Deluxe Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

Key Takeaways

  • Positive Sentiment: Comparable adjusted EBITDA grew nearly 7% year-over-year in Q3 with a 140 bp margin expansion, while free cash flow rose 9.5% and net debt fell by $45 million sequentially.
  • Positive Sentiment: Merchant Services revenue climbed over 6% YoY, supported by solid processing volumes, major new bank wins, and stabilized consumer spending trends.
  • Positive Sentiment: The B2B Payments segment returned to modest growth, up about 1% in Q3 with sequential improvement expected to continue into Q4.
  • Positive Sentiment: Data Solutions delivered a sequential revenue increase of 6.4% to $61.1 million, saw 14.4% EBITDA growth, and is forecast to return to year-over-year growth in Q4.
  • Negative Sentiment: Print segment revenue declined by about 2% in Q3, reflecting ongoing secular headwinds despite a margin expansion to 32.8%.
AI Generated. May Contain Errors.
Earnings Conference Call
Deluxe Q3 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Quarterly Earnings Conference Call. All participants are currently in a listen only mode, and today's call is being recorded. At this time, I'd like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead.

Speaker 1

Thank you, operator, and welcome to the Deluxe Third Quarter 2024 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates and expectations of the company's future performance or strategy are forward looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause actual results to differ from projections is set forth in the release we furnished this afternoon in our Form 10 ks for the year ended December 31, 2023, and in other company SEC filings.

Speaker 1

On the call today, we will discuss non GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS and free cash flow. In our release, today's presentation and our filings with the SEC, you'll find additional disclosures regarding the non GAAP measures, including reconciliations of these measures to the most comparable measures under U. S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to comparable adjusted EPS, which may assist with your modeling.

Speaker 2

And with that, I'll turn it over to Barry. Thanks, Brian, and good evening, everyone. I'm pleased to report our strong Q3 results, including sustained growth across our core comparable adjusted earnings metrics, continued expansion of free cash flows and a reduced level of net debt for the enterprise. During the quarter, we drove nearly 7% year over year growth in comparable adjusted EBITDA, accompanying a margin expansion of 140 basis points. Our free cash flow also grew 9.5% for the period.

Speaker 2

As we outlined at our Investor Day last December, the Northstar program was designed systematically to accelerate these key profitability metrics. And our 3rd quarter results further demonstrate our ability to consistently expand earnings faster than revenue. During the quarter, we also continued to deliver healthy top line results across our payments operating units. We saw sustained mid single digit growth of more than 6% within merchant services. The B2B payments segment also returned to modest year over year growth profile during the period, consistent with our guidance last quarter.

Speaker 2

The Data segment also drove strong sequential improvement. The business exceeded $60,000,000 of revenue during the quarter for the first time this year versus a strong prior year comparable. On a year to date basis through 3 quarters, the Merchant and Data segments have seen growth of just over 7% and 6%, respectively. I'll cover additional segment revenue highlights in a bit more detail in a few moments. Accompanying this ongoing top line progress, the continued expansion of our earnings and cash flow results are testament to strong execution across the enterprise on our core capital allocation priorities.

Speaker 2

We reduced our net debt balance sequentially by $45,000,000 for the 2nd quarter, further demonstrating our commitment to debt reduction as a top priority for the company. Building from the strong 3rd quarter and year to date results, tonight we're confirming our existing full year guidance within a narrower range. Chip will share in more detail during his comments. Now prior to providing more insight into the quarter, I'd like to highlight progress on our NeuroStar execution plan. As a reminder, our NeuroStar program was designed across 12 work streams to identify $130,000,000 of improvements to our baseline 2023 comparable adjusted EBITDA results over a multi year horizon.

Speaker 2

On a net basis, after factoring for impacts from secular decline trends across the print portfolio, these improvements are expected to unlock the targeted $80,000,000 of incremental adjusted EBITDA and $100,000,000 of annualized incremental free cash flow, both by 2026. During the Q3, we reached a notable Northstar milestone. I'm pleased to share the enterprise is now fully scoped and is in the execution or completion stage of projects comprising more than $100,000,000 of the $130,000,000 targeted annualized EBITDA improvements. We're proud of our progress as we mark the 1st anniversary of the multi year initiative. This success further increases our confidence in achieving our goals.

