Good morning. My name is Kenya, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2014 PDI Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Dewhurst, you may begin your conference.

Good morning, everyone. This is Asher Dewhurst from Westwicke Partners. Thank you for participating in today's call. On the call today from PDI are Nancy Lurker, Chief Executive Officer; Jeff Smith, Chief Financial Officer; and Greg Richard, recently appointed General Manager for Interpace Diagnostic. Yesterday, after the market closed, PDI released financial and operational results for the first quarter ended March 31, 2014. If you have not received the news release and would like to be added to the company's distribution list, please call my office at (443) 213-0503. Before we begin, I would like to caution that statements 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 Form 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. In addition, certain non-GAAP financial measures, specifically, adjusted EBITDA, which management uses to measure cash flow of ongoing business will be referenced on this call. The contents of this conference call contain time-sensitive information and is accurate only as of today's date, May 8, 2014. 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.

Good morning, everyone. Thank you, Asher, and welcome to everyone on the call. The first quarter results were in line with our expectations, and we continue to focus on execution of our 3 strategic initiatives which are: adding higher profit, higher growth business to PDI by becoming a commercialization company for the molecular diagnostic industry; launching our innovative software platform, PD One; and remaining a leading company in the CSO industry. I'll start today by providing you with financial highlights from the first quarter, an update on full year expectations, and an update on the status of these 3 initiatives. As always, Jeff will go over the financials in greater detail later in the call. As we discussed on our last earnings call, we expected our revenue for the year to be lower in 2014. For this year's first quarter, revenue of $33 million declined quarter-over-quarter by 24% or $10 million. The decrease is primarily the result of the softer RFP volume we experienced in the latter half of 2013. Gross margins of 16% in the first quarter were down compared to 20% in the year ago period as the lower margin business that we signed in late 2012 is a larger portion of the revenue recognized in our 2014 P&L. As a result of lower margins and lower revenue, gross profit was down quarter-over-quarter. Adjusted EBITDA for the quarter of a negative $350,000 compares to a positive $2.9 million in the first quarter of 2013. The decline was primarily due to our operating loss, which was due to reduced margins on lower revenues and spending on our key initiatives. Regarding our outlook for 2014, we reiterate our comments from our recent fourth quarter earnings call. We expect revenue in our core business to be down slightly, with expected increases from Marketing Services and as a result of PD One and other associated services, offset by modestly lower Sales Services revenue. These revenue expectations assume we win normal levels of new business over the remainder of 2014 and there are no early terminations of existing contracts. Relative to these expectations, our CSO pipeline is showing positive signs, and our digital pipeline is also moving in the right direction as both our e-detailing solution and PD One continue to gain traction. Full year 2014 adjusted EBITDA for the core business is projected to be neutral or slightly positive. We continue to expect minimal revenue from our Interpace Diagnostic initiatives as we have not yet moved into Phase 2 on either of our molecular partnerships. From an expense standpoint, we continue to estimate expenses of at least $3 million as we build a modest infrastructure, complete Phase 1 of our current partnerships and evaluate potential new opportunities. Keep in mind that expenses will be higher if we move to Phase 2 in either of the current projects or if we contract for new opportunities. Before turning the call over to Jeff, I would like to offer an update on our 3 initiatives. Relative to Interpace Diagnostics, we are still in the evaluation pilot phase for both of our previously announced molecular diagnostic partnerships. For the oncology-focused test, we are making very good progress in the validation study and anticipate results in the second half of the year. As for our CardioPredict partnership, while the tests have begun to receive some reimbursement, we still need more certainty in this area before we can consider proceeding to the next phase. We are evaluating a number of additional diagnostic partnerships and are currently in meaningful dialogue with several interesting test providers. Our second initiative, successfully launching our PD One platform, was realized in the first week of January when we launched the service to the biopharmaceutical industry. Since the launch, PD One has rolled out to nearly 200 sales representatives, and the feedback has been very encouraging. As a reminder, PD One is our proprietary technology that paves to way to accessing our growing network of approximately 400,000 health care professionals. Our first in this series of products is a subscription-based service that connects sales reps and health care providers through our secure, digital network. Think of it as a LinkedIn for reps and health care providers. PD One has designed a system that stays within the boundaries of the FDA guidelines while leveraging the new ways in which we communicate as a society. We are well positioned to monetize the PD One platform to satisfy the many needs that exist in reaching and delivering value to health care providers. Our belief is that PD One will also increase our win rate on future CSO contracts. In fact, PD One has great potential to become an even higher value asset for PDI. What we have developed could be viewed as a pipeline or a highway to health care providers, which allows for a wide variety of communications and/or products to be sold to health care providers in the digital arena. This should expand our addressable market opportunity beyond just biopharmaceutical products to include a wide variety of products or services, such as medical devices, OTC products and physician services. Increasingly, we believe that these types of services will transition from a bricks-and-mortar distribution model to a digital model, and we feel we are very well positioned to take advantage of this trend. Lastly but always in the forefront of our mind is remaining competitive and a leader in the CSO market. It is at the core of what we do, and we provide some of the highest-quality, knowledgeable sales teams in the business. As I mentioned earlier, there's been an encouraging uptick in RFP activity in the first quarter. We are fully committed to maintaining our position as a leading company in the CSO industry. In conclusion, as we have stated previously, we believe we remain very well positioned in the CSO industry and are excited about the long-term potential from our emerging Interpace Diagnostic and PD One initiatives. I'll now turn the call over to Jeff for a more detailed review of the financials, and then I'll take a moment to welcome Greg Richard, our new General Manager of Interpace Diagnostics, before opening the call up to questions. Jeff?

