Harte Hanks Inc (HHS) 2016 Q4 法說會逐字稿

Good day, and welcome to the Harte Hanks Fourth Quarter and Full Year 2016 Earnings Conference Call. As a reminder, 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, sir.

Thank you, Lisa Anne. Good morning, everyone. Thanks for joining us. On the call with me today is our CEO, Karen Puckett; our CFO, Robert Munden; also in the room is our -- pardon me, CFO, Robert Munden; also in the room is our COO, Shirish Lal; and our Controller, Carlos Alvarado.

Our call will include forward-looking statements, such 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 the various risks and uncertainties, including those described in our most recent 10-K filings and other filings with the SEC and in the cautionary statement in today's earning 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 hartehanks.com.

Now I'll turn it over to Karen.

Thank you, Scott, and good morning, everyone. Thanks for joining us this morning. I'd like to begin by sharing a few comments: first, about the fourth quarter of 2016; and then about our strategy go forward. Robert Munden will then go through the financial results, and we'll finish up with your questions.

I'd like to say that we're very happy to finally be here with you today. As you know, this has been a long road to get our financial results announced. I know this is not what you expect from us, and it's not what we expect either. I'll let Robert discuss the reasons for the delay later in the call.

Let's turn to the high level on the fourth quarter results. Our revenue from continued operation was $110 million for the quarter. And the rate of decline moderated to 5.8% year-over-year in what is traditionally our strongest quarter from a revenue and operating income perspective. While we still have work to do, this was the lowest rate of decline we achieved in 2016. We believe it reflects our intense focus on retaining our current customers while expanding our client base and expected mail and logistic volumes. We saw an improvement both in client satisfaction in our new logo acquisitions around the middle of last year, and the improved results helped impact fourth quarter trends.

In conjunction with our goals to stabilize our top line performance, we recognize the need to rationalize our cost structure. We continue to take costs out of the business in the fourth quarter as part of the large cost savings program we announced in 2016. Robert will go into more detail regarding the fourth quarter in a moment, but I'd like to spend some time focused -- focusing on the work that we've done to strengthen the position in the marketplace.

We did a lot of heavy lifting in 2016 that better positions us for success. We've realigned our service offerings to better match client needs, recruited experienced new talent for agency consulting and marketing technology services lines, implement a large series of cost reductions, stabilized important client relationships, introduced several key service offerings, such as the consulting, the buyer journeys diagnostic and the omnichannel optimization. We also completed the sale of the Trillium Software at the end of December, enabling us to eliminate our debt and focus on the marketing services turnaround.

And progress continues in 2017. We announced our intent to sell 3Q Digital, put in a new $20 million credit facility to enhance our liquidity and financial flexibility and identified another $10 million in cost reduction opportunities, which have been implemented.

Importantly, we also introduced a 5 pillar of marketing approach to our clients and established and launched the Wipro and Opera partnerships. Our partnership with Wipro is a key initiative for us and is off to a good start. They've already helped us on several accounts and clearly enhances our technical execution, making our offerings noticeably more robust. We are also going to target some of their customers and are optimistic about early progress. Beyond the go-to-market, we have leveraged Wipro's tools and processes to greatly improve our technical execution, and that has shown up in feedback from clients as well as reduction in our air rates.

We're also encouraged about the response to Opera Solutions, which is our new database capability. We believe this makes us a clear market leader in marketing database, and we have gotten positive reaction from customers as well as prospects.

The combination of our Opera Solutions, along with our new data capability which we call global Dataview, moves us towards a leadership position that we have not had in a very long time. That is translating to a lot of conversations around solutions for customers that we were not able to have just 6 months ago, our efforts in building an inbound demand generation capability of gaining traction and delivering high-quality client opportunities to our sales team. We've deployed a marketing technology software suite that enables us to understand the conversations that are happening with prospects and deliver the best content at the best moment to our prospective buyers. This approach will evolve, and we are really demonstrating to our clients what is possible with our solutions. Essentially, this is our demonstration lab and has really enabled us to be very productive with over less than half of the sales team that we had last year.

Our recent win with Nature Bounties (sic) [The Nature's Bounty] becoming their agency of record that we announced earlier this year is an indicator of the quality of the deals that we have gained through this process. This, along with our joint Wipro funnel is driving a strong mix of MarTech, marketing strategy, agency, contact and contact services for customers in our B2B, our financial services and our consumer verticals.

