Harte-Hanks Reports Second Quarter EPS Up 17% to $0.34 with Revenue Up 11.7%.

SAN ANTONIO -- Harte-Hanks, Inc. (NYSE:HHS)

Note: Harte-Hanks will hold a second quarter earnings conference call on July 27, 2005 at 10AM CDT. The number is 800-988-9498 domestic or 210-234-0007 international, pass code 121693. The call will also be webcast live at https://e-meetings.mci.com conference # 9605552 and passcode 121693. There will be an audio replay available shortly after the call through August 5, 2005. To access, please call 800-468-0318 or 203-369-3284, passcode 121693 or visit www.harte-hanks.com/earnings_audio/audio_stream.html.

Harte-Hanks, Inc. (NYSE:HHS) today reported second quarter 2005 diluted earnings per share of $0.34 on revenues of $284.0 million. These results compare to diluted earnings per share of $0.29 on $254.2 million in revenue for the second quarter of 2004.

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

RESULTS FROM OPERATIONS

(In thousands, except per share
 amounts)                                 Three Months Ended June 30,
                                      -------------------------------
                                         2005        2004      Change
                                       ----------  --------- --------
Operating revenues                    $  284,010  $ 254,152     11.7%
Operating income                          47,820     42,898     11.5%
Net income                                29,127     25,546     14.0%
Diluted earnings per share                  0.34       0.29     17.2%
Diluted shares (weighted average
 common and common equivalent shares
 outstanding)                             86,337     87,963     -1.8%
                                       ----------  --------- --------

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.

For the six months ended June 30, 2005, the company's revenues were up 12.6% to $552.3 million and operating income increased 21.1% to $90.1 million. Diluted earnings per share increased 26.0% for the six months ended June 30, 2005 to $0.63, compared to $0.50 for the 2004 six-month period.

Commenting on the second quarter 2005 performance, Chief Executive Officer Richard Hochhauser, said, "We are excited about the results our people delivered this quarter. Compared to the same period last year, diluted earnings per share increased 17.2% on 11.7% revenue growth. Operating income grew 11.5%, and we generated $28.7 million of free cash flow in the quarter. Absent the impact of the Tampa Flyer acquisition completed on April 20, revenue growth for the total company would have been 8.9%. Also in the quarter, our earnings were positively impacted by slightly less than a penny a share from a favorable resolution of a state tax matter, resulting in a lower effective tax rate."

Discussing the performance of individual business segments, Hochhauser said, "Direct marketing had another in a series of strong quarters, with operating income up 12.7% on 8.9% revenue growth. All of our vertical markets had positive year-over-year growth. Our financial and select vertical markets showed double-digit revenue growth over the prior year, with our other verticals -- retail, high-tech/telecom, and pharma/healthcare -- delivering mid single-digit growth. We are also pleased to see progress on our goal of improving the year-over-year margins in our direct marketing business for the fifth quarter in a row, with operating income margins up 50 basis points compared to the prior year."

Turning to shopper performance, Hochhauser said, "Shoppers revenue grew 16.1% with operating income growth of 13.1%. Both revenue and operating income growth rates were positively impacted by the Tampa Flyer acquisition, with the operating income margin decline also attributable to this acquisition. Absent the impact of the Tampa acquisition, revenue growth would have been in the high single digits, and year-over-year operating income margins would have improved. In addition to Tampa, shopper revenue growth was driven by ROP (in-book) advertising. This was another in a long string of solid shopper performances."

