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):
May 5, 2004

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.)

1854 Shackleford Court, Suite 200, Atlanta, Georgia	30093-2924
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (770) 806-9918

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

     On May 5, 2004, ProxyMed, Inc. (the “Company”) announced its financial results for the three months ended March 31, 2004. 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 May 6, 2004, the Company held a teleconference call to report its financial and operating results for the quarter ended March 31, 2004. 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; ProxyMed’s ability to continue to integrate the operations of PlanVista into its existing operations, the ability to identify suitable future acquisition candidates; the ability to successfully integrate any future acquisitions; ProxyMed’s ability to successfully develop, market, sell, cross-sell, install and upgrade its clinical and financial transaction services and applications to current and new physicians, payers, medical laboratories and pharmacies; the ability to compete effectively on price and support services; ProxyMed’s assessment of the healthcare industry’s need, desire and ability to become technology efficient; and ProxyMed’s ability and that of its business associates to comply with various government rules regarding healthcare and patient privacy. For further cautions about the risks of investing in ProxyMed, we refer you to the documents we file from time to time with the Securities and Exchange Commission, particularly the Company’s Form 10-K for the year ended December 31, 2003, and ProxyMed’s registration statement on Form S-4 relating to the merger with PlanVista, 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.

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Item 7. Financial Statements and Exhibits.

     (c) The following exhibits are included herein:

Exhibit 99.1 -	Press Release dated May 5, 2004, reporting financial results for the three months ended March 31, 2004.
Exhibit 99.2	Transcript of first quarter 2004 financial results teleconference call held on May 6, 2004.

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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: May 10, 2004	/s/ Gregory J. Eisenhauer
	Gregory J. Eisenhauer, Executive Vice
	President and Chief Financial Officer

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INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
99.1	Press Release dated May 5, 2004 reporting financial results for the three months ended March 31, 2004.
99.2	Transcript of first quarter 2004 financial results teleconference call held on May 6, 2004.

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EX-99.1

EXHIBIT 99.1

[ProxyMed Logo]

Company News Release

IMPORTANT NOTE:

ProxyMed’s live teleconference call to discuss its first quarter results is accessible by calling 888-630-9270 beginning at 10:00 a.m. Eastern Time on Thursday, May 6, 2004 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. ET on May 6th.

Contact:
ProxyMed, Inc.
Gregory J. Eisenhauer, CFA
EVP & Chief Financial Officer
770-806-4780
geisenhauer@proxymed.com

PROXYMED REPORTS RECORD REVENUES OF $20.5 MILLION FOR THE FIRST QUARTER OF 2004

     Atlanta, GA (BusinessWire) May 5, 2004 – ProxyMed, Inc. (Nasdaq: PILL), a leading provider of healthcare transaction processing services, today reported its operating results for the first quarter of 2004 and reiterated its guidance for the remainder of 2004.

First Quarter 2004 Results

     ProxyMed reported record revenues of $20.5 million for the first quarter, an increase of 17.6% compared to revenues of $17.4 million for the first quarter of 2003. For the first quarter of 2004, the Company recorded a net loss of $0.4 million, or $0.05 per share as compared to a net loss of $2.5 million and $0.36 per share for the same period last year. Diluted weighted average shares outstanding for the quarters ended March 31, 2004 and 2003 were 8,570,731 and 6,782,938, respectively. Sequentially, revenues increased by $2.1 million or 11.7%, and exceeded the top end of the Company’s guidance by $0.5 million.

     The bottom line improved as well, with net loss improving by $5.8 million. This largely reflects the fourth quarter of 2003 non-cash charge related to the write-off of PlanVista warrants. This exceeded our guidance of a net loss of $0.6 million to $1.0 million.

     For the first quarter of 2004, EBITDA (a non-GAAP measure defined as earnings before interest, taxes, depreciation, and amortization and other income/expense) increased to $1.8 million.

     This compares favorably to negative EBITDA of $0.9 million for the first three months of 2003 and EBITDA of $1.5 million for last quarter. The management of the Company believes EBITDA is a meaningful measurement of operating performance as it allows for comparison of operating performance between other competitors in the healthcare IT industry without the effects of capital structure charges, and serves as a factor in determining management’s performance compensation.

     On March 2, 2004 the Company completed its acquisition of 100% of the outstanding capital stock of PlanVista Corporation. “We have been extremely pleased with the initial results from our medical cost containment division,” said Michael K. Hoover, Chairman and Chief Executive Officer of the Company. “We believe that adding this new suite of high value added services and business process outsourcing solutions to our product offering for our payer customers will continue to increase value for our shareholders over the long run.”

     Nancy Ham, the Company’s President and Chief Operating Officer added, “Since we began this deal through a joint marketing agreement last summer, our systems and operating teams are already largely integrated and we are aggressively pursuing new opportunities. We expect that the addition of cost containment services will significantly improve both the top and bottom line performance of our combined company.”

Operating Segment Performance

Transaction Services

     The Transaction Services segment reported revenues of $14.6 million for the first quarter of 2004 (including the one month of operating results from the former PlanVista), an increase of 29.2% over the same period a year ago. On a sequential basis, revenue increased by 26.1% over the fourth quarter of 2003.

