Good day, and welcome to the fourth quarter 2012 earnings conference call hosted by Mr. Larry Franklin. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Larry Franklin, Chairman and CEO. Please go ahead, sir.

Thank you very much. On the call with me this morning is Doug Shepard, our Executive Vice President and Chief Financial Officer; Robert Munden, Senior Vice President, General Counsel; and Jessica Huff, our Controller. Before I begin with my remarks, Robert will make a few comments.

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 United States 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 will 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.

Thank you, Robert. Before talking about our individual businesses, a couple of comments about overall company results. In my remarks, I'll be talking about financial performance from continuing operations, meaning income without the results of the Florida Shoppers, without the loss on the sale of the Florida operations that we closed on December 31, 2012, and without the Shopper goodwill impairment that we -- that was taken in the second quarter of 2012. While definitely not where we want to be, we are pleased with the results for the quarter. Revenues decreased 4.8%. Operating income was down 10.1%, and income from operation was down 6.3% and EPS from continuing operations was $0.23 compared to $0.24 in the fourth quarter of 2011. Doug will provide much more detail about EPS in his comments after I add some detail about the performances of our 2 businesses. First, Direct Marketing. Direct Marketing was restructured in August 2012 around customer engagement and strategy, customer solutions and customer delivery. I could not be more pleased with the aggressive, yet thoughtful way Jeannine Falcone, Tony Paul, Brian Dames and Andrew Harrison have approached transforming this business. And by the way, our people have embraced the changes, which are now woven throughout the 2013 operating plan. These changes, we believe, more closely align our conversations and solutions with the way our customers are thinking about their businesses. And before adding more detail about each of our vertical markets, I want to emphasize that the overarching goal of what we have been doing and continue to do is to drive profitable revenue growth from new logos and growth from existing accounts. And we mentioned 4 ways, in the press release, that this is being done, and I want to just reemphasize those again. The first is the deployment…

Thank you, Larry, and good morning. Let me start off with -- or hopefully, some clarifying statements about earnings tables included in our release this morning. With the sale of our Florida Shoppers operations as of December 31, the results of operations for Florida and the loss on the transaction have been included in discontinued operations on the P&L. For the analysts who follow us and want to compare the results to your models, which included the Florida operations for the fourth quarter, you should start with $14,343,000 reported as income from continuing operations on the P&L and adjust for the following 3 items: deduct the $931,000 fourth quarter net operating loss of Florida Shoppers operation reported within discontinued operations; second, deduct approximately $2,200,000 of nonrecurring tax benefit, which recognized the continuing operations within the line item income tax expense that's also related to the sale of Florida operations; and finally, add back the $750,000 after-tax charge for our production facility closure. This all would net to roughly $11,980,000 or approximately $0.19 per share. Earnings per share for 2012 by quarter after removing the Florida operations in the second quarter impairment charges were: first quarter's $0.12; second quarter, $0.12; third quarter, $0.15; and fourth quarter, $0.21. And for clarity purposes, to get to the fourth quarter $0.21 per share, all I did was add back the $931,000 Florida Shoppers fourth quarter after-tax operating loss from the previously discussed $11,982,000 or $0.19 per share. Moving on to the company-wide overview of the fourth quarter. Consolidated revenues for continuing operations decreased 4.8% for the quarter. Direct Marketing decreased 6.3%, and Shoppers increased 0.8% for the quarter. This was the first quarterly revenue increase for Shoppers since the fourth quarter of 2006. Consolidated operating income from continuing operations decreased 10.1% for the quarter.…

[Operator Instructions] We'll go first to Michael Kupinski with Noble Financial.

The Retail vertical showed remarkable improvement in the quarter despite JCPenney's, and I was wondering, especially as you cycle into the first quarter, which also showed growth year-over-year last year, do you anticipate that this vertical will show improvement in the first quarter 2013? What are your thoughts on how is it looking, and then maybe just in terms of JCPenney's strategy, are you seeing some of the business coming back a little bit?

Mike, I don't believe -- we don't believe that there will be much change. The retailers, it has been pretty well publicized. They had a, I guess, I'd call it a mediocre holiday season. So there's -- we don't expect to see any significant improvements and/or significant decline. It will probably be very flattish for the next quarter or 2 would be our anticipation.

