Deluxe Corporation
11/06/2025 | Press release | Distributed by Public on 11/06/2025 08:16
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
| MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") includes the following sections:
•Executive Overviewthat discusses what we do and our operating results at a high level;
•Consolidated Results of Operations, Restructuring and Integration Expense, and Segment Resultsthat includes a more detailed discussion of our revenue and expenses;
•Cash Flows and Liquidity and Capital Resourcesthat discusses key aspects of our cash flows, financial commitments, capital structure, and financial position; and
•Critical Accounting Estimates that discusses the estimates that involve a significant level of judgment and uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.
Please be aware that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K") details known material risks and important information to consider when evaluating our forward-looking statements and is incorporated into this Item 2 of this report on Form 10-Q as if fully stated herein. The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information. When we use terms such as "should result," "believe," "intend," "plan," "are expected to," "targeted," "will continue," "will approximate," "is anticipated," "estimate," "project," "outlook," "forecast," or similar expressions in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission, in our press releases, investor presentations, and in oral statements made by our representatives, these indicate forward-looking statements within the meaning of the Reform Act.
This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Additionally, we discuss non-GAAP financial measures such as free cash flow, net debt, adjusted diluted earnings per share (EPS), consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and consolidated adjusted EBITDA margin. We believe that these non-GAAP financial measures, when reviewed alongside GAAP financial measures, can provide valuable insight for investors analyzing our current period operating performance and assessing our future operating performance. Consequently, our internal management reporting also includes these financial measures, which should be considered in addition to, and not as superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely solely on any single financial measure. Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and therefore, may not facilitate useful comparisons. The reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the Consolidated Results of Operations section.
| EXECUTIVE OVERVIEW | ||
We help businesses strengthen their customer relationships through trusted, technology-enabled solutions that facilitate payments, drive growth, and enhance operational efficiency. Our comprehensive suite of solutions includes merchant services, marketing and data analytics, treasury management solutions, and promotional products, along with customized checks and business forms. We support small and medium-sized businesses, financial institutions, and some of the world's largest consumer brands. We also provide checks and accessories directly to consumers. Our reach, scale, and distribution channels position us to be a trusted business partner, providing the tools and support our customers need to succeed.
Our Strategy
A detailed discussion of our strategy can be found in Part I, Item 1 of the 2024 Form 10-K. With the completion of our infrastructure modernization and the divestiture of non-strategic businesses, our current focus is on growth investments aimed at driving scale and accelerating profit growth at a rate that exceeds revenue growth. Our operations continue to benefit from our disciplined pricing actions and comprehensive cost management practices. In 2023, we launched our North Star program with the objective of enhancing shareholder value by (1) accelerating our adjusted EBITDA growth, (2) increasing cash flow, (3) reducing debt, and (4) improving our leverage ratio.
The positive impact of the North Star initiatives is evident in the increases in adjusted EBITDA and adjusted EBITDA margin for the third quarter and first nine months of 2025, compared to the same periods in 2024. A significant contributor to the improvement was the reduction in selling, general and administrative (SG&A) expense, which decreased by 6.8% in the third quarter of 2025 and by 6.3% in the first nine months of 2025, compared to the same periods in 2024. Also, within our Print segment, our continued focus on driving efficiencies contributed to an improvement in adjusted EBITDA margin for both the third
quarter and first nine months of 2025 as compared to the same periods in 2024, despite the revenue pressures facing this business. Free cash flow increased $32 million in the first nine months of 2025, as compared to the first nine months of 2024, and we reduced net debt by $45 million from the previous year end. These achievements underscore our commitment to enhancing financial performance and shareholder value through strategic initiatives and disciplined operational practices.
Additionally, on August 6, 2025, we acquired certain assets of JPMorgan Chase Bank's CheckMatch electronic check conveyance service business for cash payments totaling $25 million, approximately half of which was paid at closing and the remainder to be paid in the first quarter of 2026. The acquisition is expected to enhance our market position and extend the scale of our B2B Payments segment.
2025 Financial Results
Highlights of our financial results for the first nine months of 2025 compared to the first nine months of 2024 include:
•Consolidated revenue- Decreased by $3 million to $1.60 billion, including a decrease of $10 million attributable to business exits. Excluding the impact of the business exits, consolidated revenue would have shown an increase, mainly due to growth in our data-driven marketing and merchant services businesses. This growth was partially offset by weaker demand for certain of our promotional products, as well as the continuing secular decline in order volumes for checks, business forms, and various business accessories.
•Net income - Increased by $30 million to $70 million, reflecting the impact of our pricing strategies and cost management initiatives. The increase also reflects a reduction in amortization expense, which resulted from accelerated amortization associated with business exits and a trade name intangible asset in 2024, as well as lower acquisition-related amortization in 2025. Restructuring and integration expense also declined, and our data-driven marketing business experienced year-over-year growth, further contributing to the improvement.
These positive factors were partially offset by softer demand for certain promotional products and the continuing secular declines in the Print segment, as well as inflationary pressures impacting material and delivery costs. The loss of earnings from exited businesses also negatively affected net income. Additionally, during the first nine months of 2024, we recognized a $29 million gain from the sale of businesses and long-lived assets and a related asset impairment charge of $7 million, both of which did not recur in 2025.
