Good afternoon, everyone, and welcome to the Harte Hanks Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Tom Baumann. Sir, the floor is yours.

Thank you. Hosting the call today are Kirk Davis, Chief Executive Officer; and David Garrison, 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, March 14, 2024, 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. To our listeners, good afternoon, and thank you for joining our call. With me today in our Chelmsford, Massachusetts office is David Garrison, our Chief Financial Officer. Today I'd like to focus on Elevate, our end-to-end transformation program, which has been my primary focus since joining Harte Hanks in June. The program is anchored by our intent to achieve sustained profitable growth, expand our relevance, operate more efficiently, and attract talent, which we all know is easier when you're growing. We're also focused on the transformative opportunities enabled by burgeoning AI capabilities. Last August, we commenced a comprehensive review of our sales and marketing organization and our go-to-market strategy. It was evident we were functioning with an antiquated strategy and ineffective structure and investing too little in marketing and demand generation. In October, we welcomed a new Senior Vice President for Sales and Marketing, Kelly Waller, who has modernized and expanded our marketing and sales organization. She has just completed our re-staffing and reorganization by hiring a sales executive to lead international expansion and another to establish our partnership network. It's not uncommon for B2B companies to generate as high as 30% of their revenue through partnerships. Partnerships will be a material growth driver for us long-term. Other sales channels we're capitalizing on include our participation in high-profile business development events, engagement with business development companies, and the creation of our own dedicated inside sales team focused exclusively on our offerings. We've swiftly developed a smart go-to-market strategy and attracted a larger, highly talented staff that will position Harte Hanks for sustainable growth. Last October, we appointed a new Interim CFO, David Garrison, who has subsequently become permanent in the role. We've had some early successes amidst Dave's transition. He's a welcome addition to our team. Our…

Thank you, Kirk. I will now review the fourth quarter consolidated results, including revenues for each business segment. Fourth quarter revenues were $49.5 million, a decline of 9.7% compared to $54.8 million in 2022. The growth in Customer Care segment was offset by declines in the other two segments. Compared to third quarter revenues of $47.1 million, Q4 revenues were up 5%, or $2.4 million sequentially. Revenues in the Customer Care segment were $17.7 million in the fourth quarter of 2023, compared to $16.7 million in the prior year, and $14 million in the third quarter of 2023. Sales services increased $1.4 million compared to 2022. The Marketing Services segment revenues were $10.5 million in Q4 of 2023, compared to $13.6 million in the prior year, and $10.6 million in the third quarter of 2023. Specific customer reductions and program conclusions made up the decrease in this segment year-over-year. Fulfillment and Logistics revenues were $21.3 million in the fourth quarter of 2023, compared to $24.5 million in the prior year, and $22.5 million in the third quarter of 2023. The decline in revenue was related to lower volumes in Q4 and the completion of holiday programs during Q3. These declines are not expected to continue into 2024. Operating expenses in Q4 were $51.8 million, including restructuring expenses of $5.7 million, compared to $51.3 million in the same period of 2022. Q4 operating expense was a 17% increase versus Q3 operating expenses of $44.2 million. However, without the restructuring expense, operating expenses only increased by 4.2%, less than the quarter-over-quarter growth in revenues. The commencement of Project Elevate resulted in the $5.7 million of restructuring expenses for the quarter. These expenses included $4.6 million of optimization consulting needed to help identify and formulate the plan for the $16 million in cost…

Certainly. Everyone at this time will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Michael Kupinski from Noble Capital. Your line is live.

Thank you, and good afternoon. Good evening, I guess, in some places. First of all, congratulations. I mean, you beat revenues, you beat adjusted EBITDA, and your cash is much bigger than I expected. So good job. A couple of questions. I wanted to go back because you talked about, these partnerships. Some of us that have been following this story for some time have know about some of the partnerships in the past that didn't work out so well. I was just wondering if you can maybe elaborate a little bit on the significance of the partnerships that you're looking for. How do they work? How do you get paid? Just kind of give us a little color on those.

