Harte-Hanks Reports First Quarter Results

Harte-Hanks Reports First Quarter Results 
Note: The company will host a conference call to discuss the earnings
release on April 25, 2013, at 9:00 a.m. Central Time. The conference
call number is (888) 219-1412 for domestic callers and (913) 312-0935
for international callers, conference ID 5301389. To access an audio
webcast, please go to the link within the Harte-Hanks website in the
Investors section. An audio replay will be available shortly after
the call through May 4, 2013 at (888) 203-1112 for domestic callers
and (719) 457-0820 for international callers, conference ID 5301389.
The replay also will be available on the Harte-Hanks web site in the
Investors section. 
SAN ANTONIO, TX -- (Marketwired) -- 04/25/13 --  Harte-Hanks, Inc.
(NYSE: HHS) today reported first quarter 2013 diluted earnings per
share from continuing operations of $0.11 on revenues of $178.3
million. These results compare to diluted earnings per share from
continuing operations of $0.12 on $186.0 million in revenues for the
first quarter of 2012.  
The following table presents financial highlights of the company's
operations for the first quarter of 2013 and 2012, respectively. Full
financial results are attached. 


 
                                                                            
               RESULTS FROM CONTINUING OPERATIONS (unaudited)               
                                                                            
                                  ------------------------------------------
(In thousands, except per share                                             
 amounts)                                Three Months Ended March 31,       
                                  ------------------------------------------
                                       2013           2012        % Change  
                                  ------------------------------------------
Operating revenues                     $ 178,332       $ 186,042       -4.1%
Operating income                          10,174          13,976      -27.2%
Income from continuing operations          6,667           7,435      -10.3%
Diluted earnings per share from                                             
 continuing operations                      0.11            0.12       -8.3%
Diluted shares (weighted average                                            
 common and common equivalent                                               
 shares outstanding)                      62,669          63,273       -0.1%
                                  ------------------------------------------

 
For the three months ended March 31, 2013, the company generated free
cash flow (defined below) of $7.7 million, a decrease from $9.9
million in the prior year's first quarter. Capital expenditures for
the quarter were $4.6 million compared to $3.1 million in the prior
year's first quarter. 
Commenting on the first quarter performance, Chairman, President and
Chief Executive Officer Larry Franklin said, "While we expected
Direct Marketing revenue and operating income to decline, first
quarter Direct Marketing revenues and operating income were below our
expectations, down 5.1% and 18.1%, respectively. Declines were
concentrated primarily in two areas: high-tech business-to-business
lead generation and pharmaceutical fulfillment. While, the Direct
Marketing transformation is an evolving process, we are excited about
our progress and growth opportunities. Shoppers exceeded our
expectation with a 1.3% revenue decline and $0.5 million decline in
operating income. While it is still early, we are seeing signs of
stabilizing performance in Shoppers." 
Discussing the performance of the business segments, Executive Vice
President and Chief Financial Officer Doug Shepard said, "Direct
Marketing revenue results reflect the impact of a 32% decline in
revenues from the pharmaceutical vertical, including the effect of
volume reductions from a long standing fulfillment customer that
began in the second quarter of 2012, and the previously discussed
loss of another pharmaceutical customer in the third quarter of 2012.
Direct Marketing also experienced decreased revenues from our
automotive and consumer brands, select and high-tech verticals, while
revenues from our financial and retail verticals increased compared
to the prior year quarter. Operating income margins were 9.7% versus
11.2% in the 2012 first quarter.  
"Shoppers revenue from continuing operations decreased 1.3% in the
first quarter compared to the 2012 first quarter. Shoppers revenue
performance reflects decreased in-book advertising, partially offset
by increased revenues from distribution products. From an industry
perspective, Shoppers revenues decreased from the services,
automotive, real estate and communications sectors, and increased
from the consumer spending sector. Operating income decreased $0.5
million compared to the 2012 first quarter." 
Concluding, Franklin said, "While much work remains to be done,
progress is being made in the Direct Marketing transformation with
the overarching goal being to drive profitable revenue growth. We
expect to begin seeing improved results in the second half of 2013,
accelerating into 2014. Therefore, our expectations are for 2013 to
show flat to slightly increased revenue and operating income with
improvement coming in the second half of the year. We are very
excited about the new Direct Marketing leadership team and the way
our people are responding to the new opportunities for them and the
company from these changes. 
"We are also excited about Shoppers first quarter revenue and
operating income performance. While early, and although postage rates
increased 2.8% in the first quarter, we are encouraged by recent
revenue trends. We continue to expect Shoppers revenue and operating
income in 2013 compared to 2012 to be down slightly, which is a
significant improvement in trend compared to our experience during
the past few years. Our people continue to look for ways to make our
products and services more effective for our advertisers and to
deliver those services more efficiently. I am very proud of the
people in both businesses who are managing a great deal of change and
doing it extremely well. Our company has a bright future." 
Selected Highlights:  


 
--  Harte-Hanks was selected by the animal health division of a
    long-standing healthcare client to execute an integrated rebate
    program. Harte-Hanks will provide database build and hosting, deploy a
    new marketing campaign and provide all rebate support services,
    including an innovative web services data entry portal, contact
    center, mail service, check production and rebate processing.
    
