Harte-Hanks Reports First Quarter Results


SAN ANTONIO, TX--(Marketwire - April 29, 2010) - Harte-Hanks, Inc. (NYSE: HHS) today reported first quarter 2010 diluted earnings per share of $0.17 on revenues of $200.2 million. These results compare to diluted earnings per share of $0.11 on $217.7 million in revenues for the first quarter of 2009.

The following table presents financial highlights of the company's operations for the first quarter of 2010 and 2009, respectively. Full financial results are attached.

                     RESULTS FROM OPERATIONS (unaudited)

(In thousands, except per share
 amounts)                                Three Months Ended March 31,
                                     --------------------------------------
                                         2010         2009       % Change
                                     ------------ ------------ -----------
Operating revenues                   $    200,179 $    217,674        -8.0%
Operating income                           18,316       13,758        33.1%
Net income                                 10,769        7,115        51.4%
Diluted earnings per share                   0.17         0.11        54.5%
Diluted shares (weighted average
 common and common equivalent shares
 outstanding)                              64,098       63,593         0.8%
                                     ------------ ------------ -----------

Commenting on the first quarter performance, Chairman, President and Chief Executive Officer Larry Franklin said, "The first quarter was our best revenue and operating income performance in several quarters. Our quarterly revenue rate of decline was the least we have seen since the third quarter of 2008. I am very pleased with the way both our businesses performed. In Shoppers, the California and Florida economies continue to be difficult, but we are beginning to see stability in our revenues. In Direct Marketing, while we remain cautious, some of our customers are expanding existing programs and adding new ones."

Discussing the performance of individual business segments, Doug Shepard, Executive Vice President and Chief Financial Officer, said, "Direct Marketing revenues and operating income declined 8.4% and 12.3%, respectively. Operating income margins decreased to 12.5% versus 13.1% in the first quarter of 2009 as Direct Marketing incurred a decrease in operating income of $2.4 million on a $12.3 million revenue decrease.

"Although each vertical market experienced revenue declines in the first quarter compared to the first quarter of 2009, trends were improved in all. Our vertical revenues declined at the following rates: our financial services vertical and select vertical each declined in the low single digits; the retail vertical declined in the high single digits; our high-tech vertical declined in the mid teens; and our pharma/healthcare vertical declined in the high teens. These results reflect the effects of reduced volumes and price reductions on our Direct Marketing business.

"Shoppers revenue decreased 7.3% in the first quarter compared to the first quarter of 2009. Based on circulation distributed for the same time period in the first quarters of 2010 and 2009, revenue declined 6.6%. This is the smallest decrease since the first quarter of 2007. Operating income improved $6.7 million in the quarter. Excluding the $3.5 million of first quarter 2009 charges related to severance and plant consolidation, operating income was up $3.2 million."

Concluding, Franklin said, "We are seeing signs from many of our customers that the general economy is showing some improvement. We continue to manage our costs and at the same time we are making investments in both businesses to take advantage of growth opportunities as the economy recovers. In the highlights section are a number of examples of investments that will improve our business. In Shoppers, we are adding a number of key people and technology to support our integrated digital strategy where we continue to see excellent results. In Direct Marketing, we are adding people, technology and equipment to improve our business. Because of our people, we are well positioned to take advantage of future opportunities."

Selected Highlights:

--  Harte-Hanks has been named Customer Response Management Agency of
    Record for a leading consumer electronics organization to provide
    strategy, creative, analytics, email, and database services for online
    and offline channels.  Multi-channel, integrated campaigns will be
    developed and executed to reach key consumer segments and audiences.
--  A global healthcare leader has expanded its business by naming
    Harte-Hanks as its Consumer Brand Agency of Record.  We will lead the
    strategic development of the global multichannel consumer communication
    plan in 2010.  In 2011, the plan tactics will be created and released
    to individual countries for implementation.
--  Harte-Hanks has been engaged by a leading game and toy designer,
    manufacturer and marketer for agency, email, analytic and database
    marketing services.
--  The largest privately owned banking company in the United States
    re-engaged Harte-Hanks to handle its credit card acquisition program.
--  In February, Harte-Hanks Shoppers launched a site redesign for
    PennySaverUSA.com.  The more significant features of the redesign
    include online ad placement, improved mapping, email alerts by search
    criteria, and related ads on ad detail pages.  Additional upcoming
    features will include ratings and reviews, localization box, and
    improved taxonomy.
--  Harte-Hanks Direct Marketing announced the adoption of its new tagline
    and the launch of a new website. The new tagline - insight, passion,
    results - captures what clients value most in us as their partner.
    Also, the tagline captures the sentiment and excitement that our
    employees feel as they help clients around the world solve marketing
    and business challenges.
--  Harte-Hanks Shoppers added key digital talent to its team as it works
    toward growing online, mobile and social efforts on behalf of
    advertising customers.  These hires, each coming with strong and
    uniquely beneficial backgrounds in online, mobile and social, have made
    a strong impact on the direction and pace of growth in these critical
    areas.
--  Harte-Hanks Direct Marketing named Alan Thompson as its Vice President
    for digital marketing and solutions.  He is responsible for overseeing
    digital offerings, as well as the integration of traditional services
    with digital, particularly Harte-Hanks' Postfuture digital
    communications and email tool.  He previously worked as senior director
    of interactive marketing at the Allant Group and senior director of
    product marketing at CheetahMail.
--  Harte-Hanks named Robert Munden as Senior Vice President, General
    Counsel and Secretary.  He was most recently Vice President & Corporate
    Counsel of Safeguard Scientifics, Inc. (NYSE: SFE), a life sciences and
    technology holding company.  He also served as North America Corporate
    Counsel of Taylor Nelson Sofres, now a division of WPP PLC and as Vice
    President, General Counsel and Secretary of Naviant, Inc.

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 helps its clients obtain a 360-degree view of their customers with best-of-breed tools and technologies for access and segmentation. Harte-Hanks Direct Marketing then designs, implements and executes these integrated marketing programs on behalf of its clients specializing in direct and digital communications that are driven by passion, insight and results. Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications, with shoppers that are zoned into more than 950 separate editions with more than 11.5 million circulation each week in California and Florida. Harte-Hanks Shoppers brings buyers and sellers together at a local level, helping businesses and individuals get results from targeted, local advertisements, both through Shoppers' printed publications and online through the PennySaverUSA.com™ and TheFlyer.com™ websites. Visit the Harte-Hanks Web site at http://www.harte-hanks.com.

Note: The company will host a conference call to discuss the earnings release on April 29, 2010, at 1:00 p.m. Central Time. The conference call number is (800) 988-9498 for domestic callers and (210) 234-0029 for international callers, passcode 121693. The conference call will also be audio webcast. To access the audio webcast, please go to https://e-meetings.verizonbusiness.com, conference number 7239018, passcode 121693. There will be an audio replay available shortly after the call through May 28, 2010. To access the audio replay, please call (866) 428-3805 for domestic callers and (203) 369-0906 for international callers, passcode 121693. The replay also will be available on the Harte-Hanks Web site under the "Investors" section.

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 the ongoing economic downturn 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 the ongoing economic downturn in the United States and other economies on the marketing expenditures and activities of our Direct Marketing 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.

Harte-Hanks, Inc.
Consolidated Statements of Operations (Unaudited)

                                                    Three months ended
                                                        March 31,
                                                --------------------------
In thousands, except per share data                 2010          2009
                                                ------------  ------------

Operating revenues                              $    200,179  $    217,674
Operating expenses:
  Labor                                               85,642        99,242
  Production and distribution                         73,004        80,427
  Advertising, selling, general and
   administrative                                     17,210        15,357
  Depreciation and amortization                        6,007         8,890
                                                ------------  ------------
                                                     181,863       203,916
                                                ------------  ------------
Operating income                                      18,316        13,758
                                                ------------  ------------
Other expenses (income):
  Interest expense                                       713         2,478
  Interest income                                        (26)          (25)
  Other, net                                            (341)           18
                                                ------------  ------------
                                                         346         2,471
                                                ------------  ------------
Income before income taxes                            17,970        11,287
Income tax expense                                     7,201         4,172
                                                ------------  ------------
Net income                                      $     10,769  $      7,115
                                                ============  ============


