Harte-Hanks Reports First Quarter Results
SAN ANTONIO--April 26, 2006--Harte-Hanks, Inc. :-- NOTE: Harte-Hanks will hold a first quarter earnings conference call on April 26, 2006 at 10 a.m. CT. The number is 800-988-9498 domestic or 210-234-0029 international, pass-code 121693. The conference call will also be audio webcast. To access, please go to https://e-meetings.mci.com, conference number 7960108, pass-code 121693. There will be an audio replay available shortly after the call through May 3, 2006. To access, please call 800-739-2817, pass-code 1216.
Harte-Hanks, Inc. today reported first quarter 2006 diluted earnings per share of $0.29 on revenues of $278.4 million. These results compare to diluted earnings per share of $0.29 on $268.3 million in revenue for the first quarter of 2005. First quarter 2006 results include stock-based compensation of $1.8 million (1.3 cents per share) as the result of the adoption by the company of SFAS no. 123R for periods beginning after 12/31/2005.
The following table presents financial highlights of the company's operations for the first quarter of 2006 and 2005. Full financial results are attached.
RESULTS FROM OPERATIONS
(In thousands,
except per share amounts) Three Months Ended March 31,
--------------------------------
2006 2005 % Change
---------- ---------- ----------
Operating revenues $278,395 $268,293 3.8%
Operating income 39,570 42,319 -6.5%
Net income 23,783 25,073 -5.1%
Diluted earnings per share 0.29 0.29 0.0%
Diluted shares (weighted average
common and common equivalent shares
outstanding) 83,028 86,424 -3.9%
---------- ---------- ----------
In the discussion below the company intends to provide investors a better understanding of the operating results and underlying trends to measure past and future performance and liquidity. Harte-Hanks evaluates operating performance based on several measures, including the non-GAAP measure of free cash flow, defined as net income, plus depreciation and amortization, plus stock-based compensation (tax-effected), less capital expenditures, as Harte-Hanks believes this is an important measure of the operational strength of its business. Since free cash flow is not a measure calculated in accordance with GAAP, it should not be considered as a substitute for net income as an indicator of operating performance.
Commenting on the first quarter 2006 performance, Chief Executive Officer Richard Hochhauser said, "We were able to achieve the same level of earnings per share this quarter as we delivered in last year's first quarter, despite the difficult comparisons we faced and the inclusion of stock-based compensation expense in this year's first quarter. We generated $22.2 million of free cash flow in the quarter."
Discussing the performance of individual business segments, Hochhauser said, "Direct marketing showed year-over-year declines in both revenue and operating income. We knew and communicated that the first half of the year -- and particularly the first quarter -- would be difficult on a year-over-year comparable basis. In the first quarter of 2005, direct marketing particularly benefited from a large, complex, world-wide project that we launched in that quarter for one of our significant customers. Additionally, the direct marketing business segment results include stock-based compensation in the first quarter of 2006, which was not included in the first quarter of 2005. Absent the impact of these two factors, direct marketing would have shown revenue growth in the low single digits, and operating income growth above that level. Our pharma/healthcare vertical had strong double-digit growth in the quarter -- well over 20% -- and our select vertical also had growth in excess of 10% over the prior year. The retail vertical was up in the low single digits, while financial was down low double digits. Our high-tech/telecom vertical, which benefited from the one-time project in the first quarter of 2005, was down over 20%."
Turning to Shoppers performance, Hochhauser said, "Shoppers posted revenue growth of 16.1%, and operating income growth of 5.1%. Approximately 10 percentage points of the revenue growth is attributable to the Tampa acquisition. With respect to margins, half of the margin decline from the year earlier period is attributable to a combination of the Tampa acquisition and the inclusion of stock-based compensation in the 2006 period."
Concluding, Hochhauser said, "As we publicly said it would be, the first quarter of 2006 was challenging compared to the first quarter of 2005. This is based on 38% EPS growth in the first quarter of 2005, and the inclusion of stock-based compensation in the first quarter 2006 results. While we always aspire to perform better, we are pleased to have held EPS flat given these factors. At the beginning of this year we stated that our goal for the year -- looking at 2005 and 2006 on a comparable stock-based compensation basis -- was to deliver good EPS growth for the full year 2006 in the high single digit or better range. After completing the first quarter about where we thought we would be, this continues to be our goal."
