Q4 2022 Deluxe Corp Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the deluxe fourth quarter and full year 2022 earnings conference call.
At this time all participants are in a listen only mode and today's call is being recorded.
Begin by opening remarks and introductions at this time I would like to turn the conference over to your host Vice President of Investor Relations. Tom Morabito. Please go ahead.
Thank you operator, and welcome to the deluxe fourth quarter and full year 2022 earnings call.
Joining me on today's call is Barry Mccarthy, our President and Chief Executive Officer, and chips, then our Chief financial Officer at.
At the end of today's prepared remarks, we will take questions.
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 1990.
Additional information about factors that may cause our actual results to differ from projections is set forth in the press release, we furnished today and our Form 10-K for the year ended December 31, 2021, and other company's SEC filings.
On the call today, we will discuss non-GAAP financial measures, including comparable adjusted revenue adjusted and comparable adjusted EBITDA adjusted and comparable adjusted EBITDA margin adjusted EPS and free cash flow.
The streamlined discussion of our ongoing business operations today and going forward, we will discuss both revenue and EBITDA on a comparable adjusted basis, which will exclude the inconsistency caused by acquisitions or divestitures in the prior periods.
For purposes of full year 2022, this will exclude the partial year impact of first American and the impact of the divestitures done throughout the year.
In our press release or 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 U S. GAAP.
So on the presentation, we are providing additional reconciliations of GAAP EPS to adjusted EPS, which should help with your modeling.
Now I'll turn it over to Barry.
Thanks, Tom and good morning.
Thank everyone.
Once delivered strong results for both the fourth quarter and full year 2022 further proving we can become a payments a data company.
I expect payments will become our largest segment by revenue during the first half of 2023.
A key milestone in our company's history.
Before reviewing the results, let me take a moment to reflect on what was another strong year for deluxe.
Four key highlights from the year include.
First we are reporting our second consecutive year of sales driven revenue growth and achievement not seen in over a decade at showing the strength of our one deluxe bottle.
Second the accelerating success of our payments and data business.
And payments first American continues to perform well in its second year as part of deluxe and we're expanding blended margins across the segments.
And the data business, we recorded record revenue.
Third strong performance in our print business as probable at checks.
Promo strongly rebounded after the impacts of Covid and supply chain disruptions and checks delivered its strongest top line performance in over 10 years.
This performance shows the durability of demand for these solutions.
Fourth our ERP implementation went live with its last major release earlier this week this.
This key milestone marks the completion of our major corporate infrastructure modernization.
We also just announced the exit of our North American web hosting business.
The non strategic business line, allowing us to further focus on pain, but some data.
Chip will provide more details on the transaction.
We've also changed the name of our cloud solutions segment data solutions to better reflect the more focus the operations of that business.
Let me also take a moment to thank my fellow deluxe first for another strong year for their endless dedication to our customers and for their continued commitment to making deluxe a payments and data company.
The sales team gathered last week for our sales kickoff and the energy and excitement about 2023 was palpable.
Now onto the results.
For full year 2022, and comparable adjusted revenue was $2 1 billion up.
A five 2% year over year.
Reported revenue increased 10.7% above our guided range.
Once again this was our second consecutive year of sales driven revenue growth.
And so the key milestone.
We continue to demonstrate the success of our one deluxe model.
For 2022 all.
Four segments demonstrated comparable adjusted revenue growth, an accomplishment, which has not been seen in a very long time.
So long ago, it's outside the range of available data.
How much of an EBITDA dollars increased two 5% from 2021 and comparable adjusted EBITDA was down 4%.
Going forward, we remain focused on driving growth in revenue adjusted EBITDA and free cash flow for the long term.
All of our actions drive towards these goals, which in turn we believe will drive greater shareholder returns.
Moving onto some segment revenue highlights.
For the full year on a comparable adjusted basis payments revenue grew four 7% and adjusted EBITDA dollars grew eight 3% with margins expanding 70 basis points from 2021.
Merchant services revenue increased four 4% on a comparable adjusted basis in line with our longer term expectations of mid single digit growth.
The rest of payments, which includes our receivables and payables business grew nearly 5% with growth across our product lines, primarily in digital payments and Treasury management.
Our pipeline continues to grow and we continue to gain wallet share from existing customers as we remain on track for payments to be our largest revenue segment in the first half of the year.
As I said earlier this will be another key milestone for deluxe as we've now become a payments and data company.
[laughter] data had a strong year growing comparable adjusted revenue eight 6% year over year as we continue to expand their business into non interest rate sensitive verticals.
Promo had a solid year on the topline improving comparable adjusted revenue six 1%.