Speaker 2

Importantly, full benefit realization will be reflected over the coming quarters throughout 2025 as our phased execution progresses. As I noted last quarter, one of the clearest ways to see our NeuroStar progress is via the continued improvement of our SG and A expense, particularly within corporate. During the Q3, overall corporate expenses improved by more than 11% from the prior year period. Additionally, cash restructuring and integration expenses relating to NeuroStar have trended favorably versus our full year estimates. This contributed to our improved year to date free cash flow results through the Q3.

Speaker 2

Now to provide some additional details about our Q3 performance. As a reminder and consistent with prior calls, my comments will reflect comparable adjusted results for the quarter year to date periods, which we believe best represent our ongoing business performance. Chip will review both our reported consolidated and comparable adjusted results to provide additional context. For the Q3, net of exited businesses, revenue was $527,000,000 which reflected a decline of just under 1% year over year. Total adjusted EBITDA reached $104,500,000 increasing roughly 7% from the Q3 of 2023.

Speaker 2

This strong EBITDA growth rate matched that of the Q1 this year and reflected our 3rd consecutive quarter demonstrating robust operating leverage at the enterprise level, as I noted in my opening comments. Adjusted EBITDA margins finished the quarter at just under 20%, reflecting the continuation of our year to date sequential expansion trend and growing by 140 basis points versus the prior year. On a year to date basis, comparable adjusted EBITDA margins have expanded by a full 100 basis points, while free cash flow has improved by more than $30,000,000 from the year to date 2023 figures. We remain particularly pleased with these adjusted EBITDA and cash flow results, further enabling our progress toward our focused capital allocation priorities under Northstar. Moving now to our Q3 segment revenue highlights, beginning with Merchant Services.

Speaker 2

For the quarter, segment revenue grew just over 6%. While this reflected moderation from our nearly 8% second quarter trajectory, as we signaled on our last call, we remain very pleased with the overall year to date trajectory of the merchant business. Total processing volumes remain solid and we continue to benefit from new wins. As always, we continue to monitor material macroeconomic trends surrounding consumer discretionary spending and sentiment. We leverage recent insights from the card brands, the Fed and other economic forecast providers as well as our internal proprietary data sources.

Speaker 2

While some overall economic uncertainty remains, some trends appear to have largely stabilized during the Q3. Impacts from recent weather events may pressure growth a bit, but we believe that our diversified portfolio will enable us to continue to deliver healthy growth even as we lap the major win that went live last November. Shifting to results within the B2B Payment segment. As we anticipated during the Q3, the B2B segment recovered from the year over year decline rates experienced across the first half of twenty twenty four. We reported revenue growth of about 1% for the period.

Speaker 2

This improvement was in line with the commentary we provided during our last call. Consistent with our expectations, we anticipate the B2B revenue growth trajectory will improve sequentially in the Q4. We remain confident in our longer term growth outlook for these lines of business, given our strong existing pipeline of SaaS opportunities and near term onboarding of new incremental remittance volumes. Moving now to data solutions, which continue to deliver strong revenue results, expanding sequentially by more than 6% versus the 2nd quarter to just over $61,000,000 As we signaled during our last call, the core data driven marketing or DBM business once again lapped a challenging prior year compare during the Q3 driven by client campaign timing resulting in a 4.5% revenue decline for this specific period. As we've noted previously, we believe that the best view of data's growth trajectory remains through a multi quarter lens.

Speaker 2

On a year to date basis through 3 quarters, revenue growth for data remains strong at more than 6%, reflective of continued demand for customer acquisition marketing activities across both our core FI clients and expanding growth verticals. Shifting finally to our Print segment. This business returned to its expected low single digit revenue decline profile during the quarter. 3rd quarter revenues finished just over $297,000,000 declining roughly 2% versus the prior year. Importantly, legacy check revenues have experienced overall declines just under 2% on a year to date basis.

Speaker 2

This rate is aligned to our guidance and better than long term Fed estimates. To summarize, our overall Q3 results, particularly our continued expansion of earnings, free cash flow and our management of operating costs demonstrate our ongoing transformation and North Star progress. The enterprise remains diligently focused on execution of our deleveraging path demonstrated within our Q3 net debt reduction and continuing to deliver robust operating leverage. Finally, before passing this to Chip, I want to take a moment to once again thank my fellow Deluxeers. Your consistent commitment to exceeding the needs of our customers and driving continuous improvement is recognized and appreciated every day.

