~~UNITED STATES~~U.S.

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-K/A~~

~~(Amendment No. 1)~~10-K

(Mark One)

☒

☒ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the fiscal year ended December 31, ~~2020~~2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07120

HARTE HANKS, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-1677284
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		~~(I.R.S. Employer~~ Identification Number)

~~2800 Wells Branch Parkway, Austin, Texas 78728~~2 Executive Drive, Chelmsford, MA 01824

(Address of principal executive offices, including zip code)

(512) 434-1100

(Registrant’s telephone number including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	~~HRTH~~HHS	~~OTCQX~~NASDAQ

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~(the “Exchange Act”)~~

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company.

See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
~~Accelerated~~Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐
~~Non-accelerated filer~~	☒	~~Smaller reporting company~~	☒
		~~Emerging growth company~~	☐

Table of Contents

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. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

~~Indicate by check mark~~ if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price ($~~3.10)~~5.8) as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, ~~2020)~~2021), was approximately ~~$17,824,464.~~$30,396,333.

The number of shares outstanding of each of the registrant’s classes of common stock as of ~~January~~March 31, ~~2021 was 6,654,246 shares~~2022 was 7,002,528 shares of common stock, all of one class.

Documents incorporated by reference:

~~None.~~

Portions of the Proxy Statement to be filed for the company’s 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

THIS ANNUAL REPORT ON FORM ~~10-K/A~~10-K IS BEING DISTRIBUTED TO STOCKHOLDERS IN LIEU OF A SEPARATE ANNUAL REPORT PURSUANT TO RULE 14a-3(b) OF THE ACT.

~~Explanatory Note~~

~~This Amendment No. 1 on Form 10-K/A (“Amendment No. 1” or “Annual Report”) amends the annual report on Form 10-K~~

Table of Harte Hanks, Inc. (together with its subsidiaries, “Harte Hanks,” “Company,” “we,” “our,” or “us”) for the fiscal year ended December 31, 2020 (the “Original Filing”), filed with the U.S. Securities and Exchange Commission (“SEC”) on March 24, 2021 (the “Original Filing Date”). The sole purpose of this Amendment No. 1 is to include the information required by Items 10 through 14 of Part III of Form 10-K.

This information was previously omitted from the Original Filing in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such proxy statement is filed no later than 120 days after our fiscal year-end. The Company does not anticipate that its definitive proxy statement for the 2021 annual meeting will be filed within the 120-day period. Accordingly, Part III of the Original Filing is amended as set forth below. The reference on the cover of the Original Filing to the incorporation by reference to portions of our definitive proxy statement into Part III of the Original Filing is hereby deleted.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 15 of Part IV of the Original Filing has been amended to contain currently dated certifications required pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (“Sarbox”) from our Principal Executive Officer and Principal Financial Officer. The currently dated certifications are attached hereto as Exhibits 31.3 and 31.4. This Amendment No. 1 does not amend, modify, or otherwise update any other information in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing. In addition, this Amendment No. 1 does not reflect events that may have occurred subsequent to the Original Filing Date.

Contents

This ~~Amendment No. 1~~report, including the 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 this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 ~~(the “1933 Act”)~~ and Section 21E of the Exchange Act. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management. Statements other than historical facts are forward-looking and may be identified by words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “seeks,” “could,” “intends,” or words of similar meaning. Examples include statements regarding (1) our strategies and initiatives, including our ability to reduce costs ~~pursuant to the restructuring activities, (2)~~and make other adjustments to our cost structure and other actions designed to respond to market conditions and improve our performance, ~~and the anticipated effectiveness and expenses associated with these actions, (3)~~(2) our financial outlook for revenues, earnings (loss) per share, operating income (loss), expense related to equity-based compensation, capital resources and other financial items, if any, ~~(4)~~(3) expectations for our businesses and for the industries in which we operate, including the impact of economic conditions of the markets we serve on the marketing expenditures and activities of our clients and prospects, ~~(5)~~(4) competitive factors, ~~(6)~~(5) acquisition and development plans, ~~(7) our stock repurchase program, (8)~~( (6) expectations regarding legal proceedings and other contingent liabilities, and ~~(9)~~(7) other statements regarding future events, conditions, or outcomes.

These forward-looking statements are based on current information, expectations, and estimates and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from what is expressed in or indicated by the forward-looking statements. In that event, our business, financial condition, results of operations, or liquidity could be materially adversely affected, and investors in our securities could lose part or all their investments. Some of these risks, uncertainties, assumptions, and other factors can be found in our filings with the SEC, including the factors discussed below in ~~the Original Filing under~~this Item 1A, “Risk Factors”, of this Annual Report, and any updates thereto in our Forms 10-Q and 8-K. The forward-looking statements included in this report and those included in our other public filings, press releases, our website, and oral and written presentations by management are made only as of the respective dates thereof, and we undertake no obligation to update publicly any forward-looking statement in this report or in other documents, our website, or oral statements for any reason, even if new information becomes available or other events occur in the future, except as required by law.

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 ~~Being a~~ “~~Smaller Reporting Company~~”the world’s most respected brands

We ~~qualify~~are the successor to a newspaper business started by Houston Harte and Bernard Hanks in Texas in the early 1920s. We were incorporated in Delaware on October 1, 1970. In 1972, Harte Hanks went public and was listed on the New York Stock Exchange (“NYSE”). We became a private company in a leveraged buyout in 1984, and in 1993 we again went public and listed our common stock on the NYSE. On July 13, 2020, we began trading on the OTCQX® Best Market (the “OTCQX”). On December 1, 2021, our stock was uplisted to be traded on the Nasdaq Global Market® (“Nasdaq”).

All reports filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are publicly available. These documents may be accessed free of charge on our website at http://www.hartehanks.com. These documents are also provided as soon as practical after they are filed with the SEC and may also be found at the SEC’s website at www.sec.gov. Additionally, we have adopted and posted on our website a code of ethics that applies to our chief executive officer, chief operating officer, and chief financial officer. Our website also includes our corporate governance guidelines and the charters for each of our audit, compensation, and nominating and corporate governance committees. We will provide a printed copy of any of these documents to any requesting stockholder. These website addresses are intended to be for inactive textual references only. None of the information on, or accessible through, these websites are part of this Form 10-K or is incorporated by reference 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.

Our goal is to help our clients activate their audiences through digital, traditional and emerging channels. We leverage data, insights, technology, and award-winning creative to meet and exceed, our clients’ business objectives and optimize our client’s return on investment. We provide full service multi-channel marketing from strategy to campaign execution.

Harte Hanks is a leading full lifecycle provider of global customer experience management services, multichannel demand generation and digital transformation. Using our integrated onshore/offshore global delivery model, we provide our services through multiple communication channels including phone, email, social media, text messaging, chat 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:

We 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.

Our goal as a ~~“smaller~~business is to unlock critical sales enablement and eCommerce fulfillment channels for our customers, 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.

Financial information about reporting ~~company”~~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 O.

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. 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.

Certain 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, 2021 and 2020, Harte Hanks had revenues of $194.6 million and $176.9 million, respectively.

In the first quarter of 2020, we took a number of precautionary measures designed to help minimize the risk of the spread of COVID-19 among our employees, including suspending all non-essential employee travel worldwide, temporarily closing the majority of our domestic and foreign offices, extensively and frequently disinfecting our offices that remained open, enforcing social distancing to the extent possible and requiring the majority of our employees to work remotely. While portion of our workforce has started to return to the office, many of our employees will continue to work remotely on a more permanent basis.

We continue to closely monitor the impact of the pandemic on all aspects of our business, including the impact on our customers, employees, suppliers, supply-chain, freight costs, vendors and business partners, as well as how it has impacted our liquidity and ability to comply with covenants in our credit agreement. The continuous emergence of variants of the virus increases uncertainties surrounding the impact of the virus and the global economy, in general, and our business, in particular.

In connection with the pandemic, some of our customers have reduced the amount of work we provide to them while other customers have requested accommodations including extensions of payment or restructuring of agreements. However, due to pandemic-related changes, including an increased need for contact center services, our Customer Care solutions services secured new contracts as well as increased volume for existing customers. While the pandemic has not had a material effect on our business, liquidity or ability to comply with covenants to date, given the dynamic nature of the pandemic, we may experience material impacts in the future. We recommend that you review “Item 1A. Risk Factors” in this Annual Report on this Form 10-K for a further discussion on COVID-19.

Our 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 2020, we also successfully 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 (Philippines) offices since the business is operating effectively in a work-from-home environment. In the first quarter of 2021, we completed the migration of our Shawnee (KS) operations to Kansas City (KS). The Shawnee (KS) facility lease expired on April 30, 2021. The new Kansas City (KS) location is now our primary facility in the Midwest.

For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million respectively. Restructuring charges in 2021 included $2.5 million of severance charges, $0.9 million in lease impairment expense and $3.0 million of facility related and other expenses. Restructuring charges in 2020 included lease impairment charges related to the exit from our direct mail facilities, severance charges, capital losses from the asset disposal associated with the deal with Summit Direct Mail Inc. (“Summit”), facility related and other expenses.

We do not expect to incur any additional restructuring expenses after December 31, 2021.

During Q4 2021, the Company was approved for listing on the Nasdaq Global Market® (“Nasdaq”) after meeting the financial, liquidity and corporate governance listing requirements of the NASDAQ. On December 1, 2021, the Company commenced trading on the NASDAQ.

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 of other select markets. Our clients include large multinational enterprises, small and medium-sized businesses and government organizations. Our largest client (measured in revenue) generated 15.1% of total revenues in 2021. Our largest 25 clients in terms of revenue generated 72.6% of total revenue in 2021. We generally enter into long-term contracts with our clients ranging in duration from one to three years. Most of our contracts do not require our customers to purchase a minimum amount of services from us. In general, our contracts with our customers are terminable on short notice with little or no penalty payable on termination.

We rely on our enterprise and solution sellers to primarily sell our products and services to new clients and task our employees supporting existing clients to expand our client relationship through additional solutions and products. Our marketing services sales force sells a variety of solutions and services to address client’s targeted marketing needs. We maintain solution-specific sales forces and sales groups to sell our individual products and solutions. We currently have approximately 9 employees in our sales and marketing function.

Our competition comes from local, national, and international marketing and advertising companies, and internal client resources, against whom we compete for individual projects, entire client relationships, and marketing expenditures. Competitive factors in our industry include the quality and scope of services, technical and strategic expertise, the perceived value of the services provided, reputation, pricing and brand recognition. We also compete against social, mobile, web-based, email, print, broadcast, and other forms of advertising for marketing and advertising dollars in general. During 2021, we continued to see an increase in the insourcing of capabilities among our clients.

Our revenues tend to be higher in the fourth quarter than in other quarters during a given year. This increased revenue is a result of overall increased marketing activity prior to and during the holiday season, and is primarily derived from our retail vertical.

As a company conducting varied business activities for clients across diverse industries around the world, we are subject to a variety of domestic and international legal and regulatory requirements that impact our business, including, for example, regulations governing consumer protection, and unfair business practices, contracts, e-commerce, intellectual property, labor, and employment (especially wage and hour laws), securities, tax, and other laws that are generally applicable to commercial activities. We do not expect to need to make significant capital expenditures to maintain compliance with government regulations.

We are also subject to, or affected by, numerous local, national, and international laws, regulations, and industry standards that regulate direct marketing activities, including those that address privacy, data security, and unsolicited marketing communications. Examples of some of these laws and regulations that may be applied to, or affect, our business or the businesses of our clients include the following:

There are additional consumer protection, privacy, and data security regulations in locations where we or our clients do business. These laws regulate the collection, use, disclosure, and retention of personal data and may require consent from consumers and grant consumers other rights, such as the ability to access their personal data and to correct information in the possession of data controllers. We and many of our clients also belong to trade associations that impose guidelines that regulate direct marketing activities, such as the Direct Marketing Association’s Commitment to Consumer Choice.

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.

In addition, our business, in general, and the way we do business in particular, may be affected by the impact of these restrictions on our clients and their marketing activities. These additional regulations could increase compliance requirements and restrict or prevent the collection, management, aggregation, transfer, use, or dissemination of information or data that is currently legally available. Additional regulations may also restrict or prevent current practices regarding unsolicited marketing communications. For example, many states have considered implementing “do-not-mail” legislation that could impact our business and the businesses of our clients and customers. In addition, continued public interest in individual privacy rights and data security may result in the adoption of further voluntary industry guidelines that could impact our direct marketing activities and business practices.

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.

Our intellectual property assets include trademarks and service marks that identify our company and our services, know-how, software, and other technology that we develop for our internal use and for license to clients and data and intellectual property licensed from third parties, such as commercial software and data providers. We generally seek to protect our intellectual property through a combination of license agreements and trademark, service mark, copyright, patent and trade secret laws as well as through domain name registrations and enforcement procedures. We also enter into confidentiality agreements with many of our employees, vendors, and clients and seek to limit access to and distribution of intellectual property and other proprietary information. We pursue the protection of our trademarks and other intellectual property in the U.S. and internationally. Although we from time to time evaluate inventions for patentability, we do not own any patents, and patents are not core to our intellectual property strategy (other than as may be incidental to commercially available technology or software we license).

We have developed proprietary software including NexTOUCH and Allink®360, each of which are integral to our business. NexTOUCH is key to the success of our mail and product fulfillment business while Allink®360 ensures customers' products are delivered on-time and on-budget.

As of December 31, 2021, Harte Hanks employed 1,937 full-time employees and 1,155 part-time employees, of which approximately 1,909 are based outside of the U.S., primarily in the Philippines. A portion of our workforce is provided to us through staffing companies. None of our workforce is represented by labor unions. We consider our relations with our employees to be good.

Harte Hanks believes that its employees are the key to its success. Our human capital strategy focuses on:

COVID-19 Health Measures: Since the onset of the COVID-19 pandemic, the health and safety of Harte Hanks’s employees has been our highest priority. Upon the onset of the pandemic, Harte Hanks immediately implemented several changes to enhance COVID-19 safety and mitigate related work environment health risks including enhancing remote working capabilities as well as other arrangements. We will continue to enhance our COVID-19 response as the pandemic unfolds by dynamically adjusting protocols currently in place to address the then current state of the pandemic.

Diversity and Inclusion: Harte Hanks recognizes the value of diversity and inclusion within its organization and strives to ensure that its workplace reflects the diverse communities in which it operates in order to promote collaboration, innovation, creativity and belonging. Harte Hanks is proud of its diverse workforce and cross-cultural competency and, as of December 31, 2021, employed individuals from six different countries. As of December 31, 2021, 61% of Harte Hanks’ workforce was female. Harte Hanks is committed to continue to recruit and employ qualified candidates regardless of their gender or cultural background.

Employee Benefits: Harte Hanks believes in the importance of offering its employees competitive salaries and wages, together with comprehensive insurance options. Harte Hanks recognizes the importance of comprehensive healthcare benefits, including medical, prescription drug, vision and dental, and employees and their family members are provided with tools and resources to assist in adopting and maintaining a healthy lifestyle. Harte Hanks pays the cost of basic life insurance, accidental death and dismemberment insurance, and short-term disability for its employees. Additionally, employees may purchase supplemental life, dependent life, and long-term disability insurance.

The ongoing COVID-19 pandemic may have a materially adverse effect on the Company’s business and operations.

The COVID-19 pandemic continues to impact the global economy and cause significant macroeconomic uncertainly. As a result, our operating results may be subject to fluctuations based on the pandemic’s effect on general economic conditions and the extent to which COVID-19 ultimately impacts our business. While the pandemic and the resulting impact on the global economy have not material adversely affected our business to date, the deterioration of economic conditions could materially reduce our sales and profitability. For instance, certain of our clients that experienced financial distress due to the pandemic temporarily reduced the amount of services we provide to them. In addition, while we have not yet experienced material issues with respect to collectability of accounts receivable, if the economy were to be further negatively impacted by the pandemic, such issues may arise in the future. Furthermore, the Company faces risks due to the evolving effect of COVID-19 on our employees, customers, suppliers, and third-party providers, including the impact of actions taken by the U.S. and foreign governments to curtail the spread of the virus, including social distancing measures and restrictions on travel and building capacity limits. In addition, if there was an outbreak of COVID-19 at one of our facilities, we may be required to temporarily close such facility.

