00:03 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. 00:19 At this time, I’d like to turn the conference over to your host, Vice President of Investor Relations, Tom Morabito. Please go ahead.

00:30 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. 00:47 Before we begin, and as seen on this slide, I'd like to remind everyone that 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. 01:07 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. 01:34 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 US GAAP. 02:10 Now I'll turn it over to Barry.

02:13 Thanks, Tom. And good morning, everyone. Deluxe delivered strong and historic 2021 results. We report full year sales driven growth for the first time in nearly a decade, along with adjusted EBITDA margins of over 20%. We promised this outcome in 2020 and affirmed that again last February in our 2021 guidance. 02:39 Our fourth quarter was especially strong as we delivered sales driven growth in all four segment. In short, our transformation into a sales-driven trusted payments and business technology company is real and our One Deluxe sales model works. 02:58 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 the equal checks as our largest business by revenue as we exit 2022. 03:21 First American have 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. 03:51 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. 04:07 Before I go into the highlights for the quarter and year, I want to acknowledge my follow Deluxer's 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 now be happening without their dedication and unwavering commitment. 04:33 Now to the consolidated highlights for the quarter.…

15:05 Thank you, Barry and good morning everyone. Let's go through the consolidated highlights for the quarter and year before moving on to the segments. For the fourth quarter, we posted total revenue of $570.6 million, up 25.5% year-over-year. Not including First American, revenue came in at $485.5 million, up 6.8% year-over-year. We reported fourth quarter GAAP net income of $13.8 million or $0.32 per share in the quarter. Compared to the prior year fourth quarter, GAAP net income was impacted by $13.7 million in acquisition and amortization, as well as increased interest expense, both related to the First American acquisition. 15:51 We also incurred increased tax expense related to the repatriation of $85.3 million of cash from our Canadian operations. Adjusted EBITDA came in at $117.1 million, while adjusted EBITDA margin was 20.5%, 20.9% in last year's fourth quarter. Fourth quarter adjusted EBITDA was impacted by planned technology investments and inflationary pressures, offset by pricing actions in operating leverage from strong revenue growth. 16:26 Fourth quarter adjusted EPS came it at about $1.26 down from $1.38 in last year's fourth quarter. This included an $0.11 per share impact from the previously mentioned cash repatriation. For the full year we posted total revenue of $2.02 billion, up 12.9% year-over-year. Not including First American, revenue came in at $1.83 billion, up 2% year-over-year at the high end of our guided range. 16:59 We reported full year GAAP net income of $62.8 million or $1.45 per share for the year. On a GAAP basis, the First American acquisition was diluted due to $29.5 million in acquisition and amortization, as well as $18.9 million in transaction costs. The incremental interest expense resulting from the acquisition was offset by the operations of First American. 17:26 Full-year adjusted EBITDA was $407.8 million and adjusted EBITDA…

27:46 Thank you. [Operator Instruction] Our first question is from Lance Vitanza with Cowen. Your line is open.

27:58 Hi guys, thanks for taking the questions and congratulations on an important year and great quarter. And if I can, I'd like to start maybe with just one big picture question. Barry, you've done a lot to really transform this business over the past couple of years. My question is, where do you see the business going from here? Do you have Deluxe where you want it to be, or will there be more improvements? And I guess what I'm wondering is, will it -- are you now moving into a reap what you sow type of dynamic? Or do you have a lot more -- are there more transformational -- is there more transformational work that needs to be done in your opinion?

28:42 Well, first of all, Lance, great to talk to you again. We're very proud of how the business performed through 2021 and I fundamentally agree with you that it was a very, very important year in our transformation. You'll recall that we have invested over the last couple of years to improve our core operating system, our infrastructure and more, and we will be completing all of that work in the first half of this year. So that is already largely behind us, that will be really behind us as the middle of the year passes. 29:15 We very much like the position the company is in today, we have a payments business that at year-end will be the largest business in the company's portfolio. And that puts us in a strong position for secular growth going forward. In the payments business, we have long-held the belief that it will continue to grow and deliver high single-digit growth for the long term with healthy margins, we really like that profile substantially. We've made investments to ensure the success of our check business cash flow for the long term that you saw us make announcements in the very recent past. I mean, really like where we're positioned today. And we think we're in a great spot to build the company from here.

30:09 Our next question is from Charles Strauzer with CJS Securities. Your line is open.

