SAN ANTONIO, TX--(Marketwire - Apr 28, 2011) - Harte-Hanks, Inc. (NYSE: HHS) today reported first quarter 2011 diluted earnings per share of $0.12 on revenues of $200.3 million. These results compare to diluted earnings per share of $0.17 on $200.2 million in revenues for the first quarter of 2010.
The following table presents financial highlights of the company's operations for the first quarter of 2011 and 2010, respectively. Full financial results are attached.
RESULTS FROM OPERATIONS (unaudited)
(In thousands, except per share amounts) Three Months Ended March 31,
----------------------------
2011 2010 % Change
--------- --------- --------
Operating revenues $ 200,306 $ 200,179 0.1%
Operating income 14,319 18,316 -21.8%
Net income 7,917 10,769 -26.5%
Diluted earnings per share 0.12 0.17 -29.4%
Diluted shares (weighted average common and
common equivalent shares outstanding) 64,244 64,098 0.2%
--------- --------- --------
For the three months ended March 31, 2011, the company generated free cash flow (defined below) of $9.6 million, down from $13.4 million in the prior year's first quarter.
Commenting on the first quarter performance, Chairman, President and Chief Executive Officer Larry Franklin said, "The first quarter was difficult primarily because of the performance of our Shoppers business. The 5.0% revenue decline we saw in the fourth quarter nearly doubled to a 9.8% decline. Shoppers accounted for $2.9 million of the $4.0 million reduction in operating income across Harte-Hanks. We see no noticeable improvement in the California and Florida economies and we are experiencing increases in paper and printing costs. In response, we are making additional staff reductions and evaluating the current operational structure. We continue to invest in our digital strategy where we are having excellent revenue growth while adding tremendous value for our advertisers.
Our Direct Marketing business had good revenue growth for the third consecutive quarter. We continue to be committed to making the investments necessary to execute our multichannel strategy and we also are taking steps to reduce the cost of doing business, which we believe will improve our profitability in future quarters."
Discussing the performance of individual business segments, Executive Vice President and Chief Financial Officer Doug Shepard said, "Direct Marketing revenues increased 4.9% and operating income declined 5.2%. Our select market vertical increased over 20% compared to the first quarter of 2010. Our retail vertical experienced revenue growth in the low double digits (as a percentage) and our financial vertical grew in the mid single digits. Our high-tech and pharma/healthcare verticals declined in the high single digits. Operating income margins decreased to 11.3% as compared to 12.5% in the first quarter of 2010.
As mentioned, Shoppers revenue decreased 9.8% in the first quarter compared to the first quarter of 2010 and operating income declined 70.1%. Operating income margins declined to 2.1% from 6.3%. In our core segments: real estate continues to suffer; both services and restaurants are down from recent quarterly trends, but continue to reflect the strength of our product. Web revenue continued to show good growth."
Concluding, Franklin said, "While we are disappointed with our financial performance in the quarter, there are many reasons to be optimistic about our Direct Marketing revenue performance, some of which are mentioned below in the "Selected Highlights" section. We are taking action to improve our Direct Marketing profitability. In Shoppers, we expect to encounter further challenges before performance improves. We are confident in the steps we are taking to improve efficiency, in the strength of our products which are critical to small businesses looking to grow, and in our digital strategy. Our people in both businesses are committed to making the changes necessary to capture the exciting future we see."
Selected Highlights:
-- The Agency Inside Harte-Hanks™ presented with Sony Electronics at
the Forrester Marketing Forum 2011 in San Francisco as part of the
conference's Guest Executive Forum. Harte-Hanks and Sony executives
explored their journey toward "Living the Integrated Insight-Driven
Multichannel Relationship Marketing Dream" and provided guidance for
how to successfully design and execute an effective multichannel
strategy.
-- Trillium Software® announced an alliance with Microsoft
(NASDAQ: MSFT) that will drive seamless integration between the
Trillium Software System® data quality solution and Microsoft
Dynamics CRM 2011 customer relationship management software.
-- The Agency Inside Harte-Hanks was selected as the agency of record for
Vonage, an established national telecommunications provider.
