Harte Hanks, Inc.

Good day, and welcome to your Hart-Hanks first quarter earnings call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to Tom Bauman of FNKIR. The floor is yours.

Thank you. Hosting the call today are Brian Linscott, Chief Executive Officer, and Lori Kearns, Chief Financial Officer. Before we begin, I want to remind participants that during the call, management's prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. In addition, any projections as to the company's future performance represented by management include estimates as of today, May 12, 2022, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures, are available in the earnings press release that was issued shortly after the market closed. A copy of that press release and other corporate disclosures are available in the investor relations section of Hart Hanks' website at harthanks.com. With that, I would now like to turn the call over to Brian. Brian, the call is yours.

Thank you, Tom, and good afternoon. This was a very strong start to 2022 with growth across all three of our operating segments and meaningful improvement in profitability, including $0.39 of fully diluted earnings per share. The results validate our shift to an asset-light model, shedding unprofitable offerings and instead focusing our resources on the business offerings that provide our company and its shareholders with the highest potential return. With our restructuring fully behind us, the new Hart-Hanks is much more efficient, highly profitable, and well positioned for growth. The solutions we provide our customers are in demand, leading to opportunities with new and existing customers. While the last of our pandemic-related projects conclude, we are increasingly confident in our growing pipeline and in our project opportunities. We anticipate 2022 to be a year of healthy margin expansion, and we remain cautiously optimistic that 2022 will be a year of flat to modest revenue growth, noting our revenue growth is likely to be weighted for the first part of the year. Hart Hanks has integrated relationships with sophisticated customers, especially in healthcare, B2B tech, TPG, and streaming categories. we are increasingly focused on data-centric, industry-leading solutions to effectively enable and create optimal customer experiences. Our offerings are in demand, and Hart-Hanks is a valued partner built into customer workflows and not easily replaced. Beyond the sticky revenue and long-standing customer relationships, we are bidding on and winning incremental opportunities with customers to attract, retain, and service their clients. We are poised for sustainable, profitable, and long-term growth to maximize shareholder value, and we continue to invest in our business. These investments include, but are not limited to, hiring and retaining talented people, improving our technology platforms, and expanding partnerships to enhance market opportunities which will allow us to better cross-sell our fully integrated service offerings. We believe these investments will fuel margin expansion through improved cross-functional leverage and incremental growth within our new and existing customer base through deeper penetration and increased wallet share. In the short term, during 2022, we expect to deliver margin expansion and greater profitability. Longer term, we believe we can sustain solid revenue growth while expanding the bottom line. As an example, Hart Hanks Fulfillment Logistics fulfills various consumer products for a customer out of our FDA-approved Kansas City facility. After one of this customer's products experienced an issue with production, Hart Hanks was retained to isolate the products stored in our facility and to facilitate mailings from our East Bridgewater facility to end users, notifying them of the product-related issue. In addition, Hart-Hanks customer care team proactively onboarded over 200 agents to assist our customer with end user questions and to facilitate product returns. Our Hart-Hanks team worked around the clock on an expedited basis to effectively respond to a customer's needs. For this effort, I want to thank our Hart-Hanks team for developing real time creative solutions to a time sensitive business issue. The passion and focus we have for our customers and our ability to rapidly implement solutions to business problems is a large reason why we have longstanding relationships and we are growing our pipeline. This proven ability to develop and execute comprehensive, fully integrated programs and solutions makes us an ideal partner for sophisticated organizations to best service their clients and to address our customers ever evolving business needs. Separately, our data collection and analytics capabilities are increasingly important. We view this area as a catalyst for growth. We are investing in technology across our organization to expand this differentiator with the goal of enabling us to work smarter and faster and to give our customers new ways to utilize and analyze data that we uniquely possess. Hart-Hanks Technology Analytics and reporting expertise creates better clarity for our customers' business needs and provides deeper insights into their clients. Under Don Aiklin's sales and marketing leadership, Hart Hanks is expanding our marketing campaigns, SEO and paid search, conference participation, and channel partnerships. As part of our investment in sales and marketing, we have significantly grown our pipeline. We've re-engaged with former customers, former employees, and engaged with new prospects to expand our opportunities. Understanding sales cycles vary by segment. We remain cautiously optimistic about our growth opportunities in spite of