Ladies and gentlemen, thank you for standing by, and welcome to the Deluxe Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And now, I would like to turn the conference over to your host, Chief Communications and HR Officer, Jane Elliott. Please go ahead.

Thank you, and welcome to the Deluxe fourth quarter and full year 2020 earnings call. Joining me on today's call is Barry McCarthy, our President and Chief Executive Officer; and Keith Bush, our Chief Financial Officer; At the end of today's prepared remarks, we will take questions. Before we begin, I'd like to remind everyone today that comments made during -- 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 risks related to COVID-19, which 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 press release issued today and filed with the SEC and Form 8-K and the company's Form 10-K for the year ended December 31, 2019, 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 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, Jane, and good afternoon everyone. I'm proud of the performance we delivered in 2020, particularly in the light of the unprecedented challenges we face due to COVID-19. Under the leadership of our newly expanded management team, which had been in place just 75 days before the pandemic took hold, we made significant progress on our historic transformation executing on our strategy, and operating in four new segments. We further optimized our portfolio completing targeted divestitures, and exit during the past year. We also ended 2020 with a lowest net debt in 2.5 years and paid our regular quarterly dividend demonstrating our disciplined stewardship and financial strength. Although I'm proud of how well our team has executed, the impact of COVID-19 on our financial performance was clear. We reported revenue of $1.79 billion for the full year 2020, a decline of 11% compared to 2019. You will note, at our Q1 earnings call we had forecasted 20% adjusted EBITDA margins for the full year 2020; fast-forward nine months later, I'm very pleased to report that we achieved this goal delivering adjusted EBITDA margin of 20.4% for the full year, despite the macroeconomic impact from COVID. Importantly, COVID did not change our focus strategy and one thing has become increasingly clear; our company's diverse portfolio and business model are highly durable, we have the right strategy, right segments, and right team to whether any major macroeconomic storm. We're a sales driven company now, we continue to invest the strong cash flows contracts and promotional solutions to grow payments and cloud solutions, each of which is well positioned in secular growth markets. Now, I would like to take a moment to review the 4 core pillars of our strategy. First, sales; continue to unify our go-to-market sales approach in order to drive…

As Barry mentioned, DLX delivered in 2020; we delivered EBITDA margin in line with our plan and guidance. We took swift action to address covert at the onset, and we sustain this focus through the year. The result, we delivered EBITDA margin in line with our commitments, reduced net debt to it's lowest level in 2.5 years, and we continue to invest for growth. Before I get into the details, I want to express my gratitude to all my fellow employee owners who worked tirelessly and overcame many challenges this year. The foundational work we began in 2019 made 2020 a successful year of transformation and continued innovation that produce measurable progress positioning us to deliver full year sales driven growth. That said, we felt the continuing effects of the COVID-19 in our financial results. Our total revenue in the quarter was $454.5 million, a decline of 12.9% as compared to the same period last year; however, an increase of 3% from the third quarter. For the full year, total revenue declined 10.8% to $1.791 billion. We reported GAAP net income of $24.7 million in the quarter, and $8.8 million for the full year. A comparison of reported 2019 and 2020 full year results is difficult given each year was impacted by asset impairment charges. Our measures of adjusted earnings and adjusted EBITDA excludes these non-cash charges along with restructuring, integration and other costs. These adjustments are detailed in the reconciliations provided in our release. Our adjusted EBITDA for the quarter was $94.9 million resulting in $364.5 million for the full year. Adjusted EBITDA margins for the quarter was 20.9% bringing full year performance 20.4%. As previously committed, our cost containment initiatives improved our adjusted EBITDA margin performance from the first quarter low by more than 300 basis points, this…

Thanks, Keith. In early 2020, we could not have anticipated the year that was in front of us. But Deluxe-ers [ph] have always had the grit to succeed. Our team just put our heads out and went to work. We're proud of our progress on our strategy and transformation to become a trusted business technology company. We're proud of our strengthened balance sheet and improved portfolio. We're proud to be a sales-driven revenue growth company, our cross-sell results, all-time record sales success. But what's more impressive to me, we did all of this in the middle of a global pandemic. I now have great confidence we'll be a sales-driven company growing low-to-mid single digit with margins in the low-to-mid 20s over the long-term, and expect to be that company exiting this year. We've done the work, we've completed the preparations and laid the groundwork, and now our company is well positioned for the future. I can't close without recognizing the extraordinary contribution of my follow Deluxe-ers [ph]. Our team went to work and got the job done. We're team living our purpose of values and ownership culture because we are all shareholders too. Now we'll take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Charlie Strauzer with CJS.

