Harte-Hanks Reports Third Quarter Results

Note: The company will host a conference call to discuss the
earnings release on October 23, 2008, at 10:00 a.m. Central Time. The
conference call number is 800-988-9498 for domestic callers and
210-234-0029 for international callers, pass-code 121693. The
conference call will also be audio webcast. To access the audio
webcast, please go to https://e-meetings.verizonbusiness.com,
conference number 6819107, pass-code 121693. There will be an audio
replay available shortly after the call through October 31, 2008. To
access the audio replay, please call 800-253-1054 for domestic callers
and 203-369-3219 for international callers, pass-code 121693. The
replay also will be available on the Harte-Hanks Web site under the
"Investors" section for 30 days.
SAN ANTONIO--(Business Wire)--
Harte-Hanks, Inc. (NYSE: HHS) today reported third quarter 2008
diluted earnings per share of $0.26 on revenues of $269.9 million.
These results compare to diluted earnings per share of $0.30 on $286.7
million in revenues for the third quarter of 2007.

The following table presents financial highlights of the company's
operations for the third quarter of 2008 and 2007, respectively. Full
financial results are attached.

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RESULTS FROM OPERATIONS (unaudited)
(In thousands, except per share Three Months Ended September 30,
amounts)
--------------------------------
2008 2007 % Change
--------------------------------
Operating revenues $ 269,913 $ 286,696 -5.9%
Operating income 31,246 40,000 -21.9%
Net income 16,615 21,882 -24.1%
Diluted earnings per share 0.26 0.30 -13.3%
Diluted shares (weighted average
common and common equivalent shares
outstanding) 63,393 73,491 -13.7%
----------- --------- ----------
*T

For the three months ended September 30, 2008, the company
generated free cash flow (defined below) of $22.3 million, down from
$25.6 million in the prior year's third quarter.

For the nine months ended September 30, 2008, the company's
revenues were down 5.4% to $813.2 million and operating income was
down 22.0% to $91.8 million. Diluted earnings per share for the nine
months ended September 30, 2008 were $0.75, compared to $0.87 for the
2007 nine-month period.

Commenting on the third quarter 2008 performance, Chief Executive
Officer Dean Blythe said, "When we released our second quarter
results, we said that our customers were 'becoming cautious with their
spending plans in the face of extreme economic uncertainty.' During
the third quarter economic conditions worsened and governments have
taken unprecedented intervention in the financial markets. In this
environment Direct Marketing revenues did grow in the third quarter,
but by less than one percent as customers reduced events and volumes
from planned and anticipated levels. In Shoppers our year-over-year
revenue decline of 17.1% was less than the percentage decline we saw
in each of the first two quarters of this year, but the California and
Florida markets continue to be very difficult and volatile."

Discussing the performance of individual business segments, Doug
Shepard, Executive Vice President and Chief Financial Officer, said,
"Direct Marketing revenue was essentially flat compared to the prior
year's quarter, with a slight decline in operating income. Our select
markets vertical had strong performance with year-over-year
double-digit revenue growth in the quarter, while our retail and high
tech/telecom verticals were essentially flat. Our financial vertical
was down in the mid-single digits, and our pharma/healthcare vertical
had continued soft performance with a double-digit revenue decline."

Turning to Shoppers performance, Shepard said, "The Shoppers
negative year-over-year performance trend continued, with revenue
declining 17.1% and operating income down 58.6% from the third quarter
of 2007. The local markets in California and Florida continue to be
very challenging."

Concluding, Blythe said, "Fundamentally, our businesses are very
effective and efficient in driving business for our customers. Given
the external environment, however, we face an uncertain revenue
outlook. Our conservative balance sheet and strong cash flow will
serve us well in an economic downturn. We will aggressively manage all
aspects of our business, delivering value to our customers and
aligning our expense base and structure to the new reality of the
marketplace."

