Harte Hanks, Inc.
Q4 2020 Earnings Call Transcript
Published:
- Operator:
- 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 Ennis. Please go ahead.
- Sheila Ennis:
- Thank you, Kevin, and good afternoon, everyone. Thanks for joining us. Hosting the call today are Andrew Benett, Executive Chairman and CEO of Harte Hanks; and Lauri Kearnes, CFO. Before I begin, I'd like to tell everyone that the information provided during this call may contain forward-looking statements, such as statements about the company's strategies, adjustments to its cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, anticipated performance and outcomes, future effects of acquisitions, dispositions, litigation and regulatory changes, as well as economic forecasts for the markets they serve; 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 SEC. 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 of other related disclosures.
- Andrew Benett:
- Thank you, Sheila. First, I want to thank our 2,000-plus colleagues around the world for delivering strong results for both the quarter and the year. This past year's challenges have forced us all to navigate our daily lives with both grace and grit, and I want to express my sincere appreciation to our Harte Hanks employees who are approached each day with just that. I hope that everyone on this call has similarly managed through the year and could take comfort that we're hopefully nearing the life at the end of the tunnel. We're pleased to announce that we have structured our business into three operating segments
- Lauri Kearnes:
- Thank you, Andrew. As Andrew noted, we have organized the company around three segments
- Operator:
- Thank you. We can now go to the line of Michael Kupinski of NOBLE Capital Markets. Please go ahead sir.
- Michael Kupinski:
- Thank you, and congratulations on your quarter and positive EBITDA in the fourth quarter. I know you operate in a very difficult environment as many media companies, and you did – you executed very well. I appreciate that. So a couple of questions. Since the company is organized now into three operating segments, can you kind of talk a little bit about how each segment is where there – where most of the revenue is derived from, like in terms of categories like, for instance, maybe you could just talk about the accounts or – what accounts for large portions of the revenues in each one of those segments?
- Andrew Benett:
- Yes, we can – I can start, and obviously, we'll give you client categories. So our Marketing Services business is essentially a CRM business, a CRM agency that has a few components in it, everything from strategy to creative, to technology to implement e-mail solutions. 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 their CRM pure-play agencies. Our Fulfillment & Logistics business does multiple aspects today of 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 as a category as there's less printing as a whole. So when you look at three components of the business as it stands today, we see growth in product fulfillment, which is obviously what B2B and B2C e-commerce is about. That is e-commerce product fulfillment. And then our Customer Care business, as I mentioned on the call, is transforming, and the majority of the revenue, those are all based on a number of seats with 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.
- Michael Kupinski:
- Got it. 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?
- Andrew Benett:
- Yes. Lauri, do you want to give a sense for what we think that would be now?
- Lauri Kearnes:
- Sure. I think we have seen a great increase in that. And some of what we thought would be short-term project work that continued into longer than we had planned. But there's still a portion, maybe between 10% and 20%, that what we would consider project work that's not necessarily recurring. But I think that there's still opportunities to continue to grow that and expand in some of that project work that we can continue to do even if its six months to a year-long project rather than a short period.
- Michael Kupinski:
- And it looks like we are pretty 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 are performing into the first quarter?
- Andrew Benett:
- Yes. And so as we look at the first quarter and beyond, and 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 businesses towards growth and are continuing to improve EBITDA for each of those businesses. So we see that continuing in the fourth quarter and beyond.
- Michael Kupinski:
- Okay. And then you've mentioned that you have ongoing cost reduction efforts. Can you provide some thought in terms of what annualized cost savings might be in 2021?
- Andrew Benett:
- Yes, I think its 2021 and beyond. Lauri, if you want to touch on that and maybe touch on the ERP implementation as well?
- Lauri Kearnes:
- Sure. I mean, as we stated, we cut from – through restructuring efforts over $20 million. Certainly, some of our costs normally would fluctuate with the revenue. We're continuing through our restructuring that we expect to complete in 2021. And as you know, we've discussed before, reducing our facilities footprint has certainly been a focus as well as some IT projects we've had going on. We're also embarking on an implementation of a new cloud-based ERP system that we expect to drive additional efficiency in the business and enable us to reduce costs further in the coming years, especially in our overhead-related costs.
- Michael Kupinski:
- Got you. And in terms of – I know the efforts last year were – and a year before were to reduce third-party vendors cost and so forth. Where do you stand on most of your third-party vendors at this point in terms of further cost reductions there? Or are you satisfied to cut most of the cost that you need to in that area?
- Andrew Benett:
- Yes, we have. First of all, with regards to third pay vendors, we have completely. Secondly, we've also – and we've discussed this in the past, our goal is to be as asset-light, and that's 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, as an example. So in our Fulfillment & Logistics business, we're moving towards a much more open architecture, OMS, WMS and reducing our own internal labor for development. 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 maintain systems and deliver our work.
- Michael Kupinski:
- And then finally, just a 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 time frame?
- Andrew Benett:
- Yes. So the – as we've talked about, we like to see the weighted pipeline that's weighted at 75% or higher on conversion, likeliness to convert at – tracking at about $15 million. Obviously, the quality of a pipeline is as important as the numbers. Where we feel encouraged is that the quality of what is in there is of higher quality than in the past. So what I mean by that is 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 item, but it's also leveraging more services. So one way to look at it, obviously, is that number. But the other way, which is obviously tougher to see, is the quality. And as we announce 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 item work across all of our businesses.
- Michael Kupinski:
- Great. Congratulations on your progress, again. Thank you.
- Andrew Benett:
- Thank you.
- Lauri Kearnes:
- Thank you.
- Operator:
- There are no further questions at this time.
- Andrew Benett:
- Perfect. Well, to conclude, thank you all very much for your time, and we appreciate it. Thank you.
- Lauri Kearnes:
- Thank you.
- Operator:
- Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.