     Due to the integrated nature of the Company’s service offering, the Company intends to report all financial, administrative, clinical and cost containment transactions and services as our Transaction Services segment. Total clearinghouse transactions during the first quarter of 2004 were 59.8 million, up 6.0% from the 56.5 million transactions during the same period last year and up 3.0% sequentially. Core transactions were 49.9 million for the quarter, up 0.6% from the same period last year, yet down 2.3% sequentially.

Statistics

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

Description:	Q/E		Q/E		Q/E
(all amounts in thousands)		3/31/04		12/31/03		3/31/03
Core transactions (excluding encounters)		*49,875		51,069		49,601
Encounters		9,967		7,035		6,878
Total		59,841		58,104		56,479

* 375,000 of these transactions are from the cost containment unit.

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Laboratory Communications Solutions

     The Laboratory Communications Solutions segment reported revenues of $5.9 million for the first quarter of 2004, as compared to revenues of $6.1 million for the first quarter of 2003 and revenues of $6.8 million in the fourth quarter.

     EBITDA for the lab division was $0.5 million for the first quarter of 2004, a decrease of $0.3 million from a year ago and $0.1 million sequentially.

     “While this segment has begun slowly this year, as has typically been the case in the past, the second quarter is off to a strong start. With the strengthening economy, we expect improvement throughout the year on both the revenue and EBITDA lines,” said Nancy Ham. “Industry observers have now begun to speculate that the lab market may have ‘over-consolidated’, leaving a service vacuum. The trend to large non-national orders is indicative of this, and ProxyMed is leveraging our strong position to assist labs in this initiative.”

Corporate and Consolidated

     Consolidated SG&A for the first quarter was $10.4 million, up from $10.0 million during the same period one year ago and $8.3 million sequentially, primarily due to operating expenses for PlanVista for one month and non-cash charges of $0.1 million associated with option grants to employees of the former PlanVista Corporation.

     Net interest expense for the quarter of $0.3 million was largely as a result of the increased debt associated with the PlanVista acquisition, which was completed during the quarter. Combined depreciation and amortization equaled $1.8 million versus $1.3 million for the previous period, again largely as a result of the amortization of identifiable intangible assets from the PlanVista acquisition.

     The provision for income taxes was $50,000 for the quarter primarily for state income taxes. The Company anticipates that it will be able to utilize a significant amount of its net operating losses (“NOLs”) as well as NOL’s from its previous MedUnite acquisition and PlanVista acquisition to offset the bulk of its combined federal income taxes during the current year.

     Net loss for the period was $0.4 million compared to a net loss of $2.5 million for the same period the previous year. The total weighted outstanding shares for the period were 8.6 million resulting in a loss of per share of $0.05 in the current period versus a loss of $0.36 in the first period last year and a loss of $0.91 per diluted share in the fourth quarter of 2003. The fourth quarter 2003 results were skewed by a significant non-cash charge in the amount of $5.3 million.

Consolidated 2004 Guidance

     Guidance for the 2004 year remains unchanged. Guidance for the second quarter and for the year is as follows:

• Net revenues for the second quarter of $26.0 to $27.0 million. Net revenues for the year of $100.0 to $107.0 million.

• Consolidated EBITDA of $16.0 to $18.0 million for the year with $3.5 to $4.5 million of EBITDA during the second quarter.

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• Depreciation and amortization of $2.8 to $3.2 million per quarter for the remainder of the year.

• Interest expense of $0.5 to $0.6 million per quarter for the remainder of the year.

• Tax expense of $0.1 to $0.2 million per quarter for the remainder of the year.

• Diluted earnings per share of $0.20 to $0.30 for the year, with an anticipated EPS of $0.02 to $0.06 for the second quarter.

• The Company cautions investors that some classifications of expenses may change during the year between cost of sales and SG&A as a result of changing the presentation of PlanVista financial information to better conform with ProxyMed’s presentation.

• The Company anticipates that it will spend between $1.0 to $1.5 million in 2004 for systems work and Sarbanes Oxley compliance. The Company anticipates that only a portion of these costs will be on-going in 2005.

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

	Three Months Ended March 31,
	2004			2003
Revenues	$	20,504		$	17,430
Costs and expenses:
Cost of sales		8,289			8,212
Selling, general and administrative expenses		10,405			10,041
Depreciation and amortization		1,849			1,330
Loss on disposal of assets		4			125
Total operating costs and expenses		20,547			19,708
Operating loss		(43	)		(2,278	)
Interest (income) expense, net		334			174
Provision for income taxes		50			—
Net loss	$	(427	)	$	(2,452	)
Basic and diluted loss per share	$	(0.05	)	$	(0.36	)
Basic and diluted weighted average shares outstanding		8,570,731			6,782,938
EBITDA (1)	$	1,806		$	(948	)

(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:

Operating loss	$	(43	)	$	(2,278	)
Add: Depreciation and Amortization		1,849			1,330
EBITDA	$	1,806		$	(948	)

