Deluxe(US:DLX)2023-11-04 19:54Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was flat year-over-year at $538 million, while adjusted EBITDA expanded 3% to $102 million [23][32] - Year-to-date total revenue grew 1%, and EBITDA expanded by 4%, indicating efficient cost management and profitable growth [23][32] - The company reported a GAAP net loss of $8 million, down from net income of $14.7 million in Q3 2022, with adjusted diluted EPS at $0.79, down from $0.99 [32] Business Line Data and Key Metrics Changes - Payments segment revenue was flat year-over-year at $169.5 million, with Merchant Services growing 2.1% and other payments declining 2.5% [16][24] - Data Solutions segment revenue increased over 24%, with adjusted EBITDA growth exceeding 45% driven by strong demand for data-driven marketing services [9][33] - Promotional Solutions revenue declined 7.5%, while the check business revenue decreased 1%, with margins remaining stable in the mid-40s [10][11][35] Market Data and Key Metrics Changes - Merchant Services experienced a sequential revenue growth of just over 2%, with positive trends in retail spending noted [7][8] - The check business showed resilience with a revenue decline of only 1.3%, better than expected, and continued market share gains [35][87] - Data Solutions revenue decreased 4% on a reported basis but increased 24.5% on a comparable adjusted basis, reflecting strong performance in targeted marketing [33] Company Strategy and Development Direction - The company is focusing on Project North Star, aiming to deliver $100 million of incremental run rate free cash flow and $80 million of increased comparable adjusted EBITDA by 2025 [22][29] - The strategy includes investing cash flow from print businesses into payments and data businesses, enhancing operational efficiency and driving growth [13][29] - An Investor Day is scheduled for December 5, 2023, to provide further insights into the North Star initiative and future growth prospects [14][88] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate macroeconomic uncertainties while maintaining growth in the Merchant Services and Data Solutions segments [7][26] - The company anticipates continued softness in certain business areas but remains optimistic about achieving low single-digit revenue growth for the full year [66] - Management highlighted the importance of operational improvements and strategic initiatives in driving future performance and shareholder value [30][67] Other Important Information - Free cash flow for Q3 2023 was $42.7 million, up from $23 million in Q3 2022, with a quarterly dividend of $0.30 per share approved [19] - The company ended the quarter with a net debt level of $1.59 billion, with a net debt to adjusted EBITDA ratio of 3.8x, consistent with long-term targets [62] - The company is transitioning from ERP implementation to Project North Star, which is expected to enhance cash flow and operational efficiency [78][85] Q&A Session Summary Question: Outlook for Merchant Services - Management noted that regulatory changes are not expected to materially impact the business, emphasizing the successful expansion into the middle market with Fulton Bank [69][70] Question: Expansion into High-Growth Verticals - Management discussed the successful expansion into telecom, utilities, and insurance sectors, leveraging a large data lake and AI tools for targeted marketing [71] Question: Cash Flow and CapEx Expectations - Management confirmed that CapEx is expected to remain around $100 million, with restructuring costs transitioning to support Project North Star initiatives [74] Question: Performance of Data-Driven Marketing - Management highlighted strong demand from banks for low-cost deposit acquisition, contributing to growth in the data-driven marketing business [75][76] Question: Resilience of the Checks Business - Management emphasized market share gains in the checks business, with effective pricing strategies helping to mitigate overall market declines [79][87]