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Harris Interactive (NASDAQ:HPOL)

F1Q09 Earnings Call

October 31, 2008 8:30 am ET

Executives

Dan Hucko – Senior Vice President of Investor Relations

George Bell - Chairman

Kimberly Till – President and Chief Executive Officer

Ronald E. Salluzzo – Chief Financial Officer

Analysts

Jim Boyle - C.L. King and Associates

Todd Van Fleet - First Analysis Corp.

Randy Hugen - Piper Jaffray

[Unidentified Analyst] - Needham & Company

Mark May - Needham & Company

[Tim Archer] - Octagon Financial

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Harris Interactive earnings conference call. My name is [Erica] and I'll be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Dan Hucko, Senior Vice President, Investor Relations. Please proceed, sir.

Dan Hucko

Hello, everyone, and thank you for joining us for our first fiscal quarter 2009 earnings call. With me today are George Bell, our Chairman, who will open today's call, Kimberly Till, our President and Chief Executive Officer, and Ron Salluzzo, our Chief Financial Officer. At the conclusion of the formal remarks, Kimberly and Ron will be happy to answer your questions.

A webcast replay of this entire call will be accessible via the Investor Relations section of our corporate website later this morning and will be archived there for at least 30 days; however, no telephone replay of this call will be provided.

During the call we will make a number of forward-looking statements. These statements are based on current expectations and are subject to known and unknown risks and uncertainties that could make actual results differ from those discussed today. Additional factors that could cause the actual results to differ on this call are readily available in the risk factors section of our latest annual report filed on Form 10-K with the SEC. The company assumes no obligation to update the information provided here today.

I would also like to mention that we will be discussing non-GAAP financial measures today. These items are reconciled to GAAP financial data in the press release we issued this morning and are also posted on the Investor Relations section of our website at HarrisInteractive.com.

I'd now like to turn the call over to our Chairman, George Bell, for opening remarks. Please go ahead, George.

George Bell

Thanks, Dan. Welcome, everybody. First, on behalf of our entire Board I wanted to thank Greg Novak. Greg has given many years of service to this company. He's a man of really high integrity. Many of you had a chance to meet him. Terrific work ethic, terrific commitment - we're going to miss Greg and we wish him very well in his next endeavors.

Obviously, given Harris' performance, we did conclude that a different type of leadership was called for, and on behalf of our Board this morning I'm delighted to welcome and introduce to you Kimberly Till, our new CEO. I want to make three quick points before turning the call over to Kimberly.

One, her background is supremely relevant to the job. She led TNS in North America, which is the largest custom research firm in the United States, and her prior roles at Microsoft, AOL and Sony equip her to deal with the blurring lines between research and media against a backdrop of new digital media platforms.

Second, she has successfully guided a turnaround before at TNS, which she is going to describe a little bit later for you in the call.

And third, Kimberly had a number of opportunities available to her after TNS, so her choice to come to Harris says a lot about her conviction and her long-term commitment to stay and build this company again.

Obviously, Kimberly is not prepared to lay out her long-term strategy today. I don't think she's been on the job for more than six or seven or eight business days. But we thought, given the timing of this call, that it would be useful for her to talk about her background a bit, her very early thoughts on future directions for Harris, and her enthusiasm for the job.

I'll be dropping back into a listen-only mode after this and wanted to conclude by reiterating that our Board is unanimously behind Kimberly. We love her energy and we look forward to her leadership.

Kimberly, I'll now turn it over to you.

Kimberly Till

Well, thank you very much, George, and thank you for those kind remarks. Hello, everyone. I'm Kimberly Till, the new CEO of Harris Interactive, and delighted to be talking with you today.

As George indicated, I have been on the job only eight days so I don't have a lot to share, but I did want to share with you information in two areas. I wanted to talk a little bit about my background because I think some of the experience I've had will be very relevant to the strategy we'll be putting in place at Harris. And then I also want to share with you the initial areas of focus for our management team.