•Adjusted EBITDA - Increased $17 millionto$326 million, including the impact of business exits, which drove a $6 million decrease year-over-year. The increase was primarily driven by the benefits of our pricing strategies and cost management initiatives, as well as the year-over-year growth in data-driven marketing. These positive impacts were partially offset by softer demand for certain promotional products and the continuing secular declines in the Print segment, as well as inflationary pressures on our cost structure.
Adjusted EBITDA margin increased to 20.4% for the first nine months of 2025, compared to 19.3% for the first nine months of 2024, including the impact of business exits, which drove a 0.2 point year-over-year decline. The increase in adjusted EBITDA margin was primarily driven by our pricing and cost management actions, partially offset by the impact of inflationary pressures. A reconciliation of net income to adjusted EBITDA can be found in the Consolidated Results of Operationssection.
•Net cash provided by operating activities - Increased by $34 million to $169 million. Key contributors included the positive impacts of our pricing and cost management actions, reduced payouts for performance-based employee bonuses, and lower expenditures associated with restructuring and integration activities. Additional contributions came from growth in our data-driven marketing business and positive changes in working capital, particularly within other current assets and prepaid expenses. These positive impacts were partially offset by softer demand for certain promotional products, the continuing secular declines in the Print segment, variations in the timing of accounts payable settlements, inflationary pressures on our cost structure, and the impact of business exits.
•Free cash flow - Increased by $32 million to $96 million, driven by the same factors impacting net cash provided by operating activities. We continue to reinvest the free cash flow generated by our Print business into our other businesses. Free cash flow is defined as net cash provided by operating activities less purchases of capital assets.
A reconciliation of free cash flow to its comparable GAAP financial measure can be found in the Consolidated Results of Operationssection.
Recent Market Conditions
We continually monitor the interest rate environment and its effect on our outstanding debt. As of September 30, 2025, 63% of our debt carried a weighted-average fixed interest rate of 8.1%, providing us with some protection against potential future interest rate increases.
In addition to interest rate considerations, we closely monitor the impact of inflation on our cost structure, including labor, delivery, and material costs. In response to inflationary pressures, we have implemented targeted price increases, particularly within our Print and Merchant Services segments. Additionally, ongoing global unrest and uncertainties related to trade policies, treaties, and tariffs could disrupt the global supply chain and lead to increased costs. To mitigate these risks, we actively monitor our supply chain to prevent delays or disruptions and to effectively leverage our purchasing power. The severity and duration of inflation remains difficult to predict and could continue to impact our business, financial position, and results of operations.
We also monitor trends in small business sentiment and consumer discretionary spending. We analyze various data sources, including information from credit card brands, the Federal Reserve, other economic forecast providers, and our proprietary data. These trends significantly influence multiple areas of our portfolio, particularly our Merchant Services and Print segments. Recent data suggests some erosion in consumer confidence, raising concerns about the broader economic landscape. During the first nine months of 2025, the weaker demand that emerged late last year continued, especially in more discretionary categories such as our promotional merchandise. We also monitor various factors that could affect our customers' purchasing power, such as potential global trade disruptions and geopolitical events. These factors could lead to a downturn in the global economy, which may negatively impact our financial performance.
Liquidity
As of September 30, 2025, we held cash and cash equivalents of $26 million, along with an additional $393 million available for borrowing under our revolving credit facility. We anticipate that capital expenditures will be between $90 and $100 million for the full year, compared to $94 million in 2024, as we continue to build scale across our product categories and invest in innovation. Our capital allocation priorities remain focused on responsible growth investments, debt reduction, and returning capital to shareholders through dividends. We expect to maintain our regular quarterly dividend payments. However, dividends are subject to approval by our board of directors each quarter and, therefore, may change.
We believe that net cash generated by operations, combined with cash and cash equivalents on hand and the availability under our credit facility, will be sufficient to support our operations over the next 12 months. This includes meeting our contractual obligations, debt service requirements, and addressing our long-term capital needs. Information regarding our longer term capital requirements can be found in the Cash Flows and Liquidity and Capital Resourcessections. As of September 30, 2025, we were in compliance with our debt covenants.
| CONSOLIDATED RESULTS OF OPERATIONS | ||
Revenue
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 540,247 | $ | 528,444 | 2.2% | $ | 1,597,980 | $ | 1,601,215 | (0.2%) | ||||||||||||||||||||||||||||
In the third quarter of 2025, total revenue increased compared to the third quarter of 2024, driven by strong demand for our data-driven marketing services, especially among financial institutions, which contributed a $28 million increase in revenue. Additionally, strategic price increases implemented in response to inflation, particularly within our Print and Merchant Services segments, also supported revenue growth. These positive impacts were partially offset by weaker demand for some of our promotional products and the ongoing secular decline in order volumes for checks, business forms, and various business accessories. The impact of business exits resulted in a $1 million year-over-year reduction in revenue for the third quarter.
In the first nine months of 2025, total revenue declined compared to the first nine months of 2024, including the impact of business exits, which drove a $10 million reduction. Excluding the impact of the business exits, consolidated revenue would have shown an increase, mainly due to strong demand for our data-driven marketing services, especially among financial institutions, which contributed a $56 million year-over-year improvement for the first nine months of the year. Additionally, strategic price
increases implemented in response to inflation, particularly within our Print and Merchant Services segments contributed to the increase. Partially offsetting these factors were weaker demand for some of our promotional products and the ongoing secular decline in order volumes for checks, business forms, and various business accessories.
