Good day, and welcome to the first quarter 2012 earnings conference call hosted by Harte-Hanks. Today’s conference is being recorded. At this time, I'd like to turn the conference over to Mr. Larry Franklin. Please go ahead, sir.

Thank you, and good morning. On the call with me today is Doug Shepard, our EVP and Chief Financial Officer; Robert Munden, Senior Vice President and General Counsel; Jessica Huff, Vice President of Finance and Controller; and Gary Skidmore, EVP and President of Harte-Hanks Direct Marketing. Before I begin my remarks, Robert will make a few statements.

Thanks, Larry. Our call may include forward-looking statements. Examples may include statements about our strategies, initiatives and business plans, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, legal and regulatory matters, economic conditions in the United States and other markets and other statements that are not historical facts. Actual results may differ materially from those projected or implied in these statements because of various risks and uncertainties, including those described in our most recent Form 10-K and other filings with the SEC and in the cautionary statement in today's earnings release. Our call may also include non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the Investor Relations section of our website at harte-hanks.com. I'll now turn the call back over to Larry.

Thanks, Robert. Before we talk about the individual businesses, just a couple of comments about the company results. Revenues decreased 2.6%, operating income was down 9.7%, net income was down 14.2% and earnings per share of $0.11, down 8.3%. And I'll add some detail about the performance as we talk about the 2 businesses, and then when I'm finished, Doug will provide some additional detail. Let's look first at Shoppers. As we celebrate our 50th anniversary at the Pennysaver this year, we remember the significant accomplishments and the many people who have contributed to our success over our 40 years in that business. And we continue to look for new and better ways to connect buyers and sellers at the local level. Shopper revenues of $55.7 million for the quarter was down 5.9%, the lowest decline we've seen in the past 4 quarters. The first quarter is usually the lowest revenue quarter for our Shopper business during the year. ROI for the quarter was down $1 million, and we'll add some color to that decline in just a moment. But first, looking at the revenues and looking at the most important business sectors that we serve. Real estate, while still down low double digits, was slightly better than the previous quarters, and this was the fifth quarter of slight improvement. The broad services category decline was greater than the previous quarters because of reduced spending in Health Services, a subcategory that had grown very well for many quarters. And also, Educational Services are also down double digit from cutbacks from some of the schools. Consumer spending showed growth in the quarter for the first time in several quarters on the strength of home furnishings. Automotive was up single digit, the best performance in several quarters, with dealers in repairs and…

Thank you, Larry, and good morning. Here's the company-wide overview of the first quarter. Consolidated revenues decreased 2.6% for the quarter. Direct Marketing decreased 1.2%, and Shoppers decreased 5.9% for the quarter. Consolidated operating income decreased 9.7%. Direct Marketing declined 2%, while Shoppers decreased $1 million. Consolidated operating income margin was 6.6%, below last year's first quarter of 7.1%. For the quarter, our free cash flow is $9.9 million versus $9.6 million in 2011. We spent $3.1 million on capital expenditures compared to $4.4 million in the first quarter of 2011. Turning to the 2 businesses. In the quarter, Direct Marketing revenue decreased 1.2%, and operating income decreased 2%. Operating income margins were relatively flat at 11.2% compared to a margin of 11.3% in the 2011 first quarter. With the reduced spending from a major retailer that changed its marketing strategy, this performance exceeded our expectations. Consistent with the fourth quarter, our Agency and Contact Centers businesses had a strong quarter again, partially offsetting the impact of the reduced spending from a large retailer. In the quarter, our Retail vertical market represented 26% of Direct Marketing revenue. High tech was 25%. Select markets were 25%. Health care and pharma was 11%, and financial was 13%. Our top 25 Direct Marketing customers represented 40% of Direct Marketing revenue in the quarter. Shoppers' first quarter revenue decreased 5.9%, and operating income decreased $1 million. ROP revenues decreased more than distribution revenues, and we experienced a bigger decrease in the number of accounts we published than in revenue per account. Our first quarter effective tax rate was 39.8%, which is consistent with 2011 tax rate. For 2012, we expect our effective tax rate to be approximately 38% to 40%. On the balance sheet, net accounts receivable were $133.8 million versus $156.4 million at year end 2011. Days sales outstanding at the end of March was 63 days compared to 65 days at December of 2011. Having retired one of our term loans during the quarter, we have reduced our total debt balance by $61.5 million to $117.9 million compared to $179.4 million at the end of 2011. Our net debt balance was $87.5 million versus $92.7 million at 12/31/11, a reduction of $5.2 million. We currently have $70 million available under our revolver, excluding outstanding letters of credit, in addition to a cash balance of approximately $30 million at the end of the quarter. With that, operator, we'll open the call for questions.

