Deluxe Corporation (DLX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. At this time, I would like to turn the conference over to your host, Vice President of Strategy and Investor Relations, Brian Anderson. Please go ahead.

Thank you, operator, and welcome to the Deluxe Second Quarter 2026 Earnings Call. Joining me on today's call are 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 the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates and 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 actual results to differ from projections is set forth in the press release we furnished today in our Form 10-K for the year ended December 31, 2025, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS and free cash flow. In our press release, today's presentation and our filings with the SEC, you'll find additional disclosures regarding non-GAAP measures, including reconciliation of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. As a reminder, all comparable adjusted metrics reflect the removal of impact from business exits, including prior year adjustments to reflect removal of the Safeguard business effective with the closing of that divestiture and as of March 1, 2026. Financial metrics discussed through the second quarter also exclude any historical financial results relating to the Celero acquisition, which closed on July 31, 2026, and for which additional pro forma reporting in line with SEC requirements will be provided over the balance of the post-closing 2026 periods. And with that, I'll hand it over to Barry.

Thanks, Brian, and good evening, everyone. I'm pleased to report our strong performance through midyear. Deluxe continues to deliver its financial goals while accelerating our strategic transformation into a payments and data company. During the second quarter, we once again delivered comparable adjusted growth across all key metrics: revenue, adjusted EBITDA, adjusted EPS, and free cash flow. We were particularly pleased to see free cash flow increase 65% through Q2. We're now in our fourth consecutive year driving consistent operating leverage and growth across all core earnings metrics. This performance enabled further reduction of our preacquisition debt levels and an improvement of our leverage ratio through the first half. We delivered this strong financial performance while accelerating our revenue mix shift towards payments and data. You'll recall in Q1 of this year, we reached a key milestone with just over 50% of our revenue being generated from nonprint sources for the first time in our 111-year history. In the first half of the year, our payments and data businesses together grew 11% and represented 52% of revenue, marking an acceleration of our progress. The addition of Celero, a leading merchant services provider, which closed last week, decisively shifts our revenue mix even further. More on Celero in a minute. At our December 2023 Investor Day, we outlined our plan to execute this financial and strategic transformation over 3 years. We delivered while achieving important cash flow and balance sheet commitments early. We're a team that executes consistently. We say what we'll do and we do what we say. Let me summarize the quarter and highlight our ongoing consistent execution. One, our second quarter comparable adjusted revenue grew just over 2.5%, led by continuing revenue expansion across each of the payments and data segments. Two, comparable adjusted EBITDA grew at 2x the rate of revenue, demonstrating the continuing operating leverage and cost efficiency focus embedded across our business model. This strong earnings growth also accompanied rate expansion as adjusted EBITDA margins reached nearly 22% for the quarter. Three, our free cash flow continued to expand, growing year-to-date by nearly 65% versus prior year. This strong cash generation enabled more than $75 million of net debt reduction from our year-end 2025 levels, improving our pre-acquisition leverage ratio to 2.9x at the end of the second quarter. And four, our payments and data businesses together expanded revenue more than 9.5% in Q2. Together, these businesses accounted for 52% of total year-to-date revenue, continuing the expansion from less than 1/3 of overall revenues in 2021. Now a few additional details from each BU. Our combined payments and data segments expanded year-to-date revenues by 11% through Q2, led by another standout growth quarter for the data segment. Data segment revenues expanded just over 21% versus the prior year second quarter. This performance continued to reflect strong campaign demand for data-driven marketing solutions that deliver measurable outcomes, particularly from financial institutions and adjacent market verticals. We've now grown data segment revenues by more than 15% for 7 consecutive quarters, demonstrating the strength of our AI-supported DDM model. This strong data performance has continued to support overall enterprise revenue growth even as we approach significantly stronger growth comps over the back half of this year. During the second quarter, our payments businesses together saw continued revenue growth rates as well, in line