Chances are that your first checkbook bore the stamp "Deluxe" on the cover. Now there's a good chance that if you receive a coronavirus stimulus check from the federal government, it could be sent by Deluxe.
Founded in 1915 by W. R. Hotchkiss, who is credited with creating the first flat checkbook, Shoreview, Minnesota-based Deluxe remains a major printer of checks. As one of the few companies with the capabilities to handle payments on this scale, Deluxe is in a good position to be among the disbursement agents for the coronavirus government payments.
But Deluxe has become much more than a check-printing company. (The name was never a reference to the quality of the checks but to the company that printed them.) Today Deluxe offers a broad range of services, including cloud services and web hosting, and lists clients from the Federal Reserve to 4,000 financial institutions and 5 million small business customers — many facing a business shock caused by the pandemic.
There are millions of small businesses in the U.S. employing others where concerns remain high that government assistance cannot get out fast enough or far enough. According to a recent Goldman Sachs survey, 96% of small businesses say they've already been hit by the coronavirus and only half of small businesses expect to be able to sustain operations for another three months. In the distressed restaurant, leisure and hospitality sector, current estimates are that as many as 30,000 individual franchise owners may permanently close in the next 45 days, causing approximately 330,000 job losses.
Deluxe, which has 6,500 employees and revenues projected to top $2 billion this fiscal year, is paramount to the functioning of the financial system, helping businesses pay and get paid, and processing more than $2.8 trillion in annual payment volume, or roughly 14% of the U.S. GDP. This means much of the work Deluxe is doing now, such as supporting small businesses and any potential role in helping get government stimulus checks out to Americans, means it has to ensure its own workforce health.
To that end, many Deluxe employees are working from home in an effort to stop the spread of COVID-19, while at the office the company is cleaning and disinfecting surfaces so employees there can continue to perform critical financial duties.
"We have a lot to offer businesses at this time of need, from helping health-care payers to streamline and digitize the process of paying providers, which is difficult to do when back-office services have been disrupted, to providing a package of resources so that restaurants can digitize their menus and accept payments online — and so much more," says a Deluxe spokesman. "We are working overtime to help minimize the impact of this pandemic on our clients and the economy."
With checks' use fading steadily in the digital era, CEO Barry McCarthy was scrambling to reposition the 105-year-old company for 21st-century relevance well before the current crisis unfolded.
Under McCarthy's predecessors, growth was driven largely by acquisition. Deluxe had acquired more than 50 companies and allowed them to operate as separate entities. It now has a total of 80 under its umbrella.
"We were run as a company of companies, not as a company of products," said McCarthy in an interview conducted before the coronavirus spread in the U.S. The result was 50 different CRM systems and 150 different sales compensation plans. Sales teams for one product knew little about the products other teams were selling and had no incentive to pitch them to their customers. Despite the plethora of offerings, the average customer used just 1.1 Deluxe products, he said.
McCarthy, who came to Deluxe from credit-card processing giant First Data in November 2018, was wary of the job when he was first approached. "I spent the last 14 years of my career trying to eliminate checks," he recalled. But he changed his mind when he saw the range of product offerings. "I saw a collection of unparalleled assets with unparalleled reach in the marketplace and an opportunity to bring those assets together to drive growth and transformation."
He has spent the last year building a team to carry out his plan. He created a Transformation Leadership Office to break down barriers between parts of the company. Key is chief revenue officer Chris Thomas, who came aboard last July. His primary task is to drive organic growth. "The company of companies model made it difficult to drive a sustainable sales organization," said Thomas, who joined Deluxe after stints at DXC Technologies and Hewlett-Packard.
In January, Thomas led a first-ever meeting with the company's entire sales staff. It focused on training sales reps to cross-sell products to existing customers. Some sales executives who had been with the company for 25 years learned for the first time about offerings from other parts of the business. Last July, Deluxe announced an agreement with Salesforce.com to implement its CRM software company-wide, creating one database of customers and enabling each salesperson to see what contacts the customer was having with other Deluxe units. It has helped create a singular view of the company's customer base so salespeople could cross-sell better by integrating customer service, direct and indirect sales, digital commerce and analytics into a single system.
In the past, Deluxe salespeople would run into each other at customer sites and discover they were pitching to the same person. "We've put in place some intelligent best practices, and we have now built an engine which has allowed us to build a win rate," said Thomas.
In the agreement, Deluxe will offer its customers Salesforce's cloud services for small business, Salesforce Essentials. "Salesforce and Deluxe both have championed small businesses since the beginning, providing access to technology that has previously only been accessible to larger enterprises," said Meredith Schmidt, executive vice president and GM of Salesforce Essentials and SMB. "By making technology easy to use and affordable for entrepreneurs, both companies are supporting the growth of small businesses and making an impact in communities around the world."
Deluxe is already winning new business. In 2019 the company landed three of the largest deals in its history, including a five-year contract that could be worth $100 million with Stamford, Connecticut-based Synchrony Financial and one with CIBC, one of Canada's "big five" banks, opening opportunities to sell lockbox processing, data-driven marketing and treasury management to financial institutions in the Canadian market. "We have created a cultural rallying cry, and we call it 'Everyone sells,'"said Thomas.
McCarthy conceded that creating a single company culture out of many long-independent units was one of his greatest challenges. In April 2019 the company gave shares of stock to every employee, with the minimum amount per employee at $750. "People that are shareholders respond differently from people who are just employees," said McCarthy, who says he wanted to get across that "silos have no place in a company where we are all driving value from the same stock."
Thomas said the new team approach has already paid off, with leads for new customers coming from all parts of the company. The company has also reached out more broadly to customers. It opened its annual client event — usually limited to financial services — to all customers in February. Deluxe Exchange at the Arizona Biltmore Hotel in Phoenix drew 480 attendees.
Investors have yet to be convinced. Deluxe is trading well below the $78-per-share level it attained in January 2018. In the interview conducted before the current market crisis, McCarthy blamed the stock drop on four guidance revisions downward before he came aboard, triggered by delays in completing acquisitions the company depended on for revenue growth. "If an acquisition closes late, you start missing your guidance," he said. There will be more acquisitions, the CEO assured, but they will likely be fewer, larger and more impactful.
The current market environment has dealt another, at least short-term, blow. Shares of Deluxe are down near-50% since the beginning of January to a recent low of $25. Other fintechs that cater to small businesses have also been hit hard since the business shutdowns, including Square, which lost almost half of its stock value from a February high.
Christopher McGinnis, an analyst at equity research firm Sidoti, maintains a buy recommendation on Deluxe, although the company has withdrawn its first-quarter and full-year guidance for 2020 in face of the current economic uncertainty. In his latest report, published on March 26, McGinnis lowered his price target for the stock to $46 from his previous target of $70 a share. "While Covid-19 will likely cause business disruptions at DLX, we continue to like the transition strategy," McGinnis wrote.
McCarthy has announced a new organizational structure to take effect this year. Deluxe will have four divisions: cloud, payments, promotional products and checks, the first three headed by newly recruited general managers. However, implementing the new plan will require some investment and could have an estimated 10% hit on earnings per share in 2020 before recovering. The biggest long-term risks: a sharper decline in check sales and competition in many of its product categories.
To help build its brand, the company has created a small business reality show distributed through Hulu called "Small Business Revolution." Now in its fifth season, the show tracks the company's efforts to revitalize a small town selected by viewers. It focuses on providing expert advice to several struggling businesses.
McCarthy is convinced he's in the right place. "I've always sought opportunities at businesses that were at inflection points, whether they needed to be turned around, reinvigorated or new pathways to growth," he said. "The job now is to step on the gas."