Interpace Biosciences, Inc. (IDXG) Q4 2011 Earnings Call Transcript
Published at 2012-03-08 00:00:00
Good day, ladies and gentlemen. Welcome to the PDI 2011 Fourth Quarter Financial Results Conference Call. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the call over to RX Communications Group.
Good morning, everyone. This is Melody Carey with Rx Communications Group. Thank you for participating in today's call. On the call this morning from PDI are Nancy Lurker, Chief Executive Officer; and Jeff Smith, Chief Financial Officer. Yesterday, after the market closed, PDI released financial and operational results for the fourth quarter ended December 31, 2011. If you have not received the news release or would like to be added to the company's distribution list, please call my office at (917) 322-2568. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risk and uncertainties regarding the operations and future results of PDI. I encourage you to review the company's filings with the Securities and Exchange Commission including, without limitation, the company's Forms 10-K and 10-Q, which identify specific risk factors that may cause actual results or events to materially differ from those described in the forward-looking statements. Furthermore, in addition to U.S. GAAP results, PDI will provide certain non-GAAP financial measures specifically related to Group DCA's operating results on this call. The tables included in the earnings press release include a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial results. The content of this conference call contains time-sensitive information that is accurate only as of this date as of the live conference call broadcast, March 8, 2012. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I would now like to turn the call over to Nancy Lurker.
Thank you, Melody, and welcome to everyone on the call. As noted in our press release, 2011 was a solid year for PDI. During the year we continued to make progress in growing the company by expanding our footprint and adding key value-added services. Among these achievements was the successful launch of Interpace BioPharma created to manage full product commercialization opportunity. Launched in July 2011, Interpace added over $9 million of revenue in 2011, is expected to add approximately $20 million in 2012 and we already see strong and growing Interpace -- the interest in Interpace BioPharma offerings. In addition during the fourth quarter we completed the integration of Group DCA and we remain optimistic about the long-term opportunities for this important business unit. These and another significant investments have allowed us to expand our capabilities and further differentiate our offerings to our clients. As to our financial results, we made important strides in 2011, bringing approximately $1.8 million in operating profit from continuing operations in the fourth quarter and $3.4 million for the full year excluding a one-time charge for the buyout of earn-out obligations in Group DCA operations. Increased revenues for the full year were driven by our new Interpace BioPharma business, Group DCA, and new business wins in our Sales Services segment as well as key contract renewals and expansions attesting to PDI's continued market penetration. While fourth quarter revenues slightly decreased due to the expiration of certain 2010 contracts, full year revenues rose almost 17% over 2010. Additionally, we ended the fourth quarter with positive cash flow from operations. Cash and cash equivalents at December 31, 2011, totaled $64.3 million. Jeff will review the financials in more detail momentarily. During 2011, we announced the new business wins of over $74 million and contract renewals of more than $34 million. Importantly, our total win rate for these contracts that were awarded during the year continued to be very strong. Among these were the renewal of a seasonal sales service agreement with the top 10 pharmaceutical clients, expected to generate approximately $11 million in revenue during the 2011 and 2012 promotional season, a contract with a new pediatric dermatology customer expected to generate $5 million through September 2013, a 2.5 year fee-for-service agreement to market in the United States and its territories, a treatment for pain of the knee, which is expected to generate $55 million over the life of the contract. Our most recent wins were announced February 13, 2012. These included the renewal of a 3-year agreement with the current top 5 global pharmaceutical clients and renewable of a 1 year engagement with specialty pharmaceutical clients. Together these contracts are expected to generate $48 million in revenue during 2012. Under the renewal contract with the top 5 clients, PDI will provide a dedicated sales team to exclusively promote products to women's health care and primary care providers for 36 months. Under the renewal agreement with the specialty client, PDI will provide a dedicated sales team to call on women's health providers. Looking ahead, we expect 2012 to be a year of continued execution for PDI. We believe the combination of a robust pipeline of new business that's valued at over $500 million and a high rate new business wins will allow us to achieve our goal of sustained consolidated long-term profitability as pharmaceutical companies continue to place a high priority on the strategic outsourcing of key functional areas and key brands. In addition, we are optimistic about the long-term prospects for Group DCA in the digital space. With the integration of this business, PDI now has significant expertise in providing highly efficient integrated communication efforts combining digital, voice and live reps, particularly through our established network team. Going forward, we believe that the combination of these channels will allow us to expand our core business even further and provide an opportunity to leverage our expertise to drive maximum value from select pharmaceutical products. In addition to our core business, we see strong interest in the full Product Commercialization Services offered by our newly established business unit, Interpace BioPharma, with such interest ranging from straight fee for service rearrangement to modest out risk deals. With the addition of broad-based commercialization capabilities and our ongoing goal of gaining a more sustainable, more predictable and more profitable revenue streams for PDI, we may also consider modest in-licensing opportunities in the future. Finally, while we will be investing in expansion of our capabilities to strengthen our core and continue to differentiate our offering, we believe we can significantly leverage our SG&A by maintaining very tight -- very tight control over expenses and applying cost-saving technologies across our entire infrastructure. Now I'd like to turn the call over to Jeff.
