Q4 2024 Deluxe Corp Earnings Call
Speaker Change: Ladies and gentlemen, you are currently standing by for today's Deluxe Quarterly Earnings Conference Call. We are admitting additional participants and plan to be underway shortly.
Speaker Change: 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: Thank you, Operator, and welcome to the Deluxe Fourth Quarter and Full Year 2024 Earnings Call.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 December 31st, 2023 and in other company SEC filings.
Speaker Change: 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.
Speaker Change: All comparable adjusted metrics reflect the removal of impacts from business exits.
Speaker Change: In our press release, today's presentation, and our filings with the FEC, you will find additional disclosures regarding the non-GAAP measures, including reconciliation of these measures to the most comparable measures under U.S. GAAP.
Speaker Change: Within the materials we are also providing reconciliations of GAP EPS to adjusted EPS which may assist with your modeling.
Now, I'll turn it over to Barry.
Barry McCarthy: Thanks, Brian, and good evening, everyone. We're pleased to report our full-year results.
Speaker Change: Our march to improve profitability and strengthen the balance sheet continued during 2024.
Speaker Change: We expanded both comparable adjusted EBITDA dollars and rate for the full year and fourth quarter.
Speaker Change: We delivered consistent operating leverage for the full year, growing both adjusted EBITDA and free cash flow faster than revenue. This is our second consecutive year of delivering operating leverage.
Speaker Change: extending all remaining maturities out to 2029. And we made great progress on our three-year North Star plan to increase annual free cash flows by $100 million by 2026.
Speaker Change: 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.
Speaker Change: Chip will provide details, but before he does I'd like to highlight our 2024 progress across four critical areas.
Speaker Change: 1. The North Star Program 2. Improving Profit Performance 3. Capital Allocation and 4. Our Improved Positioning for Organic Growth into 2025 and 2026
First North Star
Speaker Change: We were cleared under December 2023 Investor Day. The 2024 was the year of North Star execution.
Speaker Change: As a reminder, Northstar is our plan to increase annualized adjusted EBITDA by an incremental $80 million and free cash flows by $100 million, both by the end of 2026.
Speaker Change: This will help us accelerate debt reduction and lower our leverage ratio, both key strategic priorities that will further amplify shareholder returns.
Speaker Change: North Star yielded results in each quarter of 2024, helping to drive profit and cash flow improvement.
Speaker Change: At year-end 2024, all 12 workstreams were either complete or in-flight, and we completed more than 80% of the tasks to achieve our 2026 full-year goals.
Speaker Change: We will realize the profit improvement from this work between now and the end of 2026.
Speaker Change: The clearest place to see our North Star progress is on our SG&A line.
Speaker Change: For the full year 2024, we reduced expenses from corporate operations by more than $26 million, or nearly 14%.
Speaker Change: We remain very pleased with our progress and are on track to deliver our 2026 goals.
Second, improve profit metrics.
Speaker Change: Our approving execution also drove robust expansion of earnings metrics for the full year.
Speaker Change: Total adjusted EBITDA finished at just over $412 million for the year, while comparable adjusted EBITDA finished slightly above $406 million, increasingly by roughly 4% from prior year 2023 levels.
Speaker Change: Our comparable adjusted EBITDA margin of 19.3%, improved by a full 100 basis points from 2023 levels, showcasing our increasing operating leverage.
Speaker Change: On a per share basis, we drove comparable adjusted EPS growth of 8% during 2024, finishing at $3.26 per share.
Third, capital allocation.
Speaker Change: 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.
Speaker Change: Here's a bit more detail on each of these. A. Investing for growth.
Speaker Change: In 2024, we built and launched key new products or features in each of our four business lines.
Speaker Change: In Merchant, we introduce the Deluxe Payment Platform that includes a suite of APIs that help us enter new markets and accelerate onboarding.
Speaker Change: 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.
Speaker Change: Our core solution will lower operating costs for treasurers, making it easier for us to cross-sell additional modules.
Speaker Change: 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.
