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 31, 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..

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+ 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 multiyear print-on-demand installation, enabling us to deliver a superior product and variabilize operating costs and helping hold margin rates 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 3x. 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 payments segment also reached an important revenue inflection point midyear, 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 Prints, 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 North Star; 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 are confident on our pathway to our 2026 goals, including further reducing our net debt and achieving a leverage ratio of 3x 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 Mahony joining us as the new President of Merchant Services filling the big shoes left by Debra Bradford's retirement, which we announced last year.

We are grateful for Debra's leadership and service to Deluxe and equally excited for the deep and relevant experience that Brian will leverage towards further accelerating growth for the Merchant business. He is particularly well prepared for the role, having been CRO, CFO and a country head of one of the largest merchant acquirers in the U.S.

We were also pleased to announce the addition of Beau 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 their continued commitment to Deluxe, a trusted payments and data company. Chip, now over to you..

interest expense of approximately $120 million and adjusted tax rate of 26%; depreciation and amortization of $140 million, of which acquisition amortization is approximately $45 million; an average outstanding share count of approximately 45.5 million shares and capital expenditures between $90 million and $100 million.

To summarize, we were pleased with the overall full-year progress and our prospects for continuing to drive expanded operating leverage in 2025. We expect to deliver material improvement within our free cash flow conversion, an accelerated deleveraging trajectory and concurrent growth across all three of our Payments and Data businesses.

Each of these expectations are consistent with our clear ongoing value creation formula and we remain confident in our overall progress against our focused capital allocation priorities. Operator, we are now ready to take questions..

Thank you. [Operator Instructions] Your first question comes from the line of Kartik Mehta with Northcoast Research..

Good evening. Barry, maybe just your thoughts on the Merchant business. Maybe just the fundamentals within the business.

What you think is going well and maybe areas you'll focus on in 2025 now that there's a new leader for the business?.

Sure. Appreciate the question. We're very pleased with the progress we continue to see in the Merchant business overall. Since we acquired the business, we are beating all of our expectations for that business. And specifically, in 2024, we invested to improve the capabilities of our business.

This is something we call the Deluxe Payment platform, which is a suite of APIs that makes it easier for ISVs and other partners to connect to us and to allow us to grow in new marketplaces. We're very excited about Brian Mahony joining us.

He joined us most recently from Elavon, one of the largest merchant acquirers where he served as the CRO, the CFO. He ran their business in Mexico and started his career in strategy and product. He's off to a great start.

He just started a couple of days ago on Monday, but we expect – and I expect that he will continue the work and the effort we have on improving the product, helping us penetrate new market verticals and reaching other pockets of growth that we have not traditionally attacked..

And Chip, you're going to see significant improvement in free cash flow 2025 versus 2024.

Can I just – walking through the primary drivers, if there's any onetime benefits? Or this is just a reflection of better operating results?.

Yes, Kartik. So first, before I even answer your question, I just want to acknowledge, we're really pleased with the progress we've made in this space over the last 18 months. It's been a personal focus of mine. If you look backwards, 2023 was very back-end loaded as we had to really optimize our working capital to deliver the number we did.

And our initial guide last year was a range of $60 million to $80 million, which because of execution and a smooth start to the year, we improved as the year went on, finally landing at the upper end of the range at $100 million.

So as you look ahead to this year and the guide and the substantial improvement that we're projecting, it's in line with the things we've been telling you guys all along that as we execute the North Star program, we will wind down the restructuring spend. We're in the final year of the related spend for the project.

So as I look at this year, think of it as a function of the benefit of the improving profitability, the lower restructuring spend starting to show its way through and then some offsetting pieces around some conservative thoughts around working capital because, obviously, I can't continue to optimize working capital every single year.

And so those are the key building blocks that get me to where I am here. But I think you should just remain confident in our focus and our ability to execute in this space and continue to drive our progress towards that overall North Star goal, which was to increase by $100 million on an annual basis from where we were when we started the journey.

So great progress so far, feeling really good and really pleased with the guide here to start the year..

And just one last question. I think, Chip, you mentioned on the Print business, there's obviously a little bit more competition on that low-margin business. I know in the past, you've always said that the product you'd like to offer because it's something that your customers want.

Is there anything you can do to help offset the pressure? Or is this just something you have to kind of accept because it's a full – you want to provide a full-scale product to your customers?.

I mean, I think the one thing we're not going to do is chase low-margin deals just for the sake of holding on to the topline. Obviously, that Promo business has a lot of relationship value to it.

And our ability to sell and still grow that business in places is important to managing the overall secular decline, which I think we've done a really good job on.

So I would just say it remains a priority, and we continue to focus the sales teams on how they can optimize what they do offer the business we bid on and how we, of course, operate most efficiently with the deals we win, but you're not going to see us radically invest in marketing and chase really low deals and dilute our margins.

We're very proud of those blended low-30s margins in Print. And we have a very clear focus on what the Print business is inside of Deluxe. It's here to deliver cash flows and relationships to help fund this transformation and fund the growth in Payments and Data.

