Cautionary Note Regarding Forward-Looking Statements

This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains "forward-looking statements" within the meaning of the federal securities laws.

All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may also be included in our other public filings, press releases, our website and oral and written presentations by management. Statements other than historical facts are forward-looking and may be identified by words such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "seeks," "could," "intends," or words of similar meaning. Examples include statements regarding (1) our strategies and initiatives, (2) adjustments to our cost structure and other actions designed to respond to market conditions and improve our performance, and the anticipated effectiveness and expenses associated with these actions, (3) our financial outlook for revenues, earnings per share, operating income, expense related to equity-based compensation, capital resources and other financial items, (4) expectations for our businesses and for the industries in which we operate, including with regard to the negative performance trends in our Shoppers business and the adverse impact of the ongoing economic downturn in the United States and other economies on the marketing expenditures and activities of our Direct Marketing clients and prospects, (5) competitive factors, (6) acquisition and development plans,
(7) our stock repurchase program, (8) expectations regarding legal proceedings and other contingent liabilities, and (9) other statements regarding future events, conditions or outcomes.

These forward-looking statements are based on current information, expectations and estimates and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to vary materially from what is expressed in or indicated by the forward-looking statements. In that event, our business, financial condition, results of operations or liquidity could be materially adversely affected and investors in our securities could lose part or all of their investments. Some of these risks, uncertainties, assumptions and other factors can be found in our filings with the Securities and Exchange Commission, including the factors discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K) and any updates thereto in our Forms 10-Q and in the "Cautionary Note Regarding Forward-Looking Statements" in our first quarter 2009 earnings release issued on May 5, 2009. The forward-looking statements included in this report and those included in our other public filings, press releases, our website and oral and written presentations by management are made only as of the respective dates thereof, and we undertake no obligation to update publicly any forward-looking statement in this report or in other documents, our website or oral statements for any reason, even if new information becomes available or other events occur in the future.

Overview

The following MD&A section is intended to help the reader understand the results of operations and financial condition of Harte-Hanks, Inc. (Harte-Hanks). This section is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements contained elsewhere in this report and our MD&A section, financial statements and accompanying notes to financial statements in our 2008 Form 10-K. Our 2008 Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates, and contractual obligations.

Harte-Hanks is a worldwide direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to a wide range of local, regional, national and international consumer and business-to-business marketers. We manage our operations through two operating segments: Direct Marketing and Shoppers. We derive revenues from the sale of direct marketing services and shopper advertising services.

Direct Marketing services are targeted to specific industries or markets with services and software products tailored to each industry or market. Currently, our Direct Marketing business services various vertical markets including retail, high-tech/telecom, financial services, pharmaceutical/healthcare, and a wide range of selected markets. We believe that we are generally able to provide services to new industries and markets by modifying our services and applications as opportunities are presented. Depending on the needs of our clients, our Direct

Marketing capabilities are provided in an integrated approach through more than 30 facilities worldwide, more than 10 of which are located outside of the United States. Each of these centers possesses some specialization and is linked with others to support the needs of our clients. We use various capabilities and technologies to enable our clients to capture, analyze and disseminate customer and prospect data across all points of customer contact. Specifically, we help companies:

• gain insight into target markets;

• build better information about customers and prospects;

• turn customer information into marketing strategy;

• design effective communications;

• deliver communications and manage contacts; and

• provide data analysis, profiling, quality and reporting software and services.

We offer a full complement of capabilities and resources, including:

• agency and creative services;

• database marketing solutions;

• data quality software and services with Trillium Software;

• digital marketing;

• fulfillment and contact centers;

• mail engineering and logistics; and

• personalized and targeted mail.

Revenues from the Direct Marketing segment represented approximately 67% of our total revenue for the three months ended March 31, 2009.