Speaker 2

You are the Deluxe difference. With that, I'll turn it over to Chip.

Speaker 3

Thank you, Barry, and good evening, everyone. As Barry noted in his opening, we were pleased with our continued progress during the Q3, particularly our strong margin expansion, free cash flow generation and year over year growth of comparable adjusted EBITDA and EPS during the period. As in past quarters, I'll begin today providing a bit of additional context around our consolidated highlights for the period before moving on to the segment results, our balance sheet and cash flow progress and our 2024 guidance. For the quarter, on a reported basis, we posted total revenue of $528,400,000 down 1.7%, inclusive of the impact of our prior year exits, while declining 0.7% year over year on a comparable adjusted basis. As of the end of Q2 of this year, we have fully lapped the divestiture of our web hosting businesses.

Speaker 3

As such, our exited business impacts are lowered and remaining quarters will reflect only the ongoing conversion of the payroll business. We reported GAAP net income of $8,900,000 or $0.20 per share for the period, improving from the loss of $8,000,000 or negative $0.18 per share in the Q3 of 2023. This improvement was driven by both lower restructuring and integration related spend and improved SG and A expense, as well as a gain related to our payroll exit. Comparable adjusted EBITDA was $104,500,000 up 6.9% versus the Q3 of last year. Comparable adjusted EBITDA margins were 19.8%, improving 140 basis points versus the Q3 of 2023, as Barry noted.

Speaker 3

Q3 comparable adjusted EPS came in at $0.84 improving from $0.75 in 2023, primarily driven by the net income drivers previously noted, net of increases to the tax provision for the period. Now turning to our operating segment details, beginning with the Merchant Services business. The Merchant segment grew 3rd quarter revenue by 6.3% year over year to $93,500,000 bringing year to date growth to 7.4% through the 1st 9 months of the year, as Barry noted in his opening comments. Segment adjusted EBITDA finished at $17,800,000 improving 2.3% versus the prior year, while margins finished at 19%, down slightly from the 19.8% prior year rate, driven primarily by year to year channel mix dynamics, while maintaining the margin dollar growth trend we've seen consistently throughout the year to date period. As we noted during our prior quarter comments, we would anticipate some continued moderation of merchant revenue growth from the year to date levels during the Q4 period, as we begin to lap the prior year mid market FI implementation activity that began in November of last year.

Speaker 3

Our outlook for both the full year 2024 and longer term horizon remains consistent with the mid to high single digit growth rates included in our prior guidance and Investor Day communications. 3rd quarter year to date adjusted EBITDA margins for the Merchant segment of 20.2% also remain consistent with our outlook for this segment. Moving to B2B payments. For the Q3, B2B segment revenues finished at $75,100,000 sequentially improving $4,900,000 from the prior quarter and growing 0.7% versus 2023. While multiple factors contributed to the overall improved trajectory during the Q3, primary drivers included those we anticipated on our prior quarterly call.

Speaker 3

We've previously mentioned material new customer wins in the lockbox remittance business and we saw initial implementation activity and volume additions from the onboarding of these deals. Additionally, we saw a moderation of prior year comps from legacy on premise hardware, software license and other one time revenue across the balance of treasury management business as we continue to execute our migration towards our more recurring revenue business model. Adjusted EBITDA within B2B finished at $15,300,000 declining 5%, while maintaining a rate of 20.4%, which reflected a sequential improvement of 50 basis points from the 2nd quarter margin level. This overall adjusted EBITDA result included impacts from initial onboarding activity for the Lockbox share gain implemented during the period and overall receivables mix shifts from prior year non recurring business as noted previously. Based on these year to date results, including the 3rd quarter trajectory improvement, we continue to anticipate a full year low single digit revenue decline rate for the segment, included in our updated revenue guidance as we noted last quarter.

Speaker 3

We remain confident that adjusted EBITDA margin should also stabilize around the low to mid-twenty percent range. Moving on to Data Solutions. This segment continued its strong performance inclusive of another challenging prior year revenue comp during the Q3. Data revenues finished at $61,100,000 for the quarter, reflecting a year over year decline of 4.5% versus the same period of 2023, lapping very strong prior year deposit seeking campaign activity among CoraFi partners, which we discussed during both the 2nd and third quarters of 2023. Segment revenues improved sequentially from the 2nd quarter by 6.4%.

