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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

☐			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 October 24, 2024 was 44,272,246.

1

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DELUXE CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share par value)						September 30, 2024						December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents, including securities carried at fair value of $22,000 as of December 31, 2023						$	41,307					$	71,962
Trade accounts receivable, net of allowance for credit losses						172,260						191,005
Inventories and supplies, net of reserve						39,602						42,088
Funds held for customers						41,258						383,134
Prepaid expenses						37,084						30,116
Revenue in excess of billings						29,923						26,107
Other current assets						31,203						16,576
Total current assets						392,637						760,988
Deferred income taxes						8,745						8,694
Long-term investments						62,285						61,924
Property, plant and equipment, net of accumulated depreciation of $350,084 and $334,101, respectively						110,623						116,539
Operating lease assets						51,960						58,961
Intangibles, net of accumulated amortization of $790,413 and $775,190, respectively						337,813						391,744
Goodwill						1,423,861						1,430,590
Other non-current assets						234,993						251,182
Total assets						$	2,622,917					$	3,080,622
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable						$	161,126					$	154,863
Funds held for customers						42,683						386,622
Accrued liabilities						152,031						191,427
Current portion of long-term debt						71,914						86,153
Total current liabilities						427,754						819,065
Long-term debt						1,459,613						1,506,698
Operating lease liabilities						51,641						58,840
Deferred income taxes						3,966						22,649
Other non-current liabilities						67,258						68,754
Commitments and contingencies (Note 13)
Shareholders' equity:
Common shares $1 par value (authorized: 500,000 shares; outstanding: September 30, 2024 – 44,272; December 31, 2023 – 43,743)						44,272						43,743
Additional paid-in capital						111,679						99,141
Retained earnings						490,460						491,238
Accumulated other comprehensive loss						(33,852)						(30,028)
Non-controlling interest						126						522
Total shareholders’ equity						612,685						604,616
Total liabilities and shareholders’ equity						$	2,622,917					$	3,080,622

See Condensed Notes to Unaudited Consolidated Financial Statements

2

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DELUXE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands, except per share amounts)						2024						2023						2024						2023
Product revenue						$	298,693					$	304,840					$	908,230					$	938,872
Service revenue						229,751						233,004						692,985						716,024
Total revenue						528,444						537,844						1,601,215						1,654,896
Cost of products						(109,090)						(118,050)						(338,595)						(361,938)
Cost of services						(137,487)						(137,077)						(408,425)						(413,799)
Total cost of revenue						(246,577)						(255,127)						(747,020)						(775,737)
Gross profit						281,867						282,717						854,195						879,159
Selling, general and administrative expense						(227,764)						(233,891)						(695,677)						(726,880)
Restructuring and integration expense						(11,031)						(22,935)						(35,899)						(60,067)
Asset impairment charge						(6,700)						—						(6,700)						—
Gain (loss) on sale of businesses and long-lived assets						5,208						(4,324)						29,190						17,618
Operating income						41,580						21,567						145,109						109,830
Interest expense						(29,905)						(32,034)						(90,910)						(93,982)
Other income, net						1,834						1,316						6,560						4,562
Income (loss) before income taxes						13,509						(9,151)						60,759						20,410
Income tax (provision) benefit						(4,540)						1,194						(20,463)						(9,186)
Net income (loss)						8,969						(7,957)						40,296						11,224
Net income attributable to non-controlling interest						(38)						(26)						(103)						(80)
Net income (loss) attributable to Deluxe						$	8,931					$	(7,983)					$	40,193					$	11,144
Total comprehensive income (loss)						$	1,017					$	(5,716)					$	36,472					$	19,838
Comprehensive income (loss) attributable to Deluxe						979						(5,742)						36,369						19,758
Basic earnings (loss) per share						0.20						(0.18)						0.91						0.26
Diluted earnings (loss) per share						0.20						(0.18)						0.90						0.25

See Condensed Notes to Unaudited Consolidated Financial Statements

3

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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, June 30, 2024						44,210						$	44,210					$	106,466					$	495,113					$	(25,900)					$	587					$	620,476
Net income						—						—						—						8,931						—						38						8,969
Cash dividends ($0.30 per share)						—						—						—						(13,584)						—						—						(13,584)
Common shares issued, net of tax withholding						62						62						366						—						—						—						428
Employee share-based compensation						—						—						4,847						—						—						—						4,847
Other comprehensive loss						—						—						—						—						(7,952)						—						(7,952)
Dividend paid to non-controlling interest						—						—						—						—						—						(499)						(499)
Balance, September 30, 2024						44,272						$	44,272					$	111,679					$	490,460					$	(33,852)					$	126					$	612,685

