Harte Hanks, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Harte Hanks provides customer-experience services through Marketing Services, Customer Care, and Fulfillment & Logistics Services. Unless otherwise noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $48.6 | $49.3 | $97.6 | $93.0 |
| Operating income | $4.0 | $1.4 | $7.9 | $0.6 |
| Operating margin | 8.3% | 2.9% | 8.1% | 0.6% |
| Net income | $4.5 | $10.6 | $7.8 | $8.8 |
| Diluted EPS | $0.52 | $1.27 | $0.91 | $1.05 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $9.9 | $(4.7) |
Q2 revenue declined 1.4% year over year, while first-half revenue increased 4.9%. Operating income improved substantially in both periods as operating costs fell and restructuring charges ceased. Net income declined year over year, principally because Q2 and first-half 2021 included a $10.0 million PPP loan forgiveness gain; the 2022 periods did not.
For the first half, production and distribution costs rose $5.0 million, largely from transportation and outsourced costs supporting increased logistics revenue. Labor expense fell $3.5 million, partly reflecting lower Customer Care revenue. No restructuring expense was recorded in 2022; 2021 included $3.9 million for the first half.
Segments and material changes
- Fulfillment & Logistics Services: Q2 revenue rose 24.3% to $19.7 million; first-half revenue rose 26.3% to $38.1 million. Growth from new and existing customers lifted first-half operating income to $5.2 million from $2.5 million.
- Customer Care: Q2 revenue fell 19.8% to $15.4 million and operating income declined to $2.3 million from $3.1 million, mainly on lower existing-customer volumes. First-half revenue fell 7.3% to $33.1 million, while operating income was broadly flat at $5.6 million.
- Marketing Services: Q2 revenue fell 5.3% to $13.5 million; first-half revenue fell 2.6% to $26.4 million, reflecting lower existing-customer volumes. Cost reductions helped improve operating income.
Liquidity, debt and other key items
- At June 30, cash and cash equivalents were $10.6 million and restricted cash was $2.3 million. An additional $9.9 million was held in escrow for the proposed preferred-stock repurchase; cash, cash equivalents and restricted cash plus escrow totaled $22.8 million.
- First-half operating cash flow was $9.9 million, compared with cash used of $4.7 million in 2021. Investing activities used $3.6 million, including higher capital spending; financing activities provided $4.5 million, including $5.0 million of new borrowings. Capital expenditures were $3.6 million in the first half.
- Revolver borrowings were $10.0 million, up from $5.0 million at year-end 2021. The company reported $14.0 million of additional borrowing availability under its $25.0 million asset-based facility, which matures December 21, 2024. The June 30 interest rate was 3.74%; the company reported covenant compliance.
- Total current assets were $83.9 million and current liabilities were $41.7 million. Lease liabilities totaled $21.9 million. Pension liabilities were $50.7 million across qualified and nonqualified plans.
- The company expects approximately $5–6 million of capital expenditures in 2022, mainly for a new ERP system and Kansas City facility expansion. It also expected to receive an additional $7.6 million tax refund in 2022 related to a 2020 NOL carryback.
Outlook, risks and contingencies
Management gave no specific revenue or earnings guidance. It said it anticipated continued positive momentum absent significant economic shocks, while cautioning that this was not assured. Management cited ongoing competitive pressure, inflation and wage pressure, higher transportation costs, and uncertainty related to COVID-19, global economic conditions, and geopolitical events. Marketing budgets are discretionary and may be reduced by customers. Management said inflation had not materially affected the business to date but could affect customers and, in turn, the company.
On June 30, the company agreed to repurchase Wipro’s 9,926 Series A preferred shares for $9.926 million in cash plus 100,000 common shares. The cash was placed in escrow; closing was subject to customary conditions, including resolving escheatment status, and was expected in Q3 2022. The preferred stock carries cumulative liquidation dividends; the filing reported $2.2 million accrued as of June 30.
Management stated that it believed liquidity would meet short- and medium-term needs and that no conditions raised substantial doubt about going concern for the following 12 months. The filing described ordinary-course legal matters and indemnification obligations; management considered material loss beyond recorded accruals remote. A potential PPP audit risk remains disclosed, although the $10.0 million loan was forgiven in 2021. The company reported no material changes to previously disclosed risk factors, and disclosure controls were considered effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether the Wipro preferred-stock repurchase closed, and the resulting cash, share-count, dividend, and governance effects.
- Whether logistics growth can persist and offset continued weakness in Customer Care and Marketing Services.
- Revolver availability, borrowing-base capacity, variable interest costs, and continued covenant compliance.
- Actual 2022 capital expenditures and receipt of the expected $7.6 million tax refund.
- Effects of transportation costs, wage and inflation pressures, customer budget changes, and broader economic or pandemic developments on margins and demand.