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Harte-Hanks (NYSE:HHS)

Q4 2012 Earnings Call

January 31, 2013 10:00 am ET

Executives

Larry D. Franklin - Chairman, Chief Executive Officer and President

Robert L. R. Munden - Senior Vice President, General Counsel and Secretary

Douglas C. Shepard - Chief Financial Officer and Executive Vice President

Analysts

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Ben Hearnsberger - Stephens Inc., Research Division

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Sean O'Malley

Operator

Good day, and welcome to the fourth quarter 2012 earnings conference call hosted by Mr. Larry Franklin. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Larry Franklin, Chairman and CEO. Please go ahead, sir.

Larry D. Franklin

Thank you very much. On the call with me this morning is Doug Shepard, our Executive Vice President and Chief Financial Officer; Robert Munden, Senior Vice President, General Counsel; and Jessica Huff, our Controller. Before I begin with my remarks, Robert will make a few comments.

Robert L. R. Munden

Thanks, Larry. Our call may include forward-looking statements. Examples may include statements about our strategies, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, litigation developments and regulatory changes, the economies of the United States and other 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 include 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 Relations section of our website at harte-hanks.com.

I'll now turn the call back over to Larry.

Larry D. Franklin

Thank you, Robert. Before talking about our individual businesses, a couple of comments about overall company results.

In my remarks, I'll be talking about financial performance from continuing operations, meaning income without the results of the Florida Shoppers, without the loss on the sale of the Florida operations that we closed on December 31, 2012, and without the Shopper goodwill impairment that we -- that was taken in the second quarter of 2012.

While definitely not where we want to be, we are pleased with the results for the quarter. Revenues decreased 4.8%. Operating income was down 10.1%, and income from operation was down 6.3% and EPS from continuing operations was $0.23 compared to $0.24 in the fourth quarter of 2011. Doug will provide much more detail about EPS in his comments after I add some detail about the performances of our 2 businesses.

First, Direct Marketing. Direct Marketing was restructured in August 2012 around customer engagement and strategy, customer solutions and customer delivery. I could not be more pleased with the aggressive, yet thoughtful way Jeannine Falcone, Tony Paul, Brian Dames and Andrew Harrison have approached transforming this business. And by the way, our people have embraced the changes, which are now woven throughout the 2013 operating plan. These changes, we believe, more closely align our conversations and solutions with the way our customers are thinking about their businesses.

And before adding more detail about each of our vertical markets, I want to emphasize that the overarching goal of what we have been doing and continue to do is to drive profitable revenue growth from new logos and growth from existing accounts. And we mentioned 4 ways, in the press release, that this is being done, and I want to just reemphasize those again.

The first is the deployment of a new integrated marketing, sales, product design and delivery process, which more tightly aligned with our and our customers' businesses. Also a new approach to the pharmaceutical market with our new agency, TRUE Health + Wellness launched in October, implementation of the new digital print capabilities and continued development of the Trillium Software solutions for the insurance and financial markets.

Looking at each of the verticals. First, financial, up 7%, performed well in Q4. For our financial clients, change in regulations as reduced revenue from low balance deposit accounts, and therefore, banks are focusing on attracting and growing more affluent customers to increase profitability. Financial services company has placed more emphasis on multi-channel customer marketing to improve their customer experience across all channels, to reduce marketing costs and improved ROI. This is particularly true for mid-sized banks, which is where we continue to focus.

Pharma, in Q4, was down 29%. Pharma is a particularly difficult vertical for us at this time with a loss of a significant client from an agency consolidation that took place mid-last year, and that we discussed in the third quarter. We'll obviously face this headwind for the better part of 3 quarters in 2013.

However, we recognized about 18 months ago that the pharma market was in the midst of a sea change, and pharmaceutical companies are now reevaluating brand and lifecycle management. They're reevaluating their sales team, design and incentives position and payroll relationships and social media campaigns.

The shift to the pharmaceutical industry from one based on the blockbuster drugs to one based on smaller-niche medicine is affecting not just company's R&D strategies, but also how the companies are marketing their drugs. Pharmaceutical companies are looking at marketing strategies earlier in their pipeline with drugs in the mid-stage development rather than waiting until the late stages as they did 10 years ago. This gives companies extra years to shape and condition the market. As it impacts our business, it means that they will look for agencies and marketing services sooner and expect more of them as it relates to helping shape the brand.

