DELUXE CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• North Star Program: 2024 was the year of execution for the North Star plan, aiming to increase annualized adjusted EBITDA by $80M and free cash flow by $100M by 2026. 12 work streams were either complete or in flight, with over 80% of tasks for 2026 goals completed. Corporate SG&A was reduced by over $26M (14%) in 2024.
• Profit Performance: Full-year adjusted EBITDA was ~$412M, comparable adjusted EBITDA was ~$406M (+3.9% from 2023). Comparable adjusted EBITDA margin was 19.3% (+100bps). Comparable adjusted EPS was $3.26 (+8% from 2023).
• Capital Allocation: Priorities included responsible growth investment, debt reduction, and dividend return. In 2024, new products/features were launched in 4 business lines, and 2026 debt maturities were refinanced to 2029.
• Organic Growth Positioning: 2024 had revenue headwinds but set the foundation for 2025 growth. Data segment grew >10%, Merchant >5%, B2B recovered midyear, and Print had promotional softness but stable legacy check.

Segment Performance

• Merchant Services: Full-year revenue was $384 million, growing 5.4% from 2023. Fourth quarter revenue was $95.5 million, flat vs Q4 2023. Segment adjusted EBITDA in 2024 was $78.5 million, up 5.5%, with margins at 20.4%. Fourth quarter adjusted EBITDA was $20.2 million, down 5.2%.
• B2B Payments: Full-year revenue was $287.9 million, down 3.8% from 2023. Fourth quarter revenue was $73 million, flat vs Q4 2023. Segment adjusted EBITDA in 2024 was $57.1 million, down 7.9%, with margins 19.8%. Fourth quarter adjusted EBITDA was $14.5 million, down 16.2%.
• Data: Full-year revenue was $234 million, up 10.5% from 2023. Fourth quarter revenue was $55.9 million, up 26.8%. Segment adjusted EBITDA in 2024 was $60.5 million, up 30.7%, with margins 25.9%. Fourth quarter adjusted EBITDA was $12.3 million, up 68%.
• Print: Full-year revenue was $1.21 billion, down 4.5% from 2023. Fourth quarter revenue was $295.7 million, down 7.1%. Segment adjusted EBITDA in 2024 was $376.6 million, down 6.1%. Fourth quarter adjusted EBITDA was $94.4 million, with a margin of 31.9%.

Guidance

• 2025 Ranges: Revenue was projected to be $2.09B-$2.155B (comparable adjusted growth -1% to +2%). Adjusted EBITDA was projected to be $415M-$435M (+2% to +7%). Adjusted EPS was projected to be $3.25-$3.55 (flat to +9%). Free cash flow was projected to be $120M-$140M (+20% to +40%).
• Segments: Merchant was expected to have sustained mid-single-digit growth, B2B to have low single-digit to mid-single-digit growth, Data to have mid to high single-digit growth, and Print to have low to mid-single-digit decline. Margins were expected to be stable in respective ranges.

Risks

• Print Competition: Increased competition in the low-margin promotional business, with no plans to chase low-margin deals to maintain margins.
• Macro Environment: Uncertainty in macroeconomic conditions affecting revenue growth in some segments.

Question and Answer

• Q: Thoughts on Merchant business fundamentals and new leader? A: Pleased with progress. The Deluxe Payment platform improved capabilities. New leader Brian Mahony brings experience from Elavon and is expected to drive growth in new market verticals.
• Q: Drivers of free cash flow improvement in 2025? A: Lower restructuring spend, improving profitability, and conservative working capital assumptions. It was the final year of North Star-related spend, leading to reduced restructuring impact.
• Q: Print business competition pressure? A: Not chasing low-margin deals. Focus on optimizing offered products and managing efficiently to maintain blended low-30s margins.
• Q: Tariffs impact? A: Minimal direct impact as most Print materials are domestic; the promotional side has a natural hedge.
• Q: Pricing flexibility in Merchant? A: Price twice a year, win business via high customer satisfaction (awards from ATSE). The Deluxe Payment platform helps with features and partnerships.
• Q: Data segment incremental revenue wins? A: Cloud-native data asset allows quick repositioning for customer targeting. A large consumer/small business data lake drives wins in Q4 and ongoing.
• Q: Cadence of quarterly results? A: B2B and Merchant start low single-digit, expand sequentially. Data continues strong growth. Print has low to mid-single-digit decline. Corporate efficiency has modest improvement.
• Q: Client demand post-presidential election? A: Too early to tell. Business wins tied to transaction commerce. Guidance assumes a stable macro environment.
• Q: New product cadence? A: Focus on B2B payments, Merchant Services, and Data-driven marketing. Cloud infrastructure allows faster addition of features.