Harte-Hanks: Navigating Growth and Challenges in Q3 2024

Harte Hanks, Inc. (NASDAQ:HHS), a leading global customer experience company, reported its third-quarter 2024 results on November 14, 2024, revealing a mixed performance amidst strategic shifts and market dynamics. The company's earnings snapshot offers valuable insights into its growth prospects, challenges, and strategic initiatives.

The company's total revenues for Q3 2024 were $47.6 million, an increase of 1.1% compared to $47.1 million in Q3 2023. This modest growth was driven by increased revenue in two of the company's operating segments. However, operating income decreased to $1.9 million, down from $2.9 million in the same quarter in the prior year, primarily due to restructuring expenses and increased investment in sales and marketing during the quarter.

Harte Hanks recorded $0.8 million in restructuring charges in Q3 2024, related to the execution of Project Elevate. Despite these charges, the company maintained positive net income and EBITDA for the quarter. Adjusted EBITDA, which excludes stock-based compensation, severance, and restructuring charges, was $4.1 million for Q3 2024, compared to $4.2 million for the same quarter in 2023.

Segment Highlights

The Customer Care segment performed well, with revenues increasing by 10.4% to $13.1 million, accounting for 27% of total revenue. EBITDA for the quarter totaled $2.5 million, an increase of 40.5% compared to the same period in the prior year. This growth was driven by the onboarding of new clients and expansion of existing work with a specific client.

The Sales Services segment also showed promising growth, with revenues increasing by 94.1% to $4.2 million, accounting for 9% of total revenue. EBITDA for the quarter totaled $0.7 million, an increase of 237% compared to the same period in the prior year. This increase in revenue was related to growth with a large fintech client.

The Fulfillment & Logistics Services segment, however, saw a revenue decline of 5.4% to $21.3 million, accounting for 45% of total revenue. EBITDA totaled $1.3 million, declining by 53.1% compared to the same period in the prior year. The contribution margin was impacted by investments in technology, increased cost of facilities, and a shift in revenue mix between lower margin logistics and higher margin fulfillment services.

The Marketing Services segment experienced a revenue decline of 14.6% to $9.1 million, accounting for 19% of total revenue. EBITDA for the third quarter totaled $2.1 million, compared to $1.5 million for the third quarter of 2023. The revenue decline was the result of customer turnover and reductions in client spending. Despite this, the increase in EBITDA, despite lower revenue, was the direct result of Project Elevate.

Looking Ahead

Harte Hanks' strategic focus on improving sales execution and establishing the Customer Excellence and Growth (CEG) division positions the company for long-term success. The CEG division, led by the company's first Chief Customer and Data Officer, unifies sales and customer organizations, leveraging data and AI to enhance value propositions across all product offerings. This initiative is expected to drive increased profitability and free cash flow in the long term.

However, the company anticipates a low to mid-single-digit revenue contraction in the fourth quarter due to changes in customer programs. Despite this short-term challenge, Harte Hanks remains optimistic about its ability to expand its client base, increase business with existing clients, and deliver sustainable growth and cash generation.

In conclusion, Harte Hanks' Q3 2024 earnings snapshot reveals a strategic focus on growth and long-term success, despite facing short-term challenges. The company's strategic initiatives, such as the establishment of the Customer Excellence and Growth division, position it well for future growth. However, investors should remain cautious about the potential revenue contraction in the fourth quarter and monitor the company's progress in expanding its client base and increasing business with existing clients.