If you'd like to know more about our approach, I would invite you to follow us on our social media. Our company LinkedIn, Twitter and Facebook address are -- is in all the About Harte Hanks section of the press release, and I think you would find that very beneficial if you followed us on social media.

And we also continue to work on our service model for mail and logistics as we continue to face revenue headwinds in this service line, the impact of which likely to be felt in coming quarters. Big-box retailers are the largest vertical for our mail and logistics services, and we remain cautious as retailers continue to adjust their operating models with volume changes and/or procurement-led RFPs, impacting revenue and margin. We will continue to progress a model that makes our costs adjust and align more directly with volume, which should help us to better deal with volume and rate challenges we see with our exposure to big-box retailers in this category.

We believe that all the work that I've just talked about really positions us for success in the marketplace as our capabilities are now more competitive. We have a more robust go-to-market model, which is well more efficient than the first part of last year, and we have a more competitive cost structure, improved client satisfaction resulting in just overall better execution.

As far as 2017, we'll be releasing first quarter '17 numbers as soon as possible, but I can share with you that our sales are so far very strong for the quarter. We have some client losses and volume declines that we will need to overcome. From a vertical perspective, we are seeing strength in financial services, B2B, technology, consumer and the automotive sector, especially for our marketing services and fulfillment offerings. However, we will remain cautious with the pressure from our retail clients that I just mentioned to you earlier.

We've done a lot of work, and we know we have a lot of work to do but believe the foundation in place to drive the business and align with our key focus areas I've just discussed, we believe that we are poised for growth and profit in the coming quarters.

So with that, I'll return it over to Robert to talk about the details of our financials.

Thank you, Karen, and good morning. Consistent with the third quarter, our fourth quarter and full year 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 its sale just before year-end. Effectively going forward, our financials will reflect the results of what had been our Customer Interaction business as our sole reporting segment.

Turning to our fourth quarter results. Our consolidated revenues were $110.1 million compared to $116.9 million of revenues in the same quarter last year. This represents a decline of 5.8%. On a constant-currency basis, revenues declined 4.7%. As a reminder, fourth quarter for us is usually our seasonally strongest due to clients holiday warranted and open enrollment marketing programs.

Let me walk through the results by industry vertical. Our financial vertical showed slight growth year-over-year driven by a new context and a work project for a credit card service provider, fulfillment work for a financial services company and agency and related work for a regional bank. We also had a modest increase on our technology vertical, primarily driven by the positive effect of our consulting practice acquisition and expansion of contact center work for a telecommunications provider, which more than offset the effect of the sale of our B2B research business in the prior year.

Our Healthcare vertical declined significantly during the quarter and was the largest contributor to our overall revenue decline. This was driven by the continuing effects of the loss of an outsourced fulfillment work we did for a pharmaceutical company and the loss of contact center and agency work for a home health care client.

Our automotive -- automobile and consumer brands vertical was essentially flat year-over-year in the fourth quarter, reflecting the effects of lost clients and clients spending less. The decreases were offset slightly by new work with a luxury vehicle manufacturer.

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.

The retail vertical continued to be our largest vertical in terms of revenue, and its year-over-year revenue decline reflects reduced mailing volumes for holidays and the loss of a retail chain client as -- a retail chain as a client. As Karen mentioned, the challenges facing the traditional retail industry are causing these retailers to be ever more cost conscious, including in their marketing activities, and we continue to expect pressure on both revenue and margin in this vertical.

Moving down the income statement. Our operating loss of $35 million reflects a $38.7 million noncash goodwill impairment. After excluding the goodwill impairment litigation costs, severance and other compensation expenses and nonrecurring database development charges, our adjusted operating income from continuing operations was $5.8 million compared to adjusted income of $3.8 million in the same period last year.

Labor costs declined slightly with cuts in some areas, offset by some hiring to support service areas with revenue growth and the acquisition of our consulting practice earlier in the year and its subsequent expansion.

Additional reductions were achieved in production expenses from outsourced costs and mail supply chain expenses as well as sales and marketing expenses, reflecting some of the impact of the cost-cutting effort we began last year.

Shown in the loss from discontinued operations is both the $3.6 million in operating income from Trillium attributable to our period of ownership as well as the $44 million loss on sale.

