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.

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. The company's earnings release is available on the Investors section of its website at hartehanks.com. With all that said, I'd now like to turn the call over to Andrew Benett. Andrew, the call is yours.

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 approach 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 light at the end of the tunnel. We're pleased to announce that we have structured our business into three operating segments: Marketing Services, Customer Care and Fulfillment & Logistics. As will be provided in our 10-K, we've begun segment reporting to reflect this. Lauri will talk through the results in greater detail. We've made significant progress in 2020. I'll highlight our strengthened financial position, the excellent results from our Customer Care business, the progress on our cost reduction efforts, our new executive hires and our optimism around our business going forward. To begin with, first, our strengthened financial position. In 2020, we strengthened our balance sheet and began 2021 with $29.4 million in cash and cash equivalents and we anticipate an additional $7.5 million from an income tax refund by year-end. Secondly, our contact center results for the year. Revenue grew in our Customer Care segment by 44.5% for the quarter, fueled by continuing project work, increased volume from existing clients and new wins. In 2020, we made significant progress transforming our Customer Care business from a typical call center BPO to a tech-first offering, aggregating cross-channel interactions to provide our clients with 360-degree customer profiles and leveraging our Harte Hanks CRM marketing services capabilities. In addition, leveraging work at home has allowed us to eliminate typical cost constraints tied to pure brick-and-mortar facilities, such as recruiting, space, hardware and aspects of connectivity. We also added technology capabilities such as Tableau to improve our reporting and expanded our business intelligence capabilities with dashboard development and analytic modeling, also borrowing from our Marketing Services business. As the consumer interacts more in real-time through social media, we formalized our relationship with a social media platform, creating an integrated platform that allows customers to interact across multiple messaging platforms. We integrate this solution across the multiple CRMs we support, including Oracle CX, Salesforce and Zendesk. Huge kudos to Ben Chacko, our new Managing Director for Customer Care and for his stellar team for leading an amazing transformation of the business in 2020. Thirdly, our cost reductions. We implemented cost reductions across every aspect of the company, reducing overall costs in 2020 by over $20 million. Our cost-cutting was a key contributor to our $1.9 million in positive adjusted EBITDA for the quarter, our third quarter in a row of positive adjusted EBITDA. We reduced our operating expenses in all areas, including labor, production, distribution, advertising and selling, general and G&A expenses. Fourth, new executive hires. To drive growth and momentum, we brought on two new leaders. Joyce Karel is our new Chief Commercial Officer, responsible for leading our Marketing Services segment and managing our client, sales and marketing efforts across the enterprise. Before joining in January, Joyce held C-suite positions at marketing agencies, including MRM/McCann, Wunderman and Digitas. Pat O'Brien joined us in February as our Managing Director of Fulfillment & Logistics Services. Pat is an experienced and innovative operational leader with a background in strategy through his former roles at Wayfair and Bain Consulting. In 2020, we also set a strong foundation for our Marketing Services and Fulfillment Businesses – Fulfillment & Logistics businesses. We transformed our fulfillment business from a high-touch subscale B2B program focus to full-service B2B and B2C e-commerce fulfillment, powered by a cloud-based WMS and OMS. In Marketing Services, we now sell integrated CRM focused on the entire customer journey and powered by decades of first-party data experience. And lastly, our optimism for growth in 2021. As we look to 2021 and beyond, we believe our businesses are extremely well positioned for a post-COVID world. Our three operating segments participate in large addressable markets that benefit from the e-commerce increase due to behavioral shifts from the pandemic. We're confident that this shift is a lasting trend that will continue well beyond the pandemic. We have a unified go-to-market positioning as an omnichannel customer experience company and believe we have a highly differentiated product and service offering. Equally important, we have strong client relationships in high-growth categories such as Financial Services, CPG, Healthcare and B2B tech, with room to grow and with a new leadership team focused on adding value to these relationships and beyond. To conclude, as we enter 2021, we feel confident in our turnaround. Our Customer Care business is back on track, delivering strong performance after years of decline. We have new executives leading Marketing Services and Fulfillment & Logistics, and we expect to see improved performance in 2021 in these businesses. With that said, I'll now turn it over to Lauri to go through the quarter and the full year.

