PDI, Inc. (PDII)

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Q2 2008 Earnings Call Transcript

August 6, 2008 4:30 pm ET


Pat Dugan – Chairman

Jeff Smith – Interim CEO

David Stievater – SVP, Business Development


Robbie Sada [ph] – William Blair

Sal Kamalodine – B. Riley & Co.

Mike Sloan – Harvey Partners

Brad Evans – Heartland Advisors



Welcome to the PDI second quarter financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. (Operator instructions) As a reminder, this conference is being recorded August 6, 2008. I would now like to turn the conference over to Ms. Kim Golodetz. Please go ahead, ma'am.

Kim Golodetz

Thank you. This is Kim Golodetz with Lippert/Heilshorn & Associates. Thank you all for participating in today's call. We have on the call this afternoon Pat Dugan, Chairman of the Board, and Jeff Smith, Interim Chief Executive Officer. While Pat and Jeff will be making the formal comments today, also with us to answer questions are Nancy Connolly, Senior Vice President Sales Services, Kevin Connolly, Executive Vice President and President of Marketing Services, Jim Farrell, Vice President and Interim Chief Financial Officer, David Stievater, Senior Vice President Business Development.

Earlier today, PDI released financial results for the second quarter of 2008. If you have not received this news release or if you would like to be added to the company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Palazzo.

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 that identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. The content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 6, 2008. The company under takes 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 like to turn the call over to Pat Dugan. Pat?

Pat Dugan

Thanks, Kim, and thanks to each of you for participating in our call. Officially, my name is John P. Dugan, but everybody calls me Pat. I founded PDI in 1987. I was CEO for a number of years and I am currently the Chairman of the Board of Directors and the company's largest shareholder. In my capacity as Chairman I have been actively involved in strategy and long term planning, and these activities continue to be my primary focus. However, since the retirement of Mike Marquard in late June, I have become more involved in the day-to-day operations and expect to continue this level of involvement until a permanent CEO is appointed.

Towards this end, we have engaged a nationally recognized search firm and I have already been screening prospective candidates. Our goal is to have a new CEO named by the end of the year, hopefully earlier. In the meantime, I believe you are all aware that we have appointed Jeff Smith as interim CEO, recognizing that he has more than 30 years of broad-based finance and general management experience, including having served as interim President of Alpharma, when it was a $350 million public, international, specialty pharmaceutical company. I must tell you that the Board and I are extremely confident the current management team is fully capable of continuing to improve the company and executing our strategic plan during this interim period. Jeff and the team are not just keeping the seats warm.

That leads us to our second quarter results. Jeff will go through the numbers in more detail in a minute, but I am very pleased to point out that the increase in revenue we are reporting today represents the first year-over-year quarterly increase in revenue in 15 quarters. The overall increase of 10% was driven by a 20% increase in sales team revenue. While only a small start, we are encouraged that our plans are working. Notably, these top line results were driven by market acceptance of our new flexible sales offerings such as Select Access, Territory Coverage, Pulsing, et cetera. As previously announced, during the quarter, we were awarded a contract from a top five pharmaceutical company that not only extended an existing agreement through May 2009, but also expanded it by $10 million to $33 million annually. In addition, near the beginning of the quarter, another important client expanded the scope of our engagement, which added revenue to the quarter and could increase revenue by up to $2 million per quarter through year end.

In looking forward, we have had changes in two existing contracts. One of our long term clients, as planned, has internalized our field sales force effective July 31. This contract represented approximately $2.3 million in quarterly revenue. We were also just notified that due to generic competition, our Select Access engagement with a major pharmaceutical company, whose contract ran through next March, will be ending at the end of September instead. This contract has revenue of about $3.5 million per quarter.

Marketing services revenue was virtually flat compared to last year, reflecting the difficult economic environment and uneven sales patterns within the three businesses in this segment. Even so, on a sequential quarter basis, marketing service sales were up 15%. As most of you are aware, during the quarter we successfully launched our first product commercialization initiative relative to the eczema product Elidel. Product commercialization is a significant component of our strategic plan to leverage our sales and marketing expertise to deliver higher long term margins than our traditional fee-for-service arrangements. We began promotion of Elidel in the second half of April, and promotional activities are proceeding as planned. We are encouraged by physicians' reaction to the relaunch of this product, and expect to see promotional responses to our efforts as we move into the eczema season near the end of the third quarter.

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