Greetings, and welcome to the Harte Hanks Third Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Tom Bauman, Investor Relations. Tom, over to you.

Hosting the call today are Kirk Davis, Chief Executive Officer; and David Garrison, Interim Chief Financial Officer. Before we begin, I want to remind participants that during the call, management's prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today and therefore, we will refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. In addition, any projections as to the company's future performance represented by management include estimates as of today, November 9, 2023, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures are available in the earnings press release that was issued shortly after the market closed. A copy of that press release and other corporate disclosure is available on the Investor Relations section of the Harte Hanks website at hartehanks.com. With that, I would now like to turn the call over to Kirk. Kirk, the call is yours.

Thank you, Tom. And good afternoon, everyone. It's a privilege to be here. After my remarks, I'll introduce David Garrison to cover our financial results. This is my first full reporting quarter with Harte Hanks. Despite my short time here, I'm confident in what we need to do. I see Harte Hanks as competitively positioned in the market, with differentiated offerings and the expertise to assist global brands to better identify, engage and service their customers. However, I'm finding that customers and importantly, prospective customers aren't generally aware of everything we can help them with.That's a marketing and sales opportunity will certainly address and I shared this from first-hand experience. My commitment when I joined the company was to be a customer-facing CEO. Our team appreciates my interest and desire to assist in bringing new customers on board or to help troubleshoot a customer concern. I've participated with staff on over a dozen meetings we've had with potential clients essentially on every week over the past three months. I've also pitched in to help resolve and that risk customers' concerns in which we were able to resolve. The strength here is that our customer retention is strong. Although we obviously experienced spending fluctuations based on a variety of factors, and customer retention will strengthen further as we expand the services we're providing to customers. That can serve as a hedge in instances when the customer's needs change, and we lose a portion of their business, yet retain the customer due to other services we provide for them. Our company experienced this shortly before I arrived, a long-standing financial services client, in-sourced services we had been providing for many years, which was a setback yet the customer continues to utilize us for other services today. The key is to stay close…

Thank you, Kirk. I'm excited to be part of Harte Hanks. Although only joining Harte Hanks a couple of weeks ago, I appreciate the warm welcome and collaborative team that has diligently worked to educate me in my first stage. Working with Project Elevate is a unique opportunity to leverage the creative strength of this organization. and I am eager to contribute to that good work across all business segments. Now turning to the quarterly results. Third quarter revenues were $47.1 million, down 12.6% compared to $53.9 million last year and effectively flat when compared to the second quarter of 2023. This includes $2.2 million in revenue associated with the Inside Out acquisition during the third quarter. Our operating expenses for the third quarter were planned. This was a 4% decrease on a sequential basis and an 11.8% decrease from the year-over-year quarter due to cost reductions prior to the commencement of Project Elevate. Operating income was $2.9 million compared to $3.8 million in the third quarter last year and $1.7 million in the second quarter of 2023. -- we reported positive net income of $600,000 or $0.09 per basic share and $0.08 per diluted share compared to net income of $7.2 million or $0.87 per basic share and $0.83 per diluted share in the prior year. Keep in mind, the third quarter last year, Harte-Hanks reported $2.5 million in other income related to the sale of unused IP addresses. Net income was sequentially flat compared to the prior quarter. Our EBITDA was $3.9 million compared to $4.4 million last year and $2.7 million for the second quarter of 2023. Adjusted EBITDA and was $4.2 million compared to $4.5 million last year and $4.4 million in the second quarter of 2023. From a segment contribution margin perspective, -- our customer…

[Operator Instructions] Your first question is coming from Michael Kupinski of Noble Capital Markets.

Just a couple of questions here. Where do you feel that you need to have the most focus in terms of driving revenue at the company? Is there a particular segment that you feel has the biggest opportunity? And will you see more investment in that particular segment than others? And just kind of give us a flavor of the level of investment that you're anticipating.

