Form 10-K: Annual Report of Harte Hanks, Inc. for the Fiscal Year Ended December 31, 2024
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Overview of Harte Hanks’ Financial Performance
Harte Hanks, Inc. is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services. The company’s mission is to partner with clients to provide robust customer-experience strategy, data-driven analytics, and actionable insights combined with seamless program execution.
For the year ended December 31, 2024, Harte Hanks reported operating revenues of $185.2 million, a decrease of 3.3% compared to the prior year. Operating expenses decreased 2.6% to $183.1 million, resulting in operating income of $2.1 million and an operating margin of 1.1%. The company reported a net loss of $30.3 million, or $4.15 per diluted share, compared to a net loss of $1.6 million, or $0.21 per diluted share, in the prior year.
The decline in revenues and profitability was driven by decreases across all three of Harte Hanks’ business segments. The Marketing Services segment saw a 4.9% drop in revenue, the Customer Care segment declined 1.3%, and the Fulfillment & Logistics segment fell 3.5%. The company attributed these declines to factors such as customer turnover, client spending reductions, and lower revenue from existing customers.
Revenue and Profit Trends
Harte Hanks’ revenues have been under pressure in recent years, declining 3.3% in 2024 and 1.3% in 2023. This trend reflects the challenging economic environment, with marketing budgets being more discretionary and easier for clients to reduce in the short-term.
The company’s profitability has also been impacted, with operating income declining 37.7% in 2024 to $2.1 million. This was driven by a combination of lower revenues and increased expenses, particularly in the areas of advertising, selling, and general and administrative costs, which rose 10.2%.
Harte Hanks has sought to manage its cost structure through initiatives like Project Elevate, which aims to optimize and rationalize the company’s business resources. This program is expected to generate $16 million in reorganization savings from 2024 to 2026. However, the company also incurred $2.4 million in restructuring expenses in 2024, including consulting, severance, and facility-related costs.
Another factor weighing on Harte Hanks’ profitability was the $37.5 million in pension termination charges recorded in 2024. This, along with $3.1 million in impairment charges related to goodwill and intangible assets, contributed to the significant net loss for the year.
Strengths and Weaknesses
One of Harte Hanks’ key strengths is its diversified business model, with operations spanning marketing services, customer care, and fulfillment and logistics. This diversification helps to mitigate risk and provides opportunities for cross-selling and integrated solutions.
The company’s focus on data-driven customer experience strategies and technology enablement also positions it well to meet the evolving needs of its clients. Harte Hanks has been investing in capabilities like its Amazon Connect cloud-based contact center platform and exploring the use of AI tools to enhance its service offerings.
However, the company’s reliance on discretionary marketing budgets makes it vulnerable to economic downturns. Harte Hanks’ recent financial performance reflects the impact of factors like inflation, interest rate increases, and global economic uncertainty, which have pressured its clients’ spending.
The company’s high fixed costs, particularly in areas like labor and transportation, also limit its ability to quickly adjust its cost structure in response to revenue declines. This has contributed to the erosion of Harte Hanks’ operating margins in recent years.
Additionally, the company’s previous acquisition of InsideOut has resulted in significant impairment charges, highlighting the challenges of integrating and realizing value from M&A activity.
Outlook and Future Prospects
Looking ahead, Harte Hanks faces a challenging operating environment characterized by continued economic volatility and uncertainty. Management is closely monitoring the potential impact of inflation and wage pressures on the company and its clients.
To navigate these headwinds, Harte Hanks is focused on executing its multichannel strategy and continuing to optimize its cost structure through initiatives like Project Elevate. The company believes these efforts, along with investments in sales, marketing, technology, and strategy, will position it for improved performance in the future.
However, the company’s ability to return to consistent profitability will depend on its success in winning new business, retaining existing clients, and effectively managing its cost base. Harte Hanks will also need to carefully manage its liquidity and capital resources, as the company had $9.9 million in cash and cash equivalents as of December 31, 2024, and $24.0 million in available borrowing capacity under its credit facility.
Overall, Harte Hanks faces a difficult operating environment, but the company’s diversified business model, focus on customer experience, and cost optimization efforts provide a foundation for potential future growth and improved financial performance, assuming the macroeconomic conditions stabilize.
