Harte-Hanks, Inc. (HHS)

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Harte-Hanks, Inc. (HHS)

Q2 2009 Earnings Call Transcript

July 31, 2009 11:00 am ET

Executives

Larry Franklin – Chairman, President & CEO

Bryan Pechersky – SVP, General Counsel & Secretary

Doug Shepard – EVP & CFO

Analysts

Alexia Quadrani – JPMC

Michael Kupinski – Noble Financial

Dan Leben – Robert W. Baird

Dan Salmon – BMO Capital Markets

John Hays [ph]

Presentation

Operator

Good morning and welcome and thank you for joining the second quarter 2009 earnings call. At this time, all participants are in a listen-only-mode. (Operator instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Mr. Larry Franklin, President and Chief Executive Officer of Harte-Hanks.

Larry Franklin

Thank you and good morning. On the call with me today is Doug Shepard, our Executive Vice President and Chief Financial Officer; Jessica Huff, our Vice President of Finance and Controller; Brian Pechersky, our Senior Vice President, General Counsel, and Secretary.

And before I begin 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 U.S. and other economies, and other statements that are 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 in 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

Okay, thank you, Bryan. Our second quarter results reflect the continuing difficult environment. These results also reflect the tremendous way in which our people are dealing with that environment.

And before I comment on what’s happening in each business, as a Company, we came into the year knowing this will be a very challenging year for our customers and for us. We knew that our customers would be managing their marketing spend very tightly, and they have, as that would inspire revenue. And we also knew that we would have to manage our expenses very tightly. And our people have done that and it shows in this report. And I am very proud of all of them.

In Direct Marketing, all verticals experienced reduced and delayed events and programs, lower transaction volumes, and reduced discretionary spending. Our clients are challenging us to help them generate revenue now and at a better value.

Doug will talk about the individual verticals, but I want to once again point out that we have a long list of the best companies in the world as clients in each of these verticals, and many of them have been clients for many years. And while several have reduced their spending, we are developing new, innovative approaches for them to more efficiently reach their customers. These additional channels and programs broaden and strengthen our relationships.

Our Direct Marketing employees have aggressively executed against our reduce cost initiative. To have a 4.7% operating income decline on 20.2% revenue decline is tremendous. This is only possible by carefully managing all cost while changing the way we do things and adjusting our structure. By doing this we are able to provide better value to our clients and reduce the impact of lower revenue on our bottom line. Again, just a tremendous job.

Our Shoppers people have been dealing with challenging economic conditions for a couple of years. The economic health of California and Florida is well documented. High unemployment causes all consumers to be extremely cautious. And we expect no meaningful improvement over the next few quarters.

Our reduced revenues reflect fewer customers spending less through smaller ads and/or less circulation. And although our account base is down, it remains very large. Our customers know that our Shoppers products work for their business.

While still very small, we continue to invest in our Web strategy. Our Web products continue to grow very nicely, especially Power Sites. We remain confident that combining the Web with our print products adds tremendous values for our advertisers because they tell us so.

Our mission in our Shoppers business is to bring buyers and sellers together at the local level and by adding the Web part to our strategy we can add that in whatever ways they want to be brought together.

On the cost side, even after two and a half years of significant revenue declines and related expense reductions, our people remain committed to continuing to improve efficiency and to examine every dollar of cost. When the California and Florida recoveries come, ad spending may not return to the previous high levels for some time, but we feel very confident that spending will increase and that we will be well positioned to take advantage of increasing revenues. We are in two very good businesses.

Our third area of focus this year is on cash. Doug will give you the details on that, but I can tell you that we are doing very well. We do not expect any improvement in the economy over the next few quarters, but I am encouraged because I know our people are committed to continue to deliver for our customers, and we’ll continue to look for ways to do business at less cost. Combine that with our financial strength, and we have a bright future?

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