Deluxe Q4 2024 Earnings Report

Deluxe EPS Results

• Actual EPS: $0.75
• Consensus EPS: $0.80
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: N/A

Deluxe Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $535.93 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Deluxe Announcement Details

• Quarter: Q4 2024
• Date: 2/5/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 5:00PM ET

Deluxe (NYSE:DLX) provides technology-enabled solutions to enterprises, small businesses, and financial institutions in the United States, Canada, and Australia. It operates through Merchant Services, B2B Payments, Data Solutions, and Print segments. The Merchant Services offers credit and debit card authorization and payment systems, as well as processing services primarily to small and medium-sized retail and service businesses. The B2B Payments segment provides treasury management solutions, including remittance and lockbox processing, remote deposit capture, automated receivables management, payment processing, and cash application, as well as automated payables management, such as medical payment and deluxe payment exchange. The Data solutions segment offers data-driven marketing solutions, financial institution profitability reporting, and business incorporation services. The Print segment provides printed personal and business checks, printed business forms, business accessories, and promotional products. It sells through multi-channel sales and marketing, and scalable partnerships. The company was formerly known as Deluxe Check Printers, Incorporated and changed its name to Deluxe Corporation in 1988. Deluxe Corporation was founded in 1915 and is headquartered in Minneapolis, Minnesota.

Deluxe Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Deluxe Quarterly Earnings Conference Call. All participants are currently in a listen only mode and today's call is being recorded. At this time, I would like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead.

[Brian Anderson, Vice President of Strategy & Investor Relations at Deluxe]

Thank you, operator, and welcome to the Deluxe Fourth Quarter and Full Year twenty twenty four Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates and expectations of the company's future performance or strategy are forward looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause actual results to differ from projections is set forth in the press release we furnished today in our Form 10 K for the year ended 12/31/2023, and in other company SEC filings.

[Brian Anderson, Vice President of Strategy & Investor Relations at Deluxe]

On the call today, we will discuss non GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS and free cash flow. All comparable adjusted metrics reflect the removal of impacts from business exits. In our press release, today's presentation and our filings with the SEC, you will find additional disclosures regarding the non GAAP measures, including reconciliation of these measures to the most comparable measures under U. S. GAAP.

[Brian Anderson, Vice President of Strategy & Investor Relations at Deluxe]

Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. Now, I'll turn it over to Barry.

[Barry McCarthy, President and CEO at Deluxe]

Thanks, Brian, and good evening, everyone. We're pleased to report our full year results. Our March to improve profitability and strengthen the balance sheet continued during 2024. We expanded both comparable adjusted EBITDA dollars and rate for the full year and fourth quarter. We delivered consistent operating leverage for the full year, growing both adjusted EBITDA and free cash flow faster than revenue.

[Barry McCarthy, President and CEO at Deluxe]

This is our second consecutive year of delivering operating leverage. We not only reduced net debt, but also refinance our 2026 debt maturities on attractive terms, extending all remaining maturities out to 2029. And we made great progress on our three year Northstar plan to increase annual free cash flows by $100,000,000 by 2026. Even as we encountered some revenue headwinds, which modestly impacted our top line growth, our 2024 results provided us a solid foundation for 2025 growth of both enterprise revenue and adjusted EBITDA. Chip will provide details, but before he does, I'd like to highlight our 2024 progress across four critical areas.

[Barry McCarthy, President and CEO at Deluxe]

One, the NorthStar program Two, improving profit performance. Three, capital allocation. And four, our improved positioning for organic growth into 2025 and 2026. First, NorthStar. We were cleared under December 2023 Investor Day, the 2024 was the year of NorthStar execution.

[Barry McCarthy, President and CEO at Deluxe]

As a reminder, Northstar is our plan to increase annualized adjusted EBITDA by an incremental $80,000,000 and free cash flows by $100,000,000 both by the end of twenty twenty six. This will help us accelerate debt reduction and lower our leverage ratio, both key strategic priorities that will further amplify shareholder returns. Northstar yielded results in each quarter of 2024, helping to drive profit and cash flow improvement. At year end 2024, all 12 work streams were either complete or in flight and we completed more than 80% of the tasks to achieve our 2026 full year goals. We will realize the profit improvement from this work between now and the end of 2026.

[Barry McCarthy, President and CEO at Deluxe]

The clearest place to see our Northstar progress is on our SG and A line. You will recall our goal was to reduce corporate SG and A by 15% to 20% by 2026. For the full year 2024, we reduced expenses from corporate operations by more than $26,000,000 or nearly 14%. We remain very pleased with our progress and are on track to deliver our 2026 goals. Second, improved profit metrics.

[Barry McCarthy, President and CEO at Deluxe]

Our improving execution also drove robust expansion of earnings metrics for the full year. Total adjusted EBITDA finished just over $412,000,000 for the year, while comparable adjusted EBITDA finished slightly above $4.00 $6,000,000 increasing by roughly 4% from prior year 2023 levels. Our comparable adjusted EBITDA margin of 19.3% improved by a full 100 basis points from 2023 levels showcasing our increasing operating leverage. On a per share basis, we drove comparable adjusted EPS growth of 8% during 2024 finishing at $3.26 per share. Third, capital allocation.