About Harte-Hanks:

Harte-Hanks(R) is a worldwide, direct and targeted marketing
company that provides direct marketing services and shopper
advertising opportunities to local, regional, national and
international consumer and business-to-business marketers. Harte-Hanks
Direct Marketing improves return on its clients' marketing investment
by increasing their prospect and customer value through solutions and
services organized around five groupings of integrated activities:
Information (data collection/management) -- Opportunity (data
access/utilization) -- Insight (data analysis/interpretation) --
Engagement (program and campaign creation and development) --
Interaction (program execution). 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 more than 12.5 million circulation each week in
California and Florida. Harte-Hanks Shoppers brings buyers and sellers
together at a local level, helping businesses and individuals get
results from targeted, local advertisements, both through Shoppers'
printed publications and online through the PennySaverUSA.com(TM) and
TheFlyer.com(TM) websites. Visit the Harte-Hanks Web site at
http://www.harte-hanks.com.

For more information, contact: Executive Vice President and Chief
Financial Officer Doug Shepard at 210-829-9120 or e-mail at
doug_shepard@harte-hanks.com.

Cautionary Note Regarding Forward-Looking Statements:

This press release and our related earnings conference call
contain "forward-looking statements" within the meaning of the federal
securities laws. All such statements are qualified by this cautionary
note, which is provided pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements other than historical
facts are forward-looking and may be identified by words such as
"may," "will," "expects," "believes," "anticipates," "plans,"
"estimates," "seeks," "could," "intends," or words of similar meaning.
Examples include statements regarding (1) our strategies and
initiatives, (2) adjustments to our cost structure and other actions
designed to respond to market conditions and improve our performance,
and the anticipated effectiveness and expenses associated with these
actions, (3) our financial outlook for revenues, earnings per share,
operating income, expense related to equity-based compensation,
capital resources and other financial items, (4) our expectations for
our businesses and for the industries in which we operate, including
with regard to the negative performance trends in our Shoppers
business and the adverse impact of the ongoing economic downturn in
the United States and other economies on the marketing expenditures
and activities of our Direct Marketing clients and prospects, (5)
competitive factors, (6) acquisition and development plans, (7) our
stock repurchase program and (8) other statements regarding future
events, conditions or outcomes. These forward-looking statements
involve risks, uncertainties, assumptions and other factors that are
difficult to predict and that could cause actual results to vary
materially from what is expressed in or indicated by the
forward-looking statements. In that event, our business, financial
condition, results of operations or liquidity could be materially
adversely affected and investors in our securities could lose part or
all of their investments. These risks, uncertainties, assumptions and
other factors include, without limitation, (1) international,
domestic, regional and local economic and business conditions,
including market conditions in California and Florida that may
continue to adversely impact local advertising expenditures in our
Shoppers publications and the adverse impact of the ongoing economic
downturn in the United States and other economies on the marketing
expenditures and activities of our Direct Marketing clients and
prospects, (2) the demand for our services by clients and prospective
clients, including the willingness of existing clients to maintain or
increase their spending and our ability to predict changes in client
preferences, (3) the financial condition and marketing budgets of our
clients, (4) economic and other business factors that impact the
industry verticals that we serve, including any consolidation of
clients and prospective clients in these verticals, (5) our ability to
manage and timely adjust our level of personnel and capacity and to
otherwise effectively service our clients, (6) the impact of
competition and our ability to continually improve our processes and
to develop and introduce new products and services in a timely and
cost-effective manner, (7) our ability to protect our data centers
against security breaches and other interruptions in our operations
and to protect sensitive personal information of our clients and their
customers, (8) 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, (9) the impact
of other regulations, including restrictions on unsolicited marketing
communications and other consumer protection laws, (10) fluctuations
in paper prices and postal rates, (11) the number of options and other
equity securities that we may issue to employees, (12) market
conditions and other factors that may impact the number of shares, if
any, that we may repurchase in connection with our repurchase program,
(13) unanticipated developments regarding litigation or other
contingent liabilities, and (14) other factors discussed under "Item
1A. Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2007, and any updates thereto in our Forms 10-Q. The
forward-looking statements in this press release and our related
earnings conference call are made only as of the date hereof and we
undertake no obligation to update publicly any forward-looking
statement, even if new information becomes available or other events
occur in the future.

