8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
October 27, 2003

PROXYMED, INC.

(Exact name of registrant as specified in its charter)

Florida	000-22052	65-0202059
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2555 Davie Road, Suite 110, Ft. Lauderdale, Florida	33317-7424
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (954) 473-1001

Item 9. Regulation FD Disclosure (information furnished pursuant to Item 12, “Disclosure Of Results of Operations and Financial Condition”).

     On October 27, 2003, ProxyMed, Inc. (the “Company”) announced its financial results for the three and nine months ended September 30, 2003. The full text of the press release issued in connection with the announcement is attached as Exhibit 99.1 to this Current Report on Form 8-K. Additionally, on October 28, 2003, the Company held a teleconference call to report its financial and operating results for the quarter ended September 30, 2003. A transcript of the call, excluding questions from participants and answers from management is attached as Exhibit 99.2 to this Current Report of Form 8-K.

     In accordance with the procedural guidance in SEC Release No. 33-8216, the information in this Form 8-K and the Exhibits attached hereto being furnished under “Item 9. Regulation FD Disclosure” are intended to be furnished under “Item 12. Disclosure of Results of Operations and Financial Condition.” The information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in any such filing.

     FORWARD LOOKING STATEMENTS — This document contains forward-looking statements that reflect the Company’s current assumptions and expectations regarding future events. While these statements reflect the Company’s current judgment, they are subject to risks and uncertainties. Actual results may differ significantly from projected results due to a number of factors, including, but not limited to, the soundness of our business strategies relative to the perceived market opportunities; our ability to integrate MedUnite into our existing operations, our ability to successfully identify and integrate other acquisition candidates; our ability to successfully develop, market, sell, cross-sell, install and upgrade our clinical and financial transaction services and applications to current and new physicians, payers, medical laboratories and pharmacies; our ability to consummate and integrate any acquisitions successfully; our ability to compete effectively on price and support services; our assessment of the healthcare industry’s need, desire and ability to become technology efficient; and our ability and that of our business associates to comply with various government rules regarding healthcare and patient privacy. These and other risk factors are more fully discussed in the Risk Factor disclosure in our Form 10-K for the year ended December 31, 2002 and our other filings with the Securities and Exchange Commission, which we strongly urge you to read. ProxyMed expressly disclaims any intent or obligation to update any forward-looking statements. When used, the words “believes”, “estimated”, “expects”, “anticipates”, “may” and similar expressions are intended to identify forward-looking statements.

2

Item 7. Financial Statements and Exhibits.

     (c)  The following exhibits are included herein:

Exhibit 99.1	Press Release dated October 27, 2003 reporting financial results for the three and nine months ended September 30, 2003.
Exhibit 99.2	Transcript of third quarter 2003 financial results teleconference call held on October 28, 2003.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ProxyMed, Inc.
Date: October 31, 2003	/s/ Judson E. Schmid
	Judson E. Schmid, Executive Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
99.1	Press Release dated October 27, 2003 reporting financial results for the three and nine months ended September 30, 2003.
99.2	Transcript of third quarter 2003 financial results teleconference call held on October 28, 2003.

5 EX-99.1 3 g85580exv99w1.htm PRESS RELEASE

EXHIBIT 99.1

[ProxyMed Logo]

Company News Release

FOR IMMEDIATE RELEASE

IMPORTANT NOTE: ProxyMed’s live teleconference call to discuss its third quarter 2003 results is accessible by calling 1-888-806-9460 beginning at 10:00 a.m. Eastern Time on Tuesday, October 28, 2003 and will be simultaneously broadcast on the Internet at www.proxymed.com. Replays of the teleconference call will be available at www.proxymed.com after 1:00 p.m. Eastern Time on October 28th.

Contact:
Judson E. Schmid
Chief Financial Officer
(954) 473-1001, ext. 353
investorrelations@proxymed.com

PROXYMED REPORTS THIRD QUARTER 2003 RESULTS
- Company reports continued improvement in operating results
and provides outlook for balance of 2003 –

     Fort Lauderdale, Florida (Business Wire) October 27, 2003 – ProxyMed, Inc. (Nasdaq: PILL), a leading provider of healthcare transaction processing services and the nation’s second largest processor of physician-based healthcare transactions, today reported its operating results for the third quarter of 2003. The operations of MedUnite, Inc. (a wholly-owned subsidiary of ProxyMed), which was acquired on December 31, 2002, are included in the 2003 results.

Third Quarter 2003 Results

     ProxyMed reported revenues of $18.1 million for the third quarter of 2003, an increase of 40% compared to revenues of $12.9 million for the same period of 2002. For the third quarter, net income applicable to common shareholders and diluted net income per share were $4.0 million and $0.58, respectively, compared to net income of $0.7 million and diluted net income per share of $0.11 for the third quarter of 2002. Diluted weighted average shares outstanding for the quarters ended September 30, 2003 and 2002 were 6,867,725 and 6,785,096, respectively.

1

     The third quarter financial results include other income of $4.0 million related to the increase in value of a warrant held by the Company as a result of a “mark-to-market” non-cash accounting adjustment. If the warrant expires unexercised in December 2003, the Company will take a non-cash charge equal to the then carrying value of this warrant. Excluding this other income, the Company would have reported a nominal net loss resulting in zero earnings per share.

