Greetings. Welcome to the Harte Hanks Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Tom Baumann of FNK IR. You may begin.

Thank you. Hosting the call today are Kirk Davis, Chief Executive Officer; and David Garrison, Chief Financial Officer. Before we begin, I want to remind participants that during the call, management’s prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we will refer you to a more detailed discussion of these risks and uncertainties in the company’s filings with the Securities and Exchange Commission. In addition, any projections as to the company’s future performance represented by management may include estimates as of today, August 8, 2024, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures, are available in the earnings press release that was issued shortly after the market closed. A copy of that press release and other corporate disclosure is available on the Investor Relations section of the Harte Hanks website at hartehanks.com. With that, I would now like to turn the call over to Kirk. Kirk, the call is yours.

Thank you, Tom and good afternoon everyone. Welcome to our Q2 2024 earnings conference call. Last year’s Q2 earnings call was my first since joining Harte Hanks. Although I had only been with the company for 7 weeks, I seized the opportunity to outline my vision for revitalizing our business and shared specific actions we needed to take. Now, a year later, I would like to review the commitments we made and the progress we have achieved. 1 year ago, revenues were declining, and there was not a prevailing strategy to expect otherwise. All we could commit to was that we believed the revenue we reported last year in Q2 2023 would serve as a baseline for Q3 and Q4, which we went on to modestly outperform. More importantly, we had 4 months remaining in 2023 to address the state of our marketing and sales organization. And I knew already that the organization needed improving. Leadership is key, and in my assessment, it was clear that we first needed to recruit a new corporate executive to lead sales and marketing. Further, we needed to empower that individual by centralizing oversight of our sales organization rather than having sales staff reporting into our business units. The legacy structure resulted in a siloed approach to selling and an informal process for managing and evaluating the performance of staff. Our structure made cross selling more difficult. In contrast, today our sales staff works closely with our business units leaders. We have developed company-wide standards for what we expect performance-wise. Additionally today, our corporate SVP of Sales is directly involved in helping to close new business across all of Harte Hanks. Our previous structure also lacked essential sales channel experts and roles crucial for business development, expanding partnerships and enhancing our international sales presence.…

Thank you, Kirk. I will now review the second quarter consolidated results, including revenues from each business segment. As a reminder, starting in 2024, we began reporting four segments instead of three. The additional segment is referred to as Sales Services and relates to the InsideOut acquisition made in 2022. Second quarter revenues were $45 million down by 5.7% compared to $47.8 million for the second quarter of 2023. Growth in Fulfillment & Logistics and Sales Services segments was offset by declines in the other two segments. Revenues in the Customer Care segment were $12.4 million in the second quarter of 2024 compared to $14.9 million in the same quarter prior year. This was related to the timing between quarters of a surge in volume with a large customer. Sales Services increased to $4.4 million compared to $2.3 million in the second quarter of 2023. The increase in volume from a large fintech client was the majority of the increase. The Marketing Services segment revenues fell to $7.7 million in the second quarter of 2024 compared to $10.9 million in the prior year. Customer budget reductions and the end of specific programs account for the decrease in this segment year-over-year. Fulfillment & Logistics revenues were $20.5 million in the second quarter of 2024 compared to $19.6 million in the prior year. The increases were the result of new and expanded programs with existing customers. Operating expenses in Q2 were $43.7 million, including restructuring expenses of $427,000 compared to $46.1 million in the same period in 2023. The operating income in Q2 2024 was $1.4 million compared to the operating income of $1.7 million in the second quarter of 2023. When adjusting for stock compensation, severance and restructuring expenses, the adjusted operating income in the second quarter of 2024 is $2.5…

Thanks, Dave. Before we move to the Q&A session, I want to emphasize that Harte Hanks is amid an exciting turnaround. Our sales transformation is complete, and we are embarking on a new era of growth and success. With the recent appointment of our Chief Customer and Data Officer, our senior management team is now fully assembled and committed to driving shareholder value. The cost objective of our Elevate program is on track. Our sales pipeline well exceeds what I inherited and continues to grow. Additionally, we successfully terminated Pension Plan 1 in June, fulfilling our commitments in this area, as David outlined. We closed the quarter with $11 million in cash and cash equivalents, and again, we have no debt. Clearly, our year-to-date revenue performance does not mirror the promising outlook we hold for our business. It is important to recognize that we are in the final stages of overcoming the challenges posed with an outdated approach to scaling. However, we are confident in our strategy and excited about the future. Dave and I are happy to answer your questions. Thank you very much.

