(Mark One)
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| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
2023
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the transition period from to
HARTE HANKS, INC.
| Delaware | 74-1677284 |
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(State or other jurisdiction of | (I.R.S. Employer | (Address of principal executive offices, | |||||||
incorporation or organization) | Identification Number) | including zip code) | |||||||
1 Executive Drive, Chelmsford, MA 01824
(Address of principal executive offices, including zip code)
(512) 434-1100
(Registrant’s
None
(Former name, former address and former fiscal year, if changed since last report)
are code (512) 434-1100
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock | HHS | NASDAQ | ||||||
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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The
The number ofthis disclosure, shares outstanding of each of the registrant’s classes of common stock held by executive officers and directors of the registrant as of such date have been excluded because such persons may be deemed to be affiliates. This determination of executive officers and directors as affiliates is not necessarily a conclusive determination for any other purposes.
the registrant were issued and outstanding.
THIS ANNUAL REPORT ON FORM 10-K IS BEING DISTRIBUTED TO STOCKHOLDERS IN LIEU OF A SEPARATE ANNUAL REPORT PURSUANT TO RULE 14a-3(b) OF THE ACT.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Harte Hanks, Inc., together with its subsidiaries (“Harte Hanks,” “Company,” “we,” “our,” or “us”) is a leading global customer experience company. With offices in North America, Asia-Pacific and Europe, Harte Hanks works with some of the world’s most respected brands.
, where it continues to trade today.
managed marketing services
Our goal is to help
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via channel technology. We provide cross-service client management along with continuous business reviews to ensure our clients get value from our partnerships.•Product, Print-On-Demand, and Mail Fulfillment: Our varied product and mail fulfillment solutions include printing on demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience. Our event, curated kitting, and influencer programs provide custom solutions to engage audiences, target customers, support conferences, and appreciate employees. Spanning the United States, our fulfillment locations are temperature-controlled, FDA-registered, and geographically convenient, thereby allowing us to optimize print and product fulfillment to maximize customer shipping efficiency while minimizing transportation costs. Our Kansas City location is fully licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements. We leverage our proprietary order management platform to facilitate customer orders, and we work with a variety of data sources and users to initiate the fulfillment order process. Furthermore, our global fulfillment capabilities extend to Europe and are augmented by a network of regional partners.•Logistics: We provide third-party logistics and freight optimization services across the United States. We ship millions of time-sensitive materials annually through our access to a certified fleet of over 15,000 trucks and a proprietary rate-shopping logistical system called Allink®360 designed to ensure customer products are delivered on-time and on-budget.Customer CareOur customer care services are tailored to serve our partners’ customer bases, helping them to win new buyers and turn existing patrons into loyal brand advocates. We serve our clients to support their end customers’ urgent needs, navigate an increasingly-complex technology landscape, and enable artificial intelligence technology and automation — with a fierce devotion to reducing customer effort, for the benefit of both business and buyer. This approach to “effortless customer experience” drives better service results and lowers operational costs.Our global, omnichannel delivery model is focused on providing our clients three key services:•Customer Service Outsourcing - Our accomplished customer care associates interact and resolve consumer queries and complaints across hardware and software platforms, healthcare benefit plans, recalls or a myriad of other customer service issues. by leveraging technology to help reduce customer effort while providing a human touch to increase customer satisfaction.•Customer Care Technology and AI TransformationHarte Hanks is a leading full lifecycle provider of global – Our solution services teams configure different CRM solutions (e.g., Salesforce, Zendesk) and channel /AI technology including Amazon Connect to create meaningful customer experience management services, multichannel demand generationinteractions by connecting content between agent, AI-driven interfaces and digital transformation. Using our integrated onshore/offshore global delivery model, we provide our servicesweb-based self-help tools and community forums.•Self-Service Technology - Providing and maintaining self service solutions through multiple communication channels including phone, email, social media, text messaging, chatInteractive Voice Response ("IVR"), Help Centers, online, via apps and digital self-service. By leveraging our strategy, talent and technology, we strive to offer solutions that help our clients enhance the experience for their customers and improve business. Those solutions are primarily focused on:•Customer Experience Management - Interact and resolve consumer concerns across hardware and software platforms, healthcare benefit plans, recalls or a myriad of other customer service issues by leveraging technology to help reduce customer effort while providing a human touch to increase customer satisfaction.•CRM & Digital Transformation – Configure different CRM solutions (e.g., Oracle, Salesforce, Zendesk) to create meaningful customer interactions by connecting content between agent or AI-driven interfaces and web-based self-help tools and community forums.•Demand Generation - Provide intelligence-based B2B solutions that understand audiences and their behaviors, and then inspire and drive action to deliver results. This solution helps companies generate marketing qualified lead’s (“MQL”) for their marketing and sales team.•Inside Sales – Helping build more effective and productive inside sales teams by introducing rigorous testing methodologies to optimize performance for internal or fully outsourced inside sales teams.We also analyze a significant amount of aggregated data obtained from customer interactions on behalf of our clients. We leverage information gained from this analysis and end customer-driven feedback to drive efficiencies, provide insights on predictive behaviors that lead to lower customer churn and help our clients innovate their core product offerings and develop innovative product features.Fulfillment & Logistics ServicesHarte Hanks fulfillment unlocks critical sales enablement and eCommerce fulfillment channels for our clients, and our best-in-class logistics team supports the supply chain needs of our clients in everything from time-sensitive deliveries to full scale supply chain management. •Product, Print-On-Demand, and Mail Fulfillment: Our varied product and mail fulfillment solutions include printing on demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience. Our event and influencer programs provide custom solutions to engage audiences, target customers, support conferences, and appreciate employees. Our fulfillment locations are temperature-controlled, FDA-registered, and geographically convenient, thereby allowing us to optimize print and product fulfillment to maximize customer shipping efficiency while minimizing transportation costs. We leverage our proprietary order management platform to facilitate customer orders, and we work with a variety of data sources and users to initiate the fulfillment order process. Our new 400,000 square-foot Kansas City (KS) location is FDA registered and fully licensed for nutritional supplements, medical foods, baby formula and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements.•Logistics: We provide third-party logistics and freight optimization services across the United States. We ship millions of time-sensitive materials annually through our access to a certified fleet of over 15,000 trucks and a proprietary rate-shopping logistical system called Allink®360 designed to ensure customer products are delivered on-time and on-budget.Financial information about reporting segments can be found in Item 7 - Management’s Discussion and Analysis of Financial Condition and Result of Operations and Item 8 - Financial Statements and Supplementary Data under Note P.Client RelationshipsWe are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order to deliver desired business outcomes. Realizing our clients’ success is the only valid measure of our own success, we ensure all our efforts are aligned with our clients’ business objectives and measured against defined performance metrics. It is this commitment to our clients and their businesses that allows us to build deep and meaningful relationships with them. Our client engagements may consist of one or a few of our service offerings – with a goal toward continuously expanding our client relationships. 6Use of subcontractorsCertain segments of our business rely on subcontractors and other third parties to provide a portion of our overall services in certain engagements. Over the years we have established strong relationships with subcontractors that translate into high level service and favorable prices for our customers.For the years ended December 31, 2022 and 2021, Harte Hanks had revenues of $206.3 million and $194.6 million, respectively.
Repurchase of the Preferred Stock from Wipro, LLC
On December 2, 2022, we repurchased all 9,926 of our outstanding Series A Convertible Preferred Stock (the “Preferred Stock”) from Wipro, LLC (“Wipro”), the sole holder of the Preferred Stock pursuant to an agreement we entered into with Wipro in June 2022 (the “Repurchase Agreement”).
The Preferred Stock was repurchased in exchange for (i) a cash payment equal to its liquidation value, or a total cash payment of $9,926,000 and (ii) the issuance to Wipro, LLC of 100,000 shares of Harte Hanks common stock, par value $1.00 per share (the “Common Stock”). The cash portion of the repurchase price was previously paid into escrow at the signing of the Repurchase Agreement on June 30, 2022 and was released at closing. Other than the release of previously escrowed funds, no additional cash was paid by Harte Hanks at the time of closing.
Acquisition of Inside Out Solutions, LLC
On December 1, 2022, we repurchased all of the assets (the “Transaction”) of Inside Out Solutions, LLC, a Florida limited liability company (“InsideOut”), for an aggregate purchase price of approximately $7.5 million (the “Purchase Price”) pursuant to an asset purchase agreement, dated as of December 1, 2022 by and between Harte Hanks and InsideOut (the “Asset Purchase Agreement”).
InsideOut is a premium sales enablement agency offering technology and data driven support to technology, media telecommunications, business services, industrial, and financial technology customers in the North American and European markets.
The acquisition of InsideOut further expands the capabilities of our marketing services and customer care segments and strengthens our ability to drive profitable revenue growth within our current sales enablement offerings, including: (i) demand generation which creates qualified marketing leads for our clients, and (ii) inside sales offerings to further promote a client’s internal growth objectives. In addition, the owner and CEO of InsideOut entered into a two-year consulting agreement with us, which will ensure consistency in our delivery of these sales enablement offerings, post-closing.
Restructuring Activities
measure these initiatives. Reorganization cost reductions from Project Elevate during 2024 through 2026 are estimated to be $16.0 million.
Customers
Our services are marketed to specific industries or markets. We tailor our services and software products depending on the industry or market we are targeting. We believe that we are generally able to provide services to new industries and markets by modifying our existing services and applications. We currently provide services primarily to the B2B, consumer brand, financial services, retail, and healthcare vertical markets, in addition to a range$0.2 million of other select markets.related costs.
Facilities
Our services are provided at the following facilities, allfunction as of which are leased:
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December 31, 2023.
Our
GOVERNMENT REGULATION
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As a result of increasing public awareness and interest in individual privacy rights, data protection, information security, and environmental and other concerns regarding marketing communications, federal, state, and foreign governmental and industry organizations continue to consider new legislative and regulatory proposals that would impose additional restrictions on direct marketing services and products. Examples include data encryption standards, data breach notification requirements, consumer choice and consent restrictions, and increased penalties against offending parties, among others.
We cannot predict the scope of any new legislation, regulations, or industry guidelines or how courts may interpret existing and new laws. Additionally, enforcement priorities by governmental authorities may change and impact our business either directly or through requiring our customers to alter their practices. Compliance with regulations is costly and time-consuming for us and our clients, and we may encounter difficulties, delays, or significant expenses in connection with our compliance. We may also be exposed to significant penalties, liabilities, reputational harm, and loss of business if we fail to comply with applicable regulations. There could be a material adverse impact on our business due to the enactment or enforcement of legislation or industry regulations, the issuance of judicial or governmental interpretations, enforcement priorities of governmental agencies, or a change in customs arising from public concern over consumer privacy and data security issues.
Harte Hanks believes
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and How we Operate
To the extent these industries experience downturns whether as result of the COVID-19 pandemic, another epidemic, the ongoing Russia-Ukraine war or otherwise, our clients may re-evaluate their marketing spend, which could adversely affect the results of our operations.
Our business faces significant competition within eachthe way certain of our vertical marketsexisting business operations are conducted, including by replacing human contacts with automated or self-service options, or by decreasing the size of the available market. We also expect our competitors to continue to improve their technology infrastructure, including with the use of AI and for all our offerings. We offer our marketing services within a dynamic business environment characterized by rapid technological change, high turnover of client personnel who make buying decisions, client consolidations, changing client needs and preferences, continual development of competing products and services, and an evolving competitive landscape. This competition comes from numerous local, national, and international direct marketing and advertising companies, and client internal resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures bymachine learning solutions, to interact with clients and prospective clients. We also compete against internet (social, mobile, web-based,prospects, automate their services, process and email), print, broadcast,analyze large amounts of data and other forms of advertising for marketing and advertising dollars in general. During 2022, we continued to see an increase in the insourcing of capabilities among our clients.
grow their customer base. Our ability to attractinnovate our own technology infrastructure and appropriately grow our CX solutions offerings using these tools (and predicting the next generation of such tools) will affect our ability to compete. We may be unsuccessful at anticipating or responding to new clientsdevelopments on a timely and to retain existing clientscost-effective basis, and our use of technology may differ from accepted practices in some cases, be limited by clients’ policies on or perceptions of conflicts of interest which may prevent us from performing similar services for competitors. Somethe marketplace. Certain of our clients have also soughtsolutions may require lengthy and complex implementations that can be subject to reduce the number of marketing vendorschanging client preferences and continuing changes in technology, which can increase costs or use third-party procurement organizations, all of which increases pricing pressure, and may disadvantage us relative toadversely affect our competitors that have broader and/or deeper offerings than us. Our failure to improve our current processes or to develop expertise in various technologies could result in the loss of our clients to current or future competitors.
business.
Climate change may have an adverse impact on our business.
While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted. Our financial results, and our operations may be vulnerable to the adverse effects of climate change, which are predicted to increase the frequency and severity of weather events and other natural cycles such as wildfires and droughts. Such events have the potential to disrupt our operations, delay deliveries, disrupt the business of third-party truck operators and impact our customers, all of which may cause us to suffer losses and additional costs to maintain or resume operations.
Our success depends on our ability to consistently and effectively deliver our services to our clients.
operations, cash flows and financial position.
Our indebtedness may adversely impact our ability to react to changes in our business or changes in generalsocial, economic, conditions.
As of December 31, 2022, we had no indebtedness outstanding. However, we may incur new indebtedness from time to time.
On December 21, 2021, the Company entered a new three-year, $25.0 million asset-based revolving credit facility (the “New Credit Facility”) with the Texas Capital Bank. The New Credit Facility replaces the Company’s previous credit facility with Texas Capital Bank , which previous facility was guaranteed by members of the Shelton family (descendants of one of our founders) to provide credit support to the Company. The New Credit Facility did not require the Shelton family or any other third-party to guarantee the Company’s obligations. However, each of the Company’s material subsidiaries guaranteed the Company’s obligations under the New Credit Facility (such subsidiaries, the “Guarantors”). The New Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the other grantors party thereto (the “Security Agreement”). As of December 31, 2022, we had the ability to borrow an additional $24.2 million under the New Credit Facility subject to compliance with the facilities covenants.
See Note F, Long-Term Debt, in the Notes to Consolidated Financial Statements for further discussion on our debt.
The Company’s ability to meet its debt service obligations and refinance its current indebtedness,political instability;
The covenants in the New Credit Facility may limit the Company’s operating and financial flexibility.
The New Credit Facility and the terms under which we borrow money underforeign investments. We have not entered into any future credit facilitiesforeign currency forward exchange contracts or other agreements could have significant consequences for our business.derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. The New Credit Facility includes covenants restricting the Company’s and its subsidiaries’ ability to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting or tax reporting methods (other than as required by the generally accepted accounting principlesvarious risks that are inherent in doing business in the United States are also generally applicable to doing business anywhere else and may be exacerbated by the difficulty of America (“U.S. GAAP”).
Covenantdoing business in numerous sovereign jurisdictions due to differences in culture, laws, and ratioregulations.
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In addition, a failure to comply with these restrictionsSEC, or to maintain the financial measures and ratios contained in the New Credit Facility or future debt instruments could lead to an event of default that could result in an acceleration of debt repayment obligations.
Risks related to our pension benefit plans may adversely impact our results of operations and cash flows.
Pension benefits represent significant financial obligations. As of December 31, 2022, we had approximately $39.6 million of unfunded pension liabilities. Because of the uncertainties involved in estimating the timing and amount of future payments and asset returns, significant estimates are required to calculate pension expense and liabilities related to our plans. We utilize the services of independent actuaries, whose models are used to facilitate these calculations. Several key assumptions are used in the actuarial models to calculate pension expense and liability amounts recorded in the consolidated financial statements. In particular, significantother regulatory authorities.
internal control over financial reporting.
Risks Related to Cybersecurity
and Technology
Consumer perceptions regarding the privacy and security of their data may prevent or impair our ability to offer our products and services.
Various local, national, and international regulations, as well as industry standards, give consumers varying degrees of control as to how personal data is collected, used, and shared for marketing purposes. If, due to privacy, security, or other concerns, consumers exercise their ability to prevent or limit such data collection, use, or sharing, it may impair our ability to provide direct marketing services for those consumers and limit our clients’ demand for our services. Additionally, privacy and security concerns may limit consumers’ willingness to voluntarily provide data to our clients or marketing companies. Some of our services depend on voluntarily provided data. For instance, we believe that one of the most attractive offerings of our Marketing Services segment is the provision of data-analytics to our clients. However, the ability to provide such services is at least in part dependent on the ability to collect large volumes of voluntarily provided data. If there is a significant shift in consumer behavior or governmental regulations were to inhibit our ability to collect large amounts of this type of data, our ability to provide meaningful data analytics to our clients would likely be impaired.