Our launch of our new agency, TRUE Health + Wellness, was built specifically for those reasons. It's early, but we're encouraged by what we're seeing at TRUE. At health care reform, millions of consumers will be offered new government-subsidized health insurance from private insurers beginning in October, and the private health plan companies are gearing up their marketing and operations capabilities rapidly. New health care legislation like this has historically provided revenue growth opportunities for outsourced marketing services providers. We expect current Harte-Hanks customers to grow their engagements with us across agency database and contact center.

We also expect additional project revenue from already contracted customers, who need last minute marketing services. We believe the opportunity to capture new customers will come after open enrollment, meaning the spring of 2014.

In the press release, we mentioned The Agency Inside Harte-Hanks was named a strong performer in a new report from Forrester Research, titled, The Forrester Wave: Customer Engagement Agencies. That recognition was received in the fourth quarter of 2012, and we're proud of our people and the organization for receiving such a distinguished mention.

High-tech, 10% down, reflecting the same challenges mentioned in Q3 as the international economy, as our high-tech clients operate on a global basis and volume reductions from a contact center client. Technology clients are continuing to buy solutions surrounding the use, implementation and enablement of marketing automation systems. That translates to a range of solutions for Harte-Hanks, Mason Zimbler, our B2B agency, starting with strategic agency of record engagements, moving through more executional solutions, like demand generation campaigns and programs that leverage our agency and contact center solutions and then on to the operational infrastructure solutions wherein we provide managed services resources to drive global standardization and optimization of these new marketing technologies that our clients are deploying.

Social media opportunities are increasing, linked to sales enablement, helping our customers keep -- help our customers' sellers keep in contact with their prospects. Unfortunately, in the high-tech sector, almost all of our clients are generally unwilling to go beyond quarter-to-quarter commitments.

Retail, our largest vertical, was up 1% in the quarter. We've talked now for a year about JCPenney's negative effect on our performance, yet the Retail, again, our largest vertical, has performed very well on the strength of increased business from some of our largest clients. The implementation of our digital print capabilities will change the conversations we have with our direct mail customers and prospects, certainly in Retail, but also in other verticals. We're deploying a new approach, a new go-to-market approach, integrating front-end strategy with sales support and structure, and then execution on a new digital print technology. Early returns, again, are exciting.

Select markets, down 8% and consumer markets, multi-channel marketing continues to be the focus with changes in media mix to reflect changes in consumer behaviors. The shift of spending in traditional and digital channels, we expect, obviously, to continue into 2013. That means the traditional Direct Marketing segments continue to see modest growth. Mobile posted larger growth. I actually didn't expect it in 2012, and email continues with steady growth and allows for cost-effective targeting.

Our focus on multi-channel consumer engagement continues to position us well to capitalize on these trends. We had a number of new digital deals in the fourth quarter. They were mostly in cross-sales to existing clients.

International. International accounts for about 15% of our revenue, which had been organized around business units. And the new structure, the alignment is to customer engagement and strategy, which brings our B2B agencies in sales and marketing into the customer engagement strategy initiatives here in the U.S. Customer Solutions and Customer Delivery. Customer Delivery international was primarily in the contact center BPO area. We believe this new alignment will improve financial performance and also provide better service and increased opportunities for growth.

Within customer solutions, our recently formed product development R&D group is working on some exciting initiatives that should pay off in the future with even more competitive offerings and stronger market leadership.

Trillium continues to be recognized as a strong leader in the Gartner's Magic Quadrant space for data quality tools. And we continue to invest in our solutions, which broaden its reach into its customers in the financial and insurance markets.

Again, we're optimistic about the payoff from these changes. We're seeing some initial results. And then the second half of 2013, we should see additional revenue again from new customers and existing customers, and that's what we'll see the impact on our overall operating results. We have some great people doing great work.

Shoppers. Shopper revenue for the quarter was $47 million from continuing operations. This is the last time that I'll say that in these comments for the quarter, and that was revenue up 0.008%. It sure is good to just be able to say up. OI for the quarter was $1.1 million or $2.6 million, excluding the $1.3 million charge for the closure of the Northern California production facility. Great performance and good to see for our people.