As a result of the COVID-19 pandemic, the majority of our employees are working remotely, a trend which we expect to continue on a permanent basis for many employees and it is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. Further, the increase in remote working may also result in consumer privacy, IT security, and fraud concerns.

Although we have developed and continue to develop plans to mitigate the negative impact of the COVID-19 pandemic on our business and safeguard all of our IT functions to ensure security and data protection, such efforts may not prevent our business from being materially adversely affected. Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we could experience declines in revenue and profitability. Such impacts could be material to our consolidated financial statements in the first quarter of 2022 and subsequent reporting periods.

As the full extent of COVID-19’s impact on our operations, key metrics, and financial performance depends on future developments, including the duration and severity of the pandemic; the actions taken to contain the virus or treat its impact; other actions taken by governments; businesses, and individuals in response to the virus and resulting economic disruption; and how quickly and to what extent normal economic and operating conditions can resume, the impact from the COVID-19 pandemic on our business cannot be reasonably estimated at this time.

The marketing services we offer, in particular for contact center services, are generally terminable upon short notice by our clients, even if the term of the agreement (and the expected duration of services) is several or many years. Many of our customer agreements do not have minimum volume or revenue requirements or exclusivity arrangements, so clients may (and do) vary their actual orders from us over time based on their own business needs, their satisfaction with the quality and pricing of our services, and a variety of other competitive factors. In addition, the timing of particular jobs or types of jobs at particular times of year (such as mail programs supporting the holiday shopping season or contact center programs supporting a specific event) may cause significant fluctuations in the operating results of our operations in any given quarter. We depend to some extent on sales to certain industries, such as the consumer retail industries, technology, and financial services.

To the extent these industries experience downturns whether as result of the COVID-19 pandemic, or the ongoing Russia-Ukraine war or otherwise, our clients may re-evaluate their marketing spend, which could adversely affect the results of our operations.

A large portion of our revenue is generated from a limited number of clients. The loss of a client or significant work from one or more of our clients could adversely affect our business.

Our largest client (measured in revenue) generated 15.1% of total revenues in 2021 and represented 14.6% of total accounts receivable as of December 31, 2021. Approximately 72.6% of our revenue for 2021 was generated by our 25 largest clients. While we typically have multiple projects with our largest customers which would not all terminate at the same time, the loss of one or more of our larger clients or even a single project or contract with one of our largest clients could adversely affect our business, results of operations, and financial condition if the lost revenues are not replaced with profitable revenues from that client or other clients.

We face significant competition for individual projects, entire client relationships and advertising dollars in general.

Our business faces significant competition within each of our vertical markets and for all of 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 by clients and prospective clients. We also compete against internet (social, mobile, web-based, and email), print, broadcast, and other forms of advertising for marketing and advertising dollars in general. During 2021, we continued to see an increase in the insourcing of capabilities among our clients.

Our ability to attract new clients and to retain existing clients may, 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. Some of our clients have also sought to reduce the number of marketing vendors or use third-party procurement organizations, all of which increases pricing pressure, and may disadvantage us relative to 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.

Current and future competitors may have significantly greater financial and other resources than we do, and they may sell competing services at lower prices or at lower profit margins, resulting in pressures on our prices and margins.

The size of our competitors varies widely across vertical markets and service lines. Some of our competitors have significantly greater financial, technical, marketing, and other resources than we do in one or all of our market segments. As a result, our competitors may be in a position to respond more quickly than we can to new or emerging technologies, methodologies, and changes in customer requirements, or may devote greater resources than we can to the development, promotion, sale, and support of innovative products and services. Moreover, new competitors or alliances among our competitors may emerge and potentially reduce our market share, revenue, or margins. Some of our competitors also may choose to sell products or services that compete with ours at lower prices by accepting lower margins and profitability or may be able to sell products or services that compete with ours at lower prices given proprietary ownership of data, technical superiority, a broader or deeper product or experience set, greater capital resources or economies of scale. Price reductions or pricing pressure by our competitors could negatively impact our margins and results of operations and could also harm our ability to retain clients or obtain new customers on favorable terms. Competitive pricing pressures tend to increase in difficult or uncertain economic environments, due to reduced marketing expenditures of many of our clients and prospects, and the resulting impact on the competitive business environment for marketing service providers such as our company.

We must maintain technological competitiveness, continually improve our processes, and develop and introduce new services in a timely and cost-effective manner.

Our success depends on our ability to consistently and effectively deliver our services to our clients.

Our success depends on our ability to effectively and consistently staff and execute client engagements within the agreed upon time frame and budget. Depending on the needs of our clients, our engagements may require customization, integration, and coordination of a number of complex product and service offerings and execution across many facilities. Moreover, in some of our engagements, we rely on subcontractors and other third parties to provide some of the services to our clients, and we cannot guarantee that these third parties will effectively deliver their services, that we will be able to easily suspend work with contractors that are not performing adequately, or that we will have adequate recourse against these third parties in the event they fail to effectively deliver their services. Other contingencies and events outside of our control may also impact our ability to provide our products and services, such as the COVID-19 pandemic. Our failure to effectively and timely staff, coordinate, and execute our client engagements may adversely impact existing client relationships, the amount or timing of payments from our clients and our reputation in the marketplace as well as our ability to secure additional business and our resulting financial performance. In addition, our contractual arrangements with our clients and other customers may not provide us with sufficient protections against claims for lost profits or other claims for damages.

We have recently experienced, and may experience in the future, reduced demand for our products and services due to the financial condition and marketing budgets of our clients and other factors that may impact the industry verticals that we serve.

Marketing budgets are largely discretionary in nature, and as a consequence are easier to reduce in the short-term than other expenses. Our customers have in the past, and may in the future, respond to their own financial constraints (whether caused by weak economic conditions, weak industry performance or client-specific issues) by reducing their marketing spend. For instance, upon the onset of the COVID-19 pandemic a number of our clients reduced the amount of services we provide to them, for among other reasons, to preserve liquidity. Customers may also be slow to restore their marketing budgets to prior levels during an economic recovery and may respond similarly to adverse economic conditions in the future further exacerbating the risk. Our revenues are dependent on national, regional, and international economies and business conditions. A long-lasting economic recession, regardless of the cause, or anemic recovery in the markets in which we operate could have material adverse effects on our business, financial position, or operating results. Similarly, industry or company-specific factors may negatively impact our clients and prospective clients, and in turn result in reduced demand for our products and services, client insolvencies, collection difficulties or bankruptcy preference actions related to payments received from our clients. We may also experience reduced demand as a result of consolidation of clients and prospective clients in the industry verticals that we serve.

We must effectively manage our costs to be successful. If we do not achieve our cost management objectives, our financial results could be adversely affected.

Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital expenditures across our operations. Our management team, along with members of the Board, formed a project committee focused on cost-saving initiatives and other restructuring efforts. The committee reviewed each of our business segments and other operational areas to identify both one-time and recurring cost-saving opportunities. In 2021, our management team continued to review and adjust our cost structure and operating footprint, optimize our operations, and invest in improved technology. For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million, respectively, which we believe will result in meaningful future savings, some of which have already been realized. However, we may not be able to recognize all identified potential savings and even if we are able to recognize the identified savings, such cost savings may be insufficient to achieve our cost management objectives. To the extent that we do not successfully manage our costs our financial results may be adversely affected.

Our indebtedness may adversely impact our ability to react to changes in our business or changes in general economic conditions.

As of December 31, 2021, we had $5.0 million of indebtedness outstanding, all of which was secured indebtedness. In addition, subject to compliance with the terms of the agreements governing our indebtedness and the Certificate of Designation for our Series A Convertible Preferred Stock, we may incur additional indebtedness from time to time.

On December 21, 2021, the Company entered into 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 of 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, 2021, we had the ability to borrow an additional $18.9 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, as well as any future debt that it may incur, will depend upon its ability to generate cash in the future from operations, financings or asset sales, which are subject to general economic conditions, the Company’s results of operations, the state of the capital markets at the time it seeks to refinance its debt and other factors, some of which may be beyond the Company’s control. If the Company cannot repay or refinance its debt as it becomes due, the Company may be forced to sell assets or take other disadvantageous actions, including undertaking alternative financing plans, which may have onerous terms or may be unavailable, dedicating an unsustainable level of the Company’s cash flow from operations to the payment of principal and interest on its indebtedness and/or reducing the amount of liquidity available for working capital, capital expenditures and general corporate purposes.

The covenants in the New Credit Facility and the terms of our Series A preferred Stock may limit the Company’s operating and financial flexibility.

The New Credit Facility and the terms under which we borrow money under any future credit facilities or other agreements could have significant consequences for our business. 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 principles in the United States of America (“U.S. GAAP”).

Our ability to incur indebtedness is also impacted by the terms of our Series A Convertible Preferred Stock, which limits our ability to incur indebtedness without the holders’ consent to the greater of $40 million and four times our trailing 12-month EBITDA (measured at the time such indebtedness is incurred). The holders of the Series A Convertible Preferred Stock also have consent rights to certain fundamental transactions involving the Company. Any failure or inability to obtain new financing arrangements when needed on favorable terms could have a material adverse impact on our liquidity position.

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:

In addition, a failure to comply with these restrictions 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 indebtedness.

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, 2021, we had approximately $54.3 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, significant changes in actual investment returns on pension assets, discount rates, or 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.

Privacy, information security and other regulatory requirements may prevent or impair our ability to offer our products and services.

We are subject to and affected by numerous laws, regulations, and industry standards that regulate direct marketing activities, including those that address privacy, data protection, processing personal information, information security, and marketing communications. Please refer to the section above entitled “Item 1. Business - Government Regulation” for additional information regarding some of these regulations.

As a result of increasing awareness and interest in privacy rights, data protection, the fair use of personal information, consumer protection, information security, and similar matters, national and local governments and industry organizations regularly consider and adopt new laws, rules, regulations, and guidelines that impact, restrict, and regulate our business products and services. Whether already in place or scheduled to become effective in the future, comprehensive data protection, privacy, and marketing laws apply across the jurisdictions in which we operate and where personal information originates, including Europe, the Philippines, and most states throughout the U.S. These mandates apply when processing personal data for business and marketing purposes and broadly impact all marketing activities, including legitimate activities associated with profiling consumer behaviors, drawing inferences from personal information, making automated decisions about individuals using personal information, transferring personal information between parties and jurisdictions, communicating with existing and prospective customers, and more. Additionally, we are subject to operational obligations when processing personal information, including the adoption of governance frameworks, regulatory registration or consultation tasks, infrastructure and data security standards and strategies, data breach detection and response solutions, conducting audits to identify risks and more to demonstrate accountability and compliance. Other relevant compliance considerations in support of these mandates include establishing solutions in support of broad privacy and data protection rights which are common across different jurisdictions, including those designed to offer notice to individuals, capture prior consent, grant access to personal information, offer choices, and related controls to honor choices expressed related to if and how personal information can be processed or licensed for marketing purposes.

We anticipate new regulations will continue to be proposed and adopted in the future in the jurisdictions in which we operate and/or generate revenue. We also anticipate any new regulation will reflect the growing trends common to current privacy, data protection and marketing laws requiring companies bear the burden of proving compliance efforts through demonstratable records and may be subject to significant fines and penalties should they violate any substantive or technical requirement. We may implement additional safeguards, controls and measures in response to these changes and trends; and may be required to change or limit our service offerings.

Our business may also be affected by the impact of these rules and regulations on our clients’ business and marketing activities. In addition, as we acquire new capabilities and deploy new technologies to execute our strategy, we may be exposed to additional regulation. Current and future restrictions and regulations could increase compliance requirements and costs, and restrict or prevent the collection, management, aggregation, transfer, use or dissemination of personal information or change the requirements so as to require other changes to our business or our clients' businesses, practices and tolerance for risk. Additional restrictions and regulations may limit or prohibit current practices regarding marketing communications and information quality solutions. For example, multiple states have implemented opt out legislation for telephone marketing, requiring the creation of statewide do-not call registries. Such legislation could impact our business and the businesses of our clients and of their customers. In addition, continued public interest in privacy rights, data protection and access, and information security may result in the adoption of further industry guidelines that could impact our direct marketing activities and business practices.

We cannot predict the scope of any new laws, rules, regulations, or industry guidelines or how courts or agencies may interpret current ones. Additionally, enforcement priorities by governmental authorities will change over time, which may impact our business. Understanding the laws, rules, regulations, and guidelines applicable to specific client multichannel engagements and across many jurisdictions poses a significant challenge, as such ~~term~~laws, rules, regulations, and guidelines are often inconsistent or conflicting, and are sometimes at odds with client objectives. Our failure to properly comply with these regulatory requirements and client needs may materially and adversely affect our business. General compliance with privacy, data protection, and information security obligations is ~~defined~~costly and time-consuming, and we may encounter difficulties, delays, or significant expenses in ~~Rule 405~~connection with our compliance, or because of our clients’ need to comply. We may be exposed to significant penalties, liabilities, reputational harm, and loss of business in the event that we fail to comply. We could suffer a material adverse impact on our business due to the enactment or enforcement of legislation or industry regulations affecting us and/or our clients, the issuance of judicial or governmental interpretations, changed enforcement priorities of governmental agencies, or a change in behavior arising from public concern over privacy, data protection, and information security issues.

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 ~~Securities Act,~~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 a significant shift the consumer behavior or governmental regulation were to inhibit our ability to collect large amounts of this data, our ability to provide data analytics would likely be impaired.

If we do not prevent security breaches and ~~Item 10~~other interruptions to 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 ~~Regulation S-K. Accordingly,~~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 information 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 December 2020 SolarWinds Corp. announced that it was the target of a cyberattack that inserted a vulnerability into its Orion monitoring products that could allow an attacker to compromise any server on which the Orion products run, including those of SolarWind’s customers. While we do not have a relationship with SolarWind or utilize the Orion product, if a similar cyber-security incident were to involve third-party software that we do utilize it could lead to unauthorized access to our servers. Although we did not experience any material impacts from the SolarWinds event in 2020 or, more recently, from the Log4j security vulnerability that was widely publicized in December 2021, 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 personal health information, social security numbers, or credit card numbers) of our clients and their customers or prospects in accordance with ~~relevant SEC rules~~these requirements, we may incur significant expense, suffer reputational harm, loss of business, and, ~~guidance, as~~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 ~~smaller reporting company,~~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 ~~are allowed~~will have adequate recourse against these third parties in the event such third parties fail to ~~take advantage of specified exemptions~~adequately protect and ~~reduced disclosure obligations, including with respect to executive compensation disclosure, in our periodic reports and proxy statements.~~

~~Directors and Officers~~handle such sensitive or confidential information.

~~Directors~~If 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 have sufficient excess capacity or redundancy (in equipment, facilities, or personnel) to maintain service and operational levels for extended periods 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 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 upon 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 data 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 the vendors providing that service adequately protect their data centers from the same risks as we are generally responsible to our client if these third-party vendors do not protect our customers’ data and we do not have the resources to build replacement centers on our own. Our services are very dependent on links to telecommunication providers. We believe we have taken reasonable precautions to protect our data centers and telecommunication links 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 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 our new leaders are unsuccessful, or if we 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 three 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 leaders with the necessary skills to manage our business) our business and its operating results may suffer. Further, our prospects depend in large part upon our ability to attract, train, 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.

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, as we have in the recent past. 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 assure you, 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 our business 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 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 record sources. 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 (loss), and earnings (loss) per share.

Although our board of directors has in the past authorized the payment of quarterly cash dividends on our common stock, we announced in 2016 that we did not plan to declare any further dividends for the foreseeable future. In addition, although our board has authorized stock purchase programs, we are unlikely to make any repurchases in the near term. Decisions to pay dividends on our common stock or to repurchase our common stock will be based upon periodic determinations by our board that such dividends or repurchases are both in compliance with all applicable laws and agreements and in the best interest of our stockholders after considering our financial condition and results of operations, 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 or repurchase stock could adversely affect the market price of our common stock. Further, the Certificate of Designation for our Series A Convertible Preferred Stock prohibits us from conducting any repurchases of common stock unless we obtain the consent of the holder of such stock.

Interestrate increases could affect our results of operations, cash flows and financial position.