Thank you, Nancy. As Nancy summarized and as we expected, first quarter revenue of almost $33 million was about $10 million lower or 24% than last year. Sales Services revenue, approximately $29 million, was about $9 million lower than last year. New contract wins from the softer RFP volume we experienced in the latter half of 2013 was not sufficient to offset the anticipated natural expiration or reduction of certain contracts in 2014. Marketing Services revenue of about $1 million was about $500,000 lower than last year. We do expect to see a turnaround in this segment by the second half of 2014 with the recent launch of PD One. And product commercialization revenue for the first quarter was $3 million, about the same as last year. First quarter 2014 gross profit was about $5 million, a decrease of over $3 million compared to last year. At the same time, the gross profit percentage decreased to 16% from 20%, also in line with what we anticipated. Sales Services gross profit for the first quarter of $4.7 million was about $2.5 million lower than last year due primarily to lower revenue. The gross profit percentage in Sales Services, as anticipated, decreased to 16% from 19% last year. Last year's margin did not fully reflect the impact of the competitive factors we've been discussing with you for some time. Marketing Services gross profit was negative by about $200,000 compared to a profit of $400,000 last year, and this is primarily due to costs associated with the launch of PD One. And product commercialization gross profit for the quarter of about $500,000 was about $200,000 lower than last year. And just for the record, costs associated with our 2 Interpace Diagnostic deals of about $200,000 are included in 2014 in product commercialization. First quarter operating expenses were $6.6 million, compared to $6.2 million in 2013. The increase was primarily driven by $600,000 of costs related to our strategic initiatives related to diagnostics. And the net impact of changes in revenue, gross profit and operating expenses is a net operating loss of $1.5 million, compared to an operating profit of about $2.3 million last year. In terms of liquidity and cash flow, adjusted EBITDA, which you know as our non-GAAP measure of cash flow from operating activities, was a loss of approximately $300,000 -- $350,000 for the first quarter. Excluding the approximately $800,000 spent on our strategic initiatives, adjusted EBITDA was a positive $450,000. Cash and cash equivalents at the end of the first quarter were around $38 million, down $7.7 million from year end. The decrease in cash is primarily due to an increase in working capital requirements, the delay into April of certain customer payments, and investments in our strategic initiatives. And as of March 31, the company had cash and equivalents were all invested in treasury money market funds, and the company continues to have no commercial debt. I'll now turn the call back over to Nancy.

Thank you, Jeff. I want to conclude by welcoming Greg Richard to the PDI team. Greg joined us in early April as the General Manager of Interpace Diagnostics and will lead all of our molecular diagnostic efforts. Greg has over 20 years of sales and marketing experience in the life science industry. In terms of molecular diagnostic experience, he led the sales and marketing efforts of a startup molecular diagnostic company and successfully launched 2 proprietary oncology tests. In addition, Greg was the VP of Sales for LabCorp, where he was responsible for diagnostic sales to physicians. We are pleased to have him onboard and look forward to working with him. With that, we'll now open the call to your questions. Operator?

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

Jeff, could you just kind of go through the cash burn a little bit? Were there some unusual items that drove the higher-than-normal decline in the last quarter?