Some color on revenue. Real estate was down mid-single digit. That was our best performance in several years. The broad services category declined low-double digit, which was an improved pace over the previous 2 quarters. School, still is a problem there. Consumer spending, low-double digits during quarter 4 after declining the previous quarter. Automotive grew for the fourth consecutive quarter. Communications declined mid-single digit. For product types, ROP, our in-book advertising, was down. Distribution was up, and web products were up, revenue from web products up. Sales both in book and distribution products from each of our 3 primary sales group: inside sales, outside sales and majors, improved year-over-year in Q4 compared to Q3.

PowerSites, the centerpiece of our web strategy, again, had double-digit revenue growth, following the restructuring of our web unit in Q2 of 2012. Full attention has been focused on growing Power products and ways to improve their effectiveness and to make them even more effective for our print advertisers is moving forward. Our new leader in web is doing a terrific job.

Turning to cost, expenses were flat in Q4 compared to the prior year as mentioned previously. That includes a $1.25 million or $1.3 million charge for the anticipated close of the Northern California production facility and the move of that, those activities to our 3 Southern California production plants.

Postage rates are up 2.2%. Newsprint rates increased 0.6%. Labor expense is down due to some of the restructurings that have taken place over the last few quarters.

Repeating what we said in the press release. While we're excited about Shoppers' fourth quarter revenue and operating income growth, we continue to face challenges with the California economy, which along with increased postage expense, will continue to affect our financial performance. We expect Shoppers revenue and operating income in 2013 compared to '12 to be down slightly, which is the significant improvement and trend compared to the experience during the past few years. Our people continue to look for ways to make our products and services more effective for our advertisers and to deliver those services more efficiently.

I'm very proud of the people in both of these businesses, who are managing a great deal of change and are doing it extremely well. Our company has a very bright future. Doug?

Douglas C. Shepard

Thank you, Larry, and good morning. Let me start off with -- or hopefully, some clarifying statements about earnings tables included in our release this morning. With the sale of our Florida Shoppers operations as of December 31, the results of operations for Florida and the loss on the transaction have been included in discontinued operations on the P&L.

For the analysts who follow us and want to compare the results to your models, which included the Florida operations for the fourth quarter, you should start with $14,343,000 reported as income from continuing operations on the P&L and adjust for the following 3 items: deduct the $931,000 fourth quarter net operating loss of Florida Shoppers operation reported within discontinued operations; second, deduct approximately $2,200,000 of nonrecurring tax benefit, which recognized the continuing operations within the line item income tax expense that's also related to the sale of Florida operations; and finally, add back the $750,000 after-tax charge for our production facility closure. This all would net to roughly $11,980,000 or approximately $0.19 per share.

Earnings per share for 2012 by quarter after removing the Florida operations in the second quarter impairment charges were: first quarter's $0.12; second quarter, $0.12; third quarter, $0.15; and fourth quarter, $0.21. And for clarity purposes, to get to the fourth quarter $0.21 per share, all I did was add back the $931,000 Florida Shoppers fourth quarter after-tax operating loss from the previously discussed $11,982,000 or $0.19 per share.

Moving on to the company-wide overview of the fourth quarter. Consolidated revenues for continuing operations decreased 4.8% for the quarter. Direct Marketing decreased 6.3%, and Shoppers increased 0.8% for the quarter. This was the first quarterly revenue increase for Shoppers since the fourth quarter of 2006. Consolidated operating income from continuing operations decreased 10.1% for the quarter. Direct Marketing declined to 8.2%; while Shoppers increased $1.6 million, excluding the facility closure charge.

Consolidated operating income margin was 10.8% below last year's fourth quarter of 11.4%. In the quarter, our free cash flow was $13.3 million versus $16.2 million in 2011. For the year, our free cash flow was $45.5 million versus $47.4 million. We spent $5.5 million on capital expenditures this past quarter compared to $4.6 million in the fourth quarter of 2011.

