DELUXE CORP

Previous wording

A detailed discussion of our strategy can be found in Part I, Item 1 of the 2023 Form 10-K. Having substantially completed our infrastructure modernization initiatives, we have shifted our focus to growth investments, primarily in our payments and data businesses, so that we can continue to drive scale, with the goal of growing profits faster than revenue. Our operations continue to benefit from our disciplined pricing actions and overall cost management. During the third quarter of 2023, we announced our North Star program, the goal of which is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) driving increased cash flow, (3) paying down debt, and (4) improving our leverage ratio. We have begun to see the benefits of our North Star initiatives, with both adjusted EBITDA and adjusted EBITDA margin for the first half of the year improving over 2023, excluding the impact of business exits. Further information can be found in Restructuring and Integration Expense.

Current wording

A detailed discussion of our strategy can be found in Part I, Item 1 of the 2023 Form 10-K. Having substantially completed our infrastructure modernization initiatives, we have shifted our focus to growth investments, primarily in our payments and data businesses, so that we can continue to drive scale, with the goal of growing profits faster than revenue. Our operations continue to benefit from our disciplined pricing actions and overall cost management. During the third quarter of 2023, we announced our North Star program, the goal of which is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) driving increased cash flow, (3) paying down debt, and (4) improving our leverage ratio. We have started to see the benefits of our North Star initiatives, with both adjusted EBITDA and adjusted EBITDA margin for the first nine months of the year improving over 2023, excluding the impact of business exits. In addition, free cash flow increased $30 million for the first nine months of 2024, as compared to the first nine months of 2023, and net debt as of September 30, 2024 decreased $31 million from the prior year end. Further information can be found in Restructuring and Integration Expense.

Previous wording

Realignment – Effective January 1, 2024, we realigned our organizational structure to better reflect our portfolio mix and offerings, and we updated our reportable segments to correspond with these changes. We did not operate under the new segment structure during 2023. Information regarding our realigned reportable segments for the second quarter and first half of 2024 and 2023 can be found under the caption "Note 15: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Current wording

Realignment – Effective January 1, 2024, we realigned our organizational structure to better reflect our portfolio mix and offerings, and we updated our reportable segments to correspond with these changes. We did not operate under the new segment structure during 2023. Information regarding our realigned reportable segments for the third quarter and first nine months of 2024 and 2023 can be found under the caption "Note 15: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Previous wording

2024 earnings vs. 2023 – Multiple factors drove the increase in net income for the first half of 2024, as compared to the first half of 2023, including:

Current wording

2024 earnings vs. 2023 – Multiple factors drove the increase in net income for the first nine months of 2024, as compared to the first nine months of 2023, including:

Previous wording

•growth in the Data Solutions and Merchant Services segments.

Current wording

•revenue growth in the Data Solutions and Merchant Services segments.

Previous wording

•the elimination of the earnings generated by exited businesses;

Current wording

•the elimination of the earnings generated by exited businesses, as well as a related $7 million pretax goodwill impairment charge;

Previous wording

•an increase in bad debt expense of $6.2 million, primarily related to certain specific accounts receivable reserve adjustments in the Print segment.

Current wording

•an increase in bad debt expense of $7 million, primarily related to certain specific accounts receivable reserve adjustments in the Print segment.

Previous wording

Diluted EPS of $0.70 for the first half of 2024, as compared to $0.44 for the first half of 2023, reflects the increase in net income as described in the preceding paragraphs, partially offset by higher shares outstanding in 2024. Adjusted diluted EPS for the first half of 2024 was $1.62 compared to $1.73 for the first half of 2023, and excludes the impact of non-cash items or items that we believe are not indicative of our current period operating performance. The decrease in adjusted diluted EPS was driven by the continuing secular decline in checks, business forms and some business accessories, as well as the impact of business exits, which we estimate reduced adjusted diluted EPS by approximately $0.18 year-over-year, and inflationary pressures on our cost structure. These decreases in adjusted diluted EPS were partially offset by price increases in response to the inflationary environment, the benefit of various cost optimization actions across functional areas, and growth in the Data Solutions and Merchant Services segments. A reconciliation of diluted EPS to adjusted diluted EPS can be found in Consolidated Results of Operations.

Current wording

Diluted EPS of $0.90 for the first nine months of 2024, as compared to $0.25 for the first nine months of 2023, reflects the increase in net income as described in the preceding paragraphs, partially offset by higher shares outstanding in 2024. Adjusted diluted EPS for the first nine months of 2024 was $2.46 compared to $2.53 for the first nine months of 2023, and excludes the impact of non-cash items or items that we believe are not indicative of our current period operating performance. The decrease in adjusted diluted EPS was driven by the continuing secular decline in checks, business forms and some business accessories, as well as the impact of business exits, which we estimate reduced adjusted diluted EPS by approximately $0.24 year over year, inflationary pressures on our cost structure, and increased bad debt expense. These decreases in adjusted diluted EPS were partially offset by price increases in response to the inflationary environment, the benefit of various cost optimization actions across functional areas, and revenue growth in the Data Solutions and Merchant Services segments. A reconciliation of diluted EPS to adjusted diluted EPS can be found in Consolidated Results of Operations.

