Q4 2020 Harte Hanks Inc Earnings Call
Good day and welcome to the Harte Hanks fourth quarter and full year 2020 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Sheila <unk>. Please go ahead.
Thank you Kevin and good afternoon, everyone. Thanks for joining us hosting the call today are Andrew Bennett Executive Chairman and CEO of Harte, Hanks and Laurie Burns CFO before I begin I'd like to tell everyone on the information provided during this call may contain forward looking statements such as statements about the company's strategy adjust.
Thanks to its cost structure financial outlook and capital resources competitive factors business and industry expectations.
The performance and outcomes future effects of acquisitions dispositions litigation and regulatory changes as well as economic forecasts for the marketplace share expectations related to cost saving 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 the statements because of the various risks and uncertainties, including those described in the company's form 10-K, and Q and other filings with the SEC and the cautionary statement in today's press release.
The call May also reference non-GAAP financial measures. Please refer to the earnings release issued after the close for reconciliation of other related disclosures. The company's earnings release is available on the investors section on its website at Harte Hanks Dot com with all that debt I'd now like to turn the call over to Andrew but Andrew the call is yours.
Thank you Sheila first I want to thank our 2000 plus colleagues around the world for delivering strong results for both the quarter and the year. This past year's challenges had forced us all to navigate our daily lives with both Great Britain and I wanted to express my sincere appreciation to our.
Harte Hanks employees, who approached each day with Jeff that I hope that everyone. On this call has similarly managed through the year income.
Great.
We are nearing the light at the end of the tunnel.
We're pleased to announce that we've structured our business into three operating segments marketing services customer care and fulfillment and logistics will be provided in our 10-K, we've begun segment reporting to reflect this Lori will talk through the results in greater detail we've.
We've made significant progress in 2020, I'll highlight our strength in financial position the excellent results from our customer care business.
On our cost reduction efforts, our new executive hires and our optimism around our business going forward.
To begin with for our strengthened financial position in 2020, we strengthened our balance sheet and began 2021 with $29 4 million in cash and cash equivalents.
Ticket paid an additional $7 5 million from an income tax refund by year end.
Secondly, our contact center results for the year revenue grew in our in our customer care segment by 44, 5% for the quarter fueled by continuing project work increased volume from existing clients and new wins in.
In 2020, we made significant progress transforming our customer care business.
From a prototypical call center GPO to attack first offering aggregating cross channel interactions to provide our clients with 360 degree customer profile and leveraging our Harte Hanks CRM marketing services capabilities. In addition, leveraging work at home has allowed us to on the.
Emanate typical cost constraints.
Pure brick and mortar facilities, such as recruiting space hardware.
For the connectivity, we also added technology capability, such as tablets to improve our reporting and expanded our business intelligence capabilities with dashboards development and analytical modeling also borrowing from our marketing services business.
As the consumer interact more on real time through social media, we formalized our relationship with quick creating an integrated platform that allows customers to interact across multiple messaging platforms. We integrate this solution across the multiple CRM, we support including Oracle sales.
Sales force desk huge kudos to Ben Chacko, our new managing director for customer care and for his stellar team for leading an amazing transformation of the business in 2020.
Currently our cost reductions, we implemented cost reductions across every aspect of the company, reducing overall cost from 2020 by over $20 million or cost cutting was a key contributor to our $1 9 million and positive adjusted EBITDA for the quarter, our third quarter in a row of positive adjusted EBITDA.
We reduced our operating expenses in all areas, including labor production distribution advertising and selling general and G&A expenses for.
With new executive hires to drive growth and momentum we brought on two new leaders join Carol as our new Chief commercial officer responsible for leading our marketing services segment and managing our client sales and marketing efforts across the enterprise before joining in January Georgetown C suite positions that marketing agency.
<unk>, including MRM, and Mccann Wunderman and digitize.
Brian joined US in February as our managing director on fulfillment and logistics services added an experienced and innovative operational leader with a background in strategy its former roles at wafer and Bain consulting.
