Deluxe Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Quarterly Earnings Conference Call. All participants are currently in a listen-only mode, and today's call is being recorded. At this time, I'd like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead.

Thank you, Operator, and welcome to the Deluxe First Quarter 2025 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer, and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. 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 expectation about 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 actual results to differ from projections is set forth in the press release we furnished today, in our Form 10-K for the year ended December 31, 2024, 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. All comparable adjusted metrics reflect the removal of impacts from business exits. 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 adjusted EPS, which may assist with your modeling. And with that, I'll turn it over to Barry.

Thanks, Brian. And good evening, everyone. I'm pleased to report our solid start to 2025. In the first quarter, our results reflected organic growth across our key metrics, including revenue, adjusted EBITDA, EPS, and margin. Our sustained expansion of earnings at a rate faster than revenue for the ninth consecutive quarter continues to demonstrate the operating leverage we have purposely built into the company via Northstar. We also remain particularly pleased with our significant year-over-year expansion of operating cash flow. This strong performance drove continued reduction of our net debt levels, consistent with our commitment to this important capital allocation priority. These results contributed to our recent S&P ratings upgrade and positive ratings outlook, demonstrating our strong progress on balance sheet optimization. You will recall Accelerating our free cash flow and profit growth are the key tenants of our North Star execution strategy, against which we remain on track toward our 2026 program targets. Before reviewing our first quarter highlights in more detail, I'd like to comment on four key factors. First, these are times of extraordinary volatility and macroeconomic uncertainty. While change swirls around us, we are focused on controlling what we can control and executing strongly against our plan. Our first quarter results are testament to our focus and execution discipline. We continue to monitor reports from economic forecasters around consumer sentiment, discretionary spending, and other indicators for potential impacts to our outlook. Second, tariffs. As we mentioned on our last call, we do not expect to have material direct tariff exposure within our supply chain. We rely upon in-market sourcing and production for the significant majority of our revenue. We do have some exposure across smaller promotional product areas, including lower margin branded apparel and accessories. This represents a small percentage of company revenue and we would intend to pass along applicable increased costs, just as we always do. What we don't know is how this could impact demand. Third, our business continues to benefit from our overall one deluxe go-to-market approach, and our growth during the first quarter included new customer wins across each of our reporting segments. And fourth, given this broader context, we are maintaining our overall guidance ranges for 2025 this evening. Chip will provide more detail in a moment. Now onto some additional detail about our first quarter performance. For the quarter, total revenue was just over $536 million, up 1.4% on a comparable adjusted basis year over year. Combined growth across our payments businesses and a continuing double-digit growth trajectory across the data segment more than offset expected low single-digit secular declines within print, consistent with our strategy. Total comparable adjusted EBITDA for the quarter finished at just over $100 million, increasing nearly 3.5% from 2024 and continuing to reflect robust operating leverage across our portfolio. Comparable adjusted EPS finished the quarter at 75 cents, reflecting a just over 4% expansion versus the prior year. We remain pleased with these results, helping to demonstrate our progress toward optimization of our SG&A expense base and expansion of earnings and cash flow, as outlined within our North Star execution plans. As I noted within my introductory comments, both revenue and our key earnings metrics grew organically, aligned to our key strategic execution priorities across the enterprise. In addition, these results reflected our overall revenue mix shifting towards our payments and data offerings. When we shared the same data after the first quarter of last year, our revenue balance reflected roughly a 57 to 43 ratio of print to payments and data segments. As you can see here, just one year later, the ratio is at 54 to 46. consistent with the progress we indicated at our December 2023 Investor Day. Our payments and data segments expanded year over year by a blended rate just above 8.5%, led by another very strong growth quarter from the data segment. Data segment revenue grew 29% versus the prior year on significant demand from financial institutions. The data team added 17 new customer logos during the quarter, while also continuing to broaden its portfolio across high-value adjacent market verticals. Within our payment segments, we benefited from new and expanded FI relationships during the quarter, a key component of our One Deluxe model across the merchant segment and our broader business. As another example of our ability to win larger scale FI partnerships, We were pleased to announce our partnership with TownBank, a premier financial institution dedicated to exceptional service and community banking. Through this partnership, TownBank members will gain access to Deluxe Merchant Services suite of solutions, helping to streamline operations and their payment experience for their customers. Within B2B, we began processing new remittance volumes for a top 10 bank in the U.S., and expect continued momentum as we grow market share across our lockbox footprint over the balance of the year. Finally, in our print segment, we've continued to win new business and expand share across legacy check with small to midsize additions, helping to mitigate secular unit decline rates. This progress resulted in declines of under 2% for check revenue during the quarter, consistent with our ongoing strategy. Beyond our organic revenue results, we also continued to deliver robust year-to-year expansion of earnings metrics. Growth of both comparable adjusted EBITDA and EPS once again outpaced our rate of revenue expansion, driving adjusted EBITDA margins of 18.7%. This reflected an expansion of 40 basis points on a comparable adjusted basis as our sustained operating leverage further demonstrates progress executing against our core North Star initiatives across the organization. During the first quarter, total SG&A spend improved by 3.8%, or just under $9 million, illustrating our ongoing focus on driving efficiencies across the business. This execution also contributed to our improved cash flow results during the period, which Chip will detail a bit more during his comments. To summarize, our overall first quarter results speak to our ongoing execution focus, payments and data growth potential, and North Star progress. While we continue to monitor macro level market developments for nearer term impacts, our first quarter progress continues to support our path toward our 2025 revenue and EBITDA goals. Our ability to attract top talent at all levels signals additional support for our company's future in payments and data. Brian Mahoney joined us in February as Merchant Services President after serving industry leader Alevon as CFO, CRO, and in various other roles. Bo Cummins, until recently Vice Chair at Truist, and Max Schuessler, CEO of Avertek, were recently elected to the Deluxe Board of Directors. Angela Brown, recently the CEO of Moneris, joined our board last fall. Each of these individuals bring a serious depth of knowledge and experience across the payment space and financial institutions. Finally, before passing this to Chip, I want to acknowledge and thank all my fellow Deluxers who continue to work diligently each and every day to deliver these results for our customers and investors. With that, I'll turn it over to Chip.