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What changed in HARTE HANKS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HARTE HANKS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+211 added−217 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in HARTE HANKS INC's 2023 10-K

211 paragraphs added · 217 removed · 132 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

35 edited+35 added−24 removed13 unchanged
Biggest changeWe access broad first-party and third-party data sources, search and social media, and research through syndicated, primary and secondary sources, and we leverage our proprietary DataView tool, a comprehensive, aggregate data mart that provides a 360-degree customer view, with over 1,500 consumer attributes enabling accurate predictive marketing to our clients. • Creative - Full-service creative development and execution spanning traditional and digital channels, including print, broadcast, direct mail, website, app, display, social, mobile, search engine marketing, and voice. • Marketing Technology – Website and app development, e-commerce development and enablement, database building and management, platform architecture creation, and marketing automation to most efficiently engage, capture, enhance, and target audiences. • Marketing As a Service - A flexible outsourcing marketing operations solution, that works as a highly integrated extension of a client’s own marketing function by blending the best of agency and business outsourcing processes and capabilities.
Biggest changeWe access broad first-party and third-party data sources, search and social media, and research through syndicated, primary and secondary sources, and we leverage our proprietary DataView tool, a comprehensive, aggregate data mart for B2C (USA) and B2B (Global) that provides a 360-degree customer view, with over 1,500 attributes enabling accurate predictive marketing to our clients.
We analyze a significant amount of aggregated data obtained from customer interactions on behalf of our clients. We leverage information gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive behaviors that lead to lower customer churn and help our clients innovate their core product offerings and develop innovative product features.
We also analyze a significant amount of aggregated data obtained from customer interactions on behalf of our clients. We leverage information gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive behaviors that lead to lower customer churn and help our clients innovate their core product offerings and develop innovative product features.
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”), Canada’s Anti-Spam Legislation (“CASL”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC). • Federal and state laws governing the use of telephones for unsolicited marketing purposes, including the Federal Trade Commission’s Telemarketing Sales Rule (“TSR”), the Federal Communications Commission’s Telephone Consumer Protection Act (“TCPA”), various U.S. state do-not-call laws, Canada’s National Do Not Call laws and rules (“Telecommunications Act”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC). • Federal and state laws governing the collection and use of personal data online and via mobile devices, including but not limited to the Federal Trade Commission Act and the Children’s Online Privacy Protection Act, which seek to address consumer privacy and protection. • Federal and state laws in the U.S., Canada, and Europe specific to data security and breach notification, which include required standards for data security and generally require timely notifications to affected persons in the event of data security breaches or other unauthorized access to certain types of protected personal data.
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”), Canada’s Anti-Spam Legislation (“CASL”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC). 8 Table of Contents • Federal and state laws governing the use of telephones for unsolicited marketing purposes, including the Federal Trade Commission’s Telemarketing Sales Rule (“TSR”), the Federal Communications Commission’s Telephone Consumer Protection Act (“TCPA”), various U.S. state do-not-call laws, Canada’s National Do Not Call laws and rules (“Telecommunications Act”) and similar e-Privacy laws in Europe (in support of Directive 2002/58/EC). • Federal and state laws governing the collection and use of personal data online and via mobile devices, including but not limited to the Federal Trade Commission Act and the Children’s Online Privacy Protection Act, which seek to address consumer privacy and protection. • Federal and state laws in the U.S., Canada, and Europe specific to data security and breach notification, which include required standards for data security and generally require timely notifications to affected persons in the event of data security breaches or other unauthorized access to certain types of protected personal data.
Our event and influencer programs provide custom solutions to engage audiences, target customers, support conferences, and appreciate employees. Our fulfillment locations are temperature-controlled, FDA-registered, and geographically convenient, thereby allowing us to optimize print and product fulfillment to maximize customer shipping efficiency while minimizing transportation costs.
Our event, curated kitting, and influencer programs provide custom solutions to engage audiences, target customers, support conferences, and appreciate employees. Spanning the United States, our fulfillment locations are temperature-controlled, FDA-registered, and geographically convenient, thereby allowing us to optimize print and product fulfillment to maximize customer shipping efficiency while minimizing transportation costs.
Fulfillment & Logistics Services Harte Hanks fulfillment unlocks critical sales enablement and eCommerce fulfillment channels for our clients, and our best-in-class logistics team supports the supply chain needs of our clients in everything from time-sensitive deliveries to full scale supply chain management. • Product, Print-On-Demand, and Mail Fulfillment: Our varied product and mail fulfillment solutions include printing on demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience.
Harte Hanks logistics supports the supply chain needs of our clients in everything from time-sensitive deliveries to full scale supply chain management. • Product, Print-On-Demand, and Mail Fulfillment: Our varied product and mail fulfillment solutions include printing on demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience.
Competitive factors in our industry include the quality and scope of services, technical and strategic expertise, the perceived value of the services provided, reputation, pricing, and brand recognition. We also compete against social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and advertising dollars in general.
The principal competitive factors in our industry are the breadth, depth and quality of service offerings, technical and strategic expertise, the perceived value of the services provided, reputation, pricing, and brand recognition. We also compete against social, mobile, web-based, email, print, broadcast, and other 7 Table of Contents forms of advertising for marketing and advertising dollars in general.
Harte Hanks is proud of its diverse workforce and cross-cultural competency and, as of December 31, 2022, employed individuals from six different countries. As of December 31, 2022, 59% of Harte Hanks’ workforce was female. Harte Hanks is committed to continue to recruit and employ qualified candidates regardless of their gender or cultural background.
Harte Hanks is proud of its diverse workforce and cross-cultural competency and, as of December 31, 2023, employed individuals from 6 different countries. As of December 31, 2023, 58% of Harte Hanks’ workforce was female. Harte Hanks is committed to recruiting and employing qualified candidates regardless of their gender or cultural background.
None of the information on, or accessible through, these websites are part of this Form 10-K or is incorporated by reference herein. OUR BUSINESS Harte Hanks is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services .
None of the information on, or accessible through, these websites are part of this Form 10-K or is incorporated by reference herein. 3 Table of Contents OUR BUSINESS Harte Hanks is a leading customer and brand experience company operating in six service categories - data, marketing, sales, customer care, fulfillment and logistics.
We became a private company in a leveraged buyout in 1984, and in 1993 we again went public and listed our common stock on the NYSE. On July 13, 2020, we began trading on the OTCQX® Best Market (the “OTCQX”) . On December 1, 2021, our stock was uplisted to be traded on the Nasdaq Global Market® (“Nasdaq”).
We became a private company in a leveraged buyout in 1984, and in 1993 we again went public and listed our common stock on the NYSE. On July 13, 2020, we began trading on the OTCQX® Best Market (the “OTCQX”) .
This increased revenue is a result of overall increased activity prior to and during the holiday season in the retail vertical and due to the open enrollment period in the healthcare vertical. 5 Table of Contents GOVERNMENT REGULATION As a company conducting varied business activities for clients across diverse industries around the world, we are subject to a variety of domestic and international legal and regulatory requirements that impact our business, including, for example, regulations governing consumer protection, and unfair business practices, contracts, e-commerce, intellectual property, labor, and employment (especially wage and hour laws), securities, tax, and other laws that are generally applicable to commercial activities.
GOVERNMENT REGULATION As a company conducting varied business activities for clients across diverse industries around the world, we are subject to a variety of domestic and international legal and regulatory requirements that impact our business, including, for example, regulations governing consumer protection, and unfair business practices, contracts, e-commerce, intellectual property, labor, and employment (especially wage and hour laws), securities, tax, and other laws that are generally applicable to commercial activities.
Our website also includes our corporate governance guidelines and the charters for each of our audit, compensation, and nominating and corporate governance committees. We will provide a printed copy of any of these documents to any requesting stockholder by following the instructions on our website. These website addresses are intended to be for inactive textual references only.
We will provide a printed copy of any of these documents to any requesting stockholder by following the instructions on our website. These website addresses are intended to be for inactive textual references only.
We leverage data, insights, technology, and award-winning creative solutions to meet and exceed our clients’ business objectives and optimize our client’s return on investment. We provide full service multi-channel marketing from strategy to campaign execution.
We leverage data, insights, technology, and award-winning creative solutions to meet and exceed our clients’ business objectives and optimize our client’s return on investment.
For example, many states have considered implementing “do-not-mail” legislation that could impact our business and the businesses of our clients and customers. In addition, continued public interest in individual privacy rights and data security may result in the adoption of further voluntary industry guidelines that could impact our direct marketing activities and business practices.
Continued public interest in individual privacy rights and data security may result in the adoption of further voluntary industry guidelines that could impact our direct marketing activities and business practices.
Although we from time to time evaluate inventions for patentability, we do not own any patents, and patents are not core to our intellectual property strategy (other than as may be incidental to commercially available technology or software we license). We have developed proprietary software including NexTOUCH and Allink®360, each of which are integral to our business.
Although we from time to time evaluate inventions for their possibility of being awarded a patent, we do not own any patents, and patents are not core to our intellectual property strategy (other than as may be incidental to commercially available technology or software we license).
These laws regulate the collection, use, disclosure, and retention of personal data and may require consent from consumers and grant consumers other rights, such as the ability to access their personal data and to correct information in the possession of data controllers. 6 Table of Contents As a result of increasing public awareness and interest in individual privacy rights, data protection, information security, and environmental and other concerns regarding marketing communications, federal, state, and foreign governmental and industry organizations continue to consider new legislative and regulatory proposals that would impose additional restrictions on direct marketing services and products.
As a result of increasing public awareness and interest in individual privacy rights, data protection, information security, and other concerns regarding marketing communications, federal, state, and foreign governmental and industry organizations continue to consider new legislative and regulatory proposals that would impose additional restrictions on direct marketing services and products.
We leverage data and insight tools to enhance our clients’ understanding of their consumers, competitors and category dynamics, then apply those insights to develop marketing programs designed to drive activities like customer acquisition, engagement, purchase behavior, loyalty and advocacy. • Data & Analytics – In-depth data and analytics offerings, including audience identification, profiling, segmentation and prioritization, predictive modeling and data strategy.
We leverage data and insights to enhance our clients’ understanding of their consumers, competitors and category dynamics, then apply those insights to develop the strategies for programs designed to drive activities like customer acquisition, engagement, purchase behavior, loyalty and advocacy.
Our marketing services sales force sells a variety of solutions and services to address clients’ cross-selling targeted marketing needs. We maintain solution-specific sales forces and sales groups to sell our individual products and solutions. We currently have 12 em ployees in our sales and marketing function.
Our sales force sells a variety of solutions and services to address our clients’ cross-selling targeted marketing needs. We also maintain solution-specific experts in our sales force and sales groups to sell our individual products and solutions, with expertise by target industries including B2B, Health and B2C.
Our new 400,000 square-foot Kansas City (KS) location is FDA registered and fully licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements. • Logistics: We provide third-party logistics and freight optimization services across the United States.
Our Kansas City location is fully licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements.
Our human capital strategy focuses on: Diversity, Equity and Inclusion: Harte Hanks recognizes the value of diversity, equity and inclusion within its organization and strives to ensure that its workplace reflects the diverse communities in which it operates in order to promote collaboration, innovation, creativity and belonging.
Our human capital strategy focuses on: Training and Talent Development : Harte Hanks is committed to the education of its employees and has committed to provide its employees with a variety of learning opportunities, including, but not limited to, technical skill development, soft skills development, workplace conduct guidance, and IT security training. 9 Table of Contents Diversity, Equity and Inclusion : Harte Hanks recognizes the value of diversity, equity and inclusion within its organization and strives to ensure that its workplace reflects the diverse communities in which it operates in order to promote collaboration, innovation, creativity and belonging.
These additional regulations could increase compliance requirements and restrict or prevent the collection, management, aggregation, transfer, use, or dissemination of information or data that is currently legally available. Additional regulations may also restrict or prevent current practices regarding unsolicited marketing communications.
