Good day, and welcome to the Harte-Hanks Third Quarter Earnings Conference. Today's event is being recorded. I will turn the event over to Mr. Robert Munden, General Counsel for Harte-Hanks.

Thank you, operator. Our call will 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 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 Investors tab of our website at hartehanks.com. I'll now turn the call back over to the operator.

Thank you. I will turn the conference over to Mr. Robert Philpott, Chief Executive Officer.

Thank you, Felicia. Good morning, everyone, and welcome to Harte-Hank's Third Quarter Earnings Call, coming to you today from our offices in London. As usual, Doug Shepard, our CFO joins me on today's call, and in a few minutes, he will take you through the details of our earnings release. And has now become customary, I'll present some opening comments; followed by Doug, with a detailed financial update; and then I'll give you some further insight to our business operations; and then at that point, it will be your opportunity to ask questions. Now our performance update today is a story of positive momentum on both the top and bottom lines. And this is incredibly heartening for everyone involved with our company because we are now seeing the reward for the tremendous changes that we're implementing across the business. On previous calls, I've talked extensively about the adoption of our new strategy, particularly as that relates to driving the top lines or sales. And I've spoken at length, too, about our plans to get to grips with aligning our cost base with our revenues. But today, I'm able to focus my attention on telling you about the impact of these changes because we've now moved well beyond design and implementation to the execution stage. We're already beginning to function on a daily basis as the new Harte-Hanks, and we've begun to see the benefits of that. Our leadership is on par, and they're making tough decisions to drive performance into their business operations. Our teams are systematically breaking down barriers that prevented us working across our business, something that clients already tell us will be a key differentiator in the market. And whilst I wouldn't claim at this stage that our transition is complete, we are now well down the…

Thank you, Robert. Good morning. In the earnings release and in Robert's comments, we've discussed the actions we have and will be taking to realign our cost base to both our revenues and our strategy announced this May. During the third quarter, we announced the consolidation of 4 facilities and the closure of a fifth. There are expenses associated with the closure of those facilities, such as lease, exit costs and severance. Because these actions span the quarter end, our third quarter results reflect several hundred thousand dollars of expense related to those decisions, and we will incur more expense in the fourth quarter for these actions. These actions will result in $7 million to $10 million of labor and real estate realized savings in 2015. Turning to our third quarter results. Our consolidated revenues of $134.1 million were relatively consistent with $135 million of revenues in the same quarter last year. Let me walk you through the results of Customer Interaction by industry vertical. Overall, Customer Interaction revenue was essentially flat with the third quarter last year. We saw strength in several verticals, including financial services markets, which increased $1.8 million. Growth was generated from increased credit card mailing solicitation in home equity, line of credit loan generation mailing activity from regional and national banks. These were offset by a 2013 client loss. Our technology vertical increased $1.7 million from a new client for cellphone support. In addition, an existing client grew from increased digital agency services and expansion of contact center services. Automotive and consumer brands increased $1.1 million, primarily from the increased contact center services and headcounts from a worldwide transportation and business services company. Select markets increased $0.5 million. Growth in this vertical, consistent with prior quarters, is primarily due to a sizable new client win…

Okay. Thanks, Doug. Now just quickly looking at our revenue trend. It would have been nice to talk about a third consecutive quarter of growth, and we fell just short of that target. However, it is still clear from our performance that we have eliminated the persistent and significant revenue declines of the past few years and that we are continuing to make progress in delivering against our clearly stated goal of achieving consistent sustainable growth in the business. The markets in which we operate are still growing, and we're determined to seize our share of this opportunity. I spoke earlier about our property portfolio. So now, let me expand a little on those actions. First, we've announced the closure of offices in Cincinnati and in Sydney, Australia; second, we've consolidated or are in the process of consolidating sites in Texas, Maryland, California and Pennsylvania. On an annualized basis, this will result in property savings of approximately $2 million. Although some of these actions are driven by short-term performance challenges, it's part of a much wider task of relocating our business to sites appropriate for the types of service we perform and which allow us to be in close proximity to clients and talent. We're taking the opportunity, too, to ensure that space is appropriate for our forecasted business performance and that we build a much higher degree of flexibility into the longer-term fixed commitments usually associated with property. Now for an update on our progress in staffing to support the strategy. We've made 2 further significant appointments to our senior leadership team. In mid-September, Keith Metzger joined Harte-Hanks as our Head of Global Corporate Development. And Keith is leading our acquisition activity based on the strategic priorities for both Trillium Software and for the Customer Interaction division. Working closely…

[Operator Instructions] We'll go first to Dan Salmon of BMO Capital Markets.

Robert, maybe -- could you just expand a little bit on what you finished up with there about cost savings coming online a little bit faster than expected, it sounded you gave a great amount of detail on, particularly, some of the real estate issues. Is that what it largely is that you've managed to address something as you noted that usually is a little bit stickier and a little bit more difficult to address? Or are there other areas that you point to in particular? And then just the second one for Doug, is there any additional commentary or color you can give us around the charge that we should expect in the fourth quarter?

I think the increased optimism, if you like, or why I think that the -- our cost savings are coming through faster than I might originally have anticipated is a combination of the fact that we've been able to find some good solutions in reducing property costs, things that I would have believed initially were more difficult to achieve. So for example, the consolidation of some of the sites. We've just been far more aggressive on that. And in fact, some of our clients have helped us and given permission to move work from one location to another, even more readily than we might initially have thought. There's always a bit of trepidation around closing or consolidating of locations, but our teams have gotten to it, we've come up with creative solutions and it's happening faster than you might have expected it with a long-term traditionally fixed cost. But we're also becoming more aggressive on our people costs, too. The introduction of efficiency ratios and targets set for the business. That was a big step forward for us to get to grips with that, and when we do, our business reviews on a month-by-month basis, that's one of the first line items that we go to. So I think our team leadership is becoming more accustomed now to making sure that we consistently and effectively challenge the cost base, whether it's people or property. I hope that answered the first part. I'll pass across to Doug to answer the second part of your question, Dan.

On the second part of your question, Dan, and I'll elaborate a little bit on your first part in Robert's response. In my comments, I say that we're-- these actions are going to give us realized savings in 2015 of $7 million to $10 million. The bigger piece of that is related to headcounts and labor management. A couple million of that is related to the real estate piece, which, as you noted, is the fixed piece and the much harder piece to deal with and manage through. As far as the fourth quarter charge amount in range, obviously, we're evaluating things and working through that, but it will be in the range of several million dollars.

If I could just ask one quick follow-up on Trillium. Robert, you mentioned that you came in a little light versus planned. How should we think about the business in terms -- I think, typically, most people would see business like that being a bit more consistent with revenue growth, but should we anticipate a bit more lumpiness as you begin to apply some new strategies across the business?

I think there will be lumpiness as you put it there for the next couple of quarters with that business. And then the fundamentals of the business are still really fine, and we still have a fantastic installed base, the clients that we have. It's just fantastic for us. But I think there are changes taking place in that. We recognize that being just in enterprise data quality itself, that the market is developing or emerging, particularly, as I've mentioned in this call and the previous call, around this area of data governance. And therefore, we need to -- well, our plans -- our strategic plans, are starting to take note of that. It's also the fact that the platforms that we're working on are changing with clients now talking to us about cloud-based access to our capabilities. And that's going to take a little time just to develop that. We have new people on board who are specifically tasked with that, but I think that there will be a degree of lumpiness over the next couple of quarters.

[Operator Instructions] We'll go next to Michael Kupinski of Noble Financial.

I'm pleased that you guys actually over-delivered on my revenue estimate. On the earnings line, I assume that the $0.10 included the severance cost. Is that right?

That is correct.

And so how much of the severance cost were in the quarter? Given that the press release indicated that severance cost of $2 million was an actual increase over the year -- earlier period. So how much was the total severance cost in the quarter?

A little over $2 million.

So actually backing out severance cost, you probably would have beat my $0.12 EPS estimate. Is that the right way to look at it?

That's correct.

Yes. So in terms of -- regarding the upcoming quarters, it sounds like you guys are feeling like you're going to get back on track with some modest revenue improvement that you exhibited earlier in the year. I just want to clarify that. And just as you look into the fourth quarter, particularly.

