Q2 2023 Deluxe Corporation Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Deluxe second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode and today's call is being recorded.
We will begin with opening remarks and introductions at this time I would like to turn the conference over to your host Vice President of strategy and Investor Relations. Brian Anderson. Please go ahead.
Okay.
Okay.
Thank you operator, and welcome to the <unk> second quarter 2023 earnings call.
Joining me on today's call are Barry Mccarthy, our President and Chief Executive Officer, and chips, and our Chief Financial Officer.
At the end of today's prepared remarks, we will take questions.
Before we begin and I speak on the current slide I'd like to remind everyone that comments made today regarding management's intentions projections financial estimates or expectations of the company's future strategy or performance.
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 yesterday.
<unk> 10-K for the year ended December 31, 2022, 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.
Adjusted and comparable adjusted EBITDA margin, adjusted EPS and free cash flow.
In our press release todays 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.
Within the materials. We are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling.
Now I'll turn it over to Barry.
Thanks, Brian and good morning, everyone.
Before we begin I'd like to introduce Brian Anderson, our new leader of strategy and Investor Relations.
Brian has been with the locks for nearly 40 years, serving in a number of important financial operational and strategic roles.
We look forward to leveraging his deep knowledge of the locks and further build our IR program.
We're pleased with our second quarter performance overall.
We delivered both revenue and adjusted EBITDA dollar growth across all four operating segments and we are in our third consecutive year of organic revenue growth.
We're very pleased to raise both full year 2023 revenue and earnings guidance based on these results and our momentum.
As discussed in the first quarter. The company is now positioned to deliver revenue and adjusted EBITDA growth concurrently.
But for sure I got a few additional recent business highlights I'd like to start by addressing the broader macroeconomic environment.
As a leading merchant processor, we regularly monitor broad consumer confidence and discretionary spending trends.
After a slow start to the quarter, our merchant portfolio performance was roughly in line with cognizant creations and other market reports, noting modestly improving consumer sentiment and discretionary spending volumes as the quarter unfolded.
Importantly, we remain confident that our merchant business can deliver mid single digit revenue growth for the full year driven by new product features ongoing pricing actions and a strong pipeline for new accounts and partnerships.
Now onto some brief comments on the overall results.
For the second quarter total reported revenue increased one 5% to $572 million.
This growth rate was impacted by several exits of non strategic businesses throughout 2022.
On a comparable adjusted basis.
Total revenue increased two 6%.
As I mentioned earlier, we're now in our third consecutive year of revenue growth.
Comparable adjusted basis.
Profits once again grew faster than revenue in the quarter and we continue to look for opportunities to drive efficiency in our cost base, while profitably investing for growth.
Total adjusted EBITDA margins increased 90 basis points versus the second quarter of 2022.
Adjusted EBITDA dollars increased six 6%, while total comparable adjusted EBITDA dollars increased seven 2% as our operations continue to benefit both from responsible pricing actions and disciplined cost management.
Yeah.
While we don't expect our growth rates in the back half batch the second quarter pace, combining our overhaul first half performance.
Decorate and solid operating plan enable us to left full year guidance as I've mentioned a moment ago.
Chip will discuss in greater detail.
Now for the segment revenue highlights.
As a reminder, our payments segment is structured with two distinct sets of attractive offerings.
Our merchant services business helps small to midsized businesses, except credit card and debit cards.
Our Treasury management suite of solutions helps enterprises at midsize businesses manage their receivables and payables more efficiently.
Overall payments revenue grew approximately 2% from the second quarter of 2022 slower than our long term expectation.
Merchant services revenue increased just over 1% mainly due to the early softness in processing volumes within discretionary spending categories as mentioned earlier.
The trends we've seen in our merchant business are broadly in line with what we've seen from industry wide data.
We expect spending to stabilize and we remain pleased with our partner development and overall sales pipeline activities.
Treasury management grew two 5% as improvements in software revenues were partially offset by softness had lockbox volume that we expect to continue for another quarter or two.
During the quarter, our sales team signed Bankunited, Inc, a Florida based leading financial institution with over $37 billion in assets to our deluxe payment exchange disbursements platform.
