Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Earnings Conference Call hosted by Larry Franklin. As a reminder, today's call is being recorded. At this time, it is my pleasure to turn the call over to Mr. Larry Franklin. Please go ahead, sir.

Good morning. On the call with me today is Doug Shepard, our Executive Vice President, Chief Financial Officer; Robert Munden, Senior Vice President, General Counsel; and Jessica Huff, Controller. And before I begin my remarks, Robert will make a few comments.

Thanks, Larry. Our call may include forward-looking statements, such as statements about our strategies, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business facts 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 [indiscernible]. Our call may also reference 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 I talk about the individual businesses, just a couple of comments about company results. And then following my comments then Doug will add some color and detail. Revenues for the quarter decreased 4.1%. Operating income was down 27.2% and income from continuing operations was down 10.3%, with earnings per share from continuing operations of $0.11, and that compared to $0.12 from continuing operations in the first quarter of 2012. Shoppers -- Shopper revenue of $46 million for the quarter, was down 1.3%, which is a much smaller decline than we had experienced in the past years. OI for the quarter was $800,000 compared to $1.2 million in the same quarter of last year. Some very brief comments about the industry codes, SIC Codes that we serve. Real estate continues to decline high single digits. There's been reported an actual home prices increasing and these are trending up but the for sale inventory is declining and there are low rental vacancy rates. The broad services category declined low double digits, though a smaller decline than from the previous years. It's still a decline. The majority of that as we've commented on for the last several quarters is from schools. And in the fourth quarter or sequentially, Quarter 4 to Quarter 1, schools were flat, so we think that might be an improving trend. Consumer spending, which includes building and hardware and furniture and home furnishing stores, that's the second consecutive quarter that we've done that. This growth comes from increased spending from existing clients, as well as new clients this quarter versus the same quarter last year. Automotive dealers continue to have good results and continue to grow. Eating and drinking places declined slightly. Communications grew mid-single digits. And if you look at revenue-by-revenue category, our in-book advertising…

Thank you, Larry, and good morning. Here's a company-wide overview of the first quarter. Consolidated revenues decreased 4.1% for the quarter. Consolidated operating income decreased 27.2% for the quarter. Consolidated operating income on margin was 5.7%, below last year's first quarter of 7.5%. Cash flow was $7.7 million versus $9.9 million in 2012. We spent $4.6 million on capital expenditures compared to $3.1 million in the first quarter of 2012. Turning to our 2 businesses. In the quarter, Direct Marketing revenue decreased 5.1% and operating income decreased 18.1%. As you have probably noticed in our earnings release report, we have created another vertical because our select vertical or other was a large part of our total revenues. Therefore, we have created a new vertical called auto and consumer brands. All of the revenue we are reporting in this vertical has been directly moved from our select vertical and did not come from any of the other verticals. In the quarter, our retail vertical market represented 28% of total Direct Marketing revenues, high-tech was 24%, financial services were 16%, auto and consumer brands were 16%, Healthcare/Pharma was 8% and select markets were 8%. Direct Marketing revenues reflects the impact of a 32% decline in revenues from the pharmaceutical vertical, including the effect of volume reductions from a long standing fulfillment customer in a previously discussed loss of an agency-related pharmaceutical customer in the third quarter of 2012. The passage of Patient Protection and Affordable Care Act has accelerated the migration of B2B to B2C marketing across the entire healthcare landscape. It has also made visible the strategic marketing vulnerabilities to healthcare issuers and providers of cares that vie for their share of the soon-to-be insured population, beginning in October, and at the same time, continue to compete vigorously for the Medicare…

[Operator Instructions] And we'll hear first from Dan Salmon with BMO Capital Markets.

I just wanted to follow up a little bit on 1 of the verticals, financial services, which was pretty strong there. And just to understand a little bit better, I know you rolled out some products to help a lot of large financial institutions with greater compliance, regulations. How much of that is driving that segment versus maybe longer-term relationships that are coming on board there?

As of now through the first quarter, because you're right, we've recently rolled out the pricing stuff compliance modules, things of that nature, through Trillium. A lot of discussions with the clients, a lot of RFPs being answered and being dealt with, but that was not a large driver, really didn't contribute much to the financial vertical performance in the first quarter. It's still, as we said, it's primarily retail banks driving credit card solicitation and doing things such as one of our customers that was converting existing customers with new checking account products.

Okay, great. So it does sound like that's a bit more of a traditional work. And then just, Larry, one quick follow-up on -- you mentioned you have the leadership team that Direct Marketing continues to work through and evolve business. I just want to make sure, are you still formerly -- the head of the organization, do you expect that to stay in place, if so?

Yes, I am, formally and informally, the head of the organization and I expect to continue to be until it's announced otherwise.

[Operator Instructions] We'll move next to Michael Kupinski with Noble Financial Group.

