Harte Hanks, Inc. (HHS) Q4 2007 Earnings Report, Transcript and Summary

Welcome, and thank you for joining the Fourth Quarter and Year-End 2007 Earnings Release Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. Now, I would turn the meeting over to Mr. Dean Blythe, President of Harte-Hanks. Sir, please begin.

Good morning, everyone. On the call with me today is Doug Shepard, who joined us at the end of 2007 as our new Executive Vice President and Chief Financial Officer. Jessica Huff is also with us, our Vice President and Finance Controller; and Bryan Pechersky, our Senior Vice President, General Counsel, and Secretary. Before I begin my remarks, Bryan will make a few brief comments.

Thanks, Dean. Our call will include forward-looking statements. Examples may include statements about our strategies, initiatives and business plans, financial outlook, competitive factors, business and industry expectations, and other statements that are not historical facts. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in the forward-looking statements. A description of some of these risks and uncertainties can be found in our most recent Form 10-K and other documents filed with the Securities and Exchange Commission and the cautionary statement in today's earnings release. Our call may also include non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the Investor Relations section of our website at www.Harte-Hanks.com. I'll now turn the call back over to Dean.

Thanks, Bryan. 2007 was a tale of two businesses for Harte-Hanks. Our Direct Marketing business showed steady, if unremarkable growth throughout the year. While profits were flat in this business compared to 2006, we took a number of action during the course of this year streamlining the business to enhance sufficiency, reduce going forward fixed costs, and further improve our service delivery. Absent the expense associated with these actions, our margins in Direct Marketing would have held steady to the prior year. Despite our 2007 performance that was below our longer-term revenue on profit growth expectations for this business, our Direct Marketing business remains a market leading vibrant business with a bright outlook. Our Shoppers business on the other hand faced the most difficult external environment we have seen since our 1993 IPO. This difficult environment in the California and Florida markets in which we operate was triggered by the collapse of the residential real estate markets in these geographies, and the contagion has spread from real estate to real estate-related businesses to now virtually every category, as consumer spending in these markets has slowed. There is no doubt that our Shopper business is under extreme pressure right now. But Shoppers has a unique, highly effective product that has delivered outstanding results for its advertisers for decades. We continue to believe that Shoppers remains the fundamentally sound, long-term business with significant franchise value whose performance will improve after the current cyclical issues impacting the California and Florida markets stabilize and subside. As we look to 2008, we are all facing uncertain economic times. Based on what we know today, we do believe we will achieve better revenue and profit performance in Direct Marketing in 2008 than we delivered in 2007. We do not believe, however, that the Shoppers revenue environment in 2008 will improve in any meaningful fashion, given the current cyclical economic issues impacting our markets, and may in fact deteriorate from the current levels. Given the uncertainty about the overall environment and specifically the economic conditions in the California and Florida markets, we will not be providing overall earnings guidance for 2008. The fundamental services we provide in each of our businesses are essential to customers in any economic environment and even more so in uncertain economic times such as these. Even in this environment, our businesses continue to be strong generators of cash with over $105 million of free cash flow in 2007. We will be vigilant in 2008 to respond quickly to market conditions and optimize performance of and cash generation from each of our businesses. Doug Shepard will give you some detail on our results. Doug?