This solution will help Bankunited drive a strong BTB payments offering to its customer base and drive future growth.
Moving onto our data segments.
We are particularly pleased with our standout performance of the segments.
On a comparable adjusted basis revenue in the data segment increased a strong eight 4%.
The data driven marketing, our DDS business posted a record revenue and adjusted EBITDA during the quarter.
As we've discussed previously we're working diligently to expand this business beyond its strong relationships.
We focused on new and less interest rate sensitive industry verticals and this quarter, we signed three new smart home brands as part of our 20, new logo wins during the quarter.
In addition, we saw increased demand for our marketing services in support of banks, attracting low cost deposits.
Specifically, we delivered a suite of campaigns for our top 10 S Fi, helping drive aggressive consumer and business deposit gathering.
Finally, we closed on the sale of our North American web hosting business as of June 29.
The second quarter data segment financials are reflective of these results through the closing date as we continue to reshape and simplify our portfolio over time.
Shifting now to our print businesses comprised of our promotional solutions and checks segments.
Combined the print businesses delivered a blended comparable adjusted revenue growth of 1% and EBITDA margins of 31% in the first half.
Promotional solutions had another solid quarter, improving comparable adjusted revenue of two 2% along with significantly improved margins, which chip will discuss in a moment.
Finally, our check business increased one 4% year over year better than our long term expectations of mid single digit revenue declines.
As we discussed on our last call. Our first quarter results were impacted by our ERP system upgrade.
Our production caught up and we ship the carryover Q1 order backlog in addition to normal orders helping to deliver this performance.
For the first half check revenue was down one 6% year over year, it's still better than our long term expectations.
Small business demand remains durable and we benefited from our previous price actions.
We held margins as expected in the mid Forty's.
Now on to the organization.
We recently made some adjustments to our leadership team realigning existing leaders from our merchant and data businesses into roles reporting directly to me.
These moves are fully aligned with our core strategic priorities and we will allow for greater focus on the most critical growth platforms for the company.
In summary, we're now confident in our ability to deliver sustainable positive operating leverage over the long term with some periods of stronger than others.
We're very pleased our performance is enabling us to raise our full year guidance to reflect our momentum.
Before passing it over to Chad, who will provide more details on our financial performance.
Capital allocation priorities and guidance let me.
Once again, thank my fellow <unk> for their continued dedication to both our customers and our company's success.
Tabling these strong second quarter and first half results.
Thank you Barry and good morning, everyone.
Let's first go through the consolidated highlights for the quarter.
On a reported basis revenue increased one 5% year over year, while total comparable adjusted revenue increased two 6% to $571 7 million, we reported second quarter GAAP net income of $16 4 million or <unk> 37 per diluted share down from $22 $1 million.
Or <unk> 50 per share in the second quarter of 2022.
Adjusted EBITDA came in at $108 4 million up six 6% on a reported basis and up seven 2% on a comparable adjusted basis from last year.
Comparable adjusted EBITDA margins were 19% up 90 basis points year over year.
Second quarter adjusted diluted EPS came in at 93.
Down from 99 in last year's second quarter.
Decrease was primarily driven by an 18 cents impact from higher interest expense, partially offset by improved operational performance.
Now turning to our segment details starting with our growth businesses payments and data.
Payments grew second quarter revenue, one 9% year over year to $174 $4 million with merchant services growing one 3% and the balance of the payments business, increasing two 5%.
Growth for the merchant business reflected some softer consumer discretionary spending levels discussed previously.
Growth for the balance of the payments segment, including our receivables and payables solutions was strong while our lockbox business experienced some volume softness.
Payments adjusted EBITDA margins were 28% up 40 basis points from the prior year operational improvements across our lockbox sites as we indicated during last quarter's call drove second quarter margin improvement for the Treasury management business, while merchant services margins were modestly challenged due to the volume softness as noted previously for <unk>.
23, we continue to expect to see mid single digit payments revenue growth and adjusted EBITDA margins in the low to mid 20% range.
Comparable adjusted revenue increased eight 4% year over year, driven by strong data driven marketing results.