with our overall guidance outlook across both the Merchant Services and the B2B payment segments. Within the Deluxe Merchant Services or DMS segment, our onboarding of new partner wins and overall resilient macro spending environment and stable volumes across our diversified verticals contributed to second quarter revenue growth of just over 6%. Moving to the B2B business. We saw a sustaining top line growth across this segment as well, with revenues expanding by 3.5% versus Q2 of 2025. B2B continued to drive strong margin improvement during the period, expanding adjusted EBITDA rate by more than 250 basis points versus the prior year quarter. Finally, across print, we also saw continued comparable adjusted EBITDA margin expansion with year-over-year margins improving 110 basis points. Print's strong margin performance was helped by the combination of 3 factors: our exit from the declining and lower-margin Safeguard distribution channels earlier this year, containing the legacy Checks revenue decline to less than 2% and our prioritization of overall stronger-margin in-sourced printed offerings. Now on to a bit more about Celero. We closed on the transaction last Friday. Celero is a highly attractive asset in the merchant payment space. They enjoy solid growth in margin rates, broad channel distribution and important technology, including a terrific partner portal, enabling customers to onboard and operate their portfolios more efficiently. Strategically, Celero complements our existing merchant services offering and extends and improves our market position. There are a few key factors. First, Celero immediately enhances the scale of our combined merchant services offerings. Together, we'll now process over $70 billion in annual volume across more than 210,000 merchants. This acquisition moves Deluxe to a top 10 nonbank merchant acquirer based on Nielsen data. Second, our increased scale enables significant near-term cost synergy and revenue synergy over time, and we anticipate further improvement to our already robust sales capacity and pipeline as our complementary go-to-market resources are brought together. Third, together with Celero, we've become an even more attractive merchant services partner for prospects beyond our added scale. This addition will complement Deluxe's core offerings and go-to-market assets, our trusted brand, award-winning customer service, an expansive reach across more than 4,000 bank partners and millions of SMB customers. Adding Celero's strong sales relationships, platform technology and streamlined onboarding capabilities will position the expanded Deluxe Merchant Services offering as an even more formidable competitor in the marketplace. Finally, Celero has built a very strong and talented team. We're pleased now to welcome them to Deluxe. We look forward to sharing more details regarding the combination and our integration progress over coming quarters. As we noted within our recent press release, we're also planning to host a live Investor Day presentation in New York in December of this year, and we'll provide more details regarding that event over coming months. Now I want to talk briefly about putting this all together to update our 2026 outlook. We are updating our overall guidance ranges to reflect the closing of the Celero transaction last week. Our updated ranges include both increased overall revenue and adjusted EBITDA ranges to include Celero over the balance of the year, complementing our strong year-to-date performance through the first half. Chip will share specifics in a moment. Before concluding, I want to reinforce our strategic progress on our core priorities through the first half. As a reminder, our core business strategy is focused on 3 ongoing strategic planks. Number one, shifting revenue mix towards payments and data to accelerate profitable secular growth; two, driving operating efficiencies, margin expansion and overall operating leverage across the combined enterprise; and three, expanding adjusted EBITDA and free cash flow to improve the balance sheet and rapidly improve our net leverage ratio toward a long-term 3x or better target. We clearly delivered on all 3 strategic planks through the first half, remaining focused on driving execution across our existing businesses and now increased payment scale via the addition of Celero, which provides opportunities to directly accelerate our progress. We're pleased to have Celero join Deluxe and are confident in our bright and clear future as a payments and data company. Before passing this to Chip, I'd like to take a moment to acknowledge and thank all my fellow Deluxers for their dedication to our customers' success and our company's continuing transformation. With the majority of revenue now coming from our growing payments and data segments and the addition of Celero accelerating this mix towards 60% of total revenue later in 2027, my fellow Deluxers are on the cusp of achieving what few other 100-plus-year-old companies had ever achieved, successfully transforming ourselves for the next generation. Thank you. Our best days are yet to come. With that, I'll turn it over to Chip.

