Harte Hanks, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is FY2020. This is an annual filing, not a separate Q4 report. Harte Hanks provides customer-experience services through Marketing Services, Customer Care, and Fulfillment & Logistics Services.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $194.6 million | $176.9 million |
| Operating income (loss) | $7.6 million | $(10.6) million |
| Operating margin | 3.9% | (6.0)% |
| Net income (loss) | $15.0 million | $(1.7) million |
| Diluted EPS | $1.76 | $(0.34) |
| Cash from (used in) operating activities | $(1.8) million | $(7.8) million |
| Cash and cash equivalents at year-end | $11.9 million | $29.4 million |
| Cash, cash equivalents and restricted cash at year-end | $15.1 million | $33.6 million |
| Debt outstanding | $5.0 million | $17.1 million revolving debt, plus $10.0 million PPP note |
Revenue rose 10.0% while operating expenses edged down 0.3%. FY2021 net income included a $10.0 million gain from forgiveness of the PPP loan; the company also recorded $1.3 million of tax expense, compared with a $16.6 million tax benefit in FY2020. These items make the year-over-year earnings comparison less indicative of underlying operating performance. The filing does not provide a consolidated gross-margin figure.
Cash used in investing activities was $2.9 million, principally reflecting $3.0 million of capital expenditures; cash used in financing activities was $13.4 million, including $17.1 million of debt repayments. The company reported current assets of $75.4 million and current liabilities of $42.4 million at year-end. It had $18.9 million of additional borrowing availability under its new facility, subject to borrowing-base and covenant requirements.
Segment results
| Segment | FY2021 revenue | Year-over-year change | FY2021 operating income |
|---|---|---|---|
| Marketing Services | $56.4 million | Down 1.2% | $7.2 million |
| Customer Care | $74.7 million | Up 27.3% | $11.7 million |
| Fulfillment & Logistics Services | $63.5 million | Up 3.9% | $6.0 million |
Customer Care growth reflected new project work and higher volumes from existing clients, including COVID-related demand. Fulfillment & Logistics benefited from increased customer demand and cost reductions. Marketing Services revenue declined amid lower client budgets, though operating income improved with cost savings.
Material changes, outlook and risks
- Management described FY2021 as the company’s first year-over-year revenue increase in more than five years. Restructuring charges fell to $6.4 million from $9.4 million in 2020; management said no additional restructuring charges were expected after 2021.
- On December 21, 2021, the company entered a three-year, $25 million asset-based revolving facility, replacing its previous facility. Year-end borrowings were $5.0 million; the facility is secured by substantially all company and guarantor assets, bears variable interest, and matures December 21, 2024.
- The $10 million PPP loan was forgiven in June 2021. The company also expected a $7.8 million tax refund in 2022 related to CARES Act loss carrybacks; receipt is not confirmed in this filing.
- Management expected continued momentum absent significant economic shocks and stated it believed available cash, operating cash flow and facility borrowings would meet obligations for at least 12 months. No specific revenue or earnings guidance was provided.
- Unfunded pension liabilities were $54.3 million, down from $69.2 million. The company estimated a $1.3 million contribution to Qualified Pension Plan II in 2022; benefit payments, asset returns and actuarial assumptions remain relevant to cash flow and reported liabilities.
- Risks include client concentration and cancellable contracts: the largest client represented 15.1% of FY2021 revenue and 14.6% of year-end receivables; the 25 largest clients generated 72.6% of revenue. Other material risks include discretionary client marketing budgets, competition and client insourcing, privacy and cybersecurity regulation, COVID-related disruption, transportation costs, and international and geopolitical uncertainty.
- The company reported effective disclosure controls and internal control over financial reporting. Its auditor issued an unqualified opinion and identified revenue recognition as a critical audit matter because of multiple revenue streams, systems and manual and automated controls.
Key facts for investors to verify
- Whether operating cash flow turns positive and cash balances stabilize, given FY2021 operating cash use and substantial cash depletion.
- Whether the expected $7.8 million tax refund was received and how much of reported earnings growth reflects recurring operations versus PPP forgiveness and tax effects.
- Whether Customer Care’s growth is sustainable and whether Marketing Services can recover from client-budget pressure.
- Compliance with the borrowing-base and other credit-facility covenants, continued access to the stated $18.9 million availability, and the effect of variable rates.
- Future pension contributions and benefit-payment demands, and the sensitivity of the $54.3 million unfunded pension liability to actuarial assumptions and asset performance.
- Retention and diversification of major clients, including exposure to contract termination, concentration and collection risk.