Thank you, Nancy. As you can see in the release, on a consolidated basis, PDI's revenue in the fourth quarter of 2011 was $38.3 million compared to $42.3 million last year, and the operating loss in 2011 was $2.4 million compared to $3.3 million last year. Excluding the impact of Group DCA operations in the fourth quarter $2.9 million impacts of the buyout of Group DCA related earn-out provisions, operating income for the fourth quarter was approximately $1.8 million and the full-year operating income was $3.4 million. We begin, for the last time, include the tables in the release which displayed down to the operating income line the results of legacy PDI and the impact of Group DCA for the quarter and for the full year. Effective at the end of 2011, almost all the negative impacts of Group DCA acquisition accounting have cleared through the reported financials. Also as I believe most of you know, we dispose of our peer-to-peer business, Pharmacon, in the fourth quarter 2011. As a consequence, Pharmacon results for both 2010 and 2011 and charges related to the disposition in 2011, have been eliminated from continuing operations and are shown net in discontinued operations as required by GAAP accounting. That established, overall revenue for the quarter $38.3 million was about 9% lower than last year's $42.3 million. This overall decrease is the result of lower revenue in Sales Services. In Sales Services, revenue was $11.6 million lower than last year, while the pipeline of new business is clearly increased over the past 3 quarters, significant amount of the pipeline has not yet been awarded and contracts in place in the fourth quarter of 2010 were only partially offset by new contracts. Sales Services revenue was somewhat artificially lowered in 2011 because we elected to show new Sales Services one as part of product commercialization in the Product Commercialization segment. Product Commercialization Services had $5.6 million of revenue for the quarter from the contracts signed in midyear. And marketing service revenue, which now excludes Pharmacon, increased by $2 million to $2.9 million for the quarter due to higher Group DCA and PDI Voice revenue. Although revenue was lower in the fourth quarter gross profit of $8.7 million was $600,000 higher than 2010. In Sales Services, gross profit decreased roughly in line with lower revenue. Product Commercialization Services added $1.4 million to gross profit for the quarter, and Marketing Services gross profit of $800,000 increased by $1.4 million compared to 2010. Marketing Services in 2010 had negative gross profit due to Group DCA acquisition accounting. Operating expenses in the 2011 quarter were $11.1 million, $300,000 lower than last year. After adjusting for the impact of Group DCA in both years, and the $1.4 million of facilities realignment cost in the fourth quarter of 2010, operating expenses in the fourth quarter of 2011 were $6.3 million compared to $8.5 million in 2010. This $2.2 million decline is primarily due to the company's ongoing cost-reduction initiatives and lower incentive compensation. So then for the quarter without all the impacts of Group DCA, legacy PDI had operating profit of $1.8 million and $3.4 million for the full year. We ended the quarter with more than $64 million of cash and equivalents, about $1.6 million higher than year end 2010 and continue to have no commercial debt. On our last earnings call, we gave a high level outlook of 2012. That outlook was given within the context of a pipeline of new business and at the time was over $500 million, which it still is. The expectation at the time was that a good portion of this pipeline would be awarded by now. As Nancy stated, the awarding of the pipeline has slowed. Given the uncertainty of the timing of contract awards, the company cannot give specific annual revenue guidance for 2012. However, for the full year of 2012, the company expects to achieve profitability from continuing operations at the operating income level with positive adjusted EBITDA. As we stated in the past, in order to achieve our 2012 goals and the longer-term goal of building a sustainably growing and profitable company, it's important to continue to know that the market must continue to expand. We will need to win an increasing amount of new business and/or expand business with existing clients, and we'll need to tightly control our ongoing expenses while continuing to invest in expansion of our capabilities, strengthen our core and continue to differentiate our offerings. That completes our comments on results and I'd now like to turn the call back over to Nancy.
