SAN ANTONIO, TX--(Marketwire - October 28, 2010) - Harte-Hanks, Inc. (
NYSE:
HHS) today
reported third quarter 2010 diluted earnings per share of $0.22 on revenues
of $216.7 million. These results compare to diluted earnings per share of
$0.22 on $209.3 million in revenues for the third quarter of 2009.
The following table presents financial highlights of the company's
operations for the third quarter of 2010 and 2009, respectively. Full
financial results are attached.
RESULTS FROM OPERATIONS (unaudited)
(In thousands, except per share amounts) Three Months Ended September 30,
--------------------------------
2010 2009 % Change
---------- ---------- ----------
Operating revenues $ 216,745 $ 209,318 3.5
Operating income 25,055 23,913 4.8
Net income 13,815 14,050 -1.7
Diluted earnings per share $ 0.22 $ 0.22 0.0
Diluted shares (weighted average common
and common equivalent shares outstanding) 64,076 64,108 0.0
For the nine months ended September 30, 2010, the company's revenues
decreased 2.8% to $624.5 million and operating income increased 5.3% to
$65.9 million. Diluted earnings per share for the nine months ended
September 30, 2010 were $0.59 compared to $0.54 for the 2009 nine-month
period.
Commenting on the third quarter performance, Chairman, President and Chief
Executive Officer Larry Franklin said, "It was good to see revenue growth
in the third quarter, our first quarter of growth since the first quarter
of 2007. Although Shoppers revenue declined in the quarter by 4.2%, this
was the lowest decline since the first quarter of 2007. Shoppers operating
income reflects excellent improvement as our people continue to effectively
manage through the current difficult environment. Direct Marketing revenue
increased 7.3% in the quarter with operating income declining 4.0%. There
was a complex one-time project for a long-standing customer during the
third quarter that accounted for approximately 60% of the Direct Marketing
revenue growth and will also positively affect our fourth quarter revenue
by approximately the same amount. Our Direct Marketing profit reflects
the investments we are making and will continue to make in the multichannel
direct and digital strategy. We are also investing in the digital business
in Shoppers."
Discussing the performance of individual business segments, Doug Shepard,
Executive Vice President and Chief Financial Officer, said, "Our Direct
Marketing revenues reflect an increase of over 40% from our
pharma/healthcare vertical compared to the third quarter of 2009. The
growth in the pharma/healthcare vertical was helped by the large, one-time
project which was completed early in the fourth quarter of 2010. Our
retail, select and high-tech verticals experienced revenue growth rates in
the single digits (as a percentage). Our financial vertical declined in the
single digits (as a percentage).
Shoppers revenue decreased 4.2% in the third quarter compared to the third
quarter of 2009. This is the fifth consecutive quarter of improvement in
quarterly revenue comparisons to the prior year quarter. Operating income
improved 58.4% to $5.3 million."
Concluding, Franklin said, "We are pleased to have returned to revenue
growth in Direct Marketing in the quarter, however we don't expect to have
the same rate of growth over the next few quarters. We are excited about
the progress we are making with our digital and multichannel strategy. More
importantly, we intend to continue our investments in the people, structure
and products necessary to build our multichannel business, which we believe
will lead to improved long-term results.
Our Shoppers revenue performance will continue to reflect the California
and Florida economies which are not improving, especially California. We
are continuing our investments in our Shoppers digital products, which are
already showing impressive growth.
In the fourth quarter, the company expects to show slight operating income
improvement compared to the 2009 fourth quarter which included a $6.9
million charge. This expectation reflects our anticipated Shoppers revenue
and the investments we are making in our digital strategy in both
businesses. Customer response in both businesses is confirming that our
digital focus is working and will provide tremendous long term value."
Selected Highlights:
-- Harte-Hanks Direct Marketing acquired Information Arts (UK) Limited,
a provider of data-driven marketing insight to business-to-business
marketers across Europe. The company, based in High Wycombe in the
United Kingdom, delivers data insight to improve multichannel
marketing effectiveness. This insight is derived from profiling,
segmentation, modeling and other analytics, and drives engagements
that include marketing data management, data quality, data acquisition
and data planning. Information Arts and Harte-Hanks' other marketing
offerings in Europe are being combined to deliver multichannel Demand
Center solutions -- integrated lead generation and lead management
programs.