     Additionally, for the third quarter of 2003, the Company reported an EBITDA profit (a non-GAAP measure defined as earnings before interest, taxes, depreciation and amortization, and other income) of $1.6 million, compared to an EBITDA profit of $1.1 million a year ago. The management of ProxyMed believes that EBITDA and EBITDA margin are meaningful measurements of operating performance as they allow for comparison of performance between other competitors in the healthcare IT industry and serve as factors in determining its management performance compensation. EBITDA margin is defined as EBITDA as a percentage of revenue.

     “With the continued efforts of our integration plans, we met our commitment to bring MedUnite to positive EBITDA in the third quarter. In addition, we reported expanding EBITDA margins on a consolidated basis, including a record 16.6% margin in our transaction business. Excluding the non-cash income from the warrant, we were at break-even at the EPS line for the quarter and we have increasing positive cash flow from operations,” said Judson E. Schmid, ProxyMed’s Chief Financial Officer.

Year-to-Date 2003 Results

     ProxyMed reported revenues of $53.2 million for the nine months ended September 30, 2003, an increase of 44% compared to revenues of $37.0 million for the same period of 2002. For the 2003 period, net income applicable to common shareholders and net income per share were $1.2 million and $0.18, respectively, compared to a net income of $0.6 million and diluted net income per share of $0.10 for the 2002 period. Diluted weighted average shares outstanding for the nine months ended September 30, 2003 and 2002 were 6,815,247 and 6,282,258, respectively.

     As noted above, the financial results for the nine months ended September 30, 2003 include a non-cash accounting adjustment reported as other income of $4.8 million related to the increase in value of a warrant held by the Company.

     For the nine months ended September 30, 2003, the Company reported an EBITDA profit of $1.1 million, compared to an EBITDA profit of $2.6 million for the same period last year.

     Cash flow provided by operations for the nine months ended September 30, 2003 was $0.5 million compared to $1.4 million for the prior year. During the quarter ended September 30, 2003, cash flow provided by operations increased by $1.1 million over last quarter. Total cash at September 30, 2003, including restricted cash, was approximately $7.3 million.

2

Segment Performance

Transaction Services (formerly called “Electronic Healthcare Transaction Services”)

     As noted above, since MedUnite was not acquired until December 31, 2002, its operations are not included in the 2002 results reported. Additionally, although the integration of MedUnite into ProxyMed’s existing operations will continue throughout 2003, today the organizations are run and managed as one operating unit. As a result, meaningful separate operating results and statistics are no longer available.

     The Transaction Services segment reported revenues of $11.8 million for the third quarter of 2003, an increase of 106% compared to revenues of $5.7 million for the 2002 period. For the nine months ended September 30, 2003, segment revenues were $35.1 million, an increase of 115% compared to revenues of $16.3 million for the 2002 period. The year-to-year increases were driven by strong internal growth, with total transactions increasing 20% over the past three quarters, and more significantly by transactions generated at MedUnite. On a sequential basis, revenue decreased by 1% from the second quarter of 2003, although EBITDA improved significantly (see below). This sequential decline in revenue was primarily the result of good internal growth at normal margins being offset by transactions lost from a gateway partner (at lower than average EBITDA margins) that redirected a significant amount of its volume away from the Company in the third quarter of 2003.

     As shown in the table below, total healthcare transactions processed during the third quarter of 2003 were 56.1 million, up 92% from the 29.2 million transactions processed in the third quarter of 2002. On a sequential basis, total transactions increased slightly (due to an increase in the number of lower-priced encounters processed in the quarter) while core transactions processed decreased by 2% primarily due to the volume decline from a gateway partner, noted above.

     Management considers the following metrics important to monitor its transaction business:

	Q/E		Q/E		Q/E
Description	9/30/03		6/30/03		9/30/02
Core transactions (excluding encounters)		49,573,400		50,877,000		23,211,800
Encounters		6,509,900		5,106,100		5,977,400
Total transactions		56,083,300		55,983,100		29,189,200

     As noted in its last quarter’s press release, ProxyMed rolled out in July the first phase of its new real-time processing web portal, ProxyMed.net. This portal combines the services formerly available on both ProxyMed.com and MedUnite.net and is aimed at making real-time transactions more accessible to its providers and partners. ProxyMed has now completed the rollout of all real-time transaction services and the migration of its ProxyMed and MedUnite existing real-time payers and customers to the new integrated portal. The Company is on track to complete the final phase of the project with the migration of direct data entry claims clients by the end of the year.

3

     Additionally, ProxyMed took two major steps to increase its ability to offer value-added services built around its core transaction processing business. First the Company announced its new FirstProxy ERA/EFT service for providers and payers in partnership with First Data Corporation. In addition, the Company launched its claims repricing and cost containment services for payers with PlanVista Corporation. Initial reaction to both services in the marketplace has been encouraging and the Company signed its first contract for cost containment services last week. Finally, during the quarter, the Company went live with end to end HIPAA compliant transactions, and in accordance with its contingency plan for compliance with the October 16th deadline for transaction code sets, the process to complete the migration of payers to HIPAA-compliant interfaces will continue through the end of the year.

     SG&A expenses increased by 112% in the third quarter over same period in 2002 primarily due to SG&A expenses incurred related to MedUnite’s operations, continued HIPAA remediation efforts, implementation staffing, and sales/marketing programs implemented since last year. SG&A expenses for the nine months ended September 30, 2003 increased 144% over the 2002 period. Sequentially, SG&A expenses decreased by 12%, from $6.9 million in the second quarter of 2003 to $6.1 million in the third quarter as the Company continued to realize operational synergies from its MedUnite integration efforts.