As Karen mentioned, our results show some of the benefits of the large expense reductions we announced last year, which include the closure of our Baltimore facility and other cuts to labor and selling, general and administrative costs. We believe that our efforts will enable us to improve our profit and cash flow from operations profile.

We used substantially all the proceeds from the Trillium sale to retire our Wells Fargo credit facility prior to year end, and we began the year debt free. As previously disclosed, in April, we secured a new $20 million revolving credit facility to support our working capital needs.

For 2016, our continuing operations had a negative effective tax rate of 29.9%, which was materially affected by both our goodwill impairment and a change in valuation allowance. Please note that in 2017, we have made $34.2 million in tax payments, largely attributable to the taxable gain on sale from the Trillium transaction.

Finally, I want to address the delay in the announcement of these results and the related filing of our annual report on form 10-K to be filed in the coming days. Two primary factors combined to cause these delays. First, the Trillium transaction and its complexity was a significant burden during both the fourth quarter and immediately thereafter, as we supported the information needs for the sale as well as the accounting for the transaction, which involved domestic and overseas jurisdictions in settling complicated intercompany transactions. The timing of the transaction and its effects, in turn hampered our analysis and calculation of goodwill impairment. Further, under the terms of our agreement with the purchaser, we provided substantial transitional financial support services to Trillium throughout the first quarter.

Second, on top of the additional burden and delays caused by the Trillium-related work, we discovered, during the course of our audit as internal controls, a number of material weaknesses. Our efforts to remediate these weaknesses through development, adoption and testing of additional controls, took a significant amount of time, again, during the fourth quarter of 2016 and the first quarter of 2017. We're developing a plan for remediation, but such plans will require additional resources, and remediation for all items may not be completed this fiscal year. We will continue to work as expeditiously as possible to come current with our filings, but we still have much work to do.

With that, operator, we'd like to open the call for questions.

(Operator Instructions) And we'll take our first question from Michael Kupinski with NOBLE Capital Markets.

Just a couple of really quick questions and a couple of others. So the cash position already reflects the cash tax on the sale of Trillium, right?

No, I don't think so. So at year end, we had a cash balance. And then, that was -- as I mentioned, we actually had a -- we had a taxable gain on the sale. And so as I mentioned, about $34.2 million has been depleted from that cash balance.

Okay. So the cash balance is something closer to $12 million or so?

Net of the tax, yes.

Okay. And so what is the status of the audit at this point? Is it -- you had mentioned that it's kind of like you have some controls being put in place and so forth. But is -- does that mean that the audit is ongoing? Or what does that mean?

Well, as I said, we anticipate filing our 10-K in the coming days. And so that means we're nearly concluded with the audit.

Okay. And so then you -- so once you're concluded with the audit, then you will be able -- you would be set to report the first quarter? Is that the way I should read that?

No. No. We've not -- we're not going to report the first quarter right on the heels of that. We'll have to go through the usual process for that. I don't have exact timing for when that will be, but I would say, frankly, it would be about the normal amount of time that would follow the end of a quarter. This would be the starting point for that.

Okay. So just a couple of things about the fourth quarter then. The production and distribution expense, it actually seemed a little higher to me as a percent of total revenues that we have seen in the past several quarters. Was there something unusual about the fourth quarter for that particular line item?

I think it's just normal seasonality.

Yes. I think it would be a seasonally effect.

We have that high activity with the holiday.

Okay. So as a percent of revenues, I guess, or even as a percent of expenses, it was typical of the 2015 level. But as we've seen in terms of the trends for the first, second and third quarter, it was much higher than what it had been trending. That -- so you're just saying that's normal seasonality. In terms of the -- just kind of on your comments regarding the first quarter, just to put some color about -- around that. And you indicated that you're anticipating growth and profits. I mean, I just want to make sure that I understand what you're trying to explain for the full year versus the first quarter and so forth because I know seasonally, your first quarter is a weak quarter. I wouldn't expect you to have profits in the quarter. Can you just kind of give us what your thoughts are in terms of revenue pacings in the first quarter and then your thoughts on revenues for the full year? Are you looking for growth for the full year revenues? And then also your thoughts on positive cash flow for the year, what your -- if you can add any color on that.

