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):
November 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, Norcross, Georgia 30093-2924

(Address of principal executive offices) (Zip Code)

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

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

     On November 5, 2004, ProxyMed, Inc. (the “Company”) announced its financial results for the three and nine months ended September 30, 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 November 5, 2004, the Company held a teleconference call to report its financial and operating results for the quarter ended September 30, 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.

     The press release includes one or more non-GAAP financial measures within the meaning of Regulation G. With respect to each non-GAAP measure, the Company has disclosed the most directly comparable measure calculated and presented it in accordance with GAAP and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure. The Company believes that certain non-GAAP measures, including EBITDA, provide a meaningful measure of operating performance, especially relative to other competitors in the healthcare IT industry.

     In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in any such a 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,

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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; ProxyMed’s ability to win and expand business based on the Company’s web-based self-service tools and flexible business model; 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.

Item 9.1 Financial Statements and Exhibits.

     (c) The following exhibits are included herein:

Exhibit 99.1	Press Release dated November 5, 2004, reporting financial results for the three and nine months ended September 30, 2004.
Exhibit 99.2	Transcript of third quarter 2004 financial results teleconference call held on November 5, 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: November 9, 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 November 5, 2004 reporting financial results for the three and nine months ended September 30, 2004.
99.2	Transcript of third quarter 2004 financial results teleconference call held on November 5, 2004.

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EX-99.1

Exhibit 99.1

[PROXY MED LOGO]

Company News Release

IMPORTANT NOTE:

ProxyMed’s live teleconference call to discuss its third quarter results is accessible by calling 866-244-4517 beginning at 10:00 a.m. Eastern Time on Friday, November 5, 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 November 5th.

Investor Relations:	Media Relations:
Gregory J. Eisenhauer, CFA	Marie Rains
EVP & Chief Financial Officer	Director of Public & Media Relations
770-806-4780	800-937-3865, ext. 207
geisenhauer@proxymed.com	mrains@proxymed.com

PROXYMED REPORTS YEAR OVER YEAR REVENUES UP 25%
FOR THE THIRD QUARTER OF 2004

     Atlanta, GA (Business Wire) November 5, 2004 – ProxyMed, Inc. (Nasdaq: PILL), a leading provider of healthcare transaction processing and medical cost containment services, today announced results for the third quarter ended September 30, 2004.

     Operating revenues were $22.5 million for the quarter, an increase of 24.6% over $18.1 million reported in the third quarter of 2003. Sequentially, revenues decreased by $2.1 million, or 8.7%, compared to the second quarter of 2004, due to the sale of certain assets in the Laboratory Communications Solutions segment that was effective at the end of the second quarter. The Company reported a net loss of $1.0 million, or $0.08 per share, for the third quarter of this year, both below the same period last year. The results for the third quarter of 2003 were significantly impacted by the increase in the value of a warrant held by the company at that time. Diluted weighted average shares outstanding for the quarters ended September 30, 2004 and 2003 were 12,626,066 and 6,867,725 respectively.

     For the third quarter of 2004, EBITDA, as adjusted, (a non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization and other income) increased to $2.2 million, which compares favorably to EBITDA of $1.6 million for the third quarter of 2003, but is down sequentially by

$0.2 million from the second quarter of this year. Company management believes EBITDA, as adjusted, is a meaningful measure of operating performance, especially relative to other competitors in the healthcare IT industry, and serves as a factor in determining management’s performance compensation.

     “The third quarter was a solid building block quarter for ProxyMed. We have substantially completed our long-running HIPAA conversion efforts; we implemented several significant new customers who will be ramping over the next 12 months to drive revenue growth in 2005; and we made positive progress on our major consolidation and technology initiatives,” stated Michael K. Hoover, ProxyMed Chairman and Chief Executive Officer. “However, our expenses in these areas remained high, as did our Sarbanes-Oxley costs. As we complete these major projects over the next few quarters, our expense structure will improve, allowing us to show improved EBITDA growth.”

Year-to-Date 2004 Results

     ProxyMed reported revenues of $67.7 million for the nine months ended September 30, 2004, an increase of 27.3% over revenues of $53.2 million during the same period of 2003. For the 2004 period, net loss applicable to common shareholders and net loss per share were $(2.2) million and $(0.20) respectively, compared to a net income of $1.2 million and $0.18 for the 2003 period. Diluted weighted average shares outstanding for the nine months ended September 30, 2004 and 2003 were 11,278,954 and 6,815,247 respectively.

     For the nine months ended September 30, 2004, the Company reported EBITDA, as adjusted, of $6.3 million, compared to an EBITDA, as adjusted, of $1.1 million during the first nine months of 2003.

     Total cash at September 30, 2004, including restricted cash, was in excess of $12 million.

Third Quarter 2004 Segment Highlights

     Transaction Services – Due to the integrated nature of the Company’s service offering, the Company reports all financial, administrative, clinical and cost containment transactions and services as part of our Transaction Services segment. During the second quarter, the Company updated its segment reporting methodology to combine its corporate expenses into the Transaction Services segment. Results for Transaction Services in the third quarter of 2004 include:

• Significant progress on HIPAA, with the migration of over 97% of all direct outbound volume to a HIPAA compliant format as of today. This includes all transaction types: claims, real-time transactions such as eligibility inquiries, and electronic remittance advice.

