Ladies and gentlemen, please standby. We’re about to begin. Good day, and welcome to the Harte Hanks’ First Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Scott Hamilton, Investor Relations. Please go ahead.

Thank you, Shannon. Well, good afternoon to everyone, and thanks for joining us for our first quarter 2017 earnings call. Joining me on the call is our CEO, Karen Puckett; and our CFO, Robert Munden. Also in the room is our COO, Shirish Lal; and Controller, Carlos Alvarado. Our call will 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; anticipated performance and outcomes; future effects of acquisitions, dispositions, 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 the 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 earnings release is available on the investor’s section of our website at hartehanks.com. And with that I’ll turn it over to Karen Puckett, CEO of Harte Hanks.

Good afternoon. Thank you, Scott, and thanks for everyone who’s joining us today. I’d like to start by really acknowledging your patience as we work to get back to a normal reporting cadence. And we expect to release our second quarter results in late September or early October, and we anticipate getting current with the third quarter in November. So, again, current financial reporting with our third quarter results that would be reported in November. Today, I’d like to start by going over a number of factors impacting revenue in the first quarter, including improving customer satisfaction and new client bookings. Then, we’ll talk about strategic investments and partnerships we’re making to better position our company in growth areas of the market and improvement in our operations and cost structures as we continue our strategic turnaround. Robert Munden will then go through the financial results, and we’ll finish up with questions. From a revenue perspective, in the first quarter, our year-over-year revenue decline continued to slow, an early indication the turnaround we began a year and half ago. Revenues came in at on $94.9 million for a year-over-year decline of 4.7% versus last year at 8.9% decline in the first quarter. Our retail exposure and a former client loss was largely responsible for the revenue decline, offsetting improving performance in our other verticals. Operating loss was $6.3 million, a $2.2 million improvement from a year ago. As I had mentioned, we continue to see improvement in client satisfaction. In fact, each quarter, we survey a quarter of our clients and, currently, over two thirds of our clients are extremely satisfied. This is up from 50% a year ago. We believe our operational performance improvement helped drive this increase. As a result, we’ve retained a number of large clients who had…

Thank you, Karen, and good afternoon. Before I start my comments, I’d first like to turn the call to Shannon, who’s going to give instructions for the question-and-answer session for analysts who have questions.

Yes, thank you. [Operator Instructions]

Thank you, Shannon. Turning to our first quarter results, as Karen mentioned, our consolidated revenues were $94.8 million compared to $99.6 million of revenues in the first quarter of last year. This represents a decline of 4.7% and a lower rate of decline than the prior quarter and year. Before I walk through the revenue results by industry vertical, let me begin by noting some adjustments to our verticals. We’ve eliminated the other Select Markets vertical category, which was less than 10% of our revenue. We’ve re-categorized those customers into other verticals. We’ve also renamed the previously reported Technology vertical as B2B, and have added a Transportation vertical. Our Financial vertical showed the strongest growth year-over-year, increasing 10%, driven by contact center work for a credit card service provider, database work for a national insurance company, and agency work for an automaker’s finance company and a major U.S. bank. We had a modest gain on our B2B vertical, driven primarily by increased spending from an entertainment network, a digital apparel market, and a global IT services firm. Our Transportation vertical was flat last year. Our Automotive & Consumer Brands vertical was down slightly year-over-year in the first quarter, showing the continued effects of an Asian automotive brand lost in the prior year and decreased marketing spend from a global consumer brand. These losses were largely offset by new work for a European luxury automaker and marketing programs performed for an association and a professional sports league. Our Retail vertical remained our largest and it was also the largest contributor to our revenue decline for the quarter. This 11% year-over-year decline was driven by reduced logistics, contact center and mail volumes as well as database revenue declines from the final wind-downs from prior year’s lost accounts. As Karen mentioned, retailers are…

Yes, sir. Thank you. [Operator Instructions] We will go our first caller Michael Kupinski with Noble Financial.

Thank you. Thanks for allowing me to ask question. First of all, I want to say that I’m pleased that the company actually hit our operating metrics. So I am quite relieved about that. Secondly, I was just wondering in terms of the Q2. Obviously, your customer satisfaction’s improving and your – I was wondering if you’re anticipating that – following the first quarter that you’re still anticipating that you will see moderating revenue trends continue throughout this year, and certainly, on a sequential quarterly basis. I was wondering your thoughts on that.