the challenging economic environment. Now on to the results. Our three operating segments each delivered growth and expanded contribution margin in the first quarter. Our three segments are as follows. Customer care focused on delivering full service customer care solutions that are tech enabled and people driven. Fulfillment and logistics focused on B2B product and literature fulfillment, B2C e-commerce and sampling, and end-to-end supply chain and logistics services. And third, marketing services focused on strategic planning, data-driven insights, performance analytics, creative design, technology enablement, and program execution to drive business outcomes and optimize our 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, the first quarter of 2022 included a 12% year-over-year growth in revenue to $49 million. and a more than $5 million positive swing in quarterly net income. Hart-Hanks is now solidly profitable on a GAAP basis. Net income for the quarter was 3.3 million, and EBITDA for the quarter was 4.5 million, which is an improvement of 4.7 million over prior year first quarter EBITDA. We continue to expect profitability, both in terms of EBITDA and GAAP net income, for each quarter. of 2022. We continue to drive financial and operational improvements in each of our operating segments. To start with customer care, our revenue increased 7% from the previous year over year, and year over year EBITDA improved 33% to 3.5 million from 2.6 million in the prior quarter. We continue to benefit from COVID-related project work, albeit at a much lower run rate. And during the quarter, we benefit from the emergency work related to a client consumer product issue. We expect reductions in the COVID work as we move through the first half of 2022, but we anticipate replacing much of this revenue loss. The customer care revenue pipeline remains strong with near-term opportunities to expand our demand generation services and further penetrate the B2B tech, CPG, and streaming verticals. We also expect further reductions in our customer care cost structure with our asset light operating model and work from home environment. We recognize and are adapting to the wage pressures in today's labor market, but our recruiting flexibility in the work from home environment allow us to mitigate some of the wage pressures. In addition to the new business wind described earlier on our call, customer care secured additional new business wins, including a premium television network, expanded its services with Hart-Hanks customer care from an event basis to serving ongoing steady-state work. This transition of work was enabled by the consistent delivery and strong customer satisfaction performance led by our Hart-Hanks team in the Philippines. On to fulfillment and logistics, Revenue increased approximately $4 million, or 28%, compared to the first quarter last year, and EBITDA doubled to $2.4 million. With the consolidation of our fulfillment operations in the Kansas City facility, we anticipate continued margin improvement throughout 2022. We remain optimistic about our pipeline and the fulfillment logistics. including growth opportunities in CPG, financials, travel, healthcare, and retail verticals, in spite of inflationary and supply chain challenges. New business wins for the quarter included a large nutritional CPG partner engaged Hart Hanks to fulfill and distribute custom sample kits of their top-selling nutritional drinks to key customer demographics. Second, A growing e-commerce alternative to Amazon hired Hart Hanks to manage all middle-mile freight for dozens of top-selling brands. Hart Hanks was selected to manage this multimillion-dollar account based on our competitive pricing, technology platforms, and comprehensive service. Lastly, marketing services. Revenue increased. slightly to 12.9 million, but EBITDA improved by nearly 900,000, or 151%, to 1.5 million. As previously stated, we have driven improved profitability from the marketing services segment 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 marketing efforts and attracting new clients within prioritized market categories, including healthcare financials, B2B tech, and consumer products. Our marketing services revenue pipeline remains strong and includes diversified opportunities with data and analytics, agency services, and campaign design and execution. New business wins for the quarter included a targeted healthcare marketing platform for the pharma industry, Selected Hart Hanks and our data solutions team to secure and enhance targeted lists with a wide array of health conditions to enable our client to provide disease state and therapy specific educational content that powers more productive patient decision dialogues at every step of the patient journey. Second, a global technology manufacturer chose Hart Hanks for our proprietary knowledge to expand its customer base in North America and identify those customers who have an imminent intent to purchase. Using our expertise, we identify individuals as they digitally search for products and services, and we assist our client deliver on-target product messaging. Hart Hanks was selected because of our wide variety of data and predictive modeling solutions, which are essential to the execution of targeted marketing campaigns. In conclusion, this was a strong start to what we expect to be a breakout year for Hart Hanks. Our optimism for top-line growth has increased, and we are confident in our ability to deliver sustainable profitability. We expect continued positive net income with a significant year-over-year improvement in full-year EBITDA, driving higher free cash flows during 2022. And with that, I will turn it over to Lori.