HPOL Harris Interactive, Inc. (MM)

Harris Interactive� (NASDAQ:HPOL) released financial results for its second quarter and first half of fiscal 2008, which ended December 31, 2007. Comparative results are for continuing operations only, and exclude the Rent and Recruit business, which was sold in August 2007. Q2FY08 Results � Revenue and Internet revenue Q2FY08 vs. Q2FY07 In $ US millions except for % � As Reported Revenue � AcquisitionsPro Forma Organic Revenue* � Internet Revenue � � Q2FY08 � Q2FY07 � % Chg � Q2FY08 � Q2FY07 � % Chg � Q2FY08 � Q2FY07 � % Chg US � $40.2 � $42.3 � -5% � - � - � - � $29.8 � $28.4 � 5% Canada � $6.5 � - � na � $6.5 � $7.0 � -7% � $1.6 � - � na N. America � $46.7 � $42.3 � 10% � - � - � - � $31.4 � $28.4 � 11% UK � $11.1 � $11.6 � -5% � - � - � - � $4.2 � $2.4 � 74% France � $1.9 � $1.8 � 7% � - � - � - � $1.7 � $1.6 � 7% Germany � $2.0 � - � na � $2.0 � $1.0 � 103% � $1.8 � - � na Europe � $15.0 � $13.4 � 12% � - � - � - � $ 7.7 � $ 4.0 � 92% Asia � $ 1.0 � - � na � $ 1.0 � $ 0.3 � 285% � - � - � na Total � $62.7 � $55.7 � 13% � $9.5 � $8.3 � 15% � $39.2 � $32.4 � 21% *Acquisitions pro forma organic revenue is calculated as if acquisitions had contributed full revenue for the comparable period as related to fiscal 2008. Q2FY07 pro forma organic revenue includes unaudited figures for Media Transfer (Germany), Harris/Decima (Canada) and MarketShare (Asia). Driven by contributions from the recent acquisitions in Germany, Canada and Asia, fiscal second quarter revenue was up 13%. However, consolidated pro forma organic revenue dropped 2%, mainly due to a 5% decline in North America. �Our global expansion and harmonization strategy is working. Newly armed with Harris capabilities, our German, French and Asian groups grew nicely in the quarter. Though Canada experienced a revenue decline caused by rapidly changing financial conditions in the US, none of the units has experienced any ill effects such as personnel attrition that sometimes can occur with acquisitions in this industry,� said Gregory T. Novak, president and CEO. �Deteriorating economic conditions in North America continue to cause disruption � especially in our healthcare and financial services groups, reinforcing the fact that in addition to the aforementioned benefits gained from global expansion, a larger footprint will help buffer the effects of industry and regional economic declines,� Novak added. Operating/net income Fiscal second quarter operating income was $3.5 million, down 39% when compared with operating income of $5.7 million reported for the same period last year. Net income for the quarter was $2.1 million, or $0.04 per diluted share, down 42% when compared with the second quarter of fiscal 2007. �As anticipated when we embarked upon this acquisition strategy, increased amortization, integration and interest expenses depressed EPS by more than a penny,� stated Ronald E. Salluzzo, CFO. Adjusted EBITDA Adjusted EBITDA1, calculated by adding back $1.1 million of non-cash stock-based compensation expense, was $7.1 million or 11.3% of revenue, down 14% when compared with $8.2 million of adjusted EBITDA, or 14.7% of revenue reported for Q2FY07. As you may recall, Q2FY07 adjusted EBITDA was increased by a $0.4 million gain related to the sale of assets. Bookings Bookings, including $9.5 million of bookings from recent acquisitions, were $68.2 million, up 4% when compared with $65.7 million of bookings reported for the same period a year ago. European bookings were up 45% for the quarter, but were offset by a 17% decline in US bookings, resulting in a 4% increase in consolidated bookings when compared with the same period a year ago. �Very strong organic bookings growth in Europe was not enough to offset the double-digit bookings decline we saw in the US,� said Novak. �Strong US bookings growth in our technology and consumer goods groups was offset by bookings declines in healthcare and financial services; two of the sectors that have been most affected by the downturn in the US economy,� Novak added. Fiscal 2008 Year-to-Date Results � � � Revenue and Internet revenue 1HFY08 vs. 1HFY07 