Thank you. [Operator Instructions] And the first question today is coming from Michael Kupinski from NOBLE Capital Markets. Michael, your line is live. Please proceed.

Good afternoon, everyone. Thanks for taking my questions. Kirk, as you mentioned, you recently centralized your sales staff and reporting structure and restaffed and expanded the staff. When do you think that this new structure and sales expansion will be kind of hitting its stride in terms of accelerating revenue generation and possibly improve efficiency? I was just wondering if you can just add some more color there.

Sure, I’m happy to. And nice to hear from you. I think at this point, our pipeline is at a really strong level compared to prior year. We’re learning a great deal and how effective our go-to-market strategy is. We continue to make tweaks. We’re optimistic as we go through the balance of the year that we’ll continue to see improvements in our conversion rates, and we’ll see more efficiency in our sales cycle. We’re anxious to integrate the role of our new Chief Customer and Data Officer into conversations that we’re having with clients, because it’s becoming increasingly apparent to us that there are avenues we could be pursuing that will certainly enhance our prospects for closing more business. There’s great interest right now in data. There’s great interest in analytics. There’s great interest in gen AI. And I think better – being better able to articulate the unique value we bring will be very, very helpful. So I would say our organic lead generation efforts are an area we still want to expand more. And I’d say that we have a promising outlook as we proceed through the balance of the year and especially as we think about 2025. So we’re really pleased with the way the organization has come together. We’ve retained all of the folks we initially hired but made some selective choices to change out staff, which is not uncommon when you build a new organization, and it’s very performance based. We definitely are focused more on generating our own leads. And so we’re really deeply moving the needle in our digital presence because that’s where we have the best chances for conversion. And I say that with respect to depressing our involvement or reliance on RFP processes and such. We have such a good value proposition, which I see only getting stronger, and that we want to generate more of our own leads and that’s happening. And so I think this is going to prove to be a game-changing transformation that we’ve accomplished here. And I think the evidence of that will be playing out the balance of the year and into next year.

Thanks, Kirk. And then I know that on top of everyone’s mind is the economy. And I was just wondering if you look at this quarter, I know some of the issues affecting this quarter were kind of already in play in the quarter. But I was just wondering if any of what we saw in terms of weakness in some of your segments were related to the economy. And if you think, as we kind of see the weakening economy in the second half here, was wondering if you can kind of give us your thoughts on how your business will fare in kind of more of a lackluster economic scenario that we might have.

Yes. Thanks for that. I’m very aware. And I fully appreciate what a slowing economy means. I’ve run companies during some of the most notable slumps in recent decades. So very attuned to that. Frankly, there’s so much untapped potential here. It’s not a prevailing concern of mine right now. I think we need to hustle and obviously start closing on many of the opportunities in our pipeline. We’re aware of how our customers can sort of elect lower cost alternatives, if that’s important to their business. We’ve seen labor arbitrage a factor in customer care. Clearly, companies can dial back marketing investments if they’re concerned and managing earnings as such. However, that’s rarely a good idea. And in some cases, maybe to fund more investments in technology. It certainly is a year for that. But at this moment, honestly, I believe our potential to organically attract business far outweighs any economic concerns at the present time. We’re really positioned on both sides of the ledger. We’ve talked about Project Elevate. So we are equally focused on costs that aren’t going to be limiting factors toward our growth programs. We think our fulfillment business is positioned exceedingly well as we head into the second half of the year. Much of that work, whether it’s for back-to-school, even doing kitting projects right now for major retailers is really a back-to-school and almost holiday story as it stands here right now. So that’s not to say that 2025 can’t hold surprises, but we have good visibility into the second half of the year. When I think about the pharma work that we do in the company, it’s primarily necessities related. And we’re actually currently pursuing some attractive additional pharma opportunities. I think about all of our high volumes of digital printing and mailings, that’s driven by regulatory requirements. That’s must-do work late in the second half. So overall, I feel we’re in an envious position to be as clear as a company can be on what we need to do and get done. And we’re still feeling positive about the outlook, and at this moment, wouldn’t blame anything on the economy.