We do not manage our business based on product versus service revenue. Instead, we analyze our revenue based on the product and service offerings shown under the caption "Note 13: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report. Our revenue mix by business segment was as follows:
|
Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Merchant Services | 18.2 | % | 17.7 | % | 18.6 | % | 18.0 | % | ||||||||||||||||||
| B2B Payments | 13.5 | % | 14.2 | % | 13.4 | % | 13.4 | % | ||||||||||||||||||
| Data Solutions | 16.5 | % | 11.5 | % | 14.7 | % | 11.1 | % | ||||||||||||||||||
| 51.8 | % | 56.3 | % | 53.3 | % | 56.8 | % | |||||||||||||||||||
| All other | - | 0.3 | % | - | 0.7 | % | ||||||||||||||||||||
| Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
Cost of Revenue
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total cost of revenue | $ | 249,138 | $ | 246,577 | 1.0% | $ | 746,560 | $ | 747,020 | (0.1%) | ||||||||||||||||||||||||||||
|
Total cost of revenue as a percentage of total revenue
|
46.1 | % | 46.7 | % | (0.6) pts. | 46.7 | % | 46.7 | % | - | ||||||||||||||||||||||||||||
Cost of revenue primarily consists of raw materials for product manufacturing, shipping and handling costs, third-party costs for outsourced products and services, payroll and related expenses, information technology costs, depreciation and amortization of assets used in production and in support of digital service offerings, residuals paid to independent sales organizations (ISOs), and related overhead.
In the third quarter of 2025, total cost of revenue increased compared to the third quarter of 2024, and for first nine months of the year, total cost of revenue was virtually flat compared to the prior year. The same factors impacted the results for each period. Costs increased as a result of the revenue growth in data-driven marketing, as well as inflationary pressures affecting materials and delivery costs. These increases in total cost of revenue were offset by the soft demand for certain promotional products and the ongoing secular decline in checks, business forms, and various business accessories in our Print segment. Additionally, our cost management initiatives contributed to lower cost of revenue, including volume-based rebates in our Data Solutions segment. The impact of business exits reduced costs by approximately $2 million in the third quarter and $10 million in the first nine months of the year, including the impact of accelerated amortization expense in 2024.
Total cost of revenue as a percentage of total revenue for each period benefited from our pricing and cost management actions and the prior year's accelerated amortization expense. Offsetting these positive factors were the inflationary impacts on our cost structure and a shift in revenue mix toward our lower-margin growth businesses.
Selling, General and Administrative (SG&A) Expense
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| SG&A expense | $ | 212,364 | $ | 227,764 | (6.8%) | $ | 652,102 | $ | 695,677 | (6.3%) | ||||||||||||||||||||||||||||
|
SG&A expense as a percentage of total revenue
|
39.3 | % | 43.1 | % | (3.8) pts. | 40.8 | % | 43.4 | % | (2.6) pts. | ||||||||||||||||||||||||||||
In the third quarter and first nine months of 2025, SG&A expense decreased compared to the same periods in 2024. This decrease was largely driven by various cost management actions, including workforce adjustments across functional areas and
the optimization of our marketing and sourcing strategies. Additionally, there was a reduction in amortization expense, stemming from accelerated amortization in 2024 related to a trade name intangible asset, as well as lower acquisition-related amortization expense in 2025. Bad debt expense decreased $2 million in the third quarter and $7 million in the first nine months of the year, primarily within our Print segment, and commission expense declined due to reduced Print revenue volumes. For the first nine months of 2025, these reductions in SG&A expense were partially offset by an increase in medical costs within our Corporate operations, which is attributed to higher-cost claims that are expected to occur periodically as part of our self-insurance program.
SG&A expense as a percentage of total revenue decreased for the third quarter and first nine months of 2025 compared to the same periods in 2024, driven by our cost management actions and the reductions in amortization and bad debt expense. For the first nine months of 2025, these impacts more than compensated for the rise in medical costs.
Restructuring and Integration Expense
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Restructuring and integration expense | $ | 2,910 | $ | 11,031 | (73.6%) | $ | 14,625 | $ | 35,899 | (59.3%) | ||||||||||||||||||||||||||||
We are actively pursuing initiatives aimed at aligning our business with our growth strategy and enhancing operational efficiency. As we implement these initiatives, the amount of restructuring and integration expense is expected to fluctuate from period to period. Further information regarding these costs can be found in the Restructuring and Integration Expense section.
Asset Impairment Charge
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Asset impairment charge | $ | - | $ | 6,700 | (100.0%) | $ | - | $ | 6,700 | (100.0%) | ||||||||||||||||||||||||||||
During the quarter ended September 30, 2024, we recorded a goodwill impairment charge related to the exit from our U.S. and Canadian payroll and human resources services businesses. Further information can be found under the caption "Note 6: Acquisition and Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part 1, Item 1 of this report.
Gain on Sale of Businesses and Long-Lived Assets
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Gain on sale of businesses and long-lived assets | $ | - | $ | 5,208 | (100.0%) | $ | - | $ | 29,190 | (100.0%) | ||||||||||||||||||||||||||||
In 2024, the income recognized was primarily associated with our strategic exit from the payroll and human resources services business, a process that we substantially completed during 2024. Further information can be found under the caption "Note 6: Acquisition and Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part 1, Item 1 of this report.