Previous wording

Cash flows and liquidity – Net cash provided by operating activities increased $18.9 million for the first half of 2024, as compared to the first half of 2023, driven, in large part, by our pricing and cost management initiatives and a reduction in restructuring costs in 2024. In addition, payments for income taxes decreased $9.1 million due to the timing of payments, payments for cloud computing implementation costs decreased $5.8 million related to costs incurred in 2023 for the implementation of our enterprise resource planning ("ERP") system, and performance-based compensation payments decreased $5.3 million compared to the prior year. Partially offsetting these increases in operating cash flow was the continuing secular decline in checks, business forms and some business accessories, as well as the impact of our business exits and inflationary pressures on our cost structure. Free cash flow increased $26.2 million for the first half of 2024, as compared to the first half of 2023. Total debt was $1.56 billion and net debt was $1.53 billion as of June 30, 2024. We held cash and cash equivalents of $23.1 million as of June 30, 2024, and liquidity was $292.4 million. Our capital allocation priorities are to reduce our debt and net leverage, deliver high return internal investments and pay our dividend. We continue to responsibly invest the free cash flow generated by our Print business into our growth businesses. A reconciliation of free cash flow, net debt and liquidity to the comparable GAAP financial measures can be found in Consolidated Results of Operations.

Current wording

Cash flows and liquidity – Net cash provided by operating activities increased $19 million for the first nine months of 2024, as compared to the first nine months of 2023, driven, in large part, by our pricing and cost management initiatives and a reduction in restructuring costs in 2024. In addition, payments for cloud computing implementation costs decreased $6 million related to costs incurred in 2023 for the implementation of our enterprise resource planning ("ERP") system, and performance-based compensation payments decreased $5 million compared to the prior year. Partially offsetting these increases in operating cash flow was the continuing secular decline in checks, business forms and some business accessories, as well as the impact of our business exits and inflationary pressures on our cost structure. In addition, payments for income taxes increased $4 million related primarily to foreign tax payments. Free cash flow increased $30 million for the first nine months of 2024, as compared to the first nine months of 2023. Total debt was $1.53 billion and net debt was $1.49 billion as of September 30, 2024. We held cash and cash equivalents of $41 million as of September 30, 2024, and liquidity was $325 million. Our capital allocation priorities are to reduce our debt and net leverage, deliver high return internal investments and pay our dividend. We continue to responsibly invest the free cash flow generated by our Print business into our growth businesses. A reconciliation of free cash flow, net debt and liquidity to the comparable GAAP financial measures can be found in Consolidated Results of Operations.

Previous wording

Recent market conditions – We continually monitor the interest rate environment and its impact on our outstanding debt. As of June 30, 2024, we held interest rate swaps that effectively convert $739.2 million of our variable-rate debt to a fixed rate. As a result, 77% of our debt had a weighted-average fixed rate of 7.0% as of June 30, 2024, which partially insulates us from future interest rate increases.

Current wording

Recent market conditions – We continually monitor the interest rate environment and its impact on our outstanding debt. As of September 30, 2024, we held interest rate swaps that effectively convert $723 million of our variable-rate debt to a fixed rate. As a result, 78% of our debt had a weighted-average fixed rate of 7.0% as of September 30, 2024, which partially insulates us from future interest rate increases.

Previous wording

We continue to monitor inflationary pressures on our labor, delivery and material costs. In response to the inflationary environment, we implemented targeted price increases, primarily in our Print segment and more recently in Merchant Services. Despite the price changes, we continue to experience healthy revenue volumes, demonstrating the strength of our business and continued demand for our products. We have, at times, experienced some supply disruptions impacting certain printed products in our Print segment. We continuously monitor our supply chain to avoid delays or disruptions. We have also experienced labor supply issues in portions of our business. It remains difficult to estimate the severity and duration of inflation or supply chain and labor issues on our business, financial position or results of operations.

Current wording

We continue to monitor inflationary pressures on our labor, delivery and material costs. In response to the inflationary environment, we implemented targeted price increases, primarily in our Print and Merchant Services segments. Despite the price changes, we continue to experience healthy revenue volumes, demonstrating the strength of our business and continued demand for our products. We have, at times, experienced some supply disruptions impacting certain printed products in our Print segment. We continuously monitor our supply chain to avoid delays or disruptions. We have also experienced labor supply issues in portions of our business. It remains difficult to estimate the severity and duration of inflation or supply chain and labor issues on our business, financial position or results of operations.