In 2020, we also set a strong foundation for our marketing services and fulfillment businesses.
So from that and logistics businesses, we transformed our fulfillment business from a high touch sub scale <unk> program to full service B to B C e-commerce fulfillment powered by a cloud base.
W. I'm asking on that in marketing services, we now sell integrated CRM focused on the entire customer journey and powered by decade on first party data experience.
And lastly, our optimism for growth in 2021, as we look to 2021 and beyond we believe our businesses are extremely well positioned for a post COVID-19 world. Our three operating segments participate in large addressable markets that benefit from the ecommerce increase due to the behavioral shifts from the pandemic.
For context this shift.
Laughing trend to continue well beyond the pandemic, we have a unified go to market positioning on.
On the channel customer experience company and believe we have a highly differentiated products and service offerings equally important we had strong client relationships in high growth categories, such as financial services, CPG healthcare and <unk> Tec with room to grow and with the new leadership team focused on adding value.
Two of these relationships and beyond.
To conclude as we enter 2021, we feel confident in our turnaround our customer care business is back on track delivering strong performance. After years of decline, we have new executives, leading marketing services and fulfillment and logistics and we expect to see improved performance in 2021 in these businesses with that said I'll now turn.
Over to Lori to go through the quarter on the full year.
Thank you Andrew.
As Andrew noted we have organized the company around three plus net marketing services fulfillment on logistics and customer care and we'll be reporting on them moving forward.
Revenue grew in our customer care segment by 44, 5% for the quarter. This was fueled by consumer line project work as well as increased volumes with existing clients on.
Our marketing services business was down a modest six 3%.
Mostly due to reductions in our clients' 2020 marketing budgets due to COVID-19.
Fulfillment and logistics was down 39, 3%.
Due to the elimination of our now production facility as well as impacts due to COVID-19 for some clients.
The company's cost reduction effort continues to be reflected in our quarterly results, which show a stabilizing business performing with consistency.
Cost cutting coupled with revenue stabilization and growth are key contributors to the positive and consistent adjusted EBITDA.
This is the third quarter on a road that we are adjusted EBITDA positive at $1 9 million. Thank you for.
With respect to new business I am pleased to report that our current weighted pipeline at $14 8 million are on.
Weighted pipeline at $41 million, both of which remained strong heading into 2021.
As Andrew described part of our optimization efforts include continuing to focus on streamlining and restructuring the business to meet the needs of the market today and we are encouraged by the stabilization and growth in the business lines, where we're investing.
I would now like to walk through the quarterly results in more detail.
Fourth quarter revenue for $47 1 million compared to $52 3 million in the year ago quarter for a year over year revenue decline of $5 3 million or 10%.
Our operating expenses for the fourth quarter for $47 4 million day.
From $51 9 million in the year ago quarter.
We reduced our operating expenses and labor and labor and production distribution on the decreases were driven from injection and <unk>.
Our expectation and facility expenses as well as expenses related to the closer of our mail facilities.
Operating loss came in at 368000 versus operating income of 785000 in Q3 and 422000 in the year ago quarter.
We generated GAAP net income of 1 million or <unk> 11 per.
Basic and diluted share in the fourth quarter respectively.
This compares to a GAAP net loss of 3 million or <unk> 49 per basic and diluted share in the year ago period.
Fourth quarter, adjusted EBITDA was $1 9 million compared to 3 million in the same period last year.
Now turning to the full year results.
Revenues for 2020 were $176 9 million compared to $217 6 million last year for a year over year revenue decline of $40 7 million or 18, 7%.
By segment 2020 revenue and margin services was $57 1 million compared to $66 2 million in 2019.
Operating income in this segment was 5 million compared to four 7 million in 2019.
The cost reductions that we made enabled us to achieve an increase in operating income despite the year over year decline in revenue.
Customer care had a strong performance for the year with revenue at $58 7 million in 2020 versus $48 4 million in 2019.
Operating income was $5.