[Barry McCarthy, President and CEO at Deluxe]

Our capital allocation priorities remain A, investing responsibly for growth B, reducing debt and improving our balance sheet and C, returning capital to shareholders via the dividend. Here's a bit more detail on each of these. A, investing for growth. In 2024, we built and launched key new products or features in each of our four business lines. In merchant, we introduced the Deluxe Payment Platform that includes a suite of APIs that help us enter new markets and accelerate onboarding.

[Barry McCarthy, President and CEO at Deluxe]

In B2B payments, we launched the new R360 plus platform that integrates all our receivables modules with a common UI UX helping to automate these processes. Our core solution will lower operating costs for treasurers, making it easier for us to cross sell additional modules. In data, we completed the build out of our cloud native data platform, enabling us to rapidly shift market focus depending on demand and expand into new market verticals. And in Print, we finished our multi year Print on Demand installation, enabling us to deliver a superior product and variableize operating costs and helping hold margin rate despite declining volumes. Each of these strategic investments will yield rewards in 2025 and accelerate in 2026.

[Barry McCarthy, President and CEO at Deluxe]

B, improving the balance sheet and reducing debt. Our strong cash flow performance enabled us to improve our net debt position by more than $52,000,000 versus 2023 year end. This net debt reduction is one more step toward achieving our 2026 leverage ratio target of three times. Finally, C, returning capital to shareholders via the dividend. We maintained our regular quarterly dividend throughout 2024, which marks the thirtieth consecutive year we've rewarded shareholders with a quality dividend.

[Barry McCarthy, President and CEO at Deluxe]

Now the 04/04/2024 highlights, actions to return to organic growth. We made good progress to position the company for organic revenue growth as 2025 unfolds, improving further in 2026. As we discussed all year, ongoing uncertainty within the macroeconomic environment led to some unusual quarter to quarter variation across our businesses. We were particularly pleased to deliver a full year growth rate of more than 10% within the data segment. And the merchant business delivered more than 5% full year growth, generally in line with our full year expectations.

[Barry McCarthy, President and CEO at Deluxe]

The B2B payments segment also reached an important revenue inflection point mid year recovering from the expected first half year over year decline. The B2B business is well positioned to climb toward our expected mid single digit revenue growth profile in 2025. Across Prints, the promotional solutions portion of the business experienced some demand variability, while legacy check continued its predictable and profitable trajectory. While specific fourth quarter revenue was inconsistent with our balance of year trajectory, which Chip will discuss, we remain confident in our ability to achieve our 2025 and 2026 goals. In summary, we made material progress on our most important strategic goals in 2024.

[Barry McCarthy, President and CEO at Deluxe]

Again, one, delivering on Northstar two, improving our key financial metrics three, strengthening our balance sheet and reducing net debt and four, positioning ourselves for improving revenue growth as 2025 unfolds and improving even more in 2026. We're confident in our pathway to our 2026 goals, including further reducing our net debt and achieving a leverage ratio three times or lower. I also want to highlight the impressive talent we've been able to attract to support our mission. We are pleased to recently announce Brian Mahoney joining us as the new President of Merchant Services, filling the big shoes left by Deborah Bradford's retirement, which we announced last year. We're grateful for Deborah's leadership and service to Deluxe and equally excited for the deep and relevant experience that Brian will leverage toward further accelerating growth for the merchant business.

[Barry McCarthy, President and CEO at Deluxe]

He's particularly well prepared for the role having been CRO, CFO and a Country Head of one of the largest merchant acquirers in The U. S. We were also pleased to announce the addition of Beau Cummins to our Board. Beau most recently was Vice Chair of Truist. Over his distinguished banking career, he ran nearly all aspects of banking business from investment, commercial and retail banking, treasury services, payments using data driven marketing and more.

[Barry McCarthy, President and CEO at Deluxe]

His experience and banking perspective is directly relevant to our business, enabling him to bring much to our board table. We see the quality and depth of these individuals choosing us as an additional validation that Deluxe has transformed into a trusted payments and data company. Finally, before I pass this to Chip, I want to thank my fellow Deluxeers for another solid year. I'm proud of their unwavering dedication to our customers and the communities that we serve and for the continued commitment to Deluxe, a trusted payments and data company. Chip, now over to you.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Thank you, Barry, and good evening, everyone. As Barry noted, we were pleased with 2024 progress across key priority areas and particularly our comparable adjusted EBITDA growth and improvement of overall net debt during the year. I'll begin tonight by reviewing some consolidated highlights for the year before moving on to operating segment results and updated 2025 guidance. For the full year on a reported basis, we posted total revenue of $2,122,000,000 down 3.2% inclusive of the impacts of our late twenty twenty three payroll exit, while down just 1.2% year over year on a comparable adjusted basis. We reported full year GAAP net income of $52,900,000 or $1.18 per share for the year, improving from $26,200,000 or $0.59 per share in 2023.