Previous wording

We also monitor trends in small business sentiment and consumer discretionary spending. We review many data sources, including information from the credit card brands, the Federal Reserve and other economic forecast providers, as well as our own proprietary data. These trends impact multiple areas of our portfolio, most notably our Merchant Services segment. Our year-to-date performance reflected the generally stable economic environment, despite some signs of continued pressure on the average consumer. In Merchant Services, ratios of non-discretionary spend compared with discretionary spend have remained a bit elevated, and in certain market verticals we have seen some flattening of same store sales. Similarly, demand for some of our discretionary promotional products has also softened. These data points, combined with some lingering macroeconomic uncertainty for the balance of the year, are reflected in our 2024 revenue outlook.

Current wording

We also monitor trends in small business sentiment and consumer discretionary spending. We review many data sources, including information from the credit card brands, the Federal Reserve and other economic forecast providers, as well as our own proprietary data. These trends impact multiple areas of our portfolio, most notably our Merchant Services and Print segments. Our year-to-date performance reflected the generally stable economic environment. While consumers remain under pressure in some areas, we believe downward trends in discretionary consumer spending have largely stabilized. At the same time, we have seen demand soften for some of our discretionary promotional products in the Print segment. These data points are reflected in our 2024 revenue outlook.

Previous wording

We expect that revenue for 2024 will be between $2.12 billion and $2.16 billion, compared to 2023 revenue of $2.19 billion, which included revenue of approximately $56 million from our various business exits. We expect that adjusted EBITDA for the full year will be between $400 million and $420 million, compared to $417 million for 2023, which included adjusted EBITDA of approximately $26 million from our business exits. We expect that adjusted diluted EPS for 2024 will be between $3.10 and $3.40, compared to $3.32 for 2023, which included approximately $0.30 from our business exits, and we expect that free cash flow for the full year will be between $80 million and $100 million, compared to $98 million for 2023. Our outlook ranges exclude the payroll and human resources services business that we are currently in the process of exiting. These estimates are subject to, among other things, prevailing macroeconomic conditions, global unrest, labor supply issues, inflation and the impact of business exits. Information regarding our outlook information can be found in Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section.

Current wording

We expect that revenue for 2024 will be between $2.12 billion and $2.14 billion, compared to 2023 revenue of $2.19 billion, which included revenue of approximately $56 million from our business exits. We expect that adjusted EBITDA for the full year will be between $405 million and $415 million, compared to $417 million for 2023, which included adjusted EBITDA of approximately $26 million from our business exits. We expect that adjusted diluted EPS for 2024 will be between $3.20 and $3.35, compared to $3.32 for 2023, which included approximately $0.30 from our business exits, and we expect that free cash flow for the full year will be between $90 million and $100 million, compared to $98 million for 2023. Our outlook ranges exclude the payroll and human resources services business that we are currently in the process of exiting. These estimates are subject to, among other things, prevailing macroeconomic conditions, global unrest, labor supply issues, inflation and the impact of business exits. Information regarding our outlook information can be found in Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section.

Previous wording

As of June 30, 2024, we held cash and cash equivalents of $23.1 million and $269.3 million was available for borrowing under our revolving credit facility. We anticipate that capital expenditures will be approximately $100 million for the full year, as compared to $101 million for 2023, as we continue with important innovation investments and building scale across our product categories. We also expect that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations, including our contractual obligations and debt service requirements, for the next 12 months, as well as our long-term capital requirements. We were in compliance with our debt covenants as of June 30, 2024, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.

Current wording

As of September 30, 2024, we held cash and cash equivalents of $41 million and $283 million was available for borrowing under our revolving credit facility. We anticipate that capital expenditures will be approximately $100 million for the full year, as compared to $101 million for 2023, as we continue with important innovation investments and building scale across our product categories. We also expect that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations, including our contractual obligations and debt service requirements, for the next 12 months, as well as our long-term capital requirements. We were in compliance with our debt covenants as of September 30, 2024, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.

Previous wording

The decreases in total revenue for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven, in part, by the business exits discussed in Executive Overview, which resulted in a decrease in revenue of approximately $17 million for the second quarter of 2024 and $34 million for the first half of 2024. Also contributing to the decrease in revenue was the continuing secular decline in order volumes for checks, business forms and some business accessories, as well as a decrease in treasury management revenue due to reduced lockbox processing volumes and the transition from our dependency on one-time, non-recurring revenue to a recurring revenue model. Partially offsetting these decreases in revenue were price increases in response to the inflationary environment, primarily in the Print and Merchant Services segments, as well as growth in the Merchant Services segment driven by both increased volume and new customers. In addition, for the first half of 2024, strong demand for our data-driven marketing services drove a $13 million increase in revenue.

Current wording

The decreases in total revenue for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven, in part, by the business exits discussed in Executive Overview, which resulted in a decrease in revenue of approximately $6 million for the third quarter of 2024 and $39 million for the first nine months of 2024. Also contributing to the decrease in revenue was the continuing secular decline in order volumes for checks, business forms and some business accessories, as well as a decrease in treasury management revenue due to reduced lockbox processing volumes and the transition from our dependency on one-time, non-recurring revenue to a recurring revenue model. Partially offsetting these decreases in revenue were price increases in response to the inflationary environment, primarily in the Print and Merchant Services segments, as well as revenue growth in the Merchant Services segment driven by both volume and new customers. In addition, for the first nine months of 2024, strong demand for our data-driven marketing services drove a $10 million increase in revenue.