Interest Expense
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Interest expense | $ | 30,529 | $ | 29,905 | 2.1% | $ | 92,739 | $ | 90,910 | 2.0% | ||||||||||||||||||||||||||||
| Weighted-average debt outstanding | 1,498,506 | 1,572,201 | (4.7%) | 1,525,802 | 1,588,327 | (3.9%) | ||||||||||||||||||||||||||||||||
| Weighted-average interest rate | 7.6 | % | 7.1 | % | 0.5 pts. | 7.6 | % | 7.1 | % | 0.5 pts. | ||||||||||||||||||||||||||||
In the third quarter and first nine months of 2025, interest expense increased compared to the same periods in 2024. This increase was primarily due to the impact of higher interest rates, which outweighed the benefit of a reduction in our average debt
outstanding. Based on the amount of variable-rate debt outstanding as of September 30, 2025, a one percentage point change in the weighted-average interest rate would result in a $1 million impact on interest expense for the fourth quarter of 2025.
Income Tax Provision
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Income tax provision | $ | 13,445 | $ | 4,540 | 196.1% | $ | 27,915 | $ | 20,463 | 36.4% | ||||||||||||||||||||||||||||
| Effective income tax rate | 28.5 | % | 33.6 | % | (5.1) pts. | 28.4 | % | 33.7 | % | (5.3) pts. | ||||||||||||||||||||||||||||
In the third quarter and first nine months of 2025, our effective income tax rate decreased compared to the same periods in 2024. The 2025 rate benefited from lower tax impacts for our foreign operations, share-based compensation, and non-deductible compensation. These benefits were partially offset by an increase in our effective state income tax rate. Further information regarding our income tax provision can be found under the caption "Note 9: Income Tax Provision" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report.
Net Income, Diluted EPS, and Adjusted Diluted EPS
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Net income | $ | 33,766 | $ | 8,969 | 276.5% | $ | 70,235 | $ | 40,296 | 74.3% | ||||||||||||||||||||||||||||
| Diluted EPS | 0.74 | 0.20 | 270.0% | 1.54 | 0.90 | 71.1% | ||||||||||||||||||||||||||||||||
| Adjusted diluted EPS | 1.09 | 0.84 | 29.8% | 2.71 | 2.46 | 10.2% | ||||||||||||||||||||||||||||||||
In the third quarter and first nine months of 2025, net income and diluted EPS increased compared to the same periods in 2024, reflecting the factors noted above. Adjusted diluted EPS in the third quarter and first nine months of 2025 increased year-over-year, primarily due to the benefits of our pricing and cost management actions, growth in our data-driven marketing business, and a reduction in bad debt expense. These positive impacts were partially offset by the soft demand for certain promotional products and the ongoing secular declines in the Print segment, inflationary pressures on our cost structure, and increased medical costs for the nine-month period. Additionally, for the first nine months of 2025, the impact of business exits drove a $0.04 per share decrease year-over-year. A reconciliation of net income to adjusted net income, as used in the calculation of adjusted diluted EPS, can be found in the following section.
Reconciliation of Non-GAAP Financial Measures
Free cash flow- We define free cash flow as net cash provided by operating activities minus purchases of capital assets. We consider free cash flow to be an important indicator of cash available for servicing debt and for shareholders, after making necessary capital investments to maintain or expand our asset base. One limitation of using the free cash flow measure is that not all of our free cash flow is available for discretionary spending. We may have mandatory debt payments and other cash requirements that must be deducted from our available cash. Despite this limitation, we believe that the measure of free cash flow offers an additional metric to consistently compare cash generated by operations. It also provides insight into the cash flow available to fund various items such as dividends, mandatory and discretionary debt reduction, acquisitions or other strategic investments, and share repurchases.
Net cash provided by operating activities reconciles to free cash flow as follows:
|
Nine Months Ended September 30, |
||||||||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||||||||
| Net cash provided by operating activities | $ | 168,521 | $ | 134,122 | ||||||||||||||||
| Purchases of capital assets | (72,556) | (69,777) | ||||||||||||||||||
| Free cash flow | $ | 95,965 | $ | 64,345 | ||||||||||||||||
Net debt- Net debt is calculated by subtracting cash and cash equivalents from total debt. One limitation associated with using net debt is that by subtracting cash and cash equivalents, it may imply that management intends to use these funds to reduce outstanding debt. Additionally, net debt can suggest that our debt obligations are lower than what the most comparable GAAP measure indicates. Despite these limitations, management believes that net debt is a valuable metric for assessing our financial leverage and overall balance sheet health. It provides a measure of our debt burden by considering the funds available to offset our debt obligations.
Total debt reconciles to net debt as follows:
| (in thousands) |
September 30, 2025 |
December 31, 2024 |
||||||||||||||||||
| Total debt | $ | 1,449,785 | $ | 1,503,151 | ||||||||||||||||
| Cash and cash equivalents | (25,803) | (34,399) | ||||||||||||||||||
| Net debt | $ | 1,423,982 | $ | 1,468,752 | ||||||||||||||||
Adjusted EBITDA and adjusted EBITDA margin - We believe that adjusted EBITDA and adjusted EBITDA margin are useful metrics for evaluating our operating performance. These measures eliminate the effect of interest expense, income taxes, the accounting effects of capital investments (i.e., depreciation and amortization), and certain other items that may vary for reasons unrelated to current period operating performance. Management uses these measures to assess the operating results and performance of the business, perform analytical comparisons, and identify strategies to improve performance. Additionally, we believe that an increasing adjusted EBITDA and adjusted EBITDA margin indicate an increase in the company's value. It is important to note that we do not consider adjusted EBITDA to be a measure of cash flow, as it does not account for certain cash requirements such as interest, income taxes, debt service payments, or capital investments.
