Ladies and gentlemen, thank you for standing by. And welcome to the Third Quarter 2019 Deluxe Corporation Earnings Conference Call. At this time all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Ed Merritt, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Thank you, Catherine. And welcome everyone to Deluxe Corporation's third quarter 2019 earnings call. I'm Ed Merritt, Treasurer and Vice President of Investor Relations. And joining me on today's call is Barry McCarthy, our President and Chief Executive Officer; and Keith Bush, our Chief Financial Officer. At the end of today's prepared remarks, Barry, Keith and I will take questions. I would like to remind you that comments made regarding projections, financial estimates, and management's intentions or expectations regarding the company's future strategy and performance are forward-looking in nature, as defined in the Private Securities Litigation Reform Act of 1995. These comments are subject to risks and uncertainties which could cause actual results to differ materially from our projections. Additional information about factors that might cause actual results to differ from projections is contained in the press release issued this morning, as well as in the company's Form 10-K for the year end December 31, 2018, and other filings we make with the SEC. Portions of the financial and statistical information will be discussed during this call are addressed in more detail in today's press release which is posted on our Investor Relations website at deluxe.com. This information is also furnished to the SEC on Form 8-K filed by the company this afternoon. Any references to non-GAAP financial measures are reconciled to the comparable GAAP financial measures in the press release or as part of our presentation during this call. Now, I'll turn the call over to Barry.

Thanks, Ed and good afternoon everyone. I'm pleased to be with you today to share our strong third quarter operating performance. We've met our revenue commitment and exceeded our adjusted diluted EPS outlook. And we are affirming our full-year revenue and adjusted EPS outlook range. We're executing well on our new strategy, reinvigorate the culture, driving equity ownership, implementing a modern technology infrastructure and signing new contracts at an unprecedented rate. This is the new Deluxe. Our new strategy of attractive world-class talent. We've already brought a new Chief Revenue Officer, Chief Human Resources Officer, Chief Business Development and Strategy Officer and the General Managers for what will become our cloud services and promotional products businesses. In addition to our new management team, we also welcome Cheryl Mayberry Mckissack as our new Board Chair. Cheryl is the first female and first African-American Board Chair in our 105-year history. Cheryl is a great partner, as we execute our transformation and succeeds Martyn Redgrave who remains on our Board after seven years of distinguished service as Chairman. Overall, we delivered a solid quarter and made tremendous progress driving our transformation forward. As you saw in our earnings release, we recorded a non-cash impairment in the quarter. Now I'll turn the call over to Keith to provide more color on our third quarter financial results.

Thanks, Barry and good afternoon, everyone. Total revenue in the quarter was $494 million and within our outlook range, about flat year-over-year and we generated very strong operating cash flow. We will continue reporting our results in the current segment structure for the fourth quarter, and then expect to transition to our new segment reporting early next year. We're making solid progress and acting with urgency to transform our business into the four new focus areas of payments, cloud, promotional products and checks. Small Business Services revenue was $310.2 million, declining 1.7% year-over-year. Financial Services revenue was $154.6 million, growing 5.3% year-over-year. Direct Checks revenue was $28.8 million declining 6.5% year-over-year, about in line with our expectations. For the quarter, marketing solutions and other services or MOS revenue expanded to about 44% of total revenue. Checks accounted for about 39% of total revenue and forms and accessories accounted for 17% of total revenue. GAAP diluted loss per share for the third quarter was $7.49 below the low end of our outlook range as a result of the non-cash impairment charges, employee severance and facility closure costs, none of which were contemplated in the original outlook. Adjusted diluted EPS of $1.71 per share exceeded our outlook. In the third quarter of each year, we conduct an accounting assessment of the carrying value of our goodwill assets. We do this in addition to our quarterly review for triggering events. As a result of completing these reviews, we recorded non-cash asset impairment charges and goodwill and certain intangible assets totaling $391 million. In recording the charge, we consider recent softness in the performance of the web services and data driven marketing business units, the decision to exit certain contracted customer relationships and a sustained decline in the company's stock price as factors in…