Thank you, Jeff. Once again, we are focused on driving market penetration, achieving consolidated profitability and continuing to meet the dynamic needs of our clients while building sustainable value for our shareholders. We look forward to achieving our stated goals for 2012, and we'll keep you updated on key events as they occur. I'll now turn the call over to the operator for our question-and-answer segment. Operator?
[Operator Instructions] Your first question comes from the line of Scott Henry of Roth Capital.
A few questions. For starters, DCA, down sequentially from Q3 to Q4. I guess, I was always under the impression that DCA was going to grow because of the accounting treatment as it annualized regardless of the backdrop. So obviously, I'm a little curious, what happened with DCA? How come it reversed?
I'll let Jeff answer from the accounting standpoint and then I'll give you the overview from the business side.
Okay. Scott, from an accounting standpoint, we've been talking about accounting for quite some time. The impact, the negative impact we believe by the end of the fourth quarter as we've said is now behind us. So what you're seeing has to do with the timing, the level of signing. So we always said that ultimately accounting and signings will catch up to each other. And signings have been a little slower than we had anticipated going into the year, and Nancy will talk about that. And then the timing of the signings also has some impact. So more of the signings were achieved later in the third quarter and the fourth quarter than being evenly spread, which would then convert to GAAP revenue on an even basis. But, I think, the bottom, bottom line is that signings are slower -- have been slower than we had originally anticipated going into the year.
So, I mean, basically are you saying if business would've been flat, you would've seen a continued ramp, but business was not in fact flat.
That's -- signings -- total signings for the year were $15 million. We were hoping that we went into the year thinking they would be slightly higher than that, and they would be somewhat evenly spread over the year. So the $15 million was a little lower and was a little bit more skewed to the second half of the year, which didn't then get converted to GAAP revenue as evenly as we had estimated in the beginning of the year. But I think there is a business thing that Nancy will comment on.
Well, yes, let me just comment that we stated for a couple of quarter calls now that signings have been slower than we expected. So it's not -- it's actually the conversion of the pipeline. So we're getting wins. But as with the competitive landscape, and, I think, you've seen this with some of our competitors, what's happening is it's taking longer to get these things approved, the medical legal regulatory reviews taking longer and it's just taking longer even from a budgetary standpoint. So we get the approval, but that it takes longer to get through the system. So the cycle time is lengthening on this business. We continue to see that for quarter-over-quarter right now, we're about even to last year. We're certainly not growing as much as we had hoped. But there's continues to be interest by clients. The last comment I want to make is this, a couple of new products that business is going to be rolling out that we do expect is going to add incrementally.
So when we look out to 2012, I assume, you would expect to still see at least significant growth over 2011, obviously significant.
I would say modest growth, Scott, and on the bottom line you should start to see a substantial improvement because we have rather significantly streamlined the operations over there.
Okay. I guess, this is a subjective question but do you still feel about good about the acquisition of DCA, given that it's somewhat underperformed?
Yes, we do and I'll tell you why. It's taking a little longer than we have hoped, I'll be the first to say that it's taking a little longer than we had hope to see that materially impact actually both the bottom and top line. As I mentioned, the bottom line you should start to see some significant improvement just because now that we've been able to really manage the business in the way that we typically manage our other businesses. We've been able to strip out some costs that we felt were redundant to the business. What we also see though is that more clients are wanting to know, can we come in and begin to integrate in with the wide space that they said have, non-personal promotion. And it's a combination of E as well as tele-detailing. So it's important that we have that business because of what it does to the CSO business, coupled with there are some couple of products that we're going to be rolling out on the Eastside that are integrated in with our reps, and we believe are going to give us a nice competitive advantage.