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

	Three Months Ended March 31,
	2004			2003
Revenues:
Transaction Services	$	14,594		$	11,291
Laboratory Communication Solutions		5,910			6,139
	$	20,504		$	17,430
Cost of sales:
Transaction Services	$	4,260		$	4,266
Laboratory Communication Solutions		4,029			3,946
	$	8,289		$	8,212
Selling, general and administrative expenses:
Transaction Services (1)	$	7,984		$	7,787
Laboratory Communication Solutions (1)		1,360			1,374
Corporate		1,061			880
	$	10,405		$	10,041
Depreciation and amortization:
Transaction Services	$	1,554		$	1,056
Laboratory Communication Solutions		259			230
Corporate		36			44
	$	1,849		$	1,330
Operating income (loss):
Transaction Services (1)	$	797		$	(1,941	)
Laboratory Communication Solutions (1)		257			587
Corporate		(1,097	)		(924	)
	$	(43	)	$	(2,278	)
EBITDA:
Transaction Services (1)	$	2,351		$	(885	)
Laboratory Communication Solutions (1)		516			817
Corporate		(1,061	)		(880	)
	$	1,806		$	(948	)

(1) Excludes any allocation of corporate overhead

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

	March 31,			December 31,
	2004			2003
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,381		$	5,333
Accounts receivable — trade, net		20,411			10,434
Notes and other receivables		274			187
Inventory		3,574			3,347
Other current assets		1,565			1,908
Total current assets		36,205			21,209
Property and equipment, net		5,364			4,772
Goodwill, net		100,382			30,775
Purchased technology, capitalized software and other intangibles, net		57,158			15,884
Restricted cash		250			291
Other assets		512			199
Total assets	$	199,871		$	73,130
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current portion of long-term debt	$	5,850		$	1,712
Accounts payable and accrued expenses		11,208			8,264
Deferred revenue and other current liabilities		1,646			721
Total current liabilities		18,704			10,697
Convertible notes		13,137			13,137
Other long-term debt		21,269			2,057
Long-term deferred revenue and other long-term liabilities		104			1,461
Total liabilities		53,214			27,352
Stockholders’ equity:
Series C 7% Convertible preferred stock		—			—
Common stock		13			7
Additional paid-in capital		247,734			146,230
Accumulated deficit		(100,700	)		(100,273	)
Unearned compensation		(204	)		—
Note receivable from stockholder		(186	)		(186	)
Total stockholders’ equity		146,657			45,778
Total liabilities and stockholders’ equity	$	199,871		$	73,130

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

	Three months ending March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	(427	)	$	(2,452	)
Adjustments to reconcile net cash used in operating activites:
Depreciation and amortization		1,849			1,330
Provision for doubtful accounts		207			54
Provision for obsolete inventory		15			10
Loss on disposal of fixed assets		4			125
Non-cash interest (income) expense		(27	)		—
Stock option compensation charges		106			—
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Accounts and other receivables		(641	)		(984	)
Inventory		(241	)		(148	)
Other current assets		56			(262	)
Accounts payable and accrued expenses		(51	)		1,797
Accrued expenses of PlanVista paid by ProxyMed		(4,011	)		—
Deferred revenue		53			(38	)
Other, net		(137	)		74
Net cash used in operating activities		(3,245	)		(494	)
Cash flows from investing activities:
Net cash acquired in acquisition		782			—
Capital expenditures		(705	)		(910	)
Capitalized software		(380	)		(276	)
Collections on notes receivable		45			81
Proceeds from sale of fixed assets		—			64
(Increase) decrease in restricted cash		40			(326	)
Payments for acquisition-related costs		(776	)		(3,860	)
Net cash used in investing activities		(994	)		(5,227	)
Cash flows from financing activities:
Net proceeds from sale of common stock		24,100			—
Proceeds from exercise of warrants		8,750			—
Draws on line of credit		4,900			—
Repayment of line of credit		(4,400	)		—
Payment of notes payable, capital leases and long-term debt		(24,063	)		(310	)
Net cash provided by (used in) financing activities		9,287			(310	)
Net increase (decrease) in cash and cash equivalents		5,048			(6,031	)
Cash and cash equivalents at beginning of period		5,333			16,378
Cash and cash equivalents at end of period	$	10,381		$	10,347

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About ProxyMed, Inc., Where Healthcare Connects™

ProxyMed is the nation’s second largest provider-based electronic healthcare transaction services company. We provide connectivity, medical cost containment services, business process outsourcing solutions 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.

For more information, please visit the Company’s website at www.proxymed.com.

Forward Looking Statement

ProxyMed cautions that forward-looking statements contained in this document are based on current plans and expectations, and that a number of factors could cause the actual results to differ materially from the guidance given at this time. Some of these factors are described in the Safe Harbor statement below.