• Successful beta launch of the Company’s new suite of self-service tools, driven by our new Phoenix data repository, which will revolutionize the customer experience in our EDI operations.

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• Build a solid foundation for 2005 in our cost containment business by implementing two new “top five” clients with expected revenue of over $4 million in 2005 and by deepening our networks which should generate an additional $1 million in revenue in 2005.

Transaction Services Statistics

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

Description:	Q/E		Q/E		Q/E
(all amounts in thousands)	9/30/04		6/30/04		9/30/03
Core transactions (excluding encounters)		63,677		62,790		61,155
Encounters		6,561		6,086		6,510
Total Transactions		70,238		68,876		67,665

Please note that as a result of its continued review of its business, the Company has made changes to the above to insure that transactions are counted in the same methodology for all purposes, whether internal or external. Previously, the Company had excluded certain transactions, mostly associated with an outsourcing contract, from its external reporting due to the different business models for those transactions.

1,339 and 1,420 of the core transactions were from the cost containment unit for the quarters ending 9/30/04 and 6/30/04, respectively. 17,354, 14,652 and 12,661 of the core transactions were from an outsourcing contract for the quarters ending 9/30/04, 6/30/04 and 9/30/03, respectively.

Consolidated 2004 Guidance

     Guidance for the fourth quarter is as follows:

• Net revenues for the fourth quarter of $22.0 to $23.0 million.

• Consolidated EBITDA of $2.0 to $2.5 million for the fourth quarter.

• Consolidated net loss of $0.8 million to $1.25 million and a loss per share of $0.06 to $0.10.

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

Earlier this year, the Company filed an S-3 document with the SEC to register shares for the former owners of MedUnite in conjunction with the convertible debt they received as part of the Company’s acquisition. During the course of its review, the SEC examined the company’s recent 10K and 10Q SEC filings. As a result of the SEC review, the company is reconsidering its accounting treatment of the

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warrant it received as part of its joint marketing agreement with PlanVista Corporation during 2003 and the share price by which it valued the PlanVista acquisition during 2004.

About ProxyMed, Inc.

ProxyMed provides 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 Edifecs. 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 payers, chain and independent pharmacies and 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 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 perform satisfactorily under the terms of its contractual obligations, and 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 the Company’s Form 10-Q for the quarter ending June 30, 2004.

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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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,
	2004			2003			2004			2003
Net revenues	$	22,511		$	18,062		$	67,665		$	53,194
Costs and expenses:
Cost of sales		7,792			7,270			25,897			22,188
Selling general and administrative expenses		12,585			9,135			35,390			29,755
Depreciation and amortization		2,607			1,478			7,086			4,153
(Gain) loss on disposal of assets		(23	)		9			48			119
Total operating costs and expenses		22,961			17,892			68,421			56,215
Operating income (loss)		(450	)		170			(756	)		(3,021	)
Interest expense, net		503			203			1,380			572
Other income		—			(4,041	)		(134	)		(4,793	)
Income (loss) before income taxes		(953	)		4,008			(2,002	)		1,200
Income taxes		75			—			225			—
Net income (loss)	$	(1,028	)	$	4,008		$	(2,227	)	$	1,200
Basic earnings (loss) per share	$	(0.08	)	$	0.59		$	(0.20	)	$	0.18
Basic weighted average shares outstanding		12,626,066			6,783,095			11,278,954			6,782,991
Diluted earnings (loss) per share	$	(0.08	)	$	0.58		$	(0.20	)	$	0.18
Diluted weighted average shares outstanding		12,626,066			6,867,725			11,278,954			6,815,247
EBITDA, as adjusted (1)	$	2,157		$	1,648		$	6,330		$	1,132

(1) EBITDA, as adjusted, 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. EBITDA is a non-GAAP measure of performance.

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

EBITDA, as adjusted	$	2,157		$	1,648		$	6,330		$	1,132
Deduct: Depreciation and amortization		2,607			1,478			7,086			4,153
Deduct: Interest expense, net		503			203			1,380			572
Add back: other income		—			(4,041	)		(134	)		(4,793	)
Deduct: Income taxes		75			—			225			—
Net income (loss)	$	(1,028	)	$	4,008		$	(2,227	)	$	1,200