He mentioned the deluxe web hosting business has now been fully divested as of June 29.
Data is adjusted EBITDA margins in the quarter decreased 80 basis points year over year to 24, 7% on a comparable adjusted basis EBITDA margins declined 120 basis points.
For the second half of 2023 inclusive of the sale of the web hosting business. We expect data adjusted EBITDA margins in the mid to high teens for the full year. We continue to expect a low single digit revenue growth on a comparable adjusted basis. We also expect to see blended adjusted EBITDA margins in the low to mid 20% range for the full year.
Turning now to our print business as promo and checks.
Social solutions second quarter revenue was $138 $8 million flat with last year on a reported basis promos comparable adjusted revenue increased two 2% driven by new sales wins pricing actions and adjusting for three and a half million dollars a divested revenue for multiple 2020 to business exits.
Promos are adjusted EBITDA margin increased 480 basis points year over year to 15, 3% as we return to mid teens levels. Following last year's challenging second quarter. As a reminder, through a combination of pricing actions and improvements in operations supply chain and cost structure. The business has stabilized significantly over the last few quarters.
For 2023, we continue to expect to see low single digit comparable adjusted revenue growth and adjusted EBITDA margins in the mid teens.
Check second quarter revenue increased one 4% from last year to $186 4 million benefiting from some timing impacts relating to the catch up of ERP related issues checks also benefit from resilient demand and the continued positive impact of responsible price actions.
Second quarter adjusted EBITDA margins were a solid 44, 8% essentially flat year over year.
On a year to date basis checks revenue was down one 6% year over year with margins at 43, 9% for 2023, we now expect a low to mid single digit revenue declines and adjusted EBIT margins in the mid 40% range consistent with our long term expectations.
Turning now to our balance sheet and cash flow, we ended the quarter with a net debt level at $163 billion down from 166 billion compared to the first quarter, our net debt to adjusted EBITDA ratio was three eight times at the end of the quarter down from four times at the end of the first quarter and our long term strategic target remains approximately three times.
I would also like to mention that in the second quarter. We completed an additional three year floating to fixed interest rate swap at a fixed interest rate of four 5% beginning on June 20th 2023.
As swap carried an initial notional amount of approximately $300 million the swap will amortize over a three year life, making about 75% of our total debt at fixed rate.
By increasing our fixed debt ratio, we are now better insulated against ongoing variability for potential rate hikes, including the ones announced last week.
Free cash flow defined as cash provided by operating activities less capital expenditures was $23 7 million, which compares to $13 $5 million in the second quarter of 2022 on a year to date basis, we remained slightly behind our plan, but the second quarter represented a significant improvement from the first quarter and prior year.
Our board approved a regular quarterly dividend of <unk> 30 per share on all outstanding shares.
The dividend will be payable on September five 2023 to all shareholders of record as of market closing on August 21 2023.
To reiterate my comments from the last call around capital allocation, we're responsibly investing the significant free cash flow generated by our core print businesses into our payments and data businesses that we believe can generate more robust growth over time.
Our priorities for capital allocation are clear, reducing our debt our net leverage to a level below three times funding 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 our 15% hurdle rate.
Value to shareholders through our dividend, which is currently 30 cents per share per quarter and equates to a very attractive roughly 7% yield.
We continue to review the dividend with our board and our current focus is to grow out of that high yield through improving business performance importantly, we remain focused on further accelerating our rate of debt pay down through continued improved EBITDA and free cash flow generation. So that we can get back below three times Levered as an example, the completion of our previously referenced.
ERP upgrade will serve as a foundation for continued operational efficiency and unlock new opportunities to further improve our cost structure.
Turning now to guidance today, we are raising our full year 2023 expectations for revenue and earnings keeping in mind, all figures are approximate and reflect the.
A web hosting divestiture, which closed on June 29th.
Detailed further within today's press release, we are increasing our guidance now expecting revenue of $2 8 billion to $2 two 2 billion.
Adjusted EBITDA of $400 million to $415 million.
Adjusted EPS of $3.10 to $3 40, and free cash flow of $80 million to $100 million, which is unchanged from our previous guidance. We are raising our guidance based off our strong start to the year and continued progress in yielding operational efficiencies on.
