[October 25, 2018]

Deluxe Reports Third Quarter 2018 Financial Results

Deluxe Corporation (NYSE: DLX), a leader in providing small businesses and financial institutions with products and services to drive customer revenue, announced its financial results for the third quarter ended September 30, 2018. Key financial highlights include:

Revenue was in the middle of the Company's outlook range of $489.0 to $497.0 million provided on August 16, 2018 and GAAP diluted loss per share was ($0.67). During the quarter, the Company recognized non-GAAP adjustments of $2.03 per share. Of this amount, $1.59 per share was a non-cash goodwill impairment in the Small Business Services segment primarily in the distributor channel attributable to changes in strategy and in the mix of products and services sold, including declining checks and forms. The Company also recognized non-cash asset impairment charges of $0.34 per share, primarily for the Safeguard^® trade name. In addition, charges for restructuring and CEO transition costs totaled $0.13 per share, and the company recorded a benefit of $0.03 per share related to federal tax reform. Adjusted diluted EPS was $1.36 and excluded the aggregate charges of $2.03 per share discussed above. Adjusted diluted EPS exceeded the high end of the range of the July 2018 outlook driven primarily by lower shares outstanding, a lower income tax rate and continued expense management initiatives, partially offset by lower check and forms usage.

The Company also announced today that it has concluded its search for and signed an employment agreement with the successor to Lee Schram as President, Chief Executive Officer and a member of its Board of Directors. This individual will assume these roles effective November 26^th. Deluxe has agreed to formally announce the appointment on Tuesday, November 6^th as an accommodation to this person's current employer.

"We delivered a solid quarter," said Lee Schram, CEO of Deluxe. "We continue to see our transformation taking hold and this was the first quarter that marketing solutions & other services (MOS) revenue was the largest component of revenue, accounting for 43% of total revenue in the quarter. We believe we have established a foundation that will allow us to continue to grow revenue and profitability in MOS for the foreseeable future."

"We are also pleased to announce the successful conclusion of the search for my successor," continued Mr. Schram. "This executive, whose appointment received the unanimous approval of the Board, has an exceptional record of developing, building, organically growing and scaling businesses that serve both the financial institution and small business markets. An innovator in FinTech and other technology driven businesses with a strong sales and marketing background, this individual has the requisite experience and leadership capabilities to drive Deluxe's next phase of transformational growth, building on all we have achieved over the past 13 years. We look forward to announcing the appointment on November 6^th."

Third Quarter 2018 Highlights

• Revenue decreased 0.9% year-over-year. Financial Services revenue was down 6.7% compared to the prior year, while Small Business Services revenue grew 3.0%, including the results of several small tuck-in acquisitions.
• Revenue from marketing solutions and other services (MOS) increased 5.0% year-over-year and grew to 42.6% of total revenue in the quarter.
• Gross margin was 59.9% of revenue, compared to 61.2% in the third quarter of 2017. The impact to margin from product and service mix and increased delivery and material costs this year, as well as acquisitions, was only partially offset by previous price increases and continued improvements in manufacturing productivity.
• Selling general and administrative (SG&A) expense as a percent of revenue was 42.3% in the quarter compared to 40.8% last year. SG&A expense dollars increased $5.3 million compared to last year as continued cost reduction initiatives and lower medical costs were more than offset by additional SG&A expense from acquisitions and costs related to the CEO transition process.
• Operating income decreased $70.7 million year-over-year. Adjusted operating income decreased $12.3 million year-over-year primarily from the continuing decline in check and forms usage, lower data-driven marketing revenue and the loss of the previously discussed customer in Deluxe Rewards, partially offset by price increases and continued cost reduction initiatives.
• Diluted EPS decreased $1.26 per share year-over-year and included aggregate non-GAAP charges of $2.03 per share. Adjusted diluted EPS increased 3.0% year-over-year. A lower income tax rate in 2018, primarily due to the Tax Cuts and Jobs Act of 2017, contributed to the increase in EPS and was partially offset by the continuing secular decline in check and forms usage, lower data-driven marketing revenue and the loss of revenue and operating income from Deluxe Rewards highlighted in previous quarters.

Segment Highlights

Small Business Services

• Revenue of $315.6 million was slightly lower than expectations and increased 3.0% year-over-year due primarily to increased MOS revenue and benefits from previous price increases, partially offset by the decline in check and forms usage.
• Operating loss of $45.3 million included non-GAAP adjustments of $101.9 million. Adjusted operating income decreased $3.9 million and adjusted operating margin decreased 1.8 points year-over-year. This decrease was due to the secular decline in check and forms usage, partially offset by previous price increases and continued cost reductions.

Financial Services

• Revenue of $146.8 million was slightly below our expectations and decreased 6.7% year-over-year driven by the secular decline in check usage, lower data-driven marketing revenue and the loss of the previously discussed customer in Deluxe Rewards.
• Operating income of $17.6 million decreased $11.6 million compared to last year. Adjusted operating income decreased $7.5 million and adjusted operating margin decreased 3.8 points year-over-year. This decrease was due primarily to the revenue decline and higher delivery rates, partially offset by continued benefits of cost reductions.

Direct Checks

• Revenue of $30.8 million was slightly better than our expectations and declined 9.1% year-over-year due primarily to the secular decline in check usage.
• Operating income of $10.4 million decreased $0.9 million, while operating margin increased 0.5 points year-over-year. This decrease in operating income was due primarily to lower order volume, partly offset by cost reductions.