So first, on my background, I have spent a lot of time in media entertainment and technology. I was with Disney for five years in France, where I was Head of Strategy for the Euro Disney turnaround, and then helped launch Disney Interactive throughout Europe.

I then moved to New York, where I joined Howard Stringer at Sony, and I was Head of Strategic Planning and Marketing for all of the Sony U.S. businesses at the corporate level, so that was Sony Music, Pictures and Electronics.

Then during the Internet heyday I moved over to AOL as co-number two of AOL International, and there we rolled out the AOL Internet service in 16 countries, key markets outside of the U.S. It gave me great exposure to building businesses in international markets, as well as exposure to Internet businesses.

And then last, in the media entertainment and technology area, I moved over to Microsoft to run their media and entertainment vertical worldwide and we leveraged Microsoft software for companies in the media and entertainment space, including advertising companies, film companies, music and publishing.

And then a couple of years ago, I was recruited, as George alluded to, to run TNS North America. TNS is the number one custom player in the U.S. market. I came in as President and then was promoted to CEO.

And TNS, as you're probably familiar, in the U.S. market was the merger between Intersearch and NFO and, as a result of those two companies coming together, there were a number of business issues that developed. So, over the course of my tenure there, we did a comprehensive review of all parts of the business and a pretty significant turnaround that led to very attractive profit growth. So I was very pleased with the result that the team was able to generate there.

And now I'm just joining Harris. I'm extremely excited about this opportunity for a number of reasons; one is I think Harris is a great brand in the market research space. Part of that is the heritage of the Lou Harris & Associates' very, very strong market research background, but also because Harris Interactive was one of the first to leverage the Internet for surveying respondents. I think this also gives us a cutting edge future looking brand positioning that I want to go back to. Also, Harris has a lot of great people, both located here in Rochester as well as in other key markets around the world.

As we said, it has only been eight days. But because I have been in this industry, I've talked to numerous purchasers of market research, a lot of the Fortune 500 companies like P&G, Microsoft, Coca-Cola, IBM. I do have a very strong sense of what the opportunity might be for Harris, so I just wanted to lay out for you the key areas that we will focus on right out of the box.

The one is the business has obviously been troubled; the performance has not been good over a period of time. So the management team and I will do a systematic review of every part of the business. We will focus on the cost structure as well as focusing on streamlining operations, streamlining the IT infrastructure, and also looking at the workflow. I think this is going to give us an opportunity to reduce costs, but it's also going to enable us to improve quality, which is extremely important in the market research industry.

The other thing I'm going to focus on right away is key talent. This is a people business. It's delivering insights to clients. I think we have some great people here. I will be looking to move those great people into key positions as well as supplementing the people here with great talent from both the market research industry as well as other industries. So building a high-performance team is going to be a critical first priority.

After those two things are under way we are going to focus on revenue generation. I think there are four different areas where we're going to initially look for that.

First is, of course, refocusing on the clients. We have a great client list. We are going to refocus on those and bring greater industry as well as solutions expertise. I also want to focus on some of the underperforming industries such as health care and get those back to growth.

The second area where I want to focus is leveraging technology. Since I didn't come originally from this industry and I came from industries where they leveraged technology a lot, I was a little bit surprised that none of the players in this industry are leveraging technology in the way that they could.

So given Harris roots, with an emphasis on technology, I want to return to that. And we will use technology to reduce cost, increase our speed of turnaround, improve quality, and then most importantly, to develop some new products and services, things that have to do with aggregating databases and improved analytics. And I think technology can help us with all of that.

The third area where I want to focus is international markets. We have a presence in a lot of the key ones, particularly some with high-growth opportunities. We want to continue to build organically in those markets. And then we want to look over time at building out our network, and there are a number of different ways to do that. I do not anticipate in the early days doing any acquisitions in the international market. We want to focus on improving our core business, getting the right people in the right places, and then looking to grow in these markets over time.

