Harte Hanks' (HHS) CEO Karen Puckett on Q2 2016 Results - Earnings Call Transcript

| About: Harte Hanks (HHS)

Harte Hanks Inc. (NYSE:HHS)

Q2 2016 Earnings Conference Call

August 9, 2016, 10:00 AM ET

Executives

Robert Munden – SVP, General Counsel, Secretary

Karen Puckett – President and CEO

Doug Shepard – Chief Financial Officer

Analysts

Michael Kupinsky - Noble Financial

Al Tobia – Sidus Investment

Operator

Good day. Welcome to the Harte Hanks Second Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Robert Munden, General Counsel. Please go ahead.

Robert Munden

Thank you, operator. Our call will include forward-looking statements, such as statements about our strategies, adjustments to our cost structure, financial outlook and capital resources, competitive factors, business and industry expectations, anticipated performance and outcomes, future effects of acquisitions, disposition, litigation and regulatory changes, economic forecast, and other statements that are not historical facts. Actual results may differ materially from those projected or implied in these statements because of various risks and uncertainties, including those described in our most recent Form 10-K and other filings with the SEC, and in the cautionary statement in today's earnings release.

Our call may also reference non-GAAP financial measures. Please refer to today's earnings release for the required reconciliations and other related disclosures. Our earnings release is available on the Investors section of our website at hartehanks.com.

I'll now turn the call over to Karen Puckett, CEO of Harte Hanks.

Karen Puckett

Thank you, Robert, good morning, everyone, and thanks for joining us this morning. Before we get started here and get into the numbers, I have a few comments and then I will hand it over to Doug Shepard, our CFO who will go through the financial results, and then we'll move into Q&A.

There is really no other way to put it and to say that we are not that satisfied with our overall results, and it’s clear that our turnaround is taking longer than we expected. While there is still a lot of work to do, we do remain confident that our strategy is sound and that we will soon begin to see more positive financial results from this effort.

First, I want to discuss our strong focus on cost cutting to return us to profitability. We have a $20 million expense reduction program in place. Most of that action was put in place in the second quarter and we are taking the rest of the action this month. These reductions are across the entire organization and will target labor reductions and changes to our onboarding delivery approaches. Doug is going to provide more detail in his remarks.

Let me start with some of the challenges that we faced during the quarter. Our 2016 plan called for a higher level of sales of our traditional services like contact center and direct mail for the first part of the year while we were really working on further developing our data, data analytics, marketing technology and strategy capabilities to deliver leading-edge customer-centric marketing our clients have been asking for. And really the bottom line is our sales cycles for these traditional services were longer than we planned and we did not get traction early in the year, nor did we have a service to overcome some unanticipated volume decline in our mail.

During this quarter, reduced volumes were experienced by few large direct mail clients. The mood of volume decline is driven by the client business fundamentals, some of the shift was other channels, and some of it was driven by more personalized digital print resulting fewer targeted physical pieces which we provide those services for our clients. We did experience higher than anticipated volume declines with two retail clients and a regional bank.

Going forward, to really stem [ph] the ebbs and flows and improve the trajectory of this business we are taking several actions. First, we are rationalizing our capacity and cost structure to better meet our current level of demand. We expect this to produce cost savings and improve the margins of this business. And then secondly, we are leveraging our analytics and agency capabilities to provide much greater value added to customer direct mail programs with a focus on guaranteed improvement in response rate, ROIs and other key metrics. In fact, we just had a key win recently with that approach.

However, in addition, we do anticipate volume increases with seasonal holiday direct mail volumes for the second half of the year. So typically we do have volume increases, they will continue going into the second half of the year driven by holiday.

As I’ve communicated, our growth opportunity is to capitalize on clients and prospects’ need to shift and transition in the changing and complex marketing landscape. Many clients do not have the expertise in data management, analytics, the marketing technology and multi-channel strategies required in today's marketplace to be successful. And we've had recent wins that demonstrate this need. A couple of notable recent logos that has a large regional bank, an online payment company and a European automaker understand shift requires in their respective marketplace and they've chosen Harte Hanks to help them in this journey. So we're very encouraged by the recent wins.

