Deluxe(US:DLX)2025-08-07 14:49Part I - Financial Information This section presents the company's unaudited consolidated financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls for the period ended June 30, 2025 Financial Statements The company's unaudited consolidated financial statements for Q2 2025 show a decrease in total assets and revenue, offset by increased net income and stable shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $345,721 | $611,639 | | Goodwill & Intangibles, net | $1,736,910 | $1,753,790 | | Total Assets | $2,535,034 | $2,831,036 | | Total Current Liabilities | $366,869 | $625,516 | | Long-term Debt | $1,433,459 | $1,466,021 | | Total Liabilities | $1,896,366 | $2,210,118 | | Total Shareholders' Equity | $638,668 | $620,918 | Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $521,262 | $537,816 | $1,057,733 | $1,072,770 | | Gross Profit | $279,264 | $288,790 | $560,311 | $572,327 | | Operating Income | $60,791 | $59,309 | $108,859 | $103,530 | | Net Income | $22,422 | $20,497 | $36,469 | $31,327 | | Diluted EPS | $0.50 | $0.46 | $0.80 | $0.70 | Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $101,374 | $66,222 | | Net cash used by investing activities | ($44,275) | ($43,938) | | Net cash used by financing activities | ($326,257) | ($398,609) | | Net change in cash & equivalents | ($267,674) | ($380,029) | Note 2: New Accounting Pronouncements The company is evaluating the impact of new Accounting Standards Updates related to income tax, expense disaggregation, and credit losses, effective in future periods - The company is currently evaluating the potential impact of several new Accounting Standards Updates (ASUs) related to income tax disclosures (ASU 2023-09), disaggregation of income statement expenses (ASU 2024-03), and measurement of credit losses (ASU 2025-05), with these standards effective in future periods (2025, 2027, and 2026, respectively)181920 Note 6: Acquisition and Divestitures The company acquired JPMorgan Chase Bank's CheckMatch business for $25 million and completed the exit of its U.S. and Canadian payroll services business in 2024 - On August 6, 2025, the company acquired certain assets of JPMorgan Chase Bank's CheckMatch electronic check conveyance service business for $25 million in cash, intended to enhance the market position and scale of the B2B Payments segment31 - The company substantially completed the exit of its U.S. and Canadian payroll and human resources services business in 2024, resulting in a gain of $23.0 million in the first six months of 2024, with no corresponding gain in 20253334 Note 8: Restructuring and Integration Expense The company's multi-year 'North Star program' aims to accelerate EBITDA growth and reduce debt, incurring $108 million in expenses to date - The company is actively pursuing its "North Star program," a multi-year plan to accelerate EBITDA growth, increase cash flow, and reduce debt, involving organizational redesign, process automation, and consolidating back-office functions39 Restructuring and Integration Expense (in thousands) | Period | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Expense | $4,236 | $11,029 | $12,656 | $25,766 | - To date, approximately $108 million in expenses have been incurred for the North Star program, with an additional $5 million expected in 2025, and the majority of associated employee reductions are expected to be completed by early 20263941 Note 11: Debt The company's total principal debt was $1.49 billion as of June 30, 2025, with compliance across all debt covenants and $390.1 million available under its revolving credit facility Debt Composition (in thousands) | Debt Instrument | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior secured term loan facility | $480,167 | $500,000 | | Senior unsecured notes | $475,000 | $475,000 | | Senior secured notes | $450,000 | $450,000 | | Total Principal Amount | $1,487,667 | $1,521,917 | - As of June 30, 2025, the company was in compliance with all debt covenants, which include maintaining specific consolidated total leverage, secured leverage, and interest coverage ratios5051 - The company had $390.1 million available for borrowing under its $400 million revolving credit facility as of June 30, 202553 Note 13: Business Segment Information The company operates four reportable segments—Merchant Services, B2B Payments, Data Solutions, and Print—with performance evaluated based on adjusted EBITDA - The company operates four reportable segments: Merchant Services, B2B Payments, Data Solutions, and Print, with performance evaluated by the Chief Operating Decision Maker (CODM) based on adjusted EBITDA666870 Segment Revenue (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Merchant Services | $199,173 | $195,004 | | B2B Payments | $141,137 | $139,648 | | Data Solutions | $145,056 | $117,104 | | Print | $572,351 | $612,079 | | Total Reportable Segments | $1,057,717 | $1,063,835 | Segment Adjusted EBITDA (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Merchant Services | $43,115 | $40,625 | | B2B Payments | $28,937 | $27,273 | | Data Solutions | $40,060 | $30,665 | | Print | $181,186 | $184,819 | | Total Reportable Segments | $293,298 | $283,382 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes H1 2025 results to North Star initiatives, showing decreased revenue but increased net income and adjusted EBITDA, with strong liquidity Executive Overview The company's strategy, supported by the 'North Star program,' focuses on growth investments to accelerate profit growth, increase cash flow, and reduce debt - The company's strategy is focused on growth investments to drive scale and accelerate profit growth faster than revenue growth, supported by the "North Star program" which aims to enhance shareholder value by accelerating adjusted EBITDA growth, increasing