Except for the historical information contained herein, the matters discussed in this document may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These statements include those concerning the potential benefits and effects, including but not limited to any expectations as to profitability, revenue growth, projected EBITDA, and other aspects of the financial performance of the combined company. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. 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; ProxyMed’s ability to continue to integrate the operations of PlanVista into its existing operations, the ability to identify suitable future acquisition candidates; the ability to successfully integrate any future acquisitions; ProxyMed’s ability to successfully develop, market, sell, cross-sell, install and upgrade its clinical and financial transaction services and applications to current and new physicians, payers, medical laboratories and pharmacies; the ability to compete effectively on price and support services; ProxyMed’s assessment of the healthcare industry’s need, desire and ability to become technology efficient; and ProxyMed’s ability and that of its business associates to comply with various government rules regarding healthcare and patient privacy. For further cautions about the risks of investing in ProxyMed, we refer you to the documents each company files from time to time with the Securities and Exchange Commission, particularly the Company’s Form 10-K for the year ended December 31, 2003, and ProxyMed’s registration statement on Form S-4 relating to the merger with PlanVista.

In this regard, investors are cautioned that the Company will be subject to numerous risks and uncertainties, including, but not limited to, the risks inherent in acquisitions of technologies and businesses, including the integration of separate workforces, the timing and successful completion of technology and product development through production readiness, integration of such technologies and businesses into the combined company, unanticipated expenditures, changing relationships with customers, suppliers and strategic partners, and other factors.

ProxyMed does not assume any obligation to update information contained in this document, including for example guidance regarding future performance, which represents the companies’ expectations only as of the date of this release and should not be viewed as a statement about the Company’s expectations after such date. Although this release may remain available on the Company’s website or elsewhere, its continued availability does not indicate that the Company is reaffirming or confirming any of the information contained herein.

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EX-99.2

EXHIBIT 99.2

     PRESENTATION

Operator

     Good morning and welcome to ProxyMed conference call to discuss the financial results for the first quarter of 2004 and updated 2004 guidance.

     [OPERATOR INSTRUCTIONS].

Today’s conference call is being Web cast and replays of the call will be available on the Internet at www.proxymed.com shortly after this call. Leading today’s call from ProxyMed are Mike Hoover, Chairman and CEO, Nancy Ham, President and COO and Gregg Eisenhauer, Executive Vice-President and CFO.

Before the discussion begins, please be reminded that statements made by ProxyMed during this call including answers given in response to the questions are intended to fall within the safe harbor provisions of the securities law and actual results might difference materially from those in this statement. Such statements are subject to a variety of risks, many 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 or obtain from the investor relations department.

At this time I turn the presentation over to Mike Hoover.

Mike Hoover - ProxyMed — Chairman and CEO

     Thank you, Adam and thank you everyone for joining us this morning for discussion of the first quarter results. Although HIPAA and its associated challenges continue to figure prominently in the first quarter, the team has worked through these issues alongside the rest of the industry and is successfully weathering the HIPAA storm.

Our Transaction Services business continued to grow with total transactions of 59.8 million. This positive progress, along with the contributions from a well-integrated cost containment division has resulted in record revenues of $20.5 million in the first quarter. This exceeded our revenue guidance by $500,000 and represents an increase of almost 18% over the first quarter of 2003. In addition, our net loss of $0.05 per share was better than our guidance of a loss of between $0.06 and $0.10 per share.

The highlight of the quarter, of course, was completing our acquisition of PlanVista Corporation. This highly strategic transaction is a core building block in our ongoing strategy to extend our traditional transaction-processing platform by adding all the pieces necessary to control and add value to the entire transaction processing cycle among providers, payers and patients.

With the addition of PlanVista’s suite of medical cost containment and business processing out-sourcing, or BPO solutions, ProxyMed now has a comprehensive and innovative end-to-end claims processing solution that encompasses data and network management, inbound claims transaction processing, claims re-pricing and claims payment. In addition we acquired new physician and payer customers that we can now add to our cross-selling efforts.

The core rationale for the acquisition of PlanVista is our strategy to “re-monetize” our EDI claims processing business, where we have traditionally generated revenue of approximately $0.25 a claim. In our new cost containment business we can generate between $8 and $10 per re-priced claim. Obviously, we can expand our new service to our existing payers, or our existing claims, the bottom line is that we can create more value to our customers through reduced claims cost while generating more operating profit to us, with respect to each and every claim that moves through our platform. As one example, we are working on launching a unique integrated claims management solution that includes both claims submission and claims repricing services in a single seamless workflow. These kinds of innovative services will position us to accelerate our top-line growth and support increasing operating margins.

One key aspect of the strategy is leveraging our connectivity and relationships with these payers by cross-selling them our new, high margin services. We’ve already demonstrated the potential power of selling our new cost containment solutions to our large existing payers by signing two separate contracts with Great-West Healthcare, one for our payer service BPO service and one for our medical cost containment. Our cross-selling sales pipeline appears promising and we look forward to keeping you updated throughout the year with our successes.

And speaking of successes, I am delighted to give you an update on our prior acquisition MedUnite. You may recall that the deal had an innovative incentive for the former shareholders of MedUnite to more than double their revenue to us over a three and a half year period. I am pleased to report that the former shareholders, which are seven of the nation’s largest insurance companies and NDCHealth have met their first revenue target, which Gregg will talk about shortly.

So with that brief overview, let me turn it over to Nancy and Gregg for all the details. Nancy?

