Deluxe Corporation

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.

Thank you, Operator, and welcome to the Deluxe Fourth Quarter and Full Year 2025 Earnings Call. 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. 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 about the company's 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, in our Form 10-K for the year ended December 31st, 2024, and in other company SEC filings. 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. All comparable adjusted metrics reflect a removal of impacts from business exits. In our press release, today's presentation, and our filings with the SEC, you'll find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. And with that, I'll hand it over to Barry.

Thanks, Brian, and good evening, everyone. I'm pleased to share our strong fourth quarter and full year 2025 results. Across the past year, our team executed with discipline, and each of our businesses performed well, driving robust growth of all profit metrics directly benefiting our balance sheet. Here are five key highlights for the year. Number one, revenue and profit growth. Comparable adjusted EBITDA expanded more than 6% at the top of our value creation framework, with organic revenue growing 1%. 2025 was the third consecutive year with EBITDA growing faster than revenue, demonstrating our ability to scale profits. Two, EPS and operating income. Comparable adjusted EPS grew 13%. and operating income increased by 23%. Three, cash generation and balance sheet improvement. We generated $175 million of free cash flow, delivering our 2026 goal in 2025, a full year early. We reduced net debt by $76 million, lowering our year-end leverage ratio to 3.2 times also ahead of schedule. And we've paid our regular dividend for more than 30 consecutive years. Four, strategic mix shift towards payments and data. Payments and data now account for 47% of revenue, up from 43% a year ago, and around 30% in early 2021. The payments and data businesses combined grew 12% during Q4 and 10% for the full year. We expect to achieve our strategic goal of payments and data achieving revenue parity with the print businesses later this year, delivering on our promise of transforming Deluxe into a payments and data company. Five, exit rate provides optimism for 2026. Chip will introduce our guidance in a minute, but we are pleased with our Q4 exit rates with all businesses performing well, giving us confidence in 2026. You will recall that our investor day in December 2023, we promised Deluxe would be a significantly improved business by 2026. We think our results clearly tell the story of our progress. Put simply, our team executed well in 2025. Chip will provide deeper details for both Q4 and full-year financial performance in a minute. But before he does, and consistent with recent quarters, I'll discuss overall business performance in the context of our three ongoing strategic planks. One. shifting revenue mix towards payments and data to deliver ongoing profitable enterprise-level organic growth. Two, driving operating leverage and efficiencies across the enterprise. And three, increasing EBITDA, EPS, and free cash flow to both lower net debt and improve our leverage ratio. Starting with our first priority, shifting our revenue mix toward payments and data. We are executing well against our clear strategy to leverage our history as the leader in paper-based payments to build a leading position in the digital payments and data space. We're strategically redeploying the dependable cash flows, sterling reputation, and strong customer relationships from the print segment to build a leading payments and data company. And it's working. As I noted, payments of data now accounts for 47% of total revenue, increased by nearly 400 basis points from 2024. We expect to achieve parity later this year, affirming our future as a payments and data company. The data segment in particular continued its standout performance to finish 2025, expanding its revenue by just over 30% year over year. You'll recall our data business helps our customers across market verticals attract and deepen relationships with high lifetime value customers. We've built what we believe is one of the largest consumer and small business marketing data lakes in the industry. We pair this information with our large-scale gen AI-enabled data analytics tools to deliver outstanding ROI for our customers' marketing spend. The flexibility of our data lake, AI-enhanced intelligence, and proprietary targeting tools allow us to quickly shift focus across a broad diversity of bank product offerings while also extending our services to new logo wins across non-FI market verticals. Beyond the continuing growth momentum in data, Deluxe Merchant Services, or DMS, also extended its revenue growth trend across all four quarters of 2025. DMS revenue growth versus prior year improved sequentially across each quarter of 2025 toward our mid single digit growth outlook. We also invested to expand our DMS technology platforms and the strong service model throughout the year. The business delivered growth in line with our expectations even as some levels of macroeconomic and broader peer group volatility persisted. As one example of our ongoing investment in DMS, we recently announced the deepening of our collaboration with the Visa Direct Network