Deluxe Corporation

Before we begin, and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates, and expectations of the company's future strategy or performance are forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause our actual results to differ from projections is set forth in the press release we furnished this afternoon in our Form 10-K for the year ended December 31st, 2023, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS, and free cash flow. In our press release, today's presentation, and our filings with the SEC, you'll find additional disclosures regarding the non-GAAP measures including reconciliation of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to comparable adjusted EPS, which may assist with your modeling. Finally, as an important additional note, this evening's presentation reflects results aligned to our updated segment reporting structure. As outlined in our filings concurrent with our December Investor Day presentation and today's 8K filing, which provides unaudited recap business segment revenue and adjusted EBITDA information for both 2022 and 2023, including quarterly details for 2023. Updated operating segment figures are reported excluding any results from exited businesses for the respective periods. With results from such activities reported separately within the filed materials and detailed further within our segment information, and reconciliation of GAAP to non-GAAP measures slides in the appendix of today's presentation material. Chip will add some detail regarding these updates during his comments this evening. And with that, I'll turn it over to Barry.

Thanks, Brian, and good evening, everyone.

Two things before I get started. First, today I'll be discussing comparable adjusted results for the quarter. which we believe best reflect our ongoing business performance. Later, Chip will discuss our reported consolidated and comparable adjusted figures to give even more perspective. Second, as Brian just mentioned, this is the first time we're reporting in our new segments. We'll also be happy to have follow-up conversations and answer questions that you may have on these updates. We think this new segmentation provides better insight into the company and our future. Our strategy is clear. Invest the relationships, trust, and brand built in our print business to grow the payments and data businesses. Very simply, payments and data are our growth drivers, and print is our cash generator, helping drive payments and data success. On this chart, you can see Prince with 57% of revenue with payments and data combined delivering 43% for the quarter. With Q1 combined payments and data revenue of $226 million, growing 8.1% with margins of 22%, this is an attractive portfolio of businesses that we think is often overlooked. Our new operating segments should help highlight these businesses. Over the longer term, we expect the combined payments and data businesses to reach revenue parity with print and expect to provide updates annually. Overall, I'm very pleased to report our strong start to 2024. In the first quarter, we delivered growth across every key metric, revenue. adjusted EBITDA, EPS, and margin. Our adjusted EBITDA expanded at a significantly faster rate than revenue, demonstrating the operating leverage we have now purposely built into the company. We were also particularly pleased with the significant year-over-year improvement in cash flow. As a result of this strong performance, we're raising our 2024 cash flow guidance and affirming all other full-year operating metrics. You will recall accelerated cash flow and profit growth are the key tenants of our overall strategy and North Star program, both of which we outlined during our December Investor Day. We believe the Q1 performance demonstrates our progress. As a reminder, Our North Star goal is to unlock $80 million of incremental comparable adjusted EBITDA and $100 million of incremental free cash flow by 2026. As of the end of Q1, we're making progress on all 12 North Star work streams shown here. Initiatives comprising roughly two-thirds of our targeted $130 million of overall EBITDA improvements are now moving to the execution stage. Recall that the $130 million is aligned to our net $80 million incremental earnings target after factoring for expected secular declines through 2026. Benefit realization will phase in during the remainder of this year and throughout 2025. We expect to see in-year benefits accelerate and remain well positioned to achieve our goals. Now, before reviewing our first quarter highlights, I'd like to provide a few comments on the macroeconomy and key business drivers. First, as we discuss on each of these calls, Deluxe actively monitors trends surrounding overall domestic consumer sentiment, including discretionary spending. We review economic information from many providers. including the Federal Reserve, card associations, and more. Looking at this information alongside our own available data, while it appears consumers still feel inflation pressure, some of the unfavorable spending dynamics between less and more discretionary categories present a year ago appear to have stabilized a bit. You see this reflected in our merchant services performance. Second, Our business continues to benefit from our overall one deluxe go-to-market approach, as our growth during the first quarter included new customer wins across each of our reporting segments. Third, trust continues to be a key driver for the company, and as we have noted, is one of our core values. We were honored to be recognized for the third consecutive year as one of America's most trustworthy companies by Newsweek. This ongoing recognition is testament to the quality both of our products and services and the