Financial Data and Key Metrics Changes - First quarter revenues were $45.4 million, a decline of 3.5% compared to $47.1 million in Q1 2023 [47] - Operating income in Q1 2024 was $0.4 million, down from $1.1 million in Q1 2023 [49] - Adjusted operating margin improved to 3.9% in Q1 2024 from 3.4% in the same quarter in 2023 [50] - EBITDA for Q1 2024 was $1.4 million, compared to $2.1 million in 2023 [50] - Cash and cash equivalents as of March 31, 2024, were $11.5 million, down from $18.4 million at the end of 2023 [51] Business Line Data and Key Metrics Changes - Customer Care segment revenues increased to $12.4 million in Q1 2024 from $11.6 million in Q1 2023 [47] - Sales Services segment revenues rose to $4.7 million, compared to $2.8 million in Q1 2023 [47] - Marketing Services segment revenues fell to $8.9 million in Q1 2024 from $11.2 million in the prior year [48] - Fulfillment and Logistics revenues decreased to $19.4 million in Q1 2024 from $21.5 million in the prior year [48] Market Data and Key Metrics Changes - The company reported strong pipeline growth year-over-year, particularly in the European market and the SMB segment [12][21] - The European operations are profitable and expected to contribute positively in Q3 [58] Company Strategy and Development Direction - The Elevate program aims to enhance agility, innovation, and organic growth, focusing on sales and marketing transformation, margin expansion, AI utilization, and customer-centric culture [10][14][15][18] - A Chief Customer Officer will be appointed to enhance customer experience and retention [18][56] - The company is investing in partnerships, notably with Amazon Web Services, to modernize customer care [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in developing a durable growth engine despite a challenging operating environment [9] - The company anticipates continued momentum in pipeline growth and new business acquisitions throughout 2024 [43][66] Other Important Information - The company has identified immediate cost reduction opportunities amounting to $6 million by year-end, with a forecasted annual savings of $16 million by the end of 2025 [14] - The company is in the early stages of a multi-year program for business optimization and margin expansion [14] Q&A Session Summary Question: What is the status of European operations? - European operations are profitable and expected to yield positive results in Q3 [58] Question: Can you provide insights on the growth potential of the Sales Services segment? - The Sales Services segment could translate to $9 million of new growth over the next couple of years [66] Question: What is the status of partnerships in the logistics division? - The company is developing partnerships and expects positive news in the next call [60] Question: Are the European operations currently profitable? - The European operations are expected to have a margin business around 30% to 35% [70] Question: What specific partnerships are contributing to growth? - The company has developed several partnerships that are expected to contribute significantly in the coming months [76]

Revenue and Client Concentration - Harte Hanks generated 71.7% of total revenue in 2023 from its largest 25 clients, with the largest client accounting for 11.2%[37] - The largest client accounted for 11.2% of total revenues in 2023, with the top 25 clients generating approximately 71.7% of total revenue[59] - In 2023, approximately 9.6% of the company's revenues were derived from operations outside the United States, primarily in Europe and Asia[74] Financial Performance - Operating revenue for the year ended December 31, 2023, was $191.5 million, a decrease of $14.8 million or 7.2% compared to $206.3 million in 2022[132] - The net loss for the year ended December 31, 2023, was $1.57 million, a decline of 104.3% compared to a net income of $36.8 million in 2022[132] - The diluted EPS from operations for 2023 was $(0.21), a decrease of 104.5% from $4.75 in 2022[132] - Total operating revenue for 2023 was $191,492,000, a decrease of 7.5% from $206,278,000 in 2022[212] - Operating income fell to $3,359,000 in 2023, down 77.8% from $15,107,000 in the previous year[212] - Comprehensive income for 2023 was $2,642,000, down from $41,802,000 in 2022, marking a decrease of 93.7%[212] Restructuring and Cost Management - The company incurred total restructuring charges of $5.7 million in 2023, including $4.6 million for operational efficiency consulting[36] - Project Elevate is expected to yield estimated cost reductions of $16.0 million from 2024 through 2026[35] - The company has initiated Project Elevate to focus on cost-saving initiatives and restructuring efforts to transform its operational cost structure[68] - Restructuring expenses for 2023 totaled $5.7 million, including $4.6 million in consulting expenses and $0.8 million in lease impairment[136] Workforce and Employment - As of December 31, 2023, the company employed 1,709 full-time and 253 part-time employees, with around 980 employees based outside the U.S.