Harte Hanks Inc (HHS) 2007 Q4 法說會逐字稿

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) . Today's conference is being recorded. If you have objections you may disconnect at this time.

Now I will turn the meeting over to Mr. Dean Blythe, President of Harte-Hanks. Sir,

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

Thanks, Steve. Our call will include forward-looking statements. These 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 a cautionary statement in today's earnings release. Our call may also include non-GAAP financial measure. 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 Web site at www.Harte-Hanks.com. I'll turn the call back over to Dean.

Thanks, Brian. 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 the business compared to 2006, we took a number of actions during the course of this year, streamlining the business to enhance efficiency, 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 a 2007 performance that was below our longer-term revenue and 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 [constagen] has spread from real estate to real estate related businesses to now virtually every category as consumer spending in these markets has slowed. There;s 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 a 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 that we will achieve better revenue and profit performance and direct marketing in 2008 than we delivered in 2007. We do not believe; however, how the Shopper's revenue environment in 2008 will improve in any meaningful fashion given the currently cyclical economic issues impacting our markets and may in fact deteriorate from the current levels. Given uncertainty about the overall environment and specifically the economic conditions in the California-Florida markets, we will not be providing overall earnings guidance for 2008.

The fundamental services we provided 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 Shepherd will give you some detail on our results. Doug?

Thank you, Dean, and good morning. Here's 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 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 as compared 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 operating income increased 3.4%, resulting in the slight operating income margin decrease of 10 basis point 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 health care 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 health care 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, performance for the quarter in the year was disappointing. Shoppers' fourth quarter revenue decreased by 15.8% to 9.4% for the year. Operating income margin for the quarter declined to 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 has slowed.

Our fourth quarter effective tax rate was consistent with the fourth quarter of 2006, at 36.6%. For 2007 effective tax rate was 38.7% , a 110 basis point increase from our 2006 effective tax rate. For 2008, we expect our tax rate to be approximately 39%. On the balance sheet , December 31, we were showing a net debt balance of 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, what 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 million under its repurchase program. In mid-January, we announced we entered into a $50 million revolving loan facility. The revolving loan facility matures on July 18th, 2008, and we intend to utilize availability under the facility primarily to repurchase shares of our stock and for general corporate purposes. The facility does not replace and 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 facility, 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 for 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 the company's common stock. The additional authorized shares bring the total remaining authorization under the company's repurchase program as of January 15th to approximately 15.2 million shares, or approximately 18% of the company's outstanding shares of common stock as of January 15th. With that, operator, we'll turn the

Thank you. (OPERATOR INSTRUCTIONS) . Our first question is from Esther Cheng at Merrill Lynch. Your line

Hi. Thanks. A couple questions about the quarter, and then a question about fiscal '08. On the direct marketing side, the high-tech telecom market seems to be pretty strong as well as the financial vertical. I was wondering if you could give us a little more color as to what led to that strength, and then I'll follow up.

Yes, Esther, and select markets has been a strong vertical for us for a number of years and has strong growth, so I think it's a 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 -- for the year we were actually down in that vertical. I don't read 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 throughout the year, spending from existing customers growing as well as new customers coming on board.

With your recent acquisition of Mason Sembler, do you expect that to actually help the high-tech telecom growth in 2008? And 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 client coming on board. First of all, this is a relatively small acquisition. It is a UK 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're offering, but more about building full capabilities for our international offerings.

Okay. And then with the, I guess, economic uncertainty, what gives you the confident that you can achieve better growth in '08 versus '07? Are there certain categories or client 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're certainly keeping our eye out in the financial services market, and particularly in credit card and consumer finance for 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.

O kay. 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're also -- we're looking at all areas. If you look at our expenses throughout the year in 2007, on a sequential basis, you will see that expenses declined throughout the year. They declined on the labor side. They declined on the production side. They declined on the G&A side. This is a business that has suffered significant revenue decline and we're adjusting the cost base to reflect that revenue. So it is across the board.

All right. Thank you.

Alexia Quadrani, Bear Stearns, your line is up.

Hi. This is Monica [Dechensow] for Alexia. Had a quick on Shoppers wondering if you have you seen any pockets destabilization by region? And if you can comment on how Florida is doing compared to California. And then we have one follow-up.

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

O kay. And then just related to how, results progressed during the quarter, was there a pronounced maturation in December or can we read anything into how the quarter progressed?

First of all, that's a seasonal business if you're talking about our Shopper business any way. December is always the weakest month of the year for us in Shoppers. So 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, have you seen anything specific you can comment on related to retail? We haven't heard any cutback in spend in the category, and we thought in the past, slowing consumer confidence can tend to boost demand for direct work. So we're wondering if what you're seeing is customer specific or a competitor issue.

Well, retail is again -- 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 was down slightly. It was down in the 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 a that may have on their spending.

Okay. Great. Thanks.