30:15 Hi, good morning everybody. Can you talk a little bit more about your assumptions behind the organic growth for 2022 to for both the core and SaaS business? And maybe a little bit more granularity on the segments. And I think you gave some good detail there. But maybe some more about the assumptions behind those numbers?

30:36 Sure Charlie. So, this is Scott. Good morning. So revenue of 8% to 10%, obviously that includes a partial year for First American be including in the base for the first time. To break that apart, we would say on the legacy business that will be 0% to 2% growth, similar to what we had communicated for this year. As we move into the back half of the year and as First American just becomes part of Deluxe, we'll begin to think about that as a portfolio and we will – we not need to segregate that independently. Within the segments, we've talked about each individual segment and what our long-term expectations are for the overall payments business. We're thinking 2022 and beyond is being a long-term high single-digit grower with the inclusion of First American, cloud in the mid-single digits, promo in the low single digits and check, we talk about the secular declines in that industry and we continue to resume. 31:38 In 2022 we had an incredible Q4 in the check business where we actually grew revenue period over period. We don't – while we're thrilled with our performance, we don't expect that to continue next year, and we're going to look at 2022 to deliver low single-digit decline in checks.

31:58 Great, thank you. And then, you're looking at a little bit of growth, obviously, on the topline, but even though our margins are relatively flat with 2021. Can you talk more about kind of the factors impacting the margins and sort of the things you need to offset those? Thanks.

32:14 Sure. So, 20% EBITDA margin for 2022, consistent with what we would say this year and certainly there are some areas of pressure with inflation and supply chain dynamics that we're still working our way through. But we do feel like we've got a good solid plan on how to deflect those pressures in the business and deliver EBITDA rate -- performance in line with what we saw this year. 32:39 The one nuance is that, we are expecting Q1 to be the lowest quarter of the year. There's some seasonal patterns that have historically existed in the business that we expect to resume you didn't see those in 2021. This is some of the one-timers associated with COVID, but we do expect Q1 to be the lowest performer of the year, increasingly steadily throughout the year and deliver 20% overall across the case here.

33:06 Great. And then lastly, if you can extend little further on your thoughts for free cash flow. I know you said you're expecting it to grow in 2022, but maybe a little bit more granularity there. Thanks.

33:16 Certainly. So Barry talked a lot about the transformation that was initiated several years ago regarding the internal infrastructure of the organization, internally we call these initiatives six flag, there were six specific infrastructure components that were priced completely. Five of those projects are now complete, the final -- final of those, which is also the biggest and most impactful is a replacement of the ERP system to integrate all these previously unintegrated businesses. That will conclude in the first half of 2022 and that has been a significant consumer of cash in the organization. And so, with the completion of that activity there is a meaningful amount of incremental free cash flow as compared to 2021 that we'll expect to see next year.

34:04 Excellent. Thank you very much.

34:09 Our next question is from Lance Vitanza with Cowen. Your line is open.

34:14 Hey, guys. Thanks. I wanted to start on First American and the payments business actually. It sounds like it was a -- if I heard you right, it was accretive to EBITDA margin, slightly accretive to EBITDA margin in the quarter, good. The guidance, I think you said for 2022 is going to be for another year of low 20% EBITDA margin. And so it just -- it seems like you're not really -- if I heard you right, it sounds like you're not really expecting to capture any operating leverage there. And I'm just wondering if that's a temporary phenomenon, I know obviously we've got a lot of things going on in the world right now or should we be thinking that that's just the nature of the business and that sort of -- that margin profile should continue out for the next several years?

35:02 So we -- you're correct in that, we have not modeled a significant amount of operating leverage in First American for 2022. There are a number of investments that need to be made in the business and we're excited about continuing to grow that and thrilled with the performance that that team has delivered over the course of 2021. We do however expect it in the long term. even in the intermediate term, there should be operating leverage as we've talked a lot about the strategy of that acquisitions. First American has a scale of business with a solid platform upon which additional volumes should come through at higher floating rates. So we do expect operating leverage in the future, but we need to make some investments that continue to grow the baseline business as we further integrate that wins with the balance of Deluxe.

35:50 So not to quibble with the semantics, but it sounds like the flat margin in ‘22 is really somewhat misleading, because there is things going on, puts and takes beneath the surface. There is some higher flow through, but it's being offset by some temporary investments that you feel like you need to make? Is that a fair way to characterize it?

