Harris Interactive (HPOL)

F4Q12 Earnings Call

August 16, 2012 5:00 p.m. ET


Michael Burns – VP, IR and External Reporting

Eric Narowski – CFO, Principal Accounting Officer and Global Controller

Albert Angrisani – President and CEO and Vice Chairman




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Good day ladies and gentlemen and thank you for standing by, and welcome to the Harris Interactive fourth quarter and full year fiscal 2012 earnings conference call. [Operator instructions.] It is now my pleasure to turn the floor over to Michael Burns. Sir, the floor is yours.

Michael Burns

Good afternoon, and thank you for joining us to discuss Harris Interactive’s full year and fourth quarter fiscal 2012 financial results. With me today are Al Angrisani, our president and chief executive officer, and Eric Narowski, our chief financial officer.

The format for today’s call will include Al’s commentary and Eric’s recap of both the fiscal year and Q4, with some wrap up from Al. After the formal remarks, both Al and Eric will be available for questions.

A webcast replay of this entire call will be accessible via the Investor Relations section of our corporate website later this evening and will be archived there for at least 30 days. However, no telephone replay of this call will be provided. We’ll post a transcript of this call as soon as we’re able to after the call.

We would like to take this opportunity to remind you that certain statements made during this conference call are forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

These statements include beliefs, predictions, and expectations related to the company’s future financial performance, other business and operating metrics, as well as statements regarding the company’s future plans and operations. They involve a number of risks, known and unknown, that could cause actual results, performance, and/or achievements of the company to be materially different from the beliefs, predictions, and expectations discussed on this call.

Factors that could cause the company’s results to materially differ from the forward-looking statements made today, and which are incorporated by reference herein, are more fully described in today’s press release as well as the company’s SEC filings, particularly under the risk factors section of the company’s most recent annual report on Form 10-K.

You are urged to consider these factors carefully in evaluating such forward-looking statements and are cautioned not to place undue reliance on them. The forward-looking statements are only made as of the date of this call, and the company undertakes no obligation to publicly update them to reflect subsequent events or circumstances.

We also will be discussing non-GAAP financial measures including adjusted EBITDA with the add back of restructuring and other charges. These items are reconciled to GAAP financial measures in today’s press release and that reconciliation is posted on the Investor Relations section of our website.

I’d now like to turn today’s call over to Al. Al?

Albert Angrisani

Thanks, Mike. I’m pleased to report to our shareholders that Harris Interactive exceeded our most recent stated guidance of $10.5 million to $11.5 million of adjusted EBITDA with add backs by achieving adjusted EBITDA with add backs of $12.1 million for fiscal 2012, the first year of the turnaround.

Eric will take you into a deeper dive on the year ending Q4 financials in a few minutes, but first I’d like to highlight the key milestones we achieved this year and also give you a better sense of where we are in the turnaround process and the challenges that remain for fiscal 2013.

So let’s first start with the good news. Our profitability improved for the year. As previously mentioned, we achieved adjusted EBITDA of $12.1 million with add backs for fiscal 2012 versus $7.1 million last fiscal year, which represents a more than 70% improvement.

This improvement in profitability was largely driven by rightsizing the business model at Harris and enforcing higher gross profit targets on all work sold. On this last point, we’ve worked our way through a significant portion of the bad or low-margin work that was in the shop, but we have more to go, and this will continue to be a factor in fiscal 2013.

The net effect of this tradeoff of sorts of saying “no” to bad revenue and replacing that hole with profitable revenue is that it stifles top line sales and revenue growth while enabling more profitability on the bottom line. This is a difficult issue for investors to understand, but from the perspective of turnaround, it is putting in a solid floor of profitability at near-current revenue levels. The hope is that once this floor is in, new sales and revenue will be accretive.

Two, although the numbers say cash did not build in fiscal 2012, you must factor into the numbers that we funded almost $6 million of restructuring payments and another $6 million of debt payments from internally generated cash. The fact that we were able to accomplish this without having to use our line of credit is a major achievement. Today, our liquidity is much improved, and we have only five more quarterly payments until we are debt free.

Number three, we averted a potential delisting of our stock, and are now compliant with all NASDAQ requirements. Number four, we have rebuilt the Harris Interactive panel back to a healthy and robust number of active users and it is growing to the point that we are beginning to monetize excess panel through our Harris Interactive Service Bureau, or HISB, as we call it, by selling sample, which is a new product offering for us called “Get Sample! ”

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