# Harte Hanks Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Harte Hanks Inc](/companies/hhs.md) (CIK 45919)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 16:16 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031626
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/45919/000143774923031626/hhs20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/45919/000143774923031626/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $47.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $142.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $4.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $16.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $2.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $5.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $618.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $407.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 7,314,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 7,509,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $6.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $2.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $13.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $62.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $110.8m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $38.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $90.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $20.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,155 characters.

### Cautionary Note Regarding Forward-Looking Statements

This report, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements will also be included from time to time in our other public filings, press releases, our website, and oral and written presentations by management. Statements other than historical facts are forward-looking and may be identified by words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “seeks,” “could,” “intends,” or words of similar meaning. Examples include statements regarding (1) our strategies and initiatives, including actions designed to respond to market conditions and improve our performance, (2) our financial outlook for revenues, earnings (loss) per share, operating income (loss), expense related to equity-based compensation, capital resources and other financial items, if any, (3) expectations for our businesses and for the industries in which we operate, including the impact of economic conditions of the markets we serve on the marketing expenditures and activities of our clients and prospects, (4) competitive factors, (5) acquisition and development plans, (6) expectations regarding legal proceedings and other contingent liabilities, and (7) other statements regarding future events, conditions, or outcomes.

These forward-looking statements are based on current information, expectations, and estimates and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from what is expressed in or indicated by the forward-looking statements. In that event, our business, financial condition, results of operations, or liquidity could be materially adversely affected and investors in our securities could lose part or all of their investments. A discussion of some of these risks, uncertainties, assumptions, and other factors can be found in our filings with the SEC, including the factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”), “Part II - Item 1A. Risk Factors” in this Quarterly Report, and in our other reports filed or furnished with the SEC. The forward-looking statements included in this report and those included in our other public filings, press releases, our website, and oral and written presentations by management are made only as of the respective dates thereof, and we undertake no obligation to update publicly any forward-looking statement in this report or in other documents, our website, or oral statements for any reason, even if new information becomes available or other events occur in the future, except as required by law.

### Overview

The following MD&A is intended to enable the reader to understand the results of operations and financial condition of Harte Hanks, including any material changes in the Company’s financial condition and results of operations since December 31, 2022, and as compared with the three and nine months ended September 30, 2022. This section is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes included herein as well as our 2022 10-K. Our 2022 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates, and contractual obligations. See Note A, *Overview and Significant Accounting Polici*es, in the Notes to Condensed Consolidated Financial Statements for further information.

Harte Hanks, Inc. is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services. 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 customers. 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.

We are affected by the general, national, and international economic, geopolitical and business conditions in the markets where we and our customers operate. Marketing budgets are largely discretionary in nature, and as a consequence are easier for our clients to reduce in the short-term than other expenses. Our revenues are also affected by the economic fundamentals of each industry that we serve, various market factors, including the demand for services by our clients, and the financial condition of and budgets available to our clients, among other factors. Due to the 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 and conflict in the Middle East, there is continued uncertainty and significant disruption in the global economy and financial markets. We remain committed to making the investments necessary to execute our multichannel strategy while also continuing to adjust our cost structure to appropriately reflect our operations and outlook.

Management is closely monitoring inflation and wage pressure in the market, and the potential impact to our business. While inflation has not had a material impact to our business, it is possible a material increase in inflation could have an impact on our clients, and in turn, in our business.

### Recent Developments

#### Executive Transition

Effective as of June 19, 2023, our Board of Directors appointed media-industry veteran Kirk Davis to serve as our Chief Executive Officer (“CEO”) and nominated Mr. Davis to the Board of Directors, to serve until our 2024 annual meeting of stockholders and until his successor is elected or qualified, or until his earlier death, resignation or removal. Mr. Davis has decades of media and marketing expertise, most recently served as CEO of legacy publishing company Metro Corp. and previously served as CEO of GateHouse Media, which was the second-largest regional publishing company in the United States before merging with Gannett in 2019.

