Deluxe Corporation: Navigating Challenges and Driving Growth

Deluxe Corporation is a leading provider of technology-enabled solutions that help businesses strengthen their customer relationships. The company offers a comprehensive suite of services, including merchant services, marketing and data analytics, treasury management solutions, and promotional products, as well as customized checks and business forms. Deluxe supports small and medium-sized businesses, financial institutions, and major consumer brands, while also providing checks and accessories directly to consumers.

Deluxe’s Strategy: Accelerating Profit Growth

After substantially completing its infrastructure modernization efforts and divesting non-strategic businesses, Deluxe has shifted its focus to growth investments. The company’s strategy is aimed at driving scale and accelerating profit growth at a faster pace than revenue growth. Deluxe’s operations continue to benefit from disciplined pricing actions and comprehensive cost management practices.

In 2023, Deluxe launched its “North Star” program, which aims to enhance shareholder value by (1) accelerating adjusted EBITDA growth, (2) increasing cash flow, (3) reducing debt, and (4) improving the company’s leverage ratio. Deluxe has already started to realize the benefits of its North Star initiatives, including a 3.8% reduction in selling, general, and administrative (SG&A) expenses and an $18 million increase in free cash flow in the first quarter of 2025 compared to the same period in 2024.

2025 Financial Highlights

In the first quarter of 2025, Deluxe reported the following key financial results:

• Consolidated Revenue: Increased by $2 million to $536 million, despite a $6 million decrease due to business exits. The increase was driven by pricing actions and growth in the data-driven marketing business, partially offset by declines in checks, business forms, and promotional products.
• Net Income: Increased by $3 million to $14 million, reflecting the impact of pricing and cost management actions, reduced restructuring and integration expenses, and growth in data-driven marketing. These were partially offset by secular declines in the Print segment, inflationary pressures, and the loss of earnings from exited businesses.
• Adjusted EBITDA: Remained nearly unchanged at $100 million, despite a $4 million decrease due to business exits. Excluding this impact, adjusted EBITDA would have increased, driven by pricing and cost management actions, as well as growth in data-driven marketing.
• Net Cash Provided by Operating Activities: Increased by $24 million to $50 million, reflecting the positive impacts of pricing and cost management, lower employee bonuses, reduced restructuring and integration spend, and growth in data-driven marketing.
• Free Cash Flow: Increased by $18 million to $24 million, as Deluxe continues to reinvest the free cash flow generated by its Print business into its growth businesses.

Navigating Market Conditions

Deluxe closely monitors the interest rate environment, inflation, supply chain disruptions, and trends in small business sentiment and consumer discretionary spending, as these factors can significantly impact the company’s performance.

• Interest Rates: As of March 31, 2025, 61% of Deluxe’s debt carried a weighted-average fixed interest rate of 8.1%, providing some protection against potential future interest rate increases.
• Inflation: In response to inflationary pressures, Deluxe has implemented targeted price increases, particularly within its Print and Merchant Services segments. The company has also faced supply chain disruptions and labor supply challenges, which it is actively working to mitigate.
• Economic Trends: Deluxe analyzes various data sources to monitor trends in small business sentiment and consumer discretionary spending, which can significantly impact its Merchant Services and Print segments. The company has observed some erosion of consumer confidence, leading to softer demand in more discretionary product categories.

Liquidity and Capital Resources

As of March 31, 2025, Deluxe held $30 million in cash and cash equivalents, with an additional $368 million available for borrowing under its revolving credit facility. The company anticipates capital expenditures of $90 to $100 million for the full year 2025, as it continues to invest in growth and innovation.

Deluxe’s capital allocation priorities remain focused on responsible growth investments, debt reduction, and returning capital to shareholders through dividends. The company believes that its net cash generated from operations, combined with its cash and credit facility, will be sufficient to support its operations over the next 12 months, including meeting contractual obligations, debt service requirements, and long-term capital needs.

Segment Performance

Deluxe operates four reportable business segments: Merchant Services, B2B Payments, Data Solutions, and Print.

• Merchant Services: Revenue increased 1.3% in the first quarter of 2025, driven by higher volumes from government clients and growth in the banking channel, partially offset by pressure on processing volumes in certain discretionary categories. Adjusted EBITDA and margin were virtually flat, as pricing actions offset the impact of channel mix dynamics.
• B2B Payments: Revenue increased 1.1%, primarily due to the onboarding of new clients and modest price increases, partially offset by declining trends in lockbox processing volumes. Adjusted EBITDA and margin were relatively stable.
• Data Solutions: Revenue increased 29.3%, driven by strong demand for customer acquisition marketing activities, particularly from financial institution partners. Adjusted EBITDA and margin increased, reflecting the favorable mix of clients and campaigns.
• Print: Revenue decreased 4.0%, primarily due to the ongoing secular decline in checks, business forms, and promotional merchandise. Adjusted EBITDA and margin were relatively flat, as Deluxe’s cost management actions offset the revenue declines and inflationary pressures.

Cash Flows and Liquidity

In the first quarter of 2025, Deluxe generated $50 million in net cash from operating activities, an increase of $24 million compared to the same period in 2024. This was driven by the positive impacts of pricing and cost management actions, lower employee bonuses, reduced restructuring and integration spend, and growth in data-driven marketing.

Net cash used in investing activities increased by $4 million, primarily due to a $6 million increase in capital expenditures. Net cash used in financing activities decreased by $58 million, mainly due to changes in settlement processing obligations and lower debt payments.

Deluxe’s capital structure as of March 31, 2025, consisted of $1.51 billion in debt, with a weighted-average interest rate of 7.6%, and $622 million in shareholders’ equity. The company had $368 million available for borrowing under its revolving credit facility.

Outlook and Key Initiatives

Deluxe’s North Star program, launched in 2023, is a comprehensive, multi-year plan that aims to enhance shareholder value through cost reduction and growth initiatives. The company has made significant progress on the program, including organizational redesign, process automation, and infrastructure consolidation, which have contributed to a 3.8% reduction in SG&A expenses in the first quarter of 2025.

Going forward, Deluxe’s key priorities include developing an integrated software channel in Merchant Services, expanding its Data Solutions business to serve more industry verticals, and enhancing its marketing and sales capabilities. The company expects to incur approximately $7 million in additional North Star restructuring and integration expense in 2025, with the majority of the related employee reductions and severance payments expected to be completed by the end of the year.

Deluxe remains focused on responsible growth investments, debt reduction, and returning capital to shareholders through dividends, while closely monitoring market conditions and adapting its strategies as needed to navigate the evolving business landscape.

Conclusion

Deluxe Corporation has demonstrated its ability to navigate challenging market conditions and drive growth through its comprehensive suite of technology-enabled solutions. The company’s strategic shift toward growth investments, coupled with its disciplined pricing actions and cost management practices, have positioned it to accelerate profit growth and enhance shareholder value. As Deluxe continues to execute on its North Star program and capitalize on emerging opportunities, it is well-equipped to support its customers and deliver long-term sustainable performance.