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Revenues
Transaction services	$	18,999		$	11,829		$	52,117		$	35,102
Laboratory communication solutions		3,512			6,233			15,548			18,092
	$	22,511		$	18,062		$	67,665		$	53,194
Cost of sales:
Transaction services	$	5,856		$	3,804		$	16,014		$	12,327
Laboratory communication solutions		1,936			3,466			9,883			9,861
	$	7,792		$	7,270		$	25,897		$	22,188
Selling general and administrative expenses:
Transaction services	$	11,653		$	6,068		$	30,765		$	20,763
Corporate		—			918			1,061			2,653
Laboratory communication solutions		932			2,149			3,564			6,339
	$	12,585		$	9,135		$	35,390		$	29,755
Depreciation and amortization:
Transaction services	$	2,450		$	1,175		$	6,387		$	3,287
Corporate		—			52			36			144
Laboratory communication solutions		157			251			663			722
	$	2,607		$	1,478		$	7,086		$	4,153
Operating income (loss):
Transaction services	$	(959	)	$	784		$	(1,122	)	$	(1,382	)
Corporate		—			(980	)		(1,097	)		(2,807	)
Laboratory communication solutions		509			366			1,463			1,168
	$	(450	)	$	170		$	(756	)	$	(3,021	)
EBITDA:
Transaction services	$	1,491		$	1,959		$	5,265		$	1,905
Corporate		—			(928	)		(1,061	)		(2,663	)
Laboratory communication solutions		666			617			2,126			1,890
	$	2,157		$	1,648		$	6,330		$	1,132

Note: Corporate expenses are included in Transaction Services as of the second quarter of 2004.
The Lab results for the prior period reflect the results from assets that were sold effective June 30, 2004.

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

	September 30,			December 31,
	2004			2003
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	12,214		$	5,333
Accounts receivable-trade, net of allowances of $3,941 and $882, respectively		16,371			10,434
Notes and other receivables		257			187
Inventory, net		1,581			3,347
Other current assets		1,379			1,908
Total current assets		31,802			21,209
Property and equipment, net		4,838			4,772
Goodwill, net		93,605			30,775
Purchased technology, capitalized software and other intangibles, net		54,202			15,884
Restricted cash		175			291
Other assets		412			199
Total assets	$	185,034		$	73,130
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable and current portion of long-term debt	$	21,367		$	1,712
Accounts payable and accrued expenses		11,105			8,264
Deferred revenue and other current liabilities		974			721
Income taxes payable		420			—
Total current liabilities		33,866			10,697
Convertible notes		13,137			13,137
Other long-term debt		636			2,057
Long-term deferred revenue and other long-term liabilities		907			1,461
Total liabilities		48,546			27,352
Stockholders’ equity:
Series C 7% Convertible preferred stock		—			—
Common stock		13			7
Additional paid-in capital		239,258			146,230
Accumulated deficit		(102,500	)		(100,273	)
Unearned compensation		(186	)		—
Note receivable from stockholder		(97	)		(186	)
Total stockholders’ equity		136,488			45,778
Total liabilities and stockholders’ equity	$	185,034		$	73,130

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

	Nine months ending September 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	(2,227	)	$	1,200
Adjustments to reconcile net cash provided by (used in) operating activites:
Depreciation and amortization		7,086			4,153
Provision for doubtful accounts		681			155
Provision for obsolete inventory		41			29
Change in value of investment		—			(4,793	)
Loss on disposal of fixed assets		70			119
Non-cash interest income		(59	)		—
Gain on settlement of liability		(133	)		—
Stock option compensation charges		204			—
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Accounts and other receivables		1,747			23
Inventory		(1,083	)		(836	)
Other current assets		340			304
Accounts payable and accrued expenses		(1,886	)		(389	)
Accrued expenses of PlanVista paid by ProxyMed		(4,011	)		—
Deferred revenue		94			94
Other, net		(868	)		420
Net cash provided by (used in) operating activities		(4	)		479
Cash flows from investing activities:
Net cash acquired in acquisition		782			—
Capital expenditures		(2,613	)		(2,115	)
Capitalized software		(971	)		(1,173	)
Collections on notes receivable		180			304
Proceeds from sale of fixed assets		4,499			107
Decrease in restricted cash		115			422
Payments for acquisition-related costs		(884	)		(5,653	)
Net cash provided by (used in) investing activities		1,108			(8,108	)
Cash flows from financing activities:
Net proceeds from sale of common stock		24,100			—
Proceeds from exercise of warrants		8,766			8
Draws on line of credit		4,900			—
Repayment of line of credit		(4,900	)		—
Payment of notes payable, capital leases and long-term debt		(27,089	)		(1,824	)
Net cash provided by (used in) financing activities		5,777			(1,816	)
Net increase (decrease) in cash and cash equivalents		6,881			(9,445	)
Cash and cash equivalents at beginning of period		5,333			16,378
Cash and cash equivalents at end of period	$	12,214		$	6,933

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EX-99.2

Exhibit 99.2

Operator

Good morning. And welcome to the ProxyMed conference call to discuss its financial results for the third quarter of 2004 and updated 2004 guidance. At this time all participants are in a listen-only mode. At the request of the Company, we will open up the conference call for questions and answers after the presentation. We would appreciate it if you would limit your questions to one and get back in queue if you have a follow up question or another question to ask. Also if you would like to ask a question please use a land phone instead of a cell phone. Today’s conference call is being web cast and the replays of this call will be available on the Internet at www.ProxyMed.com shortly after this call. Leading today’s call for 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 many of the statements made by ProxyMed during this call including answers given in response to questions involve our assessments of the future and are therefore intended to fall within the Safe Harbor provisions of the securities laws for forward-looking statements. Our actual results might differ materially from statements we make in this conference call. Due to a variety of risks that apply to our business and industry many of these risks are discussed in the Company’s most recent form 10-K, form 10-Q and the other SEC filings which the Company strongly urges you to read and which are available at the Company’s website or obtained from the Investor Relations department. At this time, I will turn the presentation over to Mr. Mike Hoover. Sir, you may begin.