In addition, our business, in general, and the way we do business in particular, may be affected by the impact of these restrictions on our clients and their marketing activities. These additional regulations could increase compliance requirements and restrict or prevent the collection, management, aggregation, transfer, use, or dissemination of information or data that is currently legally available.
We are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order to deliver desired business outcomes. Realizing our clients’ success is the only valid measure of our own success, we ensure all our efforts are aligned with our clients’ business objectives and measured against defined performance metrics.
Realizing our clients’ success is the only valid measure of our own success, we ensure all our efforts are aligned with our clients’ business objectives and measured against defined performance metrics. It is this commitment to our clients and their businesses that allows us to build deep and meaningful relationships with them.
We leverage our proprietary order management platform to facilitate customer orders, and we work with a variety of data sources and users to initiate the fulfillment order process.
We leverage our proprietary order management platform to facilitate customer orders, and we work with a variety of data sources and users to initiate the fulfillment order process. Furthermore, our global fulfillment capabilities extend to Europe and are augmented by a network of regional partners. • Logistics: We provide third-party logistics and freight optimization services across the United States.
These documents are provided as soon as practical after they are filed with the SEC and may also be found at the SEC’s website at www.sec.gov. Additionally, we have adopted and posted on our website a code of ethics that applies to our chief executive officer, chief financial officer and general counsel.
These documents may be accessed free of charge on our website at http://www.hartehanks.com. These documents are provided as soon as practical after they are filed with the SEC and may also be found at the SEC’s website at www.sec.gov.
It is this commitment to our clients and their businesses that allows us to build deep and meaningful relationships with them. Our client engagements may consist of one or a few of our service offerings – with a goal toward continuously expanding our client relationships.
Our client engagements may consist of one or a few of our service offerings – with a goal toward continuously expanding our client relationships.
Harte Hanks pays the cost of basic life insurance, accidental death and dismemberment insurance, and short-term and long-term disability for its employees. Additionally, employees may purchase supplemental life and dependent life insurance. 7 Table of Contents
Harte Hanks pays the cost of basic life insurance, accidental death and dismemberment insurance, and short-term and long-term disability for its employees. Additionally, employees may purchase supplemental life and dependent life insurance. We also sponsored a 401(k) retirement plan in which we matched a portion of employees’ voluntary before-tax contributions prior to 2018.
Those solutions are primarily focused on: • Customer Experience Management - Interact and resolve consumer concerns across hardware and software platforms, healthcare benefit plans, recalls or a myriad of other customer service issues by leveraging technology to help reduce customer effort while providing a human touch to increase customer satisfaction. • CRM & Digital Transformation – Configure different CRM solutions (e.g., Oracle, Salesforce, Zendesk) to create meaningful customer interactions by connecting content between agent or AI-driven interfaces and web-based self-help tools and community forums. • Demand Generation - Provide intelligence-based B2B solutions that understand audiences and their behaviors, and then inspire and drive action to deliver results.
Our global, omnichannel delivery model is focused on providing our clients three key services: • Customer Service Outsourcing - Our accomplished customer care associates interact and resolve consumer queries and complaints across hardware and software platforms, healthcare benefit plans, recalls or a myriad of other customer service issues. by leveraging technology to help reduce customer effort while providing a human touch to increase customer satisfaction. • Customer Care Technology and AI Transformation – Our solution services teams configure different CRM solutions (e.g., Salesforce, Zendesk) and channel /AI technology including Amazon Connect to create meaningful customer interactions by connecting content between agent, AI-driven interfaces and web-based self-help tools and community forums. • Self-Service Technology - Providing and maintaining self service solutions through Interactive Voice Response ("IVR"), Help Centers, online, via apps and via channel technology.
Petersburg, Florida East Bridgewater, Massachusetts Trevose, Pennsylvania Kansas City, Kansas International Offices Hasselt, Belgium Manila, Philippines Iasi, Romania Uxbridge, United Kingdom Competition Our competition comes from local, national, and international marketing, advertising, customer care, print fulfillment, 3PL, and logistics companies, and internal client resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures.
We had 14 em ployees in our corporate sales and marketing function as of December 31, 2023. Competition Our competition comes from local, national, and international marketing, advertising, customer care, print fulfillment, smaller 3PL, logistics companies, and internal client resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures.
In general, our contracts with our customers are terminable on short notice with little or no penalty payable on termination. Sales and Marketing We rely on our enterprise and solution sellers to primarily sell our products and services to new clients and task our employees supporting existing clients to expand our client relationship through additional solutions and products.
For sales we rely on our enterprise and solution sellers, combined with an internal sales team, to sell our products and services to new clients and task our employees supporting existing clients to expand our client relationship through additional solutions and products. We have expanded our sales team coverage internationally to support our global client and prospect network.
NexTOUCH is key to the success of our print and product fulfillment business while Allink®360 ensures customers' products are delivered on-time and on-budget. HUMAN CAPITAL RESOURCES As of December 31, 2022 , Harte Hanks employed 1,881 full-time employees and 823 part-time employees, of which approximately 1,646 a re based outside of the U.S., primarily in the Philippines.
HUMAN CAPITAL RESOURCES As of December 31, 2023, Harte Hanks employed 1,709 full-time employees and 253 part-time employees, of which approximately 980 a re based outside of the U.S., primarily in the Philippines. A portion of our workforce is provided to us through staffing companies. None of our workforce is represented by labor unions.
All reports filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are publicly available. These documents may be accessed free of charge on our website at http://www.hartehanks.com.
On December 1, 2021, our stock was uplisted to be traded on the Nasdaq Global Market® (“Nasdaq”), where it continues to trade today. All reports filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are publicly available.
Certain segments of our business rely on subcontractors and other third parties to provide a portion of our overall services in certain engagements. Over the years we have established strong relationships with subcontractors that translate into high level service and favorable prices for our customers.
Over the years we have established strong relationships with subcontractors that translate into high level service and favorable prices for our customers. Restructuring Activities Our management team continuously reviews and adjusts our cost structure and operating footprint to optimize our operations, and invest in improved technology.
We currently provide services primarily to the B2B, consumer brand, financial services, retail, and healthcare vertical markets, in addition to a range of other select markets. Our clients include large multinational enterprises, small and medium-sized businesses and government organizations. Our largest client (measured in revenue) generated 12.2% of total revenues in 2022 .
Customers Our clients include large multinational enterprises, small and medium-sized businesses and government organizations. Our largest client in terms of revenue generated 11.2% of total revenues in 2023 . Our largest 25 clients in terms of revenue generated 71.7% of total revenue in 2023 .
A portion of our workforce is provided to us through staffing companies. None of our workforce is represented by labor unions. We consider our relations with our employees to be good. Harte Hanks believes that its employees are the key to its success.
We consider our relations with our employees to be good. We believe that our employees are the key to our success.
Duri ng 2022, we continued to see an increase in the insourcing of capabilities among our clients, which resulted in a decrease in revenues from these customers. Seasonality Our revenues tend to be higher in the fourth quarter than in other quarters during a given year.
Duri ng 2023, we continued to see an increase in the in sourcing of capabilities among our clients, which resulted in a decrease in revenues from these customers. Furthermore, competition may begin to emerge as a result of the availability of in-house information technology solutions that can replicate some of our services.
Our largest 25 clients in terms of revenue generated 72.5% of total revenue in 2022 . We generally enter into long-term contracts with our clients ranging in duration from one to three years. Most of our contracts do not require our customers to purchase a minimum amount of services from us.
Our clients span a wide range of industries including but not limited to retail, travel, streaming, healthcare, financial services, and technology, which insulates the company from adverse conditions in any one sector. We generally enter into long-term contracts with our clients ranging in duration from one to three years.
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Our mission is to partner with clients to provide them with a robust customer-experience, or CX, strategy, data-driven analytics and actionable insights combined with seamless program execution to better understand, attract, and engage their own customers.
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Additionally, we have adopted a code of ethics that applies to our chief executive officer, chief financial officer and general counsel which is posted on our website. Our website also includes our corporate governance guidelines and the charters for each of our audit, compensation, and nominating and corporate governance committees.
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Our services include strategic planning, data strategy, performance analytics, creative development and execution; technology enablement; marketing automation; B2B and B2C e-commerce; cross-channel customer care; and product, print, and mail fulfillment. Marketing Services Our goal is to help our clients activate their audiences through digital, traditional and emerging channels.
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In and across these service categories, we address today's biggest growth and customer experience challenges for B2B and B2C businesses across the world in the new era of intelligence and Artificial Intelligence ("AI"), by being a modern journey enabler.
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Our key offerings include: • Strategy – Provide strategic guidance to help clients efficiently and effectively plan and execute omni-channel marketing programs that deliver business results.
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The challenges we solve include: • Grappling with data, AI and technology in the cookie-less world • Growing awareness, demand and sales for products • Storing, fulfilling and delivering samples, kits, materials and products direct to the door of consumers, influencers or businesses • Delivering better customer experience and support across multiple channels • Delivering effectively with tighter budgets and talent shortages Our clients need help enabling their journey to growth, to transformation, to customer centricity, to product success and to AI powered approaches and solutions to marketing, sales, fulfillment and customer care.
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Marketing as a service operationalizes, manages and delivers high-performing data operations, marketing technology, demand generation, and staff augmentation. 3 Table of Contents Customer Care Harte Hanks is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation.
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At the core of how we address this is a concentration on our client's key audiences - prospects, customers, patients, members, partners, employees and influencers - and how we help align our client's brands and products to these different audiences along journeys.
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Using our integrated onshore/offshore global delivery model, we provide our services through multiple communication channels including phone, email, social media, text messaging, chat and digital self-service. By leveraging our strategy, talent and technology, we strive to offer solutions that help our clients enhance the experience for their customers and improve business.
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This includes the product journey e.g. product innovation, build, strategy, launch, sell, deliver, support and recall and the customer journey e.g. how customers become aware of their needs, how they buy, making the purchase, using the product or service, advocacy and renewal.
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This solution helps companies generate marketing qualified lead’s (“MQL”) for their marketing and sales team. • Inside Sales – Helping build more effective and productive inside sales teams by introducing rigorous testing methodologies to optimize performance for internal or fully outsourced inside sales teams .
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We are laser focused on helping our clients better understand, engage, acquire, deliver to, service, support and retain these audiences. We start by understanding and architecting the journey in focus, and then enable, deliver and manage some or all aspects along this journey.
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Financial information about reporting segments can be found in Item 7 - Management ’ s Discussion and Analysis of Financial Condition and Result of Operations and Item 8 - Financial Statements and Supplementary Data under Note P.
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Our alignment of customers and products on behalf of brands along the entire lifecycle distinguishes us from most other agencies and competitors in our service categories.
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For the years ended December 31, 2022 and 2021, Harte Hanks had revenues of $206.3 million and $194.6 million, respectively. 4 Table of Contents Repurchase of the Preferred Stock from Wipro, LLC On December 2, 2022, we repurchased all 9,926 of our outstanding Series A Convertible Preferred Stock (the “Preferred Stock”) from Wipro, LLC (“Wipro”), the sole holder of the Preferred Stock pursuant to an agreement we entered into with Wipro in June 2022 (the “Repurchase Agreement”).
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We offer a uniquely diverse range of services and solutions in and across our service categories to businesses in the following industries: • B2B Technology & Services including cloud, SaaS, hardware, software, semiconductors, health technology, fintech, electronics, distributors and telecommunications • Healthcare, Pharmaceuticals & Health Insurance • Consumer Products including health, well-being and beauty; consumer tech/electronics; domestic appliances • Travel, Hospitality, Streaming & Entertainment • QSRs (Quick Service Restaurants) • Financial Services and Fintech • Automotive • Retail We partner with our clients to provide them with: data-driven analytics and actionable insights from research; robust customer-experience ("CX"), marketing or sales strategies; and the data, content & technology to enable delivery.
