Deluxe Corp (NYSE: DLX) is a leading electronic payments and data analytics company which has transformed its operational make-up over the last five years. During that time, a new multi-year redesign strategy was implemented, which included: overhead reduction, selling off assets, division realignment, management turnover, creation of a unified marketing message, and for the first time, enablement of a standardized, modern, corporatewide IT platform. Modest organic revenue growth followed, which is notable considering the prior ten years’ growth was driven by acquisitions. Nonetheless, the stock is in the penalty box because Deluxe is still fighting for better year-over-year financial metrics while servicing debt and maintaining its dividend.
Seasoned investors may recall that DLX was best known for being the leading domestic paper check printer for consumers and businesses. The check unit still holds that title, which represents 30% of total revenue, but is facing a shrinking TAM as a result of electronic payment methods. However, for now, it is still recording better than paper check industry cadence of low digit revenue attrition and the much maligned check business throws off $320 million in adjusted EBITDA annually. Cash from the check unit is being invested into business lines with higher growth potential including electronic payments, data and promotions. Many investors are still surprised by the company’s annual reach and KPIs: three million small businesses, one hundred fifty-five thousand merchants, four thousand financial institutions, $40 billion in card processing, $26 billion in AP distributions and $3 trillion in total payments processed. In our opinion, management has executed on Phase I of reinventing internal operations while maintaining a $2 billion enterprise, a herculean task in and of itself, and is moving forward with Phase II, called North Star, to increase free cash flow by $100 million in 2026.
We are intrigued.
