personal check volumes during 2019, we cannot predict whether economic trends will improve, stay the same or worsen in the near future.

COMPETITION

Checks and forms

Check printing continues to be a significant portion of our business. While we believe that there will continue to be demand for personal and business checks for the foreseeable future, the total number of checks written in the U.S. has been in decline since the mid-1990s. We expect that the number of checks written will continue to decline due to the digitization of payments, including debit cards, credit cards, direct deposit, wire transfers and other payment solutions, such as PayPal^®, Apple Pay^®, Square^®, Zelle^®andVenmo^®. The use of business forms has also been declining due to continued competition from new technologies. Further information regarding the decline in check and forms 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."

In addition to competition from the digitization of payments, 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 certain significant retailers. Pricing 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. The market for business forms is also intensely competitive and highly fragmented. Current and potential competitors include traditional storefront printing companies, office superstores, wholesale printers and online printing companies.

We believe that we offer several key items that differentiate us from our competition. These include our new, environmentally responsible Smart Check by Deluxe^® configuration design, our fully automated flat check delivery package, our personalized customer call center experience and the breadth of our service offerings, all of which are designed to help financial institutions operate more effectively and better address the needs of their customers throughout the customer life cycle. In addition, our Deluxe Business Advantage Program^SM provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses, and our ePayments offerings provide our customers with an alternative online payment and deposit solution.

Other products and services

The various markets for our service offerings are intensely competitive. Our competitors range from large and established companies to emerging start-ups. These service offerings are also rapidly evolving, creating opportunities for new competitors to enter the market. Current and potential competitors include, among others, financial institution core banking software providers, numerous financial technology service providers, advertising agencies, providers of data and analytics marketing solutions, companies offering website design and hosting and domain name registration, email and social media marketing services companies, payroll service providers and ePayments service providers. In addition, many of our potential financial institution clients have historically developed their key applications in-house and thus, we must also compete with their in-house capabilities.

The market for promotional products is also intensely competitive and highly fragmented. Current and potential competitors include traditional storefront printing companies, office superstores, wholesale printers, online printing companies and small business product resellers, as well as providers of custom apparel and gifts. The competitive landscape for online suppliers continues to be challenging as new internet businesses are introduced.

We believe we are well-positioned in this competitive landscape through our broad customer base, the breadth of our product and service offerings, multiple distribution channels, established relationships with our financial institution and enterprise clients and other partners, competitive pricing tiers, the ease of use of our web and other services, our high quality and our dependable service.

MANUFACTURING AND DISTRIBUTION/SUSTAINABLE PRACTICES

We continue to focus on improving the customer experience by providing excellent service and quality, while increasing our productivity and reducing our costs. 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 businesses to leverage shared manufacturing facilities to optimize capacity utilization and enhance operational excellence. 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.

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, use more environmentally-friendly materials and reduce solid waste sent to landfills. More than 90% of our check and forms paper is purchased from Forest Stewardship Council certified supplier mills, certain of our check designs are made from recycled paper and we use environmentally-friendly janitorial supplies at the majority of our locations. We recently announced our new, environmentally responsible Smart Check by Deluxe^® check configuration, which utilizes eco-friendly materials and plant-based ink. In addition, our sustainability initiatives have benefited our results of operations over the past several years as we have focused on reducing our consumption of water, electricity and natural gas, and improving our transportation efficiency.

CYBERSECURITY

The secure and uninterrupted operation of our networks and systems, as well as the processing, maintenance and confidentiality of the sensitive information that resides on our systems, is critical to our business operations and strategy. Each year, we process hundreds of millions of records containing data related to individuals and businesses. Technology-based organizations such as ours are vulnerable to targeted attacks aimed at exploiting network and system applications or weaknesses. A successful cyber attack could result in the disclosure or misuse of sensitive business and personal information and data, cause interruptions in our operations, damage our reputation and deter clients and consumers from ordering our products and services. It could also result in litigation, the termination of client contracts, government inquiries and/or enforcement actions.

We have a risk-based cybersecurity program dedicated to protecting our data and solutions. We employ a defensive in-depth strategy, utilizing the concept of security layers and the CIA (confidential, integrity and availability) triad model. Organizationally, we have an Enterprise Risk Management Steering Committee led by our Assurance and Risk Advisory Services group, our Chief Financial Officer and our Chief Administrative Officer, with participation from our Chief Information Officer, our Chief Strategy Officer, our Chief Compliance Officer and our Chief Information Security Officer. This committee assesses and monitors our top enterprise risks, including cybersecurity, and provides quarterly updates to our board of directors. Our Chief Information Security Officer also provides periodic updates to our board of directors. In addition, we have an Enterprise Information Risk Management program and Cyber Incident Response teams designed to ensure compliance with our security policies and protocols. These teams are composed of personnel from across the company, as well as outside experts in some cases, who are tasked with ensuring that we are monitoring the effectiveness of our cybersecurity management programs.

In the event a cybersecurity incident is identified, we have established an Incident and Crisis Response Program to ensure communication to our executive leadership team and to coordinate the response to any incident. Our Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Information Security Officer and Chief Compliance Officer are responsible for assessing such incidents for materiality, ensuring that any required notification or communication occurs and determining whether any prohibition on the trading of our common stock by insiders should be imposed prior to the disclosure of information about a material cybersecurity event.

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 damage our reputation, subject us to litigation and enforcement actions, and substantially harm our business and results of operations."