[53] - Approximately 58% of the workforce was female as of December 31, 2023, reflecting the company's commitment to diversity and inclusion[55] Operational Challenges and Risks - The company faces intense competition, with significant risks from clients moving services in-house and emerging technologies[60] - The company faces risks related to reduced demand for its products and services due to clients' financial conditions and marketing budgets, which are discretionary and easier to cut[67] - Consumer privacy and security concerns may limit the company's ability to collect data, impacting its marketing services segment[69] - The company is exposed to cybersecurity threats, including sophisticated attacks that could compromise sensitive information and disrupt operations[91][106] Cash Flow and Liquidity - Net cash provided by operating activities was $10.5 million in 2023, down $18.3 million from $28.8 million in 2022[148] - Cash and cash equivalents increased to $18.4 million in 2023 from $10.4 million in 2022, with an additional borrowing capacity of $24.2 million under the Credit Facility[145][158] - The company experienced a net increase in cash and cash equivalents of $7,500,000 in 2023, contrasting with a decrease of $3,769,000 in 2022[216] Regulatory and Compliance - The company is subject to various domestic and international regulations affecting marketing activities, including data protection laws[47] - The company is subject to numerous laws and regulations regarding privacy and data protection, which may increase compliance costs and affect service offerings[83] - The evolving regulatory landscape surrounding AI technologies may impose significant operational costs and affect the company's ability to innovate[89] Technology and Innovation - The company leverages a proprietary DataView tool that provides a 360-degree customer view with over 1,500 attributes for predictive marketing[27] - The company is investing in artificial intelligence (AI) technologies, which are essential for maintaining a competitive advantage, but failure to execute effectively could result in revenue loss and reduced margins[87][88] - The company emphasizes the need to maintain technological competitiveness and improve processes to develop new services in a timely and cost-effective manner[64] Shareholder and Stock Information - The company has remaining authority of $4.1 million to repurchase shares under its stock repurchase program[124] - The company did not pay any dividends in 2023 or 2022, with future dividends subject to Board approval[159] - The company’s stock price has experienced significant volatility, which may affect investors' ability to resell shares at favorable prices[103]

Financial Performance - Total revenues for Q4 2023 were $49.5 million, down 9.7% from $54.8 million in Q4 2022[4] - Operating loss for Q4 2023 was $2.3 million, compared to operating income of $3.4 million in the prior-year quarter[7] - Net loss for Q4 2023 was $2.0 million, or $0.27 per share, compared to net income of $21.8 million, or $2.81 per share, in Q4 2022[8] - Full-year revenues for 2023 were $191.5 million, down 7.2% from $206.3 million in 2022[9] - Operating revenue for Q4 2023 was $49,491,000, a decrease of 9.4% from $54,778,000 in Q4 2022[23] - Net loss for Q4 2023 was $1,977,000 compared to a net income of $21,804,000 in Q4 2022, representing a significant decline[25] - EBITDA for the year ended December 31, 2023, was $7,596,000, down from $17,835,000 in 2022, representing a decrease of 57.5%[26] - Operating income for the year ended December 31, 2023, was $3,359,000, compared to $15,107,000 in 2022, indicating a decline of 77.8%[26] Revenue by Segment - Customer Care segment revenue increased by $1.0 million or 6.0% year-over-year, totaling $17.7 million in Q4 2023[13] - Fulfillment & Logistics Services segment revenue decreased by $3.2 million or 12.9% year-over-year, totaling $21.3 million in Q4 2023[13] - Marketing Services segment revenue decreased by $3.1 million or 23.1% year-over-year, totaling $10.5 million in Q4 2023[13] - The contribution margin for the Marketing segment decreased to $8,409,000 in 2023 from $11,734,000 in 2022, reflecting a decline of 28.5%[26] - The contribution margin for the Fulfillment & Logistics segment was $2,558,000 