Sure. This is Kirk. Thanks for the question, Michael. So as I mentioned in the script, B2B companies can typically see 30, honestly, as high as 40% of their revenue indirectly coming from partnerships. I'm aware of some of the investments that we've had in the past here and outcomes that weren't necessarily as promising as hoped. I want to reassure, these partnerships are really all based around a few guiding principles. I'd say those are really competitive differentiation, and scaling and growth, enabling that, and being in alignment with our product strategy. And we have a person dedicated to this practice area who has experience in it, and we're prioritizing that. I'll give a couple of examples of the types of partnerships that we're looking at, but they really, there are really potentially a dozen. One that we're working on and have been nurturing for a few months is to really exploit some of the capabilities we have as a result of having invested in our platform with AWS Connect. And that creates interoperability with some of the evolving Gen-I tool sets and other platform use cases across customer experience or financial services or global supply chain. So we're piloting a partnership with an enterprising VC firm that has an intriguing mobile wallet that includes an automated customer experience. They manage millions of members per year across healthcare, government services. And as a side note, the VC firm has very, very deep history in contact center investments and such. So they're able to capitalize on call center automation and call flow technology directly via our capacity investment with AWS. So we're developing a joint pipeline across technology and agent spend. We look to partner via strategic go-to-market motions, allows both organizations to usher in a new connected customer experience…

Gotcha. Thanks for the color. And then you talked a little bit about international expansion. It's interesting that management, previous management always talked about the prospect of international expansion, but never really followed through with it. What are you seeing in terms of the opportunity in developing business internationally?

Sure. So first of all, we execute well in Europe. Whatever past departures, surrounding Harte Hanks, highs and lows, we're really proud of how we're executing in Europe. And we have an opportunity there to build a sales organization, particularly inside sales organization that we think can capitalize on our capabilities there. It works in the United States. It's frankly an investment in more people. And we've done that. Part of our strategy this year is a larger, but higher quality and higher focused sales organization. We've hired a talented leader to grow the business. And we've coupled that up very early on to get some early momentum by being out and participating in some very high profile conferences where we're getting a chance to spend one time with as many as 16 different companies over a couple of days. We started our first journey down this particular path in Europe, attending several events, and we're able to develop a very, very rich pipeline for that new team. So I think the combination of the staff we have there in the U.S. all under centralized leadership is going to make that a big win for us over the course of 2024.

And my final question is that you -- of your three different segments, what do you think has the biggest opportunity in 2024 to surprise us on the upside?

Great question. I would say I'm confident we're going to have a growth year, a rebound in our sales services. So that's one I have high confidence in. But it's also the smaller of the areas that I highlighted in my remarks. At this moment, I think it's going to be between Care and our Fulfillment Logistics Division. Both, I think, are executing well right now. Both have dedicated leaders that we've had for years, and we're proud of them. The answer to the question, given that I think we execute well in both areas, is really how the pipeline falls. And we're early in scaling the pipeline. And I think probably next call, which is what, in May, we'll be able to talk about some of the early wins we've had and where the momentum is coming from. So it's really and how the sales organization that we have and how their leads flow. And some of the inbound leads we're getting now as a result of enhanced marketing efforts. So it's really -- I mean, I would say probably by a little bit into the Fulfillment Logistics business, that's been performing very well for us. But I think both divisions across the year, all four divisions, are going to see growth compounding as we get into the second half of the year.

Great. Thank you. That's all I have. Thanks.

Sure. Thank you.

Thank you. [Operator Instructions] Thank you. That concludes our Q&A session. I'll now hand the conference back to Kirk Davis for closing remarks. Please go ahead. End of Q&A:

Well, I want to thank everybody for joining the call. I think, it all starts with the team. I'm grateful for the team we have. Obviously, we've made some changes, but we're all working exceedingly well together. We just talked about a couple channels within the sales ecosystem we have, but there's palpable sales momentum evident here. And we all inside the company are aware of it. It's an exciting time. But you do have a sales cycle to work through and an onboarding process to work through when you land new business. So it does take a little time, but it's all about pipeline and conversion. And we're very happy with our progress there. But we also are focused on being more profitable, and that's the $16 million approximate cost savings we've identified. I was pleasantly surprised by that. Estimated maybe a little bit less of an opportunity. So that was exciting for me. And we're only a couple months away from being able to talk again about the progress we're making and share some more insights about the sales momentum. So appreciate the support and look forward to speaking with you again in May.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.