Turning to the businesses. In the quarter, Direct Marketing revenue decreased 6.3%, and operating income decreased 8.2%. Operating income margins were fairly consistent at 15.5% compared to a margin of 15.8% in 2011 fourth quarter. Direct Marketing results continued to reflect the impact of JC Penney changing its marketing strategy from direct mail broadcast with the reduction in mail services contributing about 20% of the total decline. Our pharmaceutical healthcare vertical declined 29%. It was impacted by volume reductions from a long-standing client and a loss of a client discussed in our third quarter results. Our financial vertical increased 7% compared to the prior-year quarter and our Retail vertical increased 1%. High-tech experienced a 10% revenue decline and our select vertical declined 8%.

In the quarter, our Retail vertical market represented 33% of Direct Marketing revenue; high-tech was 23%; direct markets were 23%; and Healthcare/Pharma was 8%; financial was 13%. The top 25 Direct Marketing customers represented 47% of Direct Marketing revenue for the quarter.

Shoppers fourth quarter revenue from continuing operations increased 0.8%, and operating income increased $1.6 million if you add back the shutdown cost incurred in the quarter. As previously mentioned, this was the first quarterly revenue increase since the fourth quarter of 2006. Revenues increased for our distribution products and decreased for our print products. Postage rates increased about 2.2% for the quarter, and newsprint rates increased about 0.6% during the quarter.

Our third quarter effective tax rate was 29.3%. This includes a nonrecurring tax benefit in continuing operations related to the release of a Florida valuation allowance. In 2013, we expect our effective tax rate to be approximately 40%.

Our total debt balance has been reduced by $69.2 million, $110.3 million compared to $179.5 million at the end of 2011. Our net debt at the end of the quarter was $61 million versus $93 million in 12/31/11, a reduction of $32 million. We currently have $70 million available under our revolver, including outstanding letters of credit in addition to a cash balance of approximately $50 million at the end of the quarter. We continue to have a strong balance sheet, with low debt leverage ratio and plenty of liquidity.

In the fourth quarter, we repurchased approximately 2.4 million of stocks under the $10 million stock repurchase authorization put in place last August. Our ability to purchase shares was hindered during the quarter due to timing of our earnings announcement and negotiations of the Florida Shoppers transaction. We have about $5.6 million remaining in unused authorization. We will update you on our first quarter repurchase activities during the next earnings call at the end of April.

Finally, in the fourth quarter, we paid our regularly scheduled dividend and accelerated in our first quarter 2013 dividend and paid it before year end.

With that, operator, we will turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Michael Kupinski with Noble Financial.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

The Retail vertical showed remarkable improvement in the quarter despite JCPenney's, and I was wondering, especially as you cycle into the first quarter, which also showed growth year-over-year last year, do you anticipate that this vertical will show improvement in the first quarter 2013? What are your thoughts on how is it looking, and then maybe just in terms of JCPenney's strategy, are you seeing some of the business coming back a little bit?

Larry D. Franklin

Mike, I don't believe -- we don't believe that there will be much change. The retailers, it has been pretty well publicized. They had a, I guess, I'd call it a mediocre holiday season. So there's -- we don't expect to see any significant improvements and/or significant decline. It will probably be very flattish for the next quarter or 2 would be our anticipation.

Douglas C. Shepard

In Q1, Doug, weren't we -- we were having the benefits of some new business that was sold the previous year, they were still -- we weren't cycling against. And the question on JCPenney, they have, as I think we've mentioned in previous quarters, they've been adding back some business. So they're still not close to where they were and probably [ph] -- and won't be. But we don't have -- we should not have the client that we report in this year for sure.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

In the press release, you indicated that you're looking for growth in revenues in operating income. And obviously, you provided the earnings pro forma basis. Can you provide the comparable on the revenue basis that you're basing your expectations on? I assume that, that's a pro forma number or you -- what are you working off of there?

Larry D. Franklin

The only pro forma number for revenue will be in the Shopper category. And the comment about increase, slightly increased revenue was directed at the Direct Marketing business side.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Okay, great. And then, is there any way to frame the revenue opportunity that you may have regarding the prospects from the healthcare open enrollment that you indicated in 2014? What your thoughts are on that?

