EXHIBIT 99.1
PROXYMED, INC.
FIRST QUARTER 2002 FINANCIAL RESULTS CONFERENCE CALL
Moderator: Michael Hoover
April 24, 2002
2:00 p.m. EDT
Operator: Ladies and gentlemen, thank you for standing by. Welcome to
the ProxyMed first quarter earnings conference call. During
the presentation, all participants will be in a listen-only
mode. Afterwards, we will conduct a question and answer
session. At that time, if you have a question, please press
the one followed by the four on your telephone. As a reminder,
this conference is being recorded Wednesday, April 24, 2002.
Your speakers for today are Nancy Ham, President and Chief
Operating Officer, Judd Schmid Chief Financial Officer, and
Michael Hoover, Chief Executive Officer. I would now like to
turn the conference over to Judd Schmid. Please go ahead, sir.
Judson Schmid: Thank you, Kim. Good afternoon, everyone. Thank you for
joining us for ProxyMed's conference call to discuss the
company's results for the first quarter of 2002. I'm Judd
Schmid, ProxyMed's Chief Financial Officer.
Before we begin our discussion, let me take a minute to
reference the Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995: "This conference
call may contain forward-looking statements that are subject
to risks and uncertainties, including, but not limited to
assumptions, beliefs and opinions related to ProxyMed's growth
strategy based on ProxyMed's interpretation and analysis of
healthcare industry trends and management's ability to
successfully develop, market, sell, cross-sell, and implement
its clinical and financial transactions services and software
to physicians, pharmacies, laboratories and payers, as well as
its ability to identify and successfully integrate acquisition
candidates. Other risk factors are detailed in the company's
filings with the Securities and Exchange Commission. ProxyMed
expressly disclaims any intent or obligation to update any
forward-looking statements."
Leading today's conference call is Mike Hoover, ProxyMed's
Chairman and CEO, and providing an operational summary will be
Nancy Ham, our President and COO. Now I'd like to turn the
call over to Mike. Go ahead please, Mike.
Michael Hoover: Thank you, Judd. Good afternoon everyone, and welcome to
ProxyMed's first quarter 2002 results conference call. Today
we will discuss and review our first quarter results, and then
we will review our strategies for the remainder of 2002 and
beyond.
As you probably know by now, ProxyMed differentiates itself
from our competitors by being the only company offering a full
suite of financial, clinical and administrative connectivity
solutions focused on the 275,000 physicians practicing in a
small group setting. We believe that this niche is greatly
under-served by our competitors, yet represents the best
opportunity for automating the 50 percent of claims that are
still delivered on paper. Once we automate this core financial
transaction, we then begin to cross-sell our other nine
services. This focus and strategy is the lynchpin of all our
efforts at ProxyMed, and it's really starting to pay off.
Since our last conference call, we've made a lot of exciting
progress. We completed the first quarter with strong momentum
in all areas, and in the last 90 days, we closed on a $25
million investment from General Atlantic Partners. We saw W.R.
Hambrecht initiate coverage of the company with a Strong Buy,
and just this morning, we reported our first ever positive net
income and earnings per share before dividend charges. This is
a tremendous milestone in the history of the company. For the
first time, our operating earnings have powered a positive
bottom line.
As you will hear from Judd in a moment, revenues and EBITDA
are up substantially from last year, and exceeded our analyst
numbers. We continue to gain momentum in our transaction-based
business, and we are more positive than we've ever been about
our prospects, both through core growth and through strategic
deployment of our new capital.
We will take the next few minutes to give you an update, and
then we will open the lines for any questions that you may
have.
Let me turn it back over to Judd, who will take us through the
financial results for the quarter. Judd.
Judson Schmid: Thanks, Mike.
To begin our discussion, let me say that we are pleased to
report that we met our consensus revenue guidance of $11.5
million and handily beat our EBITDA expectations of $389,000.
To dive into the details, ProxyMed is reporting quarterly
revenues of $11.5 million, up a strong 37 percent over the
same period a year ago. In addition, we are reporting EBITDA
profits of $631,000, which represents our fourth straight
quarter of positive EBITDA. Finally, our GAAP net loss per
share is $0.11, beating the average street guidance of $0.14
per share.