[Chip Zint, Senior Vice President & CFO at Deluxe]

This increase was primarily driven by improved operating results and lower restructuring spend net of the lost income from divestitures. Full year comparable adjusted EBITDA was $4.00 $6,000,000 improving 15,300,000 or 3.9% from the prior year comparable adjusted results. Adjusted EBITDA margins were 19.3%, improving 100 basis points as Barry noted. Full year comparable adjusted EPS came in at $3.26 improving from $3.02 in 2023, primarily driven by the benefits of Northstar along with lower interest and taxes, partially offset by higher depreciation and amortization. Now turning to operating segment details, beginning with Merchant Services.

[Chip Zint, Senior Vice President & CFO at Deluxe]

For the full year, Merchant segment revenue finished at $384,000,000 growing by 5.4% versus 2023 results. We were pleased with this full year growth trajectory at the lower end of our longer term mid single digit or higher growth outlook for this segment. Segment adjusted EBITDA finished 2024 at $78,500,000 improving by 5.5% in line with the revenue trajectory versus the prior year, while margins finished at 20.4% consistent with our expectations and roughly flat versus the full year 2023 margin rates. Merchant revenues for the fourth quarter finished at $95,500,000 which was roughly flat versus Q4 of twenty twenty three. Recall that we signaled continued moderation of the merchant trajectory during last quarter's call.

[Chip Zint, Senior Vice President & CFO at Deluxe]

This isolated fourth quarter result was driven most materially by our lapping of the large conversion with Fulton Bank, which took place during the fourth quarter of twenty twenty three. Lesser impacts included some pockets of softness across the balance of the portfolio and quarter to quarter timing impacts across a few less discretionary verticals. Merchant fourth quarter adjusted EBITDA finished at $20,200,000 or 21.2 percent of revenue declining 5.2% versus our strong Q4 twenty twenty three results. This decline was primarily driven by the revenue trajectory and some overall channel mix dynamics across the quarter. Our guidance ranges for 2025 reflect our ongoing expectation for sustained mid single digit growth of Merchant segment revenues.

[Chip Zint, Senior Vice President & CFO at Deluxe]

We remain confident in our ability to drive this outcome based on our robust pipeline of new FI partners either currently signed or in Q for twenty twenty five and additional merchant adds across direct, ISO and ISV channels. We have assumed a fairly stable ongoing macro environment across our broader guidance ranges. Importantly, we expect that our onboarding of new FI partners and other wins will accelerate as 2025 progresses. Our expectation is that these activities will drive sequential improvement of our merchant segment growth rates towards the noted mid single digit levels with a slower start in the first half, ramping to make back half growth stronger than the first. Finally, our 2025 guidance further assumes sustained margin levels in the low 20s range for the merchant business, consistent with both our 2024 results and longer term guidance.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Shifting to results within the B2B Payments segment. B2B revenues finished the year at $287,900,000 reflecting an overall decline of 3.8% versus the prior year. As we anticipated, we continued to see improvement from the roughly 8% decline rates experienced over the first two quarters of twenty twenty four as we've continued migration of our treasury management solutions towards an increasingly recurring subscription based set of software offerings. Additionally, as we finish the year, we continue to onboard incremental share gains across our legacy lockbox business as discussed last quarter. 2024 adjusted EBITDA for B2B came in at $57,100,000 reflecting a 19.8% margin.

[Chip Zint, Senior Vice President & CFO at Deluxe]

This reflected a 7.9% decline from the prior year results driven by the first half revenue trajectory and our continued migration of the business model towards expansion of our SaaS offerings. Margin rate remained consistent with our expectations and our longer term high teens expanding to low to mid 20s profile. For the fourth quarter, B2B segment revenue finished at $73,000,000 roughly flat versus 2023. Q4 adjusted EBITDA finished at $14,500,000 reflecting 19.9% of revenue in line with the full year margin rates for the segment. Adjusted EBITDA for the quarter declined 16.2% versus the fourth quarter of twenty twenty three.

[Chip Zint, Senior Vice President & CFO at Deluxe]

These adjusted EBITDA results continue to reflect some outsized impacts across our receivable suite of offerings, both from continuing implementation expense for lockbox share gains and overall continued receivables mix shift from prior year non recurring business. We would not forecast these inflated period costs to recur throughout all of 2025. Within our 2025 guidance ranges, we anticipate B2B revenues returning to a low single digit growth profile to begin the year and to climb towards our longer term mid single digit forecast sequentially, as Barry noted during his comments. Our expectation for accelerating B2B growth and increased penetration of AR automation software space in particular over the full year guidance range underpins this trajectory. Our 2025 full year outlook for the segment continues to incorporate adjusted EBITDA margin assumptions scaling from the high teens to low 20s range sequentially, consistent with the levels seen over the 2024 full year results.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Moving now to our particularly strong 2024 results within the data segment. Overall, as Barry noted, the data driven marketing business exceeded expectations as full year revenue finished at $234,000,000 reflecting 10.5% growth versus 2023. This strong trajectory continued to demonstrate our success, partnering with our customer base to deploy an optimized set of marketing capabilities. This growth was accompanied by strong margin expansion during 2024 as adjusted EBITDA finished at $60,500,000 reflecting a 25.9% margin rate growing 30.7% versus the prior year. Drivers of this adjusted EBITDA expansion included the double digit revenue growth trajectory, continued optimization of core operating expenses in the segment, including benefits from Northstar execution, and a continuing favorable overall mix of DDM campaign activity during the year.