Thanks, Keith. As I said earlier, our team continues to make excellent progress on all fronts and is executing with a deep sense of urgency. This is the new Deluxe. As we've discussed on each of our previous calls, this year, our strategy is focused on profitable revenue growth in two key markets, payments and cloud. We will continue to invest cash flow from promotional products and check into these two high growth markets and plan to supplement our organic growth with strategically targeted acquisitions over time. We're confident this strategy will deliver sustainable mid single-digit organic revenue growth and adjusted EBITDA margins in the low to mid 20s in 2023. We also continue to expect our strategy to yield $300 million of net new revenue or total reported revenue of about $2.3 billion in 2023. Just to be clear, these strong growth numbers are net of the expected secular declines in checks over the next few years. Just as a refresher, our incredible assets of scale include nearly 5 million small business customers. 4.5 million hosted small business websites and a 4,600 financial institution customers. Our reputation as a trusted partner is unparalleled and our customers are very pleased with the quality of our services. I regularly hear our customers express our high interest in doing more business with us. But they frequently don't know all that Deluxe has to offer or the many ways in which we can help them succeed. To address this, we're changing our go-to-market strategy and instead of being a company of companies operating dozens of silos, the result of over 50 partially integrated acquisitions, we're becoming a company of product solution. Instead of each product being an independent silo having a separate sales team visiting the customer, we're moving to a single sales…

Thank you. [Operator Instructions] And our first question comes from Charlie Strauzer with CJS. Your line is open.

Just a couple of housekeeping questions for Keith to start off. Keith, if you wouldn't mind sharing the organic growth numbers on small business and financial services.

Sure. So, organic growth for the company in the quarter was the sell out about 3%, that's about 100 basis points better than where we were in the third quarter of last year.

And then you have it by segment as well?

Yes, we're going to have to come back to you on that one.

And then talking about in your remarks, about the M&A and things like that in terms of being the part of the strategy, you were kind of past the moratorium. I think it was about six months or so. And, but yes, we haven't seen any deals. What's kind of your appetite now versus where when it first came on board?

So Charlie, first of all, I think it's important to understand. We've made so much progress on the integration. Here are getting the previous acquisitions aligned, getting the sales organization stood up having a product development team in place. We've made a kind of progress, which is what we set out to go by not making acquisitions like we said in the first half of the year or even in the third quarter, the first three quarters of the year. Acquisitions will still be an important part of our go-forward strategy. So we still believe we have so much opportunity with the products that we have in-house that we're going to continue developing and pushing that in the marketplace to sell -- to cross sell more to our existing customers. You know this program we're working on the call center is very encouraging. What we're seeing with our new sales organization very, very encouraging. But that doesn't mean we won't the refi in our right assets that will be complementary to what our business and that we wouldn't act. But we don't feel any rush. We don't feel any pressure. When we are ready and we find the right asset, we will make a move.

And then just switching gears to the impairment charges in the quarter. Maybe get a little more color as to where the predominant part of those charges were taken from?

The asset impairment charges you are referring to?

Yes.

So in the quarter, we took impairment charges in goodwill primarily as $242 million of impairment in the web services business and a $115 million in data driven marketing.

And is that related to any shutdowns of the businesses or just a read…

Thank you for that question. We continue to operate businesses and we have millions of customers through these businesses and great customer lists. Over time we think, we still have great growth potential. And honestly one of these places, we had material wins to Ingram Micro deal and the Vodaphone India deal really are validation that the solutions we have value. The only thing we've really impaired here are intangibles and goodwill.

Excellent, that's great color. I'll jump back in queue. Thank you.

Thank you. And our next question comes from Jamie Clement with Buckingham. Your line is open.

I think you mentioned that you're shooting for organic revenue growth next year. As you look at the product lines by let's -- and obviously you sound optimistic on promotional products. But as we look at components of MOS, where you think you can see acceleration faster. What would those product lines be? And then for the ones that may take a little longer, what are the actions that you feel the company still needs to take to get that done?