As just noted, our consolidated revenues were $11.5 million in
the first quarter, compared to last year's first quarter
revenues of $8.4 million. This increase was fueled by a 94
percent revenue increase in Healthcare Transaction Services,
which rose for $2.7 million last year to $5.3 million this
year. In addition, we saw a 10 percent revenue increase in the
more mature Laboratory Communications Solution segment from
$5.7 million last year to $6.2 million this year.
As predicted, while revenue was down quarter-over-quarter, the
mix of our revenue is shifting positively. For the quarter,
approximately 46 percent of our revenues came from our
transaction processing segment, whereas only 39 percent was
from the segment for all of 2001. Our goal for 2002 is to
achieve a 50-50 revenue split, as we emphasize growth in our
transaction processing business, which offers us recurring
revenue and substantially higher operating margins.
In terms of transaction growth during the quarter, we
processed 26.4 million clinical and financial transactions
through ProxyNet, our secure national health care information
network, representing a terrific 65 percent increase over the
first quarter of 2001. Excluding encounters processed due to
the variability associated with this type of transaction, our
core transactions processed increased by five percent over the
fourth quarter of 2001, and by 96 percent over the first
quarter of 2001. We are on an annualized run rate of 106
million transactions for 2002, clearly making us the second
largest medical claims transaction services company in the
country. As Mike will discuss later, there are tremendous
growth opportunities, both internally and externally, that
will fuel the success of our transaction based businesses.
Turning to expenses, on the SG&A side, starting in the first
quarter, we began the hiring of associates in our transaction
business sales and marketing teams to drive our core revenue
growth. Although this increases our expenses in the quarter,
it builds the transaction foundation for success later in the
year. We've also added personnel in our technical and
development areas as it relates to our HIPAA compliance
efforts, representing incremental expenses over prior periods.
Consolidated SG&A expenses were $5.5 million for the quarter,
down from $5.6 million in the first quarter of last year, and
up only 2.8 percent from the fourth quarter.
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Focusing now on EBITDA, EBITDA dollars increased by a very
strong $1.2 million from a loss of $549,000 in the first
quarter of 2001 to a positive $631,000. As we've said in the
past, in all areas of the company, we continuously strive for
operational efficiencies as a way to improve our EBITDA
margins on a trendline basis. Given that a relatively large
portion of our cost structure is fixed or semi-fixed, it can
be a challenge to make this trendline perfectly smooth one
quarter to the next, but we are confident in achieving
expanding EBITDA margins on an annual basis. For all of 2001,
EBITDA margins were 3.6 percent, and we are very comfortable
with the analyst guidance that we will achieve at least a
consolidated EBITDA margin of 8.6 percent for 2002.
As we noted in our year end call, starting January 1st, we
adopted the new accounting rules regarding goodwill
amortization. As a result, our depreciation and amortization
has been reduced by roughly $800,000 per quarter from our
year-end 2001 run rates. Additionally, while our offer to
convert any outstanding Series C preferred stock was a
complete success, with almost 99 percent converting, we did
have to record $612,000 for a non-cash deemed dividend charge
for those shareholders that waited until January 2002 to
convert.
The change in revenue mix, along with changes in goodwill
amortization, allowed us to achieve our first ever positive
net income and EPS of just under a penny per share -- a true
milestone. Of course, this excludes the non-cash accounting
charge recorded for the conversions, but we remain extremely
confident that we will show reported positive EPS next
quarter.
For the three months of 2002, we spent $412,000 in capital
expenditures and $138,000 in capitalized software projects
related to HIPAA and the deployment of a private label
platform for our web services. Our total capitalized software
development is expected to be between 10 percent and 15
percent of our research and development costs for all of 2002.
Our cap structure is finally simple: 6.7 million shares
outstanding; 20,000 underlying common share for our preferred
stock; 733,000 warrants; and 777,000 stock options-- all
totaling 8.2 million fully-diluted shares. The shares
outstanding and the warrants include the 1.6 million shares
and the 549,000 warrants issued to General Atlantic Partners.