     EBITDA profits in the third quarter from this segment were $2.0 million compared to EBITDA profits of $0.6 million in the third quarter of 2002. EBITDA profits for the nine months ended September 30, 2003 were $1.9 million compared to EBITDA profits of $1.4 million in the 2002 period. Sequentially, EBITDA profits increased 136% and EBITDA margins improved from 6.9% to 16.6% for the third quarter.

     Depreciation and amortization related to ProxyMed’s transaction business was $1.2 million for the third quarter of 2003. For the nine months ended September 30, 2003, depreciation and amortization was $3.3 million. In the third quarter of 2003, the Company commenced amortization of its ProxyMed.net real-time processing platform. Of the 2003 amounts, $0.6 million and $1.5 million are related to the amortization of intangible assets acquired in the acquisition of MedUnite for the three and nine months ended September 30, 2003, respectively.

     As a result of the $13.4 million in convertible debt issued to the former owners of MedUnite and the financing of certain liabilities of MedUnite during the 2003 period, the Company incurred net interest expense of $0.2 million during the quarter in the Transaction Services segment. For the nine months ended September 30, 2003, net interest expense was $0.7 million for this segment.

     “We are very pleased with the operating results of our Transactions Services business. We met our commitment to bring MedUnite to EBITDA profitability and drove our overall EBITDA margin to a record 16.6%. On the new sales side, our good progress in signing new business was unfortunately overshadowed by the loss of low-margin volume from a gateway partner, but our implementation backlog is very strong at approximately $4 million in signed but not yet live business, and as the uncertainty of HIPAA gets behind us, we expect this to accelerate,” said Nancy J. Ham, ProxyMed’s President and Chief Operating Officer. “Our goal for the balance of the year is to complete our HIPAA remediation, renew our implementation efforts for customers signed, and move forward with our new products and services, all leading to an EBITDA margin exit rate of 20% or more at the end of the year in this business.”

4

Laboratory Communications Solutions

     The Laboratory Communications Solutions segment reported revenues of $6.2 million for the third quarter of 2003, a decrease of 12% compared to revenues of $7.1 million for 2002. For the nine months ended September 30, 2003, segment revenues decreased 12% from the 2002 period. Sequentially, however, revenues did improve by 9% over the second quarter of 2003 due to a slight pickup orders from national and regional clinical reference labs. However, the sluggish economy and continued softness in lab device purchases and contract manufacturing orders attributed to the quarterly and year-to-date revenue declines.

     For the third quarter of 2003, SG&A expenses in the lab segment decreased 10% from the 2002 period. For the nine months ended September 30, 2003, SG&A expenses decreased 8% from the 2002 period. These decreases were primarily due to proactive cost controls implemented early in the fourth quarter of 2002.

     EBITDA profits for the third quarter of 2003 decreased to $0.6 million from $1.1 million in the third quarter of 2002, with EBITDA margins decreasing to 10% in 2003 from 15% in the 2002 period. For the nine months ended September 30, 2003, EBITDA profits decreased to $1.9 million from $3.1 million in the 2002 period. Both the dollar declines in EBITDA profits and the decline in EBITDA margins result from the revenue decline and an increase in material costs resulting from a shift in the revenue mix away from higher margin value-add products.

     “We are encouraged with the slight rebound from last quarter but market-driven conditions continue to present challenges in this business segment. Although Lab Services remains a solid contributor to EBITDA profits for the Company, between the sluggish economy and the lack of any significant new business, we will find ourselves falling short of our expectations for Lab Services for the year,” said Nancy J. Ham. “Our goals for the future of this business include creating new opportunities with our existing customers and capitalizing on our relationships for transaction-based service solutions.”

Corporate

     As a result of increased liability insurance premiums, accounting and other professional fees and personnel costs, corporate SG&A expenses for the third quarter of 2003 increased 46% compared to the third quarter of 2002, and for the nine months ended September 30, 2003, increased 39% over the 2002 period. Sequentially, corporate SG&A costs increased 7% over the second quarter of 2003.

     As noted earlier, in conjunction with its commercial agreement signed with PlanVista Corporation for claims re-pricing services, ProxyMed received a warrant to purchase up to 15% of PlanVista common stock on a fully-diluted basis. At the end of September 2003, the value of this warrant was calculated at $5.2 million based on a valuation model that takes into account PlanVista’s market price at the end of the quarter. This increase in value resulted in non-cash other income in the Company’s statement of operations of $4.0 million and $4.8 million for the three and nine months ended September 30, 2003, respectively.

5

Outlook for Annual 2003 Results

     At the present time, ProxyMed believes that annual revenues will fall within the $71.0 and $73.0 million range with EBITDA profits in the range of $2.9 to $3.4 million. These ranges reflect the challenges to our Lab business and the lengthened period of time for conversion to HIPAA transaction standards for our providers and payers.

     “We are pleased with the improving operating results of our third quarter and the general progression of our metrics. I am especially pleased with the success of our transaction sales team in building the largest backlog of signed contracts with providers for new transactions in our history. As we complete the implementation of our integration plans, the roll-out of our new services and the pull-through of our backlog, we are well positioned for continued growth throughout the remainder of this year and 2004,” said Michael K. Hoover, ProxyMed’s Chairman and Chief Executive Officer.

     The Company plans to announce its guidance for 2004 in mid-December 2003.