And the last area, which I think is super exciting, is building new revenue streams. I think there's an opportunity for all of the players in the market research industry to look beyond just the traditional way people have been doing market research. We should be looking at finding new ways to find our respondents, so Harris Interactive was very cutting edge when the leveraged the Internet to survey respondents. Now respondents are also on mobile platforms, they're in interactive gaming sites, they're on social networks, and we will be looking at opportunities to do  innovative ways of identifying those respondents and capturing their insights for our clients.

So I'm super excited about being here and look forward to the next call, when we will have made a lot of progress on these initiatives.

So now I do want to turn it over to Ron, our CFO, to cover the Q1 results. I will say the results are disappointing, but we are beginning right now to start to make an improvement on that. So, Ron?

Ronald E. Salluzzo

Thank you, Kimberly. And we're excited about where we're going with this, but first we do need to speak about where we've been.

Our first quarter was clearly a challenge for us and we expect some of those challenges to continue. We are dealing with a confluence of issues, some of which we can address and I think Kimberly just expressed the direction and the order that we're going to address some areas like staffing structure solutions and client-facing activities, and some that are a bit outside our control, such as the macroeconomic issues that we have faced.

We have stated over the last couple of quarters that we've been repositioning the company. We did that throughout the second half of 2008 and, as planned, we continue to reposition in 2009. With Kimberly now on board and the direction she just described, we believe Harris is ready to move forward.

But it's going to take some time. We have taken some significant actions to improve profitability of the company and we'll focus on expanding the solution offerings to stimulate client interest and grow our top line. In fiscal 2009, the forefront of our external challenges that we face are the economic conditions and we see continued deterioration in the U.S. as well as this bleeding into other parts of the world where we do business.

We have some declining revenue in North America, which is seen across most industries, which results from budget cuts and changes in client priorities and delays that have caused us some of our issues.

We've seen some growing revenue in Europe - up 2% - after an unfavorable impact of currency fluctuations of $300,000. That $300,000 negative foreign exchange adjustment masks some strong growth in the first quarter, particularly in the U.K.

Our Asia business continues to grow rapidly despite Singapore's recently declared recession, and that, of course, shows great growth numbers but off a small base.

We have taken actions in the second fiscal quarter which are not reported in our press release nor our financials to reduce our U.S. work force and have put process improvements in place to improve the profitability as we weather the economic uncertainty.

Now let me give you a bit of color in each of the regions quickly.

First, in the U.S., on our last earnings call we had spoke of growth in sales in several of our industries which, in the face of the recent economic meltdown, has dissipated for us. On the other side, we had said that we expected some decline in the health care business and health care for the quarter has met our expectations, albeit a lower level of revenue and sales, but at least we seem to, on the quarter, have found a balance that we had not seen in prior quarters. Overall, we've seen a 30% decline in sales and a 20% decline in revenue in the first quarter in the U.S.

In Canada sales declined significantly at 35%. Revenue declined 9% on a pro forma basis for the first fiscal quarter when compared to last year. And if you look at the press release you'll note that the numbers wouldn't look quite like that because last year you'll recall Canada was only in for two months; this year it's in for three. Canada has looked at restructuring staff and facilities to match the revenue levels and this will result in nominal charges in Q2. We are reducing investments in Canada in some of our less-profitable research activities and we're assessing our ability to more fully integrate IT and our network administration.

Moving on to Europe for a moment, in the U.K. sales bookings were up 8% while revenue was down on an as-reported basis by 2%. And, of course, I mentioned earlier we had the issues of foreign currency translation. We believe in the U.K. we're providing a stronger client and industry focus through strategic internal restructuring, hiring and training, and you'll recall that that was the result of the Q4 charge that we took to streamline management as well as turn to a more client-focused organization. And we're investing in fast-growing research areas such as media.

In France we've seen very strong performance with sales up 71%, revenue up 16%. This is a continuation of the initiatives we started last year, which was to move that business unit into a more full service market research firm, particularly expanding in customer and package goods and health care. We continue to see expansion because of our ability to put the Harris brand in place in France and it's been received quite positively. And we are leveraging our fixed operating expenses as we grow in a positive fashion.