The General Atlantic Warrant was priced at market, cannot be
exercised for a year, and when exercised will bring in another
$8.8 million in cash. With $29 million of cash currently in
the bank and no debt on our balance sheet since paying off our
$7 million note in January, we are clearly in the best
financial position ever, and poised to continue to drive
shareholder value.
Thank you very much. And I'll now turn it over to Nancy for
her operational review.
Nancy Ham: Thanks, Judd.
We ended 2001 accomplishing most of the operational goals we
established for ourselves at the beginning of last year. We
entered 2002 well positioned as the nation's second largest
medical claims transaction company, and the largest provider
of both pharmacy and lab to physician connectivity solutions.
Our operational challenges this year are to execute our
cross-selling initiatives and to monetize the opportunity
presented by HIPAA, while maintaining, of course, our industry
leading customer service. So, let me start by discussing the
successes in our Healthcare Transactions segment, which
includes our payer services and prescription services
divisions.
Using our unique FOCUS methodology, which is our proven
approach to acquiring and maximizing small physician practices
of one to nine doctors, our sales team had a great
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quarter, being once again over quota on both the number of new
physicians and the number of services sold. In the first
quarter, we added almost 1,500 new physicians to our network.
But I'm even more pleased to report that the new physicians
signed up for over 4,000 services, or 2.8 services per
physician. This continues our accelerating trend in which new
physicians signed up for 2.1 services for all of 2001, and 2.5
services per physician for the fourth quarter, clearly showing
that our cross-selling plans are on track. In addition to this
direct customer expansion, we added 10 new electronic commerce
partners, representing almost 2,000 indirect physicians in
multiple markets, and bringing our total of active partners to
141.
As a result of these activities, we ended the quarter with
direct relationships with almost 62,000 physicians, and
indirect relationships with another 42,000. These positive
results for the first quarter exemplify ProxyMed's ability to
execute our FOCUS methodology by working closely with our
direct payers to convert their physicians from submitting
paper claims to submitting electronic transactions. The
success of our FOCUS program differentiates us from our
competitors and drives substantial value for our payer
partners. Using this competitive edge, we were able in the
first quarter to sign four more payers, bringing our total of
direct payer relationships to 347. And we also signed up
several of our existing payers to join the Focus program. This
strong linkage from our 62,000 direct physicians to our 347
direct payers is the core of our strategy here at ProxyMed.
Over 70 percent of our inbound volume comes from our direct
physicians, and over 92 percent of our outbound volume goes to
one of our direct payers. This clearly differentiates us from
clearinghouses, which typically aggregate inbound and outbound
volume to and from others while having few direct
relationships themselves. In contrast, at ProxyMed, our direct
relationships afford us stickier connections with lower
attrition, slightly less than five percent, and this forms the
foundation of the cross-sell opportunity.
Because of these close physician and payer relationships,
ProxyMed's HIPAA opportunity is different and more compelling
than that of a clearinghouse. HIPAA will give ProxyMed wide
access to transaction types that are offered today by really
just a few payers. This new influx of available transactions
will only accelerate our cross-selling efforts to our
expansive physician client base. In addition, smaller
physician offices, where we focus, will need new products and
services to make their practices HIPAA compliant, and we're
one of the few solution providers ready to meet those needs.
We're making the appropriate investments now to be positioned
to monetize this terrific revenue opportunity later this year
and on into 2003.
In addition to these HIPAA investments, we're strengthening
our value-added network infrastructure to support this strong
core growth. For example, payer services rolled out an
expanded "Digital Dashboard" transaction management system in
the quarter, which we call VISION. This customer intelligence
system monitors our clients' daily transactions, volumes and
trends and immediately flags for proactive response any
significant changes or opportunities, including volume trends
compared to historical results in client-specific projections,
increased rejection rates, opportunities such as transaction
mining, and cross-selling, and more. Our VISION system helps
us to provide better service to our clients while maximizing
the number of transaction they process each month.
