Harte Hanks, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Dollar amounts are in millions unless otherwise noted. Harte Hanks provides customer experience services through Marketing Services, Customer Care, and Fulfillment & Logistics Services.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $49.6 | $47.7 | $142.6 | $129.8 |
| Operating income (loss) | $4.2 | $0.8 | $4.8 | $(10.2) |
| Operating margin | 8.5% | 1.6% | 3.3% | (7.9)% |
| Net income (loss) | $4.4 | $(1.6) | $13.2 | $(2.7) |
| Diluted EPS | $0.52 | $(0.27) | $1.57 | $(0.48) |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $(5.9) | $(11.4) |
- Q3 revenue rose 4.0% year over year; nine-month revenue rose 9.8%. Nine-month operating results improved by $15.0 million versus 2020, while the period’s $13.2 million net income included a $10.0 million gain from forgiveness of the PPP loan.
- At September 30, cash and cash equivalents were $16.0 million, restricted cash was $2.6 million, and total debt was $13.1 million. The company reported $0.8 million of additional borrowing availability under its $15.0 million revolving facility. The facility matures April 17, 2023; the company reported covenant compliance.
- Current assets were $82.5 million and current liabilities $42.4 million. Total liabilities were $141.1 million, including $64.3 million of pension liabilities and $24.2 million of lease liabilities. Stockholders’ deficit was $38.4 million.
- Nine-month capital expenditures were $2.5 million. Cash and restricted cash declined $14.9 million from year-end 2020 to $18.7 million.
Changes versus the prior comparable period
- Customer Care was the principal growth driver: revenue increased 10.2% in Q3 and 33.3% year to date, attributed to new and extended project work and increased volumes from existing clients.
- Marketing Services revenue declined 3.2% in Q3 but was up 0.3% year to date. Fulfillment & Logistics Services revenue increased 3.8% in Q3 and declined 2.6% year to date, partly reflecting the removal of direct-mail operations.
- Operating expenses declined 3.3% in Q3 and 1.6% year to date. Lower restructuring, production/distribution, and depreciation costs were partly offset by higher labor costs, particularly in Customer Care.
- Nine-month restructuring expense fell to $4.9 million from $8.0 million. The prior-year comparison also included a $12.9 million income-tax benefit associated with CARES Act loss carrybacks; 2021 tax expense was $1.0 million.
Outlook, commentary, risks, and unusual items
- Management expected to incur approximately $1.0 million of additional restructuring charges through year-end 2021, completing an estimated $27.1 million total program. Actions included facility changes and operating-footprint reductions.
- Management stated it expected available cash, operating cash flow, and revolver borrowings to meet liquidity needs and fixed obligations for at least the next 12 months, and that it saw no conditions raising substantial doubt about going concern. No specific revenue or earnings guidance was provided.
- The company said COVID-19 had not materially affected operations or liquidity to date, but warned that variants, economic effects, customer budget reductions, payment accommodations, and customer bankruptcies could adversely affect results, cash flows, and financial position. Customer Care benefited from pandemic-related demand.
- Other risks include discretionary client marketing budgets, competition, transportation cost changes, and the possibility that cost savings will not offset longer-term revenue declines. Management disclosed no material change to the risk factors in its 2020 Form 10-K.
- Ordinary-course legal matters and client indemnification obligations remain; management considered material losses beyond recorded accruals remote, though maximum exposure for certain indemnities was not reasonably estimable. A favorable $0.8 million litigation settlement benefited nine-month segment results.
Investor facts to verify
- Whether operating cash flow turns positive and whether receivables growth continues to consume cash.
- Whether Customer Care growth and margins persist beyond pandemic-related and project-based demand.
- Completion and cash costs of the restructuring program, including the remaining estimated $1.0 million.
- Actual receipt of the expected $7.6 million tax refund and its effect on liquidity.
- Revolver availability and covenant compliance, given only $0.8 million of reported additional borrowing capacity at quarter-end.
- The extent to which reported 2021 earnings depend on the one-time $10.0 million PPP forgiveness gain.