(in thousands)						Common shares						Common shares par value						Additional paid-in capital						Retained earnings						Accumulated other comprehensive loss						Non-controlling interest						Total
Balance, June 30, 2023						43,613						$	43,613					$	89,380					$	511,058					$	(30,891)					$	469					$	613,629
Net loss						—						—						—						(7,983)						—						26						(7,957)
Cash dividends ($0.30 per share)						—						—						—						(13,398)						—						—						(13,398)
Common shares issued, net of tax withholding						78						78						385						—						—						—						463
Employee share-based compensation						—						—						4,408						—						—						—						4,408
Other comprehensive income						—						—						—						—						2,241						—						2,241
Balance, September 30, 2023						43,691						$	43,691					$	94,173					$	489,677					$	(28,650)					$	495					$	599,386

See Condensed Notes to Unaudited Consolidated Financial Statements

4

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

(in thousands)						Common shares						Common shares par value						Additional paid-in capital						Retained earnings						Accumulated other comprehensive loss						Non-controlling interest						Total
Balance, December 31, 2023						43,743						$	43,743					$	99,141					$	491,238					$	(30,028)					$	522					$	604,616
Net income						—						—						—						40,193						—						103						40,296
Cash dividends ($0.90 per share)						—						—						—						(40,971)						—						—						(40,971)
Common shares issued, net of tax withholding						529						529						(2,480)						—						—						—						(1,951)
Employee share-based compensation						—						—						15,018						—						—						—						15,018
Other comprehensive loss						—						—						—						—						(3,824)						—						(3,824)
Dividend paid to non-controlling interest						—						—						—						—						—						(499)						(499)
Balance, September 30, 2024						44,272						$	44,272					$	111,679					$	490,460					$	(33,852)					$	126					$	612,685

(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, 2022						43,204						$	43,204					$	79,234					$	518,635					$	(37,264)					$	415					$	604,224
Net income						—						—						—						11,144						—						80						11,224
Cash dividends ($0.90 per share)						—						—						—						(40,102)						—						—						(40,102)
Common shares issued, net of tax withholding						487						487						(728)						—						—						—						(241)
Employee share-based compensation						—						—						15,667						—						—						—						15,667
Other comprehensive income						—						—						—						—						8,614						—						8,614
Balance, September 30, 2023						43,691						$	43,691					$	94,173					$	489,677					$	(28,650)					$	495					$	599,386

See Condensed Notes to Unaudited Consolidated Financial Statements

5

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DELUXE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

												Nine Months Ended September 30,
(in thousands)												2024						2023
Cash flows from operating activities:
Net income												$	40,296					$	11,224
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation												16,026						14,968
Amortization of intangibles												111,690						110,017
Asset impairment charge												6,700						—
Amortization of prepaid product discounts												24,844						25,291
Employee share-based compensation expense												14,972						15,889
Operating lease expense												14,011						14,387
Amortization of cloud computing arrangement implementation costs												12,362						11,682
Gain on sale of businesses and long-lived assets												(29,190)						(17,618)
Deferred income taxes												(17,808)						(20,406)
Other non-cash items, net												31,146						24,911
Changes in assets and liabilities:
Trade accounts receivable												6,593						(3,846)
Inventories and supplies												(877)						(625)
Payments for cloud computing arrangement implementation costs												(475)						(6,944)
Other current and non-current assets												(33,581)						(260)
Accounts payable												8,721						10,429
Prepaid product discount payments												(22,945)						(21,798)
Other accrued and non-current liabilities												(48,363)						(52,395)
Net cash provided by operating activities												134,122						114,906
Cash flows from investing activities:
Purchases of capital assets												(69,777)						(80,809)
Proceeds from sale of businesses and long-lived assets												18,321						39,872
Other												133						(9,798)
Net cash used by investing activities												(51,323)						(50,735)
Cash flows from financing activities:
Proceeds from issuing long-term debt and swingline loans, net of debt issuance costs												630,784						531,000
Payments on long-term debt and swingline loans												(695,295)						(545,532)
Net change in customer funds obligations												(338,955)						(150,936)
Cash dividends paid to shareholders												(40,826)						(40,140)
Other												(7,789)						(7,982)
Net cash used by financing activities												(452,081)						(213,590)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents												(3,156)						993
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents												(372,438)						(148,426)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year												458,033						337,415
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)												$	85,595					$	188,989

See Condensed Notes to Unaudited Consolidated Financial Statements

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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 September 30, 2024, the consolidated statements of comprehensive income (loss) for the quarters and nine months ended September 30, 2024 and 2023, the consolidated statements of shareholders’ equity for the quarters and nine months ended September 30, 2024 and 2023 and the consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The consolidated balance sheet as of December 31, 2023 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 or future results. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and do not contain certain information included in our annual consolidated financial statements and notes. The consolidated financial statements and notes appearing in this report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K").

