Good day, ladies and gentlemen. Welcome to the Harte Hanks Third Quarter Earnings conference. Today's call is being recorded. At this time, I would like to turn the call over to Robert Munden, General Counsel. Please go ahead, sir.

Thank you, Lisa. 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 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 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 will 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 will now turn the call over to Karen Puckett, our CEO.

Thank you, Robert, and good morning, everyone, and thanks for joining us. I would like to begin by sharing a few comments, and then Doug Shepard, our CFO, will go through the financial results, and finish up with your questions. First, once again our year-over-year revenue decline was consistent with the last several quarters. However, we remained focused on our cost-control measures and, as a result, our adjusted operating income improved compared to the first half of this year, as the actions we have been taking are beginning to make an impact. Of course, we understand that cost control, while important, is not – only going to get us so far, so we continue to be committed to returning to revenue stability. With this being said, I am seeing some encouraging proof points, however, that gives us confidence that, although it may take a few more quarters, we are beginning to see a pivot towards revenue neutrality. Specifically, we had a strong September sell, saw stabilization in our database business, and are having success cross-selling with 3Q Digital and our Harte Hanks Consulting services. We're also seeing an increase in complex bids, which we can leverage more of our capabilities, and have made significant progress improving client satisfaction, which is incredibly important to our revenue stability. Let me talk about each one of these in more detail. While we are not ready to say it is indicative of the new trend, we’ve had recent success with our sales approach and the mix of services we are selling. In September, we had our strongest new sales month this year, bringing in a number of new major accounts, including a large insurance company, an online payment firm, a European fleet operations company, a European car manufacturer, a major television sports network, and…

Thank you, Karen, and good morning. Consistent with the second quarter, our third-quarter earnings results report our customer interaction business on the face of our financials and the results of Trillium Software are shown as discontinued operations, due to our announcement to seek strategic alternatives for Trillium. My comments will include some breakout of the Trillium third-quarter results. Turning to our third-quarter results, our consolidated adjusted revenues were $97.4 million, compared to $108.8 million of revenues in the same quarter last year. This represents a decline of 10.4%. Customer interaction revenue declined 9.7% on a constant-currency basis. One of our goals continues to be reducing our client and revenue churn, and we continue to slow the amount of revenue loss from existing accounts. Let me walk through the results of this business segment by industry vertical. Our auto and consumer brands increased year over year, benefiting from the implementation of a new entertainment client engaging us to provide multichannel contact center support, along with the expansion of services with an existing multinational courier services client. Our select markets vertical declined from a reduction in contact center work with an entertainment client and reductions in mailing programs for a nonprofit organization, offset by growth of mail supply-chain work with a grocer. Our financial vertical showed growth year over year, driven by the expansion of lead-generation mail work for an insurance company. This was partially offset by mail clients moving their business, including a regional bank losing its credit card services partner. The retail vertical continues to be our largest vertical in terms of revenue and is something we are watching closely with the holiday season approaching. We were impacted during the quarter by three large retailers delaying programs and reducing mail volumes. Our healthcare vertical declined during the quarter from the…

[Operator Instructions]. We will take our first question from Michael Kupinski, Noble Financial.

First, a couple of operational questions. You indicated that there is a pivot towards more neutral revenue opportunities, and I was wondering. Is that because that you're beginning to cycle the losses in the healthcare/pharmaceuticals vertical? And it seems that you won't cycle, though, in retail until probably the second quarter of next year. What other verticals are giving you a little bit of, I guess, hope that you are starting to see that neutral pivot?

I will take that. Certainly the cycling the loss is part of that neutrality, but the upticks that we are seeing as I talked about – I'm not even going to talk about pipeline, but really RFP –real-time RFP activity is what is giving us that encouragement. And in terms of the verticals that we see upside opportunity, on financial services, if you set aside the decline – volume decline that we had with two banks that will be cycling through this year, we are seeing some strong activity in regional banks, as well as other financial services RFPs. The database that we delivered to a large client is now being stabilized and we are moving forward with a more profitable scenario with that client and more upside – way more upside potential there. And then on the B2B side, the Buyer's Journey and the work that we've been doing around targeting marketing for some of our clients and then the marketing technology stack that I spoke about, it is really a new practice for us. We did some of it, but that's a big upside opportunity in our clients. There is so much – a couple of things. From a marketing budget standpoint, Forrester just came out yesterday that said that the marketing budget spends are going up from 11% to 12% this year, to 12% of revenue. And of that, over 33% would be spent on marketing technology. However, the marketing technology is overwhelming for marketing organizations and CMOs, and we are finding ourselves in a real niche here to help bring that as part of that solution to our clients. And then, that database work that we have been talking about, we've completely relaunched database platform with much better economics than we were in before, and the integration that it has with some of the best analytics platform out there, we believe, is going to help us leapfrog into 2017.