for Q4 2023, down from $3,101,000 in Q4 2022, a decline of 17.5%[26] Expenses and Losses - Total operating expenses for Q4 2023 were $51,769,000, an increase of 0.8% from $51,349,000 in Q4 2022[23] - The company reported a restructuring expense of $5,687,000 in Q4 2023, with no such expense reported in Q4 2022[23] - Restructuring expenses for the year ended December 31, 2023, totaled $5,687,000, with no restructuring expenses reported in 2022[26] - Segment operating expenses for the Customer Care segment were $49,851,000 in 2023, compared to $52,173,000 in 2022, a decrease of 4.4%[26] - Depreciation and amortization expense for the year ended December 31, 2023, was $4,237,000, up from $2,728,000 in 2022, an increase of 55.3%[26] Cash and Assets - The company ended the year with a cash balance of $18.4 million and no debt[4] - Cash and cash equivalents increased to $18,364,000 in December 2023 from $10,364,000 in December 2022[24] - Total assets as of December 31, 2023, were $122,757,000, up from $119,984,000 in December 2022[24] - Total liabilities increased to $102,900,000 in December 2023 from $101,176,000 in December 2022[24] Future Projections - Project Elevate is expected to generate approximately $6 million in cost reductions in 2024 and $16 million over two years[3] - The company has extended its $25 million line of credit until June 30, 2025[4] Margins - Adjusted EBITDA for Q4 2023 was $5,209,000, slightly up from $5,155,000 in Q4 2022[25] - Adjusted operating margin for Q4 2023 was 8.1%, compared to 7.7% in Q4 2022[25] - The company reported a loss attributable to common stockholders of $1,977,000 for Q4 2023, compared to a profit of $20,424,000 in Q4 2022[23]

Table of Contents U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-07120 HARTE HANKS, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of (I.R.S. E ...

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) The company's unaudited financial statements for H1 2023 show a net loss of **$0.2 million**, reduced operating cash flow, and a decline in total assets to **$114.7 million** [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets decreased to **$114.7 million**, total liabilities decreased to **$94.1 million**, and stockholders' equity increased to **$20.6 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2023 (unaudited) | December 31, 2022 (audited) | | :--- | :--- | :--- | | **Total current assets** | $63,950 | $66,311 | | **Total assets** | **$114,660** | **$119,984** | | **Total current liabilities** | $40,406 | $43,566 | | **Total liabilities** | **$94,110** | **$101,176** | | **Total stockholders' equity** | **$20,550** | **$18,808** | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) For Q2 2023, revenue slightly decreased to **$47.8 million** and net income sharply fell to **$0.6 million**, while the six-month period saw a net loss of **$0.2 million** Q2 Financial Performance (in thousands, except per share amounts) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenue | $47,762 | $48,553 | | Operating Income | $1,670 | $4,011 | | Net Income | $580 | $4,461 | | Diluted EPS | $0.08 | $0.52 | Six-Month Financial Performance (in thousands, except per share amounts) | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Operating Revenues | $94,882 | $97,615 | | Operating Income | $2,723 | $7,906 | | Net (Loss) Income | ($211) | $7,806 | | Diluted (Loss) EPS | ($0.03) | $0.91 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity increased to **$20.6 million** by June 30, 2023, driven by comprehensive income and stock-based compensation, despite a net loss and stock repurchases - Total stockholders' equity increased by **$1.7 million** in the first six months of 2023, from **$18.8 million** to **$20.6 million**[12](index=12&type=chunk) - Key activities affecting equity in H1 2023 include a net loss of **$0.2 million**, stock repurchases of **$1.9 million**, and other comprehensive income of **$3.1 million**[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to **$4.6 million** in H1 2023, while investing activities used **$1.3 million** and financing activities used **$2.3 million** Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,587 | $9,862 | | Net cash used in investing activities | ($1,255) | ($3,559) | | Net cash (used in) provided by financing activities | ($2,312) | $4,508 | | **Net increase in cash** | **$3,000** | **$7,700** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details the company's accounting policies and financial items, including segment performance, lease obligations, share repurchases, and the InsideOut Solutions acquisition - The company operates