Deluxe Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you, operator.

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, 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 31st, 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, free cash flow. In our press release, today's presentation, 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 impacts from business exits, including prior year adjustments to reflect removal of the Safeguard business effective with the closing of that divestiture as of March 1st, 2026.

Financial metrics discussed through the second quarter also exclude any historical financial results relating to the Celero acquisition, which closed on July 31st, 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. With that, I'll hand it over to Barry.

Thanks, Brian, and good evening, everyone. I'm pleased to report our strong performance through mid-year. 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 pre-acquisition debt levels and 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 non-print 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 Solero, a leading merchant services provider, which closed last week, decisively shifts our revenue mix even further. More on Solero in a minute. At our December 2023 Investor Day, we outlined our plan to execute this financial and strategic transformation over three 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 two times 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 2.9 times at the end of the second quarter. 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 one-third 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 seven 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 B2B payment segments. Within the Deluxe Merchant Services or DMS segment, our onboarding of new partner wins, an 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 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 strong margin performance was helped by the combination of three factors.

Our exit from the declining and lower margin Safeguard distribution channels earlier this year, containing the legacy check revenue decline to less than 2%, and our prioritization of overall stronger margin insourced printed offerings. 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 and 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. Here 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 non-bank merchant acquirer based on Nilson data. Second, our increased scale enables significant near-term cost synergy and revenue synergy over time. 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 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, and 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. We'll provide more details regarding that event over coming months. 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 three 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. Three, expanding adjusted EBITDA and free cash flow to improve the balance sheet and rapidly improve our net leverage ratio toward a long-term three times or better target. We clearly delivered on all three 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 are pleased to have Celero join Deluxe and are confident in our bright and clear future as a payments and data company.