Deluxe Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 7 speakers on the call.

Operator

At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Tom Morabito. Please go ahead.

Speaker 1

Thank you, operator, and welcome to the Deluxe First Quarter 2023 Earnings Call. Joining me on today's call is 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 you On this slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates or expectations about the company's future strategy performance are forward looking in nature as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause our actual results to differ from projections is set forth in the press release we furnished today in our Form 10 ks for the year ended December 31, 2022 and in other company SEC filings.

Speaker 1

On the call today, we will discuss non GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA, press release, our presentation and our filings with the SEC, you will find additional disclosures regarding the non GAAP measures, including reconciliations of these measures to the most comparable measures under U. S. GAAP. Also in the presentation, we are providing additional reconciliations of GAAP EPS to adjusted EPS, which should help with your modeling. Now I'll turn it over to Barry.

Speaker 2

Thanks, Tom, and good morning, everyone. Deluxe is off to a solid start to 2023 with positive comparable adjusted revenue and EBITDA growth. You'll recall that last quarter, we began discussing both revenue and EBITDA on a comparable adjusted basis, which will exclude the inconsistencies caused by acquisitions or divestitures in the prior periods. Are now in our 3rd consecutive year of revenue growth on a comparable adjusted basis, and we're delivering on our long term promise of scale, growing profits faster than revenue. This has been an elusive goal for more than a decade.

Speaker 2

While there's still more to do, are cautiously optimistic that this quarter represents our inflection point of improving margin and earnings leverage over time. Before we review the quarterly results, let me take a moment to offer a few business updates. First, In Q1, we completed our 3 year corporate infrastructure modernization program with the implementation of our ERP, are clearly showing our ability to execute well on what is always a difficult project. Chip will provide additional details at a moment. Are in the line with our expectations.

Speaker 2

2nd, I want to offer some details on First American as we approach the 2nd anniversary of the acquisition. First American, our Merchant Services Platform business continues to meet or exceed our management case for the transaction. Pre acquisition, the business was growing lower single digits and is now solidly a mid single digit grower, are delivering 7% revenue growth this quarter. The progress we've made on this acquisition highlights the operational and financial discipline and the power of our One Deluxe go to market model. As an example, since the acquisition, we've onboarded nearly 1100 new clients We continue to see First American as an important value driver for Deluxe.

Speaker 2

3rd, the sale of our North American web hosting and logo business is expected to be completed this month after satisfying all closing conditions. As we mentioned on our last call, web hosting is a non strategic business line and this divestiture will allow us to further focus on payments and data. Post divestiture, 90% of our data business, formerly known as the cloud business, will be data driven marketing or DDM. 4th, we made significant strides in our ongoing lockbox improvement efforts by further consolidating sites and shifting work to optimize the operations. Chip will share additional details.

Speaker 2

5th, as announced earlier this week, Deluxe entered into a joint venture with Echo Health are focused on expanding the capabilities of our Deluxe Payment Exchange or DPX platform. We expect DPX will positively impact the payments business are participating in the company's most trustworthy companies by Newsweek. This speaks to the quality of our products and services, reliability and talent, edit underscores the mission critical and trusted role we play for our clients. All of these accomplishments and many more would not have been possible without the hard work and dedication of my fellow deluxers. So let me again say thank you.

Speaker 2

Now on to the results. For the quarter, on a reported basis, revenue decreased 1.9% to $545,000,000 which was impacted by several business exits throughout 2022. On a comparable adjusted basis, revenue was up 0.5% year over year. Total adjusted EBITDA dollars increased nearly 1% from the Q1 of 2022. Total comparable adjusted EBITDA dollars increased 2.1% as we continue to benefit from ongoing pricing actions and management of our cost structure.

Speaker 2

Will be focused on driving quality revenue growth with increasing adjusted EBITDA and free cash flow for the long term. We expect to see improvements in these metrics as we progress through 2023, just as we have messaged for some time. For the year, we're looking for modest increases in comparable adjusted revenue and EBITDA with free cash flow between $80,000,000 $100,000,000 Importantly, I wanted to mention that we have not seen any associated weakness across our lines of business as a result of the recent banking industry challenges. We are not banked by any of the directly affected institutions, participants collectively represent an immaterial portion of revenue. Perhaps more importantly, as a result of these challenges, we won additional business from several institutions that were competing to win deposits away from the affected institutions.

