Harte-Hanks, Inc.

Q4 2023 Earnings Conference Call


spk_0: reading and welcome to the hurt hanks fourth quarter and full year twenty twenty two earnings conference call at this time or participants are in a listen only mode on a question and answer session will follow the formal presentation if anyone should require operators systems during the conference please press stars arrow on your telephone keep up please note this conference has been recorded and i will know turn the conference over to your host tom bowman of fn key or your you may be
spk_1: thank you
spk_2: hosting the call today a violence got he the executive officer and lord current to financial officer before you begin a want my participants been during the course there's was prepared remarks nicotine forward looking statements that are subject to risks and uncertainties management they also make additional forward looking statements and response your question today therefore if the company claims protection under safe harbor for forward looking statements attained in the private securities litigation format of making ninety five i shall results may differ from results discuss today and therefore we for you to a more detailed discussion of these risks and uncertainties in the company's filings with the as he said in addition and the projections as the company's future performance represented by management and good estimates as of today march seventh two thousand and twenty three and a copy assumed no obligation to update these projections in the future and market conditions change this webcast and certain financial information provided on the call including reconciliations of don't get financial measures to comparable gap financial measures are available in the earnings pressure least that was issued shortly after the market closed a copy that pressure lease and other corporate disclosure is available on the investor relations section apart hanks website at heart start dotcom with that i would now like to turn all over to buying buying the whole was yours
spk_3: thank you tom and good afternoon twenty twenty two was a milestone year for how tank in this year will be celebrating companies one hundred anniversary after years of cost cutting to mitigate climbing read the new we have successfully stabilize the business established sustainable profitability across the entire enterprise and created a platform for profitable growth the and twelve hundred and first year stronger than we then and the more than a decade and i couldn't be prouder of our team but for me twenty three we expect continued growth in our top and bottom line even though we're facing a cop year over year comparison in the first quarter historically to one is or seasonally lowest quarter the year however last year we had multiple with for a project into one including a significant recall project that led to an abnormally strong first quarter and twenty twenty two based on the visit billowy we have with the first quarter more than two thirds complete we expect modest year over year revenue growth and we expect a drop in year over year quarterly either due in large part to our revenue mix changes nevertheless as we move three twenty twenty three we expect to generate hi single digit revenue and a growth on an annual basis we continue to expand existing client revenues and add new logos the recent when had more than offset the customer care pandemic related projects reaching and of life and a reduced revenue from our legacy direct mail campaigns and marketing services while most of our growth has been in our fulfillment and logistics segment which is resolved in modest margin compression we continue to generate significant profitability and free cash flow enabling us to strengthen our balance sheet the financial improvements are due in large part to the systemic changes we made it hard hanks most notably a strategic shift to an asset like business model we have eliminated unprofitable contracts and we are well positioned for long term sustainable operating income and even though our past in expected future profitable performance is reflected in our foot fourth quarter results as we recorded a non look for nineteen point eight million dollars tax benefits due to the release of the valuation allowance revenue increased five point four percent for the quarter and six percent for the full year our fulfillment logistics segment groups thirty four point four percent in the quarter largely driven by a large logistics clients are customer care segment had revenue decline well point nine percent but even to increase twenty four point four percent demonstrating the improved operating efficiency in the quarter or marketing services segment revenue decreased six point eight percent and even had decreased eighteen point four percent but we enter twenty twenty three with optimism to deliver improve results based on a growing pipeline and refocused operate racial disappoint we believe we have ample opportunity to grow up throughout growth an awfully big business segments and twenty twenty three or offerings are aligned with the needs of our customers and we are having success in cross eleanor services and expanding our client relationships
spk_2: we remain focused on selling a differentiated solutions that leverage more than one of our operating segments to maximize value for customers and ultimately our shareholders importantly as we move into twenty twenty three a focus is on growth specifically adding new logos and moving beyond cross selling
