EX-99.1 2 a14-23088_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 



NEWS RELEASE

 

FOR IMMEDIATE RELEASE

October 30, 2014

 

Media Contact:

Doug Shepard

Executive Vice President and Chief Financial Officer

(210) 829-9120

doug.shepard@hartehanks.com

 

HARTE HANKS REPORTS THIRD QUARTER RESULTS

 

London - Harte Hanks (NYSE: HHS), a leading marketing services organization that partners with top brands to establish deeper relationships with their customers and prospects, today announced financial results for the third quarter ended September 30, 2014.

 

Third quarter 2014 revenues of $134.1 million were relatively consistent with the $135.0 million of revenues in the same quarter last year.

 

·                  Customer Interaction revenues were $121.1 million compared to $121.3 million in the same quarter last year.  Within Customer Interaction, our Financial Services vertical grew from increased credit card solicitation and home equity loan generation activity.  In addition, we witnessed growth in our Technology, Auto and Consumer Brands, and Select market verticals largely from expansion of marketing programs with existing customers and the addition of several new customers. These increases were offset by a decrease in revenues in our Retail vertical as the result of expense reduction efforts from a couple of large retailers.

·                  Trillium Software revenues declined 4.3% principally driven by decreased software license revenues.  Maintenance and professional service revenues slightly decreased compared to the third quarter last year.

 



 

Operating income for the quarter was $10.6 million compared to $8.4 million for the same quarter last year.  Third quarter 2013 results included a $2.8 million impairment charge related to the Aberdeen trade name.

 

·                  Operating income for Customer Interaction was $7.6 million compared to $5.6 million ($8.3 million after adjusting for the previously mentioned 2013 impairment charge).

·                  Trillium Software operating income was $3.3 million compared to $3.9 million in the same period last year.  This decrease was due primarily to the timing in software license revenues, as most of our costs in this business are fixed.

·                  Severance charges increased $2.0 million over the same quarter last year as management aligned expenses with revenues through headcount reductions.

 

Third quarter 2014 diluted earnings per share from continuing operations were $0.10 compared to $0.07 for the same quarter in 2013.  Third quarter 2013 diluted earnings per share from continuing operations were $0.10 excluding the impairment charge that quarter.

 

Capital expenditures for the quarter were $2.3 million compared to $3.6 million in the prior year’s third quarter.  This reduction is representative of management’s continued efforts to prudently manage cash flows.

 

The following table presents financial highlights of the company’s operations for the third quarter of 2014 and 2013, respectively.  More detailed financial results are attached.

 

RESULTS FROM CONTINUING OPERATIONS (unaudited)

 

 

 

Three Months Ended Sept. 30,

 

(In thousands, except per share amounts)

 

2014

 

2013

 

% Change

 

Operating revenues

 

$

134,121

 

$

134,973

 

-0.6

%

Operating income

 

10,540

 

8,360

 

26.1

%

Income from continuing operations

 

6,420

 

4,451

 

44.2

%

Diluted earnings per share from continuing operations

 

0.10

 

0.07

 

42.9

%

Diluted shares (weighted average common and common equivalent shares outstanding)

 

62,585

 

62,994

 

-0.7

%

 

2



 

Commenting on the third quarter performance, Chief Executive Officer Robert Philpott said,   “There is much we can be pleased with in our latest performance. We continued to focus our efforts on revenue growth. Over the last nine months we have secured a stable base of revenues relative to the prior year despite a marginal decline in the third quarter.  More importantly, we have recently secured some significant new business wins in both the U.S. and U.K.  These are expected to benefit our revenue performance in subsequent quarters. For example, our sales team in the U.S. secured the largest new client opportunity for Harte Hanks since 2011—a multi-year contract in the financial services sector we project will drive over $20 million during its term. Our Agency business in the U.K. also excelled in its sales performance, and was appointed agency of record for a global telecommunications provider—an engagement which should generate over $2 million of new revenues in the next 12 months. This engagement represents our U.K. Agency’s largest new business win since 2010. It is incredibly heartening to report these large recent wins which are endorsements of our strategy to offer a broader, integrated customer engagement solution to clients.