Interest rate fluctuations in Europe and the U.S. can affect the amount of interest we pay related to our debt and the amount we earn on cash equivalents. Our New Credit Facility bear interest based upon the Bloomberg Short-Term Bank Yield Index Rate. Our results of operations, cash flows, and financial position could be materially or adversely affected by significant increases in interest rates. We also have exposure to interest rate fluctuations in the U.S., specifically money market, commercial paper, and overnight time deposit rates, as these affect our earnings on excess cash. Even with the offsetting 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, or operating results.

In July 2017, the United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced that, after 2021, it will stop compelling banks to submit rates for the calculation of LIBOR. While the transition to an alternative rate 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.

Harte Hanks conducts business outside of the U.S. During 2021, approximately 17.6% of our revenues were derived from operations outside the U.S., primarily 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:

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 U.S. 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. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of COVID-19 on our internal controls to minimize the impact on their design and operating effectiveness.

Fluctuation in ourrevenueand operating results and other factors may impact the volatility of our stock price.

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 of factors including the following (some of which are beyond our control):

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 into 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. In addition, the Certificate of Designation for our Series A Convertible Preferred Stock provides for an alternative conversion price in the event of a fundamental transaction which could also discourage strategic transactions.

Our business is conducted in facilities worldwide containing aggregate space of approximately 0.9 million squares. All facilities are held under leases, which expire at dates through 2030. See “Item 1 - Business - Facilities”. In the fourth quarter of 2020, we opened our new 300,000 square-foot fulfillment and distribution facility in Kansas City, Kansas. We have since expanded into an additional 100,000 square-foot space and now occupy the full 400,000 square-foot facility. We hold the facility under a lease with a nine-year remaining lease term and believe the rent is consistent with market rates. The facility is FDA registered and 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 believe our facilities to be adequate for our business and operations as currently administered.

Information regarding legal proceedings is set forth in Note L, Litigation and Contingencies, of the “Notes to Consolidated Financial Statements” and is incorporated herein by reference.

Our common stock was listed on the OTCQX under the symbol HRTH through November 30, 2021 and has since been listed on the NASDAQ under the symbol HHS. As of January 31, 2022, there were approximately 1,002 common stockholders of record. The last reported share price of our common stock on March 18, 2022 was $7.13. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

The Company currently does not intend on paying any dividends for the foreseeable future. Any payment of future dividends will be at the discretion of Harte Hanke’s 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 Certificate of Designation for our Series A Convertible Preferred Stock, and 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.

The following table ~~sets forth certain~~contains information ~~as of April 30, 2021~~ about our ~~current directors:~~purchases of equity securities during the fourth quarter of 2021:

(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.

~~Members~~(2) During the fourth quarter of ~~the Board are generally elected at each annual meeting~~2021, we did not purchase any shares of ~~the Company’s stockholders to serve until the next annual meeting of the Company’s stockholders. In June 2020~~our common stock through our stock repurchase program that was publicly announced in ~~connection with its on-going review of the Company's corporate governance structure, the Nominating~~August 2014. and Corporate Governance Committee of the Board (the “Nominating and Corporate Governance Committee“) recommended that the Board decrease its size to better reflect the size of the company and allow it to act more nimbly in an ever-changing environment. Upon such recommendation, at the conclusion of the 2020 annual meeting, the Board determined to decrease its size from seven (7) to five (5) directors.

~~Andrew B. Benett~~ was appointed as the Company’s Executive Chairman and Chief Executive Officer in November of 2019 and served as Executive Chairman until April 2021. Mr. Benett continues to serve as Chief Executive Officer. Mr. Benett has over 20 years of experience in effecting business transformation within marketing services, consulting and corporate organizations. Prior to his appointment, Mr. Benett served as Global Chief Commercial Officer of Bloomberg Media from June of 2015 to September 2019, where his responsibilities included advertising sales, marketing services, events, consulting, integrated franchises, and innovation. Previously, Mr. Benett spent 13 years working for Havas Creative Group, a leading marketing communications network. While working for Havas Creative Group, Mr. Benett served as Global Chief Strategy Officer of Euro RSCG Worldwide from 2004 to 2010, until he was promoted to Global Chief Executive Officer of Arnold Worldwide in 2010, and to global CEO of Havas Creative Group in 2013. Prior to joining Euro RSCG Worldwide, Mr. Benett was EVP, Executive Director, Strategy and Innovation, at FutureBrand. He began his advertising career at McCann-Erickson in strategic planning. Mr. Benett sits on the Board of Directors of Viad Corp (NYSE: VVI) and is a Henry Crown Fellow at the Aspen Institute. Mr. Benett received his B.F.A. in art history with a minor in psychology from Georgetown University.

As our Chief Executive Officer, Mr. Benett provides valuable insight to the Board on our day-to-day operations. In addition, Mr. Benett's significant experience with marketing services and consulting organizations, and specifically his experience in effecting transformations of such organizations, provide the Board with valuable insight as the Company effects its various restructuring and reorganization plans to return to profitability.

~~Evan Behrens~~ ~~has served as a director of Harte Hanks~~have not repurchased any shares under this program since March 2019. Mr. Behrens currently serves on the board of Hornbeck Offshore and he is also the managing member of Behrens Investment Group. Previously, Mr. Behrens served as Senior Vice President of Business Development at SEACOR Holdings from January 2008 to May 2017, where he served as the Chairman of the Board of Trailer Bridge Inc. and was the Managing Member of Illinois Corn Processors Inc. Prior to joining SEACOR Holdings, Mr. Behrens served as a partner at Level Global Investors and, prior to that, founded and managed B Capital Advisors (formerly Behrens Rubinoff Capital Partners). Mr. Behrens has previously worked as a Senior Portfolio Manager at SAC Capital managing both equity and credit portfolios and contributed in a research capacity at Odyssey Partners/Ulysses Management. Mr. Behrens currently serves on the board of directors of Oppenheimer Holdings Inc. Previously, Mr. Behrens served as a board member of Continental Insurance Group, Ltd, Penford Corporation, Global Marine Systems Limited, Stemline Therapeutics and Sidewinder Drilling LLC. Mr. Behrens obtained an A.B. degree in Political Science from the University of Chicago.

~~We believe Mr. Behrens’s qualifications for~~2015. Under this program, our Board ~~include his professional experience in investments and business development and his extensive experience as a director on the boards~~has authorized us to spend up to $20.0 million to repurchase shares of ~~both public and private companies.~~

~~David L. Copeland~~ ~~has served as a director~~our outstanding common stock. As of Harte Hanks since 1996. He has been employed by SIPCO, Inc., the management and investment company for the Andrew B. Shelton family, since 1980, and currently serves as its President. Since 1998, he has served as a director of First Financial Bankshares, Inc., a financial holding company. Currently, he serves on the executive and nominating committees and is also the audit committee chairman of First Financial Bankshares.

We believe that Mr. Copeland’s qualifications for our Board include his experience serving on various committees for a publicly traded financial holding company. We also believe he offers us extensive knowledge of financial instruments, financial and economic trends and accounting expertise from serving as president of SIPCO, Inc. and on the audit committee of First Financial Bankshares. Mr. Copeland, a certified public accountant and a chartered financial analyst, would qualify as a financial expert for our audit committee.

~~John H.~~ “~~Jack~~” ~~Griffin, Jr~~~~. has served as a director of Harte Hanks since July 2018. In April~~December 31, 2021, he was appointed as the Company’s Chairman of the Board. From April to December of 2019, he served as Vice Chairman and Chairman of the Operations Committee of Harte Hanks. Prior to that, he was a member of the Harte Hanks Office of the Chief Executive Officer (the “Office of the CEO”) from August 2018 to January 2019. Mr. Griffin is currently the Chairman of Dennis Publishing in New York and London, a position he has held since October 2018. He served as Managing Director at Oaklins DeSilva+Phillips, an advisory firm in New York City focused on mid-market M&A transactions, valuations and restructurings for firms in media, marketing services, information, education and health care communications from 2016-2018. Previously, as CEO and director of Tribune Publishing Company (from 2014-2016), Mr. Griffin led the spin-off of Tribune Publishing Company’s Newspaper Division into a separate publicly traded company. Before Tribune, Mr. Griffin founded and served as CEO of Empirical Media LLC, a consulting firm that assisted legacy media companies with digital transition, restructuring and strategic planning, from 2011-2014. Mr. Griffin was previously CEO of Time Inc.we have repurchased 150,667 shares and spent ~~a dozen years at Meredith Corporation in senior executive capacities.~~

~~We believe that Mr. Griffin’s qualifications for~~$8.6 million under this authorization. Any stock repurchase needs to be approved by our Board include his proven success as both an operator and advisor to companies undergoing restructuring and reengineering solutions, along with his demonstrated record of achieving and exceeding financial targets in demanding private and public company environments. In addition, the experience Mr. Griffin gained as a member of the Office of the CEO enables him to provide the Board with additional insight into the Company’s operations, strategic initiatives and personnel.

~~Alfred V. Tobia, Jr.~~ has served as a director of Harte Hanks since July 2017. He is the President and Chief Investment Officer of Acacia Research Corp (NASDAQ: ACTG) since September 2019 and a director since June 2018. From March 2000 – September 2019, Mr. Tobia was a co-founder, general partner and portfolio manager for Sidus Investment Management, LLC and its affiliates, in which capacity he oversaw the management of the Sidus equity funds and provided analysis to the firm’s credit fund. From 1996 to 2000 Mr. Tobia was a senior managing director and supervisory analyst within the data networking and telecommunication equipment sectors at Banc of America Securities (formerly NationsBanc Montgomery Securities). From 1992 to 1996, he was a senior analyst at Wertheim Schroeder & Co., focusing on PC and entertainment software, data networking and special situations. Prior to that, Mr. Tobia was an analyst at Mabon Nugent & Co. (1986 to 1992), covering various sectors of technology.

Mr. Tobia has extensive financial experience in both public and private companies and executive experience through the management of a small-cap investment fund and a public company. Mr. Tobia's background and insights provide valuable expertise in corporate finance, strategic planning, and capital and credit markets. We believe Mr. Tobia’s qualifications for our Board include his extensive financial, executive and management experience.preferred shareholder.

This 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.

The 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 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 all other expenses, which some of our customers did in response to the COVID-19 pandemic. 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, and the financial condition of and budgets available to our clients, among other factors. Due to the COVID-19 pandemic and other geopolitical uncertainties, including but not limited to the ongoing war between Russia and Ukraine, there is continued uncertainty and significant 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 reduce costs.

We continue to face a challenging competitive environment. The sale of our direct mail assets and equipment to Summit in April 2020, together with the restructuring activities we undertook over the last two years, have and will continue to result in a decrease of recurring expenses. These are all part of our efforts to prioritize our investments and focus on our core business of partnering with our clients to seamlessly manage experiences with their customers. We believe these efforts are starting to pay-off as we experienced our first year-over-year revenue increase in over five years. Absent any significant shocks to regional and global economic environment, we anticipate continued momentum. Together our revenue increase and cost rationalization have enhanced our liquidity and financial flexibility, and we believe this trend will continue, although no assurance can be given that this will be the case. For additional information, see “Liquidity and Capital Resources” section.

Revenues of $194.6 million for the year ended December 31, 2021 increased $17.7 million, or 10.0%, when compared to $176.9 million for the year ended December 31, 2020. Revenue in our Customer Care segment increased $16.0 million, or 27.3%, to $74.7 million driven by strong project-based revenue from new clients and increases in demand by existing clients. Revenue in our Fulfillment & Logistics Services increased $2.4 million, or 3.9%, to $63.5 million and revenue in our Marketing Services declined $0.7 million, or 1.2%, to $56.4 million. For a discussion of the causes 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 more effectively tracked, enabling measurement of the return on marketing investment.

Operating expenses of $187.0 million for the year ended December 31, 2021 declined $0.5 million, or 0.3%, when compared to $187.5 million for the year ended December 31, 2020.

Labor costs increased by $6.2 million, or 6.0%, when compared to the year ended December 31, 2020, primarily due to higher labor expense in our Customer Care segment driven by the increased headcount due to the increased volume of work. Production and distribution expenses increased $1.0 million, or 2.0%, when compared to the year ended December 31, 2020, primarily due to higher revenue partially offset by cost reduction initiatives. Advertising, Selling and General and Administrative expenses declined $3.7 million or 17.0%, primarily due to lower facility related costs resulting from the consolidation of our locations as well as lower legal expense. Depreciation expense declined $1.0 million, or 29.2%, when compared to the year ended December 31, 2020, primarily due to the disposal of production equipment in our Jacksonville facility which we exited in 2020.

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 and may have an impact on future demand for our supply chain management services.

Postage costs of mailings are borne by our clients and are not directly reflected in our revenues or expenses.

For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million, respectively. See Note N, Restructuring Activities, in the Notes to Consolidated Financial Statements for further discussion on restructuring activities.

Interest expense, net, for the year ended December 31, 2021, decreased $0.3 million when compared to the year ended December 31, 2020. due to the write off of interest expense related to our PPP Term Note which was forgiven in 2021, as well as the lower interest expense associated with lower debt balances outstanding under our revolving credit facility when compared to the year ended December 31, 2020.

Total other expense, net was $0.5 million for the year ended December 31, 2021, when compared to other expense of $6.6 million for the year ended December 31, 2020. This $6.1 million decrease in other expense was primarily attributable to a $3.7 million decrease in foreign currency revaluation expense and a $2.2 million reduction of pension expense as a result of the higher return on investment from better asset performance as well as the lower administrative fees due to the restructuring of our pension plans in 2019.

Our 2021 income tax expense was $1.3 million for the year ended December 31, 2021, when compared to tax benefit of $16.6 million for the year ended December 31, 2020. The decrease in benefit of $17.9 million was due to the enactment of the CARES Act, which permitted the carryback of Net Operating Losses from the years 2018 through 2020 to tax years when the federal statutory rate was 35%, resulting in the additional tax benefit.

The following is a discussion and analysis of the results of our reporting segments for the years ended December 31, 2021 and 2020. 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 (loss) and operating income (loss) plus depreciation and amortization (“EBITDA”). For additional information, see Note O, Segment Reporting, in the Notes to Consolidated Financial Statements for further discussion.

Marketing Services segment revenue declined $0.7 million, or 1.2%, driven largely by the $3.0 million of mail and data services revenue that was transferred into Marketing Services segment from Fulfillment & Logistics Services segment starting from July 2020 following the sale of the bulk of our direct mail operations and a $3.7 million decline in other Marketing Services revenue for 2021 as a result of the reduction of client budgets due to the COVID-19 pandemic. The contribution margin improved by 8.7% as a result of our cost reduction efforts.

~~The following persons are our current executive officers and hold the positions set forth below:~~

~~For biographical information about Andrew B. Benett, our Chief Executive Officer, see above under “Directors” included~~Customer Care segment revenue increased $16.0 million primarily due to additional project work and an increase in ~~Part III, Item 10 of this Annual Report.~~

~~Laurilee Kearnes~~ has served as the Company’s Chief Financial Officer since November 15, 2019. Ms. Kearnes previously served as the Company’s Principal Accounting Officer and Vice President, Finance and Controller from August 2018 to November of 2019. Ms. Kearnes has over 20 years of experience in accounting and finance roles, including the last 17 yearsvolumes with Harte Hanks in various positions including Group Controller, VP Finance, and Group VP Finance, Accounting Shared Services. Ms. Kearnes is currently serving on the OTCQX U.S. Advisory Council. Ms. Kearnes started her career in public accounting and held accounting positions with Nutraceutical Corp. and Brooks Automation prior to joining the Company. She holds a Bachelor of Science in Accounting and a Master of Accounting from Utah State University.

~~Brian Linscott~~ ~~was appointed as our Chief~~existing clients. Operating ~~Officer effective January 2020. Mr. Linscott~~has over two decades of experience advising clients and C-level executives on operational improvements, growth strategies, acquisitions, corporate development and capital structure across a variety of industries including media, manufacturing, and transportation. From 2015 to 2019, he served as a Partner at BR Advisors where he led the operational improvement of radio and printing companies, developed new partnerships, and facilitated asset transactions. He also serves as Operating Partner at Traverse Pointe Partners since 2014, where he advises a private equity fund on financial and operational assessment of equity investments and developed post-acquisition operational strategies to create stockholder value. From 2013 to 2015, Brian served as a Managing Director at Huron Consulting Group where he managed client relationships, oversaw consulting teams, and developed new business opportunities in Huron’s Business Advisory practice. From 2009 to 2012, Brian served as Chief Financial Officer / Senior Vice President at Sun Times Media, LLC where he created and executed a restructuring plan that led to substantial EBITDA growth, cash flow improvement, and a successful sale of the company. Mr. Linscott received his B.S. in Finance from the University of Illinois, Urbana.

