Good day, ladies and gentlemen. Welcome to the PDI 2012 Fourth 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 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, 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, certain non-GAAP financial measures, specifically adjusted EBITDA, which management uses to measure cash flow of the ongoing operating business and adjusted operating income, which management uses to measure the profitability of the ongoing business, will also be referenced in the call. The content of this conference call contains time-sensitive information that is accurate only as of today's date, March 7, 2013. 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'd now like to turn the call over to Nancy Lurker.

Thank you, Melody, and thank you for everyone participating on the call this morning. I'd like to begin by reviewing our results for 2012. After Jeff discusses the financial results in more detail, I will continue with a review of several key initiatives, including a discussion of how we are implementing our strategy, which we do believe will be critical for driving growth in 2013 and beyond. We exit 2012 with strong revenue momentum and are pleased to note that during the year, we won more than $250 million in new multiyear contracts and renewals. However, as we discussed during the third quarter conference call, revenue of approximately $127 million for the full year of 2012 was lower than that of 2011. This was primarily due to the timing and implementation of new contracts, which resulted in approximately $40 million of contract revenue being realized in 2012. Looking forward to 2013, we expect revenues to be significantly higher, as we continue to gain new business and generate revenue from the 2012 wins. The gross margin percentage for the full year of 2012 was essentially flat compared to 2011, and as previously stated, is expected to trend lower in 2013 due to intensified competitive pressure, as new 2012 wins with lower margins are executed. This will most likely result in lower than historical margins on new business in 2013 as well. In the fourth quarter, we recorded asset impairment and facilities realignment charges totaling $23.5 million, primarily related to Group DCA goodwill and intangibles. Jeff will provide more detail on this in his review of the financials. However, I want to note that we will continue to invest in Group DCA, as its digital platform, physician panel and its new product opportunity are valuable assets to leverage in the digital space. From an operating standpoint, we maintained tight cost controls and reduced ongoing SG&A by about $6.4 million to $27.9 million compared to 2011. While our reported operating loss for the year was $25.2 million compared to $4.7 million in 2011, the adjusted operating loss, which excludes the impairment and facilities realignment charges, was $1 million for the full year of 2012 and a profit of $300,000 in the fourth quarter of 2012. Adjusted EBITDA, which Jeff will explain in more detail, was a positive $2.8 million for 2012 compared to a negative $100,000 in 2011. Though there are no audited deep data for the CSO industry, based on our market tracking, it appears the industry in total declined slightly in 2012 due to several large teams coming down from other CSOs and not being replaced. That said, we continue to see outsourcing for new reps and product launches and believe outsourcing will continue to grow as return on invested capital metrics become more critical to pharma. A major portion of PDI's value proposition is improving ROI on sales expenses. We entered 2013 with a CSO pipeline somewhat lower than second half 2012 levels due in large part to the significant wins we achieved late in 2012, but we are highly confident we will win additional business from this pipeline. I'll now turn the call over to Jeff for a more detailed review of the financials, after which I'll come back to discuss a number of important operational and strategic initiatives we expect to execute this year. Jeff?

