EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

   News Release
Corporate Headquarters   
P.O. Box 269   
San Antonio, TX 78291-0269   
Phone: (210) 829-9000   
Fax: (210) 829-9403   
www.harte-hanks.com   
FOR IMMEDIATE RELEASE    Media & Financial Contact: Dean Blythe
January 31, 2008    (210) 829-9138    
   dblythe@harte-hanks.com

HARTE-HANKS REPORTS FOURTH QUARTER AND FULL YEAR

RESULTS

Note: Harte-Hanks will host a conference call to discuss the earnings release on January 31, 2008, at 10:00 a.m. CST. The conference call number is (800) 988-9498 for domestic callers and (210) 234-0029 for international callers, pass-code 121693. The conference call will also be audio webcast. To access the audio webcast, please go to https://e-meetings.verizonbusiness.com, conference number 8699396, pass-code 121693. There will be an audio replay available shortly after the call through February 8, 2008. To access the audio replay, please call (800) 294-5428 for domestic callers and (203) 369-3232 for international callers, pass-code 121693. The replay also will be available on the Harte-Hanks Web site under the “Investors” section for 30 days.

SAN ANTONIO, TX – Harte-Hanks, Inc. (NYSE: HHS) today reported fourth quarter and full year 2007 financial results. Fourth quarter diluted earnings per share were $0.39 on revenues of $303.0 million. These results compare to diluted earnings per share of $0.39 on $313.2 million in revenue for the fourth quarter of 2006.

The following table presents financial highlights of the Company’s operations for the fourth quarter of 2007. Full financial results are attached.

RESULTS FROM OPERATIONS (Unaudited)

 

(In thousands, except per share amounts)    Three Months Ended December 31,  
     2007    2006    % Change  

Operating revenues

   $ 303,017    $ 313,240    -3.3 %

Operating income

     47,233      50,328    -6.1 %

Net income

     27,536      30,157    -8.7 %

Diluted earnings per share

     0.39      0.39    0.0 %

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

     70,261      77,786    -9.7 %

 


For the year, diluted earnings per share were $1.26, on revenues of $1.16 billion. These 2007 results compare to diluted earnings per share of $1.39, on revenues of $1.18 billion in 2006.

For the three months ended December 31, 2007, the company generated free cash flow (defined below) of $29.9 million, down from $33.6 million in the fourth quarter of 2006.

The following table presents financial highlights of the Company’s operations for 2007. Full financial results are attached.

RESULTS FROM OPERATIONS (Unaudited)

 

(In thousands, except per share amounts)    Year Ended December 31,  
     2007    2006    % Change  

Operating revenues

   $ 1,162,886    $ 1,184,688    -1.8 %

Operating income

     164,927      186,052    -11.4 %

Net income

     92,640      111,792    -17.1 %

Diluted earnings per share

     1.26      1.39    -9.4 %

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

     73,703      80,646    -8.6 %

Commenting on the 2007 performance, President Dean Blythe said, “In 2007, the environment faced by our Shopper business was the most difficult we have seen since we went public in 1993. Given the magnitude and increasing rate of revenue decline throughout 2007, the actions we took on the cost side were insufficient to minimize the damage from the revenue shortfall. While Direct Marketing showed steady top line growth throughout 2007, it was at a rate less than we believe we can generate from this business over the longer term. Our 2007 combined revenues declined 1.8%, with operating income down 11.4%, and earnings per share down 9.4%.”

Discussing the fourth quarter performance of individual business segments, Doug Shepard, Executive Vice President and Chief Financial Officer, said, “Direct Marketing revenue was up 4.1%, with EBITDA up 2.5% and operating income up 3.4% compared to the prior year’s fourth quarter. Our high tech/telecom and select verticals both had strong year-over-year double-digit revenue growth in the quarter, and our financial vertical had growth in the low-single digits over the prior year’s fourth quarter. Our retail vertical was down in the low-single digits, while the pharma/healthcare market showed a high-single digit revenue decline driven by difficult year-over-year comparisons in the healthcare segment of this vertical.”

Turning to Shoppers fourth quarter performance, Shepard said, “The Shoppers negative performance trend continued, with revenue down 15.8%, EBITDA down 22.3%, and operating income down 25.3% from the fourth quarter of 2006. We continue to face difficult revenue environments in California and Florida. As we indicated last quarter, the impact has become more pronounced throughout the year, and has affected virtually all revenue categories. We are continuing to reduce our cost base to reflect current revenue levels.”

 

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Concluding, Blythe said, “Our earnings decline in 2007 was driven by the performance of our Shoppers business in a very difficult environment. And while Direct Marketing had a respectable year in 2007 given comparisons to others in the market, we did not generate strong enough revenue growth or any profit growth from this business to offset the weakness in our Shoppers segment.”