Net income reconciles to adjusted EBITDA and adjusted EBITDA margin as follows:
|
Quarter Ended September 30, |
Nine Months Ended September 30, |
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| (in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Net income | $ | 33,766 | $ | 8,969 | $ | 70,235 | $ | 40,296 | ||||||||||||||||||
| Net income attributable to non-controlling interest | (37) | (38) | (109) | (103) | ||||||||||||||||||||||
| Depreciation and amortization expense | 32,252 | 44,277 | 101,008 | 127,716 | ||||||||||||||||||||||
| Interest expense | 30,529 | 29,905 | 92,739 | 90,910 | ||||||||||||||||||||||
| Income tax provision | 13,445 | 4,540 | 27,915 | 20,463 | ||||||||||||||||||||||
| Restructuring and integration expense | 2,934 | 11,265 | 15,590 | 37,031 | ||||||||||||||||||||||
| Share-based compensation expense | 5,960 | 4,842 | 17,591 | 14,972 | ||||||||||||||||||||||
| Certain legal and environmental expense (benefit) | 38 | (350) | 550 | (50) | ||||||||||||||||||||||
| Asset impairment charge | - | 6,700 | - | 6,700 | ||||||||||||||||||||||
| Gain on sale of businesses and long-lived assets | - | (5,208) | - | (29,190) | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 118,887 | $ | 104,902 | $ | 325,519 | $ | 308,745 | ||||||||||||||||||
| Adjusted EBITDA as a percentage of total revenue (adjusted EBITDA margin) | 22.0 | % | 19.9 | % | 20.4 | % | 19.3 | % | ||||||||||||||||||
Adjusted diluted EPS- We believe that adjusted diluted EPS is a valuable metric for providing comparable information that assists in analyzing our current period operating performance and assessing our future operating performance. By excluding the impact of non-cash items or items that we believe are not indicative of current period operating performance, adjusted diluted EPS offers a useful view of our underlying business performance. Adjusted diluted EPS is one of the key financial performance metrics we use to evaluate the operating results and performance of the business, and it helps us identify strategies to improve performance. While it is reasonable to expect that one or more of the excluded items will occur in future periods, the amounts recognized may vary significantly.
Diluted EPS reconciles to adjusted diluted EPS as follows:
|
Quarter Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||||||||
| (in thousands, except per share amounts) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Net income | $ | 33,766 | $ | 8,969 | $ | 70,235 | $ | 40,296 | ||||||||||||||||||
| Net income attributable to non-controlling interest | (37) | (38) | (109) | (103) | ||||||||||||||||||||||
| Net income attributable to Deluxe | 33,729 | 8,931 | 70,126 | 40,193 | ||||||||||||||||||||||
| Acquisition amortization | 10,581 | 13,475 | 33,795 | 42,251 | ||||||||||||||||||||||
| Accelerated amortization | - | 6,851 | - | 16,740 | ||||||||||||||||||||||
| Restructuring and integration expense | 2,934 | 11,265 | 15,590 | 37,031 | ||||||||||||||||||||||
| Share-based compensation expense | 5,960 | 4,842 | 17,591 | 14,972 | ||||||||||||||||||||||
| Certain legal and environmental expense (benefit) | 38 | (350) | 550 | (50) | ||||||||||||||||||||||
| Asset impairment charge | - | 6,700 | - | 6,700 | ||||||||||||||||||||||
| Gain on sale of businesses and long-lived assets | - | (5,208) | - | (29,190) | ||||||||||||||||||||||
| Adjustments, pretax | 19,513 | 37,575 | 67,526 | 88,454 | ||||||||||||||||||||||
|
Income tax provision impact of pretax adjustments(1)
|
(3,636) | (9,001) | (14,544) | (18,845) | ||||||||||||||||||||||
| Adjustments, net of tax | 15,877 | 28,574 | 52,982 | 69,609 | ||||||||||||||||||||||
| Adjusted net income attributable to Deluxe | 49,606 | 37,505 | 123,108 | 109,802 | ||||||||||||||||||||||
| Income allocated to participating securities | - | (8) | - | (8) | ||||||||||||||||||||||
|
Re-measurement of share-based awards classified as liabilities
|
- | (8) | (69) | (47) | ||||||||||||||||||||||
| Adjusted income attributable to Deluxe available to common shareholders | $ | 49,606 | $ | 37,489 | $ | 123,039 | $ | 109,747 | ||||||||||||||||||
|
Adjusted weighted average shares and potential common shares outstanding(2)
|
45,596 | 44,806 | 45,357 | 44,667 | ||||||||||||||||||||||
| GAAP diluted EPS | $ | 0.74 | $ | 0.20 | $ | 1.54 | $ | 0.90 | ||||||||||||||||||
| Adjustments, net of tax | 0.35 | 0.64 | 1.17 | 1.56 | ||||||||||||||||||||||
| Adjusted diluted EPS | $ | 1.09 | $ | 0.84 | $ | 2.71 | $ | 2.46 | ||||||||||||||||||
(1)The tax effect of the pretax adjustments takes into account the tax treatment and related tax rate(s) applicable to each adjustment in the relevant tax jurisdiction(s). Generally, this results in a tax impact that approximates the U.S. effective tax rate for each adjustment. However, the tax impact of certain adjustments, such as share-based compensation expense and gains on sales of businesses, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable effective tax rate(s) in those jurisdictions.