36:09 I think that’s fair.

36:11 Okay. Cloud, it looks like the year-on-year growth, it looks like it decelerated. And I'm wondering if there was anything in particular happening there which is still is quite nice. But I also noticed that it was down quarter-on-quarter. So I was hoping you could talk a little bit about the seasonality that you would typically expect to see in the business? Thanks.

36:32 There is seasonality in the business, but I think primarily the decelerating growth is a function of the comp year and the recovery from COVID that we saw in early part of the year and now we're starting to trend up against stronger comp quarters in the business. And as we continue to articulate, we view this as a mid-single digit grower going forward as we convert it to our level in Q4. But this business is performing in line with our expectations. We're really happy with the traction we've made with the -- with new customers and the prospective opportunity to enter into new industry verticals. So we are very happy with the performance we've seen there. 37:15 Now I think it is important to note that, the growth rate that you're seeing there, the mid-single digit growth rate is also impacted by the exits, so if you exclude the exit that would have been 11% growth in the quarter.

37:27 Right. Okay, great. And so, on the promo side, they did quite nicely, much better than we were expecting. And I'm wondering, actually if maybe the reverse is happening there, was there some reason that that was maybe an easier comp, maybe anything that got pushed out of 4Q ’20 or or was there anything pulled forward into 4Q ’21. Clearly, I'm guessing we should be expecting 9% year-on-year growth going forward.

37:51 So we saw some strong growth in our business. Certainly, we do not expect that to continue at those levels going forward. We did see some improved performance in some sub-sections within promos, specifically promo and apparel, which is a business that was hit hard by COVID, but we saw some nice strength in that piece of the business in Q4. Also part of that business is sort of a forms business that often tracks with checks and we see some -- saw some strong performance there as well. So, we still think the business is healthy, we are going to perform well in 2022. So we're modeling that out as more of a low single-digit grower next year.

38:32 Okay. And my last question, if I can squeeze one more in, is really on the balance sheet and you did a nice job there leverage net debt, those are a little bit lower than we had modeled. I'm a little frustrated that now apparently you don't feel is the time to be repurchasing the stock. I mean, the stock is clearly not reflecting the value proposition here. And it sounds like you pretty much made up your minds that until you get that leverage down to your target share repurchases are all but off the table, maybe I'm making it to -- maybe it's stronger than you guys are making it, but could you comment on that a little bit? Is there any chance that maybe the company does move in first half of this year and take advantage of the prices that we're seeing?

39:20 This is something we review with our Board every single quarter, we're always evaluating our capital allocation priorities and I would never say never. But at the moment, we are steadfast in our commitment to delever according to the commitments we’ve made at the time of the First American acquisition. But we did revisit that on a constant basis for evaluating our capital plans, we're evaluating our debt deleveraging plans, as well as our share buyback plans constantly, so never say never, but at the moment, we're focused on reducing our leverage.

39:58 Understood, thanks for the color, guys, I appreciate it.

40:03 Our next question is from Chris McGinnis with Sidoti & Co. Your line open.

40:07 Yeah. Good morning. Thanks for taking my questions and nice quarter. I guess if we could start just on with First American. Can you just talk about the growth rate you're seeing there? And then, how long you can keep that growth rate going, now that it's under your command?

40:25 Hey, Chris. Good to hear you. We are obviously very proud and pleased with First American performance. And like we said earlier, we think it's just really clear evidence that our One Deluxe sales model works and the Deluxe Halo is real. We think that's going to be a great business over the long term, we don't know that that's going to stay at this elevated rate of growth indefinitely. I'll tell you, we feel very good now about what we said when we acquired the asset that we believe we could have it as a solid middle digit grower and perhaps more. And we're seeing perhaps more right now in what we saw in the full year and in fourth quarter results. 41:15 And what I would just tell you is, we feel very confident, very confident that our original business case and plan is solid and it is going to pour.

41:25 Great, thanks for that Barry. And then I guess the second part of that around fast. I know you mentioned this last quarter, Barry, is that you're getting inbound calls, is that customer outreach still continuing to happen, coming to you now that you have that asset in place?