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The Preferred Stock was repurchased in exchange for (i) a cash payment equal to its liquidation value, or a total cash payment of $9,926,000 and (ii) the issuance to Wipro, LLC of 100,000 shares of Harte Hanks common stock, par value $1.00 per share (the “Common Stock”).
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We then combine these insights with seamless program execution, fulfillment, service and delivery on a project or ongoing service basis to meet our client's goals. In essence we offer services along the customer & product lifecycle - from Data to Demand, to Deal, to Delivery, and everything in between.
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The cash portion of the repurchase price was previously paid into escrow at the signing of the Repurchase Agreement on June 30, 2022 and was released at closing. Other than the release of previously escrowed funds, no additional cash was paid by Harte Hanks at the time of closing.
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Operationally, starting in 2024, our services are organized into four business units that span the end to end customer and product lifecycles: • Data, marketing, demand generation and managed marketing services • Sales Services • Fulfillment & Logistics • Customer Care Data, Marketing, Demand Generation and Managed Marketing Services Harte Hanks helps our clients determine, detect and activate their audiences through traditional, digital, and emerging channels.
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Acquisition of Inside Out Solutions, LLC On December 1, 2022, we repurchased all of the assets (the “Transaction”) of Inside Out Solutions, LLC, a Florida limited liability company (“InsideOut”), for an aggregate purchase price of approximately $7.5 million (the “Purchase Price”) pursuant to an asset purchase agreement, dated as of December 1, 2022 by and between Harte Hanks and InsideOut (the “Asset Purchase Agreement”).
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We provide full service multi-channel marketing from strategy to campaign execution. 4 Table of Contents Data, Marketing, Demand Generation and Managed Marketing Services (continued) Our key offerings include: • Data & Analytics – In-depth data and analytics including audience identification, profiling, segmentation and prioritization, predictive modeling and data strategy.
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InsideOut is a premium sales enablement agency offering technology and data driven support to technology, media telecommunications, business services, industrial, and financial technology customers in the North American and European markets.
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We also offer a unique intent data solution called Audience Finder for detecting in-market prospects. • Research - Primary and secondary research to help our clients understand their customers, category, competitors and capabilities, either as a standalone deliverable or to inform the development of strategies for campaigns and programs • Strategy – Provide strategic guidance to help clients efficiently and effectively plan and execute omnichannel marketing, demand generation and customer experience programs that deliver business results.
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The acquisition of InsideOut further expands the capabilities of our marketing services and customer care segments and strengthens our ability to drive profitable revenue growth within our current sales enablement offerings, including: (i) demand generation which creates qualified marketing leads for our clients, and (ii) inside sales offerings to further promote a client’s internal growth objectives.
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Types of strategies include: targeting, Go-To-Market, commercial, product launch, customer experience, campaign, content, ABM and demand strategy. • Creative & Content - Full-service creative and content design, development and execution spanning traditional and digital channels, including creative concepts, messaging and content assets for print, broadcast, direct mail, website, app, display, social, mobile, search engine marketing, and voice. • Marketing Technology – Website and app development, e-commerce development and enablement, database building and management, platform architecture creation, and marketing automation to serve as the foundation for digital and multi-channel marketing execution. • Digital and Multi-channel Marketing Execution - Orchestration and execution of programs and campaigns across multiple channels, territories and audiences, using data, strategies, content and Marketing technology or MarTech provided either by Harte Hanks or by our clients. • Demand Generation and ABM (Account Based Marketing) - Providing intelligence-based B2B solutions that understand audiences and their behaviors, and then inspire and drive action to deliver results.
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In addition, the owner and CEO of InsideOut entered into a two-year consulting agreement with us, which will ensure consistency in our delivery of these sales enablement offerings, post-closing. Restructuring Activities Our management team continuously reviews and adjusts our cost structure and operating footprint to optimize our operations, and invest in improved technology.
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These solutions help companies understand which accounts, sectors and persons to target, and then generate marketing qualified leads (“MQLs”) and pipelines for their marketing and sales team, through combining data, strategy, content, MarTech and digital/multi-channel execution. • Managed Marketing Services - also referred to as "Marketing as a Service".
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During 2020, in an effort to right-size our operating footprint, we terminated leases in Wilkes Barre (PA) and Grand Prairie (TX) and exited our last direct mail facility in Jacksonville (FL). We completed the migration of our fulfillment business from the Grand Prairie (TX) operations into a new 400,000 square foot facility in Kansas City (KS) in December 2020.
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A flexible outsourcing marketing operations solution, that works as a highly integrated extension of a client’s own marketing function by blending the best of agency and business outsourcing processes and capabilities. Marketing as a service operationalizes, manages and delivers some or all of: data operations, marketing technology, analytics, demand generation, and staff augmentation.
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In the first quarter of 2021, we completed the migration of our Shawnee (KS) operations to Kansas City (KS). The new Kansas City (KS) location is now our primary facility in the Midwest.
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Sales Services Harte Hanks supports our customers' sales teams in their continued pursuit of excellence, delivering specialized outsourcing, optimization, lead nurturing and messaging development services to global and national partners, since our acquisition and integration of InsideOut Solutions, LLC in late 2022.
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In 2020, we also reduced the footprint of our Customer Care business by reducing our Austin (TX) office location by approximately 50,000 square feet in addition to exiting one of our two Manila offices as the business was operating effectively in a work-from-home environment.
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Leveraging our unique initiatives, we help organizations drive their sales operations toward uplifted conversion rates, superior team performance and heightened win rates. Our designed approach delivers revenue predictability, control and confidence for partners.
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Finally, in 2021 we exited our remaining Customer Care office leases in Texarkana (TX) and Austin (TX) upon expiration of the lease term. In connection with our cost-saving and restructuring initiatives, we incurred total restructuring charges of $27.6 million through the end of 2021. We completed our restructuring in 2021 and did not incur any additional restructuring expenses in 2022.
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Equipped with our proprietary insights and performance metrics, clients can achieve a more purposeful view of their operational rhythm, enabling them to recognize, meet and improve benchmarks quarter over quarter. This offering is often sold in combination with our Marketing Services capabilities, specifically with Demand Generation and Data Services.
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Customers Our services are marketed to specific industries or markets. We tailor our services and software products depending on the industry or market we are targeting. We believe that we are generally able to provide services to new industries and markets by modifying our existing services and applications.
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Our global team provides this through three key service capabilities: • Inside Sales Outsourcing - combining best-in-class analytics, accomplished sales professionals and full-cycle experimentation we provide B2B enterprises, and Small to Midsized Businesses with a fully outsourced sales service, that can work alongside or in lieu of an internal inside sales function. • Lead Generation – combining data, lead generation resources and technology we provide turnkey lead generation and development that converts interested or good fit prospects into leads for sales to qualify, nurture and sell to. • Sales Play Development - design of sales plays and cadences to enable sales teams to find, plan, engage, nurture and convert prospects into sales opportunities. 5 Table of Contents Fulfillment & Logistics Services Harte Hanks fulfillment unlocks critical sales enablement, value-added product fulfillment, and eCommerce channels for our clients.
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Facilities Our services are provided at the following facilities, all of which are leased: Domestic Offices Chelmsford, Massachusetts Lenexa, Kansas Deerfield Beach, Florida St.
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Customer Care Our customer care services are tailored to serve our partners’ customer bases, helping them to win new buyers and turn existing patrons into loyal brand advocates.
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Examples include data encryption standards, data breach notification requirements, consumer choice and consent restrictions, and increased penalties against offending parties, among others. In addition, our business, in general, and the way we do business in particular, may be affected by the impact of these restrictions on our clients and their marketing activities.
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We serve our clients to support their end customers’ urgent needs, navigate an increasingly-complex technology landscape, and enable artificial intelligence technology and automation — with a fierce devotion to reducing customer effort, for the benefit of both business and buyer. This approach to “effortless customer experience” drives better service results and lowers operational costs.
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We cannot predict the scope of any new legislation, regulations, or industry guidelines or how courts may interpret existing and new laws. Additionally, enforcement priorities by governmental authorities may change and impact our business either directly or through requiring our customers to alter their practices.
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Client Relationships We are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order to deliver desired business outcomes.
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Compliance with regulations is costly and time-consuming for us and our clients, and we may encounter difficulties, delays, or significant expenses in connection with our compliance. We may also be exposed to significant penalties, liabilities, reputational harm, and loss of business if we fail to comply with applicable regulations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

48 edited+24 added−30 removed77 unchanged
Biggest changeHowever, w e may not be able to recognize all identified potential savings and even if we are able to recognize the identified savings, such cost savings may be insufficient to achieve our cost management objectives. To the extent that we do not successf ully manage our costs our financial results may be adversely affected.
Biggest changeA transformational office was established at the beginning of 2024 with the mandate to manage and measure these initiatives on a go forward basis. However, w e may not be able to recognize all identified potential savings and even if we are able to recognize the identified savings, such cost savings may be insufficient to achieve our cost management objectives.
Many of our customer agreements do not have minimum volume or revenue requirements or exclusivity arrangements, so clients may (and do) vary their actual orders from us over time based on their own business needs, their satisfaction with the quality and pricing of our services, and a variety of other competitive factors.
Many of our customer agreements do not have minimum volume, revenue requirements or exclusivity arrangements, so clients may (and do) vary their actual orders from us over time based on their own business needs, their satisfaction with the quality and pricing of our services, and a variety of other competitive factors.
GAAP”). Covenant and ratio requirements may limit the manner in which we can conduct our business, and we may be unable to engage in favorable business activities or finance future operations and capital needs.
Covenant and ratio requirements may limit the manner in which we can conduct our business, and we may be unable to engage in favorable business activities or finance future operations and capital needs.
Specifically, the amount and terms of the Company’s indebtedness could: • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, including limiting our ability to invest in our strategic initiatives, and consequently, place us at a competitive disadvantage; • reduce the availability of our cash flows that would otherwise be available to fund working capital, capital expenditures, acquisitions, and other general corporate purposes; and • result in higher interest expense in the event of increases in interest rates, as discussed below under the Risk Factor “Interest rate increases could affect our results of operations, cash flows, and financial position.” In addition, a failure to comply with these restrictions or to maintain the financial measures and ratios contained in the New Credit Facility or future debt instruments could lead to an event of default that could result in an acceleration of debt repayment obligations.
Specifically, the amount and terms of the Company’s indebtedness could: • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, including limiting our ability to invest in our strategic initiatives, and consequently, place us at a competitive disadvantage; • reduce the availability of our cash flows that would otherwise be available to fund working capital, capital expenditures, acquisitions, and other general corporate purposes; and • result in higher interest expense in the event of increases in interest rates, as discussed below under the Risk Factor “Interest rate increases could affect our results of operations, cash flows, and financial position.” In addition, a failure to comply with these restrictions or to maintain the financial measures and ratios contained in the Credit Facility or future debt instruments could lead to an event of default that could result in an acceleration of debt repayment obligations, and refinancing existing letters of credit.
Some of our competitors also may choose to sell products or services that compete with ours at lower prices by accepting lower margins and profitability or may be able to sell products or services that compete with ours at lower prices given proprietary ownership of data, technical superiority, a broader or deeper product or experience set, greater capital resources or economies of scale.
Some of our competitors also may choose to sell products or services that compete with ours at lower prices by accepting lower margins and profits or may be able to sell products or services that compete with ours at lower prices given proprietary ownership of data, technical superiority, a broader or deeper product or experience set, greater capital resources or economies of scale.
We also expect any new regulations will reflect the growing trends common to current privacy, data protection and marketing laws requiring companies to bear the burden of proving compliance efforts through demonstratable records, and may subject companies to significant fines and penalties should they violate any substantive or technical requirement.