Speaker 3

Overall, 3rd quarter revenue results performed favorably against the average of 3 to 4 trailing quarter barometer we had previously noted for comparison. Adjusted EBITDA finished at $17,500,000 reflecting a very strong 14.4% growth versus Q3 of the prior year, while adjusted EBITDA margins expanded 4 70 basis points to 28.6 percent on continued management of core operating expense in the segment and a favorable overall mix of DBM campaign activity during the period. We anticipate the data segment returning to a year over year growth profile during the Q4, consistent with our full year mid to high single digit growth guidance for 2024 and in line with our anticipated longer term trajectory expectations for this segment shared during Investor Day. We also maintain strong confidence in the longer term low to mid-twenty percent adjusted EBITDA rate outlook for this segment. Turning now to our Print businesses.

Speaker 3

Print segment 3rd quarter revenue was $297,300,000 declining 2.3% on a year over year basis. Legacy check revenues continue to perform in line with our expectations declining 1.8% during the quarter. The balance of the promotional solutions offerings declined just over 3%, reflecting both the short cycle discretionary spending dynamics discussed last quarter, as well as our continued focus on higher margin printed offerings, which leverage our broad print manufacturing platforms. Overall, adjusted EBITDA margins for the Print segment improved 32.8 percent, expanding 60 basis points versus the prior year quarter as we continue to proactively manage the print portfolio to drive supply chain efficiency and capacity utilization, while leveraging our print on demand investments to deliver the highest quality products, while maximizing ongoing cash flow generation. Adjusted EBITDA for print finished at $97,400,000 which reflected a very modest 0.7% decline from the prior year.

Speaker 3

Consistent with our longer term outlook shared at Investor Day, we continue to expect to see the low to mid single digit revenue declines across the Print segment with adjusted EBITDA margins remaining in the low 30s within our full year 2024 outlook. Turning to our balance sheet and cash flow results for the Q3. We ended the period with a net debt level of 1 point $49,000,000,000 improving $30,700,000 from our 2023 year end level of $1,520,000,000 while sequentially improved by $44,700,000 from the $1,530,000,000 mark at the end of Q2 on our strong 3rd quarter cash flow results, as Barry noted. Our net debt to adjusted EBITDA ratio finished at 3.6x at the end of the quarter, improving from 3.7x on a sequential basis, while remaining flat versus the ratio reported at year end. Free cash flow, defined as cash provided by operating activities less capital expenditures, finished at $46,700,000 for the 3rd quarter, improving to $64,300,000 for the 9 month year to date period and reflecting a $30,200,000 improvement from the results reported through the 9 months of 2023, driven by improved year to date net income results, inclusive of lower restructuring spend, continuing working capital efficiency and lower capital expenditures versus the prior year.

Speaker 3

We continue to be pleased with our year to date operating cash flow generation and our ability to sustain our Q3 deleveraging trajectory consistent with our clear capital allocation priorities. Moving to our overall capital structure. As we shared last quarter, we continue to actively monitor the broader interest rate environment and remain consistently engaged with our current lending group and other advisors surrounding exploration of available optionality regarding our longer term debt capital stack. As shown here, our interest profile remains roughly 75% fixed rate our existing revolving credit and term loan facilities carry June of 2026 maturities, while our 8% bonds mature in 2029. We also remain comfortable with our available liquidity levels.

Speaker 3

And will provide additional updates on any capital structure or other financing developments going forward as applicable. Before turning to guidance, consistent with prior quarters, our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on December 2, 2024 to all shareholders of record as of market closing on November 19, 2024. As Barry detailed previously, we continue to make strong progress against our key Northstar initiatives. Forecasted realization of the implemented work stream impacts noted in Barry's comments reflected fully within our 2024 guidance outlook.