Also pleased with the improvement in margins as the year progressed, which chip will detail later.
Finally, our checks business improved three 7% year over year, an incredible accomplishment. However, we are expecting the segment to return to traditional secular decline rate. This year as we lapsed the growth from key wins in 2020 one.
As discussed on prior calls our strategic investments in new print on demand technology will help us manage costs to match volumes, allowing us to maintain our strong margin rate in the segment as we return to normal secular declines.
We're about halfway through the implementation of this new technology.
We're proud of both our fourth quarter and full year results, which highlight our progress.
Deluxe is now a fundamentally different company than what we were just a few years ago with payments are strong secular growth business.
Soon to be our largest revenue segment.
And we've proven our one deluxe model delivers top line growth.
This was achieved while simultaneously modernize the company's entire infrastructure.
Navigating COVID-19 and inflation executing significant portfolio optimization and more.
Now I will turn it over to chip will provide more details on our financial performance.
Thank you Barry and good morning, everyone.
Before we review the results for the quarter I'd like to elaborate on the pending sale of our North American web hosting business.
Last year, we sold our Australian web hosting operations.
On completion of the latest transaction, we will have completely exited the hosting business.
A minder this business has historically been largely a white label service offered through Telecom partners, which did not allow for material cross selling opportunities and did not fit within our overall portfolio. There's pending deal also includes our logo business for the trailing 12 months. These businesses generated approximately $66 million in revenue with adjusted EBITDA.
Margins in the mid to high 30% range.
Web hosting business was previously fully impaired due to its capital intensive nature and recurring revenue declines. This was further evidenced in the fourth quarter, where revenue declined 8% year over year two.
<unk> 2023 revenue will be impacted by approximately $45 million and adjusted EBITDA and free cash flow each will be impacted by approximately $20 million. These impacts are included in our guidance, which I'll discuss in a moment and mostly in fact, our data segment with a very small impact to the promo side.
I know there have been many changes to the portfolio recently, but they reflect a methodical effort to simplify and focus the business for more information about the business exits and impact your guidance. Please refer to the reconciliations in our press release and presentation. Additional details of the transaction can also be found in our recently filed form 8-K with the SEC.
Now, let's go through the consolidated highlights for the quarter and the year before moving on to the segments.
For the fourth quarter total comparable adjusted revenue improved one 2% to $564 million on a reported basis revenue declined one 2% year over year, we reported fourth quarter GAAP net income of $19 million or <unk> 44 per diluted share up from $14 million or 32 cents per share in the fourth quarter.
2021, adjusted EBITDA came in at $112 million down $3 million or two 8% on a comparable adjusted basis from last year improvements and payments data and promo were offset by checks and employee benefit costs in the corporate segment.
Comparable adjusted EBITDA margins were 19, 9% and in line with our expectations.
Fourth quarter adjusted diluted EPS came in at $1.04 down from $1 26 in last year's fourth quarter. This decrease was primarily driven by interest expense as a reminder, nearly 60% of our debt is fixed rate, which should help insulate the company from future risks.
For the full year on a reported basis, we posted total revenue of $2. Two 4 billion up 10, 7% year over year and above our guided range as Barry mentioned comparable adjusted revenue increased five 2% year over year.
We reported full year GAAP net income of $65 million or $1 50 per share for the year up from $63 million or $1 45 per share in 2021.
Full year, adjusted EBITDA was $418 million up $10 million or two 5% as reported from last year.
EBITDA margins were 18, 7% down from last year's 22% due to business mix and the impact of pass through price increases to offset inflation.
On a comparable adjusted basis EBIT dollars declined 4% for the year and EBITDA margins were 18, 5% down from 23% last year.
Full year adjusted EPS came in at $4 eight down from $4 88 in 2021, primarily due to higher interest expense depreciation and amortization.
Now turning to our segment details starting with our growth businesses payments and data.
Payments grew fourth quarter revenue, two 5% year over year to $171 million with merchant services growing three 3% year over year.
As we indicated on the last call, we anticipated slower growth for a few quarters as all of the payments was up against tough year over year comparisons. We do however expect growth rates to improve as the year progresses.
Payments adjusted EBITDA margins were 21, 6% from last year's 26% largely driven by operating leverage and our Treasury management business for the year payments grew revenue, 33% year over year to $679 million driven by the acquisition of first American sales driven growth for stand alone deluxe.
For the year and including first American adjusted EBIT increased 36, 9% and adjusted EBITDA margins were 21, 3% up 60 basis points.
On a comparable adjusted basis for the year payments revenue increased four 7% EBITDA increased eight 3% and EBITDA margins were 21, 4% up from 27%.