Thank you, Dean, and good morning. Here is a company-wide overview of the fourth quarter and full-year 2007. Revenue decreased 3.3% for the quarter and 1.8% for the year, with an increase in revenues for Direct Marketing and a decrease in Shoppers. Direct Marketing revenue increased 4.1% for the quarter and increased 3.2% for the year. Shoppers’ revenue decreased 15.8% for the quarter and 9.4% for the year. Operating income decreased 6.1% for the quarter and 11.4% for the year. We incurred approximately $8.5 million in non-recurring costs for the year related to severance and a reduction of Shoppers’ circulation. These non-recurring costs negatively impacted operating margin by approximately 70 basis points. For the quarter, Direct Marketing had operating income growth of 3.4% while Shoppers declined 25.3%. For the year, Direct Marketing operating income decreased 0.6% and Shoppers decreased 20.3%. For the quarter, our free cash flow was $29.9 million versus $33.6 million in the fourth quarter of 2006. For the year, free cash flow was $105.4 million compared as to $116.8 million in 2006. We ended the year with $28.2 million in capital spending, $5.5 million less than the capital spending of $33.7 million in 2006. For 2008, we expect our capital spending to be in the area of $35 million. Turning to our two businesses, for the fourth quarter of 2007 our Direct Marketing revenue increased 4.1% and our operating income increased 3.4%, resulting in a slight operating income margin decrease of 10 basis points to 17.7% compared to the fourth quarter of 2006. For the year, operating income margins finished at 14.9%, a decrease from 2006 margins at 15.4%. In the fourth quarter, our retail vertical market represented 28% of Direct Marketing revenue. High-tech/telecom was 26%, select markets were 17%, financial was 16%, and healthcare pharma was 13%. For the year, retail and high-tech/telecom each represented 26% of Direct Marketing revenue. Financial was 17%, select was 18%, and healthcare pharma was 13%. Our top 25 Direct Marketing customers represented 43.8% of Direct Marketing revenue for the fourth quarter and 41% for the year. Our largest customer in the quarter represented almost 9% of our total Direct Marketing revenue and slightly less than 8% for the year. Turning to Shoppers, our performance for the quarter and the year was disappointing. Shoppers fourth quarter revenue decreased by 15.8% and 9.4% for the year. Operating income margin for the quarter declined at 14.1% as compared to 15.9% for the prior year quarter or a 25.3% decrease, and for the year operating income margin was 16.4% as compared to 18.7% in 2006, a 20.3% decrease. As Dean previously stated, during the year, Shoppers’ performance was initially impacted by the collapse of the residential real estate markets in California and Florida and is now being impacted by virtually every category as consumer spending in these markets are slowed. Our fourth quarter effective tax rate was consistent with the fourth quarter 2006 at 36.6%. Our 2007 effective tax rate was 38.7%, a 110 basis point increase over our 2006 effective tax rate. For 2008, we expect our tax rate to be approximately 39%. On the balance sheet at December 31, we were showing a net-debt balance $236.3 million. Book equity at December 31 was $408.5 million. Net accounts receivable were $119.2 million versus $189.4 million at December 31, 2006. Days outstanding at the end of December '07 were 60 days, a slight increase over the 56 days outstanding in December '06. Looking at our statement of cash flows, net cash provided by operating activities for the quarter was $29.1 million and $143.2 million for the year. We repurchased 3.6 million shares for $62.3 million during the quarter, and for the year we repurchased 8.4 million shares for $183.9 million. Since January 1997, the company has acquired approximately 59 million shares and spent over $1.1 billion under its repurchase program. In mid-January we announced we entered into a $50 million of revolving loan facility. The revolving loan facility matures on July 18, 2008, and we intend to utilize the availability under the facility primarily to repurchase shares of our stock for general corporate purposes. The facility does not replace, and is in addition to our five-year $125 million revolving credit facility and our $200 million term-loan facility. Subject to market conditions, we anticipate entering into an approximately $100 million long-term credit facility prior to the maturity of the revolving loan facility. We are… if we are successful entering into a new credit, a portion of the proceeds are expected to be used for the repayment in full of any amounts then owed under the revolving loan facility. Tuesday, we reported a 7% increase of our quarterly cash dividend of $0.075 per share. This represents our 13th dividend increase since the company's 1993 IPO. Also, we recently announced an increase in the company's existing stock repurchase program by up to an additional 12.5 million shares of company's common stock. The additional authorized shares bring the total remaining authorization under the company's repurchase program as of January 15 to approximately 15.2 million shares or approximately 18% of the company's outstanding shares of common stock as of January 15. With that, operator, we will turn the call over to questions. Question and Answer

Thank you. [Operator Instructions]. Our first question is from Hester Chang, Merrill Lynch. Your line is open.

Hi, thanks. Couple of questions about the quarter and then questions about fiscal ' 08. On the Direct Marketing side, the high-tech/telecom select markets seem to be pretty strong as well as the Financial vertical. Just wondering if you could give us a little bit more color as to what led to that strength? And then I'll follow up.

Yes, Hester, select markets have been a strong vertical for us for a number of years and has strong growth. So I think it is the continuation of good performance out of that vertical. While we did have some good performance in the quarter, in our Financial vertical for the year I believe we were flat. Actually we were not, for the year we were actually down in that vertical. So I don't think you can read one quarter's change as any significant change in the vertical itself. And again, high-tech/telecom has had a year of increasing strength through out the year, spending from existing customers growing as well as new customers coming onboard.

