Harte Hanks, Inc. Q4 FY2023 earnings call

• Elevate program focus on sustained profitable growth, expanding relevance, operating efficiently, attracting talent, and leveraging AI capabilities.
• New Senior Vice President for Sales and Marketing, Kelly Waller, modernized and expanded sales and marketing organization, including hiring for international expansion and partnership network.
• Engaged Kearney for cost structure optimization, identified $16 million in cost reductions over two years, with $6 million in 2024. Created transformation office led by David Fisher.
• Care Group leveraging Amazon Connect for AI-enabled solutions. Sales services anticipating rebound in 2024. Marketing Services focusing on business plan and strategy. Fulfillment and Logistics anticipating stable to up year with focus on partnerships and margin improvement, and Fulfillment division capitalizing on trends like value-added fulfillment, influencer seeding, etc.
• Extended $25 million line of credit to June 2025, no debt, on track to terminate Pension Plan 1, year-end cash position $18.4 million.

Fourth quarter revenues were $49.5 million, a decline of 9.7% compared to $54.8 million in 2022. Customer Care segment revenues in Q4 2023 were $17.7 million, up from $16.7 million in prior year and $14 million in Q3 2023. Sales services increased $1.4 million compared to 2022. Marketing Services segment revenues in Q4 2023 were $10.5 million, down from $13.6 million in prior year and $10.6 million in Q3 2023. Fulfillment and Logistics revenues in Q4 2023 were $21.3 million, down from $24.5 million in prior year and $22.5 million in Q3 2023. For 2023, total revenue was $191.5 million, a 7.2% decline from 2022. Customer Care segment 2023 revenues were $63.3 million, down 5.8% from prior year. Sales services had an $8.7 million revenue increase. Marketing Services segment 2023 revenues were $43.2 million, down 18.4% from prior year. Fulfillment and Logistics 2023 revenues were $85 million, down 1.3% from prior year.

• Expect operating expenses as a percentage of revenue to decline in 2024 compared to 2023.
• Plan to incur approximately $3.5 million in expenses for Project Elevate savings plan in 2024.
• Extended $25 million line of credit to June 2025.
• Target to terminate Pension Plan 1 in spring 2024 with a pension termination contribution of $7.5 million at the end of the second quarter.

Q: First of all, congratulations. You beat revenues, you beat adjusted EBITDA, and your cash is much bigger than expected. A couple of questions. Wanted to go back on partnerships. Elaborate on significance, how they work, get paid.

A: This is Kirk. B2B companies can see 30-40% of revenue from partnerships. Partnerships based on competitive differentiation, scaling and growth, alignment with product strategy. Example: partnering with a VC firm with a mobile wallet using AWS Connect capabilities. Another example: partnering with sales consultancies.

Q: Talked about international expansion. What's the opportunity in developing business internationally?

A: Sure. Execute well in Europe, hired talented leader to grow business, participated in high profile conferences in Europe to develop pipeline. Combination of staff in U.S. under centralized leadership will be a big win in 2024.

Q: Of your three different segments, what do you think has the biggest opportunity in 2024 to surprise on the upside?

A: Great question. Confident in growth year, rebound in sales services. Also Care and Fulfillment Logistics divisions. Depends on pipeline and conversion, with progress in sales momentum and enhanced marketing efforts.