Good day, ladies and gentlemen, and welcome to the Harte Hanks Third Quarter Earnings Call. At this time, all participants have been placed on the listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rob Fink of FNK IR. Sir, the floor is yours.

Thank you, operator. And thank you everyone for joining us today. Hosting the call today are; Brian Linscott, Harte Hanks’ CEO; and Lauri Kearnes, Chief Financial Officer. Before we begin, I would like to remind everyone that the information provided during this call may contain forward-looking statements such as statements about the company’s strategy, financial outlook, business and industry expectations, anticipated performance and outcomes 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, including those described in the company’s Form 10-K and 10-Q and other filings with the SEC and the cautionary statement that was included in today’s earnings press release. The call may also reference non-GAAP financial measures. Please refer to the earnings press release that was issued after the close today for a reconciliation and other related disclosures. The company’s earnings release is available on the Investor Relations’ section of its website at hartehanks.com. With that said, I’d now like to turn the call over to Brian Linscott. Brian, the call is yours.

Thank you, Rob. Thank you and good afternoon. This was another strong quarter for Harte Hanks, demonstrating that we have turned the corner and are delivering improved financial results, both on the top and bottom lines. Today, Harte Hanks delivered differentiated and highly sought after solutions for a top tier customer base. We enable optimal customer experiences in a variety of ways using sophisticated industry-leading solutions. I want to thank our employees who passionately serve our clients every day. Their commitment and dedication to our clients and Harte Hanks is the key driver to our long-term success. And you can see the progress already in our financial results. Since our last earnings call, we have been investing in the business to drive future, profitable growth. Four specific examples of our investments include the following. One, at the end of the third quarter, we executed a long-term lease to occupy a 100,000 square foot expansion in Kansas City. Going forward, Harte Hanks will occupy the entire 400,000 square foot facility as we continue to see growth opportunities within our Fulfillment & Logistics segment. Earlier in Q3, we selected NetSuite as our cloud-based enterprise resource planning system and retained an implementation partner to work alongside our Harte Hanks team as we realign our system architecture and continue to redesign workflows that simplify, standardize, and centralize how it works. We expect this will result in meaningful cost savings over time. Last month, we hired Elliott Peterson as Chief Technology Officer. His role is critical and will focus on leveraging best-in-class technology to most effectively serve our customers and grow our business. Earlier this week, we hired Frank Sands as our Chief Strategy Officer in Marketing Services. Frank’s vast experience in marketing strategy and analytics is critical to growth and client execution as we continue to strengthen our capabilities and position in an ever-changing marketing landscape. In early October, we filed our application to uplist onto the NASDAQ global markets. We anticipate uplisting in the coming weeks. Now, onto our results. We had a strong third quarter with year-over-year improvements across all operating segments of our business. I will walk you through the progress we have made and then Lauri will walk you through the detailed financials. Our three segments are as follows: Customer Care, focused on delivering full-service Customer Care solutions that are tech-enabled and people-driven; Fulfillment & Logistics, focused on B2B products and literature fulfillment, B2C E-Commerce and Sampling, and end-to-end Supply Chain & Logistics Services; and third, Marketing Services, focused on strategic planning, data-driven insights, performance analytics, creative design, technology enablement, and program execution to drive business outcomes and optimize customers’ ROI. Our segment reporting is designed to provide transparency into the company’s financials and visibility into the value and dynamics of each business. We delivered another strong quarter with improved financial and operational results. Q3 revenue is $49.6 million versus $47.7 million for the quarter a year ago, or a 4% increase. EBITDA for the quarter was positive $4.8 million, which