Okay. And then you started that new engage unit. Did you get any sales in the fourth quarter?
Not in the fourth quarter, no. But we are -- actually why don't you go ahead, Jeff? I just want to make sure where we are on from an accounting standpoint with EngageCE.
Yes, we've got our first contract and revenue will start showing up a small amount in the first quarter but really in the second quarter.
So there's a nice pipeline there and we expect to continue to get additional wins through 2012. We remain optimistic we're going to get more signings. As Jeff said, we've signed 1. I just wanted to clarify whether or not that has actually been signed. And we expect that we're going to continue to see growth in that business in 2012.
Okay. And then before digging into the CSO business. You certainly provide less guidance today than you did before. And this is, I guess, an opinion question, but do you expect that 2012 will be a better year than 2011?
What we expect is that we absolutely will see growth on the bottom line because revenue is harder to project. I don't want to give guidance on that level, but we anticipate that it will be better than 2011. But there's caveats associated with that as always, Scott. We have to see that these contracts come through, that the delays where we've won some business and I'll give a little color on this, we actually have won a number of RFPs, but they were put on hold for a variety of reasons. In some cases drug delay -- drug approval delays that occurred in, other cases there were strategic changes at corporations that required these things put on hold. We do anticipate some of these will start to flow-through still. It was just a delay issue. That being said, we do expect 2012 should be a better year. We're just not willing at this point because of the unpredictability of these contracts to give more specific guidance. Without a doubt on the bottom line because we're doing a very tight control on cost, we do expect in the bottom line to be at least modestly, if not substantially improved, over 2011.
Okay. See that's a little surprising to me. I mean, the thought that revenues wouldn't be higher in 2012 versus 2011 is a pretty negative statement. I mean, given that you're going to pick up $10 million at least on PC Services, and you're going to pick up some revenues on EngageCE as well so what you're saying is that there's a possibility that sales and services, I guess, could stay at this upper 20s level? Is that kind of what you're saying?
So Scott, let me clarify. What I'm saying is we're not willing to give guidance at this level. We anticipate because the pipeline remains robust that we will end up higher. But it requires several caveats and therefore, we're not willing to give out any kind of specific guidance.
Okay. Well then, I guess, could just on me how are things going at Pfizer? What is the status there?
Well, we don't comment on specific clients. We can't do that.
All right. Then, I guess,, just walking through the way I think, of your business -- your CSO business, how is the -- what is the overall pie of pharma sales reps look like? What do you expect that will be in 2012? I think I'm using guessing it will be around 62,000, is that a good number? Or is it shrinking fast?
We project that to be lower and that's because of some of the announced downsizings by several large pharma companies that are still occurring. So we anticipate that it's going to be closer to 55,000 to 60,000 range.
Okay. And then from a share basis, I mean do you think you're losing share or are you gaining share?
No. Our win rate remains very robust. I'll reiterate, we are invited to well over 90%, if not 95% of all RFPs. And I don't want to give a percentage out because of these do fluctuate some. But we are winning well more than our fair share. Our fair share meaning 25% given roughly. . .
But it's possibly could have more business running off than you're winning. But it sounds like you think your gaining share, is that fair?
Okay. And then when you think about revenues per rep, is that number going up, going down or kind of staying the same?
Yes. I will come in late, let Jeff answer that.
It's per rep. So I would say that it's probably staying roughly the same.
And next question comes from the line of John Kreger of William Blair.
Nancy, just a kind to continue the discussion about your view on the macro environment. So as you talk talked your clients it sounds like we're still pretty much in a cutting mode in terms of sales and marketing. Do you have a view about when that sort of stabilizes and might begin to grow again?
