Executive Summary / Key Takeaways

• Deluxe Corporation is executing a strategic transformation, shifting from its legacy print business towards higher-growth Payments and Data solutions, underpinned by the multi-year North Star program aimed at accelerating profit growth and debt reduction.
• First quarter 2025 results demonstrated progress, with consolidated revenue showing modest growth despite business exits, driven by strength in Data Solutions (up 29.3%) and modest gains in Payments segments, while Print experienced expected secular declines.
• Operating leverage is improving, with Q1 2025 Adjusted EBITDA margin holding steady year-over-year despite exit impacts, reflecting benefits from pricing actions, cost management (SGA down 3.8%), and operational efficiencies.
• Cash flow generation is a key focus, with Q1 2025 net cash provided by operating activities increasing significantly ($24 million increase) and free cash flow rising by $18.1 million, supporting debt reduction efforts and capital allocation priorities.
• The company maintains its full-year 2025 guidance, projecting comparable adjusted revenue growth of -1% to +2%, Adjusted EBITDA growth of 2% to 7%, Adjusted EPS growth of flat to 9%, and Free Cash Flow growth of 20% to 40%, signaling confidence in continued execution despite macroeconomic uncertainty.

A Century of Evolution: From Checks to Connected Commerce

Deluxe Corporation's journey began in 1915 as Deluxe Check Printers, a name that clearly defined its initial purpose. For decades, the company built a trusted brand and extensive relationships by providing essential printed products, primarily checks and business forms, to businesses and financial institutions. While this legacy business remains a significant cash flow generator, Deluxe recognized the evolving landscape of commerce and payments. Over the past decade, and particularly accelerated in recent years, the company has undergone a deliberate and strategic transformation, shedding non-core assets like its payroll and web hosting businesses and investing heavily in technology-enabled solutions across Payments and Data. This evolution is not merely a diversification; it is a fundamental pivot aimed at positioning Deluxe at the intersection of modern commerce, where digital transactions, data-driven insights, and integrated solutions are paramount.

At the heart of this transformation is the multi-year "North Star" program, launched in 2023. This comprehensive initiative is designed to enhance shareholder value by accelerating adjusted EBITDA growth, increasing cash flow, reducing debt, and improving the company's leverage ratio. North Star balances aggressive cost reduction efforts, such as refining organizational structure and leveraging technology for operational efficiency, with strategic investments in growth opportunities within the Payments and Data segments. The goal is to build a more agile, profitable, and digitally-focused enterprise capable of delivering sustainable growth in a rapidly changing market.

The competitive landscape for Deluxe is multifaceted, reflecting its diverse business segments. In Payments, it competes with large financial technology players like Fiserv (FISV), Paychex (PAYX), and Jack Henry & Associates (JKHY), as well as smaller, specialized providers. In Data Solutions, rivals include marketing service providers and data analytics firms like Broadridge Financial Solutions (BR). The Print segment faces competition from other commercial printers and the ongoing secular decline in demand for physical products. Compared to larger competitors like FISV and PAYX, Deluxe often operates in more niche areas or focuses on differentiated service levels. While these larger players may possess greater scale and potentially lower operational costs in certain areas (e.g., FISV's transaction processing efficiency or PAYX's payroll processing margins), Deluxe leverages its deep relationships, particularly with financial institutions and small businesses, and its reputation for high-quality service, as evidenced by its consistent recognition for customer service excellence (ACSI awards). This focus on service and trusted relationships provides a competitive moat, particularly in winning business from financial institutions undergoing consolidation or seeking partners who can offer a more personalized and responsive experience. The company's "One Deluxe" go-to-market approach aims to leverage these relationships and its broad product portfolio to drive cross-sell opportunities, a key differentiator against more siloed competitors.

A critical element of Deluxe's strategic pivot and competitive positioning lies in its investment in technological differentiation. The company has been actively modernizing its infrastructure, notably migrating its operating platform to the cloud. This foundational shift is enabling faster development and deployment of new products and features. Key technological advancements include:

• The Deluxe Payment Platform (dlxPAY): This suite of APIs and mobile capabilities (like the dlxPAY mobile app) is designed to streamline payment processing for merchants and partners. Its tangible benefit is enabling faster onboarding and expanding reach into new market verticals and omnichannel opportunities. While specific quantitative metrics on speed improvement relative to legacy systems or competitors were not detailed, the strategic intent is clearly to enhance efficiency and market access.
• ReceivablesR360+™: This platform integrates various receivables modules with a common user interface and experience, aiming to automate processes for treasury management clients. A significant recent achievement is its full ISO 20022 compatibility, achieved in partnership with IBM Consulting (IBM). This compatibility ensures seamless integration of all payment types into the receivables suite, a critical feature for banking partners and financial institution clients. The "so what" for investors is that this technological enhancement improves the platform's functionality and interoperability, making it more attractive to larger financial institutions and potentially driving adoption and recurring revenue growth in the B2B Payments segment.
• Cloud-Native Data Platform: Deluxe has built what it believes is one of the largest consumer and small business marketing data lakes, combining data from over 100 sources. This cloud-native platform, coupled with advanced AI tools, enables rapid shifts in market focus and expansion into new verticals. The stated benefit is the ability to predict customer likelihood to buy more effectively and target campaigns faster (management mentioned 15-20% faster campaign targeting compared to less agile systems in prior periods). This technological capability is a direct competitive advantage against players with less sophisticated data assets or slower processing capabilities, contributing to the strong growth seen in the Data Solutions segment and potentially driving higher margins through more effective campaign execution.
• Print-on-Demand: While in the legacy segment, investments in print-on-demand technology enable Deluxe to deliver a superior product while variabilizing operating costs. This operational technology helps the Print segment maintain profitability and maximize cash flow despite declining volumes, supporting the overall enterprise transformation.

These technological investments are foundational to Deluxe's strategy, aiming to enhance its product offerings, improve operational efficiency, and strengthen its competitive position in the Payments and Data markets. They are intended to contribute to higher revenue growth in these segments, improve overall profitability through cost leverage, and build a more resilient business model less dependent on legacy products.

Performance Reflecting Transformation and Market Realities

Deluxe's recent financial performance provides tangible evidence of its strategic shift and the impact of the North Star program, albeit within a challenging macroeconomic environment.

For the first quarter of 2025, consolidated revenue totaled $536.5 million, a modest increase of 0.3% compared to $535.0 million in Q1 2024. This growth was achieved despite a $6 million headwind from business exits, indicating underlying comparable adjusted growth driven by pricing actions and strength in the Data Solutions segment.

Profitability metrics showed resilience. Net income increased to $14.0 million in Q1 2025 from $10.8 million in Q1 2024. Adjusted EBITDA remained nearly unchanged at $100.2 million compared to $100.5 million in the prior year quarter. Excluding the $4 million impact from business exits, Adjusted EBITDA would have shown growth. The Adjusted EBITDA margin was 18.7% in Q1 2025, virtually flat compared to 18.8% in Q1 2024, with business exits accounting for a 0.5 point decrease. This margin performance, despite inflationary pressures on costs and a revenue mix shift towards lower-margin businesses, highlights the effectiveness of cost management actions and pricing strategies.

Operational efficiency improvements were notable, particularly in Selling, General and Administrative (SGA) expenses, which decreased by 3.8% ($8.8 million) year-over-year in Q1 2025. This reduction was attributed to cost management initiatives, including workforce adjustments and optimization of marketing and sourcing, partially offset by an increase in medical costs.

Segment performance in Q1 2025 underscored the strategic pivot:

• Merchant Services: Revenue grew 1.3% to $97.8 million, driven by government and banking channels and modest pricing, offset by softness in discretionary categories. Adjusted EBITDA was flat at $21.4 million, with margins at 21.9%. Management noted the impact of channel mix dynamics.
• B2B Payments: Revenue increased 1.1% to $70.2 million, benefiting from new client onboarding and pricing, partially offset by declining lockbox volumes. Adjusted EBITDA was flat at $13.3 million, with margins at 19.0%, reflecting the ongoing transition to a recurring software model.
• Data Solutions: This segment was a standout performer, with revenue surging 29.3% to a record $77.2 million. Growth was fueled by strong demand for customer acquisition marketing, particularly from financial institutions, and expansion into new verticals. Adjusted EBITDA increased 32.4% to $19.7 million, and margins expanded to 25.5%, reflecting strong volume and a favorable client/campaign mix.
• Print: Revenue declined 4.0% to $291.3 million, consistent with expectations for secular decline in checks, forms, and accessories, compounded by soft demand in promotional products. Adjusted EBITDA was nearly flat at $90.8 million, with margins improving to 31.2%, demonstrating effective cost management and a favorable mix towards higher-margin checks.

The revenue mix continues to shift, with Payments and Data segments increasing their contribution relative to Print, moving from a 43% share in Q1 2024 to 46% in Q1 2025.

