Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deluxe Corp (DLX, Financial) reported a year-over-year improvement in comparable adjusted EBITDA dollars and rate, with an 80 basis point increase to 19%.
- The company delivered strong operating cash flows, showing sequential growth compared to the first quarter and a significant improvement over the first half of 2023.
- Revenue growth was strong in the Data Solutions and Merchant Services segments, with year-to-date growth rates of 13% and 8%, respectively.
- Deluxe Corp (DLX) reaffirmed its full-year guidance ranges for earnings and free cash flow, demonstrating confidence in its profitability outlook.
- The company made meaningful progress in its North Star initiatives, aiming to unlock $80 million of incremental adjusted EBITDA and $100 million of annualized incremental free cash flow by 2026.
Negative Points
- Deluxe Corp (DLX) experienced ongoing revenue headwinds in the B2B payment segment and secular declines within the Print portfolio.
- The company adjusted its revenue range due to lingering macroeconomic uncertainty, indicating potential challenges in meeting original revenue expectations.
- There was a noted softness in demand for short-cycle discretionary promo products, impacting revenue performance.
- The B2B Payments segment saw a year-over-year revenue decline of 8%, consistent with the first quarter trajectory.
- Print segment revenue declined by 4.8% during the second quarter, with legacy check product revenue declining by 3.8%.
Q & A Highlights
Q: Barry, could you elaborate on the macroeconomic pressures you mentioned and which segments are most affected?
A: Barry McCarthy, President and CEO, explained that Deluxe monitors trends in small business sentiment, consumer discretionary spending, and the interest rate environment. They use data from card brands, the Federal Reserve, and their proprietary data. While the economic environment has been stable, there are signs of consumer pressure, particularly in the Merchant segment, where non-discretionary spending is rising compared to discretionary spending. This has led to a flattening of same-store sales and softened demand for short-cycle discretionary promo products.
Q: Can you discuss the growth in Merchant Services and the impact of cross-selling and new merchant acquisitions?
A: Barry McCarthy noted that the Merchant Services segment saw growth from both existing customers and a significant new business win that went live in Q4 of last year. Cross-selling has been effective, with the ability to board merchants quickly, sometimes within two hours. The acquisition of First American has helped drive growth by leveraging Deluxe's brand and relationships.
Q: How is the Print segment, particularly Checks, performing in terms of market share and future prospects?
A: Barry McCarthy stated that Deluxe continues to win more competitive bids than it loses, indicating strong market share performance. The Print segment remains a strong cash flow generator, and Deluxe is optimistic about its prospects, despite the secular decline in the industry.
Q: What are the expectations for the Data Solutions segment in the second half of the year?
A: William Zint, CFO, mentioned that Data Solutions performed well, despite tough comps from the previous year. He suggested looking at a four-quarter average to understand the growth trend, indicating that while Q3 might be softer due to strong prior-year comps, the overall trajectory remains positive.
Q: Can you provide more details on the lockbox business and its future potential?
A: Barry McCarthy highlighted that Deluxe is winning market share in the lockbox business due to its service quality and operational improvements. The business is strategically important as it serves as a gateway to Deluxe's new SaaS-based solutions in B2B receivables and payables, with expectations for continued margin expansion and market share gains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