Supplemental Non-GAAP Financial Measures:

In this press release and our related earnings conference call,
the company intends to provide investors with a better understanding
of operating results and underlying trends to assess the company's
performance and liquidity. Harte-Hanks evaluates its operating
performance based on several measures, including the non-GAAP
financial measures of (1) free cash flow, defined as net income, plus
depreciation and amortization, plus stock-based compensation
(tax-effected), less capital expenditures, and (2) EBITDA, defined as
net income before interest, taxes, depreciation, and amortization.
Harte-Hanks believes that free cash flow and EBITDA are useful
supplemental financial measures for investors because they facilitate
investors' ability to evaluate the operational strength of the
company's business. Free cash flow and EBITDA, however, are not
calculated in accordance with GAAP and they should not be considered
substitutes for net income as an indicator of operating performance. A
quantitative reconciliation of free cash flow and EBITDA to net income
is found in the tables attached to this release.

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

Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------- -------------------
In thousands, except per share
data 2008 2007 2008 2007
------------------------------ --------- --------- --------- ---------

Operating revenues $269,913 $286,696 $813,178 $859,869
Operating expenses:
Labor 108,728 117,589 335,894 348,381
Production and distribution 100,665 97,743 295,546 298,285
Advertising, selling,
general and administrative 20,464 22,236 63,052 67,886
Depreciation and
amortization 8,810 9,128 26,889 27,623
--------- --------- --------- ---------
238,667 246,696 721,381 742,175
--------- --------- --------- ---------
Operating income 31,246 40,000 91,797 117,694
--------- --------- --------- ---------
Other expenses (income):
Interest expense 3,450 3,346 10,788 9,603
Interest income (90) (110) (316) (414)
Other, net 363 412 2,001 766
--------- --------- --------- ---------
3,723 3,648 12,473 9,955
--------- --------- --------- ---------
Income before income taxes 27,523 36,352 79,324 107,739
Income tax expense 10,908 14,470 30,909 42,635
--------- --------- --------- ---------
Net income $ 16,615 $ 21,882 $ 48,415 $ 65,104
========= ========= ========= =========

Basic earnings per common
share $ 0.26 $ 0.30 $ 0.76 $ 0.89
========= ========= ========= =========

Weighted-average common
shares outstanding 63,281 72,249 64,118 73,454
========= ========= ========= =========

Diluted earnings per common
share $ 0.26 $ 0.30 $ 0.75 $ 0.87
========= ========= ========= =========

Weighted-average common
and common
equivalent shares
outstanding 63,393 73,491 64,278 74,850
========= ========= ========= =========
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Harte-Hanks, Inc.
Balance Sheet Data (Unaudited)

September 30, December 31,
In thousands 2008 2007
------------------------------------------- ------------- ------------

Cash and cash equivalents $ 23,809 $ 22,847

Long-term debt 295,500 259,125
*T

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

Three months ended
September 30,
----------------------------------------------------------------------
In thousands 2008 2007 % Change
----------------------------------------------------------------------

OPERATING REVENUES:
Direct Marketing $182,567 $181,313 0.7%
Shoppers 87,346 105,383 -17.1%
--------- ---------
Total operating revenues $269,913 $286,696 -5.9%
--------- ---------

OPERATING INCOME:
Direct Marketing $ 26,521 $ 27,606 -3.9%
Shoppers 7,427 17,926 -58.6%
General corporate expense (2,702) (5,532) 51.2%
--------- ---------
Total operating income $ 31,246 $ 40,000 -21.9%
--------- ---------