Liquidity and capital resources are key areas of focus under North Star. As of March 31, 2025, Deluxe held $30 million in cash and equivalents and had $368 million available under its revolving credit facility. Net cash provided by operating activities saw a significant increase, rising to $50.3 million in Q1 2025 from $26.6 million in Q1 2024. This improvement was driven by better operating results, lower cash bonuses, reduced restructuring spend, and working capital efficiency. Free cash flow, defined as operating cash flow less capital expenditures, increased by $18.1 million to $24.3 million.

Debt reduction remains a top capital allocation priority. Net debt stood at $1.46 billion as of March 31, 2025, down $7 million from year-end 2024 and approximately $80 million lower than Q1 2024. The company successfully refinanced its 2026 debt maturities in late 2024, extending maturities to 2029 and providing enhanced financial flexibility. As of March 31, 2025, the company was in compliance with all debt covenants. Capital expenditures are projected between $90 million and $100 million for 2025, supporting growth investments and infrastructure modernization.

Outlook, Risks, and the Path Forward

Deluxe is maintaining its full-year 2025 guidance, signaling confidence in its ability to execute against its North Star objectives despite acknowledging increased levels of near-term macroeconomic uncertainty. The guidance ranges project comparable adjusted revenue growth of -1% to +2%, Adjusted EBITDA growth of 2% to 7%, Adjusted EPS growth of flat to 9%, and a significant increase in Free Cash Flow to $120 million to $140 million (20% to 40% growth).

The outlook assumes continued sequential improvement in the growth trajectories of the B2B Payments and Merchant Services segments throughout 2025, ramping towards mid-single-digit growth rates in the latter half of the year. Data Solutions is expected to sustain high single-digit to low double-digit growth, leveraging its technological capabilities and expanding market reach. The Print segment is projected to continue its predictable low to mid-single-digit secular decline, with margins remaining stable in the low 30s due to ongoing efficiency efforts.

Key assumptions underpinning the 2025 guidance include approximately $120 million in interest expense, a 26% adjusted tax rate, $140 million in depreciation and amortization, an average outstanding share count of 45.5 million, and capital expenditures of $90 million to $100 million. The company also anticipates modest efficiency improvements in corporate operations.

A critical component of the forward outlook is the expected reduction in leverage. Management anticipates sequential improvement in the net debt-to-adjusted EBITDA ratio, targeting approximately 3.3x by the end of 2025 and three times or better by the end of 2026. This deleveraging trajectory is supported by the projected strong free cash flow generation.

However, the path forward is not without risks. Macroeconomic uncertainty, including potential erosion of consumer confidence and its impact on discretionary spending (particularly affecting Merchant Services and promotional print products), remains a key concern. Inflationary pressures on labor, materials, and delivery costs could continue to pressure margins, although the company has demonstrated an ability to offset some of this through pricing and cost management. Supply chain disruptions, particularly for certain print products, and labor supply challenges could also impact operations. While current litigation and self-insurance liabilities are not deemed material, unfavorable outcomes could pose risks. Geopolitical events could also introduce broader economic volatility.

Deluxe's competitive positioning is dynamic. While facing larger, more efficient competitors in Payments and Data, its strategic focus on service differentiation, niche market penetration, and leveraging its extensive financial institution relationships provides a distinct advantage. The ongoing investment in technology, such as the cloud platform and specialized payment/data tools, is crucial for enhancing its competitive moat and enabling it to offer solutions that meet the evolving needs of its target markets. Recent partnerships, like those with TowneBank (TOWN), MyKidReports, Bonko, and SchoolAuction.net, demonstrate the company's ability to expand its reach and integrate its solutions into various ecosystems, further solidifying its position.

Conclusion

Deluxe Corporation is in the midst of a significant strategic transformation, successfully pivoting towards higher-growth Payments and Data segments while optimizing its legacy Print business for cash flow. The North Star program is serving as a disciplined framework for accelerating profitability, enhancing cash flow generation, and strengthening the balance sheet through targeted debt reduction. First quarter 2025 results provided tangible evidence of progress, with growth in key digital segments, improved operating efficiency, and robust cash flow supporting deleveraging efforts.

While macroeconomic headwinds and competitive pressures persist, Deluxe's investments in technology, its focus on service differentiation, and its strong relationships position it to compete effectively. The company's ability to execute against its North Star targets for EBITDA and free cash flow growth, coupled with its deleveraging goals, will be critical determinants of shareholder value creation. Investors should monitor the company's progress in accelerating growth in its Payments and Data segments, managing costs amidst inflationary pressures, and continuing its trajectory towards a stronger financial position. The successful realization of the North Star program's benefits and the continued strategic evolution of its technology-enabled offerings are key to unlocking Deluxe's future potential.