spk_3: since the beginning of the third quarter we've added for new sellers to our t and we are leveraging are talented team members from are inside out acquisition to drive are inside sales function in addition we are aggressively marketing our services in the be to be tech ppg retail farmer health care streaming and qs are verticals we expect strong new logo performance and twenty twenty three as we convert or growing pipeline in addition to our sales and marketing investments we're investing in technology to create opportunities within our current form of and prospective client base our investments in tech enabled solutions including feel and software self service help just audience find your data view and collect any provide improved data capture actionable insights in digital delivery opportunities for marketing services and customer care business segments as a customer seek to optimize result improve the customer experience and reduce marketing spent in a tough economic environment
spk_2: or improve financial an operational performances strengthen our balance sheet even comfort and confidence to both are loyal employees and a large customers we ended the year with over ten million dollars in cash and no debt in addition to our outstanding on trump pension liability has decreased by nearly fifteen million
spk_3: just from december thirty first twenty twenty one due in part to higher interest rates as a result we've initiated the process the fully fund and transfer one of our qualified pension plans to a third party another benefit of our improve profit dodge was the ability to redeem and repurchase are preferred shares from wipro we completed this transaction in december which alem eliminated the deluded impact of the preferred shares on earnings and eliminated restrictions on our use of capital and our ability to borrow funds finally we completed the acquisition of inside out in december and benefited from one month of revenue from this time acquisition as a reminder inside out of the data driven inside sales optimization from inside out specializes in building healing and optimizing inside sales initiatives
spk_2: we paid seven point five million dollars and
spk_3: cash and stock for inside out and we added a seventh least location in north america
spk_2: with the acquisition of inside out seven thousand five hundred square foot headquarter facility based in st petersburg florida
spk_3: the acquisition will provide short term revenue growth opportunities is well as being immediately a creative tour earnings we anticipate cost synergies alone to drive the post acquisition valuation to that three to four times he better range we look for do additional acquisitions to augment our existing business with new capabilities enhanced techno what technology offerings data analytics new customers at and in some cases new geography however i stress that will remain disciplined and are acquisition of valuation and proceed with caution simultaneously we continue and invest in our business to drive growth maximize profitability increased and increase shareholder value hiring and retaining talented people is the key area focus we are simultaneously improving our technology platform to enhance market opportunities and sell are fully integrated service offerings
spk_2: now onto our resolve
spk_3: revenues increased by point four percent in the quarter of fifty four point eight million dollars operating income increased approximately five hundred thousand dollars or nineteen point eight percent compared to the fourth quarter last year or even to increase to four point four million dollars from three point five million dollars in the fourth quarter last year the net income for the quarter was twenty one point eight million dollars compared to one point eight million and last year fourth quarter
spk_2: heart hanks is now solidly profitable and a gap basis we expect profitability both in terms of he better and gap net income for each quarter and twenty twenty three
spk_3: now turning to our operating segments customer care revenue decrease twelve point nine percent from the previous year over year quarter or even either increase twenty four point four percent to three point kill million from two point million two point six million in the prior quarter the revenue decrease was due to the anticipated blowing off and pelvic related project work but the either employment improved to a customer mic answer and better operation operating efficiency in the business the customer care pipeline remains healthy with current new and former customers including but not limited to outbound generation in inside sales services and the pipeline a strong for inbound services including entertainment streaming pharma health care and technology verticals customer care continues to invest in sales and marketing campaigns conferences and partnership and the segment recently hired another person to drive growth and twenty twenty three new business wins for the quarter included a community based health plan selected heartache to support it's members with plan related customer support the company selected heart thanks to provide extended support hours for members while me maintaining its vms five star rating heart hanks has consistently delivered hi cms rating for it's quiet through a rigorous training and certification process for employees and system
spk_4: second a global beverage company expanded services with heartache by extending it's customer care allusion to additional market geography the expansion allows are quiet to benefit from a lower costs facility in the philippines while improving it's customer experience with faster and easier access
spk_3: the support books home and logistics revenue increased six point three million or thirty four point four percent compared to the fourth quarter last year and in for anybody increased five point nine percent to two point three million we are realizing the benefits of consolidating or operations in the the kid city priscilla id and further integrating our supply chain and logistics segments into our fulfillment process we continue to win new contracts in both fulfillment and logistics and our revenue opportunities remain strong new business when for the in court for the quarter included a growing international investment