Harte-Hanks Shoppers is North America's largest owner, operator and distributor of shopper publications, based on weekly circulation and revenues. Shoppers are weekly advertising publications delivered free by standard mail to households and businesses in a particular geographic area. Shoppers offer advertisers a targeted, cost-effective local advertising system, with virtually 100% penetration in their area of distribution. Shoppers are particularly effective in large markets with high media fragmentation in which major metropolitan newspapers generally have low penetration. At March 31, 2009, our Shoppers were zoned into more than 950 separate editions with total circulation of approximately 11.5 million addresses in California and Florida each week. Our Shoppers segment also provides advertising and other services online through our websites, PennySaverUSA.com (California) and TheFlyer.com (Florida). These sites are online advertising portals, bringing buyers and sellers together through our online products, including local classifieds, business listings, coupons, special offers and Power Sites. Power Sites are templated web sites for our customers, optimized to help small / medium sized business owners establish a web presence and improve their lead generation.

Revenues from the Shoppers segment represented approximately 33% of our total revenue for the three months ended March 31, 2009.

During the first quarter of 2009, our businesses continued to face challenging economic environments, which negatively impacted our financial performance. Marketing budgets are often more discretionary in nature and easier to reduce in the short-term than other expenses in response to weak economic conditions. Difficult economic conditions have resulted in reduced demand for our products and services due to consolidation or, in some cases, bankruptcies of customers and prospective customers in the industry verticals that we serve, and these economic conditions may result in collection difficulties and bankruptcy preference actions to recover certain amounts previously paid to us by our clients.

Direct Marketing revenues are dependent on, among other things, national, regional and international economic and business conditions. During the first quarter of 2009, the ongoing economic recession in the United States and other economies continued to adversely impact the marketing expenditures and activities of our customers. What began in prior quarters as caution with spending plans became even more pronounced over the last two quarters, resulting in significant reductions and delays in spending by clients in the face of extreme economic uncertainty.

Revenues from our Shoppers business are largely dependent on local advertising expenditures in the California and Florida geographies in which we operate. Such expenditures are substantially affected by the strength of the local economies in those markets. During the first quarter of 2009, the negative trends and economic conditions that we have seen since the second half of 2007 in California and Florida continued. These conditions were initially created by weakness in the real estate and associated financing markets and have spread across virtually all categories.

Given the external environment, we face an uncertain revenue outlook for the remainder of 2009, and believe that our financial performance will continue to be negatively impacted. As a result, we have taken, and are continuing to take, actions designed to align our expense base and structure to the external economic environment facing our businesses. These actions include head count reductions, consolidating businesses and closing facilities, reductions of marginal Shoppers circulation, wage freezes and reductions, tightened management of capital spending, non-client travel restrictions and enhanced controls around accounts receivable and collections. Nevertheless, we cannot predict the impact of future economic conditions or the ultimate effectiveness and expenses associated with our efforts to address those economic conditions.

Our principal operating expense items are labor, postage and transportation.

Results of Operations

Operating results were as follows:

                                                         Three months ended
In thousands, except per share amounts          March 31, 2009         March 31, 2008       Change
Revenues                                      $          217,674      $        268,509       -18.9 %
Operating expenses                                       203,916               242,698       -16.0 %

Operating income                              $           13,758      $         25,811       -46.7 %


Net income                                    $            7,115      $         13,586       -47.6 %


Diluted earnings per share                    $             0.11      $           0.21       -47.6 %

1st Quarter 2009 vs. 1st Quarter 2008

Revenues

Consolidated revenues decreased 18.9%, to $217.7 million, and operating income decreased 46.7% to $13.8 million in the first quarter of 2009 compared to the first quarter of 2008. Our overall results reflect decreased revenues of $32.3 million, or 18.0%, from our Direct Marketing segment and decreased revenues of $18.5 million, or 20.7%, from our Shoppers segment. Direct Marketing experienced a year-over-year high single-digit revenue decline from our pharma/healthcare vertical and double-digit declines from all of our other vertical markets. These results reflect the effects of the ongoing economic recession on our Direct Marketing business. Shoppers revenue performance reflects the continued impact that the difficult economic environments in California and Florida are having on our Shoppers business. The decrease in Shoppers revenues was the result of decreased sales in established markets, including declines in virtually every revenue category, and curtailment of circulation of approximately 1.5 million addresses from July of 2008 to February of 2009.