For 2023, we expect to see mid single digit revenue growth and adjusted EBITDA margins in the low to mid 20% range.
Data had another strong quarter comparable adjusted revenues increased 11% year over year to $63 million on a reported basis Data's revenue was up 3% from the fourth quarter of 2021.
We once again saw strength, particularly in our data driven marketing business delivering another significant revenue growth quarter.
We specifically saw a few customers accelerate campaigns pulling Q1 planned spend into Q4 as such we expect the Q1 result to decline low single digits due to the timing shifts of these campaigns.
Data is adjusted EBITDA margin in the quarter increased 340 basis points year over year to 27, 6%, which again relates to timing as well as operating leverage from strong DBM volume on a comparable adjusted basis EBITDA margins improved 300 basis points for the year.
The data segment comparable adjusted revenue increased eight 6% year over year to $268 million on a reported basis data grew 2% for the year.
For 2022 data suggests EBITDA margins declined 130 basis points versus prior year to 25, 5% driven by business mix and the investments in our data platform on a comparable adjusted basis EBITDA margins declined 170 basis points for.
For 2023, we expect to see low single digit revenue growth on a comparable adjusted basis. We also expect to see comparable adjusted EBITDA margins in the low 20% range.
Turning now to our print businesses promo and checks.
Promo, it's fourth quarter revenue was $154 million up three 1% on a comparable adjusted basis, driven by new sales wins and pricing actions on a reported basis revenue declined one 5% year over year.
Promo as adjusted EBITDA margins increased 100 basis points year over year to 19, 3%, but improved nearly 600 basis points sequentially. As we benefited from continued pricing actions stable supply conditions and normal seasonal upticks on.
On a comparable adjusted basis EBITDA margins improved 50 basis points from the fourth quarter of 2021.
For the year promos revenue was $563 million up six 1% year over year on a comparable adjusted basis or 3% on a reported basis.
Adjusted EBITDA margins for the year were 14, 1% down a 150 basis points and on a comparable adjusted basis were down 190 basis points.
For 2023, we expect to see low single digit comparable adjusted revenue growth and adjusted EBITDA margins in the mid teens.
Checks fourth quarter revenue decreased four 6% from last year to $176 million as the business returned to expected secular declines with Q4 results now lapping all the major new customer wins from 2021.
Fourth quarter adjusted EBITDA margins were 42, 5% down 270 basis points year over year, as we experienced off cycle supplier price increases for both materials and logistics and logistics inputs some of which are temporary seasonal based surcharges. We have factored these and future expected increases into our 2023 customer price increase.
<unk> as a result, we believe the margin rate will improve in Q1.
<unk> full year 2022 revenue was $729 million up three 7% year over year and adjusted EBITDA margins were 44% down 210 basis points, but consistent with our long term expectations of mid 40% margins.
For 2023, we're expecting mid single digit revenue declines and adjusted EBITDA margins in the mid 40% range as Barry mentioned, our print on demand technology will help maintain margins and we're about halfway through the implementation.
Turning now to our balance sheet and cash flow. We ended the year with a net debt level of $1 $6 billion down from $164 billion last year, demonstrating our continued commitment to pay down debt. Our net debt to adjusted EBITDA ratio was three eight times at the end of the year improving from four times a year ago, our long term strategic target <unk>.
Approximately three times.
Free cash flow defined as cash provided by operating activities less capital expenditures was $37 million in the quarter up from $34 million in the fourth quarter of 2021 due to improved working capital and lower cloud computing arrangement, where CCA spend partially offset by higher interest payments. This was also a sequential improvement from the third quarter.
<unk>.
First quarter of 2023 free cash flow is expected to be negative and it'll be impacted by incremental interest expense. One time expenses from our ERP implementation and annual employee compensation payments fund should improve as the year progresses.
For the year free cash flow was $87 million down from $102 million in 2021, due to higher interest payments cash taxes and working capital.
Our board approved a regular quarterly dividend of <unk> 30 per share on all outstanding shares the dividend will be payable on March six 2023 to all shareholders of record as of March at closing on February 21, 2023.
Our focus on taking a balanced approach to capital allocation and as a reminder, our capital allocation priorities are to responsibly invest in growth pay our dividend reduce debt and return value to our shareholders.
Turning now to guidance today, we are providing our expectations for 2023, keeping in mind. All figures are approximate to reflect the expected impact of the web hosting and logo divestiture.
Revenue of $2 $1 5 billion to $2 to $1 billion, adjusted EBITDA of 390 million to $405 million and.
Adjusted EPS of $2 90 to $3 25, and free cash flow of $80 million to $100 million to be clear on a comparable adjusted basis 2023 revenue represents a range of negative one to positive 2% growth.