Thank you, Barry, and good evening, everyone. As Barry mentioned, we were pleased with our second quarter progress, particularly our strong year-to-date free cash flow expansion, continued year-over-year comparable adjusted revenue, EBITDA and EPS growth and margin expansion over the quarter and year-to-date periods. I'll begin, as always, by reviewing some of the consolidated highlights for the period before moving on to operating segment results, strong cash flows and other balance sheet and recent capital structure updates as well as our improved overall full year 2026 outlook, inclusive of forecasted Celero additions. For the second quarter, we reported total revenue of $499.3 million, decreasing 4.2% against prior year reported results while growing 2.6% on a comparable adjusted basis. We reported GAAP net income of $19.2 million or $0.41 per share, down from $22.4 million or $0.50 per share in the second quarter of 2025. This reduction was driven by the inclusion of $5.6 million of onetime transaction-related expenses within second quarter operating results and a slightly higher tax provision, net of overall lower restructuring and SG&A expenses and lower interest expense during the period. Adjusted EBITDA was $108.8 million, increasing 5.3% on a comparable adjusted basis versus the second quarter of last year. Adjusted EBITDA margins were 21.8%, improving 60 basis points on a comparable adjusted basis. Q2 adjusted diluted EPS came in at $0.87, improving from $0.82 on a comparable adjusted basis, driven primarily by our improved adjusted operating results and lower year-over-year interest expense. Turning now to our operating segment details, beginning with the Deluxe Merchant Services business. The merchant business grew second quarter revenue by 6.1% year-over-year to $107.6 million, continuing its mid-single-digit growth trajectory consistent with our full year guidance expectations for the stand-alone DMS segment. This growth rate reflected overall stable base processing volume levels as well as the onboarding of new business wins discussed during prior quarters, net of attrition, consistent with our forecasted expectations. Segment adjusted EBITDA finished at $25.1 million, expanding by 15.7%, driven by revenue growth and overall channel mix dynamics in addition to the impacts from the December 2025 purchase of residual commission rights from a large ISO partner. Margins finished the quarter at 23.3%, expanding by 190 basis points versus prior year Q2 levels. On a year-to-date basis, merchant margins have expanded by 280 basis points, in line with our guidance for the full year margin growth. We continue to expect the base DMS business to achieve full year mid-single-digit revenue growth, consistent with our prior outlook, along with a mid-20% adjusted EBITDA margin profile. As the Celero business is integrated to the Merchant segment results for the post-closing periods, this will provide significant upside to the overall balance of the year merchant revenue outlook as well as anticipated improvement of margins for the segment. We will provide further detail along these lines as integration efforts move forward over coming months. Turning to B2B payments. For the second quarter, B2B segment revenues finished at $73.5 million, increasing 3.5% versus Q2 of 2025. Our installed lockbox volumes remains in line with our expectation as newer digital treasury management offerings continue to build momentum. We remain pleased with this blended level of B2B revenue growth, continuing our improved trajectory extending from the positive fourth quarter 2025 exit rate. Adjusted EBITDA for B2B came in at $18.3 million, reflecting an overall 24.9% margin. This represented continued strong expansion of adjusted EBITDA, growing by 17.3% from the prior year results, with overall realized margin rate in line with the top end of our full year guidance expectation for the segment. EBITDA growth for the period was driven by continued operating efficiencies realized across both our physical lockbox footprint and overall optimization of the expense structure across the B2B business model. Within our B2B segment outlook, we continue to anticipate a full year low single-digit revenue growth rate as the business laps sequentially improving revenues, particularly across the prior year back half periods. Overall, EBITDA margins are expected to remain within our full year low to mid-20% range. Moving on to Data Solutions. The segment continued to drive very robust incremental year-over-year revenue growth supporting ongoing strong customer marketing campaign demand levels. Revenues finished at $82.3 million, driving overall growth of 21.4% versus Q2 of 2025. Second quarter adjusted EBITDA finished at $18.1 million, with a margin rate finishing at 22% for the period, consistent with our longer-term low to mid-20s expectation for this segment. Recall that prior year margins included material nonrecurring vendor rebates. Our full year 2026 guidance ranges continue to reflect expected high single-digit overall data segment revenue growth. This outlook continues to reflect moderation of recent quarter growth trends over the back half of the year as we lap increasingly more difficult prior year results for the data segment. Turning finally to our print businesses. Print segment second quarter revenue finished at $235.9 million, a decline of 4.3% year-over-year on a comparable adjusted basis. Legacy Checks revenues declined 1.7% on a comparable adjusted basis, while the balance of the segment declined by 10.1% to drive the overall blended results. We continue to see blended comparable adjusted decline rates moderate due in part to the shifting of overall print revenues more towards legacy Checks, reflective of the divestiture of Safeguard-related promo revenues in particular. Overall adjusted EBITDA for Print finished the period at $86 million. The 1.4% rate of comparable adjusted EBITDA decline