Paul (inaudible) , Deutsche Bank, your line

Thanks. Just a question first on the buy-back. Do you think you'll buy back more shares in '08 than 2007? And obviously you've gotten the authorization for that. I just wondered what the limits are. I think it's 5% a day. Second, back to the questions about direct marketing, do you have confidence because of the existing book or that present from the existing spend of your current clients or from new account that you've added, or is it future work you're expecting get? And finally to the financials, can you give us a little more detail on the end products you have exposure to? Is it mortgages, credit cards and what sector of finance if possible you have exposure to. Thank you.

Paul, I'm sorry. So there were three questions. The first one was the buy-back?

Right.

Obviously you can see that we bought back 3.6 million shares in Q4. I think you can see throughout over the number of years that the pace of our buy-back accelerates when there are periods of weakness in the stock. We consider our stock today to be the best investment we can make and we'll continue to be active buyers of the stock. How it progresses for the year, we assume to continuing to be active buyers subject to market conditions, financing and our stock price. In terms of why we feel good about 2008, from our direct marketing, I think it's all of the categories. We feel good about our existing customer base, and what we're 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're talking about the financial vertical.

Right. Is it mortgages and credit cards think think a 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 the vertical, and there is some softness there. We have not been a big player in mortgage origination, which is -- which is good, but -- 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 [Precurin] , Robert W. Baird, your line

Good morning. A couple things. On the direct marketing side of the business, can you comment generally about what you're seeing out of your clients with regard to kind of how they're allocating their spending. Generally speaking, are they moving more toward loyalty-type programs away from more of a customer acquisition mode, given 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. You could -- some specific clients -- it seems there's always in the customer base, some people moving away from a particular type of program towards one, but I'm not certain that we can see a secular shift that people are moving away from acquisition to loyalty.

And just generally, I mean, are you talking to client about '08 spending budgets? Are you seeing them talking about presumably overall contraction and budgets for ad spending, but are they moving toward more the direct marketing channel away from mass media buy and things like that? Any anecdotal evidence you can provide?

Anecdotally yes, we believe that's 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 softer environment.

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

The issue we saw in the vertical was not in the Pharma portion of it; it was in the health care portion 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 in 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 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 Pharmacuetical market, so we actual view the Pharma market and th Pharma health care longer-term as a growth market for us.

Great. That's helpful. And moving over to the Shopper side of the business, you guys have been toying with the Penny Saver U.S.A..com brand now, I think, for over a year. Obviously the head winds from the California and Florida housing markets are an issue but can you give us any update on progress you've made with developing that digital asset and what type of revenue streams you may have that to off side the print side?

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

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

Mark, as I said earlier we're 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 will control to the fullest extent we have possible, and the top line, which we will control to the fullest extent possible, but our control over the top line is much less. It is difficult in a business with a relatively high fixed cost base, postage and paper primarily, to maintain or improve margins in a declining revenue environment.

And of the 8.5 million you referenced earlier you incurred in onetime costs in '07, what sort of '08 on going 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 -- it was kind of about the end of the second quarter when we shed Shoppers circulation, and during the third quarter when we did some facilities, and people. I believe we said then that on a year-over-year basis that the actions we had taken would result in $14 million less expense in '08 than '07. That was measured as follows, and let's take an example, because I think it's easiest to use. If you had a person who was making a $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 onetime 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 were. 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. Now you have obviously seen an increasing revenue short fall 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 try to preserve as much profit as possible.

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

Correct.

Great. Thanks, Dean.

Troy Mastin, William Blair and Company. Your line is open.

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're 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 down actually about $600,000 in operate income. We believe that we can generate better results in '08 than we did in '07.

And on the top line, are you saying stronger top-line growth in '08 versus '07?

No. We're saying, -- we're saying better performance out of our direct marketing business.

Just meaning more revenue out of direct marketing in '08 versus '07 not stronger growth necessarily.

Certainly, yes.

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 direct marketing for '08 versus an '06 year for example? I would expect you would see margin improvement in '08 at least since you've taken these cost reduction initiatives.

Well, I did say in my prepared remarks, I believe, that if, -- our margins in '07 were steady compared to '06 absent the expenses we took associated with our cost to reduce costs and streamline the business.

So is there a reason to think your margins would deteriorate in '08, or could we at least expect steady margins relative to sort of a pro forma basis.

I guess I also said in my prepared remarks that given the uncertainty in the environment that we were facing, that we would not be providing the '08 guidance.

I understand. I'm just trying to understand exactly what reference point I should be thinking about when you talked about the benefit of these cost cuts, and what that means to margins in '08. I suppose if the environment doesn't throw you a curveball, an expectation of margins in '08 that would be similar to '06 wouldn't be unreasonable?

That is correct.

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're no longer out performing newspapers in those markets, assuming the math is correct? Is there something in terms of the mix of Shoppers that would lead to some convergence there?

