Harte Hanks, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Harte Hanks provides customer experience services through Marketing Services, Customer Care, Sales Services, and Fulfillment & Logistics Services. Sales Services became a separate reportable segment in 2024; comparative segment results were restated.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $45.4 million | $47.1 million; down 3.5% |
| Operating expenses | $45.1 million | $46.1 million; down 2.2% |
| Operating income and margin | $0.4 million; 0.8% | $1.1 million; 2.2% |
| Net loss and diluted loss per share | $0.2 million; $0.02 | $0.8 million; $0.11 |
| Cash from operating activities | $(5.7) million | $1.7 million |
| Capital expenditures | $0.5 million | $0.6 million |
| Cash and cash equivalents at March 31 | $11.5 million | $18.4 million at December 31, 2023 |
| Total assets / stockholders’ equity at March 31 | $113.4 million / $20.0 million | $122.8 million / $19.9 million at December 31, 2023 |
Operating cash flow less capital expenditures was approximately negative $6.2 million. Cash, cash equivalents, and restricted cash totaled $12.0 million at quarter-end, including $0.5 million held in escrow. The company had no borrowings under its revolving credit facility and reported $24.0 million of available borrowing capacity. The $25 million asset-based facility is secured by substantially all company and guarantor assets, bears interest at SOFR plus 2.25% (7.68% at March 31), and matures June 30, 2025. Lease liabilities totaled $27.3 million. Current liabilities were $40.2 million and current assets were $57.8 million.
Q1 restructuring expense was $0.9 million. The reported income tax benefit was $0.1 million, with an effective tax rate of 29.3%. The filing does not provide a clear standalone gross-margin figure.
Material changes and segment results
- Marketing Services revenue fell 20.6% to $8.9 million, which management attributed to reduced marketing spend and the loss of a customer. Operating income declined to $0.8 million.
- Customer Care revenue rose 7.0% to $12.4 million, primarily from increased project work; operating income increased to $2.4 million.
- Sales Services revenue grew 67.3% to $4.7 million, primarily from work for a new customer; operating income increased to $0.9 million.
- Fulfillment & Logistics Services revenue fell 9.5% to $19.4 million, primarily due to lower volume from existing customers; operating income declined to $1.3 million.
- Consolidated operating income declined despite lower operating expenses. Other expense fell to $0.6 million from $2.4 million, mainly reflecting changes in foreign currency gains and losses.
- Cash declined $6.9 million from year-end. Operating cash flow was pressured by changes in accounts payable and accrued expenses, other current assets, and receivables and contract assets.
Outlook, risks, and unusual items
- Project Elevate: The transformation program targets optimization of resources and reinvestment in sales and marketing, technology, and strategy. Estimated reorganization savings are up to $16.0 million; the filing describes the savings period inconsistently as 2024–2025 in MD&A and 2024–2026 in the notes. Management expects total restructuring charges of $10.1 million through the end of 2024. It reported $5.7 million of restructuring charges in 2023 and $0.9 million in Q1 2024.
- Liquidity outlook: Management said it believes available resources will meet liquidity requirements and fixed obligations, and reported no conditions raising substantial doubt about going concern for the 12 months following issuance. It noted alternative liquidity could be needed if unforeseen circumstances arise.
- Business risks: Marketing budgets are discretionary and may be reduced by clients. Management is monitoring inflation and wage pressure; it said inflation had not materially affected the business to date but could affect clients and demand. Transportation costs may pressure margins and future demand.
- Pensions: The company expects a $2.0 million contribution to its combined qualified pension plan in 2024, of which $0.3 million was contributed in Q1. It also expects a $7.6 million cash contribution to terminate Qualified Pension Plan I and transfer obligations to a third party; the termination process is expected to take approximately 18 months.
- Contingencies: The company disclosed ordinary-course legal matters and client indemnification commitments whose maximum exposure is not reasonably estimable. Management said appropriate accruals were recorded and viewed material losses beyond accrued amounts as remote.
- No specific revenue or earnings guidance was provided. Management cited ongoing geopolitical and economic uncertainty; forward-looking statements are subject to risks and uncertainties.
Key facts for investors to verify
- Whether Project Elevate delivers the stated savings, and how much additional restructuring cost is incurred; clarify the differing savings timelines in the filing.
- Whether operating cash flow improves and cash remains adequate given the Q1 outflow, pension contributions, and lease obligations.
- Availability under the borrowing-base facility, compliance with its covenants, and refinancing or repayment plans before its June 2025 maturity.
- Whether growth in Customer Care and Sales Services can offset declines in Marketing Services and Fulfillment & Logistics, including the impact of customer concentration and the Marketing Services customer loss.
- Actual cost and timing of the Qualified Pension Plan I termination and required pension contributions.