Q1 2025 Deluxe Corp Earnings Call
Please standby.
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. Today's call's being recorded at this time I'd like to turn the conference over to your host Vice President of strategy and Investor relation.
Brian Anderson: Brian Anderson. Please go ahead.
Thank you operator, and welcome to the Deluxe first quarter 2025 earnings call.
Speaker Change: Joining me on today's call are Barry Mccarthy, our President and Chief Executive Officer, and chips, and 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 expectation about the companys future strategy or performance are forward looking in nature as defined in the private Securities Litigation Reform Act of 1995.
Additional information about factors that may cause actual results to differ from projections is set forth in the press release, we furnished today and our Form 10-K for the year ended December 31, 2024, and then 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 EBITA 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 todays presentation, and our filings with the SEC, you'll 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 GAAP EPS to adjusted EPS, which may assist with your modeling.
Speaker Change: And with that I'll turn it over to Barry.
Barry McCarthy: Thanks, Brian and good evening everyone.
Barry McCarthy: I'm pleased to report our solid start to 2025.
Barry McCarthy: In the first quarter, our results reflected organic growth across our key metrics, including revenue adjusted EBITDA EPS and margin.
Barry McCarthy: Our sustained expansion of earnings at a rate faster than revenue for the ninth consecutive quarter continues to demonstrate the operating leverage we have purposely built into the company via Northstar.
Barry McCarthy: We also remain particularly pleased with our significant year over year expansion of operating cash flow.
Barry McCarthy: This strong performance drove continued reduction of our net debt levels.
Barry McCarthy: Consistent with our commitment to this important capital allocation priority.
Barry McCarthy: These results contributed to our recent S&P ratings upgrade and positive ratings outlook, demonstrating our strong progress on balance sheet optimization.
Barry McCarthy: You will recall accelerating our free cash flow and profit growth are the key tenants of our norstar execution strategy against which we remain on track toward our 2026 program targets.
Barry McCarthy: Before reviewing our first quarter highlights in more detail I'd like to comment on four key factors.
Barry McCarthy: First these are times of extraordinary volatility and macroeconomic uncertainty.
Barry McCarthy: While change swirls around us we are focused on controlling what we can control and executing strongly against our plan.
Barry McCarthy: Our first quarter results are testament to our focus and execution discipline.
Barry McCarthy: We continue to monitor report from economic forecasters around consumer sentiment discretionary spending and other indicators for potential impacts to our outlook.
Barry McCarthy: Second tariffs.
Barry McCarthy: As we mentioned on our last call, we do not expect to have material direct tariff exposure within our supply chain.
Barry McCarthy: We rely upon in market sourcing and production for the significant majority of our revenue.
Barry McCarthy: We do have some exposure across smaller promotional product areas, including lower margin branded apparel and accessories.
Barry McCarthy: This represents a small percentage of company revenue and we would intend to pass along applicable increased costs just as we always do.
Barry McCarthy: Well, we don't know is how this could impact demand.
Barry McCarthy: Third our business continues to benefit from our overall, one deluxe go to market approach and our growth during the first quarter included new customer wins across each of our reporting segments.
Barry McCarthy: And of course, given this broader context, we are maintaining our overall guidance ranges for 2025. This evening.
Chip: Chip will provide more detail in a moment.
Chip: Now onto some additional detail about our first quarter performance.
Chip: For the quarter total revenue was just over $536 million up one 4% on a comparable adjusted basis.
Chip: Year over year.
Chip: Combined growth across our payments businesses, and our continuing double digit growth trajectory across the data segment more than offset expected low single digit secular declines within print.
Chip: Consistent with our strategy.
Chip: Total comparable adjusted EBITDA for the quarter finished at just over $100 million, increasing nearly three and a half per cent from 'twenty to 'twenty, four and continuing to reflect robust operating leverage across our portfolio.
Chip: Comparable adjusted EPS finished the quarter at 75 cents, reflecting of just over 4% expansion versus the prior year.
Chip: We remain pleased with these results helping to demonstrate our progress toward the optimization of our SG&A expense base and expansion of earnings and cash flow.
Chip: Outlined within our norstar execution plans.