Concluding, Hochhauser said, "We delivered a good quarter, and are pleased with the performance of each of our businesses. As we look to future periods, the robust revenue growth performance we have delivered over the past four plus quarters (including the first quarter of 2005 in which we benefited from the large, non-recurring project we discussed in connection with our first quarter results) will be more challenging to match. In direct marketing, this is attributable to the more difficult year-over-year revenue comparisons -- both from 2004 to 2005 and from 2003 to 2004 -- as the revenue growth has been accelerating for more than a year. In addition, a few of our direct marketing customers either have been or are currently involved in general industry consolidations and specific company reorganizations, creating some uncertainty about their future spending plans. And while in shoppers the year-over-year growth will be positively affected by the Tampa Flyer acquisition, the competitive environment in California has slowed the growth of our distribution revenue, and two of our larger shopper customers have recently cut back their advertising as a result of financial difficulties they have encountered. We do feel good about the overall performance and position of our businesses, and our goal continues to be to deliver earnings per share growth for the full year better than the growth we delivered in 2004."

Statements contained in this press release that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding management's expectations with respect to the company's future revenues, earnings per share and operating income. These and all other forward-looking statements in this press release are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those projected or implied in such forward-looking statements. Such factors include, without limitation, overall economic and business conditions, the demand for the company's services by its clients and prospective clients (including the willingness and ability of the company's clients to maintain or expand their spending), the financial condition of its clients, economic and other business factors that impact the industries that the company serves, the timing and ability of the company to manage the level of personnel and capacity in the future, competitive factors in the company's markets, 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, fluctuations in paper prices and postal rates, and general or regional economic conditions, among other factors. A further list and description of some of the risks and uncertainties potentially impacting the company's business and future performance can be found in the company's filings with the Securities and Exchange Commission.

Highlights of the second quarter included:

Shoppers:

    --  On April 20, 2005 Harte-Hanks completed its acquisition of The
        Tampa Flyer. 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 brought total weekly Shopper circulation to
        approximately 12 million.

    --  Harte-Hanks Shoppers San Diego PennySaver launched an
        initiative to provide 16 glossy-like pages in its PennySaver
        publication. The initiative is intended to bring new customers
        into the publication as well as increase readership of the
        publication.

Direct Marketing:

    --  Harte-Hanks was awarded a contract with a large international
        pharmaceutical company to design and implement a healthcare
        practitioner multi-channel CRM program.

    --  Harte-Hanks won a three-year contract to provide creative
        design, direct mail, strategic direction, and analytic insight
        in support of new vehicle launches for a leading automotive
        manufacturer.

    --  A three-year contract was awarded to Harte-Hanks to deploy web
        technology at the North American facilities of a premier
        supplier of recycled OEM automotive parts and assemblies. This
        client will be provided with a common technology and database
        platform across their enterprise.

    --  A large regional specialty retailer will implement Harte-Hanks
        Allink Retail in an effort to optimize customer relationships
        and to increase profitability.

    --  Harte-Hanks signed a number of renewals, expansions and new
        customers in the second 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.

    --  Harte-Hanks Postfuture, a leading E-mail Service Provider
        (ESP), released Postfuture Version 4.1, Enterprise Edition
        this quarter. Postfuture 4.1 is an on-demand, e-marketing
        suite that enables enterprise marketing teams to collaborate
        anywhere, anytime, to create, deploy and track electronic
        marketing messages, print-at-home incentives, surveys and
        transactional business communications.

    --  During the quarter, Harte-Hanks Trillium Software

        --  Received a positive rating in Gartner's MarketScope
            Update: Data Quality Technology Report. This is the
            highest rating awarded in the data quality technology
            sector.

        --  Released Trillium Software Discovery Version 4.1, which
            incorporates Unicode support for global character sets,
            extending functionality to cover the international data
            quality initiatives of global organizations.

    --  ADQ Direct, a new Internet-based marketing system, was
        launched by Harte-Hanks in June. ADQ Direct is a Web portal
        modeled after Harte-Hanks Advanced Data Quality Service.
        Advanced Data Quality takes customer information, scrubs,
        standardizes and formats the data and places it into a usable
        database. The new ADQ Direct Web-based product builds on the
        Advanced Data Quality interface to provide a secure access
        point through which businesses are able to quickly update
        contact information, including customers who have requested
        not to be contacted by phone or mail.