Sure, John. There's -- actually, there's 2 big things there. One is, unfortunately, recurring, and the other is just a timing thing. So literally, one of our major customers adopted a policy in the first quarter that they only pay bills on a Monday. That's it, 1 day a week. And the quarter ended on Monday. They cut the check. We got it on Tuesday, and that was about $3.5 million different than what we normally would have expected. So that's clearly a timing thing. And then also, a customer changed their terms slightly from -- and added 15 days to their normal payment terms. So that cost us about $2 million for the quarter, but of course, that will continue. But -- it's now built into the number, but it will continue. So roughly $5.5 million of that $7.5 million can be accounted for in those 2 numbers.

Okay. So if you think about some of the guidance that Nancy repeated at the beginning of the call, what sort of cash balance would you expect or cash burn would you expect to go along with that guidance for the year?

Yes. Because of the quirky timing thing, I think just very ball park, you should expect, assuming earnings are made and everything else is made, cash should be roughly the same at year end as it is right now.

Got it, okay. And then when do you think you'll be able to make a decision on the 2 current Interpace Diagnostic pilots?

Yes. We expect that, that will occur no later than the second half of this year, John. It's a little hard to predict exactly when, but we're not -- potentially even as soon as third quarter. But right now, we want to say second half.

Got it. And I don't know if you're able to answer it, but from a kind of longer-term strategic standpoint, what are some of the broad objectives you've got for Interpace Diagnostic? When do you think this is a business that can start to contribute to the bottom line? And do you have a view on sort of longer-term return characteristics of the business?

Let me just say this, that it's a little hard to project right now until we get further into moving into Phase 2 or strike some additional deals. We are being cautious. What we do not want to do is get into a situation, where we, obviously, are drawing down cash in a substantial way without seeing very near-term earnings -- revenues and earnings. So right now, I would expect that 2015, we don't expect for the full year that we'll see any material impact on the bottom line, though we certainly would expect that by early 2016.

Your next question comes from the line of Jack Wallace with Sidoti.

With -- the revenue is down sequentially, down from the third quarter as well, but gross margin up particularly in the CSO business, what was the cause for that?

Well, we did say as we were exiting the year that you should expect margins to improve somewhat. There is just some upside fees that we earned in the first quarter that were not in the fourth quarter, and upside fees come at very high margins. Actually, they come at 100% margin. So that probably explains most of the Sales Services percentage. And in addition, some of the -- some lower margin business did fall out of the first quarter and is not -- out of the fourth quarter and is not in the first quarter.

So as we're thinking about gross margins moving forward, likely a lower figure than the 16.5% we saw from the first quarter?

Well, I think we'll go back to the way we said it at year end, that whatever you saw for 2013, we're comfortable that margins will improve slightly in 2014. So I don't want to do it quarter-by-quarter, but I think for the full year that, hopefully, will give you enough to figure it out.

Okay, that's helpful. And then -- so about $800,000 of the $3 million budget for the collaboration projects that was spent in the first quarter, that looks like maybe a decision could be made in the third quarter at the earliest, maybe in the fourth. Should we expect that -- those expenses to be roughly smoothly spent until then?

Yes. Roughly, yes. That's not an awful way to look at it.

Okay. And then lastly, when it comes to the reimbursement environment, can you just go in a little bit more details for the CardioPredict test, that is, as to what you're looking for and what you've received so far? I guess, how far along in the decision-making process are you with that test?

Yes, I would say that -- first, let me just say on the reimbursement side. We have received reimbursement from both the private payer side and the Medicare side. However, as you know, there remains a lot of uncertainty around continued payment on the Medicare side, particularly, I would say, more for a pharmacogenomic test. So until we get a little more clarity around that, and that will probably take, I would say, anywhere from the next 30 days to the next 90 days, we're going to continue to put in the modest, very modest -- I want to emphasize that, amount of capital into this, with our small test market that we're conducting. But the good news is that we are receiving reimbursement, and we continue also to work on honing down our marketing message so that we can be more effective out in the field. We continue to believe there's a real value for these tests out there, but until we get better clarity on reimbursement, particularly on the Medicare side, we will not commit to a Phase 2.

Are you -- with the reimbursement as it is right now, assuming it remains constant, would you give the test a green light?

No.

Okay. And then with CMS will come out with their rate cut proposals in July. Is that basically what you're waiting on there and seeing how the comment period goes? Or is there a scenario where you might wait all the way until the November decision date?

