Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deluxe Corp reported a strong start to 2024 with growth across key metrics including revenue, adjusted EBITDA, EPS, and margin.
- The payments and data segments combined delivered a revenue of $226 million, growing by 8.1% with margins of 22%, demonstrating significant growth and profitability.
- Deluxe Corp's adjusted EBITDA expanded at a faster rate than revenue, showcasing effective operating leverage within the company.
- The company has successfully transitioned towards a payments and data company, achieving its fourth consecutive year of delivering organic revenue growth.
- Deluxe Corp raised its 2024 cash flow guidance due to strong performance and affirmed other full-year operating metrics, reflecting confidence in continued financial health.
Negative Points
- Despite overall growth, the B2B payments segment experienced a year-over-year decline of 7.7%, aligning with internal expectations but still reflecting challenges in transitioning to a SaaS model.
- The print segment continued to experience revenue decline, down by just over 3% to $303 million, consistent with expected secular declines in this area.
- While Deluxe Corp is managing the decline in print effectively, the segment still faces inherent challenges due to the digital shift in the industry.
- The transition to SaaS in the B2B segment has led to short-term revenue impacts, although it is expected to improve margins and profitability in the long term.
- The company noted that macroeconomic factors such as inflation pressure and consumer spending dynamics could pose risks to future performance.
Q & A Highlights
Q: On the merchant services side of the business, you saw pretty good growth. What type of growth would you anticipate relative to the growth that the associations would see?
A: Barry McCarthy - Deluxe Corp - Chairman of the Board: We're very pleased with the growth in our merchant business, which is focused in good secular growth categories. We believe we're outperforming the market in those categories. Our portfolio is very clean and healthy, producing quality results over time.
Q: Looking at the drivers for free cash flow and the improvement in 2024 with the raised guidance, are there factors where you can see maybe an opportunity to improve the free cash flow guidance even more?
A: William Zint - Deluxe Corp - Chief Financial Officer, Senior Vice President: The strong Q1 was driven by good working capital efficiency. We need to continue to execute and see how the year goes on. There's an opportunity to over improve with execution and other levers as the year progresses.
Q: Can you provide a cadence or expectations for EPS as we go through the year?
A: William Zint - Deluxe Corp - Chief Financial Officer, Senior Vice President: We expect margins to remain solid over the next few quarters on growing overall dollars, which should flow to reasonable EPS numbers in the next couple of quarters.
Q: What items in working capital drove the positive free cash flow?
A: William Zint - Deluxe Corp - Chief Financial Officer, Senior Vice President: The positive free cash flow was mostly driven by improvements in accounts receivable (AR) and inventory management. Our days sales outstanding (DSO) improved substantially, and we've been managing our inventory more efficiently.
Q: What levers do you have available to improve EBITDA margins in 2024? Are there any segments that stand out with the most opportunity?
A: Barry McCarthy - Deluxe Corp - Chairman of the Board: The improvement is largely driven by cost improvements across all segments as part of our North Star program. This includes pricing actions, procurement savings, and operational efficiencies.
Q: Can you share details of where we are today with the North Star program and how much was spent during the first quarter?
A: William Zint - Deluxe Corp - Chief Financial Officer, Senior Vice President: We had roughly $15 million of restructuring costs in the first quarter, mostly related to North Star. We're on track with the program, with an estimated total cost of between $115 million and $135 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