DEPRECIATION AND AMORTIZATION:
Direct Marketing $ 6,667 $ 6,843 -2.6%
Shoppers 2,137 2,280 -6.3%
General corporate expense 6 5 20.0%
--------- ---------
Total depreciation and amortization $ 8,810 $ 9,128 -3.5%
--------- ---------

Nine months ended
September 30,
----------------------------------------- ----------------------------
In thousands 2008 2007 % Change
----------------------------------------- ----------------------------

OPERATING REVENUES:
Direct Marketing $543,880 $526,958 3.2%
Shoppers 269,298 332,911 -19.1%
--------- ---------
Total operating revenues $813,178 $859,869 -5.4%
--------- ---------

OPERATING INCOME:
Direct Marketing $ 73,699 $ 72,368 1.8%
Shoppers 26,859 57,015 -52.9%
General corporate expense (8,761) (11,689) 25.0%
--------- ---------
Total operating income $ 91,797 $117,694 -22.0%
--------- ---------

DEPRECIATION AND AMORTIZATION:
Direct Marketing $ 20,484 $ 21,016 -2.5%
Shoppers 6,390 6,592 -3.1%
General corporate expense 15 15 0.0%
--------- ---------
Total depreciation and amortization $ 26,889 $ 27,623 -2.7%
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Reconciliation of Net Income to Free Cash Flow
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------- -----------------
In thousands 2008 2007 2008 2007
--------------------------------------------------- -----------------
Net Income $ 16,615 $21,882 $ 48,415 $65,104
Add: After-tax stock-based
compensation (Note 1) 989 1,209 2,763 3,347
Add: depreciation and
amortization 8,810 9,128 26,889 27,623
Less: capital expenditures 4,100 6,637 16,141 20,570
---------- ------- --------- -------
Free cash flow $ 22,314 $25,582 $ 61,926 $75,504
---------- ------- --------- -------

Note 1: Pre-tax compensation expense was $1,639 and $2,008 for the
three months ended September 30, 2008 and 2007, respectively.
Pre-tax compensation expense was $4,530 and $5,540 for the
nine months ended September 30, 2008 and 2007, respectively.
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Reconciliation of Net Income to EBITDA
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------- -------------------
In thousands 2008 2007 2008 2007
------------------------------------------------- -------------------
Net Income $ 16,615 $21,882 $ 48,415 $ 65,104
Add: Depreciation and
amortization 8,810 9,128 26,889 27,623
Interest expense, net
and non-operating, net 3,723 3,648 12,473 9,955
Income tax expense 10,908 14,470 30,909 42,635
--------- -------- --------- ---------
EBITDA $ 40,056 $49,128 $118,686 $145,317
--------- -------- --------- ---------

EBITDA by Segment:
Direct Marketing $ 33,188 $34,449 $ 94,183 $ 93,384
Shoppers 9,564 20,206 33,249 63,607
Corporate (2,696) (5,527) (8,746) (11,674)
--------- -------- --------- ---------
$ 40,056 $49,128 $118,686 $145,317
--------- -------- --------- ---------
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Harte-Hanks, Inc.
Direct Marketing Revenue Mix (Unaudited)

Vertical Markets - Percent of Direct Marketing Revenue

Three months ended Nine months ended
September 30, September 30,
---------------------------------------------------- -----------------
2008 2007 2008 2007
---------------------------------------------------- -----------------

Retail 26% 26% 24% 25%
Financial and Insurance Services 16% 16% 16% 17%
Technology 26% 26% 28% 26%
Healthcare and Pharmaceuticals 10% 13% 11% 13%
Other Select Markets 22% 19% 21% 19%
-------- --------- -------- --------
100% 100% 100% 100%
======== ========= ======== ========
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Harte-Hanks, Inc., San Antonio
Media & Financial Contact:
Doug Shepard, 210-829-9120
doug_shepard@harte-hanks.com

Copyright Business Wire 2008