In Germany revenues were up 7% for the quarter, although sales were down and some of this is due to the economics that have hit the German marketplace as well as a shortage of resources to sell while we're delivering and we've been fixing that through the addition of further people who are capable of selling into the marketplace.

As I had mentioned earlier, Asia had grown at a dramatic rate, in triple digits, and we have made some investments there to ensure the continued growth, which of course has had an impact on the operating profit of the region.

On the general and administrative cost side - and I'll remind you that we take our non-chargeable to client time of our direct labor and we display that in the G&A line and that represents just under $5 million of our G&A line - there were, however, three items that make up all of the $2 million nominal increase in that line in the financial statements that you've seen in the press release.

First, Canada and Asia were included in the first quarter of this year for three months; last year it was only two. Secondly, we have had some help with profitability improvement consultants and their costs are in that line. And third, we increased our panel investment. Those three items make up all of that increase.

From a balance sheet perspective we ended the quarter with $25.2 million of cash, which is up from comparable period last year from $24.1 million. It's down from our June cash number, but that's to be expected. This happens every year because we pay a couple of special items related to full year commission overages as well as bonuses in the quarter.

We did at September 30 have $27.7 million of debt outstanding.

And our CapEx for the quarter is $700,000.

On an outlook basis, we believe the roiled economic conditions that we face around the world preclude us from giving more guidance on our full year results; however, we will say that we do expect now that our revenues will fall a bit below last year, although the activities that we have undertaken and the ones that we intend to undertake shortly under Kimberly's leadership will result in better profit margins in '09 than '08 before all the special charges in each year.

And with that what I'd like to do is move us to the Q&A. And Erica, I'd ask you to get us started on that.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Jim Boyle - C.L. King and Associates.

Jim Boyle - C.L. King and Associates

Are you budgeting the health segment to recover in fiscal 2010 or would it be later?

Ronald E. Salluzzo

You recall in our last call we'd said that we were going to budget it down for '09, which we have. What we need to do is find the bottom, make sure that we have a solid footing underneath us before we talk about a recovery.

I think realistically we would like to hit the budgeted numbers that we have put in, which is a sizeable decline from '08. But we've scaled the business to allow for better profitability on a percentage basis on the revenues that we have.

So we'll need to look at, once we get to the turn of the year, where we think 2010 will come out.

Jim Boyle - C.L. King and Associates

So it's too early to tell if 2010 could be a recovery?

Ronald E. Salluzzo

I believe so, yes.

Jim Boyle - C.L. King and Associates

Ron, you mentioned the fiscal 2009 revenue could be a bit below, I think was your phrase. Would that be more or less than a 5% drop?

Ronald E. Salluzzo

I'm uncomfortable giving you a number.

The problem we're having, Jim, is that typically we can look at our pipeline and the pipeline has certain value to it and we have some sense of predictability about closings. Our problem right now is that there is so much volatility within client organizations that anything that we've used as a historical basis to predict has become very, very difficult and we see movement in terms of cancellations, in terms of add-ons to work.

So I'm reluctant to put a number out because then you're going to translate that into a specific guidance number and I'm saying right now I don't have enough visibility to answer the question.

Jim Boyle - C.L. King and Associates

Which was more surprising, the traditional revenue or the Internet revenue in fiscal Q1?

Ronald E. Salluzzo

Could you elaborate on that? Why do you ask that question?

Jim Boyle - C.L. King and Associates

Well, you had expectations and then the results came in, so which surprised you the most?

Ronald E. Salluzzo

Well, we've had a consistent, I think, over the last several years, a consistent drift downward of traditional revenue as we have moved to Internet. I think we've seen both giving us difficulty at this point. I don't think we were surprised by either.

Jim Boyle - C.L. King and Associates

Ms. Till, do you plan on reaching out to your largest investor, Mr. Bollore?

