10-Q: Harte Hanks Reports Q2 2026 Results Amidst Merger Announcement

Harte Hanks announced its second quarter 2026 financial results, revealing a net loss and declining revenues, while also detailing a pending merger with Star Equity Holdings.

Summary

• Harte Hanks reported a net loss of $5.0 million for the three months ended June 30, 2026, compared to a loss of $0.3 million in the same period of 2025.
• Revenue for the second quarter of 2026 decreased by 1.7% to $38.0 million, down from $38.6 million in the prior year's quarter.
• Operating expenses increased by 10.0% to $42.5 million, driven by higher advertising, selling, general, and administrative expenses.
• The company entered into a merger agreement with Star Equity Holdings, Inc. on August 14, 2026, expected to close in Q4 2026.
• Under the merger terms, Harte Hanks shareholders will receive $5.00 per share in cash or Star Equity preferred stock, subject to a 50% aggregate cash cap.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as having a negative sentiment due to declining revenues across key segments, increased operating expenses, and a significant net loss, despite the announcement of a pending merger.

Positives

• Customer Care segment revenue increased by 8.5% to $12.9 million in Q2 2026.
• The company has a credit facility with Texas Capital Bank, extended to June 30, 2028, with $21.3 million available for borrowing as of June 30, 2026.
• A merger agreement with Star Equity Holdings has been approved by both companies' boards, providing a potential exit for shareholders.

Negatives

• Net loss for the quarter was $5.0 million, a significant increase from $0.3 million in Q2 2025.
• Total revenue declined by 1.7% to $38.0 million in Q2 2026.
• Operating expenses increased by 10.0% to $42.5 million, primarily due to higher professional services and legal expenses.
• Revenue Solutions segment revenue decreased by 13.2% and Fulfillment & Logistics Services segment revenue decreased by 2.8% in Q2 2026.
• Operating income for Revenue Solutions decreased by 25.3% and for Fulfillment & Logistics Services decreased by 50.5% in Q2 2026.

Risks

• Failure to complete the merger with Star Equity could have material adverse effects on the company.
• Business uncertainties during the pending merger could adversely affect relationships with business partners and employee retention.
• Restrictions on business conduct prior to merger completion could limit the company's ability to execute strategies.
• Integration of Harte Hanks by Star Equity may not be as successful as anticipated.
• The company faces ongoing economic uncertainties, including inflation and interest rate increases, which could impact clients' marketing budgets.

Future Outlook

The company anticipates the merger with Star Equity Holdings to close in the fourth quarter of 2026. Management believes it can meet its liquidity requirements and fund its obligations for the short and medium term.

Management Comments

• "We are pleased to offer you the following revisions to your existing Employment Agreement, dated January 29, 2024 (Employment Agreement) for your support for the Star Equity Merger, conditional upon, and effective as of, the closing of that transaction in the coming months."
• "In your position, you were eligible to earn an annual bonus award of up to one-hundred percent (100%) of your annual Base Salary, to the extent earned and in accordance with the terms of the Annual Plan. In lieu of any 2026 annual bonus award, you will receive a closing incentive bonus equal to $150,000 which will be payable upon the transaction closing, subject to you not having voluntarily left employment at Harte Hanks before that date."
• "Harte Hanks has provided you with severance in the event your employment is terminated without Cause or for Good Reason. That severance expired in the event you find other employment before the severance is paid in full. The obligation for you to remain unemployed will be waived if you remain employed at Harte Hanks at least through the closing of this transaction."
• "Except as provided above, the terms of your prior Employment Agreement remains the same, and any capitalized terms have the meaning stated therein."

Industry Context

StockSavvy.ai notes that the decline in revenue for Harte Hanks' Revenue Solutions and Fulfillment & Logistics segments, coupled with increased SG&A expenses, reflects broader industry pressures on marketing and operational efficiency. The company's focus on customer experience remains a key differentiator, but competitive pressures and economic volatility are impacting performance.

Legal Proceedings

• The company is subject to various claims and legal proceedings in the ordinary course of business. Management believes appropriate accruals have been made and the probability of material loss beyond accrued amounts is remote.

Related Party Transactions

• An amendment to the employment agreement for David Garrison, President of Harte Hanks, Inc., was made effective upon the closing of the Star Equity Merger, including a closing incentive bonus of $150,000 in lieu of a 2026 annual bonus.

Stakeholder Impact

• Shareholders: The pending merger offers shareholders the option to receive $5.00 per share in cash or Star Equity preferred stock, subject to a cap on aggregate cash consideration.
• Employees: Uncertainty regarding roles in the combined company post-merger may impair the ability to attract, retain, and motivate employees.
• Business Partners: Potential for business partners to delay decisions or renegotiate relationships due to the pending merger.

Next Steps

• Obtain adoption of the merger agreement by Harte Hanks' stockholders.
• Satisfy other conditions specified in the merger agreement.
• Complete the merger with Star Equity Holdings, Inc., expected in Q4 2026.

Key Dates

Recommendation

The company is experiencing declining revenues and increasing losses, which is concerning. However, the pending merger with Star Equity Holdings offers a potential exit for shareholders at a defined price, providing some certainty. The 'hold' recommendation reflects the uncertainty of the merger closing and the current operational challenges, balanced by the potential acquisition value.

Keywords

customer experience, revenue solutions, fulfillment, logistics, customer care, merger, financial results, 10-Q