Harte-Hanks will help Vonage increase adoption of its
alternative-to-traditional services by providing multiple services
including marketing strategy and test design, analytics and
measurement, creative development, audience segmentation, modeling and
direct mail production.
-- The Aberdeen Group® was selected by a major enterprise software
developer to provide demand generation services. Aberdeen will use
sponsored events and research to develop high-quality sales leads for
this major software developer.
-- A national software developer selected Harte-Hanks' B2B agency, Mason
Zimbler, to provide a variety of multichannel demand generation
services in support of its business management software. Mason
Zimbler will exploit its digital and social media expertise to drive
increased demand for the client's software.
-- Harte-Hanks Market Intelligence secured a major expansion of its
relationship with one business software developer and a renewal from
another. One client will use the Harte-Hanks Ci Technology
Database™ (CiTDB) for B2B marketing support and demand generation,
while the other will use the CiTDB for market segmentation, prospect
targeting and channel sales initiatives in support of its worldwide
multichannel demand generation initiatives.
-- Harte-Hanks Direct Marketing won two significant technical support
service engagements. In one, Harte-Hanks Direct Marketing will provide
in-bound call center support for a new retail customer's electronic
book device. In the other, a major enterprise software customer
selected Harte-Hanks to provide call center technical support services
in support of one of its major world-wide products.
-- Trillium Software was selected by Subaru America to provide data
quality solutions and data governance expertise to support customer and
sales and service efforts throughout North America.
-- Trillium Software expanded its relationship with TNT Express, a global
freight and logistics company, and will now provide worldwide solutions
for global address verification and geographic location assignment.
This will enable the client to improve its operational performance by
increasing the accuracy of address information used for deliveries.
-- Harte-Hanks Direct Marketing was selected by a major credit card
issuing bank to conduct a marketing test for different credit card
networks. Harte-Hanks will provide direct mail and logistics services
in support of these campaigns.
-- Hewlett-Packard announced that Harte-Hanks recently installed a new HP
Indigo 7500 Digital Press to expand its print on demand service
offering, providing high-end, offset-quality printing. Harte-Hanks
installed the digital press in a plant that produces and fulfills
marketing collateral for clients in the financial, retail, automotive,
technology, pharmaceutical and other industries. This digital printing
operation helps customers eliminate inefficiencies by replacing
traditional fulfillment warehousing with personalized print-on-demand
and static fulfillment.
-- PennySaverUSA.com launched SaverTime™, an advanced local daily deal
site that is designed to give customers significant deals on businesses
and services close to home, and also reward members for their
purchases. SaverTime readers sign up as members to receive access to
local daily deals in the SaverTime network. Members choose one or more
local areas based on a particular region, and then receive daily deals
via email that represent a discount from the original purchase price on
a variety of relevant local services and products. SaverTime
Sequel™ provides a loyalty incentive for members to return to the
merchants who have provided daily deals, and the 5-3-2 Network™
provides credits to members to encourage them to recruit additional
members.
