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Operator
Good afternoon, ladies and gentlemen, and welcome to Hart Hanks' fourth quarter and full year 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rob Fink. Sir, the floor is yours.
Hart Hanks '
Thank you, Operator, and thank you, everyone, for joining us today for the Hart Hanks' fourth quarter and full year 2021 earnings conference call. Hosting the call today are Brian Linscott, Hart Hanks' CEO, and Lori Kearns, Chief Financial Officer. Before we begin, I would like to remind everyone that the information provided during this call may contain forward-looking statements about the company's strategy, financial outlook, business and industry expectations, anticipated performance and outcomes, and other statements that are not based on historical facts. Actual results may differ materially from those projected or implied in these statements because of the various risks and uncertainties, including those described in the company's Form 10-K and 10-Q and other filings with the SEC and the cautionary statement that was included in today's earnings press release. The call will also reference non-GAAP financial measures. Please refer to the earnings press release that was issued after the close today for a reconciliation of these and other related disclosures. The company's earnings release is available on the investor relations section of the Hart Hanks website at harthanks.com. With that said, I'd now like to turn over the call to Brian Linscott. Brian, the call is yours.
Brian Linscott
Thank you, Rob, and good afternoon. 2021 was a significant turning point for Hart Hanks. We completed our restructuring, implemented our asset-light operating model, and with a more efficient, significantly more profitable company. we listed our shares on the NASDAQ global market. We enter 2022 with a proven profitable business model, a portfolio of loyal tier one customers, and a business built upon value added service offerings that our customers demand. We are poised for profitable long-term growth, and I want to commend and thank all of our employees for the professionalism and passion from which they serve our clients every day. It is because of them that Hart Hanks is a stronger company. Since our last earnings call, we've continued to invest in our business to maximize profitability and drive growth. These investments involve hiring the right people, expanding our tech capabilities, and cross-selling our fully integrated service offerings. In early January, we hired Don Aiklin as Senior Vice President of Sales and Marketing. Don started his career with Hart Hanks, ultimately leading our national sales organization and established a new presence in automotive and consumer durables markets. Today, Don is driving our marketing campaigns in a variety of verticals and leading our sales efforts across all three segments. We are excited for him to return to the company in the senior leadership role. In February, we announced our expanded healthcare practice. under the experienced leadership of Janelle Harris. Janelle will be charged with expanding our practice of providing world-class service for our clients in the pharmaceutical, wellness, and healthcare industries. Over the past few years, we have built a robust healthcare practice, including relationships with top-tier customers like Abbott, GSK, Pfizer, and other national and state healthcare systems. Our proven ability to provide and execute Comprehensive and fully integrated programs, including patient insights, strategy, data analytics, marketing campaigns, customer care, member support, fulfillment, and logistics make us an ideal partner for healthcare organizations to accelerate growth and best service for customers. Our expanded healthcare practice is already delivering results. We were recently awarded a multi-year contract by a national healthcare organization to provide new mothers with products including breast milk pumps and health related materials. Our customer care segment will engage with its members and address inbound inquiries and our fulfillment logistics segment will distribute the breast milk kits to program participants from our new 410,000 square foot FDA approved facility in Kansas City. This contract is connected to the component of the Affordable Care Act designed to improve newborn nutrition and wellness. In the first year alone, the program is expected to deliver over 100,000 breast milk kits and materials to new and expecting mothers covered under the program. This win is a prime example of our comprehensive, fully integrated approach to serving our customers in a cost-effective way. Gleyhart Hanks provided services within discrete business silos, today we are bringing a multidisciplinary approach to satisfy our clients' complete customer engagement mission. We were selected by this large healthcare company based on our unique ability to provide end-to-end single source solution that includes everything from customer service and member engagement to product sourcing, inventory management, fulfillment and distribution, of wellness and nutrition kits. For this same healthcare system, our marketing services segment provides strategy analytics, campaign execution for the healthcare organization in select