With your recent acquisition of Mason Zimbler, do you expect that to actually help the high-tech/telecom growth in 2008? I know you didn't really disclose anything financial with the acquisition, but is that more growth… to help grow your existing client spending or are we bringing in some new clients here?

There are new clients coming onboard. First of all, this is a relatively small acquisition. It is a U.K based digital agency. It will complement and round out our European offerings, but from a revenue perspective, even with respect… while a lot of their customers are high-tech, even with respect to the high-tech vertical it wouldn't significantly change the growth rate just from the services they are offering. It's more about building full capabilities for our international offerings.

Okay. And then with the, I guess, economic uncertainty what gives you the confidence that you can achieve better growth in '08 versus '07? Are there certain categories or clients that are giving you this confidence?

I think as we look to the year, again, we have not seen much in the way of softness or slowness in our business related to whatever economic uncertainty there is. We are certainly keeping our eye out in the financial services market and particularly in credit card and consumer finance customers we do work there, but otherwise we feel pretty good about our existing customer base, about things in the pipeline. So we are optimistic going into 2008 about our Direct Marketing growth. Obviously, general economic conditions can impact that, but today we feel very good.

Okay. And then one last question on the Shoppers side. Where are the areas that you believe can… you can reduce your cost base further? Are there now plans to review circulation again?

We will review circulation on a continuous basis. We are also... we are looking at all areas. If you look at our expenses through out the year in 2007, on a sequential basis you will see that expenses declined through out the year. They declined on the labor side, they declined on the production side, they declined on the G&A side I mean as our... this is a business that has suffered significant revenue decline and we are adjusting the cost base to reflect that revenue, so it is across the board.

Okay. All right, thank you.

Alexia Quadrani, Bear Stearns, your line is open.

Hi, this is Monica Deschenza [ph] for Alexia. A quick question on Shoppers. I'm wondering if you’ve seen any pocket stabilization by region, and if you can comment and how Florida is doing compared to California? And I’ve one want follow up.

Yes, there is not a significant difference in the performance of our California and Florida markets. From month-to-month or quarter-to-quarter, one may be up or down, not as much as the other, but over time I would say that the environment and the revenue picture in the markets are similar.

Okay, and then just related to how results progressed during the quarter, was there a pronounced deterioration in December or can we read anything into how the quarter progress?

Now, first of all, that's a seasonal business, if you’re talking about our Shoppers business anyway. December is always the weakest month of the year for us in Shoppers. So it was obviously we were down over 15% in revenue for the quarter, but I wouldn't read anything into any trends throughout that quarter.

Okay, great. And then, related to the Direct side, do you see anything specific you can comment on related to retail? We haven't heard of any cutback incentive from the category and we thought in the past slowing consumer confidence can tend to boost demand for Direct works. So we are wondering if what you are seeing is consumer specific or a competitive issue?

Well, retail is again a... retail again is a seasonal business with the fourth quarter being the largest piece of that and the first quarter typically being the weakest part of that. Our retail revenue in the quarter with down slightly. I think it was down low single digits. And the retail results from the holiday season I think were at best mixed. So I don't know if we've really seen from our customers how that's going to roll out or what impact that may have on their spending.

Okay, great. Thanks.

Paul Ginocchio, Deutsche Bank, your line is open.

Thanks. Question first on the buyback. Do you think you’ll buy back significantly more shares n '08 than '07 and is that… obviously you’ve gotten the authorization, but I just wondered what the limits are? I think it's 5% a day. Then second, back to the questions about Direct Marketing. Do you have confidence because of the existing book, or that… was that from the existing spend of your current clients or from new accounts that you've added, or is it future work you are expecting to get? And then, finally, back to the financials, could you kind of give us a little bit more detail on the end products you have exposure to? Is it mortgages, credit cards, and what sectors of finance if possible you have exposure to? Thank you.

Okay, Paul. I am sorry. So there were three questions. The first one was the buyback?

Right.

Obviously, you can see that we’ve bought back 3.6 million shares in Q4. I think you can see throughout over a number of years that the pace of our buyback accelerates when there are periods of weakness in the stock. We consider our stock today to be best investment we can make and we will continue be active buyers of the stock how it progresses for the year. We would assume to continue to be an active buyer subject to market condition, financings, and our stock price. In terms of the why we feel good about 2008 from Direct Marketing, I think it's all of the categories. We feel good about our existing customer base and what we are looking at in terms of the revenue we can generate from that existing customer base on a going forward basis. We do have some wins that will roll into '08 that will provide some help and our new business activity remains healthy.

