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Q1 2013 Earnings Call
May 14, 2013 8:30 am ET
Paula Schwartz - Senior Vice President of Investor Relations
Nancy S. Lurker - Chief Executive Officer and Director
Jeffrey E. Smith - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance and Treasurer
Bradford Alan Evans - Heartland Advisors, Inc.
John Kreger - William Blair & Company L.L.C., Research Division
Scott R. Henry - Roth Capital Partners, LLC, Research Division
Jack Wallace - Sidoti & Company, LLC
» Cache Management Discusses Q1 2013 Results - Earnings Call Transcript
» Rainmaker's CEO Discusses Q1 2013 Results - Earnings Call Transcript
Good morning, everyone. This is Paula Schwartz 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 first quarter ended March 31, 2013. 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 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 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 the ongoing operating business, will also be referenced on the call.
The content of this conference call, information that is accurate only as of today's date, March 14, 2013. The company undertakes no obligation to revise or update any statement 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. Nancy?
Nancy S. Lurker
Thank you, Paula, and welcome to everyone on the call. Let me start by addressing a few key metrics of our financial performance for the quarter. As we noted in our press release, first quarter revenues increased 36% to $42.9 million compared to the same period in 2012. The significant increase was due to the timing and execution of several new contracts signed in the second half of last year.
As previously discussed, in 2012, we won more than $250 million in new multi-year contracts and renewals, of which only $40 million impacted 2012 revenue. Given the strong first quarter revenue and assuming a reasonable level of new business wins for the remainder of this year and no early termination of contracts, we still expect 2013 full year revenue to be at least 25% higher than 2012.
First quarter gross profit of $8.5 million was $1.1 million higher than last year, due in large part to the much stronger revenue. As anticipated, our gross profit percentage has begun to trend lower due to intensified competitive pressure as new wins with lower margins are executed. We expect our gross profit percentage to continue to decline over the course of 2013, as last year's contract wins become a larger percentage of our revenue, resulting in gross profit dollars for the full year being at or below last year's levels.
We continue to aggressively pursue ongoing operating cost improvements, which are reflected in a reduction of first quarter expenses by $1.4 million compared to last year. As we previously disclosed, we expect ongoing cost to support the business to be up modestly for the full year. Additionally, we have discussed that 2013 would be a year of investment aimed at strengthening our core capabilities and infrastructure, our competitive positioning and improving our longer-term margins. I will address these initiatives and their financial impact later in the call.
Finally, as a result of higher revenue, higher gross profit and lower operating expenses, we achieved an operating income of $2.3 million compared to a loss of $200,000 last year. Relative to new business, in March, we announced a new sales contract, which could generate total revenues of up to $17 million over its multi-year term.
We estimate that $5 million to $6 million of revenues will be recognized this year, beginning in the second quarter. Under this new client agreement, PDI will provide a dedicated team to promote a CNS therapeutic product to neurologists and pain specialists. Going forward, we are confident we will continue to win additional contracts.
I'll now turn the call over to Jeff for a more detailed review of the financials, after which, I will review our strategic initiatives for the remainder of the year. Jeff?
Jeffrey E. Smith
Thank you, Nancy. Before we get into the results, I'd like to reestablish adjusted EBITDA, the non-GAAP measure that we referenced in the press release and on the call. Adjusted EBITDA for us is the measure of operating cash flow from the ongoing business. The current calculation is operating income adjusted only for depreciation and amortization and noncash stock compensation.
With that established, let's get into the results. 2013 revenue of $42.9 million was over $11 million or 36% higher than 2012. Overall, revenue in Sales Services increased significantly and was slightly offset by decreases from both Marketing Services and Product Commercialization. Sales Services revenue of $38.2 million was almost $15 million or 64% higher than the first quarter of 2012, as revenue from new contract wins significantly exceeded expiration of certain other contracts.