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Harte-Hanks Reports First Quarter EPS Growth of 38% on Revenue Growth of 13.6%

SAN ANTONIO--(BUSINESS WIRE)--April 26, 2005--Harte-Hanks, Inc. (NYSE:HHS)

Note: Harte-Hanks will hold a first quarter earnings conference call on April 26, 2004 at 10AM CDT. The number is 800-988-9498 domestic or 210-234-0004 international, pass code 121693. There will be an audio replay available shortly after the call through May 3, 2005. To access, please call 866-363-1838 passcode 1216 or visit

Harte-Hanks, Inc. (NYSE:HHS) today reported first quarter 2005 diluted earnings per share of $0.29 on revenues of $268.3 million. These results compare to diluted earnings per share of $0.21 on $236.3 million in revenue for the first quarter of 2004.

The following table presents financial highlights of the company's operations for the first quarter of 2005 and 2004. Full financial results are attached.


In thousands, except -------------------------------------------------
per share amounts) Three Months Ended March 31,
2005 2004 % Change
Operating revenues $ 268,293 $ 236,252 13.6%
Operating income 42,319 31,558 34.1%
Net income 25,073 18,789 33.4%
Diluted earnings per
share 0.29 0.21 38.1%
Diluted shares
(weighted average
common and common
equivalent shares
outstanding) 86,424 89,030 -2.9%

In the discussion below the company intends to provide investors a better understanding of the operating results and underlying trends to measure past and future performance and liquidity. Harte-Hanks evaluates operating performance based on several measures, including the non-GAAP measure of free cash flow, defined as net income plus depreciation and amortization less capital expenditures, as Harte-Hanks believes this is an important measure of the operational strength of its business. Since free cash flow is not a measure calculated in accordance with GAAP, it should not be considered as a substitute for net income as an indicator of operating performance.

Commenting on the first quarter 2005 performance, Chief Executive Officer Richard Hochhauser said, "Our people delivered a stand-out quarter and we are obviously pleased with the results. Diluted earnings per share increased 38.1% on 13.6% revenue growth. Operating income grew 34.1% and we generated $23.9 million of free cash flow, an increase of 45% from our free cash flow in the first quarter of 2004."

Discussing the performance of individual business segments, Hochhauser said, "The first quarter for direct marketing was nothing short of spectacular, with revenue up 17.4% and operating income up 57.6%. Operating income margins improved 370 basis points year-over-year, hitting 14.4%. Business overall continued to show strength, and we particularly benefited from a large, complex, world-wide project that we launched for one of our significant customers in the quarter. This project added about a third of our revenue growth for the quarter -- adding to an otherwise outstanding revenue and profit performance -- and for the most part has come to a conclusion. Our high-tech/telecom and select vertical markets had strong revenue performances, with growth in excess of 20% over the prior year, and retail also was strong with low teens growth. Financial was up in the low-single digits, and pharma/healthcare was down in the mid-single digits."

Turning to Shoppers performance, Hochhauser said, "Shoppers had yet another really solid quarter. Operating income increased 13.7% on revenue growth of 7.5%. Shopper growth was driven by ROP (in-book advertising), especially real estate and employment related advertising, and increased circulation. We are also excited about the acquisition of the Tampa Flyer, which we announced in the first quarter and completed last week, and future opportunities this shopper will present to us in Florida."

Concluding, Hochhauser said, "Saying we are pleased with our earnings per share performance in the first quarter does not do justice to the performance our people delivered. Our first quarter of 2004, however, was our least robust quarterly performance last year. From a year-over-year comparison standpoint, therefore, and given the successful project in direct marketing in this quarter, we do not expect to see this extraordinary level of revenue or earnings growth over the remainder of the year. With this strong first quarter and continued strength in both of our businesses, our goal for the year, which initially was to deliver similar earnings growth in 2005 as we saw in 2004, has slightly improved."

Statements in this release concerning the Company's business outlook or future financial performance and other statements that are not historical facts are "forward-looking statements" as the term is defined under applicable Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those statements. Such risks, uncertainties, and factors include, but are not limited to, public concern over consumer privacy issues, which may lead to enactment of legislation restricting or prohibiting the collection and use of information that is currently legally available, competitive pressures, fluctuations in paper prices and postal rates, and general or regional economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K.

