Good day, ladies and gentlemen. Welcome to the PDI 2012 Third Quarter Financial Results Conference Call. [Operator Instructions] Please note that today's 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 on 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 third quarter ended September 30, 2012. 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'd like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks 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 identifies specific risk factors that may cause actual results or events to materially differ from those described in the forward-looking statements. In addition, non certain -- in addition, certain non-GAAP financial measures, specifically adjusted EBITDA, which management uses to measure cash flow of the core operating business, will also be referenced on the call. The content of this conference call contains time-sensitive information that is accurate only as of today's date, November 6, 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 thank you for everyone on the call, especially those that have been impacted by Hurricane Sandy. Thank you for taking the time to call in. Let me start off by saying that we were pleased to have recently announced a new multi-year Sales Services contract with a top 5 global pharmaceutical company to provide a dedicated sales team that will target primary care physicians, pediatricians and psychiatrists. As noted in our release, the contract is expected to generate revenue to PDI in 2013 of approximately $48 million and up to $150 million over the life of the agreement. The FDA-approved product covered by this new contract is expected to be marketed beginning early in Q1 of 2013, after completion of certain non-FDA regulatory approvals and other third-party agreements. As a result, we expect to record less than $1 million of revenue from this contract during the fourth quarter of 2012. However, obviously, we look forward to this new client's contribution to PDI's revenue stream going forward. In addition to the Sales Services contract, PDI will also provide services to deliver HCP digital communications in support of the product through our Group DCA division. PDI's ability to secure this major new client contract reaffirms the strength of both our reputation in the industry and the value that we continue to bring to the table with our multichannel offerings. Turning to our financial results. As expected, third quarter revenue was below that of the same period in 2011, due primarily to the timing and implementation of new contracts. Thus far in 2012, we have won more than $250 million of new contracts and renewals. Due to the timing of these wins and the execution timelines of these contracts, we expect that only approximately $40 million will impact revenue this year. Factoring in this activity, we now estimate that total revenue for the full year of 2012 will be between $127 million and $130 million. Gross margin on our new Sales Services business in 2012 continued to trend lower than historical rates, including the recent $150 million win. As stated, we expect the gross margin percentage for the full year of 2012 to remain essentially flat compared to 2011 and to decline in 2013 as new wins with lower margins are executed. From an operating standpoint, we will continue to maintain tight cost controls. For the full year of 2012, excluding the previously announced 4Q charges for severance and facilities realignment, we expect a small operating loss and positive adjusted EBITDA in the range of 1% to 2% of revenue. We will enter 2013 with a strong backlog of business under contract. Furthermore, we remain optimistic that outsourcing will continue to grow and become more the standard in the pharmaceutical industry, particularly as we look at our pipeline and the current trends we're seeing. I also want to note that Interpace BioPharma will continue to remain a focus for us as we look at various types of structured financing deals as well as modest product acquisition. Finally, I want to reiterate how delighted we are to have announced the promotion of Gerry Melillo to the position of President, Sales Services. Gerry's significant experience in pharmaceutical industry sales and marketing has been instrumental in driving PDI's commercial outsourced services and contract sales business over the past year. And with this change, Gerry, along with his colleague, Frank Arena, will bring increased focus and leadership, as well as his rich and deep background in the pharmaceutical industry to our Sales Services segment. I'll now turn the call over to Jeff for a review of the financials.