On a comparable adjusted basis, we see 2023 revenue growing between zero and 2%.
And comparable adjusted EBITDA between negative one to positive 3% growth.
Adjusted EPS, while a substantial improvement from our original guidance is still expected to decline year over year due to the full year impact of rising interest rates incremental depreciation and amortization and an estimated 15 set impact from the recently closed divestiture.
We remain confident in our full year free cash flow guide and believe it remains prudent to hold the prior range based on our year to date results.
Also in order to assist with your modeling our guidance assumes the following.
Interest expense of $120 million to $125 million.
The tax rate of 26%.
Depreciation and amortization of $165 million of which acquisition amortization is approximately $75 million and.
And average outstanding share count of $43 7 million shares and capital expenditures of approximately $100 million. Among other things. This guidance is subject to prevailing macroeconomic conditions, including consumer spending interest rates labor supply issues inflation and the impact of divestitures. This.
To summarize we are encouraged with our second quarter results and believe we have solid momentum heading into the second half of the year.
In addition to continued revenue growth our laser focus on increasing operational efficiencies will help us grow EBITDA.
Can you to improve free cash flow pay down debt and further lower our leverage ratio operator, we are now ready to take questions.
Thank you.
If you would like to ask a question press star one on your telephone keypad.
If you'd like to listen to why your question Press Star one again.
Pause for just a moment to compile the Q&A roster.
Yeah.
I had three questions if I can squeeze them all in the first is and I know I know Barry you talked about merchant services merchant acquisition, you know being.
Somewhat.
Influenced by the the underlying consumer sentiment and consumer spending and the like but I was wondering if there was anything else there to call out because the numbers did seem.
So often.
And then could you just clarify I think you said you'd expect to get back to mid single digit revenue growth in that in that line, but I was it in by the second half or by the end of the year. What was the what was the sort of the timeframe there for getting back to that mid single digit growth.
Sure Good morning Lance.
So let me just give you a little more color commentary there our acquisition of new merchants and our Activations in that business are solid and continue to be solid and very pleased with how we're developing partners.
While we saw at the beginning of the second quarter.
Was just a a softness in.
Discretionary spending categories that improve modestly as the quarter unfolded and that's exactly the same pattern that we've seen in lots of economic forecast. It's also in the card associations.
Uh huh.
Secure and win some business and categories that are not interest rate sensitive at all we all set significant wins in in some more traditional financial institution channels.
But we also had a really nice when with a a top 10 F I, who lost a program to gain new gather new deposits both for business and consumer accounts and I think it just goes to show that the this business and how we've diversified the business really allows us to.
To pivot to whatever the market need is at that moment in time.
Be able to capitalize on that bank. So lucky for gathering deposits. So we were able to shift and how banks do that at the same time, we're able to expand into new market vertical Sir provide us a different avenues of growth everything it just really talk shows that the investment in our commitment to that space is producing results.
And you know, we're we're proud of that.
Great Okay, and the last one for me is actually on the balance sheets next job. There could you remind us is that do you have a target for how quickly and I apologize. If you said this is a call and I missed it but how quickly you expect to Delever overtime I think at one point you were talked about a half a turn a year.
<unk>, but I I don't know if that's still current or if I'm, if I'm recollecting that correctly.
Good morning, Lance so you're right the half half attorney ear was our original going out guidance. When we did the first American deal a little over two years ago, obviously interest rate environment has changed the economic conditions have changed a bit. So we've had to step back from that just a bit right now as we look at the trajectory of the business.
Projections for free cash. So we think we can get near that three times point sometime in 2025, so still a little bit of a ways to go but we remain committed to that see progress in the Verizon to get us back down there.
Great. Thanks, so much guys I appreciate it.
Your next question is from the line.
Strawser J C S C.
<unk> J a securities.
Hi, good morning.
Just hoping we could just talk a little bit more about the guidance and you know.
Pretty good your range.
Branch, there and just you know some of the assumptions and confidence you have behind the numbers you know.
Both of the low end of the range is there just give it a little more color on too.