Douglas C. Shepard

At this time, it's -- with everything that's going on with the government and in that industry, it's still very unpredictable. We definitely see an opportunity, as Larry mentioned in his comments. A lot of these insurance and health care companies are going to have to aggressively go after consumers and customers. And with our consumer brands and retail background, we have a lot of marketing experience and expertise that we can bring to the insurance industry that hasn't had to deal with this in the past. But even the health care companies will tell you right now that they're having problems projecting what they're going to be dealing with and what the size of the opportunity is for them over the next, really, 12 to 24 months.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

My last question, in terms of the improvement in the California Shoppers business, can you just give us a little color on what the key drivers there? Obviously, is it all real estate at this point? Or are we starting to see a broadening of the advertising categories, or can you just give us an idea of the improvement there?

Larry D. Franklin

The improvement in the fourth quarter is more driven by the vertical -- consumer spending, it is what it is, where the furniture and...

Douglas C. Shepard

Home goods.

Larry D. Franklin

Home goods, yes. So is it -- and it was driven again by distribution products, our major account sales, who had just a terrific quarter and have had -- and actually, have been building throughout the year. And we're getting some benefits from that performance. But it was reasonably well broad based in some of the other FIC areas, but still some softness obviously and down in a number of those categories. So we are cautiously optimistic, we're just very pleased with the performance in the fourth quarter.

Operator

We'll go next to Carter Malloy with Stephens.

Ben Hearnsberger - Stephens Inc., Research Division

It's actually Ben on for Carter. First, can you kind of talk us through what the main drivers will be behind a return to growth in the Direct Marketing business over the next 4 to 6 quarters or so?

Larry D. Franklin

Well, and that's what we're outlining a few of those in the release there. But the thing that's really going to drive the growth is going to be a more integrated approach to the way we go to market. And that's what we've been talking about since this restructuring took place. So that we have got our capabilities and our people, our solutions aligned with the way that our customers have to deal with their marketing challenges. So it will be a number of different things. Also, the new R&D group will be looking at a number of our processes on how we go to market with some of our solutions. We'll be taking some -- that -- those had been done generally in the various sectors of the business. So whether it was in mail, database, direct -- agency, and now it's an integrated approach to how we develop products and solutions that cut across all those boundaries. So it's -- a lot of it is focus, but it's simplifying the organizational structure or aggressively going after the opportunities that we see. And also, really improving our wholesales and marketing strategy and approach. So a number of different things, and we'll be outlining those just like we called out a few of the initiatives in this report.

Ben Hearnsberger - Stephens Inc., Research Division

From more of a strategic standpoint, how do you think about the rest of the Shoppers' properties?

Larry D. Franklin

They had good performance in the fourth quarter. The product works, and our people are now veterans, they're looking for ways to deliver more efficiently and effectively those services to our advertisers. So we've got a plan in place for them for 2013.

Operator

We'll go next to Edward Atorino from Benchmark.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Quickly, are you going to give restated numbers for the Shoppers for 2011 without, or we just deduct the same numbers backwards? If you look, you got the old stuff in the first 3 quarters, and out of the fourth quarter. Are you -- sort of what's the base of the first 3 quarters?

Douglas C. Shepard

Yes, Ed. We will take care of it. It will be published in our 10-K, because it's a relatively straightforward thing to do.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Okay. But estimated, just take the same number out, I guess?

Douglas C. Shepard

Yes, it'll be pretty close.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Secondly, Larry, on the Direct Marketing, another company I follow had some difficulties similar to yours in businesses like this. Is it just -- it seems like it's more than just cyclical. And listening to your commentary, it seems a lot of the customers that used to do it one way or trying to find new ways to do it, and either are postponing using your services or trying to find other places, and you're having to adapt to their new strategies, I suppose. A, is that sort of a -- am I on the right track there? Secondly, in view of the, let's call the unsettled environment, could this stretch out of the recovery a little bit? Is there anything you can do or doing to sort of get ahead of the curve in those new strategies that these companies are doing?

Larry D. Franklin

Well, I think your comments were right on target. It's a -- there is -- there remains a lot of uncertainty in the marketplace. And again, back to the way we are looking at addressing the market today with both our people and our systems and our products, that's why we're doing it. How do we get out ahead of what's next for these companies? The environment is still, as you pointed out, it's uncertain for sure. It's better than it was, and we have some opportunities, but we will continue to have these challenges. And I think your explanation of it is right on target.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Is there a pricing issue? Are companies sort of looking at what you used to charge? And as many businesses are saying, we want less? Is there a pricing or a different way you're going to be able to build to maybe get people to spend money, if you know what I mean?

