Deluxe Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Top Line and Profitability: Top line was $521 million, down 2.5% year-over-year. Comparable adjusted EBITDA grew over 4.5% to $106 million, margin expanded 140 basis points to just above 20%, comparable adjusted EPS increased 3.5% to $0.88. Year-to-date free cash flow expanded by over $34 million.
• Segment Highlights: Data Solutions had over 18% revenue expansion; Merchant Services grew 2.9% year-over-year; B2B payments had low single-digit growth; Print segment core areas had modest declines while noncore promotional solutions drove additional decline.
• Acquisition and Partnerships: Announced acquisition of Check Match to expand the Deluxe Payment Network, with potential revenue and cost synergies. Progressed partnerships with software vendors to embed solutions and drive growth.
• Financial Metrics: Improved leverage ratio to 3.5x, on track to be below 3x next year. Affirmed full year revenue and earnings guidance, increased free cash flow guidance.

Segment Performance

• Data Solutions: Delivered more than 18% second quarter revenue expansion.
• Merchant Services: Second quarter revenue grew 2.9% year-over-year to $101.4 million. Segment adjusted EBITDA was $21.7 million, with margins expanding 190 basis points to 21.4%.
• B2B payments: Second quarter revenues finished at $71 million, up 1.1% sequentially. Adjusted EBITDA was $15.6 million, with margins at 22%.
• Print segment: Second quarter revenue was $281.1 million, down 9% year-over-year. Core areas like Legacy Check and forms had smaller declines, while promotional solutions saw a 25.1% decline. Adjusted EBITDA was $90.4 million, with a margin of 32.2%.

Guidance

• Affirmed full year revenue guidance: $2.09 billion to $2.155 billion (comparable adjusted growth range of negative 1% to positive 2%).
• Adjusted EBITDA guidance: $415 million to $435 million (comparable adjusted growth range of 2% to 7%).
• Adjusted EPS guidance: $3.25 to $3.55 (comparable adjusted growth range of flat to 9%).
• Increased free cash flow guidance: $130 million to $150 million. Guidance assumes interest expense, tax rate, depreciation/amortization, share count, and capital expenditures within specified ranges.

Risks

• Macroeconomic uncertainty impacting the broader domestic spending environment, particularly affecting Merchant Services revenue growth.
• Volatility in noncore promotional solutions revenues within the Print segment, which carry lower margin profiles.
• Dependence on prevailing macroeconomic conditions (e.g., interest rates, labor supply, inflation) that could impact guidance precision.

Question and Answer

Q: Barry, there was a nice turnaround in the merchant business on the margin front. Wondering about efficiency drivers.

A: Thanks. Focus on operating efficiency, price, new market spaces, and new partnerships with software vendors to drive margin expansion and revenue growth.

Q: On data segment growth, what drives it?

A: Success with financial institutions helping grow low-cost deposits, cloud-hosted database with large consumer/small business marketing data, and expansion into other verticals.

Q: Check Match acquisition potential?

A: Bolts onto existing Deluxe Payment Network to create a larger digital payment network, enabling digital payment distribution, reducing paper, and creating opportunities in digital B2B payments and receivables management.

Q: Data Solutions revenue growth: existing clients vs new wins?

A: Strategy is to expand share of wallet with existing clients, get new logos, move into new verticals. Growth includes both existing client expansions and new client wins across FI and non-FI channels.