Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Tom Marabito. Please go ahead, sir.

Thank you, operator, and welcome to the Deluxe third quarter 2022 earnings call. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer; and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin and as seen on this slide, I'd like to remind everyone that comments made today regarding management's intentions, projections and financial estimates or 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 our actual results to differ from projections is set forth in the press release we furnished today and our Form 10-K for the year ended December 31, 2021, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted EPS and free cash flow. In our press release, our presentation and our filings with the SEC, you will find additional disclosures regarding the non-GAAP measures, including reconciliations of these measures to the most comparable measures under U.S. GAAP. On Slide 23 to 26 of the presentation, we are providing additional reconciliations of GAAP EPS to adjusted EPS, which should help with your modeling. Now I'll turn it over to Barry.

Thanks, Tom, and good morning, everyone. Before we begin, it's my pleasure to welcome Chip Zint, our new Chief Financial Officer, who was appointed to the position last month. Many of you already know Chip, as he has done a tremendous job over the last two years as our Vice President of Corporate Finance. Prior to joining Deluxe, Chip held senior finance roles for nearly 14 years at NCR Corporation, including Vice President of Financial Planning and Analysis and Vice President of Finance and CFO for the Hardware division. Chip's strong leadership, FP&A skills and his deep understanding of Deluxe and the broader payments industry will continue to serve the company and our shareholders well, as we move forward and execute on our strategy. Before I go into the quarterly highlights, let me also take a moment to recognize my fellow Deluxers for their consistent dedication to our customers, and for their continued commitment to making Deluxe a payments and a data company. Their efforts are what drive us forward every day, and I thank them for their continued hard work. Now on to our third quarter results. Deluxe delivered another quarter of strong sales-driven growth, once again reflecting increases in all four of our business segments, and we remain on track to deliver a second consecutive year of sales-driven revenue growth. This is a key milestone in our transformation journey as we continue to demonstrate the success of our One Deluxe model. We're extremely proud of these results. Company-wide, revenue increased more than 4% from the previous year to $555 million. And just as a reminder, we've now lapped the First American acquisition, and their results are included in these figures. Excluding business exits, quarterly revenue was up nearly 7%. During the third quarter, we saw some changes in mix and buying patterns. But as you can see in our performance, ongoing demand for our products and services remains strong and our revenue growth has been driven by a healthy balance of volume and pricing. Total adjusted EBITDA dollars increased nearly 2% year-over-year, and excluding business exits, adjusted EBITDA was up 3%. Delivering adjusted EBITDA growth is yet another milestone in our transformation, and we remain focused on driving adjusted EBITDA growth over the long term. As expected, our adjusted EBITDA margin rate came in at 18.8%. Moving on to some segment revenue highlights. For the third quarter, revenue in our Payment segment increased nearly 6% year-over-year with expanding margins. Merchant Services revenue increased 4.5% this quarter, in line with our mid-single-digit expectations. The rest of the payments, which includes our receivables and payables business, grew 7.5%, with impressive growth across our product lines, particularly in treasury management. As we've been sharing for the past year, the cross-sell opportunities with merchant services have been extensive. For example, the Bank of Missouri was a long-standing customer of Deluxe, and we've now added merchant services to the portfolio. This shows our ability to win against one of the top three providers in the industry, proving our ability to effectively move up market. We remain on track for payments to be our largest revenue business in early 2023. This will be another key milestone for Deluxe. Cloud Solutions had another solid quarter, growing almost 5% year-over-year, excluding business exits. Cloud performance was driven by our data-driven marketing business or DDM, which once again experienced double-digit growth. Planned technology investments in DDM allowed us to further develop the platform for ease of customer use, helping drive this growth. More than a year ago, we diversified the business by investing in our platforms, which has helped us win business and importantly, outside of interest rate-sensitive categories. Now on to our Promotional Solutions segment. Promotional Solutions had another strong quarter on the top line, improving more than 9% year-over-year, excluding business exits. We were also pleased with the sequential improvement in margins from the second quarter as supply availability has improved, although not back to historic levels. Chip will expand on this in a moment. Finally, our Checks business had another strong quarter, growing 6% year-over-year. As discussed on prior calls, our strategic investments in new print-on-demand technology will help us manage costs to match volumes, allowing us to maintain our strong margin rates in this segment as they return to normal secular declines. Our third quarter results highlight the progress we've made and continue to make on our transformation. Revenue growth was once again strong across all segments, a trend that has been continuing over the last two years, underscoring our ability to execute on the One Deluxe model. We're very proud of our performance and look forward to continuing our growth as a Payments and Data company. Now I'll turn it over to Chip, who will provide more details on our financial performance.