Nancy Ham - ProxyMed — President and COO

     Good morning, everyone. I look forward to later this year when I can get on a quarterly update call and not have to talk about HIPAA, but for now it’s still very much with us. During the quarter, we made steady progress on migrating our payers, and as of this week we have approximately 76% of our volume migrated to HIPAA compliant interface with the payer. We are focused now on completing the migrations of our remaining Medicare connections by the end of June. At that point we will have over 95% of our outbound payer volume migrated with the changes finishing up our smaller payers.

Challenges with HIPAA continue to depress revenue growth and operating margins in our claims processing business. As we discussed on our last call, front-end rejection rates remain high when compared to historic levels. Implementation of new HIPAA mandated limits has resulted in rejections of more claims back to the providers. Given the uncertainty around HIPAA, instead of determining how to repair these rejected claims and to resubmit them electronically, providers seem to be dropping these rejected claims to paper in their office and mailing them to the payer. We previously estimated that in the first quarter these higher reject rates costs a missed revenue to us as close to half a million dollars.

In the first quarter, our efforts to reduce front-end rejection percentages back towards pre-HIPAA levels had some success allowing us to narrow the missed revenue opportunity to approximately $340,000.

HIPAA challenges continue to affect the expense side as well. Our full-time staffing levels are very high in all departments from enrollment to support to account management when compared with historic levels. And even with this increased staff, we are incurring significant expense in other areas to bolster interim capacity. For example, over time and contracted and temporary help alone totaled over $325,000 for the quarter. Although these expenses are depressing current results, we consider them vital investments to improve our ability to provide service to our providers in these challenging times.

Looking now at transactions, we processed a total of 59.8 million transactions in the first quarter. I want to point out, however, that we had a very large spike in encounters associated with the specific California payer initiative to motivate IPAs to get current on their encounters submissions. We believe that IPAs erred on the side of caution and resubmitted both old and new encounters and this skewed encounter results to the high side. For core transactions, which exclude encounters, we processed 49.9 million transactions. Please note that core transactions included 375,000 claims from our new cost containment business.

So far, I really only talked about our HIPAA efforts with our payers. It’s important to understand that this only addresses the connection between us and the payer. On the submitter side it’s a whole different story. Providers generally must upgrade or purchase new software in order to be able to originate and send transactions in a HIPAA compliant format. This can be very expensive and disruptive to healthcare practices, costing providers from thousands to hundreds of thousands of dollars depending on the practice management system on the practice side. As an alternative, providers can rely on us to continue to accept their legacy formats and translate them into HIPAA compliant transaction. Significantly, we provide this service at NO incremental cost to the providers. This data bridging along with services such as aggregation, security, telecommunications and reporting are central to our value equations. The vast majority of our providers have opted for this approach. As a result, only about 10% of our current in bound volume is sent to us from the provider in a HIPAA-compliant format.

As for life beyond HIPAA, we have been progressing in a number of other areas. For example, we made good progress on adding more connections for newer transaction step as with electronic remittance advice and eligibility verification. As these new payer connections move into production during the remainder of the year we anticipate finally experiencing one and perhaps the only positive aspect of HIPAA, which will be a big bang in new transactional content we can sell our providers and payers. We are particularly excited about the electronic remittance advice, or ERA, which serves a crucial role in closing out the claims processing and payment cycle for our customers.

In addition, we made some masterful progress during the quarter on new product development, including releasing into beta our first Web-based self service tool, ProxyEnroll, which handles enrollment for our providers and providers. This is the first in a planned suite of Web suite tools coming online over the next 12 to 18 months. These tools are designed to provide self-service options to our customers, which has the twin benefits of speeding up our service cycles while reducing inbound calls volumes to our support center. In addition, we hope that these new tools will allow us to integrate more closely with our POMIS partners, deepening our relationship and increasing our value equation to them. This shifts our ability to compete for new business from price to service. And we are indeed a service business. Together with our Phoenix platform, upon which we will continue to roll-out new capabilities such as our data warehouse and messaging service over the balance of the year, these tools are critical aspects of our plan to build the Healthcare transactions processing solution of the future.

Turning now to our new medical cost containment and BPO business, we couldn’t be more pleased with where we are. The integration of the business has progressed very well and has been aided by the strong cultural alignment between the organizations. Our new associates are customer oriented, have a passion for service and quality, and know that they succeed as a team. We are delighted to have them join the ProxyMed family!

On the business front, we are focused on leveraging the newly expanded provider and payer and customer basis. Some of the initiatives underway include establishing direct connections to targeted payers, upselling paper-based physicians our EDI services and cross-selling our new services to existing ProxyMed payers. As Mike mentioned, the early sales pipeline is promising.

In the business, we achieved several important successes in the quarter. First we closed and implemented two important contracts with Great-West Healthcare. Great-West had been a ProxyMed EDI client for several years and we were able to expand this relationship into two new services. The first service, a BPO contract, for our payer serve solution for network management services, went live on January 1. With this product, we assumed responsibility for loading and maintaining network data for the Great-West network for several regional networks, all for the external use of TPA clients. The second contract signed in February, allows Great-West access to NPPN network for claims re-pricing and for the reduction of medical claims cost. This contract went live on April 1. Both programs are ramping up and operating well.