Highlights of the first quarter included:
Shoppers:
-- Harte-Hanks Shoppers circulation grew to over 12.6 million by
adding approximately 276,000 in new circulation. This included
additional circulation of 217,000 added to the Pennysaver in
Northern California in the communities of Oakland, Alameda and
Emeryville. The newly acquired Tampa Flyer added 59,000 in new
circulation to Hillsborough County and western Hernando
County.
-- PennySaverUSA.com entered into a partnership with Dealer
Fusion to add its full suite of listings for all of the car
dealerships it represents, among them nearly 500 dealerships
in California. This partnership brings nearly 30,000
automobile listings that are searchable on the web site every
week.
Direct Marketing:
-- Harte-Hanks achieved a number 26 ranking in an inaugural
"Global Outsourcing 100" listing, compiled by The
International Association of Outsourcing Professionals.
-- A large hi-tech company renewed its contract with Harte-Hanks
to take inbound telesales.
-- Harte-Hanks was awarded a 5-year contract with a large
government agency. The contract includes full-service database
marketing, analytics and response management services.
-- A worldwide automotive manufacturer selected Harte-Hanks to
provide direct marketing for new vehicle launches. This
includes customer acquisition and retention programs
leveraging direct mail and email as the primary channels of
communication.
-- During the quarter, Harte-Hanks Trillium Software(R):
-- Was recognized as a "market leader" and was ranked highest
among evaluated vendors in current offerings and market
presence by Forrester Research.
-- Released TS Quality Version 10 ESE, which offers a single
product platform for completing the data discovery,
profiling and quality process on a global scale.
-- Announced that it would provide its TS Quality enterprise
data quality software solution to global
telecommunications provider BT (British Telecommunications
plc) on an enterprise-wide license basis.
Corporate:
-- On January 26, the company announced a 20% increase in the
quarterly dividend to 6.0 cents per share effective with the
dividend payable March 15, 2006 to shareholders of record on
March 1, which is the eleventh dividend increase since the
company went public in 1993 for the second time.
-- Harte-Hanks purchased 0.8 million shares of its common stock
in the first quarter. There are approximately 5.5 million
shares remaining from repurchase authorizations at March 31,
2006. Since January 1997 the company has acquired
approximately 44.4 million shares (split adjusted) under its
repurchase program.
-- The annual meeting of shareholders will be held at 10 a.m. on
May 16, 2006 at 200 Concord Plaza Drive, first floor, San
Antonio, Texas.
Harte-Hanks, Inc. is a worldwide, direct and targeted marketing company that provides direct 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 improves the return on its clients' marketing investment with a range of services organized around five solution points: Construct and update the database -- Access the data -- Analyze the data -- Apply the knowledge -- Execute the programs. Experts at each element within this process, Harte-Hanks Direct Marketing is highly skilled at tailoring solutions for each of the vertical markets it serves. Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications, with shoppers that are zoned into more than 1,000 separate editions with a weekly circulation in excess of 12 million in California and Florida.
For more information, contact: Chief Financial Officer Dean Blythe, 210-829-9138 or e-mail at dblythe@harte-hanks.com.
This release and other information about Harte-Hanks can be found on the World Wide Web at http://www.harte-hanks.com.
Harte-Hanks, Inc.
Consolidated Statements of Operations (Unaudited)
Three months ended
March 31,
---------------------------------- -------------------
In thousands, except per share
data 2006 2005
---------------------------------- --------- ---------
Operating revenues $278,395 $268,293
Operating expenses:
Labor 107,919 104,302
Production and distribution 101,851 93,588
Advertising, selling, general
and administrative 21,238 20,612
Depreciation and amortization 7,817 7,472
--------- ---------
238,825 225,974
--------- ---------
Operating income 39,570 42,319
--------- ---------
Other expenses (income):
Interest expense 855 203
Interest income (26) (78)
Other, net 264 489
--------- ---------
1,093 614
--------- ---------
Income before income taxes 38,477 41,705
Income tax expense 14,694 16,632
--------- ---------
Net income $23,783 $25,073
========= =========
Basic earnings per common share $0.29 $0.30
========= =========
Weighted-average common
shares outstanding 81,322 84,730
========= =========
Diluted earnings per common share $0.29 $0.29
========= =========
Weighted-average common and
common equivalent shares
outstanding 83,028 86,424
========= =========
Harte-Hanks, Inc.