We also expect any new regulations will reflect the growing trends common to current privacy, data protection and marketing laws requiring companies to bear the burden of proving compliance efforts through demonstrable records, and may subject companies to significant fines and penalties should they violate any substantive or technical requirement.
We have experienced, and may experience in the future, reduced demand for our products and services due to the financial condition and marketing budgets of our clients and other factors that may impact the industry verticals that we serve. Marketing budgets are largely discretionary in nature, and as a consequence are easier to reduce in the short-term than other expenses.
We may experience in the future, reduced demand for our products and services due to the financial condition and marketing budgets of our clients and other factors that may impact the industry verticals that we serve. Marketing budgets are largely discretionary in nature, and as a consequence are easier to reduce in the short-term than other expenses.
Accordingly, our future operating results could be negatively affected by a variety of factors, some of which are beyond our control, including: • changes in local, national, and international legal requirements or policies resulting in burdensome government controls, tariffs, restrictions, embargoes, or export license requirements; • higher rates of inflation; • the potential for nationalization of enterprises; • less favorable labor laws that may increase employment costs and decrease workforce flexibility; • potentially adverse tax treatment; • less favorable foreign intellectual property laws that would make it more difficult to protect our intellectual property from misappropriation; • more onerous or differing data privacy and security requirements or other marketing regulations; • longer payment cycles; • social, economic, and political instability; • regional conflicts, including Russia’s invasion of Ukraine, as well as any additional economic sanctions adopted in response to such actions; • the differing costs and difficulties of managing international operations; • modifications to international trade policy or the imposition of increased or new tariffs, quotas or trade barriers on key commodities; and • geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the availability, cost, and terms of mortgage funds).
Accordingly, our future operating results could be negatively affected by a variety of factors, some of which are beyond our control, including: • changes in local, national, and international legal requirements or policies resulting in burdensome government controls, tariffs, restrictions, embargoes, or export license requirements; • higher rates of inflation; • the potential for nationalization of enterprises; • less favorable labor laws that may increase employment costs and decrease workforce flexibility; • potentially adverse tax treatment; • less favorable foreign intellectual property laws that would make it more difficult to protect our intellectual property from misappropriation; • more onerous or differing data privacy and security requirements or other marketing regulations; 13 Table of Contents • longer payment cycles; • social, economic, and political instability; • regional armed conflicts, as well as any additional economic sanctions adopted in response to such actions; • the differing costs and difficulties of managing international operations; • modifications to international trade policy or the imposition of increased or new tariffs, quotas or trade barriers on key commodities; and • geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the availability, cost, and terms of mortgage funds).
Our common stock price may continue to be volatile due to a number of factors including the following (some of which are beyond our control): • variations in our operating results from period to period and variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • the development and sustainability of an active trading market for our common stock; • the transition of our common stock from the NYSE to the OTCQX; from OTCQX to NASDAQ; • unanticipated developments with client engagements or client demand, such as variations in the size, budget, or progress of engagements, variability in the market demand for our services, client consolidations, and the unanticipated termination of several major client engagements; • announcements of developments affecting our businesses; • competition and the operating results of our competitors; • the overall strength of the economies of the markets we serve and general market volatility; and • other factors discussed elsewhere in this Item 1A, “Risk Factors.” Because of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price.
Our common stock price may continue to be volatile due to several factors including the following (some of which are beyond our control): • variations in our operating results from period to period and variations between our actual operating results and the expectations of securities analysts, investors, and the financial community; • the development and sustainability of an active trading market for our common stock; • unanticipated developments with client engagements or client demand, such as variations in the size, budget, or progress of engagements, variability in the market demand for our services, client consolidations, and the unanticipated termination of several major client engagements; • announcements of developments affecting our businesses; • competition and the operating results of our competitors; • the overall strength of the economies of the markets we serve and general market volatility; and • other factors discussed elsewhere in this Item 1A, “Risk Factors.” Because of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price.
Our customers have in the past, and may in the future, respond to their own financial constraints (whether caused by weak economic conditions, weak industry performance or client-specific issues) by reducing their marketing spend.
Our customers have in the past, and may in the future, respond to their own financial constraints, whether caused by weak economic conditions, weak industry performance or client-specific circumstances, by reducing their marketing spend.
Additionally, privacy and security concerns may limit consumers’ willingness to voluntarily provide data to our clients or marketing companies. Some of our services depend on voluntarily provided data. For instance, we believe that one of the most attractive offerings of our Marketing Services segment is the provision of data-analytics to our clients.
Additionally, 12 Table of Contents privacy and security concerns may limit consumers’ willingness to voluntarily provide data to our clients or marketing companies. Some of our services depend on voluntarily provided data. For instance, we believe that one of the most attractive offerings of our Marketing Services segment is the provision of data-analytics to our clients.
Customers may also be slow to restore their marketing budgets to prior levels during an economic recovery and may respond similarly to adverse economic conditions in the future further exacerbating the risk. Our revenues are dependent on national, regional, and international economies and business conditions.
Customers may also be slow to restore their marketing budgets to prior levels during an economic recovery and may respond similarly to adverse economic conditions in the future. Our revenues are dependent on national, regional, and international economies and business conditions.
The New Credit Facility includes covenants restricting the Company’s and its subsidiaries’ ability to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting or tax reporting methods (other than as required by the generally accepted accounting principles in the United States of America (“U.S.
The Credit Facility includes covenants currently restricting or potentially restricting the Company’s and its subsidiaries’ ability to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens, consummate mergers or acquisitions, liquidate, dissolve, suspend or cease operations, or modify accounting or tax reporting methods (other than as required by the generally accepted accounting principles in the United States of America).
Moreover, in some of our engagements, we rely on subcontractors and other third parties to provide some of the services to our clients, and we cannot guarantee that these third parties will effectively deliver their services, that we will be able to easily suspend work with contractors that are not performing adequately, or that we will have adequate recourse against these third parties in the event they fail to effectively deliver their services.
Moreover, in some of our engagements, we rely on subcontractors and other third parties to provide some of the services to our clients, and we cannot guarantee that these third parties will effectively deliver their services, that we will be able to easily suspend work with contractors that are not performing adequately, or that we will have adequate recourse against these third parties in the event they fail to effectively deliver their services as we are generally responsible for the work of these sub-contractors.
There could be a material adverse impact on our business if owners of the data we use were to curtail access to the data or materially restrict the authorized uses of their data.
There could be a material adverse impact on our 17 Table of Contents business if owners of the data we use were to curtail access to the data or materially restrict the authorized uses of their data.
Competitive pricing pressures tend to increase in difficult or uncertain economic environments, due to reduced marketing expenditures of many of our clients and prospects, and the resulting impact on the competitive business environment for marketing service providers such as our company.
Competitive pricing pressures tend to increase in difficult or uncertain economic environments, due to reduced marketing expenditures of many of our clients and prospects, and in turn negatively impact the competitive business environment for marketing service providers such as our company.
A large portion of our revenue is generated from a limited number of clients. The loss of a client or significant work from one or more of our clients could adversely affect our business. Our largest client (measured in revenue) generated 12.2% of total revenues in 2022 and represented 13.0% of total accounts receivable as of December 31, 2022.
A large portion of our revenue is generated from a limited number of clients. The loss of a client or significant work from one or more of our clients could adversely affect our business. Our largest client (measured in revenue) generated 11.2% of total revenues in 2023 and represented 11.2% of total accounts receivable as of December 31, 2023.
If a substantial number of data providers or other key data sources were to withdraw or restrict their data, if we were to lose access to data due to government regulation or if the collection of data becomes uneconomical, our ability to provide products and services to our clients could be materially and adversely affected, which could result in decreased revenues, net income and earnings per share. 13 Table of Contents We are unlikely to declare cash dividends.
If a substantial number of data providers or other key data sources were to withdraw or restrict their data, if we were to lose access to data due to government regulation or if the collection of data becomes uneconomical, our ability to provide products and services to our clients could be materially and adversely affected, which could result in decreased revenues, net income and earnings per share.
During 2022, approximately 11.1% o f our revenues were derived from operations outside the United States, primarily in Europe and Asia. We may expand our international operations in the future as part of our growth strategy.
During 2023, approximately 9.6% o f our revenues were derived from operations outside the United States, primarily in Europe and Asia. We may expand our international operations in the future as part of our growth strategy.
We also have exposure to interest rate fluctuations in the United States, specifically money market, commercial paper, and overnight time deposit rates, as these affect our earnings on excess cash.
We also have exposure to interest rate fluctuations in the United States, specifically money market, the value of our pension obligations and overnight time deposit rates, as these affect our earnings on excess cash.
Over the past four years we have replaced many of our leaders (including our Chief Executive Officer, President, Chairman, Chief Operating Officer, and Chief Financial Officer), some a number of times.
Over the past few years, we have replaced many of our leaders (including our Chief Executive Officer, and Chief Financial Officer), some a number of times.
The covenants in the New Credit Facility may limit the Company ’ s operating and financial flexibility. The New Credit Facility and the terms under which we borrow money under any future credit facilities or other agreements could have significant consequences for our business.
Risks Related to our Capital Structure and Common Stock The covenants in the Credit Facility may limit the Company ’ s operating and financial flexibility. The Credit Facility and the terms under which we borrow money under any future credit facilities or other agreements could have significant consequences for our business.
Even with the offsetting increase in earnings on excess cash in the event of an interest rate increase, we cannot be assured that future interest rate increases will not have a material adverse impact on our business, financial position, or operating results.
Even with the offsetting increase in earnings on excess cash in the event of an interest rate increase, we cannot be assured that future interest rate increases will not have a material adverse impact on our business, financial position, or operating results. Increased interest rates have put upward pressure on pricing and purchasing power.
Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital expenditures across our operations. In 2019, our management team, along with members of the Board, formed a project commi ttee focused on cost-saving initiatives and other restructuring efforts.
Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital expenditures across our operations. In 2023, our management team formed a project team focused on cost-saving initiatives and other restructuring efforts.
We may be unable to successfully identify, develop, and bring new and enhanced services and products to market in a timely and cost-effective manner, such services and products may not be commercially successful, and services, products, and technologies developed by others may render our services and products noncompetitive or obsolete. 8 Table of Contents Climate change may have an adverse impact on our business.
We may be unable to successfully identify, develop, and 11 Table of Contents bring new and enhanced services and products to market in a timely and cost-effective manner, such services and products may not be commercially successful, and services, products, and technologies developed by others may render our services and products noncompetitive or obsolete.
Our ability to compete effectively depends in part on the protection of our technology, products, services, and brands through intellectual property right protections, including copyrights, database rights, trade secrets, trademarks, as well as through domain name registrations, and enforcement procedures.
We could fail to adequately protect our intellectual property rights and may face claims for intellectual property infringement. Our ability to compete effectively depends in part on the protection of our technology, products, services, and brands through intellectual property right protections, including copyrights, database rights, trade secrets, trademarks, as well as through domain name registrations, and enforcement procedures.
Risks related to our pension benefit plans may adversely impact our results of operations and cash flows. Pension benefits represent significant financial obligations. As of December 31, 2022, we had approximately $39.6 mil lion of unfunded pension liabilities.
Risks related to our pension benefit plans may adversely impact our results of operations and cash flows. Pension benefits represent significant financial obligations. As of December 31, 2023, we had approximately $37.7 million of unfunded pension liabilities.
While we typically have multiple projects with our largest customers which would not all terminate at the same time, the loss of one or more of our larger clients or even a single project or contract with one of our largest clients could adversely affect our business, results of operations, and financial condition if the lost revenues are not replaced with profitable revenues from that client or other clients.
While we typically have multiple projects with our largest customers which would not all terminate at the same time, the loss of one or more of our larger clients or even a single project or contract with one of our largest clients could adversely affect our business, results of operations, and financial condition if the lost revenues are not replaced with profitable revenues from that client or other clients. 10 Table of Contents Our industry is subject to intense competition and dynamic changes in business model, which in turn could cause our operations to suffer.
