HHS

LLM Evaluations

Transcript Summary

Harte Hanks (HHS) reported Q3 2024 revenue of $47.6 million, representing a 1.1% year-over-year increase and a shift away from previous revenue declines. Management highlighted the launch of the Customer Excellence and Growth (CEG) division and the hiring of a Chief Customer Data Officer to leverage AI and data-driven solutions. Under "Project Elevate," the company is on track for $6 million in annual EBITDA improvements, partially reinvested into a doubled sales force. Segment performance was mixed: Customer Care and Sales Services grew, while Marketing and Fulfillment segments declined due to client budget cuts. A major milestone was the termination of the company's primary pension plan, which, while requiring a $7.2 million total cash contribution, removed a significant long-term liability. The company ended October with $9.8 million in cash and zero debt. Management provided realistic Q4 guidance, anticipating a low to mid-single-digit revenue decline as they prioritize long-term stability over short-term gains. Notably, the company chose to end its sponsored research agreement to seek organic coverage. No questions were asked during the Q&A session, reflecting a current lack of analyst engagement despite internal strategic progress.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Revenue Segments

Filing Risk Scores

Harte Hanks: Dwindling Liquidity and Pension Anchors Threatened by Declining Revenue

Full Earnings Call Transcript — Q3 • 2024-11-14

Operator: Good afternoon. And welcome to the Harte Hanks Third Quarter 2024 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Tom Baumann of FNK, Investor Relations. Tome, the floor is yours.
Tom Baumann: Thank you. Hosting the call today are Kirk Davis, Chief Executive Officer; and David Garrison, Chief Financial Officer. Before we begin, I want to remind participants that during the call, management’s prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we will refer you to a more detailed discussion of these risks and uncertainties in the company’s filings with the Securities and Exchange Commission. In addition, any projections as to the company’s future performance represented by management include estimates as of today, November 14, 2024, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures, are available in the earnings press release that was issued shortly after the market closed. A copy of that press release and other corporate disclosure is available on the Investor Relations section of the Harte Hanks website at hartehanks.com. With that, I would now like to turn the call over to Kirk. Kirk, the call is yours.
Kirk Davis: Thank you, Tom. And thank you to all of our participants for joining our call. Over past year, Harte Hanks has been committed to transforming our business, building path towards sustainable growth and optimizing free cash flow. In Q3, we reported a 1.1% year-over-year revenue increase, an improvement from the negative 16.6% revenue decline on a comparable basis so adjusted for acquired revenue that we reported in Q3 2023. Moreover, we are showing improvement compared to the results of the previous six quarters, during which revenues declined by an average of negative 8.8% on a cumulative basis, also adjusted for acquired revenue. However, we want to set realistic expectations by acknowledging that our revenue turnaround won't follow a perfectly straight upward path. Instead, we anticipate some natural fluctuations and occasional declines as part of our journey to sustainable growth, we will see that in Q4 where we expect a low to mid-single digit revenue decline. Our strategy is focused on creating lasting value, which sometimes requires periods of investment and recalibration. We are proactively addressing long standing challenges that have impacted our company positioning ourselves for more resilient future. Our focus remains on growing free cash flow as the transformative changes in our sales, marketing and now, including our customer organization, continue gaining traction. As we approach 2025, and with the recent addition of our company's first Chief Customer Data Officer, we are much better positioned to seize key growth opportunities through our newly established Customer Excellence and Growth division, CEG, under our CEG vision, our customer experience and sales and marketing teams are united in creating a positive, consistent, end to end customer experience. Our team is focused on uncovering the key drivers of Harte Hanks’ customer loyalty, as well as to identify the root causes of client revenue shrinkage and attrition, devising actions to more effectively preserve our revenue base. Our CEG division will also take the lead in shaping our product strategy and development. Through this, we aim to leverage our Advanced Data Solutions unit to strengthen our value proposition, using data and AI as unique differentiators across each business segment's product offerings. Our goal is to develop integrated data and AI capabilities that meet the increasing demand for data intelligence and technology solutions from our clients. This approach is especially advantageous, as our data solutions have a shorter sales cycle, yield strong margins and offer a timely opportunity to enhance the value of all services we deliver across the company. In recent months, we have secured a number of new clients, as well as having run expansion programs from highly satisfied existing customers. I'd like to highlight a few of our recent success stories, and as well, commend our employees, companywide, for their hard work, beginning with a new customer in our fulfillment practice, we recently added a new client that operates a dynamic design marketplace that connects independent artists and designers with consumers seeking unique personalized products, including high end greeting cards. In Q4, we anticipate producing approximately 2.5 million holiday postcards on their behalf, we are well positioned for year round custom opportunities with this impressive, growing company. In Q4, we onboarded a top 15 financial services client that sought to out for outsource its fulfillment operations for the first time, this new customer is poised to spend $2 million annually handling printing and fulfillment fund related collateral for the firm, including fund sheets, prospectuses and annual supplements. We have current customers in financial services, so this represents a nice expansion in a space in which we perform well. Shifting to sales services, we landed a new client this month in the global luxury automotive industry, headquartered in England. The team we are deploying for this brand will interact with enthusiasts and clients, qualifying, scheduling and coordinating dealership test drives, event attendance, and play a key role for the brand in driving qualified prospects and revenue to dealerships. And shifting to customer care. In late October, we began providing customer care for one of the most prominent global resale marketplaces in the world for luxury goods. As a result, we have established a regional presence in Dallas to support this exciting client, which we are well positioned to expand with. I will now turn the call over to David Garrison to review our financial performance and discuss our cost reduction program, Project Elevate .