Thank you, Nancy. As expected, for the third quarter of 2012, revenue of almost $32 million was lower than the third quarter of 2011. Revenue in the Product Commercialization segment increased, but was more than offset by decreases in revenue from both Sales Services and Marketing Services. Sales Services revenue for the third quarter of $25 million was about $4 million lower than the third quarter of 2011. Due primarily to the timing of the signing and the start dates of new contract wins, revenue from these wins was not sufficient to offset certain contracts renewing for smaller amounts and the anticipated expiration of certain other contracts. Marketing Services revenue for the third quarter of $2.2 million was $1.8 million lower than the third quarter of 2011. This decline was primarily due to a decrease in Group DCA revenue due to fewer contract signings and delays in our customer's medical, legal and regulatory approval processes. The Product Commercialization Services revenue for the third quarter was $4.6 million, $1.7 million higher than the third quarter of 2011. For the third quarter of 2012, gross profit of almost $6 million was $1.7 million lower than the third quarter of 2011. At the same time, the gross profit percentage decreased to 19% from 21% in 2011. The overall decrease in gross profit dollars and percentage was primarily driven by decreases in both Sales and Marketing Services. Sales Services gross profit for the third quarter of $4.2 million was $1.4 million lower than the third quarter of last year. This decrease was the result of lower revenue and a decline in the gross profit percentage, due primarily to lower margins being realized on new business. Marketing Services gross profit for the quarter of $400,000 was $1.2 million lower when compared to last year as a result of lower revenue and lower gross profit percentages. And Product Commercialization Services gross profit for the third quarter of $1.4 million was $800,000 higher than last year. For the third quarter of 2012, total operating expenses were $6.7 million, $800,000 lower than the third quarter of last year. This decrease is a result of the company's continuing focus on cost reduction. And for the third quarter of 2012, the operating loss from continuing operations was $800,000, a decrease of approximately $1 million when compared to the operating income of $200,000 in the third quarter of last year. The decrease is primarily attributable to the decrease in revenue and gross profit, offset by lower expenses. Adjusted EBITDA for the third quarter of 2012 was $200,000. Cash and cash equivalents as of September 30, 2012, were $60.5 million, up $3.6 million from June 30, 2012, but down $3.8 million from year end. The decrease from year end is primarily attributable to the payments of severance and close-out costs associated with fourth quarter 2011 sale of our Pharmakon business unit, rightsizing of Group DCA and the 2012 scheduled payment to the sellers of Group DCA. As of September 30, 2012, the company's cash and equivalents were predominantly invested in U.S. Treasury money market funds, and the company had no commercial debt. That completes our comments on financial results, and I'd now like to turn the call back over to Nancy.

Thank you, Jeff. Let me conclude our formal remarks by saying that while our 2012 year-over-year revenue results are lower than 2011, we continue to be optimistic about the future given our continued large pipeline of new opportunities, our win rate and market share growth and our prospects for Interpace BioPharma. With that, we'll now open the call to your questions. Operator?

[Operator Instructions] Your first question comes from Scott Henry with Roth Capital.

I guess, just starting with a couple of quarter questions. What was the DCA number? And as well, approximately, did you book any Engage revenues in the quarter?

Well, the segment revenue, we did disclose, but Group DCA was roughly between $2 million and $2.5 million of revenue for the quarter.

Okay. And were there any Engage revenues this quarter?

Approximately $200,000, Scott.

Okay. Okay. So if there were $200,000 in Engage, wouldn't -- I just want to make sure I'm taking these from the right boxes. Wouldn't DCA have had to been less than $2 million? I mean, is Engage within base Marketing Services?

No. It's in Sales Services.

Okay. Sorry. I just want to make sure I pulled that out of the right place. That's helpful. Okay. And then move -- and any comments on 2013? I mean, I think that's -- we hear about all these announcements. And it's always -- the challenge trying to figure out the magnitude of them and on the timing of them. Any thoughts how we should think about 2013? I know we have, it looks like, $48 million from 1 contract alone coming in 2013. I just wanted to give you an opportunity to talk about that.