Speaker 3

Tonight, we are narrowing our estimates for full year guidance metrics from within the existing ranges. Full year guidance ranges are shown on the current slide, keeping in mind all figures are approximate and reflect the impact of business exits over the prior 12 months. Revenue of $2,120,000,000 to $2,140,000,000 reflecting a decline of 1% to flat comparable adjusted growth versus 2023. Adjusted EBITDA of $405,000,000 to $415,000,000 reflecting between 4% and 6% comparable adjusted growth. Adjusted EPS of $3.20 to $3.35 reflecting 6% to 11% comparable adjusted growth and free cash flow of $90,000,000 to $100,000,000 These forecasts reflect continuation of the robust operating leverage we have delivered across comparable adjusted results through the 1st 3 quarters.

Speaker 3

Finally, to further assist with your modeling, our guidance assumes the following: interest expense of $120,000,000 and adjusted tax rate of 26 percent depreciation and amortization of $165,000,000 of which acquisition amortization is approximately $75,000,000 and average outstanding share count of 45,000,000 shares and capital expenditures of approximately $100,000,000 This guidance remains subject to, among other things, prevailing macroeconomic conditions, as noted previously, including interest rates, labor supply issues, inflation and the impact of divestitures. In summary, we were pleased with our continued focus on Northstar execution during the Q3 and our overall year to date results. Before we open the mic for questions, I'd like to leave you all with a clear statement that we're simply executing well against our objectives. Through the 1st 9 months of the year, we've continued to grow EBITDA, expand margins, improve free cash flow and pay down debt the way we intended and told you we would. We remain confident that our execution and focus will continue to be reflected in our 4th quarter performance and look forward to sharing our progress on our Q4 call.

Speaker 3

Operator, we are now ready to take questions.

Operator

Thank And our first question comes from Lance Vitanza with TD Cowen.

Speaker 4

Thanks guys. Can you hear me?

Speaker 2

Hearing fine. Hey Lance.

Speaker 4

Great, great, great. Thanks. So first off, nice job on the EBITDA and cash flow. And I appreciate the improving tone in merchant services and data solutions. All the same, I was a little disappointed to see total revenue down on a like for like basis.

Speaker 4

I know it was just down a smidge, but it wasn't up. So my question, I've kind of a 2 parter here. Barry, as we think about 2025 and obviously I'm not expecting guidance here, but how confident are you that you can see consolidated revenue growth for the full year? Obviously, I appreciate you've got some businesses that are growing nicely. You've also got some businesses that are facing some secular headwinds.

Speaker 4

So I just wanted to get your temperature there. And then maybe for Chip, you mentioned the Investor Day a couple of times. If you could perhaps go back and remind us, when we lay out the long term growth expectations for each of your 4 sectors and then factoring in the size of those businesses as we exit 2024, what should we expect for consolidated growth in 2025 if it turns out to be a normal year? And I just I don't have the math on my fingertips. Is it 2%, is it 4%, is it more, is it less?

Speaker 4

Any color there would be very helpful. Thank you.

Speaker 2

So Lance, let me start with the first question. First of all, we're very pleased with the progress against our Northstar initiative. And you'll recall that Northstar is more than just cost. It's also improving product development, launching more product and helping to grow our revenue. And so you're starting to see the sort of the first fruits of that.

Speaker 2

I think I would point you to look at what's happening in the B2B business. We said it would be a tough start to the year and we have got that business now to just slightly positive growth. And we've guided for the rest of this year that we think there'll be sequential growth in Q4 from Q3. And we think that's a trajectory without providing guidance for 2025 for how that business ultimately gets to its goal that we have shared is a mid single digit or better growth rate. If you look at the merchant business, we're very proud of that as well.

Speaker 2

We think that that business continues to be on very solid footing as well as what we see on data driven marketing. Now in this particular quarter, data had a really super tough comp versus last year, which I think made the grow over for this year particularly difficult in Q3. But as we said in our prepared remarks, we expect that to recover in Q4. And that we think that is a very healthy mid single or better growth business over a multi quarter horizon. So put all of those things together, we think the businesses with great growth prospects, data driven marketing, merchant services, B2B, are on their path to delivering what we've said would be their long term growth horizons, while at the same time, we are holding on to our print business with really fat margins that helps fuel the growth across the enterprise.

Speaker 3

Yes, Lance. And that was well said by Barry. I'll take the second part of your question. So if you think about what we laid out at Investor Day and I'll simplify a few things. We showed you guys ranges, CAGR ranges across the horizon.