Speaker Change: And in print, we finished our multi-year print-on-demand installation, enabling us to deliver a superior product and variabilize operating costs and helping hold margin rate despite declining volumes.
Speaker Change: Each of these strategic investments will yield rewards in 2025 and accelerate in 2026.
B. Improving the balance sheet and reducing debt.
Speaker Change: Our strong cash flow performance enabled us to improve our net debt position by more than $52 million versus 2023 year-end.
Speaker Change: 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.
Speaker Change: Now, the fourth of four 2024 highlights, actions to return to organic growth.
Speaker Change: We made good progress to position the company for organic revenue growth as 2025 unfolds, improving further in 2026.
Speaker Change: As we discussed all year, ongoing uncertainty within the macroeconomic environment led to some unusual quarter-to-quarter variation across our businesses.
Speaker Change: We were particularly pleased to deliver a full year growth rate of more than 10% within the data segment.
Speaker Change: and the merchant business delivered more than 5% full-year growth generally in line with our full-year expectations.
Speaker Change: The B2B payment segment also reached an important revenue inflection point mid-year, recovering from the expected first half year-over-year decline.
Speaker Change: The B2B business is well positioned to climb toward our expected mid-single digit revenue growth profile in 2025.
Speaker Change: 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.
Speaker Change: In summary, we made material progress on our most important strategic goals in 2024. Again, one, delivering on North Star.
Speaker Change: 2. Improving our key financial metrics 3. Strengthening our balance sheet and reducing net debt 4. Positioning ourselves for improving revenue growth as 2025 unfolds and improving even more in 2026
Speaker Change: 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.
Speaker Change: I also want to highlight the impressive talent we've been able to attract to support our mission.
Speaker Change: We are pleased to recently announce Brian Mahoney joining us as the new president of Merchant Services.
Speaker Change: It's only the big shoes left by Deborah Bradford's retirement, which we announced last year.
Speaker Change: We're grateful for Debra'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.
Speaker Change: 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.
Speaker Change: We were also pleased to announce the addition of Bo Cummins to our board.
Beau most recently was vice chair of Truist
Speaker Change: 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.
Speaker Change: His experience and banking perspective is directly relevant to our business, enabling him to bring much to our board table.
Speaker Change: 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.
Chip Zint: Finally, before I pass this to Chip, I want to thank my fellow Deluxers for another solid year.
Chip Zint: 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: 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.
Chip Zint: I'll begin tonight by reviewing some consolidated highlights for the year before moving on to operating segment results and updated 2025 guidance.
Chip Zint: For the full year, on a reported basis, we posted total revenue of $2.122 billion, down 3.2% inclusive of the impacts of our late 2023 payroll exit, while down just 1.2% year-over-year on a comparable adjusted basis.
Chip Zint: We reported full-year gap net income of $52.9 million, or $1.18 per share for the year, improving from $26.2 million, or $0.59 per share, in 2023.
Chip Zint: This increase was primarily driven by improved operating results and lower restructuring spend net of the lost income from divestitures.
Chip Zint: Full-year comparable adjusted EBITDA was $406 million, improving $15.3 million or 3.9% from the prior year comparable adjusted results.
Barry McCarthy: Adjusted EBITDA margins were 19.3%, improving 100 basis points as Barry noted.
Barry McCarthy: Full year comparable adjusted EPS came in at $3.26, improving from $3.02 in 2023, primarily driven by the benefits of North Star, along with lower interest and taxes, partially offset by higher depreciation and amortization.
Now turning to operating segment details, beginning with merchant services.
Barry McCarthy: For the full year, Merchant Segment Revenue finished at $384 million, growing by 5.4% versus 2023 results.
Barry McCarthy: 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.
Barry McCarthy: segment adjusted EBITDA finished 2024 at 78.5 million dollars improving by five and a half percent
Barry McCarthy: 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.
Barry McCarthy: Merchant revenues for the fourth quarter finished at $95.5 million, which was roughly flat versus Q4 of 2023.
Barry McCarthy: Recall that we signaled continued moderation of the merchant trajectory during last quarter's call. 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 2023.