spk_2: phone with approximately thirty billion dollars of assets under management selected hard hates to provide digital print and premium item for comment to it's brokers are financial services sector experience and streamlined i'm boring to support a rapid pivot from a competitor
spk_3: the key differentiator in the selection process second a leading brand company selected heart hanks to manage the production kidding and distribution a two hundred and fifty thousand makeup kits for a fortune two hundred retailer this partnership likud's at this partnership continues to lead to new value added product fulfillment opportunities unlocked by our investment and flexible automated production lines marketing services revenue decrease six point eight percent to thirteen point six million dollars and either a decreased to two point one million dollars in the core the largest driver of the year over year revenue to points relate to direct mail campaigns not continuing we also had project work include last year but growth and hospitality financial services and cpg quiet have replaced this revenue this was another quarter of sequential improvement and profitability or marketing services segment as we realigned or resources reduce our expenses and invest in technology to better serve our customers will remain focused on it
spk_2: attracting new clients within prioritize market categories but near term opportunities and healthcare pharma retail be to be tech
spk_3: and consumer products we are experiencing increased opportunities with our demand generation date of view an audience finder offerings and we see increased opportunities with inside our clients and prospects to further drive growth we have increased our marketing campaign and leveraged new sellers to expand our opportunities
spk_2: new business wins for the quarter include a leading premium retailer a kitchen and bath outdoor products elected heart hank the design and execute a series of lead generation programs
spk_3: chosen based on our extensive experience in retail strategy and our ability to deliver a full suite of creative data analytics and campaign execution and second a leading global technology manufacturer expanded are successful be to be the man generation program into and another geography and south america by utilizing heart hanks audience find a product to identify buyers with intent in conclusion as we celebrate or hundred year heart hanks is stronger today than it has been in years
spk_2: with a sustainable profitable business model and multiple pathways for growth we expect continued positive net income and a significant year over year
spk_3: improvement in four years eve iba driving higher free cash was done twenty twenty three as we target
spk_2: revenue and even growth for the full year
spk_3: even when considering a challenging first quarter comparison
spk_5: with that i turn it over to worry thank you brian the fourth quarter with another positive quarter and strong and a year for out with solid results on both the top and bottom line and what each of our three segment delivering positive operating income i'd now like to walk through the results in more detail
spk_6: fourth quarter revenue but fifty four point eight million at five point four percent from fifty two million and the same period last year
spk_5: revenue growth was led by our for from and logistics segment which was at six point three million or thirty four point four percent year over year customer care was down two point five million or twelve point nine percent year over year and marketing services with down nine hundred and eighty seven thousand or six point eight percent from the prior year quarter from a contribution margin perspective our customer care segment delivered three point two million and either dot up twenty four point five percent or fulfillment and logistics services segment delivered two point three million even die at slightly year over year and marketing services eat dog declined by approximately four hundred eighty five thousand or eighteen point four percent we believe each of our three operating segments are operating efficiently and to generate positive eat at all levels for the foreseeable future our operating expenses for the fourth quarter or fifty one point three million up four point five percent from forty nine point one million in the year ago quarter due to the increased revenue and change in the revenue max resulting and fire transportation costs in our fulfillment and logistics segment operating income with three point four million up five hundred and sixty seven thousand compared to operate an income of two point nine million in the year ago quarter during the fourth quarter we recorded a non recurring nineteen point eight million dollar tax benefit due to the release of valuation allowance this accounting reversal and associated tax benefit is due to i improve performance and the expectation of continued profitability we also recorded one point three million and other expenses mainly related attention expense and foreign currency gosh
spk_6: inclusive of these non recurring charges we posted net income of twenty one point eight million compared to net income of one point eight million and the fourth quarter last year
