Deluxe Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Deluxe Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in listen-only mode, and today's call is being recorded. We will begin with opening remarks and introductions. At this time, I'd like to turn the conference over to your host, Vice President of Investor Relations, Tom Morabito. Please go ahead.

Thank you, Operator, and welcome to the deluxe fourth quarter and full year 2021 earnings call. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer, and Scott Bomar, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin, and as seen on this slide, I'd like to remind everyone that the comments made today regarding management's intentions, projections, financial estimates, or expectations about the company's future strategy or performance are forward-looking in nature, as defined in the Private Securities Litigation Reform Act of 1995. These comments are subject to risks and uncertainties, including, without limitation, risks related to COVID, the risk that the company's recent acquisition of First American Payment Systems or any other acquisitions does not produce anticipated results or synergies, and the risk that any future acquisitions or divestitures will not be consummated. Any of these risks and uncertainties could cause our actual results to differ materially from our projections. Additional information about factors that may cause our actual results to differ from projections is contained in our Form 10-K for the year ended December 31, 2021, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including adjusted EBITDA and free cash flow. In our 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. Now I'll turn it over to Barry.

Thanks, Tom, and good morning, everyone. Deluxe delivered strong and historic 2021 results. We reported full-year sales-driven growth the first time in nearly a decade. along with adjusted EBITDA margins of over 20%. We promised this outcome in 2020 and affirmed it again last February in our 2021 guidance. Our fourth quarter was especially strong as we delivered sales-driven growth in all four segments. In short, our transformation into a sales-driven, trusted payments and business technology company is real. and our one deluxe sales model works. During the quarter, payments performance was driven by the positive results from First American and growth on our digital payments and receivables businesses. Importantly, for the first time in our 106-year history, we expect payments to equal checks as our largest business by revenue as we exit 2022. First American has 13% year-over-year revenue growth on the quarter, once again exceeding our expectations. First American is clearly benefiting from the deluxe halo, our strong reputation, solid balance sheet, and deep customer relationships. The deluxe halo is real. And by plugging First American into our one deluxe sales model, we're accelerating their growth. Cloud growth was driven by data-driven marketing. Promotional solutions benefited from the implementation of key wins from earlier in the year. And checks performance was driven primarily by new competitive wins and business checks. Before I go into the highlights for the quarter and year, I want to acknowledge my fellow Deluxers for their continued hard work and commitment to our customers in what was, once again, a challenging year due to COVID and more. Our significant progress on our transformation would not be happening without their dedication and unwavering commitment. Now to the consolidated highlights for the quarter. Revenue is $571 million, up 25.5% year over year, not including the positive impact of First American. Sales-driven revenue was up 6.8%. This was the second strongest quarterly performance since 2012. Adjusted EBITDA margin was 20.5%, which was in line with our expectations. For full year 2021, revenue was $2 billion, up 12.9% year over year. Not including the impact of First American, revenue was up 2%. Adjusted EBITDA margin was 20.2%, down slightly from last year's 20.4%. In 2021, we also maintained our commitment to ongoing financial discipline and to maintaining a healthy balance sheet, which Scott will touch on in a moment. Moving on to some segment revenue highlights. For the fourth quarter, our payment segment grew 114% year over year, driven by the performance of First America. Excluding First American, revenue increased more than 5% with growth in our other major businesses, particularly receivables, payroll, and HR. Our payables as a service offerings, which include our deluxe payment exchange and medical payment exchange, continue to experience strong growth. Next, Cloud Solutions had another solid quarter, growing nearly 6% year over year, Importantly, excluding business exits from 2020, Cloud's growth would have been nearly 11% for the quarter. Cloud's performance benefited from sales wins and positive impacts of a recovering economy in our data-driven marketing business, or DDM. Now on to our promotional solution segment. Promotional Solutions had a strong quarter, improving nearly 9% year over year, positively impacted by the PNC deal we announced earlier in 2021. PNC is a great example of the one deluxe strategy as we're now providing multiple products to the nation's eighth largest bank after initially only providing one. Finally, our very profitable cash generating check business also had a strong quarter, growing just over 6% year over year, which is significantly better than long-term industry trends. The performance was largely driven by new wins, solid growth from business checks, and the successful onboarding of new clients. Next, I'd like to take a moment to reflect on what was a momentous 2021 as we continue our transformation that began in late 2019. As I mentioned, our One Deluxe model works. We reported full year sales driven growth for the first time in nearly 10 years. We're