May 6, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2022


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

For the transition period from __________ to ___________

Commission file number: 1-7945

DELUXE CORPORATION

(Exact name of registrant as specified in its charter)


MN			41-0216800
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
801 S. Marquette Ave.	Minneapolis	MN	55402-2807
(Address of principal executive offices)			(Zip Code)

(651) 483-7111

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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


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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

The number of shares outstanding of registrant’s common stock as of April 27, 2022 was 42,990,561.


PART I – FINANCIAL INFORMATION


Item 1. FINANCIAL STATEMENTS


DELUXE CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share par value)	March 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	44,059	$	41,231
Trade accounts receivable, net of allowance for credit losses	184,335		197,947
Inventories and supplies	34,527		34,928
Funds held for customers, including securities carried at fair value of $13,027 and $13,307, respectively	156,752		254,795
Prepaid expenses	47,964		37,643
Revenue in excess of billings	33,689		30,393
Other current assets	16,858		23,536
Total current assets	518,184		620,473
Deferred income taxes	1,957		2,180
Long-term investments	47,380		47,201
Property, plant and equipment, net of accumulated depreciation of $341,046 and $338,617, respectively	124,270		125,966
Operating lease assets	53,375		58,236
Intangibles, net of accumulated amortization of $718,169 and $698,764, respectively	499,531		510,724
Goodwill	1,430,156		1,430,141
Other non-current assets	279,456		279,463
Total assets	$	2,954,309	$	3,074,384
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	146,267	$	153,072
Funds held for customers	155,955		256,257
Accrued liabilities	201,913		216,832
Current portion of long-term debt	57,227		57,197
Total current liabilities	561,362		683,358
Long-term debt	1,635,191		1,625,752
Operating lease liabilities	53,418		56,444
Deferred income taxes	68,324		75,121
Other non-current liabilities	56,999		59,111
Commitments and contingencies (Note 13)
Shareholders' equity:
Common shares $1 par value (authorized: 500,000 shares; outstanding: March 31, 2022 – 42,923; December 31, 2021 – 42,679)	42,923		42,679
Additional paid-in capital	62,676		57,368
Retained earnings	502,125		505,763
Accumulated other comprehensive loss	(29,025)		(31,492)
Non-controlling interest	316		280
Total shareholders’ equity	579,015		574,598
Total liabilities and shareholders’ equity	$	2,954,309	$	3,074,384

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Quarter Ended March 31,
(in thousands, except per share amounts)	2022		2021
Product revenue	$	317,303	$	299,053
Service revenue	238,712		142,211
Total revenue	556,015		441,264
Cost of products	(114,361)		(107,325)
Cost of services	(134,833)		(71,184)
Total cost of revenue	(249,194)		(178,509)
Gross profit	306,821		262,755
Selling, general and administrative expense	(259,699)		(212,436)
Restructuring and integration expense	(16,244)		(14,313)
Operating income	30,878		36,006
Interest expense	(20,324)		(4,524)
Other income	2,004		2,033
Income before income taxes	12,558		33,515
Income tax provision	(2,878)		(9,190)
Net income	9,680		24,325
Net income attributable to non-controlling interest	(36)		(33)
Net income attributable to Deluxe	$	9,644	$	24,292
Total comprehensive income	$	12,147	$	25,934
Comprehensive income attributable to Deluxe	12,111		25,901
Basic earnings per share	0.23		0.58
Diluted earnings per share	0.22		0.57

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, December 31, 2021	42,679	$	42,679	$	57,368	$	505,763	$	(31,492)	$	280	$	574,598
Net income	—	—		—		9,644		—		36		9,680
Cash dividends ($0.30 per share)	—	—		—		(13,282)		—		—		(13,282)
Common shares issued	379	379		1,152		—		—		—		1,531
Common shares retired	(135)	(135)		(4,026)		—		—		—		(4,161)
Employee share-based compensation	—	—		8,182		—		—		—		8,182
Other comprehensive income	—	—		—		—		2,467		—		2,467
Balance, March 31, 2022	42,923	$	42,923	$	62,676	$	502,125	$	(29,025)	$	316	$	579,015


(in thousands)	Common shares	Common shares par value		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Non-controlling interest		Total
Balance, December 31, 2020	41,973	$	41,973	$	17,558	$	522,599	$	(41,433)	$	141	$	540,838
Net income	—	—		—		24,292		—		33		24,325
Cash dividends ($0.30 per share)	—	—		—		(12,832)		—		—		(12,832)
Common shares issued	194	194		847		—		—		—		1,041
Common shares retired	(63)	(63)		(2,298)		—		—		—		(2,361)
Employee share-based compensation	—	—		6,199		—		—		—		6,199
Other comprehensive income	—	—		—		—		1,609		—		1,609
Balance, March 31, 2021	42,104	$	42,104	$	22,306	$	534,059	$	(39,824)	$	174	$	558,819