Thank you, Nancy. Before we get into the results, I'd like to establish the 2 non-GAAP measures that we referenced in the press release and on this call. The first is adjusted EBITDA, which for us is a measure of operating cash flow from the ongoing business. Very simply, it's the amount of cash being generated by the business before considering changes in working capital and capital spending. The 2012 calculation is the operating loss adjusted for noncash charges, depreciation and amortization, stock compensation, asset impairment and the facilities realignment charges. The second measure is adjusted operating income, which is our measure of the profitability of the ongoing business. Here, the 2012 calculation is the operating loss adjusted only for the asset impairment and facilities realignment charges. With that established, let's move to results. For the fourth quarter of 2012, revenue of $35.6 million was $2.7 million lower than 2011. Overall, revenue from Sales Services increased, but was more than offset by decreases in both Marketing Services and Product Commercialization. In Sales Services, revenue for the fourth quarter of $30.7 million was about $1 million higher than 2011. For this period, revenue from new contract wins more than offset the anticipated expiration of certain other contracts. For the full year, while we did achieve over $250 million of new multiyear contracts, as Nancy has mentioned, only about $40 million of the $250 million was recognized in 2012, which resulted in expirations exceeding new business wins. Marketing Service revenue for the fourth quarter of 2012 of $2.1 million was about $1 million lower than 2011. This decrease was primarily attributable to lower Group DCA contract signings. These lower signings are in large part due to a contraction in the amount being spent by pharma in 2012. Product Commercialization revenue for the fourth quarter of 2012 was $2.9 million, $2.7 million lower than 2011 due to the internalization of selected commercialization activities by our customer as of October 1, 2012. If you recall, we previously disclosed that due to the success of Interpace's full commercialization program, our customer was able to begin their stated long-term plan of building a U.S. presence early. We allowed them to internalize certain commercialization activities, and in exchange, they extended the other services through June of 2014. For the fourth quarter of 2012, gross profit of $7 million was $1.7 million lower than 2011. And at the same time, the gross profit percentage decreased to about 20% in 2012 from 23% last year. Sales Services gross profit for the quarter of 2012 of $5.9 million was $0.5 million lower than 2011. While revenue was higher in '12, lower margins were realized on new business as we stated. Marketing Services gross profit for the fourth quarter of 2012 was $600,000 lower than 2011 as a result of lower revenue and lower margins within this segment. In Product Commercialization, gross profit for the fourth quarter of about $1 million was $600,000 lower than 2011 due to lower revenue, resulting from the internalization of commercialization activities by our customer. For the fourth quarter of 2012, total operating expenses were about $31 million compared to about $11 million in 2011. Included in fourth quarter 2012 expenses are $23.5 million of asset impairment charges and $700,000 of facility realignment charges. Included in 2011 expenses is almost $3 million of Group DCA contingent consideration buyout charges. Excluding these items, total operating expenses for the fourth quarter of 2012 was $6.7 million, $1.5 million lower than 2011. And for the full year on a same basis, operating expenses were $27.9 million, $6.4 million lower than 2011. The decrease for the quarter and the year is a result of the company's continuing focus on cost reduction and rightsizing of the businesses. During the fourth quarter of 2012, the company recorded asset impairment charges of $23.5 million. Almost $23 million was associated with the write-down of goodwill and other intangibles in the Group DCA business unit. The company is required to evaluate the carrying value of goodwill and intangibles at least annually, and we do this evaluation in the fourth quarter of each year. While the company believes that long-term growth is possible for Group DCA and we intend to continue to invest to achieve long-term growth, as part of the annual testing, the impact of the 2012 decline in revenue, the decrease in new business generated in 2012 and changes in the pharmaceutical industry spending were factors that led to the impairment charge. In addition, the company also recorded a $700,000 charge in the fourth quarter from the write-down of assets related to the fourth quarter 2011 sale of the company's discontinued Pharmakon business unit. In the fourth quarter of 2012, we also incurred a charge of approximately $700,000 related to a downsizing of office space related to Group DCA. In the fourth quarter, the operating loss was almost $24 million compared to an operating loss of about $2 million -- $2.5 million in 2011. Excluding the asset impairment and facilities charges in 2011 and the contingent consideration buyout in 2011, adjusted operating income for the fourth quarter of 2012 was a positive $300,000 compared to $500,000 last year and the adjusted operating loss for the full year of 2012 was $1 million compared to a loss of $1.8 million in 2011. Adjusted EBITDA for the fourth quarter of 2012 was a positive $1.1 million compared to a negative $1.6 million last year, and adjusted EBITDA for the full year of 2012 was positive $2.8 million compared to a negative $100,000 for last year. Cash and equivalents at year-end of 2012 were $52.8 million compared to $64.5 million at year end 2011. The decrease in cash from last year end is primarily attributable to the payments of severance and close-out costs associated with the fourth quarter 2011 sale of our Pharmakon business unit and rightsizing of the Group DCA business unit, scheduled payments for the sellers of Group DCA in 2012 and $3 million due to the timing of collections of certain trade receivables at year end 2012. As of the end of 2012, the company's cash was predominantly invested in U.S. Treasury and money market funds, and the company continues to have no commercial debt. That concludes our comments on results. And I'll now turn the call back over to Nancy.