In Q1, Doug, weren't we -- we were having the benefits of some new business that was sold the previous year, they were still -- we weren't cycling against. And the question on JCPenney, they have, as I think we've mentioned in previous quarters, they've been adding back some business. So they're still not close to where they were and probably [ph] -- and won't be. But we don't have -- we should not have the client that we report in this year for sure.

In the press release, you indicated that you're looking for growth in revenues in operating income. And obviously, you provided the earnings pro forma basis. Can you provide the comparable on the revenue basis that you're basing your expectations on? I assume that, that's a pro forma number or you -- what are you working off of there?

The only pro forma number for revenue will be in the Shopper category. And the comment about increase, slightly increased revenue was directed at the Direct Marketing business side.

Okay, great. And then, is there any way to frame the revenue opportunity that you may have regarding the prospects from the healthcare open enrollment that you indicated in 2014? What your thoughts are on that?

At this time, it's -- with everything that's going on with the government and in that industry, it's still very unpredictable. We definitely see an opportunity, as Larry mentioned in his comments. A lot of these insurance and health care companies are going to have to aggressively go after consumers and customers. And with our consumer brands and retail background, we have a lot of marketing experience and expertise that we can bring to the insurance industry that hasn't had to deal with this in the past. But even the health care companies will tell you right now that they're having problems projecting what they're going to be dealing with and what the size of the opportunity is for them over the next, really, 12 to 24 months.

My last question, in terms of the improvement in the California Shoppers business, can you just give us a little color on what the key drivers there? Obviously, is it all real estate at this point? Or are we starting to see a broadening of the advertising categories, or can you just give us an idea of the improvement there?

The improvement in the fourth quarter is more driven by the vertical -- consumer spending, it is what it is, where the furniture and...

Home goods.

Home goods, yes. So is it -- and it was driven again by distribution products, our major account sales, who had just a terrific quarter and have had -- and actually, have been building throughout the year. And we're getting some benefits from that performance. But it was reasonably well broad based in some of the other FIC areas, but still some softness obviously and down in a number of those categories. So we are cautiously optimistic, we're just very pleased with the performance in the fourth quarter.

We'll go next to Carter Malloy with Stephens.

It's actually Ben on for Carter. First, can you kind of talk us through what the main drivers will be behind a return to growth in the Direct Marketing business over the next 4 to 6 quarters or so?

Well, and that's what we're outlining a few of those in the release there. But the thing that's really going to drive the growth is going to be a more integrated approach to the way we go to market. And that's what we've been talking about since this restructuring took place. So that we have got our capabilities and our people, our solutions aligned with the way that our customers have to deal with their marketing challenges. So it will be a number of different things. Also, the new R&D group will be looking at a number of our processes on how we go to market with some of our solutions. We'll be taking some -- that -- those had been done generally in the various sectors of the business. So whether it was in mail, database, direct -- agency, and now it's an integrated approach to how we develop products and solutions that cut across all those boundaries. So it's -- a lot of it is focus, but it's simplifying the organizational structure or aggressively going after the opportunities that we see. And also, really improving our wholesales and marketing strategy and approach. So a number of different things, and we'll be outlining those just like we called out a few of the initiatives in this report.

From more of a strategic standpoint, how do you think about the rest of the Shoppers' properties?

They had good performance in the fourth quarter. The product works, and our people are now veterans, they're looking for ways to deliver more efficiently and effectively those services to our advertisers. So we've got a plan in place for them for 2013.

We'll go next to Edward Atorino from Benchmark.

Quickly, are you going to give restated numbers for the Shoppers for 2011 without, or we just deduct the same numbers backwards? If you look, you got the old stuff in the first 3 quarters, and out of the fourth quarter. Are you -- sort of what's the base of the first 3 quarters?

Yes, Ed. We will take care of it. It will be published in our 10-K, because it's a relatively straightforward thing to do.

Okay. But estimated, just take the same number out, I guess?

Yes, it'll be pretty close.