~~We believe that strong corporate governance helps to ensure that our company is managed~~Income for the ~~long-term benefit~~year ended December 31, 2021 was $11.7 million, an increase of ~~our stockholders. We continuously review our corporate governance policies~~$5.9 million when compared to the prior year. This increase was driven by higher revenue from extension of COVID-19 related project work and ~~practices~~increased volume from other clients. The contribution margin improved by 5.8% for the year end December 31, 2021 due to ensure compliance with all applicable laws and regulations (securities laws and others) and will contemplate any changes to what is considered best practices for corporate governance even if such changes are not required by relevant laws and regulations. This review is part of our continuing effort to enhance our corporate governance and to communicate our governance policies to stockholders and other interested parties. In addition, while we are not currently listed on a national securities exchange, we strive to meet the ~~corporate governance standards applicable to non-controlled companies listed on the NYSE, as we believe such standards establish a baseline for best practices~~increase in ~~the area of corporate governance.~~

~~You can access and print, free of charge, the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee,~~revenue as well as our ~~Corporate Governance Principles, Business Conduct Policy, Code of Ethics and certain other policies and procedures on our website at~~ ~~www.hartehanks.com~~ under the “Corporate Governance” section of our “Investors” tab. The information on our website is not incorporated by reference and is not part of this Annual Report. Additionally, stockholders can request copies of any of these documents free of charge by writingrestructuring efforts.

Fulfillment & Logistics Services segment revenue increased $2.4 million when compared to the ~~following address:~~

From time to time, these governance documents may be revised in response to changing regulatory requirements, our evaluation of evolving best practices and industry norms and input from our stockholders and other interested parties. We encourage you to check our website periodically for the most recent versions.

~~Our business and affairs are managed under the direction~~prior year. The elimination of the ~~Board. The~~ Company's ~~By-laws provide that~~direct mail operations in the ~~Board will consist~~sale to Summit resulted in a $4.7 million revenue decline as outsourced direct mail is now included in our Marketing Services segment. This decline was offset by a $7.1 million revenue increase driven by increased demand from existing customers. Operating income was $6.0 million for 2021 when compared to an operating loss of $2.7 million in the ~~number of directors designated~~previous year primarily driven by the ~~Board from time-to-time~~higher revenue and in the absence of such designation, the Board will consist of seven (7) directors. Currently, the Board has five (5) directors, as the Board determined to decrease that number from seven (7) immediately after last year's annual meeting.

The Board elects the principal executive officer and other corporate officers, acts as an advisor to and resource for management, and monitors management’s performance. The Board, with the assistance of the Compensation Committee, also assists in planning for the succession of the principal executive officer and certain other key positions. In addition, the Board oversees the conduct of our business and strategic plans to evaluate whether the business is being properly managed, and reviews and approves our financial objectives and major corporate plans and actions. Through the Audit Committee, the Board reviews and approves significant changes in the appropriate auditing and accounting principles and practice and provides oversight of internal and external audit processes, financial reporting and internal controls.

Our Board of Directors has established an Audit Committee, a Compensation Committee and Nominating and Corporate Governance Committee, which have the composition and responsibilities described below. Each committee operates under a charter that has been approved by the Board of Directors.

Our common stock is listed on the OTCQX. As required under the listing standards of the OTCQX, at least two members of the Board must qualify as “independent.” Our Board has affirmatively determined that the following three directors are independent within the meaning of the Company’s corporate governance guidelines, as well as those that are applicable to companies with shares listed on the NYSE: Messrs. Behrens, Griffin, and Tobia.

As part of the Board’s review of the independence of board members, questionnaires are used on an annual basis (or when a new director is added) to gather input to assist the Nominating and Corporate Governance Committee and the Board in their determinations of the independence of the non-employee directors. Based on the foregoing and on such other due consideration and diligence as it deemed appropriate, the Nominating and Corporate Governance Committee presented its 2020 findings to the Board on the independence of each of its non-employee directors, in each case in accordance with the Company's corporate governance guidelines and applicable federal securities laws. The Board determined that, other than in their capacity as directors, none of Messrs. Behrens, Griffin, and Tobia had a material relationship with Harte Hanks, either directly or as a partner, stockholder or officer of an organization that has a relationship with Harte Hanks. The Board further determined that (i) each of Messrs. Behrens, Griffin, and Tobia is otherwise independent under rules that would be applicable to companies listed on the NYSE, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee and (ii) each of Messrs. Behrens, Griffin, and Tobia satisfied the additional audit committee independence standards under Rule 10A-3 of the SEC.

When assessing the materiality of a director’s relationship with us, if any, the Board considers all known relevant facts and circumstances, not merely from the director’s standpoint, but from that of the persons or organizations with which the director has an affiliation, the frequency or regularity of the services, whether the services are being carried out at arm’s length in the ordinary course of business and whether the services are being provided substantially on the same terms to us as those prevailing at the time from unrelated parties for comparable transactions. Material relationships can include commercial, banking, industrial, consulting, legal, accounting, charitable and familial relationships.cost reduction efforts.

Our cash and cash equivalent balances were $11.9 million and $29.4 million as of December 31, 2021 and 2020, respectively. Our cash and cash equivalent and restricted cash balances were $15.1 million and $33.6 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021, we had the ability to borrow an additional $18.9 million under our New Credit Facility.

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. We also expect to receive additional tax refunds of $7.8 million in 2022, as a result of the ~~Company's Bylaws~~change to the tax NOL carryback provisions included in the CARES Act.

~~On July 17, 2019,~~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 (such as debt services, finance and operating leases and unfunded pension plan benefit payments) and other cash needs for our operations for at least the ~~Board adopted Amendment No. 2 (the “Amendment”)~~twelve months from the date of this Annual Report through a combination of cash on hand, cash flow from operations, and borrowings under the New Credit Facility. 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. To date, the COVID-19 pandemic has not had a material impact on the Company’s liquidity or on the Company’s ability to meet its obligations under the New Credit Facility, including its ability to comply with all covenants. We will continue to closely monitor the impact the COVID-19 pandemic has on the Company’s liquidity and assess whether any additional cost saving measures, including capital expenditure deferral or human capital decisions, are needed.

Net cash used in operating activities was $1.8 million for the year ended December 31, 2021, when compared to cash used by operating activities of $7.8 million for the year ended December 31, 2020. The $6.0 million year-over-year decrease in cash used by operating activities was primarily driven by the $16.7 million higher net income which was partially offset by $10 million non-cash gain from extinguishment of the PPP Term Note in the year ended December 31, 2021.

Net cash used in investing activities was $2.9 million for the year ended December 31, 2021, when compared to cash used in investing activities of $0.8 million for the year ended December 31, 2020. The $2.1 million decrease was mainly due to the ~~Fifth Amended~~$1.9 million of proceeds from the sale of direct mail assets and ~~Restated Bylaws~~equipment in the Jacksonville facility to Summit in 2020 and $0.3 million increase in capital expenditure in the year ended December 31, 2021, when compared to the year ended December 31, 2020. Capital expenditure for 2021 was mainly related to technology investment as well as pallet racking for our new Kansas City (KS) facility.

Net cash used in financing activities was $13.4 million for the year ended December 31, 2021, when compared to $7.3 million net cash provided by financing activities for the year ended December 31, 2020. The $20.7 million decrease was primarily due to the $10 million of cash proceeds from the PPP Term Note we received in the second quarter of 2020, when compared to $5 million cash proceeds from New Credit Facility for the year ended December 31, 2021,and the $17.1 million paydown of the ~~Company. The Amendment amends Article I, Section 8~~Texas Capital Credit Facility, when compared to a $1.6 million paydown of the ~~Bylaws to provide~~Texas Capital Credit Facility for the ~~resignation~~year ended December 31, 2020.

Consolidated foreign holdings of cash as of December 31, 2021 and 2020 were $2.6 million and $2.5 million, respectively. The Company does not believe it will need to ~~receive~~re-patriate foreign cash holdings to meet domestic obligations.

On December 21, 2021, the Company entered into a ~~majority of votes cast in favor of his or her election at an annual meeting~~new three-year, $25,000,000 asset-based revolving credit facility (the "New Credit Facility") with Texas Capital Bank. 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 of the stockholders (assuming that the election is uncontested) (the “Majority Voting Provision”). Under the Majority Voting Provision, each nominee who is a current director is required to submit an irrevocable resignation, which resignation would become effective upon (1) that person not receiving a majority of the votes cast in favor of his or her election in an uncontested election and (2) acceptance by the Board of that resignation in accordance with the policies and procedures adopted by the Board for such purpose. The Board, acting on the recommendation of the Nominating and Corporate Governance Committee, is required to determine whether or not to accept the resignation not later than 90 days following certification of the stockholder vote, and the Board is required to accept the resignation absent a determination that a compelling reason exists for concluding that it is in the best interestsassets 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").

The New Credit Facility provides for loans up to the ~~person~~lesser of (a) $25,000,000, 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 of its borrowing capacity to issue letters of credit.

The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum. The outstanding amounts advanced under the New Credit Facility are due and payable in ~~question~~full on December 21, 2024.

The Company may voluntarily prepay all or any portion of the loans advanced under the New Credit Facility at any time, without premium or penalty. The New Credit Facility is subject to ~~remain~~mandatory prepayments (i) from the net proceeds of asset dispositions not otherwise permitted under the New Credit Facility; (ii) if the unpaid principal balance under the New Credit Facility plus the aggregate face amount of all outstanding letters of credit exceeds the borrowing base; (iii) in an amount equal to 50% of the net proceeds of issuances of capital stock (subject to customary exceptions); or (iv) in an amount equal to the net proceeds from any issuance of debt not otherwise permitted under the New Credit Facility.

The New Credit Facility contains certain 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 ~~a director.~~required by U.S. GAAP).

In connection with entering into the ~~adoption~~New Credit Facility, the Company and Texas Capital Bank terminated the old Texas Capital Credit Facility. Prior to termination of the ~~Amendment,~~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.

As of December 31, 2021 and 2020, we had letters of credit in the amount of $1.1 million and $1.8 million outstanding, respectively. No amounts were drawn against these letters of credit as of December 31, 2021 and 2020. These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability. We had no other off-balance sheet financing arrangements as of December 31, 2021 and 2020.

As of December 31, 2021, we had $5.0 million of borrowings outstanding under the New Credit Facility. As of December31, 2020, we had $17.1 million of borrowings outstanding under the Texas Capital Facility.As of December 31, 2021, we had the ability to borrow an additional $18.9 million under the New Credit Facility.

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 (Loss).

We did not pay any dividends in either 2021 or 2020. We currently intend to retain any future earnings and do not expect to pay cash dividends on our common stock in the foreseeable future. Any future dividend declaration can be made only upon, and subject to, approval of our Board, ~~also adopted revisions~~based on its business judgment.

During 2021 and 2020, we did not repurchase any shares of our common stock under our current stock repurchase program that was publicly announced in August 2014. Under our current program we are authorized to spend up to $20.0 million to repurchase shares of our outstanding common stock. As of December 31, 2021, we had authorization of $11.4 million remaining under this program. From 1997 through December 31, 2015, we repurchased 6.8 million shares for an aggregate of $1.2 billion under this program and previously announced programs. We have not made any repurchases under the program since 2015. Any repurchases under the program would require the consent of the holders of our Series A Convertible Preferred Stock.

We consider such factors as total cash and cash equivalents and restricted cash, current assets, current liabilities, total debt, revenues, operating income (loss), cash flows from operations, investing activities, and financing activities when assessing our liquidity. Our management of cash is designed to optimize returns on cash balances and to ensure that it is readily available to meet our operating, investing, and financing requirements as they arise. We believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for the twelve months following the issuance of the Consolidated Financial Statements.

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions. The areas that we believe involve the most significant management estimates and assumptions are detailed below. On an ongoing basis, management reviews its estimates and assumptions based on currently available information.

Critical accounting policies are defined as those that, in our judgment, are most important to the portrayal of our Company’s ~~Corporate Governance Principles~~financial condition and ~~Nominating~~results of operations and ~~Corporate Governance Committee Charter~~which require complex or subjective judgments or estimates. The areas that we believe involve the most significant management estimates and assumptions are detailed below.

Our Significant Accounting policies are described in Note A, Overview and Significant Accounting Policies, in the Notes to ~~implement~~Consolidated Financial Statement.

Application of various accounting principles in accordance with U.S. GAAP related to measurement 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 ~~Majority Voting Provision~~principal, and ~~set forth~~report revenue on a gross basis, or the ~~procedures governing~~agent, and report revenue on a net basis.

We are subject to income taxes in the ~~resignation~~United States and numerous other jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of ~~directors who do not receive~~accounting principles and complex tax laws.

We record a ~~majority~~provision for income taxes for the anticipated tax consequences of the ~~votes cast~~reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. For additional information on the valuation allowance see Note I, Income Taxes, in the Notes to Consolidated Financial Statements.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an ~~uncontested election.~~estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results. The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties.

See Note B, Recent Accounting Pronouncements, in the Notes to Consolidated Financial Statements for a discussion of certain accounting standards that we have recently adopted and certain accounting standards that we have not yet been required to adopt and may be applicable to our future financial condition and results of operations.

The Financial Statements required to be presented under Item 8 are presented in the Consolidated Financial Statements and the notes thereto beginning at page 32 of this Form 10-K (Financial Statements).

We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. From January 1, 2020 to May 13, 2020, the Audit Committee was composed of Melvin L. Keating, Maureen E. O’Connell and Evan Behrens. Mr. Keating was the Audit Committee Chair and he was considered an “audit committee financial expert” during this period as currently defined under the SEC and NYSE rules, and each other member of the committee is financially literate under the NYSE standards.

On May 14, 2020, in connection with the decision to decrease the size of the board, the Company re-designated the membership of all board committees. From May 14, 2020 to July 22, 2020, the Audit Committee was comprised of Maureen E. O’Connell, Evan Behrens and John H. Griffin, Jr. Ms. O’Connell served as the Audit Committee Chair and she was considered an “audit committee financial expert,” as currently defined under the SEC and NYSE rules during this period.

Following July 23, 2020, the Audit Committee was comprised of Evan Behrens, John H. Griffin, Jr. and Alfred V. Tobia, Jr., all of whom continue to serve on the committee. Mr. Behrens was the Audit Committee Chair through March 2021. Mr. Griffin is presently the Audit Committee Chair and he is considered an “audit committee financial expert,” as currently defined under the SEC and NYSE rules.

Our Board has determined that all the Audit Committee members are independent within the meaning of the applicable SEC rules and the listing standards of the NYSE as such requirements apply to members of audit committees.

The primary function of the Audit Committee is to assist the Board in fulfilling its oversight of (1) the integrity of our financial statements, including the financial reporting process and systems of internal controls regarding finance, accounting, and legal compliance, (2) the qualifications and independence of our independent auditors, (3) the performance of our internal audit function and independent auditors, and (4) our compliance with legal and regulatory requirements.

The Audit Committee’s role is one of oversight. Management is responsible for preparing the Company’s financial statements and the independent registered public accounting firm is responsible for auditing those financial statements. Management, including the internal audit staff, or outside provider of such services, and the independent registered public accounting firm have more time, knowledge and detailed information about the Company than do Audit Committee members. Consequently, in carrying out its oversight responsibilities, the Audit Committee will not provide any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent registered public accounting firm’s work.

Despite no longer being listed on the NYSE, the Board has determined that (x) all members of the Audit Committee should meet the standards required for audit committee membership on the Board of an NYSE listed company as it believes those standards establish best practices for audit committee membership and (y) all current members of the Compensation Committee meet such criteria.