The comparable adjusted EBITDA range represents negative two to positive 2%.
To further clarify.
S is expected to decline year over year due to the full year impact of rising interest rates incremental depreciation and amortization and an estimated 25 impact from the announced divestiture. However.
Factoring in the impact of the divestiture the free cash flow guide is an increase year over year on a comparable adjusted basis.
Also in order to assist with your modeling our guidance assumes the following interest expense of $120 million to $125 million and adjusted tax rate of 26% depreciation and amortization of $170 million of which acquisition amortization is approximately $75 million.
And average outstanding share count of $43 7 million shares.
And capital expenditures of approximately $100 million.
This guidance is subject to among other things prevailing macroeconomic conditions, including interest rates labor supply issues inflation and the impact of other divestitures.
To summarize we are pleased with the fourth quarter and full year 2022 results. Our sales pipeline continues to expand with new customers and we continue to see increased growth from our existing customer base. We look forward to continuing our momentum in 2023, a year, which we expect to be highlighted by continued revenue growth increase operational efficiencies and <unk>.
Increased free cash flow operator, we're now ready to take questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question comes from the line of Lance Vitanza from Cowen Your line is open.
Hi, guys. Thanks, very much for taking the questions kind of a lot to unpack here, but let me start with the the web hosting and logo divestiture did.
Did you did you call out the EBITDA margin on the on the asset sale.
We did.
We said that it was.
Mid to high Thirty's.
And.
As you know the Landsat is a business that was a consumer of capital and it was.
In decline, we also mentioned that in the fourth quarter revenue in that segment declined 8%.
So right. So if it was 665 million of revenue then kind of like 2025 ish million of EBITDA something in that range in that general vicinity, and I guess and that was for the <unk> for the trailing 12 months, where I'm going with this Barry is I'm thinking about your adjusted EBITDA guidance.
$3 90 to 405, which right on the face of it it looks like it's down versus the 418 that you that you printed this year or for 2022, but if we add the.
25 million ish right from the asset sales then we're sort of we're getting to that slight EBITDA positive that you talked about it in the in the in the 8-K filing is that sort of the right way to think about it.
So.
Did you have time to digest this youll see at the back of our earnings release and slides you provided some information that will reconcile that for you, especially on the guidance side, but your back of the napkin math is roughly right around 25 million of EBITDA for a full year. We are of course modeling into our guidance only three quarters of impact that's where we get that.
$45 million revenue impact at approximately $20 million EBITDA impact that I, just referred to on the call, but all of those things plus the impact of last year's exits rolling forward are reconciled in the back and that's why we thought it was important to move this terrible adjusted dynamics that it can be much more transparent on.
How the business is doing on an apples to apples basis.
Okay, great maybe moving on to the data to the data segment that continues.
You mentioned during the call continued diversification into non interest rate sensitive verticals and I'm wondering how much of the data segment again on a go forward basis, how much of that Dana segment. Currently is in non interest rate sensitive verticals.
And the last I don't think we've ever provided sort of the source of the revenue at that level.
But the.
The reason that business continues to perform well in a period of rising interest rates I think is because those bond interest rates sectors or categories are experiencing really attractive growth rates that are more than offsetting things that were highly sensitive like mortgage.
If you look back in our history you can see.
In a previous interest rate cycles like this that business.
Pretty significantly impacted and we're actually showing growth.
And so.
That gives you a good sort of direction.
It's increasingly about noninterest rate sensitive categories.
Is it possible to talk a little bit about which of those noninterest rate sensitive verticals presents the most obvious are most compelling opportunities for deluxe and are there any examples of.
Of recent wins to call out anything along those lines.
So let me give you two parts of this.
Business historically was focused on financial services on the straight and without the financial services industry.
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 are financial institutions is attacking to deliver their own woes and we've shown an ability to move in to those sectors away from.
You know 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.
<unk>.
Insurance companies and others that are interested in growing and.
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 and very very high converting lead list. So that company can invest materially and its marketing plans with a confidence.
Instead, it will turn into new customers and we're coming out of the business because we're just really really good at.
That's helpful.
Quick question on the checks side.
Margin was a bit weaker than we had expected how is 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 calling out and I apologize if I missed that during your prepared remarks.
It's chip again, so you are right a 42, 5% for the quarter was a bit below our expectations. We mentioned two factors there were two out of cycle all supplier price increases that we experienced both on the material side on logistics side logistics, specifically it was more of a seasonal base surcharge that will correct itself.
Now in the start of the year, but the out of cycle price increases obviously happened there out of cycle, which means as we set our final forecast for the year, we didn't see them yet so that was a bit of a surprise.