    
--  National Vision, Inc., an eyeglass retailer, has engaged Harte-Hanks
    to provide its Customer Relationship Management (CRM) agency and
    database marketing needs. The Agency Inside(R) Harte-Hanks will
    lead the initiative to provide integrated strategy, analytics, direct
    mail, digital print, data services and database development to help
    National Vision develop a more effective customer engagement strategy
    focused on customer retention and repeat business.
    
    
--  Harte-Hanks has released TrilliumLynx(TM), a new offering that takes
    advantage of an outside data source allowing Harte-Hanks to link the
    individuals/members of a household together and use such information
    to provide in-depth analytic and reporting capabilities. This creates
    tremendous value through significant marketing efficiencies for our
    clients, including:
    --  application of historical market data to supplement existing
        customer data, giving match processes more information to make
        better decisions; and
    --  access to deep and wide market data, sophisticated householding
        and advanced integration capabilities.
        
        
--  Harte-Hanks was selected to provide website development and hosting,
    email marketing, data management and web name lead generation and
    auditing for Lorillard, one of the world's largest tobacco product
    companies and its leading brand.
    
    
--  Harte-Hanks has been selected by a leading strategic IT and
    communications solutions business to provide customer support
    services. Harte-Hanks will respond to a variety of end-user technical
    support, returns, warranties and payment inquiries.
    
    
--  Trillium Software(R) announced new or expanded relationships with
    two clients:
    
    
    --  The Australian unit of a large luxury car maker has licensed the
        Trillium Software System(R) to standardize and match customer
        data in their CRM system, allowing them to transform unstructured
        data into more readily actionable structured data.
        
        
    --  A leading provider of information and technology services to
        healthcare businesses has expanded its use of the Trillium
        Software System, including software and directories, to include
        its own operational/compliance team.
        
        
--  One of the world's largest providers of employment screening services
    has engaged Harte-Hanks to provide lead generation and inbound
    customer support services. Among other services, Harte-Hanks' contact
    center will communicate with prospects in response to their activity
    on the client's website.
    
    
--  Aberdeen Group(R) was selected by a global technology solutions
    provider to host and deliver a mix of custom event and research
    content services. The integrated event, content and demand-generation
    program developed by Aberdeen Group will support this long-standing
    customer's North American campaign for one of its core products.
    
    
--  A leading consumer brand agency has selected Harte-Hanks to provide
    fulfillment and logistics support for its trade show booth and event
    management clients. In addition, Harte-Hanks will improve the clients'
    inventory management processes and systems.
    
    
--  Harte-Hanks announced its deployment of high-speed digital print
    technology, a key component of the company's continued drive to make
    direct mail relevant, resonant and a fully integrated part of today's
    multi-channel marketing environment. This digital print technology
    gives Harte-Hanks customers the ability to create highly variable,
    customized content that allows them to quickly, easily and
    economically give consumers personalized offers while maximizing
    operating and postal savings and automating the marketing process to
    increase direct mail ROI.
    
    
--  The Agency Inside Harte-Hanks announced that it and client Sony
    Electronics won three 2013 MarketingSherpa Email Awards. The Sony
    campaigns and the results they generated serve as a testament to the
    value of email as part of an integrated marketing strategy. The Agency
    Inside and Sony were awarded A Gold Award in Email Innovation for a
    campaign that integrated the email strategy with Sony's social
    strategy, a Silver Award in Best Promotional Email or Campaign for a
    Black Friday/Cyber Monday email program that generated a 53% increase
    in revenue for the holiday shopping period, and an Honorable Mention
    in Best Triggered Email for a new customer triggered email campaign
    that streamlined more than 70 email versions into three dynamic email
    templates, enabling both better brand interaction and relevancy in
    messaging.
    
    
--  Trillium Software announced the findings of its Insurance Claims
    Survey, a 4Q 2012 survey of claims professionals that identifies the
    major trends, pain points and initiatives for the industry. Key
    findings include the need to analyze the universe of claims data in
    order to improve customer satisfaction rates and lower claims cycle
    time.
    