Shifting now to prescription services, we're laying the
groundwork here for the profitable expansion for this line of
business. We're currently executing on a direct to physician
marketing campaign to expand the number of paying physician
subscribers in 11 target MSAs where we have both a critical
mass of online pharmacies and existing and referenceable
physician user base. In this expansion, we're leading with a
new web-based version of our popular PreScribe product, which
was launched during the quarter. Although early in the
campaign, I'm very encouraged by the initial results, and 75
percent of the implementations have been for the new web-based
service. This is
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obviously important because of the dramatic reduction in cost
to remotely implement a web-based customer versus having to go
on-site and install a Windows-based application. And I'm
particularly pleased that out of all of our physician users,
over two-thirds are paying a monthly subscription fee today,
up from just a third a year ago, clearly demonstrating the
value that physician offices receive in automating
prescription refills and getting off the phone.
Turning now to Lab Communication Solutions, we're pleased to
report that revenues grew by 10 percent over Q1 of last year.
However, revenues were below our record-setting peaks in Q3
and Q4. We executed on our plan to eliminate certain
non-strategic and lower margin services. In addition to this
expected impact, we did experience some delays in orders from
a larger lab and printer partner, but soon we're finalizing
negotiations for a new and expanded nationwide product and
services contract. We were also somewhat affected by industry
merger and acquisition activities, for example, the
announcements by Quest Diagnostics of their purchases of AML
and UniLab -- all three of whom were longstanding ProxyMed
customers -- and this M&A activity has caused some of their
collective purchases to be shifted until later in the year.
Our experience over 25 years in this business has been that
while orders can and do shift from quarter-to-quarter, they
are usually delayed and not lost. So, while our quarters are
not always perfectly smooth, year-over-year we're showing
consistent growth of 10 percent.
And as for the company overall, if we increase the percentage
of our revenue coming from our higher margin and recurring
revenue healthier transaction segment, we're creating a
smoother overall revenue curve quarter-over-quarter.
On the EBITDA side, while we were successful in eliminating
certain low margin products, as I just mentioned, we did see a
decline in EBITDA. One of our largest lease customers took
advantage of low interest rates to buy out their lease base,
which reduced EBITDA by almost $200,000. In addition, like
many employers, we experienced significant health and business
insurance premium increases in the first quarter. We
absolutely remain committed to improving our EBITDA margins,
and we took proactive steps to reduce our expenses by a pro
forma $100,000 a quarter going forward.
Looking ahead, we see strength and opportunity in core
products in our contract manufacturing business. On the core
products side, we're making progress in penetrating a new
target market, anatomical pathology labs, who traditionally do
not use remote intelligent devices to deliver lab results.
With the price points for color printing becoming more
economical, we're targeting this segment of the lab market for
growth, and we're pleased that we sold our first units within
the quarter. In addition, we began cross-selling new recurring
revenue services, such as our FleetWatch monitoring service to
our device customers. We officially introduced FleetWatch in
the first quarter, and already have 800 physician office units
under subscription. While this is a modest start, it does
validate our ability to convert one-time sales to recurring
revenue subscriptions. Another new service is our ProxyLab
product for web-based order entry and results reporting, which
was introduced late last year. With our direct sales force,
and in conjunction with our first major distribution partner,
ARUP Laboratories, we've rapidly built a very full pipeline of
prospects, which will help us to improve revenue growth and
margins later this year. And finally, on an operational note,
we were very pleased to receive our ISO 9001 re-certification
last week. ProxyMed is committed to quality throughout our
business, and whenever possible, we seek external quality
certifications, such as ISO 9001 for labs, and EHNAC for payer
services.
All in all, we had a great quarter from an operational front.
And with that, I'll turn it back over to Mike.
Michael Hoover: Thank you, Nancy.
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Let me first start out by saying that I continue to be
extremely proud of the efforts of our associates and
management team in achieving greater and greater success in
the company. With net income of almost $50,000 before our
non-cash dividend charges and positive EPS for the first time
in ProxyMed's history, and now with our investment from
General Atlantic Partners, ProxyMed is positioned as a
formidable force in our industry.
The $25 million investment from General Atlantic Partners is a
strong endorsement by one of the country's premier investors.
