Harte-Hanks, Inc. 10-Q Summary: Period Ended June 30, 1999
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1999, and the six-month period ended on the same date. Harte-Hanks, Inc. operates as a targeted media company with two primary segments: Direct Marketing and Shoppers. The company reported 69,768,535 shares of common stock outstanding as of July 31, 1999.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1999 | Six Months Ended June 30, 1999 |
|---|---|---|
| Operating Revenues | $197.0 million | $385.2 million |
| Operating Income | $30.4 million | $54.5 million |
| Net Income | $18.8 million | $34.1 million |
| Diluted EPS | $0.26 | $0.47 |
| Cash from Operations (6mo) | $51.3 million | |
| Cash and Equivalents (End of Period) | $37.5 million | |
| Total Assets | $703.3 million | |
| Total Liabilities | $136.1 million | |
| Stockholders' Equity | $567.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased 5.5% in Q2 and 5.7% for the first six months compared to 1998. Direct Marketing revenue grew 6.1% (Q2) and 7.6% (6mo), while Shoppers revenue grew 4.3% (Q2) and 2.1% (6mo).
- Profitability: Operating income rose 14.1% in Q2 and 19.1% for the six-month period. Net income increased 10.3% in Q2 and 9.6% for the six-month period.
- Expense Management: Operating expenses grew 4.0% in Q2, significantly lower than revenue growth, driving margin expansion. Payroll costs increased due to hiring for growth, but bad debt expenses decreased.
- Interest Income: Interest income decreased by $1.0 million in Q2 and $4.5 million for the six months compared to 1998, attributed to lower cash balances in 1999 versus the large tax-related cash holdings in early 1998.
- Acquisitions: The company acquired Direct Marketing Associates, Inc. (May 1999) and LYNQS Newmedia (June 1999), contributing to revenue and goodwill amortization increases.
Outlook, Risks, and Management Commentary
- Liquidity: Management believes cash proceeds from the 1997 sale of newspaper/TV operations and current operating cash flows are sufficient to fund operations and capital needs. The company repurchased $47.3 million of treasury stock in the first six months of 1999.
- Year 2000 Compliance: The company is 98-100% complete with remediation phases for products, internal systems, and suppliers. Total costs incurred to date are $3.85 million, with an estimated $0.57 million remaining. Contingency plans are expected by September 30, 1999.
- Key Risks:
- Legislation: Potential adverse impact from consumer privacy laws restricting data collection.
- Data Suppliers: Risk of data providers withdrawing data due to competition or regulation.
- Competition: Intense competition in direct marketing and shopper media sectors.
- Postal Rates: Increases in postage rates could reduce demand for direct mail services.
- Segment Specifics: Database marketing revenues were soft due to slowdowns in healthcare and insurance sectors. Shoppers experienced slowdowns in real-estate and personals advertising but saw growth in employment and core sales.
Investor Verification Checklist
- Verify the sustainability of revenue growth in the Direct Marketing segment, specifically the offset between strong inbound telemarketing/internet growth and declines in outbound credit card business.
- Confirm the status of Year 2000 remediation for recent acquisitions (Direct Marketing Associates and LYNQS Newmedia) which are currently under review.
- Monitor interest income trends, as the decrease in 1999 was partly due to the normalization of cash balances after large tax payments in 1998.
- Assess the impact of payroll increases on future margins as the company continues to hire to support revenue growth.
- Review the effective tax rate (41.2%) which remains higher than the federal statutory rate due to state taxes and non-deductible goodwill amortization.