Good day, and welcome to the Third Quarter 2012 Earnings Conference Call hosted by Larry Franklin. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Larry Franklin. Please go ahead, sir.

Good morning. On the call with me today is Doug Shepard, our Executive Vice President and Chief Financial Officer; Robert Munden, Senior Vice President and General Counsel; and Jessica Huff, our Controller. 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, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, litigation developments and regulatory changes, the economies of the U.S. and other markets we serve, 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 talking about the individual businesses, a couple of comments about company results. Revenue decreased 8%, operating income was down 21.7%, earnings per share was $0.15 compared to $0.19 in the third quarter of 2011, excluding just under $1 million of Direct Marketing restructuring charges. I'll add some details about each of the businesses and then I'll turn it over to Doug, who will give some additional detail. Look first at Shoppers. Shopper revenues of $54.8 million for the quarter was down 9.9%. OI for the quarter was $614,000. Looking at some of the revenue categories. Real estate was still down in the low-double digits, which was slightly better than the previous quarter. In broad services category, the decline was greater than the previous quarter, primarily driven by Educational Services, which continues to be the worst-performing sector of the services category and actually accounted for 29% of the Shopper revenue decline. Consumer spending was down for the quarter, mid-single digit, after showing a slight growth -- after showing slight growth in the previous 2 quarters. The Automotive sector was up for the third consecutive quarter. Communications declined slightly after 2 consecutive quarters of growth. The ROP revenue, the in-book revenue, declined slightly more than the distribution or insert business or the distribution products. Our PowerSites revenue was up 16.7%. As you know, this is the centerpiece of our web strategy. We continue to average over 6,500 PowerSites per week in Q3. And following the restructuring of the web unit that we talked about in Q2, our full attention has been focused on growing this PowerSite revenues and looking at ways to make it even more effective as we move into 2013. Turning to expense. Our cost expenses decreased $3.5 million. Postage rates were up 2.9% in Q3. Newsprint…

Thank you, Larry, and good morning. Here's a company-wide overview of the third quarter. Consolidated revenues decreased 8% for the quarter, Direct Marketing decreased 7.2% and Shoppers decreased 9.9% for the quarter. Consolidated operating income decreased 21.7% for the quarter. Excluding restructuring charges, Direct Marketing declined 4.5%, while Shoppers increased -- sorry, Shoppers decreased $2.5 million. Consolidated operating income margin was 8.3% below last year's third quarter of 9.7%. For the quarter, our free cash flow was $11.3 million versus $12.8 million in 2011. Year-to-date, our free cash flow was $32.3 million versus $31.2 million through the first 9 months of last year. We spent $2.9 million on capital expenditures this past quarter compared to $5 million in the third quarter of 2011. Turning to our businesses. First, with Direct Marketing. In the quarter, Direct Marketing revenue decreased 7.2%, and operating income, excluding restructuring charges, decreased 4.5%. Excluding charges, operating income margins increased to 13.9% compared to a margin of 13.5% in the 2011 third quarter. Direct Marketing results continue to reflect the impact of J.C. Penney changing its direct marketing strategy from direct mail to broadcast, with a reduction in mail services contributing about 1/3 of the total decline. Our financial vertical increased 5% compared to the prior year quarter. Our pharma vertical decreased 16%, high tech experienced a 12% revenue decline, our select vertical declined 9%, and our retail vertical declined 4%. In the quarter, our retail vertical market represented 28% of Direct Marketing revenue, high tech was 23%, select markets were 25%, healthcare was 9% and financial was 15%. Our top 25 Direct Marketing customers represented 44% of Direct Marketing revenue for the quarter. Now turning to Shoppers. Shoppers' third quarter revenue decreased 9.9% and operating income decreased $2.5 million. ROP or book revenues continue to decrease…

[Operator Instructions] We'll take our first question from Michael Kupinski with Noble Financial.

While you're a little weaker in Direct Marketing revenues, you were able to significantly beat my margin estimate, especially even if you back out that charge. Can you give us some thought about the margins going forward? And especially, Larry, your comment about that you think that even though you're expecting a revenue decline that you think that expenses are going to decline further. Where are you seeing -- what are the opportunities to cut cost further? And do you think that the margins in the fourth quarter in Direct Marketing obviously are going to be better than the fourth quarter of last year? And how you look at margins going forward in 2013 in Direct Marketing?

Well, the margins in the Q4 compared to Q3, as we said back in the second quarter, we think that the margin will be down less than revenue. It's difficult to answer your question with any real specifics, given all of the changes that are taking place in the company at the moment as we realign people, processes, et cetera, because there has been a significant change in the way our organization looks today from -- well, there've been significant changes put in place to get us to where we want to be. We believe that in certain areas where we take a harder look at where -- how we're going to market, what we're selling, et cetera, that there is an opportunity to provide more value, get a little higher value proposition to the client. It's going to be a work in process for the next 2 to 3 quarters, but we do believe there is room over time, particularly over time, to move our Direct Marketing margins up from these levels. But it's not going to be a straight line.

And where do you think is -- are we expected to see some more charges in the fourth quarter related to personnel and so forth? Or is that the restructuring charge in the third quarter largely complete that?

If -- there could be some more, but it would not be at the level of even the less than $1 million, or we don't think it'd be at the level even close to $1 million in the third quarter. Ain't that right, Doug?

Yes.

And then the Shoppers business, the margins obviously were deteriorated, of course, the revenues were a lot lower than expected. Were there -- are there further opportunities to cut cost there? Can you just give us some thoughts about margin outlook as we go into the fourth quarter?

Well, as you know, that group has taken a lot of cost out of that business. And there was actually -- there were actually additional cost taken out in the third quarter, not to the extent that we talked about add-backs or anything like that. But again, we will see the impact of the changes that have been made over the last 3 quarters going into quarter 4. But we don't think they're going to be enough to make the profit grow over last year in the third quarter, which we thought we might be able to do when we had to call in the third quarter. But, yes, there are opportunities. But obviously, the further down that path you go, there are fewer of those. But we're -- and Mike and his team, they're constantly looking at ways to do things more efficiently and effectively, and also how to utilize the locations that we have and those sorts of venture. Everything's on the table.

We'll take our next question from Dan Salmon with BMO Capital Markets.

Two questions. First, could you give us a little update on your dividend policy outlook, how you expect to see that progress as you work through some challenges with the business? And then a question for Larry. Harte-Hanks has a long history, and if we go back, this is a company that has taken itself private in past and re-IPOed. You have very high inside ownership today, a clean balance sheet, and I think we're all staring at pretty historically low borrowing rates. Have you and the board discussed at all the idea of bringing back an old strategy and potentially taking the company private?

First, on the dividend, if you look back at our history, we have consistently paid dividends. Now, we didn't increase it for a couple of years...

The financial crisis in '08, '09.

... And the financial crisis. So the dividend certainly is something that we're committed to be able to do. Because we've got a lot of financial flexibility, as Doug pointed out.

We've paid for 69, 70 straight quarters, something like that. We still generated a lot of cash flow. There's no need, no [indiscernible] rise, it's a strong amount right now, it's about $20 million a year or $19 million a year and expenditures. We have always -- we had a long history of supporting our shareholders, and we'll continue to have that.

And on the other question you asked, obviously, we can't comment on what we're looking at it or not looking at it as it relates to those -- to that question. But you're right in that there's a reasonably large insider shareholder base. And we are 100% focused at the moment, and I believe firmly that we're on the right track. But I also know that there's a lot of work between here and execution of where we are or where we're going. But our current focus is, again, 100% focused on implementing the strategy, the restructuring, the transformation of the business because we have some really, really valuable assets in this company. We have some good leadership, and that's where we're going to spend our time and work.

[Operator Instructions] Our next question comes from Adam Peck with Heartland.

Is it possible that Shoppers could now be in the black for the fourth quarter with the restructuring cost?

We don't believe so. Could not be in the black?

No, that they could be.

Oh, in the black, yes. I want to be sure that the comment was we had been saying that they would be -- that profit would improve from last year's fourth quarter. And all we're saying now is that we don't see profit improvement, but we still believe...

We still expect profitability.

We do expect profitability.

Okay. And with the changes going on at J.C. Penney and then kind of doing some small reversals, do you have higher expectations for that business going forward than you did, say, 4 weeks ago?

In -- what was it?

J.C. Penney

Oh, J.C. Penney.

And what are the changes again?

Yes, they are adding back some -- they continue to add back some volume, certainly from where they were in January, this 2012. But also, over the last few months, they've been adding back some volume. It'll still be obviously substantially down. And remember that we still had J.C. Penney at their historical run rate, I believe, in Q4 of last year, but we don't cycle that until Q1 of next year. But the decline, I believe this is right, Doug. In Q4, in absolute dollars, would be the lowest absolute dollar decline?

Of the 4 quarters.

Of the 4 quarters based on what we know today. They are adding back some volumes.

And then, we certainly appreciate you stepping up to the plate and buying stock this past August. Stock is materially lower than it was when you last purchased it unfortunately. Are you more opportunistic today than when you last bought stock?

Yes.

It appears there are no questions at this time. I would like to turn the conference back to our speakers for any additional closing remarks.

Okay. We appreciate your support and your questions, and look forward to reporting in the fourth quarter. Thanks. Have a great day.

That concludes today's conference. Thank you for your participation.