DELUXE CORP 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

DELUXE CORP

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Deluxe Corporation’s 2024 10-K filing shows a transition to a Payments and Data company with slight revenue decline but growth in Merchant Services and Data Solutions. The North Star program aims to improve EBITDA and cash flow, but the company faces competition, technology changes, and economic risks.

ELI5:

Deluxe is changing from printing checks to providing payment and data services for businesses. While their check printing business is declining, their payment and data service businesses are growing. They’re working on a plan to improve their profits, but they face challenges like competition and changing technology.

Accession #:

0000027996-25-000051

Published on

March 16, 2025

Analyst Summary

Consolidated revenue decreased by 3.2% to $2.12 billion in 2024.
Net income increased significantly to $53 million due to cost reduction actions.
Adjusted EBITDA decreased slightly to $412 million, but increased excluding business exits.
Adjusted EBITDA margin improved to 19.4% from 19.0% in the prior year.
Free cash flow increased to $100 million.
Gross Profit Margin: 53.09%, decreased from 53.04% in 2023.
Operating Profit Margin: 9.06%, increased from 7.33% in 2023.
Net Profit Margin: 2.49%, increased from 1.20% in 2023.
Return on Assets (ROA): 1.87%.
Return on Equity (ROE): 8.50%.
Earnings Per Share (EPS) – Basic: $1.20, increased from $0.60 in 2023.
Earnings Per Share (EPS) – Diluted: $1.18, increased from $0.59 in 2023.
Current Ratio: 0.98, decreased from 0.93 in 2023.
Quick Ratio (Acid-Test Ratio): 0.92, decreased from 0.88 in 2023.
Cash Ratio: 0.05, decreased from 0.09 in 2023.
Debt-to-Equity Ratio: 2.42, decreased from 2.5 in 2023.
Debt-to-Assets Ratio: 0.53, increased from 0.52 in 2023.
Interest Coverage Ratio (Times Interest Earned): 2.56, increased from 2.28 in 2023.
Asset Turnover: 0.75, increased from 0.71 in 2023.
Price-to-Earnings Ratio (P/E): 14.43.
Price-to-Book Ratio (P/B): 1.22.
Price-to-Sales Ratio (P/S): 0.36.
Enterprise Value to EBITDA (EV/EBITDA): 3.75.
Revenue Growth: -3.2%.
Net Income Growth: 101.9%.
EPS Growth: 100%.
Adjusted EBITDA: $412,075, decreased from $417,135 in 2023.
Adjusted EBITDA Margin: 19.4%, increased from 19.0% in 2023.

Opportunities and Risks

Failure of long-term growth strategy.
Inability to attract and retain customers.
Intense competition.
Rapid technological changes.
Decline in the use of checks and business forms.
Security breaches and cyberattacks.
Reliance on third-party providers.
Inability to attract and retain key personnel.
Economic conditions.
Asset impairment charges.
Existing or future leverage.
Governmental regulation.

Potential Implications

Company Performance

Success of the North Star program is crucial for achieving the company’s financial targets.
Focus on improving operational efficiency and strengthening its balance sheet to achieve sustainable growth.

Stock Price

Deluxe’s P/E ratio is lower, suggesting that the stock may be undervalued.
Deluxe’s P/S ratio is low, suggesting that the stock may be undervalued.
Deluxe’s EV/EBITDA ratio is low, suggesting that the stock may be undervalued.

Deluxe Corporation (DLX) – 10-K Filing Analysis – Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes Deluxe Corporation’s (DLX) 10-K filing for the fiscal year ended December 31, 2024. The company is transitioning from a traditional check printing business to a Payments and Data company. Revenue declined slightly due to secular trends in the Print segment, but growth was seen in Merchant Services and Data Solutions. The North Star program is underway to improve EBITDA and cash flow. Overall, the company appears to be executing its strategy, but faces risks related to competition, technology changes, and economic conditions. A ‘Hold’ recommendation is appropriate, pending further evidence of sustained growth in the non-Print segments.

Company Overview

Deluxe Corporation (DLX) is a Payments and Data company serving small and medium-sized businesses, financial institutions, and large consumer brands. The company operates through four segments: Merchant Services, B2B Payments, Data Solutions, and Print. DLX is strategically leveraging its Print business’s cash flow to fuel growth in its other segments. The company is celebrating its 110th anniversary in 2025.

Detailed Analysis

Financial Statement Analysis

Revenue

Consolidated revenue decreased by 3.2% to $2.12 billion in 2024.

Print segment revenue declined due to secular trends.
Merchant Services and Data Solutions experienced growth.
Business exits reduced revenue by $45 million.

Profitability

Net income increased significantly to $53 million, driven by cost reduction actions and reduced restructuring expenses.
Adjusted EBITDA decreased slightly to $412 million, but increased excluding the impact of business exits.
Adjusted EBITDA margin improved to 19.4% from 19.0% in the prior year.

Cash Flow

Cash provided by operating activities decreased slightly to $194 million.
Free cash flow increased to $100 million.