very proud of this achievement. This was my promise when I became CEO, to grow our Deluxe portfolio of products and to sell more to both existing and new customers. As further evidence of the success of One Deluxe, In 2021, we achieved the third consecutive year of record sales performance. In 2021, we sold four of the top 10 deals in the last 10 years. Since beginning the One Deluxe approach late in 2019, we've closed 12 of the top 20 deals of the last 10 years and closed the single largest deal in the company's history. Now let me touch on some of the key wins during the quarter. In payments, during the fourth quarter, we signed one of the largest healthcare payers in the United States to our medical payment exchange solution, or MPX. This company is the fourth payer in 2021 that committed to issuing payments through MPX, and our solution solved for their major strategic goal of moving to electronic payments. MTX digitizes the disbursement of healthcare payments, including explanation of benefits, saving time and expense for the customer. Another key win was with Melio, a fast-growing payments company with investments and partnerships with some of the major players in the tech world. Melio focuses on giving small businesses a way to digitally manage their B2B payments and receivables, and will be using the Deluxe Payment Exchange, or BTX, to send B2B checks digitally to participating lockboxes. In our cloud business, a key win was with a large real estate financing customer. Here we were able to solidify its direct marketing business through an optimization approach designed to analyze recent data-driven marketing campaign responses. Cloud also won a contract with Pentagon Federal Credit Unions. This exciting strategic partnership will help test and facilitate member retention strategies with the nation's third largest credit union, with $25 billion in assets and over 2.3 million members. In our checks business, we recently announced two significant value-creating developments. First, we're installing new HP printers to augment our check and promotional solution segments with digital and print-on-demand technology. These new capabilities will help manage fixed costs, enable us to quickly build new products and implement new customer requirements faster, creating new revenue opportunities. With this technology, we have already expanded premium check and overall print design options. Second, this long-term investment has enabled us to win one of the largest non-bank distributors of personal checks, the Bradford Exchange. The Bradford Exchange provides innovative, high-quality art in a variety of collectible and consumer products, including checks, with millions of repeat customers. We won Bradford away from their long-term supplier, our chief check competitor. We are now well positioned to win even more. Another significant highlight of 2021, and consistent with our strategy to make meaningful platform acquisitions, we made the largest acquisition in our history, First American. First American gave us an immediate leadership position in a strong secular growth market complementary to our existing businesses. First American also brought us a platform on which we can further grow and gain scale advantage, driving future leverage and positioning us for revenue and profit growth going forward. As I mentioned earlier, The Deluxe Halo is real. Our strong, trusted reputation, excellent balance sheet, and deep customer relationships provide a strong foundation for which First American can grow. We simply plug First American into our One Deluxe model, and it works. And it's working really well. First American was historically a low, mid-single-digit revenue growth business. Since it's a part of One Deluxe, First American has been growing double digits, which is better than our expectations. Additionally, First American is already successfully selling Deluxe products like HR payroll, payables, receivables, and web hosting into their base, magnifying our success. As further evidence of the One Deluxe halo and One Deluxe success, First American closed three times as many financial institutions in the back half of the year as they would normally. Cross-selling to our approximately 4,000 financial institutions and 4 million small business customers is not limited just to First American. We achieved significant tele-sale success with increases in average order value and items per order across the company in addition to the enterprise-level wins I mentioned earlier. One Deluxe works, and our transformation is real. In summary, Deluxe delivered strong fourth quarter and full year results, furthering our transformation into a payments company just as we promised. To recap, during the year we delivered the following. We reported sales-driven full-year revenue growth for the first time in nearly a decade, more than replacing secular check declines with profitable new and sustainable revenue. Second, we completed the largest acquisition in our history in the second quarter, First American, giving us a strong market position. First American is performing well above expectations, proving the one deluxe model works and the deluxe halo is real. Third, all four segments demonstrated sales-driven growth in the fourth quarter. Fourth, we expect that as we exit 2022, payments will equal the check business in terms of revenue, a first in our long history and a critical milestone in our transformation. And finally, even with COVID, inflationary supply chain and labor pressures were driving transformation. We said what we would do, and we did what we said. We're looking forward to continuing our revenue momentum into 2022 as we add new sell-through partners and payments in cloud, continue to innovate and grow our pipeline, and actively manage the portfolio. Now, we'll turn it over to Scott, who will provide more details on our financial performance.