Well, thank you, Barry, and good morning, everyone. It's a pleasure to be speaking with you today as Deluxe's new CFO. I am really looking forward to continuing my work with Barry and the team to execute on our financial objectives. Now let's go through the consolidated highlights for the quarter before moving on to the segments. For the third quarter, we posted total revenue of $555 million, up 4.3% year-over-year. As Barry mentioned, this revenue performance demonstrates strong demand for our products despite continued pricing actions. We reported third quarter GAAP net income of $14.7 million or $0.34 per share, up from $12.5 million or $0.28 per share in the third quarter of 2021. Adjusted EBITDA came in at $104.6 million, up 1.9% from last year, largely driven by improvements in the Payments business. Adjusted EBITDA margin was 18.8% and in line with expectations. Third quarter adjusted EPS came in at $0.99, down from $1.10 in last year's third quarter. This decrease was primarily driven by interest expense. Importantly, we completed an interest rate swap in the third quarter to fix the rate of an additional 20% of our outstanding debt. Now nearly 60% of our debt is fixed rate, which we expect will further insulate the company from future rate hikes. Now turning to our segment details. Payments grew third quarter revenue of 5.9% year-over-year to $169.8 million, largely driven by growth in our treasury management business. Merchant Services grew 4.5% year-over-year. Over the next few quarters, this business will be up against tough year-over-year comparisons, but we continue to expect growth in the mid-single-digit range over the long term. Payments adjusted EBITDA margin was 21.3%, up 160 basis points from last year, largely driven by operating leverage in our treasury management business. Longer term, we continue to expect the Payments segment to deliver a high single-digit revenue growth rate. For 2022, we expect adjusted EBITDA margins in the low 20% range. Cloud Solutions had another solid quarter. Excluding the impact from business exits, segment revenue increased 4.9% year-over-year to $66.7 million in the quarter. On a reported basis, Cloud revenue declined 4% from the third quarter of 2021 due to the sale of our Australian web hosting business earlier this year. Filed adjusted EBITDA margin in the quarter declined 330 basis points year-over-year to 24%. This decline was due to increased investments and changes in product mix driven by strong revenue growth in the DDM business and declines in the higher-margin hosting. For 2022, we expect to see mid-single-digit revenue growth when excluding the impact from business exits, which are detailed on Slide 28 of the presentation. We also expect adjusted EBITDA margins to be in the low to mid-20% range. Promotional Solutions third quarter revenue was $136.1 million, up 9.2%, excluding the impact of business exits. On a reported basis, revenue grew 4.5% year-over-year, driven by new sales wins and pricing actions. Promotional Solutions adjusted EBITDA margin was down slightly year-over-year to 13.4%, but improved nearly 300 basis points sequentially as we benefited from improved pricing and increased supply availability. We do anticipate that the segment will see meaningful expansion to adjusted EBITDA margin in the fourth quarter due to further improvement in supply availability, operational initiatives, and our typical seasonal patterns. Checks' third quarter revenue increased 6% from last year to $182.4 million as new competitive wins, pricing actions and strong demand for business checks outpaced the broader secular declines within the industry. As we've said before, we had some major customer wins last year that led to four consecutive quarters of revenue growth in this segment. However, as these results are now in the comparison base, this will not continue starting in Q4, and we expect to see Check revenue return to normal secular declines. Third quarter adjusted EBITDA margin was 44.1%, down slightly year-over-year, but within our expected mid-40% range for the segment. Turning now to our balance sheet and cash flow. We ended the quarter with a net debt level of $1.63 billion, down from $1.66 billion in the third quarter of 2021, demonstrating our continued commitment to paying down debt. Our net debt to adjusted EBITDA ratio was 3.8 times at the end of the quarter, improving from 4.3 times a year ago. Our long-term strategic target remains approximately 3 times. Free cash flow, defined as cash provided by operating activities less capital expenditures, was $23 million in the quarter, down from $30.9 million in the third quarter of 2021 due to increased cash taxes and interest payments. This was a sequential improvement in the second quarter. Our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on December 5, 2022, to all shareholders of record as of market closing on November 1, 2022. We are focused on taking a balanced approach to capital allocation. As a reminder, our capital allocation priorities are to responsibly invest in growth, pay our dividend, reduce debt and return value to shareholders. Turning now to expectations. We are reaffirming our 2022 full year guidance as follows, keeping in mind all figures are approximate. Revenue growth of 10% to 12%, excluding the impact of business exits. This equates to 8% to 10% revenue growth on an as-reported basis. Full year adjusted EBITDA margin rate of 18.5% to 19% and capital expenditures of $105 million. This guidance includes a partial prior year First American and is subject to, among other things, prevailing macroeconomic conditions, labor supply issues, inflation and the impact of divestitures. In order to assist with your modeling, our guidance also assumes the following: interest expense of $95 million and adjusted tax rate of 26%, depreciation and amortization of $170 million, of which acquisition amortization is approximately $90 million and an average outstanding share count of 43.5 million shares. To summarize, we are pleased with the third quarter results, especially in these uncertain economic times. For those of you that have been following our story for many years, simultaneously delivering sales-driven revenue and EBITDA growth is an important achievement. We're very proud of this performance.