via the introduction of the Deluxe Fast Funds solution. This integration, along with other areas of ongoing investment, demonstrate our commitment to innovation across our DMS offerings. We remain encouraged with our prospects spanning both our direct go-to-market channels and through key partnerships, including our robust network of FI partners and embedded software integrations across market verticals. We are particularly optimistic about the many attractive opportunities in the ISV space where we've made responsible investments in APIs, reporting tools, and new features. We expect to share more news about some of these opportunities over the course of 2026. Our overall DMS sales pipeline remains strong as we enter the new year. Moving now to the B2B payment segment. Revenue growth for B2B also accelerated as we finished 2025 as we have signaled during last quarter's call. We saw sequential revenue dollar improvement for the segment across each quarter of 2025, reaching a fourth quarter revenue peak of more than $76 million. This reflected a year-over-year growth rate of 4.5%, consistent with our prior cadence commentary for the segment. We're well positioned to sustain growth into 2026 as we continue to invest in newer digital offerings helping transition the B2B portfolio to a more recurring revenue model. Finally, the print business. For the full year, the stronger margin check portion of the business continued to perform well, aligning with our long-term expectations, with full-year revenue declining just under 2%. We were encouraged to see some improvement in the rate of decline for shorter cycle legacy promo revenue during the fourth quarter period as well. As we discussed throughout the year, we remain focused on optimizing the long-term margin profile across print through prioritization of our core offerings and consciously foregoing opportunities with unattractive margins. This strategy is clearly reflected within the expanded print EBITDA margin profile during 2025. To summarize this first strategic priority area, The 10% full year revenue growth rate from our combined payments and data businesses more than offset anticipated secular decline rates across the print segment. This expansion drove total company organic revenue growth across both the fourth quarter and full year periods. The payments and data businesses are together on their way to account for more than 50% of company revenue in 2026, affirming our future as a payments and data company. Moving to our second big strategic priority, driving efficiency across our business operations to improve margins and deliver predictable operating leverage. Operating cost discipline remained a core tenant of the company throughout the year, and our EBITDA margins expanded in each operating segment for both the fourth quarter and full year periods. We reduced overall SG&A expenses by roughly $40 million over the full year 2025 horizon. This reflected an improvement of more than 4% year over year. Our OPEX discipline contributed to robust 23% growth of full year operating income and supported the significant improvement of our balance sheets. Our year-over-year growth of adjusted EBITDA for the 12th consecutive quarter and margin expansion realized across all four segments simultaneously demonstrate the continuing strength of our operating model. Finally, moving to the third strategic priority area within our capital allocation model, increasing adjusted EBITDA and EPS, driving cash flows and lowering our net debt and leverage ratio. As I noted earlier, we finished the year driving more than 6% growth of adjusted EBITDA, reflecting the high end of our value creation algorithm target range. Our adjusted EPS expanded by nearly 13%, further reflecting our improved balance sheet and strengthening interest rate position as 2025 progressed. We also drove improved conversion of profits into 2025 cash flows. This resulted in a year-end leverage ratio of 3.2 times ahead of our previously signaled timing as we continue to progress toward our longer-term leverage target of three times or lower. We reduced our net debt by more than $76 million during the year, demonstrating our commitment to continued balance sheet optimization. To summarize, Our 2025 results demonstrate clear progress on all three concurrent strategic priorities. One, shifting the mix towards payments and data. Two, driving operating efficiencies. And three, increasing cash flow generation driving reduction of debt and improving our leverage ratio. Both our fourth quarter and full year results illustrate this progress achieved through disciplined capital allocation, strong execution across each operating unit, and sustained focus around the pushing of our value creation algorithm forward. Revenue momentum and our sales pipelines remain robust across each operating segment, giving us confidence toward continued progress in 2026. Before passing this to Chip to share additional details regarding our 2025 performance and solid 2026 outlook, I want to thank my fellow Deluxers for executing so well. I'm proud of their unwavering dedication to our customers and the communities that Deluxe has served for generations, especially as we celebrated the company's 110th anniversary. It is via these daily efforts that we set Deluxe on a promising path for the next generation as a trusted payments and data company.