Q3 2020 Harte Hanks Inc Earnings Call
Good day, everyone and welcome to the heart Inc.'s third quarter 2020 financial results Conference call. Today's call is being recorded at this time I would like to turn the conference over to Sheila. Please go ahead.
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Thank you Christine good afternoon, everyone. Thank you for joining us hosting the call today are Andrew Bennett Executive Chairman and CEO of Harte, Hanks and Lori current CFO before.
Before I begin I'd like to remind everyone that the information provided during this call may contain forward looking statements such as statements about the companys.
Did you adjust your cost structure financial outlook and capital resources competitive tractor business and industry expectations anticipated performance and outcomes future, that's about acquisitions dispositions litigation and regulatory changes economic forecasts for the Mark.
Get served expectations related to cost savings measures and the availability of tax refunds and other statements that are not historical facts.
Actual results may differ materially from those projected or implied in these statements because of the various risks and uncertainties included.
Those described in the company's form 10-K, and 10-Q and other filings with the FCC and in the cautionary statement in today's press release. The call May also reference non-GAAP financial measures. Please refer to the earnings release that was issued after the close for reconciliation and other related disclosures the Companys earnings.
Release is available on the investors section of its website at Harte Hanks Dot com with all that said I'd now like to turn the call over to Andrew data, Andrew The College yours.
Thank you Sheila before commencing our third quarter financial update I want to take a moment to recap what we have.
Accomplished during the first three quarters of 2020.
Laying a strong foundation from which to grow and the results are beginning to show both in terms of traction with existing and new customers as well as in our financial results. This quarter was the second consecutive quarter posting both revenue and adjusted EBITDA improvements and we feel confident that the business is now poised for can.
Continued performance we.
We have implemented cost reductions across every aspect of the company, reducing overall costs in 2020 by over $20 million, we enhanced our management team, bringing in industry, leading talent and promoting internal talent. We are focused on engineering cost savings and jumpstarting growth.
We.
We're encouraged by the acceleration we have seen in any uptick in new and enhanced services among both our existing clients and new clients I'd like to share highlights of the quarter that illustrates the successful execution of our growth and turnaround strategy. Despite the challenges of COVID-19, first topline revenue was $47.7 million.
And adjusted EBITDA. This quarter was $3.2 million up from 203000 in the third quarter a year ago. Note. This profit was delivered on lower revenue than we posted in a quick in a year ago quarter, which was $51.4 million Laurie will cover this more in depth. However, I wanted to know how proud I am of the team and what is the compas.
This in such a short period of time.
Really the efforts we remain confident that we will be adjusted EBITDA positive for the year.
Even in the face of continued uncertainty and with the pandemic, we had a strong new business quarter with wins, including new business from a large VTB tech firm, which I'll talk about later, a large retailer and the mill.
Our next bond appliance and net new wins from TPG and financial services client I will elaborate a bit more on in a few moments with respect to new business I'm pleased to report that our current weighted pipeline is $14 million, an increase of $3.7 million from the second quarter. Our unrated pipeline was $42 million an increase of 10.
Point $9 million compared to the second quarter as we've discussed previously hitting our plan for 2020 requires 13 million of new business sold and delivered in the calendar year and as of quarter end, we secured over $13 million in new contract signings and are working hard to ensure delivery by end of year.
As I've outlined in the past.
Focused on our three pillar strategy to return the company to profitability and Chris first optimizing business in the way we work second growing our current services and enhanced services with both our existing and our new clients and 30, transforming our business for the future with regards to optimizing our business capitalizing on Harte Hanks.
Asset base that combines marketing services fulfillment and customer care services is critical to our successful transformation. We are aligning our overall cost structure across the company to meet industry benchmarks, while thoroughly modernizing harte Hanks at the same time.
Now I'd like to highlight a few areas.
Firstly, our IP.
Infrastructure strategy calls for moving to the cloud to enable value added data driven services. The Harte Hanks IP team continues to streamline our team infrastructure and upgrade software tools to improve connectivity and security that ensures continuity and superior client service in this work from home environment, we have completed.
Please review of our application systems and data needs and reduce our servers data and information storage requirements by over 50% when compared to 2019, we anticipate moving out of our Pennsylvania data center to a cost efficient private cloud environment at the second quarter 2021, we anticipate finalizing our IC.
Transformation efforts by the second quarter 2021, as well with approximately $3 million in annual savings, while delivering new mission critical services to our customers.
We're also optimizing our footprint to align with customer requirements and align for future growth potential during the fourth quarter of 2000 timing will be.
Consolidating three locations into into Ars 300000 square foot facility in Kansas City, Let's consolidation initiative and moved to the geographic center of our country will allow for significant operational efficiencies within our fulfillment business and will provide improved shipping times and cost for our customers.
In addition, it will allow the company grow.