(2)The total of weighted-average shares and potential common shares outstanding used in the calculation of adjusted diluted EPS may differ from the GAAP calculation due to differences in the amount of dilutive securities in each calculation.
| RESTRUCTURING AND INTEGRATION EXPENSE | ||
Restructuring and integration expense consists of costs related to initiatives aimed at driving earnings and cash flow growth, including costs related to the consolidation and migration of certain applications and processes. These costs consist primarily of consulting, project management services, internal labor, and other items such as facility closure and consolidation costs. Additionally, we have recorded employee severance costs across functional areas.
We are currently pursuing initiatives designed to support our growth strategy and to increase our efficiency, including several initiatives that we collectively refer to as our North Star program. The goal of this program is to enhance shareholder value by (1) accelerating our adjusted EBITDA growth, (2) increasing cash flow, (3) reducing debt, and (4) improving our leverage ratio. North Star is a comprehensive, multi-year plan that balances cost reduction and growth opportunities. On the cost reduction front, we concentrated on optimizing our organizational framework and enhancing our infrastructure and operational processes. The major components of our organizational restructuring have been completed, involving the integration of comparable roles, flattening management layers, and broadening supervisory responsibilities. We are also leveraging technology and automated processes to digitize and improve the efficiency of our operations. Additionally, we are expanding our operational capacity by centralizing back-office activities and utilizing talent from the global workforce. On the revenue growth front, our
priorities include developing an integrated software channel in Merchant Services, expanding our Data Solutions business to cater to more industry verticals, and enhancing our marketing and sales capabilities. The positive impact of the North Star initiatives is evident in our results of operations. For example, SG&A expense decreased 6.3% for the first nine months of 2025 compared to the first nine months of 2024, and free cash flow increased $32 million for the same period. Also, within our Print segment, our continued focus on driving efficiencies contributed to an improvement in adjusted EBITDA margin for both the third quarter and first nine months of 2025 as compared the same periods in 2024, despite the revenue pressures facing this business. Further information regarding restructuring and integration expense can be found under the caption "Note 8: Restructuring and Integration Expense" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report.
All investments under the North Star program are required to meet our internal hurdle rate and provide a higher return compared to other uses of capital, such as debt repayment. The North Star program aims to achieve a $100 million run-rate improvement in free cash flow and an $80 million run-rate improvement in adjusted EBITDA by 2026. Through September 30, 2025, we incurred related restructuring and integration expense of approximately $110 million, and we expect to incur approximately $5 million of additional North Star restructuring and integration expense in the fourth quarter of 2025. These charges included professional services fees, employee severance, and other restructuring-related costs.
The majority of the employee reductions included in our restructuring and integration accruals as of September 30, 2025, along with the related severance payments, are expected to be completed by mid-2026. As a result of these employee reductions, we expect to realize annual cost savings of approximately $6 million in cost of sales and $14 million in SG&A expense in 2025, in comparison to our 2024 results of operations. Note that these savings do not reflect all of our cost saving actions and they may be offset by increased labor and other costs, including inflationary impacts and investments in the business.
| SEGMENT RESULTS | ||
We operate four reportable business segments: Merchant Services, B2B Payments, Data Solutions, and Print. Our segments are generally organized by product and service type and reflect the way we manage the business. The financial information presented below is consistent with that presented under the caption "Note 13: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part 1, Item 1 of this report, where information regarding revenue from our various product and service offerings can also be found.
Merchant Services
Results for our Merchant Services segment were as follows:
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 98,000 | $ | 93,531 | 4.8% | $ | 297,173 | $ | 288,536 | 3.0% | ||||||||||||||||||||||||||||
| Adjusted EBITDA | 20,390 | 17,752 | 14.9% | 63,505 | 58,377 | 8.8% | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA margin | 20.8 | % | 19.0 | % | 1.8 pts. | 21.4 | % | 20.2 | % | 1.2 pts. | ||||||||||||||||||||||||||||
Total revenue for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, due to the positive impact of modest pricing actions implemented in response to inflation. Additionally, there was volume growth for government clients and within the banking channel. These gains were partially offset by pressure on processing volumes driven by the uncertain domestic economic outlook and the resulting pressure on discretionary spending.
Adjusted EBITDA and adjusted EBITDA margin for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, as price increases and cost management actions more than offset the impact of changes in channel mix. While our portfolio remains well-positioned, encompassing a diversified range of both traditional discretionary and less discretionary spending categories, we continue to monitor consumer spending trends, as these trends may impact our volumes going forward.