What you're assuming that those numbers. Thanks.
Thanks, Charlie So first of all we're very pleased with the first half performance as we look at the first half.
Whether it was getting through the E. R. P related issues in the first quarter recovering on those in the second quarter or are we just feel really good about what we delivered and where we stand against Orange call plan that'd be <unk>.
Look ahead, we see continued momentum.
Good about the guide for the four year. It is important to note. There's a couple of dynamics inside of our year to date performance that we need to just anchor you wanted to make sure. It's very clear on what the second half should look like so if you think about the second quarter and you think of EBITDA of $108 million, there's really two caveat since side of that that I want to make sure. We're clear so we had roughly four.
Carry forward EBITDA for the first quarter related to the European delay that landed in the second quarter. That's now cleared itself on a year to date basis and wouldn't repeat going forward. We also nearly had the full web hosting business for the whole quarter, which is about another $4 million or so on a run run rate basis, while we're pleased with 108 million we delivered in the second quarter.
<unk>, we're really more on a trajectory of closer to 100 give or take and.
So you need to think about is the launching point for the second half of the year. We we feel good about our guidance. We continue to work on operational improvements to improve the cost structure and drive EBITDA and free cash flow and of course, we continue to monitor the broader macroeconomic conditions that continue to think it's wise to have a range on the revenue side, where please.
With the way, we'd driven sales pipeline the levers at our disposal Barry mentioned, our confidence in Virginia, but there's more volatility there. So we maintain a bit of a range on the revenue outcome and hopefully when we get to the fourth quarter, we can tighten that range of it.
That's very helpful. Thank you very much and then just that you're looking at on the cost side and you know some of the universe you've been doing it for years now just to make your business more efficient and.
More healthy.
Really.
Can you talk a little bit more about some of the the ongoing cost.
Cost reduction efforts are still unemployed.
Sure. So you'll recall, we talked about site closures and consolidations on the first quarter call. So we continue to focus on the lockbox operation, specifically, which includes a function of consolidating actual real estate site locations.
Getting more efficient and automated on how work gets done and managing our labor force with partner external partners. In addition, we continue to look at the production footprint, we have we announced the closure of about production side in the second quarter.
So we continue to look at operation So fulfillment shut that down we also completed the ERP, which I know we've talked about for a long time, we've now term the chapter when it comes to infrastructure related with the technology spend. So now we really have to think about go forward is really about looking for other opportunities and initiatives to take costs out of the business and do it with a.
I on high return projects, we will continue to spend in the right areas to get cost out of business, but it has to end.
Business case, and attractive returns and you should expect to US continue to look at that whether that's more process automation efficiencies in the tech stack or of course, just how we deploy resources across the company.
Excellent. Thank you for all the.
Your next question is from the line of David Silva, Let's see okay.
Hi, This is Thomas Simpson from seal King them soon I'm filling in for David today. So I have two questions. My first question in regards to the updated for your financial guidance. You provided could you highlight the main incremental drivers for revenue as well as adjusted EBITDA in particular will data solutions.
Continued to record the fastest growth among your segments and what are the prospects for an acceleration in payments Grove.
Okay. So a lot there will try to unpack that uhm I'm Gonna first start with the data side, So as Barry mentioned very.
Very very pleased with what they delivered in the second quarter.
Given the divestiture of the web hosting business. There's a few pieces of dynamic I think it's clear that we need to lay out so first of all.
On a year to date basis of rolling six month basis that the overall second.
1% year over year.
I'm sorry, it was up 1% on a rolling six month basis up six per cent.
Reason, it's up one per cent on a roll on that basis.
It's externally report is because of declines inside the web hosting portfolio. We mentioned in the first quarter call ahead declined 8% and it actually further declined more in the second quarter. So when you really take a step back and you look at the D. D. M. A specific part of that portfolio is right along that mid single digits Rolling six month average and we believe that that's the way it'll be.
<unk> for the second half of the year as well as the full year when you blend it all together because of the declining piece of the web hosting portfolio from the first half of the year, that's where you'll get to are for your guide of low single digits. So data, we think and continue to do is gonna do that business can be a little seasonal and have made me stronger periods and weaker periods, but we continue to see really good momentum and a good feeling that business and.
