Good day and welcome to the Harte Hanks Fourth Quarter and Year-End 2019 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Rob Fink of Hayden IR. Please go ahead, sir.

Thank you and good afternoon, everyone. Thank you for joining us. Hosting the call today are Andrew Benett, Executive Chairman and CEO of Harte Hanks; Laurilee Kearnes, 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, disposition, litigation and regulatory changes; economic forecasts for the markets we serve; expectations related to cost-saving measures and the availability of tax refunds 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 cautionary statement in today’s earnings release. The call also may reference non-GAAP financial measures. Please refer to the earnings release that was issued after the close today 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’d like to turn the call over to Andrew Benett. Andrew, welcome to Harte Hanks.

Thank you, Rob, and good afternoon, everyone. As most of you know, this is my first quarterly conference call with Harte Hanks, having joined the company in November. The last few months have been extremely productive. My first task was to assess the operations and the business lines at Harte Hanks, performing a top and bottom line review and building off the work previously by the Board and prior leadership. Following this review, I worked with new and existing leadership who thought a clear and accelerated path forward. A few high-level observations to ground my comments and the plan I’ll share. First, under prior management, Harte Hanks operated in silos. But our people are highly collaborative and when Harte Hanks was performing at its best, it operated fluidly and collaboratively. In returning to a collaborative way of working, we expect to bring better service to clients in a much more efficient organization. Second, in a business within cyclical decline, there was little focus on growth. We addressed these issues in our new structure and our plan, and I will talk to specifics in a moment. And lastly, we believe we have a highly differentiated offer, as seen by the work we do for the world’s leading companies. Harte Hanks is in a very desirable position within the digital and direct marketing category. We’re highly focused on high ROI marketing activities, like social, e-mail, direct marketing and customer care. It’s important to note that businesses like ours have traded at high premiums, and are considered to be where the market is going due to strong delivery from marketers. Now how we’ll achieve our goal? Our plan has three fundamental pillars. The first is to optimize the business and the way we work. The second is to grow our current services with…

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 the 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 $3 million. We build upon this momentum in third quarter with an operating expense decline of $17.3 million year-over-year compared to a revenue decline of $12.3 million. This resulted in our cost reductions outpacing our revenue decline by $4.6 million. And most recently, in the fourth quarter, our operating expense decline of $22.5 million outpaced the revenue decline of $17.9 million by $4.7 million. We expect this momentum to continue into 2020. Turning to our fourth quarter results. Fourth quarter revenues were $52.3 million compared to $70.2 million last year for a year-over-year revenue decline of $17.9 million or 26%. For the quarter, revenues were down compared to the fourth quarter of 2018 in all verticals with the exception of the Consumer Brands vertical. The largest decline among our verticals was in retail, which was down $9.7 million or 50%, mostly due to losses in our mail and logistics business. Our operating expenses for the fourth quarter of 2019 were $51.9 million compared to $74.5 million in the year-ago quarter, a decrease of $22.6 million or 30%. We reduced our operating expenses in all areas, including labor, production, distribution and advertising, selling, general and administrative expenses to offset the decline in revenue. Our restructuring expenses during the fourth quarter totaled $932,000. The majority of this is comprised of severance, facility charges and termination fees related to certain…

Thank you. [Operator Instructions] We will now take our first question from Michael Kupinski of NOBLE Capital Markets. Please go ahead. Your line is now open.

Thank you, and thanks for taking my question. First of all, the advertising and SG&A expense was significantly lower than expected. And I know that you’ve been cutting cost, but that was the biggest variance to the upside cash flow estimate that I had. I was wondering if you can give me a sense of the run rate for that line item going forward. Were there any particular things in the fourth quarter that maybe were onetime statements or true-ups or whatever. Just kind of give us a sense of what that looks like going forward.

Sure. Yes, there were actually some onetime savings in Q4 that we don’t expect going forward. I expect those to be closer to the run rate of Q3, but they should still be down due to the savings that we have on some of these vendor-related contract changes.

And what were some of the onetime savings? What was in the number?

So there were a couple of things that we had. One item that we had was a settlement on the old insurance claim that came in higher than we expected. The demand accounted for a piece of that.

Got you. And then given the fact that you plan to exit low-margin or money-losing revenue, can you give us a sense of now the revenue that this may affect? And then also, there was an acceleration in the rate of decline in revenues in Q4 and albeit, that was right in line with my expectations. But I was wondering if you can give us a sense of how revenues appear to be pacing in Q1? Are you expecting moderating revenue trends beginning in the first quarter? Or when can we assume – or what should we assume in terms of revenues throughout the balance of the year?

Yes. I mean, we expect that the pace of the revenue declines will slow. Now obviously, we’re in some unprecedented times. So there’s some – of course, some uncertainty. We believe, though, that we have a strong position for our services, and we haven’t seen any declines yet with our customers and those services. We do expect that we will have some year-over-year impact from customer losses that we had earlier in the year, but we do expect the leveling out of the revenue.

Got you. And then you’ve indicated that a lot of the vendor contracts have been renegotiated, but that there were still some that you felt that you could renegotiate further. Are these projects that we negotiated last year and was looking for better terms? Are these additional vendor contracts that have yet to be renegotiated?

I think most of these are additional vendor contracts that we’re looking at. So we have – as you know, you have contracts that come off at different cycles. So as each contract comes up, we’re doing a deep look at every contract that comes up for renewal, evaluating whether it be licenses, license count or any terms in the contracts and renegotiating them.

Got you. And then can you give us a sense of how much revenue the print business generates? And is that generating positive cash flow? And then I think you indicated that this is a business that you’re evaluating strategic options. I was just wondering, is this the only business that you’re evaluating at this point? Or are there other businesses that might not be performing in line with how you plan to reshape the company and that there might be other options going forward?

Yes. I mean this is a business that’s been, as we said, the hardest hit and where the majority of our declines have come from and thus the need to look at all options. We are looking at the business as a whole. As I mentioned earlier, we do have multiple high growth, high EBITDA businesses that we believe primarily need the scale because the businesses themselves, both from the offer that they have to clients as well as how they’re managed and how the operations flow, do play well.

Can you give us a sense of what the annual revenues for this particular portion of the business that you put in to look at options for what it generated in 2019?

Yes, it’s a smaller percentage of the total. It’s approximately 15% of the total revenue.

Okay. And that obviously represented more.

And in terms of the long-term debt, do you anticipate kind of getting up to the $22 million? Or do you think that given the fact that you do have your cash that you plan to manage debt at current levels going forward because you got a little of them under a revolver, I guess, right?

Yes, we don’t expect to increase that debt level.

Got you. All right, that’s all the questions I have thank you.

And there are no further questions at this time. So that now concludes the call. Thank you for your participation. You may now disconnect.