B2B Payments
Results for our B2B Payments segment were as follows:
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 73,078 | $ | 75,140 | (2.7%) | $ | 214,215 | $ | 214,788 | (0.3%) | ||||||||||||||||||||||||||||
| Adjusted EBITDA | 16,821 | 15,264 | 10.2% | 45,758 | 42,537 | 7.6% | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA margin | 23.0 | % | 20.3 | % | 2.7 pts. | 21.4 | % | 19.8 | % | 1.6 pts. | ||||||||||||||||||||||||||||
Total revenue for the third quarter and first nine months of 2025 decreased compared to the same periods in 2024, driven by pressure on lockbox and receivables processing volumes, as well as lower software license revenue. These impacts were partially offset by the onboarding of new clients and a modest price increase to counteract inflation.
Adjusted EBITDA and adjusted EBITDA margin for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, reflecting our pricing actions and ongoing cost management efforts, including efficiencies across our lockbox processing operations.
Data Solutions
Results for our Data Solutions segment were as follows:
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 89,224 | $ | 61,065 | 46.1% | $ | 234,280 | $ | 178,169 | 31.5% | ||||||||||||||||||||||||||||
| Adjusted EBITDA | 29,073 | 17,485 | 66.3% | 69,134 | 48,150 | 43.6% | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA margin | 32.6 | % | 28.6 | % | 4.0 pts. | 29.5 | % | 27.0 | % | 2.5 pts. | ||||||||||||||||||||||||||||
Total revenue for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, driven by strong demand for customer acquisition marketing activities, particularly from our financial institution partners. Additionally, we added new clients in various other verticals, contributing to the revenue growth. It is important to note that the timing of campaigns within this business can lead to quarter-to-quarter volatility, making specific quarterly growth rates more challenging to predict.
Adjusted EBITDA for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, primarily driven by the increase in data-driven marketing volume and continued cost management initiatives, including favorability from volume-based rebate programs. Adjusted EBITDA margin increased for the third quarter and first nine months of 2025 compared to the same periods in 2024, primarily due to a favorable mix of clients and campaigns compared to 2024, as well as the benefit of our cost management initiatives, including the volume-based rebate programs.
Print
Results for our Print segment were as follows:
| Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||||
| Total revenue | $ | 279,945 | $ | 297,313 | (5.8%) | $ | 852,296 | $ | 909,393 | (6.3%) | ||||||||||||||||||||||||||||
| Adjusted EBITDA | 93,546 | 97,407 | (4.0%) | 274,731 | 282,226 | (2.7%) | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA margin | 33.4 | % | 32.8 | % | 0.6 pts. | 32.2 | % | 31.0 | % | 1.2 pts. | ||||||||||||||||||||||||||||
Total revenue for the third quarter and first nine months of 2025 decreased compared to the same periods in 2024, mainly due to a decline in revenue from promotional products, reflecting softer demand. Additionally, the ongoing secular decline in order volumes for checks, business forms, and various business accessories contributed to the decrease. These revenue declines were partially offset by pricing actions implemented in response to inflation.
Adjusted EBITDA for the third quarter and first nine months of 2025 decreased compared to the same periods in 2024, driven by the decline in revenue and inflationary pressures on materials and delivery costs. Our cost management actions partially offset these challenges, as we continued to emphasize operating expense discipline and overall efficiency within this segment. Additionally, bad debt expense declined year-over-year.
Adjusted EBITDA margin for the third quarter and first nine months of 2025 increased compared to the same periods in 2024, as the benefits from our pricing and cost management actions, a shift toward check revenues, and the lower bad debt expense contributed positively. These factors more than offset the inflationary cost pressures.
| CASH FLOWS AND LIQUIDITY | ||
As of September 30, 2025, we held cash and cash equivalents of $26 million. Additionally, we had restricted cash and restricted cash equivalents, which were included in settlement processing assets and other non-current assets on the consolidated balance sheet, totaling $38 million. The following table should be read in conjunction with the consolidated statements of cash flows located in Part I, Item 1 of this report.
| Nine Months Ended September 30, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | |||||||||||||||||
| Net cash provided by operating activities | $ | 168,521 | $ | 134,122 | $ | 34,399 | ||||||||||||||
| Net cash used by investing activities | (76,021) | (51,323) | (24,698) | |||||||||||||||||
| Net cash used by financing activities | (339,258) | (452,081) | 112,823 | |||||||||||||||||
| Effect of exchange rate change on cash, cash equivalents, restricted cash, and restricted cash equivalents | 1,230 | (3,156) | 4,386 | |||||||||||||||||
| Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | (245,528) | $ | (372,438) | $ | 126,910 | ||||||||||||||
|
Free cash flow(1)
|
$ | 95,965 | $ | 64,345 | $ | 31,620 | ||||||||||||||
(1) See Reconciliation of Non-GAAP Financial Measureswithin the Consolidated Results of Operations section, which defines and illustrates how we calculate free cash flow.
Net cash provided by operating activities increased $34 million for the first nine months of 2025 compared to the first nine months of 2024. Key contributors included the positive impacts of our pricing and cost management actions, a $15 million reduction in payouts for performance-based employee bonuses, and lower expenditures associated with restructuring and integration activities. Additional contributions came from growth in our data-driven marketing business and positive changes in working capital, particularly within other current assets and prepaid expenses. These positive impacts were partially offset by softer demand for certain promotional products, the continuing secular declines in the Print segment, variations in the timing of accounts payable settlements, inflationary pressures on our cost structure, and the impact of business exits.