About ProxyMed – Where Healthcare Connects™

     ProxyMed is the nation’s second largest provider-based electronic healthcare transaction services company. We provide connectivity services and related value-added products to physicians, payers, pharmacies, medical laboratories, and other healthcare providers and suppliers. ProxyMed’s services support a broad range of both financial and clinical transactions, and we are HIPAA certified through Claredi. To facilitate these services, ProxyMed operates Phoenix™, our secure national electronic information platform, which provides physicians and other primary care providers with direct connectivity to one of the industry’s largest list of payers, the largest list of chain and independent pharmacies and the largest list of clinical laboratories.

Safe Harbor Statement

Note: This press release contains forward-looking statements, including statements regarding our expectations of future profitability, that reflect our current assumptions and expectations regarding future events. While these statements reflect our current judgment, they are subject to risks and uncertainties. Actual results may differ significantly from projected results due to a number of factors, including, the soundness of our business strategies relative to the perceived market opportunities; our ability to integrate MedUnite into our existing operations, our ability to identify suitable future acquisition candidates; our ability to successfully integrate any future acquisitions; our ability to successfully develop, market, sell, cross-sell, install and upgrade our clinical and financial transaction services and applications to current and new physicians, payers, medical laboratories and pharmacies; our ability to compete effectively on price and support services; our assessment of the healthcare industry’s need, desire and ability to become technology efficient; and our ability and that of our business associates to comply with various government rules regarding healthcare and patient privacy. These and other risk factors are more fully discussed in the Risk Factors disclosure in our Form 10-K for the year ended December 31, 2002 and our other filings with the Securities and Exchange Commission, which we strongly urge you to read. We expressly disclaim any intent or obligation to update any forward-looking statements. When used, the words “believes,” “estimated,” “expects,” “anticipates,” “may” and similar expressions are intended to identify forward-looking statements.

More information on ProxyMed is available on its home page at www.proxymed.com.

6

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
(amounts in thousands except for share and per share data)

			Three Months Ended September 30,					Nine Months Ended September 30,
			2003			2002		2003			2002
Revenues			$	18,062		$	12,858	$	53,194		$	36,988
Costs and expenses:
	Cost of sales			7,270			5,897		22,188			17,061
	Selling, general and administrative expenses			9,135			5,893		29,755			17,327
	Depreciation and amortization			1,478			745		4,153			1,897
	Loss on disposal of assets			9			—		119			—
		Total operating costs and expenses		17,892			12,535		56,215			36,285
		Operating income (loss)		170			323		(3,021	)		703
Interest income (expense), net				(203	)		136		(572	)		251
Other income				4,041			265		4,793			265
		Net income		4,008			724		1,200			1,219
Deemed dividends and other charges				—			—		—			612
		Net income applicable to common shareholders	$	4,008		$	724	$	1,200		$	607
Basic earnings per share			$	0.59		$	0.11	$	0.18		$	0.10
Basic weighted average shares outstanding				6,783,095			6,741,772		6,782,991			6,178,441
Diluted earnings per share			$	0.58		$	0.11	$	0.18		$	0.10
Diluted weighted average shares outstanding				6,867,725			6,785,096		6,815,247			6,282,258
EBITDA (1)			$	1,648		$	1,068	$	1,132		$	2,600

(1) EBITDA is a metric that ProxyMed believes is a meaningful measurement of operating performance as it allows for comparison of performance between other competitors in the healthcare IT industry. Additionally, ProxyMed utilizes EBITDA as one of the factors in determining its management performance rewards. The calculation of EBITDA has no basis in Generally Accepted Accounting Principles (“GAAP”).

     A reconciliation to Operating income (loss), a corresponding measure under GAAP is as follows:

EBITDA	$	1,648	$	1,068	$	1,132		$	2,600
Deduct: Depreciation and Amortization		1,478		745		4,153			1,897
Operating income (loss)	$	170	$	323	$	(3,021	)	$	703

7

PROXYMED, INC. AND SUBSIDIARIES
Segment and Other Information (unaudited)
(amounts in thousands)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002
Revenues:
	Transaction services	$	11,829		$	5,735		$	35,102		$	16,345
	Laboratory communication solutions		6,233			7,123			18,092			20,643
		$	18,062		$	12,858		$	53,194		$	36,988
Cost of sales:
	Transaction services	$	3,804		$	2,250		$	12,327		$	6,449
	Laboratory communication solutions		3,466			3,647			9,861			10,612
		$	7,270		$	5,897		$	22,188		$	17,061
Selling, general and administrative expenses:
	Transaction services	$	6,068		$	2,865		$	20,763		$	8,498
	Laboratory communication solutions		2,149			2,400			6,339			6,915
	Corporate		918			628			2,653			1,914
		$	9,135		$	5,893		$	29,755		$	17,327
Depreciation and amortization:
	Transaction services	$	1,175		$	417		$	3,287		$	1,144
	Laboratory communication solutions		251			277			722			601
	Corporate		52			51			144			152
		$	1,478		$	745		$	4,153		$	1,897
Operating income (loss):
	Transaction services	$	784		$	203		$	(1,382	)	$	254
	Laboratory communication solutions		366			799			1,168			2,515
	Corporate		(980	)		(679	)		(2,807	)		(2,066	)
		$	170		$	323		$	(3,021	)	$	703
EBITDA:
	Transaction services	$	1,959		$	620		$	1,905		$	1,398
	Laboratory communication solutions		617			1,076			1,890			3,116
	Corporate		(928	)		(628	)		(2,663	)		(1,914	)
		$	1,648		$	1,068		$	1,132		$	2,600

8

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (unaudited)
(amounts in thousands)

