Deluxe (DLX) Q2 Earnings call transcript Jul 31, 2024

In the latest earnings call for the second quarter of 2024, Deluxe Corporation showcased its resilience and strategic focus on growth despite facing certain challenges. The call, led by executives Barry McCarthy, Brian Anderson, and Chip Zint, highlighted key themes, trends, and insights into the company's financial health and future outlook.

Sustained Earnings Momentum and Growth

Deluxe reported a year-over-year improvement in both comparable adjusted EBITDA dollars and rate, signaling a continued strong execution across its capital allocation priorities and initiatives. The company's earnings momentum is a testament to its strategic focus and operational efficiency, with adjusted and comparable adjusted EPS and free cash flow showing significant growth.

Macro Environment and North Star Progress

Deluxe continues to monitor trends in small business sentiment, consumer discretionary spending, and interest rate environment. Despite some economic uncertainties, the company is making significant progress towards its North Star goals, aiming to unlock $80 million of incremental adjusted EBITDA and $100 million of annualized incremental free cash flow by 2026.

Segment Highlights

The Merchant Services segment has been a standout, with revenue growing 7.7% and adjusted EBITDA margins expanding. This growth is attributed to strong revenue trajectory and the consolidation of six brands under the Deluxe Merchant Services umbrella, improving marketing efficiency and performance.

However, the B2B payments segment faced challenges, with revenue declines due to macroeconomic factors and the transition towards a Software as a Service (SaaS) model. The company expects material improvement in B2B growth rate over the second half of the year, with a low single-digit revenue decline rate for the segment.

The Data Solutions segment, which includes data-driven marketing, continued to deliver strong results, with year-to-date growth of 13% and strong margin expansion. This growth is a testament to the segment's ability to adapt to market trends and capitalize on new opportunities.

The Print segment, which includes legacy check and promotional products, experienced a revenue decline of 4.8%. Despite this, the segment maintained adjusted EBITDA margins at 30%, reflecting the company's focus on maximizing cash flow through operating efficiencies, pricing actions, and responsible investments.

Looking Ahead

Deluxe's guidance for the full year reflects a decline of 1% to positive 1% comparable adjusted growth in revenue, with adjusted EBITDA of $400 million to $420 million and adjusted EPS of $3.10 to $3.40. The company remains focused on its North Star initiatives and capital allocation priorities, aiming to drive growth and profitability in the face of macroeconomic challenges.

Conclusion

Deluxe Corporation's second quarter earnings call underscores the company's strategic focus on growth, operational efficiency, and market adaptability. Despite facing certain challenges, Deluxe is making significant strides towards its North Star goals, driven by a resilient business model and a forward-thinking approach to capital allocation. As the company looks ahead to the second half of the year and beyond, it remains poised for continued growth and success in the payments and data industry.