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HarteHanks Inc. Reports Operating Results (10-Q)

April 29, 2010 | About:
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10qk

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HarteHanks Inc. (HHS) filed Quarterly Report for the period ended 2010-03-31.

Hartehanks Inc. has a market cap of $865.3 million; its shares were traded at around $13.61 with a P/E ratio of 16.8 and P/S ratio of 1. The dividend yield of Hartehanks Inc. stocks is 2.3%. Hartehanks Inc. had an annual average earning growth of 6.5% over the past 10 years. GuruFocus rated Hartehanks Inc. the business predictability rank of 4-star.HHS is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Consolidated revenues decreased 8.0%, to $200.2 million, and operating income increased 33.1% to $18.3 million in the first quarter of 2010 compared to the first quarter of 2009. Our overall results reflect decreased revenues of $12.3 million, or 8.4%, from our Direct Marketing segment and decreased revenues of $5.2 million, or 7.3%, from our Shoppers segment. Direct Marketing revenues from all of our vertical markets experienced revenue declines in the first quarter of 2010 compared to the first quarter of 2009. These results reflect the effects of the difficult economic environment, including reduced volumes and price reductions, on our Direct Marketing business. Shoppers revenue performance reflects the continued impact that the difficult economic environments in California and Florida are having on our Shoppers business. The decrease in revenues was the result of decreased sales in comparable circulation, including declines in most revenue categories, and curtailment of circulation of approximately 700,000 in February of 2009. Excluding revenues from discontinued circulation, Shoppers revenues decreased approximately 6.6%.

Overall operating expenses decreased 10.8%, to $181.9 million, in the first quarter of 2010 compared to the first quarter of 2009. The overall decrease in operating expenses was driven by decreased operating expenses in Shoppers of $11.8 million, or 16.1%, decreased operating expenses in Direct Marketing of $10.0 million, or 7.8%, and a decrease in general corporate expense of $0.3 million, or 9.3%. The decrease at Shoppers was primarily due to headcount reductions, $1.6 million in lease write-offs in the first quarter of 2009, lower severance costs, decreased paper costs and decreased outsourced printing costs. The Direct Marketing decrease was primarily a result of headcount reductions, lower severance costs, lower logistics-related transportation costs and less lease expense.

Operating expenses decreased $10.0 million, or 7.8%, in the first quarter of 2010 compared to the first quarter of 2009. Labor costs decreased $8.0 million, or 11.2%, due to lower headcounts and lower severance costs. The decrease in labor costs was partially offset by an increase in stock-based compensation. Production and distribution costs decreased $2.2 million, or 5.3%, due to lower logistics-related transportation costs resulting from reduced transportation volumes, and less lease expense due to prior year facility consolidations. General and administrative expense increased $1.8 million, or 18.9%, due primarily to an increase in bad debt expense, travel and taxes. Depreciation and software amortization expense decreased $1.4 million, or 25.1%, due to decreased capital expenditures over the last few years. Intangible asset amortization decreased $0.1 million, or 71.3%, as certain intangible assets became fully amortized.

Operating expenses decreased $11.8 million, or 16.1%, in the first quarter of 2010 compared to the first quarter of 2009. At the end of the first quarter of 2009, we completed the consolidation of our two Florida production facilities into one facility. We incurred approximately $2.0 million in costs in the first quarter of 2009 related to this action. Excluding these costs, operating expenses decreased $9.8 million, or 13.8%. Total labor costs decreased $5.2 million, or 20.2%, as a result of reductions in our Shoppers workforce due to plant consolidations, administrative staff reductions, lower variable payroll costs from lower ad sales and volumes, circulation curtailments and lower severance costs. Total production costs decreased $5.2 million, or 13.3%, due primarily to decreased facility lease costs as a result of the $1.6 million lease write-off in the first quarter of 2009 related to consolidations and circulation curtailments, lower outsourced printing costs due to lower volumes, and decreased paper costs due to lower paper rates and circulation reductions. Total general and administrative costs decreased $0.1 million, or 1.6%, due primarily to decreased facility costs and bad debt expense, partially offset by an increase in workers compensation insurance expense. Depreciation and software amortization expense decreased $1.3 million, or 46.8%, due to an accelerated depreciation charge in the first quarter of 2009 related to the Florida facility consolidation, and decreased capital expenditures in the last few years.

As of March 31, 2010, cash and cash equivalents were $100.5 million, increasing $13.9 million from December 31, 2009. This net increase was a result of net cash provided by operating activities of $34.0 million, partially offset by cash used in investing activities of $3.8 million and net cash used in financing activities of $15.8 million.

Our five-year $125 million Revolving Credit Facility has a maturity date of August 12, 2010. At March 31, 2010, we did not have any outstanding amounts drawn against our Revolving Credit Facility. At March 31, 2010 we had letters of credit totaling $12.8 million issued under the Revolving Credit Facility, decreasing the amount available for borrowing to $112.2 million. The five-year $200 million 2006 Term Loan Facility has a maturity date of September 6, 2011. At March 31, 2010, our debt balance related to the 2006 Term Loan Facility was $141.4 million. The four-year $100 million 2008 Term Loan Facility has a maturity date of March 7, 2012. At March 31, 2010, our debt balance related to the 2008 Term Loan Facility was $87.3 million.

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