The challenge becomes as we gain new logos, the initial engagement tend to be smaller in size and over time we will increase our share of the client spend and grow the account. However when we lose clients they tend to be long time clients that already have larger spending. Overall this has positive implications for the future but in the short term, it is a hill to climb as we stabilize and continue to stabilize our client losses and grow engagements with newer clients.

Our win rates need to accelerate and this is starting to happen through leveraging our most recent acquisitions Aleutian Consulting, which is now Harte Hanks Consulting and 3Q Digital. Both of these acquisitions are seeing double digit revenue growth and are helping Harte Hanks position with greater thought leadership and new customer opportunities.

Our go-to-market and marketing thought leadership plan is beginning to produce opportunities in our sale. hartehanks.com and our MarketingJournal.org are attracting senior level marketers. We are engaging our targeted audience as marketing VPs and C level executives and industry leading content which is driving a number of CMO level conversation and a key goal that we had set out at the beginning of the year.

As we have stated, stemming client loss is a key priority for us entering the year. In the second quarter we completed another client survey and we're getting invaluable feedback to improve client satisfaction. We really attribute this feedback in our respective action in improving our client losses. However we understand that we still have work in front of us to continue this improvement.

Now I want to mention a few comments on Trillium. As you know we announced our plan to look at strategic alternatives for Trillium Software. We felt that Trillium would be most valuable – more valuable in the hands of ownership that is positioned to maximize its potential in the growing data quality and data governance segment. Initial interest is strong and we are off to a very good start. We will update you when the process is completed. Doug will discuss Trillium financials. However I wanted to mention a few notable accomplishments by our Trillium team.

First, the release of the Trillium TSS 15.3 which includes a new discovery center which is a browser based application for profiling features of Trillium. The release also includes several technologies to support Trillium strategy of employing net native technology to support cloud and software as a service development.

Secondly, we released an enhanced version of our Trillium for Salesforce version 1.2, a product that was originally introduced earlier this year. Trillium for Salesforce has a greater improved interface that is native to the Salesforce.com environment. It now includes cleansing, masking and merging features for account, leads and content as well as the ability to process highly refined subset of a customer’s data. This gives user a very granular control of the data that they are manipulating.

And finally, we achieved some important certifications with SAP HANA and Cloudera. The SAP HANA is SAP’s in-memory application server and Trillium was certified with total validation and duplicate checking error tolerant search on the HANA platform. In June, Trillium adapted the refined product a high [ph] Spark, a query language for gathering information after all the project has run. In addition, Cloudera, one of Trillium’s data partners certified us on their platform. We also established a very important OEM relationship with Whitepages [ph]. We believe that these accomplishments will really set us well – set up for second half of 2016.

While I am confident and believe that we are taking the right steps to continue our turnaround and return to profitability, I'm also aware that this is taking longer than I originally anticipated. We are focused on the profitability and really remaining encouraged with recent wins of our go-forward strategy.

With that, I want to turn it over to Doug to walk you through the financials and then we'll take your questions. Doug?

Doug Shepard

Thank you, Karen and good morning. As you have already noticed our second quarter earnings results report our customer interaction business on the face of our financials and the results for Trillium Software shown as discontinued operations due to our announcement to seek strategic alternatives for Trillium. You can find revenue and operating income results for Trillium in the table supporting the earnings release. Also my comments will include breakout of the Trillium second quarter results.

Turning to our second quarter results. Our consolidated adjusted revenues were $97.6 million compared to $108.7 million of adjusted revenue in the same quarter last year. This represents a decline of 10.2% year over year. Second quarter 2016 adjusted diluted loss per share from continuing operations was $0.04, excluding severance, legal settlement and database development charges compared to a loss of $0.07 for the same quarter in 2015 which included the loss on a sale of our B2B research business.