Chip: As I noted within my introductory comments, both revenue and our key earnings metrics grew organically aligned to our key strategic execution priorities across the enterprise.
Chip: In addition, these results reflected our overall revenue mix shifting towards our payments and data offerings.
Chip: When we shared the same data after the first quarter of last year our.
Chip: Our revenue balance reflected roughly a 57% to 43 ratio of print to payments and data segments.
As you can see here just one year later the ratio was at 54 to 46.
Chip: With the progress we indicated at our December 2023 Investor Day.
Chip: Our payments of data segments expanded year over year by a blended rate just above eight 5% led by another very strong growth quarter from the data segment.
Chip: Data segment revenue grew 29% versus the prior year and significant demand from financial institutions.
Chip: The data team added 17, new customer logos during the quarter.
Chip: While also continuing to broaden its portfolio across high value adjacent market verticals.
Chip: Within our payments segments, we benefit from new and expanded F. I relationships during the quarter are key components of our one deluxe model across the merchant segment and our broader business.
Chip: As another example of our ability to win larger scale partnerships. We were pleased to announce our partnership with town Bank.
Chip: Premier financial institution dedicated to exceptional service and community banking.
Chip: Through this partnership town Bank members will gain access to deluxe merchant services suite of solutions, helping to streamline operations and their payment experience for their customers.
Chip: But then b to B, we began processing new remittance volumes for a top 10 bank in the U S and expect continued momentum as we grow market share across our lockbox footprint over the balance of the year.
Chip: Finally in our print segment, we have continued to win new business and expand share across legacy check with small to mid sized additions, helping to mitigate secular unit decline rates.
Chip: This progress resulted in declines of under 2% for check revenue during the quarter consistent with our ongoing strategy.
Chip: Beyond our organic revenue results. We also continued to deliver robust year. So your expansion of earnings metrics.
Chip: Growth of both comparable adjusted EBITDA and EPS once again outpaced our rate of revenue expansion driving adjusted EBITDA margins of 18, 7%.
Chip: This reflected an expansion of 40 basis points on a comparable adjusted basis as our sustained operating leverage further demonstrates progress executing against our core north star initiatives across the organization.
Chip: During the first quarter total SG&A spend improved by three 8% or just under $9 million illustrating our ongoing focus on driving efficiencies across the business.
Chip: This execution also contributed to our improved cash flow results during the period, which chip will detail a bit more during his comments.
Chip: To summarize our overall first quarter results speak to our ongoing execution focus.
Chip: Payments and data growth potential at North Star progress.
Chip: While we continue to monitor macro level market developments for nearer term impacts are.
Chip: Our first quarter progress continues to support our path toward our 20 twenty-five revenue and EBITDA goals.
Chip: Our ability to attract top talent at all levels signals additional support for our company's future and payments and data.
Chip: Brian MA and he joined US in February as merchant services, President after serving industry leader, Alabama, our CFO see our ROE and in various other roles.
Chip: Bo Commons until recently Vice chair at Truest, and Mac Schuessler CEO of ever Tech, where recently elected to the deluxe board of directors.
Chip: Angela Brown recently, the CEO of Minera <unk> joined our board last fall.
Chip: Each of these individuals bring a serious depth of knowledge and experience across the payment space and financial institutions.
Chip: Finally, before passing Mr. Chip I wanted to acknowledge and thank all my fellow directors, who continue to work diligently each and every day to deliver these results for our customers and investors.
Chip: With that I'll turn it over to chip.
Chip: Thank you Barry and good evening everyone.
Speaker Change: As Barry mentioned, we were pleased with our first quarter progress, particularly our better than anticipated cash flow generation and our continuing strong comparable adjusted EBITDA growth during the period.
Speaker Change: As a reminder, our 2025 comparable adjusted reporting and related commentary will continue to exclude impacts from conversions of our now fully exited payroll business over the course of the prior year 'twenty.
Speaker Change: <unk> 2020 for payroll results were reflected within exited businesses throughout the year, allowing for clean operating segment comparisons across the respective periods and should have a relatively immaterial impact on our enterprise level reporting comparisons.
Speaker Change: I'll begin today with a bit of additional color around our consolidated highlights for the period before moving onto the segment results our balance sheet and cash flow progress and are maintained guidance.