Basic earnings per common share                 $       0.17  $       0.11
                                                ============  ============

    Weighted-average common shares outstanding        63,598        63,515
                                                ============  ============



Diluted earnings per common share               $       0.17  $       0.11
                                                ============  ============

    Weighted-average common and common
     equivalent shares outstanding                    64,098        63,593
                                                ============  ============



Harte-Hanks, Inc.
Balance Sheet Data (Unaudited)

                                                  March 31,   December 31,
In thousands                                        2010          2009
                                                ------------  ------------

     Cash and cash equivalents                  $    100,464  $     86,598

     Total debt                                 $    228,625  $    239,688





Harte-Hanks, Inc.
Business Segment Information (Unaudited)
                                            Three months ended
                                                 March 31,
                                           -------------------------------
In thousands                                 2010       2009     % Change
                                           ---------  ---------  ---------

OPERATING REVENUES:
  Direct Marketing                         $ 134,495  $ 146,821       -8.4%
  Shoppers                                    65,684     70,853       -7.3%
                                           ---------  ---------
    Total operating revenues               $ 200,179  $ 217,674       -8.0%
                                           ---------  ---------

OPERATING INCOME:
  Direct Marketing                         $  16,852  $  19,224      -12.3%
  Shoppers                                     4,168     (2,485)     267.7%
  General corporate expense                   (2,704)    (2,981)       9.3%
                                           ---------  ---------
    Total operating income                 $  18,316  $  13,758       33.1%
                                           ---------  ---------

DEPRECIATION AND AMORTIZATION:
  Direct Marketing                         $   4,236  $   5,780      -26.7%
  Shoppers                                     1,767      3,103      -43.1%
  General corporate expense                        4          7      -42.9%
                                           ---------  ---------
    Total depreciation and amortization    $   6,007  $   8,890      -32.4%
                                           ---------  ---------





Reconciliation of Net Income to Free Cash
 Flow
                                            Three months ended
                                                 March 31,
                                           --------------------
In thousands                                  2010       2009
                                           ---------  ---------
Net Income                                 $  10,769  $   7,115
  Add:  After-tax stock-based compensation
   (Note 1)                                      569        202
  Add:  depreciation and amortization          6,007      8,890
  Less:  capital expenditures                  3,941      2,169
                                           ---------  ---------
Free cash flow                             $  13,404  $  14,038
                                           ---------  ---------

Note 1:  Pre-tax compensation expense was $950 and $320 for the three
 months ended March 31, 2010 and 2009, respectively.





Reconciliation of Net Income to EBITDA
                                            Three months ended
                                                 March 31,
                                           --------------------
In thousands                                  2010       2009
                                           ---------  ---------
Net Income                                 $  10,769  $   7,115
Add: Depreciation and amortization             6,007      8,890
     Interest expense, net and
      non-operating, net                         346      2,471
     Income tax expense                        7,201      4,172
                                           ---------  ---------
EBITDA                                     $  24,323  $  22,648
                                           ---------  ---------

EBITDA by Segment:
     Direct Marketing                      $  21,088  $  25,004
     Shoppers                                  5,935        618
     Corporate                                (2,700)    (2,974)
                                           ---------  ---------
                                           $  24,323  $  22,648
                                           ---------  ---------



Harte-Hanks, Inc.
Direct Marketing Revenue Mix (Unaudited)

Vertical Markets - Percent of Direct Marketing Revenue

                                               Three months ended
                                                    March 31,
                                              --------------------
                                                2010       2009
                                              ---------  ---------

Retail                                               23%        23%
Financial and Insurance Services                     15%        14%
Technology                                           29%        30%
Healthcare and Pharmaceuticals                       11%        13%
Other Select Markets                                 22%        20%
                                              ---------  ---------
                                                    100%       100%
                                              =========  =========