-- Harte-Hanks Direct Marketing launched Momentium: Multichannel
Insight™, a strategic assessment tool and process which measures a
company's current practices for customer engagement across
communication and commerce channels against a dataset of over 120
companies compiled by our Aberdeen Group. Momentium: Multichannel
Insight helps marketers understand their maturity, readiness and
sophistication relative to their peers and competitive set.
-- Harte-Hanks' Trillium Software® released its latest version of the
Trillium Software System®. This software platform provides a new user
interface and new graphical business-level reporting which supports
the data lifecycle methodology that companies engage in to "Discover,
Develop, Deploy and Manage" their information quality initiatives.
Designed to visualize data issues, improve business rule validation
and enhance data quality monitoring, the Trillium Software System
aids business decisions and outcomes through better and more accurate
information.
-- During the quarter, Harte-Hanks Direct Marketing released an expanded
Ci Pipeline® lead generation database and service for the technology
market, which now includes tracking of eight new technology
initiatives being planned at more than 740,000 North American and
European business locations. These new initiatives include emerging
opportunities in cloud computing, desktop virtualization, messaging
security, data loss prevention, electronic medical records and mobile
devices/smart phones.
-- Harte-Hanks Direct Marketing won a multi-year deal to support Modell's
Sporting Goods and its customer interaction strategy across multiple
platforms. Harte-Hanks' deep analytic, strategy, database, and
customer relationship management marketing expertise in the retail
environment were key factors in winning this new relationship.
Modell's operates more than 140 stores in 10 Northeastern and
Mid-Atlantic states and the District of Columbia. Harte-Hanks will
provide customer database development and insight-driven analytics to
support multichannel targeted marketing.
-- Harte-Hanks Direct Marketing was selected by a national retailer to
provide a integrated database and analytics solution, which will be
used to drive multichannel marketing campaigns also executed by
Harte-Hanks. Harte-Hanks' ability to provide additional insight into
this retailer's customers was critical to winning this engagement.
-- EMC Corporation, a leading global developer and provider of
information infrastructure technology and solutions, has awarded a
two-year contract for the consolidation of its EMEA tele-demand center
services to Harte-Hanks Direct Marketing. Harte-Hanks currently
provides this service in the U.S.
-- The Agency Inside Harte-Hanks was selected by a multinational
pharmaceutical company to develop customer relationship management
strategy and creative materials, as well as manage multichannel
marketing campaigns including digital development, email and direct
mail in support of a new prescription product for treatment of a skin
condition. This engagement was awarded on the strength of the
Agency's work for another brand within the same organization.
-- The Agency Inside Harte-Hanks was selected by another multinational
pharmaceutical company to provide creative, strategy and account
management in support of a new prescription product for treatment of a
neurological condition. The Agency Inside will develop and execute
campaigns targeted to physicians through direct and digital channels.
-- Harte-Hanks Shoppers won a printing and delivery engagement from a
national Mexican food quick-serve restaurant during the quarter.
Shoppers also had renewals and increases from several national and
regional pizza restaurants, pharmacies and a regional dental service
provider.
-- In August, Shoppers began selling SEM (search engine marketing) to
business owners. Having weekly contact, PennySaver's locally-focused
sales force positions it well to help small businesses increase sales
by adding SEM to their advertising programs.
-- During the quarter, Shoppers PennySaverUSA.com began its rollout of
SMS text message marketing. SMS texting is being used by businesses
to push out lunch coupons in North Orange County, and for voting in
select contests. More uses will be deployed as the rollout continues.
About Harte-Hanks®:
Harte-Hanks® is a worldwide direct and targeted marketing company that
provides multichannel direct and digital marketing services and shopper
advertising opportunities to a wide range of local, regional, national and
international consumer and business-to-business marketers. Harte-Hanks
Direct Marketing helps its clients obtain insight about their customers
through database and marketing analytics. Based on that insight Harte-Hanks
Direct Marketing designs, implements and executes multichannel marketing
programs on behalf of its clients using direct and digital communications.