On an overall basis claim re-pricing volume for the quarter was up strongly over the first quarter of 2003 with March setting a new monthly record. On the technology front, our Internet re-pricing system ClaimPassXL® continues to produce excellent results with clients increasing their usage by 21% over a year ago. We now receive 70% plus of our claims for our re-pricing service electronically. This high adoption technology allows us to provide industry-leading service and turn around times for our client while lowering our internal processing cost. We expect to also facilitate the synergistic combination of our traditional transaction processing services with our new cost containment and BPO solutions.

In our clinical transaction business we continue to be pleased with the steady growth in prescription services unit. In the first quarter, we broadened and deepened our e-prescribing network adding a net new 650 direct and partner physicians and signing agreements with two pharmacy software vendors representing approximately 3,000 independent and small chain pharmacies. We are currently in the implementation of certifications process with both of these new partners. Transaction volume for the quarter reflects the expansion and is up 28% over the same period last year. And we anticipate transaction growth of 25 to 30% over the balance of the year. On the business development front, we are participating in a number of industry initiatives, including the e-Health initiative and ongoing hearing of NCVHS, the National Committee On Vital

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Healthcare Statistics. With the White House publicly promoting the adoption of electronic medical records, and activity around the new Medicare drug bill running strong, we believe that e-prescribing can grow to being a significant revenue and earnings contributor for us over the next three years.

Turning now to our Laboratory Services Division, we have cautioned on our last call that we expected a very weak first quarter in both the contract manufacturing and lab device business largely due to a soft start in January and an ordering pattern that shifted several large orders into April. This unfortunately turned out to be an accurate expectation with revenue and EBITDA both down sequentially as well as year-over-year. However, our longer-term expectation remains that the business will be steady on a full year basis, and we’ve gotten off to a great start for the second quarter.

We did celebrate a couple milestones in the quarter. Most notably, we received our second large non-national lab order in as many quarters. This is a continued sign of growth in the small to mid-size hospital and independent lab market. Industry observers are speculating that the lab market may have “over-consolidated” leaving a service vacuum. Mid-size hospitals and independent labs see this opportunity and are moving in to grab market share and ProxyMed is leveraging our position to assist with this initiative.

In addition, in conjunction with the new market dynamic, we successfully launched a new leasing program to offer options to these small and mid-size labs. By leasing our products, they can move more aggressively to expand their market share without incurring large up-front capital costs. The benefit to ProxyMed is the opportunity to re-grow our recurring revenue base. The lab division long held a profitable lease base, but this gradually declined over time as clients opted for purchase options rather than leasing. This leasing program is targeted at reversing this trend and rebuilding the recurring revenue base.

And with that I’ll turn it over to Gregg.

Gregg Eisenhauer - ProxyMed — EVP and CFO

     Thank you, Nancy and good morning, everyone.

As Mike said earlier, we are pleased to report record revenues for the quarter of $20.5 million, an increase of 17.6% compared to the same period last year. Sequentially, revenues increased by $2.1 million or 11.7%. Overall, revenues exceeded the high end of our guidance range, which was $19 million to $20 million.

The acquisition of PlanVista dramatically changes the pricing dynamics of our business. In our EDI business, we process over 230 million transactions a year, but we generate revenue of less than a quarter on each one. Needless to say, at that price it takes an enormous effort to grow revenues and margins substantially. By contrast in cost containment, we processed about 4 million transactions in 2003, but our revenue was over $8.00 per claim. Clearly, this merger will have an enormous impact on our rate per transaction!

By cross-selling our new cost containment services to ProxyMed’s extensive physician base, the result will be to shift the traditional mix of cost containment services from hospital claims towards physician claims. As a result, our cost containment rate per transaction should decline, since we earn less revenue on the lower dollar value physician claims as compared to hospital claims, but on a consolidated basis including all types of transactions, our rate per blended transaction will be significantly higher than it is today.

During the quarter, EBITDA increased to $1.8 million versus a negative EBITDA of $900,000 a year ago, and positive EBITDA of $1.5 million for the last quarter. This was near the high end of our guidance of $1.25 to $2 million, even with ongoing HIPAA expenditures and over $100,000 of non-cash charges during the quarter related to options expense, for former PlanVista employees. Looking ahead, we anticipate margin expansion as we capture the synergies and the cross-selling opportunities anticipated from the PlanVista acquisition. As soon as the deal closed on March 2nd, we moved quickly to begin the process of integrating the administrative functions such as moving all of our new associates on to ProxyMed’s benefit plans and policies. We also had fully integrated all corporate functions such as finance and accounting, insurance and real estate.

I have been very pleased that the additions to our corporate finance team as a result of this deal and we are already busy working together with the system’s conversion process to migrate PlanVista to the system ProxyMed had selected as its new financial platform. As we move forward with these plans, we continue to anticipate realizing in excess of $1 million per year of cost synergies.

