Deluxe(DLX) - 2025 Q4 - Annual Report

Financial Performance - Adjusted EBITDA increased by $19.4 million to $431.5 million, with an adjusted EBITDA margin of 20.2%, up from 19.4% in 2024 [211] - Net income increased by $29.3 million to $82.2 million, benefiting from pricing strategies and lower amortization expenses [213] - Net income increased by 55.4% to $82.2 million in 2025 from $52.9 million in 2024, with diluted EPS rising by 52.5% to $1.80 [233] - Free cash flow increased to $175.3 million in 2025 from $100.0 million in 2024, driven by higher net cash provided by operating activities [235] - Merchant Services segment total revenue increased by 3.8% to $398.6 million in 2025, with adjusted EBITDA rising by 9.4% to $85.9 million [249] - B2B Payments segment total revenue grew by 0.9% to $290.5 million, with adjusted EBITDA increasing by 12.8% to $64.4 million [252] - Data Solutions segment total revenue surged by 31.3% to $307.3 million, driven by strong demand for customer acquisition marketing, with adjusted EBITDA up 42.8% to $86.4 million [255] - Print segment total revenue decreased by 5.7% to $1,136.8 million, with adjusted EBITDA declining by 2.6% to $366.9 million, primarily due to reduced demand for promotional products [258] Cash Flow and Liquidity - Net cash provided by operating activities rose by $76.3 million to $270.6 million, driven by pricing strategies and cost management initiatives [211] - Free cash flow increased by $75.3 million to $175.3 million, reflecting the same factors that contributed to the rise in net cash provided by operating activities [211] - Cash and cash equivalents as of December 31, 2025, were $36.9 million, with restricted cash totaling $276.1 million [261] - As of December 31, 2025, the company held cash and cash equivalents of $36.9 million, with an additional $379.6 million available for borrowing [217] Expenses and Cost Management - Total cost of revenue rose by 0.7% to $1,002.5 million, with total cost of revenue as a percentage of total revenue at 47.0% [221] - SG&A expense decreased by 3.9% to $873.3 million, with SG&A as a percentage of total revenue dropping to 40.9% [224] - SG&A expense as a percentage of total revenue decreased in 2025 compared to 2024, due to cost management actions and lower amortization and bad debt expense, despite an increase in medical costs [225] - Restructuring and integration expense decreased by 60.3% to $19.3 million in 2025 from $48.6 million in 2024, reflecting initiatives to align the business with growth strategy and enhance operational efficiency [226] - Asset impairment charges decreased by 26.0% to $5.7 million in 2025 from $7.7 million in 2024, related to exiting a joint venture for a business payment distribution technology platform [227] - Interest expense decreased by 1.1% to $122.0 million in 2025 from $123.3 million in 2024, primarily due to a reduction in average debt outstanding [229] Debt and Capital Expenditures - Total debt decreased by $73.7 million to $1,429.4 million as of December 31, 2025, from $1,503.1 million in 2024 [236] - Total debt principal decreased to $1.44 billion in 2025 from $1.52 billion in 2024, with a fixed interest rate of 8.1% and a floating interest rate of 5.8% [268] - The company anticipates capital expenditures between $90.0 million and $100.0 million in 2026, compared to $95.3 million in 2025 [266] - As of December 31, 2025, total debt outstanding was $1,429.4 million, with an effective interest rate of 7.3% [292] Goodwill and Impairment - Goodwill totaled $1.42 billion, representing 49.7% of total assets as of December 31, 2025 [280] - The company recorded goodwill impairment charges of $7.7 million in 2024 due to the exit from the payroll and human resources services business [286] Revenue Recognition and Assets - Revenue recognition for certain contracts involves estimating variable consideration, with conditional contract assets amounting to $19.0 million as of December 31, 2025 [278] - The company had $29.8 million in prepaid product discounts recorded as other non-current assets as of December 31, 2025 [275] - Sales commissions and contract acquisition costs totaled $17.1 million as of December 31, 2025, amortized over two to five years [277] - The company had outstanding $475.0 million of 8.0% senior unsecured notes and $450.0 million of 8.125% senior secured notes as of December 31, 2025 [290] Future Outlook - The company anticipates that the North Star initiatives will continue to deliver incremental benefits to operating results in 2026 [244] - The North Star program incurred approximately $114.0 million in restructuring and integration expenses, with expected additional cost savings of $2.0 million in cost of sales and $13.0 million in SG&A expense during 2026 [246] - A one percentage point change in the weighted-average interest rate would result in a $5.0 million impact on interest expense in 2026 [292]