Mike Hoover - ProxyMed — Chairman, CEO

Thank you, operator. And good morning, everyone. Let me begin by saying I am pleased with the results of the quarter, in which revenues of $22.5 million and EBITDA of $2.2 million were within the Company’s guidance. Taking into account the effect of the disposition of certain assets in our lab business on June 30th, revenues for the quarter were up slightly on a sequential basis.

With those highlights, I would like to now diverge from our usual call format of walking you through the operating and financial results in detail. Instead, we will focus on our industry, trends we see, and our strategy and plans for 2005 and beyond. We think this will give our shareholders a more meaningful update than just walking through the quarter.

As we’ve discussed on past calls, this has been a challenging year with a number of road blocks to overcome, such as: transaction and revenue growth challenges across our transaction services business; a variety of one-time charges, to EBITDA, resulting from our acquisition of PlanVista; and ongoing high cost of HIPAA and Sarbanes-Oxley compliance. Some of these road blocks, like HIPAA, Sarbanes-Oxley, and one-time P&L events, will not be a factor in 2005. As those expenses, such as the 1.5 million we are spending on Sarbanes this year, go away, our EBITDA should obviously benefit in a nice way. However, from the more important perspective of revenue growth, there are fundamental forces at work in our transaction services business that mean our business, our challenges, and our opportunity will be different in 2005 than we initially expected.

Looking at our EDI transaction business, I want to take a few minutes to level set where we are, where the industry has been historically. The payer market has long been split into two categories. Participating payers and nonparticipating payers. Participating or “par” payers have traditionally included the commercial payers, as well as a number of Blue Cross and Blue Shield plans. These payers have historically paid companies like ProxyMed for delivering EDI transactions to them, making the transaction free to providers. Generally, payers have paid ProxyMed and other similar businesses $0.25 to $0.35 for each transaction delivered to them on behalf of the provider, including claims and real-time transactions. They have paid this fee because an electronic transaction saved them anywhere from $0.50 to over $2 over a paper transaction and over $2 to $5 as compared to a phone call.

So this market approach is a win-win for providers and payers. Providers are encouraged to submit transactions electronically, benefiting from cleaner transactions and faster payment, while payers realize significant operating expense reductions as they receive an increasing amount of electronic transactions versus paper, faxes, and phone calls.

In contrast, nonparticipating or “non-par” payers such as Medicare and Medicaid and some Blue Cross/Blue Shield plans have not paid transaction fees. The provider pays the cost of transmitting their claims or other transactions to these non-par payers.

Now, with this background, we see things changing. We recognize that a number of our commercial payer customers are under tremendous pressure to urgently reduce their own operating costs. Their ability to raise rates on a double digit basis year-over-year has diminished. Payers

are investing heavily to launch new consumer basing products such as health care savings accounts or HSAs. They want to forge closer ties to their provider community, but in the pressure to cut costs, are considering shifting the EDI costs on to those very same providers at a time they need to reduce their medical — at the same time they need to reduce their medical claim costs.

ProxyMed firmly believes that any cost shifting strategy is misguided, and that the payers should continue to pay to receive transactions from their providers so that they continue to enjoy the significant operational savings derived from receiving their claims and other transactions electronically. Any effort to shift the costs of these transactions on to the provider community at a time the providers are still reeling from the disruptions to their cash flows from HIPAA, is simply a big mistake. It may deliver some short-term cost savings, but at a much greater long-term price of damaging relationships with providers who serve their members and perhaps motivating providers to revert back to paper.

So we think the payers are in a bind about how to cut cost, WHILE preserving and improving their provider relationships. ProxyMed has been giving this issue significant attention in 2004. We had three basic choices: We can ignore these issues and hope for the best. We can fight against these trends at our payer customers which is rarely a winning strategy. OR help our payers and our provider customers accomplish their goals in a win-win fashion. We’ve obviously chose the last option. And as you will hear in a moment, ProxyMed has developed an exciting and innovative solution that helps payers realize their expense reduction goals while keeping the electronic transactions flowing from their providers on a no charge basis.

As part of our new solution, we started by recognizing that stand alone inbound EDI is being more closely evaluated to look at the value equation of the clearinghouse vendor. Is the vendor just a passive submitter of transactions? In that case, the conversation quickly focuses on price. Or is the vendor a true business partner, driving increased volumes of the electronic transactions, higher auto-adjudication rates, new transaction flows for greater efficiencies and high levels of service? Can the vendor offer business process outsourcing or BPO solutions that bundle together an entire suite of services in a new and innovative way?

In addition to scrutinizing inbound EDI more carefully, the imperative to reduce cost, is causing payers to think more holistically about their business. Historically, payers have approached EDI as a stand alone or “siloed” aspect of their overall transaction management. With other silos being mail room operations, print and mail for paper EOBs, electronic funds transfer, cost containment, and network management. Decisions were made separately in each of these groups about their partners of choice.