Customer interaction revenue declined 3.2% on a constant currency basis, now for adjusting for the sale of our B2B research businesses. One of our goals continued to be reducing a client in revenue terms and we continue to show the amount of revenue loss from existing accounts.

Let me walk through the results of this business segment by use of reversal. Our auto and consumer brands benefited from the implementation of a new entertainment client engaging us to provide multi-channel contact center support along with the extension of services within the existing multinational for your services calling. Select markets vertical declined from a reduction in contact center work with an entertainment client, the reductions in mailing programs for a non-profit organization.

Our financial vertical was impacted by mail clients moving their business, including a regional bank losing its credit card services partner. This was partially offset the expansion of lead generation mail work for a bank. The retail vertical continues to be our largest vertical in terms of revenue and it's something we're watching closely, with back to school occurring, the holiday season approaching. We were impacted during the quarter by three large retailers delaying programs in reducing mail volumes. Our health care vertical declined during the quarter from the loss of outsource fulfilment work for a pharmaceutical company. Decline in our technology vertical is primarily driven by the sale of our B2B research businesses.

Turning to Trillium. Trillium Software adjusted revenues were $12.9 million compared to $13.2 million in the second quarter of 2015. Software as a service revenues declined during the quarter due to a nonrecurring event disclosed last year was offset by increased software license revenue. This business continues to transition to more recurring revenue with our software as a service bookings growing during the quarter compared to last year, excluding last year’s nonrecurring event.

Moving down the income statement. Adjusted operating loss from continuing operations, excluding operating income from a previously mentioned B2B research business, severance and other compensation expenses and non-recurring database development charges, was $3.9 million compared to income of $3.2 million in the same period last year. Reductions in production expenses and outsource costs and mail supply chain expenses were offset by increase in sales and marketing related to employment of additional sales force personnel.

Trillium software adjusted operating income, now reported as discontinued operations, was $3.5 million compared to $5 million in the same period last year. The increase was due to decline in revenues as this business transitioned more towards software as a service as most of the costs in this business are big. As Karen previously mentioned, we have put in place a $25 million expense reduction program, that primarily impacts the labor and selling and general, administrative actions. A large part of the action supporting the plans have already taken place and the remaining actions will occur primarily in the third quarter. These actions include lowering headcount, partnering freezes, offshoring and rationalizing inefficient redundant processes such as onboarding new clients. Productions are occurring across the business and are not isolated or concentrated in any specific functions with the focus on preserving the revenue.

We are encouraged by the reaction from third parties after announcing we would be evaluating strategic alternatives for Trillium Software. We will not be able to give an update or comment further until we are later in the process. At the end of the quarter, we had plenty of liquidity with over $12 million of cash and over $10 million payable under our revolver.

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

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from Michael Pinsky with Noble Financial

Michael Kupinsky

Thank you and thanks for taking a question. First, in terms of -- Can you hear me?

Doug Shepard

Yes.

Michael Kupinsky

First in terms of the vertical, it seems that healthcare vertical has been the most challenging. Was that just its headcount from a year earlier, Doug?

Doug Shepard

Partly but it's also the loss of pharmaceutical clients that we're working through and we haven't annualized yet.

Michael Kupinsky

And when do you cycle that, is that the second – was it the second quarter or is it going to the third?

Doug Shepard

It will go into the third.

Michael Kupinsky

And then what is the nature of the client losses at this point, is it pricing, is it just capabilities, what is the nature of the losses?

Karen Puckett

Yeah, this is Karen. I would say, first off, the client satisfaction and the executive team doing out – and really understanding what clients said we’ve had issue with, just on a long way in helping get past an action to improve the client losses. In terms of where we've lost clients recently, I would say it’s more around -- we didn't have the right. thought leadership going in to really further differentiate us and we’ve learned from that and we are bringing in the consulting organization as well as some of the thought leaders on digital to turn those win rates around. I think our loss rate is around either way that’s been significant, we're very pleased with that kind of capability that’s growing in our company but we just stepped behind on the thought leadership.

