Harte-Hanks, Inc. (HHS)

HHS 
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Harte-Hanks Inc. (HHS)

Q4 2008 Earnings Call

January 30, 2009 11:00 am ET

Executives

Larry Franklin - President and CEO

Bryan Pechersky - SVP, General Counsel and Secretary

Doug Shepard - EVP and CFO

Analysts

Matt Chesler - Deutsche Bank

Alexia Quadrani - JPMorgan

Edward Atorino – Benchmark Dan Salmon - BMO Capital Markets

Andrew Cash - Point Clear Value Management

Brenton Flynn - Robert W. Baird

Michael Kupinski - Noble Financial

Presentation

Operator

Welcome and thank you for joining the fourth quarter and year-end 2008 earnings call. (Operator Instructions).

Now, I'll turn the meeting over to Mr. Larry Franklin, President and CEO of Harte-Hanks. Sir, you may begin.

Larry Franklin

Good morning. On the call with me today with us, is our Doug Shepard, our Executive Vice President and Chief Financial Officer, Jessica Huff, our Vice President, Finance & Controller, and Bryan Pechersky, our Senior Vice President of Counsel and Secretary. And before I begin with my remarks, Bryan will make a few statements. Bryan?

Bryan Pechersky

Thanks, Larry. Our call may include forward-looking statements. Examples may include statements about our strategies, initiatives and business plans, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, the economic downturn in the US and other economies and other statements that are not historical facts.

Actual results may differ materially from those projected or implied in these statements, because of various risks and uncertainties including those described in our most recent Form 10-K and other documents filed with the Securities and Exchange Commission and the cautionary statement in today's earnings release.

Our call may also include non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the investor relations section of our website at www.harte-hanks.com.

I'll now turn the call back over to Larry.

Larry Franklin

Thank you, Bryan. As we mentioned in the press release that you received this morning, the fourth quarter was one of the most difficult that our company has faced. The overall economic climate and more specifically, the fourth quarter financial market events dramatically influenced business and consumer confidence affecting our customers' marketing plans, which impact on our direct marketing revenue.

We mentioned on this call in October that uncertainty and caution were the prevailing themes that we were hearing from clients regarding future spending plans, and that caution became even more pronounced throughout the fourth quarter, resulting in program and volume reductions and delays in spending by our clients.

While our spending decreased across all our vertical markets, it was most pronounced in financial, pharma and healthcare and the retail verticals. In shoppers the negative trends and economic conditions that we've seen since 2007 in California and Florida continued.

Going into the fourth quarter, our operating assumption was that the revenue environment would be difficult and we've not seen any fundamental changes that would indicate that that outlook should be any different. As a result of difficult economic environment, which impacted shoppers throughout 2008 and direct marketing in late 2008, we continued and accelerated our actions across the company in the fourth to adjust our expense base to the new economic realities.

Those actions are outlined and some detailed in the press release and Doug will add some additional details to it in his comments. However, I will say that I am pleased and impressed with the way that our leadership and all of our coworkers have responded to this rapidly changing environment that none of us have participated in before.

And before I turn it over to Doug, I want to make these three or four points. This global business climate and reduced consumer confidence, weakened demand, and disruption in the credit and financial markets, makes it extremely difficult for us to have any real visibility on when things will improve and obviously affects the visibility of our revenue.

I believe there is a bright future for data driven targeted marketing solutions that deliver value and achieve results for our clients. And both of our businesses provide services and products that are even more necessary in this environment, because we help our clients talk directly to their customers and generate revenue for them now.

We also remain focused on conservatively managing our balance sheet and cash flows and we are committed to emerging from this recession as an even stronger company and leader in an industry with great opportunities for long-term success.

And I can't say too much about our coworkers and leadership, because they face some very challenging and difficult decisions, and we'll have more of those. And they have responded with resolve and dedication, because our mission, our vision is clear. We remain intensely focused on keeping our existing customers and adding customers, reducing our costs and conserving our cash, and because of these people at Harte-Hanks I am confident that we will succeed.

Doug, do you want to provide some more details?

Doug Shepard

Thank you Larry and good morning. Here is a companywide overview of fourth quarter and full year 2008. Revenue decreased 11% for the quarter and 6.9% for the year. Direct Marketing decreased 8.1% for the quarter and was flat for the year. Shoppers decreased 17.2% for the quarter and 18.7% for the year.

Operating income decreased 46% for the quarter and 28.9% for the year. For the quarter, Direct Marketing declined 19.2%, while Shoppers declined $14.7 million. For the year, Direct Marketing decreased 5.2% and Shoppers decreased 63.4%. For the quarter our free cash flow was $20.9 million versus $29.9 million in 2007. For the year, free cash flow was $82.8 million as compared to $105.4 million in 2007. We ended the year with $20 million in capital spending; $8.2 million less than the $28.2 million spend in 2007. For 2009, we currently expect our capital spending to be in the area of $10 million to $15 million.

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