					September 30,			December 31,
					2003			2002
				ASSETS
Current assets:
	Cash and cash equivalents				$	6,933		$	16,378
	Investment					5,289			—
	Accounts receivable — trade, net					9,865			10,060
	Notes and other receivables					333			503
	Inventory					3,580			2,774
	Other current assets					1,181			1,022
		Total current assets				27,181			30,737
Property and equipment, net						5,345			5,719
Goodwill, net						31,456			32,797
Purchased technology, capitalized software and other intangibles, net						17,216			18,220
Restricted cash						403			825
Other assets						209			406
		Total assets			$	81,810		$	88,704
			LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Notes payable and current portion of long-term debt				$	1,724		$	—
	Accounts payable, accrued expenses and other current liabilities					10,153			21,472
	Deferred revenue					590			516
		Total current liabilities				12,467			21,988
Convertible notes						13,400			13,400
Other long-term debt						2,313			—
Long-term deferred revenue and other long-term liabilities						1,688			2,581
		Total liabilities				29,868			37,969
Stockholders’ equity:
	Series C 7% Convertible preferred stock					—			—
	Common stock					7			7
	Additional paid-in capital					146,195			146,187
	Accumulated deficit					(94,074	)		(95,273	)
	Note receivable from stockholder					(186	)		(186	)
		Total stockholders’ equity				51,942			50,735
		Total liabilities and stockholders’ equity			$	81,810		$	88,704

9

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (unaudited)
(amounts in thousands)

					Nine Months Ended September 30,
					2003			2002
Cash flows from operating activities:
	Net income				$	1,200		$	1,219
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization			4,153			1,897
			Provision for doubtful accounts			155			7
			Provision for obsolete inventory			29			112
			Change in value of investment			(4,793	)		—
			Loss on disposal of fixed assets			119			—
			Changes in assets and liabilities, net of effect of acquisitions and dispositions:
				Accounts and other receivables		23			(1,880	)
				Inventory		(836	)		413
				Other current assets		304			(168	)
				Accounts payable and accrued expenses		(389	)		(236	)
				Deferred revenue		94			84
				Other, net		420			(48	)
		Net cash provided by operating activities				479			1,400
Cash flows from investing activities:
	Acquisition of businesses, net of cash acquired					—			(5,271	)
	Acquisition of assets					—			(700	)
	Purchase of short term investments					—			(15,000	)
	Redemption of short term investments					—			15,000
	Capital expenditures					(2,115	)		(1,395	)
	Capitalized software					(1,173	)		(277	)
	Collections on notes receivable					304			18
	Proceeds from sale of fixed assets					107			—
	Decrease in restricted cash					422			—
	Payments for acquisition-related costs					(5,653	)		(23	)
		Net cash used in investing activities				(8,108	)		(7,648	)
Cash flows from financing activities:
	Proceeds from stock offering, net					—			24,886
	Proceeds from exercise of stock options and warrants					8			—
	Payment of note payable related to acquisition of business					—			(7,000	)
	Payment of notes payable, capital leases and long-term debt					(1,824	)		(187	)
		Net cash provided by (used in) financing activities				(1,816	)		17,699
Net increase (decrease) in cash and cash equivalents						(9,445	)		11,451
Cash and cash equivalents at beginning of period						16,378			12,601
Cash and cash equivalents at end of period					$	6,933		$	24,052

During the nine months ended September 30, 2003, the Company financed a total of $4.9 million in previously existing accounts payable and accrued liabilities at December 31, 2002 for MedUnite through the issuance of notes payable. Additionally, the Company also entered into financing arrangements for $0.5 million for certain liability insurance also through the issuance of notes payable.

10 EX-99.2 4 g85580exv99w2.htm TRANSCRIPT OF 3RD QUARTER 2003 FINANCIAL RESULTS

EXHIBIT 99.2

PROXYMED, INC.
THIRD QUARTER 2003 FINANCIAL RESULTS CONFERENCE CALL

Moderator: Michael Hoover
October 28, 2003
10:00 a.m. ET

Operator:	I would like to welcome everyone to ProxyMed’s conference call to discuss financial results for the second quarter of 2003. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the Company, we will open the conference call up for questions and answers after the presentation. We would appreciate it if you would limit your questions to one and then get back in queue if you have a follow-up question or another question to ask.
	Today’s conference call is being webcast. Replays of this call will be available on the internet at www.proxymed.com shortly after this call. Leading today’s call from ProxyMed are Mike Hoover, CEO; Nancy Ham, President; and Judd Schmid, Chief Financial Officer.
	Before the discussions begin, please be reminded that statements made by ProxyMed during this call, including answers given in response to questions, are intended to fall within the Safe Harbor Provisions of the securities laws. Actual results might differ materially from those in the statements. Such statements are subject to a variety of risks, many of which are discussed in the company’s most recent form 10-K and other SEC filings, which the Company strongly urges you to read and which are available on the company’s Web site.
	At this time, I will now turn the presentation over to Mr. Mike Hoover.
Michael Hoover:	Good morning. Thank you Operator, and thank you everyone for joining us once again. On our call today we will report on our positive third quarter financial results, the highlights of which include bringing MedUnite to EBITDA profitability, the reporting of record EBITDA profits by our Transaction Services unit, and the delivery of operational break-even earnings per share. We will update you in detail on HIPAA, including our progress to date and our contingency plan. We’ll talk about new business, both from sales to new physicians and early results from our new service offerings with First Data and PlanVista announced last quarter. Finally, we’ll talk briefly about our updated outlook for the remainder of 2003.

