Good day, everyone, and welcome to the Harte-Hanks Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Robert Munden, please go ahead.

Thank you, operator. 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 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.

At this time, we'll have opening remarks from the Chief Executive Officer, Mr. Robert Philpott.

Thank you, Shalana. Good morning, everyone. Happy Halloween and welcome to Harte-Hanks' Third Quarter Earnings Call. Doug Shepard, our CFO, will join me on today's call and in a few moments, he'll take us through the detail of today's earnings release. Now, let me start today's call by acknowledging that our third quarter performance was not what we would want it to be. We entered 2013 with a reasonable expectation of improving economic conditions and optimism in our markets based on our clients' projections for the year ahead. On that basis, we committed to some modest increase in investment in people and in infrastructure early in the year. By midyear, we were seeing some softness in our plans and this has accelerated in the third quarter. Now the reasons for this are twofold. First, the global economic performance has been less robust than initially projected. A situation that, frankly, was not helped by the recent budget wranglings in Washington. This alone would have weighed heavily on our short-term performance. However, we also witness our clients' continued struggles to make practical sense over the myriad of new marketing channels and how to integrate these opportunities into more conventional marketing programs. There's no doubt that at a strategic marketing level, there are exciting times ahead and these client challenges represent opportunities for us to engage with our clients in a more meaningful way. However, at the immediate and operational level, at the project level, it means that continued volatility inclines decision-making for the remainder of this year. For example, in Direct Mail, we have seen clients switch mail formats and volumes on very short notice in attempts to find the most cost-effective method of reaching customers. And we've also seen an uptick in piloting of marketing programs ahead of committing to final projects in order to experiment with new communication channels and techniques. The combined net impact of the economic uncertainty and the fundamental changes in the operational dynamics for Direct Marketing activity have resulted in a significant deceleration in our revenues. Having made early commitments to some overhead increases, both as investment in resources for future growth and for the maintenance of existing facilities, the impact of the reduced revenues has had a substantial effect on our operating income. During the quarter, we also took some important corrective action in refocusing our business. I will provide more specifics of this later on our call. But the cost of these actions, together with adverse foreign exchange impacts, resulted in a further reduction in our profitability. Overall, therefore, we're presenting a challenging set of performance numbers today, and I will now ask Doug to walk you through the details of that. Of course, I'll rejoin the discussion to conclude our announcement a little later on at this call. Doug?

Thank you, Robert, and good morning. This was an eventful quarter, culminating with the sale of our Shoppers segment which closed on September 27. As a result of the transaction, the financial statements attached to our earnings release this morning show only our marketing service results and all of the Shoppers results have been netted into one line item, discontinued operations. Revenues for the third quarter decreased 4.3%. Operating income decreased 22.7%, after excluding $3.7 million in charges for a trade name impairment charge, a client make-good payment and an increase in currency translation charges. Excluding these items, third quarter diluted earnings per share from continuing operations was 11% -- $0.11 per share for 2013 compared to $0.14 per share for 2012. First, I'll focus on revenue from our industry verticals where we have the following results: Our select markets increased 13.5% or $1.4 million. Automotive and consumer brands decreased 2.1% or $0.5 million. Our retail vertical decreased 4.6% or $1.8 million. Our pharmaceutical/healthcare vertical decreased 4.5% or $600,000. Technology decreased 6.9% or $2.2 million. And finally, our financial services vertical decreased 10.7% or $2.3 million. Our select vertical markets increased for the quarter primarily due to a nationally recognized travel and resort company increasing their marketing activity. This was a test program for our client and is expected to continue for a short period into the fourth quarter ahead of anticipated programs. The decrease in our automotive and consumer brands vertical was driven primarily by the decision to not renew non-core contracts, consistent with focusing on core services going forward, and reductions in agency work by an automotive client. In the short-term, exiting these contracts will have a financial impact, but will allow us to focus solely on our marketing services going forward. These declines were offset by increases…