Barry McCarthy: 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.
Barry McCarthy: Merchant fourth quarter adjusted EBITDA finished at $20.2 million or 21.2% of revenue, declining 5.2% versus our strong Q4 2023 results.
Barry McCarthy: This decline was primarily driven by the revenue trajectory and some overall channel mix dynamics across the quarter.
Barry McCarthy: Our guidance ranges for 2025 reflect our ongoing expectation for sustained mid-single-digit growth of merchant segment revenues.
Barry McCarthy: We remain confident in our ability to drive this outcome based on our robust pipeline of new FI partners, either currently signed or in queue for 2025, and additional merchant ads across direct, ISO, and ISV channels.
Barry McCarthy: We have assumed a fairly stable ongoing macro environment across our broader guidance ranges.
Barry McCarthy: Importantly, we expect that our onboarding of new FI partners and other wins will accelerate as 2025 progresses.
Barry McCarthy: 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.
Barry McCarthy: 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.
Shifting to results within the B2B payment segment.
Barry McCarthy: B2B revenues finished the year at $287.9 million, reflecting an overall decline of 3.8% versus the prior year.
Barry McCarthy: As we anticipated, we continue to see improvement from the roughly 8% decline rates experienced over the first two quarters of 2024, as we've continued migration of our treasury management solutions towards an increasingly recurring subscription-based set of software offerings.
Barry McCarthy: Additionally, as we finish the year, we continue to onboard incremental share gains across our legacy lockbox business as discussed last quarter.
Barry McCarthy: 2024 adjusted EBITDA for B2B came in at $57.1 million, reflecting a 19.8% margin.
Barry McCarthy: 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 SAS offerings.
Barry McCarthy: Margin rate remained consistent with our expectations and our longer-term high teens expanding to low to mid-20s profile.
Thank you for watching!
Barry McCarthy: For the fourth quarter, B2B segment revenue finished at $73 million, roughly flat versus 2023.
Barry McCarthy: Q4 adjusted EBITDA finished at $14.5 million reflecting 19.9% of revenue in line with the full year margin rates for the segment.
Barry McCarthy: Adjusted EBITDA for the quarter declined 16.2% versus the fourth quarter of 2023.
Barry McCarthy: 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 mixed shifts from prior year non-recurring business.
Barry McCarthy: We would not forecast these inflated period costs to recur throughout all of 2025.
Barry McCarthy: 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.
Barry McCarthy: Our expectation for accelerating B2B growth and increased penetration of AR automation software space in particular over the four-year guidance range underpins this trajectory.
Barry McCarthy: Our 2025 full-year outlook for the segment continues to incorporate a Jesse but a margin assumptions scaling from the high teens to low 20s range sequentially consistent with the level seen over the 2024 full-year results.
Barry McCarthy: Moving now to our particularly strong 2024 results within the data segment.
Barry McCarthy: Overall, as Barry noted, the data-driven marketing business exceeded expectations as full-year revenue finished at $234 million, reflecting ten and a half percent growth versus 2023.
Barry McCarthy: This strong trajectory continued to demonstrate our success, partnering with our customer base to deploy an optimized set of marketing capabilities.
Barry McCarthy: This growth was accompanied by strong margin expansion during 2024, as adjusted EBITDA finished at $60.5 million, reflecting a 25.9% margin rate, growing 30.7% versus the prior year.
Barry McCarthy: 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.
Barry McCarthy: We were pleased to see these trends extend across both our core FI customer base as well as expanding adjacent customer markets.
Barry McCarthy: Fourth quarter data revenues finished at $55.9 million, 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.
Barry McCarthy: Q4 adjusted EBITDA finished at $12.3 million, 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 data segment.
Barry McCarthy: You will recall this business is best measured over a multi-quarter performance period as some specific period lumpiness from the timing of customer spend exists within DDM.
Barry McCarthy: 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 entry-year quarterly growth outlook.
Barry McCarthy: 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.
Barry McCarthy: 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.