We're not going to wait until November.

[Operator Instructions] Your next question comes from the line of Raymond Yung with Dolphin Asset Management.

I have a question concerning the 2 partnerships. Can you review the parameters that you're using to move something from a Phase 1 to Phase 2?

Well, yes. Let me say this. In the oncology test, we've always been very clear. We are in the middle of a second validation study. When that validation study is complete and it is a blinded study, then we will make a decision to go forward or not go forward. I'm not going to disclose it, but we have established metrics in terms of what we believe we will need to make that decision. Anyway, as we said, we expect that study to be complete in the second half of 2014. Enrollment continues to progress, and we continue to believe that -- and again, this test already had one smaller validation study with very positive results. However, as you well know, studies can be unpredictable, and until we see the final results, we will not make any decisions. So again, we expect, sometime in the second half of the year, we will make a go-no-go decision based on the results of that validation study. And I believe I already commented on the first one. It's really tied around reimbursement and, to some extent, uptake in the marketplace. We are seeing uptake but not quite to the degree that we would like to see if we were to make a decision to go forward. However, let me to reiterate again. I fully expect that sometime in the next 30 to 90 days, we'll make a decision on that test.

Okay. One other question on PD One. Is this basically a SaaS model that we're dealing with? Are you getting a monthly fee per subscriber?

First of all, can you just clarify what you said? Did you say a SaaS model?

Right, Software-as-a-Service.

Software-as-a-Service, okay.

Right.

Yes. In answering your question, yes. And yes, we are getting monthly fees. So there are actually, right now, today, 3 revenue streams associated with PD One. One is subscription services. The second one is based on advertising revenues, and the third is based on fees that we get associated with, again, some of the services that physicians may take advantage of on PD One. I do want to reiterate that we continue to be quite bullish about the opportunity for PD One. We've developed a 10-year relationship with our 400,000 health care providers. We have a very robust website, medicalbag.com, that continues to see growing monthly traffic, and we also believe that there remains a wide variety of services and products that we can offer to physicians and other clients, where they find the communication that we've established with health care providers to be very valuable. So in that regard, we are, through Group DCA, moving out of the strictly fee-for-service business and moving more into Software-as-a-Service, as well as other services that we can offer physicians on behalf of other clients and companies.

Your next question comes from the line of Scott Henry with Roth Capital.

Just a couple of things. I didn't hear a lot new on the call, but in terms of when we should expect these catalysts [ph], it sounds like CardioPredict, you may have something by the second quarter call. Is that fair?

Yes.

Possibly. Possibly, yes.

I would say possibly, yes.

Okay. And then the other one, it sounds more like third or fourth quarter call.

That's correct.

Based on what I heard.

That's correct.

Okay. And then shifting on -- it sounds like you think -- I was jumping in between calls, but when we look out to 2015, I heard a little granularity. Certainly, I don't expect you to be profitable, but might you be breakeven in 2015?

I'm not going to -- I wouldn't encourage you to think that way, Scott. I think best case or most -- maybe more realistic case is that by the end of 2015, we're coming out of that at a run rate that's positive. But it really, though, is very unpredictable, depends on which test we pick. We're looking at other opportunities. So I don't want you to think that it's more realistic that it's going to be breakeven. It's probably going to be more likely a loss for the year, and then our goal would be to be exiting the year at a profitable level.

Yes. And Scott, let me also reiterate. Any time you're involved with launching or driving the uptake of a product, like a molecular diagnostic or even if in, certainly, the biopharmaceutical world, that you've got to invest to drive that uptake. And as a rule of thumb -- and we're not applying that to molecular diagnostics. I want to reiterate this. But as a rule of thumb, in the biopharmaceutical world, you usually do not expect to turn profitable on the launch of a product until the third year. We are absolutely moving that forward. We do not expect that in molecular diagnostics, but you're not going to get the revenue uptake that you want if you don't invest.

Yes. Well, at this point, it's not even clear there's going to be a product to sell.

Until we get a deal done or we move into Phase 2, that's correct.

Yes. I mean, I don't even sense confidence that the products you have are going to make the market. I sense they may, but I don't sense confidence in that based on your comments at least.