All right. Let me give some broad themes and some specifics, and I'll let Jeff add if he wants to add any additional commentary. First, let me say this, that 2012, the business, and that's all segments, was definitely impacted by the magnitude of the patent expirations and the still relatively slow FDA pipeline approval of new drugs. So as you may recall, Scott, we presented this at multiple meetings. If you look at 2012, 2012 was an enormous amount of revenues that came off patent. So what was happened with across the entire biopharmaceutical industry, you had a tremendous slowdown in awarding of any type of new business to suppliers. So that's across the entire board. And I think you'd certainly that's reflected in most publicly company-traded information that's released, whether it's the CSO segment or any type of Marketing Services segment. Now as we look into 2013, we are already situated to have more revenue locked up at this time than we did last year at this time. So we expect right now that we will have higher revenues in 2013 than we did in 2012, of course, barring the typically unforeseen instances where a contract exits early without us currently having any insight into that. And as you know, that always remains a risk factor in our business. But right now, looking at the combination of the pipeline, which remains very strong, roughly around $350 million, with the currently awarded business, we remain quite optimistic about what 2013 is shaping up to look like.

Okay. So it sounds like if everything worked just from today and you brought a no new business, you would already have higher -- assuming no one left, unexpectedly left, you would have higher revenues in 2013 than 2012. Am I stating that correctly?

Yes, you roughly are. You are correct about that. We obviously anticipate, given our current pipeline and where we are in discussions with people, that we will bring in additional new business. Of course, it's only 4Q of 2012.

Yes. And I guess another question, because I think that's the challenge we're looking at is trying to figure out if we're nearing the bottom of the situation or -- and it's about to turn around or it already has turned around or if it's simply getting worse. I guess, you made the statement that 2012, you did about $250 million in bookings already. Could you compare $250 million in 2012 versus what you did in 2011 and 2010? I think it'd be good to know how should we put that $250 million in context given that you always have an ongoing churn as well?

Yes, we can do that. Jeff is just pulling up some numbers right now.

Yes. So Scott, I think certainly $250 million is much higher than what we have done historically. If you take out the most recently announced contract, that certainly is a multiyear one, that level is probably in line with 2011. But if you understand that.

Okay. All right. So thus -- I mean, in your opinion -- I mean, I'll just ask flat-out, do you feel like the business is getting better, at least from the top line standpoint? Do you feel like you've bottomed out? Should we start to see -- I mean, it looks like Q4 should be better than Q3. I guess that's a start. I mean, how do you feel about where the business is today on the top line?

Very positive, and I'll reiterate that as you look at the overall industry dynamics, 2012 was by far and away double the amount of revenues going off patent in the biopharma industry than what we're going to see in 2013 and certainly what we saw in 2011 and then going forward. So we do believe that we've hit the bottom in terms of pressure from the standpoint of business being awarded across the entire supplier space to the biopharmaceutical industry. And if you look at our pipeline, what we've booked so far, it looks very positive. I just want to put one caveat out, which is we said we do expect lower margins in 2013 than in 2012.

Okay. And yes, we'll get to that as well. I always ask you, what is your risk-adjusted pipeline as of today? And where do you think your RFP success rate is?

The risk-adjusted pipeline right now is roughly $350 million, as I mentioned. It's actually slightly up from last quarter's call, and that includes after the award that we just mentioned. So we continue to have a rich inflow of RFPs into the pipeline, which is not atypical, 4Q is usually when you see a fairly large amount of RFPs coming in. And I'm sorry, what was your last...

What would you estimate your RFP success rate currently is?

Yes, we're currently winning 30%, as I recall, was the last assessment that we did.

Okay. All right. Then shifting to margins, how do you think when you think about a cycle of margins getting depressed, eventually capacity leaving the business and margins rebounding, where you are -- where do you think you are in a sort of margin cycle? It seems like it's still getting worse in 2013. Do you think that will be the bottom? Or where does that phase out [ph]?

Yes, I think for what you're asking, I think you should anticipate that 2013 will still have lower-than-historical margins. We're hoping, expecting that they will be better than what the wins were in 2012, but they'll still be lower than history. And I don't think we're in a position to talking about past that at this point.

I'll just add a comment, Scott. As always, we continue to keep very tight cost controls and have continued to strip out a fair amount of cost out of the SG&A base as we manage the margin pressure. So we'll continue to do that as we look into 2013. However, obviously not enough to mitigate entirely the margin pressure.