Effective as of October 23, 2023, our Board of Directors appointed David Garrison to serve as our interim Chief Financial Officer (“CFO”). Mr. Garrison brings 20 years of public company CFO experience, with particular expertise in cost containment, streamlining operations, and enterprise resource implementation. Mr. Garrison most recently served as the CFO of Digital Lumens Incorporated, a smart lighting fixture and factory automation technology company, and previously served as CFO of Sensera, Inc., an Australian listed medical and smart technology company.

#### Changes in Segment Reporting

To improve our strategic posture in terms of go-to-market approach and cost structure, we have begun the process of combining our Marketing Services and Customer Care segment into a single segment called Customer Experience. We expect the revised segment structure to be complete by the end of 2023.

#### Share Repurchase Program

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. In the three months and nine months ended September 30, 2023, we repurchased 0.1 million and 0.4 million shares of common stock for $0.5 million and $2.4 million, respectively. After giving effect to these repurchases, we have remaining authority of $4.1 million to repurchase shares remaining under the program.

### Acquisition of Inside Out Solutions, LLC

On December 1, 2022, we purchased substantially 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”).

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 with its headquarters in St. Petersburg, Florida.

The acquisition of InsideOut further expands our customer experience capabilities within 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. 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.

### Results of Operations

Operating results were as follows:

*In thousands, except percentages*

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $47,119 | $53,886 | (12.6)% | $142,001 | $151,500 | (6.3)% |
| Operating expenses | 44,205 | 50,113 | (11.8)% | 136,364 | 139,822 | (2.5)% |
| Operating income | $2,914 | $3,773 | (22.8)% | $5,637 | $11,678 | (51.7)% |
| Operating margin | 6.2% | 7.0% |  | 4.0% | 7.7% |  |
| Income before income taxes | $2,530 | $8,385 | (69.8)% | $2,027 | $17,316 | (88.3)% |
| Diluted earnings per common share from operations | $0.08 | $0.83 | (90.4)% | $0.05 | $1.73 | (97.1)% |

### Consolidated Results

#### Revenues

#### Three months ended September 30, 2023 vs. Three months ended September 30, 2022

Revenues decreased $6.8 million, or 12.6%, in the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Revenue in our Customer Care segment decreased $3.4 million, or 19.4%, to $14.0 million, and revenue in our Marketing Services segment decreased $2.4 million, or 18.6%, to $10.6 million. Revenue in our Fulfillment & Logistics Services segment decreased $1.0 million, or 4.1%, to $22.5 million.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Revenues decreased $9.5 million, or 6.3%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Revenue in our Marketing Services segment decreased $6.6 million, or 16.9%, to $32.8 million, and revenue in our Customer Care segment decreased $4.9 million, or 9.7%, to $45.6 million. Revenue in our Fulfillment & Logistics Services segment increased $2.0 million, or 3.3%, to $63.6 million, which partially offset the above decreases.

#### Operating Expenses

#### Three months ended September 30, 2023 vs. Three months ended September 30, 2022

Operating expenses were $44.2 million in the three months ended September 30, 2023, a decrease of $5.9 million, or 11.8%, compared to $50.1 million in the three months ended September 30, 2022.

Labor expense decreased $4.4 million, or 16.2%, in the three months ended September 30, 2023, compared to the three months ended September 30, 2022 primarily due to the reduction in workforce in our Customer Care and Marketing Services segment as well as lower stock compensation expense. Advertising, Selling, General and Administrative expenses decreased $1.0 million, or 17.6%, in the three months ended September 30, 2023, compared to three months ended September 30, 2022 primarily due to reduced software licensing fees and lower professional fees. Production and Distribution expenses decreased $0.8 million, or 4.9%, in the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily due to lower transportation services cost associated with the lower Fulfillment & Logistics segment revenue as compared to the prior year quarter.

The largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have increased over the last few years due to demand and supply fluctuations within the transportation industry. 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.

Postage costs for mailings are borne by our clients and are not directly reflected in our revenues or expenses.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Operating expenses were $136.4 million in the nine months ended September 30, 2023, a decrease of $3.4 million, or 2.5%, compared to $139.8 million in the nine months ended September 30, 2022.

Labor expense decreased $4.3 million, or 5.5%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 primarily due to the reduction in workforce in our Customer Care and Marketing Services segment from lower revenue which was partially offset by higher severance expense. Advertising, Selling, General and Administrative expenses decreased $1.2 million, or 6.8%, in the nine months ended September 30, 2023, compared to nine months ended September 30, 2022 primarily due to reduced software licensing fees. Production and Distribution expenses increased $0.8 million, or 1.8%, in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to the change in revenue mix resulting in higher transportation costs in our Fulfillment & Logistics Services segment.

The largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have increased over the last few years due to demand and supply fluctuations within the transportation industry. 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.

Postage costs for mailings are borne by our clients and are not directly reflected in our revenues or expenses.

#### Interest (Income) expense, net

#### Three months ended September 30, 2023 vs. Three months ended September 30, 2022

Interest expense, net, in the three months ended September 30, 2023 was $1k as compared to $84k for the three months ended September 30, 2022. The $83k decrease was primarily due to the lower debt level.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Interest income, net, in the nine months ended September 30, 2023 was $150k as compared to the interest expense, net of $313k for the nine months ended September 30, 2022. The $463k improvement was primarily driven by the interest income we received from the IRS related to our tax refund claims during the first quarter of 2023.

#### Other expense (income), net

#### Three months ended September 30, 2023 vs. Three months ended September 30, 2022

Other expense (income), net, for the three months ended September 30, 2023 was $0.4 million of expense compared to $4.7 of other income, net, in the prior year quarter . The $5.1 million increase in other expense, net was mainly associated with changes in foreign currency gain and loss account.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Other expense, net, for the nine months ended September 30, 2023 was $3.8 million of expense compared to $6.0 million of other income, net, in the prior year quarter . The $9.7 million increase in other expense, net was mainly associated with changes in foreign currency gain and loss account.

#### Income Taxes

#### Three months ended September 30, 2023vs. Three months ended September 30, 2022

The income tax provision of $1.9 million in the third quarter of 2023 represents an increase in income tax provision of $0.7 million when compared to the third quarter of 2022. Our effective tax rate was 75.6% for the third quarter of 2023, an increase of 61.1% from the effective tax rate of 14.5% for the third quarter of 2022. The effective tax rate differs from the federal statutory rate of 21.0%, primarily due to the change in valuation allowance, U.S. state income taxes and income earned in foreign jurisdictions.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

The income tax provision of $1.6 million in the nine months ended September 30, 2023 represents a decrease in income tax provision of $0.7 million when compared to the nine months ended September 30, 2022. Our effective tax rate was 79.9% for the nine months ended September 30, 2023, an increase of 66.4% from the effective tax rate of 13.5% for the nine months ended September 30, 2022. The effective tax rate differs from the federal statutory rate of 21.0%, primarily due to the change in valuation allowance, U.S. state income taxes and income earned in foreign jurisdictions.

#### Segment Results

The following is a discussion and analysis of the results of our reporting segments for the three months ended September 30, 2023 and 2022. 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 revenue, operating income and operating income plus depreciation and amortization (“EBITDA”). For additional information, see Note N, *Segment Reporting*, in the Notes to Condensed Consolidated Financial Statements.