is an improvement of $3.3 million over the prior year. We expect continued year-over-year momentum in the fourth quarter and we anticipate operational improvements implemented this year will flow through to deliver EBITDA improvement in 2022. Financial and operating performance is improving in each of our operating segments. Customer Care revenue increased by $1.8 million from the previous year, and year-over-year EBITDA improved to $4 million from $3 million in the prior year quarter. The COVID-related project revenue and work remains strong, and we anticipate reductions in this project work throughout the first half of 2022. In 2022, our Customer Care cost structure will benefit from expiring leases in the US, as we continue to operate in a work-from-home environment. Customer Care has maintained exceptional performance standards working from home, and we have invested in technology that enables success against our high Harte Hanks performance standards. We recognize and are adapting to the wage pressures in today’s labor market, but our recruiting flexibility in a work-from-home environment allows us to mitigate some of the wage pressures. New business wins for the quarter included a healthcare insurance provider needing a partner to provide year-round Customer Care Services for their members. The customer chose Harte Hanks based on our extensive experience supporting annual enrollment and our ability to consistently exceed standards established by Centers for Medicare and Medicaid Services. Now, onto our Fulfillment & Logistics business. Revenue increased approximately $0.5 million compared to the prior year and EBITDA improved to $1.7 million from $0.3 million in the prior year. With the consolidation of our Fulfillment operations into the FDA-approved Kansas City facility, we anticipate continued margin improvement in 2022. As previously mentioned, we expanded our Kansas City footprint by an additional 100,000 square feet. The additional operating capacity of Kansas City will serve increased organic client growth and further consolidation of offsite Fulfillment operations. After completing the racking installation in the expansion area in Q1 of 2022, we anticipate increased warehouse capacity of nearly 50% from today’s capacity in Kansas City. The greater Fulfillment opportunities will also result in more opportunities in our client-controlled production areas. Global supply chain challenges have impacted the marketplace for the last year and a half, but Harte Hanks’ Fulfillment has only experienced limited impact in warehouse inventories, largely due to the critical nature of our stored products and the sales enablement material critical to our client’s success. Further, the continued tightening of transportation and oil markets has increased the cost of transportation. However, our longstanding and deep relationships in the transportation and trucking industry have created additional opportunities, and our logistics operation has been able to meet the demand from our clients. New business wins for the quarter included an international financing company launching its US business to consumers. Harte Hanks will fulfill point of purchase displays, printed sales materials, new customer welcome kits, and trade show equipment. Finally, onto Marketing Services. Marketing Services’ EBITDA rose by $1.6 million compared to the same quarter last year. We have driven improved profitability from the Marketing Services segment as we realigned our resources and invested in technology infrastructure to better serve our customers. We continue to focus on building deeper relationships with existing customers by expanding our engagements across client brands, product lines, and geographies, as well as expanding our capability mix within the clients. We are also aggressively focusing on attracting new clients within prioritized market categories. We’ve made significant progress building capabilities needed to deliver integrated CRM solutions, a large and growing market with high margin profiles. New business wins for the quarter included a leading health insurance provider. The customer selected Harte Hanks to provide strategy analytics and creative services to accelerate its membership growth. In conclusion, we delivered a very strong quarter that reflects momentum in the business. Topline and new business revenue are all performing well. We have right-sized our segments and we have a seasoned team to lead our businesses. We remain optimistic about our ability to continue to drive increased profitability. And with that, I’ll turn it over to Lauri.

