Deluxe Corporation (NYSE:DLX) Q4 2022 Earnings Call Transcript

Barry C. McCarthy: Yes. So we have two parts to this. The business historically was focused on financial services industry. And within the financial services industry, dollars are being shifted in those financial services companies away from interest rate sensitive things like mortgages towards things like certificates of deposit, normal DDA accounts, high-reward credit cards, other solutions that the financial institutions is attacking to deliver their own growth. And we’ve shown an ability to move into those sectors away from the interest rate sensitive area. But beyond that, we’ve also moved into and are providing now campaign services to a very wide range of solutions. Everything from one of the largest online retailers to insurance companies and others that are interested in growing and finding new customers.

And the focus on all of this really are businesses that have high lifetime value for a customer. And the reason the solution is valuable to them is that it’s giving — we are providing to that company a very, very high converting lead list so that company can invest materially in its marketing plans with the confidence that it will turn into new customers. And we’re growing the business because we’re just really, really good at it.

Lance Vitanza: That’s helpful, Barry. A quick question on the check side. Margin was a bit weaker than we had expected. How has the margin performance compared to your own expectations? And was there anything going on in there that drove — in the quarter that drove margin performance one way or the other that’s worth kind of calling out? And I apologize if I missed that during your prepared remarks.

Chip Zint: It’s Chip again. So you’re right, the 42.5% for the quarter was a bit below our expectations. We mentioned kind of two factors. There were two out-of-cycle supplier price increases that we experienced both on the material side and logistics side. Logistics specifically was more of a seasonal-based surcharge that will correct itself now in the start of the year. But the out-of-cycle price increases obviously happened. They’re out of cycle, which means as we set our final forecast for the year, we didn’t see them yet. And so that was a bit of a surprise. But as I said, we’ll be able to make those increases into this next price increase early in the year. And obviously, it’s very great that the overall portfolio was able to offset that issue and deliver the results exactly where we thought they would be.

Lance Vitanza: Thanks. Just last one for me, I promise. Just on the corporate expenses, they were up again about 5% year-over-year. Is that just sort of the inflationary environment or is there anything in particular going on there? And really more to the point, I guess, it looks like you’re running close to 9% of revenues on that corporate line, and it might even be higher on a comparable adjusted revenue basis. But I’m just wondering if that’s sort of the right — is that the right percentage for a company this size or is there — is it — should we be thinking that maybe there is some improvement there to come or no, is this just kind of a good level that you guys are happy with, anything you could say there would be helpful? Thanks guys.

Chip Zint: Sure. So turning to the quarter, I think you got to recall, we’ve mentioned a few times throughout the year that we restored our 401(k) match earlier this year, that’s been weighing on the corporate segment. So when you really look at the growth year-over-year, mostly a function of that, there’s puts and takes across the other areas, other increases related to inflation, offset by operational efficiencies. But net-net, the real driver year-over-year in the fourth quarter was that 401(k) match. As we look forward to 2023, you are right. I would tell you, as you’re thinking about your guidance and your modeling, you have to roughly model somewhere around $200 million or roughly 9% of revenue to get to the ranges we provided.