Speaker 2

Moving on to some segment revenue highlights. Payments revenue grew 3.5% from the Q1 of 2022. Merchant Services had a strong quarter with revenue increasing 7%, at the high end of our long term expectations of mid single digit growth. The rest of payments, which includes our receivables and payables businesses, was roughly flat as solid performance in treasury management was partially offset by volume and cost pressures in other areas of the business, are temporarily impacted by our site consolidation efforts and ERP project. The Data segment's comparable adjusted revenue declined are in the 1st quarter.

Speaker 2

You will recall that several key DDM customers pulled forward spending into Q4 2022. This pull forward along with an unusually strong Q1 2022 comp impacted the performance of this business. On a blended Q4 and Q1 basis, the DDM business grew 6.6% in the 6 month period, are consistent with long term expectations. Last quarter, we highlighted some DDM related traction we saw in non financial verticals. Today, I'd like to highlight our continued efforts to expand into regional financial institutions.

Speaker 2

For example, IBC Bank, one of the largest Texelix regional banks and a Deluxe check customer for over 25 years, recently expanded their relationship with Deluxe to include our DDM solutions. We helped IBC introduce an innovative digital outreach solution to expand one of its business lines. Another win is Pentagon Federal Credit Union. Based in McLean, Virginia, PenFed manages approximately $25,000,000,000 in assets for more than 2,000,000 members. A long time check customer, we also help PenFed significantly increased credit line and mortgage applications.

Speaker 2

Turning to promo, we had another strong quarter, are in the range of $1,000,000,000 in the quarter. We are also pleased with the improvement in margins. The Provo business continues to benefit from our strong and growing relationship with Amazon. Amazon is using our recently improved Deluxe Brand are in the same store, which is an ordering platform enabling businesses like Amazon to customize promotional items. We believe having an anchor customer like Amazon on the platform is a testament to our capabilities and the potential to provide this service to many more customers.

Speaker 2

Finally, our check business declined 4.5% year over year, consistent with our long term expectations of mid single digit revenue declines. The ERP implementation did have a one time impact on profitability, which Chip will discuss. Before concluding, I do want to briefly discuss our capital allocation process. Our strategy is focused on growing our payments and data businesses by reinvesting the harvested cash from the print businesses. We have a very disciplined process to approve growth investments and we are encouraged by our progress.

Speaker 2

Payments and data are well positioned in strong secular growth markets. Payments will become our largest revenue business this year and we expect both payments and data to deliver positive shareholder returns. While we still have a lot of work to do, we're pleased with our Q1 results, are generating positive comparable adjusted revenue growth and modest but positive operating leverage. We believe this is an important milestone for the company and this margin leverage should be durable over time. We're also pleased to have now completed our infrastructure modernization efforts and look forward to further unlocking benefits from these investments.

Speaker 2

Now, I'll turn it over to Chip, who will provide more details on our financial performance, are in the position of capital allocation priorities and guidance.

Speaker 3

Thank you, Barry, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. On a reported basis, revenue declined 1.9% year over year, participants are in the range of $1,000,000 Our total comparable adjusted revenue was relatively flat, increasing 0.5 percent to $545,000,000 We reported 1st quarter GAAP net income of 2 are $800,000 or $0.06 per diluted share, down from $9,600,000 or $0.22 per share in the Q1 of 2022. Adjusted EBITDA came in at $100,000,000 up 0.8% and up 2.1% on a comparable adjusted basis from last year. Improvements in promo were partially offset by checks and data, which was impacted by the 2022 business exits.

Speaker 3

In addition, we had changes to our benefits plan that helps move some corporate benefits costs out better across the quarters. Comparable adjusted EBITDA margins were 18.4%, up 30 basis points year over year. 1st quarter adjusted diluted EPS came in at $0.80 down from $1.05 in last year's Q1. This decrease was primarily driven by interest expense and depreciation and amortization. In the Q1, we also completed a $200,000,000 interest rate swap, which replaced the existing 2019 swap that are on March 20, 2023.

Speaker 3

We also modified our existing credit facility and interest rate swaps to utilize SOFR as the term reference rate in these agreements. With this replacement swap, our debt remains approximately 60% fixed rate, which should partially insulate the company from future rate hikes. Before going through the segments, I'd like to provide some additional details on our ERP implementation. As the system went live, we experienced some challenges that did have an impact on revenue and profit. Notably backlogs built up mostly in February, but improvements occurred throughout March.