Speaker Change: For the quarter, we reported total revenue of $536 $5 million, increasing 0.3% against prior year reported results, while growing one 4% on a comparable adjusted basis.
Speaker Change: We reported GAAP net income of $14 million or <unk> 31 per share improving from $11 million or 24 cents per share in the first quarter of 2020 for.
Speaker Change: This increase was driven by improved operating results, including lower restructuring at overall SG&A expenses net of a prior year gain related to business exits during the period.
Speaker Change: Restructuring expense for the quarter totaled $8 $4 million down from $14 8 million in the prior year.
Speaker Change: While projects remain to be completed under Northstar. The most material restructuring spending for the initiative has now been realized and should continue to decrease from this point forward on an LTM basis.
Speaker Change: Adjusted EBITDA was $100 $2 million, increasing three 4% on a comparable adjusted basis versus the first quarter of last year.
Speaker Change: Adjusted EBITDA margins were 18, 7%, improving 40 basis points on a comparable adjusted basis.
Speaker Change: Northstar efficiencies accompanying our revenue growth helped offset medical benefit costs headwinds reflected in corporate operations.
Speaker Change: These are anticipated to be mostly nonrecurring in nature and representative of higher cost claims that would be expected from time to time as a self insurer.
Speaker Change: Absent these period specific pressures comparable adjusted EBITDA would have expanded even faster.
Speaker Change: Q1, adjusted diluted EPS came in at 75 cents improving from 72 cents on a comparable adjusted basis, primarily driven by our improved operating income as previously noted.
Speaker Change: Now turning to our operating segment details beginning with the merchant services business.
Speaker Change: The merchant business grew first quarter revenue by one 3% year over year to $97 $8 million.
Speaker Change: Aligned to the low single digit growth expectation to start the year that we indicated with our guidance commentary on the last call.
Speaker Change: Segment, adjusted EBITDA finished at $21 $4 million remaining flat versus the prior year, mainly driven by customary channel and vertical mix dynamics.
Speaker Change: Our merchant portfolio remains well positioned across a diversified set of customer categories and verticals. We continue to monitor macroeconomic trends more broadly as they may impact volumes across these areas going forward as Barry referenced.
Speaker Change: Reflective of our results to date and some of the recent trends surrounding overall consumer sentiment. We now expect revenue growth for merchant to potentially remain closer to a lower single digit full year trajectory relative to our prior mid single digit outlook.
Speaker Change: We continue to anticipate a low 20% adjusted EBITDA margin profile consistent with our prior guidance.
Speaker Change: Turning to BTB payments for the first quarter <unk> segment revenues finished at $70 $2 million, increasing one 2% versus 2024, consistent with our quarterly cadence expectations and growth guidance for the segment.
Barry McCarthy: Overall lockbox volumes benefited from the Onboarding of incremental wins as Barry mentioned during the quarter, helping to offset overall secular declining remittance volume trends across this space.
Barry McCarthy: <unk> adjusted EBITDA dollars remained flat versus the prior year finish in Q1 at $13 $3 million, reflecting an 18.9% margin as we continue to navigate the transition of the business to a more recurring software set of offerings.
Barry McCarthy: Within our B to B outlook, we anticipate a flat to low single digit revenue growth trajectory through the first half with sequential.
Barry McCarthy: Improvement during the final two quarters of the year.
Barry McCarthy: This would equate to a full year growth expectation in the low to mid single digit range.
Overall EBITDA margins are expected to remain in the high teens to low 20% range over time.
Barry McCarthy: Moving onto data solutions. This segment continued its very strong year over year growth trajectory extending from the fourth quarter results revenues finished at $77 $2 million for the quarter, achieving overall growth of 29, 3% versus Q1 of 'twenty 'twenty, four and posting record levels for <unk>.
Barry McCarthy: The segment.
Barry McCarthy: As a reminder, the data business remains campaign oriented.
Barry McCarthy: We continue to advocate averaging the three to four trailing quarters actual results for both revenue and EBITDA dollars as a good barometer for ongoing segment level financial performance over the balance of the year.
Barry McCarthy: We remain encouraged by the continuing strong performance of the segments and presently expect potential high single digit to low double digit full year data revenue growth.
