8-K: Deluxe Corp Reports Mixed 2023 Results, Affirms 2024 Outlook

Deluxe Corporation reported a 2% decrease in full-year revenue for 2023, but saw a 0.3% increase in comparable adjusted revenue and a 3.2% increase in comparable adjusted EBITDA.

Summary

• Deluxe Corporation's full-year 2023 revenue decreased by 2.0% to $2,192.3 million, but comparable adjusted revenue increased by 0.3% to $2,192.3 million.
• Full-year net income was $26.2 million, a decrease from $65.5 million in 2022, due to increased interest expenses and restructuring activities.
• Comparable adjusted EBITDA for the full year increased by 3.2% to $417.1 million.
• The company's full-year GAAP diluted EPS was $0.59, while adjusted diluted EPS was $3.32.
• For the fourth quarter of 2023, revenue decreased by 4.7% to $537.4 million, and comparable adjusted revenue decreased by 2.0%.
• Fourth-quarter net income was $15.0 million, down from $19.0 million in the same period of 2022.
• The company has reaffirmed its full-year 2024 outlook, expecting revenue between $2.14 and $2.18 billion, adjusted EBITDA between $400 and $420 million, and adjusted EPS between $3.10 and $3.40.
• Free cash flow for 2024 is projected to be between $60 and $80 million.
• A regular quarterly dividend of $0.30 per share was approved, payable on March 4, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to mixed results. While there is positive momentum in adjusted metrics and free cash flow, the overall revenue decline and significant drop in net income temper the positive aspects. The reaffirmed 2024 outlook provides some optimism, but the risks mentioned in the forward-looking statements are a concern.

Positives

• Deluxe achieved a third consecutive year of organic revenue growth on a comparable adjusted basis.
• Comparable adjusted EBITDA increased faster than revenue for the full year.
• The company generated significantly improved free cash flows during both the fourth quarter and full year periods.
• The company improved its net debt position and leverage ratio during 2023.
• Deluxe's adjusted EBITDA margin was 19.0% for the full year, up 30 basis points from the prior year.
• The company expects continued expansion of comparable adjusted revenue, EBITDA, and EPS in 2024.

Negatives

• Full-year revenue decreased by 2.0% compared to the previous year.
• Net income for the full year decreased significantly from $65.5 million in 2022 to $26.2 million in 2023.
• Adjusted diluted EPS for the full year decreased from $4.08 in 2022 to $3.32 in 2023.
• Fourth-quarter revenue decreased by 4.7% compared to the previous year.
• Net income for the fourth quarter decreased from $19.0 million in 2022 to $15.0 million in 2023.
• Adjusted diluted EPS for the fourth quarter decreased from $1.04 in 2022 to $0.80 in 2023.

Risks

• The company's 2024 guidance is subject to macroeconomic conditions, global unrest, labor supply issues, inflation, and the impact of business exits.
• There are potential continuing negative impacts from pandemic health issues, such as COVID-19.
• Changes in economic or political conditions could impact the company and its customers.
• The company faces risks related to acquisitions, divestitures, and cost reduction initiatives.
• There are risks related to security breaches, cyber-attacks, and interruptions to IT systems.
• The company faces declining demand for checks and check-related products.

Future Outlook

The company expects full-year 2024 revenue between $2.14 and $2.18 billion, adjusted EBITDA between $400 and $420 million, adjusted EPS between $3.10 and $3.40, and free cash flow between $60 and $80 million.

Management Comments

• We are pleased to report a third consecutive year of organic revenue growth, while also increasing comparable adjusted EBITDA faster than revenue, and generating significantly improved free cash flows during both the fourth quarter and full year periods, said Barry McCarthy, President and CEO of Deluxe.
• The increasing scale of our combined Payments and Data platform is driving improved operating leverage and expansion of our comparable adjusted EBITDA margins, which we expect will continue in line with our 2024 guidance as we focus on execution aligned to our North Star initiatives, said Barry McCarthy, President and CEO of Deluxe.
• We were particularly pleased with our ability to improve our net debt position and leverage ratio during 2023, and the enterprise has strong momentum aligned with our core capital allocation priorities as 2024 begins, said Chip Zint, Senior Vice President and Chief Financial Officer of Deluxe.
• Deluxe remains diligently focused on operational execution, and we are confident in the continued expansion of our earnings trajectory, said Chip Zint, Senior Vice President and Chief Financial Officer of Deluxe.

Industry Context

Deluxe is navigating a shift in the payments and data industry, focusing on its transformation into a modern Payments and Data company. The company's results reflect the challenges of declining demand for traditional check products while trying to grow in new areas.

Comparison to Industry Standards

• Deluxe's performance is mixed when compared to other companies in the financial technology and payment processing sectors.
• Companies like Fiserv and Global Payments have shown stronger revenue growth in their payment segments, while Deluxe's payments segment saw a more modest increase.
• Deluxe's focus on comparable adjusted metrics suggests a need to highlight underlying growth after accounting for divestitures, which is a common practice in companies undergoing restructuring.
• The company's adjusted EBITDA margin of 19.0% is within the range of some industry peers, but some competitors have higher margins due to different business models and scale.
• The company's free cash flow of $97.7 million is a positive sign, but it is important to compare this to the capital expenditure requirements and debt obligations of the company.

Stakeholder Impact

• Shareholders will receive a quarterly dividend of $0.30 per share.
• Employees may be impacted by the company's restructuring activities and cost reduction initiatives.
• Customers may see changes in the company's product and service offerings as it transforms into a modern Payments and Data company.
• Suppliers and creditors may be affected by the company's financial performance and capital allocation decisions.

Next Steps

• Deluxe management will host a conference call to review the financial results.
• The company will continue to focus on operational execution and the expansion of its earnings trajectory.
• The company will pay a quarterly dividend on March 4, 2024.

Key Dates

Keywords

Deluxe, Financial Results, Revenue, EBITDA, EPS, Payments, Data Solutions, Free Cash Flow, Dividends, Adjusted Revenue