MATERIALS, SUPPLIES AND SERVICE PROVIDERS

The principal materials used in producing our main products are paper, plastics, ink, corrugated packaging 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 delivery services and 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.

SEASONALITY

We experience seasonal trends in sales of some of our products and services. For example, holiday card and retail packaging sales and revenues from rewards and loyalty solutions and 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 direct-to-consumer check sales 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.

GOVERNMENT REGULATION

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 and regulators 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, see Item 1A, "Legal and Compliance Risks – Governmental regulation is continuously evolving and could limit or harm our business." On January 1, 2020, the California Consumer Privacy Act (CCPA) became effective. Among other requirements, businesses subject to the CCPA are required to proactively explain privacy notices to consumers when personal information is collected and it provides California residents the right to demand that company-held personal data be shared with them or deleted. While several other states and the federal government are currently considering similar legislation, we are not aware of any additional changes in laws or regulations that will have a significant impact on our business during 2020.

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, 2019, we employed 5,584 employees in the U.S., 653 employees in Canada and 115 employees in Australia and Europe. None of our employees are represented by labor unions, and we consider our employee relations to be good.

AVAILABLE INFORMATION

We make available through our investor relations website, www.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 www.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, www.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.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

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
Barry McCarthy	56	President and Chief Executive Officer	2018
Keith Bush	49	Senior Vice President, Chief Financial Officer	2017
Garry Capers, Jr.	43	Senior Vice President, General Manager, Cloud Solutions	2019
Jeffrey Cotter	52	Senior Vice President, Chief Administrative Officer and General Counsel	2018
Jane Elliott	53	Senior Vice President, Chief Human Resources Officer	2019
Tracey Engelhardt	55	Senior Vice President, General Manager, Checks	2012
Pete Godich	55	Senior Vice President, Chief of Operations	2008
Michael Mathews	47	Senior Vice President, Chief Information Officer	2013
Amanda Parrilli	41	Senior Vice President, New Business Development and Strategy	2019
Michael Reed	48	Senior Vice President, General Manager, Payments	2019
Thomas Riccio	46	Senior Vice President, General Manager, Promotional Solutions	2019
Christopher Thomas	51	Senior Vice President, Chief Revenue Officer	2019

Barry McCarthy joined us in November 2018 as President and Chief Executive Officer. Prior to joining us, Mr. McCarthy served in various senior executive positions, most recently, from November 2014 to November 2018, as Executive Vice President and Head of Network and Security Solutions, a publicly traded segment of First Data Corporation, a financial services company.

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.

Garry Capers, Jr. joined us in September 2019 as Senior Vice President, General Manager, Cloud Solutions. Prior to joining us, Mr. Capers was employed by Automatic Data Processing, Inc., a provider of human resources management software and services, from January 2017 to September 2019, most recently as Senior Vice President, General Manager, National Account Services Comprehensive Outsourcing Services and Operations. Prior to this, Mr. Capers held several positions at Equifax Inc., a global data, analytics and technology company, including General Manager, NACS Marketing Services from January 2014 to January 2017.

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.

Jane Elliott joined us in April 2019 as Senior Vice President, Chief Human Resources Officer. Prior to joining us, Ms. Elliott was employed by Global Payments Inc., a financial technology services provider, where she served as Executive Vice President and Chief Administrative Officer from January 2016 to March 2018 and Executive Vice President and Chief of Staff from November 2013 to January 2016.

Tracey Engelhardt was named Senior Vice President, General Manager, Checks in October 2019. From March 2017 to October 2019, Ms. Engelhardt served as Senior Vice President, Direct-to-Consumer, and from July 2012 to March 2017, she served as Vice President, Direct-to-Consumer.

Pete Godich was named Senior Vice President, Chief of Operations in October 2019. From January 2019 to October 2019, Mr. Godich served as Senior Vice President, Financial Services, and from March 2011 to January 2019, he served as Senior Vice President, Fulfillment.

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 Parrilli was named Senior Vice President, New Business Development and Strategy in October 2019. Ms. 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.

Michael Reed joined us in November 2019 as Senior Vice President, General Manager, Payments. Prior to joining us, Mr. Reed served as Managing Director, Global Payments and Product for Barclays Bank Plc in London from September 2018 to November 2019. From January 2015 to August 2018, Mr. Reed served as Managing Director at BofA Merrill Lynch Merchant Services (Europe) Limited, the European subsidiary of Banc of America Merchant Services, LLC.

Thomas Riccio joined us in September 2019 as Senior Vice President, General Manager, Promotional Solutions. Prior to joining us, Mr. Riccio was employed by Office Depot, Inc., a provider of business services and supplies, serving as Senior Vice President, Business Solutions Division from July 2017 to July 2019 and as Vice President, Sales and Strategic Initiatives, Business Solutions Division from December 2013 to July 2017.

Christopher Thomas joined us in July 2019 as Senior Vice President, Chief Revenue Officer. Prior to joining us, Mr. Thomas served as Senior Vice President, Solutioning and Commercial Functions for DXC Technology Company, an information technology solutions provider, from April 2017 to July 2019. From September 2014 to April 2017, Mr. Thomas served as Senior Vice President, Solutioning and Sales Support for HP Inc., a global technology company.