states, helping our client grow its membership base. Overall, this project truly touches every part of our organization, taking full advantage of our differentiated capabilities. It is a model for future large-scale engagements in healthcare and other industries. To facilitate such future engagement, we are investing in technology across our organization, enabling us to work smarter and faster, improving our data and analytics capabilities. In addition, these investments will allow us to eliminate manual processes and simplify and standardize how we work. We view our data and analytics expertise as a growth catalyst for Hart Hanks. as customers increasingly look to better utilize data to grow and improve their efficiency. We have significant capabilities in B2B tech, auto, consumer products, and retail, and we are investing to expand this area of our business. Another growth catalyst for Hart Hanks is in the financial industry. We have proven ability to provide a robust CRM agency solution and campaign strategy particularly with respect to mid-market banking segments. Our office involves solutions such as campaign strategy, design, digital delivery, execution, as well as printing and digital delivering of customized financial reports to customers. This growth area leverages several areas of expertise, including data and analytics, where our proven expertise with data privacy and our ability to cleanse, enrich, and augment data to enable data analytics predictive modeling is of significant value to our customers. Now on to our results. Our three operating segments delivered solid results, particularly in terms of contribution margin in the fourth quarter. As I've described before, our three customer segments include, number one, customer care focused on delivering full-service customer care solutions that are tech-enabled and people-driven. Fulfillment logistics focused on B2B markets and literature fulfillment, B2C e-commerce and sampling, and end-to-end supply chain and logistics services. And three marketing services, which is focused on strategic planning, data-driven insights, performance analytics, creative design, technology enablement, and program execution, to drive business outcomes and optimize customers' ROI. Our segment reporting is designed to provide transparency into the company's financials and visibility into the value and dynamics of each business. To begin, we ended the year with a strong fourth quarter, with revenues increasing over 10% to $52 million. More importantly, we moved from an operating loss in the fourth quarter last year to profitability this year. EBITDA for the quarter is a positive 3.5 million, which is an improvement of 3.1 million over the prior year. Going forward, we anticipate positive EBITDA for each quarter of 2022. We continue to drive financial operational improvements in each of our segments. Customer care revenue increased by 12.7% from the previous year. and year over year EBITDA improved 2.4% to 2.6 million from 2.5 million in the prior year quarter. We continue to benefit from some COVID-related project work, albeit at a lower runway. We anticipate reductions in this COVID work as we move through the first half of 2022. As we have said, we also expect further reductions in our customer care cost structure as our leases are expiring and we benefit from the work-from-home environment. We recognize and are adapting to the wage pressures in today's labor market by our recruiting flexibility in the work-from-home environment, which is allowing us to mitigate some of the wage pressures we see. New business wins for the quarter include, number one, a regional sports network to support customer interaction for their direct-to-consumer product launch. Hart Hanks will build the self-service solution and support phone, email, chat, and text customer interactions as we leverage our streaming industry experience. A company with advanced e-commerce social cart also selected us to invite its customers into their transaction experience. Hart Hanks will assist customer interactions and digital ticket distribution as we leverage our experience handling sports and entertainment customer experiences. And third, we were hired by a consulting company's government practice, and they selected Hart Hanks to support unemployment interactions and claims processing for a state government. Hart Hanks was selected due to our top performance in the vendor network. Fulfillment and logistics revenue increased approximately 3.6 million or approximately 25% compared to the previous year. And EBITDA improved to 2.1 million from essentially break even the prior year quarter. With the consolidation of fulfillment operations in our FDA approved Kansas City facility, we anticipate continued margin improvement into 2022. And we have added approximately 100,000 square foot feet of operating capacity to serve organic client growth as well as new business. We continue to grow in spite of supply chain challenges, largely due to the critical nature of stored products in our facilities and the sales enablement materials critical to our client's success. The additional capacity in our locations also serves as growth opportunities. In addition, we have been largely successful in mitigating the impacts of higher transportation