[Chip Zint, Senior Vice President & CFO at Deluxe]

We were pleased to see these trends extend across both our core FI customer base as well as expanding adjacent customer markets. Fourth quarter data revenues finished at $55,900,000 reflecting year over year growth of 26.8% as we rebounded from the lapping of very strong prior year comps during both the second and third quarters. Q4 adjusted EBITDA finished at $12,300,000 expanding more than 68% year over year on the drivers noted within my full year commentary, while the margin rate finished at 22, returning toward our signaled longer term low 20s expectation range for the While the business remains campaign oriented in nature, we continue to While the business remains campaign oriented in nature, we continue to benefit from the increased scale and growth of our revenue base, contributing to a more stable intra year quarterly growth outlook. Our full year 2025 guidance ranges incorporate an expectation for sustaining mid to high single digit data revenue growth going forward. We remain confident in the sustainable growth profile for these offerings across a wide array of trigger based demographic and other data supported marketing outreach.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Our EBITDA guidance incorporates data margins sustaining in the low to mid-20s margin profile that we have communicated within our longer term horizon outlook. Shifting finally to our Print businesses. This segment finished 2024 with $1,210,000,000 in annual revenue, reflecting an overall decline of 4.5% versus the prior year 2023 levels, consistent with our low to mid single digit secular trajectory expectation. Legacy check revenues declined at 2.5%, while the balance of promotional solutions offerings declined by 7% for the year. In addition to our continuing focus on printed offerings within promo, leveraging our broad manufacturing platforms, we have also seen some uptick in competitive marketing investment across the space toward the lower margin profile, promo and apparel and branded accessory areas in particular.

[Chip Zint, Senior Vice President & CFO at Deluxe]

These trends have driven some softness across our largely third party source offerings in these areas, including some of the traditional Q4 seasonality seen in our prior year comparison. Adjusted EBITDA for Print finished the year at $376,600,000 declining 6.1% versus 2023. This result was largely in line with the overall top line trajectory when adjusted for specific non recurring accounts receivable reserve adjustments discussed during our second quarter call in late July. Importantly, full year 2024 margins finished at 31.3% for the segment, remaining strongly aligned to our internal expectations and guidance across the print portfolio. Fourth quarter print revenues were $295,700,000 declining 7.1% versus Q4 of twenty twenty three as we lap some prior year pricing actions within the specific quarter and reflective of the broader full year trends noted within my earlier comments specific to the Promotional Solutions suite of products.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Q4 adjusted EBITDA for Print remained strong, finishing at $94,400,000 This reflected a 31.9% margin rate for the segment, consistent with both our full year and longer term guidance rate expectations. Our guidance ranges for 2025 reflect our consistent and predictable year to year expectation for secular declines across print, driving a revenue trajectory remaining in the low to mid single digit decline range. We have consistently managed these businesses to drive revenue outcomes at or better than these rates. We remain confident in our ability to sustain these levels, while also targeting a flat overall margin rate profile remaining in the blended low 30s range over the course of our 2025 guidance horizon. Turning now to our balance sheet and cash flow.

[Chip Zint, Senior Vice President & CFO at Deluxe]

We ended the year with a net debt level of $1,470,000,000 down $52,200,000 from $1,520,000,000 last year, consistent with our ongoing commitment to debt reduction as a top capital allocation priority for the enterprise. Our net debt to adjusted EBITDA ratio was 3.6 times at the end of the year, remaining flat versus a year ago, partially as a result of the removal of adjusted EBITDA contribution from business exits. As we've noted, our long term strategic target remains approximately three times leverage. Free cash flow defined as cash provided by operating activities less capital expenditures was $100,000,000 up from $97,700,000 in 2023, driven by lower in year cash restructuring spend and reduced year over year capital expenditures despite the loss of cash flows from business exits. We remain pleased with the overall trajectory of our free cash flows and our ability to continue reducing our net debt consistent with our clear delevering priorities.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Our board approved a regular quarterly dividend of $0.3 per share on all outstanding shares. The dividend will be payable on 03/03/2025 to all shareholders of record as a market closing on 02/18/2025. We are delivering this dividend for the thirtieth consecutive year while continuing our responsible investment for growth. As Barry mentioned, during the fourth quarter, we also refinanced our scheduled 2026 debt maturities. In early December, we closed on our updated $500,000,000 term loan and $400,000,000 revolver facilities along with issuance of a new $450,000,000 secured bond all carrying twenty twenty nine maturities.