ITEM 1A. RISK FACTORS

Our businesses routinely encounter and address risks, many of which could cause our future results to be materially different than we currently anticipate. 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 currently known material risks. We are also subject to general risks and uncertainties that affect many other companies, including overall economic, industry and market conditions. 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

Our recently announced strategic plan to implement a new go-to-market strategy and more integrated operations, transforming us into a Trusted Business Technology^TM company, is dependent upon our ability to successfully implement our strategic and tactical initiatives. If we are unsuccessful in implementing these initiatives in a timely manner, our financial results could be adversely affected.

The strategic plan we announced during the second quarter of 2019 contemplates that our strategic and tactical initiatives will result in, among other things, sustained organic revenue growth and strong segment adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margins. We plan to achieve these results through a variety of initiatives, including greater integration of operations and technology platforms, a more streamlined sales process, more targeted cross-selling to our existing customer base, growing that customer base and reducing our cost structure. In support of these initiatives, we anticipate that we will expend significant resources on infrastructure investments to scale the business and to advance our ability to accelerate revenue growth, including investments in enterprise resource planning, customer relationship management and human resources technology.

Our strategic plan 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 failure to implement sales technology that enables a single view of our customers;


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


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


•	our inability 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 attract and retain skilled talent to execute our strategy and sustain our growth;


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


•	general economic conditions.

We can provide no assurance that our strategic and tactical initiatives 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 materially reduce our EBITDA margins. Additionally, technology system implementations entail a significant degree of inherent risk, including disruptions that may impact our operations. Any of these circumstance could adversely affect our business, financial condition and results of operations. If our strategic plan is not successful, or if there is market perception that our strategic plan is not successful, our reputation and brand may be damaged and our stock price may decline.

Effective January 1, 2020, we realigned our existing businesses into four reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. If this realignment is not successful, our results of operations could be adversely affected.

As we previously announced, we believe that we can achieve greater operational synergies, increase organic revenue growth and reduce overall costs by realigning our existing operations and managing the company based on our product and service offerings. Effective January 1, 2020, we began managing the company to focus on 4 primary focus areas: Payments, Cloud Solutions, Promotional Solutions and Checks. We appointed general managers for each of the 4 new focus areas and we continue to refine our new organization. Realignments such as this take time, considerable senior management effort, material "buy-in" from employees and significant investment. Additionally, our success is dependent on our ability to establish one culture around an enterprise model focused on the customer, as well as our ability to engage our employees and to inspire them to be open to change and to innovate. Transformations of this magnitude may temporarily reduce productivity. Further, we cannot guarantee that our transformation will be successful or result in the anticipated benefits, which would adversely affect our results of operations.

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

Our success depends on our ability to attract new and returning customers in a cost-effective manner. We use a variety of methods to promote our products and services, including a direct sales force, partner referrals, email marketing, purchased search results from online search engines, direct mail advertising, broadcast media, advertising banners, social media and other online links. Certain of these methods may become less effective or more expensive. For example, our response rates for direct mail advertising have been decreasing for some time, internet search engines could modify their algorithms or increase prices for purchased search results or certain partner referrals could decline. We continually evaluate and modify our marketing and sales efforts to achieve the most effective mix of promotional methods. Competitive pressure may inhibit our ability to reflect increased costs in the prices of our products and services and/or new marketing strategies may not be successful. Either of these occurrences would have an adverse impact on our ability to compete and our results of operations would be adversely affected. In addition, our check supply contracts generally run for a period of 3 to 6 years. At the end of the contract term, customers have the ability to renegotiate their contracts with us or to consider changing suppliers. Failure to achieve favorable contract renewals and/or to obtain new check supply customers would result in decreased revenue.

Additionally, we believe we must maintain a relevant, multichannel experience in order to attract and retain customers. Customers expect to have the ability to choose their method of ordering, whether via the mail, computer, phone or mobile device. 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 returning visitors, which would result in decreased revenue.

We face intense competition from other business enterprises, and we expect that competition will continue to increase.

The markets for our various service offerings are intensely competitive. Our competitors range from large and established companies to emerging start-ups. These service offerings are also rapidly evolving, creating opportunities for new competitors to enter the market. Current and potential competitors include, among others, financial institution core banking software providers, numerous financial technology service providers, advertising agencies, providers of data and analytics marketing solutions, companies offering website design and hosting and domain name registration, email and social media marketing services companies, payroll service providers and ePayments service providers. In addition, many of our potential financial institution clients have historically developed their key applications in-house and thus, we must also compete with their in-house capabilities.

The market for promotional products and business forms is also intensely competitive and highly fragmented. Current and potential competitors include traditional storefront printing companies, office superstores, wholesale printers, online printing companies and small business product resellers, as well as providers of custom apparel and gifts. The competitive landscape for online suppliers continues to be challenging as new internet businesses are introduced.

Although we are a leading check printer in the U.S., we face considerable competition in the check printing portion of the payments industry. In addition to competition from the digitization of payments, 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 certain significant retailers. Pricing 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. Although we continue to work with our large financial institution clients to renew check supply contracts for the long term, the pricing levels included in any contract renewal could be lower than our current pricing levels.

We can provide no assurance that we will be able to compete effectively against current and future competitors. Our competitors may develop better products or technologies and may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Continued competition could result in price reductions, reduced profit margins and/or loss of customers, all of which would have an adverse effect on our results of operations and cash flows.

