Deluxe Corporation — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context and strategy
Deluxe provides payment processing and treasury services, data-driven marketing and hosted solutions, promotional products and forms, and printed checks. It reported four segments: Payments, Data Solutions, Promotional Solutions, and Checks. Payments and Checks together represented 62.9% of 2022 revenue.
Management’s strategy is to shift toward technology-enabled payments and data businesses, scale shared platforms, and rationalize lower-priority operations. First American Payment Systems, acquired in June 2021, expanded Payments. Deluxe sold its Australian web-hosting business and two Promotional Solutions businesses in 2022, and agreed in January 2023 to sell its North American web-hosting and logo businesses.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $2,238.0 million | $2,022.2 million | +10.7% |
| Gross profit / margin | $1,205.9 million / 53.9% | $1,137.9 million / 56.3% | Margin down 2.4 points |
| Operating income / margin | $169.4 million / 7.6% | $142.2 million / 7.0% | Income up 19.2% |
| Net income attributable to Deluxe | $65.4 million | $62.6 million | +4.4% |
| Diluted EPS | $1.50 | $1.45 | +3.4% |
| Adjusted diluted EPS (non-GAAP) | $4.08 | $4.88 | -16.4% |
| Adjusted EBITDA (non-GAAP) / margin | $418.1 million / 18.7% | $407.8 million / 20.2% | EBITDA up 2.5%; margin down 1.5 points |
| Cash from operating activities | $191.5 million | $210.8 million | Down $19.3 million |
| Free cash flow (non-GAAP) | $86.9 million | $101.7 million | Down $14.7 million |
| Interest expense | $94.5 million | $55.6 million | +70.0% |
Revenue growth reflected new business, strong demand, price increases, and $144.2 million of incremental 2022 revenue from First American. Cost of revenue rose faster than sales, pressured by inflation, acquisition costs, and mix. Net income also benefited from $19.3 million of gains on business and facility sales and a lower effective tax rate; adjusted EPS declined as interest expense, investment, inflation, supply constraints, and secular product declines weighed on results.
Segment performance
| Segment | 2022 revenue | Year-over-year revenue | 2022 adjusted EBITDA / margin |
|---|---|---|---|
| Payments | $678.6 million | +33.0% | $144.6 million / 21.3% |
| Data Solutions | $267.5 million | +2.0% | $68.2 million / 25.5% |
| Promotional Solutions | $562.9 million | +3.0% | $79.5 million / 14.1% |
| Checks | $729.0 million | +3.7% | $320.5 million / 44.0% |
Payments growth included First American. Data Solutions benefited from data-driven marketing growth, partly offset by the Australian hosting sale and North American hosting churn. Promotional Solutions EBITDA and margin fell amid supply disruptions and input-cost inflation. Checks revenue increased with pricing and new clients, but volumes continued to decline and segment EBITDA decreased.
Debt, liquidity, and capital
- Year-end total debt was $1.644 billion at carrying value ($1.659 billion principal); net debt was $1.604 billion, compared with $1.642 billion in 2021.
- Cash and cash equivalents were $40.4 million. Revolver availability was $295.2 million, for reported liquidity of $335.6 million. Restricted customer funds are reported separately and are not equivalent to unrestricted operating cash.
- Of $1.659 billion principal debt, $684.4 million remained variable-rate after swaps; swaps effectively fixed $500 million. Management reported 59% of debt effectively fixed-rate at year-end. A one-percentage-point interest-rate change would have changed 2022 interest expense by an estimated $9.1 million.
- Capital expenditures were $104.6 million in 2022; management expected approximately $100 million in 2023. Cash dividends paid in 2022 were $52.6 million, or $1.20 per share declared for the year.
- The company reported compliance with debt covenants at year-end and expected to remain compliant through 2023. The revolving facility matures in June 2026; the $475 million of remaining 8.0% senior notes mature in June 2029.
Outlook, commentary, risks, and unusual items
- 2023 outlook: Revenue of $2.145–$2.210 billion and adjusted EBITDA of $390–$405 million, versus 2022 revenue of $2.238 billion and adjusted EBITDA of $418 million. The 2022 comparison includes approximately $69 million revenue and $21 million adjusted EBITDA from businesses expected to be divested and not recur.
- Management expected mid-single-digit Payments revenue growth and low-to-mid-20% segment EBITDA margins. It expected mid-single-digit revenue declines in Checks, low-single-digit growth in the continuing Data Solutions and Promotional Solutions businesses, and lower Data Solutions results following the planned hosting and logo sale. Forecasts depend on divestiture completion and macroeconomic, inflation, and labor conditions.
- Inflation, labor availability, and supply-chain disruption affected costs and certain higher-margin Promotional Solutions products. Management said price increases and cost actions partly offset these pressures, but warned that inflation or pricing that weakens demand could materially affect results.
- Checks and business forms face long-term demand declines; the company also faces intense competition, technology change, customer retention and acquisition risks, and dependence on third-party service and supply providers. Cybersecurity, data privacy, payment-network compliance, and successful integration of acquisitions are material risks.
- Interest expense rose substantially with higher rates and acquisition-related debt. Deluxe was transitioning its credit facility reference rate from LIBOR to SOFR effective March 20, 2023.
- Goodwill was $1.431 billion, 46.5% of total assets. No goodwill impairment was recorded in 2022; the Data Analytics reporting unit’s estimated fair value exceeded carrying value by approximately $46 million, or 39%.
- The Australian hosting sale generated a $15.2 million pretax gain; the 2022 sales and facility disposal gains totaled $19.3 million. A $25 million repurchase of senior notes generated a $1.7 million pretax gain. A $5.9 million tax-provision timing correction between quarters had no full-year impact and was reported as immaterial.
- The FTC’s 2022 order concerning First American subsidiaries required a $4.9 million payment and injunctive relief; the payment and related post-closing expenses were to be covered by the acquisition indemnity holdback, with no material consolidated financial statement impact expected. Deluxe said recorded legal liabilities were not material, while noting litigation outcomes remain uncertain.
Most important facts for investors to verify
- Whether the North American web-hosting and logo businesses sale closed on schedule, and the realized proceeds, contingent consideration, and gain.
- Whether 2023 revenue and adjusted EBITDA meet guidance after divestitures, and whether remaining businesses offset continuing declines in checks and forms.
- Whether cash generation can support debt service, dividends, and planned investment as interest costs and refinancing needs evolve; distinguish unrestricted cash from customer-restricted funds.
- Whether inflation, labor and supply constraints, and customer demand affect margins—particularly in Promotional Solutions—and whether pricing and cost savings prove sustainable.
- Whether goodwill and other long-lived assets remain recoverable given market conditions and the scale of goodwill on the balance sheet; also monitor cybersecurity, regulatory, and litigation developments.