Great. Thank you.

The last one was end products that we have exposure to?

Correct.

And I think you are talking about the Financial vertical?

Right. Is it mortgages and credit cards, I think that's what you alluded to?

I think it's more... credit card has never been a huge portion of our Finance vertical. It is well under half of that vertical, and there is some softness there. We have not been a big player in mortgage origination, which is good. And then consumer finance are the three areas that we are specifically looking at. But that... there are other areas within financial that you want to keep your eye on as well and some of those sub-verticals would be wealth, insurance, and retail banking.

Okay. Thank you very much.

Mark Bacurin, Robert W. Baird, your line is open.

Good morning, a couple things. On the Direct Marketing side of the business, can you comment generally about what you are seeing on your clients with regard to kind of how they are allocating their spending? Generally speaking, are they moving more toward loyalty type programs, away from more of a customer acquisitions mode given kind of the uncertainty in the marketplace right now?

Mark, I don't think that we can point to any trends to say that people are moving money away from customer acquisition to loyalty and… we could… some specific clients... it seems there is always in the customer base some people moving away from a particular type of program towards one. But I am not certain that we can see a secular shift that people are moving away from acquisitions or loyalty.

And just generally, I mean is there... as you are talking to clients about their '08 spending budgets, are you seeing them talk about presumably overall contractions in budgets for ad spending, but are they moving more towards the Direct Marketing channel away from, say, mass media buy, things like that, any anecdotal evidence you can provide?

Anecdotally, yes, and we believe that is a secular trend that's been occurring over several years and is continuing. But again, it's something that happens over time that you see, and we believe that shift is continuing and will continue and may even continue even stronger in a software environment.

Great. And then just on the pharma vertical in particular, you talked about a tough comp, but just curious if... I know a lot of the work you've done there is some large, unnamed, but some of the big branded drugs, and given some of the troubles that some of the large drug brands have had recently, are you seeing a general decline in overall spending related to direct-to-consumer advertising and is that more of a secular issue that we may have to live with over the next few years as opposed to just kind of a one-time tough comp issue?

The weakness we saw in that vertical was not in the pharma portion of it. It was in the healthcare portion of it, and it was related to difficult comparisons for membership enrollment in 2006 related to Part D Medicare. The pharmaceutical piece of that was actually strong and grew during the quarter. We did not experience any specific drug problems. When I say that... let me rephrase that quickly. We did not experience marketing for drugs that were pulled off the market, which is always part of the issue within that market. Actually, the type of spending the pharma companies are doing I think plays into our hands as opposed to out of them. The traditional distribution channels and the traditional ways of reaching the doctors are becoming harder and harder for the pharma companies to hit. Pharma sales forces are being reduced. We talk a lot about our solutions that offer non-manpower selling opportunities in the pharmaceutical market. So we actually view the pharma market and the pharma healthcare market longer-term as a growth market for us.

Great, that's helpful. And then, just on... moving over to Shoppers side of the business, you guys have been playing with the PennySaverUSA.com brand now for I think for over a year. Obviously, the headwind from the California and the Florida housing markets are an issue, but can you give us any color on progress you've made with trying to develop that digital asset and what is the type of revenue streams may be coming in from that to help offset some of the softness on the print side?

Mark, we have been at this and particularly over the last 18 to 24 months. We have made strides, a lot of strides in content, some strides in revenue, but the revenue streams are still very small and they are not… currently not capable of offsetting declines… other revenue declines, and realistically we're not going to see our ability to offset any 2008 trouble with the revenue from our digital initiatives.

Okay, great. And then just lastly, on the cost control side, it sounds like Direct Marketing… I know you don't want to give specific guidance for '08, but it sounds like Direct Marketing, we should expect margins to at least remain stable if not improve some, but on the Shoppers side, are you comfortable… I know in '07 it didn't occur, where you were able to take cost out fast enough to maintain margins. Do you think you have costs under control enough that '07 margins in the Shoppers business specifically could at least be flat even in our declining revenue environment?

Mark, as I said earlier, we are not giving specific guidance with respect to 2008. I can tell you the margin picture is tied to two lines. The middle line, which we'll control to the fullest extend we have possible; and the topline, which we will control to the fullest extend possible, but our control over topline is much less. It is difficult in a business with a relatively high fixed cost-based, postage and paper primarily, to maintain or improve margins in a declining revenue environment.