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

We completed several acquisitions during the past 3 years, the details of which appear under the caption “Note 6: Acquisitions” of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These acquisitions extended our range of products and services, including treasury management and data-driven marketing solutions and web services. In addition, over the past several years, we purchased the operations of several 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;


•	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;


•	failure to address legacy distributor account protection rights; 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 have indicated that we plan to supplement organic revenue growth with strategically targeted acquisitions over time. 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 and/or future non-cash asset impairment charges related to acquired intangible assets and goodwill, 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.

Checks continue to be a significant portion of our business, accounting for 39.0% of our consolidated revenue in 2019. We sell checks for personal and business use and believe that there will continue to be demand for personal and business checks for the foreseeable future, although the total number of checks written in the U.S. has been in decline since the mid-1990s. According to the most recent Federal Reserve study released in December 2019, the total number of checks written declined an average of 7.5% each year between 2015 and 2018, compared to an average decline of 3.4% each year between 2012 and 2015. We expect that the number of checks written will continue to decline due to the digitization of payments, including debit cards, credit cards, direct deposit, wire transfers, and other payment solutions, such as PayPal^®, Apple Pay^®, Square^®, Zelle^®andVenmo^®. In addition, the RTP^®system run by The Clearing House Payments Company, LLC is a real-time payments system that currently reaches over 50% of U.S. bank accounts. In August 2019, the U.S. Federal Reserve announced that it plans to develop its own real-time payments system, with an expected launch in 2023 or 2024.

The rate and the extent to which digital payments will replace checks, whether as a result of legislative developments, changing payment systems, personal preference or otherwise, cannot be predicted with certainty. Increased use of 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 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 on our ability to attract new and returning 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 particularly 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, depends largely on the success of our marketing efforts and our ability to provide a consistent, high-quality customer experience. Today, we have many brands associated with our products and services as a result of previous acquisitions. Unifying our brands to operate as one Deluxe is an essential part of our One Deluxe strategy. In February 2020, we unveiled our new Deluxe brand. Transitioning to one brand takes time and investment, and if the transition is not managed effectively, we could lose customers. We can also provide no assurance that our new branding strategy will be successful or will result in a positive return on our investment.

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 adverse publicity, whether or not justified, could adversely affect our business. We currently have an agreement with television personality Ty Pennington, who appears in our online series, Small Business Revolution – Main Street. If Mr. Pennington, 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 building on our 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. Our brand value also depends on our ability to protect and use our customers' data in a manner that meets expectations. A security incident that results in unauthorized disclosure of our customers' sensitive data could materially harm our reputation. The failure of our brand promotion activities to meet our expectations or our failure to provide a high-quality customer experience for any reason could adversely affect our ability to attract new customers and maintain customer relationships, which would adversely harm 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.

The markets for many of the products and services we provide are characterized by constant change and innovation. The introduction of competing products and services using new technologies, the evolution of industry standards or the introduction of more attractive products or services, including the digitization of payments, 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 those of our competitors and from the in-house capabilities of our customers. 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 and the commoditization of web services compel us to continually improve our operating efficiency in order to maintain or improve profitability. Additionally, we intend to utilize structural cost savings to fund a large portion of the investments required to implement our One Deluxe strategy. 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, negatively impacting efforts to grow our business or reducing the effectiveness of our sustainability practices. 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 and to generate adequate savings to partially fund necessary investments, 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 damage our reputation, subject us to litigation and enforcement actions, and substantially harm our business and results of operations.

Information security risks have increased in recent years, in part because of the proliferation of new technologies and increased use of the internet and cloud-based activities, as well as the increased sophistication and activities of hackers, terrorists and activists. We use internet-based channels that collect customers’ financial account and payment information, as well as other sensitive information, including proprietary business information and personally identifiable information of our customers, employees, contractors, suppliers and business partners. Each year, we process hundreds of millions of records containing data related to individuals and businesses. Cybersecurity is one of the top risks identified by our Enterprise Risk Management Steering Committee, as technology-based organizations such as ours are vulnerable to targeted attacks aimed at exploiting network and system application weaknesses.

The secure and uninterrupted operation of our networks and systems, as well as the processing, maintenance and confidentiality of the sensitive information that resides on our systems, is critical to our business operations and strategy. We have a risk-based cybersecurity program dedicated to protecting our data and solutions. We employ a defensive in-depth strategy, utilizing the concept of security layers and the CIA (confidential, integrity and availability) triad model. 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, we rely on them to effectively monitor and oversee these control measures. 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 external internet-based attacks by threat actors 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 threat actors using social engineering techniques to obtain confidential information or using fraudulent "phishing" emails to introduce malware into the environment. To-date, these various threats have not materially impacted our customers, our business or our financial results. However, our technologies, systems and networks are likely to be the target of future attacks due to the increasing threat landscape for all technology businesses, and we can provide no assurance that future incidents will not be material.

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 a material 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.

There are international, federal and state laws and regulations requiring companies to notify individuals of information security breaches involving their personal data, the cost of which would 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 platforms, 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 or design faults, security breaches, power loss, telecommunications failures, equipment failures, electrical disruptions, labor issues, vandalism, fire, flood, extreme weather, terrorism and other events beyond our control.

One of the cornerstones of our growth strategy is investment in our information technology infrastructure. We are investing significant resources to build out our technology platforms, including sales technology that enables a single view of our customers, thereby providing for deeper cross-sell opportunities. We implemented a human capital management system in January 2020, and we are also investing in our financial tools, including an enterprise resource planning system and a financial planning and analysis system. System implementations are complex. Any disruptions, delays or deficiencies in the design, implementation or operation of these systems, particularly any disruptions, delays or deficiencies that impact our operations, could adversely affect our ability to effectively run and manage our business. In addition, our continued development and implementation of new generation software solutions and information technology infrastructure may take longer than originally expected and may 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.