I think it's going to happen on the back half of 2012 to the first half of 2013. So the majority of the patent expirations as you know are hitting this year. And as well there were a few instances of again drugs not being approved or delayed. And in some cases, some safety issues with products that required a substantial downsizing related to those products. So what we do anticipate is the majority of this should get washed through by the back half of this year. And then of course, what you got, you still have modest patent expirations occurring going forward into 2013. But drug approvals should begin to overtake that. Now that's depending on the FDA continuing to approve drugs. But we expect that you're going to see some modest improvement in the overall climate going into the late half of 2012 and into 2013.
Got it. And then similarly, if you think about the pipeline of opportunities that you talked about last quarter and it sounds like that's pretty much still the case here at this point, is your thinking there for a lot of these might not be awarded until we kind of move towards the back half of the year? And the company starts thinking about their strategy in '13? Or 3 months from now on your next call, might we be hearing about more awards?
We should expect to hear more awards by the next call. And we again expect that more should come in third quarter and fourth quarter as well. We do expect though that the second half, revenue wise, will be stronger than the first half just because of how the revenues flow once the contract is signed. But we do expect John that we will be making some announcements in the second quarter.
Okay. Are you seeing any changes in terms of the competitive landscape? And any kind of pricing compression out there?
Not really. The 1 thing I would say is it continues to be interest in what we call customer service reps, which do tend to be lower cost reps. So it's more on I'd say contract value in some cases. But that is also coupled with increased interest in EngageCE and the nurse educators of course, tend to be more expensive by far than your typical reps. So on the cost side beyond revenue, just in terms of our margins, there's some slight compression but I would not call that it’s significant.
Okay. If you think about your business and how the mix might change over the next year or 2, is there an opportunity to drive some gross margin leverage? Or should we be thinking about that number more as a stable one?
John, I think, we would feel comfortable saying that the margins really should inch up because certainly we expect growth over time in CSO, and that we think must be fairly stable. If you talk about product Interpace Bio that has slightly higher margins, EngageCE and the other businesses that we expect to pick up and certainly even Group DCA, all have higher margins. So just the blending of those margins should directionally move our margins up.
Great. And then lastly, the comment in the press release about the charge for the buyout of potential earn-out obligations relating to DCA, can you just elaborate on what that's all about?
Yes. In the fourth quarter, we announced that, I think, you'll recall that in the original contract for Group DCA, there were some fairly significant earn-out provisions that covered 2011 and 2012. And as it turns out, the former owners did not earn very much of the 2011 earn outs. But there was still a reasonable possibility that they could've gotten some fairly significant payments for 2012. And as part of them leaving the business in the fourth quarter, we negotiated a buyout of the provisions that could have paid them some amounts, some millions of dollars for 2012 results and some other things that they could've done to earn earn-out payments. And that was all charged in the fourth quarter as a one-time event.
Okay. So there will be no more cash outflows relating earn outs for Group DCA?
Well, actually the accounting part has been taken care of. The cash portion of those agreements are spread out over 2012 and 2013.
Okay. And have those been defined at this point, Jeff? Or still there...
Yes, they are very specifically defined in the contract, and we can give you that. There's 1 payment that's in -- the payments are in the second quarter this year, the fourth quarter this year and then I think the third quarter of next year.
And just in aggregate, can you tell us how much those will be?
In aggregate, it's close to $4 million.
Your next question comes from the line of Brad Evans of Heartland.
I hate to harp on this, but so how many folks have left DCA? How many folks of the original 2 people or how many have left?
It was planned in the sense that they would have had one more year left in their contract, but because they were not closed earning as you recall, we had a hockey stick on the earn-out requirements for revenues. Obviously, they did not hit the hockey stick. So their revenue -- there earn outs were going -- their additional earn-out payments were 0. We structured the agreement that way. And therefore, given the fact that they weren't going to earn anymore earn-outs, they opted to exit out. Let me reiterate, while we are pleased with what Jack and Rob did in terms of the innovation in the company, the ability to drive that business forward in a more rigorous and robust fashion was somewhat hampered and therefore, we got current management that was already there is now taking over and running it in a much more efficient manner.
And the 2 founders have non-competes?
So Nancy, what do we get for $30 million from DCA? I mean, your best guess in terms of what they'll do in terms of EBITDA next year what do you think?
