Deluxe Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe First Quarter 2026 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 2026 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer, and Chip Sint, 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 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. 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, 2025, 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, including prior year adjustments to reflect removal of the safeguard business effective with the closing of that divestiture as of March 1st, 2026. In our press release, today's presentation, and our filings with the SEC, you will find additional disclosures regarding 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 gap EPS to adjusted EPS, which may assist with your modeling. And with that, I'll hand it over to Barry.

Thanks, Brian, and good morning, everyone. I'm pleased to report our strong start to 2026. We continued our positive momentum, particularly in driving sustainable growth in our payments and data businesses. During the first quarter, Enterprise results once again reflected organic growth across all key metrics, including revenue, adjusted EBITDA, EPS, and free cash flow. We're now in our fourth consecutive year, driving consistent growth across our core earnings metrics. We're also proud to report that we reached two significant strategic milestones during the quarter. First, We achieved our long-term three times leverage ratio target three quarters earlier than promised at our December 2023 investor day. And second, combined, our payments and data businesses now account for more than 50% of total revenue, a major inflection point in our transformation into a payments and data company. Our Q1 results highlight our team's consistent, sustained execution ability and signal clarity in the company's future as a payments and data company. Financial highlights for the quarter included revenue growth across combined payments and data segments of 12.5%, nearly 20% growth of comparable adjusted EBITDA versus the prior year, as our margins expanded by more than 300 basis points, over 45% expansion of our comparable adjusted EPS, and continued double-digit growth in our free cash flow, enabling further optimization of our balance sheet. We remain well positioned to deliver solid full-year performance given our strong start. You'll recall earlier in the year, we announced the pending divestiture of Safeguard, a component of the print business. The divestiture closed on the 1st of March. As we mentioned we would do post-closing, we've updated our full year guidance ranges for the year to specifically reflect the divestiture of Safeguard. Importantly, our free cash flow estimate remains unchanged while the remainder of the guided metrics reflect the same, if not improved, comparable adjusted growth rates. Chip will share additional details on the divestiture and our updated guidance. As a reminder, our core business strategy is to leverage the brand, trust, relationships, and cash flow generated by our legacy paper-based payments business, checks, to invest and grow into a digital payments and data company. We're focused on three ongoing strategic planks. One, shifting revenue mix toward payments and data to deliver ongoing profitable organic growth. Two, driving operating leverage and efficiency across the enterprise. And three, increasing adjusted EBITDA and cash flow to lower overall debt and improve our net leverage ratio. We continue to consistently deliver on all three priorities simultaneously. On our first priority, mixed shift, during the first quarter, we reach an important milestone as combined payments and data segments became our largest set of businesses, surpassing the print segment to reach 51% of total revenue. This marks the first time in the company's nearly 112-year history that the print businesses represented less than 50% of overall revenues. As I noted in my opening comments, this improving mix was amplified by continued double-digit growth across combined payments and data segment revenues. This performance was led by strong top-line growth in the data solutions and merchant services segments and ongoing improvements in B2B. This inflection of our revenue mix is also expected to continue over the balance of the year as quarterly print results will reflect the safeguard divestiture. Beyond reaching this improved revenue mix, we also saw strong execution on our second strategic plank, delivering efficiencies to drive consistent operating leverage. we continued to reduce overall SG&A expenses, improved by just over 7% versus the prior year, including efficiencies across our corporate operations. Overall revenue growth alongside these continued cost improvements drove our 13th consecutive quarter of year-over-year comparable adjusted EBITDA expansion. These efforts, enabled us to deliver robust operating leverage across the business as our margins expanded and earnings growth outpaced the rate of revenue. Finally, we also achieved a very notable milestone on our third strategic focus area during the first quarter. We deployed our expanded earnings and cash flows to further reduce our overall debt level, reaching our three times net leverage ratio goal in just over two years, ahead of the pace we signaled at our 2023 investor day. As Chip will