Deluxe Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Deluxe Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode and today's 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 Morabito. Please go ahead.

Thank you, Operator, and welcome to the Deluxe Third Quarter 2021 Earnings Call. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer, and Scott Beaumar, 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 that 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 risk-based 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 and 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-GATT measures, including reconciliations of these measures to the most comparable measures under U.S. GATT. Now I'll turn it over to Barry.

Thanks, Tom, and good morning, everyone. We're pleased with our ongoing transformation into a trusted payments and business technology company. In fact, our payments business, inclusive of our first American acquisition, now rivals our legacy check business in revenue scale. Make no mistake, Deluxe is a payments company. The major story this quarter is the continued success of First American, a recent acquisition which delivered 12% year-over-year revenue growth, exceeding our expectations. Our deep, trusted customer relationships, which we call the Deluxe Halo, is indeed real. and has resulted in First American growing faster than its historical pace. First American is leveraging the deluxe relationships and the powerful sales machine we've built. Also a major story this quarter is the ongoing success of our sales machine and one deluxe model, which continue to deliver strong performance overall. Consistent with the success of previous quarters, we run many new deals in the quarter, further highlighting our ability to cross-sell more products and services to our existing customers. We will provide specifics by business in a moment. The key takeaway here, our sales machine has enabled us to outpace secular declines without the benefit of acquisitions for two consecutive quarters, something that has not happened for many years. We see this as a critical milestone in our transformation. For the business overall, we delivered sales-driven revenue growth of just over 2% for Legacy Deluxe and 21% growth, including First American. Payments, cloud, and promotional solutions all experienced solid revenue increases. Check declined slightly more than 2%, better than our longer-term expectations, thanks to ongoing market wins. Payments performance was driven by the acquisition of First America. We also saw nice growth in our HR, payroll, and digital payments businesses. Cloud growth was driven by our data-driven marketing business. Promotional solutions benefited from the implementation of key wins from earlier in the year. And checks performance was driven primarily by business checks and new competitive wins. The third quarter results are further evidence that our One Deluxe strategy is working, and we're looking forward to continuing this momentum into the fourth quarter and into 2022. Before I go into the highlights for the quarter, I want to first thank my fellow Deluxers for their continued hard work and commitment to our customers. Our transformation into a leading payments and business technology company is progressing very well, and the positive results we're reporting today would not have been possible without their deep loyalty and continued dedication to our company and our customers' success. Now to the consolidated highlights from the quarter. Revenue was $532 million, up 21.1% year over year. Not including the impact of First American, revenue was up 2.3%. Adjusted EBITDA margin was 19.3% and was impacted by product mix, IT investment, inflation, lingering COVID impacts, and other items during the quarter, just as we expected. Adjusted EPS was $1.10 per share, which Scott will provide more details on in a moment. During the third quarter, we also paid down $58 million in debt, which is evidence of our continued financial discipline and commitment to maintaining a healthy balance sheet despite COVID and other macroeconomic factors currently in play. Moving on to some segment highlights. Our payment segment grew 115% year-over-year, driven by the performance of First American. Excluding First American, revenue increased 4% with growth in our other major businesses, particularly payroll and HR. Our payables as a service offering, which includes our deluxe payment exchange and medical payment exchange, are seeing strong growth, although ramping a bit slower than expected, but still nearly doubling year over year. We continue to be excited about their prospects. Let me go further on First American. The First American FI sales pipeline has more than doubled since we closed this acquisition on June 1st. Similarly, our Deluxe pipeline has grown to reflect the cross-sale opportunity that we knew we would generate by selling products such as HR payroll, payables, and receivables to the First American base. Within payments, the power of OneDeluxe is evident in our recent deal with Zions Bank Corporation. a long-standing Deluxe client. With more than $85 billion in assets and operations in 11 Western states, Zions expanded its relationship with us to include our digital disbursements product, the Deluxe Payment Exchange. We greatly expanded our DPX platform capacity from about 50,000 transactions per day to one million per day. This capacity expansion enabled us to sign and deliver our first client in the class action litigation settlement industry. The client used EPX instead of paper checks to distribute settlement funds to approximately 2.5 million payees over just a few days. DPX saves the client about 75% versus mailing a paper check. The customer value proposition is compelling and why we have a number of major signed new clients in the implementation queue positively impacting future periods. Payments also recently added the Better Business Bureau of Minnesota and North Dakota to our payroll and HR solutions platform, where Deluxe will market these services to the Better Business Bureau's 7,000 members. Next, cloud solutions. Cloud solutions had a strong quarter, improving 9% year over year. Importantly, excluding business exits from 2020, Cloud's growth would have been roughly 18%. Cloud performance benefited from positive impacts of a recovering economy in our data-driven marketing business, or DDM. That momentum continued from the second quarter. Further, low interest rates drove increased demand among several of our large financial partners. Another key win with Zions was in our cloud business. Our cloud and promotional solutions teams worked together to develop a customized demand generation platform. Zions now resells directly to its clients. By listening to Zion's needs, we harness the power of One Deluxe to develop a complete solution to drive their success. As we said in previous quarters, our strategy in our data business is to diversify beyond our core banking and mortgage verticals. We also announced our successful entry into the regulated utilities market in the second quarter and expanded further in the third quarter with our first retail and telco clients. We also launched a pilot with a top five life insurance carrier. Now on to our promotional solutions segment. Promotional solutions improved over 4% year over year, positively impacted by the PNC deal we announced earlier in the year. Expanding our relationship with the eighth largest commercial bank in the U.S., Deluxe is providing multiple products to PNC, which has been ramping up over the last two quarters. Relationships such as these are key components of our cross-off story and is a great example of key wins quickly converting to revenue. This quarter, Deluxe also added one of the largest healthcare systems in the U.S. to our Deluxe Brand Center platform. We previously mentioned the Deluxe Brand Center's success managing branded merchandise consumed in normal business operation for financial institutions and real estate companies. In this case, we're pleased to add an entity with more than 35 hospitals and 700-plus medical offices across the country that will be using our technology to manage branded merchandise consumed in hospital operations. The Dulles Grant Center strategically shifts our business from a one-time sale to a reoccurring revenue model. Finally, our highly profitable cash-generating checks business declined just over 2% year over year, which is better than long-term industry trends. The performance was largely driven by solid growth from business checks. And while the sector is in secular decline, we continue to secure competitive wins, helping to mitigate those impacts. In fact, year-to-date, when in competitive situations, we win the business three out of four times. and we expect this success to continue. Onboarding wins and checks positively impacted the third quarter, including two of the nation's top 25 FIs, accompanied by continued success in retaining our top-tier FI clients during the quarter. Our product superiority and the strength of our balance sheet enable us to expand market share and protect our outstanding cash flow. As a reminder, Checks play a very strategic role for Deluxe, delivering meaningful, low-cost leads, driving our cross-selling engine now, including First America. In summary, we're pleased about our transformation progress into a payments company. First American is winning, and the Deluxe halo is real. The company overall and all four segments are performing well and consistent with our guidance. We're optimistic about our fourth quarter and 2022 prospects. Our cross-selling and sales momentum has led to a strong year for sales, and our third quarter results demonstrate the durability and strength of our company, despite lingering effects of COVID and inflationary pressures. Now I'll turn it over to Scott, who will provide more details on our financial performance.