Michael, thanks for the question. This is Kirk. I would say in the near term, we as evidenced by some of our hires, we see an extraordinary opportunity with the acquisition we did late last year. That would be the inside sales division. Although we are seeing a general lift in our pipeline development compared to earlier in the year. So that is heading towards an even distribution of, I think, opportunities. But in particular, we have some good discussions going on with potential clients and inside sales is a great opportunity for Harte Hanks. In terms of the investment, that will be measured. We expect to have good visibility by mid-January on our savings opportunities with Kearney's assistance. And as I reiterated in my remarks, we have the ambition of improving revenue, investing more in revenue, but we are also committed to driving our profitability up. So we can implement our sales transformation plan in steps to make sure that we're balancing all those objectives. But partnership is a really interesting opportunity for us. We don't have anybody that focuses on that, referencing the international expansion is a good opportunity -- so I look at the opportunities we have in the pipeline for building our sales and marketing practice to be world-class as very, very rich and we'll pursue that in lockstep with aligning costs in the company and getting a stronger bottom line.

Kirk. And I was just wondering, in terms of you mentioned driving efficiencies and so forth. And I assume that you might have some ideas in terms of the target margins and so forth. Do you have any thoughts in terms of adjusted EBITDA margins that you feel the company is capable of or where you'd like to see those margins being sustainable? Or just can you give us an idea of what you anticipate in terms of how we should look at and benchmark your strategy here?

What we've said, I think, on the last call that we thought getting north of 10% would be our first milestone. And I think how much better we can do beyond that would be something we'd have more visibility on when we get into the full scope and analysis with Kearney. I'd say early on, our sense is we're very encouraged by what we're going to find there. But we'll give a more in-depth report on that next quarter.

Got you. And then as we kind of look at Q4 and maybe the next few quarters, can you give us a sense in terms of the tone of the market, the business environment just any additional color that you can have in terms of how the business is pacing as we look into the balance of the year and into the first quarter.

Well, at the time of year, we're not only are we starting to think about our plans for next year, but also many of our customers are. And the stability we sense heading into next year is encouraging with our existing customer base. So that's very positive. We aren't feeling or we certainly aren't really concerned about the economy per se. We've seen some softness from financial services. We've seen some softness from technology companies. But when I look at the opportunities we have and how quickly we're organized to start improving the way we go to market and our conversion success accountability. I'm just pretty encouraged about how I think we'll do. Now I know there's a lot of speculation about the economy and rates and whether we're likely to see a recession next year. We certainly right now are very encouraged about the signs we're seeing in the initiatives we have -- and if we do encounter something like that, then the work we'll have done and the urgency in which we're pursuing it with Project Elevate, will be all that more beneficial and well timed. So we're just feeling almost by the week that we're getting better organized and more conviction around these revenue initiatives. And Hopefully, it was apparent that when we talked about doing last quarter, we've hit on all cylinders within the past few months of putting those in place. And I think that's what you're going to find from this management team.

Awesome. And final question. I know as you indicated that you're just going through your budgets for next year. Have you given any thought in terms of CapEx, how are you going to allocate CapEx at this point?

We have not -- we have some exciting opportunities. I think there's going to be opportunities that will be evident in the work we're doing on Project Elevate, that would unlock additional savings, and we'll balance those. But we'll take a measured approach to CapEx to make sure that we stay in a strong financial position, and we'll have more to share on that as well next quarter because there are a couple of projects that we're looking at that we think would unlock a lot of revenue opportunity. But as you can sense, we want to take a measured approach into the year. We realize that we're a new team, and we want to establish our credibility -- and hopefully, that's evident in at least how we've gotten started.

Got you. Well, you've assembled a great team, good luck to you guys.

Well, that appears to be the end of our question-and-answer session. I will now hand back over to the management team for any closing remarks.

I just want to thank everybody for joining the call today. Hopefully, it's apparent that we're laying out a plan and consistently delivering on the major objectives of our sales transformation. That's the key. And we're really excited and look forward to talking to you next quarter and showing continued follow-through. So thank you very much.

Thank you very much, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.