See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Quarter Ended March 31,
(in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	9,680	$	24,325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	5,438		4,516
Amortization of intangibles	36,159		23,264
Operating lease expense	5,570		4,576
Amortization of prepaid product discounts	8,924		7,440
Deferred income taxes	(7,524)		5,245
Employee share-based compensation expense	8,142		6,742
Other non-cash items, net	8,213		2,418
Changes in assets and liabilities:
Trade accounts receivable	12,248		23,122
Inventories and supplies	(893)		1,042
Other current assets	(12,731)		(19,711)
Payments for cloud computing arrangement implementation costs	(6,391)		(8,915)
Other non-current assets	(3,082)		(953)
Accounts payable	(5,003)		(3,543)
Prepaid product discount payments	(7,859)		(9,590)
Other accrued and non-current liabilities	(16,626)		(20,397)
Net cash provided by operating activities	34,265		39,581
Cash flows from investing activities:
Purchases of capital assets	(20,844)		(21,670)
Other	515		(180)
Net cash used by investing activities	(20,329)		(21,850)
Cash flows from financing activities:
Proceeds from issuing long-term debt and swingline loans	146,500		5,000
Payments on long-term debt and swingline loans	(137,938)		(5,000)
Net change in customer funds obligations	(99,240)		1,659
Proceeds from issuing shares	798		673
Employee taxes paid for shares withheld	(4,161)		(2,360)
Cash dividends paid to shareholders	(13,317)		(12,932)
Other	(2,610)		(1,271)
Net cash used by financing activities	(109,968)		(14,231)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents	1,320		1,606
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents	(94,712)		5,106
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year	285,491		229,409
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)	$	190,779	$	234,515

See Condensed Notes to Unaudited Consolidated Financial Statements


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


NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

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

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

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


NOTE 2: NEW ACCOUNTING PRONOUNCEMENT

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


NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

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


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

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


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

Changes in the allowance for credit losses for the quarters ended March 31, 2022 and 2021 were as follows:


	Quarter Ended March 31,
(in thousands)	2022		2021
Balance, beginning of year	$	4,130	$	6,428
Bad debt expense (benefit)	625		(649)
Write-offs and other	(556)		(900)
Balance, end of period	$	4,199	$	4,879

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


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

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


	Quarter Ended March 31,
(in thousands)	2022		2021
Balance, beginning of year	$	5,132	$	11,748
Amounts charged to expense	773		2,013
Write-offs and other	(526)		(822)
Balance, end of period	$	5,379	$	12,939

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


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

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


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


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

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

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

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


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

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

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


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

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

Intangibles – Intangibles were comprised of the following:


	March 31, 2022						December 31, 2021
(in thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Customer lists/relationships	$	493,510	$	(264,822)	$	228,688	$	493,495	$	(255,178)	$	238,317
Internal-use software	471,035		(354,338)		116,697		456,133		(342,656)		113,477
Technology-based intangibles	98,813		(40,584)		58,229		98,813		(38,553)		60,260
Partner relationships	73,257		(4,323)		68,934		73,095		(2,990)		70,105
Trade names	44,185		(24,935)		19,250		51,052		(31,277)		19,775
Software to be sold	36,900		(29,167)		7,733		36,900		(28,110)		8,790
Intangibles	$	1,217,700	$	(718,169)	$	499,531	$	1,209,488	$	(698,764)	$	510,724


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

Amortization of intangibles was $36,159 for the quarter ended March 31, 2022 and $23,264 for the quarter ended March 31, 2021. Based on the intangibles in service as of March 31, 2022, estimated future amortization expense is as follows:


(in thousands)	Estimated amortization expense
Remainder of 2022	$	88,406
2023	117,562
2024	75,257
2025	50,306
2026	40,004

The following intangibles were acquired during the quarter ended March 31, 2022:


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

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


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

Currency translation adjustment	—		—		15		—		15
Balance, March 31, 2022	$	895,338	$	40,816	$	59,190	$	434,812	$	1,430,156

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


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

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


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

(1) Amortization of deferred contract acquisition costs was $1,756 for the quarter ended March 31, 2022 and $972 for the quarter ended March 31, 2021.