Speaker 3

We are now operating largely as usual and have satisfied the backlog of orders created by the transition. The Chegg segment's profitability was particularly impacted, which I will detail in a moment, but overall company profitability was impacted by roughly 80 basis points. Despite these near term issues, the long term benefits of ERP implementation remain. Examples include savings related to legacy IT system costs, are saved through operating on a more streamlined end to end ecosystem. Finally, the reduction of numerous legacy ERP systems will reduce the risk are in operating unsupported and non standard systems in our acquired businesses and within our legacy check and promo businesses.

Speaker 3

This was a massive undertaking, and we are very pleased that it has been materially completed. This will also effectively mark the end of increases in operating expenses will be available on our growth businesses, payments and data. Payments grew 1st quarter revenue 3.5% year over year to $172,000,000 with merchant services growing 7%. As we have previously indicated, we anticipated slower growth for a few quarters as all of payments was up against tough year over year comps. We still expect growth rates to improve as the year progresses.

Speaker 3

Strength in merchant services from government and non profit areas was partially offset by modest are in the range of softness in consumer spending patterns. While the merchant business is subject to overall market conditions, we remain confident that we have many levers across our payments portfolio will still deliver our guidance for the year. Payments adjusted EBITDA margins were 21.2%, down 70 basis points from the prior year, are in the range of $1,000,000,000 in the quarter. We closed 2 $1,000,000 in the quarter with a third expected to be completed this month. These changes will further improve operating performance and we expect between 102 100 basis points of margin expansion in subsequent quarters.

Speaker 3

For 2023, we continue to expect to see mid single digit revenue growth and adjusted EBITDA margins in the lowtomid20% range. The data results were down year over year and a little softer than we expected due to having to rebuild the pipeline from the strong 4th quarter. On a reported basis, data's revenue declined 15.7% from the Q1 of 2022 to $59,000,000 conference call will adjust the revenue decrease 7.7 percent year over year, adjusting for the $6,000,000 of divested revenue related to last year's Australian web hosting divestiture. As Barry mentioned, data was up against some tough comps, experienced the impact of the campaign shifts into the Q4, and the results still include the web hosting business, which signed 11.8% this quarter. If you combine the performance of the 2 quarters, DBM increased a strong 6.6%.

Speaker 3

Taking these factors into account, we expect to see a solid rebound in revenue growth in the second quarter. Data's adjusted EBITDA margins in quarter increased 120 basis points year over year to 26.1%, largely due to product mix and disciplined expense management. On a comparable adjusted basis, EBITDA margins improved 60 basis points. For 2023, we continue to expect to see low single digit revenue growth on a comparable adjusted basis. We also expect to see comparable adjusted EBITDA margins in the low 20% range.

Speaker 3

Turning now to our Print businesses, Promo and Chex. Promo's Q1 revenue was $136,000,000 up 2.2% on a reported basis. Comparable adjusted revenue increased 8.1%, are driven by new sales wins and pricing actions and adjusting for $7,000,000 of divested revenue from last year's many business exits. Promo's adjusted EBITDA margins increased 100 basis points year over year to 13.8% as we benefited from continued pricing actions and improvements in operations and cost structure. On a comparable adjusted basis, EBITDA margins improved 50 basis points from the Q1 of 2022.

Speaker 3

For 2023, we continue to expect to see low single digit comparable adjusted revenue growth and adjusted EBITDA margins in the mid teens. Chegg's 1st quarter revenue decreased 4.5% from last year to $179,000,000 as the business continues to return to expected secular declines. Participants demand remains predictable and we continue to take responsible price actions and maintain high retention rates. 1st quarter adjusted EBITDA margins were 42.8%, down 150 basis points year over year due to the ERP related challenges I mentioned. Mostly occurring in February, we did not see a significant decline in volumes, but we did see an impact on some higher profit specialty and expedited orders.

Speaker 3

Over the past 6 weeks, the system has been operating as expected and bookings remain on trend. For 2023, we continue to expect mid single digit revenue declines and adjusted EBITDA margins in the mid-forty percent range. Turning now to our balance sheet and cash flow. We ended the quarter with a net debt level of $1,660,000,000 are flat compared to the Q1 of 2022. Our net debt to adjusted EBITDA ratio was 4 times at the end of the quarter, unchanged from a year ago.