Harte-Hanks Shoppers is North America's largest owner, operator, and
distributor of shopper products which bring buyers and sellers together at
a local level though its proven multichannel offerings, including targeted
print, digital advertising, and classifieds. Its print publications are
zoned into more than 950 separate editions and reach 11.5 million addresses
each week in California and Florida. Shoppers also provide advertisers
with PowerSites™ to help small- and medium-size businesses establish a
web presence and improve lead generation, PowerClick™ SEM services, and
mobile distribution of their ads and coupons. For consumers,
PennySaverUSA.com™ and TheFlyer.com™ offer local online and mobile
classifieds for garage sales, pets, used and new cars, real estate, as well
as thousands of coupons and business listings. Visit us at
http://www.PennySaverUSA.com,
http://www.TheFlyer.com, and
http://www.PowerSites.net.
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, capital
resources 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 and the
adverse impact of continuing economic uncertainty in the United States and
other economies on the marketing expenditures and activities of our Direct
Marketing clients and prospects, (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 continue to adversely impact local
advertising expenditures in our Shoppers publications and the adverse
impact of continuing uncertainty in the United States and other economies
on the marketing expenditures and activities of our clients and prospects,
(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, including client
bankruptcies or other developments that may result in increased bad debt
expense, (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
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, postal rates and postal delivery
schedules, (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, if any, that we may repurchase in connection
with our repurchase program, (13) unanticipated developments regarding
litigation including the actual outcome of our proposed settlement with
Shoppers employee Frank Gattuso and former employee Ernest Sigala,
individually and on behalf of a certified class, to settle and resolve a
previously disclosed class action lawsuit filed in 2001, 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, 2009. 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.
This document may contain trademarks that are owned or licensed by
Harte-Hanks, Inc. and its subsidiaries, including, without limitation,
Harte-Hanks® and other names and marks. All other brand names, product
names, or trademarks belong to their respective holders.
Harte-Hanks, Inc.
Consolidated Statements of Operations (Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
In thousands, except per share
data 2010 2009 2010 2009
--------- --------- --------- ---------
Operating revenues $ 216,745 $ 209,318 $ 624,533 $ 642,654
Operating expenses:
Labor 88,038 87,331 258,573 276,577
Production and distribution 81,019 76,543 232,519 233,702
Advertising, selling, general
and administrative 16,854 14,445 49,941 46,474
Depreciation and amortization 5,779 7,086 17,556 23,298
--------- --------- --------- ---------
191,690 185,405 558,589 580,051
--------- --------- --------- ---------
Operating income 25,055 23,913 65,944 62,603
--------- --------- --------- ---------
Other expenses (income):
Interest expense 705 2,456 2,102 7,447
Interest income (69) (55) (136) (145)
Other, net 1,865 457 1,506 2,159
--------- --------- --------- ---------
2,501 2,858 3,472 9,461
--------- --------- --------- ---------
Income before income taxes 22,554 21,055 62,472 53,142
Income tax expense 8,739 7,005 24,472 18,919
--------- --------- --------- ---------
Net income $ 13,815 $ 14,050 $ 38,000 $ 34,223
========= ========= ========= =========
Basic earnings per common share $ 0.22 $ 0.22 $ 0.60 $ 0.54
========= ========= ========= =========
Weighted-average common
shares outstanding 63,622 63,570 63,612 63,550
========= ========= ========= =========
Diluted earnings per common
share $ 0.22 $ 0.22 $ 0.59 $ 0.54
========= ========= ========= =========
Weighted-average common and
common equivalent shares
outstanding 64,076 64,108 64,119 63,813
========= ========= ========= =========
Harte-Hanks, Inc.
Balance Sheet Data (Unaudited)
September 30, December 31,
In thousands 2010 2009
------------- -------------
Cash and cash equivalents $ 76,305 $ 86,598
Total debt $ 206,500 $ 239,688
Harte-Hanks, Inc.