Important to look at it over a rolling basis, just to see how that overall trajectories going.
On the four year I think we've delivered a solid first half and so we feel great about.
The guide and what we've got to go as I said before we got to maintain a higher range you see a lot of area of opportunity. We do expect check to return to secular decline. That's important had a very strong second quarter, whether it was fulfilling the backlog from ERP or even having enough efficiencies even afford some production, but we definitely see that being.
Return to secular declines.
And Barry bending of the levers rent payments perspective, Jesse so and the payments business and the merchant business as I said earlier, you feel great about our merchant acquisition or activation Uhm, which is about new merchants and we think that as spending consumer spending normalizes again will return to.
More normal volumes, which will be helpful.
M S and similarly in an hour <unk> payment space, we've got a number of plays including.
<unk> will be introduced later in the year, Let me think will help us bring additional revenue in and get us back to what we consider a more normal growth growth path and that business.
So we feel pretty great about the blender for the year feel great about payments.
Uhm.
Date of business versus terrific, although that business can be a slightly more lumpy or feel very great about that business overall and feel great about our guys.
Yeah.
Okay. Thank you and I actually have one more question sorry.
Americans. So it's been about two years since obviously your biggest acquisition to do and first American So how was that after performing compared to your expectations and what is your plan for going that us over the next 12 months.
So overall, we are very very pleased that acquisition. It's the largest we have ever undertaken in the company's history. So we actually also believe it's the most successful let me just give you a couple of examples there the when we acquired the business. It was a low single digit revenue grow or we think that we've made.
It is sustainable.
Revenue grow are very pleased by that we think there's additional upside potential there he's done it by unleashing and bringing the great distribution. The deluxe has is the financial institutions. They are 4000 Bank partners.
A small business customers and as a result, the profile of the partnership wins within first American It has expanded.
To a larger scale banks I think it's over 50 per cent increase in the average size of the bank that were that we are now targeting and we are winning as well as the number of wins in banks overall are up significantly I think over well over 50 per cent increase in the bank when <unk>.
<unk> as well.
So we feel great about it we think that there's continued future upside and as far as where we go next I think you'll continue to see us invest in higher growth segments and market verticals or we think we have a right to win we've got great distribution and existing relationships.
Perfect. Thank you so much.
Your next question is from your line of <unk> <unk>.
Hi, good morning, everyone.
So I wanted to actually that's kind of dovetails into one of those going to ask about it and that was around the what you're looking at as far as the acquisition pipeline and maybe how're you sort of feeling about potential add ons and maybe the valuation that maybe you're seeing out there.
And then I have a couple of follow ups after that.
I appreciate the question Mark let me just start by being really really clear.
Our primary focus today.
His debt reduction and improving our leverage ratio as well as the way. We're gonna do that is by growing our business fast and then we've got it before I'm doing a better job on the cost side Uhm and those things, we think will deliver a branch shareholder value.
Wow.
Also note and I think you're alluding to the fact that when we bought first American we were really clear that we were buying a platform for future growth that had the capacity and capability to bolt on acquisitions. We fundamentally still believe that is true and we believe we will absolutely move in that direction at the appropriate.
Brigid time, but our immediate priority is to improve the leverage ratio and do that through improving our operations and that's also why we're really pleased with what happened in the second order and that the whole first half and what we're able to to forecast for the full year I think it's showing our focus there.
Is yielding benefit.
Excellent. So why don't you tell us a little bit about you know now that we have a little more time in a little more distance from from the I'm going live with the Europeans. Once you talk about maybe some additional learnings benefits or or some things that maybe that you've gleans from the from the last time so.
So you know.
I'll just remind.
We started the E. R. P program, because we had systems that really needed to be modernized they were quite antiquated, but that is all now behind us and it gives us the opportunity to do more things around efficiency gives us better insight into what's happening in our business and it also allows us to streamline not just our technology.
Platforms, but gives us an opportunity to dig deeper into are one of our retail prices are what are costing is what happens on our supply chain really opens the door for us to consider multiple facets that we had a hard time getting decent our visibility into uhm and we're pleased that we're going to see that visibility.