In contrast, today’s payers are seeking to map out and understand how decisions and operations can come together across their whole enterprise to drive operational efficiencies that were not achievable before. They are looking hard at BPO solutions that outsource to third parties significant parts of the transaction flow. This new thinking has also led to new players in the decision cycle. Like the Chief Purchasing Officer, the Chief Financial Officer or more Senior Operating Executives as opposed to the traditional and often lower level EDI teams.

Given these new trends, we believe that transaction organizations serving the payer community can only thrive by moving up the value equation to a BPO partner. And that is our strategy. We have talked with you in our last few calls about our rationale for the PlanVista acquisition, which is based on our strategy to remonetize our EDI claims processing business, where we have traditionally generated revenues of approximately $0.24 to $0.25 a claim as compared to the $8 to $10 per claim or more we received in our cost containment business with every claim we repriced. Our initial approach has been simply to upsell our existing EDI payers this new service. Based on market feedback during the year, we have significantly enhanced this strategy to an integrated BPO product offering called ESP. — or Enterprise Solution for Payers.

I will now turn it over to Nancy to provide you some of the details. Nancy?

Nancy Ham - ProxyMed — Pres., COO

Good morning, everyone. I’m excited to discuss with you our new ESP program, which is a very unique solution that is designed to accommodate several critical and yet somewhat conflicting goals of the payer in one elegant and integrated solution. First, our program can reduce the payer’s inbound EDI transaction cost by as much as 40 to 50%. Just as importantly, we deliver those savings while still allowing the payer and the provider community to work with the vendor of their choice, including our direct competitors. This freedom of choice and ongoing free submission of transactions virtually eliminates the risk of increased paper claim submission and disruption of provider relationship that could come from a payer cost shifting on to the provider community.

On the medical cost side, our ESP program generates very significant savings to the payer. Savings in the range of tens of billions of dollars a year. We think that’s a pretty competitive value equation.

In addition, our approach is not one size or one model fits all. We offer simplified and flexible implementation - working directly with each payer to give them the ability to design their own customized market basing strategy.

In addition, in a full-blown ESP implementation, we can radically improve the overall transaction flow, both pre- and post-adjudication, increasing auto-adjudication rates and yielding further savings through eliminating working ineligible transactions or working transactions multiple times. This also benefits the provider community by compressing the end to end adjudication cycle in allowing payments to be made more quickly.

Let’s take what I just described and walk through just what one of these deals could mean to ProxyMed and based on actual data we’ve analyzed with several payer prospects what it does for the payer. Let’s look at a hypothetical commercial participating payer with a million covered lines. On the transaction side, our ESP program would deliver transaction cost savings of close to $1.5 million per year, which is approximately a 40% reduction in the payer’s current EDI expenses. On the medical cost side, our Enterprise Solution promises to deliver equal or better savings to the payer, as compared to their current arrangements with other medical cost containment vendors. Savings to the payer and medical costs can be in the range of tens of millions of dollars, and in some cases upward toward 100 million dollars on an annual basis. ProxyMed’s revenue in this example would exceed $9.0 million, at an attractive EBITDA.

As you can see, even one or two ESP deals can really drive exciting revenue and profitability growth for ProxyMed. The challenge for us is one of timing. As we’ve been discussing, we’re seeing news by some payers to reduce their inbound EDI costs really by any means possible, even if it means upsetting their crucial provider relationships by removing vendor choice, and causing the providers to have to pay to submit the transaction to the payers. While we had anticipated and planned for this - hence the acquisition of PlanVista, and the creation of our ESP program, - we had expected to see this trend more in 2005 and 2006, as the industry recovered from its conversion to HIPAA. However, there has been an example or two recently of the shift so the change may be occurring faster than we originally thought. If a large payer decides to abruptly cost shift EDI transaction costs on to the provider community then ProxyMed will be faced with the short-term challenge of losing a larger revenue stream from single customer that needs to be replaced by either charging small amounts to our 140,000 provider customers, and/or replacing that revenue with an ESP deal. As we’ve noted, even a single ESP deal can more than offset this - - in fact, can generate incremental and attractive revenue and EBITDA growth - but the challenge is in the deal cycle time for the larger ESP sales.

Let’s turn now from our payers to our providers. As we discussed at length in our past few quarterly calls, 2004 has been a very tough year in our core claims business due primarily to the cost and disruptions associated with HIPAA compliance. Happily, we are almost at the end of our painful HIPAA saga. As of today, we have 97% of our transaction volume going to the payers in a HIPAA compliant format. This includes all transaction types, claims, electronic remittance advice, and real-time transactions, such as eligibility and claim status.

While this is great progress, there is no denying that HIPAA contributed largely to keeping our transactions flat to down for the first three quarters of the year. Volume from new customers was upset, we believe, by increase in paper transactions, and direct connections to nonparticipating payers. The good news is, we are starting to see a turn-around in core transaction growth. As we mentioned last quarter, we signed several larger deals that were competitive take-aways. These contracts have implemented and are now at full volume ramp. As a result, our daily run rate for transaction volume in the fourth quarter is trending upward nicely. - as much as an additional 2 million transactions per quarter. This won’t be fully visible in the fourth quarter, which has two fewer processing days than the third quarter, but it’s a good foundation to take into 2005. In addition, we believe that there are several very large opportunities for competitive wins that will become available in the first half of 2005, as exclusive contracts with other vendors expire.