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	Although HIPAA was our primary focus for the quarter, we continued to execute successfully on our MedUnite integration plans and to realize the benefits of the resulting operational synergies. As a result, I am pleased to report that we exceeded our internal financial expectations in terms of EBITDA profitability for MedUnite for the third quarter. While the integration has progressed to the point we cannot cleanly separate out MedUnite’s results, we are very confident that MedUnite has significantly crossed the EBITDA profit line. With this important milestone behind us, we are now focused on driving improving results from our Transaction Services business. We are making good progress here, and in fact, the quarter yielded this segment’s highest ever EBITDA margin at nearly 17 percent, evidence of the operating leverage inherent in our transaction business model. On the bottom line, despite on-going challenges in our lab business, ProxyMed reported breakeven earnings per share on an operational basis, meaning excluding the positive non-cash accounting impact of our PlanVista warrant. While we still have some work to do, I am confident that we will exit the year on a positive operational EPS run rate as we committed to you last quarter.
	So with this brief overview, let me turn it over to Judd and Nancy for all of the details. Judd
Judson Schmid:	Thank you, Mike and good morning everyone.
	We are pleased to report a good quarter overall, with consolidated revenue of $18.1 million and strong EBITDA profits of $1.6 million resulting primarily from the continued strength in our transaction services business, as evidenced by record EBITDA margins of nearly 17 percent, and the positive results of the integration of MedUnite. Looking to the bottom line, our operating results were dramatically improved to break-even operational EPS. While the non-cash accounting impact for the PlanVista warrant resulted in positive net income of $4 million and diluted EPS of $0.58, excluding this non-cash and non-operational item, we had a small loss of $33,000 and zero EPS for the quarter. Compared to our analyst consensus for the quarter, while we missed on consensus revenues of $18.8 million, we exceeded the consensus EBITDA of $1.45 million and an EPS loss of $.05. Our results also compare very positively to a net loss of $1.1 million and negative operating EPS of $0.16 excluding this similar item in the second quarter, so I think we’ve taken a significant step on the road to exiting the year on a positive operational EPS run rate.
	One important item to mention here as we get started. As we noted in last quarter’s call and due to the planned steps towards the integration of MedUnite, we’ve started to run our transaction business as one business. As

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a result, we are no longer able to break out for you meaningful operating and statistical information for MedUnite.

So with that, let’s jump into the numbers. Starting with revenues, overall revenues were $18.1 million, an increase of 3 percent over last quarter. Lab Services grew revenue 9 percent, while in our transaction business, sequential revenues declined 1 percent from the second quarter. The revenue decline is largely attributable to the loss of some low-margin gateway business overshadowing the growth in new direct business at full margin. This change in mix explains why EBITDA and EBITDA margins were able to increase strongly despite the flatness in sequential revenue.

From a transaction standpoint, we processed a total of 56.1 million total transactions, up 92 percent from the third quarter of last year and up slightly on a sequential basis. While sequentially transactions did increase, the increase came from processing more encounters, which are a lower priced transaction, while core transactions declined 2 percent due to the gateway volume loss just noted. On an overall basis, however, our internal transaction growth remains strong, with total transactions up over 20 percent in the last 3 quarters compared to last year, and core transactions up over 27 percent over the same period. These results are directly in line with our internal transaction growth goals of 25 percent per year. On an annual basis, we remain on a run rate to process almost 225 million transactions.

Turning to Lab Services, we saw a 9 percent increase in revenues from last quarter. Despite this moderate improvement, we continue to be revenue challenged in this business. New sources of revenues from our lab customers are critical for continued recovery in the revenue growth rate of this business.

Shifting now to SG&A expenses, our plans to integrate MedUnite into our existing transaction services operations have really come together. The culmination of this plan has resulted in an internal reorganization of the business for a much more efficient operation. As a result, overall SG&A expenses sequentially decreased by 12 percent from last quarter. Over the rest of the year, we have a few remaining areas of integration, such as maintenance contracts and telecommunications, that will yield further synergies. However, as the development projects related to the integration are moving into successful production, we will see a decrease in the amount of capitalized development related to our real-time and Phoenix platforms. This will outweigh the final integration synergies, so we do expect reported SG&A dollars in this business unit to increase sequentially in the fourth quarter. As a result, on a consolidated basis, we anticipate a slight rise in SG&A expenses, in the range of 2 percent to 4 percent, in the fourth quarter.

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In our lab business, SG&A expenses are down from last year by 10 percent, but they increased around 3 percent sequentially primarily due to mid-year raises and increased benefit costs. At corporate, SG&A expenses were up almost 9 percent due to increased professional fees and personnel costs.

With the slight sequential increase in revenues combined with the more significant effects of the success of our integration of MedUnite, we are pleased to report that consolidated EBITDA profits almost quadrupled from $432,000 in the second quarter to over $1.6 million in the third quarter. The biggest contributor to this increase was our transaction services business, which more than doubled its EBITDA profits from $832,000 to almost $2 million between quarters. In addition, EBITDA in our lab business improved solidly over last quarter, increasing from $456,000 to $618,000. These increases in operating profits were offset somewhat by an increase in our corporate expenses of $73,000. One important item to note on EBITDA is that our transaction services EBITDA margin has increased to just shy of 17 percent, a record for the company. And even with our anticipated increases in SG&A costs for the fourth quarter, the EBITDA margin should continue to increase. As stated previously, our goal is for our Transaction Services unit to exit the year on an EBITDA margin run rate of 20 percent.