Speaker 3

Change any of our projections and we remain on track for our goals for the year. Our long term strategic target remains approximately 3 times. Free cash flow defined as cash provided by operating activities, less capital expenditures was expected to be negative in the Q1, just as we outlined on the last call. However, free cash flow of negative $32,000,000 was somewhat less than anticipated, impacted by temporary changes in working capital related to the ERP implementation. This compares to a positive $13,500,000 in the Q1 of 2022 and the decrease was primarily driven by the expected increases in CapEx, taxes and interest.

Speaker 3

Once again, the negative free cash flow was anticipated and we've already seen a recovery early in the Q2, which gives us confidence free cash flow can remain on track for the year. Are ready to review our quarterly dividend of $0.30 per share on all outstanding shares. The dividend will be payable on June 5, 2023, to all shareholders of record as of market closing on May 22, 2023. To build on Barry's comments around capital allocation, we are responsibly investing the significant free cash flow generated by our core checks business into payments and data, businesses that we believe can generate more robust are delivering high return internal investments and paying our dividend. We facilitate a rigorous annual planning process ensuring all investments have a compelling business case and target returns above a 15% hurdle rate.

Speaker 3

We return value to shareholders through our dividend, which is currently $0.30 per share per quarter are improving business performance. Finally, we remain focused on accelerating our rate of debt pay down through even more improved EBITDA and free cash flow growth that we can get back below 3 times lever. We plan to share more details on upcoming calls. Turning now to guidance. Today, we are affirming our expectations for 2023, keeping in mind all figures will submit and reflect the expected impact of the web hosting and logo divestiture, which are now expected to close this month.

Speaker 3

We continue to expect revenue of $2,145,000,000 to $2,210,000,000 adjusted EBITDA of $390,000,000 to $405,000,000 are in the range of $2.90 to $3.25 and free cash flow of $80,000,000 to $100,000,000 as we mentioned on our previous call, on a comparable adjusted basis, 2023 revenue represents a range of negative 1% to positive 2% growth. The comparable adjusted EBITDA range represents negative 2% to positive 2% growth. Adjusted EPS is expected to declined year over year due to the full year impact of rising interest rates, incremental depreciation and amortization and an estimated now $0.20 impact from the announced divestiture. However, after factoring in the impact of the divestiture, the free cash flow guide remains an increase year over year on a comparable adjusted basis. Also in order to assist with your modeling, our guidance continues to assume the following: interest expense of $120,000,000 to $125,000,000 are in the range of $1,000,000 an adjusted tax rate of 26 percent depreciation and amortization of $170,000,000 of which acquisition and amortization is approximately $75,000,000 have an average outstanding share count of 43,700,000 shares and capital expenditures of approximately $100,000,000 among other things, this guidance is subject to prevailing macroeconomic conditions, including interest rates, labor supply issues, inflation and the impact of other divestitures.

Speaker 3

Will be available to our Q1 results and believe we are off to a solid start to 2023. Are in the range of $1,000,000 Our ERP implementation is now live, and we expect to see significant benefits going forward. As we move through 2023, in addition to continued revenue growth, are also expecting increased operational efficiencies, which should help us grow EBITDA, improve free cash flow, pay down debt and lower our leverage ratio. Operator, we are now ready to take questions.

Operator

Thank will take our first question from Lance Vitamco with TD Cowen. Your line is open.

Speaker 4

Hi. Thanks, guys. Good morning. Barry, could we start actually with the Echo Health JV? Just wondering if you could talk a little bit more about the motivation to set up the JV.

Speaker 4

Was that more about accelerating volumes and thus Revenue growth or is it more about improving the cost structure in that line of business? And in any case, could you just talk about how you expect the partnership to help Deluxe And whether this is a one off or potentially a blueprint for additional ventures in the future, whether with

Speaker 2

parties Sure. Good morning, Lance. So first of all, you'll recall that we have continued to make progress in the area of digital payables or the outbound side of payments, digitizing what are often are on paper based payments. We've had great success with a product that we have internally called DPX as well as something we created, I guess about 2 years ago called MPX or the medical payment exchange that really helped solve for medical payments, outbound payments, streamlining that and making it a much more digital process. We saw an opportunity to deliver that same type of solution see there and the partner, Echo, has other assets.

