Harte Hanks Inc (HHS) 2017 Q2 法說會逐字稿

Good day, and welcome to the Harte-Hanks Second Quarter 2017 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Scott Hamilton, Investor Relations. Please go ahead, sir.

Thank you, Carrie. Good morning, everyone, and thanks for joining us for our second quarter 2017 earnings call. Joining me on the call today is our CEO, Karen Puckett; and our CFO, Robert Munden. Also in the room is our COO, Shirish Lal; and Controller, Carlos Alvarado.

Our call will include forward-looking statements, such statements about our strategies; adjustments to our cost structure, financial outlook and capital resources; competitive factors; business and industry expectations; anticipated performance and outcomes; the future effects of acquisitions, dispositions, litigation and regulatory changes; economic forecasts for the markets we serve; and other statements that are not historical facts.

Actual results may differ materially from those projected or implied in these statements because of various risks and uncertainties, including those described in our most recent Form 10-K and other filings with the SEC and in the cautionary statement in today's earnings release.

Our call may also reference non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the Investors section of our website at harte-hanks.com.

I'll now turn the call over to Karen Puckett, our CEO.

Thank you, Scott, and good morning, everyone, and thanks for joining us this morning. I'll start with a few comments on our ongoing strategy and our performance in the quarter. And then I'll turn the call over to Robert Munden, who's going to go through the financial results. And we'll then go to your questions.

I'd like to start off today by saying that we expect to report our third quarter results on a normal schedule in mid-November. It will be good to get back on a schedule. I know we being late these past quarters was disappointing to you as it was to all of us.

Now as we speak about our results in second quarter, a key take away from our results is that we are meeting our internal expectations. These expectations are in 3 key areas: revenue, new sales bookings and profitability. We'd like to make progress faster, but realistically, we know it takes time.

We continue to focus on client satisfaction, which we know will lead to better retention as well as diversifying our clients in verticals targeting all of our different capabilities. This, combined with our revamped sales motion and marketing, are helping us generate stronger bookings, which I'll talk about here in a bit.

We continue to see positive trends in customer satisfaction, with more clients calling out our thought leadership. This is something that we did not see 18 months ago. In fact, it was a point that many clients made to us that we were lacking. So we're good to see those comments from our clients about our good thought leadership.

As I discussed before, we're utilizing more partnership models, enabling us to increase the quality and effectiveness of our service offerings while limiting our investments. We are partnering with Opera Solutions and Wipro for a new database product and Global DataView client data offerings. Both give us an opportunity that we otherwise wouldn't have to given and -- give us a chance to expand our conversations in -- with data and data conversion with many prospects.

Also, these capabilities are really giving us a stronger position in the marketplace. So we'll continue to evaluate partnerships in direct mail and logistics business that better enables us to match cost with volumes. We believe that by partnering with a larger provider for some of these services, we can reduce our fixed costs, which will allow us to better respond to changing volumes, mainly driven by the retail sector.

We made good progress in our efforts to slow our rate of revenue decline while improving our operations and cost structure. During the second quarter, our revenue was essentially flat sequentially and declined 2.7% year-over-year, which is an improvement from 10.2% year-over-year decline in the second quarter of 2016. Client retention across our verticals outside of health care and retail continue to improve. In fact, the strong new bookings we have seen in the past 6 months due to our reorganized sales and marketing program is continuing. Together, this is driving more revenue stability.

From a bookings quality perspective, we're seeing consistent sales evenly across the portfolio of services nearly split between engagement in agency, professional services, on one hand, and the mail logistics fulfillment and contact center on the other. We believe this is a very healthy indicator.

Our discussion with clients and prospects are focused on data, data analytics, Buyer Journey and how we use these capabilities with marketing technology to help clients improve their results. This is encouraging as it puts us in a better position with clients where we're developing strategy rather than just executing on it. And again, that was an improvement.

Second quarter bookings were solid, more than doubling our first quarter results. In fact, we exceeded our sales booking target for the first half of the year. And in the second quarter, bookings were pretty evenly split between new client wins and upsales to existing clients. This is positive because it helps us with client diversification, but also shows that we are getting deeper into existing clients.

I'd like to describe a few of our wins that we had in the second quarter. We had a significant expansion with an existing logistics client. We have built deep logistics capability due to our direct mail business, and we're looking at applying that capability in helping this client and others with their logistics needs. We won a large new fulfillment opportunity with a national health -- wealth management firm, which we will be fulfilling compliance and regulatory [materials]. We had a significant Customer Engagement agency win with a global consumer brand. We will be handling campaign design, targeting demand creation and execution, including their data and digital delivery.

So our bookings are good. We are tempered by the knowledge that retail will continue to be soft, with the revenue impact being most noticeable in the fourth quarter and slightly less so in the third.

Before turning the call over to Robert, I'd like to reiterate that we are pleased to be meeting our internal plans with respect to revenue, bookings and, most importantly, profitability. We know that this is taking longer than you or we expected, but I am pleased with the progress that is continuing.

So with that, I'm going to hand it off to Robert.

Thank you, Karen, and good morning. As Karen mentioned, our consolidated revenues for the quarter were $94.7 million compared to $97.3 million in revenues for the second quarter last year. This represents a decline of 2.7% and lower rate of decline both -- than both the prior quarter and the second quarter of last year.

Looking at our performance within the industry verticals. Our auto and consumer vertical was our strongest performer, showing a growth of $2.2 million or 10% year-over-year. This was a result of starting to recognize revenue from our strong fourth quarter and first quarter bookings, namely the Nature's Bounty deal we announced in the first quarter, new business with a large consumer electronics company, and a European luxury automaker.

Moving to financial services. We grew by 3%. Setting aside the effects of the loss of a large wholesale credit card client, our financial services vertical is performing quite well, supported by strong bookings in the first half of the year.

Health Care -- our Health Care vertical revenue declined year-over-year by about $2.3 million due to the loss of a large medical insurance client in the first half of 2016. We have, however, been doing well in the nonregulated pharma subsegment, providing both contact center fulfillment services to clients. So we are refocusing our efforts towards this subsegment.

In B2B, revenue declined slightly due to the loss of an outbound call center client, but we've seen growth from a number of high-tech clients for database, MarTech and logistics services.

As expected, our Retail vertical was weak, declining by $2 million or about 8%. This is mainly due to the loss of most marketing programs we have with a large big-box retailer across a variety of service lines.

In spite of our year-over-year revenue decline, our operating loss improved by $4.9 million year-over-year to a loss of $1.8 million, due -- largely attributable to our cost control actions. Our labor costs decreased as a result of these cost control actions and the decrease in labor needs tied to the revenue declines themselves. These were partially offset by temp labor and consultants, primarily from technical development, and additional expenses incurred with some new client startups.

We did have, however, a new a few unusual cash items that impacted our overall cash position, including increased audit professional expenses and a $2 million payment for a lawsuit that had accrued in the third quarter but was paid this quarter. As you probably recall, we paid $34 million in taxes related to the Trillium sale during the quarter.

Consistent with our last earnings release discussion, we continue to anticipate continuing lower customer losses and volume declines from increased customer satisfaction, increased bookings and continued cost controls. As a consequence, we expect our cash position will improve in the second half of the year. We believe we have sufficient cash or credit facility capacity to execute our operating plans.

Thank you, Robert. So Carrie, it appears that we don't have anyone in the queue, so I'm going to go ahead and say goodbye to everybody. Thank you for joining us this morning. If you have any questions and would like to them further, you're welcome to contact me. My contact information is on the press release. Thank you very much. Have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.