Yes. I'll start, and Robert, you can chime in here. So relative -- first off, we're not going to give specific guidance, but relative to '17, and we will be very quickly trying to get the first quarter numbers out as soon as we can. That's working hard to get that done. What I said, first off, is the color that I can describe for first quarter is that our sales are strong. They're very solid. And by the way, we're producing a level of sales with nearly only 30% of the reps that we had. So we've cut more than half of our sales organization and the overhead that goes with that and producing at levels that we didn't in the prior year. So that's something that we are very optimistic about, and still, we'll continue that work and the go-to-market and how we're doing the demand generation, which, by the way, is work that we do for clients, too. So we're showing to our clients what we've done for ourselves. That's category number one. We are having success in certain verticals, in particular, financial services, the B2B, technology, consumer and automotive. However, we are very cautious about retail. Our Retail vertical is under pressure. It's no surprise to anyone, the headwinds that are coming out of that. Many of them are sure what they're with their models, from volume to tactic changes, and so that's why we remain cautious for the year with the overhang on retail. We have done a lot of work to take costs out of the mail and logistics category, and we have more work to do. And we're in some very specific options that we're working through there as we speak. So more to come on the mail and logistics side to really offset the Retail vertical. In terms of profitability, I would say the profitability will come towards the back end of the year as we work through the rest of this restructuring.

And Karen, just be sure what you mean by sales are strong and solid in the first quarter. Are you saying that you believe sales will be up year-over-year?

Well, first off, we're counting sales differently in fairness year-over-year where if we have a multi-year contract, we only are accounting -- we're only counting the first year of that. So we're being very conservative. But yes, they're up, and they're with less sales organization. Now the other thing that's emerging is the work that we're doing with our partner Wipro. We're still very, very early on. There's 2 components to that partnership. First one is the back office and what they're helping with us on that front, both improving our execution capabilities, do some processes and tools as well as allowing us to scale Quick up with certain clients that were onboarding with a whole lot better cost structure and positioning us in some technology capability that we need go forward as we were allowed these different solutions. And then the other side of that, which we're very excited and optimistic about, is Wipro very much needs a partner in the marketing domain category. That's part of why they were interested in doing business with Harte Hanks. And so they're -- we're working a joint funnel where we bring the marketing domain experience to their clients. And these are opportunities that likely we would not have had an opportunity to swing out on our own. So you'll see that. We'll talk about that as things progress. And I don't want to overset an expectation, but I would say that we're very encouraged about the quality of the opportunities that are also coming through that funnel, and we'll keep you posted on that one.

Got you. And the additional $10 million in operating expenses that you announced earlier this year that you will be cutting, is that --- that began in the first quarter? Or is that -- and do you start to see that? Yes, I'm sorry.

Yes, it's done.

It's done. Okay. And so we should start to see the benefits of that beginning in the second quarter and then particularly in the second half.

That's right.

We'll go to Al Tobia with Sidus.

Karen, can you give us an idea just of the relative sizes of some of the businesses? I don't know how you want to -- are going to look to segment revenues, but maybe give us an idea of any kind of revenue breakdown by segment. And then secondarily, how should we think about the value of 3Q Digital? If I used the price that you paid for it, and that the business has grown? Or how should we think about sort of valuation on that business?

On the first one, Al, the revenue by segment, I would -- are you there? Can you hear me?

Yes, I'm here.

Okay. We had a beep in. The revenue by segment, as we said in the press release as well as Robert's comments, we -- before, we had 2 segments: Customer Interaction and Trillium. Now we just have Customer Interaction. So we will give as much color as we can around the service capabilities that we have that we are reporting under 1 segment. And then on the 3Q, the value of 3Q. 3Q, first off, is just -- has had very good success. They continue to perform, really, beyond expectation. Their deal size is growing, so they've really moved up in deal size, as well as they're showing the ability to expand with current clients in a fairly significant way. So I can't put a value on what will happen through the process. But the team, as you know, shows up very well, some of them. They outperform nearly every bake-off that they're in against a competitor, and we're optimistic about their performance and hopefully, what value that brings to the company.

Maybe then, can we talk about rough timing in terms of when you think that you'd like to have 3Q resolved?

We -- we're -- it's a little too early to put any timing out on that, Al. This is Robert speaking. And as soon as we have something that we can announce, we will. We did initiate the process shortly after we made the public announcement, and so we are making progress. But at this point, we don't have anything we can report.

