Harte Hanks, Inc. — Q2 2021 Form 10-Q
Business context and reporting period: The filing covers the quarter and six months ended June 30, 2021. Harte Hanks provides customer experience services through Marketing Services, Customer Care, and Fulfillment & Logistics Services. All dollar amounts below are in millions unless noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $49.3 | $41.6 | $93.0 | $82.1 |
| Operating income (loss) | $1.4 | $(5.9) | $0.6 | $(11.0) |
| Operating margin | 2.9% | (14.1)% | 0.6% | (13.4)% |
| Net income (loss) | $10.6 | $(6.2) | $8.8 | $(1.1) |
| Diluted EPS | $1.27 | $(0.99) | $1.05 | $(0.21) |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $(4.7) | $(7.4) |
Q2 operating expenses were $47.8, up 0.7% year over year; six-month expenses were $92.5, down 0.7%. Consolidated EBITDA, as reported in the segment table, was $2.1 in Q2 and $1.9 for the six months, versus losses of $4.8 and $8.8, respectively.
- Q2 segment revenue / operating income: Marketing Services $14.2 / $1.6; Customer Care $19.2 / $3.1; Fulfillment & Logistics Services $15.9 / $1.5.
- Six-month segment revenue / operating income: Marketing Services $27.1 / $2.0; Customer Care $35.7 / $5.5; Fulfillment & Logistics Services $30.2 / $2.5.
- At June 30, cash and cash equivalents were $19.3 and restricted cash was $3.7, versus $29.4 and $4.2 at December 31, 2020. Total current assets were $82.5 and current liabilities $46.6.
- Debt was $13.1, all under the revolving credit facility; the $10.0 PPP note was forgiven. The company reported $0.8 of additional borrowing availability and $1.1 of outstanding letters of credit. Lease liabilities totaled $26.0; pension liabilities were $65.3. Stockholders’ deficit was $42.6.
- Six-month investing cash use was $0.9 and financing cash use was $4.5. Cash, cash equivalents, and restricted cash declined by $10.6 to $23.0.
Material changes versus prior comparable periods
- Revenue increased 18.4% in Q2 and 13.3% for the first half. Customer Care was the largest growth contributor, up 26.0% in Q2 and 50.7% for six months, reflecting new project work and higher volumes from existing clients.
- Q2 Fulfillment & Logistics revenue rose 18.3%, but first-half revenue fell 5.5%, partly reflecting the transfer of direct-mail activity to Marketing Services and the exit from direct-mail operations. Marketing Services revenue rose 9.6% in Q2 and 2.3% for six months; the reported increase includes transferred mail and data services, while other marketing revenue was pressured by lower client budgets.
- Operating results improved substantially as higher revenue and lower restructuring and other costs more than offset higher labor and production/distribution costs. First-half Customer Care and Fulfillment & Logistics operating income improved notably from the prior-year losses or lower profits.
Outlook, commentary, risks, and unusual items
- The company recognized a $10.0 gain in Q2 from forgiveness of its PPP loan. This nonrecurring gain materially increased reported net income; operating income was $1.4 for the quarter.
- Management expected approximately $26.8 of total restructuring charges through 2021, of which $25.1 had been recognized; it anticipated a further $1.7. Q2 restructuring expense was $1.7 and first-half expense was $3.9.
- Management stated it believed liquidity would meet obligations for at least the next 12 months, using cash, operating cash flow, and facility borrowings, and that there were no conditions raising substantial doubt about going concern. The company reported net operating cash outflow for the first half and limited remaining borrowing availability.
- The credit facility was amended in May 2021: maturity was extended to April 17, 2023, while borrowing capacity was reduced to $15.0. It is secured by substantially all company assets and guaranteed by HHS Guaranty, LLC. The company said it was in compliance with facility requirements.
- COVID-19 had not materially affected operations or liquidity to date, according to management. Risks include customer budget reductions, delayed payments or bankruptcies, pandemic variants and economic effects, and competitive pressure. Customer Care experienced increased demand and new business, while management noted uncertainty about future effects.
- The company expected a $7.6 tax refund from carryback of 2020 losses. A favorable $0.8 litigation settlement benefited first-half SG&A and Fulfillment & Logistics results. Management said appropriate legal accruals were recorded and considered material losses beyond accrued amounts remote; certain client indemnification exposures have no reasonably estimable maximum.
- No formal revenue or earnings guidance was provided in the filing. Management described continued cost controls, footprint optimization, and technology investment, while cautioning that savings may not offset longer-term revenue declines.
Most important facts for investors to verify
- Whether revenue gains, especially in Customer Care, persist and translate into operating cash generation.
- How much of reported earnings reflects the one-time PPP forgiveness gain, restructuring costs, and the favorable litigation settlement.
- Cash conversion and working-capital trends: first-half operating cash use was $4.7, while receivables increased with higher revenue.
- Available liquidity and facility headroom, including the reported $0.8 additional borrowing capacity, covenant compliance, and the facility’s asset security and guarantee.
- Completion and actual cost of restructuring, and whether the expected remaining $1.7 of charges is sufficient.
- Collection of the anticipated $7.6 tax refund and exposure to COVID-19-related customer weakness, payment delays, or bankruptcies.