Okay. I guess the final question. I think it was last quarter when the expectations were kind of set for sort of hyper growth in the second half of 2012. I'm curious what happened there? I mean, that was not that long ago and all of a sudden, all that growth seem to push into 2013. Was it just simply a slipping of the calendar? Was it a project perhaps falling through or customer walking away? What happened to change that outlook?

Scott, I think what you may be referring to is that we -- on the second quarter call, we said that we expected the second half to be higher, which we still do. We had a very vibrant pipeline at that point, and we were hoping some of these things would get awarded earlier. So including potentially the one that we just announced, and that would have more of an impact even than it will in the second half. So I think we would say it's timing, no -- nothing more complicated than that as we were sitting in the second quarter, finishing that off. Again, second quarter -- second half revenue we thought would be higher and it still will be. So that's not inconsistent. Had we been maybe a little luckier in winning some things earlier, more -- we could have gotten more of the total wins into this year than it now looks like we will.

Your next question comes from John Kreger with William Blair.

Two questions. First, Nancy, if could just talk a bit more about, as you talk to your clients, obviously, it makes sense that this would be the bottom given the big generic erosions that they're seeing. But as they think about '13, in your view, are they going to be spending more or is this just more outsourcing? Which of those 2 variables do you think are driving in your favor? And then the second question, if you could just expand a bit more about the gross margin pressures that you see in '13? Can you give us a sense of magnitude there? Are we talking about a minor step-down versus '11 and '12 or something more significant?

Right. So first, let me address the first question. I'll let Jeff actually discuss the second question. Actually, John, it's both. Your question was, do we see that outsourcing is growing or is it an issue of they're spending more? And what we're seeing is actually both. Why is that? Because now that they've gotten through 2012, they're actually -- FDA continues to approve drugs, as you know, and they don't have the massive patent expirations. So we do foresee serving [ph] for the CSO business that they'll continue to spend more than they did in 2012 for reps in general. The other issue, though, is we continue to see that particularly for the major pharmas and over 50% for the emerging pharmas that they are not hiring reps internally. Having gone through the massive downsizing, it is very problematic for them to consider hiring directly themselves, not to mention the fact they do need increased flexibility because it's increasingly a more complex landscape with managed care contracts, with whether or not drugs will get approved, REMS programs, you name it. It becomes very difficult for them to plan longer term, and thus you [ph] need the flexibility to flex up and down. And the other dynamic that we're seeing is we are seeing much more request for different types of representatives than your traditional full-time, highly trained, highly experienced primary care specialty rep. That still remains the core, but we are seeing a substantial growth in request for part-time reps; in some cases, not as experienced reps. And those kinds of people are typically used for products that are either not going to be big blockbusters or for products that are near the end of their patent life, and they just need reminders and literature brought into the doctor's office. A rep still remains incredibly productive on an ROI basis, but they do need different types of reps. They can't do that internally themselves. They're not -- they don't have the training departments for that. They don't have the systems to manage that. That's where we're seeing that they are turning more to outsource firms and CSOs to help them manage that part of a growing way they go to market with their products. So as I said, in general, we're seeing increased growth on all fronts related to the utilization of CSOs. We continue to see that growing. I'll now let Jeff discuss the margin issue.

Yes, John, obviously we can't give you exact numbers in that kind of thing. But let me say it this way and hopefully, this will at least give you enough to do what you need to do. So we said that in 2000 -- certainly, we've been very open about the new business coming in at lower margins, no doubt about that. If you look at the full year for the company, and this is consolidated, we've said that the gross margin will be roughly the same as it was in 2011, and we're still holding with that. But as you analyze 2011, I think what you're going to find is that the Sales Services gross margin will be lower in 2012 than it was in 2011. So that's just math, I guess, if you want to say it that way. And looking forward to 2013, I would say that the carryover business, that the margin in Sales Services will continue to decline probably at least as much -- probably more than it declined from '11 to '12 as a directional comment. And then how that ultimately shakes out will depend on the margins on business that we have not yet won. So the margins on new business in 2013 will also have an influence on, ultimately, the 2013 margin. I don't know if that is clear, if it's at all helpful, but you might be able to play around with some numbers there and at least directionally, get what we're talking about.