Previous wording

The decreases in total cost of revenue for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven by reduced revenue volume from the continuing secular decline in checks, business forms and some business accessories, as well as the benefit of our various cost optimization initiatives and the decrease in treasury management revenue. In addition, total cost of revenue decreased approximately $7 million for the second quarter of 2024 and $13 million for the first half of 2024 due to the business exits discussed under Executive Overview, and restructuring and integration expense included in cost of revenue decreased $3 million for the second quarter of 2024 and $4 million for the first half of 2024. Partially offsetting these decreases in cost of revenue was the revenue growth in Merchant Services and inflationary pressure on hourly wages, materials and delivery. In addition, for the first half of 2024, strong demand for our data-driven marketing services drove an increase in cost of revenue, and we recorded additional amortization expense of $3 million related to the acceleration of amortization on the assets of our payroll and human resources business, which we are currently in the process of exiting.

Current wording

The decreases in total cost of revenue for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven by reduced revenue volume from the continuing secular decline in checks, business forms and some business accessories, as well as the benefit of our various cost optimization initiatives and the decrease in treasury management revenue. In addition, restructuring and integration expense included in cost of revenue decreased $6 million for the third quarter of 2024 and $10 million for the first nine months of 2024, and total cost of revenue decreased approximately $2 million for the third quarter of 2024 and $15 million for the first nine months of 2024 due to the business exits discussed under Executive Overview. Partially offsetting these decreases in cost of revenue was the revenue growth in Merchant Services and inflationary pressure on hourly wages, materials and delivery. In addition, for the first nine months of 2024, strong demand for our data-driven marketing services drove an increase in cost of revenue, and we recorded additional amortization expense of $3 million related to the acceleration of amortization on the assets of our payroll and human resources services business, which we are currently in the process of exiting.

Previous wording

Total cost of revenue as a percentage of total revenue for the second quarter of 2024 decreased as compared to the second quarter of 2023, as the benefit of our pricing and cost optimization actions, the lower restructuring and integration expense and changes in campaign timing and client mix in Data Solutions more than offset the inflationary impacts. For the first half of 2024, total cost of revenue as a percentage of total revenue was the same as the first half of 2023, as these factors, along with the accelerated amortization expense, offset each other.

Current wording

Total cost of revenue as a percentage of total revenue for the third quarter and first nine months of 2024 decreased as compared to the same periods in 2023, as the benefits of our pricing and cost optimization actions, the lower restructuring and integration expense and changes in campaign timing and client mix in Data Solutions more than offset the inflationary impacts and the accelerated amortization expense associated with our business exits.

Previous wording

The decreases in SG&A expense for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven, in large part, by our various cost management actions, including workforce adjustments, marketing optimization and real estate rationalization, as well as a decrease related to the business exits discussed under Executive Overviewof approximately $4 million for the second quarter of 2024 and $9 million for the first half of 2024. Additionally, acquisition amortization, excluding the impact of accelerated amortization resulting from changes in the estimated useful lives of certain intangible assets, decreased $6 million for the second quarter of 2024 and $12 million for the first half of 2024, as certain of our intangible assets are amortized using accelerated methods. These decreases in SG&A expense were partially offset by accelerated amortization of $7 million in the second quarter and first half of 2024 related to brand consolidation within the Merchant Services segment, and bad debt expense increased $5 million for the second quarter of 2024 and $6 million for the first half of 2024, primarily related to certain specific accounts receivable reserve adjustments. We do not expect this magnitude of accounts receivable reserve adjustments to continue over the last half of 2024. In addition, for the first half of 2024, we incurred increased costs related to investments in our technology infrastructure.

Current wording

The decreases in SG&A expense for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven, in large part, by our various cost management actions, including workforce adjustments, marketing optimization and real estate rationalization, as well as a decrease related to the business exits discussed under Executive Overviewof approximately $1 million for the third quarter of 2024 and $10 million for the first nine months of 2024. For the first nine months of 2024, these decreases in SG&A expense were partially offset by a $7 million increase in bad debt expense, primarily related to certain specific accounts receivable reserve adjustments in the Print segment.

Previous wording

Gain on Sale of Businesses and Long-Lived Assets

Current wording

Gain (Loss) on Sale of Businesses and Long-Lived Assets

Previous wording

As discussed in Executive Overview, we are currently in the process of exiting our payroll and human resources services business, and we recognized income of $15.4 million during the second quarter of 2024 and $23.0 million during the first half of 2024 related to conversion agreements executed in 2023. In June 2023, we completed the sale of our North American web hosting and logo design businesses. Further information regarding these business exits can be found under the caption "Note 6: Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Current wording

As discussed in Executive Overview, we are currently in the process of exiting our payroll and human resources services business, and we recognized income of $5 million during the third quarter of 2024 and $28 million during the first nine months of 2024 related to customer conversion agreements executed in 2023. In June 2023, we completed the sale of our North American web hosting and logo design businesses. Further information regarding these business exits can be found under the caption "Note 6: Divestitures" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part 1, Item 1 of this report.