emerging technologies. If technologies. Fluctuation in ourrevenueand operating results and other factors may impact the volatility of our stock price. square footage by segment: Company’s financial position or results of operations. Directors. Total Number of Maximum Dollar Total Number of Average Shares Purchased Amount that May Shares Price Paid as Part of a Publicly Yet Be Spent Period Purchased (1) per Share Announced Plan (2) Under the Plan October 1 - 31, 2022 November 1 - 30, 2022 December 1 - 31, 2022 Total 2023: Cautionary Note About Forward-Looking Statements Year Ended December 31, In thousands, except per share amounts 2022 % Change 2021 Revenues Operating expenses Operating income Operating margin Other income, net Income tax expense (benefit) Net income Diluted EPS from operations 2022. facility related and other expenses. Postage costs of mailings are borne by our clients and are not directly reflected in our revenues or expenses. Tax Benefit Year Ended December 31, In thousands 2022 % Change 2021 Revenues EBITDA Operating Income Operating Income % of Revenue Customer Care: Year Ended December 31, In thousands 2022 % Change 2021 Revenues EBITDA Operating Income Operating Income % of Revenue Year Ended December 31, In thousands 2022 % Change 2021 Revenues EBITDA Operating Income Operating Income % of Revenue Logistics: Liquidity and Capital Resources do so.We utilize new and emerging technologies, including AI, in our solutions and services. As with many innovations, AI presents risks and challenges that could significantly disrupt our business model. If we do not prevent security breachesexecute on AI effectively, this could result in loss of revenue and other interruptions toreduced margins.Our success depends, in part, on our infrastructure, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur additional costs.The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of confidential customer information. Unauthorized access, remnant data exposure, computer viruses, denial of service attacks, accidents, employee error or malfeasance, “social engineering” and “phishing” attacks, intentional misconduct by computer “hackers” and other disruptions can occur, and infrastructure gaps, hardware and software vulnerabilities, inadequate or missing security controls, and exposed or unprotected customer data can exist that (i) interfere with the delivery of services to our customers, (ii) impede our customers' ability to do business, or (iii) compromisecontinue to acquire, develop, and implement solutions that meet the securityevolving needs of our or our customers' systemsclients. The rapid evolution of AI will require us to expend resources to develop, test, and data,implement solutions that utilize AI effectively, which exposes confidential informationmay lead us to unauthorized third parties. We are a target of cyber-attacks of varying degrees on a regular basis. Overtime, these attacks have become increasingly sophisticated and, in some cases, have been conducted or sponsored by “nation state” operators. For instance, in January 2022 the Lapsus$ international hacker group attacked Microsoft, Nvidia, Samsung, Ubisoft and Okta. Lapsus$ gained access to Okta servers by compromising the laptop of a technician at one of their third-party vendors. Likewise, in April 2022, GitHub revealed that attackers had obtained OAuth tokens issued to third-party integrators Heroku and Travis CI. These tokens were then used to download data from dozens of GitHub customers who were users of applications maintained by the hackers. Such supply-chain focused cyberattacks are high value to bad actors due to the high density of valuable data such attacks can provide access to. While those incidents had no direct impact on Harte Hanks, there can be no assurance that we will not experience future events that may be material.Our reputation and business results may be adversely impacted if we, or subcontractors upon whom we rely, do not effectively protect sensitive personal information of our clients and our clients’ customers.Current privacy and data security laws and industry standards impact the manner in which we capture, handle, analyze, and disseminate customer and prospect data as part of our client engagements. In many instances, our client contracts also mandate privacy and security practices. If we fail to effectively protect and control information, especially sensitive personal information (such as health information, social security numbers, or credit card numbers) of our clients and their customers or prospects in accordance with these requirements, we may incur significant expense suffer reputational harm, loss of business,to maintain a competitive advantage within the industry. We will also be required to attract, motivate, and in certain cases, be subjectedretain top professionals with the skills necessary to regulatory or governmental sanctions or litigation. These risks may be increased dueexecute our strategy relating to our reliance on subcontractorsAI, machine learning and other third parties in providing a portion of our overall services in certain engagements. We cannot guarantee that these third parties will effectively protect and handle sensitive personal information or other confidential information, or that we will have adequate recourse against these third parties in the event such third parties fail to adequately protect and handle such sensitive or confidential information. our facilities are damaged, or if we are unable to access and use our facilities, our business and results of operations will be adversely affected.Our operations rely on the ability of our employees to work at specially equipped facilities to perform services for our clients. Although we have some excess capacity and redundancy, we do not employ new technologies, including AI, as quickly or efficiently as our competitors, or if our competitors develop more cost-effective or client-preferred technologies, it could have sufficient excess capacitya material adverse effect on our ability to win and retain business from clients, which would adversely affect our business.The regulatory landscape surrounding AI and generative AI technologies is also evolving, and the ways in which these technologies will be regulated by governmental authorities, self-regulatory institutions, or redundancy (in equipment, facilities,other regulatory authorities remains uncertain. Such regulations may result in significant operational costs or personnel)constrain our ability to develop, deploy, or maintain our standard service and operational levels for an extended period of time if we are unable to use one of our major facilities. Outsourcing these processes to facilities not owned by us is not a viable option. Should we lose access to a facility for any reason, including as a result of a localized outbreak of COVID-19 or another communicable disease, terrorist incident or natural disaster, our service levels are likely to decline or be suspended, clients would go without service or secure replacement services from a competitor. As a consequence of such an event, we would suffer a reduction in revenues and harm to (and loss of) client relationships.Significant system disruptions, loss of data center capacity or interruption of telecommunication links could adversely affect our business and results of operations.Our business is heavily dependent on data centers and telecommunications infrastructures, which are essential to both our call center services and our database services (which require that we efficiently and effectively create, access, manipulate and maintain large and complex databases). In addition to the third-party data centers we use, we also operate several of our own operations centers to support both our own and our clients’ needs. Our ability to protect our operations against damage or interruption from fire, flood, tornadoes, power loss, telecommunications or equipment failure, or other disasters and events beyond our control is critical to our continued success. Likewise, as we increase our use of third-party data centers, it is critical that these vendors adequately protect their data centers from the same risks we do. Our services are dependent on regional and international networking and telecommunication providers. We believe we have taken reasonable precautions to protect our data centers and telecommunication infrastructure from events that could interrupt our operations. Any damage to the data centers we use or any failure of our telecommunications links could materially adversely affect our ability to continue to provide services to our clients, which could result in loss of revenues, profitability and client confidence, and may adversely impact our ability to attract new clients and force us to expend significant company resources to repair the damage.If we do not prevent security breaches and other interruptions to our new leadersinfrastructure, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur additional costs.The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of confidential customer information. Unauthorized access, remnant data exposure, computer viruses, denial of service attacks, accidents, employee error or malfeasance, “social engineering” and “phishing” attacks, intentional misconduct by computer “hackers” and other disruptions can occur, and infrastructure gaps, hardware and software vulnerabilities, inadequate or missing security controls, and exposed or unprotected customer data can exist that (i) interfere with the delivery of services to our customers, (ii) impede our customers' ability to do business, or (iii) compromise the security of our or our customers' systems and data, which exposes confidential information to unauthorized third parties. We are unsuccessful,a target of cyber-attacks of varying degrees on a regular basis. Over time, the techniques used to conduct these cyber-attacks, as well as the sources and targets of these attacks, have become increasingly sophisticated and, in some cases, have been but, are often not recognized until such attacks are launched or if wehave been in place for some time. In addition, there has been an increase in cyber-attacks conducted or sponsored by capable and well-funded “nation state” operators. The Company expects that the sophistication and techniques of cyber-threats will continue to lose key management and are unable to attract and retain the talent required for our business, our operating results could suffer.Over the past four years we have replaced many of our leaders (including our Chief Executive Officer, President, Chairman, Chief Operating Officer, and Chief Financial Officer), some a number of times. If our new leaders fail in their new and additional roles and responsibilities (and more generally if we are unable to attract additional leadersevolve with the necessary skills to manage our business) our businessrapid development and its operating results may suffer. Further, our prospects depend in large part upon our ability to attract, train,increased adoption of AI and retain experienced technical, client services, sales, consulting, marketing, and management personnel. While the demand for personnel is also dependent on employment levels, competitive factors, and general economic conditions, our recent business performance may diminish our attractiveness as an employer. The loss or prolonged absence of the services of these individuals could have a material adverse effect on our business, financial position, or operating results.1216Our reputation and business results may be adversely impacted if we, or subcontractors upon whom we rely, do not effectively protect sensitive personal information of our clients and our clients’ customers.Current privacy and data security laws and industry standards impact the manner in which we capture, handle, analyze, and disseminate customer and prospect data as part of our client engagements. In many instances, our client contracts also mandate privacy and security practices. If we fail to effectively protect and control information, especially sensitive personal information (such as health information, social security numbers, or credit card numbers) of our clients and their customers or prospects in accordance with these requirements, we may incur significant expense, suffer reputational harm, loss of business, and, in certain cases, be subjected to regulatory or governmental sanctions or litigation. These risks may be increased due to our reliance on subcontractors and other third parties in providing a portion of our overall services in certain engagements. We cannot guarantee that these third parties will effectively protect and handle sensitive personal information or other confidential information, or that we will have adequate recourse against these third parties in the event such third parties fail to adequately protect and handle such sensitive or confidential information.We could fail to adequately protect our intellectual property rights and may face claims for intellectual property infringement.Our ability to compete effectively depends in part on the protection of our technology, products, services, and brands through intellectual property right protections, including copyrights, database rights, trade secrets, trademarks, as well as through domain name registrations, and enforcement procedures. The extent to which such rights can be protected and enforced varies by jurisdiction, and capabilities we procure through acquisitions may have less protection than would be desirable for the use or scale we intend or need. Litigation involving patents and other intellectual property rights has become far more common and expensive in recent years, and we face the risk of additional litigation relating to our use or future use of intellectual property rights of third parties.Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary information and technology. Monitoring unauthorized use of our intellectual property is difficult, and unauthorized use of our intellectual property may occur. We cannot be certain that trademark registrations will be issued, nor can we be certain that any issued trademark registrations will give us adequate protection from competing products. For example, others may develop competing technologies or databases on their own. Moreover, there is no assurance that our confidentiality agreements with our employees or third parties will be sufficient to protect our intellectual property and proprietary information.Third-party infringement claims and any related litigation against us could subject us to liability for damages, significantly increase our costs, restrict us from using and providing our technologies, products or services or operating our business generally, or require changes to be made to our technologies, products, and services. We may also be subject to such infringement claims against us by third parties and may incur substantial costs and devote significant management resources in responding to such claims. We have been, and continue to be, obligated under some agreements to indemnify our clients as a result of claims that we infringe on the proprietary rights of third parties. These costs and distractions could cause our business to suffer. In addition, if any party asserts an infringement claim, we may need to obtain licenses to the disputed intellectual property. We cannot provide assurance, however, that we will be able to obtain these licenses on commercially reasonable terms or that we will be able to obtain any licenses at all. The failure to obtain necessary licenses or other rights may have an adverse effect on our ability to provide our products and services.Breaches of security, or the perception that e-commerce is not secure, could severely harm our business and reputation.Business-to-business and business-to-consumer electronic commerce requires the secure transmission of confidential information over public networks. Some of our products and services are accessed through, or are otherwise dependent on the internet. Security breaches in connection with the delivery of our products and services, or well-publicized security breaches that may affect us or our industry (such as database intrusion) could be severely detrimental to our business, operating results, and financial condition. We cannot be certain that advances in criminal capabilities, cryptography, or other fields will not compromise or breach the technology protecting the information systems that deliver our products, services, and proprietary database information.Datasuppliers could withdraw data that we rely on for our products and services.We purchase or license much of the data we use for ourselves and for our clients. Our ability to provide our customers with data is somewhat dependent on the ability to obtain this data. There could be a material adverse impact on our17business if owners of the data we use were to curtail access to the data or materially restrict the authorized uses of their data. Data providers could withdraw their data for a number of reasons, including but not limited to, if there is a competitive reason to do so, if there is pressure from the consumer community, or if additional regulations are adopted restricting the use of the data. We also rely upon data from other external sources to maintain our proprietary and non-proprietary databases, including data received from customers and various government and public records. If a substantial number of data providers or other key data sources were to withdraw or restrict their data, if we were to lose access to data due to government regulation or if the collection of data becomes uneconomical, our ability to provide products and services to our clients could be materially and adversely affected, which could result in decreased revenues, net income and earnings per share.We are unlikelyRisks Related to declare cash dividends.Although our board of directors hasCapital Structure and Common StockThe covenants in the past authorizedCredit Facility may limit the payment of quarterly cash dividends onCompany’s operating and financial flexibility.The Credit Facility and the terms under which we borrow money under any future credit facilities or other agreements could have significant consequences for our common stock, we announced in 2016 that we did not planbusiness. The Credit Facility includes covenants currently restricting or potentially restricting the Company’s and its subsidiaries’ ability to declare any further dividendscreate, incur, assume or become liable for the foreseeable future. Decisions toindebtedness; make certain investments; pay dividends on our common stock will be based upon periodic determinationsor repurchase the Company's stock; create, incur or assume liens, consummate mergers or acquisitions, liquidate, dissolve, suspend or cease operations, or modify accounting or tax reporting methods (other than as required by our board that such dividends are in compliance with all applicable laws and agreements andthe generally accepted accounting principles in the best interestUnited States of America).Covenant and ratio requirements may limit the manner in which we can conduct our business, and we may be unable to engage in favorable business activities or finance future operations and capital needs. Specifically, the amount and terms of the Company’s indebtedness could:•limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, including limiting our ability to invest in our strategic initiatives, and consequently, place us at a competitive disadvantage;•reduce the availability of our stockholders after considering our financial conditioncash flows that would otherwise be available to fund working capital, capital expenditures, acquisitions, and resultsother general corporate purposes; and•result in higher interest expense in the event of operations,increases in interest rates, as discussed below under the price of our common stock, credit conditions, and such other factors as are deemed relevant by our board. The failure to pay a cash dividend could adversely affect the market price of our common stock. InterestRisk Factor “Interest rate increases could affect our results of operations, cash flows, and financial position.Interest rate fluctuations”In addition, a failure to comply with these restrictions or to maintain the financial measures and ratios contained in Europethe Credit Facility or future debt instruments could lead to an event of default that could result in an acceleration of debt repayment obligations, and the United States may affect the amountrefinancing existing letters of interest we paycredit.Risks related to our debt and the amount we earn on cash equivalents. Our New Credit Facility bears interest based upon the Bloomberg Short-Term Bank Yield Index Rate. Ourpension benefit plans may adversely impact our results of operations and cash flows,flows.Pension benefits represent significant financial obligations. As of December 31, 2023, we had approximately $37.7 million of unfunded pension liabilities. Because of the uncertainties involved in estimating the timing and financial position could be materially or adversely affected byamount of future payments and asset returns, significant increases in interest rates.estimates are required to calculate pension expense and liabilities related to our plans. We also have exposureutilize the services of independent actuaries, whose models are used to interest rate fluctuationsfacilitate these calculations. Several key assumptions are used in the United States, specifically money market, commercial paper,actuarial models to calculate pension expense and overnight time depositliability amounts recorded in the consolidated financial statements. In particular, significant changes in actual investment returns on pension assets, discount rates, asor legislative or regulatory changes could impact future results of operations and required pension contributions. Differences between actual pension expenses and liability amounts from these estimated expense and liabilities may adversely impact our results of operations and cash flows.Our operations are located on leasehold property, and our inability to renew our leases on commercially acceptable terms or at all may adversely affect our earningsresults of operations.Our sites operate on excess cash. Evenleasehold property. Our leases are subject to renewal and we may be unable to renew such leases on commercially acceptable terms or at all. Our inability to renew our leases, or a renewal of our leases with a rental rate higher than the offsettingprevailing rate under the applicable lease prior to expiration, may cause an increase in earnings on excess cash in the event of an interest rate increase, we cannot be assured that future interest rate increases will not have a material adverse impact on our business, financial position,operating costs, or operating results.On July 27, 2017, the Financial Conduct Authority in the United Kingdom (the “FCA”) announced that it would phase out LIBOR as a benchmark by the end of 2021. The FCA ceased publication of U.S. dollar LIBOR after December 31, 2021 in the case of one-week and two-month U.S. dollar LIBOR, and will cease publication after June 30, 2023 in the case of the remaining U.S. dollar LIBOR benchmarks. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of, among other entities, large U.S. financial institutions, has recommended replacing U.S. dollar LIBOR with a new index and selected SOFR as the preferred alternate rate. While the transitionmay cause additional cost due to SOFR is not in and of itself expected to have a material impact on the Company’s earnings, the impact of the transition on the global financial markets and the economy could affect our business.We are subject to risks associated with operations outside the United StatesHarte Hanks conducts business outside of the United States. During 2022, approximately 11.1% of our revenues were derived from operations outside the United States, primarily in Europe and Asia. We may expand our international operations in the future as part of our growth strategy. Accordingly, our future operating results could be negatively affected by a variety of factors, some of which are beyond our control, including:•changes in local, national, and international legal requirements or policies resulting in burdensome government controls, tariffs, restrictions, embargoes, or export license requirements;•higher rates of inflation;•the potential for nationalization of enterprises;•less favorable labor laws that may increase employment costs and decrease workforce flexibility;•potentially adverse tax treatment;•less favorable foreign intellectual property laws that would make it more difficult to protect our intellectual property from misappropriation;•more onerous or differing data privacy and security requirements or other marketing regulations;•longer payment cycles;•social, economic, and political instability;•regional conflicts, including Russia’s invasion of Ukraine, as well as any additional economic sanctions adopted in response to such actions;•the differing costs and difficulties of managing international operations;•modifications to international trade policy or the imposition of increased or new tariffs, quotas or trade barriers on key commodities; and•geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions (which may impact relative interest rates and the availability, cost, and terms of mortgage funds).In addition, exchange rate fluctuations may have an impact on our future costs or on future cash flows from foreign investments. We have not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. The various risks that are inherent in doing business in the United States are also generally applicable to doing business anywhere else and may be exacerbated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws, and regulations.If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting and we are also required to establish disclosure controls and procedures under applicable SEC rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial reporting. Our testing may reveal significant deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. In the past these assessments and similar reviews have led to the discovery of material weaknesses, all of which have been remediated. However, no assurance can be given that we won't discover material weaknesses in the future. We have incurred and we expect to continue to incur substantial accounting and auditing expenses and expend significant management time in complying with the requirements of Section 404.While an effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud, disclosure controls and internal control over financial reporting are generally not capable of preventing or detecting all financial reporting errors and all fraud. A control system, no matter how well-designed and operated, is designed to reduce rather than eliminate the risk of material misstatements in our consolidated financial statements. There are inherent limitations on the effectiveness of internal controls, including collusion, management override and failure in human judgment. A control system can provide only reasonable, not absolute, assurance of achieving the desired control objectives and the design of a control system must reflect the fact that resource constraints exist.If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses (i) we could fail to meet our financial reporting obligations; (ii) our reputation may be adversely affected and our business and operating results could be harmed; (iii) the market price of our stock could decline; and (iv) we could be subject to litigation and/or investigations or sanctions by the SEC, or other regulatory authorities.There were no changes in our internal controls over financial reporting during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The price at which our common stock has traded in recent years has fluctuated greatly and has declined significantly. Our common stock price may continue to be volatile due to a number ofseveral factors including the following (some of which are beyond our control):•variations in our operating results from period to period and variations between our actual operating results and the expectations of securities analysts, investors, and the financial community;•the development and sustainability of an active trading market for our common stock;•the transition of our common stock from the NYSE to the OTCQX; from OTCQX to NASDAQ;•unanticipated developments with client engagements or client demand, such as variations in the size, budget, or progress of engagements, variability in the market demand for our services, client consolidations, and the unanticipated termination of several major client engagements;•announcements of developments affecting our businesses;•competition and the operating results of our competitors;•the overall strength of the economies of the markets we serve and general market volatility; and•other factors discussed elsewhere in this Item 1A, “Risk Factors.”