Furthermore, as we focus resources on our growth strategy, we have reduced our investment in the development of the systems that support our check and forms businesses, with a focus on sustaining and maintaining such systems. These 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 businesses.

In recent years, we shifted a substantial portion of our applications to a 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.

If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our results of operations would be adversely affected, and our business interruption insurance coverage may not be adequate to compensate us fully for any losses that may occur.

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, among others, human error, software errors or design faults, security breaches, power loss, telecommunications failures, equipment failures, electrical disruptions, labor issues, vandalism, fire, flood, extreme weather, terrorism and other events beyond their control. 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.

For us to successfully grow and compete, we must recruit, retain and develop the key personnel necessary to execute our growth strategy. This is of particular importance as we realign our existing operations in support of our growth strategy. The success of this realignment and our business depends on the contributions and abilities of key employees, especially in our digital services businesses and specifically in sales, marketing, product management and development, 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 and other third-party services 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 and other raw materials. Paper costs represent a significant portion of our materials expense. 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 other 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 U.S. 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 continued changes to the breadth and/or frequency of USPS mail delivery services. 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. We also rely on third-party providers for certain technology, processing and support functions. If we are unable to renew our existing contracts with our most significant providers, we may be forced to obtain alternative suppliers at higher costs. Competitive pressures and/or contractual arrangements may inhibit our ability to reflect increased costs in the price of our products and services. Any of the foregoing risks could result in harm to 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 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, which could trigger enforcement actions, or their interpretation of existing laws may change and/or differ from ours. For example, the California Consumer Privacy Act (CCPA) became effective on January 1, 2020. Among other requirements, businesses subject to the CCPA are required to proactively explain privacy notices to consumers when personal information is collected and it provides California residents the right to demand that company-held personal data be shared with them or deleted. Several other states and the federal government are currently considering similar legislation.

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, international, federal and state 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 continue to 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 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. The safeguards we have established may not be sufficient to avoid harm to our reputation, especially if the inappropriate activities are high profile.

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 U.S., 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 U.S., challenges may be brought under foreign laws that do not provide the same protections for online services companies as in the U.S. These challenges in either U.S. 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 41% of our total assets as of December 31, 2019. 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, structure and/or the allocation of resources;


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


•	changes in market conditions, including increased competition;


•	the loss of significant customers;


•	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 2019 impairment analyses can be found under the caption "Note 8: Fair value measurements" of the Notes to Consolidated Financial Statements appearing in Part II, 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.

Economic conditions may adversely affect trends in business and consumer spending, which may adversely impact demand for our products and services.

Economic conditions have affected, and will continue to affect, our results of operations and financial position. Current and future economic conditions that affect business and consumer spending, including levels of business and consumer confidence, unemployment levels, consumer spending and the availability of credit, as well as uncertainty or volatility in our customers' businesses, may adversely affect our business and results of operations.

A significant portion of our business relies on small business spending. Economic conditions have a significant impact on our small business customers. We believe that 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 they may choose to spend their limited funds on items other than our products and services. As such, the level

of small business confidence and the rate of small business formations and closures impact our business. The index of small business optimism published by the National Federation of Independent Business (NFIB) was 102.7 in December 2019, consistent with the average index for 2019 of 103.0, but down from the average index of 106.7 reported in 2018. At the same time, the net percent of small business owners expecting general economic conditions to be better in 6 months, as published by the NFIB, held steady at 16% in December 2019, the same as in December 2018. Additionally, consumer spending and employment levels remained strong throughout 2019. Overall, the small business economy appeared to be healthy in 2019. However, we cannot predict whether economic trends affecting small businesses will improve, stay the same or worsen in the near future.

A significant portion of our business also relies upon the health of the financial services industry, including merger and acquisition activity. 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. 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.

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

The majority of the borrowings under our revolving 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

As of December 31, 2019, we occupied 63 facilities throughout the U.S., 7 facilities in Canada, 2 facilities in Europe and 1 facility 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 20% of our facilities are owned, while the remaining 80% are leased. Our facilities have a combined floor space of approximately 2.9 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 believe that our properties are sufficiently maintained and are adequate and suitable for our business needs as presently conducted. In conjunction with the realignment of our business and our continuing cost reduction initiatives, we continue to assess our real estate footprint.

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, 2019, the number of shareholders of record was 5,668.

In October 2018, our board of directors authorized the repurchase of up to $500.0 million of our common stock. This authorization has no expiration date. We did not repurchase any shares during the fourth quarter of 2019 and $301.5 million remained available for repurchase as of December 31, 2019.

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 2019, we withheld 17,118 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 2019

The graph assumes that $100 was invested on December 31, 2014 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, 2019. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7 of this report and our consolidated financial statements appearing in Part II, Item 8 of this report. These items include discussion of various factors that affect the comparability of the selected financial data, including asset impairment charges, the Tax Cuts and Jobs Act of 2017 and business acquisitions, as well as the adoption of Accounting Standards Update (ASU) No. 2016-02, Leasing, and related amendments on January 1, 2019. Historical results are not necessarily indicative of future results.