 

“We have also made a great deal of progress on the realignment of our cost base in the past three months. We report this quarter an increase of $2 million in severance costs which reflects aggressive management of our largest cost item (people) in our business. Some of you may also have seen reports this week that indicate we are continuing to take further action on our labor costs in the fourth quarter. Along with these actions, we are reducing our geographic footprint, and over the past few months we have announced the consolidation of multiple office locations in California, Maryland, Texas and Pennsylvania, and closed a location in Ohio. We will continue to actively challenge our major cost categories for the foreseeable future, while still investing in our growth initiatives. The benefit from these actions began to accrue in our third quarter and will accelerate into the fourth quarter. This will allow us to enter 2015 with a cost base which is more closely aligned with our stabilizing revenue performance.”

 

The company will host a conference call on October 30, 2014, at 9:00 a.m. Eastern Time to discuss the results.  Investors and interested parties may participate in the call by dialing (888) 218-8176 for

 

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domestic callers and (913) 312-0398 for international callers and referring to Conference ID 5622076.  To access an audio webcast, please go to the link within the Harte Hanks website located on the Investors section of the website, http://HarteHanks.com.  A replay will be available shortly after the call through November 6, 2014 at (888) 203-1112 for domestic callers and (719) 457-0820 for international callers, Conference ID 5622076.

 

About Harte Hanks:

 

Harte Hanks is one of the world’s leading, insight-driven multi-channel marketing organizations, delivering impactful business results for some of the world’s best-known brands. Through strategic agencies and our core marketing services, we develop integrated solutions that connect brands with prospects and customers, moving them beyond awareness to transactions and brand loyalty. Visit the Harte Hanks website at http://HarteHanks.com or call (800) 456-9748.

 

Cautionary Note Regarding Forward-Looking Statements:

 

Our press release and related earnings conference call contain “forward-looking statements” within the meaning of U.S. federal securities laws.  All such statements are qualified by this cautionary note,  provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  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.  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 of their investments.  These risks, uncertainties, assumptions and other factors include:  (a) local, national and international economic and business conditions, including (i) market conditions that may adversely impact advertising expenditures and (ii) the impact of economic uncertainty in the United States and elsewhere on the financial condition, marketing expenditures and activities of our clients and prospects; (b) the demand for our services by clients and prospective clients, including (i) the willingness of existing clients to maintain or increase their spending on products and services that are or remain profitable for us, and (ii) our ability to predict changes in client needs and preferences; (c) economic and other business factors that impact the industry verticals we serve, including competition and consolidation of current and prospective clients, vendors and partners in these verticals; (d) our ability to manage and timely adjust our capacity, workforce and cost structure to effectively serve our clients; (e) our ability to improve our processes and to provide new products and services in a timely and cost-effective manner though development, license or acquisition; (f) our ability to protect our data centers against security breaches and other interruptions and to protect sensitive personal information of our clients and their customers; (g) our ability to respond to increasing concern, regulation and legal action over consumer privacy issues, including changing requirements for collection, processing and use of information; (h) the impact of other regulations, including restrictions on unsolicited marketing communications and other consumer protection laws; (i) fluctuations in fuel prices, paper prices, postal rates and postal delivery schedules; (j) the number of shares, if any, that we may repurchase in connection with our repurchase program; (k) unanticipated developments regarding litigation or other contingent liabilities; and (l) other factors discussed from time to time in our filings with the Securities and Exchange Commission, including

 

4



 

under “Item 1A.  Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.  The forward-looking statements in this press release and our related earnings conference call are made only as of the date hereof and we undertake no obligation to update publicly any forward-looking statement, even if new information becomes available or other events occur in the future.

 

Supplemental Non-GAAP Financial Measures:

 

In this press release and our related earnings conference call, the company intends to provide investors with a better understanding of operating results and underlying trends to assess the company’s performance and liquidity.  The company evaluates its operating performance based on several measures, including the non-GAAP financial measures of (1) free cash flow, defined as net income, plus depreciation and amortization, plus stock-based compensation (tax-effected), plus goodwill and other intangibles impairment (tax-effected) less capital expenditures, all of the aforementioned are from continuing operations and (2) EBITDA, defined as net income before interest, taxes, goodwill and other intangibles impairment, depreciation, and amortization.  The company believes that free cash flow and EBITDA are useful supplemental financial measures for investors because they facilitate investors’ ability to evaluate the operational strength of the company’s business.  Free cash flow and EBITDA, however, are not calculated in accordance with GAAP and they should not be considered substitutes for net income as an indicator of operating performance.  A quantitative reconciliation of free cash flow and EBITDA to net income is found in the tables attached to this release.