Speaker 2

And so we saw by bringing our assets together and going to market With the collection of these assets, we had a real opportunity to take a meaningful share of the payables market are in the middle of the payables business in the middle market. And that was the motivation. We think it's a very attractive way for us to do this That limits our CapEx investment, but allows us to have that additional feature functionality and get to market quicker participants are in the process.

Speaker 4

And so, great. Thank you. And so in terms of the structure, is this Going to be consolidated on your financial statements or is this sort of an income from an equity state that we need to be thinking about?

Speaker 3

Participants are going to be are in the position of the platform towards the joint venture. So we'll continue to have distribution revenue as we go find clients and drive them to sales force. Will be a servicer of the platform leveraging our technology, selling that into the joint venture and getting a revenue stream from the servicing side. And then we will have the equity method investment side, the 3rd stream, where we will share in our percentage ownership of the net income of the joint venture record that as an equity method investment inside our consolidated financials.

Speaker 4

Great. Okay. Thanks for the clarification there. Let me turn to the corporate expense line, which did much better than we'd at least expected. It was down about 13% year on year and is about 8.5% of revenues.

Speaker 4

I guess that latter stat, that 8.5% of revenues, is that how we should model corporate expense Going forward over the balance of the year or any additional color, thoughts there?

Speaker 3

Yes. So first of all, Lance, I would say It's been a while since I think we've had a quarter where we could talk about corporate improving year over year. So fantastic to be in that place. The journey we've been on under Restructure, upgrades and modernization, having to deal with various headwinds, reinstating benefits from COVID. So it's nice to be where we are here now to start to kind of eat into it.

Speaker 3

The one comment I made on the call, it is important to understand, we made a minor change in sort of our benefits plan that will help move out some of the timing of corporate. As you know, we've been a little front end loaded in Q1 and lower in Q4 over the past history of our business and that had to do with certain benefits timing. So there was about $3,000,000 that we've now shifted kind of from Q4 into Q1 that will help move things out. Still despite that though, we were overall down $7,000,000 So there's $4,000,000 worth of cost improvements that we were able to manage I would continue to assume somewhere around roughly 9% now percentage of revenue for now as we continue to get to the year, continue to execute on our plans to take cost out there and get more efficient. But roughly 9% 8.5% to 9% is a good spot to be from your modeling.

Speaker 4

Okay. And then last one for me, just on the free cash flow, that came in a bit well, actually, well below our expectation. And Unfortunately, I can't really see where we were off because the delta seems to be all lumped into the other line in your cash flow statement, at least in the press release. So a year ago, other cash outflows were $9,000,000 this year, other cash outflows were $46,000,000 Can you unpack that for us? And then just for the full year, should we be thinking I know you reiterated the guide, but should we be thinking more about the low end given the slow start to the year or were there some timing items there that you think could reverse in subsequent quarters?

Speaker 4

Thanks.

Speaker 3

Yes. So we continue to maintain our guide. We mentioned on the last call we expect to be negative. We, of course, didn't go as far to exactly tell you the number. But I can tell you now, Our internal plan was negative 25% in the Q1.

Speaker 3

So the negative 32%, as I said, was slightly worse than we thought, and it really was tied up on working capital. So we mentioned the ERP. Once again, we're just we're so glad we've gotten through that. The team did a fantastic job. It was a difficult project.

Speaker 3

But Like any of those things, it has its bumps, it has its delays. And so working capital was not immune from that, specifically some AR collections and a little bit of inventory. So really that $7,000,000 difference in working capital bridges me from the $32,000,000 we delivered to the $25,000,000 we had in our plan. Now the good news is we've already had significant customer collection activity here in April that's even higher than that $7,000,000 miss. So as I sit here today Without perfect visibility, I actually think I'm ahead of plan on a year to date basis, which continues to give me confidence that Q2 can be a good quarter, a solid rebound, And there's nothing to worry about in terms of moving up or down in the range.

Speaker 3

Our range remains solid, and we feel confident with the year. To Perfectly be able to give you a reconciliation of others. I don't think I can do real time here on the call. So let us follow back up with you offline and we'll see what we can do. But we know the big drivers year over year were what we called out on the last call and what we expected, higher interest costs, many, many rate hikes as we've all are in the growth products.