(dollars and orders in thousands, except per share and per order amounts)	2019			2018			2017			2016			2015
Statement of (Loss) Income Data:
Total revenue	$	2,008,715		$	1,998,025		$	1,965,556		$	1,849,062		$	1,772,817
As a percentage of total revenue:
Gross profit	59.5		%	60.4		%	62.2		%	63.9		%	63.9		%
Selling, general and administrative expense	44.4		%	42.7		%	42.2		%	43.7		%	43.8		%
Operating (loss) income	(7.9		%)	11.6		%	16.7		%	19.8		%	19.8		%
Operating (loss) income	$	(158,141	)	$	231,221		$	329,176		$	366,887		$	351,634
Net (loss) income:	(199,897		)	149,630			230,155			222,382			218,629
Per share - basic	(4.65		)	3.18			4.75			4.68			4.39
Per share - diluted	(4.65		)	3.16			4.72			4.65			4.36
Balance Sheet Data:
Cash and cash equivalents	$	73,620		$	59,740		$	59,240		$	76,574		$	62,427
Return on average assets⁽¹⁾	(9.4		%)	6.6		%	10.5		%	11.4		%	12.4		%
Total assets	$	1,943,311		$	2,305,096		$	2,208,827		$	2,184,338		$	1,842,153
Long-term obligations⁽²⁾	931,319			911,864			709,300			758,648			629,018
Statement of Cash Flows Data:
Net cash provided by operating activities	$	286,653		$	339,315		$	338,431		$	319,312		$	309,631
Net cash used by investing activities	(75,751		)	(275,414		)	(180,891		)	(279,511		)	(251,140		)
Net cash (used) provided by financing activities	(186,794		)	(39,825		)	(182,956		)	5,998			(30,237		)
Purchases of capital assets	(66,595		)	(62,238		)	(47,450		)	(46,614		)	(43,261		)
Payments for acquisitions, net of cash acquired	(11,605		)	(214,258		)	(139,223		)	(239,664		)	(212,990		)
Payments for common shares repurchased	(118,547		)	(200,000		)	(65,000		)	(55,224		)	(59,952		)
Other Data:
Cash dividends per share	$	1.20		$	1.20		$	1.20		$	1.20		$	1.20
Orders⁽³⁾	47,815			47,534			49,981			52,176			53,138
Revenue per order⁽³⁾	$	42.01		$	42.03		$	39.33		$	35.44		$	33.36
Number of employees	6,352			6,701			5,886			6,026			5,874
Number of printing facilities⁽⁴⁾	11			11			11			12			11
Number of call center facilities⁽⁴⁾	25			27			26			26			14

⁽¹⁾Return on average assets is calculated as net (loss) income divided by average assets for the period.

⁽²⁾Long-term obligations include the current and long-term portions of our debt obligations and finance lease obligations, formerly known as capital lease obligations, as well as the current and long-term portions of our operating lease obligations as of December 31, 2019.

⁽³⁾Orders is our company-wide measure of volume and includes both products and services.

⁽⁴⁾ As of December 31, 2019, we had 2 facilities that contain both printing and call center functions and thus, are included in both captions. We had 39 additional facilities which house small customer fulfillment operations, data centers and general office space. This information excludes vacant facilities or those associated with businesses held for sale as of each date.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the consolidated audited financial statements and related notes included in Part II, Item 8 of this Form 10-K. Our MD&A includes the following sections:


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


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


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


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


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

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

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

EXECUTIVE OVERVIEW

As of December 31, 2019, we operated 3 reportable business segments: Small Business Services, Financial Services and Direct Checks. Our business segments were generally organized by customer type and reflected the way we managed the company through that date. Further information regarding our segments and our product and service offerings can be found under the caption “Note 19: Business segment information” of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

2019 results vs. 2018 – Loss before income taxes for 2019 of $185.6 million, compared to income before income taxes of $212.6 million for 2018, reflected an increase in asset impairment charges of $289.7 million (as described below), an increase in restructuring, integration and other costs of $58.3 million in support of our growth strategies and to increase our efficiency, and continued volume reductions in personal and business checks and forms, due primarily to the secular decline in check and forms usage. Additionally, we made investments in our transformation to One Deluxe, shipping and material rates increased in 2019, medical costs increased approximately $11.5 million, interest expense increased $7.6 million, organic Small Business Services marketing solutions and web services revenue declined and the Small Business Services commission rate on customer referrals increased. Additionally, share-based compensation increased $6.3 million, driven by an increase in the level of equity awards in 2019, and check pricing pressure within Financial Services continued. We also recognized gains from sales of businesses and customer lists within Small Business Services of $15.6 million in 2018. These increases in loss before income taxes were partially offset by benefits of approximately $50.0 million from continuing initiatives to reduce our cost structure, the benefit of Small Business Services price increases, a decrease in amortization expense related to acquisitions completed prior to 2018 and incremental earnings from businesses acquired.

Diluted loss per share for 2019 of $4.65, as compared to diluted EPS of $3.16 for 2018, reflects the increase in loss before income taxes described in the preceding paragraph, as well as an unfavorable income tax rate as compared to 2018, partially offset by lower average shares outstanding in 2019. Adjusted diluted EPS for 2019 was $6.82, compared to $6.88 for 2018, and excludes the impact of non-cash items or items that we believe are not indicative of ongoing operations. A reconciliation of diluted (loss) earnings per share to adjusted diluted EPS can be found in Consolidated Results of Operations.