And of the $8.5 million you referenced earlier that you incurred in one-time costs in '07, what sort of '08 ongoing benefit does that provide in terms of cost reduction on a recurring cost basis in '08?

I think if you go back to the third quarter, when the bulk of what we did was done during kind of at the end of second quarter when we shed Shoppers circulation and during the third quarter when we did some facilities and people moves, I believe we said then that on a year-over-year basis, the actions that we had taken would result in $14 million less expense in '08 than in '07. And that was measured as follows, and let’s take an example, because I think it's easier to use. If you had a person who is making $100,000 a year and that position was eliminated on June 30, 2006 and the severance associated with that was $20,000, you take the one-time cost, $20,000, plus the expense incurred in '07 of 50, so that on a year-over-year basis your total expense would be $70,000 less. When you add all that up you get approximately $14 million. So that is not an annualized number. It is a pure year-over-year comparison number. I was also very careful to say in the third quarter that, all else being equal, that's what you would see. You've obviously seen an increasing revenue shortfall in the Shoppers business in Q3 at 12.6% and Q4 at 15.4%. So obviously, some of that cost cutting is dealing with a declining revenue environment to keep up and trying to preserve as much profit is possible.

Great. So the bottom line is that of the $14 million of year-over-year improvement, the $8.5 million that you spent last year is included in that $14 million, it is not $14 million plus $8.5 million?

Correct.

Great. Thanks Dean.

Troy Mastin, William Blair & Company. Your line is open. Troy Mastin - William Blair & Company: Thanks. I just want to clarify to make sure I understand what you’re saying about the Direct Marketing segment in terms of growth and profitability in '08. I think you are saying that you expect to see stronger revenue growth and profit growth in '08 versus '07, am I correct?

Troy, we had… in our Direct Marketing business last year, we had zero profit growth. We were actually down about $600,000 in operating income. We believe that we can generate better results in '08 than we did in '07. Troy Mastin - William Blair & Company: And on the topline, are you seeing stronger top line growth in '08 versus '07?

We are saying, better performance out of our Direct Marketing business. Troy Mastin - William Blair & Company: Just meaning more revenue out of Direct Marketing in '08 versus '07, not stronger growth necessarily.

Certainly, yes. Troy Mastin - William Blair & Company: Okay. And then on the margin front in Direct Marketing you've taken some moves to eliminate costs and there were costs associated with taking those moves in '07. So should we think about the margin of directing for '08 versus '06 year as an example? I would expect you would see some margin improvement in '08 at least since you've taken these cost reduction initiatives?

I did say in my prepared remarks I believe that, if you… our margins in '07 were steady compared to '06, absent the expenses we took associated with our cost to… to reduce costs of streamlining the business. Troy Mastin - William Blair & Company: So is there reason to think your margins would deteriorate in '08 or should we at least expect steady margins relative to sort of a pro forma basis?

No, I guess try… I also said in my prepared remarks that given the uncertainty in the environment that we are facing that we are not going to be providing '08 guidance. Troy Mastin - William Blair & Company: I understand. I am just trying to understand exactly what reference point you’re thinking about when you talked about the benefit of these cost cuts and what that means for margins in '08. But I suppose if the environment doesn't throw at you a curved ball, an expectation of margins in '08 that would be similar to '06 doesn’t sound reasonable?

That is correct. Troy Mastin - William Blair & Company: Okay. And then on the Shoppers business, we've looked at some newspaper performance in California and Florida, and historically you’ve exceeded the revenue trends there by at least several percentage points. This quarter, at least right now, it looks like that gap has narrowed or maybe disappeared. Is there any reason do you think that you are no longer outperforming newspapers in those markets, assuming our math is correct? Is there something in terms of the mix of Shoppers that would lead to some convergence there?

Troy, I honesty have not seen the newspaper numbers. I don't have the real time newspaper numbers in Q4. I've seen some of the monthly numbers that came out, and I think we are still… our declines were less than the newspaper declines. You also have to remember that this is a business that through the third quarter of 2006 had continued good growth. The third quarter of 2006 I believe we had close to 7% growth in the business and for the prior years we have had every quarter somewhere in that vicinity. So our declines are much stronger numbers than the newspaper declines where… which had two and three years of consecutive declines. So I don’t… it's hard to parse through the numbers. But when you are dealing with the revenue environment, we are dealing with… it’s difficult to parse through the numbers. So I would not read anything into that. Troy Mastin - William Blair & Company: Okay. And then can you give us some update on the competitive landscape around Shoppers, if you've seen some of the smaller competitors in those markets closing up shop? And what would it take for you to consider to make some opportunistic acquisitions in Shoppers right now, given what I'd assume would be depressed valuations in that area?