The preparation of the 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, 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 nine months ended September 30, 2023 has been modified to conform to the current year presentation. Within net cash provided by operating activities, other current and other non-current assets have been combined. In addition, amortization of cloud computing arrangement implementation costs is presented separately. Previously, this amount was included in other non-cash items, net. Within net cash used by financing activities, employee taxes paid for shares withheld is included in other. Previously, this amount was presented separately. The consolidated statements of shareholders' equity for the quarter and nine months ended September 30, 2023 have also been modified to conform to the current year presentation. Common shares retired are included in common shares issued, net of tax withholding. Previously, these amounts were presented separately.

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS

ASU No. 2023-07 – In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on the related disclosures within our consolidated financial statements.

ASU No. 2023-09 – In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, which modifies the required income tax disclosures to include specific categories in the income tax rate reconciliation and to require the disclosure of income tax payments by jurisdiction, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The standard is required to be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on the related disclosures within our consolidated financial statements.

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

NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

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

(in thousands)						September 30, 2024						December 31, 2023
Trade accounts receivable – gross						$	183,466					$	197,546
Allowance for credit losses						(11,206)						(6,541)
Trade accounts receivable – net(1)						$	172,260					$	191,005

(1) Includes unbilled receivables of $61,416 as of September 30, 2024 and $43,673 as of December 31, 2023.

Changes in the allowance for credit losses for the nine months ended September 30, 2024 and 2023 were as follows:

						Nine Months Ended September 30,
(in thousands)						2024						2023
Balance, beginning of year						$	6,541					$	4,182
Bad debt expense						12,040						5,191
Write-offs and other						(7,375)						(2,774)
Balance, end of period						$	11,206					$	6,599

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

(in thousands)						September 30, 2024						December 31, 2023
Finished and semi-finished goods						$	34,425					$	34,194
Raw materials and supplies						17,230						17,339
Reserve for excess and obsolete items						(12,053)						(9,445)
Inventories and supplies, net of reserve						$	39,602					$	42,088

Available-for-sale debt securities – We did not hold any available-for-sale debt securities as of September 30, 2024. Available-for-sale debt securities held as of December 31, 2023 were comprised of the following:

						December 31, 2023
(in thousands)						Cost						Gross unrealized gains						Gross unrealized losses						Fair value
Cash equivalents:
Domestic money market fund						$	22,000					$	—					$	—					$	22,000
Available-for-sale debt securities						$	22,000					$	—					$	—					$	22,000

 

The domestic money market fund held highly liquid, short-term investments managed by the financial institution. 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)						September 30, 2024						December 31, 2023
Conditional right to receive consideration						$	15,745					$	20,680
Unconditional right to receive consideration(1)						14,178						5,427
Revenue in excess of billings						$	29,923					$	26,107

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

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

Intangibles – Intangibles were comprised of the following:

						September 30, 2024																		December 31, 2023
(in thousands)						Gross carrying amount						Accumulated amortization						Net carrying amount						Gross carrying amount						Accumulated amortization						Net carrying amount
Internal-use software						$	596,355					$	(453,331)					$	143,024					$	554,825					$	(412,364)					$	142,461
Customer lists/relationships						345,208						(247,963)						97,245						363,298						(235,557)						127,741
Partner relationships						75,396						(17,660)						57,736						74,911						(14,031)						60,880
Technology-based intangibles						65,700						(27,783)						37,917						97,633						(54,251)						43,382
Trade names						39,367						(38,716)						651						39,367						(23,792)						15,575
Software to be sold						6,200						(4,960)						1,240						36,900						(35,195)						1,705
Intangibles						$	1,128,226					$	(790,413)					$	337,813					$	1,166,934					$	(775,190)					$	391,744

Amortization of intangibles was $38,626 for the quarter ended September 30, 2024, $34,941 for the quarter ended September 30, 2023, $111,690 for the nine months ended September 30, 2024 and $110,017 for the nine months ended September 30, 2023. During the second quarter of 2024, we modified the useful life of a trade name asset that we no longer expect to utilize beyond 2024. This change resulted in incremental amortization expense of $6,674 during the quarter ended September 30, 2024 and $13,349 during the nine months ended September 30, 2024. The amount expected to be recognized during the fourth quarter of 2024 is not material.

Based on the intangibles in service as of September 30, 2024, estimated future amortization expense is as follows:

(in thousands)						Estimated amortization expense
Remainder of 2024						$	32,230
2025						101,851
2026						72,200
2027						43,530
2028						27,115

In the normal course of business, we acquire and develop internal-use software. We also, at times, purchase customer list and partner relationship assets. During the nine months ended September 30, 2024, we acquired or developed $56,163 of internal-use software with a weighted-average useful life of 3 years. Other intangibles acquired during the period were not material.