    
--  Trillium Software broadcasted a "FATCA Update Webinar" live from the
    London Stock Exchange, with an expert panel addressing the
    implications of the final U.S. Internal Revenue Service regulations on
    foreign financial institutions (FFIs) and the complexity of dealing
    with multiple intergovernmental agreements (IGAs). Trillium Software
    also released an advisory directed at financial institutions
    recommending they certify their data capture processes and client
    information in order to be in compliance with Foreign Account Tax
    Compliance Act (FATCA) regulations, or risk non-compliance penalties.
    
    
--  Trillium Software launched another compliance solution for the banking
    industry, its new Comprehensive Capital Analysis and Review (CCAR)
    solution. With this release, Trillium Software enables banks to
    accelerate reporting of hundreds of disparate data elements and remain
    in compliance with strict Federal Reserve directives that require them
    to submit compliance reports proving availability of sufficient
    capital assets in the event of a severe economic downturn.

  
About Harte-Hanks: 
Harte-Hanks(R) 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.  
Cautionary Note Regarding Forward-Looking Statements:  
This press release and our related earnings and 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) our financial outlook or preliminary estimates for
revenues, earnings per share, operating income, expenses, capital
resources, estimates for goodwill and intangibles impairment charges
and other financial items, (3) expectations for our businesses and
for the industries in which we operate, including the negative
performance trends in our Shoppers business and the impact of
economic conditions in the United States and other economies on the
marketing expenditures and activities of our clients and prospects,
(4) competitive factors, (5) acquisition, disposition of assets and
development plans, (6) adjustments to our cost structure and other
actions designed to respond to market conditions and improve our
performance, and any anticipated cost and effect, (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 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
competition and consolidation of and prospective clients, vendors and
partners in these verticals, (e) our ability to manage and timely
adjust our capacity and current headcount, and to otherwise
effectively service our clients, (f) 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, (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, regulation
and legal action over consumer privacy issues, including legislation
changing requirements for collection, processing and use of
information, (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 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, 2012. The forward-looking
statements in this press release and our related earnings press
release and conference call are made only as of the date hereof (or
thereof) 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), 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. 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(R) and other names and marks. All other brand
names, product names, or trademarks belong to their respective
holders. 
Tags in this release: Harte-Hanks, The Agency Inside, Trillium
Software, Aberdeen, TrilliumLynx, Direct Marketing, Shoppers,
PennySaverUSA.com, Contact Centers, Digital Marketing, Digital
Solutions, Mobile, Social, Direct Mail, Database, Digital Print,
Strategy 


 
                                                                            
Harte-Hanks, Inc.                                                           
Consolidated Statements of Operations (Unaudited)                           
                                                                            
                                                    Three months ended      
                                                         March 31,          
                                               ---------------------------- 
In thousands, except per share data                 2013           2012     
                                               -------------  ------------- 
                                                                            
Operating revenues                             $     178,332  $     186,042 
Operating expenses:                                                         
  Labor                                               80,308         83,879 
  Production and distribution                         67,587         67,669 
  Advertising, selling, general and                                         
   administrative                                     15,326         15,313 
  Depreciation and amortization                        4,937          5,205 
                                               -------------  ------------- 
                                                     168,158        172,066 
                                               -------------  ------------- 
Operating income                                      10,174         13,976 
                                               -------------  ------------- 
Other expenses (income):                                                    
  Interest expense                                       803          1,019 
  Interest income                                        (35)           (29)
  Other, net                                          (1,218)           655 
                                               -------------  ------------- 
                                                        (450)         1,645 
                                               -------------  ------------- 
Income from continuing operations before                                    
 income taxes                                         10,624         12,331 
Income tax expense                                     3,957          4,896 
                                               -------------  ------------- 
Income from continuing operations                      6,667          7,435 
                                               -------------  ------------- 
                                                                            
Loss from discontinued operations, net of                                   
 income taxes                                              -           (642)
                                               -------------  ------------- 
                                                                            
Net Income                                     $       6,667  $       6,793 
                                               =============  ============= 
                                                                            
                                                                            
Basic earnings (loss) per common share                                      
  Continuing operations                        $        0.11  $        0.12 
  Discontinued operations                                  -          (0.01)
                                               -------------  ------------- 
    Basic earnings per share                   $        0.11  $        0.11 
                                               =============  ============= 
                                                                            
  Weighted-average common shares outstanding          62,471         62,910 
                                               =============  ============= 
                                                                            
Diluted earnings (loss) per common share                                    
  Continuing operations                        $        0.11  $        0.12 
  Discontinued operations                                  -          (0.01)
                                               -------------  ------------- 
    Diluted earnings per share                 $        0.11  $        0.11 
                                               =============  ============= 
                                                                            
  Weighted-average common and common                                        
   equivalent shares outstanding                      62,669         63,273 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                                                                            
Balance Sheet Data (Unaudited)                   March 31,     December 31, 
In thousands                                        2013           2012     
                                               -------------  ------------- 
                                                                            