As I said, we'll be able to bake those increases then to the next price increase early in the year and obviously its very great that the overall portfolio was able to offset that that issue and deliver the results exactly where we thought they would be.
Thanks, and last one for me I promise just on 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 youre 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 can say there would be helpful. Thanks, guys.
Yes, sure so turning to the quarter I think you've got to recall, we've mentioned a few times throughout the year that we restored our for all 401K 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 theres puts and takes across the other areas other increases related to it.
Inflation offset by operational efficiencies, but net net the real driver of year over year in the fourth quarter was at four one 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 in let me just give you a little bit of context, what's going on there.
We continue to deal with inflation, it's a factor of both the environment that we've got the investments in the technology. We've mentioned a few times. We also have the function of the divestiture and once we divest those assets there will be some stranded costs that are corporate and nature of that will come back to the corporate cost center and it's all those things equally.
Look like we are kind of staying flat, which we know is not not where we need to be so I'll. Just reiterate that this remains a major focus area for us getting costs out of the corporate segment is one of the most strategic factors for us as we get into the ear and look to over deliver our results in overdrive, our internal plan and so I would just advise you to kind of model it as this 9%.
Roughly 200 million for now, but no. It's a major focus of ours and we think we can make progress as the year goes on to try to bring the spend down.
Thanks, guys I appreciate it congrats on the solid quarter.
Your next question comes from the line of Charlie Strawser from C. J S Securities. Your line is open.
Hi, good morning.
If you could talk a little bit about the divestiture yesterday in the hosting business and if you look at the sale earlier in the year of the Australia piece.
It seems.
Sales.
Kind of the all of the sales price was below where this business is flawed.
That could move in 2008 and.
It seems.
The price tag is a little bit low, but wondering there with what.
What transpired in terms of.
Central yes kind of shopping.
Kind of a go shop, if you will in that process.
So Charlie you are right.
The company acquired those assets before.
A quite a while ago, but you'll recall that as in 2019, we had fully impaired between 2019 early 2020, we fully impaired the asset entirely because the mark.
For those that business had changed so materially.
And as we look to the future and really recognize that those businesses well.
They really weren't a fit in a match with becoming a payments and data company.
And then we went to market looking for suitable buyer is a very robust process, a very robust process and.
We came out with what we think is a fair transaction.
And and avoids for us the ongoing need to put significant capital into the business in a business with a secular declines.
And a much better fit for the acquired because they are in that that's their core business and they have leverage and scale from adding our portfolio to their business.
It's something we just it was a profile and an opportunity we didn't have and so we took the opportunity to divest that we think it'll be a very focused thing for the company that'd be heard us, saying that we're not changing the name of the segment from cloud because it was a distributed set of assets and now its very very focused on our data business, which has already been said.
Is the jewel of that business for some time and.
We think that makes it much more clear.
And we think it's a good outcome.
Got it and then just staying on the topic of divestitures.
Are you planning to potentially divest more businesses going forward here or are we kind of at the tail end of that process.
We will continue to look at the portfolio for printing opportunities.
But Charlie is the question really is.
Look to us to lop off out of the four legs.
Jack promo data or payments I think we are at the place where we feel confident that isn't that is not that's not on the horizon here.
Makes sense. Thank you very much and then youre looking at the guidance for the year.
Pretty wide range of outcomes there.
The high end on revenue growth.
Given that we're going into potentially a recession here with inflation and higher interest rates kind of in the forecast what gives you confidence there that the high end of the range and kind of what are some of the assumptions behind the guidance overall.
Yeah I appreciate the question Charlie It's chip I would just say I think you know the high end of the range what gives us confidence is just the.
The success, we've seen over the last two years.
The ability to cross sell within the portfolio.
The way we've invested in the products over the last few years to improve the functionality the market attractiveness of it to build a robust pipeline and just continue the sales momentum. So if I think about from a revenue side I mean, obviously, we did our range.
Responsibly for all the right reasons, you mentioned Theres still as uncertainty and you don't know what's going to happen, but we look at that top end and think that's very achievable as you flow. It down obviously, yeah. The range does get a bit wider as you go down my list of things I guided because of the uncertainty and room for.
Variance can get larger and larger but we just feel good about where the company is positioned.
The internal plan, we've established and just being able to execute on the momentum. We've had the last two years from a top line perspective, and then when you get to the EBITDA.
You know it just can't be said enough how much we're going to focus on cost out cost efficiencies operating leverage our corporate cost center as I said and just get very maniacally focused on our cost.
Profile, so that we can.
Make sure we deliver that EBITDA result to start to grow EBITDA, even more and that'll obviously help our deleveraging.