three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services[16](index=16&type=chunk) Disaggregated Revenue by Segment - Six Months Ended June 30 (in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Marketing Services | $22,160 | $26,374 | | Customer Care | $31,627 | $33,123 | | Fulfillment and Logistics Services | $41,095 | $38,118 | | **Total Revenues** | **$94,882** | **$97,615** | - On May 2, 2023, the Board approved a **$6.5 million** share repurchase program[63](index=63&type=chunk) - In Q2 2023, the company repurchased **0.3 million** shares for **$1.9 million**[63](index=63&type=chunk) - The company acquired Inside Out Solutions, LLC on December 1, 2022, for approximately **$7.5 million**[91](index=91&type=chunk) - This acquisition contributed **$5.1 million** in revenue for the first six months of 2023[91](index=91&type=chunk)[98](index=98&type=chunk) Segment Operating Income - Six Months Ended June 30 (in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Marketing Services | $2,415 | $3,084 | | Customer Care | $4,227 | $5,552 | | Fulfillment and Logistics Services | $3,645 | $5,155 | | Unallocated Corporate | ($7,564) | ($5,885) | | **Total Operating Income** | **$2,723** | **$7,906** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for H1 2023, noting a **2.8%** revenue decrease and a **65.6%** drop in operating income, driven by segment-specific challenges and partially offset by acquisitions [Recent Developments](index=33&type=section&id=Recent%20Developments) Key recent developments include the appointment of a new CEO, a strategic segment combination, and the initiation of a **$6.5 million** share repurchase program - Kirk Davis was appointed as the new Chief Executive Officer, effective June 19, 2023[115](index=115&type=chunk) - The company plans to combine its Marketing Services and Customer Care segments into a new 'Customer Experience' segment by the end of 2023[116](index=116&type=chunk) - A share repurchase program for **$6.5 million** of common stock was approved on May 2, 2023, with **$1.9 million** used to repurchase shares in Q2 2023[117](index=117&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Consolidated revenues decreased by **2.8%** to **$94.9 million** in H1 2023, leading to a **65.6%** drop in operating income, primarily due to declines in Marketing Services and Customer Care Consolidated Results of Operations - Six Months Ended June 30 (in thousands) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $94,882 | $97,615 | (2.8)% | | Operating income | $2,723 | $7,906 | (65.6)% | | Diluted (loss) per common share | ($0.03) | $0.91 | (103.3)% | - Marketing Services revenue decreased by **$4.2 million (16.0%)** in H1 2023 due to lower direct mail volume from existing customers[123](index=123&type=chunk)[142](index=142&type=chunk) - Customer Care revenue decreased by **$1.5 million (4.5%)** in H1 2023, as non-recurring pandemic-related projects from 2022 ended, partially offset by **$5.1 million** from the InsideOut acquisition[123](index=123&type=chunk)[145](index=145&type=chunk) - Fulfillment & Logistics Services revenue increased by **$3.0 million (7.8%)** in H1 2023, but operating income decreased by **$1.5 million** due to changes in revenue mix and higher transportation costs[123](index=123&type=chunk)[148](index=148&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, including **$13.4 million** cash and a **$24.2 million** available credit facility, is deemed sufficient to meet obligations and fund expected capital expenditures of **$3 million to $4 million** - Cash and cash equivalents stood at **$13.4 million** as of June 30, 2023[149](index=149&type=chunk) - The company has the ability to borrow an additional **$24.2 million** under its New Credit Facility, with no borrowings outstanding as of June 30, 2023[149](index=149&type=chunk)[164](index=164&type=chunk) - Capital expenditures for 2023 are expected to be between **$3 million** and **$4 million**, mainly for a new ERP system and facility expansion[150](index=150&type=chunk) - The company received a **$5.3 million** tax refund in March 2023 as a result of NOL carryback provisions in the CARES Act[150](index=150&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section on market risk disclosures is not applicable for the current reporting period - The company has indicated that this item is not applicable[172](index=172&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[174](index=174&type=chunk) - No material changes were made to internal controls over financial reporting during the second quarter of 2023[176](index=176&type=chunk) [Part II. Other Information](index=42&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings, for