With HIPAA behind us, we can now turn our full attention to driving growth in our provider business. And as excited as we are about our ESP program for payers, we’re equally energized by our provider basing strategy. ProxyMed believes that historically, the clearinghouse industry has delivered at best average service to the providers. Claims were transmitted off and little visibility was given to the provider about the success of the transmission. To track their claims and hence their revenue, providers have to call their clearinghouse vendor, provide tracking numbers, and also wait for call backs to answer their questions. Legacy processing platforms at clearinghouses would not support modern data mark, drill down analysis, or extensive web self service tools, providers were all too often left frustrated and in the dark.

We decided over three years ago that we wanted to dramatically change this dynamic, and to reinvent our clearinghouse business to raise our value equation and to dramatically improve our service level to the providers. To this end over the past two years, ProxyMed has invested millions of dollars in a new processing platform called Phoenix. With that new foundational architecture in full production, we are now ready to relaunch our business to our provider customers. Our suite of new web-based tools which provide revenue management, claims tracking, self service solution, will move into general availability in January. With these tools, which have been incredibly well received by our Beta customers, we provide our providers total transparency into their claims.

And this is more than just simple FedEx tracking or time/date, stamping of transactions. With these tools, providers can search for their claims by almost any criteria, not just the tracking number. They can manage their claims from the macro level, right down into the micro detail. Including seeing the actual claim detail as the claim was received by ProxyMed, processed and transmitted to the payers, including any editing, data bridging or formatting performed by us. Providers can see the exact details of when and how that claim was received by the payer. Any errors on the claims are highlighted in red, with supporting detail and the nature of the error. I could go on and on about this tool, along with its companion tool to automate enrollment.

With these solutions, we transform our value equation from being a black box recipient of transactions to being a wholly transparent solution for helping providers accelerate and maximize their cash flow. With our provider solutions, we believe that over time, we will be able to generate more revenue in the provider community than we ever did before and at a level that will more than offset any potential loss of revenue on the payer side. But it will take time to achieve this transformation. If we roll our new programs out to our more than 140,000 providers. So this underscores the importance of our ESP program for payers in driving near-term revenue growth.

In conclusion, we are focused on accelerating our transformation from a traditional clearinghouse to an indispensable business partner for both providers and payers.

Gregg’s now going to take you through a few highlights for the quarter.

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

Thank you, Nancy. As we have discussed previously, the Company disposed of certain assets in its lab services division as of June 30, 2004. This is the reason for the decline in sequential revenues in the lab services segment and for the Company overall. During the second quarter, these assets generated net revenues of $2.3 million. Once you eliminate these revenues from our Q2 results, our sequential revenues increase slightly.

During the quarter, as we previously announced, the Company changed auditors, Deloitte and Touche has taken over the responsibilities of outside auditor of the financial records, as well as the attestation responsibilities of the Company’s Sarbanes-Oxley compliance which is due to be completed at the end of the year. Painful as it is for a Company of our size, we still anticipate that the cost of Sarbanes-Oxley in personnel, systems work, attestation expense, expanded financial audit scope, and documentation will be approximately $1.5 million for the year. These costs fall disproportionately during the second half of 2004. And while I’m on the subject, I think it’s important to remind investors that this is a new process for all public companies, and a new process for all audit firms providing attestation. As such, the Company has not completed its work at this point. And I think it’s only fair to caution investors that until we are complete, we have a risk of not receiving an unqualified opinion in Sarbanes-Oxley attestation.

Turning now to the balance sheet, the Company’s financial position remains strong. Our leverage is relatively low. And we ended the current period with over $12 million of cash on hand. Our senior debt facility comes due in May of next year. At this time, we have multiple proposals from lenders to replace that facility and we expect to have completed a new debt financing by the end of 2004.

Our guidance for the fourth quarter is $22 to $23 million in net revenues, and $2 to $2.5 million in EBITDA. This translates into guidance of a net loss of $0.25 to $0.8 million, or $0.02 to $0.07 per share. We will provide 2005 guidance in January.

As we have discussed for over a year, the effects of the HIPAA regulations have pounded the industry segment in which we operate. The standards have been costly to implement, and have created systems and customer service problems for everyone in this space, and ProxyMed is not exempt from those issues. The management team continues to believe that that is what has created a softening in our transaction volume. As Nancy said earlier, we are pleased that our payer volume is now 97% HIPAA compliant. We continue to work to consolidate legacy systems into our Phoenix platform. And as we accomplish that, we expect that customer service, processing times, and our operating cost structure will continue to improve.

On a personal note, I would also like to announce that we have regretfully accepted the resignation of Judd Schmid our EVP and Chief Accounting Officer, effective January 31, 2005. Judd has been a key member of the ProxyMed team since 1996 and has made significant contributions to us in that time. Judd will be sorely missed and I know many of you know him and will join me in wishing him well.