Speaker 3

But directionally speaking, B2B business, we're expecting it to grow in the mid single digit range over the next few year horizon. The merchant business, we're expecting to grow in the upper single digit range as well as data growing in the upper single digit range. And then on top of that, you have the print business declining in the low to mid single digit range. So those are the near term next few year trajectory. When you put it all in the vacuum, we have not guided 2025, right?

Speaker 3

We guided CAGRs over the horizon. But if you put it all based off where we're going to end this year, where we think we'll be, I think it will put us to the lower end of our growth value algorithm, right? The value algorithm is to grow 2% to 4% over the long term with profit expanding faster than revenue. I would think initially you should expect based off the scale and what's going on that we would be somewhere in the lower end of that in the kind of the 1% to 2%. But again, we haven't guided fully 2025%, that's just along the journey how I think it will play together.

Speaker 3

And I think Barry said it well. I think with the Q3, with the tough comp that data had and B2B starting to turn the quarter, I think we were close to putting those points on the board to be able to show that low single digit growth, again, if the comp wouldn't have been there for data. So I think we feel good about how the businesses are shaping up and the ability to exit the year with the right trajectory and set us up for that 2025 year, which we'll guide on the next call.

Speaker 4

That's super helpful guys. Thanks and great execution. Take care.

Operator

And the next question will come from Charlie Strauzer with CJS.

Speaker 5

Hi, good evening.

Speaker 3

Hey, Charlie.

Speaker 5

Hey, EBITDA margin was pretty strong actually in the quarter despite kind of revenue being in line, nearly 20% there in the quarter. Can you shed a little bit more light on the drivers behind that? I know you said mix and expense reductions, but maybe a little bit more color on that as well. And then moreover, EBITDA margins were very strong, maybe in your commentary for my questions, shed some more color on that too.

Speaker 2

Just at the very high level, Charlie, we've been pretty focused on improving the operating efficiency of the company. And you can see the overall margin profile being improved because you can the best place to see this, of course, on what we're doing on our efficiency is in the corporate line where you see we have had very significant reduction year on year, quarter on quarter in our efficiency, in our corporate line of spending. But it's also just broad execution across each of the businesses that had healthy periods. I think that the data business and Chip can add more here, had honestly had a pretty darn good quarter. It was over $60,000,000 quarter, which is a good milestone for that business And it grew sequentially.

Speaker 2

It just was up against a gigantic comp of Q3 last year. And I think they're doing a great job there selling additional features and functions as well as just great execution overall. But everyone add on that. Yes.

Speaker 3

I think starting with the enterprise, Charlie, I mean part of this is the North Star vision and what we needed to do for a period of time to drive the operating leverage, expand the margins and grow the EBITDA faster than revenue. And so even with noise in the numbers and tough comps and a slightly down top line, we would expect that as we execute the program, we roll out, we realize the savings into the P and L, whether it's through the corporate cost center or across the P and L. We're seeing really good progress inside of Northstar, whether you're talking about the procurement track of work, the tech and app, all of the things we're doing to run the business more efficiently or grow the business via our revenue initiatives. It's all leading towards what you're noticing, right? The margin expansion, the accelerated growth of EBITDA relative to revenue.

Speaker 3

So I think we feel really good about that. And as Barry said, relative to data, this business continues to really perform well in terms of the campaign mix of deals we're taking, how we're driving efficiency inside the business, realizing some North Star value inside that segment and obviously setting us up to maybe be on the higher end of what we thought our long term margin rates would be there. So I think we continue to maintain that kind of low 20s to mid-20s range for the data business, but obviously it continues to perform like it is. That's an area for optimism for us over the long term and we feel really good about how that team is executing.

Speaker 5

That's very helpful. Thank you. And Chip, just switch gears a little bit to the balance sheet. You made some commentary about the debt and some of your term maturities. With rates going lower and heading in the right direction, I guess thoughts more to kind of tackle that sooner rather than later?

Speaker 3

Yes. I mean, we're still working through those strategies and thoughts with our bank group. I think we all know it's the bank side of the equation will mature in June of next year. And obviously, we don't want to let those maturities go current. So as we look at it, we have a window of opportunity that we're nearing or walking into here very soon where we would want to get that done whether this quarter or next.