Our New Credit Facility bears interest based upon the Bloomberg Short-Term Bank Yield Index Rate. Our results of operations, cash flows, and financial position could be materially or adversely affected by significant increases in interest rates.
Our Credit Facility bears interest based upon the Secured Overnight Financing Rate. Our results of operations, cash flows, and financial position could be materially or adversely affected by significant increases in interest rates.
ITEM 1A. RISK FACTORS Risks Related to our Business Most of our client engagements are cancelable on short notice. The marketing services we offer, in particular for contact center services, are generally terminable upon short notice by our clients, even if the term of the agreement (and the expected duration of services) is several or many years.
The marketing services we offer, in particular for contact center services, are generally terminable upon short notice by our clients, even if the term of the agreement (and the expected duration of services) is several or many years.
We could suffer a material adverse impact on our business due to the enactment or enforcement of legislation or industry regulations affecting us and/or our clients, the issuance of judicial or governmental interpretations, changed enforcement priorities of governmental agencies, or a change in behavior arising from public concern over privacy, data protection, and information security issues.
We could suffer a material adverse impact on our business due to the enactment or enforcement of legislation or industry regulations affecting us and/or our clients, the issuance of judicial or governmental interpretations, changed enforcement priorities of governmental agencies, or a change in behavior arising from public concern over privacy, data protection, and information security issues. 15 Table of Contents Uncertainty around, and disruption from, new and emerging technologies, including the adoption and utilization of artificial intelligence, may result in risks and challenges that could impact our business.
As a result of increasing awareness and interest in privacy rights, data protection, the fair use of personal information, consumer protection, information security, and similar matters, national and local governments and industry organizations regularly consider and adopt new laws, rules, regulations, and guidelines that impact, restrict, and regulate our business products and services.
We are subject to and affected by numerous laws, regulations, and industry standards that regulate direct marketing activities, including those that address privacy, data protection, processing personal information, information security, and marketing communications. 14 Table of Contents As a result of increasing awareness and interest in privacy rights, data protection, the fair use of personal information, consumer protection, information security, and similar matters, national and local governments and industry organizations regularly consider and adopt new laws, rules, regulations, and guidelines that impact, restrict, and regulate our business products and services.
Approximately 72.5% o f our revenue for 2022 was generated by our 25 largest clients.
Approximately 71.7% o f our revenue for 2023 was generated by our 25 largest clients.
Our sites operate on leasehold property, and our inability to renew our leases on commercially acceptable terms or at all may adversely affect our results of operations. Our sites operate on leasehold property. Our leases are subject to renewal and we may be unable to renew such leases on commercially acceptable terms or at all.
Our leases are subject to renewal and we may be unable to renew such leases on commercially acceptable terms or at all.
Should we lose access to a facility for any reason, including as a result of a localized outbreak of COVID-19 or another communicable disease, terrorist incident or natural disaster, our service levels are likely to decline or be suspended, clients would go without service or secure replacement services from a competitor.
Outsourcing these processes to facilities not owned by us is not a viable option. Should we lose access to a facility for any reason, including as a result of pandemics, terrorist incident or natural disaster, our service levels are likely to decline or be suspended and clients would go without service or secure replacement services from a competitor.
If our new leaders are unsuccessful, or if we continue to lose key management and are unable to attract and retain the talent required for our business, our operating results could suffer.
As a consequence of such an event, we would suffer a reduction in revenues and harm to (and loss of) client relationships. If our new leaders are unsuccessful, or if we continue to lose key management and are unable to attract and retain the talent required for our business, our operating results could suffer.
Consumer perceptions regarding the privacy and security of their data may prevent or impair our ability to offer our products and services. Various local, national, and international regulations, as well as industry standards, give consumers varying degrees of control as to how personal data is collected, used, and shared for marketing purposes.
Various local, national, and international regulations, as well as industry standards, give consumers varying degrees of control as to how personal data is collected, used, and shared for marketing purposes.
Our success depends on our ability to effectively and consistently staff and execute client engagements within the agreed upon time frame and budget. Depending on the needs of our clients, our engagements may require customization, integration, and coordination of a number of complex product and service offerings and execution across many facilities.
Depending on the needs of our clients, our engagements may require customization, integration, and coordination of a number of complex product and service offerings and execution across many facilities.
Our inability to renew our leases, or a renewal of our leases with a rental rate higher than the prevailing rate under the applicable lease prior to expiration, may cause an increase in operating costs, or may cause additional cost due to relocation. 9 Table of Contents Risks Related to our Indebtedness Our indebtedness may adversely impact our ability to react to changes in our business or changes in general economic conditions.
Our inability to renew our leases, or a renewal of our leases with a rental rate higher than the prevailing rate under the applicable lease prior to expiration, may cause an increase in operating costs, or may cause additional cost due to relocation. 18 Table of Contents Fluctuation in our revenue and operating results and other factors may impact the volatility of our stock price.
If there is a significant shift in consumer behavior or governmental regulations were to inhibit our ability to collect large amounts of this type of data, our ability to provide meaningful data analytics to our clients would likely be impaired. 11 Table of Contents If we do not prevent security breaches and other interruptions to our infrastructure, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur additional costs.
If there is a significant shift in consumer behavior or governmental regulations were to inhibit our ability to collect large amounts of this type of data, our ability to provide meaningful data analytics to our clients would likely be impaired.
As a consequence of such an event, we would suffer a reduction in revenues and harm to (and loss of) client relationships. Significant system disruptions, loss of data center capacity or interruption of telecommunication links could adversely affect our business and results of operations.
Significant system disruptions, loss of data center capacity or interruption of telecommunication links could adversely affect our business and results of operations.
The failure to pay a cash dividend could adversely affect the market price of our common stock. Interest rate increases could affect our results of operations, cash flows and financial position. Interest rate fluctuations in Europe and the United States may affect the amount of interest we pay related to our debt and the amount we earn on cash equivalents.
The loss or prolonged absence of the services of these individuals could have a material adverse effect on our business, financial position, or operating results . Interest rate increases could affect our results of operations, cash flows and financial position. Interest rate fluctuations in Europe and the United States may affect the amount of interest we earn on cash equivalents.
There were no changes in our internal controls over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 15 Table of Contents Fluctuation in our revenue and operating results and other factors may impact the volatility of our stock price.
There were no changes in our internal controls over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Risks Related to Cybersecurity and Technology Privacy, information security and other regulatory requirements may prevent or impair our ability to offer our products and services.
The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of confidential customer information.
If we do not prevent security breaches and other interruptions to our infrastructure, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur additional costs. The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of confidential customer information.
While those incidents had no direct impact on Harte Hanks, there can be no assurance that we will not experience future events that may be material. Our reputation and business results may be adversely impacted if we, or subcontractors upon whom we rely, do not effectively protect sensitive personal information of our clients and our clients’ customers.
The Company expects that the sophistication and techniques of cyber-threats will continue to evolve with the rapid development and increased adoption of AI and machine-learning technologies. 16 Table of Contents Our reputation and business results may be adversely impacted if we, or subcontractors upon whom we rely, do not effectively protect sensitive personal information of our clients and our clients’ customers.
Differences between actual pension expenses and liability amounts from these estimated expense and liabilities may adversely impact our results of operations and cash flows. 10 Table of Contents Risks Related to Cybersecurity Privacy, information security and other regulatory requirements may prevent or impair our ability to offer our products and services.
Differences between actual pension expenses and liability amounts from these estimated expense and liabilities may adversely impact our results of operations and cash flows. Our operations are located on leasehold property, and our inability to renew our leases on commercially acceptable terms or at all may adversely affect our results of operations. Our sites operate on leasehold property.
We are a target of cyber-attacks of varying degrees on a regular basis. Overtime, these attacks have become increasingly sophisticated and, in some cases, have been conducted or sponsored by “nation state” operators. For instance, in January 2022 the Lapsus$ international hacker group attacked Microsoft, Nvidia, Samsung, Ubisoft and Okta.
We are a target of cyber-attacks of varying degrees on a regular basis. Over time, the techniques used to conduct these cyber-attacks, as well as the sources and targets of these attacks, have become increasingly sophisticated and, in some cases, have been but, are often not recognized until such attacks are launched or have been in place for some time.
While the transition to SOFR is not in and of itself expected to have a material impact on the Company’s earnings, the impact of the transition on the global financial markets and the economy could affect our business. 14 Table of Contents We are subject to risks associated with operations outside the United States Harte Hanks conducts business outside of the United States.
Pricing pressure has led to some wage inflation which could adversely affect our margins and profitability if it persisted for a long time or wage pressure increased. We are subject to risks associated with operations outside the United States Harte Hanks conducts business outside of the United States.
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We depend to some extent on sales to certain industries, such as the consumer retail industries, technology, and financial services. To the extent these industries experience downturns whether as result of the COVID-19 pandemic, another epidemic, the ongoing Russia-Ukraine war or otherwise, our clients may re-evaluate their marketing spend, which could adversely affect the results of our operations.
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ITEM 1A. RISK FACTORS This section discusses the most significant factors that could affect our business, results of operations and financial condition, including the price of our common stock.
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We face significant competition for individual projects, entire client relationships and advertising dollars in general. Our business faces significant competition within each of our vertical markets and for all our offerings.
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You should carefully consider the following risks, which represent the material risk factors that affect the Company and are known to the Company at this time, as well as the other information contained in this Annual Report on Form 10-K in evaluating our company and our common stock. The risks described below are not the only ones we face.
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We offer our marketing services within a dynamic business environment characterized by rapid technological change, high turnover of client personnel who make buying decisions, client consolidations, changing client needs and preferences, continual development of competing products and services, and an evolving competitive landscape.
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Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, results of operations, or financial condition.
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This competition comes from numerous local, national, and international direct marketing and advertising companies, and client internal resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures by clients and prospective clients. We also compete against internet (social, mobile, web-based, and email), print, broadcast, and other forms of advertising for marketing and advertising dollars in general.
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We have grouped these risk factors into three categories: • Risks related to our business and how we operate; • Risks related to cybersecurity and technology; • Risks related to our capital structure and common stock. Risks Related to our Business and How we Operate Most of our client engagements are cancellable on short notice.
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Duri ng 2022, we continued to see an increase in the insourcing of capabilities among our clients. Our ability to attract new clients and to retain existing clients may, in some cases, be limited by clients’ policies on or perceptions of conflicts of interest which may prevent us from performing similar services for competitors.
Added
The B2B services industry is highly competitive, highly fragmented, and subject to rapid change.
Removed
Some of our clients have also sought to reduce the number of marketing vendors or use third-party procurement organizations, all of which increases pricing pressure, and may disadvantage us relative to our competitors that have broader and/or deeper offerings than us.
Added
We believe the principal competitive factors in this market are breadth, depth, and quality of service offerings, ability to tailor specific solutions to the needs of clients and their customers, the ability to attract, train, and retain qualified staff, cybersecurity infrastructure, compliance rigor, global delivery capabilities, pricing, and marketing and sales capabilities.
Removed
Our failure to improve our current processes or to develop expertise in various technologies could result in the loss of our clients to current or future competitors.
Added
We compete for business with a variety of companies, as well as in-house operations of existing and potential clients. If our clients place more focus on in-house marketing or utilize new or emerging technologies to internalize these operations, the size of the market for third-party service providers like us could reduce significantly.
Removed
While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted.
Added
Similarly, if competitors offer their services at lower prices to gain market share or provide services that gain greater market acceptance than the services we offer or develop, the demand for our services may decrease. Specialized providers or new entrants can enter our markets by developing new systems or services that could impact our business.
Removed
Our financial results, and our operations may be vulnerable to the adverse effects of climate change, which are predicted to increase the frequency and severity of weather events and other natural cycles such as wildfires and droughts.