across Print continued to align favorably to the blended rate of revenue declines as margin rates expanded to the mid-30s during the quarter on the improving overall mix, including favorable margin rate impacts from the Safeguard divestiture earlier in the year. Consistent with our prior quarter outlook, we continue to expect to see low to mid-single-digit comparable adjusted revenue declines across the Print segment with full year adjusted EBITDA margins remaining in the low to mid-30s. Moving now to our balance sheet and cash flow. We ended the June 30 period with a net debt level of $1.32 billion, down $75.2 million from $1.39 billion at year-end 2025, consistent with our ongoing commitment to debt reduction as a top capital allocation priority, as Barry noted. Our Q2 net debt to adjusted EBITDA ratio prior to impacts related to the Celero acquisition reflected 2.9x at the end of the period, improving versus our 3.5x ratio a year ago. Free cash flow, defined as cash provided by operating activities less capital expenditures, finished at $85.9 million for the year-to-date period. This was an improvement of $33.8 million from the results reported through the first half of 2025. This continuing expansion of cash flows was reflective of our improved year-to-date operating results including lower restructuring spend, SG&A expense and cash taxes, along with largely stable working capital efficiency and CapEx investment, net of increased year-over-year cash incentive payments over the year-to-date period. Continuation of our robust operating cash generation remains a top focus area as we reset our deleveraging expectations against the updated capital structure reflective of the closing of the Celero acquisition. As we shared during the transaction announcement in June, we expect to return to 3x net leverage over a 2-year horizon. Concurrent with the transaction closing effective July 31, we also completed an amendment and extension of our now $1.2 billion credit facility, consisting of an $800 million term loan A and a $400 million revolving credit facility, extending these balances, respectively, to a 2031 maturity as noted in our filings of late last week. In addition, we entered into $600 million worth of floating to fixed interest rate swaps, helping insulate the incremental variable rate debt from ongoing volatility in interest rates. As a result of these swaps, we estimate to have approximately 75% of the debt stack aligned to fixed rates of interest. This structure enables improved confidence to our planned cash flow generation and debt reduction trajectory. These updates to our long-term capital structure position us well from both the liquidity and go-forward balance sheet position and will allow us to further assess our existing 2029 bond maturities opportunistically as warranted over coming periods. Consistent with past quarters, our Board approved a regular quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on September 1, 2026, to all shareholders of record as of market closing on August 18, 2026. As Barry noted in his opening comments, we are raising our expected full year revenue and adjusted EBITDA guidance outlook this evening to incorporate expected August to December 2026 results for the Celero acquisition. We are also affirming or narrowing our prior base business estimates to reflect our year-to-date first half results and our updated outlook across the operating segments. Our updated full year ranges are as follows: revenue of $2.095 billion to $2.120 billion, including flat to positive 1% comparable adjusted growth versus 2025 for baseline Deluxe. Adjusted EBITDA of $455 million to $475 million, which reflects between 5% and 8% comparable adjusted growth, adjusted EPS of $3.60 to $4, reflecting between 7% and 19% comparable adjusted growth and free cash flow of approximately $200 million, reflecting 14% growth versus our 2025 results. To reiterate, the increased revenue and adjusted EBITDA ranges reflect our combined balance of year outlook, while adjusted EPS and cash flow estimates reflect both interest expense from the updated cap structure and other transaction-related expenses expected over the initial integration periods. As a reminder, we expect the acquisition to be accretive to adjusted EPS over the first full year horizon. Finally, to assist with your balance of year modeling, our guidance has been updated to assume the following: interest expense of approximately $130 million and adjusted tax rate of 25%; depreciation and amortization of approximately $155 million to $160 million, of which acquisition amortization is approximately $55 million to $60 million, an average outstanding share count of approximately 46.5 million shares and capital expenditures of approximately $100 million to $110 million. This guidance remains subject to, among other things, prevailing macroeconomic conditions, including interest rates, labor supply issues, inflation and the impact of any incremental portfolio additions or exits. To summarize, we remain very pleased with our Q2 and year-to-date momentum, particularly our demonstrated continuing operating leverage, strong ongoing free cash flow generation and comparable adjusted expansion of our core earnings metrics through the first half of 2026. As we now welcome Celero, this strong execution focus and our capital allocation discipline provide a solid foundation for further acceleration of our combined growth and enhanced scale across payments and data. This combination will unlock synergy opportunities to further extend our earnings expansion, cash flow generation and balance sheet improvement priorities in support of our long-term value-creation algorithm. We are excited to bring these assets together and look forward to sharing more details regarding integration progress and the combined outlook on our upcoming calls and planned Investor Day later this year. Operator, we are now ready to take questions.

