Harte Hanks(HHS) - 2021 Q1 - Quarterly Report

Part I. Financial Information Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2021, including balance sheets, income statements, and cash flow statements, along with detailed notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $24,913 | $29,408 | | Total current assets | $83,890 | $86,238 | | Total assets | $116,862 | $119,498 | | Total current liabilities | $53,062 | $47,192 | | Total liabilities | $161,562 | $162,898 | | Total stockholders' deficit | $(54,423) | $(53,123) | Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands, except per share) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenue | $43,754 | $40,522 | | Operating loss | $(884) | $(5,107) | | Net (loss) income | $(1,758) | $5,118 | | Diluted (loss) earnings per common share | $(0.28) | $0.67 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,675) | $(3,974) | | Net cash used in investing activities | $(735) | $(636) | | Net cash used in financing activities | $(199) | $(239) | - The company operates three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services, with the CEO reviewing performance based on revenue, operating income (loss), and EBITDA for each segment[17][115] - Total debt as of March 31, 2021, was $27.1 million, consisting of a $17.1 million revolving credit facility and a $10.0 million Paycheck Protection Program (PPP) Term Note, with the company applying for forgiveness of the PPP loan in Q1 2021[69][76][79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2021 financial performance, highlighting an 8.0% revenue increase to $43.8 million driven by Customer Care, improved operating loss, and sufficient liquidity for the next twelve months Results of Operations Q1 2021 revenues increased by 8.0% to $43.8 million, operating expenses decreased, leading to a narrowed operating loss of $0.9 million, though net loss was $1.8 million due to a prior-year tax benefit Operating Results Summary (in thousands) | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $43,754 | $40,522 | 8.0% | | Operating expenses | $44,638 | $45,629 | (2.2)% | | Operating loss | $(884) | $(5,107) | 82.7% | - The $3.3 million revenue increase was driven by an $8.1 million (95.1%) surge in the Customer Care segment, offsetting declines in Fulfillment & Logistics ($4.2 million) and Marketing Services ($0.6 million)[138] - Operating expenses declined by $1.0 million, primarily due to cost reduction initiatives in production, distribution, and SG&A, despite a $2.4 million (10.0%) increase in labor costs for Customer Care[140][141][142] - The company recorded restructuring charges of $2.2 million in Q1 2021, an increase from $1.4 million in Q1 2020, as part of ongoing efforts to right-size its operating footprint[144] Segment Results Customer Care revenue nearly doubled to $16.5 million with a $2.3 million operating profit, while Marketing Services declined, and Fulfillment & Logistics improved operating income despite revenue decrease due to restructuring and a litigation settlement Segment Performance (Q1 2021 vs Q1 2020, in thousands) | Segment | Revenue (Q1 2021) | Revenue (Q1 2020) | % Change | Operating Income (Q1 2021) | Operating Income (Q1 2020) | | :--- | :--- | :--- | :--- | :--- | :--- | | Marketing Services | $12,878 | $13,500 | -4.6% | $431 | $879 | | Customer Care | $16,544 | $8,480 | 95.1% | $2,346 | $(1,012) | | Fulfillment & Logistics | $14,332 | $18,542 | -22.7% | $1,050 | $(1,230) | - Customer Care revenue growth was driven by additional project work and increased volumes from existing clients[154] - Fulfillment & Logistics revenue declined by $4.2 million, including a $2.7 million impact from direct mail exit, but operating income improved to $1.1 million due to cost restructuring and a $750 thousand litigation settlement[155] Liquidity and Capital Resources The company ended Q1 2021 with $24.9 million in cash, believing existing liquidity, operating cash flow, and a $15.0 million credit facility are sufficient for the next twelve months, anticipating a $7.5 million CARES Act tax refund - Cash and cash equivalents decreased to $24.9 million at March 31, 2021, from $29.4 million at December 31, 2020[156] - Net cash used in operating activities was $5.7 million in Q1 2021, compared to $4.0 million in Q1 2020, due to increased use of working capital[160] - The Texas Capital Credit Facility was amended on May 5, 2021, extending maturity to April 17, 2023, and decreasing borrowing capacity from $19.0 million to $15.0 million[132][165] - The company received a $10 million PPP loan in April 2020 and expects a $7.5 million tax refund in 2021 due to CARES Act provisions[157] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - The company has indicated that this disclosure is not applicable[175] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[177] - There were no changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[179] Part II. Other Information Legal Proceedings Legal proceedings information is referenced from Note L, with management believing adequate accruals have been made and the probability of material loss beyond these is remote - Details on legal proceedings are provided in Note L, Litigation and Contingencies, in the Notes to Condensed Consolidated Financial Statements[180] - Management's opinion is that adequate accruals for legal matters have been made and the probability of a material loss beyond the amounts accrued is remote[102] Risk Factors No material changes to risk factors previously disclosed in the 2020 Annual Report on Form 10-K have occurred during the quarter - There have been no material changes during the three months ended March 31, 2021 to the risk factors previously disclosed in the 2020 10-K[181] Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable for the current reporting period - Not applicable[182] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and the XBRL Instance Document - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and the XBRL Instance Document (101)[184]