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

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

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


	Quarter Ended March 31,
(in thousands)	2022		2021
Balance, beginning of year	$	2,830	$	3,995
Bad debt expense (benefit)	81		(634)
Exchange for customer lists	(402)		—
Balance, end of period	$	2,509	$	3,361

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

We categorize loans and notes receivable into risk categories based on information about the ability of borrowers to service their debt, including current financial information, historical payment experience, current economic trends and other factors. The highest quality receivables are assigned a 1-2 internal grade. Those that have a potential weakness requiring management's attention are assigned a 3-4 internal grade.


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

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


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

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


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

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

Accrued liabilities – Accrued liabilities were comprised of the following:


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

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

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


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

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


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


NOTE 4: EARNINGS PER SHARE

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


	Quarter Ended March 31,
(in thousands, except per share amounts)	2022		2021
Earnings per share – basic:
Net income	$	9,680	$	24,325
Net income attributable to non-controlling interest	(36)		(33)
Net income attributable to Deluxe	9,644		24,292
Income allocated to participating securities	(10)		(19)
Income attributable to Deluxe available to common shareholders	$	9,634	$	24,273
Weighted-average shares outstanding	42,803		42,046
Earnings per share – basic	$	0.23	$	0.58

Earnings per share – diluted:
Net income	$	9,680	$	24,325
Net income attributable to non-controlling interest	(36)		(33)
Net income attributable to Deluxe	9,644		24,292
Income allocated to participating securities	(10)		—
Re-measurement of share-based awards classified as liabilities	(39)		—
Income attributable to Deluxe available to common shareholders	$	9,595	$	24,292
Weighted-average shares outstanding	42,803		42,046
Dilutive impact of potential common shares	429		458
Weighted-average shares and potential common shares outstanding	43,232		42,504
Earnings per share – diluted	$	0.22	$	0.57
Antidilutive options excluded from calculation	2,063		2,423


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


NOTE 5: OTHER COMPREHENSIVE INCOME

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


Accumulated other comprehensive loss components	Amounts reclassified from accumulated other comprehensive loss				Affected line item in consolidated statements of comprehensive income
	Quarter Ended March 31,
(in thousands)	2022		2021
Realized loss on interest rate swap	$	(318)	$	(334)		Interest expense
Tax benefit	83		87			Income tax provision
Realized loss on interest rate swap, net of tax	(235)		(247)			Net income
Amortization of postretirement benefit plan items:
Prior service credit	355		355			Other income
Net actuarial loss	(225)		(407)			Other income
Total amortization	130		(52)			Other income
Tax expense	(77)		(31)			Income tax provision
Amortization of postretirement benefit plan items, net of tax	53		(83)			Net income
Total reclassifications, net of tax	$	(182)	$	(330)

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


(in thousands)	Postretirement benefit plans		Net unrealized loss on available-for-sale debt securities(1)		Net unrealized loss on cash flow hedge(2)		Currency translation adjustment		Accumulated other comprehensive loss
Balance, December 31, 2021	$	(15,431)	$	(344)	$	(2,261)	$	(13,456)	$	(31,492)
Other comprehensive (loss) income before reclassifications	—		(335)		1,924		696		2,285
Amounts reclassified from accumulated other comprehensive loss	(53)		—		235		—		182
Net current-period other comprehensive (loss) income	(53)		(335)		2,159		696		2,467
Balance, March 31, 2022	$	(15,484)	$	(679)	$	(102)	$	(12,760)	$	(29,025)

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

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


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


NOTE 6: ACQUISITION AND DIVESTITURE

Acquisition – On June 1, 2021, we acquired all of the equity of First American Payment Systems, L.P. (First American). Further information regarding this acquisition, including the preliminary allocation of the purchase price, can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K. We expect to finalize the purchase price allocation in the second quarter of 2022, when we complete the tax returns for the pre-acquisition period.

Our results of operations for the quarter ended March 31, 2022 included revenue of $83,284 and net loss of $510 from the operations of First American, including restructuring and integration costs of $2,222 related primarily to real estate rationalization. Our results of operations for the quarter ended March 31, 2021 included related acquisition transaction costs of $2,765, which are included in selling, general and administrative expense in the consolidated statement of comprehensive income.

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

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


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

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


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

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

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


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

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

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


NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

As part of our interest rate risk management strategy, we entered into an interest rate swap in July 2019, which we designated as a cash flow hedge, to mitigate variability in interest payments on a portion of our variable-rate debt (Note 12). The interest rate swap, which terminates in March 2023, effectively converts $200,000 of variable rate debt to a fixed rate of 1.798%. Changes in the fair value of the interest rate swap are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair value of the interest rate swap was $

Form: 10-Q

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