Good day, and welcome to the Harte Hanks First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Rob Fink with FNK IR. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Thank you for joining us. Hosting the call today are Andrew Benett, Executive Chairman and CEO of Harte Hanks; and Lauri 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 they serve; expectations related to the cost savings measure; 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 in cautionary statement in today’s press release. The call may also reference non-GAAP financial measures. Please refer to the earnings release that was issued after the close for reconciliation of the related disclosures. The company’s earnings release is available on the Investors section of its website at hartehanks.com. With all that said, I’d now like to turn the call over to Andrew Benett. Andrew, the call is yours.

Thank you, Rob, and good afternoon. Before we get started, I want to express my sincere hope that everyone on today’s call is staying safe and healthy during these challenging times. I also want to take a moment to thank the entire Harte Hanks team for their professionalism, their resiliency and endless drive to serve and support our clients and each other. The culture and commitment embedded within our organization is one of the key assets that attracted me to the company. The value of these attributes have been amplified by the response in addressing the upheaval of the last couple of months, and I couldn’t be prouder. Our teams from the Philippines, Texas, Europe and the U.S. have all done a herculean effort, and our clients appreciate it and they’re sharing that appreciation with us. The health and safety of our employees, our customers, our partners and our communities has always been our top priority, and this is important now more than ever. We have transitioned to a fully work-from-home environment with the exception of our operations capability, eliminated travel and are following best practices guidelines placed by the World Health Organization, the CDC, federal and state officials. We’re taking precautions and providing our employees up-to-date information through the internal corporate website. As we operate through the pandemic, the quarantine and the resulting business realities, we’re carefully evaluating expenses and business functions to ensure that we’re adding value to our customers in positioning Harte Hanks for sustainable profitability. However, the process of evaluating expenses and improving operational efficiency is something that we’ve been focused on for over a year, and we’re making strong progress on that. Although the pandemic creates new urgency, the process hasn’t materially changed, and we’re focusing on ways to create higher, more relevant value and…

Thanks, Andrew. I’d like to first underscore a point Andrew mentioned early in his remarks. While COVID-19 is presenting our business with significant near-term headwinds due to reduced client marketing expenditures and requiring us to take a hard look at cost, we’re redoubling our efforts to streamline and restructure the business. This is best highlighted by the $21 million reduction in expenses excluding restructuring charges and depreciation, including a $10 million decline in labor, which more than offset the decline in revenue in the quarter. I’d now like to walk through the results in more detail. First quarter revenues were $40.5 million compared $59.2 million last year for a year-over-year revenue decline of $18.7 million or 32%. We estimate that COVID-19 cost us approximately $2 million of revenue in the quarter, and as you know, we are still cycling over client losses from 2019 that weigh on our year-over-year growth rate. We are now seeing client wins in the business that will generate revenue in future quarters. Revenues declined in all vertical markets in the quarter. The largest decline in dollar terms was retail, which was down $7 million, mostly due to losses in our mail and logistics business as well as a change in a contract requiring us to record on a net rather than a gross basis. The largest decline on a percentage basis was transportation, down over 80% due to a loss of program last year for a contact center client. As Andrew mentioned, we have signed an agreement to fully exit our direct mail production business by the end of June. We anticipate recording a non-cash impairment charge related to closing our Jacksonville facility during the second quarter. This transition is expected to eliminate just under $1 million in quarterly losses related to this business, primarily…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Michael Kupinski with Noble Capital Markets. Please go ahead, sir.

Thank you and thanks for taking the question. Good afternoon, I’m glad and hope that everybody is safe there as well. So the revenues came in better than what I was looking for in the quarter and is somewhat surprising given the mitigation efforts of COVID, which began in March, and you said that you feel like that had about a $2 million impact in the quarter. I was wondering, where were you seeing strength in the quarter? And then it sounded like you were pretty optimistic about how things are shaping up in subsequent quarters, given that some of the clients that you have are actually stepping up campaigns in light of COVID. I was wondering if you could just add a little bit more color on that, what you’re seeing there.

Yes. I can start, Lauri, and then you can jump in. So maybe I’ll do the reverse. With regard to clients, I think what we’re seeing across the board is, first of all, where, as you know, we play is bottom-of-the-funnel marketing, so more performance-oriented, ROI-oriented marketing. So generally, what you see in economic times like this and in general, where marketing – where the numbers will just show is headed is in that direction in a significant way. So I think that’s what it – what has muted it a little bit for us in terms of across the board, specifically, on the first part of your question, where we’ve seen increased demand, as I mentioned, significant increased demand in the contact center, and that’s a combination of two things: new business wins that had happened before that we were then ramping up for; new business wins that happened before COVID, which we were then finalizing and getting ready to ramp for; and then COVID, where, as you can imagine, and everything that has happened with that, a contact center service is of great demand and great value. And so we also were receiving and continue to receive very strong inbound request for our services from major companies and clients. So specifically, contact centers where we’ve seen – it has kind of outpaced, if you will, for the quarter. And as I mentioned, marketing services got a slower start. And then where we did see the impact was primarily in our fulfillment and our mail business, and that was more specifically a reduction of demand than client loss.