•variations in our operating results from period to period and variations between our actual operating results and the expectations of securities analysts, investors, and the financial community;•the development and sustainability of an active trading market for our common stock;•unanticipated developments with client engagements or client demand, such as variations in the size, budget, or progress of engagements, variability in the market demand for our services, client consolidations, and the unanticipated termination of several major client engagements;•announcements of developments affecting our businesses;•competition and the operating results of our competitors;•the overall strength of the economies of the markets we serve and general market volatility; and•other factors discussed elsewhere in this Item 1A, “Risk Factors.”Because of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price.Our certificate of incorporation and bylaws contain anti-takeover protections that may discourage or prevent strategic transactions, including a takeover of our company, even if such a transaction would be beneficial to our stockholders.Provisions contained in our certificate of incorporation and bylaws, in conjunction with provisions of the Delaware General Corporation Law, could delay or prevent a third party from entering a strategic transaction with us, even if such a transaction would benefit our stockholders. For example, our certificate of incorporation and bylaws do not allow written consents by stockholders and have strict advance notice and disclosure requirements for nominees and stockholder proposals.UNRESOLVED STAFF COMMENTSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 1C. CYBERSECURITYWe rely on our technology infrastructure and information systems to interact with our clients, our employees, to sell our services, to utilize our data, to support and grow our client base, and to bill, collect, and make payments. Our businesstechnology infrastructure and information systems also support and form the foundation for our accounting and finance systems and form an integral part of our disclosure and accounting control environment. Our internally developed system and processes, as well as those systems and processes provided by third-party vendors that we contract with, may be susceptible to damage or interruption from cybersecurity threats, which include any unauthorized access to our information systems, and which may result in adverse effects on the confidentiality, integrity, or availability of such systems or the related information. Potential cybersecurity threats include terrorist or hacker attacks, the introduction of malicious computer viruses, ransomware, falsification of banking and other information, insider risk, or other security breaches. Such attacks have become more and more sophisticated over time, especially as threat actors have become increasingly well-funded by, or themselves include, governmental actors or other actors with significant means. We expect that sophistication of cyber-threats will continue to evolve as threat actors increase their use of AI and machine-learning technologies.We have implemented robust processes to assess, identify, and manage cybersecurity risks, including potentially material risks, related to our internal information systems and our products. Our Board of Directors, our internal Risk Steering Committee, in conjunction with our Chief Security Officer ("CSO"), have direct oversight of our management of cybersecurity risks.Our CSO and the Risk Steering Committee ("RSC") oversees our enterprise risk management process. Under the direction and supervision of our CSO, we conduct an annual comprehensive enterprise risk assessment, which includes details of our management of enterprise-wide risk topics, such as those related to cybersecurity risks.The Board of Directors receives the full results of the annual enterprise risk assessment, including an evaluation of cybersecurity risks presented, a detailed description of the actions we have taken to mitigate these risks, and an analysis of cybersecurity threats and incidents19across the industry. The CSO and RSC reviews the results of the enterprise risk assessment in detail with management on a regular basis and reports its findings, as needed, to the Board of Directors.Our CSO, reporting to our Chief Technology Officer, and in conjunction with our IT Department, has principal responsibility for assessing and managing cybersecurity risks and threats, implementing the systems necessary to address such risks and threats and preparing updates for the Board of Directors. Our CSO has 3 decades of information technology and cybersecurity experience with the last 6 years leading the cybersecurity activities at Harte Hanks, as well as participating in numerous cyber readiness exercises with US Government agencies, and has specialized training in cybersecurity risk management, cloud security and holds a CISSP certification offered by ISC2. Our CSO is conductedalso responsible for the operation of our cybersecurity program, and management of our cybersecurity incident response team.As mentioned above, in facilities worldwide containing aggregate space of approximately 0.9 million square feet. All facilities are held under leases, which expire at dates through 2030. See “Item 1 - Business - Facilities.” Inresponse to the fourth quarter ofincreasing threats presented by cyber incidents, in 2020 we openedestablished the RSC, which meets regularly. This committee is comprised of our 300,000 square-foot fulfillmentChief Technology Officer, our General Counsel / Privacy Officer, our Head of Human Resources, each Director of Operations of each of our business units, our Chief Financial Officer and distribution facility in Kansas City, Kansas. our Chief Executive Officer, as well as other key leaders. The RSC (in conjunction with the CSO), oversees activities related to the monitoring, prevention, detection, mitigation and remediation of cybersecurity risks. The RSC, along with our CSO, develops and implements cybersecurity risk mitigation strategies and activities throughout the year, including the management of comprehensive incident response plans, oversees the cybersecurity risks posed by third-party vendors, and receives regular updates on cybersecurity-related matters.We have since expanded into an additional 100,000 square-foot spaceadopted the National Institute of Standards and now occupyTechnology (“NIST”) Cybersecurity Framework to continually evaluate and enhance our cybersecurity procedures. Activities include mandatory yearly online training for all employees, technical security controls, enhanced data protection, the full 400,000 square-foot facility.maintenance of backup and protective systems, policy review and implementation, the evaluation and retention of cybersecurity insurance, periodic assessments of third-party service providers to assess cyber preparedness of key vendors, and running simulated cybersecurity drills, including vulnerability scanning, penetration testing and disaster recovery exercises, throughout the organization. These cybersecurity drills are performed both in-house and by third-party service providers. We holduse automated tools that monitor, detect, and prevent cybersecurity risks and have a security operations center that operates 24 hours a day to alert us to any potential cybersecurity threats. As noted above, our RSC also has effected comprehensive incident response plans that outline the facility under aappropriate communication flow and response for certain categories of potential cybersecurity incidents. The RSC escalates events, including to the Chief Executive Officer and Board of Directors, as relevant, according to pre-defined criteria.ITEM 2. PROPERTIESOur headquarters is located in Chelmsford, MA. We lease with an eight-year remaining lease termoffice and believefulfillment facilities around the rent is consistent with market rates. The facility is FDA registeredworld, primarily in the United States, Europe and licensedAsia.As of December 31, 2023, we operated the following types of facilities in the following locations:Domestic Offices International Offices Operational Warehouses Chelmsford, Massachusetts Hasselt, Belgium East Bridgewater, Massachusetts St. Petersburg, Florida Iasi, Romania Kansas City, Kansas Deerfield Beach, Florida Manila, Philippines Lenexa, Kansas Uxbridge, United Kingdom Hasselt, Belgium As of December 31, 2023, our operational facilities were for nutritional supplements, medical foods, baby formulathe following use and junior food products, chocolates, coffee and tea, edible nuts and seeds, snack foods, pet foods, pet treats, and pet nutritional supplements.Description of Use United States International Total Office space 24,313 60,650 84,963 Fulfillment facilities 736,845 35,725 772,570 Total 761,158 96,375 857,533 20Segment Leased Sq Ft Customer Care 54,964 Fulfillment & Logistics 772,570 Marketing Services 23,748 851,282 Corporate office 6,251 Total 857,533 We believe our facilities to be adequate for our business and operations as currently administered.LEGAL PROCEEDINGSInformation regardingITEM 3. LEGAL PROCEEDINGSIn the ordinary course of its business, the Company is involved in various legal proceedings is set forth in Note M, Litigation and Contingencies,involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the “Notes to Consolidated Financial Statements” and is incorporated herein by reference.MINE SAFETY DISCLOSURESITEM 4. MINE SAFETY DISCLOSURESNot applicable.PART IIMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESCommon StockITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarketOur common stock is listed for trading on the NASDAQ under the symbol HHS."HHS". As of January 31, 2022,2024, there were approximately 870743 common stockholders of record.The last reportedfollowing tables set forth for the periods indicated, the high and low sale prices per share price of ourthe common stock onas quoted by the NASDAQ on March 30, 2023 was $9.40. NASDAQ.Year Ended December 31, 2023 High Low 1st Quarter $14.24 $8.70 2nd Quarter $9.50 $5.00 3rd Quarter $6.70 $5.01 4th Quarter $7.72 $5.39 Year Ended December 31, 2022 High Low 1st Quarter 8.19 6.34 2nd Quarter 12.89 7.15 3rd Quarter 17.88 10.02 4th Quarter 12.84 9.81 Dividend PolicyThe Company currently does not intend on payingpay any dividends for the foreseeable future. Anyand any future payment of future dividends will beis at the discretion of Harte Hanke’sthe Board of Directors and will depend upon, among other factors, the Company’s earnings, financial condition, current and anticipated capital requirements, plans for expansion, level of indebtedness and contractual restrictions, restrictions in our organizational documents including the provisions of the Company’s then-existing indebtedness and other contractual arrangements. The payment of future cash dividends, if any, would be made only from assets legally available.Issuer Purchases of Equity SecuritiesThe following table contains information about our purchases of equity securities during the fourth quarter of 2022: — $ — — $ 11,437,544 — $ — — $ 11,437,544 — $ — — $ 11,437,544 — $ — — Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of a publicly announced plan Maximum dollar amount that may yet be purchased under the program(1) (in thousands)October 1 - 31, 2023 — $ — — $ 4,131 November 1 - 30, 2023 — $ — — $ 4,131 December 1 - 31, 2023 — $ — — $ 4,131 Total — $ — — (1)Total number of shares purchased includes shares, if any, (i) purchased as part of our publicly announced stock repurchase program, and (ii) pursuant to our 2013 Omnibus Incentive Plan and applicable inducement award agreements with certain executives, withheld to pay withholding taxes upon the vesting of shares.(2) 2022,2023, we did not purchase any shares of our common stock through our stock repurchase program that was publicly announced in August 2014 and have not repurchased any shares under this program since 2015.on May 2, 2023. Under this program, our Board had authorized us to spend up to $20.0$6.5 million to repurchase shares of our outstanding common stock. This authorization and programAfter giving effect to these repurchases, we have since been terminated. remaining authority of $4.1 million to repurchase shares remaining under the program.ITEM 6. SELECTED FINANCIAL DATANot applicable.1722ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSELECTED FINANCIAL DATANot applicable.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by the cautionary note included under “Forward-Looking Statements” above, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may vary materially from what is expressed in or indicated by the forward-looking statements, for the reasons described in this MD&A, in the Risk Factors in Item 1A above or elsewhere in this Annual Report on Form 10-K.OverviewThe following MD&A section is intended to help the reader understand the results of operations and financial condition of Harte Hanks. This section is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes included herein.Harte Hanks, Inc. is a leading global customer experience company operating in three business segments: Marketing Services, Customer Care, and Fulfillment & Logistics Services. Our mission is to partner with clients to provide them with a robust customer-experience, or CX strategy, data-driven analytics, and actionable insights combined with seamless program execution to better understand, attract, and engage their customers. Our services include strategic planning, data strategy, performance analytics, creative development, and execution; technology enablement; marketing automation; B2B and B2C e-commerce; cross-channel customer care; and product, print, and mail fulfillment.We are affected by the general, national, and international economic and business conditions in the markets where we and our customers operate. Marketing budgets are largely discretionary in nature and, as a consequence, are easier for our clients to reduce in the short-term than other expenses. Our revenues are also affected by the economic fundamentals of each industry that we serve, various market factors, including the demand for services by our clients, the financial condition of and budgets available to our clients, and regulatory factors, among other factors. Due to the COVID-19 pandemic, recent increases in inflation and interest rates throughout the globe, and other geopolitical uncertainties, including but not limited to the ongoing war between Russia and Ukraine,armed conflicts in multiple regions, there is continued uncertainty and significant volatility and disruption in the global economy and financial markets. We remain committed to making the investments necessary to execute our multichannel strategy while also continuing to adjust our cost structure to appropriately reflect our operations and outlook.Management is closely monitoring inflation and wage pressure in the market, and the potential impact on our business. While inflation has not had a material impact on our business, it is possible a material increase in inflation could have an impact on our clients, and in turn, on our business.Recent DevelopmentsProject ElevateOur management team continuously reviews and adjusts our cost structure and operating footprint to optimize our operations, and invest in improved technology. During the second half of 2023, we engaged a consulting firm to help review and analyze the structure and operations of the Company. This review included greater than 200 meetings with personnel at all levels of the firm and led to the initiation of our transformation program named "Project Elevate". The program involves the optimization and rationalization of our business resources as well as the partial reinvestment of savings into the company's sales and marketing team, technology, and strategy. A business transformation office was established at the beginning of 2024 to manage and measure these initiatives. Reorganization savings from Project Elevate executed from 2024 to 2026 are estimated to be $16 million.Results of OperationsOperating results from operations were as follows: $ 206,278 6.0 % $ 194,596 191,171 2.3 % 186,957 $ 15,107 97.8 % $ 7,639 7.3 % 86.6 % 3.9 % (4,206 ) -51.2 % (8,620 ) (17,463 ) -1455.8 % 1,288 $ 36,776 145.6 % $ 14,971 $ 4.75 169.9 % $ 1.76 Year Ended December 31, In thousands, except per share amounts 2023 % Change 2022 Operating revenue $ 191,492 -7.2% $ 206,278 Operating expenses 188,133 -1.6% 191,171 Operating income $ 3,359 -77.8% $ 15,107 Operating margin 1.8 % -76.0% 7.3 % Other expense (income), net 5,278 -225.5% (4,206) Income tax benefit (349) -98.0% (17,463) Net (loss) income $ (1,570) -104.3% $ 36,776 Diluted EPS from operations $ (0.21) -104.5% $ 4.75 Year Ended December 31, 2023 vs. Year Ended December 31, 2022Consolidated ResultsRevenuesRevenues of $191.5 million for the year ended December 31, 2022 vs. Year ended December 31, 2021Consolidated ResultsRevenuesRevenues of2023 decreased $14.8 million, or 7.2%, when compared to $206.3 million for the year ended December 31, 2022 increased $11.72022. Revenue in our Marketing Services declined $9.8 million, or 6.0%18.4%, when compared to $194.6$43.2 million, revenue in our Customer Care segment declined $3.9 million, or 5.8%, to $63.3 million and revenue in our Fulfillment & Logistics Services declined $1.1 million, or 1.3%, to $85.0 million.Operating ExpensesOperating expenses of $188.1 million for the year ended December 31, 2021. Revenue in our Fulfillment & Logistics Services increased $22.62023 decreased $3.0 million, or 35.6%1.6%, when compared to $86.1 million driven by revenue from new clients and increases in work from the existing clients. Revenue in our Customer Care segment decreased $7.5 million, or 10.0%, to $67.2 million and revenue in our Marketing Services declined $3.4 million, or 6.1%, to $53.0 million. For a discussion of the drivers and reasons for the year-over-year changes in revenue, see “Segment Results” below.Among other factors, our revenue performance will depend on general economic conditions in the markets we serve and how successful we are at maintaining and growing business with existing clients and acquiring new clients. We believe that, in the long-term, an increasing portion of overall marketing and advertising expenditures will be shifted from other advertising media to the type of targeted media advertising we provide resulting in a benefit to our business. Targeted media advertising results can be effectively tracked, enabling measurement of the return on marketing investment. However, growth will be challenged by both current and new competitors and internally generated capabilities at current and potential future clients.Operating ExpensesOperating expenses of $191.2 million for the year ended December 31, 2022 increased $4.2 million, or 2.3%, when compared to $187.0 million for the year ended December 31, 2021. Labor costs decreased by $5.2$6.7 million, or 4.7%6.4%, when compared to the year ended December 31, 2021,2022, primarily due to lower labor expensethe reduction in theworkforce in our Customer Care and Marketing Service segment associated withas a result of the lower revenue which was partially offset by higher labor expense in the Fulfillment & Logistics segment driven by higher revenue and supply chain issues that have led to increased transportation costs. We have a large amount of part-time employees and are able to dynamically adjust their schedules to reflect current activities. severance expenses.Production and Distribution expenses increased $15.4decreased $2.4 million, or 30.7%3.8%, when compared to the year ended December 31, 2021,2022, primarily due to higher transportation costs to support additional logistics revenue as well as higherdriven by lower brokered cost, or outsourced costs due to higherthe lower brokered revenue.Advertising, Selling and General and Administrative expenses increased $0.1decreased $1.2 million or 0.6%5.6%, when compared to the year ended December 31, 20212022 primarily due to the reduced professional service expense.. Depreciation expense increased $0.2$1.5 million, or 6.6%55.3%, when compared to the year ended December 31, 20212022, primarily due to the addition of our new ERP system.Restructuring expenses were $0 million and $6.4$5.7 million for the yearsyear ended December 31, 20222023. The restructuring expenses included $4.6 million of consulting expenses, $0.8 million in lease impairment expense, $0.2 million of severance charges, and 2021, respectively. See Note O, Restructuring Activities, in the Notes to Consolidated Financial Statements for further discussion$0.1 million of restructuring activities. The largest components of our operating expenses are labor, transportation expenses and outsourced costs. Each of these costs is, at least in part, variable and tends to fluctuate in line with revenues and the demand for our services. Transportation rates have increased over the last few years due to demand and supply fluctuations within the transportation industry. Future changes in transportation expenses will continue to impact our total production costs and total operating expenses.expenses and in turn our margins, andwhich may have an impact on future demand for our supply chain management services. 2024Other Expense (Income), netInterest Expense, netInterest expense,income, net, for the year ended December 31, 2022, decreased $0.5 million when2023 was $135 thousand as compared to the interest expense, net of $438 thousand for the year ended December 31, 2021, due to a lower debt balance as compared to2022. The $573 thousand improvement was primarily contributed by the interest income we received from our tax refund claims during the first quarter of 2023.Total other expense, net was $5.4 million for the year ended December 31, 2021.Other (Income) Expense, netTotal2023, when compared to other income, net wasof $4.6 million for the year ended December 31, 2022, when compared to other expense, net of $0.5 million for the year ended December 31, 2021.2022. This $5.1$10.0 million increase in other incomeexpense was primarily attributable to a 2.48.9 million increasechange in foreign currency revaluation income andgain as well as $2.5 million gain from the sale of unused IP addresses which were no longer useful to the Company. This increase was partially offset by $0.7 million increase of pension expense as a result of the lower return on investment from poorer asset performance as compared to the year ended December 31, 2021.Company in 2022. We do not expect the sale of IP addresses, in the future, if any, to generate a significant amount of other income.Income Taxes Our 20222023 income tax benefit was $17.5$0.3 million for the year ended December 31, 2022,2023, when compared to tax expensebenefit of $1.3$17.5 million for the year ended December 31, 2021.2022. The increasedecrease in benefit of $18.8$17.1 million was primarily related to the removal of the majority of the U.S. valuation allowance for the year ended December 31, 2022.2022.Segment ResultsThe following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 20222023 and 2021.2022. There are three principal financial measures reported to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources. Those measures are revenues, operating income and operating income plus depreciation and amortization (“EBITDA”).For additional information, see Note P, Segment Reporting, in the Notes to Consolidated Financial Statements for further discussion.Marketing Services: $ 52,975 -6.1 % $ 56,388 $ 7,344 -4.8 % $ 7,713 6,982 -2.8 % 7,183 13.2 % 3.5 % 12.7 % Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 43,204 -18.4% $ 52,975 EBITDA 5,425 -26.1% 7,344 Operating Income 5,113 -26.8% 6,982 Operating Income % of Revenue 11.8 % -10.2% 13.2 % Marketing Services segment revenue declined $3.4$9.8 million, or 6.1%18.4%, due to the decline of marketing spend and the loss of a decrease in direct mail service volume from existing customers.customer. Operating income for the year ended December 31, 20222023 decreased $0.2$1.9 million due to the lowerreduction in contribution margin from the revenue decrease, which was partially offset by lowerreductions in operating expense driven by improved labor utilization. associated with lower revenue. $ 67,205 -10.0 % $ 74,691 $ 12,167 -3.2 % $ 12,569 11,283 -3.7 % 11,720 16.8 % 7.0 % 15.7 % Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 63,327 -5.8% $ 67,205 EBITDA 10,702 -12.0% 12,167 Operating Income 9,422 -16.5% 11,283 Operating Income % of Revenue 14.9 % -11.4% 16.8 % Customer Care segment revenue decreased $7.5declined $3.9 million, or 5.8%, primarily due to athe decrease in volumes with existing customers.both non-recurring pandemic-related projects and a large non-recurring recall project in 2022 which was partially offset by $9.7 million revenue from InsideOut. Operating Income for the year ended December 31, 20222023 was $11.3$9.4 million, a decrease of $0.4$1.9 million when compared to the prior year due to lower revenue which was partially offset by lower operating expense driven by improved operational efficiency.25Fulfillment & Logistics Services: $ 86,098 35.6 % $ 63,517 $ 10,593 -58.2 % $ 6,698 9,769 -63.4 % 5,980 11.3 % -20.5 % 9.4 % Year Ended December 31, In thousands 2023 % Change 2022 Operating revenues $ 84,961 -1.3% $ 86,098 EBITDA 8,857 -16.4% 10,593 Operating Income 7,714 -21.0% 9,769 Operating Income % of Revenue 9.1 % -20.0% 11.3 % Fulfillment & Logistics Services segment revenue increased $22.6declined $1.1 million, or 35.6%1.3%, primarily driven bydue to the lower revenue from new customers and an increase in work fromthe existing customers. Operating income was $9.8 million forFor the year ended December 31, 20222023 operating income was $7.7 million, a decrease of $2.1 million when compared to $6.0 million for the year ended December 31, 2021. The $3.8 million increase was primarily driven by the higher revenue and lower operating expense from improved operational efficiency. Operating income for the prior year period included a favorable $0.8 million litigation settlement.primarily due to the change in revenue mix and higher transportation costs.22Sources and Uses of CashOur cash and cash equivalent balances were $10.4$18.4 million and $11.9$10.4 million as of December 31, 20222023, and 2021, respectively. Our cash and cash equivalent and restricted cash balances were $10.4 million and $15.1 million as of December 31, 2022, and 2021, respectively. As of December 31, 2022,2023, we had the ability to borrow an additional $24.2 million under our New Credit Facility. The money deposited in an escrow account to satisfy ourthe contingent payment obligations for the acquisition of InsideOut is not included in our cash and cash equivalent or restricted cash balances as of December 31, 2022.During 2020, we received an aggregate of $9.6 million in tax refunds related to our net operating loss (“NOL”) and capital loss carryback for the 2013-2018 tax years. 2023.We received $2.5 million in tax refundsrefund in 2022 and has received an additional tax refund of $5.3 million in March 2023, as a result of the change to the tax NOL carryback provisions included in the CARES Act.Our principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings available under our New Credit Facility. Our cash is primarily used for general corporate purposes, working capital requirements, debt service and capital expenditures.At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (suchsuch as debt services, finance and operating leases and unfunded pension plan benefit payments)payments and other cash needs for our operations for at leastin the twelve months from the date of this Annual Report through a combination of cash on hand, cash flow from operations,short term and borrowings under the New Credit Facility.beyond. Although the Company believes that it will be able to meet its cash needs for the short and medium term, if unforeseen circumstances arise the company may need to seek alternative sources of liquidity.Operating ActivitiesNet cash provided by operating activities was $28.8$10.5 million for the year ended December 31, 2022,2023, when compared to cash used inprovided by operating activities of $1.8$28.8 million for the year ended December 31, 2021.2022. The $30.6$18.3 million year-over-year increasedecrease in cash provided by operating activities was primarily driven bydue to the $21.8$38.3 millionhigherlower net income which excludes the $10was partially offset by absorption of deferred taxes of $18.4 million non-cash gain in 2021 from extinguishment of PPP loan, $1.1 million increase in deferred revenue and customer advances, $8.0 million increase in accounts payable and accrued expenses, other accrued expenses and liabilities due to increased transportation expenses in the year ended December 31, 2022. The above increase was partially offset by the decrease of $5.3 million2023, and smaller year over year changes in customer postagecurrent assets and program deposits. The net income for the year ended liabilities.December 31, 2022 also included a non-recurring $2.5 million gain from the sale of unused IP addresses which were no longer useful to the Company. Investing ActivitiesNet cash used in investing activities was $11.5$2.3 million for the year ended December 31, 2022,2023, compared to cash used in investing activities of $2.9$11.5 million for the year ended December 31, 2021.2022. The $8.6$9.2 million increase decrease was mainly due to the $5.8$6.3 million of cash used to purchase InsideOut and $5.8returned from escrow from acquisition activities and $3.0 million of less cash used to purchase property, plant and equipment (mainly for our new ERP system) in the year ended December 31, 20222023, when compared to the year ended December 31, 2021. 2022.Financing ActivitiesNet cash used in financing activities was $3.2 million for the year ended December 31, 2023, compared to $15.8 million net cash used in financing activities for the year ended December 31, 2022. The $12.6 million decrease in cash used in financing activities was $15.8 million for the year ended December 31, 2022, compared to $13.4 million net cash used in financing activities for the year ended December 31, 2021. The $2.4 million decrease was primarily due to the $10.0$10.0 million cash used for the repurchase of Preferred Stock for the year ended December 31, 2022 as compared to $5.0 million cash proceeds from New Credit Facility for the year ended December 31, 2021. This decrease was partially offset bypreferred stock and the $5.0 million repayment of the borrowings under our New Credit Facility in the year ended December 31, 2022, as compared to the $17.1$2.4 million repayment used for the repurchase of the Texas Capital Credit Facility forcommon stock in the year ended December 31, 2021.2023.26Foreign Holdings of CashConsolidated foreign holdings of cash as of December 31, 2023, and 2022 and 2021 were $3.4$5.4 million and $2.6$3.4 million, respectively. The Company does not believe it will need to re-patriaterepatriate foreign cash holdings when and if it is financially efficient to meet domestic obligations.Long Term DebtOn December 21, 2021, the Company entered into a new three-year, $25,000,000$25.0 million asset-based revolving credit facility (the “New Credit“Credit Facility”) with Texas Capital Bank.Bank ("TCB"). The Company’s obligations under the New Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”). The New Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, TCB and the other grantors party theretoGuarantors (the “Security Agreement”). On December 31, 2023, the Company extended the maturity date for the Credit Facility by a period of six (6) months, up to June 30, 2025. The extension extended the Credit Facility under substantially similar terms and conditions as originally executed.The New Credit Facility provides for loans up to the lesser of (a) $25,000,000,$25.0 million, and (b) the amount available under a “borrowing base” calculated primarily by reference to the Company's cash and cash equivalents and accounts receivables. The New Credit Facility allows the Company to use up to $3,000,000$3.0 million of its borrowing capacity to issue letters of credit.
June 30, 2025.
In connection with entering the New Credit Facility, the Company and Texas Capital Bank terminated the Old Texas Capital Credit Facility. Prior to termination of the Old Texas Capital Credit Facility, the Company used cash on hand to pay down $8.1 million outstanding and the remaining $5 million of loans outstanding were deemed to be outstanding under the New Credit Facility. Texas Capital Bank did not require the New Credit Facility to be guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for the Company by certain members of the Shelton family (descendants of one of the Company's founders) or any other third-party credit support.
2022.
On April 20, 2020, the Company received loan proceeds in the amount of $10.0 million under the Small Business Administration (“SBA”) PPP Term Note.
On June 10, 2021, we received notice that the entire amount of our PPP Term Note was forgiven by the SBA because we used the proceeds from the loan as contemplated under the CARES Act. We recorded the $10.0 million of debt extinguishment as “Gain from extinguishment of debt (Paycheck Protection Program Term Note)” in the Consolidated Statements of Comprehensive Income.
Dividends
We did not pay any dividends in either 20222023 or 2021. We currently intend to retain any future earnings and do not expect to pay cash dividends on our common stock in the foreseeable future.2022. Any future dividend declaration can be made only upon, and subject to, approval of our Board of Directors, based on its business judgment.
Critical Accounting Policies and Estimates
Critical accounting policies are defined as those that, in our judgment, are most important to the portrayal
Our Significant Accounting policies are described in Note A, Overview and Significant Accounting Policies, in the Notes to Consolidated Financial Statement.
Revenue Recognition
ApplicationStatements included in Item 8 of variousthis Annual Report on Form 10-K for a summary of significant accounting principles in accordance with U.S. GAAP related to measurementpolicies and recognition of revenue requires us to make significant judgments and estimates. Specifically, complex arrangements with non-standard terms and conditions may require significant contract interpretation to determine appropriate accounting. For revenue generated from arrangements that involve third parties, there is significant judgment in evaluating whether we are the principal, and report revenueeffect on a gross basis, or the agent, and report revenue on a net basis.
our financial statements.
is recorded for foreign and specific state jurisdictions.
Recent Accounting Pronouncements
See Note B, Recent Accounting Pronouncements,
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Evaluation of Disclosure Controls and Procedures
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2023.
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2023.
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2023.