Highlights of the first quarter included:

-- On April 20, 2005 Harte-Hanks completed its acquisition of The Tampa Flyer (acquisition agreement was announced on March 24, 2005). The Tampa Flyer is a weekly shopper publication
delivered by mail with circulation in excess of 900,000 in the Tampa/St. Petersburg, Florida metropolitan area. This acquisition brings total Shopper circulation to approximately
12 million. It is expected that this transaction will be slightly accretive to earnings per share from the outset, but it is not expected to have a measurable impact on earnings per share in 2005.

-- On February 17, 2005 Harte-Hanks acquired its long-standing Australian partner Communique Direct pursuant to an option entered into June 2003. Communique Direct provides a range of
marketing and information services for the business-to-business sector across the Asia-Pacific region.

-- During the quarter, Harte-Hanks commenced work on four new database engagements covering four of our industry verticals -- Financial, Retail, High Tech and Select.

-- Harte-Hanks signed a number of renewals and expansions in the first quarter with large high-tech/telecom companies for its CI Technology Database. The CI Technology Database is one of
the largest and most in-depth business technology databases in the world. Hundreds of firms in the high-tech/telecom industry use the CI Technology Database to better understand their
existing clients, protect their existing business from competitive encroachment, analyze current market share, and guide planning of new products and sales channels.

-- Using expanded print on demand capabilities, Harte-Hanks won a large engagement to create and deliver global business-to-business direct mail programs for a leading specialized software manufacturer. This engagement is an expansion of a previous relationship with the client whereby
Harte-Hanks delivered demand generation, lead management, literature fulfillment and customer care services.

-- Harte-Hanks renewed an annual agreement to provide technical support services to a leading global software manufacturer. Services include inbound customer care, technical support, and
problem resolution for both businesses and consumers.

-- Harte-Hanks Direct Marketing named Christine M. Cournoyer as its new Managing Director of the Billerica, Massachusetts database solutions team. Cournoyer has extensive experience
managing software, services and solution delivery to clients. Most recently she was the president and chief operating officer of Lightbridge, Inc., a leading provider of hosted and application service provider services for credit and identity risk mitigation in the wireless industry. She has also held
positions with IBM, Lotus Development Corporation, Bolt, Beranek & Newman, Wang Laboratories and the Massachusetts Department of Labor.

-- Harte-Hanks Direct Marketing promoted Li Saul to its newly-named creative position: senior creative officer, direct marketing. She was previously senior vice president, creative services, and executive direct for direct marketing. In this new role, Saul formally has overview responsibility for all creative functions at various direct marketing businesses of Harte-Hanks, as well as the specification and implementation of Harte-Hanks Direct Marketing branding and graphics

-- Harte-Hanks paid a regular cash dividend, increased from 4.0 cents per share to 5.0 cents per share, on March 15, 2005 to shareholders of record on March 1, 2005. This is the tenth
dividend increase since the company went public in 1993 for the second time.

-- Harte-Hanks purchased 0.6 million shares of its common stock in the first quarter. This leaves approximately 5.0 million shares under its current repurchase authorization.

-- The annual meeting of shareholders will be held at 10 A.M. on May 17, 2005 at 200 Concord Plaza Drive, first floor, San Antonio, Texas.

Harte-Hanks, Inc., San Antonio, TX, is a worldwide, direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to a wide range of local, regional, national and international consumer and business-to-business marketers. Harte-Hanks Direct Marketing improves the return on its clients' marketing investment with a range of services organized around five solution points: Construct and update the database -- Access the data -- Analyze the data -- Apply the knowledge -- Execute the programs. Experts at each element within this process, Harte-Hanks Direct Marketing is highly skilled at tailoring solutions for each of the vertical markets it serves. Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications, with shoppers that are zoned into more than 1,000 separate editions with a weekly circulation of approximately 12 million in California and Florida.