Got it great.
Quick housekeeping on the checks side.
In terms of volumes how did the <unk>.
Clients you know look there and then you.
What should we think about in terms of volumes for the full year.
On checks so I mean checks did return to secular declines again in the quarter. So if you think about kind of volume price dynamics, it's a little bit more difficult to describe here. Obviously price continues to be a function of the revenue because we took pricing actions throughout the year that rolled forward, but after we lapped all the cuts.
When we did return to kind of normal secular decline. So we still had volume increases despite that but when you net it all out.
Is that a net reduction of revenue, which is what were anticipating won't be the same for 2023. So we're forecasting mid single digit declines, but the ability to keep margins in that mid 40% range. If if I take checks aside and look at the other three segments. We continued to see a nice blend of volume and price. It was actually nearly 50 50.
Once again for the quarter. So just excluding the secular decline aspect of the business. We just continue to see a really good healthy mix of volume and price and that gives us a key.
Great. Thank you very much in that and then lastly, just can you repeat that.
Set about payments growth for the year.
And margin expectations.
Sure.
Yeah, so payments, we see as a mid single digit grower for the full year. We do think it's going to be maybe a little bit lower in the first quarter and then it will pick up some steam as it gets into Q2 and beyond and that's a function mostly of just some year over year comps that we're coming up against but we do believe it's going to be mid single digit.
The revenue side on the adjusted EBITDA margin side. This is an area that this business is finally really starting to show the value of why we love. It so much as it's starting to get operating leverage so low to mid 20% margins I think if you look at the trend of that business over the last few quarters are starting to see this operating leverage that we've been talking about.
So we're feeling pretty good about the ability to of course grow the mid single digits. And then also just get EBIT expansion, which would be nice to help hit that overall EBITDA guidance that offset the declines in checks that we're planning.
Alright, Thank you very much and then just lastly.
Would you be thinking about assumption wise for share based comp for the year.
Share based comp and then just secondly, I would say somewhere around $25 million would be what I would assume.
Okay.
Got it great. Thank you for taking my questions I appreciate it.
Your next question comes from the line of Marc Riddick from Sidoti Your line is open.
Hey, good morning, everyone.
Okay.
So I was wondering if you could talk a little bit and I. Appreciate all the details that you've already provided I was wondering could you talk a little bit about our thoughts on on a potential head count adjustments.
Adjustments for the year.
You've talked about trying to keep using the the costs under control, but I'm sort of wondering about maybe where you might stand as far as adding head count and sort of maybe talk a little bit about any.
Investment initiatives for the year.
Sure. So so a lot of head count.
We are very disciplined about managing head count and that we go through periods of pruning them, including one earlier in January but we are not a company that has historically just start gone across the board.
Reductions.
But we're very disciplined at managing particularly professional staff.
So I think that the rest of the question really is how do we think about cost management for the rest of the year and going forward and the thing I would really tell you is.
We really focused on getting revenue growing in the company and we have now proven the companies capable of that some people didn't think we would actually deliver that believe that deliberative for two consecutive years of the next big thing we go past us.
Once the ability.
And where the corporate center.
<unk> is a particular target.
Gonna be very disciplined and thoughtful just like we have on the portfolio and just like we have been on growing revenue.
To attack that next help us expand the profitability of the company from here.
Great and then I was wondering if could talk a little bit about it and you touched on some of the customer behavior that you're seeing are you know given the.
The environment that we're functioning in here I was wondering if could talk a little bit about is there any particular industry verticals or pockets that are a little stronger than others or you know.
It is pretty much the behavior that you're seeing largely across the board with customer verticals.
Well, what I would tell you overall, we're seeing a very.
Durable demand across our entire portfolio of our services. We are seeing some shifts between verticals are between different periods.
Volume is up or down modestly by sector or time period, but in aggregate we continue to see.
Wrong and continuous demand for solutions.
And that's what you can see that in our performance from a revenue perspective.
Yeah.
Great and then I guess the last thing I was sort of thinking about is it's.
I wanted to circle back on the commentary that you had on the divestiture and sort of the opportunity for future pruning I was wondering if could talk a little bit about maybe on a bigger picture, maybe what youre seeing.
The opportunities are within the M&A pipeline.
Thoughts on current valuation and whether that's.
Have you seen any changes there or any greater willingness of folks to engage or if that's a if that's changed much over the last few months given the recessionary environment. Thank you.
The broader M&A market I think has been fairly frozen for some period of time or maybe a little bit of.
A slight pause in that.
And I think our perspective for our businesses, we really like the core assets that we have in payments and data.
And we feel like we've got plenty of runway there.
And our first objective is of course invest in the company for success.