Kimberly Till

I'm sure through investor conferences and other ways that we interact with all of our shareholders we will be communicating with all of the shareholders. And we're delighted to have him as a large shareholder, so we'll certainly probably be in touch with all of the shareholders.

Jim Boyle - C.L. King and Associates

Well, your predecessor, Mr. Novak, had often mentioned that he might be a potential source for projects and business, and given the struggling situation, it would seem very timely.

Ronald E. Salluzzo

Jim, what I think you're referencing is the fact that we did some work with one of his other investments - I believe the company is CSA - and our French unit had done some work with them in the past.

My understanding is we continue to do work with them, but it's pretty much we're subbing, if you will, on some projects, providing sample for them. So I don't think it's bigger than that. But we have a cordial relationship with them and we work with them comfortably. But they also are not that large a company. I believe their total revenues are $50 million. So I don't think it would be the massive source that might jumpstart some of these issues.

Jim Boyle - C.L. King and Associates

True, but that's not his only firm. But noted. Thanks.

Ronald E. Salluzzo

That's fair enough.

Operator

Your next question comes from Todd Van Fleet - First Analysis Corp.

Todd Van Fleet - First Analysis Corp.

Ron, did I hear you right, two-thirds of the Canada acquisition was included in the prior year results? So could you give us kind of the pro forma revenue contribution from that entity? Would it be $6 million, plus or minus?

Ronald E. Salluzzo

Yes. Yes.

Todd Van Fleet - First Analysis Corp.

So about $6 million then or do you have a more accurate figure?

Ronald E. Salluzzo

Let me go back and find it and I'll get that answer to you.

Todd Van Fleet - First Analysis Corp.

Kimberly, wondering, with your background obviously with a competitor of Harris for a period of time, I'm just curious about what your observations were of Harris kind of looking at the company from the outside and what you observed being kind of a peer competitor for a period. What was your, prior to being approached for this position at Harris, what had been some of your perceptions of Harris Interactive? What were the relative strengths of the company in your view as a competitor and perhaps some of the weaknesses? If you could talk a little bit about that, that'd be helpful.

Kimberly Till

Okay. Obviously I knew Harris was number six in custom research in the U.S. market, number 13 market research firm worldwide, so I definitely considered them a key competitor. I was very aware of their brand strength because I do think they have one of the strongest brands in the market research industry, and that comes, again, from the Lou Harris association as well as being one of the first to leverage the Internet and leverage technology. So I viewed them as a very strong competitor, strong brand, and one of the key players.

Todd Van Fleet - First Analysis Corp.

And on the weaknesses that you'd like to exploit periodically perhaps, could you talk a little bit about those?

Kimberly Till

Well, obviously, their financial performance, you know, has not been good. And we were larger, so we were able to exploit that. But I think they are, you know, all of the large players, it's a highly fragmented industry and I think all of the large players have a lot of the same plusses and minuses.

Todd Van Fleet - First Analysis Corp.

You talked about making some investments in technology and you want to get the company into a different place relative to where it is today.

I'm just thinking about how, if the company - and you've only been on board eight days I guess, so has there been any kind of significant thought with respect to the trade-off there between the investments that might need to be made and what you're trying to do from a - because you're trying to pull costs out, it sounds like, on the one hand, but on the other hand you know you need to make some investments in some other areas, so the net of those two, is there any sense for what should kind of rule the day, at least over the course of the next two, three quarters?

Kimberly Till

Yes. I mean, on the technology side, they already have some plans which I have reviewed and feel very comfortable with that I think will push us in the direction that we want to go in. And we want to move from being a highly customized technology infrastructure to being a more standardized one, which is less expensive to run and also has other efficiencies and quality improvement. I don't think the investment - Ron, you may want to speak to this - I mean, the investment is not significant given the benefits that we expect to get from that.

And then if you take that, coupled with our overall picture, obviously we're going to be focusing on the cost savings as the larger force.