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 approximately 950 separate editions and reach 11.2 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, (a) domestic, international and local economic and business conditions, including (i) market conditions in California and Florida that may continue to adversely impact local advertising expenditures in our Shoppers publications and (ii) the adverse impact of continuing economic uncertainty in the United States and elsewhere on the 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 preferences, (c) the financial condition and marketing budgets of our clients, including client bankruptcies or other developments that may result in increased bad debt expense, (d) economic and other business factors that impact the industry verticals that we serve, including any consolidation of clients and prospective clients in these verticals, (e) our ability to manage and timely adjust our capacity and headcount, and to otherwise effectively service our clients, (f) 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, (g) 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, (h) increasing concern over consumer privacy issues, or enactment of legislation restricting the collection and use of information that is currently legally available, (i) the impact of other regulations, including restrictions on unsolicited marketing communications and other consumer protection laws, (j) fluctuations in fuel prices, paper prices, postal rates and postal delivery schedules, (k) the number of equity securities that we may issue to employees, (l) the number of shares, if any, that we may repurchase in connection with our repurchase program, (m) unanticipated developments regarding litigation including the actual outcome of our preliminary settlement to resolve a previously disclosed class action lawsuit filed in 2001, or other contingent liabilities, and (n) other factors discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2010. 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
March 31,
--------------------
In thousands, except per share data 2011 2010
--------- ---------
Operating revenues $ 200,306 $ 200,179
Operating expenses:
Labor 89,009 85,642
Production and distribution 76,269 73,004
Advertising, selling, general and administrative 15,340 17,210
Depreciation and amortization 5,369 6,007
--------- ---------
185,987 181,863
--------- ---------
Operating income 14,319 18,316
--------- ---------
Other expenses (income):
Interest expense 636 713
Interest income (69) (26)
Other, net 642 (341)
--------- ---------
1,209 346
--------- ---------
Income before income taxes 13,110 17,970
Income tax expense 5,193 7,201
--------- ---------
Net income $ 7,917 $ 10,769
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Basic earnings per common share $ 0.12 $ 0.17
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Weighted-average common shares outstanding 63,705 63,598
========= =========
Diluted earnings per common share $ 0.12 $ 0.17
========= =========
Weighted-average common and common
equivalent shares outstanding 64,244 64,098
========= =========
Harte-Hanks, Inc.
Balance Sheet Data (Unaudited)
March 31, December 31,
In thousands 2011 2010
----------- -----------
Cash and cash equivalents $ 63,112 $ 85,996
Total debt $ 179,250 $ 193,000
Harte-Hanks, Inc.
Business Segment Information (Unaudited)
Three months ended
March 31,
-------------------------------
In thousands 2011 2010 % Change
--------- --------- ---------
OPERATING REVENUES:
Direct Marketing $ 141,081 $ 134,495 4.9%
Shoppers 59,225 65,684 -9.8%
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Total operating revenues $ 200,306 $ 200,179 0.1%
--------- ---------
OPERATING INCOME:
Direct Marketing $ 15,980 $ 16,852 -5.2%
Shoppers 1,247 4,168 -70.1%
General corporate expense (2,908) (2,704) -7.5%
--------- ---------
Total operating income $ 14,319 $ 18,316 -21.8%
--------- ---------
DEPRECIATION AND AMORTIZATION:
Direct Marketing $ 3,939 $ 4,236 -7.0%
Shoppers 1,425 1,767 -19.4%
General corporate expense 5 4 25.0%
--------- ---------
Total depreciation and amortization $ 5,369 $ 6,007 -10.6%
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Reconciliation of Net Income to Free Cash Flow
Three months ended
March 31,
------------------
In thousands 2011 2010
-------- --------
Net Income $ 7,917 $ 10,769
Add: After-tax stock-based compensation (Note 1) 658 569
Add: depreciation and amortization 5,369 6,007
Less: capital expenditures 4,372 3,941
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Free cash flow $ 9,572 $ 13,404
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Note 1: Pre-tax compensation expense was $1,089 and $950 for the three
months ended March 31, 2011 and 2010, respectively.
Reconciliation of Net Income to EBITDA
Three months ended
March 31,
------------------
In thousands 2011 2010
-------- --------
Net Income $ 7,917 $ 10,769
Add: Depreciation and amortization 5,369 6,007
Interest expense, net and non-operating, net 1,209 346
Income tax expense 5,193 7,201
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EBITDA $ 19,688 $ 24,323
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EBITDA by Segment:
Direct Marketing $ 19,919 $ 21,088
Shoppers 2,672 5,935
Corporate (2,903) (2,700)
-------- --------
$ 19,688 $ 24,323
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Harte-Hanks, Inc.
Direct Marketing Revenue Mix (Unaudited)
Vertical Markets - Percent of Direct Marketing Revenue
Three months ended
March 31,
------------------
2011 2010
-------- --------
Retail 25% 23%
Financial and Insurance Services 15% 15%
Technology 25% 29%
Healthcare and Pharmaceuticals 10% 11%
Other Select Markets 25% 22%
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100% 100%
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