Thank you, Andrew. As Andrew noted, we have organized the company around three segments: Marketing Services, Fulfillment & Logistics and Customer Care, and we'll be reporting on them moving forward. Revenues grew in our Customer Care segment by 44.5% for the quarter; this was fueled by continuing project work as well as increased volumes with existing clients. Our Marketing Services business was down a modest 6.3% mostly due to reductions in our clients' 2020 marketing budgets due to COVID. Fulfillment & Logistics was down 39.3% due to the elimination of our mail production facility as well as impacts due to COVID for some clients. The company's cost reduction efforts continue to be reflected in our quarterly results, which show a stabilizing business performing with consistency. Our cost-cutting, coupled with revenue stabilization and growth are key contributors to the positive and consistent adjusted EBITDA. This is the third quarter in a row that we are adjusted EBITDA positive at $1.9 million in Q4. With respect to new business, I am pleased to report that our current weighted pipeline is $14.8 million. Our unweighted pipeline is $41 million, both of which remain strong heading into 2021. As Andrew has described, part of our optimization efforts include continuing to focus on streamlining and restructuring the business to meet the needs of the market today, and we are encouraged by the stabilization and growth in the business lines where we're investing. I'd now like to walk through the quarterly results in more detail. Fourth quarter revenues were $47.1 million compared to $52.3 million in the year-ago quarter for a year-over-year revenue decline of $5.2 million or 10%. Our operating expenses for the fourth quarter were $47.4 million, down from $51.9 million in the year-ago quarter. We reduced our operating expenses in labor and production and distribution, the decreases were driven from reduction in transportation and facility expenses as well as expenses related to the closure of our mail facilities. Operating loss came in at $368,000 versus operating income of $785,000 in Q3 and $422,000 in the year-ago quarter. We generated GAAP net income of $1 million or $0.12 and $0.11 per basic and diluted share in the fourth quarter, respectively. This compares to a GAAP net loss of $3 million or $0.49 per basic and diluted share in the year-ago period. Fourth quarter adjusted EBITDA was $1.9 million compared to $3 million in the same period last year. Now turning to the full year results. Revenues for 2020 were $176.9 million compared to $217.6 million last year for a year-over-year revenue decline of $40.7 million or 18.7%. By segment, 2020 revenue in Marketing Services was $67.1 million compared to $66.2 million in 2019. Operating income in this segment was $5 million compared to $4.7 million in 2019. The cost reductions that we made enabled us to achieve the increase in operating income despite the year-over-year decline in revenue. Customer Care had a strong performance for the year with revenue at $58.7 million in 2020 versus $48.4 million in 2019. Operating income was $5.8 million, up from a loss of $4.8 million a year ago. This is an increase of $10.6 million year-over-year. In Fulfillment & Logistics Services, revenue declined to $61.1 million from $103 million in 2019, while operating loss was $2.7 million compared to a loss of $1.1 million in 2019. As a reminder, this segment includes our mail production facilities that were shut down during Q2 of this year. Our operating expenses for the full year 2020 were $187.5 million compared to $239.2 million in 2019, a decrease of $51.7 million or 21.6%. The $51.7 million decline in operating expenses more than offset the $40.7 million decline in revenues adding to our momentum of improved financial results. We reduced our operating expenses in all areas, including labor, production and distribution and advertising, selling, general and administrative expenses to offset the decline in revenue. Our restructuring expenses for the full year of 2020 totaled $9.4 million, compared to $11.8 million in 2019. As a result of our aggressive cost efficiency efforts, operating loss was $10.6 million for the full year of 2020, a major improvement to the 2019 operating loss of $21.6 million in 2019. We expect to continue this momentum in 2021. Adjusted EBITDA for the full year 2020 improved to positive $3.2 million compared to a loss of $3.4 million in 2019. We now have three quarters of positive adjusted EBITDA in a row for 2020. Adjusting for the non-recurring restructuring and impairment expenses, our adjusted operating loss was $436,000 compared to a loss of $8.7 million in 2019. Net loss for the full year 2020 was $1.7 million or $0.34 per basic and diluted share compared to a net loss of $26.3 million or $4.26 per basic and diluted share in 2019. Net loss in 2020 included an income tax benefit of $16.6 million. We are expecting an additional tax refund of $7.5 million by the end of 2021 related to our 2020 NOL carry back. Turning to our balance sheet and liquidity. As of December 31, 2020, we had cash and cash equivalents of $29.4 million, this compares to a cash balance of $28.1 million as of the period ended December 31, 2019. We also, as of December 31, 2020, had $22.2 million in long-term debt, which reflects the current draw on our $19 million revolving credit facility as well as the long-term portion of our PPP note. We believe we have sufficient balance sheet strength to continue executing on our transformation plan and fund future growth. With that, I will turn it back over to the operator to take your questions.

Thank you. We can now go to the line of Michael Kupinski of NOBLE Capital Markets. Please go ahead, sir.

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 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 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?

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 the 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.

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?

Yes. Lauri, do you want to give a sense for what we think that would be now?

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 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 it's a six-month to a year-long project rather than a short period.

And it looks like we are 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?

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.

Okay. And then you've mentioned that you have ongoing cost reduction efforts. Can you provide some thoughts in terms of what annualized cost savings might be in 2021?

Yes, I think it's 2021 and beyond. Lauri, if you want to touch on that and maybe touch on the ERP implementation as well?

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 the 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.

Got you. And in terms of – I know the efforts last year were – and a year before were to reduce third-party vendor costs 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?

Yes, we have. First of all, with regards to third-party 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 costs or we won't be as reliant on fixed costs to maintain systems and deliver our work.

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?

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.

Great. Congratulations on your progress, again. Thank you.

Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.