“We are continuing to streamline our businesses to become more efficient, reduce costs, and further improve the delivery of our services. As we look to 2008, we are all facing uncertain economic times. Based on what we know today, we do believe we will achieve better revenue and profit performance in Direct Marketing in 2008 than we delivered in 2007. We do not believe, however, that the Shoppers revenue environment in 2008 will improve in any meaningful fashion given the current cyclical issues impacting the California and Florida markets, and may in fact deteriorate from the current levels.”

“The fundamental services we provide in each of our businesses are essential to customers in any economic environment and even more so in uncertain economic times. Even in this environment, our businesses continue to be strong generators of cash, with $105.4 million of free cash flow in 2007. We will be vigilant in 2008 to respond quickly to market conditions and optimize the performance of and cash generation from each of our businesses.”

Fourth quarter corporate events:

 

   

Harte-Hanks paid a regular cash dividend of 7.0 cents per share in every quarter of 2007. On January 29, the Company announced a 7% increase in the quarterly dividend to 7.5 cents per share, effective with the dividend payable March 14, 2008 to shareholders of record on February 29, which is the thirteenth dividend increase since the Company’s 1993 IPO.

 

   

Harte-Hanks purchased 3.6 million shares of its common stock in the fourth quarter bringing the full year 2007 repurchase total to 8.4 million shares. On January 29, the Company announced that the Board had increased the share repurchase authorization by 12.5 million shares, bringing the total remaining repurchase authorization to approximately 15.2 million as of January 15, 2008. Since January 1997 the Company has acquired approximately 59.0 million shares (split adjusted) under its repurchase program.

About Harte-Hanks:

Harte-Hanks is a worldwide, direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to local, regional, national and international consumer and business-to-business marketers. Harte-Hanks Direct Marketing improves return on its clients’ marketing investment by increasing their prospect and customer

 

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value through solutions and services organized around five groupings of integrated activities: Information (data collection/management) — Opportunity (data access/utilization) — Insight (data analysis/interpretation) — Engagement (program and campaign creation and development) — Interaction (program execution). Harte-Hanks Shoppers is North America’s largest owner, operator and distributor of shopper publications, with shoppers that are zoned into more than 1,000 separate editions with approximately 13 million circulation each week in California and Florida. PennySaverUSA.com, the Web site of Harte-Hanks Shoppers, displays the ads published in the print versions of the PennySaverUSA.com and TheFlyer.com publications, and is a leader in the aggregation of online classified ads from free community papers and shoppers across the country.

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For more information, contact: President Dean Blythe (210) 829-9138 or e-mail at dblythe@harte-hanks.com.

This release and other information about Harte-Hanks can be found on the World Wide Web at http://www.harte-hanks.com

Cautionary Note Regarding Forward-Looking Statements:

This press release and our related earnings conference call contain “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 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. Examples include statements regarding (1) our strategies and initiatives, (2) 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) our financial outlook for revenues, earnings per share, operating income, expense related to equity-based compensation and other financial items, (4) our expectations for our businesses and for the industries in which we operate, including with regard to the negative performance trends in our Shoppers business, (5) competitive factors, (6) acquisition and development plans, (7) our stock repurchase program and (8) other statements regarding future events, conditions or outcomes. These forward-looking statements 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, without limitation, (1) international, domestic, regional and local economic and business conditions, including market conditions in California and Florida that may impact local advertising expenditures in our Shoppers publications, (2) the demand for our services by clients and prospective clients, including the willingness of existing clients to maintain or increase their spending and our ability to predict changes in client preferences, (3) the financial condition and marketing budgets of our clients, (4) economic and other business factors that impact the industry verticals that we serve, including any consolidation of clients and prospective clients in these verticals, (5) our ability to manage and timely adjust our level of personnel and capacity and to otherwise effectively service our clients, (6) the impact of competition and our ability to continually improve our processes and to develop and introduce new products and services in a timely and cost-effective manner, (7) our ability to protect our data centers against security breaches and other interruptions in our operations and to protect sensitive personal

 

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information of our clients and their customers, (8) concern over consumer privacy issues, which may lead to enactment of legislation restricting or prohibiting the collection and use of information that is currently legally available, (9) the impact of other regulations, including restrictions on unsolicited marketing communications and other consumer protection laws, (10) fluctuations in paper prices and postal rates, (11) the number of options and other equity securities that we may issue to employees, (12) market conditions and other factors that may impact the number of shares that we may repurchase in connection with our repurchase program, (13) unanticipated developments regarding litigation or other contingent liabilities, and (14) other factors discussed under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, and any updates thereto in our Forms 10-Q. 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. Harte-Hanks 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), less capital expenditures, and (2) EBITDA, defined as net income before interest, taxes, depreciation, and amortization. Harte-Hanks 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.

 

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Harte-Hanks, Inc.