Just a couple of things. In terms of the retail vertical, as you mentioned it increased as a percent of the total. I may have missed this but did you say that JCPenney's spending was up year-over-year in that quarter or no?

We didn't, but it is just slightly, no, not much. We're still -- with their changes still very early in the process. They are very early in the process and great relationships, a lot of communications, a lot of things going on but I think they're way too early in their process to know what the future looks like. Real concrete basis right now.

Okay, I see. And in terms of the Shoppers business on a pro forma revenue basis, what was the second quarter revenue that you're working off of for 2012?

You're talking about, basically -- 2 seconds here, Mike. It is about $47.5 million.

Okay. And you're saying that in terms of trends right now, you're -- it's probably going to be down but it seems like it's stabilizing more in this range right now where we're at in terms of the first quarter?

Yes.

Okay. And then in terms of kind of looking forward in Shoppers, as it relates to our California given the fact that the state has allocated like $30 million towards marketing for these insurance exchanges and things like that. Are you -- do you anticipate that there's going to be any benefit from maybe the mandates in the healthcare area that green in 2014? I mean, are you seeing any indications that you might benefit from that?

You're talking about from Direct Marketing, right?

Well, I'm just thinking that if it would be a Direct Marketing or in the Shoppers business, I'm just -- any indication that Trillium has been trying to get into the healthcare area, if you just give us some color on whether or not we might see an increase from that category?

The -- on the Shopper part, we don't have high expectations but every time there's a need for an insurance company or healthcare provider to reach targeted customers, then the PennySaver is obviously an excellent way to do that and then the Direct Marketing sector, Doug was commenting on some of the changes that are taking place that should or will, we believe, benefit the Direct Marketing, in particular, and we're-- we have a number of prospects that are in that space in the healthcare area and we have good -- good expectations in Direct Marketing for the latter part of the year and certainly into next year.

Larry, in the past you indicated that the success of Harte-Hanks and its growth will be dependent upon the company's [indiscernible] transition and ability to compete for business in that space. I was just wondering if you can just kind of selectively maybe talk about your thoughts on that transition and if you're meeting the company's targets and how you feel your positioning going forward?

The -- I feel good about the positioning, and I mentioned very briefly in the past, and the product development group and also the innovation council that we have that's looking at a number of different ways that we increase our ease of delivery regardless of the source of the data that we're delivering or that we're bringing together to develop the marketing campaign. That's working well. That, plus the integration of Trillium into a number of our organizations with its technology strength and advantage of being able to real-time handle structured and unstructured data, we've got a -- I think, a really good opportunity to play and win in that particular area. And you see there's a lot of publicity about the -- particularly in the data analytics space, these days the business intelligence space and the more of the big data that are being used in the analysis process, the more important it is to be able to know the quality of the data that's being analyzed and I think we've got a terrific competitive advantage there, again, with our Trillium Software. And one thing that is really refreshing is that the -- and we mentioned this during the restructuring was the simplification of the structure is bringing together in a meaningful way, the people in our company and there are many of them that have good new product development skills but we're combining them in a way that we're looking for a solution that fits a number of the parts of our business. So early in the game, important part of the restructuring, the whole product development and product review groups that are involved today, it's very encouraging.

[Operator Instructions] We'll move next to Adam Peck with Heartland Funds.

Is there any way you could walk us through the -- what the growth rate of Trillium has been over the last few years? [indiscernible] If not quantitatively, just qualitatively.

We don't comment. We haven't disclosed the individual financials of the pieces of the Direct Marketing business.

The -- and with that said, as you know, the Trillium product has been a software product. Obviously, highly recognized in all of the analyst literature, sold primarily into the IT departments until, oh I guess, a couple of years ago when there was some start of some solutions being developed and getting outside of just the technology part and more into the solutions. And as we've been in this process now for actually, I guess, a little over 2 years with some very specific areas where we're going to develop and are developing and have developed some specific solutions for to get outside of just the technology piece, we think we can accelerate the growth rate. We have some signs that it's working. It's taking awhile but we should have some good growth in Trillium going forward. More importantly, we think it can drive some growth into the rest of our company as well.

Well, it's great to hear you guys use the term growth in Direct Marketing and it's fantastic to see the stabilization in Shoppers. And you combine that with the continued free cash flow that you guys generate, it looks like the balance sheet is probably in the best shape it's been in. And looking at my numbers, probably at least 9 or 10 years. So my question is if, hopefully the business is inflecting, I mean the latter half of this year, maybe next year, with the balance sheet where it is, why wouldn't it be in shareholders' best interest to significantly step up the buy back?

It's a good question, obviously. And it's a question that is discussed and it's a question that will continue to be discussed as we put together our overall plans for the continuing to roll out the transformation. And that's all I can really say at this point.

Well, seems like a great price to do it.

[Operator Instructions] There are no questions at this time.

Okay. Thank you very much for your time and we appreciate your support of our company. And to all of our employees, we appreciate what you do. Thanks. Have a great day.