David Garrison: Thank you. Kirk, I will review the third quarter consolidated results, including revenues for each business segment. The revenues in the third quarter were $47.6 million, which grew by 1.1% when compared to $47.1 million for the third quarter of 2023. Growth in Customer Care and Sales Services segments were offset by declines in the other two segments. Revenues in Customer Care segment were $13.1 million in the third quarter of 2024 compared to $11.8 million in the same quarter prior year. Multiple customers in the entertainment industry expanded workloads driving the revenue increases for this quarter. Sales Services increased to $4.2 million compared to $2.2 million in the third quarter of 2023, the increase of volume from a large client was the majority of this increase. The Marketing Service segment revenues fell to $9.1 million in the third quarter of 2024 compared to $10.6 million in the prior year. Customer budget reductions and the end of certain programs account for the decrease in the segment year-over-year. Fulfillment and logistics revenues were $21.3 million in the third quarter of 2024 compared to $22.5 million in the prior year. The decrease was the result of lower logistics volume and rates not being outpaced by new and expanded programs in the fulfillment operations. Operating expenses in Q3 were $45.7 million, including restructuring expenses of $836,000. This is compared to $44.2 million in the same period of 2023. Project Elevate resulted in a cost of $836,000 of restructuring charges for the quarter. We expect to incur additional expenses in the execution of Project Elevate during the remainder of the program, ending in Q4 of 2025. These expenditures related to the operation of Project Elevate and cost associated with the termination of contracts and reductions in workforce. We are on plan for $6 million of in year EBITDA improvement, the $6 million of cost savings came from the optimization of personnel, for $3 million concentrated in the marketing services operations, streamlining contracts and back office operations yielded $2 million and improved warehouse operations for another $1 million in fulfillment and logistics. Some of these improvements in cost structure were consumed by the expansion of the sales team and non-capitalized technology improvements in our fulfillment operations. Quantify, the company has invested in the sales and marketing team by doubling the size of the sales team and spending 40% more than prior years. Management's focus with Project Elevate is to improve the profitability with these cost reductions and increase free cash flow. The operating income in Q3 2024 was $1.9 million compared to operating income of $2.9 million in third quarter of 2023, when adjusting for stock compensation, severance and restructuring charges, the adjusted operating income in the third quarter of 2024 is $3.1 million compared to $3.2 million in Q3 of 2023. The adjusted operating margin is 6.5% in Q3 of ‘24 compared to 6.9% in the same quarter of 2023. The third quarter of 2024 had an EBITDA of $2.9 million compared to an EBITDA of $3.9 million in the same period of 2023, when adjusting for stock compensation, severance and restructuring expenses, the adjusted EBITDA was $4.1 million in Q3 of 2024 and $4.2 million in the same period of 2023. Turning to the balance sheet, as of September 30, 2024, we had cash and cash equivalents of $5.9 million, compared to $13.3 million as of September 30, 2023. At October 31, ’24, our cash on hand was $9.8 million. Our current $25 million line of credit, which was extended until June of 2025 has not been drawn against, and the company has no debt. The Pension Plan was terminated during June of 2024 and as a reminder, let us walk through the timeline of this process to the termination of the pension and its impact on our financial statements. In June, the assets of the pension were liquidated into cash in order to purchase the equivalent annuity product from an insurance company for the pension participants. This product would contractually replace the company's obligations related to the pension and relieve our respective liability. For the purchase to occur, the pension assets required an additional cash contribution from the company in June of $6.1 million. This contribution allowed for the formal termination of Pension Plan 1 and its obligations as of June 30, 2024. The annuity provider required 60 days to onboard the pension participants. As a result, during the third quarter, the company contributed an additional $1.1 million for the final onboarding pension expenses and government filings associated with the termination process. Note that in December of 2023, the Pension Plan 1 liability was moved into other current liabilities on the balance sheet. That line at December 31 was $9.5 million. In June, this account balance was reduced by the $6.1 million cash contribution mentioned above, resulting in a current balance as of September, 30 of $3 million. During the second quarter, the pension accounting expense was included as a part of the $27.6 million reduction to the accumulated other comprehensible loss account in the equity section of the balance sheet. The result was a pension charge of $38.2 million in June, which is partially offset by a tax benefit of $10.1 million. On the balance sheet, the remaining qualified pension liabilities refer to the liability of Pension Plan 2, while the non- qualified pension liabilities are in reference to the restoration plan. One final note, as part of our Project Elevate initiative, and specific to our cost reduction efforts, we have made the decision to allow our research agreement with Noble Research to expire, effective immediately as an alternative Kirk and I are focused on building relationships with the goal of securing non-sponsored research coverage. We think traditional unpaid research coverage is more appropriate for where Harte Hanks is going. Thank you for all your support. I'd like to turn the call back over to Kirk.
Kirk Davis: Thanks Dave. Before we conclude, I want to thank all of you, our investors, employees and partners, for your continued support and commitment. As we look forward, we are focused on growing our free cash flow and enhancing our ability to adapt, grow and lead in our segments by prioritizing innovation and our customers evolving needs. This time, we'd be happy to take any questions.
Operator: [Operator Instructions]
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Operator: I am not seeing anyone come into the queue just at the moment. Okay, I will now hand back over to Kirk for his closing remarks.
Kirk Davis: Thank you for joining our call. We appreciate it. We wish you a good evening, and we look forward to keeping you apprised of our company's developments as we move forward. Thanks very much.
Operator: Thank you very much everybody. This does conclude today's conference. You may disconnect your phone lines at this time. And have a wonderful rest of the day. Thank you for your participation.