$5 8 million up from a loss of $4 $8 <unk> a year ago. This was an increase of $10 6 million year over year.
In fulfillment and logistics service revenue declined to $61 1 million from $103 million in 2019, while operating losses of $2 7 million compared to a loss of $1 1 million in 2019.
As a reminder, this segment includes our mill production facilities were shut down during Q2 of this year.
Our operating expenses for the full year 2020.
$187 5 million compared to $239 2 million in 2019.
A decrease of $51 7 million or 21, 6%.
The $51 $7 million decline in operating expenses more than offset for $40 7 million decline on revenue, adding to our momentum of improved financial results.
We reduced our operating expenses in all areas, including labor production distribution and advertising selling general and administrative expenses to offset the decline in revenue.
Our restructuring expenses for the full year of 2020 totaled $9 4 million compared to 11 8 million in 2019.
As a result of our aggressive cost efficiency effort operating loss was $10 6 million for the full year of 2020, a major improvement for 2019 operating loss of $21 6 million in 2019, we expect to continue this momentum in 2021.
Adjusted EBITDA for the full year 2020 improved to positive $3 2 million compared to a loss of $3 4 million in 2019.
We now have three quarters of positive adjusted EBITDA in our ROE for 2020, adjusting for the nonrecurring restructuring and impairment expenses. Our adjusted operating loss was 436000 compared to a loss of $8 7 million in 2019.
Net loss for the full year 2020 was $1 7 million or <unk> 34 per basic and diluted share compared to a net loss of $26 3 million or $4 26 per basic and diluted share in 2019.
Net loss from 2020 included an income tax benefit of $16 6 million.
We are expecting additional tax refund of $7 5 million by the end of 2021 related to our 2020 NOL carry back.
Turning to our balance sheet on liquidity.
As of December 31, 2020, we had cash on cash equivalents of $29 4 million with.
This compares to a cash balance of $28 1 million as of the period ended December 31 2019.
We also Inc.
As of December 31, 2020 had $22 2 million in long term debt, which reflects the current draw on our $19 million revolving credit facility as well as the long term portion of our P. P. P. Note.
We believe we have sufficient balance sheet strength to continue exiting executing on our transformation plan and fund future growth.
With that I will turn it back over for the operator to take your questions.
Thank you, ladies and gentlemen, if you wish to ask a question at this time. Please signal by pressing star one on your telephone keypad. Please ensure that Vista mute function on your telephone is switched off to allow your signal for each hour equipment again at spire wanted to ask a question.
We can now go to the line of Michael Kaplinsky of Noble capital markets. Please go ahead Sir.
Thank you and congratulations on your quarter and positive EBITDA in the fourth quarter I know, you're operating a very difficult environment, Many media companies and Bob you.
Who did you executed very well I appreciate that.
So a couple of questions since the company has organized balance of three operating segments can you kind of talk a little bit about how each segment is.
Share there where most of the revenues derived from it looks like in terms of categories like for instance.
Maybe you could just talk about the accounts or what accounts for a large portions of the revenues of each one of those segments.
We can I can I can start and obviously, we'll give you client categories.
So on marketing services business.
Is essentially a CRM business at Sierra on the agency debt has a few components on it.
Everything from strategy to creative too.
Technology to implement E mail solution. So when you think about that business and as we think about that business you would look at competitors within the big holding companies in last year on pure play agencies.
Fulfillment and logistics business does multiple aspects today of debt.
Fulfillment literature fulfillment product fulfillment and then we also do trade marketing fulfillment would be the three biggest categories as you're aware there's been a decline in literature fulfillment category as there is less printing as a whole. So when you look at those three components of the <unk>.
Business as it stands today, we see growth and product fulfillment, which is obviously what <unk> E. Commerce is about that is that an e-commerce product fulfillment.
And then our customer care business.
As I mentioned on the call.
Is transforming the majority of the revenue those are all based on.
Number of seats, we are any given client for the services what I would say is that the transformation that we've made has been to offer more technology services as well and so we see that business transforming.