Starting to take action on that and I think that will continue to yield results overtime, but add on that and Mark I would just say, we we can't underscore just how hard the team worked on this we have to continue to thank the team for all the work and effort they put into it it's been a very busy first half of the year getting stable and live in and we feel great about where we are we're not in the place anymore, where it's about.
Keeping up with production and and being able to fulfill orders. We we still have a little bit of work to do to fix every single aspect of the undead customer experience, whether that's billing or how we internally report things back to the the deal with <unk>, we still have a little bit of work to do but these are small immaterial things in the Grand scheme of the company, but important to our customer base and will continue to focus on that where are you.
C. S focus on is that the process underneath so whether that's the order management systems that are on the front end of V. R. P. All the way through to how we process things through the system. We can now go due process related work, which is doesn't take a heavy technology investment just takes resources and capacity and we think we can unlock a lot of operational improvements from working on processes and so that's where we're at.
<unk> turn our focus here in the second half of the year.
Excellent and the last one for me is that it it I guess S. D N a as a percentage of revenue for the quarter at least relative to where my numbers were <unk> was certainly better than what we were expecting I just wanted to talk a little bit about you know various cost measures cost controls or anything of that nature that you saw.
There and how May I, please into the full year guy. Thanks.
Yeah, So I can't speak exactly to what you had in your model, but just in general we feel good about the work we've been doing so you're over a year sg&a's favorable about $4 million, which obviously with revenue growth shows operating leverage on what we're doing and there's no real specific one call out of what's driving that that's just a general cost improvements in focus.
Across the enterprise to take cost out where we can continue to deliver.
The revenue and organic adjusted EBITDA growth.
Okay. Thank you very much.
We have a follow up question from the line and Lance Martinez.
[laughter] hi, guys.
Just wondering I know you <unk> you address this in terms of talking about the non-recurring EBITDA.
In the quarter, but I'm, just wondering the cash flow guidance being unchanged I'm wondering if there's anything else there as we think about cash flow generation in the back half anything unusual that we might expect whether it was on the working capital changes in the current quarter or in the first half that you know that won't recur in.
The second half or or perhaps him one time items that will negatively impact cash flow in the second half anything there that we can be thinking about.
Great Great question Lance Thank you.
So first of all we're very pleased with the second quarter Free Crusher result, as I said, we're we're still a little behind our plan on a year to date basis, but I'm, having been negative in the first quarter and to deliver nearly a positive number to offset it was a great start and so we got there through obviously higher earnings improvement in working capital and there's a few items that occur in the first quarter.
The year that don't repeat another period. So if you think about the second half versus the first half you know you're gonna see a continuation of of both of those things, we do expect capex to be lighter in the second half.
Those site consolidation efforts and the things around real estate, we mentioned those projects were more front loaded for the year, so that plus the sale of both Webhosting business give us some tailwinds on capex like half a year taxes have a bit of a seasonal portion to them. So they'll be lower in the second half of the year, we have annual incentive payments that occur in the first quarter that obviously don't repeat it.
Like half of the year and then beyond that it's really gonna be a focus on working capital. It doesn't take a herculean efforts of working capital in the second half to deliver our guide, but we continue to focus on all aspects of that whether that's now that we're live on air or through all the supply chain challenges last year, continuing to work down our inventory balances.
Continuing to be better about collections and management of our D. S L.
And so if you really think about it to deliver the mid point of our range for the four year. That's a very impressive second half and at the second half we have confidence in and.
And we look forward to delivering.
Thanks very much.
At this time there are no further questions.
I would know him to call back over to buy and you simply any closing remarks.
<unk>.
Before we conclude I'd like to mention that management will be participating in <unk>, 21st annual best ideas Conference on September 18th.
Alrighty virtual small cap conference on September 20th.
Thank you again for joining us today, and we look forward to speaking with you in November as we share our third quarter 2023 results.
This concludes today's call. Thank you for joining you may now disconnect your lines.
[music].
Yeah.
[music].
Mmm.
[music].