[Chip Zint, Senior Vice President & CFO at Deluxe]

This refinance structure aligns our full updated maturity ladder out to 2029, coinciding with our remaining unsecured bond maturity. We were very pleased with the execution in the capital markets along these lines as we maintained a top tier bank syndicate supporting our institutional capital and saw strong demand for our new bond issue, upsizing from the original $400,000,000 expectation. We expect our overall blended interest rate to remain around 7.5% moving forward, fairly consistent with our prior structure, and we are pleased to push out the 2026 maturity wall to an extended horizon, providing us with ample ongoing liquidity to support our growth efforts. As a result of the updated debt stack, we also unwound our prior interest rate swap positions during the fourth quarter with a largely neutral in year settlement impact. Overall, our fixed to floating ratio stood at roughly sixtyforty as of year end.

[Chip Zint, Senior Vice President & CFO at Deluxe]

This balance insulates us against some ongoing uncertainty around the timing and magnitude of interest rate changes, while we will benefit from an expected lowering rate trends moving through the updated maturity horizon. Turning now to our 2025 outlook, I'm pleased to share overall guidance ranges for 2025. Our ranges for the full year are as follows: revenue of $2,090,000,000 to $2,155,000,000 reflecting negative 1% to positive 2% comparable adjusted growth versus 2024 adjusted EBITDA of $415,000,000 to $435,000,000 reflecting between 27% comparable adjusted growth adjusted EPS of $3.25 to $3.55 reflecting flat to 9% comparable adjusted growth and free cash flow of $120,000,000 to $140,000,000 reflecting growth of 20% to 40% versus our 2024 results. And to recap my previous segment assumptions, we expect both merchant and B2B to ramp sequentially toward mid single digit growth rates as 2025 progresses, while data remains strong mid to high single digit growth and print will continue the low to mid single digit secular decline rates. Margins for print will remain stable in the low 30s, while B2B remain in the high teens to low 20s and both merchant and data will maintain low 20s profiles as well.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Further, we expect modest efficiency improvements across our corporate operations and spending following our significant 2024 progress. Also, in order to assist with your modeling, our guidance assumes the following: interest expense of approximately 120,000,000 an adjusted tax rate of 26% depreciation and amortization of $140,000,000 of which acquisition amortization is approximately $45,000,000 an average outstanding share count of approximately 45,500,000.0 shares and capital expenditures between $90,000,000 and $100,000,000 To summarize, we were pleased with the overall full year progress and our prospects for continuing to drive expanded operating leverage in 2025. We expect to deliver material improvement within our free cash flow conversion and accelerated deleveraging trajectory and concurrent growth across all three of our payments and data businesses. Each of these expectations are consistent with our clear ongoing value creation formula and we remain confident in our overall progress against our focused capital allocation priorities. Operator, we are now ready to take questions.

[Operator]

Thank Your first question comes from the line of Kartik Mehta with Northcoast Research.

[Kartik Mehta, Executive MD & Director of Research at Northcoast Research]

Good evening. Terry, maybe just your thoughts on the merchant business, maybe just the fundamentals within the business, what you think is going well and maybe areas you'll focus on in 2025 now that there's a new leader for the business?

[Barry McCarthy, President and CEO at Deluxe]

Sure. Appreciate the question. We're very pleased with the progress we continue to see in the merchant business overall. Since we acquired the business, we are beating all of our expectations for that business. And specifically in 2024, we invested to improve the capabilities of our business with something we call the Deluxe Payment Platform, which is a suite of APIs that makes it easier for ISVs and other partners to connect to us and to allow us to grow in new marketplaces.

[Barry McCarthy, President and CEO at Deluxe]

We're very excited about Brian Mahoney joining us. He joined us most recently from Elavon, one of the largest merchant acquirers, where he served as the CRO, the CFO. He ran their business in Mexico and started his career in strategy and product. He's off to a great start. He just started a couple of days ago on Monday, but we expect and I expect that he will continue the work and the effort we have on improving the product, helping us penetrate new market verticals and reaching other pockets of growth that we have not traditionally attacked.

[Kartik Mehta, Executive MD & Director of Research at Northcoast Research]

And Chip, you're going to see significant improvement in free cash flow 2025 versus 2024. Kind of just walking through the primary drivers, if there's any one time benefits or this is just a reflection of better operating results?

[Chip Zint, Senior Vice President & CFO at Deluxe]

Yes, Kartik. So first before I even answer your question, I just want to acknowledge, we're really pleased with the progress we've made in this space over the last eighteen months. It's been a personal focus of mine. If you look backwards, 2023 was very back end loaded as we had to really optimize our working capital to deliver the number we did. And our initial guide last year was a range of $60,000,000 to $80,000,000 which because of execution and a smooth start to the year, we improved as the year went on, finally landing at the upper end of the range at $100,000,000 So as you look ahead to this year and the guide and the substantial improvement that we're projecting, it's in line with the things we've been telling you guys all along that as we execute the Northstar program, we will wind down the restructuring spend.