And in general, Mike, yes. I think you know, obviously, the key focus for us right now is our – just improving our profitability. But we are having strong, as I said earlier, not only first quarter but really, second quarter bookings. Not all of that revenue happens right away, but it does have an impact, and our client losses are declining. The challenge that we still have that we’re very cautious and working hard on is just the retail volume ups and downs that we experience with our retail clients. And that’s probably our largest strategic challenge. Other than that, we’re feeling very well about the rest of the business and the inflection points that we're seeing there.

Got you. And since we're so close to back-to-school and it's such an important vertical for you in terms of retail, any thoughts on how the retail vertical is looking at this point?

Yes on the retail vertical we continue to see declines in volumes overall as their businesses have continued to see shift in terms of their overall volumes. So we are seeing some impact overall though that's pretty consistent with what we've seen in the past few years.

So it hasn't worsened in other words?

Not at the individual customer level, we can’t say that, versus what we've seen in the past in individual customers, specifically, in general, is getting worse in terms of their volume trends, but they are – we still continue to see trends going down.

And in terms of the previous thoughts that the management had, and certainly, I was just wondering if you were going to give us any updates on that guidance, I guess was that the company believed that it could show revenue growth which was possible in the fourth quarter of this year, It sounds like you're still hesitant to kind of support that type of view. And maybe looking towards maybe Karen on your comments about the trajectory in 2018, I was just wondering if you – your thoughts about when the company might have its inflection point towards revenue growth?

Yes I would say that when you look at – so we have revenue improvement firstly in nearly every vertical, but mail – but Retail, which impacts our mail and logistics. However, there are things in our pipeline that we know about that likely could happen that could continue to change that trajectory in a positive way. But the cash flow improvement will continue also second half and will be basically breakeven to positive for the year as we exit quarter four.

On an adjusted EBITDA basis? Is that what you’re talking…

I'm sorry.

On an adjusted EBITDA basis you're saying that you think you'll be cash flow positive for the year? I'm sorry. I just…

Yes we're probably, hopefully using less adjusted EBITDA. But just in general EBITDA or adjusted EBITDA. Either way when we look at it, yes absolutely.

Okay. And can you just talk about the thoughts in terms of the second quarter, because obviously in the second quarter, you'll still be cash flow negative in the second quarter. Can you have any thoughts in terms of where you might be in terms of your cash and debt at that point at the end of the quarter?

Well yes, we're not going to – we're not going to disclose right now anything beyond what’s – unfortunately what’s in our filings. And like I said we're going to try to get those Q2 results out as quickly as possible. So I don't want to give an incomplete picture by just giving that little snapshot.

Gotcha. Any thoughts on the prospective sale of 3Q anything that you can tell us maybe in terms of the level of interest in that business?

Things are progressing, and as we said before, we're not really going to give a lot of updates until we get near to more of a contractual process or done with the contracts. But what I would say is 3Q continues to execute very well both on the revenue and EBITDA standpoint. So very pleased about their performance, and their focus and things are moving along.

And is there any update in terms of the contingent liability related to 3Q? Is there any thoughts in terms of honing in on the number?

Not beyond what we've talked about in the prior call. No.

Okay. Are there other potential asset sales that the company is considering at this point or do you feel like you're going to sit tight with the assets that you have right now?

At this point our focus is on executing on 3Q processes as we've announced and getting that done in a very timely and progressive way. So that really is our focus, there's not other asset sales that we're focused on at this point.

And in terms of the client wins that you were talking about, I would imagine that there's some level of investment that needs to be made with those new client wins. I was just wondering if that is factored into your thoughts for the year in terms of the cash flow expectations?

Yes I mean we feel like in general our cash flow – yes our cash flow expectation would have that accounted for in the cash flow as those clients come on Board.

Okay I think I'll let others ask questions. Thank you so much.

Thank you Michael. Actually Shannon would you mind repeating the instructions for going into the queue please?

Yes sir thank you. [Operator Instructions]

Thank you we’re ready for the next question please.

Alright, the next question comes from P. J. Solit with Potomac Capital Management.

Hi there. So you had previously announced two cost programs, one was $25 million, the other was $10 million. It sounds like the first quarter already reflects the full $25 million. I guess, number one, is that right? And number two, how much of the $10 million run rate have we seen in the first quarter?

So you're correct on the $25 million. And on the $10 million we took those actions in the first quarter, so you're really not seeing that impact in the first quarter. You'll see that in coming quarters.

Okay so if that was in place you’re essentially breakeven on the new cost structure since you lost about $2.4 million, I think, it was? I guess that's the right math. And that's your seasonally slowest quarter, the first quarter, right?