Previous wording

The decreases in interest expense for the second quarter and first half of 2024, as compared to the same periods in 2023, were primarily due to the decrease in average debt outstanding. For the first half of 2024, this decrease was partially offset by the impact of higher interest rates. Based on the amount of variable-rate debt outstanding as of June 30, 2024, a one percentage point change in the weighted-average interest rate would result in a change in interest expense of approximately $2 million for the remainder of 2024.

Current wording

The decreases in interest expense for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were primarily due to the decrease in average debt outstanding. For the first nine months of 2024, this decrease was partially offset by the impact of higher interest rates. Based on the amount of variable-rate debt outstanding as of September 30, 2024, a one percentage point change in the weighted-average interest rate would result in a change in interest expense of approximately $1 million for the remainder of 2024.

Previous wording

The change in our effective income tax rate for the second quarter of 2024, as compared to the second quarter of 2023, was driven primarily by the impact of business exit activities on the 2023 income tax rate.

Current wording

The change in our effective income tax rate for the third quarter of 2024, as compared to the third quarter of 2023, was driven primarily by the pretax loss for the third quarter of 2023, as well as discrete items related to our business exit activity in each period.

Previous wording

The effective income tax rate decreased for the first half of 2024, as compared to the first half of 2023, as the business exit activity in 2023 was more than offset by lower tax impacts in 2024 from share-based compensation.

Current wording

The effective income tax rate decreased for the first nine months of 2024, as compared to the first nine months of 2023, as the higher tax rate benefit from business exit activity in 2023 was more than offset by lower tax rate impacts in 2024 from share-based compensation and the repatriation of foreign earnings.

Previous wording

The increases in net income and diluted EPS for the second quarter of 2024, as compared to the second quarter of 2023, were driven by our pricing and cost optimization actions, a $16 million reduction in restructuring and integration expense and a $7 million reduction in acquisition amortization, excluding the impact of accelerated amortization resulting from changes in the estimated useful lives of certain intangible assets, as certain of our intangible assets are amortized using accelerated methods. Growth in Merchant Services and a $2 million reduction in interest expense also contributed to the increases. Partially offsetting these increases in net income and diluted EPS was the continuing secular decline in checks, business forms and some business accessories and a decrease of approximately $0.11 per share due to our business exits. In addition, the decreases were driven by inflationary pressures on hourly wages, materials and delivery; accelerated amortization of $7 million related to brand consolidation within Merchant Services; a decrease in gain on sale of businesses and long-lived assets of $7 million; and an increase in bad debt expense of $5 million for the second quarter of 2024. The decrease in adjusted diluted EPS for the second quarter of 2024, as compared to the second quarter of 2023, was driven by the continuing secular decline in checks, business forms and some business accessories, as well as the impact of business exits, inflationary pressures on our cost structure, and increased bad debt expense. Partially offsetting these decreases in adjusted EPS were our pricing and cost optimization actions, growth in Merchant Services and lower interest expense.

Current wording

•a $2 million reduction in interest expense.

Previous wording

The increases in net income and diluted EPS and the decrease in adjusted diluted EPS for the first half of 2024, as compared to the first half of 2023, were driven by the factors outlined in Executive Overview - 2024 earnings vs. 2023.

Current wording

The increases in net income and diluted EPS and the decrease in adjusted diluted EPS for the first nine months of 2024, as compared to the first nine months of 2023, were driven by the factors outlined in Executive Overview - 2024 earnings vs. 2023.

Previous wording

The decreases in adjusted EBITDA for the second quarter and first half of 2024, as compared to the same periods in 2023, were due to the continuing secular decline in checks, business forms and some business accessories; inflationary pressures on hourly wages, materials and delivery; and for the first half of 2024, investments in our technology infrastructure. In addition, adjusted EBITDA decreased $7 million for the second quarter of 2024 and $13 million for the first half of 2024 due to the business exits discussed under Executive Overview, and increased bad debt expense also contributed to the decrease. Partially offsetting these decreases in adjusted EBITDA were the benefits of our pricing and cost optimization actions, growth in Merchant Services, and for the first half of 2024, growth in Data Solutions.

Current wording

The decrease in adjusted EBITDA for the first nine months of 2024, as compared to the first nine months of 2023, was driven by the continuing secular decline in checks, business forms and some business accessories; a $16 million decline driven by the business exits discussed under Executive Overview; inflationary pressures on hourly wages, materials and delivery; and an increase in bad debt expense of $7 million, primarily related to certain specific accounts receivable reserve adjustments in the Print segment. Partially offsetting these decreases in adjusted EBITDA were the benefits of our pricing and cost optimization actions and revenue growth in Data Solutions and Merchant Services.