Michael Kupinsky

In terms of the management team, Karen, do you feel like you have the right management team in place to kind of turn around or what are your thoughts in terms of the challenges that you have given your current management team and so forth?

Karen Puckett

Yeah, if you really separate in a way the products that we have, we do have traditional services like mailing print, and getting through just the ebb and flows of the volume is our biggest challenge with that some things in place around, as I mentioned in my remarks really getting our capacity relative to volume is a key goal to improve our margin. We’re good at the print business, we're doing the direct mail business and so continue that effort and the expertise we have is making our clients to appreciate that this is the experience that we have with mail, on very large clients. As we move to the small type channel data, data analytics world, which we were good at but we need to become better at, I do think that we’ve got the right key leadership in place now and they are out having conversations that are making science so definitely about our building than they did maybe a year ago. The challenges of the sales and marketing expenses that we’ve added in the last two years has not proved to be beneficial in accelerating the revenue we need. And so really sorting through what is the right distribution cost structure to yield the benefit is kind of where we're at right now. If there is one area we would circle that would be it.

Michael Kupinsky

Can you talk a little bit about the pipeline of business at this point and before I think this quarter you indicated that you thought that you could have revenue growth in the fourth quarter or turned by the end of this year, can you give your thoughts about that?

Karen Puckett

Yeah, I will take the pipeline, and let Doug kind of talk to you through how we’re sensitive about turning the revenue. From a pipeline, as probably everyone is – our pipeline, because it's really about loss in the lost, I would tell you that there has been a lot of work in sorting through just the sales and how we think about the pipeline and the pipeline metrics, and it’s kind of worked around probability and how we’re looking at our revenues. And so that's all going to begin to pay off because the metrics are in place that it needed to be. I will tell you that – our change there in the pipeline are highly more quality than they were even eight months ago, nine months ago, and that we really focused at the bottom of the funnel – and they are growing. Our real challenge is when we talk about the turnaround, that we talk about the first of the year is we have to sell more traditional services and although we are beginning to see that impact, we had that planned much earlier in the year and we didn't hit those sales number in traditional services. Part of it’s the execution and part of it’s longer sales cycle time and we're dealing with that. There's benefit coming into the second half of the year as a result of that focus. So in business, our sales plan for the first part of the year are in traditional and we set it up that way because from the work that was then going on is how do you go about having these higher level conversations at CMOs, senior executives around the changing landscape, the ability to navigate through multi-channel and how do I think about digital data analytics customer journey, we are now getting that work completed, we have demand interaction that is just beginning for the plan, second half of the year but again it's just beginning. And we're best encouraged by some really great new client wins, most recent wins, within the last month that are beginning to pay off and then the kind of senior level conversations we're having a way for it and they're starting to pick up. So we're encouraged by that, as the traditional plan that we had around the three sales system in the first half of the year as we anticipated.

Doug Shepard

For the remainder of the year like into 2017, we've obviously made a lot of investment in sales and marketing resources. We have an expense reduction plan in place and are working through some of that. And as Karen said we're not satisfied with the data on the rate of our turnaround plan at this point. And we expect to have improvements in the rate of decline in our revenues. And we're expecting that we would have revenue improvement, with stabilization in revenues obviously more realistically now in 2017.

Michael Kupinsky

And in terms of the planned cost reduction, what are the achievable margins that you would expect?

Doug Shepard

From a operating standpoint or EBITDA standpoint?

Michael Kupinsky

Either.

Doug Shepard

The goal right now is not a specific margin target or number as much as the goal is to reduce the expenses and get the expenses out of the business to match our top line performance and to slowly grow the business and the margins. Historically the business has been in the low to mid double digit range, at this point we're not there right now. So we have to start the process which is what we have commenced on to grow it from where we are and to be able to show steady improvement quarter over quarter and grow those margins.