Speaker 3

And so those things all played out the way we knew they would. And for me, it's all about working capital and getting more efficient and improving our execution there.

Operator

And we will take our next question from Charles Strauzer with CJS. Your line is open.

Speaker 3

Hi, good morning. Participants

Speaker 5

are in the line with the banking turmoil and the possibly you could turn this into a positive potential share gains there as customers are shifting banks, Chase buying First Republic, things like that. Are there potentials for positives there to, like I said, to build customers and take share there?

Speaker 2

So, Charlie, I mean, at the highest level, we are of course, we serve the banking sector as one of our distribution participants are in the range of 2.5 times. But so far, we have not seen any impact from the banking challenges. I very specifically want to reiterate what we said in the opening comments. We don't have any significant banking relationships with any of the institutions, Even those that you see in headlines this morning that are banking us or where we have any material revenue exposure. But as far as opportunity, every time there are banking consolidations, it turns into, on average, a net positive for us.

Speaker 2

Are a net winner when there are bank consolidations. And whether that's in our checking business, in our Data businesses or otherwise, we tend to be in that winner when there's consolidation. But we did see something that we thought was very encouraging actually in the first are in our data business as some of our customers were looking to accelerate their ability to go attract deposits from affected institutions. It turned into additional revenue for us and helping those institutions quickly go to market with short term campaigns to draw deposits. And so while there is definitely concern and Some change happening in the sector, we think in the end analysis, it is a net positive for us We have not seen any impact to our volumes or what we see on the horizon.

Speaker 5

That's helpful. Thank you for that. And just shifting gears a little bit to the balance sheet. Barry, when the Board has discussions about parties capital allocation and things like that, have there been more discussions at the Board level

Speaker 2

First of all, we are very focused on improving the balance sheet overall. And One of the biggest things we knew we needed to do was get this ERP implementation complete, which we've done because it gives us opportunities now that we did not have before to streamline the operations of the company. And I think over coming quarters, you will see us focus there and talk about things that we're trying to do to make improvements. And of course, the Board is very engaged with us on capital allocation decisions to make sure We are getting great shareholder returns for what we do completely understand is very precious shareholder capital, And we feel like we have been good stewards of that. And I think that especially now that we've got some of these infrastructure things behind us, we have opportunity for some additional improvements.

Speaker 5

Excellent. Thank you very much.

Operator

And we will take our final question from Marc Riddick with Sidoti. Your line is open.

Speaker 6

Good morning.

Speaker 2

So I

Speaker 6

was wondering if we could participants In the prepared remarks, there was commentary around the pricing environment and retention rates. I was wondering if you could talk a little bit more about that and maybe some of those Controls and then we can shift over to a few ERP questions.

Speaker 2

So, I'll maybe start with the macro and then Chip can come in and give you a little more specificity. But at the macro level, we've been very pleased by our ability to take price increases and hold volume. We think that is really important message about the durability of demand for our solutions. I I think it's very important to note that the durability of demand for our solutions continues. So across our entire portfolio, We're seeing solid and sustainable demand for the solutions, even as we take price.

Speaker 2

So, we think there continues to be room for us to continue on the price journey. Inflation is not over. Our customers understand that. And while they may not like The fact that we're going to talk to them was a much greater frequency now on pricing actions than we have in anyone's memory. I I think they understand and have accepted that reality, and that is going to help us, going forward.

Speaker 2

Do you want to talk any more about specifics? Mark, I

Speaker 3

mean, in the prepared remarks, I used the term responsibly taking price. And I think that's the way we've gone about it over the past quarters. Participants are simply using this as an opportunity to just gouge prices and make profits. We're really looking at our input costs, our contractual requirements to our customers and doing it in partnership and being very responsible about it. We built up new muscle over the last year.

Speaker 3

I think we're very participants are thoughtful about how we go about it, the rhythm we take price, the inputs we're using to do the analysis on what that price should be. And we just continue to keep it front and center and look at inflation. Obviously, inflation is slowing down a bit, not where we want it yet, but it is coming down. So the degree to which we're having to have this conversation internally continue to rethink about pricing, it's getting slower, but we continue to be responsible about it and use it as an opportunity to make sure we stay whole on the bottom line and continue to do what's right by our customers.