Doug, what is the percentage of your traditional delivery business to the total revenues of the Company at this point?

Excluding Trillium, so let's talk post Trillium, it is in the high 60 percentage range.

Okay, and with the closing of your Baltimore facility, I know that you guys have identified that you want to cut $25 million in costs. With the closing of your Baltimore facility, it looks like you might be able to achieve half of that goal. Has the consolidation of your distribution facility, is that now over, or are there additional opportunities? And if you could just tell us where you are in terms of that $25 million cost-cutting target.

Mike, we have taken – actually taken on that $25 million program, and the only reason why I'm even using that language is everything has been done, but Baltimore is a good example of we made an announcement with the facility itself. We got to get through the holiday season, and we will actually close late in the fourth quarter. So, the actions have been put in place. They have been executed. The impact will be fully felt in 2017, some in [indiscernible]. When you talk about facilities and things of that nature, we have taken all the actions that we plan to take at this time, but obviously, you are constantly reviewing and thinking about those things as volumes change. As you win clients, you may need additional facilities. If you lose a client, you may need to close a facility, so that's constantly under review as the business changes on a monthly and quarterly basis.

So, it's interesting that you guys actually overachieved my cash flow expectation in the third quarter, but you didn't really get the full impact of all your cost cutting in that quarter? Is that correct – the way to look at it?

Yes.

Okay. And then, typically when a process of a sale takes longer than expected, the outcome tends not to be very good. I was just wondering, can you give us some sense on how you believe the process of the sale of Trillium is going and if there is any particular reason for the seemingly long and drawn-out process? Can you give us any color on what's happening there?

Again, we're not really going to comment. We told you we wouldn't comment. We will update everybody at once when we have news, but I believe we have been very consistent with our prior comments that we expect to have news before the end of the calendar year.

Okay. That's all I have for now. I will get back in the queue. Thank you.

Al Tobia, Sidus.

A question for Karen. Regarding the puts and takes on some of the businesses, it sounds like the outbound business, that was declining, but some inbound business growing; it sounds like the digital business is growing. As you pivot to revenue neutrality, how do you see margins at the gross line looking?

I think that the margins improved and are improving. The work that we are doing in terms of – for lack of a better term, I will call it the back office, we have completely retooled the approach, the processes. I mentioned, I think, last quarter that we are utilizing offshoring, which we had never utilized, really, in a significant way before. All is going to play to nearly every one of those practice areas or back-office areas. So we do see that improving, and of course, scaling revenue also will help on the margin side, too.

Okay, and then as you – I know you're not commenting on the sale of Trillium, but let me try to ask about the business itself. Given the fact that you have updated the database side and rewritten the code to make it, you said, leapfrog the competition, are you – should we view this as in the industry being viewed as a growing company? I know there is puts and takes regarding the SaaS conversion on the business model, but is it viewed as a growing company in the industry?

In terms of you're talking specifically Trillium?

Yes, specifically Trillium.

Okay, and just to be clear, when I said we really relaunched the database, completely relaunched, that was on the marketing services side of the house, not the Trillium side of the house. There has been a lot of releases and work I talked about prior quarter that are giving benefit in terms of our software as a service, our new Trillium integration release, but the comment I made earlier on the database was the marketing and services database business. I just want to make you are clear about that, and I will let Doug talk about the Trillium trends.

Trillium is going through, as we have been talking about for the last year and a half, this conversion from a perpetual license and maintenance model to a SaaS model, and SaaS customers continue to penetrate the customer base. We have new clients taking advantage of SaaS. We have existing clients converting to SaaS, and the SaaS bookings are growing and have continued to grow at a healthy rate. Trillium is also a very strong and high cash flow generator. We have publicly disclosed those segments previously and it is a, let's call it, roughly $15 million to $16 million EBITDA business. So, for a lot in the software industry, it is unusual to have a company that generates that strong of cash flow on a very consistent basis.

Okay, and then just on Trillium, obviously, can you just talk to us about any tax issues as you have seen them? Obviously, you have been trying to work through and moderate them, but anything we can look at in terms of how you are able to reduce those taxes, or is this just going to be a full taxed sale?

We will comment on the transaction when we make a public announcement on structure and everything else at one time before the end of the year.

Okay, thanks.

Ladies and gentlemen, at this time there are no further questions. I will hand the call back to our speakers for any additional or closing remarks.

I, again, want to thank all of you for participating this morning. We are encouraged, as we said, around some of the signs that we are seeing from an improvement in our win rates, essentially, and the velocity that we see occurring at the RFP level. But the cost reduction clearly has played a significant role in this quarter and go forward, and we look forward to updating you on our fourth-quarter results. Thank you very much.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.