In addition last company to grow its product offerings and expand our FDA approved operations across the U.S. further investments in technology and light automation will position us to best serve our current and future customers through consolidation of operations into the Kansas City location.
Speaking at closed facilities terminations of leases and optimization of our current operating footprint. We continue to expect to achieve annual savings of over $4 million and lease facility operating expenses and lastly, we're optimizing our labor force to drive profitable growth throughout 2020, we reviewed our labor needs assess the talent.
Skill sets are detailed in rigorous assessments of operating performance throughout the organization and realigned realigned our real realigned all of our resources to facilitate better collaboration communication and efficiency something noted before key will be keep which will be key to our success.
We improved the capture.
Sub time by function and by customer to better allocate resources because of these efforts our businesses segment leaders can now use of data to optimize the labor cost of their businesses across the company. We continue to consolidate function streamlined management and migrate certain functions to lower cost resources.
Anticipate over.
$13 million in cost reductions, excluding variable labor costs as a result of these 2020 initiatives with regards to our second pillar. We continue to make strong progress growing our current services and enhanced services with existing and new clients. As I noted earlier were pleased to see our Q3, new business activity and positive momentum.
We continue to build the new assignments across both existing clients and new business wins this momentum to positive sign that our newly consolidated sales and marketing organization working under one leader and as one team spanning our entire business is proving effective the new alignment, which resulted in an increased awareness of and execution.
No cross selling opportunities across the business.
We also continue to invest in our sales and marketing team with new hires to build the momentum and to drive more activity in the upper funnel at the business as well as throughout all aspects of how we go to market in September we're pleased to announce that we brought onboard just CF as mark.
Cutting director Jeff's, new position and we'll focus on marketing manager, our PR and supporting our new business team and the development of how we go to market. Most recently worked at our three one of the leading agency search consulting fees, where did that multimillion dollar agency searches on behalf. This clients. We're pleased to welcome Jeff.
Our third strategic pillars.
Transform our business model as previously mentioned, we believe theres tremendous untapped value in cross selling our services to both our current clients and prospects I'd like to share two new wins that give you attempt of how we're doing it and what you can expect in the future.
The first example involves one of the world's largest homeowner.
Appliance manufacturers.
The $40 billion multinational conglomerate they were challenged with their ability to monitor and respond to bad reviews across multiple E. Commerce platforms negative reviews correlate directly to lost sales and they needed to quickly humanized their approach to customer care respond to reviews quickly an aggregate.
Earned from all the data available about how their products are being received by the market.
This presented an opportunity to integrate our new social media and ecommerce capabilities to improve our customer care offering. This innovative programs will teach agents had to quickly respond to reviews, improving response times, our agents will use.
Our proprietary Heartland behavioral index data teaching our team to be more culturally connected and human in their handling of complaints in issues.
With the talent of our strategy teams and our proprietary intelligence, we're transitioning our call centers into market, leading customer care teams to be more impactful and understand the influence.
Okay, responding negative and positive comments quickly and effectively this initial assignment will be in the high six figures with the opportunity to expand significantly.
Another recent win its first the top three global CPG company and actually our current clients.
As I've shared in the past Harte Hanks as recently won in in.
Recent expansion the role.
Preferred sampling provider for this company I'm pleased to share that we've now successfully expanded our relationship to provide marketing services.
New services increased strategy design and development of a new database solution to better manage their medical marketing initiatives targeting positions with.
With the addition of these services, we will now be responsible for the entire medical marketing program end to end from data strategy management to delivery of samples and our other marketing materials directly from our fulfillment centers. This is another example of how we're able to add value to our clients by connecting the depth and breadth of our marketing services to the flawless execution.
One of our services all under one roof.
As I hope you can see in the two examples and in our financial results. We're seeing important indicators that we that we are more effectively selling our existing enhanced offerings with three quarters now under my belt I'm more convinced than ever the breadth and depth of Harte Hanks services will enable us.
Compete favorably in the multiple addressable markets that we serve and I'll now turn it over to Lawrence.
Thank you Andrew.
First Andrew shared adjusted EBITDA This quarter was 3.2 million.
From 203000 in the year ago quarter Accordingly.
Throughputs at slightly higher revenue.
We cut expenses by nearly $9 million in comparison to the year ago quarter, and our spending is down over 47 million for the first nine months of 2020 versus the same period last year.
<unk> cost cutting coupled with the continued sequential revenue.
Probes are key contributors to the positive and growing adjusted EBITDA.
While the potential effects of the plant them continue to be unpredictable. We are encouraged by new business wins and growth in our view to be on the consumer brand verticals.
We are continuing to stream, so thats on streamlining and rich.
Structuring the business to meet the needs of the market today, and we are encouraged by the stabilization and growth from a business line, where we're investing.
I'd now like to walk through the results in more detail.
Third quarter revenue for 47.7 million up over 6.1 million sequentially.
From last quarter.
This compares to 51.4 million last year for a year over year revenue decline of 3.7 million.