Goodwill – In conjunction with the realignment of our reportable business segments effective January 1, 2024 (Note 15), the goodwill amounts by reportable segment as of December 31, 2023 have been recast to reflect our new segment structure. No goodwill impairment charges were recorded in conjunction with the segment realignment. Changes in goodwill by reportable segment and in total were as follows for the nine months ended September 30, 2024:

(in thousands)						Merchant Services						B2B Payments						Data Solutions(1)						Print(1)						All Other(1)						Total
Balance, December 31, 2023						$	727,688					$	160,431					$	40,804					$	493,924					$	7,743					$	1,430,590
Asset impairment charge (Note 6)						—						—						—						—						(6,700)						(6,700)
Currency translation adjustment						—						—						—						(29)						—						(29)
Balance, September 30, 2024						$	727,688					$	160,431					$	40,804					$	493,895					$	1,043					$	1,423,861

(1) The Data Solutions and Print balances are net of accumulated impairment charges of $145,584 and $193,699, respectively, for each period. All Other is net of accumulated impairment charges of $6,700 as of September 30, 2024.

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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)						September 30, 2024						December 31, 2023
Postretirement benefit plan asset						$	101,211					$	94,939
Cloud computing arrangement implementation costs						44,409						59,234
Prepaid product discounts(1)						35,834						40,376
Deferred contract acquisition costs(2)						17,995						21,103
Loans and notes receivable from distributors, net of allowance for credit losses(3)						11,635						12,443
Other						23,909						23,087
Other non-current assets						$	234,993					$	251,182

(1) Amortization of prepaid product discounts was $24,844 for the nine months ended September 30, 2024 and $25,291 for the nine months ended September 30, 2023.

(2) Amortization of deferred contract acquisition costs was $9,445 for the nine months ended September 30, 2024 and $8,088 for the nine months ended September 30, 2023.

(3) 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 $1,678 as of September 30, 2024 and $987 as of December 31, 2023.

Changes in the allowance for credit losses related to loans and notes receivable from distributors were as follows for the nine months ended September 30, 2024 and 2023:

						Nine Months Ended September 30,
(in thousands)						2024						2023
Balance, beginning of year						$	928					$	1,024
Bad debt expense (benefit)						184						(46)
Balance, end of period						$	1,112					$	978

Past due receivables and those on non-accrual status were not material as of September 30, 2024 or December 31, 2023.

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

The following table presents loans and notes receivable from distributors, including the current portion, by credit quality indicator and by year of origination, as of September 30, 2024. There were no write-offs or recoveries recorded during the nine months ended September 30, 2024.

												Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands)						2024						2023						2020						2019						Prior						Total
Risk rating:
1-2 internal grade						$	943					$	328					$	895					$	324					$	11,223					$	13,713
3-4 internal grade						—						—						—						—						712						712
Loans and notes receivable						$	943					$	328					$	895					$	324					$	11,935					$	14,425

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

Accrued liabilities – Accrued liabilities were comprised of the following:

(in thousands)						September 30, 2024						December 31, 2023
Employee bonuses, including sales incentives						$	32,308					$	49,446
Deferred revenue(1)						22,885						35,343
Interest						15,063						10,481
Operating lease liabilities						12,674						13,562
Income taxes						12,659						7,558
Customer rebates						11,313						12,718
Wages and payroll liabilities, including vacation						11,269						8,605
Restructuring						2,936						9,689
Prepaid product discounts						1,775						4,477
Other						29,149						39,548
Accrued liabilities						$	152,031					$	191,427

 

(1) Revenue recognized for amounts included in deferred revenue at the beginning of the period was $30,707 for the nine months ended September 30, 2024 and $37,972 for the nine months ended September 30, 2023.

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

(in thousands)						September 30, 2024						September 30, 2023
Cash and cash equivalents						$	41,307					$	42,189
Restricted cash and restricted cash equivalents included in funds held for customers						41,258						143,893
Non-current restricted cash included in other non-current assets						3,030						2,907
Total cash, cash equivalents, restricted cash and restricted cash equivalents						$	85,595					$	188,989