Thank you, Doug. Now, while it seems abundantly clear that we've missed some important financial performance milestones, this does not tell the whole story of our business in quarter 3. As I've settled into my new role at Harte-Hanks, I worked quickly with our management team to begin the process of refocusing our business. As already mentioned earlier in the call, we completed the much-anticipated sale of our Shoppers business in September. And I want to acknowledge here the work of both our finance and legal teams in accomplishing this task in a professional and particularly speedy manner. It really was a job well done. During the quarter, we also recognized that we needed to address issues in some of our existing core business. The result was an impairment charge against our lead generation division. And just as importantly, it was the management's start on a long-term plan to return this business unit to health. And we've begun the process of critically evaluating the contribution to performance from some of our existing contracts. And as Doug has already mentioned, we elected not to renew some of this work as it was not core to our business going forward. Our actions are not limited to an internal examination of our operations. In late September, I appointed external strategic consultants, specializing in the marketing and data sectors, to assist us in our review of the business. This exercise will give us additional clarity in our planning for change. The work is ongoing and we expect to report the outcome from this review to the Harte-Hanks board by year end. We will continue to examine structural aspects of the business throughout the remainder of the year, so that we enter 2014 with a much more focused approach to our operations. The first 100…

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

I was wondering, first, if you can break out for us your digital businesses versus your traditional businesses, and if there were any revenue disparities between those 2?

The first -- I'll take the second part of that question to begin with. There's no real disparity in performance between digital and the traditional parts of our business. We find ourselves challenged on each side of that divide. We don't traditionally look at our business in a split between digital and conventional. It's not a definition that we work in our analysis, so I can't break out and do a contrast, for example, versus quarter 3 of 2012 on that number. But I do know that we are seeing challenge across all aspects of the business and it's more to do with the fact that our services tend to be project-led and have a strong operational focus, so that there -- to do with very specific marketing activity in -- measured in weeks and months rather than the long-term commitments.

And, Robert, the weakness that you're seeing is not -- it sounds like it's fairly across the board. There's not any particular -- and I know you do operate in a very highly fragmented industry, but there's no one in particular that might taking some share from you or maybe getting some of this business outside of Harte-Hanks, I mean, just maybe a competitor or something?

Yes. I mean, we look very closely to see is it about losing clients, are we losing bids, for example. And we really don't see that. We've highlighted one client, I think, where we have a client loss. But this is an agency-type business and that would be part of the nature of that business anyway. So there's nothing that's specifically noticeable about the trends there. I think all that we're seeing is fluctuation, short-term, tactical decisions made by our clients, often in short notice. And we're seeing the volatility of that. And it's the balance of that against our desire to do a degree of longer-term investment in the company that causes the pressure for us in this quarter.

In terms of the company's lead generation business, which typically I thought would have been probably your fastest-growing segment for the company, do you believe that you need to make additional investments there or acquisitions in this segment to bolster your growth prospects? Or what do you look for from just -- from that particular segment?

What we've done is, first of all, we've taken a prudent decision to take the impairment charge against that business because we don't have prospect of a quick turnaround or a quick fix to that business. So that's the first step that we took. Second of all, we've given the management an element of time to come back with a recommendation on what they need to do to get us to a better long-term position with that part of the business. We're just entering our budgeting and planning phase for 2014 now, and we expect to hear from the management of that group, literally in the next few weeks, about what their solution might be. I wouldn't rule out acquisition as a way to fix it. I don't think it's the only way, but we will be guided by our management team when they talk to us 2, 3 weeks from now.

And if you could just break out the Trillium business for a second. What did that business do in the quarter? Or -- and in particular, is that business being affected with all the turmoil going on out there as well?

It certainly has some turmoil. It's -- the nature of software business, I think, has more stability, particularly in the maintenance-type contracts on software. So we don't see just quite the same degree of instability. But it's -- I think it's fair to say that the quarter for Trillium was not one of their stronger quarters. Overall, the business is very solid for the year, but we did see a softer quarter for Trillium in the third quarter.

