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

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, anticipated effects of litigation and regulatory changes, economic forecast 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 tab of our website at harte-hanks.com. I'll now turn the call back over to the operator.

And we will now turn the conference over to Mr. Robert Philpott, CEO of Harte-Hanks. Please go ahead, sir.

Thank you, Jimmy, and good morning, everyone, and welcome from me to the Harte-Hanks second quarter earnings call. Now, as usual, Doug Shepard, our CFO joins me on the call today. And in a few moments, he will take you through the detail of our earnings release. As I think has become customary now, I will present, to begin with, some opening comments, followed by Doug and the detailed financial update, and then I will give some further insight to our business operations. And obviously, at the end of the call, there will be an opportunity for you all to ask questions. Now, as you're well aware, we are now at the implementation stage of our new strategic plan, and the impact of this has been felt right across our business. I will comment on the progress on the strategy in more detail later in today's call, but I want to highlight now that the implications of that strategic review reach as far as our results announcement today. For the first time, we are providing specific financial performance information, including historic comparisons for our software business, Trillium Software. Moving forward, we'll continue to provide separate insight for both of our divisions, Customer Interaction and Trillium Software. But let me start today by focusing on the overall performance for the Harte-Hanks business. And the second quarter results have brought further confirmation that our commitment to top line growth is delivering results. While so certainly pleased by the revenue growth we announced in quarter 1. I'm delighted to report that we backed this up with further revenue growth in quarter 2. And we've not had consecutive quarters of growth since early 2011. Looking at our revenue trend, we eliminated the revenue decline in late 2013 and have now begun to deliver against…

Thank you, Robert, and good morning. During our Investor Day at the end of May, we announced our new strategic direction. At the same time, we announced that we would organize our operations in 2 distinct groups, and consequently began reporting results for 2 segments, Customer Interaction and Trillium Software. Within the tables for this morning's earnings release, we added a page showing the quarterly results for the 2 segments for 2012, through the 2014 second quarter. As a review, the Customer Interaction results include all marketing service products we sell, including digital, agency, database, lead generation, loyalty, customer relationship, mail and contact center. Trillium Software revenue consists of software license sales, annual maintenance fees and professional service revenues, typical for a software company. A line item for corporate within our segment reporting primarily represents charges for defined benefit pension plans, related to legacy businesses, no longer a part of Harte-Hanks for our newspaper, radio and television employees. Turning to our second quarter results. Our consolidated revenues increased 0.1% during the quarter. This is the second consecutive quarterly revenue increase reported by the company, marking further progress towards our 2014 goal of returning company to sustained revenue growth. Let me walk through the results from each of our industry verticals, which I remind you are reported on a consolidated basis. Select markets increased $6.8 million. Growth was primarily due to a sizable new client win, related to support for online streaming services and expansion of mail relationships with existing clients. This new client win also contributed to a strong first quarter result for this vertical. The new client win had some implementation services during the first half that will not repeat for the remainder of 2014. Automotive and consumer brands increased $0.7 million primarily from the increased contact center services…

Okay. Thank you for that, Doug. Now let me try to add some color to my earlier comments and to the analysis that Doug has just shared with you. First, I want to again highlight the excellent contribution from our contact center services within our Customer Interaction division. Over the last 12 months or so, I've often heard challenges that the contact center industry is a commoditized space. And indeed, there is some truth behind that. However, we find a niche in the industry, where we can offer call center services to clients who place a premium on their brand experience for their customers, rather than just focusing on transactional execution. And the more progressive of our clients are also using customer support programs in our contact centers to discern more user-type information about their customers. This information can then be used as additional input to their customer marketing databases, meaning that subsequent marketing campaigns then benefit from being able to draw on this customer experience information. As Doug mentioned earlier, we had no major client defection in the first half of the year. Indeed, the second quarter is perhaps most notable for the high rate of client renewals in the business. These projects rarely make the same headlines, of course, as new logo wins. But as an example of what we've been able to achieve, I can point to one of our larger retail clients, Lord & Taylor. They have just extended their database contract with us, not for the original 6-month period, but for 15 months. One of our core action points in the development of our plan to drive revenue growth is to ensure that we reduce or eliminate client loss, and our sales force has been particularly successful on this front during the quarter. With several…

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

This is actually Juan Bejarano in for Michael Kupinski. Just as far as acquisitions, do you have anything on the pipeline there? If not, can you speak on the timing? Can we expect something by the end of this year?