Key Ratios

Ratio	2024	2023
Adjusted EBITDA Margin	19.4%	19.0%
Debt-to-Equity Ratio	2.42	2.64

Segment Performance

Segment	% of 2024 Revenue	Key Highlights
Merchant Services	18.1%	Revenue increased due to customer wins and pricing actions. Adjusted EBITDA margin improved slightly.
B2B Payments	13.6%	Revenue decreased due to reduced lockbox processing volumes. Adjusted EBITDA margin decreased.
Data Solutions	11.0%	Revenue increased significantly due to strong demand for data-driven marketing. Adjusted EBITDA margin increased.
Print	56.8%	Revenue decreased due to secular decline in checks and business forms. Adjusted EBITDA margin decreased.

Management’s Discussion and Analysis (MD&A) Insights

Management emphasizes leveraging the Print business to fuel growth in other segments.
The North Star program is a key initiative to enhance shareholder value.
Focus on cross-selling, operational efficiency, and disciplined capital allocation.
Acknowledges the secular decline in checks and business forms.
Discusses the impact of inflation and supply chain disruptions.

Risk Factors

Failure of long-term growth strategy.
Inability to attract and retain customers.
Intense competition.
Rapid technological changes.
Decline in the use of checks and business forms.
Security breaches and cyberattacks.
Reliance on third-party providers.
Inability to attract and retain key personnel.
Economic conditions.
Asset impairment charges.
Existing or future leverage.
Governmental regulation.

Uncommon Metrics

The filing highlights the North Star program’s target of a $100 million run-rate improvement in free cash flow and an $80 million run-rate improvement in adjusted EBITDA by 2026. This is a key metric to monitor for future performance.

Conclusion and Actionable Insights

Deluxe Corporation is in a transitional phase, strategically shifting its focus from traditional print services to payments and data solutions. While the Print segment faces secular headwinds, the Merchant Services and Data Solutions segments show promising growth. The success of the North Star program is crucial for achieving the company’s financial targets.

Recommendation: Hold. Monitor the company’s progress in executing its strategy, particularly the growth in non-Print segments and the achievement of North Star program targets. Further analysis of competitive pressures and technological advancements is warranted.

Deluxe Corporation (DLX) Financial Analysis – 2024

Based on the 2024 10-K filing, Deluxe Corporation shows a mixed financial performance. Revenue declined slightly, but net income significantly improved due to cost management and other factors. The company is actively managing its debt and focusing on strategic business segments. While some profitability metrics show positive trends, others indicate areas needing improvement.

1. Financial Ratio and Metric Analysis:

Profitability:

Gross Profit Margin:
- Calculation: ($1,126,450 / $2,121,761) = 53.09%
- Trend: The gross profit margin decreased from 53.04% in 2023 ($1,162,683 / $2,192,260). This is a 0.09% decrease.
- Industry: The industry average gross profit margin for business support services is around 30-40%. Deluxe’s gross profit margin is significantly higher, indicating a strong ability to manage production costs.
Operating Profit Margin:
- Calculation: ($192,176 / $2,121,761) = 9.06%
- Trend: The operating profit margin increased from 7.33% in 2023 ($160,791 / $2,192,260). This is a 1.73% increase.
- Industry: The industry average operating profit margin for business support services is around 10-15%. Deluxe’s operating profit margin is slightly below the industry average, suggesting room for improvement in managing operating expenses.
Net Profit Margin:
- Calculation: ($52,945 / $2,121,761) = 2.49%
- Trend: The net profit margin increased from 1.20% in 2023 ($26,227 / $2,192,260). This is a 1.29% increase.
- Industry: The industry average net profit margin for business support services is around 5-10%. Deluxe’s net profit margin is below the industry average, indicating potential inefficiencies in managing overall costs.
Return on Assets (ROA):
- Calculation: ($52,945 / $2,831,036) = 1.87%
- Industry: The industry average ROA for business support services is around 5-8%. Deluxe’s ROA is significantly lower, indicating that the company is not generating sufficient profit from its assets.
Return on Equity (ROE):
- Calculation: ($52,802 / $620,918) = 8.50%
- Industry: The industry average ROE for business support services is around 10-15%. Deluxe’s ROE is below the industry average, indicating that the company is not generating sufficient profit from its equity.
Earnings Per Share (EPS) – Basic:
- Calculation: $52,784 / 44,154 = $1.20
- Trend: EPS increased from $0.60 in 2023. This is a 100% increase.
Earnings Per Share (EPS) – Diluted:
- Calculation: $52,742 / 44,727 = $1.18
- Trend: EPS increased from $0.59 in 2023. This is a 100% increase.

Liquidity:

Current Ratio:
- Calculation: ($611,639 / $625,516) = 0.98
- Trend: The current ratio decreased from 0.93 in 2023 ($760,988 / $819,065). This is a 5.38% increase.
- Industry: A current ratio of 1.5 to 2 is generally considered healthy. Deluxe’s current ratio is below 1, indicating potential liquidity issues.
Quick Ratio (Acid-Test Ratio):
- Calculation: (($611,639 – $36,393) / $625,516) = 0.92
- Trend: The quick ratio decreased from 0.88 in 2023 (($760,988 – $42,088) / $819,065). This is a 4.55% increase.
- Industry: A quick ratio of 1 or higher is generally considered healthy. Deluxe’s quick ratio is below 1, indicating potential short-term liquidity issues.
Cash Ratio:
- Calculation: ($34,399 / $625,516) = 0.05
- Trend: The cash ratio decreased from 0.09 in 2023 ($71,962 / $819,065). This is a 44.44% decrease.
- Industry: A cash ratio of 0.5 or higher is generally considered healthy. Deluxe’s cash ratio is very low, indicating a reliance on other current assets to meet short-term obligations.

