Harte Hanks, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports annual results; it does not provide standalone fourth-quarter financial results. Harte Hanks provides customer experience services through Marketing Services, Customer Care, and Fulfillment & Logistics. The company said that, beginning in 2024, its services would be organized into four business units.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $191.5 million | $206.3 million |
| Operating income / margin | $3.4 million / 1.8% | $15.1 million / 7.3% |
| Net income (loss) | $(1.6) million | $36.8 million |
| Diluted EPS | $(0.21) | $4.75 |
| Cash from operating activities | $10.5 million | $28.8 million |
| Cash and cash equivalents at year-end | $18.4 million | $10.4 million |
Revenue declined 7.2%, while operating income fell 77.8%. Operating expenses decreased only 1.6%, partly reflecting $5.7 million of restructuring charges and higher depreciation, including costs associated with a new ERP system. The 2022 comparison benefited from a $17.5 million income tax benefit, principally related to release of most of the U.S. valuation allowance; the 2023 tax benefit was $0.3 million.
- Marketing Services: Revenue fell 18.4% to $43.2 million; operating income was $5.1 million versus $7.0 million. The company cited lower marketing spend and a lost customer.
- Customer Care: Revenue fell 5.8% to $63.3 million; operating income was $9.4 million versus $11.3 million. Lower pandemic-related and recall-project revenue was partly offset by $9.7 million from the InsideOut acquisition.
- Fulfillment & Logistics: Revenue fell 1.3% to $85.0 million; operating income fell to $7.7 million from $9.8 million, mainly due to revenue mix and higher transportation costs.
Cash, debt, and liquidity
Operating cash flow was $10.5 million, down from $28.8 million; purchases of property, plant, and equipment were $2.8 million. Cash and cash equivalents were $18.4 million at year-end, and current assets of $65.2 million exceeded current liabilities of $48.1 million. The company reported no borrowings under its asset-based revolving credit facility and $24.2 million of additional borrowing availability, subject to its borrowing base. The $25 million facility bears interest at SOFR plus 2.25%, had a stated rate of 7.64% at year-end, and matures June 30, 2025. Outstanding letters of credit were $0.8 million.
Total liabilities were $102.9 million, including $28.5 million of lease liabilities and $37.7 million of unfunded pension liabilities. Management expects a $7.6 million contribution to terminate Qualified Pension Plan I and estimated $2.0 million of 2024 contributions to Qualified Pension Plan II. The company reported no dividends in 2023 or 2022.
Changes, outlook, and risks
- Project Elevate: A transformation program launched after a 2023 operational review. The company estimates $16 million of reorganization savings over 2024–2026, with some savings to be reinvested in sales and marketing, technology, and strategy. It recorded $5.7 million of 2023 restructuring costs and expects total restructuring charges of $10.1 million through the end of 2024. Savings and timing are estimates, not assured results.
- No specific revenue or earnings guidance is provided in the supplied filing text. Management said it believes liquidity is sufficient for the short and medium term and that no conditions, considered in aggregate, raise substantial doubt about going concern for the following 12 months.
- Unusual year-over-year items: Other expense was $5.3 million in 2023, versus other income of $4.6 million in 2022. The change primarily reflected an $8.9 million swing in foreign-currency revaluation and a $2.5 million 2022 gain from selling unused IP addresses. The filing says future IP-address sales are not expected to generate significant income.
- Key business risks: Customer contracts are generally terminable on short notice and often lack minimum purchase commitments. The largest customer accounted for 11.2% of 2023 revenue; the 25 largest accounted for 71.7%. The company also cited client insourcing, discretionary marketing budgets, competition and pricing pressure, privacy and cybersecurity regulation, reliance on technology and third parties, and execution risks for Project Elevate.
- Contingencies and controls: Management said pending legal matters are not expected to have a material impact. Management concluded internal control over financial reporting was effective; the external auditor’s financial-statement opinion was unqualified, and the auditor was not engaged to opine on internal-control effectiveness.
Important facts for investors to verify
- Whether revenue stabilizes, particularly in Marketing Services, and whether customer losses or insourcing continue.
- Whether Project Elevate delivers the estimated savings, and how restructuring costs and reinvestment affect margins and cash flow.
- Cash conversion, working-capital trends, borrowing-base availability, and compliance with credit-facility covenants.
- Funding requirements and actuarial assumptions for the pension plans, especially the anticipated plan termination contribution.
- Customer concentration, contract renewal and cancellation terms, and the effect of transportation costs on Fulfillment & Logistics profitability.
- Potential impacts from data-protection requirements, cybersecurity incidents, and changing use of AI and automation.