Previous wording

Adjusted EBITDA margin increased for the second quarter and first half of 2024, as compared to the same periods in 2023, as pricing and cost optimization actions more than offset the inflationary pressures, our infrastructure investments and the increase in bad debt expense.

Current wording

Adjusted EBITDA margin increased for the third quarter and first nine months of 2024, as compared to the same periods in 2023, as pricing and cost optimization actions more than offset the inflationary pressures. For the first nine months of 2024, adjusted EBITDA margin was also negatively impacted by the increase in bad debt expense.

Previous wording

Net income reconciles to adjusted EBITDA and adjusted EBITDA margin as follows:

Current wording

Net income (loss) reconciles to adjusted EBITDA and adjusted EBITDA margin as follows:

Previous wording

We are currently pursuing several initiatives designed to support our growth strategy and to increase our efficiency, including several initiatives that we collectively refer to as our North Star program. The goal of these initiatives is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) increasing cash flow, (3) paying down debt, and (4) improving our leverage ratio. Our various initiatives include a balanced mix of structural cost reductions focused on organizational structure, processes and operational improvements, in addition to workstreams to drive revenue growth. We have already combined like-for-like capabilities, reduced management layers and consolidated core operations to run more efficiently and to create the ability to invest in high impact talent to accelerate our growth businesses of payments and data. We have made meaningful progress on all of the North Star initiatives, and we expect we will continue to see the benefits in our results of operations for the second half of this year and throughout 2025. For example, during the second quarter of 2024, we began the consolidation into one unified brand of all six brands acquired in 2021 as part of the First American acquisition. We expect that this will improve our marketing effectiveness and lower our costs over time. Further information regarding our restructuring and integration expense, including expenses related to our North Star program, can be found under the caption "Note 9: Restructuring and Integration Expense" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Current wording

We are currently pursuing several initiatives designed to support our growth strategy and to increase our efficiency, including several initiatives that we collectively refer to as our North Star program. The goal of these initiatives is to further drive shareholder value by (1) expanding our EBITDA growth trajectory, (2) increasing cash flow, (3) paying down debt, and (4) improving our leverage ratio. The various initiatives include a balanced mix of structural cost reductions focused on organizational structure, processes and operational improvements, in addition to workstreams to drive revenue growth. As part of these initiatives, we have already combined like-for-like capabilities, reduced management layers and consolidated core operations to run more efficiently and to create the ability to invest in high impact talent to accelerate our growth businesses of payments and data. We have made meaningful progress on all of the remaining North Star initiatives, and we expect we will continue to see the benefits in our results of operations for the remainder of the year and throughout 2025. For example, during the second quarter of 2024, we began the consolidation into one unified brand of all six brands acquired in 2021 as part of the First American acquisition. We expect that this will improve our marketing effectiveness and lower our costs over time. We have also made significant progress in reducing our corporate expenses, which decreased 12% for the first nine months of 2024, as compared to the first nine months of 2023. Further information regarding our restructuring and integration expense, including expenses related to our North Star program, can be found under the caption "Note 9: Restructuring and Integration Expense" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Previous wording

We expect that the benefits of the various North Star initiatives will continue to ramp up over the coming quarters. The overall program targets a $100 million run-rate improvement in free cash flow and an $80 million run-rate improvement in adjusted EBITDA by 2026. Through June 30, 2024, we have incurred related restructuring and integration expense of approximately $70 million, and we anticipate that we will incur additional North Star restructuring and integration expense of approximately $50 million through 2025. These charges will include professional services fees, employee severance and other restructuring-related charges.

Current wording

We expect that the benefits of the various North Star initiatives will continue to ramp up over the coming quarters. The overall program targets a $100 million run-rate improvement in free cash flow and an $80 million run-rate improvement in adjusted EBITDA by 2026. Through September 30, 2024, we have incurred related restructuring and integration expense of approximately $80 million, and we anticipate that we will incur additional North Star restructuring and integration expense of approximately $30 million through 2025. These charges will include professional services fees, employee severance and other restructuring-related charges.

Previous wording

The majority of the employee reductions included in our restructuring and integration accruals as of June 30, 2024, as well as the related severance payments, are expected to be completed within the next year. As a result of these employee reductions, including those related to our North Star program, we expect to realize annual cost savings of approximately $10 million in cost of sales and $25 million in SG&A expense in 2024, in comparison to our 2023 results of operations. In addition, we anticipate cost savings from facility closures of approximately $3 million in 2024, in comparison to our 2023 results of operations. Note that these savings may be offset by increased labor and other costs, including inflationary impacts and investments in the business.

