Good day, and welcome to the Harte-Hanks Second Quarter Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Robert Munden, please go ahead, sir.

Thank you. Our call may include forward-looking statements, such as statements about our strategies, adjustments to our cost structure, financial outlook, capital resources, competitive factors, business and industry expectations, litigation developments and regulatory changes, economic forecasts for the 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 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 the operator.

Thank you, Mr. Munden. And at this time, I would like to introduce your host for today, Mr. Robert Philpott, CEO. Please go ahead, sir.

Thank you, and good morning, everyone, and welcome to Harte-Hanks second quarter earnings call. For those of you that I've not yet met, I'm Robert Philpott, and I assumed the role of CEO at Harte-Hanks exactly 1 month ago today, on July 1. So I'm joined on today's call by somebody you are much more familiar with, that's Doug Shepard, CFO at Harte-Hanks. And in a few minutes, he will take you through the details of today's earnings release. Before that, however, I'd like to take a few moments to explain my engagement plan with the business during these first few months that I'm in the role. Although I'm intimately familiar with the marketing services sector, I will take this time to become more knowledgeable on the direct and targeted marketing industries, and more importantly, to get to know the Harte-Hanks business in detail. It's my intention to spend time in every Harte-Hanks location, whether that's part of our Shopper or Direct Marketing businesses, and it includes our offices in the U.S., Europe and in Asia, speaking with all of the leadership teams. In addition to that, I'm going to make time to listen to input from other key stakeholder groups. I've already begun to hold review meetings with our key client peers[ph] And to communicate directly with you, our investment community. My on-boarding plan kicked off in early July and will not conclude before the end of fall. So with that brief introduction, I'll now pass you over to Doug, who will take you through our latest financial performance. I will, of course, rejoin the discussion to conclude our announcement and to take questions from you later on the call. Doug?

Thank you, Robert, and good morning. Consolidated revenues for the second quarter decreased 0.7%. Operating income increased by $0.6 million, after excluding both the $2 million charge this quarter related to the retirement of our former CEO and the hiring of Robert, and $159.1 million last year for the impairment of Shoppers goodwill, other intangibles and restructuring charges. Excluding the same items, second quarter diluted earnings per share from continuing operations was $0.15 per share for 2013 compared to $0.14 per share for 2012. First, I will focus on the Direct Marketing results. Revenues decreased 1.9% and operating income, excluding 2012 charges, increased 2.3%. I'll explain how we increased operating income in a minute. On an adjusted basis, we increased operating margins from 12.3% in 2012 to 12.8% in 2013. Moving to revenue from a vertical standpoint, we have the following results: financial services increased 4% or approximately $800,000, retail increased 2% or about $800,000, high tech was flat, automotive and consumer brands decreased 2% or about $0.5 million, pharmaceutical health care decreased 12% or $1.4 million, and select was down 17% or about $2.3 million. Our financial services vertical increase was driven largely by volume increases from a demand deposit response program and increased credit card solicitation. Financial service companies are trying to capitalize on new consumer behavior data as a result of cross-channel marketing programs; develop path-to-purchase initiatives, which accelerate and optimize sales; and reallocate marketing dollars in reaction to changing consumer demands and interest rate environments. The retail vertical increased 2% or $0.8 million during the quarter. The increase is due to increased contact center activity and multiple services being implemented at a new specialty vision retailer. Retail continues to be an industry where our clients quickly make changes to their marketing plans based on changing consumer…

Okay. Thank you for that comprehensive run through the information, Doug. So, I'll simply conclude. We continue to successfully navigate our business through a time of significant industry change, and where there certainly is a degree of short-term uncertainty in the outlook. I think our continued astute management of the cost base is serving us very well, although we all recognize that this is not the recipe for long-term growth in our business. I've been encouraged by the depth of expertise and the strength of spirit I have encountered in my visits to our businesses to date. It certainly supports my initial view that Harte-Hanks has a solid foundation of experience and relevance in both the direct marketing and targeted marketing industries. Our ability to win new business in an industry where omni-channel marketing is increasingly the norm is evidenced by our selection as a valued business partner by major multinational brands. I'd like to highlight 1 or 2 of these, just to illustrate the points I've made. Most recently, Shell, I believe are still the seventh largest oil company in the world, selected Harte-Hanks to design and execute new customer acquisition programs, using a combination of data, analytics and custom-designed business-to-business communication strategies. A global information storage company appointed Harte-Hanks to architect and build a worldwide marketing database, integrating multiple marketing technology tool sets and providing a unified data management solution to improve the clients' analytics and their marketing decision. And finally, one of the world's largest independent software firms has engaged our business to provide business-to-business lead generation and qualification services for the firm's operations across Europe. Harte-Hanks will employ an integrated suite of digital agency, data and contact center solutions to meet this brief. In this past quarter, Harte-Hanks has continued its progress in the emerging of…

[Operator Instructions] And we will first go to Michael Kupinski with Noble Financial.