Turning to the balance sheet, we have approximately $30 million of “net debt” or debt associated with the note, less our $10 million in cash. We are comfortable that we have a manageable debt load. As a result of this debt, we anticipate that interest expense will be approximately $500,000 to $600,000 per quarter for the remainder of the year up from the approximately $300,000 in the first quarter. While we are on the subject of debt, as Mike mentioned earlier, $13.4 million of our debt is convertible debt related to the MedUnite acquisition and there are three revenue triggers in this instrument. As the former shareholders hit a trigger, they gain the option to convert their debt at any time over the next few years into ProxyMed stock at $18.32 a share. We are very pleased that the former shareholders have increased their business with us enough to meet their first revenue trigger and we are currently on a mini road show to present this to each one.

We continue to expect Depreciation and Amortization will be between $2.8 million and $3.2 million per quarter, ahead of the $1.8 million we posted in the current period and consistent with our original guidance. We are, however, anticipating a lower tax burden than we had originally predicted. As we announced year-end results, we were not certain how much of the combined net operating losses we would be able to utilize. We now believe that we have enough to cover virtually all of our Federal taxes for this year. Therefore we are anticipating only $100,000 to $200,000 of tax accrual per quarter, largely for state taxes.

Finally, we recorded a net loss of $400,000 approximately or $0.05 a share in the first quarter. This compares to our guidance of a loss of $0.06 a share to $0.10 per share. This was calculated on diluted weighted average shares outstanding at $8.6 million. We anticipate our share count per quarter will be between 12.7 million and 13.3 million for the remainder of the year. As a result of the stock merger and the additional shares that the company sold privately to pay down some of PlanVista’s debt, total assets have grown to approximately $200 million and our shareholder equity is approaching $150 million. Both our market capitalization and our float have increased significantly.

With regards to guidance, our outlook for the full year remains unchanged. For your convenience, we recap the details in our press

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release. In that release, we also provided an outlook for the second quarter with revenue guidance of $26 million to $27 million, EBITDA of $3.5 million to $4.5 million and a net profit of $0.02 to $0.06 per share.

Lastly, I would like to say a few words about the progress towards our Sarbanes-Oxley 404 compliance. While the legislation was well intended and will probably improve corporate governance and internal controls for all companies, the costs are enormous and they fall disproportionately on a smaller company like ours. During the last quarter we initiated our internal audit department and now working with outside expert to help us document, test and remediate any areas that need improvement. The process is well underway and phase one has been completed. The $1.5 million cost of these activities combined with the systems consolidation, I spoke of earlier, will continue to artificially depress earnings for the remainder of the year and those are incorporated into our forecast.

So with that financial recap, I’ll turn it back over to Mike.

Mike Hoover - ProxyMed — Chairman and CEO

     Thanks, Gregg. I am pleased with the results of the quarter. Despite HIPAA, we made progress on a number of important initiatives, delivered revenue and EPS above our guidance, closed the PlanVista acquisition, and launched into production our first cross-sold payer.

A special highlight of the quarter for me has been has been welcoming on-board the great team on PlanVista led by Jeff Markle. The addition of so many talented executives is another building block for our future growth. In addition we are delighted to welcome Bill Bennett from PlanVista’s Board of Directors to the ProxyMed Board.

Looking ahead, I am excited about the next two to three years for our business. We have a unique opportunity to completely reinvent our traditional in bound and pre-adjudication claims processing business into a total claims management and payment solution for providers and payers. We believe it is a great win-win as we think we can demonstrably increase the ROI and value to our customers while benefiting from the high revenue and operating profit per claim for our shareholders.

In summary, we remain convinced that the key to ProxyMed’s future success remains our ability to cross sell providers and payers like we did with Great-West. On the provider side, we look forward to strong adoption of our new transaction content such as remittance advice, electronic funds transfer and real-time services. Web based self service tools will make it much easier to start doing business with us, to add on new transaction types and to receive superior responsive service. And we can now help our providers grow their patient volume by bringing them into our NPPN network.

On the payer side, we think the future is in the Business Process Outsourcing, or BPO, solutions and the good news is that we have two great solutions today. With our PayerServ product we can load and manage all of the complex provider and network rates and configurations, allowing our payers to save money through network optimization. With the FirstProxy product we can manage enterprise-wide payment remittance advices to providers. In the future, we will be adding to our portfolio by launching a brand new and comprehensive claims management BPO service. As soon as we can put HIPAA firmly behind us, we can accelerate our transformation from a traditional clearinghouse to an indispensable business partner for providers and payers.

With that, operator, we would like to open it up for any questions that anyone may have.

QUESTION AND ANSWER

Operator

     Thank you.

[OPERATOR INSTRUCTIONS].

Our first question comes from Sean Jackson of Avondale Partners.

Sean Jackson - Avondale Partners — Analyst

     Good morning. Can you talk about the contribution of the PlanVista business in the quarter? Was it pretty much as you expected or was there some strength there?

Gregg Eisenhauer - ProxyMed — EVP and CFO

     This is Gregg, Sean. It was largely as we expected. We, in some minor areas, are going to get a little better pickup going forward than we originally anticipated particularly in the area of E and O insurance. But for the month of March, things were pretty much on plan. That’s what kept us at or above the high end of our guidance.