For more information, contact: Chief Financial Officer Dean Blythe 210-829-9138 or e-mail at

This release and other information about Harte-Hanks can be found on the World Wide Web at

Harte-Hanks, Inc.
Consolidated Statements of Operations (Unaudited)

Three months ended March 31,
------------------------------- --------------------------
In thousands, except per share data 2005 2004
------------------------------- ------------ ------------

Operating revenues $268,293 $236,252
Operating expenses:
Labor 104,302 94,140
Production and distribution 93,588 83,352
Advertising, selling,
general and administrative 20,612 19,988
Depreciation and
amortization 7,472 7,214
------------ ------------
225,974 204,694
------------ ------------
Operating income 42,319 31,558
------------ ------------
Other expenses (income):
Interest expense 203 172
Interest income (78) (218)
Other, net 489 489
------------ ------------
614 443
------------ ------------
Income before income taxes 41,705 31,115
Income tax expense 16,632 12,326
------------ ------------
Net income $25,073 $18,789
============ ============

Basic earnings per common
share $0.30 $0.21
============ ============

Weighted-average common
shares outstanding 84,730 87,453
============ ============

Diluted earnings per common
share $0.29 $0.21
============ ============

Weighted-average common
and common equivalent
shares outstanding 86,424 89,030
============ ============

Harte-Hanks, Inc.
Business Segment Information (Unaudited)

Three months ended
March 31,
In thousands 2005 2004 % Change

Direct Marketing $170,019 $144,828 17.4%
Shoppers 98,274 91,424 7.5%
-------------- -------------
Total operating revenues $268,293 $236,252 13.6%
-------------- -------------

Direct Marketing $24,520 $15,555 57.6%
Shoppers 20,868 18,346 13.7%
General corporate expense (3,069) (2,343) -31.0%
-------------- -------------
Total operating income $42,319 $31,558 34.1%
-------------- -------------

Direct Marketing $6,021 $5,793 3.9%
Shoppers 1,446 1,413 2.3%
General corporate expense 5 8 -37.5%
-------------- -------------
Total depreciation and
amortization $7,472 $7,214 3.6%
-------------- -------------

Reconciliation of Net Income
to Free Cash Flow
Three months ended
March 31,
In thousands 2005 2004

Net Income $25,073 $18,789
Add: depreciation and
amortization 7,472 7,214
Less: capital expenditures 8,677 9,533
-------------- -------------
Free cash flow $23,868 $16,470
-------------- -------------

Harte-Hanks, Inc.
Consolidated Balance Sheets (in thousands, except share amounts)

March 31, December 31,
2005 2004
-------------- ------------
Current Assets
Cash and cash equivalents $38,282 $38,807
Accounts receivable, net 169,886 168,755
Inventory 5,297 6,086
Prepaid expenses 19,179 16,664
Current deferred income
tax asset 14,513 13,812
Other current assets 6,732 6,373
-------------- ------------
Total current assets 253,889 250,497

Property, plant and
equipment, net 114,198 113,770
Goodwill, net 459,491 458,171
Other intangible assets,
net 1,917 2,067
Other assets 3,402 3,848
-------------- ------------
Total assets $832,897 $828,353
============== ============

Liabilities and Stockholders'
Current liabilities
Accounts payable $54,507 $55,632
Accrued payroll and
related expenses 25,314 36,539
Customer deposits and
unearned revenue 60,067 53,707
Current maturities of
long-term debt -- 10,000
Income taxes payable 29,416 17,239
Other current liabilities 8,663 9,075
-------------- ------------
Total current
liabilities 177,967 182,192

Long-term debt -- --
Other long-term liabilities 76,243 74,362
-------------- ------------
Total liabilities 254,210 256,554
-------------- ------------

Stockholders' equity
Common stock, $1 par
value, authorized:
Issued at March 31, 2005:
114,776,844 shares; at
December 31, 2004:
114,505,329 shares 114,777 114,505
Additional paid-in-capital 257,952 253,515
Accumulated other
comprehensive loss (15,857) (15,192)
Retained Earnings 903,585 882,750
Less treasury stock,
March 31, 2005:
30,205,214 shares at
cost; December 31, 2004:
29,524,064 shares at
cost (681,770) (663,779)
-------------- ------------
Total stockholders'
equity 578,687 571,799
-------------- ------------
Total liabilities and
stockholders' equity $832,897 $828,353
============== ============


Harte-Hanks, Inc., San Antonio
Media & Financial Contact:
Dean Blythe, 210-829-9138


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