Speaker 6

Well, I also want to sort of highlight that are in the 3 year journey and the being on the other side of the ERP is always it's always good to get to the other side of that journey. So Congratulations on that. And I was wondering if you could talk a little bit about sort of and you kind of touched on this a little bit, but I would imagine there are some things that you maybe have held off on doing until you got to the other side of that. And so I was sort of wondering if you to what degree you could sort of share a little bit about some of maybe the initial efforts or targets that you might have post ERP and then maybe some of the longer term benefits that we can look forward to.

Speaker 3

Participants Sure. Thank you for acknowledging that journey. The team worked very hard and we're very pleased to be here. As you can imagine, going through it for a long period of time, Right now, near term, we're focused on stabilizing the operations, fixing the bugs or the issues that we know we come out about and that have kind of manual processes around them and getting them re automated. So near term, it's going to be very low cost.

Speaker 3

We call it kind of hyper care, hyper focused, just Get what we have going, working perfectly and get it smoothly. We'll start to transition to more of a traditional regular that you would see anyone do will always be slowly investing in the platform. We're not going to under invest in it or leave it on the shelf. So we'll continue to improve the functionality. I think near term, what we'll look to do is improve our consolidation process, which will give us faster visibility in our close, faster analytics and really think about how we drive business performance.

Speaker 3

Really, to me, it's a little bit of a start to use what we put in place. As we went through the quarter and we dealt with the bumps that everyone deals with, The amazing opportunity we got was to leverage the new system right away, stand up a daily cadence to really manage The output of the plants, the fulfillment process, look at things like AR, billing, inventory, get very insightful on what the business is going on. And it was a big part of how We improved the operations from February into March. We had to get stable. We had to get right for our customers.

Speaker 3

That's now an area of opportunity for us to keep doing participants will feature and better for our needs, but we're going to really just run the business now and get the are in the process.

Speaker 2

The only thing I would add on that is it does allow us to further streamline the actual operating infrastructure of the company. So that over time, we will be able to put more reliance on the new ERP and step away from other systems. We don't do that in 1 quarter, but it does give us the opportunity to improve that absolute spend over time as well. Okay.

Speaker 6

Excellent. And then I know you had mentioned that and I appreciate the commentary around The banking challenges that we see in the headlines every day and sort of and your exposure lack thereof exposure there. So I could talk a little bit about maybe from a longer term perspective. You talked about winning maybe some opportunities from that. I I was wondering if you're getting a sense of the types of opportunities.

Speaker 6

Are those do those tend to be sort of cost savings generating in nature From those clients, are you getting the sense of this is sort of just a sort of a little bit of an emergency kind of emergency type of moves that they're going You're able to benefit from as a trusted provider.

Speaker 2

No, an aggregate, participants are in the industry consolidation, we're net winners on multiple levels. And that's from revenue, which of course has profit dollars associated with it. And we think that happened in the past. We expect that to continue going forward.

Speaker 3

I think, Mark, I think the important thing, participants are in the same store. And it's a bit overblown our attachment to what's going on because what we have to always remind ourselves is parties the banks, the financial institutions, their partner, their vehicle to get to the customer, the end user, but that end user is still there, right? So we kind of look at it as Where the customer banks may shuffle around, it may move into a portfolio of ours where we have a relationship that may move out of it. We get the opportunity to leverage our data analytics decide to go help target marketing and help kind of move the customer through the journey. But for us, it's a little bit of we just keep operating business as usual and it's really have material impact at all, but we were as Barry said, we know on average, it's going to play out in our favor and we just continue to be ready to serve the customers.

Speaker 1

Okay, great. Thank you.

Operator

And there are no further questions at this time. I will now turn the call back to Tom Morabito for closing remarks.

Speaker 1

Thanks, Abby. Before we conclude, I'd like to mention that management will be participating in the 18th Annual Needham Technology and Media Conference on May 18th, call in 51st Annual PMT Conference on May 31st and the Sidoti Virtual Small Cap Conference on June 15th. Thank you again for joining us today and we look forward to speaking with you in August as we share our Q2 2023 results.

Operator

And ladies and gentlemen, this concludes today's conference call and we thank you for your participation. You may now

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Earnings Conference Call
Deluxe Q1 2023
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