Mike Hoover - ProxyMed — Chairman and CEO

     We had a new client that started, Great-West, on the claims re-pricing side April 1, but that was not incorporated into any of the numbers for March. So we are real excited about the contribution they are going to make in the second quarter.

Sean Jackson - Avondale Partners — Analyst

     OK. And just in relation to the guidance, I mean, you beat numbers meaningfully in the first quarter. But you are pretty much sticking the same or reiterating the ‘04 guidance. Is there some business, perhaps that, I don’t know, you took out of April and March — I’m sorry, April and May put into March? Or are you just being conservative in your guidance?

Gregg Eisenhauer - ProxyMed — EVP and CFO

     Well, again this is Gregg, Sean. I think in this environment it pays to be conservative. Certainly this is not our down side guyed falling scenario. Given that this will be the first full quarter of the grated companies, given that we are still wrestling with HIPAA issues, given that we’ve got systems consolidations and Sarbanes-Oxley to deal with, you know, in addition to all of the challenges of competing in the marketplace, I think we would like to remain cautious.

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And as always, you know, we would like to guide people towards the lower ends of that range and hopefully be in a position to raise that guidance throughout the year.

Sean Jackson - Avondale Partners — Analyst

     OK and Nancy, real quick. You said the 76% of the volume has been migrated to be HIPAA compliant end of March. What was that number for the end of December?

Nancy Ham - ProxyMed — President and COO

     I don’t have that number with me Sean. I’ll make a note to follow with you off-line.

Sean Jackson - Avondale Partners — Analyst

     OK and I see, Gregg, just on the tax rate for 05. What are the expectations there?

Gregg Eisenhauer - ProxyMed — EVP and CFO

     We think that we will get some coverage in 05 on our Federal taxes from the NOLs, from actually MedUnite, ProxyMed and PlanVista all have some level of them but we will talk about that as we get to our guidance for 05 later in the year.

Sean Jackson - Avondale Partners — Analyst

     OK, thank you.

Operator

     Thank you. Our next question comes from George Hill of Thomas Weisel Partners.

George Hill - Thomas Weisel Partners — Analyst

     Hello how is it going? I had a question; sorry if I missed this on the call, could you talk about when you expected the transaction growth to re-accelerate?

Nancy Ham - ProxyMed — President and COO

     Well George, as we have been talking, HIPAA has been pressing growth in our traditional claims processing business in the fourth quarter. We certainly saw that continue into the first quarter. As we mentioned on our last call, we expected to have a depressive effect really for the first half of the year.

George Hill - Thomas Weisel Partners — Analyst

     OK. My other question is, can you talk about what the selling environment is like right now? WebMD (ph) has had some highly publicized miss-steps with its online unit with doctors rebelling. Can you talk about what is going on there?

Nancy Ham - ProxyMed — President and COO

     We think that our position in the marketplace remain strong. We have services financial, administrative and clinical. We think we are easy to do business with and we try every day to provide the very best service that we can. The selling environment remains strong for us. Providers are a little reluctant right now to make a switch until our HIPAA payer migration is complete. So that is part of what is causing the hang-up. It is perversely a very good environment for us, yet it is not driving much top-line growth just yet.

George Hill - Thomas Weisel Partners — Analyst

     OK, thank you.

Operator

     Thank you. Our next question comes from David Francis of Jefferies & Company.

David Francis - Jeffries & Co — Analyst

     Good morning, guys. Briefly on the re-pricing transactions of 375,000 that were in the quarter. Can you give us a sense as to what the dollar value per — I’m sorry, the revenue per transaction was for you guys there? And second if I missed this in the original comments I apologize, but can you give us an update as to when you expect to have the combined claims/re-pricing product available in the market and when we can get some information on physician up-take on that service? Thanks.

Gregg Eisenhauer - ProxyMed — EVP and CFO

     David, this is Gregg. I’ll take on the first one of those. The price per claim? In our cost containment group was consistent with historical. We are not going to be breaking out those numbers because we view it all as apart of our transaction services business. But we, I think we talked about last year being approximately $8 per claim submitted into our cost containment unit. And the first quarter was consistent within that range.

Nancy Ham - ProxyMed — President and COO

And Dave, to your second question, we accomplished part of the integration that’s necessary for our new claims management BPO service. We have physical connectivity between the companies. We are now working on some workflow re-engineering and supporting services. We can’t really turn our full attention to that until we complete our HIPAA migration with our payers. You’ll see a lot of progress in the summer and we hope to have something out producing revenue for us by the end of the year.

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David Francis - Jeffries & Co — Analyst

     Great. Thank you.

Operator

     Thank you. [OPERATOR INSTRUCTIONS].

There appear to be no further questions at this time.

Mike Hoover - ProxyMed — Chairman and CEO

     Great. I want to thank everyone for your time today. We look forward to giving you an update of our second quarter results. Thank you. Good-bye.

Operator

     Ladies and gentlemen, thank you for participating in today’s program.

This concludes the call.

You may now disconnect.

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