Yes.

Okay. Alright good. Will we see the full impact then in the second quarter or not until the third?

You should see if not all almost all in the second quarter.

Okay, alright. And then the strong bookings in the first half, can you quantify that at all, or give a range, or are you able to do that?

No, I think what I would say is that we had a plan, a budget with a quota assumption that we over-performed on, which I think is the first time in a long time in the company. So from our standpoint that's very encouraging, and we are continuing to be encouraged by the pipeline for the second half of the year. So our plan is to exceed the budgeted quota that we have for the year.

Is the $15 million of retained business that you previously thought you would lose, is that a big part of the bookings number or are you talking about things even outside of that?

No, no, no. No, when we say bookings we're talking new services. It could be new to a new – brand new client and/or it could be new additional services to existing clients. But it's not part of the kind of retention calculation.

Okay that's good. Okay I would say given, as you think about this 3Q process, I mean, you've got a company that on a sum-of-the-parts basis and as you get to operating positive and potentially, growth later this year and into 2018, I view as very mispriced. So to the extent that that you get into the process with 3Q and buyers take the whole company evaluation and try and use that as a leverage point. And my two sense would be that if you're not getting prices to reflect what is a very valuable business in 3Q to not feel pressured to sell it at the wrong price just wanted to pass that on.

I appreciate – I appreciate that insight.

Thank you. Good job.

Thank you P.J.

Thank you P.J. Operator?

No further questions in queue at this time sir.

Okay, very well. So thank you once again for joining us. If you have any questions, feel free to call me.

And I’m sorry, sir. My apologies. I did have a late queuer. Would you like to take that now?

Yes, that will be fine.

Okay, Kelly Cardwell, Central Square Management.

Hi, sorry, I’m little slow on the view about America [ph]. Just real quick on the cost savings, the $35 million, could you just remind us how much of those savings came from cuts in executive compensation?

Could you repeat that, I’m getting background noise?

Yes, I apologize. Can you hear me?

Yes I think that’s better.

That is on the cost savings and is the $35 million, how much of that came from customer and executive compensation? It looked a little high a year ago that I noticed in computation [ph] of changes.

I would say that we’ve taken – we’ve restructured our leadership, executive team. So some of that did come from that cost savings.

Yes but not – I wouldn't say – not a material part of the savings came from either cuts to executives or current executives' compensation.

Is that's something that's being considered in the future?

I mean, that's a board and Compensation Committee matter of discussion, just about every time they meet.

Thank you.

Thank you.

And we do have a follow-up. Michael Kupinski, Noble Financial.

Thank you. Sorry for another late question here. I just want to go back to your comments about the prospect of having roughly flat to slightly up cash flow for the year. But certainly your fourth quarter is your seasonally strong quarter. And I was wondering if you're just being cautious related to the retail in that type of guidance? And what your thought process is in terms of executing at all the cost-cutting metrics that you've already put in place, because it seems like full brunt of that should kind of largely fall, I guess, especially with the $10 million additional cost cut that you have, should fall into the fourth quarter? In that why wouldn't the cash flow number be a little higher?

I think for the second half of the year that will be higher than the first part of the year. So that’s where you are getting the benefit yet. Fourth quarter is strong for us and yes you will see the impact of the cost reductions that we continue to make. So without giving a specific number, we do believe that our cash flow will improve second half and then going into 2018, we feel like we're in a really good position there.

And don’t forget we also had – in the second quarter we also made a sizable tax payment.

Right. I'm just trying to, so do you think you're going to be cash flow positive in the third quarter, or do you think it's still going to be negative in that mostly your fourth quarter is going to kind of offset the negative cash flow you had in the previous quarters? Is that the way to look at it?

I think you’ll see improvement in third quarter. It won’t all just happen in fourth quarter.

Yes then you will be cash flow positive in the third quarter or just improvement over the $1.4 million loss in cash flow in the third quarter of last year.

Yes, I mean we're – again, we're sticking to slight positive or breakeven for the second half. And I don't think we're going to parse it by quarter at this point, unfortunately, Mike.

Okay, fair enough. That's all I have and thank you

Thank you.

And there are no further questions.

Okay, I think we'll wrap it up then. Thank you again for calling. And once again if you have any further questions you’re welcome to call me, Scott Hamilton, my contact information is on the press release. Thank you very much. Bye-bye.

Ladies and gentlemen that concludes today’s conference. We thank you for your participation. You may now disconnect.