I'm going to turn that to, Jeff.
EBITDA next year, Brad, well, I can't give you any specific number. But. . .
Well how about a range? What is a reasonable range for estimates for EBITDA for DCA in 2012? You make it wide enough for a truck to drive through if you want.
Yes. So let's say $3 million to $7 million.
Okay. So Nancy, I think if I just, so I am -- we're all on same page here, so if you're calling adjusted EBIT of $3.4 million and you have D&A of $3 million. So you're saying that adjusted EBITDA before stock-based comp was $6.4 million for the full year for '11, is that the baseline?
I don't think we're going to do the math on the call like that, Brad, but you probably are in the ballpark.
Okay. This is a public forum, so I guess without the -- your expectations then for 2012 is that you hope to improve when that? Is that correct?
Well, we said that 2012 we expect to be positive on the operating income line and positive on the adjusted EBITDA basis so. . .
I got that part, I was just curious as to whether you expected that it would show improvement versus the 2011 performance.
Be specific, are you talking about consolidated or Group DCA?
I was speaking to the consolidated enterprise.
The answer is yes to both.
What's your appetite for further acquisitions at this point?
So as I've mentioned before, we're going to remain opportunistic. On the Service side, I will reiterate that given the fact that 2012 is going to be a year where pharma in the aggregate is going to be cutting expenses, most service side businesses are going to -- that are not in the outsourced space and I'm going to qualify that, I think we'll continue to struggle and we expect consolidation in that space. So valuations I believe will be coming down. And so we do not expect that there will be any Service side acquisitions and 2012 but I'll reiterate if the right opportunity comes along, we will look it. But we don't currently anticipate that nor are we proactively looking for anything. And we did mention in our opening comments that we will look at modest potential in-licensing opportunities. The reason for that is we've done very well with Interpace BioPharma. We have a fully integrated specialty pharmaceutical company there, operating on a fee-for-service basis is delivered very well for our clients. And it's well set up to take a small potential product in and be able to drive revenues with that as well as gain recurring revenues and improve our margin. We anticipated with our non-personal promotional expertise on the tele-detailing and eDetailing side that we've got as well as the efficiency of our field organizations they were much better suited than the typical specialty pharmaceutical company to drive the efficient ROI.
Okay. I just have 1 other question. If you mentioned this I apologize, but did you give a pipeline number in terms of aggregate dollars of work that's in the pipeline?
We did. It's north of $500 million.
North of $500 million, so it's continuing to grow?
It seems -- yes, now I'll reiterate, Brad, that we continue to be very, very active. And so we expect that you will see deal flow coming through as weeks go by. That being said, there were a number of RFPs that we won in 4Q that got put on hold for a variety of the reasons that I mentioned.
So you think we're at 55,000 to 60,000 industry reps today?
So we got there little bit faster than I think earlier we thought it might happen in '13?
Okay. Do you have a guestimate as to what percent of the industry is outsourced at present?
Still we expect -- we're probably around 10% now.
So we're looking at second half of '12 and into '13 when we start to see that outsourcing rate start to really move from the kind of 10% rate up to maybe some of the 2 handles?
That's what we think. And again, let me reiterate, there's a number of forces beyond just obviously efficiencies and flexibility. The other issue is that the ability to differentiate your field force is increasingly going down and that's because of the regulations. It's a combination of Sunshine Act as well as compliance, as well as consent decrees, coupled with even now the potential of exempt versus non-exempt classification of sales reps. You roll all that together and you have really commoditized field forces so you become hard pressed to justify why you pay a 30% premium to keep an in-house field force that cannot be differentiated.
Okay. The one thing, just to bring this up, I guess, who knows and a few show some improvement this year but hope you do and maybe have a shot at doing $10 million of EBITDA maybe it’s a little less, maybe little more we need some things to happen for that to occur but, I guess, your enterprise value today is about $30 million, $35 million. So I trust that DCA will be a long-term positive for the company it's been a little bit volatile here in the short term. So I just think share buyback we could -- $1 million buyback would cost us, theoretically, about $7 million or $8 million. That's probably about where free cash flow might come in if you have those numbers the EBITDA numbers maybe a little more, maybe a little less than I think, that will be a reading real strong positive for shareholders nobody's been patient here I don't think that would impune your ability to look at opportunistic acquisitions either so I think it's something the board should think about in we would support that.