[Chip Zint, Senior Vice President & CFO at Deluxe]

We're in the final year of the related spend for the project. So as I look at this year, think of it as a function of the benefit of the improving profitability, the lower restructuring spend starting to show its way through and then some offsetting pieces around some conservative thoughts around working capital because obviously I can't continue to optimize working capital every single year. And so those are the key building blocks that get me to where I am here. But I think you should just remain confident in our focus and our ability to execute in this space and continue to drive our progress towards that overall Northstar goal, which was to increase by $100,000,000 on an annual basis from where we were when we started the journey. So great progress so far, feeling really good and really pleased with the guide here to start the year.

[Kartik Mehta, Executive MD & Director of Research at Northcoast Research]

And just one last question. I think Chip, you mentioned on the print business, there's obviously a little bit more competition on that low margin business. I know in the past you've always said that the product you'd like to offer because it's something that your customers want. Is there anything you can do to help offset the pressure or is this just something you have to kind of accept because it's a full you want to provide a full scale product to your customers?

[Chip Zint, Senior Vice President & CFO at Deluxe]

I mean, I think the one thing we're not going to do is chase low margin deals just for the sake of holding on to the top line. Obviously, that promo business has a lot of relationship value to it and our ability to sell and still grow that business in places is important to managing the overall secular decline, which I think we've done a really good job on. So I would just say it remains a priority and we continue to focus the sales teams on how they can optimize what they do offer, the business we bid on and how we, of course, operate most efficiently with the deals we win. But you're not going to see us radically invest in marketing and chase really low deals and dilute our margins. We're very proud of those blended low 30s margins in print.

[Chip Zint, Senior Vice President & CFO at Deluxe]

And we have a very clear focus on what the print business is inside of Deluxe. It's here to deliver cash flows and relationships to help fund this transformation and fund the growth in payments and data. And so we have to stay true to those priorities and make sure we just manage it on an efficient basis. So I think you're going to see continued focus in that space, but we're not going to change who we are.

[Kartik Mehta, Executive MD & Director of Research at Northcoast Research]

Perfect. Thank you. I really appreciate it.

[Operator]

Your next question comes from the line of Jonathan Navarat with TD Cowen.

[Jonnathan Navarrete, Equity Research Vice President at TD Securities]

Hey, guys. It's Jonathan on for Lance. I'll start off with just any thoughts on tariffs. Do you guys have any tariff related headwinds that can impact your supply chain, particularly for materials used in print or perhaps technology components in merchant services?

[Barry McCarthy, President and CEO at Deluxe]

I appreciate the question, Jonathan. But we don't think that's going to have significant or material impact for our operation. Most of our things that are used in our print business, specifically around checks and paper are produced domestically. Of course, some of the items in the promotional side of the business may be produced outside of the country, but you'll recall that is the lowest margin part of our business. So I think there's a natural hedge for us against any issue there.

[Barry McCarthy, President and CEO at Deluxe]

Will tariffs impact our customers ultimately? Don't have a crystal ball, but as far as direct impact in our business, we don't anticipate much direct impact.

[Jonnathan Navarrete, Equity Research Vice President at TD Securities]

Got it. Thanks. And my last one is just how much pricing flexibility do you have in the merchant business? And can you maybe break down how much of the growth in 2025 is likely to come from pricing versus volume?

[Barry McCarthy, President and CEO at Deluxe]

Sure. We don't disclose sort of those individual elements. But what I would tell you is that we compete and win in the space because of the way we can differentiate how our customers have great experience. And so if you were to visit one of our facility in Fort Worth where we do customer support, you'd see a giant case that are filled with awards from a group called ATSI, which is a sort of equivalent for J. D.

[Barry McCarthy, President and CEO at Deluxe]

Powers. And it shows that we are the best in our industry and that's how we win business today. Of course, price is important. But yes, we take price twice a year on a routine basis and we've been able to price for those services and we believe that will be a part of our formula going forward. But of course, it's new logo wins or new partners, it's more volume as well as price.

[Barry McCarthy, President and CEO at Deluxe]

Also more features by the way, I mentioned that in the last answer that we've added features functionality specifically with the Deluxe Payment Platform that makes it easier and faster for customers to connect to us.

[Jonnathan Navarrete, Equity Research Vice President at TD Securities]

Great. Thank you.

[Operator]

Your next question comes from the line of Charlie Strauzer with CJS Securities.

[Charles Strauzer, Senior Managing Director at CJS Securities]

Hi, good evening.

[Chip Zint, Senior Vice President & CFO at Deluxe]

Hey, Charlie.

[Charles Strauzer, Senior Managing Director at CJS Securities]

Just given the kind of outperformance in data, maybe you can, Barry, can you give us some examples of incremental revenue wins in that segment that helped drive the upside?