Revenue grew across our community and a consumer brand verticals in the quarter, our PDP protocol for about 5.8 million plus 51%.
The increased demand for our customer care services and consumer brands was up 2.9 million for 26% of.
A portion of the revenue in Q3 with related to short term projects.
Our operating expenses for the third quarter for 46.9 million down from 50.
5.9 million in the year ago quarter.
We reduced our operating expenses in all areas, including labor production distribution advertising and selling general and administrative but.
The largest decreases were driven from reduction in transportation and facility expenses as well as labor and production.
On expenses related to the closure of our melt utilities.
Operating income was up 46.7 million from last quarter, when we posted an operating loss of 5.9 million.
This is a major improvement not only from last quarter, but also from the $4.5 million operating loss in the.
Adult quarter.
This improvement is attributed to our aggressive cost efficiency efforts.
We generated GAAP net loss of 1.6 million or 27 cents per diluted and basic share in the third quarter. This compares to a GAAP net loss of $6 million or 97 cents per.
A year and diluted share in the year ago period.
Third quarter adjusted EBITDA was 3.2 million compared to 203000 in the same period last year, a significant improvement when you consider the slightly lower revenue levels.
Turning to our balance sheet and liquidity.
As of September.
Our Thirtyth 2020, we had cash and cash equivalents of 29.3 million. This compares to a cash balance of 30.1 million as of the period ended June Thirtyth 2020.
As of September Thirtyth, we had $20.4 million in long term debt.
Which reflects the current draw.
$19 million revolving credit facility as well as the long term portion of our PGP note.
We believe we have sufficient balance sheet strength to continue executing on our transformation plan and fund future growth.
With that I'll turn it back over to the operator to take your questions.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your mute function is off to share your cyclical nature equipment.
Again, I want to ask a question and we'll go to Michael Kupinski from Noble capital markets. Your line is open.
Thank you and our first of all.
Gradually she's on your quarter.
You beat my estimates, but I can't recall the last time, you guys actually showed sequential quarterly improvement in revenues, it's been a while so congratulations on that.
I was just wondering if.
If you could just give us a little sense about how Q.
And Gore shaking out because typically we do get some seasonality in revenues.
And you indicated that you have a building pipeline so should.
Should we see some shorter.
Further improvement in Q4, Okay got it give us a sense of how things are shaping up there.
Yes, I'll start on that yet she Laurie. So so have you know with regards to Q4 seasonality one thing I'd say that we've discussed in the past is as our share with that and that was driven largely by retail and and the work that we did add to our print business. So as.
As that work has declined there is less seasonality in the business. So you wouldn't now see going forward any seasonality of Q4 spikes due to that so would that Doug and I'll, let Lori libraries as well the only other point that we noted was that we did have some one term project.
On projects within Q3.
That contributed to the to the results.
Yes, I agree, but I think that the fighting to three Michael is higher than we expected due to the short term project.
We will continue to slightly into Q.
When Blair, but not at the same level that we had in Q3.
Got you and then you outlined several cost initiatives, one being some infrastructure cost and then of course, you haven't crop cost cutting quite some time, how how should we look at these the cost like when do you start cycling some.
Other car initiative the comments that you made earlier Amit.
How quickly can you laid it out for me like by quarter, what you're expecting in fourth quarter, and then maybe what you're expecting for full year 2021.
Yes, Laurie I think if you can elaborate on that please.
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Yeah, Yeah, Mike like some of the some of the cost savings we have already started to realize those cost savings. So obviously you know I think we've given you about 20 million of savings I would say, it's a good chunk of that has already been recognized we're already realizing those savings.
And we still have some additional efforts to do and we should have fully realize those savings starting by Q2 EPS next year.
Beyond the only other thing is.
As you know these were cost savings that are being implemented in some cases it that you know.
In infrastructure, driven because you know we're following more we're following our asset light strategy and so were you know we're realizing savings from that.
And in other cases.
Labor as I discussed.
That said there we believe there will be continuous cost savings going into 2021.
I mean, as we look at how we optimize how the businesses work together and just the how we're working within the businesses. So we don't see that it's a kind of one time and were were concluded within the end of this year.
Gotcha, and then can you just remind me I know that there were some opportunities to add some additional bond.
Come in through the prospect of maybe the Threeq digital sale or resale and then maybe Jim available further tax returns are those all kind of embedded into the numbers for the third quarter.
Not yet to be additional funds that would have come in from Citi.
Two were already to see there's nothing left on that and.
And he will notice on the balance sheet, but there is some receivables on the taxes, but it's all embedded in the quarter.
Okay. That's all I have thank you.
Thank you.
Thanks, Michael.
Finally, we have no further questions in the queue I'll turn it back to you for any closing remarks.
Well, thank you very much for joining us and.
We appreciate the time and stay safe. Thank you very much.
Yes.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
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