This is actually Juan Bejarano in for Michael Kupinski. I guess my first question is for Robert. Can you maybe speak a little bit about your decision to join Harte-Hanks? Maybe talk about the factors that interested you to join the company? And maybe a little bit about your vision for the company and where you may want to take it?

Absolutely. Thank you for the question, Juan. Let me take the first part of that and talk about my decision to join the business. In many ways, if I could have written my own perfect job description, the role at Harte-Hanks would have fitted that pretty neatly. We've got a business that has a tremendous tradition, a very solid history of performance. We -- when we look at the client base, I could see in early discussions with people in the industry that this was a business that really had marquee clients and had long-term relationships with them. The business clearly has the ability to invest in its future. That's attractive. It's attractive for any CEO, particularly one who is going to engage perhaps in a change or a refocus of that business. You want to make sure that you've got the ability to make the change. And I think it's no secret that Harte-Hanks has the facility to make that happen. And then most important of all, as I sat down and spoke with the board members, both individually and, at times, together, and as I met some of the more senior management in the company, it was clear that they were a group of people who were ready to make that journey. And therefore, it wasn't a case of having to bring a company or a board fighting to the table for a change of process. So as I said, lots of the ingredients were there in place, and it was a relatively easy decision for me to take. Now, let me talk a little bit about my vision for the company. I'm a firm believer in growth, and that's one of the challenges that Harte-Hanks faces right now. However, I made a commitment to myself that I wouldn't jump to any particular conclusions until I've spoken to enough of the stakeholders in our business. That's both our staff, our clients, investors, suppliers, and I wouldn't jump to a conclusion about where this business needed to go. I'm engaged in significant fact-finding exercises I've highlighted, that's going to take 3, 4 months to complete. And it will only be at that point that I will begin to formulate the ideas what the future for Harte-Hanks might look like, what our strategy might shape up to be and what the vision for the company will be. But I'm confident that it'll be ambitious. I'm confident that it will have growth built in as part of that, and I'm excited about the prospects for the company. I hope that answers your question, Juan.

Yes, it does. We're glad that you joined in, and congratulations.

Thank you very much, I appreciate that.

And then kind of moving on. In terms of the Shoppers business, it seems that the segment is showing some signs of life. I mean, in the past, it was expected to reflect about 6% to 8% revenue growth. Can you maybe talk a little bit about what you expect the long-term revenue growth of Shoppers to be, particularly in an economic recovery? And maybe, where do you think sustainable margins or normalized margins should be going forward?

Well, I'm going to take the first part of that question and then pass across to Doug, because I know he's keen to answer that. The first part is that, as someone new to the business and having heard a little bit about Shopper previously, I'm delighted to see, as you have noted, signs of life, I think, as you mentioned with it, and growth in that business. So that's -- it's very pleasing. I'll spend some time with our Shopper business in California later this month. I've already met Mike Paulsin, who has told me a lot about the -- that part of our organization. But I'll pass to Doug to give you more information on the specifics of your question.

Yes, Juan, to deal with the potential growth rates and things of that nature with Shoppers, we're, as you stated, obviously encouraged by the revenue results for the last several quarters. Two of the last 3 quarters we have had revenue growth. But at the same time, we pay attention and are worried to a certain degree, because it's highly dependent on one state economy, which is the state of California. So it's a muted excitement, but obviously, when you do what they have done for the last several quarters and start seeing some of the results that they have delivered in the State of California, has performed better, it's encouraging to see. But we don't pay as much attention or are as focused on trying to figure out what the long-term growth rates are, both from a top line and bottom line standpoint, as we are very focused on short-term growth rates and what we can do to sustain the revenue growth rates, especially after the last 4 or 5 years that the Shopper product has gone through. And the same thing on the bottom line results. We're focused on getting that incremental growth and continuing to grow and getting as much as we can and what we should be getting out of the incremental revenue growth, and not necessarily focus on hitting a certain number at a certain point in time. It's more of a focus on measured, sustained growth and continuing that over a long time period.

Okay. Did you guys, maybe, view Shoppers as a non-core asset, I mean, possibly to be rationalizing some way in the future? Given the lower margins, lower growth potential, it's possible that it may be constraining total company stock valuations.

Since I joined the company and the 4 short weeks that I've been here, there have been sort of 2 or 3 questions that have consistently cropped up, and one of those relates to the question of whether Shopper is a core asset or is a strategic asset of the business. All I can do is repeat at this stage that I haven't met with that business yet. I intend to do that fairly soon. I recognize it as a question that needs to be addressed, and we will address that question relatively quickly.