which management believes adequate accruals have been made, with no expectation of material loss beyond current provisions - Information regarding legal proceedings is detailed in Note M, Litigation and Contingencies[177](index=177&type=chunk) - Management believes adequate accruals for legal matters have been made and the probability of further material loss is remote[101](index=101&type=chunk) [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's previously disclosed risk factors were reported for the current period - No material changes to risk factors were reported for the three months ended June 30, 2023, compared to those disclosed in the 2022 10-K[178](index=178&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell unregistered equity securities but repurchased **314,558** common shares for **$1.9 million** in Q2 2023, with **$4.6 million** remaining for future repurchases Common Stock Repurchases - Q2 2023 | Period | Total Shares Purchased | Average Price per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | May 2023 | 231,922 | $5.86 | $1.36M | | June 2023 | 82,636 | $6.29 | $0.52M | | **Total Q2** | **314,558** | **-** | **$1.88M** | - As of June 30, 2023, approximately **$4.6 million** remained available for repurchase under the authorized **$6.5 million** program[179](index=179&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the CEO's employment agreement and Sarbanes-Oxley Act certifications - Filed exhibits include the employment agreement for CEO Kirk Davis and Sarbanes-Oxley Act certifications[183](index=183&type=chunk)

Harte Hanks, Inc. (NASDAQ:HHS) Q2 2023 Earnings Conference Call August 10, 2023 4:30 PM ET Company Participants Tom Baumann - Investor Relations Kirk Davis - Chief Executive Officer Lauri Kearnes - Chief Financial Officer Conference Call Participants Julio Romero - Sidoti & Company Michael Kupinski - NOBLE Capital Markets Operator Greetings and welcome to the Harte Hanks Second Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference ...

Financial Performance - Revenue for the three months ended March 31, 2023, was $47,120,000, a decrease of 3.9% compared to $49,062,000 for the same period in 2022[9] - Operating income for Q1 2023 was $1,053,000, down 73.0% from $3,894,000 in Q1 2022[9] - Net loss attributable to common stockholders for Q1 2023 was $791,000, compared to net income of $2,819,000 in Q1 2022, representing a significant decline[9] - Comprehensive income for Q1 2023 was $1,829,000, compared to $3,851,000 in Q1 2022, indicating a decrease of 52.5%[9] - Basic loss per common share was $(0.11) for the three months ended March 31, 2023, compared to earnings of $0.40 per share for the same period in 2022[84] - The company reported a net loss of $791,000 for the three months ended March 31, 2023, compared to a net income of $3,345,000 for the same period in 2022[84] - Operating income fell to $1,053,000 in Q1 2023, down 73.0% from $3,894,000 in Q1 2022[9] - Total operating expenses increased to $46,067,000 in Q1 2023, up 2.0% from $45,168,000 in Q1 2022[9] Assets and Liabilities - Total current assets decreased to $62,179,000 as of March 31, 2023, from $66,311,000 at December 31, 2022, a reduction of 6.4%[8] - Total liabilities decreased to $93,918,000 as of March 31, 2023, down from $101,176,000 at December 31, 2022, a decline of 7.1%[8] - Stockholders' equity increased to $20,965,000 as of March 31, 2023, compared to $18,808,000 at December 31, 2022, an increase of 11.5%[8] - Cash and cash equivalents increased to $13,118,000 as of March 31, 2023, from $10,364,000 at December 31, 2022, an increase of 26.8%[8] - The company reported a pension liability of $17,988,000 for qualified plans as of March 31, 2023, down from $18,674,000 at December 31, 2022[8] Revenue Segments - Marketing Services revenue recognized over time was $10,420,000, down from $10,895,000 in the prior year, while revenue recognized at a point in time decreased from $2,029,000 to $819,000[34] - Customer Care segment revenue decreased from $17,742,000 in Q1 2022 to $14,416,000 in Q1 2023[34] - Fulfillment and Logistics Services revenue increased from $18,396,000 in Q1 2022 to $21,465,000 in Q1 2023, with revenue recognized over time at $18,090,000[34] - The Marketing Services segment reported revenues of $11.24 million, while the Customer Care segment reported revenues of $14.42 million for the same period[103] Cash Flow and Investments - Cash flows from operating activities for Q1 2023 were $1,704,000, compared to a cash outflow of $764,000 in Q1 2022[11] - The company had cash and cash equivalents of $14,118,000 at the end of Q1 2023, an increase from $12,211,000 at the end of