Thank you, Brian. We achieved our third quarter in a row of year-over-year revenue growth, and delivered strong operating income of $4.2 million. The September quarter was our sixth quarter in a row of positive adjusted EBITDA at $6.1 million. We continue to be encouraged by the new business wins and strong bottom line improvements. As Brian mentioned, we have continued to be focused on streamlining and optimizing the business to meet the needs of the market today, and we are encouraged by our results. I’d now like to walk you through the results in more detail. The third quarter revenue was $49.6 million, up $0.3 million sequentially from the second quarter and up $1.9 million, or 4%, from $47.7 million in the same period last year. Revenue growth was led by our Customer Care segment which was $1.8 million year-over-year, or 10%, as a result of several large projects that we expect to wind down over the first half of 2022. Fulfillment & Logistics Services was up $0.5 million, or 3.8%, and Marketing Services was down $0.5 million, or negative 3.2%. We are pleased with the positive momentum we have achieved and have right-sized our cost structure to meet our target goals for the full year 2021. Customer Care EBITDA improvement of $1 million, or 33%, was driven mostly by increased revenue as well as decreased costs with the closure of one facility. EBITDA for our Fulfillment & Logistics Services segment increased $1.4 million or 518%. The large EBITDA improvement is driven by the consolidation of facilities that we completed this year, resulting in improved efficiencies. Marketing Services EBITDA grew $1.6 million or 129%. These results reflect what was done previously to right-size the cost structure in this business. Our operating expenses for the third quarter were $45.4 million, down from $46.9 million in the year-ago quarter. We reduced expenses in production and distribution as well as in restructuring costs. Operating income for the quarter was $4.2 million. This is an improvement from $785,000 in the year-ago quarter. This improvement is attributed primarily to our revenue growth and sustained expense management efforts. We posted net income of $4.4 million or $0.52 per diluted and $0.54 per basic share in the third quarter. EBITDA for the third quarter was $4.8 million compared to $1.5 million in the year-ago quarter. Now turning to our balance sheet. As of September 30th, 2021, we had cash and cash equivalents of $16 million. This compares to a cash balance of $29.4 million as of the period ended December 31, 2020. As of September 30th, we have $7.5 million in income tax receivable due to our net operating loss carryback for 2020. We expect to receive these funds in late 2021 or early 2022. As of September 30th, 2021, we have $13.1 million in long-term debt and no short-term debt. With that, I will turn it back over to the operator to take your questions. Thank you.

Ladies and gentlemen, the floor is now open for questions. We have a question coming from Michael Kupinski. Please announce your affiliation and then pose your question.

I’m with Noble Capital Markets. First of all, congratulations on a really solid quarter. I know there was a lot of work that went into that quarter. A couple of questions. The Customer Care obviously was a lot stronger than what I expected. It sounds like the COVID-related business that you had didn’t fall off as much as you expected that it might. And I was wondering if you can kind of give us some thought on what were the factors that led to such a strong increase in revenue growth for that quarter? Was it largely because that customer didn’t fall off, or were there other things that were moving the revenue line? Can you just give us a little color there?

Sure. This is Brian, and Lauri, feel free to chime in. The reality for us is yes, in fact, we’ve extended the COVID-project kind of based revenue longer as well as expanded into some additional COVID-related project opportunities. So, rather than shrinking in the third quarter, we actually had a nice uptick. We also had another very large customer that experienced some unique situations in the third quarter that led to additional call volumes that, you know, are somewhat one-time in nature. But the Customer Care business as a whole is just operating very well right now, and we’re excited to see the continued great performance.

And so, could you give me in terms of how we should view the business going into Q4? Particularly in Customer Care, it sounds like from your commentary that maybe this Customer Care-related or COVID-related business may not fall off until the first part of next year. So just wondering if you can kind of give us a sense on maybe what the pacing looks like for Q4 or if you could just give us a sense of maybe impact of the revenue contributions we're getting from the COVID-related business into the fourth quarter?

Yeah. So, I think you said it well, Michael, in the sense that we see the COVID-related projects continuing at a relatively nice clip in the fourth quarter, and I think the phase out of some of the project-related revenues is going to happen more in the first and second quarters of next year.

Okay. And then if you could just give us a sense, you know, with the thought process that the Marketing Services might perform more strongly and offset some of the weakness that we were largely anticipating as the COVID-related business fell off in Customer Care. But yet Marketing Services I guess didn’t perform as strongly. I mean, it was still a decent number, but not as strong as maybe one would have hoped as we kind of gauge the ability to offset the net loss as we go into 2022. Can you kind of give us a sense of Marketing Services revenue as you kind of go into the fourth quarter and if you think that is a business that could actually perform better as we go into 2022?