From January 1, 2020 to May 13, 2020, the Compensation Committee was composed of Melvin L. Keating, Maureen E. O’Connell and John H. Griffin, Jr. On May 14, 2020, in connection with the decision to decrease the size of the board, the Company re-designated all of the board committees. From May 14 2020 to July 22, 2020, the Compensation Committee was comprised of John H. Griffin, Jr., Maureen E. O’Connell and Alfred V. Tobia, Jr. Following July 23, 2020, the Compensation Committee was comprised of John H. Griffin, Jr., Evan Behrens, and Alfred V. Tobia, Jr., all of whom continue to serve on the committee. Mr. Tobia, Jr. is presently our Compensation Committee Chair.

The primary functions of the Compensation Committee are to (1) review and approve corporate goals and objectives relevant to principal executive officer compensation, evaluate the principal executive officer’s performance in light of those goals and objectives, and together with the other independent directors (as directed by the Board), determine and approve the principal executive officer’s compensation level based on this evaluation, (2) review and recommend to the Board (as directed by the Board) non-principal executive officer compensation, incentive-compensation plans and equity-based plans, and (3) to the extent such disclosure is required, review and discuss with management the Company’s “Compensation Discussion and Analysis” and produce a committee report on executive compensation as required by the SEC to be included in our annual proxy statement or Annual Report on Form 10-K filed with the SEC.

Despite no longer being listed on the NYSE, the Board has determined that (x) all members of the Compensation Committee should meet the standards required for compensation committee membership on the board of an NYSE listed company and (y) all current members of the Compensation Committee meet such criteria.

From January 1, 2020 to May 13, 2020, the Nominating and Corporate Governance Committee was composed of Maureen E. O’Connell, John H. Griffin, Jr. and Evan Behrens. On May 14, 2020, in connection with the decision to decrease the size of the board, the Company re-designated all of the board committees. The Nominating and Corporate Governance Committee is presently comprised of Evan Behrens, John H. Griffin, Jr. and Alfred V. Tobia, Jr. Mr. Behrens is our Corporate Governance Committee Chair.

~~The primary functions of the Governance Committee are to (1) develop, recommend to the Board, implement and~~ maintain our Company’s corporate governance principles and policies, (2) identify, screen and recruit, consistent with criteria approved by the Board, qualified individuals to become Board members, (3) recommend that the Board select the director nominees for the next annual meeting of stockholders, (4) assist the Board in determining the appropriate size, function, operation and composition of the Board and its committees, and (5) oversee the evaluation of the Board and management.

Despite no longer being listed on the NYSE, the Board has determined that (x) all members of the Nominating and Corporate Governance Committee should meet the standards required for nominating and corporate governance committee membership on the Board of an NYSE listed company and (y) all current members meet that criteria.

There were 28 meetings (in total) held by the Board during the fiscal year ended December 31, 2020, including 19 Board Meetings. Separately, the Audit Committee had 5 meetings, the Compensation Committee had 3 meetings and the Nominating and Corporate Governance Committee had 1 meeting during the fiscal year ended December 31, 2020. Although the Company does not have a formal policy regarding director attendance at the annual meeting of stockholders, all directors are encouraged to attend. During the fiscal year ended December 31, 2020, all current directors attended at least 75% of the Board and applicable committee meetings held.

Board leadership structures should vary for companies depending on their circumstances. The Board, through the Nominating and Corporate Governance Committee, regularly evaluates whether to combine or separate the roles of principal executive officer and Chairman, especially in connection with changes in leadership. Upon the appointment of Mr. Benett as the Company’s Chief Executive Officer, the Board and Nominating and Corporate Governance Committee re-evaluated the Board’s leadership structure and determined that the most effective leadership structure at that time was to have Mr. Benett serve as both Executive Chairman and Chief Executive Officer with a strong independent Director serving as the Lead Independent Director. The Board believed that, as the individual with primary responsibility for implementing the Company’s turnaround plan, Mr. Benett was best positioned to chair regular Board meetings and to focus the Board’s attention on the issues of greatest importance to the Company and its stockholders. Mr. Behrens served as the Board’s Lead Independent Director until April 2021. The Lead Independent Director, supported by the chairs of the independent committees of the Board, was responsible for assessing the performance of the Executive Chairman and Chief Executive Officer and protecting against potential management conflicts.

In April 2021, the Board re-examined its leadership structure and determined that at this time the appropriate structure was to have separate individuals serve as CEO and Chairman. In connection with this decision, Mr. John H. Griffin, Jr. was elected Chairman of the Board. Separating these positions will allow Mr. Benett to focus on running the Company’s business, while allowing Mr. Griffin to lead the Board in its fundamental role of providing advice to and independent oversight of management. The Board also believes that separating the Non-Executive Chairman and Chief Executive Officer positions provides enhanced independent leadership and oversight for the Company and the Board.

Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for Harte Hanks and its stockholders. Our corporate governance guidelines provide the flexibility for our Board to modify or continue our leadership structure in the future, as it deems appropriate, in light of the results of evaluations or business needs. As a result of the appointment of Mr. Griffin as Chairman, the Company no longer has a Lead Independent Director.

Our Corporate Governance Principles provide that the non-management members of the Board will hold regular executive sessions in connection with regular Board meetings to consider issues that they may determine from time to time without the presence of any member of management. If the Chairman of the Board is not a member of management, the Chairman will chair each such session and report any material issues to the full Board. If the Chairman is a member of management, the Lead Independent Director serves as the chairman of the executive sessions. In 2020, these sessions were presided over by our Lead Independent Director, and since the appointment of Mr. Griffin as Chairman, he has presided over the sessions. If the non-management directors include directors who are not “independent” under applicable SEC rules, then the independent directors will hold an executive session at least once a year. The Chairman of the Board, if an independent director, chairs each such session and reports any material issues to the full Board. If the Chairman is not an independent director, the Lead Independent Director serves as the chairman of such sessions. We believe having a substantial majority of independent, experienced directors comprising our Board benefits the Company and its stockholders by providing strong oversight and advice on the issues facing the Company.

Our Board is responsible for overseeing the risk management process. The Board focuses on our general risk management strategy and the most significant risks we face and ensures that management implements appropriate risk mitigation strategies. The Board is also apprised of particular risk management matters in connection with its general oversight and review of corporate matters.

~~In performing the risk management process, the Board reviews with management (1) our policies with respect to risk assessment and management of risks that may be material to us, (2) our system of~~ disclosure controls and procedures as defined in Rule 13a-15(e) and ~~system~~15d-15(e) under the Securities Exchange Act of ~~internal controls over financial reporting,~~1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and ~~(3)~~reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our ~~compliance with legal~~Chief Executive Officer (“CEO”) and ~~regulatory requirements. The Board also reviews major legislative~~Chief Financial Officer (“CFO”) as appropriate to allow timely decisions regarding required disclosure.

Our management, including our CEO and ~~regulatory developments that could materially impact~~CFO, evaluated the effectiveness of our contingent liabilities and risks. Our other Board committees also consider and address risk as they perform their respective committee responsibilities. For example, our Compensation Committee evaluates the risks associated with our compensation plans and policies, and our Audit Committee monitors risks relating to our financialdisclosure controls and ~~reporting. All committees report~~procedures pursuant to ~~the full Board as appropriate, including when a matter rises to the level of a material or enterprise level risk. The leadership structure of our Board described above~~Rules 13a-15(e) and 15d-15(e) under the ~~section heading “Board Leadership Structure” ensures~~Exchange Act as of December 31, 2021. Based upon such evaluation, our CEO and CFO concluded that ~~management~~the design and operation of these disclosure controls and procedures were effective, at the “reasonable assurance” level, to ensure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is ~~properly overseen by independent directors.~~recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

In April 2021, recognizing the unique and evolving risks posed by cybersecurity and data protection, the Board determined to delegate to the Audit Committee the responsibility of overseeing risks related to cybersecurity, data protection (including confidential, proprietary and personal information, reputation and goodwill in all forms) and other similar risks. The Audit Committee is also responsible for overseeing and assisting in the establishment of policies and procedures to mitigate such risks. The Audit Committee Charter has been amended to update the committee’s scope of responsibility to include overseeing such risks.Management’s Report on Internal Control Over Financial Reporting

Management is responsible for ~~day-to-day risk management.~~establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our ~~finance, treasury, general counsel~~internal control over financial reporting is a process designed by, or under the supervision of our CEO and ~~internal audit functions serve as~~CFO to provide reasonable assurance regarding the ~~primary monitoring~~reliability of financial reporting and ~~testing groups for company-wide policies and procedures and manage~~ the ~~day-to-day oversight~~preparation of the ~~risk management strategy~~Company’s financial statements for our ongoing business. This oversight includes identifying, evaluating and addressing potential risks that may exist at the enterprise, strategic, financial and operational levels, as well as compliance and reporting.external purposes in accordance with U.S. GAAP.

~~We believe~~Management evaluated, under the ~~division~~supervision of ~~risk~~our CEO and CFO, the design and effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on this assessment, management ~~responsibilities described above is an effective approach for addressing the risks facing the Company and~~concluded that ~~our Board leadership structure supports this approach.~~internal control over financial reporting was effective.

~~Stockholder Communications with the Board of Directors~~Changes in Internal Control over Financial Reporting

~~Stockholders may send communications~~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. We have not experienced any material impact to our ~~Board, including any individual director or~~internal controls over financial reporting despite the ~~directors as a group, by mailing such communications to Harte Hanks, Inc., Attn: Corporate Secretary, 2800 Wells Branch Parkway, Austin, Texas 78728. Such correspondence shall be addressed~~fact that most of our employees are working remotely due to the ~~Board or any individual director by either name or title.~~COVID-19 pandemic. We are continually monitoring and assessing the impact of COVID-19 on our internal controls to minimize the impact on their design and operating effectiveness.

All communications received as set forth in the preceding paragraph will be opened by our Corporate Secretary or the secretary’s designee for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to our Board or any individual director, our Corporate Secretary will make sufficient copies of the contents to send to each director to which the envelope is addressed.

We have established a corporate compliance program as part of our commitment to responsible business practices in all of the communities in which we operate. The Board has adopted a Business Conduct Policy that applies to all of our directors, officers and employees, which promotes the fair, ethical, honest and lawful conduct in our business relationships with employees, customers, suppliers, competitors, government representatives, and all other business associates. In addition, we have adopted a Code of Ethics applicable to our Chief Executive Officer and all of our senior financial officers. The Business Conduct Policy and Code of Ethics form the foundation of a compliance program that includes policies and procedures covering a variety of specific areas of professional conduct, including compliance with laws, conflicts of interest, confidentiality, public corporate disclosures, insider trading, trade practices, protection and proper use of company assets, intellectual property, financial accounting, employment practices, health, safety and environment, and political contributions and payments. The Business Conduct Policy forbids employees and directors from engaging in hedging activities with respect to our securities.

Both our Business Conduct Policy and our Code of Ethics are available on our website at www.hartehanks.com, under the “Corporate Governance” subsection of our “Investors” section. In accordance with OTCQX and SEC rules, we intend to disclose any future amendments to our Code of Ethics, or waivers from our Code of Ethics for our Chief Executive Officer or Chief Financial Officer.

The Company’s Business Conduct Policy forbids employees and directors from engaging in hedging activities or similar arrangements with respect to our securities. As of the date of this Annual Report, management of the Company is not aware of any hedging activities by Company insiders involving the Company’s securities.

Section 16(a) of the Exchange Act and related rules of the SEC require our directors, officers, and persons who own more than 10% of a registered class of our equity securities (collectively the "Reporting Persons"), to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC. All Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports that they file. As with many public companies, we provide assistance to our directors and executive officers in making their Section 16(a) filings pursuant to powers of attorney granted by our insiders.

To our knowledge, based solely on our review of the copies of Section 16(a) reports provided to us by such Reporting Persons, including those reports that we have filed on behalf of our directors and executive officers pursuant to powers of attorney, or written representations from certain Reporting Persons we believe that there has been compliance with all Section 16(a) filing requirements applicable to such Reporting Persons with respect to the fiscal year ended December 31, 2020, except that one Form 3 and one Form 4 for Mr. Brian Linscott, were each filed late and three Form 4s for Mr. Copeland, two Form 4s for Mr. Tobia and Mr. Griffin, and one Form 4 for Mr. Behrens, were each filed late. The failure to file the Form 3 and Form 4s was inadvertent on the part of the Company’s officers and directors. The Company has enhanced its compliance system and level of awareness in order to ensure timely filings moving forward.

The Committee believes that stock ownership requirements encourage officers to maintain a significant financial stake in our company, thus reinforcing the alignment of their interests with those of our stockholders. Consistent with this philosophy, we have stock ownership guidelines that require all officers to acquire and hold significant levels of our common stock. Under these guidelines (revised in February 2018), a corporate officer must reach the minimum required level of common stock ownership no later than five years from commencement of employment (and sooner in some cases). Officers promoted to a level with a higher minimum equity ownership level have three years to reach the higher level of ownership. The target ownership level (relative to base annual salary) is 500% for the CEO, 200% for executive vice presidents and senior vice presidents, and 100% for vice presidents.

~~The recent stock ownership of our executive officers is reflected below in “Item 12.~~ ~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~”. For purposes of measuring compliance with these stock ownership guidelines, all common stock (including restricted stock units) owned by an executive officer is included. Compliance with the target ownership level is measured by the greater of (i) the aggregate of the consideration paid for qualifying shares (but for unvested awards, the grant date value), or (ii) the result of multiplying the number of qualifying shares by the average closing price of the Company’s common stock over the trailing 12 months. Neither options nor performance awards are included in the compliance calculation.

If an officer has not previously met the minimum equity ownership level, the officer must retain half of the “net shares” related to any option exercise or vesting of restricted stock or performance awards. “Net shares” means the number of shares remaining after the sale of shares to cover the exercise price of options and the sale of shares sufficient to pay taxes related to the exercise of options or vesting of restricted stock or performance awards. If an executive officer has previously met the applicable target ownership level, then so long as such officer maintains the number of shares needed for compliance at that time, the officer will be deemed to be in compliance notwithstanding any stock price fluctuations.

The ownership guidelines, and compliance by officers with the guidelines, are reviewed annually by the Committee. Any remedial action for failure to comply with the stock ownership guidelines is to be determined by the Committee on a case-by-case basis. While our executive officers are endeavoring to meet these ownership thresholds, none of our officers have met the holding requirements under the guidelines. Mr. Bennett has through 2024, Mr. Linscott has through 2025, and Ms. Kearnes has through 2022 to meet the holding requirements.

~~As part of our Business Conduct Policy, we have adopted an insider trading policy that, among other things, forbids officers from engaging in hedging activities with respect to our securities.~~

In February 2018, the Board adopted a clawback policy. This policy formalized the Company’s long-standing practice of including in award agreements (or other applicable documents which provide the terms of incentive compensation) a provision that makes such incentive compensation subject to forfeiture, reimbursement and/or recoupment in the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the federal securities laws. Under the clawback policy, incentive compensation includes the following (provided that such compensation is granted, earned or vested based wholly or in part on the attainment of a financial reporting measure): annual bonuses/incentive plan awards and other short-and long-term cash incentives; stock options; stock appreciation rights; restricted stock awards and/or units; performance unit awards; and any other compensation designated as “Incentive compensation” by the Committee at the time such compensation is made, granted or awarded.

The following table provides information as of December 31, 2020 regarding total shares subject to outstanding stock options and rights and total additional shares available for issuance under Harte Hanks, Inc. 2020 Equity Incentive Plan (as amended, the “2020 Plan”) and the Amended and Restated Harte Hanks 2013 Omnibus Incentive Plan (the “2013 Plan”).

The following table sets forth information regarding outstanding equity awards held at the end of 2020 by our named executive officers. These equity awards were issued pursuant to our 2020 Plan and 2013 Plan.

~~In 2020 we had the following types of severance arrangements with our named executive officers, each addressing or intended to address different employment and/or termination circumstances:~~

In January 2020, the Board renewed its prior practice (established in 2019) that all severance agreements with executive officers, including each agreement made with individuals under the Executive Severance Policy, going forward, would be as determined by the Board in its discretion.

In January 2015, we adopted an Executive Severance Policy applicable to corporate officers and certain other executive employees designated by the Compensation Committee. The Executive Severance Policy applies only for named executive officers in circumstances when they do not have a specific agreement that determines their rights to severance. In 2020 only Ms. Kearnes was covered by the Executive Severance Policy. The Executive Severance Policy provides a participating executive whose employment is terminated without “cause,” (i) severance payments equal to such executive’s then-current base salary for the one-year severance period and (ii) subject to certain conditions, up to a year of contributions toward health care coverage. In exchange, executives are required to deliver a full release to the Company and adhere to non-competition and non-solicitation covenants. The Executive Severance Policy does not provide any acceleration of vesting for equity awards in the event of an executive’s termination. The Executive Severance Policy can be amended upon six months’ notice by the Compensation Committee, and it terminates immediately prior to a change of control of the Company.

