Harte Hanks, Inc. (HHS) is a leading global customer experience company that has been serving clients for over 100 years. The company's mission is to partner with clients, providing them with CX strategy, data-driven analytics, and actionable insights combined with seamless program execution to better understand, attract, and engage their customers.
Company History and Evolution
Harte Hanks was founded in 1923 in San Antonio, Texas, by Bernard Hanks and Roy Harte. The company started as a direct marketing agency, providing direct mail and advertising services to local businesses. Over the years, Harte Hanks has evolved and expanded its suite of services, growing into a comprehensive customer experience company.
In the 1960s, Harte Hanks began diversifying its offerings, adding telemarketing, data processing, and fulfillment services to its portfolio. The company continued to grow through the 1970s and 1980s, both organically and through strategic acquisitions, expanding its geographic reach and service capabilities.
During the 1990s, Harte Hanks faced significant challenges as the rise of digital marketing disrupted traditional direct mail. The company had to adapt its business model and invest in new capabilities to remain competitive. This included building out its digital marketing, customer care, and logistics services. Despite the industry shifts, Harte Hanks maintained its focus on partnering with clients to provide comprehensive customer experience solutions.
The early 2000s brought additional challenges as the broader economy faced recessions. Harte Hanks had to manage its cost structure and optimize operations to navigate these market conditions. The company made strategic divestitures and restructuring moves to streamline the business. Through these efforts, Harte Hanks was able to maintain its financial stability and continue serving its diverse client base.
In recent years, Harte Hanks has had to adapt to the accelerating pace of technological change and evolving consumer behaviors. The company has made investments to bolster its data-driven analytics, marketing automation, and omnichannel capabilities. These modernization efforts have allowed Harte Hanks to continue providing innovative customer experience solutions to its long-standing and new clients across various industry verticals.
Business Segments
Today, Harte Hanks operates four reportable segments: Marketing Services, Customer Care, Sales Services, and Fulfillment & Logistics Services.
The Marketing Services segment delivers strategic planning, data strategy, performance analytics, creative development and execution, technology enablement, marketing automation, and database management. Key service offerings include helping clients build deep customer relationships, create connected customer experiences, and optimize customer touch points to deliver desired business outcomes. The segment's performance obligations are typically satisfied over time and may be offered on a per-project basis. Revenue is recognized using either an input method (e.g., costs or labor hours incurred) or an output method (e.g., number of customer records) depending on the nature of the services provided.
The Customer Care segment offers customer care services in the U.S., Asia, and Europe, providing advanced solutions such as voice, SMS/chat, email, integrated voice response, web self-service, social cloud monitoring, and analytics. Performance obligations are stand-ready obligations that are satisfied over time, with revenue recognized using a time-elapsed output method or a transaction-based output method.
The Sales Services segment enables customers to optimize their go-to-market function by offering services such as sales process optimization, sales play development, inbound lead qualification and outbound sales prospecting. Performance obligations are stand-ready obligations satisfied over time, with revenue recognized using similar methods as the Customer Care segment.
The Fulfillment & Logistics Services segment offers services including printing, lettershop, advanced mail optimization, logistics and transportation optimization, monitoring and tracking, to support traditional and specialized mailings. Most performance obligations are satisfied over time using input or output methods to measure progress, with some transaction-based fees recognized using the as-invoiced practical expedient.
Financials
Harte Hanks' financial performance has been somewhat mixed in recent years. In 2023, the company reported total revenues of $142.0 million, a decrease of 2.7% compared to the previous year. Net income for 2023 was $0.4 million, or $0.05 per diluted share. The company's operating cash flow and free cash flow for 2023 were $6.1 million and -$1.5 million, respectively.
However, the company has taken proactive steps to streamline its operations and enhance its competitive position. In 2024, Harte Hanks launched "Project Elevate," a comprehensive transformation program aimed at optimizing the company's cost structure, driving organic growth, and improving profitability. As part of this initiative, the company has restructured its sales and marketing organization, centralized its operations, and invested in technology and data capabilities.