So let me first remind everyone here that we still operate the company today in three business units, which are small business, financial Services and direct checks. Where we're going in the New Year, we'll operate in four segments which are payments, cloud, promotional products and checks. And Jamie we are most optimistic about our growth prospects in payments and cloud-based services an immediate horizon, especially excited about what's going on at payments. So I mentioned a minute ago that we had 12 wins in our treasury management business, which is -- we think is clear validation that our product and service offering is best in class because we're winning, simply we're winning market share in the marketplace. So we are very optimistic about that. I also mentioned our payroll business for small businesses. The company had never really considered using partners as distribution channels, specifically banks. And Jamie before we even launched the product, we had two businesses signed up and are already selling and referring our customer, setting at customers. And we're looking at a number of other places in the payment space B2B payments and payments for small businesses that perhaps by the next time we're together. , :

Do you feel -- I know you're not guiding for next year or anything like that, but just kind of big picture on. Do you feel that there need to now that you've been with the company approaching New Year? Do there have to be any big changes to the company's cost structure to be able to accelerate revenue growth or are you, do you feel obviously you need to make some tweaks here and there. And obviously, you've done a lot of work. But do you, are there any surprises on horizon, basically wanted to get that.

And I've been talking, as long as I've done here about the notion of efficiency. And how I believe the company has been operationally efficient. So that volume change up or down, we've been very responsive and able to manage sort of operational efficiency that way. But we do believe and I continue to see structural efficiency savings here and opportunities. And so for example, in the quarter, we began moving towards the new structure we eliminated. We went through seven management layers to four and that led to reduction in headcount at management level. We're taking the money and the savings from that and putting that right back into our business. We have a real estate footprint that I had mentioned before disproportionate to our employee footprint. And we think we have significant opportunity there to streamline our real estate footprint and make the company, and take those dollars and reinvest into our core business. So as I look across the business, the all thanks we're doing at technology are going to yield structural savings. So I think the way I think about it is that we have a structural opportunities to improve, how the company is structured. And we're taking those on, and I think I have been pretty transparent about the places we're working on. I feel great about the progress, I have already told you, we're on track and on budget and all the things we're doing on technology. And I guess the point I would make here is some of these things take time to actually deliver the outcome. But we have a very specific plan and on every measure and every proof point that we regard of ourselves, we are in every stage, we are on or ahead of plan.

So at the risk of putting words in your mouth, you think you could largely self-fund us?

[Indiscernible] Keith said it, Keith has used those words.

Okay. Because, Barry, I think with transformation stories oftentimes there is a, at some point in time in the kind of the early to mid early innings, company say we're going to have to invest a whole bunch more in that kind of thing. And you see this like stepped down in the profitability of the enterprise. But it sounds like we don't have to worry about that.

Jamie, I was really clear like I think on my first call that we were going to invest in our infrastructure and we've been doing that. And we're on path and on budget and on track. I said what we were going to do and we're doing what I said.

And Barry last thing, the forms and accessories number for the quarter, down less than $1 million. I mean that's terrific. What do you, -- what would you point to there. Because I mean, I think that's outperforming the market significantly.

You know what I think that we are seeing it. Like there like across all of our businesses with more invigorated management and focus on sales and providing the next solution to the customer and out in our call center doing need based selling. We are seeing an opportunity to sell more products. I was describing that in the section about our call center performance where we're seeing increase in the number of products per order and an increase in total revenue. So the whole basis we've had and we've been talking about as long as of that year, which is that we did have the huge opportunity to sell more to our existing customers that we're talking to all the path and we're starting to see early fruits of that. And forms, accessories, promotional products are some of the easiest things for us to sell quickly on a call and we're optimistic. That's why I said earlier, I'm optimistic about our commercial products.