Speaker 3

And so I think for us, it's looking at the market, seeing what's going on with interest rates, hearing how credit spreads have progressed broadly speaking and trying to find the right timing. So nothing to announce yet, nothing to really talk about, but it's definitely something we'll make sure to address in short order before we get anywhere near the debt going current next year.

Speaker 5

Appreciate that. Thank you very much.

Operator

And our next question will come from Will Brennan with Northcoast Research.

Speaker 6

Hey, guys. How's it going?

Speaker 2

Hey.

Speaker 6

I was going to ask, are you guys seeing any changes in the competitive environment or any pricing pressure in the merchant business? And then if you're able to, could you possibly provide us any color on how transaction growth has looked within the business as well?

Speaker 2

So I'm going to answer those sort of separately. So on the first one, on price pressure and competitive pressure, I mean, of course, there's always competitive pressure in the marketplace. But one of the really great things about where we compete and where our foothold is strongest in areas like state and local government, not for profit, auto repair among a number of others including integrated software vendors etcetera and bank channel leads. These are areas that are very sturdy and durable, and less subject to the ongoing pressure of an on constant flipping that is present in other parts of our business. And we think that has allowed us to really focus more on our service level, which is how we win in the space.

Speaker 2

Of course, you have to be priced competitively. But at some time you were to come and see our facility in Fort Worth, you'd see a cabinet full of awards that show that we are the best in class in the merchant category around service, and that's helping us win business. You'll recall last November, we announced and implemented a very significant win for us on a midsized regional bank and moving their entire portfolio to our platform. And while we were competitively priced, it wasn't about price. It was about service and value and we were able to win.

Speaker 2

So that's helping us win additional business across our footprint. And as far as processing volume, we don't specifically release processing volume trends. But we said in our prepared remarks that we think processing volume is solid. Of course, we've shared plenty earlier in the year about what we thought was happening with consumer. We think that is largely at this point stabilized with the mix move towards less discretionary categories now stabilizing.

Speaker 2

So we're optimistic about the Q4 and looking forward into 2025.

Speaker 6

Okay. Thank you. And then just one more. So we were curious, if there was an increase in bank M and A with the new administration in office, what kind of impact would that have on the check business?

Speaker 2

So I love the question and I will tell you that bank consolidation is almost always a very important positive for Deluxe. In the scenario when we don't have both sides of a merged bank, we have a very high success rate of winning both sides when the banks come together. The most notable one that we were very public about a couple of years ago was the formation of Truist when BB and T and SunTrust came together. And it ended up being one of the largest single sale in the company's history. And it's because in those environments, we can show that our product is better, we can show that our service is better, we can show that we help a bank sell more to their existing customer, our balance sheet is better.

Speaker 2

And as a result, we win. And we win a very, very disproportionate share when that happens. Of course, we're not perfect, but a very disproportionate share there. And that is not only in bank consolidations, but even when contracts are up for renewal. And that's in part how we are able to keep our check business declined to a rate much less than what's happening in the industry overall as has been much as information is shared by the Fed regularly.

Speaker 2

So the product the fact that we have a better product, we have a better balance sheet, we deliver on service for customers better help us win really in any environment whether it's a bank consolidation environment or on a renewals basis.

Speaker 3

And I think Will just this is Chip. I'll chime in. I think Barry nailed that aspect of it, but just to qualm and any follow-up concerns or where the next question may come from. Additionally, when banks merge and consolidate, they're important partners to us. They're important sell through vehicles to us, but ultimately the volumes, the end consumers, the end businesses, they're still there.

Speaker 3

So if we have less banks to partner with, we'll still partner, deliver service, we'll still drive whether it's checks, lockbox equipment, all the aspects of our portfolio to the end markets regardless of the number of banks. So there's no negative there from consolidation. Barry is right. It's more about the opportunity it creates for us to maybe gain more wallet share or gain a new customer that we didn't have before.

Speaker 6

All right. Thank you guys so much. I appreciate it.

Operator

And the next question will come from Marc Riddick with Sidoti.

Speaker 7

That's better when I'm not muted. Hey there. Good evening guys.

Speaker 3

Good morning, Marc.

Speaker 7

I wanted to touch a little bit on I guess Chek was ahead on both revenue and margin relative to where I was. I was sort of curious as to what you're seeing as far as was there any pickup in discretionary spend or revenue mix that might have been helpful? I know that certainly the expense management and productivity was key, but I was wondering from a client behavior standpoint, if you're seeing much change relative to where we were earlier in the year there?