costs due to longstanding and deep relationships in the transportation and trucking industry. New business wins for the quarter included one, expanding our partnership with the healthcare and nutrition company, winning a $1 million plus program to fulfill pre-built sample kits to pediatrician offices nationwide. And two, a long-standing retail customer selected Hart Hanks to manage and deliver time-sensitive print materials on additional distribution lanes due to our on-time performance and low-cost pricing. Marketing services EBITDA rose by half a million dollars, or about 26% compared to last year. As previously stated, we have driven improved profitability from marketing services segments as we have realigned our resources, reduced our SG&A expenses, and invested in technology and infrastructure to better serve our customers. We remain aggressively focused on our marketing efforts to attract new customers within prioritized market categories, including healthcare, financial, B2B tech, and consumer products. We have made significant progress in our marketing Our product offerings, including strategy, data analytics, CRM agency services, and marketing enablement capabilities. New business wins for the quarter include one, a global multinational technology manufacturer chose Hart Hanks to implement and execute a full service omni-channel demand generation program. Hart Hanks was selected because of its wide variety of solutions and services required to execute the campaign. The program leverages analytics, creative marketing services, media buys, and outbound calling lead generation. And second, an existing client that distributes salon professional products where we provide data-driven marketing strategy to drive top line sales through a customer loyalty and B2B beauty space. We increased our existing strategy and analytics remit after we helped them achieve $1.4 billion in annual sales. In conclusion, this was a strong and productive and encouraging year, reflecting significantly improved operating efficiency and continued momentum in the business. Recent new business wins and a strong and growing pipeline of vetted near-term opportunities give us confidence that our revenue level will remain in line with 2021. More importantly, We remain optimistic in our ability to continue to drive increased profitability. We expect continued positive net income and significant year-over-year improvement in full-year EBITDA, driving higher free cash flows during 2022. With that, I turn it over to Lori.
Rob
Thank you, Brian. As Brian said, this was a strong end to a momentous year for Hart Hanks. and we entered 2022 in our strongest financial position in years. We achieved our fourth consecutive quarter of year-over-year revenue growth and our operating income of $2.9 million was a $3.2 million positive swing. The December quarter was our seventh quarter in a row of positive adjusted EBITDA at $5.3 million. Our performance included new business wins and the benefits of our asset light model. We continue to focus on streamlining and optimizing the business to meet the needs of the market today, and we are encouraged by our results. That said, the large non-operational restructuring charges are now behind us. I'd now like to walk through the results in more detail. Fourth quarter revenue was $52 million. up 2.4 million sequentially from the third quarter and up 4.9 million or 10.4% from 47.1 million in the same period last year. Revenue growth was led by our customer care and fulfillment and logistics segments. Customer care was up 2.2 million or 12.7% year over year as a result of several large COVID-related projects that we expect to wind down over the first half of 2022. Fulfillment and logistics services was up 3.6 million, or 24.5%, and marketing services was down 0.8 million, or negative 5.4%. From a contribution margin perspective, our customer care segment delivered 2.6 million in EBITDA. up 0.1 million or 2.4%. Our fulfillment and logistics services segment delivered 2.1 million in EBITDA, up significantly from 30,000 in EBITDA in the year-ago quarter. And our marketing services EBITDA grew by 0.5 million despite lower segment revenue due to our efforts to right-size the cost structure of this business. We believe each of our three operating segments is now appropriately sized for current volumes and should operate at positive EBITDA levels for the foreseeable future. In addition, as leases begin to expire, we believe there is additional leverage we can take advantage of in our cost structure. Our operating expenses for the fourth quarter were $49.1 million. up from $47.4 million in the year-ago quarter due to increased revenue. We reduced expenses in advertising, selling, general and administrative costs by $1.3 million. Operating income was $2.9 million, up from an operating loss of $0.4 million in the year-ago quarter. This improvement is attributed primarily to our revenue growth and sustained expense management efforts. We posted net income of 1.8 million or 20 cents per both basic and per diluted share in the fourth quarter compared to net income of 1 million or 12 cents per basic and 11 cents per diluted share in the fourth quarter last year. EBITDA for the fourth quarter was 3.5 million compared to 0.3 million in the year-ago quarter. Our progress is even more impressive when looking at the full year financial results. 