On the amortization expense front, due to the successful introduction in the third quarter of ProxyMed.net, our ‘new and improved’ real-time network based on the technology platform we acquired from MedUnite, amortization expense was up over last quarter as we started to amortize this platform, and going forward, amortization of this platform will add about $90,000 per month to our expense. Additionally, in the fourth quarter, we will begin amortization of our Phoenix platform, adding approximately $20,000 in amortization per month. Both the real-time and Phoenix platforms are being amortized over a 5 year life.

From a cash perspective, we ended the quarter with $7.3 million in total cash on the balance sheet. Operations are now adding to this balance, as the business is once again generating positive cash flow from operations. In addition, I am pleased to announce that we have reached agreement on a $12.5 million asset based line of credit with our existing commercial bank. So, between cash on hand, positive cash flow and the bank line of credit, we are in very good shape from a cash perspective and have more than sufficient cash for our operating needs.

Finally, in conjunction with our commercial agreement with PlanVista Corporation to provide cost containment services to our payers, we acquired a warrant to purchase up to 15 percent of PlanVista at $1.95 per share. In the accounting for this warrant, we recorded an initial value of $547,000 in June. At the end of the second quarter, as the price of PlanVista’s stock had increased, the value of this warrant was increased on our books to $1.3

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	million in a “mark-to-market” accounting adjustment. On September 30th, PlanVista’s stock price had increased again to $3.35 per share. Accordingly, using the same valuation methodology, the warrant value was calculated to be $5.2 million and we recorded a $4 million increase in the value that appears as other income. In the event that the warrant expires unexercised in December, we will have to take an impairment charge for the then carrying value of the warrant. The bottom line here is that in the fourth quarter, there may well be a non-cash “other expense” accounting charge of approximately $5.2 million in our P&L and EPS calculations.
	So with that financial recap, I’d like to turn it over to Nancy who’ll be discussing our operations more in detail. Nancy
Nancy Ham:	Good morning everyone. Certainly the big news for the quarter is about MedUnite. Just nine months ago we purchased a business with a cash burn rate of almost $1.6 million a month. Today, we have delivered on our commitment that MedUnite would contribute positive EBITDA in the third quarter. In addition, Transaction Services, which now includes MedUnite, reported its highest EBITDA margin ever at 16.6 percent, demonstrating that we are beginning to unlock the operating leverage available in the business.
	Despite reaching this important milestone, we are not quite done with our work at MedUnite. As we said last quarter, we will still be working over the balance of the year to finish integrating the MedUnite production processing platforms into ProxyMed’s Phoenix platform. This is the fourth and final step in our original four phase integration plan. On the real-time side, ProxyMed has now completed the rollout of all real-time transaction services and the migration of its ProxyMed and MedUnite existing real-time payers and customers to our new integrated portal, ProxyMed.net. We are on track to complete the final phase of the project with the migration of a small number of direct data entry claims clients by the end of the year.
	With the portal basically done, over the rest of the year then our focus at MedUnite is to complete the migration of all our claims business onto ProxyMed’s Phoenix platform. I’ll talk about this more in conjunction with our HIPAA update in just a second. Let me just conclude on MedUnite by thanking all of our associates for their great efforts to bring MedUnite to EBITDA profitability, and I hope that they enjoy their well-deserved celebration this Friday.
	Let’s talk now about HIPAA. The deadline of October 16th has passed, and HIPAA has become the law of the land. However, prior to the deadline, CMS announced that they would permit full compliance to come into effect not on a single date, October 16th, but over the next few months as each participant in the industry – submitter, clearinghouse and payers – completes

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its path to full compliance in accordance with its own contingency plan. What does this mean for ProxyMed?

First, ProxyMed is very fortunate that our Phoenix platform was architected with a lot of flexibility that allows us to respond to the wide variety of contingency plans beingannounced by submitters and payers. We can process almost any combination of formats, including ANSI-to-ANSI, ANSI-to-legacy, or legacy-to-ANSI as the circumstances dictate. We can even send both ANSI and legacy to the same payer in a “dual pipe” approach. This allows us to work carefully with each of our partners to bring them into compliance as they are ready, and with a minimum of disruption to claims processing and payment.

Second, we have not seen any major change in submitting patterns. There had been some concern in the industry that a large number of providers would choose to drop to paper as their HIPAA solution, but we have not seen that in our customer base. In fact, our October transaction volume looks very steady in comparison to prior months. So, while it’s a little too soon to put this concern to bed completely, we are cautiously encouraged.

Third, ProxyMed is today processing in normal production all the relevant HIPAA transaction types, claims, eligibility, claims status, referrals, electronic remittance advices, etc., in a fully compliant end to end system. We had originally planned to have our payers migrated from legacy formats to HIPAA-compliant ANSI formats by the October 16th date. However, this would have required us to migrate a large number of payers all at once very close to the deadline. We decided it would be more prudent to adopt a contingency plan under the CMS guidelines. Accordingly, we suspended payer migrations to ANSI for a few weeks directly around October 16th in order to assess industry conditions and our transaction performance. We are now ready to resume payer migrations, and we anticipate completing them by the end of December, expect for those payers who will not be ready on their end. In parallel, we will resume submitter migrations as well.