Barry McCarthy: This segment finished 2024 with $1.21 billion in annual revenue, reflecting an overall decline of 4.5% versus the prior year of 2023 levels, consistent with our low- to mid-single-digit secular trajectory expectation.
Barry McCarthy: Legacy check revenues declined at 2.5%, while the balance of promotional solutions offerings declined by 7% for the year.
Barry McCarthy: 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.
Barry McCarthy: 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.
Barry McCarthy: Adjusted EBITDA for print finished the year at $376.6 million, declining 6.1% versus 2023.
Barry McCarthy: 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.
Barry McCarthy: Importantly, full-year 2024 margins finished at 31.3% for this segment, remaining strongly aligned to our internal expectations and guidance across the print portfolio.
Barry McCarthy: Fourth quarter print revenues were $295.7 million, declining 7.1% versus Q4 of 2023, as we lapped 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.
Barry McCarthy: Q4 adjusted EBITDA for print remained strong, finishing at $94.4 million. This reflected a 31.9% margin rate for this segment, consistent with both our full year and longer term guidance rate expectations.
Barry McCarthy: 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.
Barry McCarthy: 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.
Barry McCarthy: We ended the year with a net debt level of $1.47 billion, down $52.2 million from $1.52 billion last year, consistent with our ongoing commitment to debt reduction as a top capital allocation priority for the enterprise.
Barry McCarthy: 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.
Barry McCarthy: As we've noted, our long-term strategic target remains approximately three times leverage.
Barry McCarthy: Free cash flow, defined as cash provided by operating activities less capital expenditures, was $100 million, up from $97.7 million 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.
Barry McCarthy: 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 de-levering priorities.
Barry McCarthy: Our board approved a regular quarterly dividend of 30 cents per share on all outstanding shares. The dividend will be payable on March 3rd, 2025 to all shareholders of record as a market closing on February 18th, 2025. We are delivering this dividend for the 30th consecutive year while continuing our responsible investment for growth.
Barry McCarthy: As Barry mentioned, during the fourth quarter, we also refinanced our scheduled 2026 debt maturities.
Barry McCarthy: In early December, we closed on our updated $500 million term loan and $400 million revolver facilities, along with issuance of a new $450 million secured bond, all carrying 2029 maturities.
Barry McCarthy: This refinance structure aligns our full updated maturity ladder out to 2029, coinciding with our remaining unsecured bond maturity.
Barry McCarthy: 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 million expectation.
Barry McCarthy: 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.
Barry McCarthy: 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.
Barry McCarthy: Overall, our fixed to floating ratio stood at roughly 60-40 as of year-end. 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 trend moving through the updated maturity horizon.
Barry McCarthy: Turning now to our 2025 outlook. I'm pleased to share overall guidance ranges for 2025.
Barry McCarthy: Our ranges for the full year are as follows. Revenue of $2.09 billion to $2.155 billion, reflecting negative one to positive two percent comparable adjusted growth versus 2024.
Barry McCarthy: Adjusted EBITDA of $415 to $435 million, reflecting between 2% and 7% comparable adjusted growth.
Adjust the EPS of $3.25 to $3.55.
reflecting flat to 9% comparable adjusted growth.
Barry McCarthy: and free cash flow of 120 to 140 million dollars reflecting growth of 20% to 40% versus our 2024 results.
and to recap my previous segment's assumptions.
Barry McCarthy: 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, imprint will continue the low to mid-single-digit secular decline rates.
Barry McCarthy: 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. Further, we expect modest efficiency improvements across our corporate operations and spending following our significant 2024 progress.
Barry McCarthy: Also, in order to assist with your modeling, our guidance assumes the following.
Barry McCarthy: interest expense of approximately 120 million dollars and adjusted tax rate of 26 percent.
Barry McCarthy: depreciation and amortization of 140 million dollars of which acquisition amortization is approximately 45 million dollars, an average outstanding share count of approximately 45 and a half million shares, and capital expenditures between 90 and 100 million dollars.
Barry McCarthy: To summarize, we were pleased with the overall four-year progress and our prospects for continuing to drive expanded operating leverage in 2025.