The CIC Agreements are designed to allow us to attract and retain key talent by providing defined compensation in the event of a change in control. The payout levels and other terms of the CIC Agreements are based on the Compensation Committee’s review of publicly available market data regarding severance agreements and prior iterations of these agreements. Mr. Linscott, Mr. Benett and Ms. Kearnes are each a party to a CIC Agreement with the Company. The CIC Agreements provide that if, after a change in control, an executive (i) is terminated other than for “cause” (as defined in the agreement), death or disability or (ii) elects to terminate the executive's employment for “good reason,” then such executive is entitled to severance compensation and a cash payment sufficient to cover health insurance premiums for a defined period of time (18 to 24 months). The amount of severance compensation is the sum of (A) the executive’s annual base salary in effect immediately prior to the change in control or termination date, whichever is larger, plus (B) the executive’s target-level bonus or incentive compensation multiplied by 1.0 or 2.0. The foregoing severance multiples were reduced by 0.5 as a result of changes made in the form of CIC Agreement in 2015, but incumbent officers retained their earlier-awarded higher multiples. With respect to equity awards, the CIC Agreements provide that so long as such awards are assumed or replaced with equivalent awards by the acquirer, there will be no “single-trigger” acceleration.

The severance provisions of the Minimum Guarantee Agreements generally set the level of the applicable executive’s severance pay period under the applicable severance arrangement (e.g., the Severance Policy or CIC Agreement). The CEO Agreement with Mr. Benett provides that Mr. Benett will receive severance pay for a period of 18 months (as noted below). The COO Agreement with Mr. Linscott provides that Mr. Linscott will receive severance pay for a period of 12 months (as noted below).

The CEO Agreement provides for the following severance payments and benefits upon a termination of Mr. Benett’s employment by the Company without “cause” or his resignation for “good reason” (each as defined in the CEO Agreement): (i) 18 months of continued base salary and (ii) 12 months of continued health benefit coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.

The COO Agreement provides for the following severance payments and benefits upon a termination of Mr. Linscott’s employment by the Company without “cause” or his resignation for “good reason” (each as defined in the CEO Agreement): (i) 12 months of continued base salary and (ii) 12 months of continued health benefit coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.

We provide an annual incentive opportunity (an “AIP”) for named executive officers to achieve certain milestones within the Company and, where appropriate, to advance business line performance on a year-over-year basis. This annual short-term cash incentive opportunity provides an incentive for our executives to manage our businesses to achieve targeted financial results. Our 2020 AIP for executives was administered under the 2013 Plan. We paid the following amounts to our named executive officers under the 2020 AIP, based on various financial performance and operational efficiency goals: $228,000 to Mr. Benett, $210,000 to Mr. Linscott and $165,000 to Ms. Kearnes.

From time to time, the Company grants equity incentive awards to our named executive officers and other selected employees. Prior to adoption of the 2020 Plan, such awards were granted under the 2013 Plan. The 2020 Plan was approved by stockholders at the 2020 annual meeting of stockholders, and therefore no new awards will be granted under the 2013 Plan (although outstanding awards under the 2013 Plan will continue to be governed by the terms of the 2013 Plan). The 2020 Plan is administered by our Board of Directors, or a committee thereof. Currently the plan is administered by the Compensation Committee. The administrator has authority to interpret the plan provisions and make all required determinations under the 2020 Plan (including making appropriate adjustments to reflect stock splits and similar events). Employees, directors and consultants of the Company and its subsidiaries are eligible for award grants under the 2020 Plan. Awards of stock options, stock appreciation rights, restricted stock, restricted stock units and other awards may be granted under the plan.

Under our director compensation program in 2020, we provided compensation to our directors who are not employed by us or any of our subsidiaries (referred to herein as “non-employee directors”) as follows:

Each independent director was able to elect, annually or in connection with such director’s appointment to the Board, to receive all or a portion of such director’s cash compensation otherwise payable for such director’s services in shares of the Company’s common stock. These shares of common stock are granted as soon as administratively practicable following the end of each of the Company’s fiscal quarters. The number of shares delivered is based on the market value of one share of the Company’s common stock on the OTCQX as of the last day of the immediately preceding quarter, in accordance with the 2020 Plan.

In 2019, the annual cash retainer was increased to $60,000 and the annual equity retainer was increased to $90,000, to compensate the directors for their increased time and efforts. In December 2019, the Board determined to maintain the annual retainers at 2019 levels. During 2020, the Board decided to reduce the annual equity retainer to 18,000 shares of the Company's common stock. In addition, in July of 2020 the Board determined to eliminate the separate committee retainer fees and ceased paying such fees on July 22, 2020. Non-employee directors only received their annual retainer fee after that date. ~~At August 8, 2020,~~ ~~the date of grant, this equaled $33,300.~~

Mr. Benett, our Chief Executive Officer and also a director of the Board, received a cash retainer fee of $120,000 in respect of his role as a director, which amount is included in the Summary Compensation Table.

~~The following table sets forth the total compensation paid to our non-employee directors for their service on our board of directors during fiscal 2020:~~

Under our Corporate Governance Principles and Stock Ownership Guidelines, non-employee directors are expected to hold five times the annual cash retainer amount in company stock (an increase from three times the annual cash retainer amount). Employee directors are likewise subject to the Stock Ownership Guidelines, but as applicable to their management level rather than directorship. Currently, each of our directors is in compliance with this policy. As part of our Business Conduct Policy, we have adopted an insider trading policy that, among other things, forbids directors from engaging in hedging activities with respect to our securities.

The following table sets forth the number of shares of our common stock beneficially owned by (1) our “named executive officers” included in the Summary Compensation Table below, (2) each current Harte Hanks director, (3) each person known by Harte Hanks to beneficially own more than 5% of the outstanding shares of our common stock, and (4) all current Harte Hanks directors and executive officers as a group. Except as otherwise noted below, (a) the persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them, and (b) ownership is as of March 31, 2021, when 6,666,984 shares of our common stock were outstanding.

Our Board reviews related party transactions for potential conflict of interest issues and has adopted certain policies and procedures relating to its review, approval or ratification of any transaction in which the Company is a participant and that is required to be reported by the SEC’s rules and regulations regarding transactions with related persons. As set forth in the Nominating and Corporate Governance Committee’s charter, except for matters delegated by the Board to the Audit Committee, all proposed related transactions and conflicts of interest should be presented to the Nominating and Corporate Governance Committee for its consideration. If required by law, SEC regulations or any other applicable rule or regulations, such transactions must obtain Nominating and Corporate Governance Committee approval. In reviewing any such transactions and potential transactions, the Nominating and Corporate Governance Committee may take into account a variety of factors that it deems appropriate, which may include, for example, whether the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party, the value and materiality of such transaction, any affiliate transaction restrictions that maythis item will be included in ~~our debt agreements, any impact on the Board’s evaluation of~~an amendment hereto or a ~~non-employee director’s independence or on such director’s eligibility~~definitive proxy statement to ~~serve on one of the Board’s committees and any required public disclosures by Harte Hanks.~~

Our Certificate of Incorporation and Bylaws require us to indemnify our officers and directors to the fullest extent permitted by the Delaware General Corporation Law. These documents also contain provisions that provide for the indemnification of our directors for third party actions and actions by or in the right of Harte Hanks that mirror Section 145 of the Delaware General Corporation Law.

~~In December 2019, the Company entered into an indemnification agreement~~be filed with each of our directors and executive officers (the “Indemnification Agreements”). The Board determined that it is in the best interests of the Company and its stockholders to enter into Indemnification Agreements in order to attract and retain highly competent individuals to serve, or continue to serve, as directors and executive officers. The Indemnification Agreements, among other things, subject to certain exceptions, require the Company to indemnify, and advance expenses to, each director and executive officer to the fullest extent permitted by the laws of the State of Delaware, including indemnification of expenses such as attorneys' fees, judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of the Company, arising out of such person's services as a director or executive officer.

Our Certificate of Incorporation also states that the Company has the power to purchase and maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against such expense, liability or loss, whether or not we would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. We also have and intend to maintain director and officer liability insurance, if available on reasonable terms.

Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC ~~such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.~~

~~Deloitte served as our independent accountant for a portion~~within 120 days of the fiscal year ended December 31, 2019. Moody, Famiglietti & Andronico, LLP (“MFA”) served as our independent accountant upon the dismissal of Deloitte on April 12, 2019 and for all of fiscal 2020. MFA continues to serve as our independent accountant. 2021.

Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the ~~aggregate amount~~SEC within 120 days of ~~various professional fees billed by our principal accountants:~~the fiscal year ended December 31, 2021.

~~Audit Fees~~~~. Audit fees consist of aggregate fees for the annual financial~~Information required by this item will be included in an amendment hereto or a definitive proxy statement ~~audit, quarterly financial statement reviews and services in connection with filings~~to be filed with the ~~SEC. All audit fees are approved by~~SEC within 120 days of the ~~Board.~~fiscal year ended December 31, 2021.

~~Audit~~-~~Related Fees~~~~. Audit-related fees consist of aggregate fees for assurance and related services other than those~~

Information required by this item will be included ~~under “Audit Fees” above. Includes charges for statutory audits of certain~~in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the ~~Company’s foreign subsidiaries~~fiscal year ended December 31, 2021.

Information required by ~~countries~~this item will be included in ~~which they are domiciled in 2020 and 2019.~~

~~Tax Fees~~. Tax fees include fees for professional services for tax compliance, tax advice and tax planning, primarily, fees related to tax preparation services. All tax fees are approved by the Audit Committee.

~~All Other Fees~~~~: Other fee include fees for products and services other than the services reported above. All other fees are approved by the Audit Committee.~~

Our Audit Committee has established procedures for pre-approval of audit and non-audit services as set forth in the Audit Committee Charter. The Audit Committee considers whether the audit fee disclosed above are compatible with maintaining MFA's independence and has so determined that the service provided by MFA is compatible with maintaining MFA’s independence. The Audit Committee pre-approved audit services provided to us by MFA in 2020 and those proposedan amendment hereto or a definitive proxy statement to be ~~provided by MFA in~~filed with the SEC within 120 days of the fiscal year ended December 31, 2021.

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.

We have audited the accompanying consolidated balance sheets of Harte Hanks, Inc. and Subsidiaries (the "Company") as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income (loss), changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’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’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.

The critical audit matter communicated below are matters arising from the current period audit of the financial statements that was 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 matter or on the accounts or disclosures to which it relates.

As described in Note C to the consolidated financial statements, the Company recorded $194.6 million in revenue for the year ended December 31, 2021, which consists of three major revenue streams. 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, a portion 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 automated 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 processes and systems 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. 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, among others:

	*December 31,*
In thousands, except per share and share amounts	*2021*			*2020*
ASSETS
Current assets
Cash and cash equivalents	$	11,911		$	29,408
Restricted cash		3,222			4,154
Accounts receivable (less allowance of $266 at December 31, 2021 and $241 at December 31, 2020)		41,051			36,023
Unbilled accounts receivable		8,134			5,510
Contract assets		622			613
Prepaid expenses		1,948			2,256
Prepaid income tax and income tax receivable		7,456			7,388
Other current assets		1,031			886
Total current assets		75,375			86,238
Property, plant and equipment
Buildings and improvements		6,430			8,882
Equipment and furniture		21,189			33,650
Software		29,949			32,693
Software development and equipment installations in progress		2,691			315
Gross property, plant and equipment		60,259			75,540
Less accumulated depreciation		(52,512	)		(69,662	)
Net property, plant and equipment		7,747			5,878
Right-of-use assets		22,142			24,750
Other assets		2,597			2,632
Total assets	$	107,861		$	119,498

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable and accrued expenses	$	16,132		$	16,294
Accrued payroll and related expenses		7,028			5,248
Short-term debt		0			4,926
Deferred revenue and customer advances		3,942			4,661
Customer postage and program deposits		6,496			6,497
Other current liabilities		2,291			2,903
Short-term lease liabilities		6,553			6,663
Total current liabilities		42,442			47,192
Long-term debt, net of current portion		5,000			22,174
Pension liabilities - Qualified plans		27,359			40,512
Pension liabilities - Nonqualified plan		25,140			26,978
Long-term lease liabilities		19,215			21,295
Other long-term liabilities		3,697			4,747
Total liabilities		122,853			162,898

Preferred stock, $1 par value, 1,000,000 shares authorized; 9,926 shares of Series A Convertible Preferred Stock, issued and outstanding		9,723			9,723

Stockholders’ deficit
Common stock, $1 par value, 25,000,000 shares authorized,12,121,484 shares issued, 6,976,144 and 6,599,309 shares outstanding at December 31, 2021 and December 31, 2020, respectively		12,121			12,121
Additional paid-in capital		290,711			383,043
Retained earnings		811,094			796,123
Less treasury stock, 5,145,340 shares at cost at December 31, 2021 and 5,522,175 shares at cost at December 31, 2020		(1,085,313	)		(1,178,799	)
Accumulated other comprehensive loss		(53,328	)		(65,611	)
Total stockholders’ deficit		(24,715	)		(53,123	)
Total liabilities, preferred stock and stockholders’ deficit	$	107,861		$	119,498

Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss)

	*Year Ended December 31,*
In thousands, except per share amounts	*2021*			*2020*
Operating revenue	$	194,596		$	176,900
Operating expenses
Labor		109,917			103,675
Production and distribution		50,264			49,290
Advertising, selling, general and administrative		17,858			21,522
Restructuring expense		6,359			9,374
Depreciation expense		2,559			3,615
Total operating expenses		186,957			187,476
Operating income (loss)		7,639			(10,576	)
Other (income) expense, net
Interest expense, net		903			1,164
Gain from extinguishment of debt (Paycheck Protection Program Term Note)		(10,000	)		0
Other, net		477			6,569
Total other (income) expense, net		(8,620	)		7,733
Income (loss) before income taxes		16,259			(18,309	)
Income tax expense (benefit)		1,288			(16,615	)
Net income (loss)	$	14,971		$	(1,694	)

Less: Preferred stock dividends		496			496
Less: Earnings attributable to participating securities		1,858			0
Income (loss) attributable to common stockholders	$	12,617		$	(2,190	)

Earnings (loss) per common share
Basic	$	1.85		$	(0.34	)
Diluted	$	1.76		$	(0.34	)

Weighted-average shares used to compute income (loss) per share attributable to common shares
Basic		6,802			6,469
Diluted		7,209			6,469

Comprehensive income (loss), net of tax
Net income (loss)	$	14,971		$	(1,694	)

Adjustment to pension liability		14,150			(4,657	)
Foreign currency translation adjustments		(1,867	)		2,180
Total other comprehensive income (loss), net of tax		12,283			(2,477	)

Comprehensive income (loss)	$	27,254		$	(4,171	)

Harte Hanks, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Deficit

														*Accumulated*
					*Additional*									*Other*			*Total*
	*Preferred*		*Common*		*Paid-in*			*Retained*			*Treasury*			*Comprehensive*			*Stockholders’*
In thousands	*Stock*		*Stock*		*Capital*			*Earnings*			*Stock*			*(loss) income*			*Equity (Deficit)*
Balance at December 31, 2019	$	9,723	$	12,121	$	447,022		$	797,817		$	(1,243,509	)	$	(63,134	)	$	(49,683	)
Stock-based compensation		0		0		753			0			0			0			753
Vesting of RSU's		0		0		(64,732	)		0			64,710			0			(22	)
Net loss		0		0		0			(1,694	)		0			0			(1,694	)
Other comprehensive loss		0		0		0			0			0			(2,477	)		(2,477	)
Balance at December 31, 2020	$	9,723	$	12,121	$	383,043		$	796,123		$	(1,178,799	)	$	(65,611	)	$	(53,123	)
Exercise of stock options		0		0		(6,708	)		0			6,802			0			94
Stock-based compensation		0		0		1,445			0			0			0			1,445
Vesting of RSU's		0		0		(87,069	)		0			86,684			0			(385	)
Net income		0		0		0			14,971			0			0			14,971
Other comprehensive income		0		0		0			0			0			12,283			12,283
Balance at December 31, 2021	$	9,723	$	12,121	$	290,711		$	811,094		$	(1,085,313	)	$	(53,328	)	$	(24,715	)

	*Year Ended December 31,*
In thousands	*2021*			*2020*
Cash Flows from Operating Activities
Net income (loss)	$	14,971		$	(1,694	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation expense		2,559			3,615
Restructuring		913			3,195
Stock-based compensation		1,469			764
Gain from extinguishment of debt (Paycheck Protection Program Term Note)		(10,000	)		0
Net pension (payment) cost		(717	)		(7,134	)
Deferred income taxes		0			(244	)
Changes in assets and liabilities, net of dispositions:
(Increase) decrease in accounts receivable, net and contract assets		(9,175	)		(931	)
(Increase) decrease in prepaid expenses, income tax receivable and other current assets		925			(3,469	)
Decrease in accounts payable and accrued expense		(395	)		(997	)
Decrease in other accrued expenses and liabilities		(2,313	)		(945	)
Net cash used in operating activities		(1,763	)		(7,840	)

Cash Flows from Investing Activities
Purchases of property, plant and equipment		(3,046	)		(2,699	)
Proceeds from the sale of property, plant and equipment		146			1,924
Net cash used in investing activities		(2,900	)		(775	)

Cash Flows from Financing Activities
Borrowings		5,000			10,000
Repayment of borrowings		(17,100	)		(1,600	)
Debt financing costs		(795	)		(653	)
Payment of finance leases		(227	)		(412	)
Treasury stock activities		(291	)		(22	)
Net cash (used in) provided by financing activities		(13,413	)		7,313

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(353	)		742

Net decrease in cash and cash equivalents and restricted cash		(18,429	)		(560	)
Cash and cash equivalents and restricted cash at beginning of year		33,562			34,122
Cash and cash equivalents and restricted cash at end of year	$	15,133		$	33,562

Harte Hanks, Inc. and Subsidiaries Notes to Consolidated Financial 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.