Consolidated Statements of Operations (Unaudited)

 

     Three months ended
December 31,
    Year ended
December 31,
 

In thousands, except per share data

   2007     2006     2007      2006  

Operating revenues

   $ 303,017     $ 313,240     $ 1,162,886      $ 1,184,688  

Operating expenses:

         

Labor

     120,294       114,129       468,675        440,496  

Production and distribution

     104,508       116,197       402,793        433,592  

Advertising, selling, general and administrative

     21,901       23,447       89,787        90,516  

Depreciation and amortization

     9,081       9,139       36,704        34,032  
                                 
     255,784       262,912       997,959        998,636  
                                 

Operating income

     47,233       50,328       164,927        186,052  
                                 

Other expenses (income):

         

Interest expense

     3,389       2,980       12,992        6,333  

Interest income

     (125 )     (72 )     (539 )      (231 )

Other, net

     571       (141 )     1,337        702  
                                 
     3,835       2,767       13,790        6,804  
                                 

Income before income taxes

     43,398       47,561       151,137        179,248  

Income tax expense

     15,862       17,404       58,497        67,456  
                                 

Net income

   $ 27,536     $ 30,157     $ 92,640      $ 111,792  
                                 

Basic earnings per common share

   $ 0.39     $ 0.40     $ 1.28      $ 1.41  
                                 

Weighted-average common shares outstanding

     69,732       76,226       72,524        79,049  
                                 

Diluted earnings per common share

   $ 0.39     $ 0.39     $ 1.26      $ 1.39  
                                 

Weighted-average common and common equivalent shares outstanding

     70,261       77,786       73,703        80,646  
                                 

Harte-Hanks, Inc.

         

Balance Sheet Data (Unaudited)

         

In thousands

   December 31,
2007
    December 31,
2006
              

Cash and cash equivalents

   $ 22,847     $ 38,270       

Long-term debt

     259,125       205,000       

 

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Harte-Hanks, Inc.

Business Segment Information (Unaudited)

 

     Three months ended
December 31,
    Year Ended
December 31,
 

In thousands

   2007     2006     % Change     2007      2006      % Change  

OPERATING REVENUES:

              

Direct Marketing

   $ 205,503     $ 197,480     4.1 %   $ 732,461      $ 709,728      3.2 %

Shoppers

     97,514       115,760     -15.8 %     430,425        474,960      -9.4 %
                                      

Total operating revenues

   $ 303,017     $ 313,240     -3.3 %   $ 1,162,886      $ 1,184,688      -1.8 %
                                      

OPERATING INCOME:

              

Direct Marketing

   $ 36,428     $ 35,221     3.4 %   $ 108,796      $ 109,458      -0.6 %

Shoppers

     13,769       18,440     -25.3 %     70,784        88,814      -20.3 %

General corporate expense

     (2,964 )     (3,333 )   11.1 %     (14,653 )      (12,220 )    -19.9 %
                                      

Total operating income

   $ 47,233     $ 50,328     -6.1 %   $ 164,927      $ 186,052      -11.4 %
                                      

DEPRECIATION AND AMORTIZATION:

              

Direct Marketing

   $ 6,900     $ 7,044     -2.0 %   $ 27,916      $ 25,921      7.7 %

Shoppers

     2,176       2,090     4.1 %     8,768        8,093      8.3 %

General corporate expense

     5       5     0.0 %     20        18      11.1 %
                                      

Total depreciation and amortization

   $ 9,081     $ 9,139     -0.6 %   $ 36,704      $ 34,032      7.9 %
                                      

Reconciliation of Net Income to Free Cash Flow

     Three months ended
December 31,
   Year Ended
December 31,

In thousands

   2007    2006    2007    2006

Net Income

   $ 27,536    $ 30,157    $ 92,640    $ 111,792

Add: After-tax stock-based compensation (Note 1)

     969      1,191      4,316      4,641

Add: depreciation and amortization

     9,081      9,139      36,704      34,032

Less: capital expenditures

     7,647      6,919      28,217      33,708
                           

Free cash flow

   $ 29,939    $ 33,568    $ 105,443    $ 116,757
                           

Note 1: Pre-tax compensation expense was $1,527 and $1,878 for the three months ended December 31, 2007 and 2006, respectively.

Pre-tax compensation expense was $7,067 and $7,434 for the twelve months ended December 31, 2007 and 2006, respectively.

Reconciliation of Net Income to EBITDA

 

     Three months ended
December 31,
    Year Ended
December 31,
 

In thousands

   2007     2006     2007      2006  

Net Income

   $ 27,536     $ 30,157     $ 92,640      $ 111,792  

Add:Depreciation and amortization

     9,081       9,139       36,704        34,032  

         Interest expense, net and non-operating, net

     3,835       2,767       13,790        6,804  

         Income tax expense

     15,862       17,404       58,497        67,456  
                                 

EBITDA

   $ 56,314     $ 59,467     $ 201,631      $ 220,084  
                                 

EBITDA by Segment:

         

Direct Marketing

   $ 43,328     $ 42,265     $ 136,712      $ 135,379  

Shoppers

     15,945       20,530       79,552        96,907  

Corporate

     (2,959 )     (3,328 )     (14,633 )      (12,202 )
                                 
   $ 56,314     $ 59,467     $ 201,631      $ 220,084  
                                 

 

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