In $ US millions except for % � As Reported Revenue � AcquisitionsPro Forma Organic Revenue* � Internet Revenue � � 1HFY08 � 1HFY07 � % Chg � 1HFY08 � 1HFY07 � % Chg � 1HFY08 � 1HFY07 � % Chg US � $78.1 � $78.2 � - 0% � - � - � - � $56.9 � $52.8 � 8% Canada � $10.6 � - � na � $10.6 � $11.1 � -5% � $2.2 � - � na N. America � $ 88.7 � $78.2 � 13% � - � - � - � $59.2 � $52.8 � 12% UK � $20.6 � $21.5 � -4% � - � - � - � $7.5 � $5.6 � 35% France � $3.6 � $3.3 � 12% � - � - � - � $3.3 � $2.9 � 12% Germany � $3.7 � - � na � $3.7 � $2.5 � 46% � $3.3 � - � na Europe � $ 27.9 � $24.8 � 13% � - � - � - � $ 14.1 � $ 8.5 � 66% Asia � $ 1.3 � - � na � $ 1.3 � $ 0.6 � 122% � $0.03 � - � na Total � $117.9 � $102.9 � 15% � $15.6 � $14.3 � 9% � $73.3 � $61.3 � 20% *Acquisitions pro forma organic revenue is calculated as if acquisitions had contributed full revenue for the comparable period as related to fiscal 2008. Q2FY07 pro forma organic revenue includes unaudited figures for Media Transfer (Germany), Harris/Decima (Canada) and MarketShare (Asia). Operating/net income Fiscal first half operating income was $5.1 million, down 24% when compared with operating income of $6.7 million last year. Net income for the first half was $3.2 million, or $0.06 per diluted share, down 29% when compared with the first half of fiscal 2007. Adjusted EBITDA For the half, adjusted EBITDA1, adding back $2.2 million of non-cash stock-based compensation expense, was $12.1 million or 10.2% of revenue. Bookings 1HFY08 consolidated bookings were $119 million, up 10% versus last year. Balance sheet At December 31, 2007, cash, cash equivalents and marketable securities were $33.3 million, down from $54.0 million reported a year ago, and up from $24.1 million of cash, cash equivalents and marketable securities reported at September 30, 2007. The Company had $32.9 million of outstanding debt at December 31, 2007. Revised FY2008 outlook �Based on our results for the first half, we continue to drive toward the low end of revenue guidance; however the volatile and rapidly changing macro-economic outlook could continue to negatively impact our results. We will continue to invest in the high-growth areas of our business, which we expect will dampen our profitability in the second half. The company also expects to implement a series of changes designed to streamline its structure and increase its operating efficiency. We expect these changes will incur approximately $1.0 to $1.5 million in charges in our third fiscal quarter,� said Salluzzo. Orem phone center closing The Company will close its offices in Orem, Utah, which includes its last US-based phone center. We expect to complete the closing process in early March, 2008. During this transition, the phone center and mail services work will shift to our facilities in Canada as well as to other resources outside of North America. The Company expects to take approximately $0.4 million in charges relating to these actions in its fiscal third quarter, which are included in the total charges noted above. Q2 results conference call and webcast access The Company has scheduled a conference call to discuss these results for Friday, February 1, 2008 at 8:30 a.m. ET. Gregory T. Novak, president and CEO will host the teleconference. Formal remarks will be followed by a question and answer session. To access the conference call, please dial toll-free 888.679.8033 in the United States and Canada, or 617.213.4846 internationally. The passcode is 21610464. A live webcast of the conference call will also be accessible via the investor relations section of the Company's website at www.harrisinteractive.com/ir, where an archived replay of the webcast will be available for 30 days following the call. No telephone replay of the conference call will be provided. This media release, including financial schedules, will be available at our website www.harrisinteractive.com/ir prior to the call. Harris Interactive Key Operating Metrics � Quarterly Updated 2/1/08 � � � � � � � � � � Dollar amounts in millions US$ � Q2FY2007 � Q3FY2007 � Q4FY2007 � Q1FY2008 � Q2FY2008 Consolidated Revenue � $55.7 � $51.7 � $57.1 � $55.2 � $62.7 Internet Revenue (% of total revenue) � 58% � 60% � 63% � 62% � 62% NA Internet Revenue (% of NA revenue) � 67% � 68% � 73% � 66% � 67% European Internet Revenue (% of European revenue) � 30% � 30% � 35% � 50% � 51% Cash, Cash Equivalents & Marketable Securities � $54.0 � $29.1 � $33.3 � $24.1 � $33.3 Bookings � $65.7 � $57.6 � $50.9 � $50.8 � $68.2 Ending Sales Backlog � $64.6 � $70.4 � $64.9 � $67.4 � $72.8 Average Billable Full Time Equivalents (FTE�s) � 719 � 728 � 712 � 766 � 821 Days Sales Outstanding (DSO) � 43 days � 35 days � 43 days � 49 days � 43 days Utilization � 61% � 64% � 68% � 62% � 62% Bookings to Revenue Ratio (B/R) � 1.18 � 1.11 � 0.89 � 0.92 � 1.09 Harris Interactive Key Operating Metrics � Trailing Twelve Months Updated 2/1/08 � � � � � � � � � � Dollar amounts in millions US$ � Dec 06 � Mar 07 � Jun 07 � Sep 07 � Dec 07 Consolidated Revenue � $213.1 � $213.5 � $211.8 � $219.8 � $226.8 Internet Revenue (% of total revenue) � 59% � 59% � 60% � 61% � 62% NA Internet Revenue (% of NA revenue) � 67% � 67% � 69% � 69% � 69% EUR Internet Revenue (% of European revenue) � 32% � 32% � 34% � 36% � 42% Total Bookings � $220.7 � $213.0 � $217.1 � $225.0 � $227.4 Average Billable Full Time Equivalents (FTE�s) � 715 � 720 � 720 � 731 � 757 Utilization � 63% � 63% � 63% � 64% � 64% Bookings to Revenue Ratio (B/R) � 1.04 � 1.00 � 1.03 � 1.02 � 1.00 Key Operating Metrics Definitions Bookings � The contract value of revenue-generating projects expected to take place during the next four fiscal quarters for which a firm client commitment has been received during the current period, less any adjustments to prior period bookings due to contract value adjustments or project cancellations during the current period. Ending Sales Backlog � Prior period ending sales backlog plus current period bookings less revenue recognized on outstanding projects as of the end of the period. Average Billable Full-time Equivalents (FTE�s) � The hours of available billable capacity in a given period divided by total standard hours for a full-time employee. This represents an average for the periods reported. Days Sales Outstanding (DSO) � Accounts receivable as of the end of the applicable period (including unbilled receivables less deferred revenue) divided by our daily revenue (total revenue for the period divided by the number of calendar days in the period). Utilization � Hours billed by project personnel in connection with specific revenue-generating projects divided by total hours of available capacity. Hours billed do not include marketing, selling, or proposal generation time. Bookings to Revenue Ratio (B/R) � This ratio is determined by dividing total bookings for the period by total revenue. Ratios above 1.0 are indicative of a growing sales backlog. NOTE: The metrics presented herein should be evaluated in conjunction with all other reports and documents filed by the Company with the Securities and Exchange Commission during each of the fiscal periods noted above. About Harris Interactive Harris Interactive is one of the largest and fastest-growing market research firms in the world. The Company provides innovative research, insights and strategic advice to help its clients make more confident decisions which lead to measurable and enduring improvements in performance. Harris Interactive is widely known for The Harris Poll �, one of the longest running, independent opinion polls, and for pioneering online market research methods. The company has built what it believes to be the world�s largest panel of survey respondents, the Harris Poll Online. Harris Interactive serves clients worldwide through its North American, European and Asian offices and through a global network of independent market research firms. More information about Harris Interactive is available at www.harrisinteractive.com. To become a member of the Harris Poll Online and be invited to participate in online surveys, register at http://www.harrispollonline.com. Safe Harbor Statement This media release includes statements that may constitute forward-looking information. We caution you