Deluxe Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode, and today's conference call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Tom Morbido. Please go ahead, sir.

Thank you, Operator, and welcome to the second quarter 2021 earnings call. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer, and Scott Bomar, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin, and as seen on this slide, I'd like to remind everyone the comments made today regarding management's intentions, projections, financial estimates, or expectations about the company's future strategy or performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. These comments are subject to risks and uncertainties, including, without limitation, risks related to COVID, the risk that the company's recent acquisition of First American Payment Systems or any other acquisitions does not produce anticipated results or synergies, and the risk that any future acquisitions or divestitures will not be consummated. Any of these risks and uncertainties could cause our actual results to differ materially from our projections. Additional information about factors that may cause our actual results to differ from projections is contained in our Form 10-K for the year ended December 31, 2020, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including adjusted EBITDA and free cash flow. In our press release, our presentation, and our filings with the SEC, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. Now I'll turn it over to Barry.

Thanks, Tom, and good morning, everyone. Before we begin, it's my pleasure to welcome Scott Bomar, our new CFO, who joined us nearly two months ago. Scott spent over 15 years at the Home Depot serving in a variety of leadership roles with high impact and visibility, most recently as the Senior Vice President of Home Services, a $5 billion business unit with approximately 5,000 team members. Previously, he served as the Vice President Payments and Treasurer, which included responsibility for the company's credit card acceptance strategy and private label credit card program. Scott has significant financial and operational experience, particularly in payments, and is a tremendous addition to our One Deluxe team. I'd also like to thank our former CFO, Keith Bush, for his hard work and dedication over the last four years as Deluxe implemented our historic transformation. Keith will be leaving Deluxe next month, and I wish him continued success. Before I share our impressive second quarter results, I want to first share how proud I am of my fellow Deluxers for their grit and perseverance over the past 18 months. Our team dug in and delivered every day for our customers. Despite COVID challenges, the team is making great progress unlocking the incredible potential of our transformation. Turning now to second quarter results. We delivered nearly 10% growth for Deluxe and 16.5% growth, including first American payment systems. All four segments, payments, cloud, promotional solutions, and checks experienced solid year-over-year revenue increases. Payment performance was driven by the acquisition of First American, as well as sales-driven growth in all our major businesses. You will recall we completed the largest acquisition in our company's history with the addition of First American that closed in June. Cloud's growth was driven by our data-driven marketing business. Promotional Solutions was led by branded merchandise and business essentials, while Checks Growth was driven by business checks and new competitive wins. Our strategy is working. The second quarter performance is further evidence we are executing on our One Deluxe strategy across the board. As I've said many times before, We say what we're going to do, and then we do what we say. Consolidated highlights from the quarter include the following. Revenue was $478 million, up 16.5% year over year. Not including the impact of First American, revenues were up 10%. Adjusted EBITDA margin was 20.4% at the midpoint of our guidance. Adjusted EPS improved nearly 9%. Despite the largest acquisition in our history, First American, our strong liquidity improved sequentially. We ended the quarter with $456 million of liquidity and a cash balance of $163 million. On the sales front, we remain on pace to exceed last year's record sales performance. Our one deluxe go-to-market approach is showing strong results with the addition of two more wins to the top 10 largest over the past decade. To put a finer point on our sales capability, over the past seven quarters since we started the one deluxe approach, we've closed 10 of the 12 largest deals of the last decade and two of the largest in company history. Of course, it will take time to implement these wins, but the deals certainly give us confidence in our outlook. Moving on to some segment highlights. Our payment segment, largely driven by the acquisition of First American, improved 43% year over year. We experienced growth in all of our major businesses, especially payroll and HR, and our payables as a services offering, which includes our deluxe payment exchange and medical payment exchange. These businesses are seeing significant growth, and we continue to be very optimistic about their future prospects. similarly we recently announced our new hr management solution which offers small to medium-sized businesses an integrated hr and payroll platform with a modern user experience this is another fast-growing area with great upside potential for deluxe we knew first american was going to be a tremendous addition to the deluxe