Asset impairment charges – Net loss for 2019 was driven by the impact of pretax asset impairment charges in the third quarter of 2019 of $391.0 million, or $7.94 per share. The impairment charges related to the goodwill of our Small Business Services Web Services and Financial Services Data-Driven Marketing reporting units, as well as amortizable intangible assets, primarily in our Small Business Services Web Services reporting unit. This compares to pretax asset impairment charges of $101.3 million, or $1.96 per share, in 2018. Further information regarding these impairment charges can be found under the caption “Note 8: Fair value measurements” of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

"One Deluxe" Strategy

A detailed discussion of our strategy can be found in Part I, Item 1 of this report. In support of our strategy, we are investing significant resources to build out our technology platforms, including sales technology that enables a single view of our customers, thereby providing for deeper cross-sell opportunities. We implemented a human capital management system in January 2020, and we are also investing in our financial tools, including an enterprise resource planning system and a financial planning and analysis system. Strategically, we believe these enhancements will allow us to better assess and manage our business at the total company level and will make it easier for us to quickly integrate any future acquisitions. We plan to invest approximately $70.0 million in 2020 in support of these initiatives, consisting of capitalized cloud computing implementation costs and expense items. We plan to fund a large portion of these investments through structural cost savings.

While we will continue to sell to enterprise, small business, financial services and individual customers, our business is no longer organized by customer type. Instead, effective January 1, 2020, we began managing the company based on our product and service offerings, focusing on 4 primary business areas: Payments, Cloud Solutions, Promotional Solutions and Checks. We expect to reinvest free cash flow into the 2 areas we view as our primary platforms for growth: Payments and Cloud Solutions. We appointed general managers for each of the 4 new focus areas and we continue to refine our new organization. Realignments such as this take time, considerable senior management effort, material "buy-in" from employees and significant investment. Beginning in the first quarter of 2020, the 4 focus areas become our reportable business segments, and we will begin reporting financial results under this new segment structure.

Outlook for 2020

We anticipate that consolidated revenue for 2020 will be between $2.000 billion and $2.040 billion, compared to $2.009 billion for 2019. We expect that adjusted EBITDA for 2020 will be between $410.0 million and $435.0 million, compared to $480.9 million in 2019, and that adjusted diluted EPS will be between $5.50 and $5.95 for 2020, compared to $6.82 for 2019. The expected decreases in adjusted EBITDA and adjusted diluted EPS result primarily from revenue mix changes in web hosting and data-driven marketing, from the secular decline in checks and from check-related contract renewals. Additionally, we plan to make incremental investments to drive revenue growth. We believe the payback from our One Deluxe strategy will be substantial over time and that investing in our existing business is the best use of our resources.

We believe that cash generated by operating activities, along with availability under our revolving credit facility, will

be sufficient to support our operations for the next 12 months, including capital expenditures of approximately $70.0 million, dividend payments, required interest payments and periodic share repurchases, as well as possible acquisitions. As of December 31, 2019, $261.1 million was available for borrowing under our revolving credit facility. We expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth. We anticipate that our board of directors will maintain our current dividend level. However, dividends are approved by the board of directors on a quarterly basis, and thus are subject to change. To the extent we generate excess cash, we expect to opportunistically repurchase common shares and/or reduce the amount outstanding under our credit facility. We expect that share repurchases in 2020 will be lower than in recent years while we invest in our One Deluxe strategy.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue



							Change
(in thousands, except per order amounts)	2019		2018		2017		2019 vs. 2018	2018 vs. 2017
Total revenue	$	2,008,715	$	1,998,025	$	1,965,556	0.5%	1.7%
Orders	47,815		47,534		49,981		0.6%	(4.9%)
Revenue per order	$	42.01	$	42.03	$	39.33	—	6.9%

The increase in total revenue for 2019, as compared to 2018, was driven primarily by incremental revenue of approximately $65.1 million from businesses acquired, Small Business Services price increases and an increase in Financial Services data-driven marketing volume. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These increases in revenue were partially offset by the continuing decline in order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, Small Business Services marketing solutions and web services volume, excluding incremental revenue from businesses acquired, declined approximately $11.0 million and $9.0 million, respectively. Revenue was also negatively impacted during 2019 by continued check pricing pressure within Financial Services.

The increase in total revenue for 2018, as compared to 2017, was driven by incremental revenue from acquired businesses of approximately $86.7 million, as well as Small Business Services price increases. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These increases in revenue were partially offset by lower order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, Financial Services Deluxe Rewards revenue decreased approximately $11.0 million due to the loss of Verizon Communications Inc. as a customer in late 2017, Small Business Services search and email marketing volume decreased approximately $6.0 million due to the loss of a customer, and revenue was negatively impacted by continued check pricing pressure within Financial Services.