Solvency/Leverage:

Debt-to-Equity Ratio:
- Calculation: ($1,503,151 / $620,918) = 2.42
- Trend: The debt-to-equity ratio decreased from 2.5 in 2023 ($1,506,698 / $604,616). This is a 3.2% decrease.
- Industry: The industry average debt-to-equity ratio for business support services is around 1-1.5. Deluxe’s debt-to-equity ratio is high, indicating a reliance on debt financing.
Debt-to-Assets Ratio:
- Calculation: ($1,503,151 / $2,831,036) = 0.53
- Trend: The debt-to-assets ratio decreased from 0.52 in 2023 ($1,506,698 / $3,080,622). This is a 1.92% increase.
- Industry: The industry average debt-to-assets ratio for business support services is around 0.4-0.6. Deluxe’s debt-to-assets ratio is within the industry average, indicating a moderate level of financial risk.
Interest Coverage Ratio (Times Interest Earned):
- Calculation: (($192,176 + $123,281) / $123,281) = 2.56
- Trend: The interest coverage ratio increased from 2.28 in 2023 (($160,791 + $125,643) / $125,643). This is a 12.28% increase.
- Industry: An interest coverage ratio of 3 or higher is generally considered healthy. Deluxe’s interest coverage ratio is below 3, indicating a potential strain on earnings to cover interest expenses.

Activity/Efficiency:

Asset Turnover:
- Calculation: ($2,121,761 / $2,831,036) = 0.75
- Trend: The asset turnover ratio decreased from 0.71 in 2023 ($2,192,260 / $3,080,622). This is a 5.63% increase.
- Industry: The industry average asset turnover ratio for business support services is around 0.8-1.2. Deluxe’s asset turnover ratio is below the industry average, indicating that the company is not efficiently utilizing its assets to generate revenue.

Valuation:

Price-to-Earnings Ratio (P/E):
- Calculation: $17.03 / $1.18 = 14.43
- Industry: The average P/E ratio for the S&P 500 is around 20-25. Deluxe’s P/E ratio is lower, suggesting that the stock may be undervalued.
Price-to-Book Ratio (P/B):
- Calculation: $17.03 / ($620,918 / 44,315) = 1.22
- Industry: A P/B ratio of 1-3 is generally considered reasonable. Deluxe’s P/B ratio is within this range, suggesting that the stock is fairly valued.
Price-to-Sales Ratio (P/S):
- Calculation: (44,315 * $17.03) / $2,121,761 = 0.36
- Industry: The industry average P/S ratio for business support services is around 1-2. Deluxe’s P/S ratio is low, suggesting that the stock may be undervalued.
Enterprise Value to EBITDA (EV/EBITDA):
- Calculation: EV = (44,315 * $17.03) + $1,503,151 – $34,399 = $1,544,199.45; EV/EBITDA = $1,544,199.45 / $412,075 = 3.75
- Industry: An EV/EBITDA ratio of 10-15 is generally considered reasonable. Deluxe’s EV/EBITDA ratio is low, suggesting that the stock may be undervalued.

Growth Rates

Revenue Growth:
- Calculation: (($2,121,761 – $2,192,260) / $2,192,260) = -3.2%
Net Income Growth:
- Calculation: (($52,945 – $26,227) / $26,227) = 101.9%
EPS Growth:
- Calculation: (($1.18 – $0.59) / $0.59) = 100%

Other Relevant Metrics:

Adjusted EBITDA:
- Calculation: $412,075 (Provided in filing)
- Trend: Adjusted EBITDA decreased from $417,135 in 2023. This is a 1.21% decrease.
- Significance: Adjusted EBITDA is a non-GAAP metric that provides a clearer picture of the company’s operating performance by excluding certain non-cash and non-recurring items. The decrease suggests a slight decline in core profitability.
Adjusted EBITDA Margin:
- Calculation: 19.4% (Provided in filing)
- Trend: Adjusted EBITDA margin increased from 19.0% in 2023. This is a 2.11% increase.
- Significance: The adjusted EBITDA margin shows the company’s profitability as a percentage of revenue, excluding certain items. The increase suggests improved operational efficiency.

2. Commentary:

Deluxe Corporation’s 2024 financial performance presents a mixed picture. While revenue experienced a slight decline, the company demonstrated strong improvement in net income and EPS, driven by effective cost management and strategic initiatives. However, liquidity ratios remain a concern, indicating potential short-term financial challenges. The company’s high debt-to-equity ratio also warrants attention, suggesting a need for improved capital structure management. Overall, Deluxe needs to focus on improving operational efficiency and strengthening its balance sheet to achieve sustainable growth.