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Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 15(a)(2) Financial Statement Schedules All schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required under the related instructions, are not applicable, or the information required thereby is set forth in the Consolidated Financial Statements or notes thereto. The Exhibit Index following the Notes to Consolidated Financial Statements in this Form 10-K lists the exhibits that are filed or furnished, as applicable, as part of this Form 10-K. variable, and performance obligations. variable consideration, where applicable. December 31, In thousands, except per share and share amounts 2022 2021 ASSETS Current assets Cash and cash equivalents Restricted cash Accounts receivable (less allowance of $163 at December 31, 2022 and $266 at December 31, 2021) Unbilled accounts receivable Contract assets Prepaid expenses Prepaid income tax and income tax receivable Other current assets Total current assets Property, plant and equipment Buildings and improvements Equipment and furniture Software Software development and equipment installations in progress Gross property, plant and equipment Less accumulated depreciation Net property, plant and equipment Right-of-use assets Other assets Intangible assets, net Goodwill Deferred tax assets, net Other long-term assets Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable and accrued expenses Accrued payroll and related expenses Deferred revenue and customer advances Customer postage and program deposits Other current liabilities Short-term lease liabilities Total current liabilities Long-term debt, net of current portion Pension liabilities - Qualified plans Pension liabilities - Nonqualified plan Long-term lease liabilities Other long-term liabilities Total liabilities Preferred stock, $1 par value, 1,000,000 shares authorized; 0 and 9,926 shares of Series A Convertible Preferred Stock, issued and outstanding at December 31, 2022 and December 2021, respectively Stockholders’ equity (deficit) Common stock, $1 par value, 25,000,000 shares authorized,12,221,484 shares issued, 7,402,614 and 6,976,144 shares outstanding at December 31, 2022 and December 31, 2021, respectively Additional paid-in capital Retained earnings Less treasury stock, 4,818,870 shares at cost at December 31, 2022 and 5,145,340 shares at cost at December 31, 2021 Accumulated other comprehensive loss Total stockholders’ equity (deficit) Total liabilities, preferred stock and stockholders’ equity (deficit) Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Year Ended December 31, In thousands, except per share amounts 2022 2021 Operating revenue Operating expenses Labor Production and distribution Advertising, selling, general and administrative Restructuring expense Depreciation and amortization expense Total operating expenses Operating income Other income, net Interest expense, net Gain from extinguishment of debt (Paycheck Protection Program Term Note) Other (income) expense, net Total other income, net Income before income taxes Income tax (benefit) expense Net income Less: Loss from redemption of Preferred stock Less: Preferred stock dividends Less: Earnings attributable to participating securities Income attributable to common stockholders Earnings per common share Basic Diluted Weighted-average shares used to compute income per share attributable to common shares Basic Diluted Comprehensive income, net of tax Net income Adjustment to pension liability Foreign currency translation adjustments Total other comprehensive income, net of tax Comprehensive income Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit) Additional Other Stockholders’ Preferred Common Paid-in Retained Treasury Comprehensive Equity In thousands Stock Stock Capital Earnings Stock (loss) income (Deficit) Balance at December 31, 2020 Exercise of stock options Stock-based compensation Vesting of RSU's Net income Other comprehensive loss Balance at December 31, 2021 Redemption of preferred stock Issuance of common stock in connection with redemption of preferred stock Stock-based compensation Vesting of RSU's and issuance of Treasury stocks in connection with acquisition (see Note L) Net income Other comprehensive income Balance at December 31, 2022PART IVITEM 15. 15(a)(1) Financial Statements 15(a)(1)Financial Statements15(a)(3) Exhibits 15(a)(3)Exhibits2931INDEX TO EXHIBITSWe are incorporating certain exhibits listed below by reference to other Harte Hanks filings with the Securities and Exchange Commission, which we have identified in parentheses after each applicable exhibit.Exhibit
No.Description of Exhibit *3.1 *3.2 3.3 *3.4 3.5 *10.01 *10.02 10.03 10.04 10.05 10.06 *10.07 10.08 10.09 *10.10 10.11 10.12 10.13 *21.1 *23.1 *31.1 *31.2 *32.1 *32.2 *97 *Filed or furnished herewith, as applicable32INDEX TO EXHIBITS (continued)Exhibit
No.Description of Exhibit *101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL Document. *101.SCH Inline XBRL Taxonomy Extension Schema Document. *101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. *101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document. *101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. *101.DEF Inline XBRL Definition Linkbase Document. *104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101). *Filed or furnished herewith, as applicable33SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Harte Hanks, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.HARTE HANKS, INC. By: /s/ Kirk Davis Kirk Davis Chief Executive Officer Date: April 1, 2024 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated./s/ Kirk Davis /s/ David Garrison Kirk Davis David Garrison Chief Executive Officer Chief Financial Officer Date: April 1, 2024 Date: April 1, 2024 /s/ John H. Griffin, Jr. /s/ Genevieve C. Combes John H. Griffin Jr., Director Genevieve C. Combes, Director Date: April 1, 2024 Date: April 1, 2024 /s/ David L. Copeland /s/ Radoff, Bradley L David L. Copeland, Director Bradley L. Radoff, Director Date: April 1, 2024 Date: April 1, 2024 /s/ Liz Ross Liz Ross, Director Date: April 1, 2024 34Harte Hanks, Inc. and SubsidiariesIndex to Consolidated Financial StatementsAll schedules for which provision is made in the applicable rules and regulations of the SEC have been omitted as the schedules are not required under the related instructions, are not applicable, or the information required thereby is set forth in the consolidated financial statements or notes thereto.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the board of directors of Harte Hanks, Inc. and SubsidiariesSubsidiaries:Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Harte Hanks, Inc. and Subsidiaries (the "Company") as of December 31, 20222023 and 2021,2022, the related consolidated statements of comprehensive income, changes in stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2022,2023, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,2023, in conformity with accounting principles generally accepted in the United States of America.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit MatterThe critical audit mattersmatter communicated below are the mattersis a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which it relates.36Revenue from ContractsContract with CustomersAs described in Note C to the consolidated financial statements, the Company recorded $206.3 million inhas three key revenue for the year ended December 31, 2022,streams which consists of three major revenue streams.marketing services, customer care services, and fulfillment and logistics services. The nature of the services offered by each revenue stream is different, and the Company’s process for revenue recognition differs between each of the discrete revenue streams. Additionally, each revenue stream has a portionhigh volume of the Company’s revenue is recognized through large volumes of low-dollar transactions. The Company’s revenue recognition processes are reliant upon a combination of automatedtransactions where each contract has disparate pricing, including fixed price and manual controls which rely on several distinct information technology (IT) systems.We identified revenue from contracts with customers as a critical audit matter. Obtaining an understanding of the complex processesprocess and systemsaccounting used in the Company’s revenue recognition and evaluating the processes and related internal controls for multiple revenue streams required significant auditor effort, including specialized skills and knowledge related to several distinct IT systems.effort. Additionally, determining the nature and extent of our audit procedures and evaluating the overall sufficiency of the audit evidence required subjective auditor judgment.Addressing the critical audit matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included,include, among others:●Testing the design and operating effectiveness of key process-level controls related to revenue, including both manual and automated controls.●Involving IT professionals with specialized skills and knowledge who assisted in the identification of key systems used for the processing and recording of revenue transactions and testing the application and IT controls relevant to each of these systems.●For a selection of transactions, comparing the amount of revenue recorded for consistency with underlying supporting documentation.●Evaluating the overall sufficiency of the audit evidence obtained over revenue Evaluationa.We tested a sample of revenue transactions and compared the amount of revenue recorded with underlying supporting documentation, including third party source documents.b.We obtained and read the customer contracts and evaluated the completeness of the Realizabilityperformance obligations identified by management.c.We tested the mathematical accuracy of Deferred Tax AssetsAs describedmanagement’s calculations of revenue and the associated timing of revenue recognized in Note I tothe consolidated financial statements.d.We evaluated the Company’s consolidated financial statements, after assessing available positivecontracts and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets, most notably the Company’s sustained profitability over the past two years and estimated future taxable income, the Company determined that sufficient evidence exists asmanagement applied the appropriate accounting for each, including the identification of December 31, 2022, that it is more likely than not that a significant portion of its deferred tax assets would be realized and released a portion of the Company’s valuation allowance. The release of the valuation allowance related to these deferred tax assets was approximately $18.2 million and recorded as income tax benefit during the year ended December 31, 2022.We identified the evaluation of the realizability of deferred tax assets as a critical audit matter due to management’s judgments involved to assess the future realization of deferred tax assets. Subjective and challenging auditor judgement was required to assess the application of tax laws and evaluate the projected future taxable income over the periods in which those temporary differences become deductible.The primary procedures we performed to address this critical audit matter included:●Evaluating the reasonableness of management's assumptions of future taxable income, including comparing forecasts against historical performance while considering current and anticipated future business performance and market events and whether the information was materially consistent with evidence obtained in other areas of the audit.●Evaluating the realizability of deferred tax assets, including application of tax laws and the projections of future taxable income.●With the assistance of our income tax specialists, we evaluated the appropriateness of the Company's tax positions and analysis of management's conclusion that certain of the Company's deferred tax assets are more likely than not to be utilized./s/ Baker Tilly US, LLPWe have served as the Company’s auditor since 2019.Tewksbury, MassachusettsMarch 31, 2023April 1, 20243137Harte Hanks, Inc. and Subsidiaries Consolidated Balance Sheets December 31, In thousands, except per share and share amounts 2023 2022 ASSETS Current assets Cash and cash equivalents $ 18,364 $ 10,364 Accounts receivable (less allowance of $474 and $163 at December 31, 2023 and 2022) 34,313 39,700 Contract assets and unbilled accounts receivable 7,935 8,202 Prepaid expenses 1,915 2,176 Prepaid income tax and income tax receivable 1,758 4,262 Other current assets 928 1,607 Total current assets 65,213 66,311 Net property, plant and equipment 8,855 10,523 Right-of-use assets 25,417 19,169 Other assets Intangible assets, net 2,820 3,540 Goodwill 1,926 2,398 Deferred tax assets, net 17,268 16,306 Other long-term assets 1,258 1,737 Total other assets 23,272 23,981 Total assets $ 122,757 $ 119,984 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued expenses $ 23,176 $ 22,465 Accrued payroll and related expenses 5,615 6,679 Deferred revenue and customer advances 3,195 4,590 Customer postage and program deposits 1,815 1,223 Other current liabilities 9,495 2,862 Short-term lease liabilities 4,815 5,747 Total current liabilities 48,111 43,566 Pension liabilities - Qualified plans 10,540 18,674 Pension liabilities - Nonqualified plan 18,630 19,098 Long-term lease liabilities 23,691 16,575 Other long-term liabilities 1,928 3,263 Total liabilities 102,900 101,176 Stockholders’ equity Common stock, $1 par value, 25,000,000 shares authorized,12,221,484 shares issued, 7,224,718 and 7,402,614 shares outstanding at December 31, 2023 and 2022, respectively 12,221 12,221 Additional paid-in capital 157,889 218,411 Retained earnings 844,920 846,490 Less treasury stock, 4,996,766 shares at cost at December 31, 2023 and 4,818,870 shares at cost at December 31, 2022 (951,083) (1,010,012) Accumulated other comprehensive loss (44,090) (48,302) Total stockholders’ equity 19,857 18,808 Total liabilities and stockholders’ equity $ 122,757 $ 119,984 See Accompanying Notes to Consolidated Financial Statements. 38Harte Hanks, Inc. and Subsidiaries Consolidated Balance Sheets $ 10,364 $ 11,911 — 3,222 39,700 41,051 7,893 8,134 309 622 2,176 1,948 4,262 7,456 1,607 1,031 66,311 75,375 4,387 6,430 20,478 21,189 20,724 29,949 8,947 2,691 54,536 60,259 (44,013 ) (52,512 ) 10,523 7,747 19,169 22,142 3,540 — 2,398 — 16,306 — 1,737 2,597 23,981 2,597 $ 119,984 $ 107,861 $ 22,465 $ 16,132 6,679 7,028 4,590 3,942 1,223 6,496 2,862 2,291 5,747 6,553 43,566 42,442 — 5,000 18,674 27,359 19,098 25,140 16,575 19,215 3,263 3,697 101,176 122,853 — 9,723 12,221 12,121 218,411 290,711 846,490 811,094 (1,010,012 ) (1,085,313 ) (48,302 ) (53,328 ) 18,808 (24,715 ) $ 119,984 $ 107,861 See Accompanying Notes to Consolidated Financial Statements. Year Ended December 31, Year Ended December 31, In thousands, except per share amounts 2023 2022 $ 206,278 $ 194,596 Labor Labor 104,772 109,917 65,701 50,264 17,970 17,858 — 6,359 2,728 2,559 191,171 186,957 15,107 7,639 438 903 — (10,000 ) (4,644 ) 477 (4,206 ) (8,620 ) 19,313 16,259 (17,463 ) 1,288 $ 36,776 $ 14,971 Other expense (income), net Interest (income) expense, net Interest (income) expense, net Interest (income) expense, net Other expense (income), net Total other expense (income), net (Loss) income before income taxes Income tax benefit Net (loss) income Less: Loss from redemption of Preferred stock Less: Loss from redemption of Preferred stock 1,380 — — 496 — 1,858 $ 35,396 $ 12,617 (Loss) income attributable to common stockholders (Loss) earnings per common share (Loss) earnings per common share (Loss) earnings per common share Basic Basic $ 4.98 $ 1.85 $ 4.75 $ 1.76 Weighted-average shares used to compute income per share attributable to common shares Weighted-average shares used to compute income per share attributable to common shares Basic Basic 7,101 6,802 7,310 7,101 7,457 7,209 Diluted 7,310 7,457 $ 36,776 $ 14,971 Comprehensive income, net of tax Comprehensive income, net of tax Net (loss) income Net (loss) income Net (loss) income Adjustment to pension liability Adjustment to pension liability 10,274 14,150 (5,248 ) (1,867 ) 5,026 12,283 $ 41,802 $ 27,254 Comprehensive income Comprehensive income See Accompanying Notes to Consolidated Financial Statements. Accumulated Total In thousands Preferred
StockCommon
StockAdditionalPaid-inCapitalRetainedEarningsTreasuryStockAccumulated
Other
Comprehensive
(loss) incomeTotal
Stockholders’
Equity
(Deficit) $ 9,723 $ 12,121 $ 383,043 $ 796,123 $ (1,178,799 ) $ (65,611 ) $ (53,123 ) — — (6,708 ) — 6,802 — 94 — — 1,445 — — — 1,445 — — (87,069 ) — 86,684 — (385 ) — — — 14,971 — — 14,971 — — — — — 12,283 12,283 $ 9,723 $ 12,121 $ 290,711 $ 811,094 $ (1,085,313 ) $ (53,328 ) $ (24,715 ) (9,723 ) — — (1,380 ) — — (1,380 ) 100 977 — — — 1,077 — — 2,493 2,493 — — (75,770 ) 75,301 (469 ) — — 36,776 36,776 — — 5,026 5,026 $ — $ 12,221 $ 218,411 $ 846,490 $ (1,010,012 ) $ (48,302 ) $ 18,808 Stock-based compensation Vesting of RSU's and issuance of Treasury stocks in connection with acquisition (see Note L) Repurchase of common stock Net loss Other comprehensive income Balance at December 31, 2023
Year Ended December 31, In thousands 2022 2021 Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization expense Restructuring Stock-based compensation Gain from extinguishment of debt (Paycheck Protection Program Term Note) Net pension payment Deferred income taxes Changes in assets and liabilities, net of dispositions: Decrease (increase) in accounts receivable, net and contract assets Decrease in prepaid expenses, income tax receivable and other current assets Increase (decrease) in accounts payable and accrued expense Increase (decrease) in deferred revenue and customer advances Decrease in customer postage and program deposits Decrease in other accrued expenses and liabilities Net cash provided by (used in) operating activities Cash Flows from Investing Activities Purchases of property, plant and equipment Proceeds from the sale of property, plant and equipment Acquisition of InsideOut Net cash used in investing activities Cash Flows from Financing Activities Borrowings Repayment of borrowings Debt financing costs Payment of finance leases Redemption of preferred stock Treasury stock activities Net cash used in financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net decrease in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of year Cash and cash equivalents and restricted cash at end of year (1) This amount is comprised of the below balances: Cash and cash equivalents Restricted cash Cash held in Escrow account included in other current assets (see Note O) Supplemental disclosures Cash paid for interest Cash (received) paid for income taxes, net Non-cash investing and financing activities Purchases of property, plant and equipment included in accounts payable and accrued expense Issuance of common stock See Accompanying Notes to Consolidated Financial Statements Basis of Presentation Year Ended December 31, In thousands 2022 2021 Revenue (1) United States Other countries Total revenue December 31, In thousands 2022 2021 Property, plant and equipment, net (2) United States Other countries Total property, plant and equipment Year Ended December 31, In thousands 2022 2021 Top ten customers 50.6% 53.0% Top twenty-five customers 72.5% 72.6% The accompanying audited consolidated financial statements include the accounts of Harte Hanks, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. As used in this report, the terms “Harte Hanks,” “the Company,” “we,” “us,” or “our” may refer to Harte Hanks, Inc., one or more of its consolidated subsidiaries, or all of them taken as a whole, as the context may require. require collateral. We maintain an allowance for estimated credit losses and bad debt expense on these losses was not material during the years ended December 31, 2023 and 2022. In the event that accounts receivable collection cycle deteriorates, our operating results and financial position could be adversely affected. Revenue from agency and digital services, direct mail, logistics, fulfillment and contact center is recognized as the work is performed. Fees for these services are determined by the terms set forth in each contract. These fees are typically a set fixed price or rate by transaction occurrence, service provided, time spent, or product delivered. Year Ended December 31, In thousands 2022 2021 Balance at beginning of year Net charges to expense Amounts recovered against the allowance Balance at end of year Property, Plant and Equipment Buildings and improvements Software Equipment and furniture 2022, respectively. There is no goodwill impairment as of December 31, 2023. There is no impairment of our intangible assets as of December 31, 2023. Stock-Based Compensation program. The reserve is estimated using current claims activity, historical experience, and claims incurred but not reported. We use loss development factors that consider both industry norms and company specific information. Our liability is recorded at the estimate of the ultimate cost of claims at the balance sheet date. Guidance Not Yet Adopted In Disaggregation of Revenue For the Year Ended December 31, 2022 Revenue for performance Revenue for performance obligations recognized obligations recognized at a In thousands over time point in time Total Marketing Services Customer Care Fulfillment & Logistics Services Total Revenue For the Year Ended December 31, 2021 Revenue for performance Revenue for performance obligations recognized obligations recognized at a In thousands over time point in time Total Marketing Services Customer Care Fulfillment & Logistics Services Total Revenue analytics. Fulfillment & Logistics Services In thousands December 31, 2022 December 31, 2021 Contract assets Deferred revenue and customer advances Deferred revenue included in other long-term liabilities 2022: Costs to Obtain and Fulfill a Contract 2022. In thousands As of December 31, 2022 Operating Leases Finance Leases Total Right-of-use Assets Liabilities Short-term lease liabilities Long-term lease liabilities Total Lease Liabilities In thousands As of December 31, 2021 Operating Leases Finance Leases Total Right-of-use Assets Liabilities Short-term lease liabilities Long-term lease liabilities Total Lease Liabilities In thousands Year Ended December 31, 2022 Year Ended December 31, 2021 Operating lease cost Finance lease cost Amortization of right-of-use assets Interest on lease liabilities Total Finance lease cost Variable lease cost Sublease income Total lease cost, net Other information related to leases was as follows: In thousands Year Ended December 31, 2022 Year Ended December 31, 2021 Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases Weighted Average Remaining Lease term Operating leases Finance leases Weighted Average Discount Rate Operating leases Finance leases In thousands Operating Leases (1) Finance Leases Year Ending December 31, 2023 2024 2025 2026 2027 2028 & Beyond Total future minimum lease payments Less: Imputed interest Total lease liabilities Note E - Convertible Preferred Stock and Share Repurchase Program On December 2, 2022, we completed the closing of our June 30, 2022 definitive agreement with Note F — Long-Term Debt On December 29, 2023, the Company extended the agreement six months to June 30, 2025. The credit. Note G — Stock-Based Compensation plan. 2022. The following summarizes all stock option activity during the years ended December 31, Weighted- Average Weighted- Remaining Aggregate Number of Average Contractual Intrinsic Value In thousands Shares Exercise Price Term (Years) (Thousands) Options outstanding at December 31, 2020 Adjustment and Correction Granted in 2021 Exercised in 2021 Unvested options forfeited in 2021 Vested options expired in 2021 Options outstanding at December 31, 2021 Adjustment & Correction Granted in 2022 Exercised in 2022 Unvested options forfeited in 2022 Vested options expired in 2022 Options outstanding at December 31, 2022 Vested and expected to vest at December 31, 2022 Exercisable at December 31, 2022 2022: Range of Number Weighted-Average Weighted-Average Remaining Life Number Weighted-Average Exercise Prices Outstanding Exercise Price (Years) Exercisable Exercise Price $76.80 - 115.20 Cash Stock Appreciation Rights 2022. The following summarizes all restricted stock units’ activity during Weighted- Number of Average Grant Shares Date Fair Value Unvested shares outstanding at December 31, 2020 Granted in 2021 Vested in 2021 Forfeited in 2021 Unvested shares outstanding at December 31, 2021 Adjustment and Correction Granted in 2022 Vested in 2022 Forfeited in 2022 Unvested shares outstanding at December 31, 2022 2022: Weighted- Number of Average Grant Units Date Fair Value Phantom stock units outstanding as of December 31, 2020 Granted in 2021 Vested in 2021 Forfeited in 2021 Phantom stock units outstanding as of December 31, 2021 2022. Performance Stock Units Weighted- Number of Average Grant- Units Date Fair Value Performance stock units outstanding as of December 31, 2020 Granted in 2021 Settled in 2021 Forfeited in 2021 Performance stock units outstanding as of December 31, 2021 Granted in 2022 Settled in 2022 Forfeited in 2022 Performance stock units outstanding as of December 31, 2022 2022: There was no cash performance stock unit issued during 2022. We expect to make a cash contribution of $7.6 million to terminate the Qualified Pension Plan I. The status of the defined benefit pension plans at year-end was as follows: Year Ended December 31, In thousands 2022 2021 Change in benefit obligation Benefit obligation at beginning of year Interest cost Actuarial gain Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Contributions Benefits paid Fair value of plan assets at end of year Funded status at end of year In thousands 2022 2021 Current pension liabilities Long term pension liabilities - Qualified plans Long term pension liabilities - Nonqualified plan Total pension liabilities In thousands 2022 2021 Net loss 2024. 