Barry McCarthy: This expected increase helps to mitigate some of the macro related risks within our updated outlook across our payments businesses.
Barry McCarthy: Data is adjusted EBITDA margins for the quarter improved 50 basis points to 25.5%, reflecting our robust Q1 campaign execution and overall strong revenues.
Barry McCarthy: EBITDA for the quarter was $19 $7 million up 32, 2% from the prior year period.
Barry McCarthy: We continue to have strong confidence in our long term low to mid 20% adjusted EBITDA rate guidance for the segment.
Barry McCarthy: Turning now to our print businesses.
Barry McCarthy: Print segment first quarter revenue finished at $291.3 million declining 4% on a year over year basis, consistent with our expectations.
Barry McCarthy: Legacy check revenues declined at 1.8%, while the balance of the segment declined by 7% indicative of some ongoing demand softness experienced within shorter cycle discretionary branded promo products.
Barry McCarthy: We did see promo decline rates moderate slightly versus the rate of decline seen in the fourth quarter due in part to timing of some deals being pulled in from the second quarter.
Barry McCarthy: The timing of these deals along with Barry's comments around both economic and tariff related uncertainty drives our expectation for continued constrained demand across legacy promo products throughout the first half.
Barry McCarthy: As such we anticipate a further accelerated rate of decline to impact this segment through the second quarter.
Barry McCarthy: Importantly, legacy check revenues are expected to continue that predictable and consistent lower single digit decline rate.
Adjusted EBITDA margins for print improved 120 basis points year over year to 31.2%.
Barry McCarthy: This result is reflective of both the overall revenue mix weighted towards check within the quarter and continuation of our operating expense discipline driving efficiency across our operations.
Barry McCarthy: Consistent with our long term outlook for full year 2025, we continue to expect to see low to mid single digit revenue declines across the print segment with adjusted EBITDA margins remaining in the low thirties.
Barry McCarthy: Turning now to our balance sheet and cash flow.
Barry McCarthy: We ended the first quarter with a net debt level of $1.46 billion down roughly $80 million from the 1.54 billion Mark at the end of Q1 of the prior year.
Barry McCarthy: Consistent with our ongoing commitment to debt reduction as a top capital allocation priority as.
Speaker Change: As Barry noted in his comments the sustained progress towards reduced leverage along with our overall operating trajectory and lowering restructuring expenses contributed to our recent S. N P ratings upgrade.
Speaker Change: This upgrade improved our rating by one level across each of our outstanding debt instruments, improving the deluxe corporate family rating from B minus to single B, while maintaining our overall positive rating outlook.
Speaker Change: We were pleased to see acknowledgment of this progress from the agency and look forward to continuing this positive trajectory.
Speaker Change: Our net debt to adjusted EBITDA ratio remained three six times at the end of the first quarter.
Speaker Change: As mentioned on our last call, we anticipate sequential improvement over the balance of the year and expect to end 2025 at roughly 3.3 times leverage.
Speaker Change: Our long term strategic target remains three times leverage or better by the end of 2026.
Speaker Change: Free cash flow defined as cash provided by operating activities less capital expenditures finished at $24 $3 million for the quarter, improving by $18 $1 million from the first quarter of 2024.
Speaker Change: This result was driven by continued strong operating results reflective of improved restructuring spend lower year over year cash incentive payments and continued strong working capital efficiency net of increase year over year Capex investment.
Speaker Change: This continuation of strong operating cash flow generation remains a focus area for 2025, consistent with our increase year to year guidance for free cash flow.
Speaker Change: We continue to be positioned well from both a liquidity and go forward capital structure, maintaining $368 million of available revolver capacity as of quarter end with no near term maturities.
Speaker Change: Recent market volatility serves as further affirmation that we are appropriately timed our refinancing late last year and took advantage of capital market conditions at an optimal time.
Speaker Change: Consistent with past quarters, our board approved a regular quarterly dividend of 30 cents per share on all outstanding shares.
Speaker Change: Dividend will be payable on June 2nd 2025 to all shareholders of record as of market closing on May 19th 2025.
Barry McCarthy: As Barry noted within his opening macro commentary, we are maintaining our full year guidance.