Okay. What about maybe just, Karen, could you give us a rough idea of how much business you view as being at risk regarding the Retail segment, I guess? Because what I'm hearing, and I was a little bit confused, when you said sales were strong, you expect that sales will be up year-over-year in the first quarter? I thought it was still -- we're talking about reducing rates of decline. That's what I didn't understand...

Yes. So let me -- first off, so sales -- last year, we had a very soft first quarter and second. We really picked up second half of the year. The difference is, we're having a relatively stronger first quarter than we did last year in sales. Now remember, sales is not revenue yet, it has to be converted. So depending on the client, depending on the project, the work that has to get done, they get onboarded. There is a delay from sales to revenue. So that's the inward piece. If you look back in '16 and all the transcripts and the conversation that we just had on fourth quarter, we continue to have headwinds specifically. We've lost clients in other verticals, but on the mail and logistics side, the Retail has been hit by volume and has been hit by volume over the last couple of years. And so we think it's important as we've challenged ourselves to take costs out of that mail and logistics business, we think there's other opportunity to do that very creatively that we'll talk about more in the coming quarters. But we are having -- Retail is a big part of mail and logistics business, always has been. Now we've had successes in other consumer and/or retail business like [Real Whirl]. Real Whirl was a retail client that was born in the cloud, digital client that's decided that they need more direct mail. And we are seeing more of that demand, but they're not the big-box retailer kinds of volume quite yet. So they'll -- they have been growing in their volume, but the big retail box has large volume.

Okay. So retail is -- big-box retail represents the majority of the direct mail business?

I would say that big-box retail represents, yes, more than 50% of the business. It's not 100% of the business, but clearly, it's a large percent of the business. Now those -- and those -- they surprise us, as you know, nearly every quarter because sometimes they change their mind and they increase their spend. So these -- this sector is clearly trying to still figure it out. And what we are seeing is the need for data and with our new capability with Dataview, which is more of a recurring opportunity and how we're blending third-party data together that we've never had the ability to do before. We're seeing a need for that. But again, these are big volume that we want to make sure we're just cautious about as they move forward with their models and what they're going to do with their businesses over time.

Okay. So the way we should be thinking about it is sales are strong, revenue in the first half is going to be weak because of the impact on the direct mail side, but underpinning the sales strength, you put cost cuts on top of that, and the company turns profitable in the second half of the year is sort of the broad statement.

From what we know now at a very broad, broad statement, other good things can happen, and other surprises can continue to happen, which I know we need to get more predictable on. But our clients need change, and that's been the challenge. But in general, I would say that, that's correct.

Lisa Anne, would you describe the tolling procedure again, please?

(Operator Instructions) We'll now go to [Larry Franklin], private investor.

Can you, Karen, talk a little bit about how the revenue that comes from these partnership relationships that you're forming, the Wipro, is that an incremental revenue that we will be getting? And will it be from new customers? And what would be the order of magnitude from that particular relationship?

Okay. So let me -- [Larry], let me take that in 2 pieces. On -- for example, with Wipro. On the Wipro, if I first look at the -- them helping us deliver for a client like a digital delivery project or such, we would -- their cost structure, their benefited cost structure benefits us. So it's our revenue, but instead of us having the employee, they have the employee at a different cost structure. So we get the benefit of their cost structure that we don't have today. And many times, these are very specific technical expertise that we really -- it's difficult for us to go out and hire in a competitive way. So that's point one. On -- so that's kind of -- think about that as cost structure back office. So it helps us over time really improve the cost structure there and the technical capability and improve the air rates, better execution, which is what we've already seen. Second part of that is on the go -- joint go-to-market. So they have a client. They do business. Mainly, their main focus is with CIOs, Chief Information Officers, and CTOs. However, the marketing and the IT and the technology is all converging. And what they realize is their clients need -- they need help with the client -- their clients in bringing the marketing expertise. So that might be some type of customer experience enhancement, some type of go to market, they bring us in on those bids, and then that would be -- that piece of that bid that we win from marketing would be our revenue. And so we do see that as incremental because I think...

Do we bill the client or do they bill the client?

We bill the client. And so the -- and again, we'll have to see how this evolves. But the things that are in the funnel right now are opportunities that we wouldn't have even known about or had a chance to swing at. Do they...

Yes. Have we booked any revenue yet from this relationship?