Fair enough. And then can you maybe comment about possible new areas of growth for the Direct Marketing business, including location-based and mobile advertising? Maybe, how do you guys stack up against the competition on that, and how significant is this business for the company at the moment?

It's a significant part of the business. We believe it will continue to be a significant part of the industry. But what we see as opportunities going forward will form part of the strategic exercise that I will engage with, with our business unit heads. And as I said, that will not begin to take place until I've completed understanding what we have. So I don't expect to come back and be able to answer that question fully for you quite until at least later in this year and perhaps early in 2014.

Okay. I see. And then on Trillium, there appears to be strong growth prospects here. Can you maybe comment on revenue growth possibilities here, the prospects? And maybe what type of margins are you seeing at the moment?

We -- as you know, in the past, we don't specifically disclose revenues by product or offering that we have out there, but we will share with you, as we have shared in the past. Trillium is a very strong offering that we have, highly rated, highly respected both by our clients and the analyst community who looks at their product. It's something that we're very proud of. They've had recent success with the banking and insurance claims modules that they've rolled out in the last year or 2. We highlight some further development that they are doing and that they've rolled out in the earnings highlights in the back of the press release. And about all we will comment about on revenue growth and so forth, they did have revenue growth in the second quarter, and we would expect and we do expect revenue growth for the full year out of that particular product.

I'd also like to add that we have secured a recent win with John Lewis Partnership with Trillium in Europe and London in the last few days. So we're very happy that's a continued trend in our Trillium business.

Okay. Great. And then 1 last question on JCPenney, are there any updates on possibly changing strategy at JCPenney? Have they come back, or where are they in terms of previous levels?

First of all, I'll give my feedback on that, with the message that it continues to be difficult to establish any trend in behavior with JCPenney at this stage without a very clear direction on the leadership with that company. Some of the marketing functions in there are really just trying to do very short-term programs, and that's one of the things that leads to our view on volatility. But I'll give Doug an opportunity to perhaps supply a little bit more background to that.

We continue to have a strong relationship with JCPenney. It's still a top retail client for us. We're very tied in and working with them very closely. As their new management team, and as Robert said, they're going through their own internal changes. But as they're making decisions, they're strategically focused on what they're going to do going forward. We're working very closely with them to provide the services that they need, and it's a business that did grow for us in the second quarter. So we're glad to see that. But exactly where they're headed and what some of their decisions are going to be going forward, we don't know yet at this point. But the relationship is still very strong and we're working with them on a daily basis to be a strong partner.

[Operator Instructions] And we will now hear from Dan Salmon with BMO Capital Markets.

Welcome, Robert.

Thank you, Dan.

I wanted to just understand a little bit better your background with Synovate, and more recently in the mobile space, and how you think some of your strengths, in particular, can benefit Harte-Hanks? And then just as a follow-up, if you know yet whether or not you plan to move to San Antonio?

Let me take the last of those questions, because I think it was a relatively short answer and a relatively simple answer to that. I have no plans to move to San Antonio. I have plans to base myself close to where our major clients are. At this stage, and on the advice of my senior colleagues in the business, I work out of the office in Baltimore, but essentially try to cover a large part of the East Coast. I'll eventually determine where I think on the East Coast that I'll need to be based, but not until we really get to deciding what our strategy is going to look like. But I think it's safe to say that I'm not anticipating a move to San Antonio. Let me go back to discuss then a little bit about my background, and if you look at my involvement with either Synovate or Aegis. I'll take Synovate to begin with. I was part architect of the building of what became, I think, the third or fourth largest research agency in the world, market research agency, and we built that through a combination of greenfield startups in many countries, but also with significant M&A activity in order to increase the ways in which we were able to create that global presence. Many of the businesses we bought were relatively small, but filled with creative and entrepreneurial talent. And therefore, that made my job as an architect of where we were going significantly easier. I don't consider myself a turnaround CEO. I'm a builder CEO. And I look for the raw material to help me do that. I believe that our industry is a people-based industry, and I need to secure the appropriate talent to be able to build effectively, and we can…

[Operator Instructions] And it appears that there are no additional questions. And I will turn the conference back over to Mr. Robert Philpott for closing remarks.

Okay. Thank you very much for that, Steph. Well, I appreciate the time that everybody has taken this morning to join us on the call, I just want to repeat my earlier thanks for your continued interest in the Harte-Hanks business and for the ongoing support that you give us. As I mentioned at the very top of the call, I will be reaching out to our stakeholder groups, including you as the investor community. And I look forward that, over the next 3 to 4 months, I'll get an opportunity to meet with each one of you face-to-face and take some more questions at that stage. Thank you for your involvement.

And that does conclude today's program. Thank you all for joining.