Barry McCarthy: We also acknowledge the overall increased levels of near term uncertainty within the economic environment presenting challenges towards providing precision around the outlook for the balance of the year.
For the second quarter, we believe these factors and our expectation for increased legacy promo pressure will lead to a slightly negative year to year revenue result.
Barry McCarthy: Despite this we remain on track against our overall first half expectations.
Barry McCarthy: We remain very focused on the operating levers within our control ensuring continued strong execution across our free cash flow EBITDA and balance sheet optimization goals.
Barry McCarthy: With this is important context, we are maintaining our existing full year guidance ranges for 2025 as included in this evening's release and shown on the current slide.
Barry McCarthy: To summarize we were pleased with the first quarter 2000 and twenty-five performance.
Barry McCarthy: Spite some visibility challenges across the extended macro horizon, we remained focused on executing against our broad north star initiatives and continuing our longer term organic revenue growth EBIT expansion and deleveraging trajectory.
Barry McCarthy: Operator, we're now ready to take questions.
Speaker Change: Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone if you're joining us today use a speaker phone. Please mixture of mute function is turned off to allow your signal to reach our equipment again that is star one if you would like to signal with questions.
Operator: And the first question will come from Kartik Mehta with Northcoast research.
Kartik Mehta: Hey, good afternoon gentlemen.
Kartik Mehta: Gary I was hoping maybe get a little bit more detail on the merchant business just from a fundamental standpoint.
Kartik Mehta: What youre seeing in the market poised.
Kartik Mehta: And maybe what segment and the business is doing well and maybe what segments might be lagging a little bit because of where we are in the economy.
Kartik Mehta: First of all.
Barry McCarthy: Glad to have you here kartik, but I would tell you about the merchant business overall is that it continues to perform and deliver really through any market condition. It's a business that we get paid anytime commerce happens.
Barry McCarthy: If a consumer is buying goods or services at point of sale, we have the opportunity to earn a fee whenever they use a credit card debit card or other payment type.
Speaker Change: I don't think we have any particularly new inside versus the other things that youre seeing in the macro economic reporting about what is happening with the consumers.
Speaker Change: At retail, but what I can tell you is that we have a nicely.
Speaker Change: <unk> diversified portfolio across a number of categories that provide not only strong retention, but ongoing volume.
Speaker Change: As you know from previous conversations we have a particular strength in government not for profit auto repair and other market verticals and we continue to see a nice volume coming from each of them.
Speaker Change: Sorry, I was on mute I apologize maybe just your perspective now you have a new leader in the business obviously.
Speaker Change: Your strategy might change a little bit I'm wondering Barry if you can just talk a little bit about now.
Speaker Change: Now that Brian's on board.
Speaker Change: Some of the areas you might focus on or maybe strategic changes you would you.
Speaker Change: Are you planning on in the business.
Speaker Change: Yeah.
Barry McCarthy: So first of all we're very pleased to have Brian on our team. He comes with a 20 years of experience in the industry and I think in the early days, Brian would tell you that he is can he can clearly see that we have a strong business that delivers great cash flow.
Barry McCarthy: And deliver growth and is delivering growth, but I think the opportunities for growth I think are really around delivering improving our partnership relationships, meaning that we are looking for more partners, which is why we were particularly pleased to have the announcement earlier this week about the relationship with town Bank.
Barry McCarthy: An example of building our partnerships and having distribution Bill turn them on the town Bank deal in particular, we think it's just a great. Another great example of our ability to move up market, where the business historically had been really more focused at the community or multi branch.
Barry McCarthy: Banking clearly with town Bank Fulton Bank, a year ago, we're moving up into the middle market, where there's much more volume and this is another example of our ability to win in that space and I would expect and I think Brian expects to continue to make headway in the partner space as well as working.
Barry McCarthy: To expand the channels of distribution and our the markets in the verticals, where we compete.
Barry McCarthy: Thank you very much I really appreciate it.
Charlie Strausser: And the next question will come from Charlie Strausser with C. J S Securities.
Charlie Strausser: Hi, good evening.
Speaker Change: First of all thank you for the.
Speaker Change: Color on Q2, maybe.