That concludes the formal part of our call today. We will now open the lines up for any questions. Operator?

Operator

Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. Again, ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. I’m showing no questions at this time, sir. I apologize. We have our first question comes from Sean Jackson from Avondale Partners.

Sean Jackson - Avondale Partners — Analyst

Yeah, good morning. I’m just trying to get my arms around the new program that you guys are going to be implementing for ‘05. Can you just again more detail on how you intend to get the cost savings out of the payers by this? Is it just a matter of integrating a lot of these different functions, or what?

Mike Hoover - ProxyMed — Chairman, CEO

Hi, Sean. It’s Mike. Yes, what we’ve done, as we’ve gone to these payers, worked with them, through our EDI connections, as well as, you know, presented our new cost containment solutions, it has become very apparent that there is an opportunity to combine and manage both of these functions for the payer. And what it gives us the ability to do is to basically manage the incoming EDI data stream for the payer, in a much more efficient manner, apply our cost management solutions to reprice out of network claims, and we can basically outsource and manage this whole function for the payer. As a result of that, we are able to pass cost savings based on the original cost of these EDI transactions, and these cost savings back to the payer. We think it’s very innovative, we think it’s very unique, we’ve presented this to several organizations that seem to be quite excited about this opportunity. And we have a good pipeline. So it is going to be a little longer sales cycle for some of these opportunities. But we’re getting pretty close to a couple of them.

Sean Jackson - Avondale Partners — Analyst

Now, are you finding that these payers use, you know, many different vendors for each of these functions are they — do they just try to do this stuff in house? Or, you know, what are the — I guess the road blocks you’re going to encounter as you try to get to this market?

Mike Hoover - ProxyMed — Chairman, CEO

Well, that’s what we think is kind of the uniqueness of our offering, Sean. Other vendors in the marketplace are going in saying you must give us an exclusive for us to, you know, give you a better price. You know, payers run the gamut. Some are trying to go direct and struggling with that direct strategy. Some are just making the decision that they are going to stop paying transactions and cost shift to the providers. What’s unique about our model is that we go in and we say it doesn’t have to be an exclusive, you can still take transactions from all of your current relationships, and connections. But as long as we are managing the front door, basically, going into the payer, as well as the cost containment, we’re able to reduce the overall cost of the rebates and the transaction fees going back to those vendors. So no one, has, as of yet, come up with a program like that and we think that it’s very unique, it seems to be received very well by these customers, and I mean we’re solid with our teams, and appointments to present this to large payers.

Sean Jackson - Avondale Partners — Analyst

Okay. Who do you intend to see, as you confront this market, I mean which competitors do you intend to see more of?

Mike Hoover - ProxyMed — Chairman, CEO

Well, I mean — yeah, go ahead.

Nancy Ham - ProxyMed — Pres., COO

Hey, Sean, this is Nancy. I think what’s really unique about our solution is we’re the only Company that we’re aware of that has all the building blocks pieces to offer this particular integrated solution. You have to have inbound EDI and extensive payer connections. You have to have a strong real-time platform. You have to have a solution for ERA and EFT. You have to have network management in a very sophisticated way, and you have to have cost containment. So we think we’ve assembled a really unique and compelling collection of assets that we’ve now integrated into our enterprise solutions for payers. So we don’t think we have a direct competitor because there’s not another company that has all the requisite pieces to offer the same solution.

Mike Hoover - ProxyMed — Chairman, CEO

Yeah, we do have some competitors that are coming at this from the perspective of either, like we said, the exclusive on the front end or they’re trying to manage the existing EDI and the paper volume. We think that’s kind of a short-sighted strategy. What our solution expands on and goes into, is that we actually reduce the actual out of network cost for processing a 20% or better of most payer’s claims. We think that added cost savings is a very unique value equation that is unmatched by any of our competitors at this time.

Nancy Ham - ProxyMed — Pres., COO

Right. And because of that, because of the uniqueness of our solution, we’re able to accomplish something that we think is critical. Which is allowing the provider community to still select an EDI transmission partner of their choice, to go direct, if they wish, and to not have to take the transaction. And so that allows the payers to accomplish the goal of cutting their costs without disrupting existing vendor or existing provider relationships. And we think that’s pretty compelling.

Mike Hoover - ProxyMed — Chairman, CEO

And that’s the beauty. If a provider goes direct to the payer where we have this ESP solution in place, we’re still paid. And we still generate revenues and profits. If they sign up other clearinghouses, other organizations, that’s fine, we still get paid. Because of the value equation we offer. We think it’s very unique. So we’ll be reporting back to our investors over the next few weeks and months as we win customers with this new product offering.

Sean Jackson - Avondale Partners — Analyst

Okay. Also, just housekeeping, remind me again the average price that you get for electronic claims from the outsourcing agreements?

Mike Hoover - ProxyMed — Chairman, CEO

Well, I mean our traditional EDI business, it averages about 24 cents. Our cost containment business averages anywhere from 8 to $10. Per re-priced claim. If you take the total transaction processing business, I think we processed this quarter about 70 million transactions, we generated about $19 million in revenues. So that was almost $0.275 cents, almost $0.28, so we are slowly increasing the average transaction fee that we receive for each transaction we process. So it’s actually on a nice upward trend.