Thank you, Jeff. Turning to 2013, while PDI does not give formal guidance, we want to review with you a number of important strategic initiatives we will be executing in 2013 that we believe will position PDI for more recurring revenue at higher margins. Let me start by saying that relative to revenue and primarily as a result of the significant contracts we won in 2012, we entered 2013 in a very strong position. Company-wide, revenue from signed contracts carried into 2013 is slightly more than the $127 million of total revenue recorded for all of 2012, excluding any new business we will win during the current year. Assuming a reasonable level of new business wins and no early termination of contracts, we expect total revenue to be at least 25% higher in 2013 compared to 2012. However, due to competitive pressures, margin percentages will be lower than they have been historically, and at expected 2013 revenue levels, total gross profit dollars could be up to 10% lower than 2012 levels. We anticipate that operating expenses needed to support 2013 revenue will be marginally higher than the $27.9 million we recorded in 2012, excluding impairment and facilities charges. While 2013 will be a year of revenue growth for PDI, it will also be a year of investment, coupled with a proactive effort to leverage our core strengths in order to intensify our competitive position in the market. The activities I will now discuss will increase expenses above the operating level just mentioned. First, we will continue to aggressively pursue the in-licensing acquisition or partnering of products that we have previously discussed to take advantage of and leverage PDI's core strength to add more stable and higher margin business. Second, we intend to invest in a number of areas that will continue to differentiate and further strengthen and support our core offerings. And finally, we will continue to invest and intend to launch a new Group DCA product offering that will connect health care providers, reps and other channels in a new and unique way. I'd now like to expand on each of these initiatives. Most importantly for the future of PDI and in order to add more predictable and higher growth, higher margin business that can buffer the natural volatility of our current core business, we will intensify our previously announced strategy of in-licensing, acquiring or partnering of products through Interpace BioPharma. We believe this is a natural extension for PDI given our proven core sales and marketing and full commercialization capabilities. We believe that the strength of our core capabilities, our installed infrastructure and the ability to gain synergies significantly de-risks this product strategy for PDI. We are prepared to use a portion of our cash supplemented by debt financing, as required initially, to further this strategy. We intend to do multiple deals over the next few years, but expect that we can complete at least 1 during 2013. We are currently in the final stages of narrowing the areas of focus that we believe will best leverage our core capabilities, and we will discuss them in greater detail with you on future calls. We will be refocusing resources internally and adding both internal and external resources to move this strategy forward. In terms of further differentiating our core offerings, as most of you know, PDI has developed strong capabilities in delivering integrated multichannel offerings to health care providers. The breadth of these offerings and the ability to integrate them in ROI-centric way has been a contributing factor in many of our recent CSO wins. In 2013, we intend to invest heavily in systems and equipment to advance these core offerings. Finally, we also plan to launch a new Group DCA product offering that will provide a unique platform for delivering rep-driven multichannel communications to health care providers. This offering will initially lean heavily on the Group DCA database of over 300,000 physicians. The platform can be utilized by PDI, but has a much broader pharmaceutical industry application. We made substantial progress in developing this offering in 2012, and it will be ready for launch in the latter part of 2013. In total, we are prepared to commit $4 million to $5 million to support these 3 areas in 2013, not including any amounts we invest in actual products. While we will capitalize some of these expenses initially, we expect that at least half of what we spend will be expensed in 2013. Let me conclude our formal remarks by saying that while our 2012 year-over-year revenue results were lower than 2011, we continue to be optimistic about the future. We enter 2013 with a strong backlog of business under contract. Our intent is to continue to focus on and grow our core CSO business, as well as our integrated multichannel offerings, including Group DCA, and further grow Interpace BioPharma. At the same time, we will ramp up product in-licensing acquisition and partnering activities in order to leverage our infrastructure to create competitive advantages to further increase our footprint, drive sustainable revenue growth and improve margins. With that, I'll now open the call to your questions. Operator?

[Operator Instructions] Your first question comes from the line of John Kreger with William Blair.

It's actually Robby Fatta, in for John today. So you guys talked about a little bit of a lower pipeline and some challenged spending trends in Marketing Services, which have hurt DCA quite a bit, and yet you do seem pretty confident in your ability to generate significant revenue growth next year. I mean, how much confidence do you really have in that forecast? 25% growth seems pretty substantial.

Very high, Robby. Remember, we had $250 million in contract wins that we won in 2012, of which only $40 million was recognized in 2012. So we have a fair number of those wins under contract that we expect will be realized in 2013. I'll let Jeff add to this.

Yes, Robby, I think the simplest way to say it is 25% would be about $158 million or $159 million so that's simple math, and what we are -- we are going into 2013 with over $127 million of business under contract being executed. So again, if there's no early terminations, we need the difference between, let's say, slightly above $127 million and $158 million, and that's a very reasonable expectation for new business across the company. Just use the $40 million last year as just CSO business that fell into 2012, and that would get you higher than that 25%. So I will reiterate, we are pretty confident x any early cancellations that, that number's achievable, which we do not expect.

Got it. That's helpful. You had -- you kind of talked about pharma still being unwilling to really loosen the purse strings, especially in the Marketing Services. Can you talk about where your clients' heads are at in terms of their marketing and sales budgets for next year?

Let me just say, we don't -- we are not given specific information about where their budgets are. I can tell you that, as you know, the bulk of the large brands went generic in 2012. Now there will continue to be more products go generic, but the big wave occurred in 2012, particularly for the clients that we are -- get most of our business from. And so what we are seeing, as new products have been approved and continue to be approved, that the opportunity set is growing. The other comment I would just make is -- yes, and our year-end pipeline right now is approximately $250 million so -- and we do expect that in the near term, we will be able to announce new wins. So you couple all that together and as I said, we remain fairly optimistic. Now the marketing spend, let's go to Marketing Services, we continue to believe pharma is going to have to figure out how to be more innovative and more aggressive in the digital space. The way that the industry is currently configured, very siloed, still very much one of using digital as a one-off, sales reps as a one-off, e-mail and other avenues to reach physicians, very siloed. That is starting to change, and it has to change. One of the key drivers that I believe is going to drive this is electronic health records, which as you know, is being implemented more particularly with the Patient Accountability Act being implemented and requiring submission of electronic claims by physicians. That's all starting to fuel a greater focus on digital. You look at other industries and they are all much further down the road on utilizing digital to reach customers. So we continue to believe digital is going to be a strong and viable future. It's going to be important that we have digital as part of our offering, and we continue to believe that integrating it in with sales reps and other channels is the way forward.

Got it. That's helpful. And just one last on margins, just want to make sure that I heard you right, saying that gross profit dollars will actually be 10% lower in 2013 versus 2012. I just want to make sure I heard that right. And then as we layer on operating expenses, that could be -- sounded like as much as $2.5 million higher next year. I mean, if we just do the simple math on that, there seem to be a pretty significant reduction from 2012 at the adjusted EBITDA level. Are we thinking about that right?

That's correct. So just to make sure everybody's clear, so we are saying that even at the higher revenue level, we expect gross profit dollars to be lower up to 10% and so 10%, but could to be up to. The operating expenses, before we add on things related to these 3 initiatives in 2012, the operating expenses, excluding the charges, were $27.9 million, I think. So we're saying those will -- those normal expenses will increase marginally so there's a little increase there. And then, over and above that, there's something that's going to come and you just did a calculation of $2.5 million. That's good enough today from these 3 initiatives so that's correct.

Your next question comes from the line of Bill Nasgovitz with Heartland Funds.

I'd say congratulations on $250 million wins, but profit down, you're forecasting on this business so it seems to be a very competitive landscape. Could you just talk a little bit about our competition and what's happening in the marketplace?