And so we have to stay true to those priorities and make sure we just manage it on an efficient basis. So I think you're going to see continued focus in that space, but we're not going to change who we are..

Okay. Thank you. I really appreciate it..

The next question comes from the line of Jonnathan Navarrete with TD Cowen..

Hey, guys. It's Jonnathan on for Lance. I'll start up with – just any thoughts on tariffs.

Do you guys have any tariff-related headwinds that can impact your supply chain particularly for materials used in Print or perhaps technology components and Merchant services?.

I appreciate the question, Jonnathan. But we don't think that's going to have significant or material impact for our operation. Most of our things that are used in our Print business specifically around checks and paper are produced domestically.

Of course, some of the items in the promotional side of the business may be produced outside of the country. But you'll recall that is the lowest margin part of our business. So I think there's a natural hedge for us against any issue there.

Will tariffs impact our customers ultimately? I don't have a crystal ball, but as far as direct impact in our business, we don't anticipate much direct impact..

Got it. Thanks.

And my last one is just how much pricing flexibility do you have in the Merchant business? And can you maybe break down how much of the growth in 2025 is likely to come from pricing versus volume?.

Sure. We don't disclose sort of those individual elements. But what I would tell you is that we compete and win in the space because of the way we can differentiate how our customers have great experience.

And so if you were to visit one of our facility in Fort Worth, where we do customer support, you'd see a giant case that are filled with awards of a group called ATSE, which is a sort of equivalent for J.D. Powers. And it shows that we are the best in our industry, and that's how we win business today. Of course, price is important.

But yes, we take price twice a year on a routine basis. And we've been able to price for those services, and we believe that will be a part of our formula going forward.

But of course, it's new logo wins or new partners, it's more volume as well as price, it's also more features, by the way, I mentioned that in the last answer that we've added features, functionality, specifically with the Deluxe Payment platform that makes it easier and faster for customers to connect to us..

Great. Thank you..

Your next question comes from the line of Charlie Strauzer with CJS Securities..

Hi. Good evening..

Hey, Charlie..

Just given the kind of outperformance in data, maybe Barry, you could give us some examples of incremental revenue wins in that segment that helped drive the upside?.

Sure, Charlie. So recall that in this business, we help customers identify people to target for whatever product or service they're trying to sell.

And one of the places where we've invested over the last couple of years is to move our entire data asset to the cloud so that allows us to quickly reposition and help customers target regardless of what product they're looking for. So if there's demand for targeting credit cards, we can do that.

If there's targeting for low-cost deposits, if a property and casualty insurer is looking for new customers, et cetera, because we've made these investments and now have what we believe is the largest consumer and small business marketing data lake out there, we're able to take on business and execute quickly.

And I think in the fourth quarter, you saw that once again, we had enormous demand across multiple parts of the business, both financial institutions and non-financial institutions. We're looking to market in the fourth quarter. Honestly, we believe to help them get launched into 2025 strong.

And we continue to expect that we will have continued wins like that. But we do think over the course of 2025 and beyond, some of the very significant variations, the lumpiness of the business, may get a bit more smoothed out as we expand and diversify across more market verticals.

But very, very pleased with the performance of that business, and we think it's a real testament to the quality of the data we've assembled and the way we're managing it in a truly cloud-native way..

Excellent. Thanks, Barry. And just maybe if you could talk a little bit about the 2026 goals? You talked about in the past about Merchant Services needing – potentially driving high single-digit revenue CAGR through 2026.

Can you talk about some of the drivers behind those numbers as well?.

Sure. So just as a refresher, Charlie, we're really pleased with the overall success of the Merchant business.

You'll recall that a year-ago, in the fourth quarter, we boarded and went live with what was the largest single customer win ever in the formerly First American but now Deluxe Merchant Services business, which was with the bank called Fulton Bank. We believe we have the right to win more banks.

We think you'll hear from us in coming quarters about wins that we have in the banking sector, but we're not just focused on the banking sector. We also have great footprint with integrated software vendors, independent sales organizations and certain parts of specialty retailer places like auto repair.

We've also got a great footprint with state and local government as well as not-for-profit.

And because we've made these investments in the Deluxe Payment platform, we can reach additional market verticals faster than we have been able to before, and we're very excited about the prospects with that business – what that those new tools will bring to our business.

And so we put all those things together, and we think that we – this has been a mid to upper single-digit revenue growth business and we think over the coming quarters and into 2026 as some of these wins that we anticipate take hold and go live, we believe we have the opportunity to expand the rate of growth there over time..

Excellent. And just one for Chip, if I could.

Chip, how should we think about the cadence of quarterly results through the year, given your initial guidance?.

Yes. So what I said in the prepared remarks, and I'll just repeat it here, just so I'm clear, we would think from a revenue perspective that both B2B and Merchant are going to start in low single-digit growth and expand sequentially as the year goes on.

Barry just talked about the tough comp that the Merchant business was kind of coming up again and the growth they've to overcome. So we think that's a growth number that expands as the year goes on.

