Deluxe (DLX) Q4 2023 earnings summary

Executive summary

• Third consecutive year of organic revenue growth on a comparable adjusted basis; FY23 comparable adjusted EBITDA grew faster than revenue, and free cash flow improved.

• FY24 outlook calls for modest comparable adjusted revenue, EBITDA and EPS growth; priorities include profitable organic growth in Payments and Data and North Star transformation execution.

Financial highlights

• FY23 reported revenue was $2,192.3M, down 2.0%; comparable adjusted revenue was $2,192.3M, up 0.3%.

• Comparable adjusted EBITDA rose 3.2% to $417.1M; comparable adjusted margin expanded 50 bps to 19.0%. Adjusted EBITDA margin rose 30 bps.

• Net income was $26.2M versus $65.5M; diluted EPS was $0.59 versus $1.50, and adjusted diluted EPS was $3.32 versus $4.08.

• Q4 revenue was $537.4M, down 4.7%; comparable adjusted revenue fell 2.0%. Comparable adjusted EBITDA was $106.4M, up 0.7%, with a 19.8% margin, up 50 bps; adjusted diluted EPS was $0.80 versus $1.04.

• Lower FY net income primarily reflected higher interest expense, restructuring activity and divestiture impacts.

Outlook and guidance

• FY24 guidance, inclusive of expected business exits: revenue of $2.14B–$2.18B, adjusted EBITDA of $400M–$420M, adjusted EPS of $3.10–$3.40 and FCF of $60M–$80M.

• Comparable adjusted revenue growth is guided at 0%–2%, adjusted EBITDA growth at 2%–7% and adjusted EPS growth at 1%–11%.

• Hosting and Payroll divestitures are expected to reduce FY24 revenue by $56M, EBITDA by $26M and EPS by $0.25; assumptions include interest expense of $120M–$125M and capex of ~$100M.

• 2026 targets include annual revenue growth of 2%–4%, EBITDA growth of 4%–6%, 3x leverage, 30%+ FCF conversion, $80M incremental EBITDA and $100M incremental FCF.

• Guidance is subject to macroeconomic conditions, global unrest, labor supply issues, inflation and business exits; non-GAAP outlook was not reconciled to GAAP due to uncertain potentially material reconciling items.