Good day and welcome to the Harte Hanks' Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rob Fink of FNK IR. Please go ahead sir.

Thank you and good afternoon everyone. Thank you for joining us. Hosting the call today are Andrew Harrison, President; and Mark Del Priore, CFO. Before I begin, I would like to tell everyone that the information provided during this call may contain forward-looking statements such as statements about the company's strategy, adjustments to its cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, anticipated performance and outcomes, future effects of acquisitions, dispositions, litigation and regulatory changes, economic forecasts for the markets they serve, expectation related to cost saving measures, and other statements that are not historical facts. Actual results may differ materially from those projected or implied in these statements because of the various risks and uncertainties including those described in the company's Form 10-K and 10-Q and other filings with the SEC and in cautionary statements in today's earnings release. The call may also reference non-GAAP financial measures. Please refer to the earnings press release that was issued after the close for reconciliations and other related disclosures. The company's earnings release is available on the Investor Relations' section of its website at hartehanks.com. With all that said, I would now like to turn the call over to Andrew Harrison. Andrew?

Thank you, Rob and good afternoon. This quarter was a quarter of significant progress for Harte Hanks. We achieved positive adjusted EBITDA a full quarter earlier than we expected and continue to eliminate legacy low-margin contracts and associated infrastructure while pursuing and winning more value-based engagements with healthy margins. The year-over-year declines in revenue continued but the pace is slowing. The trend will fluctuate from quarter-to-quarter based on seasonality and other factors. But overall we expect the pace of declines to continue to narrow. More importantly, we expect positive adjusted EBITDA in the fourth quarter and for the full year 2020; we are expecting positive EBITDA which suggests a material decline in cash burn next year. Our EBITDA which includes the non-recurring restructuring expenses and our stock-based compensation was a negative $3.2 million. This is a significant improvement over both the first two quarters of 2019 and the corresponding quarter in 2018. In addition, it continues our trend of improving our EBITDA over the past two quarters. Obviously, a tremendous amount of work and effort by many, many people across the company was required to make this happen and I want to acknowledge the hard work of the Harte Hanks team. We will continue our focused efforts because we realize there is more work to do, but we're encouraged at the results so far and for being ahead of schedule and turnaround plan. Cost reductions were an important part of our improved performance in the third quarter as we continued to adjust our operating cost to our revenue, but our execution is not one dimensional. Other aspects of the efforts that are beginning to show positive returns include actions such as we significantly reduced the large vendor engagement that was negatively impacting performance and profitability that relationship that was once…

Thanks, Andrew. The company's cost reduction efforts continue to be reflected in our quarterly results. As you may recall, in the first quarter of 2019, our year-over-year operating expense decline net of restructuring and impairment costs nearly offset the full scope of revenue decline during the quarter. Then, in the second quarter of 2019, our year-over-year operating expense decline again net of restructuring and impairment costs exceeded our year-over-year revenue decline by $2.4 million. We built upon this momentum in the third quarter, with an operating expense decline of $16.8 million year-over-year, compared to a revenue decline of $12.2 million. This resulted in our cost reductions outpacing our revenue decline by $4.6 million. We expect this momentum to continue in Q4 next year. In addition, our year-over-year revenue decline for the quarter was $12.2 million compared to a decline of $15 million in Q2 and $22 million in Q1. We believe, that this is reflective of our efforts to grow revenue from new customers and retain and grow existing client revenue. The result of all the cost cuts and the improving revenue decline is that our EBITDA and adjusted EBITDA continue to improve. EBITDA in the third quarter of 2019, increased by $5.3 million compared to same period last year and increased by $2.1 million sequentially compared to Q2 of 2019. In addition, our adjusted EBITDA which adds back non-recurring restructuring and impairment costs and stock-based compensation, increased by $6.9 million in the third quarter, compared to the third quarter a year ago and increased by $2 million sequentially. As Andrew mentioned, our adjusted EBITDA was positive during the quarter at $203,000, a milestone we reached one quarter ahead of the guidance we provided on previous conference calls. As our restructuring costs will decide in the coming quarters, we believe…

Thank you. [Operator Instructions] And our first question we'll hear from Michael Kupinski with Noble Capital Markets.

