Harte Hanks Inc: Form 10-Q for the period ended Mar 31, 2026

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, 2025 (the “2025 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 section is intended to help the reader 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, 2025, and as compared with the three months ended March 31, 2025. 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 2025 10-K. Our 2025 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 Policies, in the Notes to Condensed Consolidated Financial Statements for further information.

Harte Hanks, Inc. is a leading global customer experience company operating in three reportable segments: Revenue Solutions formerly referred to as 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 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, the expansion of alternative channels, various market factors, including the demand for services by our clients, the financial condition of and budgets available to our clients, and regulatory factors, among other factors. Due to the recent increases in inflation and interest rates throughout the globe, as well as the ongoing armed conflicts in multiple regions, there is continued uncertainty and volatility in the global economy. We remain committed to executing our multichannel strategy while also continuing to adjust our cost structure to appropriately reflect our operations and outlook.

Management closely monitors inflation and wage pressure in the market, and the potential impact on our business. 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.

Results of Operations

Operating results were as follows:

In thousands, except per share amounts

Consolidated Results

Three months ended March 31, 2026 vs. Three months ended March 31, 2025

Revenues

Revenues of $37.3 million decreased $4.3 million, or 10.3%, in the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Revenue in our Fulfillment & Logistics Services segment decreased $3.3 million, or 16.6%, to $16.5 million. Revenue in our Revenue Solutions segment decreased $0.9 million, or 9.9%, to $7.9 million, and revenue in our Customer Care segment decreased $0.1 million, or 1.1%, to $12.9 million.

Operating Expenses

Operating expenses were $38.0 million in the three months ended March 31, 2026, a decrease of $3.6 million, or 8.6%, compared to $41.6 million in the three months ended March 31, 2025.

Production and Distribution expenses decreased $2.7 million, or 19.3%, in the three months ended March 31, 2026, primarily due to lower shipping costs due to lower logistics revenue as well as lower brokered or pass through costs associated with lower broker revenue.

Labor expense was flat in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The higher health insurance cost was offset by reduction in salary and wages as operations were optimized to account for lower revenue.

Advertising, Selling, General and Administrative expenses decreased $0.2 million, or 3.5%, in the three months ended March 31, 2026, primarily due to lower professional fees.

Restructuring expense was $0.2 million in the three months ended March 31, 2026, which is $0.6 million lower compared to the prior year quarter of $0.8 million due to lower severance expense.

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

Other expenses, net

Other expenses, net, for the three months ended March 31, 2026 was $0.2 million compared to $0.6 million in the prior year quarter. The $0.4 million decrease in other expense, net was mainly associated with changes in foreign currency gain and loss account.

Income Taxes

The income tax benefit of $0.4 million in the first quarter of 2026 represents an increase in income tax benefit of $0.2 million when compared to the first quarter of 2025. Our effective tax rate was 29.0% for the first quarter of 2026, a decrease of 6.4% from the effective tax rate of 35.4% for the first quarter of 2025. The effective tax rate differs from the federal statutory rate of 21.0%, primarily due to the 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 reportable segments for the three months ended March 31, 2026 and 2025. There are three principal financial measures reported to our President (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.

Revenue Solutions:

In thousands

Revenue Solutions (formerly known as Marketing Services) segment revenue decreased $0.9 million, or 9.9%, from the prior year quarter due to the loss of customers and reduced demand from existing customers. Operating income for the three months ended March 31, 2026 decreased $37.0 thousand or 4.3% from the prior year quarter due to the reduced revenue.

Customer Care:

In thousands

Customer Care segment revenue decreased $0.1 million, or 1.1%, primarily due to decreased volume from existing customers, which was partially offset by increased volume from new customers. Operating Income was $0.8 million for the three months ended March 31, 2026, compared to operating income of $2.0 million for the three months ended March 31, 2025. The $1.3 million decrease was primarily due to the higher labor expense derived from increased headcount in beginning of 2026 as compared to the prior year quarter.

Fulfillment & Logistics Services:

In thousands

Fulfillment & Logistics Services segment revenue decreased by $3.3 million, primarily due to the reduction of an existing customer. Operating income decreased by $0.5 million, as a result of the lower revenue in the three months ended March 31, 2026 as compared to the prior year quarter.

Liquidity and Capital Resources

Sources and Uses of Cash

Our cash and cash equivalent balances were $4.5 million and $5.6 million at March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026, we had the ability to borrow an additional $24.3 million under our Credit Facility.

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 finance and operating leases and unfunded pension plan benefit payments and other needs for our operations in the short term and beyond. Although the Company believes that it will be able to meet its cash needs for the short and medium term, if unforeseen circumstances arise the Company may need to seek alternative sources of liquidity.

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2026 was $0.6 million, compared to net cash used in operating activities of $0.8 million for the three months ended March 31, 2025. The $0.2 million year-over-year increase in cash used in operating activities was primarily due to the $0.2 million higher net loss, which was partially offset by $1.1 million change in accounts receivable and contract assets balances.

Investing Activities

Net cash used in investing activities was $0.3 million for the three months ended March 31, 2026, compared to $0.1 million used in the same period in 2025. The increase was primarily due to more cash used to purchase property, plant and equipment in the three months ended March 31, 2026.

Financing Activities

Net cash used in financing activities was $0.1 million for the three months ended March 31, 2026, which is comparable to $0.1 million of net cash used in the three months ended March 31, 2025.

Foreign Holdings of Cash

Consolidated foreign holdings of cash as of March 31, 2026 and December 31, 2025 were $1.8 million and $2.2 million, respectively.

Credit Facility

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"). 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 Guarantors party thereto (the "Security Agreement"). On June 24, 2025, the Company entered into a second amendment to the Credit Facility (the “Second Amendment”) with TCB which extended the maturity date for the Credit Facility by a period of three years to June 30, 2028. The Second Amendment also includes an accordion feature that allows the Company to seek up to a $10.0 million increase in commitments under the credit line, subject to TCB approval.

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 Secured Overnight Financing Rate (SOFR) plus a margin of 2.25% per annum. The latest rate was 6.03% as of March 31, 2026. The outstanding amounts advanced under the Credit Facility are due and payable in full on June 30, 2028.

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 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 accounting principles generally accepted in the United States of America (“GAAP”)).

As of March 31, 2026 and December 31, 2025, we had no borrowings outstanding under the Credit Facility. At each of March 31, 2026 and December 31, 2025, we had letters of credit outstanding in the amount of $0.7 million and $0.7 million, respectively. No amounts were drawn against these letters of credit at March 31, 2026 and December 31, 2025. These letters of credit exist to support insurance programs relating to workers’ compensation and general liability as well as lease obligations. We had no other off-balance sheet financing activities at March 31, 2026 and December 31, 2025.

As of March 31, 2026, we had the ability to borrow $24.3 million under the Credit Facility.

Dividends

We did not pay any dividends in the three months ended March 31, 2026 and 2025. Any future dividend declaration can be made only upon, and subject to, approval of our Board of Directors, and will depend on our results of operations, financial condition, cash requirements, future business prospects, contractual and indenture restrictions and other factors deemed relevant by our Board of Directors.

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. As of December 31, 2025, the share repurchase program authorization availability was $4.1 million. We didn't repurchase any stock during the three months ended March 31, 2026 and no shares of common stock were repurchased in 2025.

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 2025 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.

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 President and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

Our management, including our President 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 March 31, 2026, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our President 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.

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 2025 10-K, which could materially affect our business, financial condition, or future results. The risks described in our 2025 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.