Current wording

The majority of the employee reductions included in our restructuring and integration accruals as of September 30, 2024, as well as the related severance payments, are expected to be completed by mid-2025. As a result of these employee reductions, including those related to our North Star program, we expect to realize annual cost savings of approximately $10 million in cost of sales and $25 million in SG&A expense in 2024, in comparison to our 2023 results of operations. In addition, we anticipate cost savings from facility closures of approximately $3 million in 2024, in comparison to our 2023 results of operations. Note that these savings may be offset by increased labor and other costs, including inflationary impacts and investments in the business.

Previous wording

The increases in total revenue for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven by customer wins spanning our market channels, including our bank partner relationships and increasing penetration with integrated software vendors, or ISVs. In addition, revenue also benefited from favorable volume, most notably in our government channel, as well as pricing actions in the second quarter of 2024 in response to the inflationary environment. For the full year, we anticipate mid to high single-digit revenue growth. Year-over-year comparisons in the fourth quarter of 2024, in particular, will be negatively impacted by a large customer conversion that we completed in the fourth quarter of 2023.

Current wording

The increases in total revenue for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven by customer wins spanning our market channels, including our bank partner relationships and increasing penetration with integrated software vendors, or ISVs. In addition, revenue also benefited from favorable volume, most notably in our government channel, as well as pricing actions in the second quarter of 2024 in response to the inflationary environment. For the full year, we continue to anticipate mid to high single-digit revenue growth, even though the year-over-year comparison in the fourth quarter of 2024 will be negatively impacted by a large customer conversion that we completed in the fourth quarter of 2023.

Previous wording

The increases in adjusted EBITDA for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven primarily by the revenue growth and price increases. Adjusted EBITDA margin increased for the second quarter and first half of 2024, as compared to the same periods in 2023, driven by the scalability of this business and the pricing actions. For the full year, we expect adjusted EBITDA margin to be in the low 20% range.

Current wording

The increases in adjusted EBITDA for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven primarily by the revenue growth and price increases. Adjusted EBITDA margin decreased for the third quarter of 2024, as compared to the third quarter of 2023, driven by year-over-year changes in customer and market channel mix, partially offset by the pricing actions. Adjusted EBITDA margin increased for the first nine months of 2024, as compared to the first nine months of 2023, driven by the scalability of this business and the pricing actions. For the full year, we expect adjusted EBITDA margin to remain in the low 20% range.

Previous wording

Total revenue decreased for the second quarter and first half of 2024, as compared to the same periods in 2023, driven primarily by reduced lockbox processing volumes and some non-recurring hardware and other sales during 2023. We are in the midst of a transition from our dependency on one-time, non-recurring revenue to a recurring revenue model. As such, we are deliberately reducing focus on selling lower-margin products such as check imaging devices and one-time software licenses. We currently have a number of new remittance processing customers in the implementation phase, and we expect them to go live later this year. Partially offsetting these decreases in revenue was the benefit of a modest price increase implemented in response to the inflationary environment. For the full year, we anticipate that revenue will decline in the low single-digit percentage range as we continue to transition to recurring revenue.

Current wording

Total revenue increased slightly for the third quarter of 2024, as compared to the third quarter of 2023, driven primarily by the implementation of new remittance processing customers and the benefit of a modest price increase implemented in response to the inflationary environment. Partially offsetting these increases in revenue were non-recurring hardware and other sales during 2023. We are in the midst of a transition from our dependency on one-time, non-recurring revenue to a recurring revenue model. As such, we are deliberately reducing focus on selling lower-margin products such as check imaging devices and one-time software licenses.

Previous wording

The decrease in total revenue for the second quarter of 2024, as compared to the second quarter of 2023, was driven primarily by campaign timing dynamics during 2023. This business experiences some quarter-to-quarter volatility driven by the timing of our customers' marketing campaigns, which presents a challenge when forecasting revenue.

Current wording

The decrease in total revenue for the third quarter of 2024, as compared to the third quarter of 2023, was driven primarily by data-driven marketing campaign timing dynamics during each period. This business experiences some quarter-to-quarter volatility driven by the timing of our customers' marketing campaigns.

Previous wording

The increase in total revenue for the first half of 2024, as compared to the first half of 2023, was driven primarily by strong demand for customer acquisition marketing activities across both our base of core financial institution partners, as well as our growing portfolio of other clients. New campaign activity remains strong, and we anticipate that our mid- to high single-digit longer term growth outlook remains appropriate from a full year perspective.

Current wording

The increase in total revenue for the first nine months of 2024, as compared to the first nine months of 2023, was driven primarily by strong demand for customer acquisition marketing activities across both our base of core financial institution partners, as well as our growing portfolio of other clients. New campaign activity remains strong, and we anticipate that our mid- to high single-digit longer term growth outlook remains appropriate from a full year perspective.

Previous wording

Adjusted EBITDA for the second quarter and first half of 2024 increased compared to the same periods in 2023, driven primarily by changes in campaign timing and client mix and our cost optimization actions. For first half of 2024, adjusted EBITDA also benefited from the increase in data-driven marketing volume. Adjusted EBITDA margin increased for the second quarter and first half of 2024, as compared to the same periods in 2023, driven primarily by changes in campaign timing and client mix and cost optimization actions. For the full year, we anticipate that adjusted EBITDA will be in the low to mid-20% range.