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

NOTE 4: EARNINGS (LOSS) PER SHARE

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands, except per share amounts)						2024						2023						2024						2023
Earnings (loss) per share – basic:
Net income (loss)						$	8,969					$	(7,957)					$	40,296					$	11,224
Net income attributable to non-controlling interest						(38)						(26)						(103)						(80)
Net income (loss) attributable to Deluxe						8,931						(7,983)						40,193						11,144
Income allocated to participating securities						(3)						(9)						(15)						(29)
Income (loss) attributable to Deluxe available to common shareholders						$	8,928					$	(7,992)					$	40,178					$	11,115
Weighted-average shares outstanding						44,250						43,663						44,106						43,498
Earnings (loss) per share – basic						$	0.20					$	(0.18)					$	0.91					$	0.26
Earnings (loss) per share – diluted:
Net income (loss)						$	8,969					$	(7,957)					$	40,296					$	11,224
Net income attributable to non-controlling interest						(38)						(26)						(103)						(80)
Net income (loss) attributable to Deluxe						8,931						(7,983)						40,193						11,144
Income allocated to participating securities						(3)						(9)						(12)						(29)
Re-measurement of share-based awards classified as liabilities						(7)						—						(45)						—
Income (loss) attributable to Deluxe available to common shareholders						$	8,921					$	(7,992)					$	40,136					$	11,115
Weighted-average shares outstanding						44,250						43,663						44,106						43,498
Dilutive impact of potential common shares						556						—						550						273
Weighted-average shares and potential common shares outstanding						44,806						43,663						44,656						43,771
Earnings (loss) per share – diluted						$	0.20					$	(0.18)					$	0.90					$	0.25
Antidilutive potential common shares excluded from calculation						1,205						1,450						1,205						1,450

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

NOTE 5: OTHER COMPREHENSIVE INCOME (LOSS)

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

Accumulated other comprehensive loss components						Amounts reclassified from accumulated other comprehensive loss																								Affected line item in consolidated statements of comprehensive income (loss)
						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands)						2024						2023						2024						2023
Amortization of postretirement benefit plan items:
Prior service credit						$	355					$	355					$	1,066					$	1,066					Other income
Net actuarial loss						(334)						(568)						(1,001)						(1,705)						Other income
Total amortization						21						(213)						65						(639)						Other income
Tax (expense) benefit						(44)						17						(133)						49						Income tax (provision) benefit
Amortization of postretirement benefit plan items, net of tax						(23)						(196)						(68)						(590)						Net income (loss)
Realized gain on cash flow hedges						830						984						2,640						2,191						Interest expense
Tax expense						(223)						(264)						(712)						(588)						Income tax (provision) benefit
Realized gain on cash flow hedges, net of tax						607						720						1,928						1,603						Net income (loss)
Currency translation adjustment(1)						—						—						—						(863)						Gain (loss) on sale of businesses and long-lived assets
Total reclassifications, net of tax						$	584					$	524					$	1,860					$	150

(1) Relates to the sale of our North American web hosting business during the quarter ended June 30, 2023 (Note 6).

Accumulated other comprehensive loss – Changes in the components of accumulated other comprehensive loss for the nine months ended September 30, 2024 and 2023 were as follows:

(in thousands)						Postretirement benefit plans						Net unrealized loss on cash flow hedges(1)						Currency translation adjustment						Accumulated other comprehensive loss
Balance, December 31, 2023						$	(19,824)					$	(286)					$	(9,918)					$	(30,028)
Other comprehensive loss before reclassifications						—						(1,013)						(951)						(1,964)
Amounts reclassified from accumulated other comprehensive loss						68						(1,928)						—						(1,860)
Net current-period other comprehensive income (loss)						68						(2,941)						(951)						(3,824)
Balance, September 30, 2024						$	(19,756)					$	(3,227)					$	(10,869)					$	(33,852)

(1) Other comprehensive loss before reclassifications is net of an income tax benefit of $375.

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

(in thousands)						Postretirement benefit plans						Net unrealized loss on debt securities(1)						Net unrealized gain on cash flow hedges(2)						Currency translation adjustment						Accumulated other comprehensive loss
Balance, December 31, 2022						$	(26,872)					$	(909)					$	2,593					$	(12,076)					$	(37,264)
Other comprehensive (loss) income before reclassifications						—						(183)						8,487						460						8,764
Amounts reclassified from accumulated other comprehensive loss						590						—						(1,603)						863						(150)
Net current-period other comprehensive income (loss)						590						(183)						6,884						1,323						8,614
Balance, September 30, 2023						$	(26,282)					$	(1,092)					$	9,477					$	(10,753)					$	(28,650)

(1) Other comprehensive loss before reclassifications is net of an income tax benefit of $63.

(2) Other comprehensive income before reclassifications is net of income tax expense of $3,114.