Other Highlights

• Cash provided by operating activities for the first nine months of 2018 was $219.1 million, a decrease of $6.8 million compared to 2017.
• The Company repurchased $80.0 million of common stock in open market transactions during the quarter, bringing the year-to-date stock repurchase total to $120.0 million.
• At the end of the third quarter, the Company had $890.9 million of total debt outstanding, $889.0 million of which was outstanding under the revolving credit facility.
• On October 24, 2018, the Board of Directors increased the authorization for the share repurchase program to $500 million effective immediately, inclusive of the $119 million remaining under the previous authorization.
• On October 24, 2018, the Board of Directors declared a regular quarterly dividend of $0.30 per share on all outstanding shares of the Company. The dividend will be payable on December 3, 2018 to all shareholders of record at the close of business on November 19, 2018.

Earnings Call Information

A live conference call will be held today at 11:00 a.m. ET (10:00 a.m. CT) to review the financial results. Listeners can access the call by dialing 1-615-247-0252 (access code 6486898). A presentation also will be available via a webcast on the investor relations website at www.deluxe.com/investor. Alternatively, an audio replay of the call will be available on the investor relations website or by calling 1-404-537-3406 (access code 6486898).

Upcoming Management Presentations

• December 3 - Mizuho Investor Conference (New York)
• December 13 - SunTrust 2018 Technology & Services Conference (New York)

About Deluxe Corporation

Deluxe is a growth engine for small businesses and financial institutions. Nearly 4.4 million small business customers access Deluxe's wide range of products and services, including customized checks and forms, as well as website development and hosting, email marketing, social media, search engine optimization and logo design. For our approximately 4,900 financial institution customers, Deluxe offers industry-leading programs in checks, data analytics and customer acquisition and treasury management solutions, including fraud prevention and profitability. Deluxe is also a leading provider of checks and accessories sold directly to consumers. For more information, visit us at www.deluxe.com, www.facebook.com/deluxecorp or www.twitter.com/deluxecorp.

Forward-Looking Statements

Statements made in this release concerning Deluxe, "the Company's" or management's intentions, expectations, outlook or predictions about future results or events are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management's current intentions or beliefs and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to, the following: the impact that a deterioration or prolonged softness in the economy may have on demand for the Company's products and services; the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Company's control; the financial impact from the ongoing assessment of the Tax Cuts and Jobs Act; declining demand for the Company's check and check-related products and services due to increasing use of other payment methods; intense competition in the check printing business; continued consolidation of financial institutions and/or additional bank failures, thereby reducing the number of potential customers and referral sources and increasing downward pressure on the Company's revenue and gross profit; risks that the Small Business Services segment strategies to increase its pace of new customer acquisition and average annual sales to existing customers, while at the same time maintaining its operating margins, are delayed or unsuccessful; the risk that pending and future acquisitions will not be consummated within the expected time periods or at all; risks that the Company's recent acquisitions do not produce the anticipated results or synergies; risks that the Company's cost reduction initiatives will be delayed or unsuccessful; performance shortfalls by one or more of the Company's major suppliers, licensors or service providers; unanticipated delays, costs and expenses in the development and marketing of products and services, including web services, financial technology and treasury management solutions; the failure of such products and services to deliver the expected revenues and other financial targets; risks related to security breaches, computer malware or other cyber attacks; risks of interruptions to our website operations or information technology systems; risks of unfavorable outcomes and the costs to defend litigation and other disputes; and the impact of governmental laws and regulations. The Company's cash dividends are declared by the Board of Directors on a current basis and therefore, may be subject to change. Our forward-looking statements speak only as of the time made, and we assume no obligation to publicly update any such statements. Additional information concerning these and other factors that could cause actual results and events to differ materially from the Company's current expectations are contained in the Company's Form 10-K for the year ended December 31, 2017.

Diluted EPS Reconciliation

Management believes that adjusted diluted EPS provides useful additional information for investors because it provides better comparability of ongoing performance to prior periods given that it excludes the impact of certain items during 2018 and 2017 (i.e., restructuring costs, which include integration activities; transaction costs; CEO transition costs; asset impairment charges; loss on debt retirement; and one-time impacts of accounting for federal tax reform) that impact the comparability of reported net income and which management believes to be non-indicative of ongoing operations. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company's ongoing operations. The presentation below is not intended as an alternative to results reported in accordance with generally accepted accounting principles (GAAP) in the United States of America. Instead, the Company believes that this information is a useful financial measure to be considered in addition to GAAP performance measures.

Reported (loss) earnings per share reconciles to adjusted EPS as follows:

The table below is provided to assist in understanding the comparability of the Company's results of operations for the quarters and nine months ended September 30, 2018 and 2017. Management believes that operating income by segment, excluding restructuring, transaction and CEO transition costs, as well as asset impairment charges, provides useful additional information for investors because it provides better comparability of ongoing performance to prior periods given that it excludes the impact of items that affect the comparability of reported operating results and which management believes to be non-indicative of ongoing operations. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company's ongoing operations. The presentation below is not intended as an alternative to results reported in accordance with generally accepted accounting principles (GAAP) in the United States of America. Instead, Management believes that this information is a useful financial measure to be considered in addition to GAAP performance measures.

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