Yeah. And I think I guess I’d first say that having a $1.6 million increase year-over-year in EBIT is a fantastic performance. But I do recognize and appreciate your question on revenue. One other thing that I think we’re seeing is a little bit of a shift change in the revenue mix, and so some of the revenue declines, you know, over $1 million was related directly to us managing the outsourced direct mail footprint. And so, you know, we managed campaigns for our customers, and I think what you see is a little bit of revenue shift out of certain areas, but we’re moving into more highly profitable, higher margin segments within the Marketing Services business. And so, I think we are positioned well to experience certainly some modest growth as we cycle out of some of the more legacy outsourced print management and direct mail that we’ve done in the past.

Got you. And just a couple more questions if you may – if I may. Obviously, you had some duplicative costs in the Customer Care in the quarter. I was wondering if you can just kind of gauge for us what level those costs were, because they obviously probably are not going to happen as you go into next year. And then also if you can just give us a sense of whether or not from these levels that you are continuing to reduce costs, and maybe if you can kind of gauge what those cost reductions might be on an annualized basis if you go into 2022?

Yeah. So I’m sorry, if you could restate the first part of the question for Customer Care, you mentioned redundancy?

Yeah, yeah, redundancy and so forth because of operating – I think in the quarter, I think you were still had some redundancy in cost with the other facilities and some further consolidations that you’re doing there. I was just wondering if there were duplicative costs in the third quarter, and if you can kind of give us a sense of what that might be in terms of impact on the quarter?

Yeah. And I’m assuming we’re largely talking about the Fulfillment & Logistics business with the multiple facilities or are you talking – I’m sorry, yeah.

Let me – okay.

Yeah, sorry about that. That yeah – no that’s. Yeah, so no, there are some lingering kind of consolidation, whether it’s the modest duplication of cost in the third quarter, but the largest part of the redundancies kind of cycled through at the end of the second quarter with our Fulfillment multiple Fulfillment locations. That said, there are still some minor leases that we are occupying and working our way out of in the fourth quarter.

Okay. And then just your general thoughts on the cost cuts from these levels.

So, Lauri, I don’t know if you want to kind of take some of the larger chunks. I know that you know one of the references that we make specifically as it relates to Customer Care. We know some of their operating leases, locations that will run off next year are going to generate, you know, a $1 million or more of cost savings. I think what we cautiously make sure that everyone knows is that depending on pressures in the labor market, not all of those will flow straight to the bottom line given the challenges with the labor market. But we do anticipate certainly further reductions in cost next year.

Right. And I would also say that, you know, we don’t anticipate those restructuring costs next year as well, so we’ll have some savings on that going into next year. But as Brian mentioned, right, we have, you know, some price pressures or some cost pressures in other areas, whether that be labor or some supply chain issues that could cause, you know, some minor offsets to those savings.

And thank you for that. And then, Brian, you’ve mentioned that you’re expecting revenue momentum going into the fourth quarter. What did you mean by that? Were you anticipating that revenues would be an increase from the third quarter? I’m just trying to understand what you meant by the term revenue momentum?

Yeah. I hopefully if I didn’t state it correctly, I apologize. But if year-over-year momentum, so I – we anticipate certainly continued year-over-year momentum on revenue in the fourth quarter.

And meaning that you were up in the fourth – in the third quarter of 4% and your year-over-year momentum means that you would anticipate to have an increase in revenues year-over-year in the fourth quarter, is that what you mean by that? Maybe just want to clarify.

Yeah, that’s correct.

Got you. And then in terms of you – in a much better financial position than you’ve been in quite some time. And I was just wondering where you are on the possibility of obtaining more conventional financing for the company’s debt?

So you know we’re – go ahead, Lauri.

Yeah, I would say I mean, we’re certainly in the process of evaluating that to look at something that’s more conventional on the debt side. And you know, over the next few months, that will be something that we’re in the process of working on.

All right. I’ll let others ask questions. Thanks so much for taking the time for me.

Thank you, and we appreciate your time this afternoon and thank you all for joining, and till next time, have a good evening.

Thank you, ladies and gentlemen. 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.