Secondly, Larry, on the Direct Marketing, another company I follow had some difficulties similar to yours in businesses like this. Is it just -- it seems like it's more than just cyclical. And listening to your commentary, it seems a lot of the customers that used to do it one way or trying to find new ways to do it, and either are postponing using your services or trying to find other places, and you're having to adapt to their new strategies, I suppose. A, is that sort of a -- am I on the right track there? Secondly, in view of the, let's call the unsettled environment, could this stretch out of the recovery a little bit? Is there anything you can do or doing to sort of get ahead of the curve in those new strategies that these companies are doing?

Well, I think your comments were right on target. It's a -- there is -- there remains a lot of uncertainty in the marketplace. And again, back to the way we are looking at addressing the market today with both our people and our systems and our products, that's why we're doing it. How do we get out ahead of what's next for these companies? The environment is still, as you pointed out, it's uncertain for sure. It's better than it was, and we have some opportunities, but we will continue to have these challenges. And I think your explanation of it is right on target.

Is there a pricing issue? Are companies sort of looking at what you used to charge? And as many businesses are saying, we want less? Is there a pricing or a different way you're going to be able to build to maybe get people to spend money, if you know what I mean?

Well, what we want to do is we want to look for ways to deliver some of our core capabilities more efficiently, so that we can have the resources to build the new solutions and get those bundled in, and be able to show our customers that they are getting increased return on their investment. But with that said, yes, our customers look at price very carefully.

Last question. Could you sort of give us an overview of the one quarter trend, first quarter trends and the key verticals? I don't know if you went through that or not on your comments.

Yes, we did, we did. Yes, we talked about...

We'll go next to Dan Salmon with BMO Capital Markets.

Spent a lot of time on the Retail vertical. I was curious about the technology in the high-tech vertical and what trends you're seeing there to -- continues to be weak, but as you get over the humps here with some of the restructurings, maybe your outlook for that vertical for the year? And then likewise, again in that spirit of getting through some of your restructurings and having your plan in place for this year is, any change in your view on the M&A market? You've got to really -- a lot of dry powder on the balance sheet, and it's been a little while since you've engaged that. Just wondering if there's anything to highlight in terms of potential use of free cash there.

We'll start off with our high-tech vertical. As we've talked about in this earnings call and the last one, a lot of our international business is high-tech dependent, so it was a good portion of our domestic business. And a lot of our weakness has come on the B2B lead generation side of our work. Trillium has continued to be a wonderful product for us, but it has also been impacted somewhat by some of these high-tech companies and the uncertainty that's out there with them putting off decisions. As Larry said in his remarks, we do see a trend where these folks aren't telling us that they're going to reduce their budgets or they're making strategical changes or anything of that nature. But we definitely see them putting decisions off, not willing to make commitments, at least at this point, for now. A lot of, again, is market uncertainty, economy, things of that nature. So we expect them to continue here over the -- especially in the first quarter, possibly into second quarter, specifically with high-tech. As far as the M&A side, I have talked to several of you. I think Dan, you and I have talked about this before. We have a strong M&A history. We're open to M&A transactions, but like everyone else, you want to find the right assets at the right prices. And sellers always have different expectations. So it's a matter of going through the process, finding the right asset because once you buy that thing, you're operating it. It's an -- acquisition's a lifetime event for the buyer. So, we try to be very careful and make sure that we're buying the right assets from a strategical standpoint, from a client-delivery standpoint.

We'll go next to Shobah Narecema [ph].

Well, I did not get -- basically, this quarter, a lot of high-tech companies, they did better. So do you -- I mean, I know you mentioned that they're kind of going quarter-to-quarter. In that case, are you seeing the better marketing investment for the next quarter?

No, I mean I -- like we've said, we -- despite their performance, we're working with them on, obviously, a going-forward basis. And we don't see them willing to commit to marketing spend right now to increases in their marketing spend, which is what you would see in our results, the changes that they're making, not necessarily reflective of their current results, but are they going to spend more marketing dollars? Things of that nature.

We'll go next to Sean O'Malley with WEDGE Capital.

A couple of questions. First off, have you received the cash yet from the closing of the Florida Shoppers deal?