Q1 2022[11] - Net cash provided by operating activities increased by $2.5 million year-over-year to $1.7 million for the three months ended March 31, 2023, primarily due to a $10.7 million decrease in accounts receivable and contract assets[135] - Net cash used in investing activities decreased by $0.8 million year-over-year to $0.6 million for the three months ended March 31, 2023, mainly due to reduced cash used for purchasing property, plant, and equipment[136] Acquisitions and Growth - The acquisition of Inside Out Solutions, LLC was completed on December 1, 2022, for an aggregate purchase price of approximately $7.5 million[87] - The acquisition is expected to enhance the company's marketing services and customer care segments, driving profitable revenue growth through demand generation and inside sales offerings[89] - For the quarter ended March 31, 2023, the InsideOut operation generated revenue of $2.8 million and net earnings of $0.5 million[93] - The company recognized $3.6 million of intangible assets and $2.4 million of goodwill associated with the InsideOut acquisition, amortizing the intangible assets over five years[93] Tax and Compliance - The effective income tax rate was 41.8% for the three months ended March 31, 2023, compared to 12.0% for the same period in 2022[78] - The effective tax rate for the first quarter of 2023 was 41.8%, an increase of 29.8% from the prior year, primarily due to changes in valuation allowance and state income taxes[124] Shareholder Actions - The company approved a share repurchase program on May 2, 2023, with authorization to repurchase $6.5 million of its Common Stock[111] - No shares were repurchased under the stock repurchase program during the three months ended March 31, 2023, with $11.4 million remaining authorization as of that date[151] Lease and Operating Costs - Operating lease costs for the three months ended March 31, 2023, were $1.456 million, a decrease from $1.581 million in the same period of 2022[56] - Total lease liabilities as of March 31, 2023, amounted to $22.018 million, slightly down from $22.322 million as of December 31, 2022[55] - The weighted average remaining lease term for operating leases was 5.7 years as of March 31, 2023, compared to 6.2 years in the previous year[56] - Total future minimum lease payments for operating leases are projected to be $23.93 million, with the remainder of 2023 accounting for $4.872 million[56]

Financial Data and Key Metrics Changes - Revenues decreased by 4% in Q1 2023 to $47.1 million, while operating income fell approximately 73% to $2.8 million compared to the previous year [30][31] - EBITDA decreased to $2.1 million from $4.5 million in the same quarter last year, with a net loss of $0.8 million or $0.11 per share compared to a net income of $3.3 million or $0.40 per share last year [31][32] - Cash and cash equivalents increased to $13.1 million as of March 31, 2023, compared to $10.4 million at the end of 2022, with no debt and a $25 million credit facility [35] Business Line Data and Key Metrics Changes - Customer Care revenue decreased by 18.8% year-over-year, with EBITDA down 41% to $2 million due to the conclusion of pandemic-related projects and lower customer interactions [48] - Marketing Services revenue decreased by 13% to $11.2 million, primarily due to the discontinuation of direct mail campaigns [50] - Fulfillment & Logistics revenue increased by approximately 16.7% to $21.6 million, with EBITDA slightly decreasing to $2.2 million [32][49] Market Data and Key Metrics Changes - The company observed a reevaluation of marketing and logistics spending by clients, particularly in financial services and B2B tech sectors, due to economic uncertainties [9][62] - The financial services segment experienced a revenue decline of over $1 million in Q1, attributed to tightening budgets among clients [62] Company Strategy and Development Direction - The company is combining its Marketing Services and Customer Care segments into a new segment called Customer Experience to enhance its go-to-market strategy and improve cost structure [11][51] - Focus on demand generation and sales strategy to engage new prospects and scale lead qualifications, leveraging capabilities from the InsideOut acquisition [12][14] - The company aims to preserve profitability by reducing discretionary spending and right-sizing the business in response to first-quarter performance [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged stronger-than-expected macroeconomic headwinds impacting revenue and expressed limited visibility beyond Q2 2023 [3][9] - Despite challenges, management remains cautiously optimistic about opportunities