Thank you for taking the questions. And first of all congratulations on your hard work to turn the business around and for showing positive EBITDA a little earlier than expected. So a couple of questions. Can you talk a little bit about the quality of revenues? And in particular, while revenues were roughly in line with my expectations you were able to nicely beat my cash flow assumption for the quarter. I know that some of that was flow-through from some costs reductions earlier. But I was wondering in terms of how you're managing the business, the decision to maybe -- some of the revenues was it because you exited low-margin revenue or is it just simply a product mix issue? And so can you just kind of give a little bit more color on how you plan to manage revenues as you go forward?

Sure. Yes, I'll take it. Yes. So thanks, Mike. So there's certainly some discontinuing of low-margin revenue that's definitely taking place in our numbers. Some of it by design, some of it we welcomed, but that's not the only part of it. We think that the new revenue that we are adding is coming at a higher margin than the overall margin of the company. So we think that new -- overall new customer accounts have higher margins and then also the accounts that we have added this year will also be higher margin. And then, one of our focuses is also on retaining and growing our legacy higher-margin accounts, while also shedding some of the lower-margin accounts. And then if you look at what our -- at our pipeline, we are certainly seeing the most traction in our pipeline from our highest-margin product offerings and that would be our marketing services business as well as our fulfillment business. Those are the two areas that we're seeing the most robust pipeline and they also happen to be our two highest-margin businesses.

And so in terms of the pipeline of business, I guess, traditionally when Harte Hanks won accounts they typically showed losses as they kind of got those accounts up and running and then showed margins in future quarters. Can you just talk a little bit about, how that pipeline of business actually trains? How are you managing the margins? Are they profitable from day one or is it time to build that, sort of, thing? I was just kind of trying to get an idea of the timing of how that business falls and that, sort of, thing.

Yes, Mike we had taken some business in the past that was for the sake of revenue that had low or no margin attached to it that the -- our business that we're -- we've got in our pipeline and that we're winning today is business that is profitable from the beginning though it may take a period of time to get it ramped up and beginning to produce revenue from the date of the sale of the close -- close of the sale. So it may take two weeks to two months before we begin to recognize some revenue after a sale is closed. But generally speaking that revenue is profitable from the wins that we're getting recently and what's in our pipeline today.

And I know that in the past you really didn't have much of a pipeline of business. And so this is kind of relatively new for you guys. Do you even have a pipeline? But can you talk a little bit about how much pipeline in terms of revenues that you have this quarter versus let's say sequentially from the second quarter?

Yes. We don't give the numbers, but our pipeline has improved from where it was in the second quarter and we have progressively throughout 2019 delivered higher sales results quarter-over-quarter and we are optimistic that we'll be able to continue to do that.

And Mike, we've been able to grow that pipeline despite, winning new business. So as new business is won and it comes out of the pipeline, we've been able to continue to grow that -- the overall pipeline.

That's terrific. And then, with the negotiated vendor agreements, does the company anticipate that there will be a loss associated with those agreements? Or can you just kind of give us the magnitude of -- you said that, you're rightsizing it versus what was an oversized relationship. What is the magnitude of the decrease in losses from the vendor relationship?

So we were spending, well over $10 million a year, on certain vendors. And we believe that, all of that cost comes out of the business, starting -- almost all of it will be out by Q1. And there have been some charges related to getting out of that. But we have expensed all of those charges in our numbers, already. So, they do fall under restructuring costs. But they have been flowing through the OpEx, as the year has unfolded.

That's a good positive. And then, in terms of the consolidation of the facilities, was that in the third quarter or was that in the fourth quarter?

It began in the third quarter. And it will continue into the fourth quarter. And then, there may be some residual stuff in early 2020. But the large majority of our restructuring costs will be behind us, at year-end.

Got you and then, in terms of the savings you anticipate from the consolidation, if you can kind of, grain that a little bit. And also, will there be a revenue impact from the consolidation? Or is it very little revenue impact?

Yeah. I don't think we want to break out specifically the savings from the consolidation. I think, we've sort of outlined, the various impacts of consolidation, and vendor reductions as well as labor reductions. So, we will -- we look at it, holistically. So I don't think we're going to break it out specifically. But -- and what was your second question?

Well. I was just wondering, if there was going to be any type of revenue impact, due to the facility consolidations?

Not material.

Okay, good. All right, well, that's all I have. Thank you.

Thanks Mike.

And that will conclude the question-and-answer session and today's call. We thank you for your participation. You may now disconnect.