Current wording

Adjusted EBITDA for the third quarter and first nine months of 2024 increased compared to the same periods in 2023, driven primarily by changes in campaign timing and client mix and our cost optimization actions. For the first nine months of 2024, adjusted EBITDA also benefited from the increase in data-driven marketing volume. Adjusted EBITDA margin increased for the third quarter and first nine months of 2024, as compared to the same periods in 2023, driven primarily by changes in client mix and cost optimization actions. We anticipate that adjusted EBITDA margin will continue to be in the low to mid-20% range going forward.

Previous wording

The decreases in total revenue for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven primarily by the continuing secular decline in order volumes for checks, business forms and some business accessories, as well as some demand softness for our promotional products. For the second quarter of 2024, the decrease was also partially attributable to benefits in the second quarter of 2023 from a revenue shift related to the implementation of our ERP system in the first quarter of 2023. These decreases in revenue were partially offset by pricing actions in response to the inflationary environment. For the full year, we expect that the percentage revenue decline will be in the low to mid-single digits.

Current wording

The decreases in total revenue for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven primarily by the continuing secular decline in order volumes for checks, business forms and some business accessories, as well as some demand softness for our promotional products. These decreases in revenue were partially offset by pricing actions in response to the inflationary environment. For the full year, we expect that the percentage revenue decline will be in the low to mid-single digits.

Previous wording

The decreases in adjusted EBITDA for the second quarter and first half of 2024, as compared to the same periods in 2023, were driven by the secular decline in order volumes, reduced volume for our promotional products, and inflationary pressures on delivery and materials. In addition, adjusted EBITDA was impacted by increased bad debt expense, primarily related to certain specific accounts receivable reserve adjustments that we do not expect to continue over the last half of 2024. These decreases in adjusted EBITDA were partially offset by pricing actions in response to the inflationary environment, as well as the benefit of various cost optimization initiatives. We remain focused on operating expense discipline and overall efficiency in this segment. Adjusted EBITDA margin for the second quarter and first half of 2024 decreased as compared to the same periods in 2023, as the impact of inflationary cost pressures, the lower order volumes and the increased bad debt expense more than offset the benefit of pricing and cost optimization actions. For the full year, we continue to expect adjusted EBITDA margin in the low 30% range.

Current wording

The decreases in adjusted EBITDA for the third quarter and first nine months of 2024, as compared to the same periods in 2023, were driven by the secular decline in order volumes, reduced volume for our promotional products, and inflationary pressures on delivery and materials. In addition, for the nine month period, adjusted EBITDA was impacted by increased bad debt expense, primarily related to certain specific accounts receivable reserve adjustments. These decreases in adjusted EBITDA were partially offset by pricing actions in response to the inflationary environment, as well as the benefit of various cost optimization initiatives. We remain focused on operating expense discipline and overall efficiency in this segment.

Previous wording

As of June 30, 2024, we held cash and cash equivalents of $23.1 million and restricted cash and restricted cash equivalents included in funds held for customers and other non-current assets of $54.9 million. The following table shows our cash flow activity for the six months ended June 30, 2024 and 2023 and should be read in conjunction with the consolidated statements of cash flows appearing in Part I, Item 1 of this report.

Current wording

As of September 30, 2024, we held cash and cash equivalents of $41 million and restricted cash and restricted cash equivalents included in funds held for customers and other non-current assets of $44 million. The following table shows our cash flow activity for the nine months ended September 30, 2024 and 2023 and should be read in conjunction with the consolidated statements of cash flows appearing in Part I, Item 1 of this report.

Previous wording

Net cash provided by operating activities increased $18.9 million for the first half of 2024, as compared to the first half of 2023, driven, in large part, by our pricing and cost management initiatives and a reduction in restructuring costs in 2024. In addition, payments for income taxes decreased $9.1 million due to the timing of payments, payments for cloud computing implementation costs decreased $5.8 million related to costs incurred in 2023 for the implementation of our ERP system, and performance-based compensation payments decreased $5.3 million compared to the prior year. Partially offsetting these increases in operating cash flow was the continuing secular decline in checks, business forms and some business accessories, as well as the impact of our business exits and inflationary pressures on our cost structure.

Current wording

Net cash provided by operating activities increased $19 million for the first nine months of 2024, as compared to the first nine months of 2023, driven, in large part, by our pricing and cost management initiatives and a reduction in restructuring costs in 2024. In addition, payments for cloud computing implementation costs decreased $6 million related to costs incurred in 2023 for the implementation of our ERP system, and performance-based compensation payments decreased $5 million compared to the prior year. Partially offsetting these increases in operating cash flow was the continuing secular decline in checks, business forms and some business accessories, as well as the impact of our business exits and inflationary pressures on our cost structure. In addition, payments for income taxes increased $4 million related primarily to foreign tax payments.