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HarteHanks Inc. Reports Operating Results (10-Q)

November 06, 2012 | About:

10qk

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HarteHanks Inc. (HHS) filed Quarterly Report for the period ended 2012-09-30.

Harte-hanks, Inc. has a market cap of $354.2 million; its shares were traded at around $5.63 with a P/E ratio of 9.2 and P/S ratio of 0.4. The dividend yield of Harte-hanks, Inc. stocks is 6.1%.

Highlight of Business Operations:

Overall operating expenses were $713.6 million in the first nine months of 2012, compared to $574.6 million in the first nine months of 2011. This $139.1 million year over year increase was a result of the impairment charges of $165.3 million discussed above. Excluding this impairment loss, operating expenses decreased $26.3 million, or 4.6%, compared to the first nine months of 2011. This $26.3 million decrease in operating expenses was driven by decreased operating expenses in Direct Marketing of $16.6 million, or 4.3%, and decreased operating expenses of $10.5 million, or 5.9%, in Shoppers (excluding the impairment charge), partially offset by an increase in general corporate expense of $0.9 million, or 10.1%. The decrease at Direct Marketing was primarily due to decreased outsourced costs resulting from decreased outsourced volumes, decreased mail supply chain costs resulting from decreased volumes, and reductions in temporary labor, incentive compensation and headcount, all as a result of revenue performance. The decrease at Shoppers was due to decreased severance costs, decreased stock-based compensation, lower payroll costs due to lower ad sales and headcount reductions, a decrease in facility lease expense, and lower credit card processing fees. The overall decrease at Shoppers was partially offset by legal accrual reductions in the first half of 2011, an increase in postage costs due to the January 2012 postage rate increases, and the write-off of software related to various digital initiatives in the second quarter of 2012.

Operating expenses decreased $9.2 million, or 7.0%, in the third quarter of 2012 compared to the third quarter of 2011. Labor costs decreased $3.9 million, or 5.6%, primarily due to a reduction in temporary labor, incentive compensation and headcount, all as a result of revenue performance, partially offset by an increase in severance costs. Production and distribution costs decreased $5.1 million, or 10.6%, due to decreased mail supply chain costs resulting from decreased volumes, and decreased outsourced costs resulting from decreased outsourced volumes. General and administrative expense decreased $0.4 million, or 3.5%, due primarily to decreases in promotion expense and bad debt expense, partially offset by an increase in professional services. Depreciation and software amortization expense increased $0.1 million, or 2.4%, due to increased capital expenditures in 2011. Intangible asset amortization was up slightly.

Direct Marketing revenues decreased $22.5 million, or 5.1%, in the first nine months of 2012 compared to the first nine months of 2011. Direct Marketing results reflect the impact of a large, long standing retail customer which changed its marketing strategy to emphasize broadcast at the expense of direct mail. Revenues from our pharmaceutical vertical decreased 10% compared to the first nine months of 2011. Our high-tech vertical declined 8%, our financial vertical declined 6%, our select vertical declined 3% and our retail vertical declined 2%.

Operating expenses decreased $16.6 million, or 4.3%, in the first nine months of 2012 compared to the first nine months of 2011. Labor costs decreased $2.1 million, or 1.0%, primarily due to reductions in temporary labor, incentive compensation and headcount, all as a result of revenue performance. This increase was partially offset by costs related to the departure of our Direct Marketing President. Production and distribution costs decreased $14.4 million, or 10.4%, due to decreased outsourced costs resulting from decreased outsourced volumes, decreased mail supply chain costs resulting from decreased volumes, and lower facility lease costs. General and administrative expense decreased $0.5 million, or 1.4%, due primarily to decreases in promotion expense and facilities costs, partially offset by increases in travel, employee recruiting, professional services and royalties. Depreciation and software amortization expense increased $0.4 million, or 3.1%, due to increased capital expenditures in 2011. Intangible asset amortization increased slightly.

Shoppers operating expenses were $332.0 million in the first nine months of 2012, compared to $177.2 million in the first nine months of 2011. This $154.8 million year over year increase was primarily a result of the impairment loss in the second quarter of 2012 discussed above. Excluding this impairment loss, operating expenses decreased $10.5 million, or 5.9%, compared to the first nine months of 2011. Total labor costs decreased $9.9 million, or 16.7%, due to decreased severance costs, decreased stock-based compensation, and lower payroll costs from lower ad sales, headcount reductions and pay rate reductions. Total production costs were up $0.2 million, or 0.2%, due to an increase in postage costs resulting from the January 2012 postage rate increase, partially offset by a decrease in facility lease expense and decreases in newsprint and job paper expenses due to declines in volumes. Total general and administrative costs decreased $1.0 million, or 8.2%, due to lower credit card processing fees and lower workers compensation costs, partially offset by legal accrual reductions in the first half of 2011. Depreciation and software amortization expense increased $0.2 million, or 5.0%, due to writing off software related to various digital initiatives in the second quarter of 2012. Intangible asset amortization was flat compared to the prior year.

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