The first question was what's happened to our competitors within the market? Troy Mastin - William Blair & Company: Yes.

Certainly, there is a lot of competition. The markets are very confused right now, Troy. There is certainly a lot of competitors, always have been in that market, coming and going, but we have not seen any significant change in the competitive field out there in our Shoppers business. You asked about acquisitions in the Shopper business. We've said in the past there are very few properties out there that we would have an interest in, in any time. And I would suspect that we would not have much of an appetite in the current environment. Troy Mastin - William Blair & Company: Okay. And then finally, you are looking for an increase in CapEx. Can you give some support as to why it [inaudible] up 25%, 30%?

What was it down in '07, Troy? Troy Mastin - William Blair & Company: I don't have that in my fingertips.

I think it was down a similar amount. I think we had $33 million in '06, $28 million in '07. When you count any particular 12-month period, you're going to get a different answer. We've always said we're about 3% to 3.5% of annual revenue, and I think we're talking in a similar number for '08. Troy Mastin - William Blair & Company: Okay. Thank you very much.

Michael Kupinski, Noble Financial, your line is open.

Thank you for taking the question. Relative to the company's expansion of the Shoppers distribution several years ago, is the expanded distribution that is left profitable, or are there areas that the company is watching for further potential cutbacks at this point?

Mike, I think if you look at our circulation expansion over the last couple of years, we did shut down a couple of recent expansions. The other expansions in the aggregate are breakeven or making some money. As I said, we are going to look at our circulation. We'd look at that all the time, even in good times we are looking at circulation. We do not anticipate any significant circulation shutdowns in 2008. We may have some targeted ones that did make sense, but currently today, we are not targeting any major circulation changes.

Okay. And obviously this you mentioned is a high fixed cost business. What… are there areas that you can cut back aside from cutting back on circulation? I mean what do you have left that you could do with Shoppers if you were to try to cut cost?

You have labor, which involves the sales force, the employee base to produce the product, and general administrative people.

And do you think that you have any opportunities in the administration or maybe on the distribution side or on the cost?

Mike, what I can say is that we have taken actions… if you kind of look at the run rate of expenses throughout the year, we have taken actions to reduce cost. And we're going to continue to look at that and take action.

Can we assume, Dean, that it's not likely that you're going to cut the sales force?

In a declining revenue environment it is hard to cut a sales force.

Right.

Because you know--.

Okay. And in the Direct Marketing, can you give me some color on how much of the fourth quarter growth was based on volume or did you get a... did you see any pricing in the latest quarter? And can you just talk a little bit about the pricing trends for the year?

I would suspect that 100% or more was based on volume.

Okay. All right, that is all I had. Thanks.

[Operator Instructions]. Our next question is from Edward Atorino, Benchmark, your line is open.

Hello?

Hello?

This is Ed Atorino, hi.

Hi, Ed.

I’ve got two questions, year-end shares?

Year-end share count or average?

Share count, not the average. The average is in the press release. I wonder what the actual amount was.

[inaudible] back and we’ll give it to you.

Okay. Second question, if I look at the fourth quarter Shopper cost--?

It is 68 million.

68 million?

Yes.

Thanks. If I look at the year-end Shopper cost, it is sort of a good quarterly run rate going into '08, or can you take that down… I guess you can't take it down, but is that a good run rate to start off the year, I think it’s $83 million or something like that. Hello?

Yes, am sorry, Ed, if you--.

If you look at the Shopper costs in the fourth quarter, the $83.7 million has… I mean that was the lowest of the years. Is that sort of a good run rate for '08 as a base, or can it come down some more?

Ed, again this is a seasonal business, Q4 is typically a low quarter.

Okay.

And there are costs that go up when revenue goes up.

Okay.

Sales commission, as an example, so it's a seasonal business, but I mean I think we are looking at our structural costs and trying to get our structural costs aligned with our revenue base and Shoppers.

Okay. Thanks a lot. One last question, interest expense for '08?

More than '07.

Would it run about $4 million a quarter, you think?

I am sorry, Ed?

Could it be $4 million a quarter or like I said it will be higher as the year goes on as you borrow?