And to continue to pay down debt. So are we going to be active in the M&A market to acquire assets, which is where I think youre going.
You know the hurdle rate for that kind of a transaction would be really really high right now with interest rates and you know I think that we believe that valuations are still a little bit.
A little bit frothy.
So.
You never say never but.
The businesses, we have and we like our pathway to continue to pay down debt.
And we see that sort of is that as the first primary pathway.
Excellent. Thank you very much.
Your next question comes from the line of Chuck made them from <unk>.
Stephens Your line is open.
Hi, This is Alex Newman on for Chuck here.
Sorry, if I missed the call out but did you give your expectations for revenue growth for the data segment and 23, given some of that pull forward of revenue from Q1, and then just some of the drivers behind that revenue growth for the year that'd be great.
Yeah, Hey, Alex it's Jeff Yeah, we did so for the full year, we're expecting low single digit revenue growth and it's important to note that we referred to that is on a comparable adjusted basis because that one we'll obviously have the change in the divestiture occurring over time. So we'll continue to reconcile that and give you guys that but for the full year, we see low.
Single digit growth.
That's a bit slower than what we saw across the data segment. This past year, but that's because of this past year was such a large growth year I mean that business grew north of 20% of it is obviously, we just know that it's a high hurdle to clear the first quarter, specifically you were expecting to be a little difficult just because of those handful of campaigns that shifted into the fall.
Quarter out of the first quarter it kind of depleted the pipeline just a bit the team continues to work their pipeline their list of deals, but we do know that the start of the year, maybe a little slower, but we don't see any reason that that business can grow low single digits for the full year.
Okay.
And then just within the merchant services can you speak to what Youre seeing in terms of what's on the ground from your Smbs and what volumes are looking like.
The overall house.
So I think in the merchant business overall, we continue to see a robust volume.
And then you know theres lots of media attention about.
Speculation, what's happening in Smbs, but I think overall, we're seeing pretty solid volume there.
And our fourth quarter delivering exactly what we expected it to I'm.
I'm sure you've seen the Commerce department numbers for December .
We just didn't we didn't experience that we deliver the quarter and the way we expect it to deliver it.
So we feel like the.
A variety of business, we have there and the Barker verticals, where we compete.
Help balance each other out.
In good times and in tough times.
We feel like Thats, a pretty solid business right now.
Alright, thank you.
Your next question comes from the line of David Silva from C. L. King Your line is open.
Yeah, Hi, good morning.
I think I have a first question would be on your free cash flow forecast and then.
Maybe a more strategic question about.
SaaS generated revenue.
Regarding your free cash flow, the 80 million to $100 million range, you provided I mean I've noticed that that's.
Kind of in the range of the last two years.
And I think the term is kind of maybe a flywheel, but is it the case that.
Should operating results exceed your budget you may.
Increase your discretionary spending and kind of keep keep your free cash flow within that targeted range.
Or alternatively, if results fall a little below target.
Would you cut back.
On investments, let's say either capital spending or working capital again to kind of keep keep that free cash flow within a target targeted range I mean, how should we think about that.
That free cash flow target in terms of <unk>.
Flexibility, there or how inviolate might be and then secondly on your Capex spend let's say of $100 million can you remind me what the sustaining portion of that is versus.
What you would consider discretionary spend thank you.
David It's chip so on your first question. So the guidance of 80 to 100 keep in mind, we're kind of approximating about the divestitures roughly a $20 million impact to that so all things equal that's our guidance range of more 100 to 120 based on apples to apples, which youll see its getting us back to kind of.
Our towards our historic historical range that we were two or three years ago. Despite all of the increases in interest costs. So I think that's a good place to land.
Hopefully answer your question, though when we set the investment target for the year, whether it's the 100 million capex or anything we may doing inside the P&L, we actually look to to achieve those if not understand those we don't look to throttle up discretionary investment just because the results are trading better we view those as kind of a starting point so we're going to do our best.
Spend our money wisely come in under and make sure we can over deliver the free cash flow is the best way possible because there's many of us.
Oh.
Interest expense or taxes, we know we have to manage that so I wouldn't I wouldn't be concerned that as operating results trend better that we're going to throttle up investment that's not what we would do it to answer your last part of the question in the guide of $100 million I would think of it as kind of roughly $40 million to $45 million of that is kind of a sustaining.
We call it KBR keep the business running side with the rest of it the kind of 55 to 60 being growth related so high level 60, 40 growth to maintenance capital and as you know we're doing the print on demand upgrade and checks. So that's something that we're halfway through so overtime that work will go down.
You know, we just continue to invest responsibly and our growth products with payments of data.
To try to make the company more efficient.