Yes. I think we described our expectations on the top line still as fairly modest, Mike, but for the last quarter, the important thing is not to slip back into significant decline. I'm delighted that we're still beating your expectations on that, and I hope to do that again for the fourth quarter. We're probably a little more bullish on the way in which we've tackled the costs now than what we've seen particularly over the last 30 or 45 days. But we're -- yes, we're modest on our expectation on the revenue side of things, and we'll continue to push very hard to deliver results in the fourth quarter.

Historically, when you obtain new clients, and congratulations on those major wins, I think that's very significant, but historically, when you obtain new clients, there usually are some costs associated with that initially. Will margins be impacted in the fourth quarter or in the very near term related to that?

Mike, it depends. It's very dependent on the nature of their services that you sell to the client. So, I believe, what you're remembering and referring to are some wins that we had a couple of years ago that required a lot of employee training and onboarding before we could deliver the services to those clients. The nature of this sale does not appear to be -- have that type of activity associated with it. The major difference, though, is because this is a different type of service, more customer engagements type activities and involve some technology of the commitment, contract, everything are signed upfront, but the way the accounting works, when you deliver a database and some of that information, some of that revenue may not show up immediately.

What is the current headcount versus last year?

And I'm only hesitating because it's kind of a tough question to answer. We obviously have the numbers in that. A large part of our organization is mail plant and contact center employees. So that's a lot of variable labor that moves up and down with the marketing seasons, with the holiday season, as opposed to summers or early spring, when you don't have as much activity going on in some of those areas. And others have more of a professional base, such as the agencies and the database and the Trillium-type stuff. So when you take out what I would call the bigger variable, which is really the contact center, we're down several hundred employees over this time last year, really in the 400,000 to 500,000 range. And the total employee base is about 5,500.

Okay. And in terms of the office consolidation and staff cuts, it sounds like you said that it kind of moved farther along than you'd thought. Does that change your view on possible margin compression, excluding acquisitions, in 2015?

At this point, it does not. We're still executing against our strategy. These are the type of actions that we contemplated and position us to deliver. And we're starting to see some of those results in the sales commitments that we're getting out of customers. So I think, in our view right now, where we want to be on delivering our strategy and executing those strategy commitments.

And it's interesting that you have already begun conversations with folks regarding your acquisition plans. Can you talk a little bit about the progress that you're making on that front and how far along are you on maybe making an acquisition?

Well, obviously, Mike, you'll understand that we can't go into some of the specifics on this. But let me just talk around the subject a little, to say that certainly, since Keith has come on board, first of all, the quality of our pipeline has picked up significantly. We've gone very much from a situation where we would be contacted with businesses that have put themselves on the block. We're now more likely to be talking companies, where we're approaching them and suggesting that there might be opportunity for us to acquire them or for them to link to us in some way. So the nature of the initial contact has changed. Second of all, the quality of the companies. I've probably spent, in the last month, something close to 1.5 weeks of various, sort of, roadshows with companies, particularly in the digital agency space and in analytics. And the quality of those companies is high. They're generally relatively young management team and aggressive. They've got good growth in those businesses. And I've been very impressed with the opportunity that exists there. I'm encouraged, too, by the fact that those companies have expressed such a desire to be part of the story that we have at Harte-Hanks. We spent a long time initially talking about what the strategy is at Harte-Hanks, and these are organizations, which have now indicated a willingness to get on board with us. They see the opportunity. We're further along with some than we are with others. I believe, we -- our ambitions are still to deliver against the acquisition timescales that we've indicated during the strategy presentation at the Investor Day. And I think it's something that is reasonably imminent. We've indicated that growth, for example, in 2015, during our Investor Day, we indicated that, that was going to come largely from acquisitions, so we want to get some of these deals done. And just -- I need to make sure that we clarify, too, that acquisitions are not just on the Customer Interactions division but there is acquisition activity for Trillium, as well. So hopefully that gives you a little bit more flavor.

Perfect. And just one follow-up question on Trillium. The $2 million contract win, was that related to Trillium? Or was that outside of the Trillium business?

That was outside of the Trillium business, yes. The agency business in the U.K. that won that project is really the creative digital agency. That's our team based on reimbursable and led by Susie McFarland.

Gentlemen, currently, there are no further questions in the queue. I'll turn the conference back to management for any additional remarks.

Okay. Well, again, just a final thank you from me to everybody who joined the call, and we look forward to talking with you with our year-end summary early in the new year. Thank you, and good morning.

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