2021 revenue was 194.6 million, up 10% from 176.9 million last year. Our operating expenses for the year were 187 million, down from 187.5 million last year. Operating income was 7.6 million, up from an operating loss of $10.6 million last year, a positive swing of more than $18 million. We posted net income of $15 million or $1.85 per basic and $1.76 per diluted share compared to a net loss of $1.7 million or $0.34 per basic and diluted share last year. Our net income for the year benefited from a one-time gain on the forgiveness of our PPP loan. However, the prior year benefited from a similar size tax benefit. So the significant improvement in our net income compared to net losses last year largely reflects true improvement in our business. To further validate this point, EBITDA for the full year 2021 was $18 million compared to $3.2 million in the full year 2020. Now turning to our balance sheet. As of December 31, 2021, we had cash and cash equivalents of 11.9 million. This compares to a cash balance of 29.4 million as of the period ended December 31, 2020. As of December 31, 2021, we have 7.5 million in net income tax receivable. This is due to our net operating loss carrybacks for 2020 of $7.8 million, which are partially offset with state tax payables. We expect to receive the funds for our net operating loss carrybacks in Q1 of this year. As of December 31, 2021, we had $5 million drawn against our $25 million credit facility. With that, I will turn it back over to the operator to take your questions. Thank you.
Operator
Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions.
spk01
Thank you.
Operator
Your first question is coming from Michael Kapinski from Noble Capital. Your line is live.
Michael Kapinski
Thank you. I was wondering if you can just kind of give us an outlook in terms of the tone of the market in general, especially now with the market environment that we're seeing. I was wondering if you can do that. And then also, I know that the company has gone through a lot of expense cuts. And in light of inflationary pressures and things like that, if you can kind of just kind of Give us an expense outlook as we go into 2023. Sure. Thanks.
Brian Linscott
Thanks, Mike, for the question. So I think the market environment obviously today was probably not the greatest day to have an earnings call given the kind of turmoil in Ukraine. That said, I will say that we've had a lot of positive momentum with a growing amount of opportunities that we are pursuing. And so, you know, I'm optimistic about our short-term prospects and excited about, you know, continued improvement, you know, on the revenue side. And then with respect to the cost side, you know, it's very clear that we're through the restructuring efforts and we've got a much improved cost structure poised and set for going into 2022. And so... You know, it's exciting for me, and I think that we've got great opportunity on the revenue side, and we're a leaner and meaner organization on the cost side, which I expect to continue to generate some improved bottom line EBIT as a result.
Michael Kapinski
I know that the company was thinking about, you know, looking at more conventional financing terms and things like that. And I'm sorry if you addressed this earlier. I got late on the call. Where are the prospects in terms of maybe doing a refi? And then you obviously have a building cash flow situation. What are the prospects? What are you thinking in terms of capital allocation? And maybe if you could talk about whether or not you're looking at M&A and that sort of thing as well.
Brian Linscott
Yes. So thanks for the question, Mike. I'll try it and Laurie can chime in as well. But in December, we actually... we got a traditional credit facility of $25 million in place. And so where we're at right now at the end of the year, I think as Lori had mentioned, is $5 million drawn on that $25 million credit facility. So we're in a conventional lending agreement. And as far as use of cash, As we come in and hopefully continue to generate positive free cash flow and build some cash in the short term, our objectives are really to pay down so that we're debt-free, number one. And number two, you know, continued measured investments in technology in some areas that we find for organic growth. And then if there's selective inorganic opportunities that come our way, we're always open to kind of reviewing and looking. Our first priority now is pay down the debt, and the second is continued investment in our people and our technology.
Michael Kapinski
Okay, great. Thanks for taking my questions. I appreciate it. Sure, no problem.
Operator
Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time.
spk01
Please hold while we poll for questions. Thank you. There are no further questions in the queue.
Operator
I will now hand the conference back to Brian Linscott, CEO of Hard Hanks, for closing remarks. Please go ahead.
Brian Linscott
I just want to thank everyone for joining us this afternoon. I certainly look forward to our next earnings call. Have a good evening.
Operator
Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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