Deluxe Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strong third quarter results with organic growth in revenue, adjusted EBITDA, EPS, margin rate, and year-to-date cash flows.
• 11th consecutive quarter of year-over-year EBITDA expansion. Year-to-date operating cash flows expanded by over 25%.
• Shift in revenue mix towards Payments and Data, now accounting for 47% of total company revenue, up nearly 400 basis points year-over-year.
• Data segment grew 46% year-over-year; Merchant Services grew ~5% year-over-year; B2B Payments had margin expansion.
• SG&A expenses reduced by over $15 million. Reached targeted year-end leverage ratio of 3.3x ahead of schedule.

Segment Performance

• Merchant Services: Revenue grew 4.8% year-over-year to $98 million, adjusted EBITDA was $20.4 million, up 14.6% year-over-year, with margins expanding to 20.8%.
• B2B Payments: Revenue was $73.1 million, down 2.7% year-over-year, adjusted EBITDA was $16.8 million, up 9.8% year-over-year, with margins at 23%.
• Data Solutions: Revenue grew 46% year-over-year to $89.2 million, adjusted EBITDA was $29.1 million, up 66.3% year-over-year, with margins at 32.6%.
• Print: Revenue was $279.9 million, down 5.9% year-over-year, adjusted EBITDA declined 4%, with a margin of 33.4%.

Guidance

• Raised full-year adjusted EPS range to $3.45-$3.60.
• Affirmed revenue range $2.11 billion-$2.13 billion, adjusted EBITDA $425 million-$435 million, free cash flow $140 million-$150 million.
• Guidance assumes interest expense ~$123 million, tax rate 26%, depreciation and amortization $133 million, average outstanding share count 45.5 million shares, and capital expenditures between $90 million and $100 million.

Risks

• Prevailing macroeconomic conditions, including interest rates, labor supply issues, inflation, and the impact of divestitures.

Question and Answer

• Q: Talk about free cash flow drivers and sustainability.

A: Focus on profitability, lower restructuring spend, and strong working capital efficiency to improve free cash flow, with confidence in sustaining it into next year.

• Q: Pipeline for distribution partners.

A: Strong pipeline in financial institutions and ISVs, with a new sales leader in the ISV space to accelerate efforts.

• Q: Data segment growth drivers and sustainability.

A: Large data lake, proprietary AI tools, and financial institutions' investment in core products; expansion to other verticals with high lifetime value customers.

• Q: Print segment margins.

A: Mix shift to stronger margin offerings, focus on efficiency, and Check business performing well despite challenges in the branded promo portion.

• Q: Balancing capital between debt reduction, buybacks, M&A, reinvestment.

A: Focus on debt reduction to reach 3x leverage ratio by end of 2026, invest in growth segments, and return value via dividend.

• Q: CapEx and bandwidth expansion.

A: CapEx expected to stay around current levels, no immediate need for bandwidth surge, with appropriate investment in growth businesses.