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. In connection with the pandemic, some of our customers have reduced their demand for our services while other customers have requested accommodations including extensions of payment or restructuring of agreements. In addition, some of our customers have declared bankruptcy and it is possible that additional customers will file for bankruptcy in the coming months. Our Customer Care business has experienced increases in volumes and has added new business from existing clients as well as new clients due to the increased demand for these services driven by COVID-19. While the COVID-19 pandemic has not had a material adverse impact on the Company’s business operations, liquidity or ability to comply with covenants to date, the pandemic has caused significant volatility in the global markets and has caused many companies to slow production or find alternative means for employees to perform their work. It is possible that the COVID-19 pandemic, the measures taken by governments around the globe, including in connection with the emergence of variants of the virus and the resulting economic impact may materially and adversely affect the Company’s results of operations, cash flows and financial position as well as the financial stability of its customers. The COVID-19 pandemic may also exacerbate other risks discussed in Part I, “Item 1A. Risk Factors” in this Annual Report on Form-10K, which could materially affect our business, financial condition, or future results. Refer to "Item 1A. Risk Factors" in this Annual Report on Form 10-K for a further discussion on COVID-19 and the risks the Company currently faces.

The 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 (loss) and operating income (loss) plus depreciation and amortization (EBITDA).

Depending on the needs of our clients, our services are provided through an integrated approach through twelvefacilities 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:

One customer represented 14.6% of total accounts receivable as of December 31, 2021. The same customer comprised 15.1% of total revenue for the year ended December 31, 2021. One customer represented 10% of total accounts receivable as of December 31, 2020. Another customer comprised 11.2% of total revenue for the year ended December 31, 2020. Our largest 25 customers in terms of revenue comprised 72.6% and 62.0% of total revenue for the years ended December 31, 2021 and 2020, respectively.

From 2016 until October 2020, we conducted business with 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. For information pertaining to the Company’s preferred stock, See Note E, Convertible Preferred Stock.

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.

Preparation 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 Presentation in the Consolidated Statements of Comprehensive Income (Loss)

The “Labor” line in the Consolidated Statements of Comprehensive Income (Loss) 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.

We 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-step revenue recognition model:

Certain 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.

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.

For 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.

Financial 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:

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.

All 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.

In 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.

We maintain an allowance for doubtful accounts which is used to reduce accounts receivable to the amount of cash expected to be collected. The methodology used to determine the minimum allowance is based on our prior collection experience and is generally related to the accounts receivable balance in various aging categories. The balance is also influenced by specific clients’ financial strength and circumstance. Accounts that are determined to be uncollectible are written off in the period in which they are determined to be uncollectible. Periodic changes to the allowance of doubtful accounts balance are recorded as increases or decreases to bad debt expense, which is included in the “Advertising, selling, general, and administrative” line of our Consolidated Statements of Comprehensive Income (Loss). The changes in the allowance for doubtful accounts consisted of the following:

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:

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 $0.2 million and $0.8 million impairment of long-lived assets in 2021 and 2020, respectively.

We 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.

Capitalized software costs for research and development are amortized over a five-year period. 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.

Income 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.

Basic 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.

All share-based awards are recognized as operating expense in the “Labor” line of the Consolidated Statements of Comprehensive Income (Loss). 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 Liability

We 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 to a guaranteed cost program for our workers’ compensation programs.

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. At December 31, 2021 and 2020, our reserve for healthcare, workers’ compensation, net, automobile, and general liability was $1.2 million and $1.4 million, 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 (Loss). 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 (Loss).

In 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 (loss).

In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers,(ASC 606). Under ASC 606,Revenue from Contracts with Customers, 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.

We 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, 2021 and 2020 from our three business segments and the pattern of revenue recognition:

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:

Our 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., labor hour) or output method (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.

We operate tele-service workstations in the United States, Asia, and Europe to provide advanced contact center solutions such as: speech, voice and video chat, integrated voice response, analytics, 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.

Our 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 contracts may 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.

We 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, 2021 and 2020.

We 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, 2021, we had 0 transaction prices allocated to unsatisfied or partially satisfied performance obligations.

We 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, 2021 and 2020:

Revenue recognized during the year ended December 31, 2021 from amounts included in deferred revenue as of December 31, 2020 was approximately $4.2 million. Revenue recognized during the year ended December 31, 2020 from amounts included in deferred revenue as of December 31, 2019 was approximately $4.5 million.

We 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 $1.5 million and $1.3 million as of December 31, 2021 and 2020, respectively. For the years presented, 0 impairment was recognized.

We 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 nine 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 leases and subleases for these three facilities expire at various dates, the latest being fiscal year 2023.

As of December 31, 2021, assets recorded under finance and operating leases were approximately $0.8 million and $21.4 million respectively, and accumulated amortization associated with finance leases was $0.7 million. As of December 31, 2020, assets recorded under finance and operating leases were approximately $1.0 million and $23.8 million respectively, and accumulated depreciation associated with finance leases was $0.5 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. The 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, we impaired three 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. During the year ended December 31, 2020, we modified the terms of some of our existing leases which resulted in the re-measurement of the related ROU assets and lease liabilities. We also exercised early termination options and impaired a lease for a facility we were vacating. The resulting impairment and early termination charges are included in our restructuring expenses in the year ended December 31, 2020. Please refer to Note N - Restructuring Activities for more details.

The following tables present supplemental balance sheet information related to our financing and operating leases:

For the year ended December 31, 2021 and 2020, the components of lease expense were as follows:

The maturities of the Company’s finance and operating lease liabilities as of December 31, 2021 are as follows:

(1) Non-cancelable sublease proceeds for the fiscal year ending December 31, 2022, and 2023 of $0.7 million and $0.2 million, respectively, are not included in the table above.

As of December 31, 2021, wehave no new operating leases that have not yet commenced.

Our 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 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.

In the event of a liquidation, dissolution or winding down of 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 had 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 paid to the holders of Series A Preferred Stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of Common Stock.

Upon 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 by the Board of Directors (the “Board”). Dividends are payable solely upon a Liquidation, and only if prior to such Liquidation such shares of Series A Preferred Stock have not been converted to common stock. As of December 31, 2021, cumulative dividends payable to the holders of Series A Preferred Stock upon a Liquidation totaled $1.9 million or $196.03 per share of Series A Preferred Stock.

At the option of the holders of Series A Preferred Stock, shares of Series A Preferred Stock may be converted into common stock at a rate of 100.91 shares of common stock for one share of Series A Preferred Stock, subject to certain future adjustments.

The 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 Sheets as of December 31, 2021 and 2020.

As of December 31, 2021, we had $5.0 million of borrowings outstanding under the New Credit Facility (as defined below). As of December31,2020,we had $17.1 million of borrowings outstanding under the old Texas Capital Facility (as defined below). As of December 31, 2021, we had the ability to borrow an additional $18.9 million under the New Credit Facility.

As of December 31, 2021 and 2020, we had letters of credit outstanding in the amount of $1.1 million and $1.8 million, respectively. NaN amounts were drawn against these letters of credit at December 31, 2021 . These letters of credit exist to support insurance programs relating to workers‘ compensation, automobile, and general liability.

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 actually 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 into a new three-year, $25,000,000 asset-based revolving credit facility (the "New Credit Facility") with Texas Capital Bank. 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 of 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 Bank and the other grantors party thereto (the "Security Agreement").

The New Credit Facility is subject to certain 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 U.S. GAAP). The Company was in compliance with all of the requirements as of December 31, 2021.

The loans under the New Credit Facility accrue interest at a varying rate equal to the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.25% per annum. The interest rate was 2.32% as of December 31, 2021. The outstanding amounts advanced under the New Credit Facility are due and payable in full on December 21, 2024.

In connection with entering into the New Credit Facility, the Company and Texas Capital Bank terminated the Company's old Texas Capital Credit Facility. Prior to termination of the old Texas Capital Credit Facility, the Company used cash on hand to pay down $12.1 million outstanding under the old Texas Capital Credit Facility and the remaining $5 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 $0.5 million and $0.7 million for the years ended December 31, 2021 and 2020, respectively.

On April 14, 2020, the Company entered into 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.

We 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 (Loss). We recognized $1.5 million and $0.8 million of stock-based compensation expense for the years ended December 31, 2021 and 2020, 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. NaN 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-8 to increase the total registered shares under 2013 Plan to 553,673 shares. As of December 31, 2021 and 2020, there were 188,285 and 20,707 shares available, respectively, for grant under the 2013 Plan.

In 2020, we established our 2020 Equity Incentive Plan ("2020 Plan") which took the place of the 2015 Equity Incentive Plan (“2015 Plan”). Any shares of common stock that remain eligible for issuance under the 2015 Plan are now eligible for issuance under the 2020 Plan. In August 2020, we filed a Form S-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. NaN 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, 2021 and 2020, there were 1.6 million and 2.0 million shares available, respectively, for grant under the 2020 Plan.

We granted equity awards to our Chief Executive Officer and Chief Operating Officer in 2020, as a material inducement for acceptance 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.

Options 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 0 options outstanding under the 2020 plan as of December 31, 2021 and 2020.

Options to purchase 8,565 shares granted under 2013 Plan awards were outstanding as of December 31, 2021, with exercise prices ranging from $76.80 to $115.20 per share. There were 0 inducement award options outstanding at December 31, 2021 and 2020.

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. 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 $115.20 per share. Options to purchase 31,950 shares were outstanding under the 2005 Plan as of December 31, 2020, 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).

The following summarizes all stock option activity during the years ended December 31, 2021 and 2020:

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, 2021. The pre-tax intrinsic value is the difference between the closing price of our common stock on December 31, 2021 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, 2021:

No options were granted during 2021 and 2020. As of December 31, 2021, there was 0 unrecognized compensation cost related to unvested stock options.

In 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.

The following summarizes all cash stock appreciation rights during the year ended December 31, 2020:

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 to the income statement as changes to expense. As of December 31, 2021, there was 0 unrecognized compensation cost related to unvested cash stock appreciation right grants.

Restricted 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 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).

The following summarizes all restricted stock units’ activity during 2021 and 2020:

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 of grant. As of December 31, 2021, there was $2.3 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 2.20 years.

In 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 phantom stock unit activity during 2021 and 2020:

The 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 of 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, 2021, there was 0 unrecognized compensation cost related to phantom stock units.

Under the 2020 Plan and 2013 Plan and grants of inducement awards, performance 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-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).

The following summarizes all performance stock unit activity during 2021 and 2020:

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 of 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-year period and is adjusted up or down based on those estimates. As of December 31, 2021, the total unrecognized compensation cost related to performance stock units was approximately $430,437. This cost is expected to be recognized over a weighted average period of approximately 9.35 years.

In 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-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).

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 of 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-year period and is adjusted up or down based on those estimates. As of December 31, 2021, there was 0 unrecognized compensation cost related to cash performance stock units.

Prior 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) 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, 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, in accordance with Internal Revenue Code section 414 (I) and ERISA Section 4044.

The overfunded or underfunded status of our defined benefit post-retirement plans is recorded as an asset or liability on our 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 (loss) in the Consolidated Statements of Comprehensive Income (Loss). We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end Consolidated Balance Sheets.

The following amounts have been recognized in the Consolidated Balance Sheets as of December 31:

The following amounts have been recognized in accumulated other comprehensive loss, net of tax, at December 31:

Based on current estimates, we will be required to make $1.3 million contributions to our Qualified Pension Plan II, in 2022.

We are not required to make and do not intend to make any contributions to our Restoration Pension Plan in 2022 other than to the extent needed to cover benefit payments. We made benefit payments under this supplemental plan of $1.7 million in 2021.

The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:

The Restoration Pension Plan had an accumulated benefit obligation of $26.9 million and $28.7 million as of December 31, 2021 and 2020, respectively.

The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) for both plans:

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 (Loss). 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 2022 is $6.6 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 17.4 years for Qualified Pension Plan I and approximately 27.1 years for Qualified Pension Plan II ). The Qualified Pension Plan is frozen and almost all of the plan’s participants are not active employees.

The weighted-average assumptions used for measurement of the defined pension plans were as follows:

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-year compounded returns, which have been in excess of the forward-looking return expectations.

The funded pension plan assets as of December 31, 2021 and 2020, by asset category, were as follows:

The fair values presented have been prepared using values and information available as of December 31, 2021 and 2020.

The following tables present the fair value measurements of the assets in our funded pension plan:

(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.

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 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:

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-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.

The expected future benefit payments for both pension plans over the next ten years as of December 31, 2021 are as follows:

The Company also has two pension plans in its foreign jurisdictions, the associated pension liabilities are not material.

We also sponsored a 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) match program in 2018.

In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act 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 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (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-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, 2021, the Company has received the tax refunds for the tax years 2019 and 2018 and expects to receive an income tax refund of $7.8 million as a result of the carryback of the loss generated in 2020.

The U.S. and foreign components of income (loss) before income taxes were as follows:

The 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:

We expect to receive a total of tax refunds of $17.4 million from NOL Carrybacks pursuant to the CARES Act. This amount is comprised of $9.6 million already received for carryback claims and we expect a $7.8 million refund from the carryback of the loss generated in 2020.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

A reconciliation of the beginning and ending balance of deferred tax valuation allowance is as follows:

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. The valuation allowance for deferred tax assets was $25.9 million and $30.8 million as of December 31, 2021 and 2020, respectively. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence such as changes in our growth projections.

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 returns, we are no longer subject to tax examinations for years prior to 2016. For U.S. federal and foreign returns, we are no longer subject to tax examinations for years prior to 2016.

There is 0 balance of unrecognized tax benefits as of December 31, 2021 and 2020. 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 (Loss).

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, 2021, the Company had 0 federal net operating loss carryforward. The federal foreign tax carryforward credits of $3.8 million will expire on various dates from 2023 to 2031. Federal research and development credit carryforwards of $0.2 million will begin to expire on various dates from 2035 to 2036. The Company has state NOL carryforwards of $108.9 million, and foreign NOL carryforwards of $5.4 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 to estimate 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.

In periods in which the Company has net income, the Company is required to calculate earnings per share (“EPS”) using the two-class method. The two-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 5 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-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 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-class method is not used, because the calculation would be anti-dilutive.