Over the past 20 years, GA has backed some of the biggest
growth stories in our market. In healthcare, they are well
know for being the early backer of Envoy during its growth
years, and for being the current backer of Eclipsys
Corporation. We view this investment as significant validation
for ProxyMed and our efforts over the last 18 months.
One of the reasons that General Atlantic is so well regarded
is that they have a unique approach to investing. They are
highly selective, targeting less than 15 investments each year
in information technology and communication businesses around
the world. This focus allows their professionals to dedicate
most of their time to providing their portfolio companies with
sustained strategic and operational assistance over each
company's long-term investment horizon. The average length of
a GA partnership is five to seven years.
So, why did smart money like General Atlantic choose ProxyMed?
In a word, "growth." To explain this growth potential, I'd
like to spend the next few minutes sharing with you our
opportunities for the rest of 2002 and beyond, and for an
internal growth perspective from cross-selling and directly
adding new physicians, and from an external growth perspective
from strategic acquisitions.
We recognize that our continued success depends upon
penetrating a greater portion of the small physician office
market place that consists of 275,000 physicians across the
country, and driving incremental transactions through our
network. This can first be achieved through the cross-selling
of additional transaction services that we currently offer to
our existing 100,000 direct and indirect physicians. Let me
size the opportunity up this way...if over the next four to
five years we can increase the current number of services
utilized by each of these physicians, up from the current
level of below two to over eight -- and we currently offer 10
different transaction services -- we believe that we will
generate revenues of approximately $400 per physician per
month. This represents an opportunity of close to $500 million
in revenue per year, just from our existing customers.
Therefore, you can understand that one of our key initiatives
for 2002 is to monetize this cross-sell opportunity by
telemarketing, innovative new pricing and packaging, and
driving our customers to an integrated web offering.
Don't get me wrong -- we are just as interested in adding new
physicians directly through our proven Focus program
methodology. Under FOCUS, we work closely with our insurance
payer and pharmacy partners to target new physicians important
to those partners. The power of FOCUS is that we are not
randomly cold calling small physicians, which would be very
expensive. We are being introduced at the practice level by
our partners, and we have proven that we are experts at
converting those introductions into successful transaction
customers.
In addition to adding physicians through the FOCUS program, we
also have the opportunity to acquire them through strategic
acquisitions - "strategic" in the sense that physicians
required would be geographically desirable, or that additional
services acquired from these businesses would be complementary
to our current transaction sets. With $29 million in capital,
and the acquisition opportunities that exist in today's
marketplace, we believe that we may be able to acquire two to
three businesses this year
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that provides us access to additional physicians. Over the
next few years, if we can acquire and/or sign up 100,000 new
physicians this way, and we were able to have each one of them
use eight of our transaction services, once again there's
another $500 million market opportunity that awaits us.
Now we realize, of course, that we will not achieve 100
percent of this $1 billion opportunity. But even achieving 40
to 50 percent represents a significant upside opportunity to
today's revenues, and will help make ProxyMed a leader in the
physician connectivity market.
My two final notes -- we are delighted with our new
partnership with General Atlantic, and look forward to the
opportunities presented by their investment and their support.
We would like to point out that our investment from General
Atlantic is accretive to our shareholders for the remainder of
2002, so that we have ample time to deploy that capital
internally or for acquisitions. As part of our relationship,
we recently welcomed Braden Kelly, who heads the healthcare
practice at General Atlantic Partners, to our board of
directors, filling a current vacancy. Finally, our recent
analyst guidance indicates that we will show positive net
income and EPS for next quarter and the remainder of this
year, and we are very comfortable with this guidance.
That completes the formal presentation that we have today, and
we'd like to now open it up for any questions that you have.
[Questions from participants and answers from management omitted]
M. Hoover: We thank you for your time an interest today. On a final
administrative note, our Annual Meeting of the Shareholders is
set for May 22, 2002, here in Fort Lauderdale and proxy
materials are currently in the mail to those shareholders of
record on March 27, 2002.
So again, I want to thank you for your time today, and we look
forward to your participation in our Q2 conference call. Have
a good day. Good-bye.
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