  Cash and cash equivalents                    $      61,011  $      49,648 
  Total debt                                   $     107,188  $     110,250 
                                                                            
                                                                            
                                                                            
Harte-Hanks, Inc.                                                           
Business Segment Information (Unaudited)                                    
                                                                            
                                          Three months ended                
                                               March 31,                    
                                       ------------------------  ---------- 
In thousands                               2013         2012      % Change  
                                       -----------  -----------  ---------- 
                                                                            
OPERATING REVENUES:                                                         
  Direct Marketing                     $   132,352  $   139,456        -5.1%
  Shoppers                                  45,980       46,586        -1.3%
                                       -----------  -----------             
    Total operating revenues           $   178,332  $   186,042        -4.1%
                                       -----------  -----------             
                                                                            
OPERATING INCOME:                                                           
  Direct Marketing                     $    12,822  $    15,653       -18.1%
  Shoppers                                     770        1,245       -38.2%
  General corporate expense                 (3,418)      (2,922)      -17.0%
                                       -----------  -----------             
    Total operating income             $    10,174  $    13,976       -27.2%
                                       -----------  -----------             
                                                                            
DEPRECIATION AND AMORTIZATION:                                              
  Direct Marketing                     $     4,061  $     4,111        -1.2%
  Shoppers                                     871        1,089       -20.0%
  General corporate expense                      5            5         0.0%
                                       -----------  -----------             
    Total depreciation and                                                  
     amortization                      $     4,937  $     5,205        -5.1%
                                       -----------  -----------             
                                                                            
                                                                            
                                                                            
Reconciliation of Net Income to Free Cash Flow                              
                                                                            
                                          Three months ended                
                                               March 31,                    
                                       ------------------------             
In thousands                               2013         2012                
                                       -----------  -----------             
Income from continuing operations      $     6,667  $     7,435             
  Add: After-tax stock-based                                                
   compensation (Note 1)                       773          598             
  Add: Depreciation and amortization         4,937        5,205             
  Less: Capital expenditures                 4,631        3,054             
                                       -----------  -----------             
Free cash flow from continuing                                              
 operations                                  7,746       10,184             
                                       -----------  -----------             
                                                                            
Loss from discontinued operations                -         (642)            
  Add: Depreciation and amortization             -          335             
  Less: Capital expenditures                     -            -             
                                       -----------  -----------             
Free cash flow from discontinued                                            
 operations                                      -         (307)            
                                       -----------  -----------             
                                                                            
Total free cash flow                   $     7,746  $     9,877             
                                       ===========  ===========             
                                                                            
Note 1: Pre-tax compensation expense was $1,288 and $993 for the three      
 months ended March 31, 2013 and 2012, respectively.                        
                                                                            
                                                                            
                                                                            
Reconciliation of Net Income to EBITDA from Continuing Operations           
                                                                            
                                          Three months ended                
                                               March 31,                    
                                       ------------------------             
In thousands                               2013         2012                
                                       -----------  -----------             
Income from Continuing Operations      $     6,667  $     7,435             
      Depreciation and amortization          4,937        5,205             
      Interest expense, net and non-                                        
       operating, net                         (450)       1,645             
      Income tax expense                     3,957        4,896             
                                       -----------  -----------             
EBITDA from Continuing Operations      $    15,111  $    19,181             
                                       -----------  -----------             
                                                                            
EBITDA From Continuing Operations by                                        
 Segment:                                                                   
      Direct Marketing                 $    16,883  $    19,764             
      Shoppers                               1,641        2,334             
      Corporate                             (3,413)      (2,917)            
                                       -----------  -----------             
                                       $    15,111  $    19,181             
                                       -----------  -----------             
                                                                            
                                                                            
                                                                            
Harte-Hanks, Inc.                                                  
Direct Marketing Revenue Mix (Unaudited)                           
                                                                   
                                                                   
Vertical Markets - Percent of Direct Marketing Revenue             
                                                                   
                                             Three months ended    
                                                  March 31,        
                                          ------------------------ 
                                              2013         2012    
                                          -----------  ----------- 
                                                                   
Retail                                             28%          26%
Financial and Insurance Services                   16%          13%
Technology                                         24%          25%
Healthcare and Pharmaceuticals                      8%          11%
Automotive and Consumer Brands                     16%          17%
Other Select Markets                                8%           8%
                                          -----------  ----------- 
                                                  100%         100%
                                          ===========  =========== 

  
Media Contact:
Doug Shepard
Harte-Hanks, Inc. Corporate Office
Executive Vice President and Chief Financial Officer
(210) 829-9120
doug_shepard@harte-hanks.com 
 
 
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