commitment of all deluxers delivering every day for customers. Now to provide some additional details about our first quarter performance. For the quarter, net of business exits, revenue is $529 million, up 1.2% or just over $6 million year over year. The combined growth in our payments and data businesses more than offset the single-digit secular declines in print consistent with our strategy. Importantly, the company is now in its fourth consecutive year of delivering organic revenue growth, demonstrating that our shift towards a payments and data company is working. Total adjusted EBITDA dollars increased 7% from the first quarter of 2023 to $97 million, continuing to reflect robust operating leverage across our portfolio, as noted in my opening comments. Adjusted EBITDA margins finished the quarter at 18.3%, reflecting an expansion of a full 100 basis points versus the prior year. We remain particularly pleased with the results, helping to demonstrate our progress around continued optimization of our operating expense base and expansion of adjusted EBITDA levels outlined within our North Star execution plans. Moving on to some segment highlights, beginning with merchant services. For the quarter, merchant segment revenue grew 8.3%, while adjusted EBITDA dollars grew 16.3%. and margins expanded 150 basis points from 2023 on strong processing volumes. We're pleased with the strong performance of this business as we approach the third anniversary of the acquisition on June 1st. Since the combination, revenue, profit, operating leverage, and margin have all materially accelerated, further demonstrating the power of our One Deluxe model. We will continue to leverage our strong bank partner relationships, increasing penetration with integrated software vendors, or ISVs, and direct selling resources. Additionally, we continue to invest responsibly in our differentiated service capabilities, technology, and feature enhancements. Moving now to results within the B2B payment segments. While we saw year-over-year declines of 7.7% for B2B, The overall results were largely in line with our internal expectations for the first quarter. As we have shared on previous calls, we're transitioning to a software as a service or a SAS model, reducing our dependency on one-time non-recurring revenue like software licenses and check imaging devices. This move to SAS will also reduce our dependence on core transaction processing revenue over time. This means we are deliberately reducing focus on selling one-time non-recurring products. As we anticipated and as indicated in our first quarter results, the short-term impact has been less revenue but improved margins. During the first quarter, B2B margins expanded 120 basis points, resulting in modest EBITDA impacts despite the drop in revenue. Additionally, we remain encouraged by our growing pipeline, demonstrating strong demand for our newest products. While we shift our focus to SaaS, we will continue to focus on efficiencies across Lockbox, leveraging recent site consolidations and other operating improvements. We have continued to win new deals in the Lockbox business, helping to offset secular volume pressure and fund the transition to SaaS products. We have several high-quality deals currently in the implementation phase, and despite some customer delays, we expect these deals to go live later this year. To be clear, we do expect to see revenue, profits, and margin grow simultaneously as the shift towards SAS unfolds over the next several quarters. We also expect to announce a new leader for this segment in the coming weeks. Moving now to data solutions. which delivered particularly strong first quarter results. The core data-driven marketing or DDM business had a solid quarter, driving segment revenue growth of 34.5% and adjusted EBITDA growth of 46% during the period. These results reflect continued strong demand for customer acquisition marketing activities across our expansive base of core FI partners. Additionally, Data continues to broaden its portfolio of clients, extending to other attractive non-financial service verticals, including telecom, utility, and smart home technology providers. As we've discussed previously, quarter-to-quarter lumpiness results from the campaign-oriented nature of the DDN business, with customers often shifting planned marketing expense between quarters. Accordingly, we would not expect the levels of growth reported during the first quarter to recur over the balance of the year. Shifting finally to our print segment. Consistent with our expectations and prior guidance, the print business experienced a revenue decline of just over 3% to $303 million, while adjusted EBITDA margins held at 30%, in line with our outlook and typical first quarter seasonality. Within the segment, legacy check revenues remain roughly flat during the quarter at just over $178 million. Promo revenue declines were consistent with our expectations for the first quarter, which typically lags sequentially from Q4 holiday-related seasonal strength. Overall, we continue to manage the print portfolio to maximize cash flow through operating efficiencies, pricing actions, and responsible investments. TO SUMMARIZE, OUR OVERALL FIRST QUARTER RESULTS SPEAK TO OUR TRANSFORMATION AND NORSTAR PROGRESS. THIS ONGOING PERFORMANCE IMPROVEMENT PROVIDES US WITH A GREAT FOUNDATION TO DELIVER OUR 2024 REVENUE GROWTH AND EBITDA EXPANSION GOALS. WHILE WORK REMAINS, OUR CONSISTENT AND SUSTAINED PACE OF PROGRESS CREATES EVEN GREATER CONFIDENCE IN OUR BRIGHT FUTURE AS A PAYMENTS AND DATA COMPANY. Before passing this to Chip, I want to acknowledge and thank all fellow Deluxers who work hard every day to deliver these results for our customers and investors. With that, I'll turn it over to Chip.