spk_5: we recognize a one time was on redemption of the preferred stock at one point four million that reduced our income attributable to common stock holders resulting in two dollars and eighty one cents per basic share and two dollars seventy cents per diluted share for the fourth quarter compared to twenty he sent for basic and diluted share in the fourth quarter last year a bit after the fourth quarter was four point four million compared to either die or three point five million and a year ago quarter turning to for your resolve twenty twenty two revenue was two hundred and six point three million at six percent from one hundred ninety four point six million last year our operating income with fifteen point one million compared to operating income of seven point six million last year we posted net income of thirty six point eight million compared to net income a fifteen million last year again the current year net income includes the night two point eight million dollar tax benefit and the prior year period reflect the one time game a ten million related to the forgiveness of our ppp long income attributable the common stock holders was thirty five point four million or four dollars ninety eight cents per faces and four dollars and seventy five cents per diluted share in twenty twenty two compared to income attributable to common stock holders of twelve point six million or a dollar eighty five for basic and a dollar seventy six per diluted share last year oh you're either the of was seventeen point eight million compared to either died ten point two million last year an increase of seventy five percent now turning toward balance sheet as of december thirty one twenty twenty two we had cash cash equivalent to restricted cash and ten point four million compared to fifteen point one million had december thirty one twenty twenty one during twenty twenty two uk down five million on a line of credit and spent nine point nine million to redeem are preferred shares as of december thirty one we have four point three million in net income tax receivable this is due mostly to our remaining net operating loss carried act for twenty twenty at five point three million which is partially offset with other tax payable we received two point three million of our barnett are pretty much carry back in the fourth quarter of twenty twenty two as noted previously we recorded a non recurring tax benefit of nineteen point eight million in the quarter due to the release of valuation allowance on our differ tax assets which are now recorded and other long term effect on our balance sheet this is the results of are greatly improved performance unexpected sustained profitability our combined long term pension liability on the balance sheet as of december thirty one was thirty seven point eight million as a reminder we have both qualified and nonqualified send some plans are kenshin liability decreased fourteen point seven million compared to december thirty one twenty twenty one we continue to monitor the impact of rising interest rates and changes in asset values that are impacting our pension liability
spk_6: as brian mentioned we have begun the process to fully fund and transfer one of our qualified pension plans to a third party
spk_5: we expect that process to take approximately eighteen months to complete and expect to make a seven million dollar contribution to the plan prior to the transfer as of december thirty one twenty twenty two we had not been drawn on our line of credit and mean it's maintain a twenty five million dollar credit facility
spk_0: with that i will turn it back over to the operator to take your question thank you thank you at this time we will be conducting a question and answer session if you would like to ask a question please press star one on your telephone keypad for participants using speaker equipment it may be necessary to pick up your handset before pressing the staircase
spk_7: woman please are we pull for questions
spk_0: thank you
spk_8: or first question is coming from coolio romero which the doughty and company please go ahead
spk_9: thanks a good afternoon brian laurie
spk_8: good afternoon if you start on the corner if he could maybe talk to what drove the strong margit and customer care and and how much was the improved operational efficiency is vs maybe some other factors and and secondly how much of that
spk_2: it's good for me to sustainable and toy three
spk_3: so are all start a powerful little to laurie but yeah so i think some of it certainly revenue mixed within right we we we ran out bomb a pandemic related projects that the woodwork lower margin palm in the past we at we've made that choice to with with those are lower margin pandemic project specifically relating to a couple of state that were in the twenty twenty one numbers on that will that we're not in the twenty twenty two numbers that that obviously help the look a little bit on him and the other the other color change in the business model is when we had the pandemic kind of bar
spk_2: related revenues were we ended up leveraging a lot of the third party consultants know lot but certainly a portion and and we'd kind of pivoted to be more a full time hard hanks employees which is improve the margin profile is as well as improve the yeah the via the time
spk_3: over right so reduce the turn over reduce the attrition that's actually helped that carry forward and him and some of the operational improvements and in that segment on as as i look going forward you know that this is a loyal strong number i don't know if that is forever sustainable but but i know the way we operate we should be on the margins generally and in a within a percentage or to with a bunch of the the way we're performing currently
spk_5: florian the other things out there
spk_8: now i may i agree i think you for was i usually very strong for them on with certainly seen ah operating margin improvement and we expect to continue what's that going forward by to for was that was unusually strong got it for a awful their arm may be turning to the guidance tom and a commentary you gave their just any sense on or how much on a bigger should be expected to be down in the first quarter