NOTE 6: DIVESTITURES

In September and December 2023, we executed agreements allowing for the conversion of our U.S. and Canadian payroll and human resources services customers to other service providers. We recognized related income of $5,208 during the quarter ended September 30, 2024 and $28,190 during the nine months ended September 30, 2024, and we received related cash proceeds of $18,321 during the nine months ended September 30, 2024. The income recognized is included in gain (loss) on sale of businesses and long-lived assets on the consolidated statements of comprehensive income (loss). Recognition of the remaining income will be based on actual customer conversion and retention activity, which we expect to be completed during the fourth quarter of 2024. These businesses generated annual revenue of approximately $27,000 during 2023. During the quarter ended September 30, 2024, we recognized a related pretax goodwill impairment charge of $6,700, as we determined that the remaining cash flows expected to be generated by these businesses no longer supported the carrying value of the related reporting unit as of September 30, 2024. Subsequent to the impairment charge, the remaining goodwill balance for this reporting unit was $1,043. In conjunction with our phased transition out of these businesses, we expect that this goodwill will be fully impaired during the fourth quarter of 2024. During the nine months ended September 30, 2024, we also recognized a gain of $1,000 on the sale of a small business distributor customer list.

In June 2023, we completed the sale of our North American web hosting and logo design businesses for net cash proceeds of $31,230. During the quarter ended September 30, 2023, we recorded an out-of-period correcting adjustment that decreased the gain recognized on this sale by $4,457. This adjustment was not material to the period or any other historical interim or annual period. During the nine months ended September 30, 2023, we recognized a pretax gain of $17,486 on this sale. These businesses generated revenue of approximately $28,000 during 2023, through the sale date. Further information regarding this sale can be found under the caption "Note 6: Acquisition and Divestitures" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.

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

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

As part of our interest rate risk management strategy, we have entered into interest rate swaps, which we designated as cash flow hedges, to mitigate variability in interest payments on a portion of our variable-rate debt (Note 12). Our derivative instruments were comprised of the following:

																														September 30, 2024						December 31, 2023
(in thousands)						Notional amount						Interest rate(1)						Maturity						Balance sheet location						Fair value asset / (liability)						Fair value asset / (liability)
June 2023 amortizing interest rate swap:
						$	222,932					4.249		%				June 2026						Other non-current liabilities						$	(3,500)					$	(2,158)
March 2023 interest rate swap:
						200,000						4.003		%				March 2026						Other non-current liabilities and other non-current assets						(807)						287
September 2022 interest rate swap:
						300,000						3.990		%				September 2025						Accrued liabilities and other non-current assets						(73)						1,519

(1) In addition, an applicable margin ranging from 1.5% to 2.5%, depending on our consolidated total leverage ratio, is paid on amounts outstanding under our credit facility (Note 12).

Changes in the fair values of the interest rate swaps are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair values of the derivatives are calculated based on the applicable reference rate curve on the date of measurement. The cash flow hedges were fully effective as of September 30, 2024 and December 31, 2023, and their impact on consolidated net income and the consolidated statements of cash flows was not material. We also expect that the amount that will be reclassified to interest expense during the next 12 months will not be material.

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

NOTE 8: FAIR VALUE MEASUREMENTS

Goodwill impairment analyses – Our policy regarding goodwill impairment can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K. This policy explains our methodology for assessing the impairment of goodwill.

In completing the 2024 annual impairment analysis as of July 31, 2024, we elected to perform quantitative analyses for certain of our reporting units: Merchant Services, Treasury Management and Business Essentials. These quantitative analyses indicated that the estimated fair values of the reporting units exceeded their carrying values. In determining the estimated fair values of our reporting units, we are required to estimate a number of factors, including revenue growth rates; earnings before interest, taxes, depreciation and amortization ("EBITDA") margins; terminal growth rates; discount rates; and the allocation of shared and corporate items. These assumptions require significant judgement. Actual results may differ from our assumptions and may result in future impairment charges.

We elected to complete qualitative analyses for our remaining reporting units with goodwill. These qualitative analyses evaluated factors, including, but not limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting units. We also considered the most recent quantitative analyses completed in prior periods. In completing these qualitative assessments, we noted no changes in events or circumstances that indicated it was more likely than not that the fair value of any reporting unit was less than its carrying amount. As such, no goodwill impairment charges were recorded as a result of our 2024 annual impairment analysis.

As of September 30, 2024, we also completed a quantitative analysis of the goodwill related to our U.S. and Canadian payroll and human resources services business, which we are currently in the process of exiting. This analysis resulted in a pretax goodwill impairment charge of $6,700 during the quarter ended September 30, 2024. Further information can be found in Note 6.

Recurring fair value measurements – Cash and cash equivalents included available-for-sale debt securities at December 31, 2023 (Note 3), which consisted of a domestic money market fund. The cost of the fund, which was traded in an active market, approximated its fair value because of the short-term nature of the underlying investments. The fair value of derivative instruments (Note 7) is calculated based on the applicable reference rate curve on the date of measurement.