Sean Jackson - Avondale Partners — Analyst

Okay. So I guess three different components there, the traditional, the cost containment, and then vis-a-vis — you know, the additional outsourcing ones that you included in this year’s, this period’s statistics.

Mike Hoover - ProxyMed — Chairman, CEO

Right.

Sean Jackson - Avondale Partners — Analyst

What do you get for those?

Mike Hoover - ProxyMed — Chairman, CEO

Those are typically not paid for on a transaction basis. We’re paid a monthly outsourcing fee to manage that business for them.

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

Yeah, it’s one-off unique transaction. We just wanted to make sure that in this world of complete and full disclosure, that we put that on the table. But that is not a typical structure for us.

Sean Jackson - Avondale Partners — Analyst

Okay. Is the monthly fee based on the number of transactions or is it set?

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

It’s set.

Sean Jackson - Avondale Partners — Analyst

Okay. Okay. Thanks.

Mike Hoover - ProxyMed — Chairman, CEO

Thank you, Sean.

Operator

Our next question comes from Ann Sarcowicz from Slavin and Blake Company.

Ann Sarcoqicz - Slavin and Blake Company — Analyst

Hi, would you please elaborate on the statement at the end of your release commenting on a potential reconsideration of the accounting treatment, relating to the PlanVista marketing agreement? And then ultimate acquisition costs?

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

Sure, Ann. This is Greg Eisenhauer. We filed the necessary three documents some months ago to register the shares given to the former owners of MedUnite as part of that acquisition. They have a roughly $13 million subordinated convertible debt instrument that we carry on our balance sheet. They met the first of their hurdles. At that time, we had a contractual obligation to register their shares. As we went through that process, you know, not surprisingly, the SEC decided to review our most recent 10-K and 10-Q filings. You know, this is what happens when the SEC hires an extra thousand lawyers and accountants, they are going to review pretty much everything that comes through. As we have been through the process with them, and we have been back and forth, they have asked a lot of question, trying to understand our business, trying to make sure that they understand and are comfortable with are our disclosures, with our accounting treatment, there are a couple of issues that have surfaced that we may revisit. The first of which is that late last year, prior to the acquisition of PlanVista, we had a joint marketing agreement with PlanVista. As part of that joint marketing agreement, we received a warrant in unregistered shares for up to 15% of PlanVista Corporation.

At the time, the Company marked the value of that warrant to market, which caused it to go up in the third quarter and down in the fourth quarter. It was a noncash transaction. It was broken out separately as other income. As a matter of fact, even in the quarter that we wrote it up significantly, we cautioned investors that we did not expect to exercise that warrant and did not expect to capture any real cash value from it. So that’s the first one.

We’re back revisiting whether writing it up and writing it back down inside of last year was appropriate. Quite frankly, you know, the net effect throughout the year was zero. Because again, by the time we got to the end of the year, the warrants had expired and the net effect was zero. The second question that we are reviewing is an accounting question in the PlanVista acquisition, it was a stock for stock purchase and there are a myriad of regulations around how you price and value the stock in a stock for stock deal. So we are looking to make sure that our calculations are correct, that our time frame that we’ve selected was appropriate. Again, to the extent that there is any change there, you’re talking about, you know, a reclassification on the balance sheet. You’re not talking about anything that would hit the P&L or has any cash effect. And lastly, I would say that, I mean if the SEC reviews anybody’s document, and you know, tears through it, after weeks and weeks, I would expect there would be some expanded disclosure place where they will ask for additional clarification. So those are the things that are under discussion, things that the Company is reviewing, there has been no decision yet on any of these items, but we hope to bring it to a conclusion quickly.

Ann Sarcoqicz - Slavin and Blake Company — Analyst

And just to confirm again, neither of them would have any income statement impact?

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

Potentially, if we were to modify the treatment on the warrant last year, there could be a quarterly effect on the income statement, but not an annual effect on the income statement. That’s our expectation at this time. Certainly no effect on the income statement in the current year.

Ann Sarcoqicz - Slavin and Blake Company — Analyst

Okay. And one other question on the balance sheet, under current liabilities, there appears to be a big jump in notes payable in the current portion of the long-term debt, could you please let us know what’s going on there?

Gregg Eisenhauer - ProxyMed — Exec. VP, CFO

Yes, as part of the PlanVista acquisition, we paid down some of their debt, and assumed some of their debt. There is roughly a $20 million senior note that comes due in May of next year. We expect to refinance that, we already have three term sheets on the table, two of which we find attractive, and we hope to have that facility taken out with a new probably three-year facility prior to the end of 2004.

Ann Sarcoqicz - Slavin and Blake Company — Analyst

Thank you.

Operator

Again. Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone. I’m showing no questions at this time, sir.

Mike Hoover - ProxyMed — Chairman, CEO

Very good. I want to thank everyone for their time today and we look forward to you joining us for our fourth quarter and end of year call. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect.