NEW YORK, NY--(Marketwired - Feb 6, 2014) - Harte Hanks (
Operating income for the quarter was $12.5 million compared to $21.1 million for the same quarter last year. Included in the quarter were $1.6 million for severance, $1.4 million in consulting fees and $1.2 million for a legal settlement and related legal fees. Adjusting for these charges, operating income would have declined 20.9% for the quarter compared to the fourth quarter of 2012. Consistent with our third quarter, most of the margin decline came from business lines with labor costs that in the short-term do not vary in proportion to revenue changes.
Fourth quarter 2013 diluted earnings per share from continuing operations were $0.11 as compared to $0.19 for the same quarter in 2012. Excluding the previously mentioned severance, consulting and legal settlement charges, fourth quarter diluted earnings per share from continuing operations were $0.15 for 2013.
The following table presents financial highlights of the company's operations for the fourth 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 December 31, | |||
| 2013 | 2012 | % Change | ||
| Operating revenues | $ 152,178 | $ 157,849 | -3.6% | |
| Operating income | 12,484 | 21,058 | -40.7% | |
| Income from continuing operations | 6,734 | 12,097 | -44.3% | |
| Diluted earnings per share from continuing operations | 0.11 | 0.19 | -42.1% | |
| Diluted shares (weighted average common and common equivalent shares outstanding) | 62,822 | 62,798 | 0.0% | |
Capital expenditures for the quarter were $3.1 million compared to $5.3 million in the prior year's fourth quarter.
For the year, the company's revenue was $559.6 million compared to $581.1 million last year. 2013 income from continuing operations was $24.4 million compared to $35.4 million for the same period last year. The annual results reflect charges of $2.0 million for our second quarter Chief Executive Officer transition, a $2.8 million third quarter impairment and the previously mentioned fourth quarter charges of $4.2 million. Excluding these items, 2013 income from continuing operations was $29.9 million compared to $35.4 million for 2012, and diluted earnings per share from continuing operations for 2013 were $0.48 compared to $0.56 for 2012.
The following table presents financial highlights of the company's operations for 2013 and 2012, respectively.
| RESULTS FROM CONTINUING OPERATIONS (unaudited) | ||||
| (In thousands, except per share amounts) | Year Ended December 31, | |||
| 2013 | 2012 | % Change | ||
| Operating revenues | $ 559,609 | $ 581,091 | -3.7% | |
| Operating income | 42,661 | 62,669 | -31.9% | |
| Income from continuing operations | 24,441 | 35,395 | -30.9% | |
| Diluted earnings per share from continuing operations | 0.39 | 0.56 | -30.4% | |
| Diluted shares (weighted average common and common equivalent shares outstanding) | 62,812 | 63,148 | -0.5% | |
Commenting on the fourth quarter performance, Chief Executive Officer Robert Philpott said, "Management focus has continued on structural re-organization and alignment of the business. This is reflected in the actions and charges we have taken in both the third and fourth quarters. We also made some further progress on expense management towards the end of the year.
"We had anticipated that the deterioration in the business performance would accelerate in the fourth quarter, following a disappointing September. However this proved to be too pessimistic a view on revenue. We were encouraged by the revenue performance for most of our verticals in the fourth quarter, including the renewal rate for major client projects. This bodes well for 2014.
"Although this is a time of transition at Harte Hanks, we remain confident that we have a fundamentally sound business and that we are developing a concrete plan to return the company to growth. We will continue to examine the expense base in the business aggressively which will, in turn, afford management the opportunity to invest in those markets which offer the potential for long-term growth."
The company will host a conference call on February 6, 2014, at 10:00 a.m. Eastern Time to discuss the results. Investors and interested parties may participate in the call by dialing (888) 220-8450 for domestic callers and (913) 312-0711 for international callers and referring to Conference ID 1125231. To access an audio webcast, please go to the link within the Harte-Hanks website located on the Investors section of the website, http://HarteHanks.com. A replay will be available shortly after the call through February 13, 2014 at (888) 203-1112 for domestic callers and (719) 457-0820 for international callers, Conference ID 1125231.
About Harte Hanks:
Harte Hanks is one of the world's leading, insight-driven multi-channel marketing organizations, delivering impactful business results for some of the world's best-known brands. Through strategic agencies and our core marketing services, we develop integrated solutions that connect brands with prospects and customers, moving them beyond awareness to transactions and brand loyalty. Visit the Harte Hanks website at http://HarteHanks.com or call (800) 456-9748.