Well, you can read whatever you want into that. I'm going to continue to reiterate that we remain committed, and we think there is a real opportunity for us in the molecular diagnostics space. Let me reiterate again. The reason why we went into this and we continue to see this as we meet with numerous molecular diagnostic companies, there is a real lack of commercial infrastructure in the molecular diagnostic space, and there is a lack of capital to invest in the commercial infrastructure. Just, again, as a reminder, most of these companies are used to or they have management that's used to a model from a more traditional diagnostic arena, where you went out and sold your test to other labs as a reflex test. Going and commercializing on a B2B basis is very different, which is the historical model, from commercializing to physicians. They don't have the infrastructure. They typically don't have the know-how, and in most cases, they can't invest in that. We already have that engine built. So it's a matter of dropping these tests into our very robust and established commercial infrastructure, doing that across multiple tests, and you can create some very significant synergies. However, we want to be careful that the first couple of tests that we certainly pick, we are highly certain, can be successful for us. So we are being cautious, and we're going to continue to be cautious.

Well, I mean, I think it leads into the next line of questioning. I hate to ask the tougher questions, but it just becomes necessary. But let's focus on cash. Looking at the balance sheet, you had $45.6 million at December 31, and $37.9 million at March 31. So that looks like about a $7 million or $8 million decline. I don't know if you've talked about this already, but that's with EBITDA of, I think you said, $400,000 -- negative $400,000 and a loss of $1.6 million in the quarter. So where did all the cash go?

Yes. So Scott, you probably did miss John's question earlier about, was there anything unusual in there. And the answer, just to 2 repeat it, was that there was a $3.5 million pure timing piece of that. One of our clients just changed their payment practice to only pay on Mondays. The quarter ended on a Monday. They wrote the check. It hit our bank account on Tuesday. So that accounted for $3.5 million of what normally would have come in under past circumstances. And then there was also a client that changed their payment terms by 15 days. So it just also pushed that payment of about $2 million over the quarter close line. So about $5.5 million, you could say, has to do -- $3.5 million with timing, and that will correct itself over the course of the year. And $2 million is a permanent change, but it's now been absorbed. So that will no longer have an effect on cash. So really, that's the big news there. The rest has to do with pure -- having a small loss and just paying bills and that kind of thing.

Okay. Well, that's certainly helpful, and that certainly explains that discrepancy. But then, still, when I looked at the balance sheet, that's on the spreadsheet in front of me, there was cash of $64 million, December 2011. And now we're pushing $40 million in 2014. So there's a lot of capital being utilized, but we're still losing money. Now, I know you want to be cautious, but that's not a sustainable trend for an investor. I mean, I just -- I don't know where the question is, but I'm just wondering if -- I guess, here's the question. Do you feel the same sense of urgency to turn this around that an investor would feel?

Scott, I don't know how else to say this, but the answer is absolutely yes. And of course, I want to reiterate, as we've always said, we need to invest in this business and continue to branch into the 2 other areas we're investing in while we continue to remain competitive in CSO. We are going to continue to do that, and we do expect that we are going to turn the corner on this business. However, I want to reiterate it does take time, and we're not going to go in and do a deal just because we're feeling time pressure. I think that would be very unwise. So we are being cautious, but do we feel the need to continue to make sure that we drive this forward as quickly as possible, ensuring we don't make a foolish mistake? And the answer is absolutely yes.

Okay. I guess -- I said, I'm not trying to give you a hard time, but I think at some point, the question has to become either that the business turns around or you just sell the whole thing and give the cash back because -- the question is not going to go away. It's going to come up again on the next call and the next call until -- I'd just like to hear your update on it, and I appreciate the color on that. And we'll look forward to the data points in the second half.

[Operator Instructions] You have a follow-up question from the line of Jack Wallace with Sidoti.

Quickly, you guys have mentioned that the RFP activity had moved up a little bit in the first quarter. Can you quantify some of that? And then also, on future call -- or previous calls, excuse me, you've given a risk-adjusted book of contracts. Could you provide us with that number as well?

Yes. Well, the pipeline has moved up. We're now running around $200 million for the pipeline. I don't believe we've ever given a risk-adjusted book-to-bill [ph].

Yes, that's kind of sort of...

Right. I mean, we usually risk-adjust our pipeline, knowing what is in the viable and most likely to be awarded book of business. So it has picked up rather substantially in the first half of this quarter, and we remain optimistic that we will continue to hit our numbers for the year on the CSO side.

At this time, there are no questions.

Okay. Thank you very much. We look forward to updating you further in the second quarter call.

Thank you. This concludes today's conference. You may now disconnect.