So the revenues were down?

I think they were probably -- the revenues were stable versus the prior year. I think I'm right in saying -- Doug, and just keep me right on this, the comparator for quarter 3 in 2012 was a strong comparator, though.

Yes. They were up against a very strong third quarter in 2012. And Robert is correct, the revenues were stable.

[Operator Instructions] We'll go next to Edward Atorino, Benchmark.

I haven't heard much about the cost structure. Do you need to do any significant cost structural changes?

Yes, that -- we talked a bit a little bit about that, Ed, in that -- during the quarter, most of that was driven by labor with businesses where those costs aren't really variable in proportion to the revenue changes that are out there. We made some investments in growth talent. We also made some decisions earlier in the year to support the second half revenue growth that has not materialized. And so we will continue to invest and work with that growth talent that we need within the organization as we continue to go through change.

You don't think with the revenue base, you need to basically adjust the cost structure downward?

I think we're walking a balance between investment and talent that will -- that is required, actually, by our clients as our industry is changing. There are parts of our business where it's easy to vary the cost base relative to the revenue. But there are other parts of the portfolio businesses that we have where it's not a simple case of doing that. And as I said at the start of the answer to the question, we're going to continue to walk that line between investing in the knowledge of what our clients will require from us going forward and short-term responsiveness in businesses where we have that capacity to do that.

Do you see a lot going to TV as opposed to just going back into company budgets?

No. That's not something that has come up in listening to both clients and our divisional leads. That's not something that has been highlighted to me.

[Operator Instructions] It appears we have no further questions in the queue at this time. I do apologize. We have a question from Dan Salmon, BMO Capital Markets.

Robert, I was just hoping to tease out a little bit more color, just referencing your background which certainly is in the marketing area, but maybe a little bit more tilted towards maybe the information services side a little bit. And also, I know you have a good background in doing M&A. So I was maybe a little bit more curious to see how you think about -- you highlighted Trillium as sort of a foundation asset, but whether or not that's something to build upon through M&A or to facilitate more information-services type of businesses. So just how you basically plan to bring your background, which is slightly different to Harte-Hanks.

Yes. I think the information that I can bring or the experience that I can bring to the company will probably come to the fore a little bit more after we've completed the exercise of the business review. At this stage, we're getting our arms around what we have. We're taking some obvious early steps to get a refocusing within the business, largely done from just internal reviews. But once we complete that more fundamental review where the external strategic consultancy is helping us, then I can begin to apply my experiences to thinking of what we then do. So it's probably a little bit earlier -- early in the on-boarding for me to greatly influence at this stage. I certainly remain very connected to the information and data industries, but I think that, that's probably something that you'll see more impact from early in 2014.

Okay, great. And then just maybe one follow-up. The non-core contracts that you stepped away from, I think you made mention that they were more agency oriented. But can you just maybe add a little bit of color there, and should we take that to mean that these are types of businesses you're going to move away from with other clients and reposition the offering over time?

Yes. Just to be clear, we didn't specifically say that they were agency-type clients. We've looked at these across the board. And we're not walking away, necessarily, from businesses. We're walking away from some contracts. It's kind of some odd business that sits around the edge of our core business. And we just think that it causes distraction for our management. And what we want to do is to begin a process of clearing out some of that. It's almost like a spring clean, if you like, to the business, and it's an opportunity for me as a new CEO just to do the spring clean. I don't want to make too much of it because I don't want to suggest that this is the way in which we're absolutely going to drive focus. I think there are other things we will be doing as well. But it is important to come in and tidy up a certain amount of activity and that's all that this relates to.

And we have no further questions in the queue at this time. I'll turn the conference back over to Mr. Philpott to offer any additional or closing remarks.

Okay. Well, thank you, Shalana. So once again, to everyone who joined the call this morning, thank you for taking the time to listen for us. I look forward to speaking to you all again at year end. And just remains for me to wish you a Happy Halloween. Thank you and good morning.

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