For the years ended December 31, 2021 and 2020, respectively, the following shares have been excluded from the calculation of shares used in the diluted EPS calculation: 46,380 and 31,906 shares of anti-dilutive market price options; 29,983 and 536,189 of anti-dilutive unvested shares; and 1,000,000 and 1,000,000 shares of anti-dilutive Series A Preferred Stock (as if converted).

Comprehensive income (loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders.

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).

In the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of claims that we infringe on the proprietary rights of third parties. The terms and duration of these commitments vary and, in some cases, may be indefinite, and certain of these 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 0 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 businesses and, from time to time, we may become involved in additional claims and lawsuits incidental to our businesses. 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 legal counsel; (ii) our previous experience; and (iii) the decision of our management as to how we intend to respond to the complaints.

As 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). In connection with the entry into the New Credit Facility the arrangement was terminated because Texas Capital Bank did not require third-party credit support for the borrowings under the New Credit Facility.

Our 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 Shawnee (KS) facility lease expired on April 30, 2021. The new Kansas City location is now our primary facility in the Midwest. In 2020, we successfully 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 since the business is operating effectively in a work-from-home environment.

For the years ended December 31, 2021 and 2020, we recorded restructuring charges of $6.4 million and $9.4 million, respectively. The 2021 restructuring charges included $2.5 million of severance charges, $0.9 million in lease impairment expense and $3.0 million of facility related and other expenses. The 2020 restructuring charges included $3.0 million of lease impairment charges related to the exit from our direct mail facilities, $2.5 million of severance charges, $1.3 million in capital losses from the asset disposal associated with the Summit deal and $2.9 million of facility related and other expenses as well as $0.3 million credit to previously accrued contract termination fees.

The following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Consolidated Statement of Comprehensive Income (Loss).

The following table summarizes the changes in liabilities related to restructuring activities:

In connection with our cost-saving and restructuring initiatives, we incurred total restructuring charges of $27.6 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.

Harte Hanks is a leading global customer experience company. We have organized our operations into 3 business segments based on the types of products and services we provide: Marketing Services, Customer Care, 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-party logistics and freight optimization in the United States. Prior to the sale of our direct mail equipment in 2020, this segment also included our direct mail operations. Outsourced direct mail is now included in our Marketing Services segment.

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 revenue, operating income (loss) and operating income (loss) plus depreciation and amortization (“EBITDA”). Operating income (loss) for segment reporting, disclosed below, is revenues less operating costs and allocated corporate expenses. Segment operating expenses 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 and Significant Accounting Policies.

We 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.

*~~Previously filed~~Filed or furnished ~~with the Original Filing,~~herewith, as ~~applicable.~~

Pursuant 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.

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.

		Page
Part I
~~Form 10-K/A Explanatory Note~~

~~Part III~~

Item ~~10.~~	~~Directors, Executive Officers and Corporate Governance~~1.	1Business	3

Item ~~11.~~	~~Executive Compensation~~1A.	6Risk Factors	8

Item ~~12.~~1B.	Unresolved Staff Comments	16

Item 2.	Properties	16

Item 3.	Legal Proceedings	16

Item 4.	Mine Safety Disclosures	16

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17

Item 6.	Selected Financial Data	18

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 8.	Financial Statements and Supplementary Data	26

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27

Item 9A.	Controls and Procedures	27

Item 9B.	Other Information	27

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	28

Item 11.	Executive Compensation	28

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	10

~~Item 13.~~	~~Certain Relationships and Related Transactions, and Director Independence~~	11

~~Item 14.~~	~~Principal Accountant Fees and Services~~	11

~~Part IV~~

~~Item 15.~~	~~Exhibits and Financial Statement Schedules~~	1228

Item 13.	Certain Relationships and Related Transactions, and Director Independence	28

Item 14.	Principal Accountant Fees and Services	28

Part IV
Item 15.	Exhibits and Financial Statement Schedules	29

Signatures		1467

	•	Marketing Technology – Website and app development, e-commerce development and enablement, database building and management, platform architecture creation, and marketing automation to most efficiently engage, capture, enhance, and target audiences.
	•	Marketing As a Service - A flexible outsourcing marketing operations, solution, that works as a highly integrated extension of a client's marketing function. Blending the best of agency and business process outsourcing process and capabilities to operationalize, manage and deliver high-performing data operations, marketing technology, demand generation, and staff augmentation.

Domestic Offices

Austin, Texas	Langhorne, Pennsylvania
Chelmsford, Massachusetts	Lenexa, Kansas
Deerfield Beach, Florida	Maitland, Florida
East Bridgewater, Massachusetts	Trevose, Pennsylvania
Kansas City, Kansas	Texarkana, Texas

International Offices

Hasselt, Belgium	Manila, Philippines
Iasi, Romania	Uxbridge, United Kingdom

	•	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;

					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, 2021		—	$	—		—	$	11,437,544
November 1 - 30, 2021		—	$	—		—	$	11,437,544
December 1 - 31, 2021		—	$	—		—	$	11,437,544
Total		—	$	—		—

	•	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.

~~Name~~		~~Age~~
~~Andrew B. Benett~~		50
~~Evan Behrens~~		51
~~David L. Copeland~~		65
John H. Griffin, Jr.*		60
~~Alfred V. Tobia, Jr.~~		55

	Year Ended December 31,
In thousands, except per share amounts	2021			% Change			2020
Revenues	$	194,596			10.0	%	$	176,900
Operating expenses		186,957			-0.3	%		187,476
Operating income (loss)	$	7,639			-172.2	%	$	(10,576	)
Operating margin (loss)		3.9	%		-165.7	%		(6.0	)%
Other (income) expense		(8,620	)		-211.5	%		7,733
Income tax expense (benefit)		1,288			-107.8	%		(16,615	)
Net income (loss)	$	14,971			-983.8	%	$	(1,694	)

Diluted EPS from operations	$	1.76			-617.6	%	$	(0.34	)

~~Name~~	~~Age~~	~~Principal Position~~
~~Andrew B. Benett~~	50	~~Chief Executive Officer~~
~~Laurilee Kearnes~~	49	~~Chief Financial Officer~~
~~Brian Linscott~~	48	~~Chief Operating Officer~~

•		~~Andrew B. Benett, our Chief Executive Officer;~~
•		~~Brian Linscott, our Chief Operating Officer;~~
•		~~Laurilee Kearnes, our Chief Financial Officer.~~

									All Other
		Salary			Bonus		Stock Awards		Compensation		Total
Name and Principal Position	Fiscal Year	($)			($)		($)(1)		($)		($)
(a)	(b)	(c)			(d)		(e)		(f)		(g)
Andrew B. Benett, Chief Executive Officer	2020		380,000			228,000	(2)	364,500		120,000		1,092,500
	2019		57,692	(3)		—		427,500		—		485,190
Brian Linscott, Chief Operating Officer	2020		338,654			247,500	(4)	201,648		—		787,802
Laurilee Kearnes, Current Chief Financial Officer (5)	2020		282,692			167,124		120,250		667		570,733
	2019		235,096			52,169		136,843		—		424,108

~~(2)~~	~~Column (d) represents a special bonus of $228,000 Mr. Benett received in 2020 for the achievement of certain operating performance measures.~~
~~(3)~~	Includes $43,846 in base salary payments with respect to Mr. Benett’s services as Chief Executive Officer from November 18, 2019 to December 31, 2019 and $13,846 in Executive Chairman fees for the period from November 18, 2019 to December 31, 2019.
~~(4)~~	Column (d) includes a sign-on bonus of $37,500 Mr. Linscott received in connection with his appointment as Chief Operating Officer. Mr. Linscott also received a $210,000 special bonus in 2020 for the achievement of certain operating performance measures.

Name	Year	Insurance Premiums ($) (1)		Other ($)			Total ($)
Andrew B. Benett, Chief Executive Officer	2020		—		120,000	(2)		120,000
Laurilee Kearnes, Current Chief Financial Officer	2020		667		—			667

Plan Category		(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)		(b) Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (2)		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)(3)
Equity compensation plans approved by security holders		909,724		$40.25		2,060,951

	Option Awards								Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)			Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (1) (2)
(a)	(b)		(c)			(d)		(e)	(f)			(g)		(h)			(i)
Andrew Benett										250,000	(3)	$	687,500		—			—
Laurilee Kearnes		200		—		$	123.1	2/5/2021		520	(5)	$	1,430		26,316	(7)	$	94,211
		300		—		$	99.1	2/5/2022		73,772	(6)	$	202,873
		400		—		$	77.2	2/5/2023
		297		—		$	82.3	4/15/2024
		854		—	(4)	$	76.8	4/15/2025
Brian Linscott										75,000		$	206,250

~~(5)~~	~~This phantom stock is scheduled to vest on June 23, 2021.~~
~~(6)~~	13,158 of these restricted stock units vest in three equal installments on the first three anniversary of September 6, 2019. 4,386 of these restricted stock units is scheduled to vest on September 6, 2021 and 2022. 65,000 of these restricted stock units generally vest in three equal annual installments on the first three anniversaries of August 8, 2020.
~~(7)~~	~~These performance stock units generally vest if, following a period of at least one full year from September 6, 2019, certain share price targets are met.~~

•		~~our executive severance policy (the “Executive Severance Policy”);~~
•		~~our “change in control” severance agreement (the “CIC Agreements”);~~
•		~~an employment agreement with Mr. Linscott, our Chief Operating Officer (“COO Agreements”; and~~
•		~~an employment agreement with Mr. Benett, our Chief Executive Officer (the “CEO Agreement”).~~

Annual Retainer	$	60,000
Annual Equity Awards (18,000 shares)	$ 33,300
Annual Committee Chair Fee	$ 5,500 to $12,500
Lead Independent Director Fee	$	35,000

Name	Fees Earned or Paid in Cash($) (1)	Option Awards ($)	Stock Awards ($) (2)	Total ($)
David L. Copeland	60,000	—	33,300	93,300
John H. Griffin Jr.	60,000	—	33,300	93,300
Melvin L. Keating	40,538	—	33,300	73,838
Maureen E. O’Connell	37,742	—	33,300	71,042
Alfred V. Tobia Jr.	63,075	—	33,300	96,375
Evan Behrens	79,570	—	33,300	112,870

~~(1)~~	~~This Column includes annual Board fees, and the committee retainers directors received in cash.~~
~~(2)~~	Each of the independent directors was granted restricted stock units in 2020 with a grant date fair value of $33,300 (rounded down to the nearest whole share), computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions, see note G of our audited financial statements for the fiscal year ended December 31, 2020 included in our Form 10-K for the same period. Restricted stock units granted in 2020 provide for vesting on the first anniversary of the date of grant.
~~(3)~~	~~This amount also includes $19,570 of annual Lead Independent Director fee Mr. Behrens received in 2020.~~

Name and Address of Beneficial Owner (1)(2)	Number of Shares of Common Stock	Percent of Class
Named Executive Officers
Andrew B. Benett	213,500	*
Brian Linscott	36,004	*
Laurilee Kearnes	4,318	*
Directors
Evan Behrens	40,636	*
David L. Copeland (3)	390,947	5.86%
John H. Griffin, Jr.	51,389	*
Alfred V. Tobia, Jr.	55,741	*

5% Holders
Wipro LLC (4)	1,001,658	15.02%
William Blair & Company LLC (5)	661,118	9.92%
Houston H. Harte (6)	660,816	9.91%
Fondren Management LP (7)	592,000	8.88%
Westerly Holdings LLC (8)	975,000	14.62%
Dimensional Fund Advisors LP (9)	271,009	4.06%

All current directors and executive officers as a group (7 persons)(10)	792,535	11.89%

	Years Ended
	December 31,
	2020	2019
Audit fees	$441,150	$375,000
Tax Fees (relating to state, federal and international tax matters)	—	—
Audit related fees	—	—
All Other Fees	—	—
Total audit and audit-related fees	$441,150	$375,000

ITEM 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
		~~(A) The following documents were filed or furnished as part of the Original Filing:~~

15(a)(1)		Financial Statements

		The financial statements ~~included~~filed as part of this report and referenced in Item 8 are presented in the Consolidated Financial Statements and the notes thereto beginning at page 30 of ~~the Original Filing.~~this Form 10-K (Financial Statements).

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.

15(a)(3)		~~Exhibits: The exhibits listed in Item 15 of the Original Filing~~Exhibits

		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.
		~~(B) The exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index that follows and are being filed as part of this Amendment No. 1:~~

~~Exhibit~~Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (PCAOB ID: 23)	31

~~No.~~Consolidated Balance Sheets as of December 31, 2021 and 2020	32

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021 and 2020	33

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2021 and 2020	34

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020	35

Notes to Consolidated Financial Statements	36

Supplemental disclosures
Cash paid for interest	$	490	$	652
Cash received for income taxes, net of payments	$	1,323	$	9,216
Non-cash investing and financing activities
Purchases of property, plant and equipment included in accounts payable and accrued expense	$	2,715	$	1,965

~~2.1~~		3Q Agreement, dated May 1, 2017, by and between Harte Hanks, Inc. and 3Q Digital, Inc. and Maury Domengeaux, as representative to the former stockholders and option holders of 3Q Digital, Inc. (filed as Exhibit 2.1 to the company's Form 8-K dated May 4, 2017)Quoted prices in active markets for identical assets or liabilities.

~~2.2~~Level 2		~~Purchase~~Observable 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 3		Unobservable inputs that are supported by little or no market activity and ~~Sale Agreement, dated February 28, 2018 among Harte Hanks, Inc., 3Q Digital, Inc. and 3Q Digital Holdings, Inc. (filed as Exhibit 2.1~~that are significant to the ~~company's Form 8-K dated March 6, 2018)~~fair value of the assets or liabilities.

		Years
Buildings and improvements		3 to 40
Software		2 to 10
Equipment and furniture		3 to 20

	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	$	48,450	$	7,938	$	56,388
Customer Care		74,691		0		74,691
Fulfillment & Logistics Services		55,754		7,763		63,517
Total Revenue	$	178,895	$	15,701	$	194,596

	For the Year Ended December 31, 2020
	Revenue for performance		Revenue for performance
	obligations recognized		obligations recognized at a
In thousands	over time		point in time		Total
Marketing Services	$	51,421	$	5,672	$	57,093
Customer Care		58,668		0		58,668
Fulfillment & Logistics Services		52,503		8,636		61,139
Total Revenue	$	162,592	$	14,308	$	176,900

In thousands	December 31, 2021		December 31, 2020
Contract assets	$	622	$	613
Deferred revenue and customer advances		3,942		4,661
Deferred revenue included in other long-term liabilities		756		817

In thousands	*As of December 31, 2021*
	Operating Leases		Finance Leases		Total
Right-of-use Assets	$	21,382	$	760	$	22,142

Liabilities
Short-term lease liabilities		6,359		194		6,553
Long-term lease liabilities		19,004		211		19,215
Total Lease Liabilities	$	25,363	$	405	$	25,768

In thousands	*As of December 31, 2020*
	Operating Leases		Finance Leases		Total
Right-of-use Assets	$	23,793	$	957	$	24,750

Liabilities
Short-term lease liabilities		6,436		227		6,663
Long-term lease liabilities		20,892		403		21,295
Total Lease Liabilities	$	27,328	$	630	$	27,958

In thousands	*Year Ended December 31, 2021*			*Year Ended December 31, 2020*
Operating lease cost	$	7,745		$	8,646
Finance lease cost
Amortization of right-of-use assets		195			240
Interest on lease liabilities		27			45
Total Finance lease cost		222			285
Variable lease cost		2,604			3,085
Sublease income		(1,153	)		(470	)
Total lease cost, net	$	9,418		$	11,546

In thousands	*Operating Leases (1)*		*Finance Leases*
Year Ending December 31,
2022	$	6,510	$	209
2023		5,285		167
2024		3,856		48
2025		2,119		6
2026		2,014		0
2027 & Beyond		8,229		0
Total future minimum lease payments		28,013		430
Less: Imputed interest		2,650		25
Total lease liabilities	$	25,363	$	405

In thousands	*December 31, 2021*		*December 31, 2020*
Revolving credit facility	$	5,000	$	17,100
Paycheck Protection Program Term Note		0		10,000
Total debt		5,000		27,100
Less: current portion of long-term debt		0		(4,926	)
Long-term debt	$	5,000	$	22,174