Speaker 2

I think in the check business, it's just steady as we go. And I think we are seeing some of the fruits of the investments, Mark, that you know we made to in our printing capabilities, so that we have made most of the expense in producing checks variable instead of having significant inventory as an example and other fixed expenses. The variable cost we can manage really effectively. And then as we win business, that helps gives us volume. And so I think it's a strong execution all around along with the smart investments we made in how we manage and produce and print product.

Speaker 7

Great. And then it's been about a year now since Northstar was introduced initially on the call and then more broadly at the investor event. I was wondering now that sort of we're a year in and probably Slide 7 is probably my favorite slide in the deck as far as all the pieces involved. I was wondering if there are any areas that you sort of look at among those opportunities and sort of see maybe a different level of optimism upside, things of that nature where you are now versus maybe 6 months ago or so seeing as there's so many different pieces that are part of the plan?

Speaker 2

I guess the first thing I would start with there, Mark, is we're really proud of our progress. We said that we were going to go and increase cash flow for the company by the time I got 2026 by an incremental $100,000,000 and $80,000,000 of EBITDA. And we said we would get there by following, as you saw on Page 7, a series of initiatives. And we are on track or ahead of track on those initiatives. And we are booking the savings.

Speaker 2

Now, of course, you understand how this works. Just because you've completed the work and you've implemented, it takes you sometimes a year plus to actually get the full value from that because you've got to earn that value over multiple quarters. But we're very pleased with the progress and we said in our prepared remarks that we've hit a big milestone of getting $100,000,000 of that $130,000,000 goal in process and the implementation phase or beyond. I don't know Chip, you want to add anything on that?

Speaker 3

Yes. I mean just to clarify in process, we think of that as identified, executed, but not yet realized. So depending on the nature of the program, certain things realize value quicker like Org Design did the late last half of last year. Other things take time, whether it's pricing fully lapping a year or getting to the decommission of a technology application and then realizing the savings. So it all sequences.

Speaker 3

So we're going to build all that into our guidance for next year and how we get from where we're going to end this year to where we'll be in 2026. But I think we're executing very well. I think we've been pleased with the way things have played out, the way we've stayed on target, stayed together as a team. I think the last piece I'll leave you with, I think Barry mentioned it a little bit in the script, but I'll kind of hit it home for you guys here. I think one important thing we delivered when we launched Northstar as well as when we talked about it at Investor Day, as we mentioned, we thought we would spend roughly $115,000,000 to $135,000,000 of restructuring dollars to enable the program and that it would be a roughly IRR of north of 50%.

Speaker 3

I think the great news is, as I said, we're on path, we're executing well, we still see the full value that we promised there, but we're being very disciplined stewards of the restructuring spend. And as Barry said in his script, we're actually spending less than we anticipated. So now we've spent about $80,000,000 to date to the program. We see about another just north of $30,000,000 So as you do the math, I would say we've drifted down to the lower end of that range, which makes the returns on the program even better. So I think we're very pleased with the way it's playing out, the returns we're going to deliver and then ultimately how that's going to lead to improving free cash flow this year, which obviously you can see as we've tightened free cash flow up to the high end, which is well above where we started the year at.

Speaker 3

We've raised guidance along the year. And then it also gives us maybe some ability to have lower restructuring spend as we finish the swing next year and again haven't guided yet, but again look for a material step forward on free cash flow next year. So I think overall, Mark, just very pleased and very proud of the way the team has partnered and stacked hands on the delivery here.

Speaker 1

Excellent. Thank you very much.

Operator

At this time, there are no further questions. And now I'll turn the conference back over to Brian Anderson for any closing or additional remarks.

Speaker 1

Thanks, Justin. Before we conclude, I'd like to share that management will be attending the 2024 Stevens Annual Investment Conference in Nashville on November 20, as well as the UBS Global Technology Conference and the BofA Securities Leveraged Finance Conference on December 2 and 3rd, respectively, during the quarter, for which any applicable webcast information will be posted to our Investor Relations website. Thank you again for joining us this evening. We look forward to speaking with you all again in early 2025 as we share our Q4 and full year 2024 results.

Operator

Thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.

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