spk_3: anymore you have on the mix changes expect and first quarter and then secondly if you could talk about the the for year cadence of revenue a bit as we progress throughout the year i'm
spk_10: yeah so i think that the big rival july if you look at a couple of big project that were and and que wanted twelve or twenty two on that they were very high margin pad of one time project
spk_3: you know when you look at canada the revenue next we had our into one this year what we're going to have a higher concentration of performance and logistics revenue noting some strong performance and logistics which is which their lower margin segment on don't eat you know when when i when we look at you you have a year
spk_6: you know i will will be down double digits an either for that for the quarter on but but we fully expect to as as we mentioned with guidance to ramp up in and actually improve both fear that the new business growth is as well as the bottom line either as we continue into into que too true true for glory you want to give a little more color on the one
spk_11: yeah i mean i think in our brain say that she wanted really driven by a mix of specific customers so we've got some about fire logistics revenue coming in on and some in out lower that the now and some the other segments and and it's really specifically of that customer next that's driving that performance
spk_12: and one
spk_8: understood and then
spk_12: if you mentioned yeah looking at
spk_13: potential i'm in a but i'll be seen a display banner arm if you could to speak to the pipeline of appeals you're looking at and you should we expect
spk_3: is something of us you're looking at things of similar size to inside out or maybe would you be considering something on a larger side it yet i think you know directly though those types of of size talking acquisitions certainly would be easier to digest now that said if there's that the right compliment of capabilities and you know pet profile or something that we think and really more aggressively bolster will certainly about you wait ah larger size and acquisitions as well i think the yeah
spk_14: the the key that i'm really trying to lean into his is opportunities that for either kind of tighten the fabric between or segments whereby
spk_15: they fit nicely in between maybe to of three segments and and certainly there's a there's there's a few opportunities like that that they're out there or whether or not the palm he you know week we can buy something at the right price and a you know structured the right way we'll go after what find out
spk_0: very good said on thanks very much thankfully but
spk_2: thank you or next question is coming from my cook pinsky with noble capital markets please go ahead
spk_0: thank you and good afternoon everyone
spk_2: first of i i i have comment that twenty twenty two and in my view was kind of like a watershed year for you guys because coming off of a strong twenty why he showed growth which was was great and i think of it to that degree i look at your confidence and twenty twenty three and looking at growth
spk_4: obviously i'm you know is i just love the confidence that you're exhibiting their and was just wondering if you can just talk will be about what is baked into your expectations whether they be macro economic view or whether it be specific business trends that you're seeing that you can
spk_3: that adds the confidence to show not only revenue growth that adjusted ebitda growth and
spk_2: even earnings growth for twenty twenty three
spk_3: ah eat yeah so i hate michael thanks for the question i felt that i guess it goes without saying we we do have in organic growth that helps gonna get some of some of what we're speaking towards right for twenty twenty three armed that that said i do think that there's there's some can
spk_16: pelling opportunities as we see in a pipeline as it relates to
spk_3: you know certain products such as the man generation touches inside sales certainly i'm what we're finding for nice opportunities that leverage audience finder and data view with our marketing services our business and ah you know week or it will certainly got from our appeased in the pipeline and and my hopefully or batting average continues to increase as we are again from confidence and game some additional capabilities with the with with certainly the acquisition of inside out and and i think they're inside fail it's function for us it is starting to put a nice structure in place and or will allow us to more aggressively pursue opportunities so i'm you know that that's what i would say generically largely as it relates to a marketing services and customer care on the fulfillment logistic side week week we continue to see them
spk_2: nice demand in the marketplace where logistics supply chain our products including are always pricing software it and then and then we also have some really nice partnership arm and are spilling things some value added fulfillment opportunities that we're pretty excited about so you know all of this is a lil little more my
spk_3: grow economic credit the macro economic are obviously the headwinds with the macro economy always give me some pause arm but but i i i do fully expect that we're going to grow grow the business this year and you think that you'll have growth and each of your segments so what we we certainly would expect probably a little heavier growth in fulfillment logistics but arm
spk_2: you know with with the acquisition we we do expect wrote in now in customer care and we are cautiously optimistic about our marketing services