Speaker Change: <unk> spent a little bit more on that just a segment basis, how we should think about modeling that especially as.
Speaker Change: Might see some decline year over year there.
Speaker Change: Yeah. Good evening, Charlie So first of all just want to acknowledge what a solid start to the year Q1 represented a there were some puts and takes across the portfolio, but the net net to US internally was a start ahead of plan and so I mentioned, a few dynamics that I think are clear to call out so on the data side absolutely.
Speaker Change: Antacid quarter for them you know its campaign oriented there can be shifts in and out. So obviously, we continue to guide to look at that rolling three to four quarter average to get to kind of the trends. They are at we still see great momentum in that business, we don't anticipate them continuing to grow at 29%, but obviously across the full year is starting to signal improvements for.
Speaker Change: In the upper single digits low double digits. So we would expect them to continue to grow in and advise you to look at that rolling three to four quarter level to get to the absolute dollars the.
Speaker Change: The other comment I made was around print, specifically and I don't want that to be overblown. We're talking about a few million dollars worth of promo related shifts that came into the quarter nothing super material, but obviously as a result of that and just the overall short cycle demand.
Speaker Change: <unk> trends, we've seen in promo overall the last few quarters, we would expect promo to be specifically, where the little bit of the softness is in print in Q2 check continuing its lower single digit decline. So it's really that print side, where the rate of decline, maybe a little bit bigger in the second quarter and then both b to B and merchant very aligned with what we said on the last call.
Speaker Change: And what we just reiterated just continuing that.
Speaker Change: Lower single digit improvement trend that we expected and all of that together will lead to what we believe is a on planned start to the year and obviously based off of that we feel good about the guidance we set at the start of the year.
Speaker Change: Great. Thank you on that.
Speaker Change: Maybe just if you could talk a little bit the successive data last few quarters.
Speaker Change: What's kind of the secret sauce.
Speaker Change: It was helping you guys win these campaigns.
Speaker Change: Yeah.
Speaker Change: Did you expand on that a little bit that'd be great.
Charlie Strausser: Sure. So Charlie I, just remind you on the journey, we've been on as a company.
Charlie Strausser: We combined multiple assets to build what is our current data business and in that data business. We have built what we believe is one of the largest if not the largest consumer and small business database or a data lake that combines for data to be used for marketing purposes that contain.
Charlie Strausser: <unk> data from over 100 different sources.
Charlie Strausser: So that scale of data allows us to predict much more effectively than others in the marketplace. When a customer is likely to buy any given product or service.
Charlie Strausser: We've put together that great database with very advanced AI tools that gets smarter and better with every campaign.
Charlie Strausser: To help customers better target consumers are small businesses for any product or service.
Charlie Strausser: Because of the work we've done on the database, we're able to shift very quickly now between different types of campaigns different market verticals different target markets, because we have the toolset and the database and now that is well architected to be able to move quickly.
Speaker Change: Well, we've seen most recently is great strength in our traditional F. I channel with demand for a variety of different services, but particularly continuing demand around look for low cost deposits, but it's not just from the F. I channel. We've also continued to expand into new <unk>.
Speaker Change: Market verticals that are adjacent but anywhere where there is a a product that our company is trying to find new customers for that as a high lifetime value, meaning it may be expensive to market to that customer to find that customer, but that customer has a very very high lifetime value, we have great success and the team.
Speaker Change: Jim is a quite remarkable and be able to go out and do side by side test and control a b testing to enable us to prove the quality of our modeling the quality of the data, which then helps US win these campaigns that's delivering to these delivering these terrific results.
Speaker Change: That's very helpful. Thank you.
Speaker Change: And the next question will come from Jonathan.
Jonathan: With TD Cowen.
Speaker Change: Thank you.
Jonathan: Hey, guys how.
Jonathan: How would you assess the Jonathan impact.
Jonathan: How would you assess the potential impact of our recent commentary from the Trump administration regarding phasing out physical attacks by the end of September of this year, what's your exposure to government here and do you think it could start a chain reaction amongst your larger customers.
Speaker Change: So I really appreciate the question, Jonathan and I want to be really clear because I think this is important the fee.
Jonathan: Federal government is not our customer.