cash flow, reducing debt, and improving the leverage ratio81 Financial Highlights (First Half 2025 vs. First Half 2024) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | $1.06 billion | $1.07 billion | ($15 million) | | Net Income | $36 million | $31 million | +$5 million | | Adjusted EBITDA | $207 million | $204 million | +$3 million | | Adjusted EBITDA Margin | 19.5% | 19.0% | +0.5 pts | | Net Cash from Operations | $101 million | $66 million | +$35 million | | Free Cash Flow | $52 million | $18 million | +$34 million | - The company is actively monitoring market conditions, including interest rates (62% of debt is fixed-rate), inflation (mitigated by price increases), and trends in consumer spending, which has shown some softness in discretionary categories868788 Consolidated Results of Operations H1 2025 revenue decreased due to business exits and secular declines, while SG&A expenses decreased, and the effective income tax rate improved - Total revenue for H1 2025 decreased by 1.4% YoY, driven by business exits ($9 million impact), soft demand for promotional products, and secular declines in checks and forms, partially offset by strong demand in data-driven marketing services, which grew by $28 million9394 - SG&A expense decreased by 6.0% in H1 2025 due to cost management actions, workforce adjustments, lower amortization, and a $6 million decrease in bad debt expense100 - The effective income tax rate for H1 2025 decreased to 28.4% from 33.7% in H1 2024, benefiting from lower tax impacts from foreign operations and non-deductible compensation106 Reconciliation of Net Income to Adjusted EBITDA (Six Months Ended June 30, in thousands) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $36,469 | $31,327 | | Adjustments (Depreciation, Amortization, Interest, Taxes, etc.) | $170,163 | $172,517 | | Adjusted EBITDA | $206,632 | $203,844 | Segment Results Merchant Services, B2B Payments, and Data Solutions segments showed revenue and adjusted EBITDA margin growth, while Print revenue declined but improved its margin - Merchant Services: H1 2025 revenue grew 2.1% to $199.2 million, and adjusted EBITDA margin improved to 21.6% from 20.8%, driven by pricing actions and volume growth from government and banking clients123 - B2B Payments: H1 2025 revenue increased 1.1% to $141.1 million, with adjusted EBITDA margin rising to 20.5% from 19.5%, due to new client onboarding and price increases125126127 - Data Solutions: H1 2025 revenue saw strong growth of 23.9% to $145.1 million, and adjusted EBITDA margin expanded to 27.6% from 26.2%, fueled by high demand for customer acquisition marketing from financial institutions128 - Print: H1 2025 revenue declined 6.5% to $572.4 million due to softer demand for promotional products and secular declines in checks, however, adjusted EBITDA margin increased to 31.7% from 30.2% due to pricing actions, cost management, and lower bad debt expense130131132 Cash Flows, Liquidity, and Capital Resources Net cash from operating activities and free cash flow significantly increased in H1 2025, with a stable capital structure and available liquidity - Net cash from operating activities increased by $35 million in H1 2025 to $101.4 million, driven by pricing and cost actions, a $15 million reduction in employee bonuses, and lower restructuring spend134 - Free cash flow for H1 2025 was $52.1 million, a significant increase from $17.6 million in H1 2024134 Capital Structure (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Fixed Interest Rate Debt | $925,000 | $925,000 | | Floating Interest Rate Debt | $562,667 | $596,917 | | Total Debt Principal | $1,487,667 | $1,521,917 | | Shareholders' Equity | $638,668 | $620,918 | | Total Capital | $2,126,335 | $2,142,835 | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from variable-rate debt, with a 1% change impacting interest expense by $3 million, while foreign currency risk is minimal - The company is exposed to interest rate risk from its variable-rate debt, where a one percentage point change in interest rates would result in a $3 million change in interest expense for the rest of the year as of June 30, 2025145 - Foreign currency exchange rate risk is primarily related to Canadian dollar operations but is not considered material to earnings or cash flows146 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective147 - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2025148 Part II - Other Information This section covers legal proceedings, risk factors, equity security sales, and other disclosures for the reporting period Legal Proceedings The company maintains adequate reserves for legal claims and does not anticipate any material impact on its financial position or results from current litigation - The company believes that recorded reserves for legal matters are adequate and does not expect any currently identified claims to have a material impact on its financial condition or results of operations149 Risk Factors No significant changes to the company's risk factors have occurred since the Annual Report on Form 10-K for December 31, 2024 - No significant changes to the risk factors disclosed in the 2024 Form 10-K have occurred150 Unregistered Sales of Equity Securities and Issuer Purchases of Equity Securities The company did not repurchase shares in Q2 2025, with $287 million remaining under its share repurchase authorization - No shares were repurchased in Q2 2025, and the company has $287 million remaining under its share repurchase authorization as of June 30, 2025151 Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the second quarter of 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the second quarter of 2025154 Signatures The report was duly signed on August 7, 2025, by the company's President, CEO, CFO, and Chief Accounting Officer