Troy, I honestly have not seen the newspaper numbers or 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 were 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% truth in the business, and for the prior years, we had had every quarter somewhere in that vicinity. So our declines are of much stronger numbers than the newspaper declines were, which had two and three years of consecutive declines. So I don't -- it's hard to parse through the numbers, but when you're dealing with the revenue environment we're dealing with, it's difficult to parse through the numbers. So I would not read anything into that.

Okay. And then, can you give us some update on 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 of Shoppers right now, given what I would assume would be depressed valuations in that area?

So the first question was, what's happened to our competitors within the market?

Yes.

There's certainly -- there's a lot of competition. The markets are very confused right now, Troy there's certainly a lot of competitors. Always have been in that market. Coming and goings 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 times, and I would suspect that we would not have much of an appetite in the current environment.

Okay. And then, finally, you are looking for an increase in CapEx. Can you give some support as to why you expect to see it up 25, 30%?

What was it down in '07, Troy?

I don't have that at my fingertips.

I think it was down a similar amount, and I think we had 33 million in '06, 28 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, 3.5% of annual revenue, and I think we're talking about a similar number in 4 '08.

Okay. Thank you very much.

Michael Kupinski , Noble Financial. Your line

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 there areas that the company is watching for further potential cut backs 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 look that all the time, even in good times we're looking at circulation. We do not anticipate any significant circulation shut-downs in 2008. We may have some targeted ones if it makes sense, but currently today, we are not targeting any major circulation change.

O kay. And obviously, as you mentioned is a high fixed-cost business. Are there other 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 costs?

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

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

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

Okay. And can we assume, Dean, that it's not likely you're going to cut the sales force?

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

That's 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 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 a 100% or more was based on volume.

Okay. All right. That's all I had. Thanks.

Once again, to ask a question, please press star 1 on your touch tone phone. Our next question is from Edward Atorino at Benchmark. Your line is open.

Hello?

Hello?

Hello this is Ed Atorino. Hi. I have two questions.

Hi Ed.

Year end shares.

Our average?

Share count, not the average. I wanted to know what the actual amount was.

If you come back, we'll get that.

Okay. Second question. If I look at the fourth quarter Shopper cost --

68 million.

68 million?

Yes,.

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

Yes. I'm sorry, Ed. You said, if you --

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

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

Oh, okay.

And there are costs that go up when revenue goes up. Okay. Sales commissions as an example. So it's a seasonal business. But I mean, I think, you know, we are looking at our structural costs and trying to get our structural costs aligned with our revenue based Shoppers.

Okay. Thanks a lot. Oh, one last question. Interest expense for '08?

More than '07.

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

I'm sorry?

Could it be more million a quarter, or -- I guess it would get higher as the year goes on as you borrow, ye.

It's going to depend on a lot, including what, interest rates can do.

Got it..

The pace of our spending in terms of share repurchases, so it's difficult to predict at this point.

Got it.. Okay.

Rob Health, Fiduciary Management your line is open.

I just thought you could characterize the Shoppers business a little bit more in terms of the revenue decrease. I mean, do you have -- I'm just trying to get you to sort of answer this with some color, but do 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 give us some more granularity on where you see a reduction in 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 percentage down in terms of pages, or is it less than that type of thing?

It's probably less down in pages than it is down in revenue.

Okay.

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

Okay.

Some services business. Businesses are no longer in business. You have mortgage brokers who are no longer in business.

Right.

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

Okay.

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

Okay. And are you receiving less per ad and 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.

Sure.

Primarily on the distribution side.

Okay. Okay. And this was kind of piggy backing off of Mark Precurin's question, but I had some thoughts on the Penny Saver U.S.A..com. Is there a way that you guys can -- sounds like you guys are making progress there, but is there a way you can deliver sort of the digital content? Obviously with both your print ads, classified and as well as your partners, I guess, from the newspaper side, is there a way that you could package those two into maybe an even bigger portal out there in some way, shape or form that, really gives those local people a lot of -- a lot of visibility and also allows the portal, to deliver a lot of, unique advertisements and classified that they maybe wouldn't be able to get in some regards? Has that been thought about at all?

We're working with a lot of things in that area. The real strength that we have, and this is a strength beyond the portal guys, a strength beyond the newspapers, a 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 are trying to sell Google Ads Words aren't reaching those people because they never talk to them in the first place. We talk to these people week-in and week-out.

Right.

We could offer something different and unique and will try to capitalize on that.

All right. Thanks, Dean.

Troy Mastin, William Blair and Company, your line is open.

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 rates? Can you add a little color to help us understand what you're thinking?

Troy, I guess what I'm thinking is that revenue in the first quarter was $112 million. Revenue in the fourth quarter was $97 million. So as the year progress, 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 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, we're not -- we cannot predict right now when the bottom hits. And so we've got to manage our business accordingly.

So is it fair to say we're still on the down slide here? You're not necessarily willing to say that the -- I mean, comps already easier here, so I would expect --

Comps were easier in the fourth quarter as well.

I understand. They should get meaningfully easier, though, as we go through 2008. It seems a little too harsh to expect similar declines that we're 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.

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.

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