Larry D. Franklin

Well, what we want to do is we want to look for ways to deliver some of our core capabilities more efficiently, so that we can have the resources to build the new solutions and get those bundled in, and be able to show our customers that they are getting increased return on their investment. But with that said, yes, our customers look at price very carefully.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

Last question. Could you sort of give us an overview of the one quarter trend, first quarter trends and the key verticals? I don't know if you went through that or not on your comments.

Douglas C. Shepard

Yes, we did, we did. Yes, we talked about...

Operator

We'll go next to Dan Salmon with BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Spent a lot of time on the Retail vertical. I was curious about the technology in the high-tech vertical and what trends you're seeing there to -- continues to be weak, but as you get over the humps here with some of the restructurings, maybe your outlook for that vertical for the year? And then likewise, again in that spirit of getting through some of your restructurings and having your plan in place for this year is, any change in your view on the M&A market? You've got to really -- a lot of dry powder on the balance sheet, and it's been a little while since you've engaged that. Just wondering if there's anything to highlight in terms of potential use of free cash there.

Douglas C. Shepard

We'll start off with our high-tech vertical. As we've talked about in this earnings call and the last one, a lot of our international business is high-tech dependent, so it was a good portion of our domestic business. And a lot of our weakness has come on the B2B lead generation side of our work. Trillium has continued to be a wonderful product for us, but it has also been impacted somewhat by some of these high-tech companies and the uncertainty that's out there with them putting off decisions. As Larry said in his remarks, we do see a trend where these folks aren't telling us that they're going to reduce their budgets or they're making strategical changes or anything of that nature. But we definitely see them putting decisions off, not willing to make commitments, at least at this point, for now. A lot of, again, is market uncertainty, economy, things of that nature. So we expect them to continue here over the -- especially in the first quarter, possibly into second quarter, specifically with high-tech. As far as the M&A side, I have talked to several of you. I think Dan, you and I have talked about this before. We have a strong M&A history. We're open to M&A transactions, but like everyone else, you want to find the right assets at the right prices. And sellers always have different expectations. So it's a matter of going through the process, finding the right asset because once you buy that thing, you're operating it. It's an -- acquisition's a lifetime event for the buyer. So, we try to be very careful and make sure that we're buying the right assets from a strategical standpoint, from a client-delivery standpoint.

Operator

We'll go next to Shobah Narecema [ph].

Unknown Analyst

Well, I did not get -- basically, this quarter, a lot of high-tech companies, they did better. So do you -- I mean, I know you mentioned that they're kind of going quarter-to-quarter. In that case, are you seeing the better marketing investment for the next quarter?

Douglas C. Shepard

No, I mean I -- like we've said, we -- despite their performance, we're working with them on, obviously, a going-forward basis. And we don't see them willing to commit to marketing spend right now to increases in their marketing spend, which is what you would see in our results, the changes that they're making, not necessarily reflective of their current results, but are they going to spend more marketing dollars? Things of that nature.

Operator

We'll go next to Sean O'Malley with WEDGE Capital.

Sean O'Malley

A couple of questions. First off, have you received the cash yet from the closing of the Florida Shoppers deal?

Douglas C. Shepard

No, we have not. That was a note that we issued for that transaction. And there's some tax benefits associated with it for us. But there's a note that we received with the transaction and will be paid off over time.

Sean O'Malley

Okay. And the transaction itself, could you give us any insight as to the genesis of it? Was it something where the buyer had an interest in an asset, and they came to you? Or was it something that you were looking to get done?

Larry D. Franklin

The combination of both.

Sean O'Malley

Okay. And regarding the commentary on the expectations for Shoppers looking into next year of slightly down operating income. I presume that's on the adjusted continuing basis? Is that about the $3.4 million number from 2012?

Larry D. Franklin

I'm not sure. Well, the commentary was, slightly down in revenue and operating income.

Sean O'Malley

Correct.

Larry D. Franklin

It was on the...