Michael Kupinsky

And in terms of FTEs, where are you at right now and where do you think FTEs will be by the end of the year?

Doug Shepard

That's really a poor measure, we look more at our dollars because we have sizable production environments with our call centers and our mail facilities which moves up and down based off the seasonality with back to school and Christmas, things of that nature. So we are more focused on dollar expense and what we're paying for the revenues that we're getting than we are on a pure FTE basis.

Michael Kupinsky

And just one final question, I know that you're indicating here there's not much you can talk about Trillium. But have you been pleased with the amount of interest in Trillium or can you give us any color on that?

Doug Shepard

Yes. I mean I believe Karen said it in her remarks, so just helping along in my remarks we're pleased with how the process is proceeding. We've seen a good level of interest and we will update everybody when there's more tangible news to report about the process and where we are.

Operator

You will now hear from Steve Cole with Mangrove Money [ph].

Unidentified Analyst

Good morning guys. A couple of questions. Doug, I guess one thing I want to talk about is cash flow. I didn’t see that, or maybe I missed it for the quarter. Maybe you can give us a little bit of color on where would you expect that metric to go on the back half as we start to get the top cut here and more in line with revenue?

Doug Shepard

There is some seasonality in our business, especially in the third and fourth quarter with holiday season and cash balances, cash flow increases and grows with help with the marketing spends that occur again tied to the holiday season and back to school. We ended June with roughly 12 – sorry, almost 13 million in cash, debt down year over year, I'm sorry, since December 31 by about 8 million, and we have over 10 million available on our revolver. So in the second quarter from a cash flow standpoint, we were essentially flat.

Unidentified Analyst

So you would expect cash flow to be meaningfully positive for the back half of the year, is that right?

Doug Shepard

Yes.

Unidentified Analyst

Let me talk little bit about Karen – about sales and marketing, because this has been one of the crux of the turnaround. But we've been dumping a bunch of money in, and granted we haven’t seen the feedback. guess I'm just curious, as you guys have looked at and done as surveys, and what have you, why is the problem, why are we getting traction, what can we do to change that approach on sales and marketing, what worked, what hasn’t, and what needs to happen, because I remember on the digital side, you guys are getting traction on the acquisitions that you’ve made. I'm just curious where are –- what needs to happen to fix this so we can finally start to see some pickup?

Karen Puckett

Yes, as I look at that question, I will talk about it, not really in any certain priorities, but a couple of things. First off, we are getting – we continue to just farm well with those 3Q Digital and focusing organization development is indeed as 3Q but as we enter into especially new logo conversations, it’s all about that thought leadership, and how you bring that different conversation into a senior level or senior executive of a business. And we were riding on that and so that acquisition, we’re seeing that when the consulting group is involved, we now have much of a higher win rate. So part one there is to really accelerate that thought leadership to facilities. Secondly, everything I would tell you is that some of our product capabilities have fallen behind, database is a secular which we now have a strong plan, it has been declining and then with that, those data analytics, so we have a plan in place where we have been moving, new plan is moving to the cloud and infrastructure, and with it comes some really the data ecosystem that starts bringing in the golden records in the analytics capability and we’re getting the traction, we do have a number of clients that are still in the old environment that we've been working through. Doug mentioned, one of the more challenging expense areas is the clients that we onboarded. Nearly a year ago we had to use a different approach. So now that we've got the right leadership on database, that’s all turning in the right direction. As we stabilize that product as well as sold as a data analytics that that will make a huge difference in our building to accelerate the revenue we need, which has really little to do with sales, because these are our products that are really capable. And so we’re getting those back up.

And then our new go to market where we bring in, not to say that data analytics, but really the planning around multi-channel in the customer journey and this approach that we have around up done is making a difference. So getting all those little emotions at once are important and then I would say from the sales standpoint we expect to accelerate work -- getting them out of the process earlier they stay in, because they're concerned about getting the clients onboarded correctly and that’s when we’ve got all the support around onboarding, and getting are seller back into the next opportunity, because there's some strong work happening and getting our potentially – as opposed to saying wait long and sort of find the organization that -- like all that.

