Deluxe Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Deluxe Quarterly Earnings Conference Call. All participants are currently in a listen-only mode, and today's call is being recorded. 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.

Thank you, Operator, and welcome to the Deluxe Fourth Quarter and Full Year 2024 Earnings Call. Joining me on today's call are Barry McCarthy, our President and Chief Executive Officer, and Chip Zint, our Chief Financial Officer. At the end of today's prepared remarks, we will take questions. Before we begin, and as seen on the current slide, I'd like to remind everyone that comments made today regarding management's intentions, projections, financial estimates, and expectations of the company's future performance or strategy are forward-looking in nature, as defined in the Private Securities Litigation Reform Act of 1995. Additional information about factors that may cause actual results to differ from projections is set forth in the press release we furnished today, in our Form 10-K for the year ended December 31st, 2023, and in other company SEC filings. On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue, adjusted and comparable adjusted EBITDA and EBITDA margin, adjusted and comparable adjusted EPS, and free cash flow. All comparable adjusted metrics reflect the removal of impacts from business exits. In our press release, today's presentation, and our filings with the SEC, you will find additional disclosures regarding the non-GAAP measures, including reconciliation of these measures to the most comparable measures under U.S. GAAP. Within the materials, we are also providing reconciliations of GAAP EPS to adjusted EPS, which may assist with your modeling. Now, I'll turn it over to Barry.

Thanks, Brian, and good evening, everyone. We're pleased to report our full year results. Our march to improve profitability and strengthen the balance sheet continued during 2024. We expanded both comparable adjusted EBITDA dollars and rate for the full year and fourth quarter. We delivered consistent operating leverage for the full year, growing both adjusted EBITDA and free cash flow faster than revenue. This is our second consecutive year of delivering operating leverage. We not only reduced net debt, but also refinanced our 2026 debt maturities on attractive terms, extending all remaining maturities out to 2029. And we made great progress on our three-year North Star plan to increase annual free cash flows by $100 million by 2026. Even as we encountered some revenue headwinds, which modestly impacted our top line growth, our 2024 results provided us a solid foundation for 2025 growth of both enterprise revenue and adjusted EBITDA. Chip will provide details, but before he does, I'd like to highlight our 2024 progress across four critical areas. One, the North Star program. Two, improving profit performance. Three, capital allocation. And four, our improved positioning for organic growth into 2025 and 2026. First, North Star. We were cleared under December 2023 Investor Day. The 2024 was the year of North Star execution. As a reminder, North Star is our plan to increase annualized adjusted EBITDA by an incremental $80 million and free cash flows by $100 million, both by the end of 2026. This will help us accelerate debt reduction and lower our leverage ratio, both key strategic priorities that will further amplify shareholder returns. North Star yielded results in each quarter of 2024. helping to drive profit and cash flow improvement. At year end 2024, all 12 work streams were either complete or in flight, and we completed more than 80% of the tasks to achieve our 2026 full year goals. We will realize the profit improvement from this work between now and the end of 2026. The clearest place to see our North Star progress is in our SG&A line. You will recall our goal was to reduce corporate SG&A by 15 to 20% by 2026. For the full year 2024, we reduced expenses from corporate operations by more than $26 million or nearly 14%. We remain very pleased with our progress and are on track to deliver our 2026 goals. Second, improved profit metrics. Our approving execution also drove robust expansion of earnings metrics for the full year. Total adjusted EBITDA finished at just over $412 million for the year, while comparable adjusted EBITDA finished slightly above $406 million, increasing by roughly 4% from prior year 2023 levels. Our comparable adjusted EBITDA margin of 19.3% improved by a full 100 basis points from 2023 levels, showcasing our increasing operating leverage. On a per share basis, we drove comparable adjusted EPS growth of 8% during 2024, finishing at $3.26 per share. Third, Capital allocation. Our capital allocation priorities remain A, investing responsibility for growth, B, reducing debt and improving our balance sheet, and C, returning capital to shareholders via the dividend. Here's a bit more detail on each of these. A, investing for growth. In 2024, we built and launched key new products or features in each of our four business lines. In Merchant, we introduced the deluxe payment platform that includes a suite of APIs that help us enter new markets and accelerate onboarding. In B2B Payments, we launched the new R360 Plus platform that integrates all our receivables modules with a common UI UX, helping to automate these processes. Our core solution will lower operating costs for treasurers, making it easier for us to cross-sell additional modules. In data, we completed the build-out of our cloud-native data platform, enabling us to rapidly shift market focus depending on demand and expand into new market verticals. And in print, we finished our multi-year print-on-demand installation, enabling us to deliver a superior product and variabilize operating costs and helping hold margin rate despite declining volumes. Each of these strategic investments will yield rewards in 2025 and accelerate in 2026. B, improving the balance sheet and reducing debt. Our strong cash flow performance enabled us to improve our net debt position by more than $52 million versus 2023 year end. This net debt reduction is one more step toward achieving our 2026 leverage ratio target of three times. Finally, C, returning capital to shareholders via the dividend. We maintained our regular quarterly dividend throughout 2024, which marked the 30th consecutive year we've rewarded shareholders with a quality dividend. Now, the fourth of four 2024 highlights, actions to return to organic growth. We made good progress to position the company for organic revenue growth as 2025 unfolds, improving further in 2026. As we discussed all year, ongoing uncertainty within the macroeconomic environment led to some unusual quarter-to-quarter variation across our businesses. We were particularly pleased to deliver a full-year growth rate of more than 10% within the data segment. And the merchant business delivered more than 5% full-year growth, generally in line with our full-year expectations. The B2B payment segment also reached an important revenue inflection point mid-year, recovering from the expected first half year-over-year decline. The B2B business is well-positioned to climb toward our expected mid-single-digit revenue growth profile in 2025. Across print, the promotional solutions portion of the business experienced some demand variability while legacy check continued its predictable and profitable trajectory. While specific fourth quarter revenue was inconsistent with our balance of year trajectory, which Chip will discuss, we remain confident in our ability to achieve our 2025 and 2026 goals. In summary, we made material progress on our most important strategic goals in 2024. Again, one, delivering on Northstar. Two, improving our key financial metrics. Three, strengthening our balance sheet and reducing net debt. And four, positioning ourselves for improving revenue growth as 2025 unfolds and improving even more in 2026. We're confident in our pathway to our 2026 goals, including further reducing our net debt and achieving a leverage ratio three times or lower. I also want to highlight the impressive talent we've been able to attract to support our mission. We are pleased to recently announce Brian Mahoney joining us as the new president of Merchant Services, filling the big shoes left by Deborah Bradford's retirement, which we announced last year. We're grateful for Debra's leadership and service to Deluxe and equally excited for the deep and relevant experience that Brian will leverage toward further accelerating growth for the merchant business. He's particularly well prepared for the role, having been CRO, CFO, and a country head of one of the largest merchant acquirers in the US. We were also pleased to announce the addition of Bo Cummins to our board. Beau most recently was vice chair of Truist. Over his distinguished banking career, he ran nearly all aspects of banking business from investment, commercial and retail banking, treasury services, payments, using data-driven marketing and more. His experience and banking perspective is directly relevant to our business, enabling him to bring much to our board table. We see the quality and depth of these individuals choosing us as an additional validation that Deluxe has transformed into a trusted payments and data company. Finally, before I pass this to Chip, I want to thank my fellow Deluxers for another solid year. I'm proud of their unwavering dedication to our customers and the communities that we serve and for the continued commitment to Deluxe, a trusted payments and data company. Chip, now over to you.