Operating Expenses

Overall operating expenses decreased 16.0%, to $203.9 million, in the first quarter of 2009 compared to the first quarter of 2008. The overall decrease in operating expenses was driven by decreased operating expenses in Direct Marketing of $30.3 million, or 19.2%, decreased operating expenses in Shoppers of $8.4 million, or 10.2%, and decreased general corporate expense of $0.2 million, or 5.0%. The Direct Marketing decrease was primarily a result of headcount reductions, lower outsourced costs and logistics-related transportation costs resulting from lower volumes, and travel restrictions. The decrease at Shoppers was primarily due to circulation curtailments, declines in ad placements and distribution volumes, headcount reductions and decreased promotion-related expense.

Net Income/Earnings Per Share

Net income decreased 47.6%, to $7.1 million, and diluted earnings per share decreased 47.6%, to $0.11 per share, in the first quarter of 2009 when compared to the first quarter of 2008. The decrease in net income was a result of decreased operating income from both Shoppers and Direct Marketing, partially offset by lower interest expense, lower other nonoperating expense and lower general corporate expense.

Direct Marketing

Direct Marketing operating results were as follows:



                                        Three months ended
           In thousands          March 31, 2009     March 31, 2008    Change
           Revenues             $        146,821   $        179,110    -18.0 %
           Operating expenses            127,597            157,867    -19.2 %

           Operating income     $         19,224   $         21,243     -9.5 %

1st Quarter 2009 vs. 1st Quarter 2008

Revenues

Direct Marketing revenues decreased $32.3 million, or 18.0%, in the first quarter of 2009 compared to the first quarter of 2008. All vertical market revenues experienced declines in the first quarter compared to the first quarter of 2008. Our pharma/healthcare vertical experienced a revenue decline in the high single digits while our retail and select verticals both had decreases in the low teens. The high tech/telecom vertical experienced a revenue decrease in the high teens. Financial services revenue declined 35% for the quarter. These results reflect the effects of the ongoing economic recession on our Direct Marketing business. Revenues from our vertical markets are impacted by, among other things, the economic fundamentals of each industry, various market factors, including the demand for services by our clients, and the financial condition of and budgets available to specific clients. Revenues for Direct Marketing are affected by a number of factors, including general national and international economic trends.

Short-term revenue performance will depend on, among other factors, the impact and duration of the ongoing economic recession and overall strength of the national and international economies and how successful we are at maintaining and growing business with existing clients, acquiring new clients and meeting client demands. We believe that in the long term an increasing portion of overall marketing and advertising expenditures will be moved from other advertising media to the targeted media space, the results of which can be more effectively tracked, enabling measurement of the return on marketing investment, and that our business will benefit as a result. Standard postage rates increased in 2006 and 2008 and will increase again on May 11, 2009. This May 2009 increase is expected to increase the average postage rate for our Direct Marketing customers by

approximately 3.8%. Postage rates influence the demand for our Direct Marketing services even though the cost of mailings is borne by our clients and is not directly reflected in our revenues or expenses. There is no assurance that future postal increases will not have an adverse impact on us.

Operating Expenses

Operating expenses decreased $30.3 million, or 19.2%, in the first quarter of 2009 compared to the first quarter of 2008. Labor costs decreased $11.9 million, or 14.3%, due to headcount reductions, lower commissions as a result of revenue performance, and lower stock-based compensation. This decrease was partially offset by a $1.3 million increase in severance. Production and distribution costs decreased $13.2 million, or 24.5%, due to lower outsourced costs as a result of lower outsourced volumes, and lower logistics-related transportation costs resulting from reduced transportation volumes and decreased transportation costs. General and administrative expense decreased $4.0 million, or 29.5%, due primarily to less travel. Depreciation and amortization expense decreased $1.1 million, or 16.4%, due to certain intangible assets and software becoming fully amortized and decreased capital expenditures in the last several quarters.