Service revenue represented 29.8% of total revenue in 2019, 27.3% in 2018 and 25.2% in 2017. As such, the majority of our revenue is generated by product sales. We do not manage our business based on product versus service revenue. Instead, we analyze our products and services based on the following categories:



							Change
	2019		2018		2017		2019 vs. 2018	2018 vs. 2017
Marketing solutions and other services (MOS):
Small business marketing solutions	14.0	%	14.6	%	13.3	%	(0.6) pt.	1.3 pt.
Treasury management solutions	9.6	%	7.4	%	5.5	%	2.2 pt.	1.9 pt.
Web services	8.3	%	8.1	%	6.7	%	0.2 pt.	1.4 pt.
Data-driven marketing solutions	7.9	%	7.4	%	7.7	%	0.5 pt.	(0.3) pt.
Fraud, security, risk management and operational services	4.3	%	4.5	%	5.2	%	(0.2) pt.	(0.7) pt.
Total MOS	44.1	%	42.0	%	38.4	%	2.1 pt.	3.6 pt.
Checks	39.0	%	40.6	%	43.3	%	(1.6) pt.	(2.7) pt.
Forms, accessories and other products	16.9	%	17.4	%	18.3	%	(0.5) pt.	(0.9) pt.
Total revenue	100.0	%	100.0	%	100.0	%	—	—

The number of orders increased slightly in 2019, as compared to 2018, due primarily to the growth in MOS, including the impact of acquisitions, partially offset by the continuing secular decline in check and forms usage. Revenue per order remained virtually unchanged in 2019, as compared to 2018, as the benefit of Small Business Services price increases and the mix of product and service revenue in each period were offset by the negative impact of continued check pricing pressure in Financial Services.

The number of orders decreased in 2018, as compared to 2017, driven by the continuing secular decline in check and forms usage, partially offset by the impact of our acquisitions. Revenue per order increased in 2018, as compared to 2017, primarily due to the benefit of price increases and favorable product and service mix, partially offset by the impact of continued check pricing pressure in Financial Services.

Consolidated Cost of Revenue



										Change
(in thousands)	2019			2018			2017			2019 vs. 2018	2018 vs. 2017
Total cost of revenue	$	812,935		$	791,748		$	742,707		2.7%	6.6%
Total cost of revenue as a percentage of total revenue	40.5		%	39.6		%	37.8		%	0.9 pt.	1.8 pt.

Cost of revenue consists primarily of raw materials used to manufacture our products, shipping and handling costs, third-party costs for outsourced products and services, payroll and related expenses, information technology costs, depreciation and amortization of assets used in the production process and in support of digital service offerings, and related overhead.

The increase in total cost of revenue for 2019, as compared to 2018, was primarily attributable to incremental costs of businesses acquired of approximately $32.9 million, as well as increased shipping and material rates and an increase in medical costs of approximately $5.0 million in 2019. In addition, restructuring and integration expense increased $2.1 million in 2019. Partially offsetting these increases in total cost of revenue was the impact of the lower order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, manufacturing efficiencies and other benefits resulting from our continued cost reduction initiatives resulted in a reduction in total cost of revenue of approximately $10.0 million. Total cost of revenue as a percentage of total revenue increased as compared to 2018, due in large part to the increase in service revenue, including the impact of acquisitions, as well as the increase in shipping, materials, medical, restructuring and integration costs, partially offset by Small Business Services price increases.

The increase in total cost of revenue for 2018, as compared to 2017, was primarily attributable to the increase in revenue, including incremental costs of acquired businesses of $40.5 million, as well as unfavorable product mix and increased shipping and material rates in 2018. Partially offsetting these increases in total cost of revenue was the impact of lower order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services. In addition, total cost of revenue decreased due to manufacturing efficiencies and other benefits resulting from our continued cost reduction initiatives of approximately $15.0 million. Total cost of revenue as a percentage of total revenue increased in 2018, as compared to 2017, due in large part to the impact of acquisitions, as well as the increase in service revenue.

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



										Change
(in thousands)	2019			2018			2017			2019 vs. 2018	2018 vs. 2017
SG&A expense	$	891,693		$	854,000		$	830,231		4.4%	2.9%
SG&A expense as a percentage of total revenue	44.4		%	42.7		%	42.2		%	1.7 pt.	0.5 pt.

The increase in SG&A expense for 2019, as compared to 2018, was driven by incremental costs of $27.5 million from businesses acquired, including acquisition amortization, as well as investments in our transformation to One Deluxe, an increase in the Small Business Services commission rate on customer referrals, an increase of $7.0 million in share-based compensation expense, driven by an increase in the level of equity awards in 2019, a $6.5 million increase in medical costs, increased sales incentives in our data-driven marketing business and an increase in legal-related expenses of approximately $4.0 million. Also, during 2018, we recognized gains from sales of businesses and customer lists within Small Business Services of $15.6 million. Further information regarding these asset sales can be found under the caption "Note 3: Supplemental balance sheet and cash flow information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These increases in SG&A expense were partially offset by various expense reduction initiatives of approximately $40.0 million. Also, amortization expense related to acquisitions completed prior to 2018 decreased approximately $14.5 million in 2019, as compared to 2018.

The increase in SG&A expense for 2018, as compared to 2017, was driven by incremental costs of acquired businesses of approximately $39.4 million, innovation investments, Small Business Services legal costs of $10.5 million related to certain resolved litigation matters, a higher average Small Business Services commission rate and Chief Executive Officer (CEO) transition costs of $7.2 million in 2018. These increases in SG&A expense were partially offset by various expense reduction initiatives of approximately $35.0 million, primarily within our sales and marketing organizations, and decreases in incentive compensation and medical costs of approximately $5.0 million each. Also, during 2018, we recognized gains from sales of businesses and customer lists within Small Business Services of $15.6 million, compared to gains recognized in 2017 of $8.7 million. Further information regarding these asset sales can be found under the caption "Note 3: Supplemental balance sheet and cash flow information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

Restructuring and Integration Expense



							Change
(in thousands)	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Restructuring and integration expense	$	71,248	$	19,737	$	8,562	$	51,511	$	11,175

Our restructuring and integration activities in