[Operator Instructions] And we will go to our first question.

By the way, this is Kartik Mehta, Northcoast Research. Barry, if you look at the merchant business, good to see a 6% growth in the quarter. As you integrate Celero within there, what do you think is the largest revenue synergy opportunity for you?

Well, first of all, Kartik, thanks for the question. We're really excited about Celero because it not only gives us cost synergies which we've talked about extensively when we announced the transaction. And also over time, is going to give us revenue synergies. So immediately, as we said in our prepared remarks, our scale as the business expands tremendously which then gives us opportunities to compete for business that we weren't otherwise able to compete for either Celero or Deluxe independently, helps us move up to consider -- be considered for larger partnerships as well as larger customers, given that we will have more scale. That's number one. Number two, they have done -- the Celero team has done a particularly good job, we think, in the ISV space, which we'll be able to leverage across our business, which, together, we've got a great ISV business. But together, we think we can accelerate that business opportunity as well as in specific market verticals. So we think the combination of the increased scale, the technology, by the way, which I didn't mention, they have some really great technology that we're going to bring to bear which allows partners to board merchants more quickly, manage them more effectively as well as great pipeline and go-to-market synergies. We are very optimistic that over time, we will see some revenue synergies as well.

And then, Chip, just understanding the new guidance, just surprised a little bit that you didn't increase the adjusted EPS or free cash flow, especially with Celero contributing 5 months. Maybe you can just talk about your thought process for the guidance.

Sure. Yes, I'm going to take that as an overall question about guidance in general. So just to reiterate what we did do. So on both revenue and adjusted EBITDA, we bolted on revenue for Celero for the 5-month stub period as well as narrowing our existing ranges for the baseline Deluxe. When you think about EPS and free cash flow, the reason I left it alone is really some of the math of what we laid out for you. So if you think about the 5-month stub period of earnings that are coming into the guide, we're also adding in the incremental 5-month interest costs from the new refinanced debt, along with other moving pieces that kind of come to light during the integration. So there's going to be some integration-related costs that will impact cash flows. There's going to be some moving pieces around taxes. So really, if you really step back and you see the math, you'll see that the incremental EBITDA net of taxes, adjusted for the interest cost I built it in there, it kind of becomes a wash, right? And so given the time left in the year, the transaction having just closed last week, we think it was prudent to leave a bit of a wider range now to give us room to land the transaction, get the integration underway and really start to see how things unfold. But to be clear, at the midpoint of our guidance for EPS, you're talking about growth in EPS of 13%, which is more than double the rate of growth of EBITDA. And obviously, all of those are faster than revenue. And so I think we feel really good about the profile of business we're putting into the guide here, what it means for shareholders and the progress we've made. So really think of it as confidence around the existing numbers we had, the ability to manage some moving pieces as the year unfolds. As we start the integration, digest the interest costs, continue to digest uncertainty in the interest rate environment and just being able to be very prudent about how we set this initial guidance and then coming back later in the year and firming things up with a little bit of time. And just as a reminder -- and sorry, just as a reminder, Kartik, the Celero transaction will be accretive to EPS, the first full year following close. So think of that as kind of net neutral to this year, but accretive full year kind of post-closing kind of going into next year?

Perfect. That was what I was just going to ask you, so thank you for clarifying it. Appreciate it.

Thank you. We will go to our next question.

It's Charlie Strauzer, CJS. Just a couple of quick questions on -- first on Celero. And if you look at the integration plan, if you will, what are kind of the priorities there for the combined companies?

Appreciate the question, Charlie. What we really like about the Celero asset is we think that the integration is very straight ahead. It's -- we call it right down the middle of the fairway. One of the pieces of technology that comes with the transaction is actually going to help us with that integration, which is this partner platform will simply be adding the Deluxe services into that partner platform -- so the new boarding of merchants will go on to Deluxe. And over time, we have the opportunity in the background to port the other parts of the portfolio towards our existing platform. So there's cost synergies on the absolute operating side of the equation, payment processing, et cetera, that's an opportunity. We also have opportunity on other cost side on fees and other things where we pay, and we have 2 companies paying for the same fee, we get that to 1. And of course, on the overall organization. We have the opportunity to streamline the organizations by pushing them together. I will tell you though, Charlie, we're going to be very, very practical and thoughtful about that integration on the people side to make sure that we are putting the best talent in each of the chairs that we have across the organization. Because one of the prime assets that we got from this transaction was a very talented Celero team. We've got a very talented Deluxe team. We're going to put those together, and we expect that will help the company not just deliver cost synergies, but as I mentioned earlier, help accelerate on revenue synergies as well and make sure we put the right folks in the right spots and leverage the incredible talent pool we have between the 2 organizations.

Great. And looking at data, it continues to outperform kind of growth estimates despite kind of tough year-over-year comps. Can you talk a little bit more about what types of programs are having success there?