[Operator Instructions] We'll take our first question from Alexia Quadrani with JPMorgan.

Just a couple of questions. First, could you give us a sense what the growth would have been in the Direct Marketing segment if you took out the J. C. Penney hit? And second question, if you could just, like, give us some sense on, I guess, what advertisers are saying against staying on the Direct Marketing side about their spending plans for the rest of the year. Are you feeling any more sense of optimism? Or is it more of the same?

Okay. On the J. C. Penney question, I think you asked about the revenue impact, it'd probably 2 to...

2 to 3 points.

2 to 3 points difference. And on the conversations from the advertisers, Gary?

Our customers are -- I would say are slightly more optimistic but still very cautious. We see plans changing frequently as customers approach new campaigns. So I would say that there's some optimism, but it's very, very slight.

And where you're not seeing necessarily a pickup in spending or you're not seeing real growth, is it a decision to maybe move away from a Direct Marketing vehicle? Or is it more just, "Let's be cautious with our budget given the environment?"

The sense I get from talking to our people is that it's more just the cautiousness. It's not moving away. There's still people that are moving their budgets around some. But we haven't seen in the change from the Penney's strategy of moving away from mail to broadcast. That's not been the case with our other clients. Isn't that right, Gary?

That's correct.

We'll take our next question from Carter Malloy with Stephens.

First of all, so for -- you're saying that J. C. Penney is actually coming back a little bit at least, and you certainly got some impressive new wins inside of your Direct Marketing business. Is it safe to assume that we turn that back up to a little bit of growth going forward? Or should we remain cautious in our outlooks?

No, because -- well, we're happy, certainly, with the wins that we're getting. But as we said, as we look to the year, we expect revenues to be up slightly for the year, because while Penney has added back some business, it's still a -- just with the 2% to 3%, you can figure that out, it's still significant revenue growth -- revenue loss. But we expect to have revenue growth for the year.

Got it, okay. And then on the cash flow statement side, can you talk a little bit about CapEx and working capital going forward and what that impact is on your free cash flow outlook?

Yes, we -- at the end of the year, last call, whenever that was, last -- end of January, 1st of February, we said that our CapEx for the year, we expect to be in the $20 million range. We're still comfortable with that and just to reiterate that. And working capital, things of that nature, nothing unusual. We should follow historical patterns and flow through from that perspective.

Our next question comes from Dan Salmon with BMO Capital Markets.

With your leverage now coming down to a fairly light level here, just around onetime and some considerable paydown in the quarter, just wondering if you're thinking bigger picture around some larger sort of dry powder opportunities, whether it's acquisitions, accelerated buyback. But you've always had a strong balance sheet, and it's at, perhaps, the strongest level of the past few years and would seem to offer some opportunity for some bigger opportunities. And just interested to hear your thoughts on that.

Well, it is. I mean, the balance sheet is very strong, and we continue, as we say each quarter, to look at opportunities in all those areas. We've got to find opportunities that we think adds to our capabilities but also has a good business model. And there's -- we see a lot of deal opportunities, and we continue to look at them but not to the point that we can project that we're going to do anything differently than we've been doing over the last few quarters, except that we feel very good that we paid down that last debt without having to use any of our revolver. So we -- you're right. We got the capacity to look at all the acquisitions and other opportunities to use our cash, for sure.

[Operator Instructions] Our next question comes from Edward Atorino with Benchmark.

Larry, are advertisers putting the money back into the budgets or moving to television? You got any idea what the dynamic is in terms of spending patterns? The economy's sort of iffy. Are they just hanging on to the bucks or putting them someplace else?

We're -- there are some selected movements of dollars among the various channels. But -- and as Gary said, it's a little more optimistic but still cautious.

And it varies by industry.

Some industries are a little more optimistic than others, and some are very cautious.

Are the Retail related to cautious people?

Retail customers are always cautious.

And conservative.

And it appears there are no further questions at this time. I'd like to turn the conference back to our speakers for any additional or closing remarks.

Thank you very much for your questions and your time and support for the company, and for all of our people that are listening, let's make quarter 2 a good one. Thanks.

And that concludes today's conference. Thank you for your participation.