Got you. And then in terms of the savings in the quarter, I know that you had renegotiated a number of vendor agreements from last year, and I was just wondering if you can kind of frame how much of that was in the quarter. What – can you kind of give us some sense of the dollar value of those renegotiated vendor agreements from last year?

Yes. Lauri, you want to give a sense of that please?

Sure. Sure, Mike. So I mean, there was several agreements. I would say that the major agreements, we had a $3 million to $5 million of savings in this quarter alone regarding those agreements. I don’t tend to have the tally of all of them for the quarter, but that’s a good range.

Right. And then is that there – some of that go into the production and distribution expenses because that was a little bit lower than what I was expecting?

Yes. Certainly, some of it is in there. There’s also some outside labor. So there’s some of that that’s drilling into the late section as well.

Got you. And then can you just kind of give us a sense of – because of all the issues with COVID going to Q2, which is, admittedly, probably the biggest hit for any particular quarter, but you have so many mitigating factors of some of your clients that are actually showing – giving you business in this environment, can you kind of give us a sense of what the revenues kind of are pacing or looking like in the quarter? Because obviously, we were looking for moderating revenue trends as you kind of cycle through the lost account from last year. I was just wondering if you can kind of give us a sense of what the revenue’s kind of pacing.

Yes. I mean, so as you know, through the beginning of this year, we still cycle through losses from last year. So there will obviously be a component of that. I would say with regards to demand in Q2 thus far, we see the same trend that we saw in the end of March with regards to our businesses, contact center, others, as we spoke of. What we’ve also seen, though, is that many, many clients have started to pick up activity. They just reoriented it. So many of our financial services clients are reorienting, as you’d imagine, all of the messaging and the work that we’re doing, and that’s part of what caused a pause or lower than our expectation for that business for the quarter. So I think the one bit that no one knows, obviously, is what the overall impact on the economy will be to consumer sentiment, consumer shopping, business sentiment, all, obviously, very much related to the services we provide. So short of that event and not knowing that, we feel that we’re tracking well.

And final question. You mentioned that you have a pipeline of business of $19 million. How do we look at that pipeline in terms of when we model the revenues or when we expect to model that revenue?

Well, if I understand – can you explain that a little bit? I’m not sure I understand.

Yes. I’m just wondering in terms of how – when you mentioned the pipeline of business that you have, what is that – how far out into the future are you modeling that expected pipeline? And over what time frame do you expect to, I guess, convert that to revenues?

Yes. Yes. Okay. So it’s generally a 90-day pipeline, meaning what’s in it is active for 90 days. Things can take longer. It could go out 120 days. But you’re looking to either close or things won’t get closed. They won’t be won through that process. So we feel good when we went into the quarter because last year in Q4, and I talked about this in the last call, we really ramped up the pipeline, especially more of the longer-term part of that. And so we’re seeing some of that and then we’re seeing some of the effects of having a strong pipeline of activity in January and February. That has quieted, meaning activity on that, as you can imagine, during COVID and changed, and now we’re seeing things just in terms of how one goes out to sell, improve as the market, in general, improves in terms of interacting with one another. So I think in terms of looking at it, hopefully, the timing gives you some context and then obviously, the targets that we lay out for it, which obviously is against our plan, but you can see how we’re cycling against target.

And just a follow-up on that.

Mike.

Yes. Sorry, go ahead.

I would say, I would add to that. I think what you’re trying to understand, too, is just that pipeline, how long does it take to recognize the revenue from that pipeline once we do close the deal. I would say there’s a mix of shorter-term projects as well as some that might be a year-long contract. So it’s a little bit of a mix. It’s not all going to be recognized on a very short-term basis but it’s not all over a year either.

Got you. And just one quick follow-up. Is there a number in terms of the pipeline that you anticipate or would like to have as you enter into another quarter, like 50% of the revenues or 35% of the revenues? Is that one way to look at it? Like if you set benchmarks or targets for building out that pipeline?

We do. So basically, to get to the $13 million, we need essentially – and obviously, there’s always a quality of the pipeline, which we put a great amount of – a great deal of rigor to. But generally, we would need, on average, between $40 million and $50 million to convert to get to about $15 million.

Okay. Got you. Okay.

Unweighted. Sorry, that’s unweighted funds.

Yes, unweighted. Right. Yes. Okay. Thank you so much. I appreciate that. Thanks.

Thank you, Mike.

And ladies and gentlemen, this concludes the question-and-answer session. I’d like to turn the conference back over to Andrew Benett for any closing remarks.

I’d just like to thank everyone who joined us today. Thank you for your time. Thank you for listening. Stay safe. And I’d also like to, once again, thank all of our employees and our team members who really are doing so much for each other and for our clients. And with that, thank you very much.

Thank you, sir. This concludes today’s conference call. Thank you for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.