in the sales pipeline for the second half of the year and into 2024 [21][54] - The company is focused on evolving its offerings to provide lower-cost options, making it an attractive outsourcing option in the current economic climate [29] Other Important Information - The company received a $5.3 million federal tax refund, enhancing cash liquidity and enabling a $6.5 million share buyback program [10][23] - The InsideOut acquisition contributed $2.8 million in revenue and $0.5 million in EBITDA for the quarter, with expectations for its role in driving growth [32][73] Q&A Session Summary Question: What changed in the company's outlook regarding the economy? - Management noted a slowdown in project starts and new business opportunities, with some projects being delayed or canceled, impacting the overall tone of their comments [39] Question: How will the combined Customer Experience segment drive growth? - The integration is expected to leverage global talent and improve service efficiency, enhancing the overall customer experience and driving membership growth for clients [66] Question: What is the company's approach to share repurchase and potential acquisitions? - The company plans to be opportunistic with share buybacks while remaining open to acquisition opportunities that complement its offerings, though focus will be on the ongoing reorganization [67][74]

Financial Performance - Harte Hanks reported revenues of $206.3 million for the year ended December 31, 2022, an increase from $194.6 million in 2021, representing a growth of approximately 8.7%[24] - Operating income rose to $15.1 million, a significant increase of 97.8% from $7.6 million in the previous year, resulting in an operating margin of 7.3%[117] - The company reported a net income of $36.8 million for 2022, a 145.6% increase from $15.0 million in 2021[117] - Earnings per common share (basic) rose to $4.98 in 2022 from $1.85 in 2021, reflecting a significant increase of 169.2%[200] - Comprehensive income for 2022 was $41,802,000, compared to $27,254,000 in 2021, marking an increase of 53.4%[200] Revenue Sources - The largest client accounted for 12.2% of total revenues in 2022, while the largest 25 clients generated 72.5% of total revenue[33] - Approximately 72.5% of total revenue for 2022 was generated by the 25 largest clients[49] - The top ten customers contributed 50.6% of total revenue in 2022, down from 53.0% in 2021[211] - Revenue from the United States was $183,470,000 in 2022, up from $175,437,000 in 2021, indicating a growth of 4.9%[207] Operational Changes - The company has a new 400,000 square-foot facility in Kansas City, which is FDA registered and supports various product fulfillment needs[22] - Harte Hanks acquired Inside Out Solutions, LLC for approximately $7.5 million, enhancing its marketing services and customer care capabilities[28] - The company operates in three segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services, focusing on data-driven analytics and customer experience[17] Expenses and Liabilities - Operating expenses for 2022 were $191.2 million, an increase of $4.2 million or 2.3% compared to $186.0 million in 2021[120] - Total liabilities decreased from $122.9 million in 2021 to $101.2 million in 2022, a reduction of approximately 17.7%[199] - As of December 31, 2022, the company had approximately $39.6 million of unfunded pension liabilities, which could impact future results of operations and cash flows[65] Cash Flow and Financing - Net cash provided by operating activities increased by $30.6 million year-over-year to $28.8 million for the year ended December 31, 2022, primarily driven by a $21.8 million increase in net income[139] - The company entered a new three-year, $25.0 million asset-based revolving credit facility, replacing the previous facility, with the ability to borrow an additional $24.2 million under this new facility[60] - The New Credit Facility allows for loans up to $25 million, with interest accruing at a rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum[145] Market and Competitive Environment - The company faces significant competition, with many competitors having greater financial and technical resources, which may pressure pricing and margins[52] - The ongoing public interest in privacy rights and data security may lead to additional regulations that could restrict marketing practices and data management[41] Regulatory and Compliance Risks - Compliance with existing and potential new regulations is costly and time-consuming, posing risks of penalties and reputational harm if not adhered to[42] - The company is subject to numerous laws and regulations regarding privacy