Barry McCarthy: We expect to deliver material improvement within our free cash flow conversion, an accelerated deleveraging trajectory, and concurrent growth across all three of our payments and data businesses.
Barry McCarthy: 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.
Speaker Change: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, please press star 1 to ask a question.
Speaker Change: Your first question comes from the line of Karthik Netta with North Coast Research.
Karthik Netta: Good evening. Barry, 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.
Karthik Netta: I do appreciate the question. We're very pleased with the progress we continue to see in the merchant business overall.
Karthik Netta: Since we acquired the business, we are beating all of our expectations for that business.
Karthik Netta: And specifically, in 2024, we invested to improve the capabilities of our business with something we call the Deluxe Payment Platform.
Karthik Netta: 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.
We're very excited about Brian Mahoney joining us.
Brian Mahoney: He joined us most recently from Elevon, one of the largest merchant acquirers, where he served as the CFO. He ran their business in Mexico and started his career in strategy and product.
Brian Mahoney: 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.
Brian Mahoney: And Chip, you're going to see significant improvement in free cash flow 2025 versus 2024.
Speaker Change: Can I just, walking through the primary drivers, if there's any...
Speaker Change: one-time benefits or this is just a reflection of better operating results.
Speaker Change: Yeah, Kardec, 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 18 months. It's been a personal focus of mine.
Speaker Change: You know, 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 to $80 million, 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 million.
Speaker Change: 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 North Star program, we will wind down the restructuring spend. 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
Speaker Change: 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 North Star goal, which was to increase
Speaker Change: So great progress so far feeling really good and really pleased with the guide here to start the year
Speaker Change: 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 any, is there anything you can do to help offset the pressure or is this just something you have to kind of accept?
Speaker Change: because you want to provide a full-scale product to your customers.
Speaker Change: You know, 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.
Um...
Speaker Change: 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.
Speaker Change: 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
Perfect. Thank you. I really appreciate it.
Thank you. Bye-bye.
Speaker Change: Your next question comes from the line of Jonathan Navarette with TD Cowan.
Jonathan Navarette: Hey guys, it's Jonathan on for Lance. I'll start off with just
Jonathan Navarette: Any thoughts on tariffs? Do you guys have any tariff-related headwinds that can impact your supply chain?
Jonathan Navarette: particularly for materials used in prints or perhaps technology components in merchant services?
I appreciate the question Jonathan but
Jonathan Navarette: We don't think that's going to have significant or material impact for our operation.
Jonathan Navarette: most of our things that are used in our print business.
specifically around checks and paper are produced domestically.
Jonathan Navarette: So I think there's a natural hedge for us against any issue there. Will tariffs impact our customers? Ultimately, I don't have a crystal ball, but as far as direct impact in our business, we don't anticipate much direct impact.
Speaker Change: Thanks. And my last one is just how much price and 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?
who are, we don't disclose sort of those individual elements.
Speaker Change: 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.
Speaker Change: 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. Powers.
Speaker Change: and it shows that we are the best in our industry and that's how we win business today.
Speaker Change: Of course, price is important, but yes, we take price at 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. It's 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.
Thank you.
Charlie Strausser: Your next question comes from the line of Charlie Strausser with CJS Securities.
Hi, good evening.
and Charlie
Just given the kind of outperformance in data, maybe...
Barrick, you go.
with some examples of incremental revenue wins.
in that segment that helped drive the upside.
Charlie Strausser: Charlie, so recall that in this business we help customers identify
Charlie Strausser: people to target for whatever product or service they're trying to sell.
product they're looking for.
Charlie Strausser: So if there's demand for targeting credit cards, we can do that. If there's targeting for low-cost deposits...
Charlie Strausser: If a property casualty insurer is looking for new customers, etc.
2025.
strong.
Charlie Strausser: and we continue to expect that we will have continued wins like that.
Charlie Strausser: but we do think over the course of 25 and beyond.
Charlie Strausser: 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. 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.