And the new check customer that you referenced. I mean did you already -- did you start seeing revenue during the quarter or is that to come?

No, it will come in from next year.

Okay. Okay, thank you very much for your time guys. I appreciate it.

I just want to reinforce why that is so important. It's a material bank and as a takeaway that is a clear validation that our product, our service and the quality of our company gives us a competitive advantage. And so while check is our growth business, we just think it's another example of being able to sell ourselves and tell our story in a new and compelling way to have us getting us win that we wouldn't have experienced before.

Thank you [Operator Instructions]. Our next question comes from Chris McGinnis with Sidoti and Company. Your line is open.

I apologize if you did mention this I was having some issues getting on. But can you talk a little bit about the integration of the board with the prior acquisitions. I know you mentioned it just before Q&A section. Well just update where we are at, are we fully completed with the prior integration pieces and bringing everyone I think in the same kind of platform.

So we call this whole program One Deluxe, which means that we want to present ourselves as one company in the customers' office around the phone. And so we want to be able to present the entirety of our suite of solutions to our customers. So previously for all the different acquisitions we had. We would have different salespeople, sometimes even showing up on the same day. So I'd see the same customer about different product solutions. And we think that there is a much bigger opportunity for the company. But holding those things together, so we can have a single person in the customers' office talking about the range of solutions and how Deluxe could help that business grow. Instead of going into trying to sell a point solution, we could now go in and say, explain to us your challenges and problems and then we can match a solution to help them fix that problem. And the early proofs are really encouraging here. We have Chris Thomas here who said his career in this type of a model and we're getting -- we're seeing fresh fruits. You saw us win a number of -- more a dozen new contracts in the Treasury business. And we are having all these wins come our way and improvements in our call center. And we have a number of other wins that having a different approach to our customer s and going to them and talking to them about how Deluxe could help them grow their business gives and leads to a very different outcome. So all of that we see as this incredible validation and proof that we are on the right path towards organic revenue growth. And all of this we call One Deluxe.

And it sounds like the early indication is that cross-selling opportunity is finally coming to fruition to the company. You referenced this with Jamie but also kind of just those comments as well -- starting to get that. That opportunity is really becoming apparent now?

I will tell you, I have been on the phone on a person that was CEO that some of our largest customers. And the universal message I hear from them is while we have a very long-standing relationship with your customers. You're one of the very few cost companies that we trust with personal identifiable information PII. And that puts you in a very unique position with us because you are a trusted partner. And we buy more from you if we just knew that you did more. And that is likely up and it gives me an opportunity to sell that. When you so appreciate your business in one area though we have so many other things that we do that can help your company operate your bank, your business more efficiently. Everything from promotional products to marketing solutions to website hosting, the payment solutions and all of a sudden we are engaged it a radically different conversation at the top of the house, Because we're simply telling our story as one company, rather than talking about the check company or the web hosting company or the data driven marketing company or the payments business. We are in talking about how our company to create value for their company. It's a fundamentally different approach. And we're really excited about these first wins we're seeing and really to feel the momentum.

Thank you. And we have a follow-up from Charlie Strauzer with CJS. Your line is open.

Just a couple of more, just picking up on the new customer wins. Barry, if you could expand more on a, is it a national banking customer and b, sometimes you see these things where you have a big customer win, but it is also a customer loss on the other side, were there any competitive losses in the quarter?

So let me take the first part of that. I can't give you any more description on who that is because I can't -- I owe that duty of trust to the customer. But I will leave it with you as a very major financial institution. Then if I told you their name you would recognize it. And we have not had any material losses in the third quarter.

And then looking at organic growth, I know I'd asked you about the segments before but maybe if you can talk about by MOSwas there. It looks like about 3% growth is that all organic in the quarter? And also if you have any…

Yes, Charlie can I just go back -- I just want to make sure I'm absolutely precise. I think you were asking me about the checks business right, about losses in checks.Because what I said is absolutely correct. Obviously, as a result of some of the charges, we had some loss in other businesses, but not in checks. So let's go back to the next question.