Added
The opportunity for new entrants in our industry may expand as digital engagement and offerings increase in importance. New competitors, new strategies by existing competitors or clients, and consolidation among clients or competitors could result in significant market share gain by our competitors, which could have an adverse effect on our revenue.
Removed
Such events have the potential to disrupt our operations, delay deliveries, disrupt the business of third-party truck operators and impact our customers, all of which may cause us to suffer losses and additional costs to maintain or resume operations. Our success depends on our ability to consistently and effectively deliver our services to our clients .
Added
Some emerging technologies, such as AI, Robotic Process Automation, Machine Learning, Voice of the Customer, Interactive Voice Response, and Internet of Things, may cause an adverse shift in the way certain of our existing business operations are conducted, including by replacing human contacts with automated or self-service options, or by decreasing the size of the available market.
Removed
The committee reviewed each of our business segments and other operational areas to identify both one-time and recurring cost-saving opportunities. Even though the committee was dissolved at the end of 2019, our management team continued to review and adjust our cost structure and operating footprint, optimize our operations, and invest in improved technology.
Added
We also expect our competitors to continue to improve their technology infrastructure, including with the use of AI and machine learning solutions, to interact with clients and prospects, automate their services, process and analyze large amounts of data and grow their customer base.
Removed
For the years ended December 31, 2021, we recorded restructuring charges of $6.4 million, which has resulted in meaningful savings in 2022 and future years.
Added
Our ability to innovate our own technology infrastructure and appropriately grow our CX solutions offerings using these tools (and predicting the next generation of such tools) will affect our ability to compete.
Removed
As of December 31, 2022, we had no indebtedness outstanding. However, we may incur new indebtedness from time to time. On December 21, 2021, the Company entered a new three-year, $25.0 million asset-based revolving credit facility (the “New Credit Facility”) with the Texas Capital Bank.
Added
We may be unsuccessful at anticipating or responding to new developments on a timely and cost-effective basis, and our use of technology may differ from accepted practices in the marketplace.
Removed
The New Credit Facility replaces the Company’s previous credit facility with Texas Capital Bank , which previous facility was guaranteed by members of the Shelton family (descendants of one of our founders) to provide credit support to the Company. The New Credit Facility did not require the Shelton family or any other third-party to guarantee the Company’s obligations.
Added
Certain of our solutions may require lengthy and complex implementations that can be subject to changing client preferences and continuing changes in technology, which can increase costs or adversely affect our business.
Removed
However, each of the Company’s material subsidiaries guaranteed the Company’s obligations under the New Credit Facility (such subsidiaries, the “Guarantors”).
Added
Our success depends on our ability to consistently and effectively deliver our services to our clients . Our success depends on our ability to effectively and consistently staff and execute client engagements within the agreed upon time frame and budget.
Removed
The New Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the other grantors party thereto (the “Security Agreement”).
Added
The program named Project Elevate created and changed processes in each of our business segments to transform the operational cost structure of the company and change the culture to be more agile, optimize the structure, and cost justify all activities of the organization.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES Our business is conducted in facilities worldwide containing aggregate space of approximate ly 0.9 mi llion square feet. All facilities are held under leases, which expire at dates through 2030. S ee “Item 1 - Business - Facilities.” In the fourth quarter of 2020, we opened our 300,000 square-foot fulfillment and distribution facility in Kansas City, Kansas.
Added
ITEM 2. PROPERTIES Our headquarters is located in Chelmsford, MA. We lease office and fulfillment facilities around the world, primarily in the United States, Europe and Asia. As of December 31, 2023, we operated the following types of facilities in the following locations: Domestic Offices International Offices Operational Warehouses Chelmsford, Massachusetts Hasselt, Belgium East Bridgewater, Massachusetts St.
Removed
We have since expanded into an additional 100,000 square-foot space and now occupy the full 400,000 square-foot facility. We hold the facility under a lease with an eight-year remaining lease term and believe the rent is consistent with market rates.
Added
Petersburg, Florida Iasi, Romania Kansas City, Kansas Deerfield Beach, Florida Manila, Philippines Lenexa, Kansas Uxbridge, United Kingdom Hasselt, Belgium As of December 31, 2023, our operational facilities were for the following use and square footage by segment: Description of Use United States International Total Office space 24,313 60,650 84,963 Fulfillment facilities 736,845 35,725 772,570 Total 761,158 96,375 857,533 20 Table of Contents Segment Leased Sq Ft Customer Care 54,964 Fulfillment & Logistics 772,570 Marketing Services 23,748 851,282 Corporate office 6,251 Total 857,533 We believe our facilities to be adequate for our business and operations as currently administered.
Removed
The facility is FDA registered and licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements. We believe our facilities to be adequate for our business and operations as currently administered.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table contains information about our purchases of equity securities during the fourth quarter of 2022: Total Number of Maximum Dollar Total Number of Average Shares Purchased Amount that May Shares Price Paid as Part of a Publicly Yet Be Spent Period Purchased (1) per Share Announced Plan (2) Under the Plan October 1 - 31, 2022 — $ — — $ 11,437,544 November 1 - 30, 2022 — $ — — $ 11,437,544 December 1 - 31, 2022 — $ — — $ 11,437,544 Total — $ — — (1) Total number of shares purchased includes shares, if any, (i) purchased as part of our publicly announced stock repurchase program, and (ii) pursuant to our 2013 Omnibus Incentive Plan and applicable inducement award agreements with certain executives, withheld to pay withholding taxes upon the vesting of shares.
Biggest changeIssuer Purchases of Equity Securities The following table contains information about our purchases of equity securities during the fourth quarter of 2023: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced plan Maximum dollar amount that may yet be purchased under the program (1) (in thousands) October 1 - 31, 2023 — $ — — $ 4,131 November 1 - 30, 2023 — $ — — $ 4,131 December 1 - 31, 2023 — $ — — $ 4,131 Total — $ — — (1) During the fourth quarter of 2023, we did not purchase any shares of our common stock through our stock repurchase program that was publicly announced on May 2, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Our common stock is listed for trading on the NASDAQ under the symbol HHS. As of January 31, 2022, there were approximately 870 c ommon stockholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Our common stock is listed for trading on the NASDAQ under the symbol "HHS". As of January 31, 2024, there were approximately 743 c ommon stockholders of record.
Under this program, our Board had authorized us to spend up to $20.0 million to repurchase shares of our outstanding common stock. This authorization and program have since been terminated. 17 Table of Contents
Under this program, our Board had authorized us to spend up to $6.5 million to repurchase shares of our outstanding common stock. After giving effect to these repurchases, we have remaining authority of $4.1 million to repurchase shares remaining under the program. ITEM 6. SELECTED FINANCIAL DATA Not applicable. 22 Table of Contents
Removed
The last reported share price of our common stock on the NASDAQ on March 30, 2023 was $9.40. Dividend Policy The Company currently does not intend on paying any dividends for the foreseeable future.
Added
The following tables set forth for the periods indicated, the high and low sale prices per share of the common stock as quoted by the NASDAQ.
Removed
Any payment of future dividends will be at the discretion of Harte Hanke’s Board of Directors and will depend upon, among other factors, the Company’s earnings, financial condition, current and anticipated capital requirements, plans for expansion, level of indebtedness and contractual restrictions, restrictions in our organizational documents including the provisions of the Company’s then-existing indebtedness and other contractual arrangements.
Added
Year Ended December 31, 2023 High Low 1st Quarter $14.24 $8.70 2nd Quarter $9.50 $5.00 3rd Quarter $6.70 $5.01 4th Quarter $7.72 $5.39 Year Ended December 31, 2022 High Low 1st Quarter 8.19 6.34 2nd Quarter 12.89 7.15 3rd Quarter 17.88 10.02 4th Quarter 12.84 9.81 Dividend Policy The Company currently does not pay any dividends and any future payment is at the discretion of the Board of Directors.
Removed
The payment of future cash dividends, if any, would be made only from assets legally available.
Removed
(2) During the fourth quarter of 2022, we did not purchase any shares of our common stock through our stock repurchase program that was publicly announced in August 2014 and have not repurchased any shares under this program since 2015.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWhile inflation has not had a material impact on our business, it is possible a material increase in inflation could have an impact on our clients, and in turn, on our business. 19 Table of Contents Results of Operations Operating results from operations were as follows: Year Ended December 31, In thousands, except per share amounts 2022 % Change 2021 Revenues $ 206,278 6.0 % $ 194,596 Operating expenses 191,171 2.3 % 186,957 Operating income $ 15,107 97.8 % $ 7,639 Operating margin 7.3 % 86.6 % 3.9 % Other income, net (4,206 ) -51.2 % (8,620 ) Income tax expense (benefit) (17,463 ) -1455.8 % 1,288 Net income $ 36,776 145.6 % $ 14,971 Diluted EPS from operations $ 4.75 169.9 % $ 1.76 Year ended December 31, 2022 vs.
Biggest changeReorganization savings from Project Elevate executed from 2024 to 2026 are estimated to be $16 million. 23 Table of Contents Results of Operations Operating results from operations were as follows: Year Ended December 31, In thousands, except per share amounts 2023 % Change 2022 Operating revenue $ 191,492 -7.2% $ 206,278 Operating expenses 188,133 -1.6% 191,171 Operating income $ 3,359 -77.8% $ 15,107 Operating margin 1.8 % -76.0% 7.3 % Other expense (income), net 5,278 -225.5% (4,206) Income tax benefit (349) -98.0% (17,463) Net (loss) income $ (1,570) -104.3% $ 36,776 Diluted EPS from operations $ (0.21) -104.5% $ 4.75 Year Ended December 31, 2023 vs.
The New Credit Facility is subject to mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under the New Credit Facility; (ii) if the unpaid principal balance under the New Credit Facility plus the aggregate face amount of all outstanding letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock (subject to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the New Credit Facility.
The Credit Facility is subject to mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under the Credit Facility; (ii) if the unpaid principal balance under the Credit Facility plus the aggregate face amount of all outstanding letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock (subject to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the Credit Facility.
The New Credit Facility contains certain covenants restricting the Company's and its subsidiaries' ability to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting or tax reporting methods (other than as required by U.S.
The Credit Facility contains certain covenants restricting the Company's and its subsidiaries' ability to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens, consummate mergers or acquisitions, liquidate, dissolve, suspend or cease operations, or modify accounting or tax reporting methods (other than as required by U.S.
Future changes in transportation expenses will continue to impact our total production costs and total operating expenses. and in turn our margins, and may have an impact on future demand for our supply chain management services.
Future changes in transportation expenses will continue to impact our total production costs and total operating expenses and in turn our margins, which may have an impact on future demand for our supply chain management services.
The Company may repay and reborrow all or any portion of the loans advanced under the New Credit Facility at any time, without premium or penalty.
The Company may repay and reborrow all or any portion of the loans advanced under the Credit Facility at any time, without premium or penalty.
The New Credit Facility provides for loans up to the lesser of (a) $25,000,000, and (b) the amount available under a “borrowing base” calculated primarily by reference to the Company's cash and cash equivalents and accounts receivables. The New Credit Facility allows the Company to use up to $3,000,000 of its borrowing capacity to issue letters of credit.
The Credit Facility provides for loans up to the lesser of (a) $25.0 million, and (b) the amount available under a “borrowing base” calculated primarily by reference to the Company's cash and cash equivalents and accounts receivables. The Credit Facility allows the Company to use up to $3.0 million of its borrowing capacity to issue letters of credit.
The money deposited in an escrow account to satisfy our contingent payment obligations for the acquisition of InsideOut is not included in our cash and cash equivalent or restricted cash balances as of December 31, 2022.
The money deposited in an escrow account to satisfy the contingent payment obligations for the acquisition of InsideOut is not included in our cash and cash equivalent balances as of December 31, 2023.
The New Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the other grantors party thereto (the “Security Agreement”).
The Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the Guarantors (the “Security Agreement”).