Sure. Let me comment on where we are on our progress on acquisitions. Let me say, to begin with, that we would never comment prematurely on any specific acquisition that we would be in discussion with. But we are in the early phases of developing our acquisition pipeline. I've been very pleased that since we announced the strategy that we have built up our pipeline of potential acquisition targets quite significantly, and that we're seeing that pipeline being filled not just as it traditionally had been from banking sources, but our own businesses are bringing opportunities to the table. And in fact, 1 or 2 businesses have reached out directly to us. I expect progress to accelerate further in this area once we have our Head of Corporate Development onboard. I'm very hopeful that we can get that person onto our team by end August, early September depending on the competitive contracts, but we're making progress there. The pipeline is filling up. We are having discussions with companies, and I'm satisfied with the progress we're making.

Okay. And as far as your stock repurchase authorization, maybe how much is left for that, and do you have any plans on increasing?

We have about $1.5 million left on our authorization at this point. And we have historically supported our shareholders with share repurchases and dividends. We said, during the strategic plan when we announced it in May, that we believe strongly in a balanced use of capital between acquisitions, dividends and share repurchases. So we expect to continue to support our shareholders through an appropriate balanced use of capital going forward.

And sorry if I missed this, as you look to Q3, can you maybe speak about retail and how back-to-school is shaping up?

It's still early. As you know, that in our business, the retailers make decisions, actually, very close to the period itself. So what I said earlier in my comments was that we've seen nothing at this stage that indicate that the retail clients that we support are pulling back from any of their marketing efforts in this area. Now there is some -- there still remains some doubt about the volumes that they may shift during that period. We've seen the effect of the postal rate increase on volumes or weights of material already earlier this year. But I'm not hearing anything that indicates that the major retail clients that we have are pulling off of their plans for back-to-school.

[Operator Instructions] And at this time, there are no further questions.

Just give it a moment, Jimmy, in case anybody's compiling 2 or 3.

And actually we do have a couple of questions. We'll take our first question from Dan Salmon with BMO Capital Markets.

I have 2 questions, Robert, was -- first, thanks for breaking apart the Trillium business and giving us a little bit more visibility into it. Can you maybe tell us a little bit more about, you've talked little bit about the separate client basis for it sometimes with the Customer Interaction business, but can you give us a little background on the back office, how connected the 2 businesses are? Do they share resources? And if they do, do you see them kind of separating apart a little bit more, as part of your restructuring work? And then the second question was more a top line issue and it was about you talked a little bit about at the Investor Day, bringing up the amount of work, where it is, maybe a bit more deeper relationships, retainer-based relationships, if maybe just some high-level strategy points on how you execute that as the CEO. Is it about keeping disciplined on new business and not taking project work? Is it having conversations with your current clients? I'd just like to hear a little bit more about that.