Kirk, I just have two more questions. You mentioned about the visibility into the second half. I was wondering if you can kind of give us your thoughts. And certainly, we know that customers can cancel or postpone campaigns and things like that. But do you anticipate that you’ll see sequential quarterly improvement in revenues in the second half? Or do you think that that’s more 2025 situation?

The unpredictability in that is really in the sales cycle. And when we make a call on assurances of revenue growth in Q3 or Q4, it has to be that the stage we’re in across our sales cycle, particularly the contracting and legal stage, is where we have the see-through. I would say at this point, it’s too early to make a call. We’ll do another call obviously in November. And I expect our visibility obviously at that stage will be vastly enhanced. So we have a lot of activity, and we have a very robust pipeline, but I would want to stop short right now of making a call on the quarter specifically. Typically, we have better seasonality in Q4. Right now, I would say apart from the seasonality, our new business outlook is stronger there as well. So we’ll see, but we’re quite optimistic.

My final question is about your marketing services. Obviously, this has been probably your more problematic segment. I was just wondering, you had – you faced some unique challenges there. I was wondering if you can just kind of give us your thoughts in terms of the strategy and how you’re approaching kind of getting that back on a revenue growth trajectory. And then just was wondering if you can just quickly talk a little bit about your expansion plans internationally as well. And that’s all I have.

Sure. So agree. Marketing services has been a weakness. And that really originates back to last spring and summer. And we did see some customers leave, and that – and they were setbacks morale-wise and obviously economically. And we’ve been retooling since. But I would tell you that I am still quite optimistic about that segment. It’s going to be a major focal point in 2025. I’m very excited that Sharona, I think, will bring a lot of value and concentration to this segment early on as well. I think we’re going to bolster our sales support for marketing services in 2025, and we’ll onboard one or two more resources for that in late Q3. I think there are some new services that we could look at packaging in our marketing services business that we’re hearing from customers that they have a great interest in. Those examples would be in research, in data and tech services. And those are not services today, with the exception of data, that we aggressively market. But even data isn’t really today involving us getting involved in anybody’s data practice or helping them improve their data practice. It’s really the sale of data that we really leverage today. So I think when I talk about customer leadership and customer retention, which obviously takes some of the pressure off how much new business we need to generate, it’s in these areas. And marketing today is becoming increasingly more marketing science oriented. And I think you can see we’re bolstering up our resources there. We will name somebody to lead that division for us in 2025. We’ve been doing some restructuring in there right now. We’ve been analyzing the capability gaps that we have to be more competitive. Although that notwithstanding, the large customer that we just signed was in our Marketing Services segment, and that customer will begin in the next few weeks. So, got it. It has been a weakness here. It’s an area where I’ve had a deep experience myself in my career building digital agencies and such. So I’m very committed to the segment. And I think the problems were internal, and we’ll have them fixed and it will be a strong contributor in 2025. And then on the international side, the real gap there is that we have opportunities to expand U.S.-based clients into Europe. We have the opportunity to do more lead gen work specifically in Europe. We’ve got a couple of staffers there who are outstanding. But that division and the brilliant way that they execute warrants more sales pressure because we execute exceedingly well in Europe right now. We have great teams. Obviously, it’s a smaller part of our company than our domestic operations, but we think we can be very, very successful there. We have a strong team. We’ve started building really strong leads. And so stay tuned. But I think Europe specifically will be a growth driver for us in 2025.

That’s all I have. Thank you, guys. Good luck to you.

Yes. Thanks so much. I appreciate it.

Thank you. And there are no further questions in queue at this time. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.