Alright. Thank you, Brad. So noted.
Your next question comes the line of Bill Nasgovitz of Heartland Fund.
I'd just like to concur with Brad in terms of stock buyback. What is our cash earning us?
What is our cash earnings?
Virtually nothing. Something below 0.1%. I think, our total interest in income last year was about $20,000.
And do you believe the intrinsic worth of PDII is more or less at the current market?
So why aren't we taking advantage of probably a selloff today?
Good points. Bill, let me reiterate. We are actively looking at these items. I want to stress that. We're not going to just sit back let $64 million sit in the bank, earnings just 0.1% and there are a number of things are going to start to take action with And partly it's due to the fact that we've got this cash were now cash flow positive the business is stable. It's not growing as fast as I would like. But it is stable. And therefore, there are opportunities I think we can leverage. And we're going to actively pursue those things. Stock buyback is clearly on the list coupled with, as I said, some very, very select in-licensing opportunities that we will be prudent about not saying it will happen in 2012 because you want to be careful with these things. But we are looking at ways that we can deploy this capital in a very efficient way, but give a higher return back to our shareholders.
We certainly appreciate that, and it sounds good. But these are volatile times, taking advantage of perhaps a short-term disappointment, we would think would be in all shareholders interest. So Heartland as a long term, 15% holder, investor in this company would love to see some activity on the buyback front.
Your next question comes from the line of Jay Hafner of Skystone Capital.
So my question is really around what has changed from your November expectations, or the expectations you said in November. So if, I assume,, that you got kind of a base run rate of around $150 million of legacy PDI, and I turn that at your historical rate and I add in Interpace and -- that can get me to $110 million, $130 million of run rate revenue. If I make any reasonable assumptions on that huge pipeline, I can get to very large numbers for revenue next year. So I guess my question is, given that backdrop, what has really changed from November? Is your assumption that you're going to win less? Is it your assumption that your business is going to churn more? Or do you think the stuff is just delayed and our run rate may be similar to what they got to originally or even better?
It's timing. That's what's changed since November. It's the timing of awards.
Got it. Can you give us an idea of what the run rate make my potentially be in the second half?
Well, unfortunately, Jay, that's when we backed off the percentage guidance sitting here 3 or 4 months ago. If a normal award rate would have occurred and we got anywhere near what we would've expected even if we got our fair share, we would probably be -- well, we'd be in a very different situation some of the things would have been awarded, they would be starting or probably would have already started. And I think as Nancy said...
Well, a number of them were awarded.
As Nancy said there were 3 specific things that were substantive that were actually awarded to us and then delayed shortly after because of things that happened inside those 3 companies that have nothing to do with the award or us. So that's what happened, whether you call it timing, whether you call it bad luck, whether you call it the nature of the industry, we did not -- we were not able to start those and we are awaiting the award of the rest of the pipeline. So we're lumping all of that into timing. You can probably break it down and call it other things but...
Got it. So following up on one of Brad's questions, if you just do a quick run rate on EBITDA you get to similar numbers and yet you guys are -- I think,, what you're saying now is that your adjusted EBITDA should be better, not just positive. But if it was just positive, are there any incremental costs that you expect now to incur next year that you didn't incur in the prior year if I strip out deal cost and all kind of one-time items.
No. Let me reiterate. We've been pretty rigorous in running through. We have a very aggressive cost assessment that we undertook in 4Q and the result was that was some cost savings that we dropped to the bottom line. Now I we took some of those cost savings, and we obviously continue to upgrade systems, et cetera. So that's already built into our numbers. So there's ongoing investment which needs to continually occur some of the IT front and other areas which drives efficiency in the organization. Those are built into the numbers, so we still have a very positive net effect.
There are no further questions at this time. Thank you, ladies and gentlemen, for participating in today's conference call. You may now disconnect.