### Marketing Services:

*In thousands*

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $10,591 | $13,016 | (18.6)% | $32,751 | $39,389 | (16.9)% |
| EBITDA | 1,515 | 1,921 | (21.1)% | 4,026 | 5,196 | (22.5)% |
| Operating Income | 1,444 | 1,823 | (20.8)% | 3,859 | 4,908 | (21.4)% |
| Operating Income % of Revenue | 13.6% | 14.0% |  | 11.8% | 12.5% |  |

#### Three months ended September 30, 2023vs. Three months ended September 30, 2022

Marketing Services segment revenue decreased $2.4 million, or 18.6%, due to a decrease of service volume from existing customers. Operating income for the three months ended September 30, 2023 decreased $0.4 million from the prior year quarter due to the reduced revenue.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Marketing Services segment revenue decreased $6.6 million, or 16.9%, due to a decrease in direct mail service volume from existing customers. Operating income for the nine months ended September 30, 2023 decreased $1.0 million from the prior year quarter due to the lower revenue.

### Customer Care:

*In thousands*

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $13,998 | $17,375 | (19.4)% | $45,625 | $50,499 | (9.7)% |
| EBITDA | 1,991 | 2,971 | (33.0)% | 6,989 | 8,926 | (21.7)% |
| Operating Income | 1,738 | 2,765 | (37.1)% | 5,965 | 8,317 | (28.3)% |
| Operating Income % of Revenue | 12.4% | 15.9% |  | 13.1% | 16.5% |  |

#### Three months ended September 30, 2023vs. Three months ended September 30, 2022

Customer Care segment revenue decreased $3.4 million, or 19.4%, primarily due to decreased project work which was partially offset by $2.2M revenue associated with InsideOut acquired in December 2022. Operating Income was $1.7 million for the three months ended September 30, 2023, compared to operating income of $2.8 million for the three months ended September 30, 2022. The $1.1 million decrease was related to the lower revenue.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Customer Care segment revenue decreased $4.9 million, or 9.7%, 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 $7.3 million revenue from InsideOut. Operating Income was $6.0 million for the nine months ended September 30, 2023, compared to operating income of $8.3 million for the nine months ended September 30, 2022. The $2.3 million decrease was due to lower revenue.

### Fulfillment & Logistics Services:

*In thousands*

|  | Three Months Ended September 30, 2023 | 2022 | % Change | Nine Months Ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $22,530 | $23,495 | (4.1)% | $63,625 | $61,612 | 3.3% |
| EBITDA | 2,855 | 2,777 | 2.8% | 6,987 | 8,334 | (16.2)% |
| Operating Income | 2,606 | 2,601 | 0.2% | 6,251 | 7,753 | (19.4)% |
| Operating Income % of Revenue | 11.6% | 11.1% |  | 9.8% | 12.6% |  |

#### Three months ended September 30, 2023vs. Three months ended September 30, 2022

Fulfillment & Logistics Services segment revenue decreased by $1.0 million due to declined volume from the existing customers. Operating income stayed flat at $2.6 million for the three months ended September 30, 2023 and 2022.

#### Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022

Fulfillment & Logistics Services segment revenue increased $2.0 million, or 3.3%, primarily driven by the increase in work from existing customers. Operating income was $6.3 million for the nine months ended September 30, 2023 compared to $7.8 million for the nine months ended September 30, 2022. The $1.5 million decrease in operating income was primarily due to the change in revenue mix and higher transportation costs associated with higher logistics revenue.

### Liquidity and Capital Resources

#### Sources and Uses of Cash

Our cash and cash equivalent balances were $13.3 million and $10.4 million at September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, we had the ability to borrow an additional $24.2 million under our Credit Facility. The cash deposited in an escrow account to satisfy our contingent payment obligations in connection with the acquisition of InsideOut is not included in our cash and cash equivalent or restricted cash balances as of September 30, 2023.

We received $2.5 million in tax refunds 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. Our cash is primarily used for general corporate purposes, working capital requirements, and capital expenditures.

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 in the short term and beyond through a combination of cash on hand, cash flow from operations, and borrowings under the Credit Facility. Although the Company believes that it will be able to meet its cash needs for the short term and beyond, if unforeseen circumstances arise the company may need to seek alternative sources of liquidity.

