Harte Hanks(HHS) - 2022 Q3 - Quarterly Report

Part I. Financial Information This part presents the company's unaudited interim financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Condensed Consolidated Financial Statements This section presents the unaudited interim financial statements for Harte Hanks, Inc. as of September 30, 2022. It includes the Condensed Consolidated Balance Sheets, Statements of Comprehensive Income, Statements of Changes in Stockholders' Deficit, and Statements of Cash Flows, along with detailed notes explaining the accounting policies and financial details Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $80,624 | $75,375 | | Total Assets | $111,133 | $107,861 | | Total Current Liabilities | $45,783 | $42,442 | | Total Liabilities | $114,199 | $122,853 | | Total Stockholders' Deficit | $(12,789) | $(24,715) | - Cash and cash equivalents decreased from $11.9 million at year-end 2021 to $6.9 million as of September 30, 2022[9] - Long-term debt was fully paid off, decreasing from $5.0 million at year-end 2021 to zero as of September 30, 2022[9] Condensed Consolidated Statements of Comprehensive Income This section outlines the company's financial performance, including revenues, operating income, net income, and earnings per share over specific periods Q3 Financial Performance (Three Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $53,886 | $49,597 | | Operating Income | $3,773 | $4,226 | | Net Income | $7,166 | $4,404 | | Diluted EPS | $0.83 | $0.52 | Year-to-Date Financial Performance (Nine Months Ended Sep 30, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Operating Revenues | $151,500 | $142,610 | | Operating Income | $11,678 | $4,776 | | Net Income | $14,972 | $13,215 | | Diluted EPS | $1.73 | $1.57 | Condensed Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $22,252 | $(5,938) | | Net cash used in investing activities | $(5,686) | $(2,377) | | Net cash used in financing activities | $(6,421) | $(4,845) | - The significant improvement in operating cash flow was primarily due to higher net income (excluding non-cash gains in 2021) and favorable changes in working capital, including accounts receivable and payable[14][164] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, segment information, and significant financial transactions - The company operates three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services[18] Disaggregation of Revenue by Segment (Nine Months Ended Sep 30, 2022, in thousands) | Segment | Revenue | | :--- | :--- | | Marketing Services | $39,389 | | Customer Care | $50,499 | | Fulfillment and Logistics Services | $61,612 | | Total Revenues | $151,500 | - On June 30, 2022, the Company entered into an agreement to repurchase all 9,926 shares of its Series A Preferred Stock from Wipro for $9.926 million in cash and 100,000 shares of common stock. The cash was placed in escrow[65] - The company completed its restructuring activities in 2021 and incurred no restructuring expenses in the first nine months of 2022, compared to $4.9 million in the same period of 2021[109][110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results for the third quarter and first nine months of 2022, comparing them to the same periods in 2021. The analysis covers consolidated and segment-level performance, highlighting a revenue increase driven by the Fulfillment & Logistics segment, alongside declines in Marketing Services and Customer Care. The discussion also covers operating expenses, liquidity, capital resources, and the new credit facility Results of Operations This section analyzes the company's consolidated financial performance, including revenue, operating income, and expenses, for the reported periods Consolidated Results Summary (in thousands) | Period | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | | Q3 | Revenues | $53,886 | $49,597 | 8.6% | | | Operating Income | $3,773 | $4,226 | (10.7)% | | 9 Months | Revenues | $151,500 | $142,610 | 6.2% | | | Operating Income | $11,678 | $4,776 | 144.5% | - Q3 2022 revenue increased by $4.3 million (8.6%) YoY, driven by a $8.4 million increase in Fulfillment & Logistics, which offset decreases in Customer Care ($2.4 million) and Marketing Services ($1.7 million)[131] - Q3 2022 operating expenses increased by $4.7 million (10.5%) YoY, primarily due to a $5.3 million rise in production and distribution costs linked to higher logistics revenue and transportation costs[134][135] - Other income for Q3 2022 was $4.7 million, a significant increase from $0.6 million in Q3 2021, mainly due to a $2.5 million gain from the sale of IP addresses[146] Segment Results This section provides a detailed breakdown of financial performance across the company's Marketing Services, Customer Care, and Fulfillment & Logistics segments Marketing Services Segment Performance (Q3 2022 vs Q3 2021) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $13,016 | $14,729 | -11.6% | | Operating Income | $1,823 | $2,655 | -31.3% | Customer Care Segment Performance (Q3 2022 vs Q3 2021) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $17,375 | $19,768 | -12.1% | | Operating Income | $2,765 | $3,819 | -27.6% | Fulfillment & Logistics Services Segment Performance (Q3 2022 vs Q3 2021) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $23,495 | $15,100 | 55.6% | | Operating Income | $2,601 | $1,511 | 72.1% | Liquidity and Capital Resources This section discusses the company's cash position, credit facilities, and expected capital expenditures, outlining its ability to meet short-term and long-term obligations - Cash and cash equivalents were $6.9 million at September 30, 2022, down from $11.9 million at December 31, 2021[160] - The company entered a new three-year, $25.0 million asset-based revolving credit facility with Texas Capital Bank in December 2021. As of September 30, 2022, there were no borrowings outstanding, with $24.2 million available[168][174][175] - The company expects to receive an additional $7.6 million in tax refunds in 2022 related to NOL carryback provisions from the CARES Act[161] - Capital expenditures for 2022 are expected to be approximately $6 million to $7 million, mainly for a new ERP system and the Kansas City facility expansion[162] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable for this reporting period - The company states this item is 'Not applicable'[182] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022. There were no material changes to internal controls over financial reporting during the quarter, and the shift to remote work due to COVID-19 has not had a material impact on these controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[185] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[186] Part II. Other Information This part covers legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is subject to various claims and legal proceedings in the ordinary course of business. Management believes that appropriate and adequate accruals have been made and that the probability of a material loss beyond these accruals is remote - The company is subject to various claims and legal proceedings in the ordinary course of business. Management believes appropriate accruals have been made and the probability of material loss beyond amounts accrued is remote[105][106][188] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes were reported during the three months ended September 30, 2022, to the risk factors previously disclosed in the 2021 10-K[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities during the quarter ended September 30, 2022. Additionally, no shares were repurchased under the company's stock repurchase program, which has since been terminated - The company did not sell any unregistered equity securities during the quarter ended September 30, 2022[190] - No shares of common stock were repurchased under the stock repurchase program during Q3 2022. This program has been terminated[178] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Sections 302 and 906 of the Sarbanes-Oxley Act) and Inline XBRL data files - Exhibits filed include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act of 2002, and Interactive Data Files (XBRL)[194]