Excuse me?

Have we booked any revenue? Meaning, real revenue from...

Yes. We just started, but we have one. We did win one very quickly. And we've got quite a few that were in the process of proposals on.

Okay. On a different plan -- on a different question, when we say that you've already implemented the $10 million of expense cuts, in addition to the $25 million from last year, where and in which of these line items labor, production, distribution, advertising, selling and G&A, where will those expenses show up?

You'll see it in more sales and marketing. We cut -- you'll see it -- which would be labor, of course. You'll see it in other labor and some of these service capabilities, we've cut more people. We've taken our utilization rates. We look at that kind of labor rate to revenue in those -- each one of those service lines. We look at that ratio, and we've taken those ratios way up. And those are the main -- and you'll see -- so mainly, in labor, [Larry], because that's mainly our overhead, and you'll see some in corporate overhead.

But there's no reduction in the fourth quarter in labor from last year in that $25 million, even though there's $6 million less revenue. And we know that these dollars have -- there's a certain variable costs here. I add to that, that you decreased your marketing and sales 50%. I'm just trying to figure out where we're going to see the numbers.

So the -- on the labor side, we have the offset -- well, we have contact center. Some of that's on the contractor side. And then 3Q. 3Q wasn't involved. We didn't have them involved in these cost reductions, and they have been adding headcount if they've overperformed on their revenue. And we had -- last year, we did not have the Aleutian Consulting organization. So that those were comparisons that we didn't have a year ago.

Yes. We didn't have their revenue either, though, so.

That's correct. That's correct.

Can you -- Robert, what do you mean when you say -- so the question was asked, the audit is complete, so the auditors have signed off on these numbers, correct?

I didn't say the audit was complete. I said it was nearing completion. It will be complete when the 10-K is issued.

Okay. Has -- have the auditors reviewed, signed off on these numbers in this press release?

Yes. They've reviewed the press release, yes.

When you say there is a plan or remediation of material weaknesses, what does that mean?

I'm sorry, could you repeat your question, [Larry]?

Yes. I think you said we have a plan for remediating these material weaknesses that have been discovered by the auditors, and we will continue to work on that, and it'll require some additional resources. What does a plan for remediation, what does that mean?

Well, for some things, [Larry], we -- the path forward for some of the material weakness is pretty straightforward. For others, we're going to need to develop new controls. And for that, we may need to hire outside resources, we may need to hire additional internal resources in order to do that. We're still stepping through the development of some of those.

But those additional costs are already baked into your plans that you've discussed for the current year, right?

Not all of them, no.

What is just a ballpark level of cash today?

[Larry], I don't think that we can really comment on the balance sheet that hasn't been produced yet. I think we'd be better off just saying that the cash on hand was what it was, shown on the balance sheet. And Robert mentioned being $34 million of income tax relative to the Trillium sale.

Well, I don't know how you can -- that's what it was in December.

Understood.

Yes.

So you talk about this line of credit, and it's given you the flexibility to invest, implement your strategic direction, and we're talking about $20 million of cash. And we've got a first quarter that is the lowest quarter of revenue and, therefore, the lowest quarter of profitability. So there's no guidance at all on what the cash balance is today then. Is that right?

No, not at this call. Thank you. Thank you, [Larry].

And we'll go to [Charles Lantern] with Lantern Associates.

Got a couple of questions. Karen, the hunt for the new CFO, can you give me the -- where we're at on that? Also, on the write-off, will the income statement be cleaner going forward? In other words, are we pretty much complete -- completed the write-off? And then the final question is pension liability, what is the dollar amount? And give me some color on how that's being determined.

Okay. I'm going to take the first one. I'll let Robert take the other 2 that you mentioned. On the CFO, where we're at is, first off, we wanted -- we've been heads down on working through our audit and getting Trillium closed out. And now that we've got that behind us and we're within days of following the 10-K, you will -- we will now turn towards some of the things that we were just talking about on the internal controls. So we're going to be adding a level of detail on our controls. We're going to be looking for resources and/or someone who can come in, roll up their sleeves and help us improve our control process. I would say that from an overall standpoint, the organization, as we've really looked at it, we have a fairly strong group, and we've realigned for one leader who really supports the line of -- the service levels and the businesses and helping them look at their cost structure, run rates, budgeting, so all that business day-to-day work. And then we've got the control side. So Carlos and team, our Controller, is where we feel like we've got to step it up and look at some incremental resources in process and streamline. And we think we have an opportunity, look at our back office in a way that needs to be relooked at from a streamline standpoint. So to answer your question specifically, we really want to be smart about this. I don't think it's a going out and getting a CFO just to get a "CFO." It really is looking at where we think we have -- we need to shore up our resource and to get that done. And so that #1 priority is around this control and process work that we have in front of us.

