Deluxe Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Deluxe Second Quarter 2022 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 Second Quarter 2022 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 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 and uncertainties, including, without limitation, Risk associated 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 ending December 31, 2021, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, and free cash flow. In our press release, our presentation, and our findings with the SEC, we will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. I would also like to note that beginning this quarter and on slides 23 to 26 of this presentation, we are providing additional reconciliations of GAAP EPS to adjusted EPS, which should help with your modeling. Now I'll turn it over to Barry.

Thanks, Tom, and good morning, everyone. Deluxe delivered its fifth consecutive quarter of year-over-year sales-driven growth with healthy increases in all four of our business segments. Importantly, we're now on track to deliver our second consecutive year of sales-driven revenue growth, a performance not seen by this company in over a decade. Beyond a doubt, This trajectory shows the success of our transformation into a payments and data company and our one deluxe model. Company-wide revenue increased this quarter nearly 18% to $563 million, and excluding incremental revenue from First American and business exits during the quarter, revenue increased nearly 7%. Similar to the first quarter, ongoing demand for our products and services remained strong. We also benefited from pricing actions, and despite these moves, we continue to experience strong volumes, which demonstrates the durability of the business across our segments. Total adjusted EBITDA dollars increased year over year, while our adjusted EBITDA margin rate of 18.1% was impacted by inflationary pressures, supply chain disruption, specifically in the higher margin portion of our promotional solutions business, and other factors, which Scott will detail in a few minutes. We do expect supply availability to improve going forward. Like most companies, inflation is having an impact on our operations. But between price increases and effective cost management, we expect these pressures to moderate throughout the year. Importantly, even with the impacts of inflation, we have not seen indications of a slowdown in business activity from our small and medium-sized business customers. Before we go into the segment highlights, I want to be sure to thank my fellow Deluxers for their continued dedication and long-term commitment to our customers and for the critical role they're playing in making Deluxe a trusted payments and data company. Moving on to some segment revenue highlights. For the second quarter, revenue in our payments segment increased nearly 66% year over year with stable margins. This was driven by the 2021 addition and strong performance of First American, which grew this quarter at nearly 7%. As a reminder, First American had been a low single-digit grower prior to acquisition, but our fundamental thesis was that we could elevate these growth rates. Since the acquisition, we've proven the deluxe halo is real. Our trusted reputation, solid balance sheets, and deep customer relationships has enabled First American to consistently exceed all expectations. We've clearly proven our one deluxe model works and have now proven how the model extends well to strategic acquisitions like First America. Excluding First American, payments revenue increased nearly 7%. as we saw strong growth across our major payments products. In particular, we saw strong growth in our payables and the service offerings, which include our deluxe payment exchange, or DPX, and lockbox. In terms of new wins, we signed on Dupaco Credit Union, a large Midwest regional credit union, and also an existing deluxe customer for checks, branch capture, and remote deposit capture. We'll now be providing merchant services to DuPaco, and this is a great example of how our cross-sell strategy works. Similarly, we'll also be providing merchant services to Choice One Bank, one of Michigan's largest banks. We remain on track for our payments business to exceed checks, becoming our largest revenue business in 2023. This will be a first in our 107-year history and another key milestone as a payments and a data company. Cloud Solutions had another strong quarter, growing 7% year-over-year, not including business exits. Cloud's performance was driven by our DDM business, which experienced record revenue and double-digit growth. Our continued investments have allowed us to further develop the platform, and the results have been very positive. These investments have enabled meaningful relationship expansion with key clients and new sales wins, and has led to expansion into non-FI verticals, such as retail, e-commerce, and high-tech security, among others. We continue to have success diversifying our business to less interest rate-sensitive areas. Within FIs, we're seeing non-mortgage-related growth in business banking, non-mortgage lending, consumer checking, and consumer deposits. Anticipating these market trends and adjusting to meet new and changing demand has been a key driver of our success in DDM. Now on to our promotional solutions segment. Promotional solutions had another strong quarter on the top line, improving nearly 6% year over year, excluding business exits. The growth was driven by key wins that benefited from our cross-sell model. Today, we're announcing that we've sold our retail packaging business within promotional solutions. These businesses did not fit into our long-term strategic plans, and the divestitures will allow us to focus on business with better growth and margin profiles. Finally, our very profitable cash-generating check business had its third strong quarter in a row, growing 7% year over year, which is significantly better than long-term industry trends. Going forward, we continue to expect very high renewal rates and to win share in the marketplace. In addition, we expect to support our strong margins in this business through our new print-on-demand technology, which we've discussed previously. In summary, we're particularly pleased with our revenue growth in the second quarter, which demonstrates our clear momentum and transformation into a payments and a data company. We have plans in place to ensure delivery of the second half and solid full-year performance despite inflationary and supply chain pressures. That will turn it over to Scott, who will provide more details on our financial performance.