 

As used herein, “Harte Hanks” refers to Harte-Hanks, Inc.  and/or its applicable operating subsidiaries, as the context may require.  Harte Hanks’ logo and name are trademarks of Harte Hanks.

 

5



 

Harte-Hanks, Inc.

Consolidated Statements of Operations (Unaudited)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

In thousands, except per share data 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

134,121

 

$

134,973

 

$

407,158

 

$

407,430

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Labor

 

67,026

 

68,341

 

207,943

 

205,601

 

Production and distribution

 

40,350

 

39,315

 

122,784

 

118,871

 

Impairment of Goodwill and Intangibles

 

 

2,750

 

 

2,750

 

Advertising, selling, general and administrative

 

12,528

 

12,258

 

39,118

 

38,243

 

Depreciation and amortization

 

3,677

 

3,949

 

11,207

 

11,788

 

 

 

123,581

 

126,613

 

381,052

 

377,253

 

Operating income

 

10,540

 

8,360

 

26,106

 

30,177

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

716

 

754

 

2,153

 

2,336

 

Interest income

 

(75

)

(25

)

(204

)

(76

)

Other, net

 

(581

)

536

 

1,228

 

(600

)

 

 

60

 

1,265

 

3,177

 

1,660

 

Income from continuing operations before income taxes

 

10,480

 

7,095

 

22,929

 

28,517

 

Income tax expense

 

4,060

 

2,644

 

9,027

 

10,810

 

Income from continuing operations

 

$

6,420

 

$

4,451

 

$

13,902

 

$

17,707

 

 

 

 

 

 

 

 

 

 

 

Gain from discontinued operations, net of income taxes

 

 

(12,624

)

 

(10,903

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

6,420

 

$

(8,173

)

$

13,902

 

$

6,804

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.10

 

$

0.07

 

$

0.22

 

$

0.28

 

Discontinued operations

 

 

(0.20

)

 

(0.17

)

Basic earnings per share

 

$

0.10

 

$

(0.13

)

$

0.22

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

62,398

 

62,538

 

62,606

 

62,485

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.10

 

$

0.07

 

$

0.22

 

$

0.28

 

Discontinued operations

 

 

(0.20

)

 

(0.17

)

Diluted earnings per share

 

$

0.10

 

$

(0.13

)

$

0.22

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common and common equivalent shares outstanding

 

62,585

 

62,994

 

62,818

 

62,808

 

 

Balance Sheet Data (Unaudited)

 

September 30,

 

December 31,

 

 

 

 

 

In thousands

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,234

 

$

88,747

 

 

 

 

 

Total debt

 

$

87,281

 

$

98,000

 

 

 

 

 

 

 

6



 

Harte-Hanks, Inc.

Business Segment Information (Unaudited)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

In thousands

 

2014

 

2013

 

% Change

 

2014

 

2013

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Interaction

 

$

121,078

 

$

121,338

 

-0.2

%

$

367,134

 

$

367,929

 

-0.2

%

Trillium Software

 

13,043

 

13,635

 

-4.3

%

40,024

 

39,501

 

1.3

%

Total operating revenues

 

$

134,121

 

$

134,973

 

-0.6

%

$

407,158

 

$

407,430

 

-0.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Interaction

 

$

7,601

 

$

5,559

 

36.7

%

$

18,742

 

$

22,601

 

-17.1

%

Trillium Software

 

3,318

 

3,931

 

-15.6

%

9,662

 

10,969

 

-11.9

%

General corporate expense

 

(379

)

(1,130

)

66.5

%

(2,298

)

(3,393

)

32.3

%

Total operating income

 

$

10,540

 

$

8,360

 

26.1

%

$

26,106

 

$

30,177

 

-13.5

%

 

 

 

 

 

 

 

 

 

 

DEPRECIATION AND AMORTIZATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Interaction

 

$

3,071

 

$

3,380

 

-9.1

%

$

9,618

 

$

10,199

 

-5.7

%

Trillium Software

 

600

 

565

 

6.2

%

1,571

 

1,578

 

-0.4

%

General corporate expense

 

7

 

4

 

75.0

%

17

 

13

 

30.8

%

Total depreciation and amortization

 

$

3,678

 

$

3,949

 

-6.9

%

$

11,206

 

$

11,790

 

-5.0

%

 

7



 

Harte-Hanks, Inc.