that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed. Additional detailed information concerning a number of factors that could cause actual results to differ is readily available in the "Risk Factors" section of the most recent Annual Report on form 10-K filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. Harris Interactive Inc. 2/08 HARRIS INTERACTIVE INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) � � � December 31, June 30, � 2007 � 2007 Assets Cash and cash equivalents $ 33,299 $ 28,911 Marketable securities - 4,418 Accounts receivable, net 43,768 34,794 Unbilled receivables 8,293 9,938 Prepaids and other current assets 6,968 6,964 Deferred tax assets 3,749 3,754 Assets held for sale � - � � 1,074 � Total current assets 96,077 89,853 � Property, plant and equipment, net 12,528 9,902 Goodwill 121,383 111,554 Other intangibles, net 23,411 11,788 Deferred tax assets 11,257 13,628 Other assets � 2,640 � � 1,401 Total assets $ 267,296 � $ 238,126 � � Liabilities and Stockholders' Equity Accounts payable 9,988 8,079 Accrued expenses 20,749 22,198 Current portion of long-term debt 6,925 19,625 Deferred revenue 22,558 17,575 Liabilities held for sale � - � � 330 Total current liabilities 60,220 67,807 � Long-term debt 25,969 - Deferred tax liabilities 4,197 859 Other long-term liabilities 1,214 1,016 � Total stockholders' equity � 175,696 � � 168,444 Total liabilities and stockholders' equity $ 267,296 � $ 238,126 HARRIS INTERACTIVE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (Unaudited) � � � � � � � Three months ended Six months ended December 31, December 31, 2007 2006 2007 2006 � Revenue from services $ 62,715 $ 55,735 $ 117,902 $ 102,948 Cost of services � 30,468 � � 26,616 � 57,696 � � 49,093 Gross profit 32,247 29,119 60,206 53,855 Gross margin 51.4% 52.2% 51.1% 52.3% � Operating expenses: Sales and marketing 6,151 5,316 11,838 9,975 General and administrative 20,128 16,917 38,477 34,252 Depreciation and amortization 2,505 1,606 4,795 3,316 Gain on sale of assets � - � � (410) � - � � (410) Total operating expenses � 28,784 � � 23,429 � 55,110 � � 47,133 Operating income 3,463 5,690 5,096 6,722 Operating margin 5.5% 10.2% 4.3% 6.5% � Interest and other income 307 615 679 1,193 Interest expense � (523) � � (5) � (962) � � (5) Income from continuing operations before income taxes � 3,247 � � 6,300 � 4,813 � � 7,910 Provision for income taxes � 1,156 � � 2,719 � 1,702 � � 3,392 Income from continuing operations 2,091 3,581 3,111 4,518 Income from discontinued operations, net of tax � - � � 43 � 124 � 38 Net income $ 2,091 � $ 3,624 $ 3,235 � $ 4,556 � Basic net income per share: Continuing operations $ 0.04 $ 0.06 $ 0.06 $ 0.08 Discontinued operations � - � � 0.00 � 0.00 � � 0.00 $ 0.04 � $ 0.06 $ 0.06 � $ 0.08 � Diluted net income per share: Continuing operations $ 0.04 $ 0.06 $ 0.06 $ 0.08 Discontinued operations � - � � 0.00 � 0.00 � � 0.00 $ 0.04 � $ 0.06 $ 0.06 � $ 0.08 � Weighted average shares outstanding - Basic � 52,765,738 � � 58,725,751 � 52,703,928 � � 59,025,793 Diluted � 52,863,437 � � 59,003,309 � 52,812,896 � � 59,292,912 Q2FY08 Reconciliation of GAAP Income to EBITDA and Adjusted EBITDA � � � � Three months ended Six months ended December 31, December 31, 2007 � 2006 2007 � 2006 GAAP Net Income $ 2,091 $ 3,624 $ 3,235 $ 4,556 Income from discontinued operations, net of tax - (43) (124) (38) Interest income (307) (615) (679) (1,193) Interest expense 523 5 962 5 Provision for income taxes 1,156 2,719 1,702 3,392 Depreciation and amortization � 2,505 � � 1,606 � 4,795 � � 3,316 EBITDA $ 5,968 $ 7,296 $ 9,891 $ 10,038 Non-cash stock-based compensation* � 1,113 � � 920 � 2,187 � � 1,959 1 Adjusted EBITDA (EBITDA plus stock-based comp.) $ 7,081 � $ 8,216 $ 12,078 � $ 11,997 � Revenue from services $ 62,715 $ 55,735 $ 117,902 $ 102,948 EBITDA margin 9.5% 13.1% 8.4% 9.8% Adjusted EBITDA margin 11.3% 14.7% 10.2% 11.7% *Non-cash stock-based compensation expense represents the cost of stock-based compensation awarded by the Company to its employees under Statement of Financial Accounting Standards No. 123(R), �Share-Based Payments� (�SFAS No. 123(R)�).