2023. In thousands 2022 2021 Projected benefit obligation Accumulated benefit obligation Fair value of plan assets The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income in the Consolidated Statements of Comprehensive Income for both plans: Year Ended December 31, In thousands 2022 2021 Net Periodic Benefit Cost Interest cost Expected return on plan assets Recognized actuarial loss Net periodic benefit cost Amounts Recognized in Other Comprehensive Income Adjustment to pension liabilities Net cost recognized in net periodic benefit cost and other comprehensive income Year Ended December 31, 2022 2021 Weighted-average assumptions used to determine net periodic benefit cost Discount rate Qualified Plan I Qualified Plan II Restoration Plan Expected return on plan assets Qualified Plan I Qualified Plan II Restoration Plan December 31, 2022 2021 Weighted-average assumptions used to determine benefit obligations Discount rate Qualified Plan I Qualified Plan II Restoration Plan In thousands 2022 % 2021 % Equity securities Debt securities Other Total plan assets December 31, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs In thousands 2022 (Level 1) (Level 2) (Level 3) Equity securities Debt securities Total investments, excluding investments valued at NAV Investments valued at NAV (1) Total plan assets December 31, Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs In thousands 2021 (Level 1) (Level 2) (Level 3) Equity securities Debt securities Total investments, excluding investments valued at NAV Investments valued at NAV (1) Total plan assets Benchmark Index Equities U.S. Large Cap Russell 1000 TR U.S. Mid Cap Russell Mid Cap Index TR U.S. Small Cap Russell 2000 TR International Equity Developed MSCI EAFE Net TR USD Index Emerging Markets MSCI Emerging Net Total Return Fixed Income Investment Grade BBG BARC US Aggregate Bond Index Cash Equivalent ICE BofA US 3-Month Treasury Bill Index TR Benchmark Index Equities U.S. Large Cap Russell 1000 TR U.S. Mid Cap Russell Mid Cap Index TR U.S. Small Cap Russell 2000 TR International Equity Developed MSCI EAFE Net TR USD Index Emerging Markets MSCI Emerging Net Total Return Fixed Income Investment Grade BBG BARC US Aggregate Bond Index Cash Equivalent ICE BofA US 3-Month Treasury Bill Index TR The expected future benefit payments for both pension plans over the next ten years as of December 31, In thousands 2023 2024 2025 2026 2027 Total Year Ended December 31, In thousands 2022 2021 Current Federal State and local Foreign Total current Deferred Federal State and local Total deferred Total income (benefit) expense Year Ended December 31, In thousands 2022 2021 United States Foreign Total income before income taxes The provision (benefit) for income taxes is based on the various rates set by federal, foreign and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The principal reasons for the difference between the statutory rate and the annual effective rate for affiliate. Year Ended December 31, In thousands 2022 2021 Computed expected income tax expense (benefit) Permanent Differences Net effect of state income taxes Foreign subsidiary dividend inclusions Foreign tax rate differential Change in valuation allowance CARES Act NOL Carryback Stock-based compensation windfalls Return to Provision Change in Rate Credits Adjustments to State Attributes Gain on PPP Loan Forgiveness Other Adjustments, net Income tax (benefit) expense Year Ended December 31, In thousands 2022 2021 Income (loss) from operations Stockholders’ equity (deficit) Total Year Ended December 31, In thousands 2022 2021 Deferred tax assets Deferred compensation and retirement plan Accrued expenses not deductible until paid Lease liability Employee stock-based compensation Accrued payroll not deductible until paid Accounts receivable, net Investment in foreign subsidiaries, outside basis difference Goodwill Interest Expense limitations Other, net Foreign net operating loss carryforwards State net operating loss carryforwards Foreign tax credit carryforwards General Business Credit Carryovers Total gross deferred tax assets Less valuation allowances Net deferred tax assets Deferred tax liabilities Property, plant and equipment Right-of-use asset Prepaid Expenses Other, net Total gross deferred tax liabilities Net deferred tax assets (liabilities) 2023. There is no balance of unrecognized tax benefits as of December 31, Income (loss). Reconciliations of basic and diluted EPS are as follows: Year Ended December 31, In thousands, except per share amounts 2022 2021 Numerator: Net income Less: Loss from redemption of Preferred stock Less: Preferred stock dividend Less: Earnings attributable to participating securities Numerator for basic EPS: income attributable to common stockholders Effect of dilutive securities: Add back: Allocation of earnings to participating securities Less: Re-allocation of earnings to participating securities considering potentially dilutive securities Numerator for diluted EPS Denominator: Basic EPS denominator: weighted-average common shares outstanding Diluted EPS denominator Basic income per common share Diluted income per common share Defined Benefit Foreign In thousands Pension Items Currency Items Total Balance at December 31, 2020 Other comprehensive loss, net of tax, before reclassifications Amounts reclassified from accumulated other comprehensive loss, net of tax Net current period other comprehensive income (loss), net of tax Balance at December 31, 2021 Other comprehensive income, net of tax, before reclassifications Amounts reclassified from accumulated other comprehensive loss, net of tax Net current period other comprehensive income, net of tax Balance at December 31, 2022 The acquisition of InsideOut further expands our capabilities into premium sales enablement within 2023. Accounts receivable Prepaid expenses Property, plant and equipment Total assets acquired Less: Current liabilities assumed (761) Net assets acquired Weighted Average Gross Accumulated Net Carrying In thousands Amortization Period Carrying Amount Amortizations Amount Customer Relationships 5 years 3,600 60 3,540 In thousands Year Ending December 31, Amount 2023 2024 2025 2026 2027 Total Note N — In thousands Year Ended December 31, 2021 Severance Facility, asset impairment and other expense Lease impairment and termination expense Fixed Asset disposal and impairment charges Facility and other expenses Total facility, asset impairment and other expense Total In thousands Year Ended December 31, 2022 Facility, asset impairment and other Severance expense Total Beginning balance: Additions Payments and adjustment Ending balance: Logistics. The following table presents financial information by Year ended December 31, 2022 Marketing Services Customer Care Fulfillment & Logistics Services Restructuring Unallocated Corporate Total (In thousands) Revenues Segment operating expense Restructuring Contribution margin Overhead Allocation EBITDA Depreciation and amortization Operating income (loss) Year ended December 31, 2021 Marketing Services Customer Care Fulfillment & Logistics Services Restructuring Unallocated Corporate Total (In thousands) Revenues Segment operating expense Restructuring Contribution margin Overhead Allocation EBITDA Depreciation and amortization Operating income (loss)Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, Year Ended December 31, In thousands 2023 2022 $ 36,776 $ 14,971 Net (loss) income Net (loss) income Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities 2,728 2,559 — 913 Depreciation and amortization expense Depreciation and amortization expense Restructuring expense 2,355 1,469 — (10,000 ) (1,009 ) (717 ) (19,843 ) — 3,843 (9,175 ) 2,779 925 6,200 (395 ) 383 (719 ) (5,273 ) (1 ) (147 ) (1,593 ) 28,792 (1,763 ) Accounts receivable, net and contract assets Accounts receivable, net and contract assets Accounts receivable, net and contract assets Prepaid expenses, income tax receivable and other current assets Accounts payable and accrued expense Deferred revenue and customer advances Customer postage and program deposits Other accrued expenses and liabilities Net cash provided by operating activities Cash Flows from Investing Activities Cash Flows from Investing Activities Purchases of property, plant and equipment Purchases of property, plant and equipment (5,800 ) (3,046 ) 57 146 (5,750 ) — (11,493 ) (2,900 ) — 5,000 Cash Flows from Financing Activities Cash Flows from Financing Activities Repayment of borrowings Repayment of borrowings (5,000 ) (17,100 ) (131 ) (795 ) (194 ) (227 ) (10,026 ) — Repurchase common stock (469 ) (291 ) (15,820 ) (13,413 ) (5,248 ) (353 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash Effect of exchange rate changes on cash, cash equivalents and restricted cash (3,769 ) (18,429 ) Net increase (decrease) in cash and cash equivalents and restricted cash Net increase (decrease) in cash and cash equivalents and restricted cash Net increase (decrease) in cash and cash equivalents and restricted cash 15,133 33,562 $ 11,364 (1) $ 15,133 (1) This amount is comprised of the below balances: (1) This amount is comprised of the below balances: $ 10,364 $ 11,911 — 3,222 1,000 — Cash and cash equivalents Cash and cash equivalents Cash held in Escrow account included in other assets (see Note L) $ $ 11,364 $ 15,133 Supplemental disclosures Supplemental disclosures Supplemental disclosures Cash paid for interest Cash received for income taxes, net Non-cash investing and financing activities Non-cash investing and financing activities Non-cash investing and financing activities Purchases of property, plant and equipment included in accounts payable and accrued expense Issuance of common stock $ 273 $ 490 $ (1,391 ) $ 1,323 $ 2,048 $ 2,715 $ (1,077 ) $ — Harte Hanks, Inc. and Subsidiaries Notes to Consolidated Financial StatementsNote A — OverviewBackground and Significant Accounting PoliciesBackgroundHarte Hanks, Inc. together with its subsidiaries (“Harte Hanks,” “Company,” “we,” “our,” or “us”) is a leading global customer experience company. With offices in North America, Asia-Pacific and Europe, Harte Hanks works with some of the world’s most respected brands.Segment ReportingThe Company operates three business segments: Marketing Services; Customer Care; and Fulfillment & Logistics Services. Our Chief Executive Officer (“CEO”) is considered to be our chief operating decision maker. Our CEO reviews our operating results on an aggregate basis for purposesBasis of allocating resources and evaluating financial performance by using the three financial measures: revenue, operating income and operating income plus depreciation and amortization (EBITDA). Geographic ConcentrationsDepending on the needsPresentation (including principles of our clients, our services are provided through an integrated approach throughtwelvefacilities worldwide, of which four are located outside of the U.S.The following table provides information about the operations in different geographic area for the periods indicated: $ 183,470 $ 175,437 22,808 19,159 $ 206,278 $ 194,596 Consolidation36 $ 10,219 $ 7,549 304 198 $ 10,523 $ 7,747 (1)Geographic revenues are based on the location of the service being performed.(2)Property, plant and equipment are based on physical location.Credit Risk and ConcentrationAccounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We perform ongoing credit evaluation of our customers and generally do not require collateral. We maintain an allowance for estimated credit losses and bad debt expense on these losses was not material during the years ended December 31, 2022 and 2021. In the event that accounts receivable collection cycle deteriorates, our operating results and financial position could be adversely affected.Our top customer represented 13.0% and 14.6% of total accounts receivable as of December 31, 2022 and 2021, respectively. Revenue by Top CustomersThe table below sets forth the percentage of our total revenue derived from our largest customers for the years ended December 31, 2022 and 2021, respectively: Related Party TransactionsFrom 2016 until October 2020, we conducted business with Wipro, LLC (“Wipro”), whereby Wipro provided us with a variety of technology-related services. We have since terminated all service agreements with Wipro.Effective January 30, 2018, Wipro became a related party when it purchased 9,926 shares of our Series A Preferred Stock (which are convertible at Wipro’s option into 1,001,614 shares, or 14% of our Common Stock as of December 31, 2021), for aggregate consideration of $9.9 million. On December 2, 2022, we completed the repurchase of all of our outstanding Preferred Stock from Wipro.ConsolidationReclassificationsCertain amounts in the consolidated financial statements related to the prior years have been reclassified to conform to the current year’s presentation.Operating Expense Presentation in the Consolidated Statements of Comprehensive IncomeThe “Labor” line in the Consolidated Statements of Comprehensive Income includes all employee payroll and benefits costs, including stock-based compensation and temporary labor costs. The “Production and distribution” and “Advertising, selling, general and administrative” lines do not include labor, depreciation, or amortization expense.Note B — Significant Accounting PoliciesUse of EstimatesPreparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from those estimates due to uncertainties. Such estimates include, but are not limited to, estimates related to lease accounting; pension accounting; fair value for purposes of assessing long-lived assets for impairment; revenue recognition; income taxes; stock-based compensation and contingencies. On an ongoing basis, management reviews its estimates and assumptions based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.Operating Expense PresentationSegment ReportingThe Company operates three business segments: Marketing Services; Customer Care; and Fulfillment & Logistics Services. Our Chief Executive Officer (“CEO”) is considered to be our chief operating decision maker. Our CEO reviews our operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance by using the three financial measures: revenue, operating income and operating income plus depreciation and amortization (EBITDA).Cash EquivalentsAll highly liquid investments with an original maturity of 90 days or less at the time of purchase are considered to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.42Restricted CashIn our normal business operation, we receive cash from our customers for certain customer program service funding. As these programs impose legal restrictions on the commingling of funds, we present this cash as restricted cash.Accounts Receivable and Allowance for Credit LossesAccounts receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic conditions that may affect the Company's expectation of the collectability in determining the Consolidated Statements of Comprehensive Income The “Labor” lineallowance for credit losses. Expected credit losses are recorded in the Consolidated Statements of Comprehensive Income includes all employee payroll and benefits costs, including stock-based compensation and temporary labor costs. The “Production and distribution” and “Advertising, selling, general, and administrative” linesline of our Consolidated Statements of Comprehensive Income. As of December 31, 2023 and 2022, our accounts receivables, net, was $34.3 million and $39.7 million, respectively. The Company classifies unbilled receivables as Accounts receivable. The changes in the allowance for credit losses accounts consisted of the following:Year Ended December 31, In thousands 2023 2022 Balance at beginning of year $ 163 $ 266 Net charges to expense 321 (92) Amounts recovered against the allowance (10) (11) Balance at end of year $ 474 $ 163 Unbilled receivablesFor the majority of service contracts, the Company performs the services prior to billing the client, and this amount is captured as an unbilled receivable included in accounts receivable, net on the consolidated balance sheet. Billing usually occurs in the month after the Company performs the services or in accordance with the specific contractual provisions.Geographic ConcentrationsDepending on the needs of our clients, our services are provided through an integrated approach through eleven facilities worldwide, of which four are located outside of the U.S.The following table provides information about the operations in different geographic area for the periods indicated:Revenue(1)Year Ended December 31, In thousands 2023 2022 United States $ 173,162 $ 183,470 Other countries 18,330 22,808 Total revenue $ 191,492 $ 206,278 (1)Geographic revenues are based on the location of the service being performed.Property, plant and equipment, net(2)December 31, In thousands 2023 2022 United States $ 8,005 $ 10,219 Other countries 850 304 Total property, plant and equipment $ 8,855 $ 10,523 (2)Property, plant and equipment are based on physical location.43Credit Risk and ConcentrationAccounts receivable are typically unsecured and are derived from revenue earned from customers across different industries and countries. We perform ongoing credit evaluation of our customers and generally do not include labor, depreciation, or amortization expense.Our top customer represented 11.2% and 13.0% of total accounts receivable as of December 31, 2023 and 2022, respectively.Revenue by Top CustomersThe table below sets forth the percentage of our total revenue derived from our largest customers: Year Ended December 31, 2023 2022 Top ten customers 48.5 % 50.6 % Top twenty-five customers 71.7 % 72.5 % Our top customer represented 11.2% and 12.2% of total revenue for the year ended December 31, 2023 and 2022, respectively.Related Party TransactionsFrom 2016 until October 2020, we conducted business with Wipro, LLC (“Wipro”), whereby Wipro provided us with a variety of technology-related services. We have since terminated all service agreements with Wipro. Effective January 30, 2018, Wipro became a related party when it purchased 9,926 shares of our Series A Preferred Stock, for aggregate consideration of $9.9 million. On December 2, 2022, we completed the repurchase of all of our outstanding Preferred Stock from Wipro and as of said date Wipro is no longer a related party.Revenue RecognitionWe recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products or services based on the relevant contract. We apply the following five-stepfive-step revenue recognition model:•Identification of the contract, or contracts, with a customer•Identification of the performance obligations in the contract•Determination of the transaction price•Allocation of the transaction price to the performance obligations in the contract•Recognition of revenue when (or as) we satisfy the performance obligation•Identification of the contract, or contracts, with a customer•Identification of the performance obligations in the contract•Determination of the transaction price•Allocation of the transaction price to the performance obligations in the contract•Recognition of revenue when (or as) we satisfy the performance obligationCertain client programs provide for adjustments to billings based upon whether we achieve certain performance criteria. In these circumstances, revenue is recognized when the foregoing conditions are met. We record revenue net of any taxes collected from customers and subsequently remitted to governmental authorities. Any payments received in advance of the performance of services or delivery of the product are recorded as deferred revenue until such time as the services are performed or the product is delivered. Costs incurred for search engine marketing solutions payable to the engine host and postage costs of mailings are billed to our clients and are not directly reflected in our revenue.37For arrangements requiring the design and build out of a database, revenue is not recognized until client acceptance occurs. Up-front fees billed during the setup phase for these arrangements are deferred and direct build costs are capitalized. Pricing for these types of arrangements is typically based on a fixed price determined in the contract. Revenue from other database marketing solutions is recognized ratably over the contractual service period. Pricing for these services is typically based on a fixed price per month or per contract.44Fair Value of Financial InstrumentsFinancial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 820,Fair Value Measurements and Disclosures, ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into three levels:Level 1Quoted prices in active markets for identical assets or liabilities.Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Level 1Quoted prices in active markets for identical assets or liabilities.Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Because of their maturities and/or variable interest rates, certain financial instruments have fair values approximating their carrying values. These instruments include cash and cash equivalents and restricted cash, accounts receivable, trade payables, and long-term debt. The fair value of the assets in our funded pension plan is disclosed in Note H, Employee Benefit Plans.Cash EquivalentsAll highly liquid investments with an original maturity of 90 days or less at the time of purchase are considered to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.Restricted CashIn our normal business operation, we receive cash from our customers for certain customer program service funding. As these programs impose legal restrictions on the commingling of funds, we present this cash as restricted cash.Accounts Receivable and Allowance for Credit LossesAccounts receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We make estimates of expected credit and collectability trends for the allowance for credit losses based upon our assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of our customers, current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. Expected credit losses are recorded in the “Advertising, selling, general, and administrative” line of our Consolidated Statements of Comprehensive Income. As of December 31, 2022 and 2021, our accounts receivables, net, was $47.6 million and $49.2 million, respectively. The Company classifies unbilled receivables as Accounts receivable. The changes in the allowance for credit losses accounts consisted of the following: $ 266 $ 241 (92 ) 95 (11 ) (70 ) $ 163 $ 266 38Property, plant and equipment, net consist of the following:Year Ended December 31, In thousands 2023 2022 Property, plant and equipment Buildings and improvements $ 4,635 $ 4,387 Equipment and furniture 20,881 20,478 Software 18,030 20,724 Software development and equipment installations in progress 1,842 8,947 Gross property, plant and equipment 45,388 54,536 Less accumulated depreciation (36,533) (44,013) Net property, plant and equipment $ 8,855 $ 10,523 Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The general ranges of estimated useful lives are:Years 3 to 40 2 to 10 3 to 20 For the year ended December 31, 2023, the Company recorded $3.4 million of depreciation expense compared to $2.5 million for the year ended December 31, 2022.Long-lived assets such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We recorded a$0.1 million and $0.2 million of impairment of long-lived assets in both 20222023 and 2021.45LeasesWe determine if an arrangement is a lease at its inception. Operating and finance leases are included in the lease right-of-use (“ROU”) assets and in the current portion and long-term portion of lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of each lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date of each lease to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease, which are included in the lease ROU assets when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain real estate leases, we account for the lease and non-lease components as a single lease component.Capitalization of Software Development CostsCapitalized software costs for internally developed software and implementation of third-partythird-party software are amortized over a period of three to five years. On an ongoing basis, management reviews the valuation of these software costs to determine if there has been impairment to the carrying value of these assets and adjusts this value accordingly.GoodwillGoodwill is the amount by which the cost of the acquired net assets in a business combination exceeds the fair value of the identifiable net assets on the date of purchase. Goodwill is not amortized. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if events occur indicating the potential for impairment.The Company has three reporting segments, but the current goodwill balance is booked in the Customer Care segment. During its goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company performs a quantitative goodwill impairment test. The Company may also elect to bypass the qualitative assessment in a period and elect to proceed to perform the quantitative goodwill impairment test.Intangible AssetsIntangible assets consist of finite-lived intangible assets acquired through the Company’s business combinations. Such amounts are initially recorded at fair value and subsequently amortized over their useful lives using the straight-line method, which reflects the pattern of benefit, and assumes no residual value.Finite-lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require an intangible asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that intangible asset to its carrying amount. If the carrying amount of the intangible asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-partythird-party independent appraisals, as considered necessary.The factors that drive the estimate of useful life are often uncertain and are reviewed on a periodic basis or when events occur that warrant review. Recoverability is measured by comparing the assets’ book value to future net undiscounted cash flows that the assets are expected to generate to determine if a write-down to the recoverable amount is appropriate. If such assets are written down, an impairment will be recognized as the amount by which the book value of the asset group exceeds the recoverable amount.46Income TaxesIncome tax expense includes U.S. and international income taxes accounted for under the asset and liability method. Certain income and expenses are not reported in tax returns and financial statements in the same year. Such temporary differences are reported as deferred tax. Deferred tax assets are reported net of valuation allowances where we have assessed that it is more likely than not that a tax benefit will not be realized.Earnings Per ShareBasic earnings per common share is based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is based upon the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents are calculated based on the assumed exercise of stock options and vesting of unvested shares using the treasury stock method.39All share-based awards are recognized as operating expense in the “Labor” line of the Consolidated Statements of Comprehensive Income. Calculated expense is based on the fair values of the awards on the date of grant and is recognized over the requisite service period or performance period of the awards.Reserve for Healthcare, Workers’ Compensation, Automobile and General LiabilityWe are self-insured for the majority of our healthcare insurance. We pay actual medical claims up to a stop loss limit of $0.3 million. In the fourth quarter of 2016, we moved toOur workers’ compensation programs are a guaranteed cost program for our workers’ compensation programs. At On December 31, 2022 2023 and 2021,2022, our reserve for healthcare, workers’ compensation, net, automobile, and general liability was $1.2$1.1 million, for each year.the year ended December 31, 2023 and 2022, respectively. Periodic changes to the reserve for workers’ compensation, automobile and general liability are recorded as increases or decreases to insurance expense, which is included in the “Advertising, selling, general and administrative” line of our Consolidated Statements of Comprehensive Income. Periodic changes to the reserve for healthcare are recorded as increases or decreases to employee benefits expense, which is included in the “Labor” line of our Consolidated Statements of Comprehensive Income.Foreign CurrenciesIn most instances the functional currencies of our foreign operations are the local currencies. Assets and liabilities recorded in foreign currencies are translated in U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during a given month. Adjustments resulting from this translation are charged or credited to other comprehensive income.Note B - Recent Accounting PronouncementsRecently adoptedIn November 2023, the FASB issued accounting pronouncementsstandards update (“ASU”) 2023-07, which enhances the disclosures required for reportable segments in annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company for annual reporting periods beginning with the fiscal year ending November 30, 2025, and for interim reporting periods beginning in fiscal year 2026. Early adoption is permitted. The Company is currently evaluating the impact that this update will have on its disclosures in the consolidated financial statements.June 2016,December 2023, the FASB issued ASU 2016-13,Financial Instruments—Credit Losses. This2023-09, which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregated information related to income taxes paid. The amendments in ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes became2023-09 are effective for the fiscal year ending after November 30, 2026. The Company is currently evaluating the impact that this update will have on January 1, 2022. The adoption of thisits disclosures in the consolidated financial statements.No other new standard did notaccounting pronouncements recently adopted or issued had or are expected to have a material impact on ourthe consolidated financial statements.Recent Accounting Guidance Not Yet AdoptedIn October 2021, the FASB issued ASU 202147Note C -08,Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities Operating revenue from Contracts with Customers. This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The ASU is effective for fiscal years and interim periods beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact of adopting this ASU.40Note C -Under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with CustomersUnder Accounting Standards Update (ASU) 2014-09,Revenue from Contracts with Customers (“ASC 606”), an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the new standard, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. This standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard also includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs.Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our contracts with customers state the terms of sale, including the description, quantity, and price of the product sold or service provided. Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. The Company's contracts with its customers generally do not include rights of return or a significant financing component.Consistent with legacy U.S. GAAP, we present sales taxes assessed on revenue-producing transactions on a net basis.41We disaggregate revenue by three key revenue streams which are aligned with our business segments. The nature of the services offered by each key revenue stream is different. The following tables summarize revenue from contracts with customers for the years ended December 31, 2022 2023, and 20212022 from our three business segments and the pattern of revenue recognition: $ 45,020 $ 7,955 $ 52,975 67,205 — 67,205 75,081 11,017 86,098 $ 187,306 $ 18,972 $ 206,278 $ 48,450 $ 7,938 $ 56,388 74,691 — 74,691 55,754 7,763 63,517 $ 178,895 $ 15,701 $ 194,596 For the Year Ended December 31, 2023 In thousands Revenue for performance
