Deluxe(US:DLX)2020-11-07 15:08Financial Data and Key Metrics Changes - The company reported revenue of $439 million, a decline of 11% or $54 million compared to the same period last year, but a sequential improvement of 600 basis points from the second quarter [10][26] - Adjusted EBITDA margins improved by 290 basis points sequentially to 23.3%, although it declined by 90 basis points year-over-year [10][29] - Net income for the quarter was $29.4 million, a significant increase from a net loss of $318.5 million in Q3 2019, which included noncash asset impairment charges [28] Business Line Data and Key Metrics Changes - Payments revenue grew by 15.6% year-over-year to $74.7 million, driven by treasury management services [30] - Cloud Solutions revenue declined by 20.3% to $63.8 million, with a sequential improvement noted in data-driven marketing revenue [31] - Promotional Solutions revenue also declined by 20.3% to $124.9 million, but showed a sequential growth of about 6% [32] - Check revenue decreased by 8.4% to $176.1 million, with adjusted EBITDA margin at 48.3% [33] Market Data and Key Metrics Changes - The company experienced a sequential improvement in overall revenue and margins, indicating a recovery trend despite ongoing pandemic challenges [7][8] - The Payments business is expected to maintain double-digit growth in the long term, while the Cloud and Promotional Solutions segments are anticipated to lag in recovery due to reduced discretionary spending [18][19] Company Strategy and Development Direction - The company is focused on its "One Deluxe" strategy, which emphasizes cross-selling and integrating services across its business lines [14][39] - Significant investments have been made in technology upgrades and infrastructure consolidation, with nearly 60% reduction in operational sites over the last 18 months [13][65] - The company aims to maintain adjusted EBITDA margins of 20% or better in the long term, despite the challenges posed by COVID-19 [23][37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's financial strength and ability to navigate the pandemic, highlighting improved cash flow and reduced net debt [9][35] - The macro environment remains challenging, and while there is optimism for recovery, management refrained from providing specific guidance for Q4 or 2021 due to uncertainties [23][36] - The company is encouraged by new business starts and the potential for growth in the Payments and Check segments as the economy recovers [45][58] Other Important Information - The company declared a regular quarterly dividend of $0.30 per share, reflecting its strong financial position [38] - Cash from operating activities for the year-to-date was $166.8 million, with free cash flow at $124.1 million, despite a decline due to COVID-related impacts [34] Q&A Session Summary Question: Thoughts on Q4 versus Q3 performance - Management indicated that while Q4 may show some slowdown due to COVID impacts, they expect to maintain margins at 20% or better [43][44] Question: Impact of small business closures - Management noted that while small business closures are a concern, there is a positive trend in new business formations that could offset this [45] Question: Outlook for the Cloud business - Management acknowledged that while there was some improvement in Q3, larger financial customers remain cautious, and recovery may extend into 2021 [46][48] Question: Cross-selling performance - Management highlighted 175 cross-sell deals totaling $11 million, demonstrating the effectiveness of their unified sales strategy [50][51] Question: Future of the Checks business - Management believes that as the economy recovers, the volume of checks will return to normal levels, despite ongoing secular declines [56][58] Question: Digital checks adoption - Management reported positive customer adoption of eChecks, which are seen as a timely solution in the current environment [60] Question: Cost savings from new headquarters - Management discussed the strategic move to new headquarters as a cost-saving measure and a way to enhance employee attraction and customer engagement [62][64]