Douglas C. Shepard

Continuing operations.

Larry D. Franklin

Continuing operations.

Sean O'Malley

So is that the approximately -- I have it about $3.4 million for 2012.

Douglas C. Shepard

$3.4 million of what? EBITDA?

Sean O'Malley

Adjusted -- I'm sorry, adjusted operating income.

Douglas C. Shepard

I believe you're a little low, but that's -- we're -- on the number that you believe you picked up. But the comment that applied to the continuing operations, like we said for revenue and OI.

Sean O'Malley

Got it, okay. And then switching gears over to the direct side. Can you give -- with the startup of the TRUE Health + Wellness agency just having occurred in the last several months, can you give us any comments or reflect back on what the reaction is to that being a new agency in the marketplace from the customer community?

Larry D. Franklin

Well, as you know, a new business in any area is a process that takes time to not just plan, but also to execute. And the reaction, meaning, are people interested and excited about some of the things that we're talking about? Absolutely. We're getting some good audiences, but it takes time to get the ultimate signed orders. So it'll be a process. It will take place throughout the year. And going forward and at this point, we like what we're seeing.

Operator

[Operator Instructions] And we'll go next to Michael Kupinski with Noble Financial.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

I just had a quick follow-up to the high-tech question. You mentioned that the international is about 15% of Direct Marketing. And I was just wondering if that was the commentary for the year or for the quarter? And if you could just remind me, because if I recall, the contributions from international looked like it has being going up. And I was just wondering where, outside of the high-tech market, which I thought was the majority of all the business internationally, is there any other category that you have related that, to the international marketplace?

Larry D. Franklin

The -- when you said the contribution had been going up...

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

As a total -- as a percent of total to the Direct Marketing from the international operations.

Larry D. Franklin

It did a couple of years ago because we had a small acquisition. That can be part of it. But the other services that -- the industries that we serve there are predominantly high-tech, but we also have some consumer on the select markets, consumer brands. Some [indiscernible]. It was really consumer brands and...

Douglas C. Shepard

High tech.

Larry D. Franklin

And high-tech.

Douglas C. Shepard

Kind of companies.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And outside of high-tech internationally, Larry, are the other verticals growing?

Larry D. Franklin

Our -- I don't...

Douglas C. Shepard

Yes, like most -- no, I mean, across-the-board, most are not in that our -- when we talk about our international operations, you're right, it's roughly 15% of the Direct Marketing revenues. That trend has been relatively flat to slightly down. And I'm talking 6 to last 12 months. So it's, in the mix, has not significantly changed. It might have changed a point or 2 in either direction. But it hasn't gone from 10% to 15% in the last 12 months.

Larry D. Franklin

The -- and we talked about the high-tech challenges that we have. We have a blue ribbon list of clients in high-tech. And revenue, while it went up and down a little bit, but we are very important to the execution of the legion activities for a lot of our clients. So it's not a...

Douglas C. Shepard

Well, we're not -- I mean we've said this before, and I think it's very important. We're very proud of that client list, and we're not talking about clients that we've lost. We're talking about pending decisions with clients, who have a long standing history with us.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

And I guess, the question would be in terms of domestic versus international in the high-tech vertical, any divergences between the 2? Are they performing pretty much similarly both domestically and internationally?

Douglas C. Shepard

I would say they're performing pretty much the same domestically and internationally. There's not a large difference between the 2.

Operator

And we'll go next to Edward Atorino with Benchmark.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

I've forgotten whether you said this or not, the annual 2012 revenues for the Shoppers that was sold in the operating profit number, did you give that?

Douglas C. Shepard

Yes, it was -- we've given ranges and told you or told everyone the Florida operations that we sold were in the $30 million to $35 million range in revenues. It was losing several million, a couple of million in operating income.

Edward J. Atorino - The Benchmark Company, LLC, Research Division

That's right, you gave that a while ago. I'm sorry. That's right.

Operator

[Operator Instructions] It appears there are no further questions in the queue at this time.

Larry D. Franklin

Okay, thank you very much. We appreciate your interest. And for our people who are on the call, we really appreciate all that you do for our company. And we will talk to you soon. Thanks a lot. Have a great day.

Operator

This conclude today's conference. Thank you for your participation.

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