We are now ready to take questions.

Hi good morning.

Good morning, Charlie.

I was hoping if you can give us a little bit more color on the breakdown on kind of volume versus price in the various segments, a little bit more granularity there would be helpful? Thank you.

Sure, Charlie, good morning. This is Chip. So when we break down the growth on the quarter of roughly 7% or 6.6% excluding exits, we view about 60% of that as volume increase and 40% of that coming from price. And so that's a function of the new wins we've been talking about for a while in Checks as we fully lap those, but also strong volume in promo and the data business specifically and improved operations within Payments, specifically within treasury management.

Got it. That's helpful, thank you very much. Barry, could you share what the drivers are behind the DDM business on the Cloud side for the next quarter?

Sure. Charlie, before I talk about that, I do want to just highlight one of the things that Chip was saying there a moment ago, that we think the fact that we have been successful at pricing actions as well as increasing volumes, we think really speaks strongly about the demand elasticity for our product. I know you've asked that question before, and we think that this is another quarter where we are affirming that and showing the strength of demand for our services. Second point that you're asking about is DDM and where does the mix come. Over the last year or so, we've really been making investments to diversify the sources of income coming into the DDM business. Historically, you know that was very dependent on the financial services sector, and we have invested in our database architecture and more to allow us to expand beyond financial services. And you've heard us announce significant wins in multiple new industries, which has helped diversify us away from interest rate-sensitive categories. And so the drivers going forward are going to be continued expansion in additional market verticals beyond the financial services and expanding the services we offer within financial services. So for example, if at a time of rising rates, less interest is in mortgage, there is an opportunity for us to do work in other sectors or other businesses within financial institutions. And that's helped us successfully expand the business. That’s what we think the future is all about here.

Great, thank you Barry, and then just another question for you. If you don't mind, looking at next year, kind of an early glimpse, is there a path that you can envision to organic growth, given the tough comps you're facing this year?

Charlie, we're not here today to provide guidance for the next year. But you've now seen us and we've said we're going to deliver two consecutive years of sales-driven or organic revenue growth, and we're very proud of our sales accomplishments, the wins we've had. Obviously, Checks returning to secular declines will have some impact on our business. But we feel good about our prospects going forward.