[Barry McCarthy, President and CEO at Deluxe]

Sure, Charlie. So recall that in this business, we help customers identify people to target for whatever product or service they're trying to sell. And one of the places where we've invested over the last couple of years is to move our entire data asset to the cloud. So that allows us to quickly reposition and help customers target regardless of what product they're looking for. So if there is demand for targeting credit cards, we can do that.

[Barry McCarthy, President and CEO at Deluxe]

If there is targeting for low cost deposits, if a property and casualty insurer is looking for new customers, etcetera, because we've made these investments and now have what we believe is the largest consumer and small business marketing data lake out there, we're able to take on business and execute quickly. And I think in the fourth quarter, you saw that once again, we had enormous demand across multiple parts of the business, both financial institutions and non financial institutions. We're looking to market in the fourth quarter. Honestly, we believe to help them get launched into 2025 strong. And we continue to expect that we will have continued wins like that.

[Barry McCarthy, President and CEO at Deluxe]

But we do think over the course of 2025 and beyond, some of the very significant variations, the lumpiness of the business may get a bit more smoothed out as we expand and diversify across more market verticals, but very, very pleased with the performance of that business. And we think it's a real testament to the quality of the data we've assembled and the way we're managing it in a truly cloud native way.

[Charles Strauzer, Senior Managing Director at CJS Securities]

Excellent. Thanks, Barry. And just maybe talk a little bit about the 2026 goals. You talked about in the past about merchant services, needing essentially driving high single digit revenue CAGR through 2026. Can you talk about some of the drivers behind those numbers as well?

[Barry McCarthy, President and CEO at Deluxe]

Sure. So just as a refresher, Charlie, we're really pleased with the overall success of the Merchant business. You'll recall that a year ago in the fourth quarter, we boarded and went live with what was the largest single customer win ever in the formerly First American, but now Deluxe Merchant Services business, which was with the bank called Fulton Bank. We believe we have the right to win more banks. We think you'll hear from us in coming quarters about wins that we have in the banking sector, but we're not just focused on the banking sector.

[Barry McCarthy, President and CEO at Deluxe]

We also have great footprint with integrated software vendors, independent sales organizations, and certain parts of specialty retail at places like auto repair. We've also got a great footprint with state and local government, as well as not for profit. And because we've made these investments in the Deluxe Payment platform, we can reach additional market verticals faster than we have been able to before. And we're very excited about the prospect with that business, with that those new tools will bring to our business. And so we put all those things together and we think that this has been a mid to upper single digit revenue growth business and we think over the coming quarters and into 2026 as some of these wins that we anticipate take hold and go live, we believe we have the opportunity to expand the rate of growth there over time.

[Charles Strauzer, Senior Managing Director at CJS Securities]

And just one for Chip, if I could. Chip, how should we think about the cadence of quarterly results through the year given your initial guidance?

[Chip Zint, Senior Vice President & CFO at Deluxe]

Yes. So what I said in the prepared remarks and I'll just repeat it here just so I'm clear. We would think from a revenue perspective that both B2B and merchant are going to start in low single digit growth and expand sequentially as the year goes on. Barry just talked about the tough comp that the merchant business was kind of coming up again and the growth they have to overcome. So we think that's a growth number that expands as the year goes on.

[Chip Zint, Senior Vice President & CFO at Deluxe]

So I would say, think of the overall modeling as a B2B and merchant start at low single digit growth, improve as the year goes on, while simultaneously data is going to continue that trend we've been telling you about look at the rolling three quarters, how it's been improving. So that's going to imply data having another strong Q1. Barry already said it. We think some of that lumpiness quarter to quarter is going to go away. So we think data is going to have a good growth trajectory throughout the year, just continuing to deliver great results and we would continue to expect the print side to be in that low to mid single digit decline rate.

[Chip Zint, Senior Vice President & CFO at Deluxe]

So at the highest level revenue to me is going to be a little bit more on the flat side the first half of the year and obviously expanding the growth profile as the year goes on and specifically B2B and merchant grow faster. In terms of modeling the margin side, we talked about the pieces. B2B, the profile is going to be high teens margins to start the year expanding towards the mid-20s as the year goes on, it will blend to kind of the low 20s across the year. Data is going to stay in kind of the low 20s to mid-20s range throughout the year depending on the quarter and the volume. Merchant's going to stay in the low 20s, which is what it's been doing consistently.

[Chip Zint, Senior Vice President & CFO at Deluxe]

And then we have high confidence print will kind of stay in that blended low 30s. So each BU will do what it needs to do. And then lastly, incredibly pleased with what corporate did a year ago. We've been talking a while about driving efficiency in corporate. I would not expect that to reoccur here in 2025.

[Chip Zint, Senior Vice President & CFO at Deluxe]

We still have a little bit more work to do on corporate, which I think will come in the 2026 journey of Northstar. So to me, you should expect a modest low single digit improvement in corporate and it's going to be roughly stable as the year goes on. I don't see any reason for it to be real lumpy as the year goes on. So I think if you put all those pieces together, you'll get a sense of a cadence and year that shapes up to be operating leverage as the year continues to go on like we've shown the last two years and obviously ramping to a good place as the year progresses.