It is going to depend on a lot including what [inaudible], the pace of our spending in terms of share repurchases. So it is difficult to predict it.

Got you, okay.

Rob Helf, Fiduciary Management, your line is open.

Good morning, Dean How are you?

Good, Rob. How are you doing?

Good. I just thought maybe you could characterize the Shoppers business a little bit more in terms of the revenue decrease. Do you have… I am just trying to get to the sort of answers with some color, but you have 15% less customers or are those customers... is it 10% less customers and those guys are using smaller sizes or how do you... how can you give us some more granularity on where you see reduction of that size in revenue?

Rob, I think you can look at ad count, which is down, as an indicator, leading to fewer pages in the books.

So the books are how much, would it be a similar type of percentage down in terms of pages or is it less than that type of thing?

It is probably less down in pages than it is down in revenues.

Okay.

But you have got certainly some people who are no longer in business.

Okay.

Some services business… businesses that are no longer in business, you have mortgage brokers who are no longer in business.

Right.

You have got new home developers and agents, that business is down. A lot of contractors, plumbers, electricians, some of those peoples are no longer in business. They've gone to work for bigger contractors and no longer advertising.

Okay.

You have other customers who have reduced spending either in terms of frequency or volumes. It is a mixture of things.

Okay. And are you receiving less per add on average? I mean is there sort of a natural price decline that you guys take on this type of environment generally?

In certain categories and in certain types of advertising there are some lower pricing in the market and a lot of that is driven by the competitive environment that’s primarily on the distribution side as opposed to the [inaudible] side.

Okay. And this is kind of piggybacking off Mark Bacurin’s question. I just have some thoughts on the PennySaverUSA.com and TheFlyer.com. Is there a way that you guys can... it sounds like you are making some progress there, but is there a way that you can deliver sort of the digital content? Obviously, with both your print ads, classifieds, and as well as your partners I guess from the newspaper side, is there way that you can package those to maybe even a bigger portal out there and some way, shape, or form that really gives those local people a lot of visibility and it also allows the portal to deliver a lot of unique advertisements and classifieds that they maybe wouldn't be able to get in some regards? So has that been thought of at all? I mean I'm sort of out of this area here.

There are a lot of things in that area. The real strength that we have, and this is the strength beyond the portal guy, it is a strength beyond the newspapers, it is the strength beyond the broadcasters, is the number of relationships we have with small and medium business owners in the markets in which we serve. They are our core advertisers. And newspaper sales forces who were trying to see good [inaudible] aren't reaching those people because they never talk to them in the first place. We talked to these people week-in and week-out.

All right.

We can offer something different and unique and we are going to try to capitalize on that.

All right. Thanks, Dean.

Troy Mastin, William Blair & Company. Your line is open. Troy Mastin - William Blair & Company: Yes, just one quick follow-up. I wanted to ask about what you mean… maybe a little more color in terms of the Shopper revenue environment in '08. You say it won't improve in any meaningful fashion given the current conditions. Does that mean similar declines in growth, does that mean revenue run-rate, can you just add a little color to help us understand finish them what you are thinking?

Troy, I guess what I am thinking is that revenue in the first quarter was a $112 million. Revenue in the fourth quarter was $97 million. So as the year progressed the run rate of revenue declined. The news out of those markets is not getting better, and I think we have to be realistic about the length of time it's going to take for those markets to stabilize. We are a strong player and still a very profitable player and a strong franchise value in those markets. Those markets are good long-term markets. They will be great markets in the future, and… but we’re not… we cannot predict right now when the bottom hits. So we've got to manage our business accordingly. Troy Mastin - William Blair & Company: So is it fair to say we are still on the downslide here, you're not necessarily willing to say that... I mean comps get easier here so I would expect--.

Comps were easier in the fourth quarter as well. Troy Mastin - William Blair & Company: I Understand. They should get meaningfully easier though, right, as we go through 2008, so it seems a little too harsh to expect similar declines that we’re are seeing this quarter?

I didn't say similar declines. I think my comments were, the revenue environment we don't expect to improve and it could deteriorate from where it is today. That doesn't necessarily mean bigger year-over-year declines in '08 than we saw in '07. Troy Mastin - William Blair & Company: Okay. I guess that helps a little. Thanks.

I would now like to turn the call back over to Mr. Blythe for closing comments.

Thank you all very much.

Thank you. That does conclude today's conference. Please disconnect at this time.