Thank you. We'll go next now to Lance Vitanza at Cowen.

Thanks and congratulations on a successful quarter. I wanted to begin with a question about the overall economic outlook. Are you noticing any changes in results for the third quarter or early in the fourth quarter? Have you experienced any pressures from a potential economic slowdown or declining consumer spending? Do you anticipate this might become a bigger issue in 2023?

So Lance, what we saw in the third quarter, we continue to see is some changes in the mix profile of what customers are buying, and we're seeing some month-to-month variations. We might expect, for example, July to be stronger than August, but August is stronger than July. But that is not showing up in aggregate demand and so we feel pretty good at this point that we are not seeing overall economic slowdown in our numbers. You can't see it in some of the mix issues, as I said, but we don't see an aggregate demand decline. Obviously, no one has a great crystal ball about what the future is going to look like. And we're doing all the things we know to do to help the company succeed, regardless of the environment next year. But very specifically, aside from some shifts in mix and some unusual month-to-month activity, we don't see an impact to aggregate demand.

On the Cloud side, the DDM segment is performing exceptionally well with double-digit revenue growth. However, it seems like there are other areas of Cloud that are stagnant. Could you elaborate on what those areas are and whether you anticipate the revenue challenges there will ease? Additionally, do you see any potential to divest some of those underperforming segments?

So in DDM specifically, I think it really highlights the focus we've had on investing for innovation and to drive new revenue. So in the DDM business very specifically, we have seen great growth outside of our financial services sector. And even within the financial sector, we're seeing a shift to noninterest rate categories. Obviously, the portion of our business that is exposed to mortgage had some headwinds. But our headwinds are not as large as what is being reported largely in the mortgage industry. So I think the key takeaway there is that we have really built for the future, a business that can expand into multiple verticals that gives us lots of growth opportunities regardless of what's happening in the economy. As far as future divestitures, I think you've seen us be very responsible at exiting underperforming businesses and continuing to prune the portfolio. You heard us do some of that in the previous quarters. And I think you would expect to see us continue to be responsible in looking at assets that we think will underperform and perhaps make a choice at an appropriate time. As always, Lance, we don't anticipate anything of mopping up any one of the legs of our stool, and we think it gives us a lot of good quality diversification and growth opportunity.

Turning to the corporate expense line, it was in line with our estimate. However, I'm curious if there are opportunities to reduce that expense over time, considering it stands at $46 million for the quarter. The amount seems significant relative to your EBITDA, and I'm interested in what we might expect for that line in the future.

Sure, Lance. This is Chip. You're right, corporate was much more in line with everyone's expectations this quarter. That's a function of us finally lapping a lot of the headwinds we've been talking about over the last few calls. We had to add back some benefits costs that disappeared as part of COVID. We've been investing in the technology infrastructure over the last few years. So corporate has been a little bit of an ongoing headwind for us as we digest all that. We finally feel like entering into 2023, we're going to turn the corner there and be able to be in a position of taking out costs responsibly, continuing to invest where we need to, but be able to do that in a way where we don't have as many headwinds year-over-year coming into the portfolio. And we do view that as a key area of focus getting that corporate cost center down. Now three years ago, we alluded to a number that is just not playing out that way because a lot of the costs we've taken out that we thought would go to corporate has gone to the segments and benefited them, but getting corporate down, bringing that down as a percentage of revenue is a main focus of ours. And obviously, as revenue continues to grow, hopefully, in the future, we'll continue to get operating leverage from that corporate cost structure being more fixed by nature, but it's a big focus of ours into next year.

Okay. Lastly, regarding the balance sheet, great job on swapping out those interest rates. I also appreciate the reduction in leverage. However, do you think that since you have many dividend-focused shareholders, it might be more advantageous to use that cash to pay down debt faster instead of continuing with the quarterly dividend? I would like to hear your thoughts on that.