Okay. So let me take them in the order that you asked them. First of all, you're right. We listened hard to people saying to us that they'd wanted to see the Trillium Software business as split apart, and when we did the strategic review of the business. In fact, that backed up that, essentially, this was somewhat largely independent of the Customer Interaction division. So it was a relatively straightforward step then to take to begin to talk about these 2 divisions in separate terms and to provide separate financials. The only real back-office support or commonality between Trillium Software and Customer Interaction are around the sort of standard corporate support functions, things like the accounting function, taxation, legal, even down to HR. The rest of back-office, if you're talking about sort of their technology development and client teams and such like, there really is no attempt to do a single back-office in those sorts of areas. These businesses operate in separate spaces occasionally, and increasingly, it's more by coincidence than any design. They cross each other's space, and therefore, we intend to allow them to have full operational independence from one another, just with those corporate functions at the background. Let me talk, Dan, a little bit about your second question, which was about building the depth of the relationship with key clients and going just beyond being seen as executors of specific projects or having clients pick point solutions from us. Some of the way in which we're doing that is by getting our teams much more connected and as I mentioned in the -- in my commentary a little earlier, we've seen some good progress on the way in which our agency teams working with the database group, the contact centers working with the agency team. There are lots of examples of us now trying to think of a solution for the clients or of being a solutions partner for the clients' marketing activity rather than just going in to respond to an RFQ for a package. It means when we go in front of our clients, we need to be joined up, we need to be familiar with each others' services within the businesses and connect those into something that's more programmatic, rather than specific solution. And we are also increasing the expertise that we have around, particularly, industry segments, so that we go in with knowledge of the techniques that we have and understanding of the industry that these clients work in, and then the thing that we're famous for, which is our absolute ability to execute flawlessly. And it's combining those and being seen as a joined-up organization rather than one which has separation as its theme, which is allowing us to win the extended relationship contracts.

We will take our next question from Adam Peck with Heartland Funds.

And I'll echo my thanks for breaking out Trillium as well. So 2 quarters of consecutive revenue growth, but this is really the first quarter of growth for Customer Interaction in a while, correct?

Yes, they -- that's right. This is the first real quarter of growth for them for quite some period of time, actually.

And so you really attribute most of that growth to the client renewal rates?

I think that has helped. We've had new business wins as well. And as Doug had highlighted, I mean, it is the growth comes in certain sectors. There isn't an absolute consistency across all of the verticals that we talk about at this stage, and that's why we don't think that -- we think that we are someway down the path, but we know that there is still much more work to do until we can claim to have really gotten ourselves into a position of -- with a strong trend of growth. We've got good progress, but we have lots of work still to do.

What do you think is driving the change in the renewal rate?

I think, first of all, it's getting focused on the fact that we want revenue growth that we're proactive about renewing contracts. I think we're going in now to tell a story that is much more connected about the way in which we run and think about our business. We're seen -- we're being seen as partners as opposed to point solutions, and I think that's exactly why somebody was prepared to commit to us for 15 months and not 6 months. So I just think that there's a different perception about what Harte-Hanks represents now and the role that we play. We don't fix single problems. We're a business partner, offering sustained solutions across a host of issues for our clients.

And as far as the second half guidance with upward bias for revenues, if you can continue to chip away on the cost side, is it fair to say that operating margins should see a little bit of an uptick?

I think it's fair to say that there may be some costs associated with some of the corrective action that we're taking, but if you go to the underlying performance in the business, if you look at the core of that business, I believe that you will see an improving picture.

Okay. And now that we have the Trillium numbers broken out, looks like you guys have consistently been in mid- to high-20 operating margin area. But this quarter, you did see a bit of a drop-down. Is that a -- is that just a temporary blip there?

Yes, I wouldn't read anything into just this quarter itself. I think we've tried to highlight that our view is that, that's primarily timing. And there is nothing that we're seeing in that business at the moment that makes us think or would give rise to us to issue caution about the performance of Trillium Software.

[Operator Instructions] And it appears there are no further questions.

Okay, Jimmy. Well thank you for your help with that. Thank you to everybody for joining the call this morning. As usual, I'm sure you all have Doug and my contact details. Feel to reach out to us. We'll continue with our program of communicating with our investor base particularly as we get the strategy work -- as we get deeper into that strategy work. And, of course, we'll see you all back in the same place for our earnings -- third quarter earnings call, which I think from memory is right at the end of the October. Thank you, again. Have a great morning.

Thank you for your participation. This does conclude today's call.