41:43 Absolutely. I think, Chris, maybe the best way to think about sort of this notion of the Deluxe Halo and the strength of our relationship and the strength of the brand we have in the marketplace, particularly with financial institutions is that, we closed three times, three times the number of financial institutions in the back half than what would be a normal close rates for First American. It is -- the best way I can explain to you that it's real and that the fact that the relationships we have can de leveraged for growth. It just gives – it’s clear, it's black and white. Three times the number of financial institutions fine with First American in the back half than they would in a typical back half. I just -- I don't have a better way to dimensionalize except to tell you that, because that's -- I think it's really powerful and really clear.

42:38 No, I appreciate that. And I guess just thinking about that with the Bradford Exchange announcement earlier this week. Can you just talk about, I guess, one, the opportunity there, just on the check side? And then also, is there room for that One Deluxe strategy to play out to include more products that Deluxe offers?

43:00 We continue -- there is a bunch of questions there. So let me take 1 of the time. Let me talk about the Bradford, HP and what we're doing in our tech business. We have long said that we were going to focus on maintaining that profitability for our foreseeable future. And by making investments on the digital technology like you saw us announce that HP helps us to do that. It greatly simplifies the production process, eliminates inventory in our warehouses and gives us many more products to sell. 43:35 Part of having more products to sell mean there are other customers that we can go sell to. And Bradford Exchange is a great example. Bradford Exchange, there business is that. they put art work on a variety of different products to create a custom product for consumer. And they have significant check business today that was being managed and delivered by our competitor and we won that away on a variety of points, especially the fact that we now have this capability and technology that allows us to have nearly infinite variety of designs. And that's important, not only to Bradford Exchange, because that's a key differentiator for them in the market, but it already allow us to add additional chunk designs to our mix, which allows us to have new revenue sources. 44:28 And it does position us really well to go after different segment of the market that we have been able to go after in the past. So, we think there's opportunity for us to win additional business there and continue the ability for us to grow share of the market in checks. 44:44 So the second question really was around One Deluxe and the ability to cross sell beyond just the success we highlighted on First American. But throughout this quarter and throughout the year we continue to improve our cross-sell rates in our telesales centers, as an example, our pipeline of products that we have in queue to be sold to our existing customers that continued to expand. And then, I think it was a third record -- consecutive year of record across our performance. 45:17 So we don't see any reason that that's going to slow down. The One Deluxe model that we started building clearly works. And it’s – it’s a machine that is working really well for us.

45:32 Great. And I appreciate that color, Barry. Just to move on to checks and the growth in the quarter. And I understand the outlook for 2002, but can you just dive a little bit more into the growth in the quarter itself? Maybe how much is from existing and then from new client wins?

45:51 Yeah. So, look, we still think about the industry and the base business is being in that mid-single digit secular declines. So you get a sense for how much of the volume that we deliver was based on new wins. And so the team has just done a terrific job in winning a high -- very, very high percentage of renewals of our existing customers and then fairing quite well when new business is up for grabs. So the teams just continue to do a terrific job there. And so we don't have as many renewals coming up in the near term. So we think we've got a pretty solid baseline of revenue trending into 2022. But again the team continue to take share and then do a good job at that business.

Thanks for that. Also on MPX, it sounds like it's starting to really gain some traction. You just talk about the opportunity that you see and maybe the revenue growth rate. I know it's still small, but it sounds like it's moving in a pretty positive direction.

46:54 So we're really proud of what's happening with MPX and BPX. And year-on-year that's growing in a 50 plus percent range. So very material revenue growth rate. And we think there is a ton of upside potential. If you just look at it and you say, that if you convert small percentage of B2B checks, it's not -- it's incredibly – it’s right in front of us to go make that $100 million a year business and not tomorrow morning, but over a couple of year horizon. And at that growth rate we believe we can get there in few years. 47:36 And so it's a real business, it's a real market opportunity. And as we noted, we signed the fourth major payer in Q4, which is a big deal, because it hasn't gone live yet, but because that is find there will be revenue and profit that come to us beginning in ‘22 and then accelerating as we go forward.

48:09 And it appears we have no further questions at this time. I'll turn the call back to Mr. Morabito for any closing remarks.

48:17 Thanks, Chris. Before we conclude, I'd like to mention that management will be participating in Sidoti Spring Small-Cap Conference on March 23. Thank you again for joining us today. Please be healthy and safe and look forward to speaking with you in May as we share our first quarter 2022 results.

48:38 Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.