Robert?

Okay. I think -- if I understood your question correctly, your second one, I do think it'll be cleaner going forward. I don't know what other detail to provide on that.

What I was asking was the financial statement, the income statement, will it be cleaner, C-L-E-A-N-E-R, going forward? In other words, the write-offs. Are we near the end of the write-offs?

Well, I mean, we evaluate as needed for impairment. So I mean, I don't -- I can't, at this point, predict whether or not we'll have others. Those are going to be driven by the facts as they arise. On the pension, the -- looking at the comparison from '15 to '16, it's quite comparable. Most of the difference, I think, is going to be different -- or driven by changes in the actuarial assumptions. We get the -- we use a third-party to -- third-party actuary to estimate our liability for those. And so that's the general basis for the change there.

Okay. My real question was, given you don't post the balance sheet in your announcement, I don't know what the number is for the pension liability. Also, going a little bit further on the pension question is, what is the assumed greater return on the pension?

I think for both of those, those -- I think you'll probably get your answer when the 10-K is filed for both of those in terms of the detail. So if you don't get what you need from the 10-K itself, then by all means follow up with us.

Okay. Going forward, is there any way you can post the balance sheet at the same time you post the income statement?

We'll think about it, but I don't think we have in the past.

Well, I know you haven't, but most companies do. And it's very hard to get a feel of what the balance sheet looks like when you post the cash and then long-term debt, and that's it. So it's something to think about.

Yes. No, that's -- thank you.

And we'll go to [Armand Gregorian] with (inaudible).

I wanted to speak mainly, ask questions about the business line for specifically creative services and digital and social media with the announcement that you guys are going to put 3Q on -- 3Q Digital on the blog. I mean, are we seeing -- is this the case that you are leaving the digital channel? And also, I wanted to ask what do you see the growth behind creative services and digital, social media? And also, what are the -- what part of your business are these 2 segments?

Yes, I'll start, and Shirish, if you want to follow up on that one. So on the 3Q, we're not leaving digital. Digital is a very large category, as you know. The 3Q, we will continue to partner with 3Q. They are a search, basically, a digital search agency. So they purchase search for their clients. We have a broader, well, we have a broader capability in terms of recommending. So we start with the data and the analytics to recommend, mostly depending on the clients' needs, where is the best dollar for them to spend their money and work with them on the different tactics and campaigns. And sometimes we use partners to execute on the actual execution of that. And sometimes we're able to do it with our internal resources. So it really depends on the client, and it depends on their situation. We do see continued opportunity in digital as a broad category and optimizing, really, any channel, be it direct mail, be it social, be it traditional. And that's where we see most of the conversation happening with the clients. But I'll let Shirish add on to that.

Yes. As Karen said, we do not -- 3Q was the only digital media buying we offer. We don't offer traditional media buying. So we will continue to have a relationship with 3Q, but we will offer a whole series of services like website optimization, social, mobile, around digital, above and beyond just buying search and some of the other related activities. But clearly, 3Q will be a core partner going forward, just as Wipro is for some of the technical areas. In terms of the creative and overall agency, as Karen said, we did a lot of work last year. So going into 4Q, we were declining in our agents in that particular area that you're referencing. We really did a lot of work to really restructuring, streamline that part of the business and feel really good that we're on a very different trajectory. You did see the NBTY win early part of this year, which was a big win for us.

And for the last question, we'll go to Rick -- [Nick Rousellum] with [NR Management].

I was just wondering if you're comfortable providing a longer-term target, operating margin goal. I know it's -- from where you sit right now, if could you provide that, it would be very helpful.

I appreciate the request. But at this point, we're working on getting the first quarter posted, and we'll continue to update and do the best we can to provide the visibility that you all are asking for as we move forward.

So I think that will conclude our conference call for today, operator.

And that concludes our question-and-answer session and our conference for today. Thank you for your participation.