HRTH - Harte Hanks (HRTH) - A Well-Oiled More Efficient Cash Flow Machine
A surprisingly strong Q3. Total company revenue increased a surprising 4.0% to $49.6 million, well above our $45.3 million estimate, fueled by a 10.2% increase in its Customer Care segment revenues. Customer Care revenues beat our estimate by a whopping 29.2%, as the Covid related customer did not go away as anticipate and the company gained additional clients. The company reported its 6th consecutive quarter of positive EBITDA, with adj. EBITDA beating expectations, $6.1 million versus our $3.3 million estimate.Favorable momentum. Customer Care is expected to be stronger than originally expected as the Covid related business is not expected to fall off until next year. As a result, we are raising our Q4 total company revenue expectation from $42.5 million to $48.7 million. We are raising our Q4 adj. EBITDA estimate from $3.1 million to $4.4 million, bringing our full year 2021 adj. EBITDA estimate to $17.1 million, well ahead of our $12.9 million estimate.Maintaining 2022 adj. EBITDA. We believe that the Q3 results demonstrate the company's ability to grow revenue in spite of certain revenue that may not be recurring. In addition, the company has also demonstrated the ability to cut costs and run more efficiently. While we are maintaining our 2022 adj. EBITDA estimate, we believe that it may prove to be conservative. Improving financial flexibility. As of September 30, the company had cash and cash equivalents of $16 million, with $13.1 million in long term debt. Notably, the company is expected to receive a tax refund of $7.5 million in the fourth quarter 2021 or early 2022, with the proceeds earmarked for debt reduction. We believe that the reduction in debt may allow the company to seek more conventional financing in the near future. Plan to uplist. We believe that the move to uplist, which could happen in the next week, will be an important milestone for the company to raise its investment profile. Near current levels, the HRTH shares trade at a modest 2.7 times Enterprise Value to our upwardly revised 2022 adj. EBITDA estimate. Factoring in its pension obligations, the shares still trade at a compelling 7.0 times. Our price target of $17 reflects a reasonable 12 multiple using the same more conservative methodology. Read More >>