#### Operating Activities

Net cash provided by the operating activities for the nine months ended September 30, 2023 was $6.1 million, compared to net cash provided by operating activities of $22.3 million for the nine months ended September 30, 2022. The $16.1 million year-over-year decrease in cash provided by operating activities was primarily driven by lower net income of $14.6 million and the $11.1 million decrease in accounts payable, accrued expenses and other liabilities, which was partially offset by a $6.7 million decrease in accounts receivable and contract assets, and a $1.6 million decrease in prepaid and other current assets in the nine months ended September 30, 2023 as compared to the same period in 2022.

#### Investing Activities

Net cash used in investing activities was $1.5 million for the nine months ended September 30, 2023, compared to $5.7 million for the nine months ended September 30, 2022. The $4.2 million year-over-year decrease in cash used in investing activities was primarily due to the $4.3 million less cash used to purchase property, plant and equipment (mainly for our new ERP system) in the nine months ended September 30, 2023 as compared to 2022.

#### Financing Activities

Net cash used in financing activities was $3.1 million for the nine months ended September 30, 2023, as compared to $6.4 million of net cash used in financing activities for the nine months ended September 30, 2022. The $3.3 million decrease was primarily related to the $2.4 million used to repurchase our common stock in the nine months ended September 30, 2023 as compared to the paydown of the $5.0 million borrowing under our Credit Facility in the nine months ended September 30, 2022.

#### Foreign Holdings of Cash

Consolidated foreign holdings of cash as of September 30, 2023 and 2022 were $4.0 million and $1.8 million, respectively.

#### Long Term Debt

On December 21, 2021, the Company entered into a three-year, $25.0 million asset-based revolving credit facility with Texas Capital Bank. The Company’s obligations under the Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”). The Credit Facility is secured by substantially all of the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, among the Company, TCB and the other grantors party thereto (the "Security Agreement").

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 loans under the Credit Facility accrue interest at a variable 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 Credit Facility are due and payable in full on December 21, 2024.

The Company may voluntarily prepay all or any portion of the loans advanced under the Credit Facility at any time, without premium or penalty. 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 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. GAAP).

As of September 30, 2023 and December 31, 2022, we had no borrowings outstanding under the Credit Facility. At each of September 30, 2023 and December 31, 2022, we had letters of credit in the amount of $0.8 million outstanding. No amounts were drawn against these letters of credit at September 30, 2023 and December 31, 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 activities at September 30, 2023 and December 31, 2022.

As of September 30, 2023, we had the ability to borrow an additional $24.2 million under the Credit Facility.

#### Dividends

We did not pay any dividends in three and nine months ended September 30, 2023 and 2022.

#### 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. In the three and nine months ended September 30, 2023, we repurchased 0.1 million and 0.4 million shares of common stock for $0.5 million and $2.4 million, respectively.

#### 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. Our management of cash is designed to optimize returns on cash balances and to ensure that it is readily available to meet our operating, investing, and financing requirements as they arise. 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.

### Critical and Recent Accounting Policies

Critical accounting estimates are defined as those that, in our judgment, are most important to the portrayal of our Company’s financial condition and results of operations and which require complex or subjective judgments or estimates. Actual results could differ materially from those estimates under different assumptions and conditions. Refer to the 2022 10-K for a discussion of our critical accounting estimates.

Our Significant Accounting policies are described in Note A, Overview and Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements.

See Recent Accounting Pronouncements under Note B of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been recently issued.

## Controls and procedures

As filed, 1,726 characters.

#### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer ("CEO") and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

Our management, including our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective, at the “reasonable assurance” level, to ensure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 663 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 10-K, which could materially affect our business, financial condition, or future results. The risks described in our 2022 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. There have been no material changes during the three months ended September 30, 2023 to the risk factors previously disclosed in the 2022 10-K.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031626. Last ingested by Listed: Nov 6, 2026, 13:47 ET. No prices; not investment advice.