Ronald E. Salluzzo

I think one of the things that we will be looking at is how do we take the investment money we have available and marshal it into the specific investments that have the quickest, fastest returns. And I think that's really where we're going to be over the next several weeks, trying to challenge ourselves to marshaling enough resources to get those kinds of things taken care of.

Todd Van Fleet - First Analysis Corp.

The CEO search, can you kind of talk to us about how long that search went on, when the Board started discussing it, when they started implementing it? Because I'm trying to think about that in the context of the sales bookings activity in the quarter, which was down quite a bit from prior year and down even more sequentially. Obviously, if there's suspicion inside an organization that there's going to be some kind of turmoil at the top that things kind of flounder around for a period of time. So I'm just trying to gauge how much the rumor mill, as you might have it, might have impacted the sales effort, I guess, in the quarter?

Ronald E. Salluzzo

I don't have an answer for you on that. I don't think - in fact, the fact that I don't would say that there was not a rumor mill that you should worry about.

But I will say that, if you recall in the fourth quarter, we talked about we had done a strategic review of the organization and we'd taken a substantial charge as a result of that review. If I were to pin where our perhaps distraction might have been, it was around that process more than anything else, if in fact - to the extent the sales are caused by our own efforts, it's more related to that. But I have to say that media spend, advertising spend, market research tend to be at the front ends of the economic issues that occur, so that to me is the bigger cause of what's been happening here.

Todd Van Fleet - First Analysis Corp.

So your expectation, we'll see a delayed impact, then, perhaps, in the European marketplace similar to what we've seen here in the U.S.?

Ronald E. Salluzzo

Well, yes. We don't know how deep. We don't know any of that. We've seen good performance so far, but a good example, as I said earlier, Singapore has shown us great growth and they just declared a recession. We don't know what the lag on that will be.

My hope - it's more than a hope - my expectation is that in some of our growing units - France, Germany, Asia - our market share is so small to begin with that we, you know, the overall malaise that would affect a more mature organization may not affect us as badly. But we do believe that growth, for instance, in the Asian market, instead of being double digits, might be down to 3% or 4% with the latest thing we saw versus a contraction that we'll see in other units.

Operator

Your next question comes from Randy Hugen - Piper Jaffray.

Randy Hugen - Piper Jaffray

To follow up on part of the last line of questioning, looking forward a bit, how shall we think about cost associated with the change in strategy? Should we expect those expenses to increase ahead of the top line improvements, especially given the macro environment?

Ronald E. Salluzzo

Well, I think, as Kimberly said earlier, we've really got to take a hard look at the whole organization. And the timing, I'm uncomfortable talking to specific timing at this point. I do think that, because financially we're in a fairly good spot, we've got the resources that we can commit, and we're going to commit them to succeed. So I think the question of how quickly it's going to turn is really up in the air and I think, as Kimberly said in her opening remarks, she's looking forward to coming back at the next earnings call to talk more about that.

Randy Hugen - Piper Jaffray

Given the use of the outside consultants and some of the headcount reductions in Q1, what kind of G&A level should we look for in Q2?

Ronald E. Salluzzo

Well, we would expect G&A pre-charges to go down. We see some, for instance, the actions we took in Q2 in terms of reduction in force, we will get the benefit of a couple of months. The annualized value, obviously we won't realize in those two months. But where we're really see the benefit of that is going to be starting in Q3 because we won't have the charges and we will have had the benefit of the changes. But pre-specials we expect G&A to go down. Now the size of the special charges related to using outside consultants and the charges we have to take for severance will clearly affect Q2 in total.

Randy Hugen - Piper Jaffray

Do you still plan on using the special consultants in the second quarter?

Ronald E. Salluzzo

We are, yes.

Randy Hugen - Piper Jaffray

And then just kind of an order of magnitude on how much, excluding those special charges, do you think G&A has been reduced?

Ronald E. Salluzzo

Well, on an annualized basis, with the actions so far, a couple million dollars.