ProxyMed did experience a few HIPAA downsides, which will negatively impact the fourth quarter. First, we incurred substantial overtime in the weeks leading up to October 16th and after. In addition, resources we had hoped to redeploy from HIPAA to new business implementation will be delayed in their transition until the end of the year. This will delay ramping up new business that is in current backlog, and will cause fourth quarter expenses to be higher than originally forecast. Largely as a result of this, along with the on-going challenges in our Lab unit, ProxyMed has updated our outlook for 2003. We expect that consolidated revenues will be between $71 and $73 million, while consolidated EBITDA will be between $2.9 million and $3.4 million.

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Let’s turn now to ProxyMed’s Transaction Services business. Despite everything going on with HIPAA, the good news is that new sales continued on a very strong rate, signing up almost 4,000 physicians for over 8,500 new services. As a result of strong sales combined with HIPAA related implementation slowdowns, we now have over $4 million in annual, recurring transaction revenue in a backlog of signed but not yet implemented business. As we mentioned, with HIPAA distractions lessening for us and for our customers, we should now be able to shorten the cycle from contract signing to revenue and this cycle time will be a major focus for us in early 2004. We are getting a headstart on this focus as we are already in the final stages of several new tools and products to help streamline and Web enable the “go-live” process. In particular, our new ProxyEnroll tool will be launched by the end of the year. ProxyEnroll is a radical change for us in the process of getting authorizations from payers to turn on new physicians. Today this is a labor and paper intensive process that takes from 2 to 12 weeks before a physician is authorized to send transactions to government payers and to most Blue Cross plans, and accordingly, before we can process transactions and generate revenue. With ProxyEnroll, we think we can cut this cycle time in half.

Outside of our direct physician sales, our strategic sales teams have been very busy with marketing to payers our FirstProxy ERA/EFT and PlanVista cost containment services. Normally the sales cycle to a payer will easily run from six to nine months, so we are very pleased that we have signed our first cost containment deal in the first three months of marketing. This deal will not contribute any revenue until January, but it is an encouraging sign of the market’s receptivity to our offering. In addition, for both FirstProxy and for PlanVista, we have been able to create a good pipeline of qualified opportunities and we are now advancing to formal proposals and negotiations on a number of them. We hope to be to sign one to two deals by the end of the year that will be material contributors to revenue growth in 2004.

Finally, let me turn to our Lab Business, which continues to feel the effects of the overall economic slowdown in both our contract manufacturing and our lab device business. Our national and regional account business did see a slight upturn for the quarter however, as revenue improved by 9 percent sequentially. In addition, we signed four new regional lab customers and we added one new lab and 73 new sites for our recurring revenue FleetWatch service.

We also had our first win from our new strategy of better leveraging our multiple touch points with labs, which include devices and related services from our lab segment, real-time transactions from MedUnite, and claims and encounters from transaction services. While we are still building a new sales team here, we did cross-sell our transaction services to an existing

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	clinical lab customer, and we have several others in the pipeline. This new approach, along with targeting labs for FirstProxy ERA/EFT, will take time to bear fruit, but we are cautiously optimistic that this strategy can help get revenue growth back on track in 2004.
	With that, I’ll turn it back over to Mike.
Michael Hoover:	Thanks, Nancy. Overall, I am pleased with the quarter and think we are in pretty good shape as we look to wrap up the 2003 year. After turning EBITDA and cash flow negative when we originally purchased MedUnite, we have met our commitment to turn MedUnite around quickly and to bring it to positive EBITDA by the third quarter. Despite our focus on the MedUnite integration, we also are making good progress in our core business, with Transaction Services delivering a record EBITDA margin of almost 17 percent in the third quarter.
	As we get the integration and final stages of HIPAA migration behind us, I think we are well positioned for strong internal growth on the top line over the next six to eight quarters. Looking ahead to 2004, we will start the year with almost $4 million in annual revenue already in the door, just waiting to be implemented. That represents a 5 percent annual growth rate in house. In addition, we have a number of factors that should allow us to meet our revenue growth target of 15 to 20 percent on a consolidated basis, including:

• continued strong sales to our direct physicians, coupled with faster pull-through of new sales;

• accelerated cross-selling to our existing 140,000-plus physicians, as the distraction of HIPAA gets behind us and as we see a faster uptake of newer transactions such as eligibility and electronic remittance advice; and

• Sales of our newer value-added offerings such as FirstProxy and cost containment, with each opportunity being in the $500,000 to $2 million range on an annual basis.

Revenue growth is of course key, but we think we have a good margin opportunity as well. As our margin expansion in third quarter showed, we are bringing on new business at a lower cost than in the past. By early 2004, when our platform consolidation and other major technology projects will be completed, we should be able to drop an increasing amount of new revenue to the EBITDA line, such that the growth rate of EBITDA should be quite a bit faster than the underlying growth in revenue. And since ProxyMed is still in a zero tax paying situation for the foreseeable future, most of that EBITDA profit will show up in accelerating earnings per share for our shareholders.

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We think 2004 will be a very positive year for ProxyMed and our shareholders. However, we wanted to assess any impact from HIPAA before providing 2004 guidance. With October 16th behind us, we will monitor the situation for the month of November, and then release our 2004 guidance in mid-December. With Transaction Services margins at 20 percent and ProxyMed on a positive operational EPS run rate, both exiting the year, we will be well positioned for a prosperous 2004.

We will now open the lines up for any questions. Operator

[Questions from participants and answers from management omitted]

Michael Hoover:	We thank you very much, for your time today and appreciate your participation. We look forward to our fourth quarter and end of year call. Thank you.
Operator:	Ladies and gentlemen that concludes today’s presentation you may now disconnect. Thank you.

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TRANSCRIPT OF 3RD QUARTER 2003 FINANCIAL RESULTS