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

Information regarding the fair values of our financial instruments was as follows:

																								Fair value measurements using
												September 30, 2024												Quoted prices in active markets for identical assets (Level 1)						Significant other observable inputs (Level 2)						Significant unobservable inputs (Level 3)
(in thousands)						Balance sheet location						Carrying value						Fair value
Measured at fair value through comprehensive income:
Derivative liabilities (Note 7)						Accrued liabilities and other non-current liabilities						$	(4,380)					$	(4,380)					$	—					$	(4,380)					$	—
Amortized cost:
Cash						Cash and cash equivalents						41,307						41,307						41,307						—						—
Cash						Funds held for customers						41,258						41,258						41,258						—						—
Cash						Other non-current assets						3,030						3,030						3,030						—						—
Loans and notes receivable from distributors						Other current assets and other non-current assets						13,314						14,278						—						—						14,278
Long-term debt						Current portion of long-term debt and long-term debt						1,531,527						1,515,895						—						1,515,895						—

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

																								Fair value measurements using
												December 31, 2023												Quoted prices in active markets for identical assets (Level 1)						Significant other observable inputs (Level 2)						Significant unobservable inputs (Level 3)
(in thousands)						Balance sheet location						Carrying value						Fair value
Measured at fair value through comprehensive income:
Available-for-sale debt securities						Cash and cash equivalents						$	22,000					$	22,000					$	22,000					$	—					$	—
Derivative assets (Note 7)						Other non-current assets						1,806						1,806						—						1,806						—
Derivative liability (Note 7)						Other non-current liabilities						(2,158)						(2,158)						—						(2,158)						—
Amortized cost:
Cash						Cash and cash equivalents						49,962						49,962						49,962						—						—
Cash						Funds held for customers						383,134						383,134						383,134						—						—
Cash						Other non-current assets						2,937						2,937						2,937						—						—
Loans and notes receivable from distributors						Other current assets and other non-current assets						13,430						13,249						—						—						13,249
Long-term debt						Current portion of long-term debt and long-term debt						1,592,851						1,554,028						—						1,554,028						—

NOTE 9: RESTRUCTURING AND INTEGRATION EXPENSE

Restructuring and integration expense consists of costs related to initiatives to drive earnings and cash flow growth and also includes costs related to the consolidation and migration of certain applications and processes. These costs consist primarily of consulting, project management services and internal labor, as well as other costs associated with our initiatives, such as costs related to facility closures and consolidations. In addition, we have recorded employee severance costs across functional areas. Restructuring and integration expense is not allocated to our reportable business segments.

We are currently pursuing several initiatives designed to support our growth strategy and to increase our efficiency, including several initiatives that we collectively refer to as our North Star program. The goal of these initiatives is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) increasing cash flow, (3) paying down debt, and (4) improving our leverage ratio. Our various initiatives include a balanced mix of structural cost reductions focused on organizational structure, processes and operational improvements, in addition to workstreams to drive revenue growth. As part of these initiatives, we have already combined like-for-like capabilities, reduced management layers and consolidated core operations to run more efficiently and to create the ability to invest in high impact talent to accelerate our growth businesses of payments and data. The associated expense, which consisted primarily of consulting and severance costs, was approximately $11,000 during the quarter ended September 30, 2024 and $20,000 during the quarter ended September 30, 2023. For the nine months ended September 30, 2024 and September 30, 2023, the associated expense was approximately $33,000 and $35,000, respectively. To date, we have incurred expense of approximately $80,000, and we anticipate that we will incur additional North Star restructuring and integration expense of approximately $30,000 through 2025.

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

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands)						2024						2023						2024						2023
Total cost of revenue						$	234					$	6,429					$	1,132					$	10,868
Operating expenses						11,031						22,935						35,899						60,067
Restructuring and integration expense						$	11,265					$	29,364					$	37,031					$	70,935

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands)						2024						2023						2024						2023
External consulting and other costs						$	8,614					$	10,939					$	25,733					$	31,561
Employee severance benefits						902						11,179						2,459						17,526
Internal labor						381						2,469						1,602						6,341
Other						1,368						4,777						7,237						15,507
Restructuring and integration expense						$	11,265					$	29,364					$	37,031					$	70,935

Our restructuring and integration accruals are included in accrued liabilities on the consolidated balance sheets and represent expected cash payments required to satisfy the remaining severance obligations to those employees already terminated and those expected to be terminated under our various initiatives. The majority of the employee reductions, as well as the related severance payments, are expected to be completed by mid-2025.