Cautionary Note Regarding Forward-Looking Statements:
Our press release and related earnings conference call contain "forward-looking statements" within the meaning of U.S. federal securities laws. All such statements are qualified by this cautionary note, 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. These forward-looking statements are based on current information, expectations and estimates and 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: (a) local, national and international economic and business conditions, including (i) market conditions that may adversely impact advertising expenditures and (ii) the impact of economic uncertainty in the United States and elsewhere on the financial condition, 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 needs and preferences; (c) economic and other business factors that impact the industry verticals we serve, including competition and consolidation of current and prospective clients, vendors and partners in these verticals; (d) our ability to manage and timely adjust our capacity, workforce and cost structure to effectively serve our clients; (e) 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; (f) 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; (g) our ability to respond to increasing concern, regulation and legal action over consumer privacy issues, including changing requirements for collection, processing and use of information; (h) the impact of other regulations, including restrictions on unsolicited marketing communications and other consumer protection laws; (i) fluctuations in fuel prices, paper prices, postal rates and postal delivery schedules; (j) the number of shares, if any, that we may repurchase in connection with our repurchase program; (k) unanticipated developments regarding litigation or other contingent liabilities; and (l) other factors discussed from time to time in our filings with the Securities and Exchange Commission, including 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 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. The company 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. The company 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.
As used herein, "Harte Hanks" refers to Harte-Hanks, Inc. and/or its applicable operating subsidiaries, as the context may require. Harte Hanks' logo and name are trademarks of Harte Hanks.
| Harte-Hanks, Inc. | ||||||||||||||||||
| Consolidated Statements of Operations (Unaudited) | ||||||||||||||||||
| Three months ended | Twelve months ended | |||||||||||||||||
| December 31, | December 31, | |||||||||||||||||
| In thousands, except per share data | 2013 | 2012 | 2013 | 2012 | ||||||||||||||
| Operating revenues | $ | 152,178 | $ | 157,848 | $ | 559,609 | $ | 581,091 | ||||||||||
| Operating expenses: | ||||||||||||||||||
| Labor | 76,323 | 70,641 | 281,924 | 278,639 | ||||||||||||||
| Production and distribution | 42,729 | 47,856 | 161,600 | 172,132 | ||||||||||||||
| Impairment of Goodwill and Intangibles | - | - | 2,750 | - | ||||||||||||||
| Advertising, selling, general and administrative | 16,695 | 14,288 | 54,937 | 51,729 | ||||||||||||||
| Depreciation and amortization | 3,947 | 4,005 | 15,737 | 15,922 | ||||||||||||||
| 139,694 | 136,790 | 516,948 | 518,422 | |||||||||||||||
| Operating income | 12,484 | 21,058 | 42,661 | 62,669 | ||||||||||||||
| Other expenses (income): | ||||||||||||||||||
| Interest expense | 767 | 826 | 3,103 | 3,575 | ||||||||||||||
| Interest income | (29 | ) | (15 | ) | (105 | ) | (91 | ) | ||||||||||
| Other, net | 646 | 1,218 | 46 | 2,994 | ||||||||||||||
| 1,384 | 2,029 | 3,044 | 6,478 | |||||||||||||||
| Income from continuing operations before income taxes | 11,100 | 19,029 | 39,617 | 56,191 | ||||||||||||||
| Income tax expense | 4,366 | 6,932 | 15,176 | 20,796 | ||||||||||||||
| Income from continuing operations | $ | 6,734 | $ | 12,097 | $ | 24,441 | $ | 35,395 | ||||||||||
| Loss from discontinued operations, net of income taxes | (167 | ) | (1,401 | ) | (11,071 | ) | (118,749 | ) | ||||||||||
| Net Income (Loss) | $ | 6,567 | $ | 10,696 | $ | 13,370 | $ | (83,354 | ) | |||||||||
| Basic earnings (loss) per common share | ||||||||||||||||||
| Continuing operations | $ | 0.11 | $ | 0.19 | $ | 0.39 | $ | 0.56 | ||||||||||