spk_0: but pipeline and opportunities to take to get of i'm growth
spk_6: accept and then of course i'm not just a year or two ago investors were concerned about the unfunded pension liabilities and now it seems like you're addressing that even further i was just wondering if you can talk with a bit about what might be the and find a pinch liability as it's first quarter and then if given the fact that we're probably looking at another interest rate increase do you have thoughts about where the unfunded pension liabilities might be at the arms and of this year i'm michael on i'll take that was street south in our in nc one obviously we're not gonna do we only did a restatement really the fall the statement of the pension liability at year end with what they're working on on the one part of our qualified pension plan and transferring out to a third party
spk_2: now we've really gone through a process now and of matching know assets with the liability for that those signal been in conjunction with interest rates of that moves on so we don't expect a lot of change on that one as interest rate increase in of the other to the it at the other qualified plan and certainly are non qualified plan that different how
spk_6: assets against that we would expect to see some decrease on i don't have a specific number is where we think that will be a year and that we would certainly expect to see some additional it decreased maybe not quite as drastic as we signed twenty twenty two
spk_2: i'm sorry and very what is left on the tax refund on in if you expect that in the first quarter
spk_3: yeah me it's five point three million is what last given where we are in march and not sharp can i come in and the first quarter that we would certainly hope to see die in the second quarter gotcha and the inside out acquisition i'm kids give us a sense of what the annual revenue run rate ip maybe even adjusted ebitda it's a creative insurance his paintings and cost synergies there is any any color on that acquisition in terms of revenues and a better well i get the owls start with the baseline that the trilling twelve when we acquired it on december first it was about eleven million a top line and one and half million to be better right so i'm week we fully expect a nice growth off of that eleven million from a top line and the ah you know obviously this little bit across this year to integrate and do do some of the hard work but we certainly think that will get the some improvement on the on the bottom line as well and and the
spk_2: you know if hollywood expected to contribute more than more than the million and a half right probably
spk_0: the yet hopefully not with million someone that range
spk_3: and then outside of the non recurring projects you had talked about you know talked about the first quarter can talk about maybe the if you factor that out what the underlying revenue trends were and were were in the first quarter i believe you're talking specifically about customer care right
spk_2: are there and it from year ago
spk_17: it ain't yeah will largely customer care absolutely and and if we took the recurring
spk_3: i'm just took the non recurring a business and customer care out of the equation what would the underlying with would would customer care be growing your rear i would assume so
spk_6: what would the what would in the first quarter what would be what with the pace be so to speak given the fact that you're looking at total revenue growth for the company
spk_2: so i don't know and i have that laurie at my fingertips
spk_3: that's trying to back into and i mean definitely you know the trend continues that we've seen recently with the largest growth is coming from our for some and logistics that much but if i back out the one time in customer care i would still expect them to be growing and twenty twenty three on but you know i pick up
spk_18: a modest growth rate for them
spk_3: yeah which is trying to get a sense of what that growth was in the first quarter to get a sense of how to model out the subsequent quarters in terms of than yet i'm just the underlying growth outside of the non recurring revenue that you had
spk_2: yeah so we can we can not take we think about get their of now what were talking about the damage related revenues that that largely rolled off from que to of last year so it's it's it's primarily a first half of this year issue
spk_3: from a comparable perspective
spk_2: i'm so what will happen gonna take a look at the at that
spk_3: gotcha and then final question terms of jet just capital allocation at this point has the company it'll considered looking at are retarded good shareholders or other options at this point or can just talk a little bit about capital allocation yeah so i mean i think when you look at the the categories but they're pretty similar right we we talk about potential both on acquisitions
spk_2: week we clearly are investing in technology
spk_3: that that i think you can see through our cap that last year and i would expect a pretty nice investment this year as well i'm and then pension as we mentioned work we're going through of you know that process that like would be a seven million dollars cash outlay but that probably wouldn't occur until next year some time of my right laurie
spk_19: i'm in mm that are you know when we meet with the board on a quarterly basis obviously we discussed capital allocation and would would in a we do at times have discussion about doing explorer or stock buyback or or or other kind of return the capital to to shareholders and and the while we haven't made any decisions
spk_0: that will continue to be kind of the for larger if we talk
spk_3: a about capital allocation
spk_0: gotcha thank you that's all i have thank you

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