Okay. So the key message here is over the next couple of years, the margin leverage potential in your business is going to come more from SG&A as opposed to a rebound in gross margin? Is that the message?

I think certainly as it relates to Sales Services, and we are expecting a pretty strong sales growth in Sales Services, as Nancy said, going into next year. So that also will have a bigger influence on the total company margin.

[Operator Instructions] Your next question comes from Nick Halen with Sidoti & Company.

So the first question I had was on the $150 million contract you guys recently awarded, you mentioned $48 million in 2013. I guess, can we expect that to be spread pretty evenly throughout the year in terms of the revenue recognition for that? And also, is there any chance that these non-FDA approvals and agreements that you guys are waiting for don't get completed in the first quarter '13?

Well, the accounting question is yes, you can expect that pretty much to be spread evenly. So that's for sure.

Yes. And as to the non-FDA approvals, obviously, that's not under our control, and there's always an outlier chance that something could happen. But it does not appear that will be the case.

Okay. So there's nothing in your mind that leads you to believe that, that shouldn't happen as planned, I guess?

That's correct.

That's correct.

And now on the Product Commercialization side, have you guys been in talks with anyone? I know you can't say anything too specifically, but are you seeing any bump-up in demand on -- in terms of those services? And I guess, how confident are you that you can secure another contract before the existing one ends in 2014?

Yes, we actually are see -- yes, the answer to your question, first of all, is yes. We are seeing a bump up in interest. What we're actually starting to see is more of an interest in what we call the structured financing deals, where we are working with a financial partner to provide financing terms that would help companies that need that kind of assistance, while we take on minimal risk ourselves, but yet you lock in a much longer term contract. So there is a lot of interest in these types of deals. I think particularly as these smaller emerging companies are finding it increasingly problematic to either find a partner with big pharma for a variety of reasons or on their side, there's not as much interest in partnering with big pharma, again, for a variety of reasons. And we remain a very interesting and viable option for them, because going it alone remains highly, highly risky for them. Their only other option is to, in some cases, either try to sell the company or partner with big pharma. When they hear about our options where we've got a well established and proven infrastructure that can do everything a big pharma company can do without some of the burdens of the regulatory and some of the bureaucracy that goes on in big pharma, they are highly intrigued. So in short, the answer is yes, we're seeing increasing interest. I do expect in 2013 that we will be able to sign an additional deal.

Okay. Great. And just lastly from me, just in terms of the delays that you've been seeing. I know it's on a case-by-case basis. But I guess on average, how long have the delays been? I mean, are we talking weeks, months? I mean, how does that compare to any delays you may have been seeing in the first half of the year?

I'm sorry, delay -- Nick, I missed your first point. Delays...

In terms -- I was just trying to get a sense of how long customers of yours are delaying signing these contracts on average? I mean, is it the process taking a weeks or months longer than you guys are anticipating? And I guess, how is that trending? I mean, are delays getting longer and longer as the year goes on?

Well, first of all, let me reference, the delays in signing often impact our Group DCA business more than they impact us, and that's due to medical, legal, regulatory review. We do not see that going away. We don't see it getting worse, but we don't see it going away. Pharma has to be extremely cautious these days about what is approved to go out to the field, and that's going to be an ongoing lengthy process. So we do see the cycle times continuing to be long for Group DCA and other Marketing Services. As to the CSO business, I'm not sure we've ever referenced delays so much as in we've seen the timing of some of our contracts has been awarded slightly later and that, again, has been due more than anything to, I think, external, waiting for FDA approvals in some cases, that -- where the PDUFA dates have been pushed back.

At this time, there are no further questions. This concludes today's conference call. You may now disconnect.

Thank you, everyone.

Thank you.