Jonathan: We don't we don't sell them checks, we don't process checks for them, we have no direct exposure.
Jonathan: From this announcement, that's 0.1 point number two when you really dig into it though payments that that does with specifically addressing is somewhere around 1% of all the government transactions.
Jonathan: So from a practical and direct impact little to no direct impact I would say no direct impact.
Jonathan: To your second question, though about any collateral impact I would tell you I don't anticipate that and here's why I don't anticipate at.
Jonathan: The significant majority of checks that remain today, our checks that we need to travel or the payment needs to travel with remittance advice.
Jonathan: And it is impossible for the biller and the recipient of the PE or in the pay eat a subtle if they can't pass that information between them in a way that the money can not only transfer effectively but they can be posted appropriately to the general ledger.
Jonathan: The transactions that had moved electronically have moved a long time ago. You know, we're not talking about managing payments for PNG and Walmart paying for diapers between them, that's not where checks are today checks are still about 40% of all b to b payments today and those.
Jonathan: Payments need to travel the route with remittance advice.
Jonathan: So could there be some impact perhaps but there really are no viable substitutes, which we have said for a long time no viable substitutes and those viable substitutes are not we don't see them on the horizon and we don't expect much impact, although we have certainly seen the headlines.
Jonathan: Got it that's super helpful. Thank you.
Speaker Change: And just my last one is on tariffs I mean have you observed any size of spending pull forward in April following the announcement of the <unk>.
Speaker Change: Particularly in consumer or an F N b.
Nathan: Nathan vertical.
Nathan: We mentioned, we saw a very small amount of pull forward in promo, but I don't believe that that really was about consumer pull Florida are stocking.
Nathan: Certainly we we just don't have any evidence that within our business that there's much stocking that's happened and if you just Jonathan thinking about the nature of our business, we get paid when when commerce happens there'll be pretty hard to stockpile electronic transactions. So the you know.
Nathan: The volume of our business the volume of our revenue really is around transactions.
Nathan: And we just don't we don't think we've seen really any stocking although we see those same headlines to we just don't think that's materially present here.
Nathan: Okay. Thank you.
Speaker Change: As a reminder, if you would like to signal with questions. Please press star one on your Touchtone telephone, we'll now take a question from Marc Riddick with Sidoti.
Marc Riddick: Hey, good evening.
Speaker Change: Hey, Mark.
Speaker Change: So I.
Speaker Change: Wanted to start with thank you for sort of.
Speaker Change: Already touching on the announcement with the the partnership with Tom I was wanted to talk a little bit about some of the potential catalysts or for driving additional partnerships that you're anticipating in the near term and as maybe as an aside to that.
Speaker Change: Our.
Speaker Change: Do you anticipate any potential economic disruptions to perhaps create opportunities due to accelerate that.
Speaker Change: So sure I appreciate the question. So there's a there's a couple of factors here that really play to our advantage to give us some really nice competitive advantage in the marketplace first the deluxe brand the reach that our company has and the large number of financial institutions that already are doing business with.
Speaker Change: US gives us a very very large scale opportunity to build new partnerships in the bank channel specifically.
Speaker Change: The two big deals that you've heard us talk about in the last year or so or Fulton Bank in town Bank now and both of them are regional banking companies very successful in their markets.
Speaker Change: And Fulton had a very long relationship with deluxe.
Speaker Change: Town had a smaller relationship with deluxe, but really we were able to go in both circumstances and talk about the scale that our price. So that's number one we have relationships.
Speaker Change: And a great brand and a lot of trust in the marketplace.
Speaker Change: Second is we can go to these institutions and talk to them about how we can serve them and their clients better than the some of the larger providers, where we're winning this business away from so very specifically our platform and you heard US talk last time about how we continue to invest in our platform, adding new features like the law.
Speaker Change: <unk> pay that we talked about last time that allows you to pay phone to phone.
Speaker Change: Et cetera, as well as our deluxe payment platform that enables us to expand more rapidly into a multiple different omnichannel opportunities our product. Our basic platform is very robust. It is more flexible than some of the others and that our customers can have our customers on our platform.
Speaker Change: Have a bigger impact on how having a vote. If you will our assay and our product roadmap to help them meet their needs.