As well over time.
Got you and in terms of your customer care, obviously, a big jump in the revenues in the quarter can you talk a little bit about.
How much of that revenue is what you would I guess call recurring or one time.
In nature.
Yes, Laurie if you wanted to give a sense for what we think that would be.
Now on.
Sure.
I think we have seen a great increase on that and some of what we thought would be short term project work has continued into longer than we had planned.
But there's still a portion.
Maybe between 10 and 20%, but that's what we would consider project work, it's not necessarily recurring.
But I think that there's still opportunities to continue to grow that and expand on.
Some of that.
Project work that we can continue to do even at the six to six months to a year long project rather than on short Purion.
And it looks like we're pretty much through the first quarter here.
Can you just kind of give us a sense on how each one of these divisions or segments I'm sorry are performing.
Into the first quarter.
Yes.
As we look at the first quarter and beyond.
We've talked about this before and talked about how we believe we've stabilized top line revenue and obviously now need to get these.
Is towards growth.
And are continuing to improve.
EBITDA for each of the businesses. So we see that continuing in the fourth quarter and beyond.
Okay and then.
Mentioned debt you have ongoing cost reduction efforts can you provide.
For the broad in terms of what the annualized cost savings might be in 2021.
Yes, I think it's 2021 of the on board he wanted to touch on that and maybe touch on the ERP implementation as well.
Sure I mean, as we stated when we cut from through restructuring efforts over $20 million on <unk>.
Certainly some of our costs normally would fluctuate with the revenue we're continuing to our restructuring that we expect to complete in 2021 and as you know we've discussed before reducing our facilities footprint has generally been our focus as well as some projects. We've had going on we're also embarking on and.
Taishan other new cloud based ERP system that we expect to drive additional efficiency on the business and <unk>.
Enable us to reduce costs further in the coming years, especially in our overhead related costs.
Gotcha, and then in terms of.
I know the efforts last year were in the year before where it should reduce third party vendors on cost and so forth where do you stand on on <unk>.
Most of your third party vendors at this point in terms of caused by other further cost reductions there or are you satisfied you cut most of the costs that you need to.
In that area.
Yes, we have.
First of all with regards to third party vendors we have completely.
Secondly, we've also and we've discussed this in the past.
Our goal is to be as asset light.
Not just from a real estate footprint standpoint, which we've made tremendous progress over the last few years, but also in terms of technology.
Technology as an example, so so in our fulfillment and logistics business, we're moving towards a much more open architecture Oems.
WNS.
And reducing our own.
Turning to labor for development. So so not only are we not reliant going forward on third party vendors, but we're also not reliant on fixed cost or we won't be as reliant on fixed cost to.
To maintain systems and deliver our work.
And then finally I just request for clarification you guys gave.
Information on the pipeline of business can you just kind of give me a sense of how we should look at the numbers that you provided in terms of how this translates into revenue going forward and over what timeframe.
Yeah, So deane so as.
As we've talked about we like to see the weighted pipeline stuff weighted at 75% or higher.
On.
On conversion likely likelihood to convert at tracking at about 15 million.
Obviously, the quality of our pipeline is as important as the numbers, where we feel encouraged is that the quality of what is in there is of a higher quality than in the past so what I mean by that is.
Right.
By design and how we're selling it our clients and prospects are engaging with more than one service as an example, so it's a higher quality higher ticket items, but it's also leveraging more services. So one way to look at it obviously as that number but the other way, which is obviously tougher to see is is the quality and as we announced.
More and more client wins and you see the types of client wins, that's another way to see the transition and the work that we're doing which is towards.
Higher margin higher ticket paid on work across all of our businesses.
Great.
Congratulations on your progress again, thank you.
Thank you. Thank you.
Okay.
And there are no further questions at this time.
Well to conclude thank you all very much for your time.
And we appreciate it thank you.
Thank you.
Ladies and gentlemen that concludes today's conference call. We thank you for your participation you may now disconnect.
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