and data protection, which may impact its ability to offer products and services[67] - The company may face significant penalties and liabilities if it fails to comply with privacy and data protection regulations, which could adversely affect its business[71] Employee and Workforce Insights - As of December 31, 2022, Harte Hanks employed 1,881 full-time employees and 823 part-time employees, with approximately 1,646 employees based outside the U.S., primarily in the Philippines[45] - The company recognizes the importance of diversity, equity, and inclusion, with 59% of its workforce being female as of December 31, 2022[45] Strategic Initiatives and Future Outlook - The company has established strong relationships with subcontractors, enhancing service quality and pricing for customers[24] - Harte Hanks leverages a proprietary DataView tool, providing a 360-degree customer view with over 1,500 consumer attributes for predictive marketing[20] - The company has experienced reduced demand for its products and services due to clients' financial conditions and marketing budget constraints, which may continue in the future[56] Leadership and Governance - The company has undergone leadership changes, including the CEO and CFO, which may affect operational results if new leaders are unsuccessful in their roles[78] - Management believes there are no conditions that raise substantial doubt about the company's ability to continue as a going concern for the next twelve months[155]

Financial Data and Key Metrics Changes - Revenue increased by 5.4% in Q4 2022 to $54.8 million, and full-year revenue grew by 6% to $206.3 million [6][34] - Net income for Q4 was $21.8 million compared to $1.8 million in the same quarter last year, reflecting a significant improvement [12][59] - Full-year EBITDA rose to $17.8 million, a 75% increase from $10.2 million in the previous year [34] Business Segment Data and Key Metrics Changes - Fulfillment & Logistics segment revenue grew by 34.4% in Q4, driven by a large logistics client, with EBITDA increasing by 5.9% to $2.3 million [6][14] - Customer Care segment revenue declined by 12.9%, but EBITDA increased by 24.4% to $3.2 million, indicating improved operational efficiency [6][29] - Marketing Services revenue decreased by 6.8% to $13.6 million, with EBITDA down 18.4% to $2.1 million, attributed to the end of direct mail campaigns [31][33] Market Data and Key Metrics Changes - The company is aggressively marketing its services across various verticals including B2B tech, retail, pharma, and healthcare, expecting strong new client performance in 2023 [8][57] - The Customer Care pipeline remains healthy, with ongoing investments in sales and marketing to drive growth [13][57] Company Strategy and Development Direction - The company aims for high-single digit revenue and EBITDA growth in 2023, focusing on adding new clients and expanding existing relationships [5][7] - A strategic shift to an asset-light business model has been implemented, eliminating unprofitable contracts and positioning the company for sustainable operating income [22][27] - The acquisition of InsideOut is expected to enhance capabilities and drive growth, with plans for additional acquisitions in the future [10][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023 despite a challenging first quarter comparison, citing a strong pipeline and improved operational performance [4][32] - The company anticipates a drop in year-over-year quarterly EBITDA in Q1 due to the absence of high-margin projects from the previous year [21][65] - Rising interest rates are being monitored, with expectations of further decreases in pension liabilities [36][84] Other Important Information - The company ended 2022 with over $10 million in cash and no debt, reflecting a strengthened balance sheet [25][60] - A non-recurring tax benefit of $19.8 million was recorded in Q4 due to the release of a valuation allowance, contributing to the net income increase [22][61] Q&A Session Summary Question: What drove the strong margin in Customer Care? - Management indicated that improved operational efficiencies and a favorable revenue mix contributed to the strong margin, with a shift from lower-margin pandemic-related projects [39] Question: What is the pipeline for potential M&A? - Management is considering tuck-in acquisitions similar in size to InsideOut but remains open to larger opportunities that complement existing capabilities [43] Question: What are the expectations for revenue growth in 2023? - Management expects growth across all segments, particularly in Fulfillment & Logistics, with cautious optimism for Customer Care and Marketing Services [82]