| Discontinued operations | - | (0.02 | ) | (0.18 | ) | (1.89 | ) | |||||||||||
| Basic earnings per share | $ | 0.11 | $ | 0.17 | $ | 0.21 | $ | (1.33 | ) | |||||||||
| Weighted-average common shares outstanding | 62,556 | 62,669 | 62,503 | 62,887 | ||||||||||||||
| Diluted earnings (loss) per common share | ||||||||||||||||||
| Continuing operations | $ | 0.11 | $ | 0.19 | $ | 0.39 | $ | 0.56 | ||||||||||
| Discontinued operations | - | (0.02 | ) | (0.18 | ) | (1.88 | ) | |||||||||||
| Diluted earnings per share | $ | 0.11 | $ | 0.17 | $ | 0.21 | $ | (1.32 | ) | |||||||||
| Weighted-average common and common equivalent shares outstanding | 62,822 |
62,798 |
62,812 |
63,148 |
||||||||||||||
| Balance Sheet Data (Unaudited) | December 31, | December 31, | ||||||||||||||||
| In thousands | 2013 | 2012 | ||||||||||||||||
| Cash and cash equivalents | $ | 88,747 | $ | 49,384 | ||||||||||||||
| Total debt | $ | 98,000 | $ | 110,250 | ||||||||||||||
| Harte-Hanks, Inc. | |||||||||||||||||
| Reconciliation of Net Income to Free Cash Flow and EBITDA from Continuing Operations (Unaudited) | |||||||||||||||||
| Reconciliation of Net Income to Free Cash Flow | |||||||||||||||||
| Three months ended | Twelve months ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| In thousands | 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Income from continuing operations | $ | 6,734 | $ | 12,097 | $ | 24,441 | $ | 35,395 | |||||||||
| Add: Intangible impairment (Note 1) | - | 2,750 | - | ||||||||||||||
| Add: After-tax stock-based compensation (Note 2) | 692 | 387 | 4,124 | 2,066 | |||||||||||||
| Add: Depreciation and amortization | 3,947 | 4,005 | 15,737 | 15,922 | |||||||||||||
| Less: Capital expenditures | 3,113 | 5,318 | 15,873 | 13,461 | |||||||||||||
| Free cash flow from continuing operations | 8,260 | 11,171 | 31,179 | 39,922 | |||||||||||||
| Loss from discont'd operations | (167 | ) | (1,401 | ) | (11,071 | ) | (118,749 | ) | |||||||||
| Add: Depreciation and amortization | - | 932 | 2,592 | 5,447 | |||||||||||||
| Add: After-tax Goodwill/Intangible Impairment | - | - | - | 116,681 | |||||||||||||
| Less: Capital expenditures | - | 136 | 327 | 481 | |||||||||||||
| Free cash flow from discontinued operations | (167 | ) | (605 | ) | (8,806 | ) | 2,898 | ||||||||||
| Total free cash flow | $ | 8,093 | $ | 10,566 | $ | 22,373 | $ | 42,820 | |||||||||
| Note 1: Impairment of other intangibles was $2,750 with only non-cash tax impact for the twelve months ended December 31, 2013. | |||||||||||||||||
| Note 2: Pre-tax stock-based compensation expense was $1,153 and $645 for the three months ended December 31, 2013 and 2012, respectively. | |||||||||||||||||
| Pre-tax stock-based compensation expense was $6,873 and $3,411 for the twelve months ended December 31, 2013 and 2012, respectively. | |||||||||||||||||
| Reconciliation of Net Income to EBITDA from Continuing Operations | |||||||||||||||||
| Three months ended | Twelve months ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| In thousands | 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Income from Continuing Operations | $ | 6,734 | $ | 12,097 | $ | 24,441 | $ | 35,395 | |||||||||
| Intangible impairment | - | - | $ | 2,750 | $ | - | |||||||||||
| Depreciation and amortization | 3,947 | 4,005 | $ | 15,737 | $ | 15,922 | |||||||||||
| Interest expense, net and non-operating, net | 1,384 | 2,029 | $ | 3,044 | $ | 6,478 | |||||||||||
| Income tax expense | 4,366 | 6,932 | $ | 15,176 | $ | 20,796 | |||||||||||
| EBITDA from Continuing Operations | $ | 16,431 | $ | 25,063 | $ | 61,148 | $ | 78,591 | |||||||||
| Harte-Hanks, Inc. | ||||||||||||
| Revenue Mix (Unaudited) | ||||||||||||
| Vertical Markets - Percent of Revenue | ||||||||||||
| Three months ended | Twelve months ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||
| Retail | 29.7 | % | 33.2 | % | 28.5 | % | 28.8 | % | ||||
| Financial and Insurance Services | 13.6 | % | 12.8 | % | 14.8 | % | 13.8 | % | ||||
| Technology | 22.4 | % | 22.6 | % | 23.2 | % | 23.4 | % | ||||
| Healthcare and Pharmaceuticals | 11.1 | % | 8.5 | % | 9.0 | % | 9.2 | % | ||||
| Auto and Consumer Brands | 16.9 | % | 15.7 | % | 16.8 | % | 16.7 | % | ||||
| Other Select Markets | 6.3 | % | 7.2 | % | 7.7 | % | 8.1 | % | ||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||