Direct Marketing's largest cost components are labor, outsourced costs and transportation costs. Each of these costs is somewhat variable and tends to fluctuate with revenues and the demand for our direct marketing services. Fuel costs have increased significantly in the last few years and were at historically high levels throughout much of 2008 before decreasing significantly in the fourth quarter of 2008 and holding at those levels in the first quarter of 2009. Future changes in fuel costs will continue to impact Direct Marketing's total production costs and total operating expenses and may have an impact on future demand for our transportation services.

As a result of the tough economic conditions, we have taken, and are continuing to take, actions to adjust our expense base to reduced revenue levels. These actions include headcount reductions, consolidating businesses and closing facilities, wage freezes and reductions, tightened management of capital spending, non-client travel restrictions and enhanced controls around accounts receivable and collections. We realized a positive impact on our first quarter 2009 Direct Marketing operating costs and we anticipate realizing a positive impact on the full year 2009 Direct Marketing operating costs as a result of these actions.

Shoppers



                                           Three months ended
        In thousands               March 31, 2009      March 31, 2008    Change
        Revenues                  $         70,853     $        89,399    -20.7 %
        Operating expenses                  73,338              81,694    -10.2 %

        Operating income (loss)   $         (2,485 )   $         7,705   -132.3 %

1st Quarter 2009 vs. 1st Quarter 2008

Revenues

Shoppers revenues decreased $18.5 million, or 20.7%, in the first quarter of 2009 compared to the first quarter of 2008. These results reflect the continued impact that the difficult economic environments in California and Florida are having on our Shoppers business. The decrease in revenues was the result of decreased sales in established markets, including declines in virtually every revenue category, and curtailment of circulation of approximately 250,000 in July of 2008, 500,000 in December of 2008 and 700,000 in February of 2009. The net impact of these circulation curtailments was a reduction in Shoppers revenues of $3.9 million in the first quarter of 2009 compared to the first quarter of 2008. The net impact of these circulation curtailments on the full year 2009 compared to the full year 2008 will be a reduction in Shoppers revenues of $15.5 million. At March 31, 2009 our Shoppers circulation reached approximately 11.5 million addresses each week. We continue to evaluate all of our circulation performance and may make further circulation reductions in the future as part of our efforts to address the difficult economic conditions in California and Florida.

Operating Expenses

Operating expenses decreased $8.4 million, or 10.2%, in the first quarter of 2009 compared to the first quarter of 2008. Total labor costs decreased $4.9 million, or 16.2%, as a result of reductions in our Shoppers workforce due to consolidations and circulation curtailments. Severance costs for the quarter were $0.9 million compared to $1.3 million in the first quarter of 2008. Total production costs decreased $2.8 million, or 6.5%, due primarily to decreased postage costs resulting from circulation curtailments and distribution volumes, decreased offload printing costs due to decreased distribution volumes and decreased paper costs due to circulation reductions and a decline in ad placements. This decrease was partially offset by $1.6 million in lease write-offs related to the consolidations and circulation curtailments. Total general and administrative costs decreased $1.6 million, or 23.7%, due primarily to lower promotion-related expense due to revenue levels, and lower insurance expense due to favorable workers compensation experience. This decrease was partially offset by an increase in bad debt expense. Depreciation and amortization expense increased $1.0 million, or 45.4%, due to the acceleration of depreciation of assets related to the circulation curtailments and plant consolidation.