detail further during his comments, our 12% year-over-year growth of free cash flow enabled us to reach this important goal. Total debt was reduced by more than $30 million from year-end levels, giving us more flexibility to consider future growth investment opportunities. We are consistently executing on our capital allocation priorities with discipline, and we will maintain this discipline going forward. Now on to business unit performance. As noted in my prior comments, payments and data segments expanded year over year by a blended 12.5% rate, led by another very strong growth quarter from the data segments. Data segment revenue continued its robust year-over-year expansion trend, growing just over 26% on sustaining strong demand from financial institutions and emerging adjacent market client campaign activity. The data business continues to leverage what we believe is one of the largest super-aggregated consumer and small business marketing data lakes in the industry. We overlay this data with evolving GenAI-enabled tools to deliver campaigns targeted toward high lifetime value customers, driving outstanding ROI for our clients' marketing spend. Moving now to our payment segments. We saw mid single-digit or greater revenue growth across both our merchant services and B2B payment segments during the quarter as well. Within merchant, continued wins across our pipeline, strong ongoing merchant retention, and stable consumer spending trends across our diversified verticals contributed to revenue growth of just over 7% for the period. In addition to solid baseline merchant business trends, we also continue to add new business partnerships, which will contribute to our go-forward growth trajectory. For example, we were pleased to sign a new strategic merchant partnership with Washington Trust Bank, a full-service commercial bank with more than $10 billion in assets serving the Pacific Northwest. The bank now offers the full suite of deluxe merchant services to its clients. We also made important progress in Q1, growing our Integrated Software Vendor, or ISV, relationships just as we forecasted on earlier calls. This segment of the payments market features both high growth and strong customer retention. Last week, we announced our new merchant partnership with a major ISV, MRI Software, a leading provider of real estate and rent payment solutions, serving more than 45,000 clients. Partnering with an ISV of this scale is evidence that our internal investment in merchant technology and product enhancements is working and positioning us for further growth. The MRI partnership also highlights the ongoing effectiveness of our one deluxe cross-selling model. MRI was an existing B2B payments customer already utilizing our lockbox services. Shifting to the B2B business, we saw growth sequentially improve across the segment as well, with revenues expanding by just under 5% versus Q1 of 2025. Our efficiency focus in B2B drove more than 400 basis points of margin improvement versus the prior year quarter. Finally, across print, we also saw continued comparable adjusted EBITDA margin expansion with year-over-year margins improving 70 basis points from the prior year to finish the quarter at just under 33%. This strong margin trajectory remains consistent with our focus on operational efficiencies across our print manufacturing footprint, as well as our continuing prioritization of stronger margin insourced offerings. To summarize, each of these highlights contributed to robust growth across our key financial metrics during the quarter and set the stage for continued execution focus across the balance of the year. During the quarter, number one, we continued to leverage growth of our free cash flow to pay down debt, reaching our long-term three times net leverage target. Number two, we shifted revenue mix to our combined payments and data segment, which now represent a majority of total revenue. And number three, we expanded operating income, comparable adjusted EBITDA and EPS at rates above the growth of our revenues, driving margin expansion and strong operating leverage. These results speak to our sustained, disciplined execution and focus on our value creation algorithm introduced at our investor day in 2023. Before transitioning to Chip, I'd like to take a moment to acknowledge a couple of recent developments across the deluxe corporate governance structure as well. As we shared last month, Paul Garcia was elected as our new independent board chair, succeeding Cheryl Mayberry McKissick, who announced her retirement earlier this year. Paul's deep payments operating experience as the former chairman and CEO of Global Payments, along with his extensive board service across a diversified set of industries, will continue to strengthen our position as a trusted payments and data company. Cheryl's leadership and contributions to the board over her tenure, including the past seven years as chair, have been critical to our transformation into a payments and data company. I'm grateful for her steady board leadership, both as chair in times of extraordinary change and over her 25 years of board service. Job well done. Finally, as always, I want to acknowledge and thank all my fellow Deluxers who have made this performance and remarkable transformation possible by delivering for our investors and customers each and every day.