The results of these efforts have started to bear fruit. In the third quarter of 2024, Harte Hanks reported total revenues of $47.63 million, a 1.1% increase from $47.12 million in Q3 2023. This represents an improvement from the negative 16.6% revenue decline reported in Q3 2023. Net income for Q3 2024 was $0.14 million, compared to $0.62 million in Q3 2023. The company's operating cash flow and free cash flow for Q3 2024 were -$6.77 million and -$8.15 million, respectively, compared to $2.22 million and $1.23 million in Q3 2023. The decrease in OCF and FCF was primarily due to a $7.20 million payment to terminate the company's pension plan.
For the first nine months of 2024, revenue decreased 2.7% year-over-year, from $142.0 million to $138.1 million. The decrease was driven by declines in the Marketing Services, Fulfillment & Logistics, and Customer Care segments, partially offset by growth in the Sales Services segment. Operating income also decreased 35.3% year-over-year for the first nine months, from $5.6 million to $3.7 million, primarily due to the $37.5 million pension termination charge recorded in 2024.
Liquidity
As of September 30, 2024, Harte Hanks maintained a solid liquidity position with a cash balance of $5.94 million. The company's debt-to-equity ratio stood at 1.20, while its current ratio and quick ratio were both 1.46. Harte Hanks has a $25 million revolving credit facility, which was not drawn upon as of September 30, 2024, providing additional financial flexibility.
Future Outlook and Challenges
Looking ahead, Harte Hanks is well-positioned to capitalize on the growing demand for customer experience solutions. The company has a robust sales pipeline and is leveraging its data and analytics capabilities to enhance its value proposition across all business segments. Additionally, the company's recent hiring of a Chief Customer and Data Officer is expected to drive customer-centric initiatives and further strengthen its competitive edge.
For Q4 2024, Harte Hanks expects a low to mid-single digit revenue decline. The company is focused on growing free cash flow as they continue their business transformation efforts. Harte Hanks has a goal to develop integrated data and AI capabilities to meet the increasing demand for data intelligence and technology solutions from their clients.
Recent business developments include securing a new $2 million annual contract with a top 15 financial services client for printing and fulfillment of fund-related collateral, and launching a new customer care offering for a prominent global resale marketplace for luxury goods, establishing a regional presence in Dallas to support this client.
However, Harte Hanks is not without its challenges. The company operates in a highly competitive and rapidly evolving industry, with increasing pressure from both traditional and digital-native competitors. Additionally, the company's reliance on a limited number of large customers presents a risk, as the loss of one or more of these clients could have a material impact on its financial performance.
Furthermore, the COVID-19 pandemic has had a significant impact on Harte Hanks' business, as many of its clients have reduced their marketing and advertising budgets. The company has implemented cost-cutting measures and operational adjustments to mitigate the impact of the pandemic, but the long-term effects remain uncertain.
Conclusion
Despite these challenges, Harte Hanks remains committed to its transformation and growth strategy. The company's focus on data-driven solutions, technology innovation, and customer-centricity positions it well to navigate the changing market landscape and capture new opportunities. As Harte Hanks continues to execute on its strategic initiatives, investors will be closely monitoring the company's ability to deliver sustainable growth and profitability.
In conclusion, Harte Hanks is a storied customer experience company with a rich history and a promising future. By leveraging its data and analytics capabilities, investing in technology, and maintaining a relentless focus on delivering exceptional customer experiences, Harte Hanks is well-positioned to capitalize on the growing demand for integrated CX solutions and drive long-term shareholder value. The marketing services industry has seen a compound annual growth rate (CAGR) of approximately 3-4% in recent years, driven by the increasing demand for data-driven marketing solutions and the shift towards digital channels. As Harte Hanks continues to adapt and innovate, it aims to outperform this industry growth rate and strengthen its market position in the evolving customer experience landscape.