Business Segment Information (Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ----------------------------
% %
In thousands 2010 2009 Change 2010 2009 Change
--------- --------- ------ --------- --------- ------
OPERATING
REVENUES:
Direct
Marketing $ 151,104 $ 140,816 7.3% $ 426,525 $ 432,978 -1.5%
Shoppers 65,641 68,502 -4.2% 198,008 209,676 -5.6%
--------- --------- --------- ---------
Total
operating
revenues $ 216,745 $ 209,318 3.5% $ 624,533 $ 642,654 -2.8%
--------- --------- --------- ---------
OPERATING
INCOME:
Direct
Marketing $ 22,993 $ 23,948 -4.0% $ 59,845 $ 67,880 -11.8%
Shoppers 5,272 3,328 58.4% 14,715 4,016 266.4%
General
corporate
expense (3,210) (3,363) 4.5% (8,616) (9,293) 7.3%
--------- --------- --------- ---------
Total
operating
income $ 25,055 $ 23,913 4.8% $ 65,944 $ 62,603 5.3%
--------- --------- --------- ---------
DEPRECIATION
AND
AMORTIZATION:
Direct
Marketing $ 4,237 $ 5,186 -18.3% $ 12,678 $ 16,324 -22.3%
Shoppers 1,539 1,894 -18.7% 4,869 6,954 -30.0%
General
corporate
expense 3 6 -50.0% 9 20 -55.0%
--------- --------- --------- ---------
Total
depreciation
and
amortization $ 5,779 $ 7,086 -18.4% $ 17,556 $ 23,298 -24.6%
--------- --------- --------- ---------
Reconciliation of Net Income to Free Cash Flow
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
In thousands 2010 2009 2010 2009
--------- --------- --------- ---------
Net Income $ 13,815 $ 14,050 $ 38,000 $ 34,223
Add:
After-tax
stock-based
compensation
(Note 1) 642 1,044 1,795 1,991
Add:
depreciation
and
amortization 5,779 7,086 17,556 23,298
Less:
capital
expenditures 4,365 3,484 12,631 7,402
--------- --------- --------- ---------
Free cash flow $ 15,871 $ 18,696 $ 44,720 $ 52,110
--------- --------- --------- ---------
Note 1: Pre-tax compensation expense was $1,048 and $1,565 for the
three months ended September 30, 2010 and 2009, respectively.
Pre-tax compensation expense was $2,954 and $3,072 for the nine
months ended September 30, 2010 and 2009, respectively.
Reconciliation of Net Income to EBITDA
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
In thousands 2010 2009 2010 2009
--------- --------- --------- ---------
Net Income $ 13,815 $ 14,050 $ 38,000 $ 34,223
Add:
Depreciation
and
amortization 5,779 7,086 17,556 23,298
Interest
expense, net
and
non-operating,
net 2,501 2,858 3,472 9,461
Income tax
expense 8,739 7,005 24,472 18,919
--------- --------- --------- ---------
EBITDA $ 30,834 $ 30,999 $ 83,500 $ 85,901
--------- --------- --------- ---------
EBITDA by
Segment:
Direct
Marketing $ 27,230 $ 29,134 $ 72,523 $ 84,204
Shoppers 6,811 5,222 19,584 10,970
Corporate (3,207) (3,357) (8,607) (9,273)
--------- --------- --------- ---------
$ 30,834 $ 30,999 $ 83,500 $ 85,901
--------- --------- --------- ---------
Harte-Hanks, Inc.
Direct Marketing Revenue Mix (Unaudited)
Vertical Markets - Percent of Direct Marketing Revenue
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2010 2009 2010 2009
--------- --------- --------- ---------
Retail 27% 27% 25% 25%
Financial and Insurance
Services 12% 14% 14% 14%
Technology 25% 27% 27% 29%
Healthcare and Pharmaceuticals 14% 10% 12% 11%
Other Select Markets 22% 22% 22% 21%
--------- --------- --------- ---------
100% 100% 100% 100%
========= ========= ========= =========