[Operator]

Thank you. Your next question comes from the line of Mark Riddick with Sidoti.

[Marc Riddick, Business Services Analyst at Sidoti & Company, LLC]

Good evening.

[Chip Zint, CFO, Senior VP & VP of Corporate Finance at Deluxe]

Hi, Mark.

[Marc Riddick, Business Services Analyst at Sidoti & Company, LLC]

I

[Marc Riddick, Business Services Analyst at Sidoti & Company, LLC]

wanted to check to see if there were any thoughts or anything that you saw as far as client demand changes following the presidential election and then whether or not you've seen any initial green shoots of business confidence and if so, if there are any particular verticals that stood out since the election?

[Barry McCarthy, President and CEO at Deluxe]

Well, that's a lot of questions in one mark. So let me start by telling you that I

[Chip Zint, Senior Vice President & CFO at Deluxe]

I tried to summarize.

[Barry McCarthy, President and CEO at Deluxe]

I don't have a crystal ball, but I can sort of share with you sort of the big themes that we see. First of all, our business, one of the great things about this company and the businesses where we compete today is that we when commerce happens, we win. And so as long as transactions commerce is happening, we win because we're standing in the right intersection and we gain any time transactions happen or the economy moves. So specific to your question about the change in administration, I think it's just way too soon to have any sort of real meaningful insight in that. As far as overall confidence, you see the same things we do that consumer spending seems solid.

[Barry McCarthy, President and CEO at Deluxe]

But we think there's a little bit of a tale of two cities there with folks with more discretionary income, spending more and doing a little better than the folks that have less discretionary income. And we can see that sometimes in some parts of our business, with which we talked about all year with some lean towards more or less discretionary categories and away from more discretionary. Certainly, we don't think that changed as the year ended and it's too early to say what it means in the new year. But what we can tell you is that in our guidance ranges, we are assuming and our base assumption is that conditions are largely stable, that we're not expecting a large upward improvement. We're not expecting downward movement.

[Barry McCarthy, President and CEO at Deluxe]

We think a continuing stable environment is what we have modeled and how we've framed our guidance.

[Marc Riddick, Business Services Analyst at Sidoti & Company, LLC]

Great. And then you mentioned in your prepared remarks about new products and feature introductions for across the enterprise, including DLX Pay. And I wanted to just sort of get your thoughts as to the potential cadence going through this coming year of continuing that? Or are there any particular areas that you think might be right for additional innovation, whether it's customer facing or internal efficiency driven?

[Barry McCarthy, President and CEO at Deluxe]

Appreciate the question. I want to be really clear. We are very focused on making appropriate investments with a great hurdle with achieving our very solid hurdle rate and we're very focused on B2B payments, merchant services and data driven marketing. And that's where the majority of our new product investment is headed. Underlying, you've heard us talk for a couple of years about infrastructure investments we've made to move our entire operating platform to the cloud.

[Barry McCarthy, President and CEO at Deluxe]

And we are now at the place where we can start leveraging that by adding additional products and features at a faster pace because we can do it one time in the cloud rather than in multiple different iterations. So I think over the course of this year and certainly through 2026, you'll see us add continue to add additional features and functionality in each of those three businesses. I think you're aware that in our B2B business, we're very focused on the receivables business, where we launched our three sixty plus last year, which is a unified common UI UX that puts together all the different factors and modules that a customer would use from us that helps them manage receivables. In the B2B space, we've already talked about the Deluxe Payment Platform, Deluxe Pay, which brings additional mobile feature functionality. And in the data space, we're continuing to invest in that database and data architecture in the cloud.

[Barry McCarthy, President and CEO at Deluxe]

So, you will hear us continue to talk about additional products and features that help us compete for new business and win.

[Brian Anderson, Vice President of Strategy & Investor Relations at Deluxe]

Excellent. Thank you very much.

[Operator]

This does conclude today's question and answer session. I would now like to turn the call back to Brian Anderson for any additional or closing remarks.

[Brian Anderson, Vice President of Strategy & Investor Relations at Deluxe]

Thanks, Rachel. Before we conclude, I'd like to share that management will be attending the JPMorgan Global High Yield and Leveraged Finance Conference, February twenty fourth through twenty sixth in Miami and the twenty twenty five Wolf FinTech Forum March eleventh and twelfth in New York during the quarter. Thank you again for joining us today and we look forward to speaking with you all again in late April as we share our first quarter twenty twenty five results.

[Operator]

This does conclude today's call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Brian Anderson, Vice President of Strategy & Investor Relations
• Barry McCarthy, President and CEO
• Chip Zint, Senior Vice President & CFO
• Chip Zint, CFO, Senior VP & VP of Corporate Finance

Analysts

• Kartik Mehta, Executive MD & Director of Research at Northcoast Research
• Jonnathan Navarrete, Equity Research Vice President at TD Securities
• Charles Strauzer, Senior Managing Director at CJS Securities
• Marc Riddick, Business Services Analyst at Sidoti & Company, LLC