Speaker Change: Excellent. Thanks, Barry. And just maybe talk a little bit about the 2026 goals you talked about in the past about merchant services.
Charlie Strausser: you know, needing, you know, potentially driving high single-digit revenue CAGR through 2026.
Can you talk about some of the drivers behind those?
Thank you.
the numbers as well.
Charlie Strausser: 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.
Charlie Strausser: We believe we have the right to win. More banks, we think you'll hear from us.
Charlie Strausser: in coming quarters about wins that we have in the banking sector but we're not just focused on the banking sector
Charlie Strausser: 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.
Charlie Strausser: 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, what those new tools will bring to our business.
Charlie Strausser: And so we put all those things together and we think that this has been a
Charlie Strausser: 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.
Speaker Change: And just one for Chip, if I could, you know, Chip, how should we think about the cadence of quarterly results through the year or a given year?
and the initial guidance.
Speaker Change: Yeah, so what I said in the prepared remarks and I'll just repeat it here just so I'm clear
Speaker Change: You know, 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...
Speaker Change: 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 So I would say think of the overall modeling as a b2b and merchants start at low single-digit growth Improve as the year goes on
Barry McCarthy: 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 a 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
Barry McCarthy: just continuing to deliver great results, and we would continue to expect the print side.
Barry McCarthy: to be in that low to mid-single-digit decline rate. 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...
Barry McCarthy: the mid-20s as the year goes on and it'll blend to kind of the low 20s across the year.
Barry McCarthy: 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 Merchants going to stay in the low 20s, which is what it's been doing consistently And then we have high confidence print will kind of stay in that blended low 30s So each each BU will do what it needs to do and then lastly, you know 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 We still have a little bit more work to do on corporate which I think will come
Barry McCarthy: and the 2026 journey of North Star. So to me, you should expect a modest, low single digit improvement in corporate, and it's gonna 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.
Barry McCarthy: 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.
Barry McCarthy: Thank you. Once again if you would like to ask a question please signal by pressing star 1.
Speaker Change: Your next question comes from the line of Mark Riddick with Sidoti.
Thank you for your time.
Mark Riddick: I 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 were any particular verticals that stood out since the election.
[inaudible]
Mark Riddick: So 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.
Mark Riddick: 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.
at the rally.
Mark Riddick: that we're not expecting a large upward improvement, we're not expecting downward movement. We think a continuing stable environment is what we have modeled and how we've framed our guidance.
Speaker Change: You mentioned that you prepared remarks about new products and future introductions across the enterprise, including DLXPay, and I wanted to
Mark Riddick: Just wanted to get your thoughts as to the potential cadence going through this coming year of COVID.
Mark Riddick: of continuing that, or if there are any particular areas that you think might be right for additional innovation, whether it's customer facing or internal efficiency driven.
Speaker Change: appreciate the question 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.
Speaker Change: Merchant Services, and Data-Driven Marketing. And that's where the majority of our new product investment is headed.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: So I think over the course of this year, and certainly through 26, you'll see us continue to add additional features and functionality in each of those three businesses.
Speaker Change: I think you're aware that in our B2B business, we're very focused on the receivables business.
Speaker Change: where we launched R360 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.
Speaker Change: In the B2B space, we've already talked about the Deluxe Payment Platform, Deluxe Pay, which brings additional mobile-featured functionality. And in the data space, we're continuing to invest in that database and data architecture in the cloud.
Speaker Change: So, you know, you will hear us continue to talk about additional products and features that help us compete for new business and win.
Excellent. Thank you very much.
Speaker Change: 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: Thanks, Rachel. Before we conclude, I'd like to share that management will be attending the J.P. Morgan Global High Yield and Leveraged Finance Conference February 24th through 26th in Miami and the 2025 Wolf Fintech Forum March 11th and 12th in New York during the quarter.
Speaker Change: 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 2025 results.
Speaker Change: This does conclude today's call. Thank you for your participation. You may now disconnect.
Speaker Change: This is a production of the U.S. Department of State. No part of this recording may be reproduced without the support of the U.S. Department of State.