Changes in our restructuring and integration accruals were as follows:

(in thousands)						Employee severance benefits
Balance, December 31, 2023						$	9,689
Charges						2,961
Reversals						(502)
Payments						(9,212)
Balance, September 30, 2024						$	2,936

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

NOTE 10: INCOME TAX PROVISION

Our effective income tax rate was 33.6% for the quarter ended September 30, 2024 and 33.7% for the nine months ended September 30, 2024, compared to an effective income tax rate of 34.1% for the year ended December 31, 2023. While there was a larger tax rate benefit from business exit activity in 2023 than in 2024, the 2024 tax rate benefited from lower tax impacts for share-based compensation, foreign operations and tax return to provision adjustments. For comparison, the reconciliation of our effective income tax rate for 2023 to the U.S. federal statutory tax rate can be found under the caption "Note 10: Income Tax Provision" in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.

Our effective income tax rate for the quarter ended September 30, 2023 was 13.0%. This tax rate was driven by the pretax loss for the period, the impact of discrete items related to our business exit activity, and an increase in our state effective income tax rate during the quarter.

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

Our effective income tax rate for the nine months ended September 30, 2023 was 45.0%. This tax rate was driven by the lower pretax income for the period, combined with tax expense related to share-based compensation and our foreign operations, including the repatriation of foreign earnings.

NOTE 11: POSTRETIREMENT BENEFITS

We have historically provided certain health care benefits for eligible retired U.S. employees. In addition to our retiree health care plan, we also have a U.S. supplemental executive retirement plan. Further information regarding our postretirement benefit plans can be found under the caption “Note 12: Postretirement Benefits” in the Notes to Consolidated Financial Statements appearing in the 2023 Form 10-K.

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

						Quarter Ended September 30,												Nine Months Ended September 30,
(in thousands)						2024						2023						2024						2023
Interest cost						$	435					$	496					$	1,306					$	1,489
Expected return on plan assets						(2,099)						(1,830)						(6,296)						(5,490)
Amortization of prior service credit						(355)						(355)						(1,066)						(1,066)
Amortization of net actuarial losses						334						568						1,001						1,705
Net periodic benefit income						$	(1,685)					$	(1,121)					$	(5,055)					$	(3,362)

NOTE 12: DEBT

Debt outstanding was comprised of the following:

(in thousands)						September 30, 2024						December 31, 2023
Senior, secured term loan facility						$	790,563					$	877,187
Senior, unsecured notes						475,000						475,000
Amounts drawn on senior, secured revolving credit facility						209,000						252,000
Securitization obligations						65,776						—
Total principal amount						1,540,339						1,604,187
Less: unamortized discount and debt issuance costs						(8,812)						(11,336)
Total debt, net of discount and debt issuance costs						1,531,527						1,592,851
Less: current portion of long-term debt, net of debt issuance costs						(71,914)						(86,153)
Long-term debt						$	1,459,613					$	1,506,698

Maturities of long-term debt were as follows as of September 30, 2024:

(in thousands)						Debt obligations
2025						$	101,063
2026						898,500
2027						65,776
2028						—
2029						475,000
Total principal amount						$	1,540,339

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

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

Interest is payable on the credit facility at a fluctuating rate of interest determined by reference to the Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.5% to 2.5%, depending on our consolidated total leverage ratio, as defined in the credit agreement, and a commitment fee is payable on the unused portion of the revolving credit facility. Amounts outstanding under the credit facility had a weighted-average interest rate of 6.60% as of September 30, 2024 and 6.83% as of December 31, 2023, including the impact of interest rate swaps that effectively convert a portion of our variable-rate debt to fixed-rate debt. Further information regarding the interest rate swaps can be found in Note 7.

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

The credit agreement also includes requirements regarding our consolidated total leverage ratio and our consolidated secured leverage ratio, as defined in the credit agreement. During each remaining quarterly period, the consolidated total leverage ratio may not equal or exceed 4.25 to 1.00 and the consolidated secured leverage ratio may not equal or exceed 3.50 to 1.00. In addition, we must maintain a minimum interest coverage ratio of at least 3.00 to 1.00 throughout the remaining term of the credit facility. Failure to meet any of the above requirements would result in an event of default that would allow lenders to declare amounts outstanding immediately due and payable and would allow the lenders to enforce their interests against collateral pledged if we are unable to settle the amounts outstanding. We were in compliance with all debt covenants as of September 30, 2024.

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

As of September 30, 2024, amounts available for borrowing under our revolving credit facility were as follows:

(in thousands)						Available borrowings
Revolving credit facility commitment						$	500,000
Amounts drawn on revolving credit facility						(209,000)
Outstanding letters of credit(1)						(7,673)
Net available for borrowing as of September 30, 2024						$	283,327

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

Senior, unsecured notes – In June 2021, we issued $500,000 of