Just looking more on an organic basis, MOS grew, I think about 3%. Was that all organic in the quarter?

Most of that -- almost all of it is because recall, we haven't bought anything, right. The last recognition we made was a very small My Corporation transaction that we made at the very end of last year, but we are, we were pleased with. We're pleased with our results.

So is it safe to say that the segment organic growth numbers are similar to what was reported as well?

So let me address that for you. This is Keith. So Small Business Services saw a contraction of 3.2% organic, financial Services contraction of 1.8% organic and the Direct Checks is all organic. So that gives you your overall decline of the 3% that we referenced earlier.

And then just lastly, when you look overall at the progress you're making here, especially when you're talking about getting to maybe potentially getting to growth next year with MOS, any kind of low single digits growth right now. Are you expecting that part of the business to ramp more significantly over the next few quarters?

We were not in a position to give you forecasting and\/or guidance on future quarters. But I hope you'd hear our optimism about our payments business opportunities in the future and cloud and even promotional products. And coming New Year, we will be moving towards that segmentation, you have much more insight into those businesses and we are very excited about that and think that that's going to be, I think you will be able to pay a lot more because we're going to have an Analyst Day somewhere in the middle of February. And at that Analyst Day we will be able to give you guys lot of details about the incredible progress that we're making, the customer wins, the incredible power, honestly that we're able to attract to the strategy that want to be part of the very historic transformation. And we can give you a lot of detail then and give you a lot of visibility into the future and how each one of these businesses, we expect to expand.

Just one less housekeeping for Keith, if I could on the margins on direct checks were a little bit better than what we forecasted and what you've seen recently. What kind of drove that?

It's really just normal, just normal variation that we see within a quarter.

Thank you. And I'm showing no further questions in the queue. I'd like to turn it back to Mr. Barry McCarthy for any closing remarks.

Well, thank you everyone for participating on the call and for your questions. In summary, first, our momentum continues to build. I shared many examples of client wins and cross selling successes, utilizing our new go-to-market strategy that will begin to bear greater fruit in 2020. Second, our strategy focus is on payments, cloud, and promotional products and checks. We continue to gain traction in these markets. Third, from a technology perspective, we continue to be on track and on budget rolling out our new enablement technologies. Fourth, our senior leadership team is all the support staff and we expect to announce the last role, the GM of payments soon. I am honored to have these extraordinary and accomplished executives join me in leading this historic transformation. Fifth and finally, we again delivered on our financial outlook and affirmed our outlook for the year. We're executing with urgency, but in a thoughtful and responsible pace to unlock the incredible growth potential here. In closing, I want to thank our employee owners for their commitments and enthusiasm, passion and can do spirit. I've asked them to think differently, act differently because increasingly customer and sales-focused, all while reorganizing the company and delivering solid results. Certainly, there is much more to do. But I'm very proud of how we've come together as one team to build one company, One Deluxe. It really is a new day and a new Deluxe. Now, I'll turn the call back to Ed for some final comments.

Thanks, Barry. Before we conclude today's call, I just like to mention the following events in the third quarter. As Barry previously mentioned, on November 20th, he'll be presenting at the Salesforce Dreamforce event in San Francisco. On December 3rd and 4th we will be at the Wells Fargo TMT Conference in Las Vegas. We'll be meeting with investors at various locations across the country in the first two weeks of December, where you can hear more from us regarding our ongoing transformation. We plan to be in New York on January 14th at the 22nd Annual Needham & Company Growth Conference. And finally, we plan to send our save the date note shortly regarding our mid February 2020 Analyst day, which we intend to hold that in Manhattan. At the event, you'll have an opportunity to meet our new leadership team and gain a deeper understanding of the New Deluxe. Thanks for joining us. And that concludes the Deluxe third quarter 2019 earnings call.

Ladies and gentlemen, this concludes today’s conference. Thank you for participating you may now all disconnect. Have a wonderful day.