Unidentified Analyst

And when you account for the successes that you're having, I know you talked about some of the challenges. But when you look booking, Karen, I understand the issue where the legacy vote being bigger, initially taking time to ramp a new one. But what can you give us some comfort -- obviously the last quarter, you felt reasonably positive reasonably positive that we would see some pickup towards the fourth quarter, year over year growth that we’re tutoring towards that, now that’s shuffling all of that. But what do you guys think, what metrics that you’re looking at that are giving you comfort that what you're doing is working right? And I know you’ve talked about improving the products and what have you. But obviously you guys are seeing some real time stuff and I thought are you getting visible, three months out, six months out, maybe you can speak for that on where we are, in that process and how much comfort can we have – we are actually – it’s very hard to turn there, we just haven’t comforted the numbers that –

Karen Puckett

Yes, I would say a couple of things, we have is – this is really brand awareness, thought leadership awareness we didn't have in the market. So some of that marketing investment we just started the demand generation, that marketingjournal.org and we completely changed the website. You can see the number of users is going up and we have some direct reach out to CMOs that we don't have a relationship with, actually are reaching back in and responding. And hopefully we will have – we’ll give you more of a cover around that because there's a few that we’re really excited about. So that work is starting to -- investment is starting to pay off. Again that plan first half of the year was sell more traditional services and we just did not get the start, that we needed to shut up all that and sales taking is a bit longer as the new stuff is coming on. And when I say the new stuff is retooling of the database, that thought leadership, that we’re really retooling of our database business which can and will grow but we have to take care of certain clients and get in infrastructure that's more modernized, really more position. You'll see with that margins improved and then getting the analytics piece of that where the way in terms of all the third party data that we bring in to help them think about their customers in a different way.

So we're seeing that -- I think myself and all the senior team is that having conversations and I feel differently if I want one thing conversation and the response from our finance and let's do this next step kind of thing. It is beginning to happen.

Unidentified Analyst

And last question, turning to Trillium, I know that the migration – the shift to SaaS kind of obscures the numbers a little bit. How can we get -- can we see some comfort, for example, Doug, I am looking at deferred revenue growth, or what can we look at out there, that that bad transition is actually moving along, I know you’ve had an extraordinary last year but if we back that out, are we seeing growth in the core deferred revenue, adjusted and I noticed some seasonality on that, obviously as contracts come up, but what comfort can you give us of that business is actually doing what it should be done on getting growth?

Doug Shepard

We actually internally -- deferred revenue is one metric the folks look at, the other one that we pay more attention to at this point is bookings or sale as opposed to revenues. And when you adjust for the last year we have -- we do have bookings growth in our SaaS line and our SaaS product. So it continues to grow but expand as to the revenues once you adjust for those one time event. So deferred revenue can move up and down because of maintenance contracts and other stuff that we pay more attention to the sales or bookings metric which is growing.

Unidentified Analyst

Is it growing – Doug, but can you give us some color – is that growing 1%, 10% and would you characterize the growth rate?

Doug Shepard

Yeah, it varies obviously month to month and by quarter but for the second quarter, you're talking about a number that was in the low to mid single digit.

Operator

Thank you. Our next participant is Al Tobia with Sidus.

Al Tobia

Here assuming that you’ve got some pickup in the second half from some seasonality. I guess I'm trying to understand at rounded level of revenue, you've got some legacy type of customers that are either declining in terms of their use of mail in the first half of the year and some new wins that are ramping but slower than the old ones are declining. When you say that maybe the revenue grows in some kind in 2017, not in Q4. Can you give us any other details on that, like, is there a piece of the business that is a growth piece, that’s sort of X percent of total and then there's X percent that’s legacy? I mean how do we know how much sort of revenue is at risk to decline, because you obviously had a take layoffs and kept your expense base down 25 million? So I assume you have some idea, can you just give us some – shed some light on that?