No, we have not. That was a note that we issued for that transaction. And there's some tax benefits associated with it for us. But there's a note that we received with the transaction and will be paid off over time.

Okay. And the transaction itself, could you give us any insight as to the genesis of it? Was it something where the buyer had an interest in an asset, and they came to you? Or was it something that you were looking to get done?

The combination of both.

Okay. And regarding the commentary on the expectations for Shoppers looking into next year of slightly down operating income. I presume that's on the adjusted continuing basis? Is that about the $3.4 million number from 2012?

I'm not sure. Well, the commentary was, slightly down in revenue and operating income.

Correct.

It was on the...

Continuing operations.

Continuing operations.

So is that the approximately -- I have it about $3.4 million for 2012.

$3.4 million of what? EBITDA?

Adjusted -- I'm sorry, adjusted operating income.

I believe you're a little low, but that's -- we're -- on the number that you believe you picked up. But the comment that applied to the continuing operations, like we said for revenue and OI.

Got it, okay. And then switching gears over to the direct side. Can you give -- with the startup of the TRUE Health + Wellness agency just having occurred in the last several months, can you give us any comments or reflect back on what the reaction is to that being a new agency in the marketplace from the customer community?

Well, as you know, a new business in any area is a process that takes time to not just plan, but also to execute. And the reaction, meaning, are people interested and excited about some of the things that we're talking about? Absolutely. We're getting some good audiences, but it takes time to get the ultimate signed orders. So it'll be a process. It will take place throughout the year. And going forward and at this point, we like what we're seeing.

[Operator Instructions] And we'll go next to Michael Kupinski with Noble Financial.

I just had a quick follow-up to the high-tech question. You mentioned that the international is about 15% of Direct Marketing. And I was just wondering if that was the commentary for the year or for the quarter? And if you could just remind me, because if I recall, the contributions from international looked like it has being going up. And I was just wondering where, outside of the high-tech market, which I thought was the majority of all the business internationally, is there any other category that you have related that, to the international marketplace?

The -- when you said the contribution had been going up...

As a total -- as a percent of total to the Direct Marketing from the international operations.

It did a couple of years ago because we had a small acquisition. That can be part of it. But the other services that -- the industries that we serve there are predominantly high-tech, but we also have some consumer on the select markets, consumer brands. Some [indiscernible]. It was really consumer brands and...

High tech.

And high-tech.

Kind of companies.

And outside of high-tech internationally, Larry, are the other verticals growing?

Our -- I don't...

Yes, like most -- no, I mean, across-the-board, most are not in that our -- when we talk about our international operations, you're right, it's roughly 15% of the Direct Marketing revenues. That trend has been relatively flat to slightly down. And I'm talking 6 to last 12 months. So it's, in the mix, has not significantly changed. It might have changed a point or 2 in either direction. But it hasn't gone from 10% to 15% in the last 12 months.

The -- and we talked about the high-tech challenges that we have. We have a blue ribbon list of clients in high-tech. And revenue, while it went up and down a little bit, but we are very important to the execution of the legion activities for a lot of our clients. So it's not a...

Well, we're not -- I mean we've said this before, and I think it's very important. We're very proud of that client list, and we're not talking about clients that we've lost. We're talking about pending decisions with clients, who have a long standing history with us.

And I guess, the question would be in terms of domestic versus international in the high-tech vertical, any divergences between the 2? Are they performing pretty much similarly both domestically and internationally?

I would say they're performing pretty much the same domestically and internationally. There's not a large difference between the 2.

And we'll go next to Edward Atorino with Benchmark.

I've forgotten whether you said this or not, the annual 2012 revenues for the Shoppers that was sold in the operating profit number, did you give that?

Yes, it was -- we've given ranges and told you or told everyone the Florida operations that we sold were in the $30 million to $35 million range in revenues. It was losing several million, a couple of million in operating income.

That's right, you gave that a while ago. I'm sorry. That's right.

[Operator Instructions] It appears there are no further questions in the queue at this time.

Okay, thank you very much. We appreciate your interest. And for our people who are on the call, we really appreciate all that you do for our company. And we will talk to you soon. Thanks a lot. Have a great day.

This conclude today's conference. Thank you for your participation.