• Revenue: $528.4 million, down 1.7% year-over-year on a reported basis.
• Comparable Adjusted Revenue: $527 million, a decline of just under 1% year-over-year.
• Adjusted EBITDA: $104.5 million, up 6.9% from the third quarter of 2023.
• Adjusted EBITDA Margin: 19.8%, an improvement of 140 basis points from the prior year.
• Free Cash Flow: $46.7 million for the third quarter, $64.3 million year-to-date, improving by $30.2 million from the previous year.
• Net Debt Reduction: Reduced by $45 million sequentially from the second quarter.
• Net Income: $8.9 million, or 20 per share, improving from a loss of $8 million or negative 18 per share in Q3 2023.
• Merchant Services Revenue Growth: 6.3% year-over-year to $93.5 million.
• B2B Payments Revenue: $75.1 million, a sequential improvement of $4.9 million from the prior quarter.
• Data Solutions Revenue: $61.1 million, a year-over-year decline of 4.5%.
• Print Segment Revenue: $297.3 million, a decline of 2.3% year-over-year.
• Legacy Check Revenue Decline: 1.8% during the quarter.
• Adjusted EPS: 84, improving from 75 in 2023.
• Full Year Revenue Guidance: $2.12 billion to $2.14 billion, reflecting a decline of 1% to flat comparable adjusted growth.
• Full Year Adjusted EBITDA Guidance: $405 to $415 million, reflecting 4% to 6% comparable adjusted growth.
• Full Year Adjusted EPS Guidance: $3.20 to $3.35, reflecting 6% to 11% comparable adjusted growth.
• Full Year Free Cash Flow Guidance: $90 to $100 million.

• Warning! GuruFocus has detected 6 Warning Signs with DLX.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Deluxe Corp (NYSE:DLX) reported a strong third quarter with nearly 7% year-over-year growth in comparable adjusted EBITDA and a margin expansion of 140 basis points.
• Free cash flow grew by 9.5% during the quarter, demonstrating effective cash management and operational efficiency.
• The company reduced its net debt balance by $45 million sequentially, highlighting a commitment to debt reduction.
• The North Star program has reached a milestone with over $100 million of the $130 million targeted annualized EBITDA improvements in execution or completion stages.
• The data solutions segment showed strong sequential revenue growth of over 6% from the second quarter, indicating robust demand for data-driven marketing services.

Negative Points

• Total revenue declined by 0.7% year-over-year on a comparable adjusted basis, indicating challenges in achieving top-line growth.
• The print segment experienced a revenue decline of 2.3% year-over-year, reflecting ongoing challenges in this traditional business area.
• The B2B payment segment only achieved modest revenue growth of 1% for the quarter, suggesting slower recovery in this area.
• Merchant services revenue growth moderated to just over 6%, down from nearly 8% in the second quarter, indicating potential headwinds in sustaining growth momentum.
• Legacy check revenues continued to decline, albeit at a slower rate, highlighting the secular decline in this segment.

Q & A Highlights

Q: How confident are you in achieving consolidated revenue growth for 2025, considering some businesses face secular headwinds? A: Barry McCarthy, President and CEO, expressed confidence in the growth prospects of their businesses, particularly in B2B, merchant services, and data-driven marketing. He noted that while some segments face challenges, the company is on track to achieve its long-term growth goals, supported by strong execution and strategic initiatives like the North Star program.

Q: Can you provide more details on the drivers behind the strong margins in the quarter? A: William Zint, CFO, highlighted the impact of the North Star program, which focuses on improving operating efficiency and driving margin expansion. He noted that the program's initiatives, such as procurement and technology optimization, have contributed to the improved margin profile across the enterprise.

Q: Are you seeing any changes in the competitive environment or pricing pressure in the merchant business? A: Barry McCarthy stated that while there is always competitive pressure, Deluxe's strong foothold in areas like state and local government and not-for-profit sectors helps mitigate this. The company's focus on service quality and value, rather than just price, has been key to winning business and maintaining stability in processing volumes.

Q: What impact would an increase in bank M&A have on the check business? A: Barry McCarthy explained that bank consolidation is generally positive for Deluxe, as they have a high success rate in winning both sides of a merged bank. This is due to their superior product and service offerings, which help them capture a larger share of the market during such consolidations.

Q: How is the North Star program progressing, and are there any areas showing more optimism than expected? A: Barry McCarthy expressed pride in the progress of the North Star program, noting that they are on track or ahead of schedule in achieving their goals. The program has identified and executed initiatives that are expected to deliver significant EBITDA and cash flow improvements, with some areas realizing value quicker than anticipated.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.