Shoppers' largest cost components are labor, postage and paper. Shoppers' labor costs are partially variable and tend to fluctuate with the number of zones, circulation, volumes and revenues. Standard postage rates increased in 2006 and 2008 and will increase again on May 11, 2009. This May postage increase is expected to increase Shoppers postage rates by approximately 1.4%. The overall impact of this rate increase on Shoppers postage costs will be dependent on additional factors such as average book size and distribution volumes. Paper prices were down for much of 2008 before increasing in the second half and holding steady at those levels in the first quarter of 2009. We expect paper prices to increase in the second quarter of 2009 and then decline in the second half of 2009. Average paper prices for the full year 2009 are expected to be approximately 5.0% higher than our average prices for the full year 2008. This increase and future changes in paper prices will affect Shoppers production costs. At the end of the first quarter of 2009, we completed the consolidation of our two Florida production facilities into one facility. We incurred approximately $2.0 million in costs for this action. The expected 2009 savings from this consolidation will be offset by the 2009 first quarter charges.

The general economic conditions, initially created by weakness in the real estate and associated financing markets, in the California and Florida geographies in which we operate remain extremely challenging. We have taken, and are continuing to take, actions to reduce our cost base in Shoppers. These actions include headcount reductions, consolidating businesses and closing facilities, reductions of marginal Shoppers circulation, wage freezes and reductions, tightened management of capital spending and enhanced controls around accounts receivable and collections.

General Corporate Expense

General corporate expense decreased $0.2 million, or 5.0%, in the first quarter of 2009 compared to the first quarter of 2008. This decrease was primarily due to lower payroll, stock-based compensation and professional services, partially offset by an increase in pension expense.

Interest Expense

Interest expense decreased $1.3 million, or 34.1%, in the first quarter of 2009 compared to the same period in 2008. This increase is due to lower outstanding debt levels and lower interest rates in the first quarter of 2009 than in the first quarter of 2008. The higher debt levels in the first quarter of 2008 were primarily the result of share repurchases.

Interest Income

Interest income was down in the first quarter of 2009 compared to the same period in 2008 due to lower interest rates on investments.

Other Income and Expense

Other net expense decreased $0.7 million or 97.3% in the first quarter of 2009 compared to the first quarter of 2008, primarily due to net foreign currency transaction gains of $0.3 million in 2009 compared to losses of $0.3 million in 2008.

Income Taxes

Income tax expense decreased $3.7 million in the first quarter of 2009 compared to the same period in 2008. The effective tax rate was 37.0% for the first quarter of 2009, up slightly from 36.8% for the first quarter of 2008.

Liquidity and Capital Resources

Sources and Uses of Cash

As of March 31, 2009, cash and cash equivalents were $49.7 million, increasing $19.6 million from December 31, 2008. This net increase was a result of net cash provided by operating activities of $33.2 million, offset by cash used in investing activities of $2.1 million and net cash used in financing activities of $11.4 million.

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2009 was $33.2 million, compared to $37.0 million for the three months ended March 31, 2008. The $3.9 million year-over-year decrease was attributable to lower net income and changes within working capital assets and liabilities.

For the three months ended March 31, 2009, our principal working capital changes, which directly affected net cash provided by operating activities, were as follows:

• A decrease in accounts receivable attributable to lower revenues in the first quarter of 2009 than in the fourth quarter of 2008. Days sales outstanding of approximately 61 days at March 31, 2009 increased from 58 days at December 31, 2008 and 59 days at March 31, 2008;

• A decrease in inventory due to Shoppers circulation curtailment and lower Shoppers ad placements;

• A decrease in prepaid expenses and other current assets due to timing of payments;

• A decrease in accounts payable due to overall lower operating expenses in the first quarter of 2009 than in the fourth quarter of 2008;

• A decrease in accrued payroll and related expenses due to timing of payroll payments and lower accrued commissions at March 31, 2009 than at December 31, 2008 due to 2009 revenue performance;

• A decrease in customer deposits and unearned revenue due to timing of receipts and decrease in revenue levels; and

• An increase in income taxes payable due to the timing of tax payments.

Investing Activities

Net cash used in investing activities was $2.1 million for the three months ended March 31, 2009, compared to $15.3 million for the three months ended . . .