Hi, good afternoon. Just a couple of quick questions on the quarter despite having some modest sequential revenue growth from Q3 gross margins did have a decline of about 250 basis points from Q3 sequentially. And just wondered to see if there is anything kind of one-time in nature built into that we should think about?

You know, Charlie, I'll have Keith give you some more detail but in Q4 we saw some continuing effects of COVID, and we continue to invest for the future and which is what's given us so much confidence going into 2021. If your question is, do we think that's a permanent change? We do not. And the forecast and the guidance that Keith just provided, we believe we will deliver a full year performance in 2021 with margin of 20% to 21%.

Thanks, Barry. Yes Charles, that's accurate. There is -- we were right in line with where we expected to be in the quarter.

Got it. Okay, thank you. And then, on the Check business, I know sales were down 10% and if that's what would volumes look like in the quarter and for the year?

I think what we saw was consistent Charlie with every other economic slowdown where the consumption of Checks in the business-to-business environment slows, as there is just more less commerce being conducted and that's consistent, both in volume and our revenue. We have seen -- what we consider important green shoots in that business. Just on the run rate of the business, as you know, the single largest source of new customers for us during the pandemic has been new business starts which we think is a great leading indicator for us. And then also going into the New Year, we have won a significant number of new Check customers that of course will be on-boarding as the year unfolds; we feel that also helps moderate the secular decline in Checks.

Great. And just -- picking up on the new business starts, do you have any kind of data points about potentially how many small business customers you added organically in the quarter?

Charlie, we don't produce that statistic, but what I can tell you is, we had an announcement in December, where we talked about double-digit increase in the consumption of our incorporation services and that we're seeing a number of new business and corporations coming to us for checks and logo design and other parts of our business. So, we are encouraged by that. But we don't publish the specific number.

Got it. Understood. And then just shifting to the guidance you gave for 2021, can you maybe give us a little bit more insight into the assumptions forming that guidance and perhaps some additional color for Q1 in terms of the profitability in the quarter? I know you alluded that it will be similar to Q4, but is that just for sales or the sales and profitability? Thanks.

Okay. Yes. We think that Q1 is going to look a lot like a continuation of Q4. COVID has not gone away and on top of that, we're lapping what you'll recall was a particularly strong Q1 where we're delivering sales-driven growth for the first time in a decade in the first two months of the year. So, we say that we expect margins to be consistent with Q4 and we think for the full year, we're confident about delivering that as well. What we did say -- and Charlie, I'm sure as you're building your model, this will be helpful to you -- we think that Q1 will be consistent on our continuation of what will happen in Q4. But we're confident that we'll end the year and exit the year as a mid-single digit revenue growth company with margins in that 20% to 21% range. So, you can do the math and understand how we're expecting the overall macroeconomy to rebound on our business with it.

Great, thank you. I'll jump back in the queue. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Chris McGinnis with Sidoti & Company.

Yes, good afternoon. Thanks for taking my question in this quarter.

Hey, Chris.

You guys did a great job.

Thank you.

I guess just hitting on the guidance a little bit. Can you just maybe talk a little bit about your outlook for costs in the sense, just the operating cost or the corporate costs or however you want to lay it out in the sense that as things start to strengthen, should you see maybe some of the cuts that you took in 2020 before COVID come back. Can you just talk a little bit about your cost structure how you see that playing out for the year? Thank you.

Absolutely. We're very disciplined in 2020 in adjusting our cost to the new reality and we took further actions in the fourth quarter for the material actions in the fourth quarter to position us for 2021. Because we were aggressive in the actions earlier in the year, we were able to deliver the financial performance for the whole year that we've just reported, but we also have positioned us well for 2021 here and going forward. Again, which is why we feel like we can guide for the full year, at 20% or 21% because we have gone after sort of every aspect of the company's cost. You heard us talk about how we've gone after real estate closing 60% of our site. We've implemented technology that is taking out duplicate operating expenses across the enterprise, where we have invested in sales but we're being super-efficient about that and so we will be onboarding those business as the year unfolds.

Great. And just one point on the -- I know you closed some of the main offices, you open up the others -- is that a cost saving differentials that come and offset each other once Atlanta gets up and running and get back to camp [ph]?

Chris, this is one of the things that I think talks to the savvy of our team. We will actually have less operating expense as a result of this and have a superior workplace environment that gives us the flexibility for the future. So just that sort of by way of comparison or explanation, we have exited and sold our headquarters facility in between cities and we've taken a lease in downtown Minneapolis and we will be able to [indiscernible] later in the year. The great part about that strategy as we were able to free up the cash that was being held in that owned real estate asset, but more importantly we have weighted at least $40 million of CapEx to modernize that infrastructure and modernize that physical plant and instead, we're going to end up with the company, with its operating footprints in a more attractive location with more fully benefits and amenities and we'll do it from less cost and less CapEx -- materially less both. So we think it's one of those examples of the company being very opportunistic and moving quickly to see that opportunity, which is what we did, and a similar situation with our technology center in Atlanta.

