Deluxe Corporation Q1 FY2026 earnings call

• Strong start to 2026 with positive momentum in payments and data businesses. Enterprise results reflected organic growth across key metrics for fourth consecutive year. • Achieved long-term three times leverage ratio target three quarters earlier than promised and reached payments and data businesses accounting for over 50% of total revenue as strategic milestones. • Financial highlights included 12.5% growth in combined payments and data segments' revenue, nearly 20% growth in comparable adjusted EBITDA, over 45% expansion of comparable adjusted EPS, and continued double-digit growth in free cash flow. • Core business strategy focuses on shifting revenue mix to payments and data, driving operating leverage and efficiency, and increasing adjusted EBITDA and cash flow to lower debt. • Business unit performance: Data segment revenue grew 26% due to strong demand; merchant services had 7% revenue growth with new partnerships and progress in ISV relationships; B2B payment segment revenues expanded by nearly 5% with margin improvement; print segment had continued comparable adjusted EBITDA margin expansion. • Acknowledged Paul Garcia as new independent board chair and thanked Cheryl Mayberry McKissick for her leadership.

Payments and data segments expanded year over year by a blended 12.5% rate. Data segment revenue grew just over 26% due to strong demand from financial institutions and adjacent market client campaign activity. Merchant services segment had mid single-digit or greater revenue growth with 7% growth for the period, and B2B payment segment revenues expanded by just under 5% with over 400 basis points of margin improvement. Print segment first quarter revenue declined 5.9% year over year on a comparable adjusted basis, but adjusted EBITDA finished at $85.7 million with 3.8% comparable adjusted EBITDA decline, and comparable adjusted EBITDA margins improved 70 basis points to 32.7%. Payments and data businesses now account for more than 50% of total revenue.

• Updated full-year 2026 guidance ranges to reflect divestiture of Safeguard. Revenue of $1.985 to $2.05 billion, reflecting negative 1 to positive 2% comparable adjusted growth versus 2025. Adjusted EBITDA of $430 to $455 million, reflecting between 4% and 10% comparable adjusted growth. Adjusted EPS of $3.60 to $4, reflecting between 9% to 21% comparable adjusted growth. Free cash flow unchanged at approximately $200 million, reflecting 14% growth versus 2025 results. • Guidance assumes interest expense of approximately $110 million, adjusted tax rate of 26%, Depreciation and amortization of approximately $135 million (acquisition amortization approximately $40 million), average outstanding share count of approximately 46 and a half million shares, and capital expenditures between 90 and $100 million. • Maintained free cash flow guidance inclusive of safeguard divestiture impact.

Q: Hey, good morning, Barry and Chip. Barry, maybe just a bigger picture question. Almost every company I cover, the question becomes AI and the impact of AI. And I'm wondering if you could talk about maybe how AI is impacting your businesses and your ability to serve your customers, just your perspective on how that is trending.

A: Well, first of all, good morning, Karthik. And I appreciate the question. And for our business, we see AI as a net positive. And because we look at AI as a set of tools that help us improve the operation of the company. So I'll give you a couple of examples. In our data business, we use GenAI to improve the models that we use to create marketing campaigns for our customers. And through GenAI, every one of those campaigns make the system and the model smarter. So we get smarter faster. And just as comparison, we believe the largest FI in the country that's running campaigns inside their organization are doing a couple of hundred campaigns a year. On behalf of all of our clients, we are processing and running thousands of campaigns a year. So not only do we have more at-bats because we're using GenAI, our tools and our models get smarter faster. giving us a really nice moat around our data-driven marketing business. That's one place. The second place is really simple to understand is in our B2B business where we're processing payments through lockbox. Customer mails in a payment and we receive that payment on behalf of the biller. There are literally billions of those payments that we process annually. And there are payments there that require manual intervention because there are fragments of what's required to post that information appropriately on the balance sheet of the biller. We are applying AI to radically reduce the amount of manual intervention. And I think we're about a two-thirds reduction in manual intervention by applying AI to our business. And you can see it flow right through our business. You can see our margins expanding in that business. And that's certainly not the only reason, but one of the reasons that we're applying technology to improve our business overall. So我们看到AI对我们来说是一个很好的助推器，我们正在整个业务中应用它以带来改善绩效的结果。Q: And just a follow-up, Chip, in changing the guidance, obviously, for the divestiture, you didn't change your free cash flow guidance. And I'm wondering if that's just the underlying strength of all the other businesses, or the divestitures would just not generate that much free cash flow, and that was the reason?

A: Yeah, I'd say it's a bit of a mixture of both. Obviously, we've been executing really well, Cardick, on our free cash flow conversion and expansion of those metrics over the last two or so years. And so if you think about coming into the year with a guidance range of approximately $200 million, the pure fact是 that business was relatively lower margins. So once you adjust for taxes and other cash items, the adjustment was immaterial. And I felt confident in the progress of the business to hold the guidance range as is, which I think is a very strong signal to the execution and focus we've had in that space.

Q: Hi, thanks. That's CJS. Good morning. Thanks for taking my call. Hey, Charlie. Hey, Charlie. So seeing good organic growth in various segments, what are the common themes that you're seeing from clients that are helping to propel those business lines?

A: In our payments and data business, Charlie, we think all three of those businesses are delivering a very quality value proposition for our customers. I talked for just a minute ago about our data-driven marketing business which is the fastest growing business. And because the quality of our tools, we deliver an outstanding marketing dollar ROI for our customers. When a customer invests using our tools, they get the best return that we're aware of, of all of their marketing options. So we've seen existing customers expand their spend with us, moving dollars from one marketing program to ours because of the effectiveness and the delivery of of the quality of the delivery of a new customer. And that's why that business has been growing as well as it has. In the merchant business, you heard us talk about our success in attracting new customers. We had two significant wins that we talked about, one with Washington Bank and a second with MRI Software. And in both of those cases, we were able to go to those customers and show them the value that we can create for them which was not really just about, it was not about price. It was about the value that we can create. The right product, the right service level, the right set of tools, including APIs, and that's allowed us to win those businesses and keep that business. So we've got good retention rate in our merchant business. We are winning new customers in our target market verticals, and that allows us that business to grow. And we've told you for a bit of time that in the B2B business, we expected to have some nice quality wins and improve our operating efficiency. And I just talked for a minute ago about our use of AI to help us there. And so that is helping us win customers and improve our operating efficiency. So each one of those businesses, we've just got a compelling value proposition for existing customers to stay with us and for new customers to join us. And you can see that combination reflected in our performance.

Q: Looking at the promotional businesses that you have, are you seeing any disruption there from the global conflicts that are going on, disrupting travel, things like that on that business?

A: Charlie, I don't know that we're really directly seeing impacts from all the global uncertainty today. Of course, we're aware of it. But specifically to your question on promo, the promo business in general continues to be a bit soft, like it has been for some period of time, just reflecting, we think, greater market trends. But we can't point that specifically to global impacts happening today.

Q: Hey, good morning. Good morning, Mark. So I wanted to first congratulate you guys on reaching these goals. Certainly you guys have been working on this for quite some time, and these are key milestones to reach, I think. having remembered the investor day a few years back. And I wanted to maybe touch a little bit on some of the expense reductions that you've seen. And SG&A's percentage of revenue in the quarter was, I believe, below 40% of revenue. Maybe you could talk a little bit about some of those. And maybe we've already kind of touched on this with the efficiency commentary, Barry, but maybe you could touch a little bit on some of those efforts and just sort of, it certainly seems as though you're just getting more bang for your buck there.

A: Yeah, I appreciate. Well, first of all, thank you for the congratulations comments, and I appreciate the question, Mark. You know, look, there's no real secret to what we've done here. We've been very clear over the horizon the last years of the work we were doing specifically to SG&A. So over a period of time, we had to invest in restructuring-related spend to drive efficiency, optimize the spend base of the company, and really pivot us forward. And you saw that through our multi-year North Star journey. And we said about this time a year ago that 2025 would be less about a year of cost out on the corporate operations and more about improvements and margin expansion in the segments. But we knew coming into 2026, that would be a year where the final efforts of Northstar and all the work we did to drive efficiency would come through the P&L. And so you're really seeing those two things come together in these results. So number one, we're out of the period of heavy restructuring spend. You've seen that spend come down pretty methodically over the last few years. And so we're really now out of those days and overall restructuring spend is fairly low. And in fact, it's mostly related to the safeguard divestiture this quarter, the amounts we do have. And then second, the ongoing cumulative effect of those cost improvements we've done and the way the team has focused on driving efficiency and changing how work gets done, it's evident in the numbers. So you combine those two figures together, and that's what's driving this overall 7% plus reduction in SG&A in the period.

Q: And then shifting gears, I wanted to talk a little bit about maybe if you're seeing any particular industry verticals that stood out either relative to your expectations or just generally if there are any particular pockets, whether that's industry vertical or regional strength that you saw during the quarter that stand out.

A: You know, Mark, one of the things that we particularly appreciate about our portfolio of businesses is that they are diversified across multiple market verticals. And so we can deliver this kind of performance really in most environments. So we continue to have great strength in the FI channel across multiple businesses. And you see us moving aggressively into ISV space, which we've said we would do for a while within our merchant space. The data business continues to expand beyond FI to get new logos and new market verticals. And so we're pretty pleased that the business is performing well overall, and that the market verticals where we compete seem to be very durable and sturdy, and that's helping deliver this consistent performance. And we're very proud that it's our 13th consecutive quarter of profitable growth here. So we think that's a testament to the mix of our verticals, the mix of our business, and honestly, the improving mix of our business, which we – hit that significant milestone of our payments and data businesses becoming our largest businesses in this period, something we've been working towards for some time.