Deluxe Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue and Profit Growth: Comparable adjusted EBITDA expanded over 6%, organic revenue grew 1%; 2025 was the third consecutive year EBITDA grew faster than revenue.
• EPS and Operating Income: Comparable adjusted EPS grew 13%, operating income increased 23%.
• Cash Generation and Balance Sheet: Generated $175 million free cash flow, reduced net debt by $76 million, lowering the year-end leverage ratio to 3.2 times.
• Strategic Mix Shift: Payments and data now account for 47% of revenue, up from 43% a year ago; aim to achieve revenue parity with print businesses later in 2026.
• Exit Rates: Pleased with Q4 exit rates, with all businesses performing well, providing confidence in 2026.

Segment Performance

• Merchant Services: Full-year revenue reached $398.6 million, growing 3.8% vs 2024. Segment adjusted EBITDA was $85.9 million, expanding 9.4%. Q4 revenue was $101.5 million, up 6.3% vs 2024, with adjusted EBITDA at $22.3 million (22% of revenue).
• B2B Payments: Full-year revenue was $290.5 million, growing 0.9% vs 2024. Adjusted EBITDA was $64.4 million (22.2% margin). Q4 revenue was $76.3 million, up 4.5% vs 2024, with adjusted EBITDA at $18.7 million (24.5% margin).
• Data: Full-year revenue was $307.3 million, growing 31.3% vs 2024. Adjusted EBITDA was $86.4 million (28.1% margin). Q4 revenue was $73 million, up 30.6% vs 2024, with adjusted EBITDA at $17.3 million (23.7% margin).
• Print: Full-year revenue was $1,140 million, declining 5.7% vs 2024. Adjusted EBITDA was $366.9 million (32.3% margin). Q4 revenue was $284.5 million, declining 3.8% vs 2024, with adjusted EBITDA at $92.2 million (32.4% margin).

Guidance

• 2026 Full-Year: Revenue expected to be $2,110 million to $2,175 million (negative 1% to positive 2% comparable adjusted growth vs 2025). Adjusted EBITDA expected to be $445 million to $470 million (39% comparable adjusted growth). Adjusted EPS expected to be $3.9 to $4.3 (6% to 17% comparable adjusted growth). Free cash flow expected to be approximately $200 million (14% growth vs 2025).
• Segments: Merchant segment mid-single-digit revenue growth, mid-20s margins; B2B low single-digit growth, low to mid-20s margins; Data mid to high single-digit revenue growth, low to mid-20s margins; Print low to mid-single-digit secular decline, low 30s margins.

Risks

• Macroeconomic Uncertainty: Consumer behavior shifts and broader macroeconomic conditions can impact growth segments.
• Competition: Intense competition in payments, data, and print segments may affect market share and growth.
• Regulatory Changes: Alterations in regulations related to payments, data, and financial services could impact operations and profitability.

Question and Answer

Q: How is Deluxe positioned to respond to AI trends?

A: Deluxe has applied AI in multiple places, such as in the data-driven marketing business with Gen AI-based tools, delivering improved performance and revenue growth.

Q: What are the macroeconomic risks and factors driving upside to the outlook?

A: Macro conditions have stabilized, consumer behavior is healthy; the data segment faces monster comps but expects growth in the first half, overall optimistic about continued progress.

Q: What are the primary objectives for 2026?

A: Shift the mix towards payments and data, drive efficiency across operations, and generate cash flow to lower debt and leverage ratio.

Q: Discuss build vs buy decisions for investments?

A: Balance between building in-house capabilities and strategic acquisitions, like CheckMatch, to enhance capabilities and profitability while being fiscally responsible.

Q: Where is there greater client receptivity for AI opportunities?

A: AI is applied to solve specific customer problems across all segments, seen as value-driven, leading to good receptivity from clients as it addresses real issues.