Speaker Change: But a huge differentiator is really this area of service and so mark a lot of people will talk about their company being able to deliver quality service, but our company can actually prove it there's something called Etsy, which is more or less the equivalent of a J D powers award for customer service.
Speaker Change: And we have been a top category winner for at least the last decade, and we're the only company in the space that can have that has that legacy.
Speaker Change: So if you think about being a community bank or a regional bank your points of differentiation against the Giants that are competing with you in your home markets is that you have better service for your customer instead of working for what a par are banking with what might be perceived as.
Speaker Change: A giant less personal bank you choose the community bank or the regional bank because you are going to be known by your banker you have more confidence about the quality of service and what we can deliver on the merchant side of the equation is truly improvable best in class service, which really helps us win business.
Speaker Change: So we have great brand and great relationships in the marketplace. We have an excellent product that is competitive where we compete and we have.
Speaker Change: This this notion of a superior service and that those three factors really help us win business and we're very confident we'll then win more business going forward. If not every day that we have a large win like this to describe but in every period, we have we have wins across the pheno.
Speaker Change: Institutions, and I think you should expect to hear more from us in the in the coming quarters.
Speaker Change: So very encouraging thank you for the color there and then.
Speaker Change: Quick follow up.
Speaker Change: Congratulations on the ratings improvement and the debt reduction that you've been embarked on.
Speaker Change: Thank you.
Speaker Change: It was mentioned in the slides or or prepared remarks or both.
Speaker Change: Free cash flow and sort of can you talk a little bit on what where we are with capex for this year I think it was $92 million is there anything timing wise or lumpy wise that we should be thinking about or sort of how that flows throughout the year. Thanks.
Speaker Change: First of all Mark. Thank you for the comments, we were extremely proud of the ratings upgrade that's something we've been working on for a while.
Speaker Change: With that team staying close with them on our progress telling them our story, our journey and of course building confidence to the trajectory we're on.
Speaker Change: And again, thank you for acknowledging the strong free cash flow as well as you know removing reducing restructuring spend getting towards the end of the job on norstar are key elements to our execution plan in the year and why our guidance for free cash flow. So strong so to come out of the gate for the first quarter with such a really good post on the free cash flow side, just a great.
Speaker Change: Leading indicator too.
Speaker Change: <unk> high expectations for what's to come in and continues that progress of that multiyear journey, we're on to improve free cash flow by that full run rate $100 million.
Specific to your question on Capex Theres really no special science insider, there, it's never going to be perfectly linear.
Speaker Change: But we will just reiterate that we guided between $90 million and 100 million for the year. What you saw in the first quarter was aligned with our plan and there's nothing really too as debate, it's not going to be perfectly linear, but I wouldn't expect it to be bouncing around any material amount across the quarter. So we remain very confident about how we're managing our working capital.
Speaker Change: All staying focused diligently on cash flow every single day, and obviously want to make sure. It's not lost as well in the in the prepared remarks I commented on the leverage trajectory. We're on for the year, we referred to it as a very linear path last call, but I've gone as far this time to tell you I'm expecting it to be roughly three three times at the end of the year, which keeps us on it.
Speaker Change: Nice linear path all the way to get below three times by the end of next year. So pleased with that all around and looking forward to continuing that progress in potentially finding another upgrade down the road as we continue to execute.
Speaker Change: Much appreciate it thank you very much.
Brian Anderson: And that does conclude the question and answer session I will now turn the conference back over to Brian Anderson.
Brian Anderson: Thanks, Justin before we conclude I'd like to share that during the quarter management will be participating at both the Needham technology media and consumer conference on May 13th and the TD Cowen Technology Media and Telecom conference on May 29th both in New York as well as the virtual Wolfe research.
Brian Anderson: All in mid cap conference on June 3rd Thank.
Brian Anderson: Thank you again for joining us today, and we look forward to speaking with you all again in August when we share our second quarter results.
Brian Anderson: Thank you that does conclude today's conference. We do thank you for your participation have an excellent day.
Brian Anderson: Okay.
Brian Anderson: Okay.
Brian Anderson: [music].
Brian Anderson: Yeah.
Brian Anderson: Yeah.