So I would say, think of the overall modeling as a B2B and Merchant start at low single-digit growth, improve as the year goes on, while simultaneously Data is going to continue that trend we've been telling you about, look at the rolling three quarters, how it's been improving. So that's going to imply Data having another strong Q1.

Barry already said it, we think some of that lumpiness quarter-to-quarter is going to go away. So we think Data is going to have a good growth trajectory throughout the year just continuing to deliver great results. And we would continue to expect the Print side to be in that low to mid-single-digit decline rates.

So at the highest level, revenue to me is going to be a little bit more on the flat side in the first half of the year and obviously expanding the growth profile as the year goes on and specifically B2B and Merchant grow faster.

In terms of modeling the margin side, we talked about the pieces, B2B, the profile is going to be high-teens margins to start the year expanding towards the mid-20s as the year goes on and it will blend to kind of the low-20s across the year.

Data is going to stay in kind of the low-20s to mid-20s range throughout the year depending on the quarter and the volume. Merchant's going to stay in the low-20s, which is what it's been doing consistently. And then we have high confidence Print will kind of stay in that blended low-30s. So each BU will do what it needs to do.

And then lastly, incredibly pleased with what Corporate did a year ago. We've been talking a while about driving efficiency in Corporate. I would not expect that to reoccur here in 2025. We still have a little bit more work to do on Corporate, which I think will come in the 2026 journey of North Star.

So to me, you should expect a modest low single-digit improvement in Corporate, and it's going to be roughly stable as the year goes on. I don't see any reason for it to be real lumpy as the year goes on.

So I think if you put all those pieces together, you'll get a sense of a cadence and year that shapes up to the operating leverage as the year continues to go on, like we've shown in the last two years and obviously ramping to a good place as the year progresses..

Thank you. [Operator Instructions] Your next question comes from the line of Marc Riddick with Sidoti..

Good evening..

Hey, Marc..

Hey, there.

I wanted to check to see if there were any thoughts or anything that you saw as far as client demand changes following the presidential election and then whether or not you've seen any initial green shoots of business confidence? And if so, if there are any particular verticals that stood out since the election?.

That's a lot of questions in one, Marc. So let me start by telling you that I....

I try to summarize..

So I don't have a crystal ball, but I can sort of share with you some of the big themes that we see. First of all, our business, one of the great things about this company and the businesses where we compete today is that we – when commerce happens, we win.

And so as long as transactions commerce is happening, we win because we're standing in the right intersection and we gain any time the transactions happen or the economy moves. So specific to your question about the change in administration, I think it's just way too soon to have any sort of real meaningful insight in that.

As far as overall confidence, you see the same things we do that consumer spending seems solid. But we think there's a little bit of a tale of two cities there with folks with more discretionary income, spending more and doing a little better than the folks that have less discretionary income.

And we can see that sometimes in some parts of our business, which we talked about all year with some lean towards more – less discretionary categories and away from more discretionary. Certainly, we don't think that changed as the year ended, and it's too early to say what it means in the New Year.

But what we can tell you is that in our guidance ranges, we are assuming and our base assumption is that conditions are largely stable. That we're not expecting a large upward improvement. We're not expecting downward movement. We think a continuing stable environment is what we have modeled and how we've framed our guidance..

Great. And then you made mention in your prepared remarks about new products and feature introductions for – across the enterprise, including Deluxe Pay.

And I wanted to sort of get your thoughts as to the potential cadence going through this coming year of continuing that? Or are there any particular areas that you think might be ripe for additional innovation, whether it's customer-facing or internal efficiency driven?.

I appreciate the question. I want to be really clear, we are very focused on making appropriate investments with a great hurdle – with achieving our very solid hurdle rate, and we're very focused on B2B payments, Merchant Services and Data-driven marketing. And that's where the majority of our new product investment is headed.

Underlying, you've heard us talk for a couple of years about infrastructure investments we've made to move our entire operating platform to the cloud.

And we are now at the place where we can start leveraging that by adding additional products and features at a faster pace because we can do it one time in the cloud rather than in multiple different iterations.

So I think over the course of this year and certainly through 2026, you'll see us add – continue to add additional features and functionality in each of those three businesses.

I think you're aware that in our B2B business, we're very focused on the receivables business where we launched our 360+ last year, which is a unified common UI/UX that puts together all the different factors and modules that a customer would use from us that helps them manage receivables.

In the B2B space, we've already talked about the Deluxe Payment platform, Deluxe Pay which brings additional mobile feature functionality. And in the Data space, we're continuing to invest in that database and data architecture in the cloud.

So you will hear us continue to talk about additional products and features that help us compete for new business and win..

Excellent. Thank you very much..

This does conclude today's question-and-answer session. I would now like to turn the call back to Brian Anderson for any additional or closing remarks..

Thanks, Rachel. Before we conclude, I'd like to share that management will be attending the JPMorgan Global High Yield and Leverage Finance Conference, February 24 through 26 in Miami and the 2025 Wolfe FinTech Forum March 11 and 12 in New York during the quarter.

Thank you again for joining us today, and we look forward to speaking with you all again in late April as we share our first quarter 2025 results..

This does conclude today's call. Thank you for your participation. You may now disconnect..