Randy Hugen - Piper Jaffray

And how's the business trend in October? Should we expect a year-over-year revenue decline similar to Q1 or greater given the sales declines?

Ronald E. Salluzzo

Well, just what we've seen so far, as I mentioned earlier, was a stabilization in health care. We've seen some declines in other industries. We've not reached the bottom of the issue, but we've also seen some growth in some other units. So on a consolidated basis, I don't expect the decline to match Q1. I expect it to be smaller, but I would expect some decline against last year.

Operator

Your next question comes from [Unidentified Analyst] - Needham & Company.

Unidentified Analyst - Needham & Company

Normally you see pretty strong seasonality in the December quarter, but with the Europe economy slowing as well, do you expect to be able to see some positive sequential growth?

Ronald E. Salluzzo

Yes. We'll see positive sequential growth Q1 to Q2. My comparative was to year-over-year quarters, not sequential, and I thought that was what the previous question was about.

Unidentified Analyst - Needham & Company

And also, in terms of the size of the U.S. team, how big is it now after the most recent cuts?

Ronald E. Salluzzo

Well, if you look in the press release you'll note that from Q4 of last year to Q1 of this year, our direct labor - consolidated, not U.S. - went down 11%. And the job action we just took is about a 4% job action just in the U.S.

Operator

(Operator Instructions) Your next question comes from Mark May - Needham & Company.

Mark May - Needham & Company

Kimberly's background and past accomplishments are impressive, and I'd just like to congratulate the Board on her recruitment.

My question is: It looks as though - I haven't gone through the numbers in awhile - but maybe you were not in compliance with credit agreement covenants as of the quarter. Is that correct?

Ronald E. Salluzzo

That is incorrect, Mark. We are in compliance at the quarter and we'll be filing that certificate in the next week or so.

Mark May - Needham & Company

Would you mind kind of running through the numbers there, what the metrics are?

Ronald E. Salluzzo

Well, the two metrics - and maybe we can do the detailed math offline because without a piece of paper it might get difficult - but let me remind you of our two standards. We have two covenants that are financial. One is that our interest costs cannot be more than onethird of EBITDA. Let me state it the way - EBITDA has to be three times interest costs. I apologize for reversing that. Secondly that our leverage ratio is that our debt cannot be more than 2.5 times EBITDA. We are in compliance with both of those. I don't know why you think we're not.

Mark May - Needham & Company

No, that makes sense.

Ronald E. Salluzzo

Okay.

Operator

Your next question comes from [Tim Archer] - Octagon Financial.

Tim Archer - Octagon Financial

I wanted to ask, as there've been various stories about it, whether the company had received any approaches for merger or purchase, either under the new CEO or under the old CEO, and if that process is ongoing or has been ongoing?

Ronald E. Salluzzo

I think we declared at the end of last year that we had done a strategic review and that had ended. We have no update to make to that.

Tim Archer - Octagon Financial

Has an approach been made this year as, I guess, in addition to that process?

Ronald E. Salluzzo

I have to beg off the question because we don't comment on things that don't require public disclosure. And the main reason I'm not going to answer it is because, if in fact I say no now or yes now, then later on, if you ask a question and I beg off, you'll wonder why I'm doing that. So as a matter of policy we don't respond to that.

Tim Archer - Octagon Financial

I understand that but, not to sort of drive on at the same thing, there's been a fair amount of speculation about it and perhaps you'd be able to tell us when we will get an update on that.

Ronald E. Salluzzo

When there's something to report.

Operator

(Operator Instructions) There are no further questions. I would now like to turn the call over to Kimberly Till for closing remarks.

Kimberly Till

Okay. I just wanted to thank you all for joining us. Thank you for your interest in the company, and we look forward to the next earnings call. Thank you very much.

Operator

Thank you for your participation in today's conference. This concludes the presentation. Everyone have a great day.

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Source: Harris Interactive F1Q09 (Qtr End 9/30/08) Earnings Call Transcript
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