Okay.
Thank you very much for that my next question is maybe a little more strategic or philosophical, but you know Barry you've taken a number of steps over the last couple of years to transform your company into as you pointed out today your payments and data company.
Im just wondering underneath that.
There is different kinds of revenue generation and I think in your slide deck the emphasis on SaaS driven.
Driven revenues or has been increasing.
Pretty steadily over time.
And I'm, just wondering beyond the headlines of or the column headings of payments and data weather.
Underneath that there's also targets or.
<unk> for SaaS, driven revenues, which I consider more stickier and more relationship based.
Versus maybe transactional sales of onetime sales of services to companies that might.
Handle the service themselves. So what are your goals maybe for that may be more differentiated.
SaaS driven revenue, where maybe there is a surface differentiated service component in there that that could make for more durable.
Revenue streams, and stickier customers and that kind of thing.
<unk>.
So that's a that is a really insightful question and it goes right to the very core of our corporate strategy, which.
Which is we are trying to build the payments and data businesses because by their nature. They are stickier businesses.
So for example, in our receivables and payables business customers choose and adopt one platform to run there and build their business upon and increasing their choosing our platform.
So we have a number of banks that are reselling, our receivables platform as a branded version of.
Of their bank. So you don't know that it's a deluxe providing the solution you know that it's the bank, providing a solution to their customer.
That is extremely sticky because once the customer has a commercial bank relationship with the bank and they are using our platform to manage their receivables and payables.
That customer doesn't have tricks and that's driven by delivering a great experience and set of tools.
<unk>.
Software as a service type model, where that customer is building their business on the platform and that's honestly, where we're making our investments as a company.
We are going to launch later this year improved tools for our receivables business that will give us.
Really attractive really easy to use tools.
For the customer we have invested in our platform for our data business with someone was asking earlier about how we're diversifying the business is because we've invested in our platform that's allowed us to grow that business into new business verticals.
So we're not here to say that we're a software as a service company, we're absolutely clear, though that we are moving the company towards a much bigger percentage of revenue from recurring revenue where businesses are building their business on our platform.
It's completely true in our receivables payables business. That's the foundation in our merchant services business and that's the very foundation on core of what's happening in data.
So it's absolutely where the company is going and going forward and we're making our investments for growth.
Yeah. Okay. No. Thank you for all that that color I mean, I've just noticed with a number of my.
Companies the difficulty in procuring sufficient resources.
Thought the way you're already interacting with them it would kind of be a natural opportunity for your company over time.
Thank you for that that's all ahead.
And we have a follow up question from the line of Lance Vitanza from Cowen Your line is open.
Hey, Thanks, guys. Just two quick follow ups that I forgot about the first is on the proceeds from the web hosting sale I know that there is about $10 million or so.
In the 8-K that that sort of deferred I think over a six to 12 months period from from the time you close it and I'm. Just wondering are there is that like an earn out are there any sort of performance related contingencies. There that we should be aware of and then my second question is just.
With respect to the payments business I'm wondering if you could kind of step back and walk me through the the margin outlook in 2023, and I apologize I think you mentioned that you had some opportunities there, but if you could recap that for me that would be great. Thank you.
It's Jeff I'll take both of those so.
On the sale of the web hosting business. So we announced our base sales price of $42 million in our 8-K. The other day 32 of that is kind of a payment to occur at time of closing with the other $10 million.
180 days later at 360 days later I believe neither of those 10 million of our contingency based there is up to another $10 million, which could take the total sale price up to a Max of 52, those are contingency base subject to performance obligations and so look at the sale price is a range of 42 to 52.
The 42, it will happen and it has the second or third payment, which is just a timing factor as the business transitions over.
The question about payments here, you're right. We did talk about that a bit. So we are forecasting EBIT margin rates in the low to mid twenties, but I think what I said is if you look at the last few quarters are starting to see that business realized operating leverage margins are expanding that's a function of the volume growth, we like that business because as volume grows.
I can comment on at a incremental margin rate because of the way the platform business work, where we've got operational efficiency in our Treasury management business, specifically lockbox, that's improving profitability. There and then of course as we continue to take price to keep up with inflation.
That is helping as well so all things equal. This is a business that we believe will expand margins nicely in 2023.
Thank you so much.
And there are no further questions at this time, Mr. Tom Morabito, I turn the call back over to you for some closing remarks.
Thanks, Rob before we conclude I'd like to mention that management will be participating in the truest Securities technology Internet and services conference on March seven 2023, and the Sidoti virtual small cap conference on March 22nd.
Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2023 results.
This concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Sure.
[music].
Yeah.
[music].
Yeah.
[music].
Okay.