Business Segment Information (Unaudited)
Three months ended
March 31,
----------------------------------------------------------------------
In thousands 2006 2005 % Change
----------------------------------------------------------------------
OPERATING REVENUES:
Direct Marketing $164,318 $170,019 -3.4%
Shoppers 114,077 98,274 16.1%
---------- ---------
Total operating revenues $278,395 $268,293 3.8%
---------- ---------
OPERATING INCOME - Note 1:
Direct Marketing $20,384 $24,520 -16.9%
Shoppers 21,926 20,868 5.1%
General corporate expense (2,740) (3,069) 10.7%
---------- ---------
Total operating income $39,570 $42,319 -6.5%
---------- ---------
DEPRECIATION AND AMORTIZATION
Direct Marketing $5,817 $6,021 -3.4%
Shoppers 1,994 1,446 37.9%
General corporate expense 6 5 20.0%
---------- ---------
Total depreciation and amortization $7,817 $7,472 4.6%
---------- ---------
Reconciliation of Net Income to Free
Cash Flow
Three months ended
March 31,
-------------------------------------------------------------
In thousands 2006 2005
-------------------------------------------------------------
Net Income $23,783 $25,073
Add: After-tax stock-based
compensation (pre-tax: $1,764 and
$26 in 2006 and 2005, respectively) 1,090 16
Add: depreciation and amortization 7,817 7,472
Less: capital expenditures 10,442 8,677
---------- ---------
Free cash flow $22,248 $23,884
---------- ---------
Note 1: Operating Income includes stock- based compensation,
as follows:
Three months ended
March 31,
--------------------
2006 2005
---------- ---------
Direct Marketing $1,175 $--
Shoppers 427 --
General corporate 162 26
---------- ---------
$1,764 $26
---------- ---------
Harte-Hanks, Inc.
Consolidated Balance Sheets (in thousands, except share amounts)
----------------------------------------------------------------------
(Unaudited)
March December
31, 31,
2006 2005
----------- ---------
Assets
Current Assets
Cash and cash equivalents $17,354 $24,561
Accounts receivable, net 168,422 184,537
Inventory 9,166 7,947
Prepaid expenses 18,217 14,783
Current deferred income tax asset 14,332 14,158
Other current assets 10,248 7,718
----------- ---------
Total current assets 237,739 253,704
Property, plant and equipment, net 115,929 112,911
Goodwill, net 502,750 502,750
Other intangible assets, net 16,307 16,669
Other assets 3,382 3,629
----------- ---------
Total assets $876,107 $889,663
=========== =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $57,266 $62,978
Accrued payroll and related
expenses 20,995 35,735
Customer deposits and unearned
revenue 56,627 54,143
Income taxes payable 22,843 12,710
Other current liabilities 9,686 9,781
----------- ---------
Total current liabilities 167,417 175,347
Long-term debt 50,000 62,000
Other long-term liabilities 92,126 90,970
----------- ---------
Total liabilities 309,543 328,317
----------- ---------
Stockholders' equity
Common stock, $1 par value, authorized:
250,000,000 shares
Issued at March 31, 2006: 115,910,179
shares; at December 31, 2005:
115,453,416 shares 115,910 115,453
Additional paid-in-capital 280,735 269,865
Accumulated other comprehensive loss (21,673) (21,982)
Retained Earnings 999,530 980,505
Less treasury stock, March 31, 2006:
34,873,345 shares at cost;
December 31, 2005: 33,965,335 shares
at cost (807,938) (782,495)
----------- ---------
Total stockholders' equity 566,564 561,346
----------- ---------
Total liabilities and stockholders'
equity $876,107 $889,663
=========== =========