Corporate:

    --  Harte-Hanks named Sloane Levy as Vice President, General
        Counsel and Secretary. Levy was most recently Senior Vice
        President, General Counsel and Human Resources of Modem Media,
        Inc. Previous to this, she served as a senior attorney and
        investor relations executive with Witco, an international
        chemical company.

    --  Harte-Hanks announced the retirement of Dr. Peter T. Flawn
        from the Board of Directors effective May 17. Flawn joined the
        Board in 1985 and is President Emeritus of the University of
        Texas at Austin.

    --  Harte-Hanks paid a regular cash dividend of 5.0 cents per
        share on June 15, 2005 to shareholders of record on June 1,
        2005.

    --  Harte-Hanks purchased 0.5 million shares of its common stock
        in the second quarter bringing the year-to-date repurchase
        total to 1.1 million shares. There are approximately 4.5
        million shares remaining from repurchase authorizations at
        June 30, 2005. Since January 1997 the company has acquired
        approximately 40.3 million shares (split adjusted) under its
        repurchase program.

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 circulation of approximately 12 million in California and Florida each week.

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

This release and other information about Harte-Hanks can be found on the World Wide Web at http://www.harte-hanks.com.

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



                               Three months ended   Six months ended
                                    June 30,            June 30,
------------------------------ ------------------- -------------------
In thousands, except per share
 data                            2005      2004      2005      2004
------------------------------ --------- --------- --------- ---------

Operating revenues             $284,010  $254,152  $552,303  $490,404
Operating expenses:
  Labor                         105,375    97,309   209,677   191,449
  Production and distribution    98,793    86,569   192,381   169,921
  Advertising, selling,
   general and administrative    24,191    20,096    44,803    40,084
  Depreciation and
   amortization                   7,831     7,280    15,303    14,494
                               --------- --------- --------- ---------
                                236,190   211,254   462,164   415,948
                               --------- --------- --------- ---------
Operating income                 47,820    42,898    90,139    74,456
                               --------- --------- --------- ---------
Other expenses (income):
  Interest expense                  505       260       708       432
  Interest income                   (37)      (73)     (115)     (291)
  Other, net                        282       196       771       685
                               --------- --------- --------- ---------
                                    750       383     1,364       826
                               --------- --------- --------- ---------
Income before income taxes       47,070    42,515    88,775    73,630
Income tax expense               17,943    16,969    34,575    29,295
                               --------- --------- --------- ---------
Net income                      $29,127   $25,546   $54,200   $44,335
                               ========= ========= ========= =========


Basic earnings per common
 share                            $0.34     $0.30     $0.64     $0.51
                               ========= ========= ========= =========

    Weighted-average common
     shares outstanding          84,466    86,335    84,598    86,894
                               ========= ========= ========= =========



Diluted earnings per common
 share                            $0.34     $0.29     $0.63     $0.50
                               ========= ========= ========= =========

    Weighted-average common
     and common equivalent
     shares outstanding          86,337    87,963    86,381    88,497
                               ========= ========= ========= =========

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



                                          Three months ended
                                               June 30,
----------------------------------------------------------------------
In thousands                                2005      2004   % Change
----------------------------------------------------------------------

OPERATING REVENUES:
  Direct Marketing                        $168,388  $154,566      8.9%
  Shoppers                                 115,622    99,586     16.1%
                                          --------- ---------
    Total operating revenues              $284,010  $254,152     11.7%
                                          --------- ---------

OPERATING INCOME:
  Direct Marketing                         $24,975   $22,154     12.7%
  Shoppers                                  26,505    23,442     13.1%
  General corporate expense                 (3,660)   (2,698)   -35.7%
                                          --------- ---------
    Total operating income                 $47,820   $42,898     11.5%
                                          --------- ---------

DEPRECIATION AND AMORTIZATION
  Direct Marketing                          $6,094    $5,853      4.1%
  Shoppers                                   1,731     1,419     22.0%
  General corporate expense                      6         8    -25.0%
                                          --------- ---------
    Total depreciation and amortization     $7,831    $7,280      7.6%
                                          --------- ---------