Yes, I'm happy to elaborate on that. So let me say that, primarily, we believe because, as I mentioned, our competitors lost a fair number of large contracts that came down, they didn't lose them, they were scheduled to come down contracts. Obviously, they had capacity, and that capacity was not being filled with the given amount of RFPs in the system. And the result was that there is pricing pressure. We have continued to do well in the marketplace. Our market share, particularly as we go into 2013, is going to grow substantially versus our competitors. So from a competitive standpoint, we are probably in the strongest position we've ever been in, and we are consistently getting high marks from our clients. As an example, we won 2 of the largest awarded contracts, which were part of the $250 million win. Those were 2 of the largest awarded contracts in the industry last year. So we're very confident in our competitive position, but we do not foresee margins to increase for the -- certainly for 2013 partly because of the pressure that we believe our competitors are under.

And who would be our most formidable competition, 1 and 2?

Well, I'd rather not -- I'm not going to go into that, Bill. I don't -- I'm not comfortable discussing that in public. I think you well know there's basically 4 CSOs, including us, in the marketplace and there's some smaller companies that pick up very, very small contracts. But we continue to not see any changes in terms of the 4 players, including us, in the marketplace. But I want to reiterate, because of the margin pressure, that is why we believe that the product acquisition or partnering strategy is critical for our future because though CSO is going to continue to be a large part of our business and we will continue to invest in it because of the margin pressure, it's not something that's going to grow margins at the rate we believe we need to grow and the way we believe you're going to want us to grow. So therefore, going out and taking products that we can invest in and own rights to and have more predictability potentially, and it should be at higher margins if we execute it appropriately, is a smart strategy for us to undertake, coupled with the fact that if you look at a fair number of the executives here who got robust marketing experience and product commercialization experience in the pharmaceutical, biopharmaceutical, diagnostic industry space.

Okay. You said our pipeline is $250 million of new business?

We won...

As we closed at year end...

As we closed year end, our pipeline was $250 million.

And what was our win rate last year?

We won -- I got -- just to make sure I got my metrics, just give me one second here, make sure I got my metrics right. We won 50% of the revenue dollars thereabouts and 30% of the RFPs.

Okay, well, that's terrific. And then this new platform, 300,000 physicians and we're going to spend it sounds like maybe $3 million or $4 million on this?

No, no. I think you're -- let me clarify. Finish your question first, I apologize.

Well, could you just talk a little about what we're trying to do and why this might be a differentiator and what is the upside here and how long might it take to get a return on our investment?

Okay. So first, let me clarify. Group DCA has always had a robust physician panel. When we originally purchased them, it was around 150,000. We've now grown that to 300,000 physicians. That is -- exists today. So there's no further investment needed to grow that physician panel. They've done an excellent job growing it and keeping physicians engaged and interacting with the offerings that Group DCA has. What we intend to do is to leverage that panel and spend not the amount you said, but a smaller amount, launching a new product offering, which takes advantage of that panel and brings to bear some of the other technology offerings that Group DCA has. I will tell you this product is more of a software-type product than a project-based product. Again, trying to get into areas where we believe it will drive more sustainable recurring revenues at higher margins. We intend to launch it, as I said, in the latter half of 2013. We would not expect to see revenues until 2014. If it's done correctly, it should begin to be positive to breakeven in 2014.

Okay. Then in 2012, we did not do any in-licensing or acquisition, is that correct?

That's correct.

Okay. And you hope to do one in 2013? Could you give us an idea, the range of what you're looking at in terms of dollars committed, a broad range, a small range? What is it, a middle range?

Let me say this, Bill, it's -- we have not narrowed it down specifically. We have continued because, as we mentioned over the last 1 year to 1.5 years, we have been evaluating a number of opportunities. We've got a pretty good feel at this point for the areas we most likely will go into, although that's not been yet 100% nailed down. And as I mentioned, we will talk further about that once we solidify that strategy. We have a fairly large opportunity set we're evaluating now, and I would say they range anywhere on the low end from $5 million and it could go up to $25 million. It's probably what we're looking at, though nothing is definitive at this point in time. So I want to put that caveat in there.

Okay. And when -- what kind of a payback and time commitment is involved in this in-licensing or acquisition? Is it multiple years, I would assume?

Let me --- Go ahead, sorry.