portfolio and it outperformed even our lofty goals. Since the acquisition, the business has been exceeding expectations and has been experiencing one of the strongest periods in its 30-year history. As we've mentioned on other calls, the deluxe halo effect is real, and it's helping first Americans succeed. The deluxe halo includes, first, Customers trust us and have for over 100 years. Second, our sales reach to millions of small businesses, thousands of FIs, and hundreds of the world's leading brands. And third, our financial strength. Our combined sales teams were quickly able to bring First American products to Deluxe customers, building on the trust and relationships we've had in place for years. This is very encouraging for the future. We're close to securing several transactions with financial institutions and are in active engagement with dozens of other FIs, not only for merchant services, but in adding other products like payroll, payables, and receivables at the same time. We're pleased with this early sales momentum and unsolicited inquiries for services we've received. These customers were not in the pipeline prior to the transaction, providing solid evidence of the deluxe halo. Another example of the power of one deluxe in payments, we recently secured an additional contract with Arvest, a privately owned financial institution with over 230 branches and $24 billion in assets. Deluxe will be providing several new payment services to Arvest. Arvest had been a check customer for three decades, buying one Deluxe product. Now, Arvest buys several of our products in all four of our business segments. This shows both the power of one Deluxe bringing the best of Deluxe to every customer and the power of our existing check business as a lead source. Cloud Solutions had a very strong quarter, improving 26.3% year over year, led by our data-driven marketing business, or DDM, as continued low interest rates drove increased demand among several of our large financial partners. Excluding business exits from 2020, Cloud's growth would have been even more impressive coming in closer to 40%. As we've said before, our data strategy is to diversify beyond our core banking and mortgage verticals. The strategy is working. For example, We recently signed a deal to partner with a top retail electricity provider to identify and acquire new residential and business clients in select deregulated markets. Our website services also showed resiliency, driven by our international business and favorable exchange rates. Our incorporation services continue to perform very well. Now on to our promotional solution segment. Promotional solutions improved 14.5% as branded merchandise and business essentials both performed well. As a reminder, business essentials is where we deliver custom forms and other products that businesses consume in their routine operations. This business is rebounding well, consistent with the overall economy. We expect to see further recovery in branded merchandise as events and in-person activities return. Promotional Solutions' second quarter was positively impacted by the PNC deal we announced last quarter. Expanding our relationship with the eighth largest commercial bank in the U.S., Deluxe is offering multiple products to PNC, which ramped up in the second quarter. Relationships such as these are key components of our cross-selling enabled growth story. And this is also a great example of key wins quickly converting to revenues. Arvest was also a key win in promo. The Arvest marketing department now utilizing our deluxe branded center platform, or DBC, to provide their employees access to customized marketing collateral and tools. Yet another key win, leading security company ADT will use Deluxe to order and manage promotional items and apparel for its new hire and training programs. These DBC platform wins highlights our strategy shift for promo to a recurring revenue model rather than a one-time sale. The DBC platform gets integrated simply and easily into our customers' web properties. This makes us the only integrated partner for the customer's marketing and promotion needs, shifting our relationship to a reoccurring model. Finally, our highly profitable cash-generating checks business improved 3.2% year-over-year, largely due to solid growth from business checks. While the sector is in secular decline, we continue to secure competitive wins, helping to mitigate those impacts. Key wins in checks occurred across several top-tier financial institutions, including leading regional FI, M&T Bank, and a renewal for a top-five FI in terms of assets. Our product superiority and the strength of our balance sheet enable us to keep winning market share and protect our outstanding cash flow. Checks play a very strategic role for Deluxe. CHECK delivers low-cost leads to our other businesses and generates strong free cash flow, which we will first invest in our growth engine, payments and data, and also deploy to reduce debt. In summary, we're very proud of our transformation progress. All four businesses are showing positive momentum. Our strategic acquisition, First American, is performing better than expected, And the Deluxe Halo is helping even more. Our cross-selling results are encouraging, and our sales momentum is real. We are clearly fulfilling our promise to become a payments company delivering sales-driven growth. And our robust second quarter results further validate the strength of our team, strategy, and overall execution. Now I'll turn it over to Scott, who will provide more details on our financial performance.