Harte Hanks Revenue Mix (Unaudited)

 

Vertical Markets - Percent of Customer Interaction’s Revenue

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Retail

 

26.6

%

30.7

%

26.7

%

30.4

%

Financial and Insurance Services

 

14.2

%

12.7

%

13.4

%

14.2

%

Technology

 

23.2

%

21.8

%

23.2

%

23.0

%

Healthcare and Pharmaceuticals

 

9.1

%

9.3

%

8.8

%

8.3

%

Auto and Consumer Brands

 

17.7

%

16.7

%

17.2

%

16.2

%

Other Select Markets

 

9.2

%

8.7

%

10.7

%

7.9

%

 

 

100.0

%

100.0

%

100.0

%

100.0

%

 

Vertical Markets - Percent of Trillium Software’s Revenue

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Retail

 

6.3

%

5.4

%

6.0

%

5.8

%

Financial and Insurance Services

 

30.4

%

26.6

%

28.0

%

25.5

%

Technology

 

22.3

%

29.5

%

22.4

%

29.0

%

Healthcare and Pharmaceuticals

 

5.7

%

7.3

%

6.2

%

6.6

%

Auto and Consumer Brands

 

22.9

%

20.7

%

25.6

%

22.4

%

Other Select Markets

 

12.3

%

10.6

%

11.9

%

10.8

%

 

 

100.0

%

100.0

%

100.0

%

100.0

%

 

8



 

Harte-Hanks, Inc.

Reconciliation of Net Income to Free Cash Flow (Unaudited)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

In thousands

 

2014

 

2013

 

2014

 

2013

 

Income from continuing operations

 

$

6,420

 

$

4,451

 

$

13,902

 

$

17,707

 

Add: Intangible impairment (Note 1)

 

 

 

$

2,750

 

 

 

2,750

 

Add: After-tax stock-based compensation (Note 2)

 

600

 

725

 

1,978

 

2,640

 

Add: Depreciation and amortization

 

3,677

 

3,949

 

11,207

 

11,788

 

Less: Capital expenditures

 

2,251

 

3,591

 

7,089

 

12,760

 

Free cash flow from continuing operations

 

8,446

 

8,284

 

19,998

 

22,125

 

 

 

 

 

 

 

 

 

 

 

Income/(Loss) from discont’d operations

 

 

(12,624

)

 

(10,903

)

Add: After-tax stock-based compensation (Note 2)

 

 

(174

)

 

6

 

Add: Depreciation and amortization

 

 

853

 

 

2,592

 

Less: Capital expenditures

 

 

9

 

 

327

 

Free cash flow from discontinued operations

 

 

(11,954

)

 

(8,632

)

 

 

 

 

 

 

 

 

 

 

Total free cash flow

 

$

8,446

 

$

(3,670

)

$

19,998

 

$

13,493

 

 

Note 1:

Impairment of other intangibles was $2,750 with only non-cash tax impact for the three and nine months ended September 30,2013.

 

 

Note 2:

For continuing operations pre-tax stock-based compensation expense was $1,000 and $1,209 for the three months ended September 30, 2014 and 2013, respectively; and was $3,297 and $4,400 for the nine months ended September 30, 2014 and 2013, respectively. For discontinued operations, pre-tax stock-based compensation expense was ($290) for the three months ended September 30, 2014 and $6 for the nine months ended September 30, 2014.

 

Reconciliation of Net Income to EBITDA from Continuing Operations (Unaudited)

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

In thousands

 

2014

 

2013

 

2014

 

2013

 

Income from Continuing Operations

 

$

6,420

 

$

4,451

 

$

13,902

 

$

17,707

 

Intangible Impairment

 

 

 

$

2,750

 

 

 

2,750

 

Depreciation and amortization

 

3,677

 

3,949

 

11,207

 

11,788

 

Interest expense, net and non-operating, net

 

60

 

1,265

 

3,177

 

1,660

 

Income tax expense

 

4,060

 

2,644

 

9,027

 

10,810

 

EBITDA from Continuing Operations

 

$

14,217

 

$

15,059

 

$

37,313

 

$

44,715

 

 

9