Yes, the Board considers that every quarter and is very diligent in contemplating how we use that cash flow. And we have continued to support the dividend because we know that as part of the investment thesis and hypothesis for our company, and we remain optimistic about the company's ability to generate income and cash flow. And so to date, the Board has not seen the need to change that, specifically because we've been able to continue to make progress on our overall capital structure plan.

Understood, thanks guys. Congrats again.

Thank you.

Thank you. We'll go next now to Charles Nabhan at Stephens.

Hi good morning. This is Alex Newman on for Chuck. Thanks for taking our questions. From a cost standpoint, are you seeing any effects from inflation either on the labor side or better cost side that are having any impact on the business? And then going forward, to what extent or flexibility do you have to mitigate any of those pressures?

Sure. I'll start and then Chip can provide additional insights. We feel that we have now caught up with inflation, acknowledging that it's always fluctuating. Our pricing models are effective, and we have notification periods in place that allow us to implement pricing changes in a significant portion of our contracts. We believe we are currently in a good position with respect to inflation and are confident in our ability to keep pace with it as it continues. We experienced considerable labor inflation towards the end of last year and the start of this year, but we've noticed some moderation recently, which is beneficial. We've successfully passed along pricing adjustments to help offset those costs, and we're optimistic about our ability to do so moving forward. Chip, would you like to add anything?

Barry is spot on. I would say, inflation has been an ever relevant talking point all year long, and it really started a year ago this quarter. It was Q3 a year ago where really inflation started to hit us directly, and we started to take price and work with customers and do everything we can across the portfolio. Like all companies, inflation has just been a growing and constant issue. And we feel like we've caught up with it. We stay on top of it. It's part of our operating rhythm, and we feel good about where we sit now in terms of handling all of it, whether it's on the labor side or on the supply side.

Okay, thank you for the color. And then just on a follow-up, I believe in the prepared remarks, you called out a nice win within treasury management. I was wondering if you could speak to some of the factors, either from a competitive standpoint or strength within the platform that led to that win. Thank you.

So we continue to have significant wins in treasury management. But just as a reminder for everybody, our digital AR and AP solutions, but the deal that we specifically highlighted in our remarks was with the Bank of Missouri. The Bank of Missouri is a long-standing customer of Deluxe. And we were able to bring our merchant services business, which we acquired with First American, and we were able to move them off of one of the big three providers to join us. And that's a significant milestone win for us because it shows our ability that with First American inside of the Deluxe family, we can help move up in size and scale of banks and financial institutions that we service. So there are two, I think, really important points there. First, the entire hypothesis or big part of the hypothesis that we would be able to grow and help First American accelerate their growth by deepening the reach across financial institutions is again proving out. We've been talking about that now for many quarters, and we are proving that thesis. The Bank of Missouri is a great example. The second part of that is we're able to go up market into larger financial institutions competing with the three big players and winning. Now the reason we won that deal in particular is the quality of our customer service is exceptional. And if you went into one of our call centers, specifically our main center First American, you would see the long line with plaques about being the top performer from a customer satisfaction perspective. This is very critical. Second, we continue to add product feature functionality, which was helpful. And the fact that we have a culture and a set of values of the company that align with the bank. All three of those, I think, were very important. Obviously, our ability, therefore, to help them grow their portfolio was the overarching reason we won. We continue to see wins and accelerated wins as a result of the connection between First American and Deluxe and bringing the best of Deluxe to those customers that are already partners of ours, customers as ours, and expanding the relationship.

Great, thanks for the color. Nice quarter.

Thank you.

Thank you.

Thank you. And with that, I'll turn things back over to Mr. Morabito for any closing comments.

Thanks, Bo. Before we conclude, I'd like to mention that management will be participating in the Stephens Annual Investment Conference on November 17, 2022. Thank you again for joining us today, and we look forward to speaking with you in February as we share our fourth quarter and full year 2022 results.

Thank you, Mr. Morabito. Ladies and gentlemen, that will conclude Deluxe's Third Quarter 2022 Earnings Conference Call. We'd like to thank you all so much for joining us and wish you all a great day. Goodbye.