Doug Shepard

We talked about a little bit and then our digital offerings with like 3Q Digital, the consulting business that we recently purchased along with what we described as our agency services, account management creative, those type of things, generally this year have been performing well and have been growing. We have been struggling from a product standpoint in our mail area and we need -- when we talk about the traditional marketing channels versus the more digital stuff, our traditional lines which are generally contact center work that we do in the mail services that we provide are roughly 60% of our revenues, and the more digitally related offerings, the agency, the database type offerings, the data work that we do the analytics and the consulting strategy is roughly 40% of our total revenues.

Al Tobia

And so when you look at what's in the pipeline and how it rolls out, I mean, how much do you feel like in business that you can sort of forecast as you look forward and then now that you've met with more and more customers what's the sense in terms of at risk revenue?

Doug Shepard

The trend within our business is that most of our contracts don't have volume guarantee, they have pricing commitments, depending on the nature of the service and what we’re doing, is this an hourly rate for data or for agency type work, it may be per mail piece, something on call center number of heads or per phone call. So our clients have the ability, which is not unique to us, it occurs across this industry, because it's for competitive reasons that we have to do this as our competitors are doing the same thing. Our clients can, will, and do change their volumes periodical, and they do it quickly. So even right now as we're talking to you in early August, our clients will make final decisions. It will change their holidays spend plans as late as early November. They communicate to us date for scheduling reasons both for us and them to make sure we can handle the volumes and we have the right people trained and up and running to handle their work but they do have the ability to make changes, I would say thirty to forty five days out for when they are going to actually run a marketing piece for the most.

Al Tobia

Okay. Maybe a question for Karen, just sort of asking this in a little different way. The Board made a decision to sell the software business and you're going to incur some form of a tax hit in order to effect that -- when the sale is effected. I mean I know, Doug, you had mentioned you wanted to moderate the tax hit somehow and that you were looking at ways to do that, but let's assume you are going to pay some level of taxes. The decision to pay those taxes indicate something about the base business, otherwise, it would be easy just to sell the whole company. So I guess, question is, was it in fact considered and is that tax burden that you are overcoming still something that you think you can basically overcome by raising the value of the base business?

Karen Puckett

I mean I will let Doug – I am not sure if I completely understand the question. But obviously anything that we can do to minimize the tax would be a priority. We will see how that all works out. Back to the decisions to look to alternatives for Trillium, I mean as I came into the business, it was clear to me that -- the great thing is Trillium was organically just growing, which proves the values that our employees over the years have found this is an opportunity to grow business. The opportunity is that data quality and data governance, that’s an evolving area, just like on the other side of the house, is marketing landscape change. So we have two growth potential opportunity and it was clear to us that Trillium was really more of – became more of a software enterprise kind of company which we're not. And the use cases were well outside marketing cases, especially in financials and regulatory municipalities, government, you name it and. And even as the Internet of things come along and so it was very obvious to really allow Trillium to gain the potential that it can and will, it was better in an enterprise software kind of hands and we’ll say again, the good strong interest in the beginning, we’ll keep you updated. That leaves us with the upside opportunity in navigating this marketing landscape or marketing CMO key leaders but we still do have – just in your question to drag on the legacy revenue, which we’re working through with some greater things that we could do there. So encouraged by the upside and obviously huge respect for the legacy business that we continue to have are being impacted by volumes from clients trying to decide, as the more diversified we could get our client base, as you know we do have – 25% of retail clients, are the more diversified we can get in our client average is a good thing. And you'll see more conversation in the coming months about how we are doing that.

End of Q&A

Operator

There are no further questions at this time.

Karen Puckett

All right. Well I appreciate the time today. Again we will keep you -- communicate any updates that we have when we're through this Trillium process. And we look forward to talking about third quarter in the coming months with you. Thank you.

Operator

That concludes today's conference. Thank you for your participation. You may now disconnect.

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