Investing Activities Net cash used in investing activities was $11.5 million for the year ended December 31, 2022 , compared to cash used in investing activities of $2.9 million for the year ended December 31, 2021 .
Investing Activities Net cash used in investing activities was $2.3 million for the year ended December 31, 2023, compared to cash used in investing activities of $11.5 million for the year ended December 31, 2022.
The increase in benefit of $18.8 million was primarily related to the removal of the majority of the U.S. valuation allowance for the year ended December 31, 2022 . Segment Results The following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 2022 and 2021.
The decrease in benefit of $17.1 million was primarily related to the removal of the majority of the U.S. valuation allowance for the year ended December 31, 2022. Segment Results The following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 2023 and 2022.
As of December 31, 2022 and 2021, we had $0.0 million and $5.0 million of borrowings outstanding under the New Credit Facility, respectively . At each of December 31, 2022 and 2021, we had letters of credit in the amount of $0.8 million outstanding. No amounts were drawn against these letters of credit at December 31, 2022 and 2021.
GAAP). As of December 31, 2023 and 2022, the Company had no borrowings outstanding under the Credit Facility. At each of December 31, 2023, and 2022, the Company had letters of credit in the amount of $0.8 million outstanding. No amounts were drawn against these letters of credit as of December 31, 2023, and 2022.
Financing Activities Net cash used in financing activities was $15.8 million for the year ended December 31, 2022 , compared to $13.4 million net cash used in financing activities for the year ended December 31, 2021 .
Financing Activities Net cash used in financing activities was $3.2 million for the year ended December 31, 2023, compared to $15.8 million net cash used in financing activities for the year ended December 31, 2022.
Operating Activities Net cash provided by operating activities was $28.8 million for the year ended December 31, 2022 , when compared to cash used in operating activities of $1.8 million for the year ended December 31, 2021 .
Operating Activities Net cash provided by operating activities was $10.5 million for the year ended December 31, 2023, when compared to cash provided by operating activities of $28.8 million for the year ended December 31, 2022.
Due to the COVID-19 pandemic, recent increases in inflation and interest rates throughout the globe, and other geopolitical uncertainties, including but not limited to the ongoing war between Russia and Ukraine, there is continued uncertainty and significant volatility and disruption in the global economy and financial markets.
Due to the recent increases in inflation and interest rates throughout the globe, and other geopolitical uncertainties, including but not limited to the ongoing armed conflicts in multiple regions, there is continued uncertainty and significant volatility and disruption in the global economy and financial markets.
Advertising, Selling and General and Administrative expenses increased $0.1 million or 0.6%, when compared to the year ended December 31, 2021 . Depreciation expense increased $0.2 million, or 6.6%, when compared to the year ended December 31, 2021 , primarily du e to the addition of our new ERP system.
Advertising, Selling and General and Administrative expenses decreased $1.2 million or 5.6%, when compared to the year ended December 31, 2022 primarily due to the reduced professional service expense. Depreciation expense increased $1.5 million , or 55.3%, when compared to the year ended December 31, 2022 , primarily du e to the addition of our new ERP system.
There are three principal financial measures reported to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources . Those measures are revenues, operating income and operating income plus depreciation and amortization (“EBITDA”). For additional information, see Note P , Segment Reporting , in the Notes to Consolidated Financial Statements for further discussion.
There are three principal financial measures reported to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources . Those measures are revenues, operating income and operating income plus depreciation and amortization (“EBITDA”).
Our actual results could differ from these estimates under different assumptions or conditions. The areas that we believe involve the most significant management estimates and assumptions are detailed below. On an ongoing basis, management reviews its estimates and assumptions based on currently available information.
On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions. The areas that we believe involve the most significant management estimates and assumptions are detailed below.
Our cash and cash equivalent and restricted cash balances were $10.4 million and $15.1 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022, we had the ability to borrow an additional $24.2 million under our New Credit Facility.
Liquidity and Capital Resources Sources and Uses of Cash Our cash and cash equivalent balances were $18.4 million and $10.4 million as of December 31, 2023, and 2022, respectively. As of December 31, 2023, we had the ability to borrow an additional $24.2 million under our Credit Facility.
This $5.1 million increase in other income was primarily attributable to a $2.4 million increase in foreign currency revaluation income and $2.5 million gain from the sale of unused IP addresses which were no longer useful to the Company.
This $10.0 million increase in other expense was primarily attributable to a $8.9 million change in foreign currency revaluation gain as well as $2.5 million gain from the sale of unused IP addresses which were no longer useful to the Company in 2022.
These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability. We had no other off-balance sheet financing arrangements as of December 31, 2022 and 2021.
These letters of credit exist to support insurance programs relating to workers’ compensation, and general liability. We had no other off-balance sheet financing arrangements as of December 31, 2023, and 2022. As of December 31, 2023, we had the ability to borrow an additional $24.2 million under the Credit Facility.
We believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of the Consolidated Financial Statements. 24 Table of Contents Critical Accounting Policies and Estimates Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
We believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of the Consolidated Financial Statements.
The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum. The outstanding amounts advanced under the New Credit Facility are due and payable in full on December 21, 2024.
The loans under the Credit Facility accrue interest at a varying rate equal to the Secured Overnight Financing Rate (SOFR) plus a margin of 2.25% per annum. The outstanding amounts advanced under the Credit Facility are due and payable in full on June 30, 2025.
Postage costs of mailings are borne by our clients and are not directly reflected in our revenues or expenses. 20 Table of Contents Interest Expense, net Interest expense, net, for the year ended December 31, 2022, decreased $0.5 million when compared to the year ended December 31, 2021, due to a lower debt balance as compared to the year ended December 31, 2021.
Postage costs of mailings are borne by our clients and are not directly reflected in our revenues or expenses. 24 Table of Contents Other Expense (Income), net Interest income, net, for the year ended December 31, 2023 was $135 thousand as compared to the interest expense, net of $438 thousand for the year ended December 31, 2022.
We currently intend to retain any future earnings and do not expect to pay cash dividends on our common stock in the foreseeable future. Any future dividend declaration can be made only upon, and subject to, approval of our Board, based on its business judgment.
Dividends We did not pay any dividends in either 2023 or 2022. Any future dividend declaration can be made only upon, and subject to, approval of our Board of Directors, based on its business judgment.
Year ended December 31, 2021 Consolidated Results Revenues Revenues of $206.3 million for the year ended December 31, 2022 increased $11.7 million, or 6.0%, when compared to $194.6 million for the year ended December 31, 2021.
Year Ended December 31, 2022 Consolidated Results Revenues Revenues of $191.5 million for the year ended December 31, 2023 decreased $14.8 million, or 7.2%, when compared to $206.3 million for the year ended December 31, 2022.
At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt services, finance and operating leases and unfunded pension plan benefit payments) and other cash needs for our operations for at least the twelve months from the date of this Annual Report through a combination of cash on hand, cash flow from operations, and borrowings under the New Credit Facility.
At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations such as finance and operating leases and unfunded pension plan benefit payments and other needs for our operations in the short term and beyond.
W e received $2.5 million in tax refunds in 2022 and has received an additional tax refund of $5.3 million in March 2023, as a result of the change to the tax NOL carryback provisions included in the CARES Act.
We received $2.5 million in tax refund in 2022 and received an additional tax refund of $5.3 million in March 2023, as a result of the change to the tax NOL carryback provisions included in the CARES Act. Our principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our Credit Facility.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. For additional information on the valuation allowance see Note I, Income Taxes , in the Notes to Consolidated Financial Statements.
We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. A material valuation allowance is recorded for foreign and specific state jurisdictions.
The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties.
The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties. Legal and Other Contingencies The Company is subject to various legal proceeding and claims that arise in the ordinary course of business, the outcomes of which are inherently uncertain.
Labor costs decreased by $5.2 million, or 4.7%, when compared to the year ended December 31, 2021, primarily due to lower labor expense in the Customer Care and Marketing Service segment associated with lower revenue which was partially offset by higher labor expense in the Fulfillment & Logistics segment driven by higher revenue and supply chain issues that have led to increased transportation costs.
Labor costs decreased by $6.7 million, or 6.4%, when compared to the year ended December 31, 2022, primarily due to the reduction in workforce in our Customer Care and Marketing Service segment as a result of the lower revenue which was partially offset by higher severance expenses.
Marketing Services: Year Ended December 31, In thousands 2022 % Change 2021 Revenues $ 52,975 -6.1 % $ 56,388 EBITDA $ 7,344 -4.8 % $ 7,713 Operating Income 6,982 -2.8 % 7,183 Operating Income % of Revenue 13.2 % 3.5 % 12.7 % Marketing Services segment revenue declined $3.4 million, or 6.1%, due to a decrease in direct mail service volume from existing customers.
Marketing Services: Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 43,204 -18.4% $ 52,975 EBITDA 5,425 -26.1% 7,344 Operating Income 5,113 -26.8% 6,982 Operating Income % of Revenue 11.8 % -10.2% 13.2 % Marketing Services segment revenue declined $9.8 million, or 18.4%, due to the decline of marketing spend and the loss of a customer.
The $2.4 million decrease was primarily due to the $10.0 million cash used for the repurchase of Preferred Stock for the year ended December 31, 2022 as compared to $5.0 million cash proceeds from New Credit Facility for the year ended December 31, 2021.
The $12.6 million decrease in cash used in financing activities was primarily due to the $10.0 million used for the repurchase of preferred stock and the $5.0 million repayment of the borrowings under our Credit Facility in the year ended December 31, 2022, as compared to the $2.4 million used for the repurchase of common stock in the year ended December 31, 2023. 26 Table of Contents Foreign Holdings of Cash Consolidated foreign holdings of cash as of December 31, 2023, and 2022 were $5.4 million and $3.4 million, respectively.
Other (Income) Expense, net Total other income, net was $4.6 million for the year ended December 31, 2022, when compared to other expense, net of $0.5 million for the year ended December 31, 2021.
The $573 thousand improvement was primarily contributed by the interest income we received from our tax refund claims during the first quarter of 2023. Total other expense, net was $5.4 million for the year ended December 31, 2023, when compared to other income, net of $4.6 million for the year ended December 31, 2022.
Pr oduction and Distribution expenses increased $15.4 million, or 30.7%, when compared to the year ended December 31, 2021, primarily due to higher transportation costs to support additional logistics revenue as well as higher brokered, or outsourced costs due to higher brokered revenue.
Pr oduction and Distribution expenses decreased $2.4 million, or 3.8%, when compared to the year ended December 31, 2022, primarily driven by lower brokered cost, or outsourced costs due to the lower brokered revenue.
The $8.6 million increase was mainly due to the $5.8 million of cash used to purchase InsideOut and $5.8 million of cash used to purchase property, plant and equipment (mainly for our new ERP system) in the year ended December 31, 2022 when compared to the year ended December 31, 2021 .
The $9.2 million decrease was mainly due to the $6.3 million of cash used and returned from escrow from acquisition activities and $3.0 million less cash used to purchase property, plant and equipment in the year ended December 31, 2023, when compared to the year ended December 31, 2022.
This program excluded the 2022 Preferred Stock repurchase described in “Repurchase of the Preferred Stock from Wipro, LLC”. Outlook We consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues, operating income, cash flows from operations, investing activities, and financing activities when assessing our liquidity.
During 2023, we repurcha sed 0.4 million shares of common stock for a total combined purchase price of $2.4 million . 27 Table of Contents Outlook We consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues, operating income, cash flows from operations, investing activities, and financing activities when assessing our liquidity.
Operating income for the year ended December 31, 2022 decreased $0.2 million due to the lower revenue which was partially offset by lower operating expense driven by improved labor utilization. 21 Table of Contents Customer Care: Year Ended December 31, In thousands 2022 % Change 2021 Revenues $ 67,205 -10.0 % $ 74,691 EBITDA $ 12,167 -3.2 % $ 12,569 Operating Income 11,283 -3.7 % 11,720 Operating Income % of Revenue 16.8 % 7.0 % 15.7 % Customer Care segment revenue decreased $7.5 million primarily due to a decrease in volumes with existing customers.