                                           Six months ended
                                               June 30,
----------------------------------------------------------------------
In thousands                                2005      2004   % Change
----------------------------------------------------------------------

OPERATING REVENUES:
  Direct Marketing                        $338,407  $299,394     13.0%
  Shoppers                                 213,896   191,010     12.0%
                                          --------- ---------
    Total operating revenues              $552,303  $490,404     12.6%
                                          --------- ---------

OPERATING INCOME:
  Direct Marketing                         $49,495   $37,709     31.3%
  Shoppers                                  47,373    41,788     13.4%
  General corporate expense                 (6,729)   (5,041)   -33.5%
                                          --------- ---------
    Total operating income                 $90,139   $74,456     21.1%
                                          --------- ---------

DEPRECIATION AND AMORTIZATION
  Direct Marketing                         $12,115   $11,646      4.0%
  Shoppers                                   3,177     2,832     12.2%
  General corporate expense                     11        16    -31.3%
                                          --------- ---------
    Total depreciation and amortization    $15,303   $14,494      5.6%
                                          --------- ---------

Reconciliation of Net Income to Free Cash Flow
                             Three months ended    Six months ended
                                  June 30,             June 30,
---------------------------- -------------------  -------------------
In thousands                   2005      2004       2005      2004
---------------------------- -------------------  -------------------

Net Income                    $29,127   $25,546    $54,200   $44,335
  Add: depreciation and
   amortization                 7,831     7,280     15,303    14,494
  Less: capital expenditures    8,216     6,748     16,893    16,281
                             --------- ---------  --------- ---------
Free cash flow                $28,742   $26,078    $52,610   $42,548
                             --------- ---------  --------- ---------

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

                                            (Unaudited)
                                              June 30,   December 31,
                                               2005         2004
                                            ------------ ------------
Assets
  Current Assets
    Cash and cash equivalents                   $25,474      $38,807
    Accounts receivable, net                    170,625      168,755
    Inventory                                     6,893        6,086
    Prepaid expenses                             15,066       16,664
    Current deferred income tax asset            15,665       13,812
    Other current assets                          7,021        6,373
                                            ------------ ------------
          Total current assets                  240,744      250,497

    Property, plant and equipment, net          117,808      113,770
    Goodwill, net                               501,012      458,171
    Other intangible assets, net                 17,571        2,067
    Other assets                                  3,441        3,848
                                            ------------ ------------
          Total assets                         $880,576     $828,353
                                            ============ ============

Liabilities and Stockholders' Equity
  Current liabilities
    Current maturities of long-term debt        $43,000      $10,000
    Accounts payable                             56,896       55,632
    Accrued payroll and related expenses         28,107       36,539
    Customer deposits and unearned revenue       55,525       53,707
    Income taxes payable                         14,505       17,239
    Other current liabilities                     9,357        9,075
                                            ------------ ------------
          Total current liabilities             207,390      182,192

  Other long-term liabilities                    79,129       74,362
                                            ------------ ------------
          Total liabilities                     286,519      256,554
                                            ------------ ------------

  Stockholders' equity
    Common stock, $1 par value, authorized:
     250,000,000 shares
          Issued at June 30, 2005:
           115,036,457 shares;
          at December 31, 2004:
           114,505,329 shares;                  115,036      114,505
    Additional paid-in-capital                  263,007      253,515
    Accumulated other comprehensive loss        (16,456)     (15,192)
    Retained Earnings                           928,522      882,750
    Less treasury stock, June 30, 2005:
     30,700,557 shares at cost;
          December 31, 2004:  29,524,064
           shares at cost;                     (696,052)    (663,779)
                                            ------------ ------------
          Total stockholders' equity            594,057      571,799
                                            ------------ ------------
          Total liabilities and
           stockholders' equity                $880,576     $828,353
                                            ============ ============