Harte Hanks, Inc.

Good afternoon, everyone, and welcome to the Hart-Hanks Fourth Quarter and Full Year 2023 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, Tom Bauman. Sir, the floor is yours.

Thank you. Hosting the call today are Kirk Davis, Chief Executive Officer, and David Garrison, 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, March 14, 2024, and the company assumes no obligations 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 disclosure is available on the investor relations section of the Hart Hanks website at harthanks.com. With that, I would now like to turn the call over to Kirk. Kirk, the call is yours.

Thank you, Tom. To our listeners, good afternoon and thank you for joining our call. With me today in our Chelmsford, Massachusetts office is David Garrison, our Chief Financial Officer. Today I'd like to focus on Elevate, our end-to-end transformation program, which has been my primary focus since joining Hart Hanks in June. The program is anchored by our intent to achieve sustained profitable growth, expand our relevance, operate more efficiently, and attract talent, which we all know is easier when you're growing. We're also focused on the transformative opportunities enabled by burgeoning AI capabilities. Last August, we commenced a comprehensive review of our sales and marketing organization and our go-to-market strategy. it was evident we were functioning with an antiquated strategy, an ineffective structure, and investing too little in marketing and demand generation. In October, we welcomed a new Senior Vice President for Sales and Marketing, Kelly Waller, who has modernized and expanded our marketing and sales organization. She has just completed our restaffing and reorganization by hiring a sales executive to lead international expansion and another to establish our partnership network. It's not uncommon for B2B companies to generate as high as 30% of their revenue through partnerships. Partnerships will be a material growth driver for us long term. Other sales channels we're capitalizing on include our participation in high-profile business development events, engagement with business development companies, and the creation of our own dedicated inside sales team focused exclusively on our offerings. We've swiftly developed a smart go-to-market strategy and attracted a larger, highly talented staff that will position Hard Hanks for sustainable growth. Last October, we appointed a new interim CFO, David Garrison, who has subsequently become permanent in the role. We've had some early successes amidst Dave's transition. He's a welcome addition to our team. Our last earnings call, I explained we were committed to developing a comprehensive understanding of our potential to optimize our cost structure and better leverage technology investments. In October, we engaged the Kearney Organization, an international global consulting firm that specializes in business transformation, to augment and accelerate our efforts. Executive and middle management team leaders have done an extraordinary job engaging with Kearney and investing their time in over 200 diligence and discovery sessions. As a result, we have identified approximately $16 million in cost reductions to implement over two years, of which an estimated $6 million will occur in 2024. To sustain and drive this effort, we recently announced the creation of a transformation office to be led by David Fisher. As Chief Transformation Officer, David will oversee all elevated initiatives aimed at achieving our cost capture opportunity, maximizing our return on invest to save projects, our enterprise-wide AI roadmap, and ensuring our highly valued employees are engaged and aware of what we're working toward and why it is important. To enable Project Elevate, We've taken a restructuring charge of $5.7 million in 2023, which David Garrison will elaborate on. As we are early in 24, I would like to provide a glimpse of what we are focusing on within our specific business units. Our care group, led by Ben Chaco, along with our technology leaders, are focused on leveraging our Amazon Connect cloud-based technology to to begin provisioning customized AI-enabled solutions for existing and prospective customers. Our care division should be a strong beneficiary of our focus on establishing new partnerships. In sales services, under new leadership as of November, we have entered our second full year post-acquisition of Inside Out. Through this division, we can drive performance for companies by providing outsourced demand generation and sales. We are anticipating a rebound in revenue in 2024 in sales services. Through our marketing services division, we offer a variety of marketing capabilities and services ranging from strategy, creative, content development, account-based management, and digital marketing. We also offer marketing as a service, whereby we recruit and deploy staff to support major companies with their internal marketing and digital services. We envision a highly transformative year in our agency services segment. Our business plan and strategy are areas we are currently focused on. This segment could become a growth catalyst for us. When we're involved in strategic planning with clients, it is our first and best opportunity to provide a wider range of services to the client. So we look forward to developing our plan to reposition and grow this division. In our logistics division, which is led by Patrick O'Brien, we anticipate a stable to up year and plan to focus on expansion through strategic partnerships and margin improvement. Our fulfillment division, also led by Pat, with major facilities in Massachusetts and Kansas City, is poised to capitalize on several trends in 2024 that we are leaning into, such as value-added fulfillment, where we are seeing success in custom sellable kits we are packaging for major retailers. We expect growth year-over-year from a variety of prestigious retailers seeking to market seasonal beauty and care boxes. Influencer seeding, where in one example we are supporting a fast-growing agency's customers outreach to everyone from high audience influencers to smaller audience higher buy-in creators online. Loyalty gifting and sampling. a trend we are benefiting from as we focus on brands served by our agency partners who are seeking to expand or create employee incentive or loyalty programs utilizing major retailers that we engage with. And last, I will mention that we are seeing some smaller brands pull back from mega companies' ecosystem as their end-to-end supply chain becomes more costly and brands seek external fulfillment partners to support portions of their inventory that are seeing cost escalation while still maintaining the benefit of selling merchandise on a major platform. I'd like to mention a few additional developments before I turn the call over to Dave. In August, we guided Q3 and Q4 revenue to approximately what we reported in Q2, which was $47.8 million. Combined Q3 and Q4 revenue exceeded that guidance by $1.1 million. In December, we extended our $25 million line of credit with Texas Capital Bank to June of 2025. We have no debt. Our plan to terminate Pension Plan 1 this spring is on track. We are committed to leveraging technology solutions. Currently, this includes leveraging NetSuite, and evaluating partnerships to leverage emerging technologies. Additionally, we are recruiting for a few key roles to expand our AI data and predictive analytics expertise. Our focus on our accounts receivable, payment terms optimization, and billing resolution efforts contributed to our year-end cash position of $18.4 million. We ended 2022 with just over $10 million and Q3 2023 with $13.3 million. This has been a company-wide effort, and we've done a good job. Last November was my first earnings call in which I had served as CEO throughout the reporting quarter. So today's discussion surrounding Q4 reflects my second full quarter. We're executing on our commitments. Project Elevate, while challenging, has been a unifying endeavor thus far for our senior leadership team. And the leading indicators, albeit early, are very encouraging. I am bullish about Hart-Hank's future because I am confident we have created a growth system. This is the story. With a substantially new sales organization and a modern go-to-market strategy, we're confident we'll accelerate our pipeline growth, which will bode well for the second half of 2024 and the years ahead. Our cost capture opportunity is significant, approximately $16 million. We can invest where we need to, but also ensure we're more profitable. I see a significant opportunity here. I'm thrilled to be here and to be working with the senior leadership team we have. It's a privilege to lead Hard Hanks in its 101st year, but what sustains me is my desire to build a much larger, much more profitable company to the delight of our employees and our shareholders. We're on that path. I'll now turn the call over to David Garrison, and I'll be happy to take your questions thereafter.