Operating Income for the year ended December 31, 2023 was $9.4 million, a decrease of $1.9 million when compared to the prior year due to lower revenue which was partially offset by lower operating expense driven by improved operational efficiency. 25 Table of Contents Fulfillment & Logistics: Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 84,961 -1.3% $ 86,098 EBITDA 8,857 -16.4% 10,593 Operating Income 7,714 -21.0% 9,769 Operating Income % of Revenue 9.1 % -20.0% 11.3 % Fulfillment & Logistics Services segment revenue declined $1.1 million, or 1.3%, primarily due to the lower revenue from the existing customers.
This increase was partially offset by $0.7 million increase of pension expense as a result of the lower return on investment from poorer asset performance as compared to the year ended December 31, 2021. We do not expect the sale of IP addresses, in the future, if any, to generate a significant amount of other income.
We do not expect the sale of IP addresses, in the future, if any, to generate a significant amount of other income. Income Tax Benefit Our 2023 income tax benefit was $0.3 million for the year ended December 31, 2023, when compared to tax benefit of $17.5 million for the year ended December 31, 2022.
Revenue in our Fulfillment & Logistics Services increased $22.6 million, or 35.6%, to $86.1 million driven by revenue from new clients and increases in work from the existing clients. Revenue in our Customer Care segment decreased $7.5 million, or 10.0%, to $67.2 million and revenue in our Marketing Services declined $3.4 million, or 6.1%, to $53.0 million .
Revenue in our Marketing Services declined $9.8 million, or 18.4%, to $43.2 million, revenue in our Customer Care segment declined $3.9 million, or 5.8%, to $63.3 million and revenue in our Fulfillment & Logistics Services declined $1.1 million, or 1.3%, to $85.0 million.
Long Term Debt On December 21, 2021, the Company entered a new three-year, $25,000,000 asset-based revolving credit facility (the “New Credit Facility”) with Texas Capital Bank. The Company’s obligations under the New Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”).
The Company’s obligations under the Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”).
Operating Income for the year ended December 31, 2022 was $11.3 million, a decrease of $0.4 million when compared to the prior year due to lower revenue which was partially offset by lower operating expense driven by improved operational efficiency.
Operating income for the year ended December 31, 2023 decreased $1.9 million due to the reduction in contribution margin from the revenue decrease, which was partially offset by reductions in operating expense associated with lower revenue.
Restructuring expenses were $0 million and $6.4 million for the years ended December 31, 2022 and 2021, respectively. See Note O, Restructuring Activities, in the Notes to Consolidated Financial Statements for further discussion of restructuring activities. The largest components of our operating expenses are labor, transportation expenses and outsourced costs.
Restructuring expenses were $5.7 million for the year ended December 31, 2023. The restructuring expenses included $4.6 million of consulting expenses, $0.8 million in lease impairment expense, $0.2 million of severance charges, and $0.1 million of facility related and other expenses. The largest components of our operating expenses are labor, transportation expenses and outsourced costs.
GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances.
Critical Accounting Estimates Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.
Our principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our New Credit Facility. Our cash is primarily used for general corporate purposes, working capital requirements, debt service and capital expenditures.
Our cash is primarily used for general corporate purposes, working capital requirements, and capital expenditures.
However, growth will be challenged by both current and new competitors and internally generated capabilities at current and potential future clients. Operating Expenses Operating expenses of $191.2 million for the year ended December 31, 2022 increased $4.2 million, or 2.3%, when compared to $187.0 million for the year ended December 31, 2021.
Operating Expenses Operating expenses of $188.1 million for the year ended December 31, 2023 decreased $3.0 million, or 1.6%, when compared to $191.2 million for the year ended December 31, 2022.
The $30.6 million year-over-year increase in cash provided by operating activities was primarily driven by the $21.8 million higher net income, which excludes the $10 million non-cash gain in 2021 from extinguishment of PPP loan, $1.1 million increase in deferred revenue and customer advances, $8.0 million increase in accounts payable and accrued expenses, other accrued expenses and liabilities due to increased transportation expenses in the year ended December 31, 2022.
The $18.3 million year-over-year decrease in cash provided by operating activities was primarily due to the $38.3 million lower net income which was partially offset by absorption of deferred taxes of $18.4 million in the year ended December 31, 2023 , and smaller year over year changes in current assets and liabilities.
Removed
For a discussion of the drivers and reasons for the year-over-year changes in revenue, see “Segment Results” below. Among other factors, our revenue performance will depend on general economic conditions in the markets we serve and how successful we are at maintaining and growing business with existing clients and acquiring new clients.
Added
While inflation has not had a material impact on our business, it is possible a material increase in inflation could have an impact on our clients, and in turn, on our business. Recent Developments Project Elevate Our management team continuously reviews and adjusts our cost structure and operating footprint to optimize our operations, and invest in improved technology.
Removed
We believe that, in the long-term, an increasing portion of overall marketing and advertising expenditures will be shifted from other advertising media to the type of targeted media advertising we provide resulting in a benefit to our business. Targeted media advertising results can be effectively tracked, enabling measurement of the return on marketing investment.
Added
During the second half of 2023, we engaged a consulting firm to help review and analyze the structure and operations of the Company. This review included greater than 200 meetings with personnel at all levels of the firm and led to the initiation of our transformation program named "Project Elevate".
Removed
We have a large amount of part-time employees and are able to dynamically adjust their schedules to reflect current activities.
Added
The program involves the optimization and rationalization of our business resources as well as the partial reinvestment of savings into the company's sales and marketing team, technology, and strategy. A business transformation office was established at the beginning of 2024 to manage and measure these initiatives.
Removed
Income Taxes Our 2022 income tax benefit was $17.5 million for the year ended December 31, 2022 , when compared to tax expense of $1.3 million for the year ended December 31, 2021 .
Added
Customer Care: Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 63,327 -5.8% $ 67,205 EBITDA 10,702 -12.0% 12,167 Operating Income 9,422 -16.5% 11,283 Operating Income % of Revenue 14.9 % -11.4% 16.8 % Customer Care segment revenue declined $3.9 million, or 5.8%, primarily due to the decrease in both non-recurring pandemic-related projects and a large non-recurring recall project in 2022 which was partially offset by $9.7 million revenue from InsideOut.
Removed
Fulfillment & Logistics Services: Year Ended December 31, In thousands 2022 % Change 2021 Revenues $ 86,098 35.6 % $ 63,517 EBITDA $ 10,593 -58.2 % $ 6,698 Operating Income 9,769 -63.4 % 5,980 Operating Income % of Revenue 11.3 % -20.5 % 9.4 % Fulfillment & Logistics Services segment revenue increased $22.6 million, or 35.6%, primarily driven by revenue from new customers and an increase in work from existing customers.
Added
For the year ended December 31, 2023 operating income was $7.7 million, a decrease of $2.1 million when compared to the prior year primarily due to the change in revenue mix and higher transportation costs.
Removed
Operating income was $9.8 million for the year ended December 31, 2022 compared to $6.0 million for the year ended December 31, 2021. The $3.8 million increase was primarily driven by the higher revenue and lower operating expense from improved operational efficiency.
Added
The Company will repatriate foreign cash holdings when and if it is financially efficient to do so. Long Term Debt On December 21, 2021, the Company entered into a three-year, $25.0 million asset-based revolving credit facility (the “Credit Facility”) with Texas Capital Bank ("TCB").
Removed
Operating income for the prior year period included a favorable $0.8 million litigation settlement. 22 Table of Contents Liquidity and Capital Resources Sources and Uses of Cash Our cash and cash equivalent balances were $10.4 million and $11.9 million as of December 31, 2022 and 2021, respectively.
Added
On December 31, 2023, the Company extended the maturity date for the Credit Facility by a period of six (6) months, up to June 30, 2025. The extension extended the Credit Facility under substantially similar terms and conditions as originally executed.
Removed
During 2020, we received an aggregate of $9.6 million in tax refunds related to our net operating loss (“NOL”) and capital loss carryback for the 2013-2018 tax years.
Added
Share Repurchase On May 2, 2023, the Board of Directors of Harte Hanks approved a share repurchase program to maximize shareholder value with authorization to repurchase $6.5 million of the Company’s Common Stock.
Removed
The above increase was partially offset by the decrease of $5.3 million in customer postage and program deposits. The net income for the year ended December 31, 2022 also included a non-recurring $2.5 million gain from the sale of unused IP addresses which were no longer useful to the Company.
Added
On an ongoing basis, management reviews its estimates and assumptions based on currently available information. See Note B of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
Removed
This decrease was partially offset by the $5.0 million repayment of the borrowings under our New Credit Facility in the year ended December 31, 2022 as compared to the $17.1 million repayment of the Texas Capital Credit Facility for the year ended December 31, 2021.
Added
The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgement.
Removed
Foreign Holdings of Cash Consolidated foreign holdings of cash as of December 31, 2022 and 2021 were $3.4 million and $2.6 million, respectively. The Company does not believe it will need to re-patriate foreign cash holdings to meet domestic obligations.
Added
Resolution of legal matters in a manner inconsistent with management's expectations could have a material impact on the Company's financial condition and operating results. 28 Table of Contents Recent Accounting Pronouncements In October 2021, the Financial Accounting Standards Board (FASB) issued accounting standards update ("ASU") 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers.” This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.
Removed
GAAP). In connection with entering the New Credit Facility, the Company and Texas Capital Bank terminated the Old Texas Capital Credit Facility.
Added
The Company adopted this standard on January 1, 2023, on a prospective basis and did not have a material impact on the Company's financial statements. In December 2019, the Financial Accounting Standards Board (the “FASB”) issued new guidance that simplified the accounting for income taxes.
Removed
Prior to termination of the Old Texas Capital Credit Facility, the Company used cash on hand to pay down $8.1 million outstanding and the remaining $5 million of loans outstanding were deemed to be outstanding under the New Credit Facility.
Added
This standard became effective for the Company in fiscal year 2022 and did not have a material impact on the consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, which enhances the disclosures required for reportable segments in annual and interim consolidated financial statements.
Removed
Texas Capital Bank did not require the New Credit Facility to be guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for the Company by certain members of the Shelton family (descendants of one of the Company's founders) or any other third-party credit support.
Added
ASU 2023-07 is effective for the Company for annual reporting periods beginning with the fiscal year ending November 30, 2025 and for interim reporting periods beginning in fiscal year 2026. Early adoption is permitted. The Company is currently evaluating the impact that this update will have on its consolidated financial statements disclosure.
Removed
As of December 31, 2022, we had the ability to borrow an additional $24.2 million under the New Credit Facility. 23 Table of Contents On April 20, 2020, the Company received loan proceeds in the amount of $10.0 million under the Small Business Administration (“SBA”) PPP Term Note.
Added
In December 2023, the FASB issued ASU 2023-09, which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregated information related to income taxes paid. The amendments in ASU 2023-09 are effective for the fiscal year ending after November 30, 2026.
Removed
On June 10, 2021, we received notice that the entire amount of our PPP Term Note was forgiven by the SBA because we used the proceeds from the loan as contemplated under the CARES Act.
Added
The Company is currently evaluating the impact that this update will have on its disclosures in the consolidated financial statements. No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.
Removed
We recorded the $10.0 million of debt extinguishment as “Gain from extinguishment of debt (Paycheck Protection Program Term Note)” in the Consolidated Statements of Comprehensive Income. Dividends We did not pay any dividends in either 2022 or 2021.
Removed
Share Repurchase During 2022 and 2021, we did not repurchase any shares of our common stock under our stock repurchase program that was publicly announced in August 2014. Under this program we were authorized to spend up to $20.0 million to repurchase shares of our outstanding common stock.

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