obligations recognized
over timeRevenue for performance
obligations recognized at a
point in timeTotal Marketing Services $ 38,950 $ 4,254 $ 43,204 Customer Care 63,327 — 63,327 Fulfillment & Logistics Services 69,038 15,923 84,961 Total Revenue $ 171,315 $ 20,177 $ 191,492 For the Year Ended December 31, 2022 In thousands Revenue for performance
obligations recognized
over timeRevenue for performance
obligations recognized at a
point in timeTotal Marketing Services $ 45,020 $ 7,955 $ 52,975 Customer Care 67,205 — 67,205 Fulfillment & Logistics Services 75,081 11,017 86,098 Total Revenue $ 187,306 $ 18,972 $ 206,278 Our contracts with customers may consist of multiple performance obligations. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. For most performance obligations, we determine SSP based on the price at which the performance obligation is sold separately. Although uncommon, if the SSP is not observable through past transactions, we estimate the SSP taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Further discussion of other performance obligations in each of our major revenue streams follows:4248Marketing ServicesOur Marketing Services segment delivers strategic planning, data strategy, performance analytics, creative development and execution, technology enablement, marketing automation, and database management. We create relevancy by leveraging data, insight, and our extensive experience in leading clients as they engage their customers through digital, traditional, and emerging channels. We are known for helping clients build deep customer relationships, create connected customer experiences, and optimize each and every customer touch point in order to deliver desired business outcomes.Most marketing services performance obligations are satisfied over time and often offered on a project basis. We have concluded that the best approach to measure the progress toward completion of the project-based performance obligations is the input method, which is based on either the costs or labor hours incurred to date depending upon whether costs or labor hours more accurately depict the transfer of value to the customer.The variable consideration in these contracts primarily relates to time and material-based services and reimbursable out-of-pocket travel costs, both of which are estimated using the expected value method. For time and material-based contracts, we use the “as invoiced” practical expedient.Our database solutions are built around centralized marketing databases with services rendered to build custom databases, database hosting services, customer or target marketing lists and data processing services.These performance obligations, including services rendered to build a custom database, database hosting services, customer or target marketing lists and data processing services, may be satisfied over time or at a point in time. We provide SaaS solutions to host data for customers and have concluded that they are stand-ready obligations to be recognized over time on a monthly basis. Our promise to provide certain data related services meets the over-time recognition criteria because our services do not create an asset with an alternative use, and we have an enforceable right to payment. For performance obligations recognized over time, we choose either the input (i.e.(i.e., labor hour) or output method (i.e.(i.e., number of customer records) to measure the progress toward completion depending on the nature of the services provided. Some of our other data-related services do not meet the over-time criteria and are therefore, recognized at a point-in-time, typically upon the delivery of a specific deliverable.Our contracts may include outsourced print production work for our clients. These contracts may include a promise to purchase postage on behalf of our clients. In such cases, we have determined we are an agent, rather than principal and therefore recognize net consideration as revenue.We charge our customers for certain data-related services at a fixed transaction-based rate, e.g., per thousand customer records processed. Because the quantity of transactions is unknown at the onset of a contract, our transaction price is variable, and we use the expected value method to estimate the transaction price. The uncertainty associated with the variable consideration generally resolves within a short period of time since the duration of these contracts is generally less than two months.Customer CareWe operate tele-service workstationsdeliver customer care services in the United States, Asia and Europe to provide advanced contact center solutions such as: speech,as voice, and video SMS/chat, email, integrated voice response, analytics,web self-service, social cloud monitoring and web self-service.Performance obligations are stand-ready obligations and are satisfied over time. With regard to account management and software as a service (“SaaS”), we use a time-elapsed output method to recognize revenue. For performance obligations where we charge customers a transaction-based fee, we use the output method based on transaction quantities. In most cases, our contracts provide us the right to invoice for services provided, therefore, we generally use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations unless significant discounts are offered in a contract and prices for services do not represent their SSPs.The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided unknown at the onset of a contract, which are estimated using the expected value method.43Our services, delivered internally and with our partners, include: printing, lettershop, advanced mail optimization (including commingling services), logistics and transportation optimization, monitoring and tracking, to support traditional and specialized mailings. Our print and fulfillment centers in Massachusetts and Kansas provide custom kitting services, print on demand, product recalls, trade marketing fulfillment, ecommerce product fulfillment, sampling programs, and freight optimization, thereby allowing our customers to distribute literature and other marketing materials.Most performance obligations offered within this revenue stream are satisfied over time and utilize the input or output method, depending on the nature of the service, to measure progress toward satisfying the performance obligation. For performance obligations where we charge customers a transaction-based fee, we utilize the output method based on the quantities fulfilled. Services provided through our fulfillment centers are typically priced at a per transaction basis and our contracts provide us the right to invoice for services provided and reflects the value to the customer of the services transferred to date. In most cases, we use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices. Prior to the closure of our direct mail production facilities, our direct mail business contracts49may have included a promise to purchase postage on behalf of our clients; in such cases, we have determined we are an agent, rather than principal and therefore recognize net consideration as revenue.The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided unknown at the onset of a contract, which is estimated using the expected value method. Upfront Non-Refundable FeesWe may receive non-refundable upfront fees from customers for implementation of our SaaS database solutions products or for providing training in connection with our contact center solutions. These activities are not deemed to transfer a separate promised service and therefore, represent advanced payments. As we do not deem these activities as transferring a separate promised service, the receipt of such fees represents advanced payments. Where customers have an option to renew a contract, the customer is not required to pay similar upfront fees upon renewal. As a result, we have determined that these renewal options provide for the purchase of future services at a reduced rate and therefore, provide a material right. These upfront non-refundable fees are recognized over the period of benefit which is generally consistent with estimated customer life (four to five years for database solutions contracts and six months to one year for contact center contracts). The balance of upfront non-refundable fees collected from customers was not material to the Company's consolidated financial statements as of December 31, 2022 and 2021.Transaction Price Allocated to Future Performance ObligationsWe have elected to apply certain optional exemptions that limit the disclosure requirements over remaining performance obligations at period end to exclude performance obligations that have an original expected duration of one year or less, transactions using the “as invoiced” practical expedient, or when a performance obligation is a series and we have allocated the variable consideration directly to the services performed. As of December 31, 2022,2023, we had no transaction prices allocated to unsatisfied or partially satisfied performance obligations.Contract BalancesWe record a receivable when revenue is recognized prior to invoicing when we have an unconditional right to consideration (only the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is conditional upon our future performance such as delivery of an additional good or service (e.g. customer contract requires customer’s final acceptance of custom database solution or delivery of final marketing strategy delivery presentation before customer payment is required). If invoicing occurs prior to revenue recognition, the unearned revenue is presented on our Consolidated Balance Sheets as a contract liability, referred to as deferred revenue. The following table summarizes our contract balances as of December 31, 2022 2023 and 2021: $ 309 $ 622 4,590 3,942 432 756 In thousands December 31, 2023 December 31, 2022 Contract assets $ 258 $ 309 Deferred revenue and customer advances 3,195 4,590 Deferred revenue included in other long-term liabilities 294 432 Revenue recognized during the year ended December 31, 20222023 from amounts included in deferred revenue as of December 31, 2021 2022 was approximately $3.7$4.3 million. Revenue recognized during the year ended December 31, 2021 2022 from amounts included in deferred revenue as of December 31, 2020 2021 was approximately $4.2$3.7 million.44We recognize an asset for the direct costs incurred to obtain and fulfill our contracts with customers to the extent that we expect to recover these costs and if the benefit is longer than one year. These costs are amortized to expense over the expected period of the benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. We impair the asset when recoverability is not anticipated. We capitalized a portion of commission expense, implementation and other costs that represents the cost to obtain a contract. The remaining unamortized contract costs were $1.0$0.6 million and $1.5$1.0 million as of December 31, 2022 2023 and 2021,2022, respectively. They are included in other current assets and other assets on our balance sheet. For the years presented, no impairment was recognized.Note D - LeasesWe have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term leases). Our leases have remaining lease terms of one year to eightseven years, some of which may include options to extend the leases for up to an additional five years.We sublease our Fullerton (CA), Jacksonville (FL) and Uxbridge (UK) facilities. The leaseslease and subleasessublease for these three facilitiesFullerton (CA) facility expired in April 2023, the lease and sublease for Uxbridge (UK) facility expired in October 2023, and the lease and sublease for Jacksonville (FL) facility will expire at various dates, the latest being in fiscal year end of July 2024.As of December 31, 2023, assets recorded under finance and operating leases were approximately $0.1 million and $25.3 million respectively, and accumulated amortization associated with finance leases was $0.1 million. As of December 31, 2022, assets recorded under finance and operating leases were approximately $0.6 million and $18.6 million respectively, and accumulated amortizationdepreciation associated with finance leases was $1.0 million. As of December 31, 2021 assets recorded under finance and operating leases were approximately $0.8 million and $21.4 million respectively, and accumulated depreciation associated with finance leases was $0.7 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.50The discount rate used to determine the commencement date present value of lease payment is the interest rate implicit in the lease, or when that is not readily determinable, we utilized our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.During the year ended December 31, 2021, 2023, we impaired threetwo leases for the facilities we no longer occupied. The resulting impairment and early termination charges are included in our restructuring expenses for the year ended December 31, 2021. 2023. There is no impairment of leases in the year ended December 31, 2022.The following tables present supplemental balance sheet information related to our financing and operating leases: $ 18,574 $ 595 $ 19,169 5,587 160 5,747 16,523 52 16,575 $ 22,110 $ 212 $ 22,322 $ 21,382 $ 760 $ 22,142 6,359 194 6,553 19,004 211 19,215 $ 25,363 $ 405 $ 25,768 As of December 31, 2023 As of December 31, 2022 In thousands Operating Leases Finance Leases Total Operating Leases Finance Leases Total Right-of-use Assets $ 25,288 $ 129 $ 25,417 $ 18,574 $ 595 $ 19,169 Liabilities: Short-term lease liabilities 4,773 42 4,815 5,587 160 5,747 Long-term lease liabilities 23,687 4 23,691 16,523 52 16,575 Total Lease Liabilities $ 28,460 $ 46 $ 28,506 $ 22,110 $ 212 $ 22,322 For the yearyears ended December 31, 2022 2023 and 2021,2022, the components of lease expense were as follows: $ 5,832 $ 7,745 166 195 16 27 182 222 1,899 2,604 (828 ) (1,153 ) $ 7,085 $ 9,418 In thousands Year Ended December 31, 2023 Year Ended December 31, 2022 Operating lease cost $ 5,526 $ 5,832 Finance lease cost Amortization of right-of-use assets 123 166 Interest on lease liabilities 7 16 Total Finance lease cost 130 182 Variable lease cost 2,068 1,899 Sublease income (834) (828) Total lease cost, net $ 6,890 $ 7,085 45 $ 12,698 $ 15,287 15 25 194 227 5.92 6.16 1.36 2.16 3.55 % 3.45 % 5.70 % 5.41 % In thousands Year Ended December 31, 2023 Year Ended December 31, 2022 Supplemental Cash Flows Information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 12,525 $ 12,698 Operating cash flows from finance leases 21 15 Financing cash flows from finance leases 160 194 Weighted Average Remaining Lease term (in years)Operating leases 6.84 5.92 Finance leases 1.04 1.36 Weighted Average Discount Rate Operating leases 5.65 % 3.55 % Finance leases 7.76 % 5.70 % 51The maturities of the Company’s finance and operating lease liabilities as of December 31, 20222023 are as follows: $ 6,226 $ 166 4,802 48 2,391 6 2,290 — 2,290 — 6,252 — 24,251 220 2,141 8 $ 22,110 $ 212 (1) In thousands Operating Leases(1)Finance Leases Year Ending December 31, 2024 $ 6,173 $ 44 2025 4,648 3 2026 4,219 1 2027 4,191 — 2028 4,094 — 2028 & Beyond 11,397 — Total future minimum lease payments 34,722 48 Less: Imputed interest 6,262 2 Total lease liabilities $ 28,460 $ 46 (1)Non-cancelable sublease proceeds for the fiscal year ending December 31, 2023, and 2024 of $0.4 million, and $0.4 million, respectively, are is not included in the table above.As of December 31, 2022,2023, wehave no new operating leases that have not yet commenced.46Convertible Preferred StockOur Amended and Restated Certificate of Incorporation authorizes us to issue 1.0 million shares of preferred stock. On January 30, 2018, we issued 9,926 shares of our Series A Preferred Stock (the "Preferred Shares") to Wipro at an issue price of $1,000 per share, for gross proceeds of $9.9 million pursuant to a Certificate of Designation filed with the State of Delaware on January 29, 2018. We incurred $0.2 million of transaction fees in connection with the issuance of the Series A Preferred Stock which were netted against the gross proceeds of $9.9 million on our Consolidated Financial Statements.On June 30, 2022, the Company entered into a share repurchase agreement (the “Repurchase Agreement”) with Wipro, pursuant to which the Company agreed to repurchase all 9,926 shares of the Preferred Stock then outstanding in exchange for (i) a cash payment equal to its liquidation value, or total cash payment of $9,926,000 and (ii) 100,000 shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”). The cash portion of the repurchase price was previously paid into escrow at the signing of the Repurchase Agreement on June 30, 2022 and held in escrow until the closing of the repurchase by PNC Bank, National Association, pending the reissuancere-issuance of the Preferred Stock from the State of New Jersey. Other than the release of previously escrowed funds, no additional cash was paid by Harte Hanks at closing.Wipro to repurchase all of our outstanding Preferred Stock from Wipro, the sole holder of the Preferred Stock.Series A Preferred Stock had the following rights and privileges:Liquidation RightsIn the event of a liquidation, dissolution or winding down ofWipro.On March 20, 2023, the Company or a Fundamental Transaction (defined in the Certificate of Designation for the Series A Preferred Stock), whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive, prior to and in preference to the holders of common stock, from the assets of the Company available for distribution, an amount equal to the greater of (i) the original issue price, plus any dividends accrued but unpaid thereon, and (ii) such amount per share as would have been payable hadcancelled all shares of Series A Preferred Stock been converted into Common Stock immediately before such liquidation.Upon liquidation, after the payment of all preferential amounts required to be paidpursuant to the holdersCertificate of Series A Preferred Stock,Elimination filed with the remaining assetsSecretary of the Company available for distribution to its stockholders shall be distributed among the holdersState of Common Stock.DividendsUpon liquidation, dissolution or winding down of the Company, or a Fundamental Transaction (collectively, a “Liquidation”), shares of Series A Preferred Stock which have not been otherwise converted to common stock, shall be entitled to receive dividends that accrue at a rate of (i) 5.0% each year, or (ii) the rate that cash dividends are paid in respect of shares of common stock (with Series A Preferred Stock being paid on an as-converted basis in such case) for such year if such rate is greater than 5.0%. Dividends on the Series A Preferred Stock are cumulative and accrue to the holders thereof whether or not declared byDelaware.Share Repurchase ProgramOn May 2, 2023, the Board of Directors (the “Board”). Dividends are payable solely uponof Harte Hanks approved a Liquidation, and only if priorshare repurchase program to such Liquidation such shares of Series A Preferred Stock have not been convertedmaximize shareholder value with authorization to common stock. ConversionAt the optionrepurchase $6.5 million of the holders of Series A Preferred Stock, shares of Series A Preferred Stock may be converted into common stock at a rate of 100.91Company’s Common Stock. In the year ended December 31, 2023, we repurchased 0.4 million shares of common stock for one share of Series A Preferred Stock, subject to certain future adjustments.Voting and Other RightsThe Series A Preferred Stock does not have voting rights, except as otherwise required by law. Other rights afforded the holders of Series A Preferred Stock, under defined circumstances, include the election and removal of one member of the Board of Directors as a separate voting class, the ability to approve certain actions of the Company prior to execution, and preemptive rights to participate in any future issuance of new securities. In addition, under certain circumstances, the holder of the Series A Preferred Stock is entitled to appoint an observer to our Board of Directors. The holder of the Series A Preferred Stock has elected to exercise its observer appointment rights but not exercised its right to appoint the board member.We determined that the Series A Preferred Stock has contingent redemption provisions allowing redemption by the holder upon certain defined events. As the event that may trigger the redemption of the Series A Preferred Stock is not solely within our control, the Series A Preferred Stock is classified as mezzanine equity (temporary equity) in the Consolidated Balance Sheet as of December 31, 2021.47Credit FacilitiesAs of December 31, 2022 and 2021, we had $0.0 and $5.0 million of borrowings outstanding under the New Credit Facility (as defined below). As of December 31, 2022, we had the ability to borrow an additional $24.2 million under the New Credit Facility. As of December 31, 2022 and 2021, we had letters of credit outstanding in the amount of $0.8 million and $1.1 million, respectively. No amounts were drawn against these letters of credit as of December 31, 2022 . These letters of credit exist to support insurance programs relating to workers‘ compensation, automobile, and general liability.On April 17, 2017, we entered into a secured credit facility with Texas Capital Bank, N.A (“Texas Capital Bank”), that provided a $20.0 million revolving credit facility (the “Old Texas Capital Credit Facility”) and for letters of credit issued by Texas Capital Bank up to $5.0 million. Over the term of the Old Texas Capital Credit Facility, we entered into a number of amendments to extend the term and reduce the borrowing capacity. The Old Texas Capital Credit Facility was secured by substantially all of the Company’s and its material domestic subsidiaries’ assets. The Old Texas Capital Credit Facility was guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for Harte Hanks by certain members of the Shelton family (descendants of one of our founders). The Old Texas Capital Credit Facility was secured by substantially all our assets and continues to be guaranteed by HHS Guaranty, LLC ("HHS"). Under the Old Texas Capital Credit Facility, we were permitted to elect to accrue interest on outstanding principal balances at either LIBOR plus 1.95% or prime plus 0.75%. Unused commitment balances accrued interest at 0.50%. We were required to pay a quarterly fee of 0.5% of the value of the collateral HHS pledged to secure the facility as consideration for the guarantee, which for the year ended December 31, 2021 amounted to $0.4 million.On December 21, 2021, the Company entered a new three-year, $25,000,000 year, $25.0 million asset-based revolving credit facility (the "New Credit Facility"“Credit Facility”) with Texas Capital Bank.Bank ("TCB"). The Company’s obligations under the New Credit Facility are guaranteed on a joint and several basis by the Company’s material subsidiaries (the “Guarantors”). The New Credit Facility is secured by substantially all the assets of the Company and the Guarantors pursuant to a Pledge and Security Agreement, dated as of December 21, 2021, between the Company, Texas Capital BankTCB and the other grantorsGuarantors party thereto (the "Security Agreement"“Security Agreement”).Newextension was executed with substantially similar terms and conditions.52The Credit Facility is subjectprovides for loans up to certain covenants restrictingthe lesser of (a) $25.0 million, and (b) the amount available under a “borrowing base” calculated primarily by reference to the Company's cash and cash equivalents and accounts receivables. The Credit Facility allows the Company to use up to $3.0 million on of its subsidiaries' abilityborrowing capacity to create, incur, assume or become liable for indebtedness; make certain investments; pay dividends or repurchase the Company's stock; create, incur or assume liens; consummate mergers or acquisitions; liquidate, dissolve, suspend or cease operations; or modify accounting or tax reporting methods (other than as required by U.S. GAAP). The Company was in compliance with allissue letters of the requirements as of December 31, 2022.The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield IndexSecured Overnight Financing Rate (SOFR) plus a margin of 2.25% per annum. The interest rate was 6.10%7.64% as of December 31, 2022.2023. The outstanding amounts advanced under the New Credit Facility are due and payable in full on June 30, 2025. As of December 21, 2024. 