Great, thanks for that. And then just winds on the check side, I think you talked about strength in your balance sheet. Are there still more opportunities out there in anything close to what you shared [ph]. Congrats on that announcement.

Absolutely. We are chasing a number of material additional check opportunities, nothing that we are obviously [Technical Difficulty] guarantee or discuss today, but I will [Technical Difficulty] as the strength of our company's performance through this while short of what we all would have liked from a financial robustness security reliability strength of our balance sheet, all of those things that we did this year and continue to do to manage this company responsibly is we're getting rewarded for it because we're winning business as a result of that strong financial stewardship. The other thing that I would tell you, Chris, is the market seems to really respond well and customers really respond well when and they understand. We said what we were going to do and then we did what we said we were going to do. We said this year we were going to re-segment the company into four clear operating segments, we did it. We said we're going to deliver a sales-driven growth company, we did it and we delivered sales-driven growth for the full year. Of course, excluding COVID, we reduced our debt, we improved our balance sheet, we've cleaned up our portfolio of products, we've built a world-class team, we executed on our technology platform, we right-sized our real estate footprint and we did all of that in the middle of COVID and still deliver the margins that we were going to deliver for the company. So that just gives us a lot of confidence and I think honestly it gives our customers a lot of confidence in our management team, in our balance sheet, which is just a great way to start a conversation with the new customer.

Great. And just a few more questions if you don't mind, just around the data-driven management. You've talked about some new wins there, just timing of that coming on board. I guess just been talking to the customer base. Is that a mid-year kind of adaption? Or do you think that's later? If you woudn't mind shedding a little bit of light on it? Thanks.

Chris, I wish I have a perfect crystal ball on that, but we expect, as we've said earlier, we are working on a number of large-scale marketing plans for a number of large financial institutions. Where exactly they will fall? We don't have exact precision on. We have a lot of confidence in the scale, on the scope of those programs on what the revenues that would generate for our company would be. Will it be all in Q1? I don't think so. I don't think anyone would expect that as the COVID crisis continues, but we would expect to see that continue to accelerate through the year as market and small business and the whole community opens again as we start moving past COVID and we fully expect that banks will be aggressive as things reopen to try to win new customers.

Great, that's all I have for today. I appreciate you taking my questions and again congrats on the quarter and good luck in Q1.

Thanks.

Thank you. And we have a follow-up question from the line of Charlie Strauzer with CJS.

Hey, just a couple of questions. You talked about the possibly resuming M&A again, Barry. Just some thoughts on valuation. Obviously a lot of valuations accelerate [ph] in the public markets. Is that something that could potentially make it more difficult to do?

Certainly. If we were to go after -- which we are not -- but to go after some of the ultra-high flying, ultra-high PE companies, that would be very difficult for us to execute on. But we think there are a number of good quality assets that we could reasonably afford, that will be accretive to shareholders and that prevent us from all the work we've done here, becoming a sales-driven growth company with a great balance sheet that we think bring those assets into our company, we could create additional value, leveraging all the things that we've worked on and built in the last two years. So, we will be very responsible here and I think importantly we don't feel any pressure, we don't have to transact, we've done the work, we like our business model, we won't do anything stupid, we don't need to do anything stupid. But we do think that there is potential that there will be some very intriguing assets that are available to us and we have now positioned the company well to go after them if we think it's the right fit.

Great. And just one last question on the M&A front; are you factoring in any acquisitions into your guidance for the year?

We're not.

Thank you very much.

It's a real break from the past where we said we're going to become -- again, we said we'd become a sales-driven rapid growth company, we are. We're not [Technical Difficulty] but whatever we've said we delivered the good old fashioned way by selling, selling, selling, forwarding and making our customers happy and doing it all over again.

That's it. Those are great. Thank you very much.

Thank you. And it looks like we have another follow-up from the line of Chris McGinnis with Sidoti & Company.

Thanks for taking -- just one quick one. Can you give a CapEx number for 2021?

Sure. Our guide there is about $90 million.

It is $90 million? Okay, thank you very much. I appreciate it.

Yes.

Thank you. And I'm showing no further questions. So, with that, I'll turn the call back over to Chief Communications and HR Officer, Jane Elliott for any closing remarks.

Thanks, Operator. Before we conclude, I'd like to mention the following conferences where Management will present: J.P. Morgan 2021 Global High Yield & Leveraged Finance Conference on March 2; and Sidoti Virtual Investor Conference on March 24. Thank you for joining and until next time. Stay safe and healthy. Thanks, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect.