Harte-Hanks, Inc. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Harte-Hanks, Inc., a targeted media company operating in direct marketing and shoppers segments. The report covers the quarterly period ended September 30, 1999, and the nine months ended September 30, 1999. As of October 31, 1999, there were 68,665,972 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 1999 | Nine Months Ended Sept 30, 1999 |
|---|---|---|
| Operating Revenues | $207.6 million | $592.8 million |
| Operating Income | $30.3 million | $84.8 million |
| Net Income | $18.6 million | $52.7 million |
| Diluted EPS | $0.26 | $0.73 |
| Cash from Operations (9mo) | $87.5 million | |
| Cash and Equivalents (End of Period) | $124.0 million | |
| Total Assets | $720.1 million | |
| Total Liabilities | $159.6 million | |
| Stockholders' Equity | $560.6 million |
Segment Performance (Three Months Ended Sept 30, 1999):
- Direct Marketing: Revenues of $137.6 million; Operating Income of $18.9 million.
- Shoppers: Revenues of $70.0 million; Operating Income of $13.2 million.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 13.2% in the third quarter and 8.2% for the nine-month period compared to 1998. Direct Marketing revenues grew 15.1% (quarter) and 10.1% (nine months), while Shoppers revenues grew 9.7% (quarter) and 4.6% (nine months).
- Profitability: Operating income rose 14.4% in the quarter and 17.3% for the nine months. Net income increased 9.9% in the quarter and 9.7% for the nine months.
- Interest Income: Interest income decreased significantly ($1.2 million in the quarter, $5.8 million for nine months) compared to 1998, attributed to lower cash and investment balances in 1999 relative to the large balances held in early 1998 for tax payments on divestitures.
- Acquisitions: Operating expenses increased due to payroll expansion and production costs, as well as goodwill amortization from recent acquisitions (Printing Management Systems, Direct Marketing Associates).
Guidance, Outlook, and Risks
Recent Developments: On October 1, 1999, the Company acquired ZD Market Intelligence (ZDMI) for $101 million in cash, utilizing existing cash reserves. Management expects the fourth quarter to benefit from this acquisition. On November 3, 1999, the Board authorized an additional 4 million shares for the stock repurchase program.
Liquidity: The Company maintains two unsecured credit facilities totaling $200 million ($100 million 364-day and $100 million three-year). Management believes cash flows and credit facilities are sufficient for foreseeable needs.
Risks and Contingencies:
- Year 2000 (Y2K): The Company reports 100% completion of remediation for products/services and 99% for support systems. Total costs incurred were $4.04 million, with $0.37 million remaining. Risks include potential disruptions from third-party suppliers or economic impacts.
- Legislation and Privacy: Potential adverse impact from new consumer privacy laws restricting data collection.
- Competition and Personnel: Intense competition in direct marketing and shoppers segments; difficulty in retaining qualified technical personnel.
- Postal Rates: Increases in postage rates could reduce demand for direct mail services.
Investor Verification Checklist
- Verify the integration and revenue contribution of the ZD Market Intelligence acquisition in the fourth quarter of 1999.
- Monitor the impact of potential consumer privacy legislation on the Direct Marketing segment's data usage.
- Review the status of Year 2000 compliance for recent acquisitions and critical third-party suppliers.
- Assess the sustainability of revenue growth in the healthcare and managed care markets, which showed softness in the third quarter.
- Track the execution of the expanded stock repurchase program and its impact on share count and EPS.