Included in net cash provided by operating activities were the following operating cash outflows:
| Nine Months Ended September 30, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | |||||||||||||||||
| Interest payments | $ | 83,647 | $ | 82,778 | $ | 869 | ||||||||||||||
| Income tax payments | 31,833 | 35,599 | (3,766) | |||||||||||||||||
|
Performance-based employee cash bonuses(1)
|
24,445 | 39,045 | (14,600) | |||||||||||||||||
| Prepaid product discount payments | 22,933 | 22,945 | (12) | |||||||||||||||||
| Severance payments | 7,517 | 9,212 | (1,695) | |||||||||||||||||
(1) Amounts reflect compensation based on total company and segment performance.
Net cash used by investing activities for the first nine months of 2025 increased $25 million compared to the first nine months of 2024. The increase was driven by higher proceeds in the prior year from the exit of our payroll and human resources services business, along with a payment made in the third quarter of 2025 for the acquisition of certain assets of JPMorgan Chase Bank's CheckMatch electronic check conveyance service. Net cash used by financing activities for the same periods decreased by $113 million, driven by changes in settlement processing obligations during each period, including the impact of
our exit from the payroll and human resources services business during 2024. Additionally, lower net payments on long-term debt in 2025 contributed to the decrease.
Significant investing and financing cash transactions for each period were as follows:
| Nine Months Ended September 30, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | |||||||||||||||||
| Net change in settlement processing obligations | $ | (235,940) | $ | (338,955) | $ | 103,015 | ||||||||||||||
| Purchases of capital assets | (72,556) | (69,777) | (2,779) | |||||||||||||||||
| Net change in debt | (56,126) | (64,511) | 8,385 | |||||||||||||||||
| Cash dividends paid to shareholders | (41,634) | (40,826) | (808) | |||||||||||||||||
| Proceeds from sale of businesses and long-lived assets | 1,968 | 18,321 | (16,353) | |||||||||||||||||
When evaluating our cash needs, we must consider our debt service requirements, lease obligations, other contractual commitments, and contingent liabilities. Detailed Information regarding the maturities of our long-term debt and our contingent liabilities can be found under the captions "Note 11: Debt" and "Note 12: Other Commitments and Contingencies," both of which appear in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report. Information regarding our lease obligations can be found under the caption "Note 14: Leases" in the Notes to Consolidated Financial Statements appearing in the 2024 Form 10-K, and information regarding our contractual obligations can be found in the MD&A section of the 2024 Form 10-K, under the section entitled Cash Flows and Liquidity. In the first quarter of 2025, we amended and extended an agreement for information technology services. This modification increased our contractual commitments by approximately $25 million, with the majority of the payments scheduled to be made during the years ending December 31, 2028 and 2029.
As of September 30, 2025, we held cash and cash equivalents of $26 million, with an additional $393 million available for borrowing under our revolving credit facility. We believe that net cash generated from our operations, combined with cash and cash equivalents on hand and the availability under our credit facility, will be sufficient to support our operations over the next 12 months. This includes meeting our contractual obligations, debt service requirements, and addressing our long-term capital needs. We expect to maintain our regular quarterly dividend payments. However, dividends are subject to approval by our board of directors each quarter and, therefore, may change.
| CAPITAL RESOURCES | ||
As of September 30, 2025, the principal amount of our debt obligations was $1.47 billion, compared to $1.52 billion as of December 31, 2024. Our capital structure for each period was as follows:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||
| (in thousands) | Amount |
Weighted- average interest rate |
Amount |
Weighted- average interest rate |
Change | |||||||||||||||||||||||||||
| Fixed interest rate | $ | 925,000 | 8.1 | % | $ | 925,000 | 8.1 | % | $ | - | ||||||||||||||||||||||
| Floating interest rate | 540,792 | 6.6 | % | 596,917 | 7.2 | % | (56,125) | |||||||||||||||||||||||||
| Debt principal | 1,465,792 | 7.5 | % | 1,521,917 | 7.7 | % | (56,125) | |||||||||||||||||||||||||
| Shareholders' equity | 664,146 | 620,918 | 43,228 | |||||||||||||||||||||||||||||
| Total capital | $ | 2,129,938 | $ | 2,142,835 | $ | (12,897) | ||||||||||||||||||||||||||
As of September 30, 2025, total commitments under our revolving credit facility were $400 million, with $393 million available for borrowing. Detailed information regarding our outstanding debt, including our debt service obligations and debt covenants, can be found under the caption "Note 11: Debt" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report.
In October 2018, our board of directors authorized the repurchase of up to $500 million of our common stock. This authorization does not have an expiration date. We have not repurchased any shares under this authorization since the first quarter of 2020. As of September 30, 2025, $287 million remained available for repurchase. Information regarding changes in shareholders' equity can be found in the consolidated statements of shareholders' equity located in Part I, Item 1 of this report.
| CRITICAL ACCOUNTING ESTIMATES | ||
A description of our critical accounting estimates was provided in the MD&A section of the 2024 Form 10-K. During the first nine months of 2025, there were no modifications in the assessment or determination of these estimates. Information regarding the goodwill impairment analyses completed during the third quarter of 2025 can be found under the caption "Note 8: Fair Value Measurements" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report.
New accounting pronouncements- Information regarding new accounting pronouncements not yet adopted can be found under the caption "Note 2: New Accounting Pronouncements" in the Condensed Notes to Unaudited Consolidated Financial Statements located in Part I, Item 1 of this report.
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