31, 2023 and 2022, we had no borrowings outstanding under the Credit Facility. As of December 31, 2023 and 2022, we had letters of credit outstanding in the amount of $0.8 million. No amounts were drawn against these letters of credit as of December 31, 2023 . These letters of credit exist to support insurance programs relating to workers‘ compensation, automobile, and general liability. Unused commitment balances accrued fees at a rate of 0.25%.In connection with enteringAs of December 31, 2023, we had the New Credit Facility, the Company and Texas Capital Bank terminated the Company's Old Texas Capital Credit Facility. Priorability to termination of the Old Texas Capital Credit Facility, the Company used cash on hand to pay down $12.1borrow an additional $24.2 million outstanding under the Old Texas Capital Credit Facility and the remaining $5.0 million of loans outstanding under the Old Texas Capital Credit Facility were deemed to be outstanding under the New Credit Facility. Unlike the Old Texas Capital Credit Facility, Texas Capital Bank did not require the New Credit Facility to be guaranteed by HHS.Cash payments for interest were $0.3$0.2 million and $0.5$0.3 million for the years ended December 31, 2023 and 2022, and 2021, respectively.Paycheck Protection Program Term NoteOn April 14, 2020, the Company entered a promissory note with Texas Capital Bank, for an unsecured loan with a principal amount of $10.0 million made to the Company pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).The proceeds were used to maintain payroll or make certain permitted interest payments, lease payments and utility payments. We applied for forgiveness of the entire $10.0 million PPP Term Note in the first quarter of 2021 because we used the proceeds from the loan as contemplated under the CARES Act. On June 10, 2021, we received notice that the entire amount of our PPP Loan was forgiven by the SBA. We recorded the $10.0 million of debt extinguishment as "Gain from extinguishment of debt" in the Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31,2021.48We maintain stock incentive plans for the benefit of certain officers, directors, and employees. Our stock incentive plans provide for the ability to issue stock options, cash stock appreciation rights, performance stock units, phantom stock units and cash performance stock units. Our cash stock appreciation rights, phantom stock units and cash performance stock units settle solely in cash and are treated as the current liability, which are adjusted each reporting period based on changes in our stock price.Compensation expense for stock-based awards is based on the fair values of the awards on the date of grant and is recognized on a straight-line basis over the vesting period of the entire award in the “Labor” line of the Consolidated Statements of Comprehensive Income. We recognized $2.4$1.4 million and $1.5$2.4 million of stock-based compensation expense for the years ended December 31, 2023 and 2022, and 2021, respectively.In May 2013, our stockholders approved the 2013 Omnibus Incentive Plan (“(“2013 Plan”), pursuant to which we may issue up to 500,000 shares of stock-based awards to directors, employees, and consultants, as adjusted for the reverse stock split. The 2013 Plan replaced the stockholder-approved 2005 Omnibus Incentive Plan (“(“2005 Plan”), pursuant to which we issued equity securities to directors, officers, and key employees. No additional stock-based awards will be granted under the 2005 Plan, but awards previously granted under the 2005 Plan will remain outstanding in accordance with their respective terms. In August 2018, we filed a Form S-8S-8 to increase the total registered shares under 2013 Plan to 553,673 shares. As of December 31, 2022 2023 and 2021,2022, there were 190,187188,582 and 188,285188,582 shares available, respectively, for grant under the 2013 Plan.In 2020, we established our 2020 Equity Incentive Plan ("("2020 Plan") which replaced the 2013 Equity Incentive Plan (“(“2013 Plan”). Any shares of common stock that remained eligible for issuance under the 2013 Plan are now instead eligible for issuance under the 2020 Plan. In August 2020, we filed a Form S-8S-8 to register up to an aggregate of 2,521,244 shares that may be issued under the 2020 Plan. The 2020 Plan provides for the issuance of stock-based awards to directors, employees and consultants. No additional stock-based awards will be granted under the 2013 Plan, but awards previously granted under the 2013 Plan will remain outstanding in accordance with their respective terms. As of December 31, 2022 2023 and 2021,2022, there were 1.3 million and 1.61.3 million shares available, respectively, for grant under the 2020 Plan.We granted equityIn August 2023, we established the 2023 Inducement Equity Incentive Plan ("2023 Plan"), pursuant to which the Company issued 240,000 shares of stock option awards, to our Chief Executive Officer and Chief Operating Officer in 2021, as a material inducement for acceptancewhich is the limit of such positions. These options, restricted stock, and performance unit awards were not issued under the 2020 Plan and were not submitted for stockholder approval.Stock OptionsOptions granted under the 20202023 Plan have an exercise price equal to the closing market price of our common stock on the date prior to the grant date. These options become exercisable in 33.3% increments on the first three anniversaries of their date of grant and expire on the tenth anniversary of their date of grant. Options to purchase 240,000 shares granted under 2023 Plan awards were outstanding as of December 31, 2023, with exercise prices ranging from $5.59 to $76.80 per share.53Options granted under the 2020 Plan, 2013 Plan or as inducement awards have an exercise price equal to the market value of the common stock on the grant date. These options become exercisable in 25% increments on the firstfour anniversaries of their date of grant and expire on the tenth anniversary of their date of grant. There were no options outstanding under the 2020 plan as of December 31, 2022 2023 and 2021.Options to purchase 6,663 shares granted under 2013 Plan awards were outstanding as of December 31, 2023, with exercise prices ranging from $5.59 to $116.40 per share. Options to purchase 8,268 shares granted under 2013 Plan awards were outstanding as of December 31, 2022,, with exercise prices ranging from $76.80 to $115.20 per share. There were no inducement award options outstanding as of December 31, 2022 and 2021.Options under the 2005 Plan were granted at exercise prices equal to the market value of the common stock on the grant date. All such awards have met their respective vesting dates. There were no options outstanding under the 2005 Plan as of December 31, 2023. Options to purchase 4,400 shares were outstanding under the 2005 Plan as of December 31, 2022,, with exercise prices ranging from $76.80 to $115.20 per share. Options to purchase 29,050 shares were outstanding under the 2005 Plan as of December 31, 2021, with exercise prices ranging from $76.80 to $184.65 per share. Options granted to officers after April 2015 vest in full upon a change in control if such options are not assumed or replaced by a publicly traded successor with an equivalent award (as defined in such officers’ change in control severance agreements).492022 2023 and 2021: 87,747 $ 40.25 — — — — (31,906 ) 2.95 — (7,411 ) 7.40 (10,815 ) 37.87 37,615 $ 80.21 1.36 (20,000 ) — — — — — (4,947 ) 95.80 12,668 $ 78.88 1.16 — 12,668 $ 78.88 1.16 — 12,668 $ 78.88 1.16 — In thousands Number of Shares Weighted-Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (Thousands) Options outstanding at December 31, 2021 37,615 $ 80.21 1.36 $ — Adjustment and Correction (20,000) Granted in 2022 — — — — Exercised in 2022 — — — — Unvested options forfeited in 2022 — — — — Vested options expired in 2022 (4,947) 95.80 — — Options outstanding at December 31, 2022 12,668 $ 78.88 1.16 $ — Granted in 2023 240,000 $ 5.59 9.67 288 Exercised in 2023 — — — — Unvested options forfeited in 2023 — — — — Vested options expired in 2023 (6,005) 77.38 — — Options outstanding at December 31, 2023 246,663 $ 7.61 9.38 $ 288 Vested and expected to vest at December 31, 2023 246,663 $ 7.61 9.38 $ 288 Exercisable at December 31, 2023 6,663 $ 80.24 0.49 $ — The aggregate intrinsic value at year end in the table above represents the total pre-tax intrinsic value that would have been received by the option holders if all of the in-the-money options were exercised on December 31, 2022.2023. The pre-tax intrinsic value is the difference between the closing price of our common stock on December 31, 20222023, and the exercise price for each in-the-money option. This value fluctuates with the changes in the price of our common stock.The following table summarizes information about stock options outstanding at December 31, 2022: 12,668 $ 78.88 1.16 12,668 $ 78.88 No2023:Range of
Exercise PricesNumber
OutstandingWeighted-Average
Exercise PriceWeighted-Average Remaining Life
(Years)Number
ExercisableWeighted-Average price per share
Outstanding and Vested$5.59 - 76.80 242,010 $ 6.18 9.55 2,010 $ 76.80 $77.60 - 116.40 4,653 $ 81.72 0.37 4,653 $ 81.72 54There were 240,000 options granted during 2023 and no options were granted during 2022 and 2021.2022. As of December 31, 2022,2023, there was no$0.8 million of unrecognized compensation cost related to unvested stock options.50In 2016 and 2017, the Board of Directors approved grants of cash settling stock appreciation rights under the 2013 Plan. Cash stock appreciation rights vest in 25% increments on the firstfour anniversaries of the date of grant and expire after 10 years. Cash stock appreciation rights settle solely in cash and are treated as a liability.There were no cash stock appreciation rights issued during 20222023 and 2021.The fair value of each cash stock appreciation right is estimated on the date of grant using the Black-Scholes Option-Pricing Model and is revalued at the end of each period. Changes in fair value are recorded toin the income statement as changes to expense. As of December 31, 2022,2023, there was no unrecognized compensation cost related to unvested cash stock appreciation right grants.Restricted Stock UnitsRestricted stock units granted as inducement awards or under the 2020 Plan and 2013 Plan vest in three equal increments on the firstthree anniversaries of their date of grant. Restricted stock units settle in treasury stock or newly issued shares and are treated as equity. Outstanding restricted stock units granted to officers as inducement awards or under the 2013 Plan vest in full (to the extent not previously vested) upon a change in control if such unvested shares are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).5120222023 and 2021: 789,709 $ 2.22 500,890 5.72 (396,407 ) 3.00 (247,753 ) 2.35 646,439 4.41 40,000 208,165 8.93 (296,161 ) 4.85 (82,267 ) 3.29 516,176 6.43 Number of Shares Weighted-Average Grant Date Fair Value Unvested shares outstanding at December 31, 2021 646,439 $4.41 Adjustment and Correction 40,000 — Granted in 2022 208,165 8.93 Vested in 2022 (296,161) 4.85 Forfeited in 2022 (82,267) 3.29 Unvested shares outstanding at December 31, 2022 516,176 $6.43 Granted in 2023 80,225 5.73 Vested in 2023 (308,523) 5.53 Forfeited in 2023 (44,437) 7.02 Unvested shares outstanding at December 31, 2023 243,441 $7.24 The fair value of each restricted stock unit is estimated on the date of grant as the closing market price of our common stock on the date prior to the grant. As of December 31, 2022,2023, there was $2.4$1.1 million of total unrecognized compensation cost related to restricted stock units. This cost is expected to be recognized over a weighted average period of approximately 1.891.18 years.Phantom Stock UnitsIn 2016 and 2017, the Board of Directors approved grants of phantom stock units under the 2013 Plan. Phantom stock units vest in 25% increments on the firstfour anniversaries of the date of grant. Phantom stock units settle solely in cash and are treated as a liability. Grants of phantom stock units made to officers under the 2013 Plan vest in full (to the extent not previously vested) upon a change in control if they are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).The following summarizes all phantomThere were no cash stock unit activityappreciation rights issued during 20222023 and 2021: 4,346 $ 9.70 — — (4,146 ) 9.70 (200 ) 9.70 — — 55The fair value of each phantom stock unit is estimated on the date of grant as the closing market price of our common stock on the date prior to the grant. Changes in our stock price will result in adjustments to compensation expense and the corresponding liability over the applicable service period. As of December 31, 2022,2023, there was no unrecognized compensation cost related to phantom stock units.52Performance stock units are a form of share-based award similar to unvested shares, except that the number of shares ultimately issued is based on our performance against specific performance goals over a roughly three-yearthree-year period. At the end of the performance period, the number of shares of stock issued will be determined in accordance with the specified performance target(s) in a range between 0% and 100%. Performance stock units vest solely in common stock and are treated as equity. Upon a change in control, performance stock units granted to officers vest on a pro-rated basis (based on time elapsed from the grant) to the extent not previously settled if they are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements). Performance Stock Units have been issued under the 2013 Plan, and the 2020 Plan as inducement awards.The following summarizes all performance stock unit activity during 20222023 and 2021: 32,268 $ 4.14 75,000 5.59 (13,158 ) 3.30 — 94,110 $ 5.41 117,000 7.77 (69,110 ) 5.44 — 142,000 7.34 Number ofUnitsWeighted-
Average Grant
Date Fair ValuePerformance stock units outstanding as of December 31, 2021 94,110 $ 5.41 Granted in 2022 117,000 $ 7.77 Settled in 2022 (69,110) 5.44 Forfeited in 2022 — — Performance stock units outstanding as of December 31, 2022 142,000 $ 7.34 Granted in 2023 — $ — Settled in 2023 — — Forfeited in 2023 (99,000) 7.14 Performance stock units outstanding as of December 31, 2023 43,000 $ 7.80 The fair value of each performance stock unit is estimated on the date of grant as the closing market price of our common stock on the date prior to the grant, minus the present value of anticipated dividend payments. Periodic compensation expense is based on the current estimate of future performance against specific performance goals over a three-yearthree-year period and is adjusted up or down based on those estimates. As of December 31, 2022,2023, the total unrecognized compensation cost related to performance stock units was approximately $637,040.$29,770. This cost is expected to be recognized over a weighted average period of approximately 1.170.44 years.Cash Performance Stock UnitsIn 2016 and 2017, the Board of Directors approved grants of cash performance stock units under the 2013 Plan. Cash performance stock units are a form of share-based award similar to phantom stock units, except that the number of units ultimately issued is based on our performance against specific performance goals measured after a three-yearthree-year period. At the end of the performance period, the number of units vesting will be determined in accordance with specified performance target(s) in a range between 0% and 100%. Cash performance stock units settle solely in cash and are treated as a liability. Upon a change in control, cash performance stock units granted to officers, vest on a pro-rated basis (based on time elapsed from the grant) to the extent not previously settled if they are not assumed or replaced by a publicly traded successor with an equivalent award (as such terms are defined in such officers’ change-in-control severance agreements).5320222023 and 2021.The fair value of each cash performance stock unit is estimated on the date of grant as the closing market price of our common stock on the date prior to the grant, minus the present value of anticipated dividend payments. Periodic compensation expense is based on the current estimate of future performance against specific performance goals over a56threeTable of Contents-yearthree-year period and is adjusted up or down based on those estimates. As of December 31, 2022,2023, there was no unrecognized compensation cost related to cash performance stock units.Note H — Employee Benefit PlansPrior to January 1,1999, we provided a defined benefit pension plan for which most of our employees were eligible to participate (the “Qualified Pension Plan”). In conjunction with significant enhancements to our 401(k)401(k) plan, we elected to freeze benefits under the Qualified Pension Plan as of December 31,1998.In 1994, we adopted a non-qualified, unfunded, supplemental pension plan (the “Restoration Pension Plan”) covering certain employees, which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from the principal pension plan were it not for limitations imposed by income tax regulation. The benefits under the Restoration Pension Plan were intended to provide benefits equivalent to our Qualified Pension Plan as if such plan had not been frozen. We elected to freeze benefits under the Restoration Pension Plan as of April 1,2014.At the end of 2020,2021, the Board of Directors of the Company approved the division of the Qualified Pension Plan into two distinct plans, “Qualified Pension Plan I” and “Qualified Pension Plan II.” The assets and liabilities of the Qualified Pension Plan that were attributable to certain participants in Qualified Pension Plan II were spun off and transferred into Qualified Pension Plan II effective as of the end of December 31, 2020, 2021, in accordance with Internal Revenue Code section 414 (I) and ERISA Section 4044.In January 2023, the Board of Directors of the Company approved the termination of the Qualified Pension Plan I. The termination process will take approximately 18eighteen months to complete and will result in the transfer of our obligations pursuant to this pension plan to a third-partythird-party provider. The overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our consolidated balance sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation. Periodic changes in the funded status are recognized through other comprehensive income in the Consolidated Statements of Comprehensive Income. We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated Balance Sheets.54 $ 186,041 $ 198,586 5,040 4,674 (37,014 ) (6,610 ) (10,546 ) (10,609 ) $ 143,521 $ 186,041 $ 131,741 $ 129,348 (20,358 ) 10,977 3,053 2,025 (10,545 ) (10,609 ) $ 103,891 $ 131,741 $ (39,630 ) $ (54,300 ) Year Ended December 31, In thousands 2023 2022 Change in benefit obligation Benefit obligation at beginning of year $ 143,521 $ 186,041 Interest cost 7,088 5,040 Actuarial gain (loss) 1,465 (37,014) Benefits paid (10,647) (10,546) Benefit obligation at end of year $ 141,427 $ 143,521 Change in plan assets Fair value of plan assets at beginning of year $ 103,891 $ 131,741 Actual return on plan assets 7,128 (20,358) Contributions 3,324 3,053 Benefits paid (10,647) (10,545) Fair value of plan assets at end of year $ 103,696 $ 103,891 Funded status at end of year $ (37,731) $ (39,630) 57The following amounts have been recognized in the Consolidated Balance Sheets as of December 31: $ 1,858 $ 1,801 18,674 27,359 19,098 25,140 $ 39,630 $ 54,300 In thousands 2023 2022 Current pension liabilities $ 8,561 $ 1,858 Long term pension liabilities - Qualified plans 10,540 18,674 Long term pension liabilities - Nonqualified plan 18,630 19,098 Total pension liabilities $ 37,731 $ 39,630 The following amounts have been recognized in accumulated other comprehensive loss, net of tax, as of December 31: $ 44,120 $ 54,394 In thousands 2023 2022 Net loss $ 42,456 $ 44,120 Based on current estimates, we will be required to make $1.6$2.0 million in cash contributions to our Qualified Pension Plan II, in 2023.We are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2023 other than to the extent needed to cover benefit payments. We made benefit payments under this supplemental plan of $1.8 million in 2022.The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets: $ 143,521 $ 186,041 $ 143,521 $ 186,041 $ 103,891 $ 131,741 In thousands 2023 2022 Projected benefit obligation $ 141,427 $ 143,521 Accumulated benefit obligation $ 141,427 $ 143,521 Fair value of plan assets $ 103,696 $ 103,891 The Restoration Pension Plan had an accumulated benefit obligation of $21.0$20.5 million and $26.9$21.0 million as of December 31, 2023, and 2022, and 2021, respectively.55 $ 5,040 $ 4,674 (5,872 ) (6,754 ) 2,876 3,441 2,044 1,361 (10,274 ) (14,150 ) $ (8,230 ) $ (12,789 ) Year Ended December 31, In thousands 2023 2022 Net Periodic Benefit Cost Interest cost $ 7,088 $ 5,040 Expected return on plan assets (6,216) (5,872) Recognized actuarial loss 2,521 2,876 Net periodic benefit cost 3,393 2,044 Amounts Recognized in Other Comprehensive Income Adjustment to pension liabilities (1,723) (10,274) Net cost recognized in net periodic benefit cost and other comprehensive income $ 1,670 $ (8,230) The components of net periodic benefit costs other than the service cost component are included in Other, net in our Consolidated Statement of Comprehensive Income. The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 20222024 is $2.5$1.5 million. The period over which the net loss from the Qualified Pension Plan is amortized into net periodic benefit cost was the average future lifetime of all participants (approximately 16.215.7 years for Qualified Pension Plan I and approximately 25.624.8 years for Qualified Pension Plan II ). The Qualified Pension Plan is frozen and almost all of the plan’s participants are not active employees.58The weighted-average assumptions used for measurement of the defined pension plans were as follows: 2.75 % 2.37 % 2.92 % 2.61 % 2.73 % 2.34 % 4.25 % 5.50 % 5.75 % 4.75 % n/a n/a 5.13 % 2.75 % 5.18 % 2.92 % 5.12 % 2.73 % Weighted-average assumptions used to determine net periodic benefit cost Year Ended December 31, 2023 2022 Discount rate Qualified Plan I 5.13 % 2.75 % Qualified Plan II 5.18 % 2.92 % Restoration Plan 5.12 % 2.73 % Expected return on plan assets Qualified Plan I 5.95 % 4.25 % Qualified Plan II 7.05 % 5.75 % Restoration Plan n/a n/a Weighted-average assumptions used to determine benefit obligations December 31, 2023 2022 Discount rate Qualified Plan I 5.64 % 5.13 % Qualified Plan II 4.99 % 5.18 % Restoration Plan 4.92 % 5.12 % The discount rate assumptions are based on current yields of investment-grade corporate long-term bonds. The expected long-term return on plan assets is based on the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity investments) over a long-term horizon. In determining the expected long-term rate of return on plan assets, we evaluated input from our investment consultants, actuaries, and investment management firms, including their review of asset class return expectations, as well as long-term historical asset class returns. Projected returns by such consultants and economists are based on broad equity and bond indices. Additionally, we considered our historical 15-year15-year compounded returns, which have been in excess of the forward-looking return expectations.The funded pension plan assets as of December 31, 2022 2023 and 2021,2022, by asset category, were as follows: $ 50,090 48 % $ 66,324 50 % 49,846 48 % 61,689 47 % 3,955 4 % 3,728 3 % $ 103,891 100 % $ 131,741 100 % In thousands 2023 % 2022 % Equity securities $ 20,635 20 % $ 50,090 48 % Debt securities 76,036 73 % 49,846 48 % Other 7,025 7 % 3,955 4 % Total plan assets $ 103,696 100 % $ 103,891 100 % The fair values presented have been prepared using values and information available as of December 31, 2022 2023 and 2021.2022.5659The following tables present the fair value measurements of the assets in our funded pension plan: $ 50,090 $ 50,090 $ — $ — 49,846 35,575 14,271 — 99,936 85,665 14,271 — 3,955 — — — $ 103,891 $ 85,665 $ 14,271 $ — $ 66,324 $ 66,324 $ — $ — $ 61,689 56,838 4,851 — 128,013 123,162 4,851 — $ 3,728 — — — $ 131,741 $ 123,162 $ 4,851 $ — (1) In thousands December 31,
2023Quoted Prices in Active Markets
for Identical Assets
(Level 1)Significant Other Observable
Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Equity securities $ 20,635 $ 20,635 $ — $ — Debt securities 76,036 66,847 9,189 — Total investments, excluding investments valued at NAV 96,671 87,482 9,189 — Investments valued at NAV(1)7,025 — — — Total plan assets $ 103,696 $ 87,482 $ 9,189 $ — In thousands December 31,
2022Quoted Prices in Active Markets
for Identical Assets
(Level 1)Significant Other Observable
Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Equity securities $ 50,090 $ 50,090 $ — $ — Debt securities $ 49,846 35,575 14,271 — Total investments, excluding investments valued at NAV 99,936 85,665 14,271 — Investments valued at NAV(1)$ 3,955 — — — Total plan assets $ 103,891 $ 85,665 $ 14,271 $ — (1)Investment valued at net asset value ("NAV") are comprised of cash, cash equivalents, and short-term investments used to provide liquidity for the payment of benefits and other purposes. The commingled funds are valued at NAV based on the market value of the underlying investments, which are primarily government issued securities.Management identified an error in the prior year classification of investments. Certain investments were incorrectly disclosed as Level 2 investments when they were, in fact, Level 1 investments. Management has concluded that this error in disclosure is qualitatively immaterial to the consolidated financial statements. The prior year investments in error have been reclassified to Level 1.The investment policy for the Qualified Pension Plans focuses on the preservation and enhancement of the corpus of the plan’s assets through prudent asset allocation, quarterly monitoring and evaluation of investment results, and periodic meetings with investment managers.The investment policy’s goals and objectives are to meet or exceed the representative indices over a full market cycle (3-5(3-5 years). The policy establishes the following investment mix, which is intended to subject the principal to an acceptable level of volatility while still meeting the desired return objectives:Qualified Pension Plan I Target TargetAcceptable Range —% 0% - 20% 39%24% - 54%—% 0% - 10% 14%9% - 19%—% 0% - 5% 9%4% - 14%5—% 0% - 10%5%—% 0% - 5% 8%3% - 13%3—% 0% - 6%5%95% 0% - 100% 59%44% - 74%95% 0% - 100% 59%44% - 74%2%5% 0% -40%-100%60Qualified Pension Plan II Target TargetAcceptable Range 77%77% 62% - 87% 28%28% 18% - 38% 18%18% 13% - 23% 9%9% 4% - 14% 16%16% 11% - 21% 6%6% 0% - 9% 21%21% 11% - 31% 21%21% 11% - 31% 2%2% 0%-40% The funded pension plans provide for investment in various investment types. Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with investments, it is reasonably possible that changes in the value of investments will occur in the near term and may impact the funded status of these plans. To address the issue of risk, the investment policy places high priority on the preservation of the value of capital (in real terms) over a market cycle. Investments are made in companies with a minimum five-yearfive-year operating history and sufficient trading volume to facilitate, under most market conditions, prompt sale without severe market effect. Investments are diversified across numerous market sectors and individual companies. Reasonable concentration in any one issue, issuer, industry, or geographic area is allowed if the potential reward is worth the risk.Investment managers are evaluated by the performance of the representative indices over a full market cycle for each class of assets. The Pension Plan Committee reviews, on a quarterly basis, the investment portfolio of each manager, which includes rates of return, performance comparisons with the most appropriate indices, and comparisons of each manager’s performance with a universe of other portfolio managers that employ the same investment style.5720222023, are as follows: $ 11,253 11,297 11,343 11,450 11,588 2028 - 2032 56,404 $ 113,335 In thousands 2024 $ 89,460 2025 4,017 2026 4,111 2027 4,217 2028 4,327 2029 - 2033 22,809 Total $ 128,941 The Company also has two pension plans in its foreign jurisdictions, the associated pension liabilities are not material.We also sponsored a 401(k) -401(k) retirement plan in which we matched a portion of employees’ voluntary before-tax contributions prior to 2018. Under this plan, both employee and matching contributions vest immediately. We stopped this 401(k)401(k) match program in 2018 and resumed it in 2022.2023. We incurred $1.2 million in 401k match expense in both 2023 and 2022.61Note I — Income TaxesCoronavirus Aid, Relief and Economic Security ActIn response to the COVID-19 pandemic, theThe CARES Act, was signed into law in March 2020. The CARES Act2020, lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“ (“2017 Tax Act”). Under the CARES Act, corporate taxpayers may carryback net operating losses (“ NOLs”) realized during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018,2019 2020 or 2020.2021. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30%(30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year15-year cost-recovery and 100% bonus depreciation. As of December 31, 2020, the Company filed federal net operating loss carryback claims resulting in an income tax refund for $6.4 million and $3.2 million for tax years 2019 and 2018, respectively. As of December 31, 2022,, the Company has received the tax refunds for the tax years 2019 and 2018 and $2.5 million of income tax refunds from the carryback of the loss generated in 2020. We have received the remaining tax refund of $5.3 million in March 2023.The components of income tax (benefit) expensebenefit are as follows: $ 60 $ (372 ) 774 856 1,546 804 $ 2,380 $ 1,288 $ (11,496 ) $ — (8,347 ) — $ (19,843 ) $ — $ (17,463 ) $ 1,288 Year Ended December 31, In thousands 2023 2022 Current Federal $ (10) $ 60 State and local 264 774 Foreign 871 1,546 Total current $ 1,125 $ 2,380 Deferred Federal $ (1,340) $ (11,496) State and local (216) (8,347) Foreign 82 — Total deferred $ (1,474) $ (19,843) Total income benefit $ (349) $ (17,463) The U.S. and foreign components of income (loss) before income taxes were as follows: $ 10,252 $ 11,725 9,061 4,534 $ 19,313 $ 16,259 Year Ended December 31, In thousands 2023 2022 United States $ (7,546) $ 10,252 Foreign 5,627 9,061 Total (loss) income before income taxes $ (1,919) $ 19,313 5820222023 were the impact of the release of the majority of the U.S.state taxes, change in valuation allowance, federal and foreign income tax credits and the benefit of excess stock benefits on vested restricted stock, offset by flow-through partnership income from a United Kingdom affiliate. The principal reasons for the difference between the statutory rate and the annual effective rate for 20212022 were the impact of the release of the majority of the U.S. valuation allowance, federal and foreign income tax credits, and the benefit of excess stock benefits on vested restricted stock, offset by flow-through partnership income from a United Kingdom affiliate offset by gain on PPP Term Note forgiveness and a change in valuation allowance.62The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% to income (loss) before income taxes were as follows: $ 4,056 $ 3,413 91 172 1,074 520 639 447 (349 ) (224 ) (18,243 ) (1,424 ) — (343 ) (365 ) (244 ) (141 ) 247 (2,172 ) (373 ) (1,126 ) (403 ) (1,330 ) 1,561 — (2,122 ) 403 61 $ (17,463 ) $ 1,288 Year Ended December 31, In thousands 2023 2022 Computed expected income tax (benefit) expense $ (403) $ 4,056 Net effect of state income taxes (206) 1,074 Foreign subsidiary dividend inclusions 507 639 Foreign tax rate differential (257) (349) Change in valuation allowance (562) (18,243) Return to Provision 706 (141) Change in Rate 165 (2,172) Credits (543) (1,126) Adjustments to State Attributes (137) (1,330) Other Adjustments, net 381 129 Income tax benefit $ (349) $ (17,463) Total income tax (benefit) expensebenefit was allocated as follows: $ (17,463 ) $ 1,288 — — $ (17,463 ) $ 1,288 Year Ended December 31, In thousands 2023 2022 Loss from operations $ (349) $ (17,463) Stockholders’ equity (deficit) — — Total $ (349) $ (17,463) 5963The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows: $ 10,246 $ 13,135 33 181 5,591 5,873 491 385 103 96 43 59 1,047 1,019 445 473 913 1,267 585 452 1,623 1,631 5,184 3,475 4,212 3,841 546 215 31,062 32,102 (7,652 ) (25,894 ) $ 23,410 $ 6,208 $ (2,024 ) $ (897 ) (4,765 ) (5,006 ) (228 ) (305 ) (87 ) — (7,104 ) (6,208 ) $ 16,306 $ — Year Ended December 31, In thousands 2023 2022 Deferred tax assets Deferred compensation and retirement plan $ 9,667 $ 10,246 Accrued expenses not deductible until paid 1,177 33 Lease liability 6,979 5,591 Investment in foreign subsidiaries, outside basis difference 1,604 1,047 Interest Expense limitations 971 913 Other, net 1,320 1,667 Foreign net operating loss carryforwards 1,382 1,623 State net operating loss carryforwards 5,309 5,184 Foreign tax credit carryforwards 3,730 4,212 General Business Credit Carryovers 538 546 Total gross deferred tax assets 32,677 31,062 Less valuation allowances (7,091) (7,652) Net deferred tax assets $ 25,586 $ 23,410 Deferred tax liabilities Property, plant and equipment $ (1,485) $ (2,024) Right-of-use asset (6,144) (4,765) Other, net (689) (315) Total gross deferred tax liabilities (8,318) (7,104) Net deferred tax assets $ 17,268 $ 16,306 In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. After considering the weight of available information,evidence, both positive and negative (most notably the Company’s sustained profitabilitygrowth over the past two years), the Company concluded that it is more-likely-than-notmore-likely-than-not that it will realize the majority of its U.S. deferred tax assets. Certain foreign tax credits as well as certain state net operating loss carryovers will continue to have a valuation allowance until there is substantial evidence that enough future taxable income exists at a more likely than not level in order to utilize those deferred tax assets. The valuation allowance for deferred tax assets was $7.7$7.1 million and $25.9$7.7 million as of December 31, 2022 2023 and 2021,2022, respectively. The change in the valuation allowance is $18.2$0.6 million for the year ended December 31, 2022.We or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state, federal and foreign returns, we are no longer subject to tax examinations for years prior to 2017. For U.S. federal and foreign returns, we are no longer subject to tax examinations for years prior to 2017.2018.602022 2023 and 2021.2022. Any adjustments to this liability as a result of the finalization of audits or potential settlements would not be material.We have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements of Comprehensive Income. For U.S. tax return purposes, net operating losses and tax credits are normally available to be carried forward to future years, subject to limitations as discussed below. As of December 31, 2022,2023, the Company had no federal net operating loss carryforward. The federal foreign tax carryforward credits of $4.2$3.7 million will expire on various dates from 2023 to 2032. Federal general business credit carryforwards of $0.5 million will begin to expire on various dates from 20402037 to 2042. The Company has state NOL carryforwards of $105.7$109.0 million, and foreign NOL carryforwards of $5.4$4.4 million.Deferred income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. It is not practicable to64estimate the amount of additional taxes which may be payable upon the distribution of these earnings. However, because of the provisions in the Tax Reform Act, the tax cost of repatriation is immaterial and limited to foreign withholding taxes, currency translation and state taxes.Note J — Earnings Per ShareIn periods in which the Company has net income, the Company is required to calculate earnings per share (“EPS”) using the two-classtwo-class method. The two-classtwo-class method is required because the Company’s Series A Preferred Stock is considered a participating security with objectively determinable and non-discretionary dividend participation rights. Series A Preferred stockholders have the right to participate in dividends above their five percent dividend rate should the Company declare dividends on its common stock at a dividend rate higher than the five percent (on an as-converted basis). Under the two-classtwo-class method, undistributed and distributed earnings are allocated on a pro-rata basis to the common and the preferred stockholders. The weighted-average number of common and preferred stock outstanding during the period is then used to calculate EPS for each class of shares.In December 2022, we repurchased all 9,926 shares of the Company's Series A Preferred Stock then outstanding.In periods in which the Company has a net loss, basic loss per share is calculated using the treasury stock method. The treasury stock method is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. The two-classtwo-class method is not used, because the calculation would be anti-dilutive.61 $ 36,776 $ 14,971 1,380 — — 496 — 1,858 35,396 12,617 — 1,858 — (1,766 ) $ 35,396 $ 12,709 7,101 6,802 7,457 7,209 $ 4.98 $ 1.85 $ 4.75 $ 1.76 Year Ended December 31, In thousands, except per share amounts 2023 2022 Numerator: Net (loss) income $ (1,570) $ 36,776 Less: Loss from redemption of Preferred stock — 1,380 Numerator for basic and diluted EPS: income attributable to common stockholders (1,570) 35,396 Denominator: Basic EPS denominator: weighted-average common shares outstanding 7,310 7,101 Diluted EPS denominator 7,310 7,457 Basic (loss) income per common share $ (0.21) $ 4.98 Diluted (loss) income per common share $ (0.21) $ 4.75 For the years ended December 31, 2022 2023 and 2021,2022, respectively, the following shares have been excluded from the calculation of shares used in the diluted EPS calculation: 13,36699,791 and 46,38013,366 shares of anti-dilutive market price options; 24,91837,653 and 29,98324,918 anti-dilutive unvested shares.65Note K — Comprehensive IncomeComprehensive income (loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders.Changes in accumulated other comprehensive loss by component were as follows: $ (68,544 ) $ 2,933 $ (65,611 ) — (1,867 ) (1,867 ) 14,150 — 14,150 14,150 (1,867 ) 12,283 $ (54,394 ) $ 1,066 $ (53,328 ) — (5,248 ) (5,248 ) 10,274 10,274 10,274 (5,248 ) 5,026 $ (44,120 ) $ (4,182 ) $ (48,302 ) In thousands Defined BenefitPension ItemsForeignCurrency ItemsTotal Balance at December 31, 2021 $ (54,394) $ 1,066 $ (53,328) Other comprehensive loss, net of tax, before reclassifications — (5,248) (5,248) Amounts reclassified from accumulated other comprehensive loss, net of tax 10,274 — 10,274 Net current period other comprehensive income (loss), net of tax 10,274 (5,248) 5,026 Balance at December 31, 2022 $ (44,120) $ (4,182) $ (48,302) Other comprehensive income, net of tax, before reclassifications — 2,548 2,548 Amounts reclassified from accumulated other comprehensive loss, net of tax 1,664 — 1,664 Net current period other comprehensive income, net of tax 1,664 2,548 4,212 Balance at December 31, 2023 $ (42,456) $ (1,634) $ (44,090) Reclassification amounts related to the defined pension plans are included in the computation of net period pension benefit cost (see Note H, Employee Benefit Plans)Plans).Note L — Acquisition of Inside OutInsideOut Solutions, LLCOn December 1, 2022 (the “Closing Date”), we purchased substantially all of the assets (the “Transaction”) of Inside OutInsideOut Solutions, LLC, a Florida limited liability company (“InsideOut”), for an aggregate purchase price of approximately $7.5 million (the “Purchase Price”) pursuant to an asset purchase agreement, dated as of December 1, 2022, by and between Harte Hanks and InsideOut (the “Asset Purchase Agreement”).InsideOut is a premium sales enablement agency offering technology and data driven support to technology, media telecommunications, business services, industrial, and financial technology customers in the North American and European markets with its headquarters in St. Petersburg, Florida. its marketing services andthe customer care segmentssegment and strengthens our ability to drive profitable revenue growth within our current sales enablement offerings, including: (i) demand generation which creates qualified marketing leads for our clients, and (ii) inside sales offerings to further promote a client’s internal growth objectives. In addition, the owner and CEO of InsideOut entered into a two-year consulting agreement with the Company, which will ensure consistency in our delivery of these sales enablement offerings, post-closing.Pursuant to the Asset Purchase Agreement, $5.75 million of the Purchase Price was paid in cash at closing, $1.0 million in cash was placed in escrow to satisfy indemnification obligations, if any, and separately, to satisfy earn-outs related to future revenue performance. Separately, $0.75 million of the Purchase Price was paid at closing in 70,956 shares of Harte Hanks common stock, par value $1.00 per share (the “Common Stock”).stock. The share amount was based on the volume weighted closing price over the 15 trading days ending on November 28, 2022. $1.0In the year ended December 31, 2023, InsideOut didn't meet the performance requirement to earn the 1st installment of $0.5 million of the $1.0 million in escrow. As a result, $0.50 million was refunded from the escrow account and our goodwill amount was decreased by $0.5 million. The remaining $0.5 million cash in escrow account is included in other current assets in our balance sheet as of December 31, 2022. The Purchase Price is subject to a post-closing net working capital true-up 180-days after the Transaction closes if net working capital is not between $1.3 million and $1.6 million. The acquisition was accounted for under the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities. The following table shows the amounts recorded as of their acquisition date.in thousands Amount $1,445 $ 1,445148 148177 1771,770 1,770$1,009 $ 1,00966The Purchase Price was subject to a post-closing net working capital true-up. The true up made was immaterial.We recognized $3.6 million of intangible assets and $2.4 million of goodwill associated with this acquisition. The amount of goodwill recorded reflects expected earning potential and synergies with our Customer Care segment. We are amortizing the intangible assets on a straight-line basis over its useful life of five years. A summary of the Company’s intangible asset as of December 31, 20222023, is as follows: In thousands Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying
AmountCustomer Relationships 5 years $ 3,600 $ 780 $ 2,820 Estimated future amortization expense related to intangible assets as of December 31, 20222023, is as follows:In thousands Year Ending December 31, Amount 2024 $ 720 2025 720 2026 720 2027 660 Total $ 2,820 $ 720 720 720 720 660 $ 3,540 The Company's resultresults of operations for the year ended December 31, 20222023 includes revenue of $1.0 and net earnings of $0.2$9.7 million from the InsideOut operation from the date of acquisition through December 31, 2022.operation.Note M — Litigation and ContingenciesIn the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of third party claims that we infringe on the proprietary rights of third parties. parties, or third party claims relating to other ad hoc contract obligations. The terms and duration of these commitments vary and, in some cases, may be indefinite, and certainsome of these contractual commitments do not limit the maximum amount of future payments we could become obligated to make thereunder; accordingly, our actual aggregate maximum exposure related to these types of commitments is not reasonably estimable. Historically, we have not been obligated to make significant payments for obligations of this nature, and no liabilities have been recorded for these obligations in our consolidated financial statements.We are also subject to various claims and legal proceedings in the ordinary course of conducting our business and, from time to time, we may become involved in additional claims and lawsuits incidental to our business. We routinely assess the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses; to the extent losses are reasonably estimable. Accruals are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonable estimable.In the opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability of a material loss beyond the amounts accrued is remote. Nevertheless, we cannot predict the impact of future developments affecting our pending or future claims and lawsuits. We expense legal costs as incurred, and all recorded legal liabilities are adjusted as required as better information becomes available to us. The factors we consider when recording an accrual for contingencies include, among others: (i) the opinions and views of our general counsel and outside legal counsel; (ii) our previous experience;experience with similar claims; and (iii) the decision of our management as to how we intend to respond to the complaints.62Certain Relationships and Related Party TransactionsAs described in Note F, Long-Term Debt, the Company’s Old Texas Capital Credit Facility was secured by HHS Guaranty, LLC, an entity formed to provide credit support for the Company by certain members of the Shelton family (descendants of one of our founders). The arrangement was terminated in connection with the entry into the New Credit Facility because Texas Capital Bank did not require third-party credit support for the borrowings under the New Credit Facility. 63Note O — Restructuring ActivitiesOur management team continuously reviews and adjusts our cost structure and operating footprint, optimize our operations, and invest in improved technology. During 2020, in an effort to right-size our operating footprint, we terminated leases in Wilkes Barre (PA) and Grand Prairie (TX) and exited our last direct mail facility in Jacksonville (FL). We completed the migration of our fulfillment business from the Grand Prairie (TX) operations into a new 400,000 square foot facility in Kansas City (KS) in December 2020. In the first quarter of 2021, we completed the migration of our Shawnee (KS) operations to Kansas City (KS). The new Kansas City location is now our primary facility in the Midwest. In 2020, we also reduced the footprint of our Customer Care business by reducing our Austin (TX) office location by approximately 50,000 square feet in addition to exiting one of our two Manila offices as the business was operating effectively in a work-from-home environment. In connection with our cost-saving and restructuring initiatives, we incurred total restructuring charges of $27.6 million through the end of 2021. We completed our restructuring in 2021, and did not incur any additional restructuring expenses in 2022.For the year ended December 31, 2021, 2023, we recorded restructuring charges of $6.4$5.7 million. The 20212023 restructuring charges included $2.5$4.6 million of severance charges, $0.9consulting expenses, $0.8 million in lease impairment expense, $0.2 million of severance charges, and $3.0$0.1 million of facility related and other expenses.67The following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Consolidated Statement of Comprehensive Income. 2,482 868 33 2,976 3,877 $ 6,359 In thousands Year Ended December 31, 2023 Consulting expense $ 4,579 Severance 169 Facility, asset impairment and other expense Lease impairment and termination expense 798 Fixed Asset disposal and impairment charges 63 Facility and other expenses 78 Total facility, asset impairment and other expense 939 Total $ 5,687 The following table summarizes the changes in liabilities related to restructuring activities: $ 738 $ — $ 738 — — — (726 ) — (726 ) $ 12 $ — $ 12 Year Ended December 31, 2023 In thousands Consulting Severance Facility, asset impairment and other expense Total Beginning balance: $ — $ — $ — $ — Additions 4,579 169 78 4,826 Payments and adjustment (1,005) (25) (40) (1,070) Ending balance: $ 3,574 $ 144 $ 38 $ 3,756 In connection with our cost-saving and restructuring initiatives, we incurredexpect to incur total restructuring charges of $27.6$10.1 million through the end of 2021. For the years ended December 31, 2021, 2020 and 2019, we recognized $6.4 million, $9.4 million and $11.8 million of restructuring expense, respectively. We do not expect to incur additional restructuring charges after 2021.2024.Note PO — Segment ReportingHarte Hanks is a leading global customer experience company. We have organized our operations into three business segments based on the types of products and services we provide: Marketing Services, Customer Care, and Fulfillment & Logistics Services.Our Marketing Services segment leverages data, insight, and experience to support clients as they engage customers through digital, traditional, and emerging channels. We partner with clients to develop strategies and tactics to identify and prioritize customer audiences in B2C and B2B transactions. Our key service offerings include strategic business, brand, marketing and communications planning, data strategy, audience identification and prioritization, predictive modeling, creative development and execution across traditional and digital channels, website and app development, platform architecture, database build and management, marketing automation, and performance measurement, reporting and optimization.Our Customer Care segment offers intelligently responsive contact center solutions, which use real-time data to effectively interact with each customer. Customer contacts are handled through phone, e-mail, social media, text messaging, chat and digital self-service support. We provide these services utilizing our advanced technology infrastructure, human resource management skills and industry experience.Our Fulfillment & Logistics Services segment consists of mail and product fulfillment and logistics services. We offer a variety of product fulfillment solutions, including printing on demand, managing product recalls, and distributing literature and promotional products to support B2B trade, drive marketing campaigns, and improve customer experience. We are also a provider of third-partythird-party logistics and freight optimization in the United States. Prior to the sale68There are three principal financial measures reported to our CEO (the chief operating decision maker) for use in assessing segment performance and allocating resources. Those measures are revenue, operating income and operating income plus depreciation and amortization (“EBITDA”). Operating income for segment reporting, disclosed below, is revenues less operating costs and allocated corporate expenses. Segment operating expenses are generally directly attributed to our segments and also include allocations of certain centrally incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff, and human resources administration. These costs are allocated based on actual usage or other appropriate methods. Unallocated corporate expenses are corporate overhead expenses not attributable to the operating groups. Interest income and expense are not allocated to the segments. The Company does not allocate assets to our reportable segments for internal reporting purposes, nor does our CEO evaluate operating segments using discrete asset information. The accounting policies of the segments are consistent with those described in the Note A, Overview andB, Significant Accounting Policies.64segment: $ 52,975 $ 67,205 $ 86,098 $ — $ — $ 206,278 $ 41,241 $ 52,173 $ 72,180 $ — $ 22,849 $ 188,443 $ — $ — $ — $ — $ — $ — $ 11,734 $ 15,032 $ 13,918 $ — $ (22,849 ) $ 17,835 $ 4,390 $ 2,865 $ 3,325 $ — $ (10,580 ) $ — $ 7,344 $ 12,167 $ 10,593 $ — $ (12,269 ) $ 17,835 $ 362 $ 884 $ 824 $ — $ 658 $ 2,728 $ 6,982 $ 11,283 $ 9,769 $ — $ (12,927 ) $ 15,107 $ 56,388 $ 74,691 $ 63,517 $ — $ — $ 194,596 $ 44,251 $ 59,200 $ 53,666 $ — $ 20,922 $ 178,039 $ — $ — $ — $ 6,359 $ — $ 6,359 $ 12,137 $ 15,491 $ 9,851 $ (6,359 ) $ (20,922 ) $ 10,198 $ 4,424 $ 2,922 $ 3,153 $ — $ (10,499 ) $ — $ 7,713 $ 12,569 $ 6,698 $ (6,359 ) $ (10,423 ) $ 10,198 $ 530 $ 849 $ 718 $ — $ 462 $ 2,559 $ 7,183 $ 11,720 $ 5,980 $ (6,359 ) $ (10,885 ) $ 7,639 (In thousands) Marketing Services Customer Care Fulfillment & Logistics Restructuring Unallocated Corporate Total Operating revenue $ 43,204 $ 63,327 $ 84,961 $ — $ — $ 191,492 Segment operating expense 34,795 49,851 73,213 — 20,350 178,209 Restructuring expense — — — 5,687 — 5,687 Contribution margin $ 8,409 $ 13,476 $ 11,748 $ (5,687) $ (20,350) $ 7,596 Overhead Allocation 2,984 2,774 2,891 — (8,649) — EBITDA $ 5,425 $ 10,702 $ 8,857 $ (5,687) $ (11,701) $ 7,596 Depreciation and amortization expense 312 1,280 1,143 — 1,502 4,237 Operating income (loss) $ 5,113 $ 9,422 $ 7,714 $ (5,687) $ (13,203) $ 3,359 65INDEX TO EXHIBITSWe are incorporating certain exhibits listed belowThe following table presents financial information by reference to other Harte Hanks filings with the Securities and Exchange Commission, which we have identified in parentheses after each applicable exhibit.ExhibitNo.Description of ExhibitCharter DocumentsCredit AgreementsManagement and Director Compensatory Plans and Forms of Award Agreements
segment year ended December 31, 2022:10.2(a)10.2(b)10.2(c)10.2(d)10.2(e)66(In thousands) Marketing Services Customer Care Fulfillment & Logistics Restructuring Unallocated Corporate Total Operating revenue $ 52,975 $ 67,205 $ 86,098 $ — $ — $ 206,278 Segment operating expense 41,241 52,173 72,180 — 22,849 188,443 Restructuring expense — — — — — — Contribution margin $ 11,734 $ 15,032 $ 13,918 $ — $ (22,849) $ 17,835 Overhead allocation 4,390 2,865 3,325 — (10,580) — EBITDA $ 7,344 $ 12,167 $ 10,593 $ — $ (12,269) $ 17,835 Depreciation and amortization expense 362 884 824 — 658 2,728 Operating income (loss) $ 6,982 $ 11,283 $ 9,769 $ — $ (12,927) $ 15,107 Executive Officer Employment-Related and Separation Agreements10.3(a)10.3(b)10.3 (c)10.3 (d)10.3 (e)10.3(f)Employment Agreement between the Company and Brian Linscott, effective as of June 23, 2021 (filed as Exhibit 10.2 to the company's Form 8-K, dated June 23, 2021).Material AgreementsNoneOther Exhibits*21.1*23.1Consent of Baker Tilly US LLP*31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1*32.2*101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data Files because its XBRL tags are embedded within the Inline XBRL Document.*101.SCHInline XBRL Taxonomy Extension Schema Document*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*101.LABInline XBRL Taxonomy Extension Labels Linkbase Document*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*101.DEFInline XBRL Definition Linkbase Document*104Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)*Filed or furnished herewith, as applicablePursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Harte Hanks, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.HARTE HANKS, INC.By:/s/ Brian LinscottBrian LinscottChief Executive OfficerDate:March 31, 2023Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated./s/ Brian Linscott/s/ Laurilee KearnesBrian LinscottLaurilee KearnesChief Executive OfficerVice President and Chief Financial OfficerDate: March 31, 2023Date: March 31, 2023/s/ John H. Griffin, Jr./s/ Genevieve C. Combes John H. Griffin Jr., DirectorGenevieve C. Combes, DirectorDate: March 31, 2023Date: March 31, 2023/s/ David L. Copeland/s/ Radoff, Bradley LDavid L. Copeland, DirectorBradley L. Radoff, DirectorDate: March 31, 2023Date: March 31, 202369