HARTE HANKS INC Q1 FY2023 earnings call

• Brian noted a challenging first quarter with stronger macroeconomic headwinds but positive EBITDA. Fulfillment & Logistics grew but with lower margin impact. Customer Care was impacted by end of pandemic projects. Marketing Services down due to direct mail and B2B tech. Announced combining Marketing Services and Customer Care into Customer Experience segment led by Ben Chacko, with three practice areas: professional services, demand generation and sales strategy, BPO managed services. InsideOut acquisition improved digital and inside sales capabilities. Investment in technology for modernizing systems.
• Lauri discussed Q1 financial results, balance sheet with cash and cash equivalents at $13.1 million, and plan to terminate largest qualified pension plan by first half of 2024.

Fulfillment & Logistics: Revenue increased approximately $3.1 million or 16.7% compared to Q1 last year, with EBITDA decreasing slightly to $2.2 million. Driven by lower margin logistics revenue offsetting reduced financial services revenue. Customer Care: Revenue decreased 18.8% year-over-year due to conclusion of pandemic-related projects and lower streaming client interactions; InsideOut contributed $2.8 million in revenue and $0.5 million in EBITDA. Marketing Services: Revenue decreased 13% to $11.2 million, EBITDA decreased to $1.2 million, largely due to direct mail campaigns not continuing and B2B tech project work concluding.

• Expect sequential improvement in EBITDA for Q2 but year-over-year EBITDA pressured by revenue mix shift. Previously shared FY2023 expectations no longer relevant; focused on preserving profitability and right-sizing business. Board authorized $6.5 million share buyback.

• Macroeconomic headwinds stronger than expected. Revenue mix challenges impacting EBITDA margins. Uncertainty beyond second quarter.

Q: Couple of questions about the change in tone regarding economic impact and what's changed, and visibility beyond second quarter.

A: Brian said tone changed due to slowdown in projects, starts pushed out; limited visibility beyond second quarter but well-positioned to weather storm.

Q: Thoughts on second quarter by segment revenues.

A: Customer Care has pandemic/recall revenue challenge but improved streaming; Fulfillment & Logistics has logistics revenue growth but margin challenges; Marketing Services has direct mail rolling off.

Q: When did cost cutting start and plans for annualized cost savings.

A: Cost reduction largely second and third quarter events; preliminary stages, more than couple million expected to be taken out.

Q: About reduced client spend, specifically financial services in fulfillment and regional banking crisis.

A: Regional bank issue trickled in, tightening belt for financial services clients across segments.

Q: Strategic rationale for combining segments and example of wallet share growth.

A: Ben Chacko leading combined segment to leverage talent and tech; example with health care system showing ability to drive membership growth.

Q: Cadence of share repurchase program.

A: Opportunistic within rules and restrictions for company size.

Q: InsideOut contribution and acquisition performance.

A: InsideOut contributed $2.8 million revenue and $0.5 million EBITDA; acquisition will be leveraged for growth.

Q: M&A opportunities.

A: Opportunistic, but focus on reorganization first with potential for complementary inorganic options later.