I would assume it's multiple years before we earn some money on, let's just call it, a $10 million investment?

I'm going to let Jeff comment on that, but let me add a few points to make, which is, number one, we are not going to take regulatory risk. So what we mean by that is we're not going to invest in a Phase III products, late Phase III products or anything earlier than that. And even if a product may be pending at the FDA, no money will be forthcoming until that product is approved. However, we have evaluated some products that could be launched. There are others we're looking at which are -- well, if you want to say 505(b)(2) applications, which are more innovative smaller products where we could go into a launch mode, but they're more minor. There's going to be smaller products with much less investment required to launch. I also want to add that should we do that, we fully expect to leverage, as we've been talking about our multichannel platform, where we're not just doing sales reps, which by the way are expensive, but we would do a combination probably of sales reps coupled with nonpersonal promotion to really drive a higher return on invested capital. This is something we do believe we do very well and most of the industry is going to have to start getting much more aggressive about how they go to market with their products. The other comment I want to make though is there are other in-market products that have been on the market for 2, 3, 4 years that perhaps don't have any more promotion behind them the last couple of years. Perhaps, companies have decided not to invest in them for strategic reasons and are interested in out-licensing those products. So we're looking at those. I will also say we are looking at the diagnostic space, which remains very interesting. As you look at what's going on with molecular diagnostics, there's a number of areas where you have a lot of new tests coming to market that primary care physicians and other specialties would use either alone or in conjunction with pharmaceutical agents. So now I'll let Jeff talk more about return.

Yes, Bill, I think without spending hours talking about this, grossly oversimplifying this, what Nancy just alluded to is we're kind of looking at 2 general areas, and the 2 have different levels of risk. So if you talk about existing products that are on the market, that are under-promoted, that have a history, that have EBITDA attached to them, when we look at those, we are evaluating how much more can we -- how can we get that to grow, and those are actually pretty straightforward calculations. You've got to pay something. You've got to amortize the purchase price, and if you can get it to grow at the levels we think we can get it to grow at, that could actually be profitable very quickly. Maybe not on Day 1, but certainly after the first year. The other general categories that Nancy mentioned is if there's a product that is approved, but not yet launched, there there's is more risk, but there's honestly much more upside potentially in some of the ones that we're looking at or for much higher, longer-term profitability. And at this point, we're not prepared to talk about specific numbers because it would just be an academic exercise we'd be talking about.

Yes, I do want to reemphasize one point though, which is that we are going to be very careful. We are not going to go out and place a bet on a product that is, let's say, on the higher risk side where you'd be launching it, unless it is a very modest product. I'm not a believer in going out and spending $25 million, $30 million launching a drug and hoping it takes off. I think most of you know, all you have to do is look across the landscape today. And because of our CSO business, we see what's going on, and it is very difficult to successfully launch products in today's environment. Part of the reason is the paradigm has changed. Access to physicians is more difficult. Access from payers paying for these products is more difficult. Therefore, it's very important that you accurately anticipate what that uptake curve is going to be, how much you can invest in it to drive it and err on the side of being more modest even if that means you cut short your upside, you certainly minimize your downside. And I want to reiterate, we have watched very closely over the last year what has happened in the realm of product launches across the industry and taken some of those lessons to heart about what's worked and what's not worked.

Did I hear you correct? Our cash is down to $52 million, down $11 million for the year and...

That's correct.

Your -- did you state that not only would we use cash, but we'd borrow money to make these investments?

Yes, we did.

And what type of debt would you anticipate?

We probably don't want to get into too much specifics on that. It partially depends on what type of product we are acquiring. So we would intend to lean on the EBITDA of a product that we would be acquiring. And in that case, we think we would be in very good shape to get favorable financing for that. We've already checked that out. We've got it -- not that we have a commitment by any stretch of the imagination, but we do -- we have done enough work with some advisors to know what our financing possibilities are, and we're pretty comfortable that money would be available to us in the amounts we're talking about if we need it. So we might just use our cash initially, but to be determined.

[Operator Instructions] And we have no further questions in the queue at this time. This concludes today's conference call. You may now disconnect.

Thank you for your time.