EXHIBIT 99.2
PROXYMED, INC.
SECOND QUARTER 2003 FINANCIAL RESULTS CONFERENCE CALL
MODERATOR: MICHAEL HOOVER
JULY 22, 2003
10:00 A.M. ET
OPERATOR: I would like to welcome everyone to ProxyMed's conference call
to discuss financial results for the second quarter of 2003.
At this time, I would like to inform you that all participants
are in a listen-only mode. At the request of the Company, we
will open the conference call up for questions and answers
after the presentation. We would appreciate it if you would
limit your questions to one and then get back in queue if you
have a follow-up question or another question to ask.
Today's conference call is being webcast. Replays of this call
will be available on the internet at www.proxymed.com shortly
after this call. Leading today's call from ProxyMed are Mike
Hoover, CEO; Nancy Ham, President; and Judd Schmid, Chief
Financial Officer.
Before the discussions begin, please be reminded that
statements made by ProxyMed during this call, including
answers given in response to questions, are intended to fall
within the Safe Harbor Provisions of the securities laws.
Actual results might differ materially from those in the
statements. Such statements are subject to a variety of risks,
many of which are discussed in the company's most recent form
10-K and other SEC filings, which the Company strongly urges
you to read.
At this time, I will now turn the presentation over to Mr.
Mike Hoover.
MICHAEL HOOVER: Good morning. Thank you, Operator. Thank you, everyone, for
joining us once again. On our call today we will report on our
second quarter financial results including our return to
EBITDA profitability, which was driven by the continued
success of our MedUnite integration. We will also update you
on our HIPAA efforts including the rollout of our new
HIPAA-compliant transaction platform for batch and real-time
transactions, as well as our new PROXYMED.NET physician office
web portal. Finally, we'll talk about our exciting new service
opportunities arising from new relationships with First Data
and PlanVista.
Certainly the highlight of the quarter for me was our return
to EBITDA profitability, which was a full quarter earlier than
we had originally projected. This critical milestone was
accomplished by the ability of our dedicated team to focus on
1
and drill down to the most minute cost details in order to
reduce or eliminate unnecessary expenditures at MedUnite. In
addition, our technology and our operational teams made
excellent progress in integrating the two businesses. Despite
this focus, we were also able to deliver strong results in our
transaction services segment, with core transaction group
growth at over eight percent, leading to a 12 percent
sequential revenue increase. We expect good revenue growth and
continued margin expansion over the balance of the year. While
our lab services unit was a bit revenue-challenged in the
quarter, they are on a strong trend line for the third and
fourth quarters. All-in-all we are very pleased with our
performance for the quarter.
In addition, we never lost sight of the need to pursue new
services and transaction types to drive our future growth. I
mentioned to you last quarter that we had some exciting things
in the works. I am happy that we were able to bring them to
fruition in the quarter. I have already been on the road
personally to introduce these services to CEOs of some of our
largest customers. I am optimistic as to early response.
With this brief overview, let me turn it over to Judd and
Nancy for all of the details. Judd...
JUDSON SCHMID: Thank you, Mike. Good morning everyone.
With my new son, Max, now nine weeks old, I want to thank all
of those who have sent their congratulations to my wife and
myself. Being a parent for the first time really is everything
we hoped it would be and more.
As we reported in our press release yesterday afternoon, our
overall financial results continue to improve, thanks to the
ongoing strength of our transaction services business, which
is driven by our cost-reduction and integration efforts at
MedUnite and consistent revenue growth in our existing
operations. As a result, we reported consolidated revenues of
$17.7 million and EBITDA profits of $431,000. With the
recording of a $752,000 increase in the value of the PlanVista
warrant, which we'll talk about in a few minutes, our net loss
was $356,000 or 5 cents per share. This compares to
consolidated revenues of $12.6 million, EBITDA profits of
$901,000, and diluted EPS of 6 cents per share in the same
quarter last year.
The point of our successful integration plan is to merge the
MedUnite and ProxyMed businesses as quickly as possible. We
worked hard to provide you a breakout of MedUnite's results
for the quarter so that you can track our progress. But, given
the tremendous strides in integration of the MedUnite and
ProxyMed operations in the second quarter, we will not be able
to break out MedUnite's results in the future.
2
With that, I'd like to turn now to the income statement.
Starting with revenues in our transaction business, sequential
revenue growth over the first quarter was a solid 12 percent,
excluding $4.5 million in revenues from MedUnite. Even
including MedUnite, where the initial focus has been on
stabilizing and retaining the business rather than growing it,
our sequential segment revenue growth was 6 percent.
From a transaction standpoint, we processed a total of 56
million total transactions, up 97 percent from the second
quarter of last year, but down one percent sequentially.
Excluding MedUnite's transactions, while overall transactions
grew only 1 percent due to a decrease in lower priced
encounters, we are pleased to report that core transactions
grew eight percent, fueled by continued growth in both new
accounts and existing ones. We've seen significant increases
in our claims and statements as a result of our new
relationship with AlphaThought as well as growth from our
small physician accounts.
At MedUnite, transactions were down four percent sequentially
due to the decision to terminate two large vendors who are
sending us non-revenue producing transactions. However, as a
result, our average revenue per real-time transaction
increased substantially. In addition, we believe that the
introduction of our new web transaction portal, PROXMED.NET,
will enable us to grow our real-time transactions.
This strong growth in core transactions, combined with
opportunities brought forth by our new relationships with
PlanVista and First Data, which Mike will address later,
continues to give us confidence that we can achieve our
internal growth goals for the year 25 percent or more. We
remain on a run rate to process over 225 million transactions
on an annual basis.
Our lab services business continues to lag behind our
expectations from a revenue standpoint. While we've seen a
sequential decline in revenues of 7 percent from soft lab
device and contract manufacturing orders, we do see
improvement in the third quarter from existing and new
relationships.
Shifting now to SG&A expenses, the big news this quarter is
the success we've had at MedUnite in reducing the expense
run-rate. Since our acquisition on December 31st, we've been
able to consistently lower the operating expenses each month.
SG&A expenses are now in line with our original expectations
on a monthly basis. Some of our specific successes include the
moving into a smaller office in San Diego for a 95 percent
savings compared to last year's costs; the elimination or
renegotiation of substantial unnecessary telecom expenses; and
the elimination of duplicative contact management, HR, and CRM
systems making for a much more efficient operation. Moving
3
forward, we're also looking to combine the accounting and
finance systems as well. We continue to "peel back the onion"
to look for the obvious and the not-so-obvious.
Expense levels in our other business units remained
essentially flat across the board, another indication of our
commitment to consistently monitor expenses.
As a result our success in curtailing these expenses at
MedUnite, we are very pleased to report a return to
consolidated EBITDA profits. In one short quarter we were able
to go from a loss of $948,000 to a profit of $431,000. While
we can slice the EBITDA pie many ways, here are the most
important slices. First, EBITDA in transaction services,
excluding MedUnite, went from $709,000 to $1.2 million. At
almost 16 percent, this is the highest EBITDA margin ever
achieved by this business unit, demonstrating that as we grow
the business we can achieve operating leverage to drive margin
growth. Secondly, MedUnite's EBITDA loss improved
significantly from a loss of $1.6 million in the first quarter
to an EBITDA loss of only $338,000 in the second quarter.
Lastly, our lab services EBITDA declined from $817,000 in the
first quarter to $455,000 in the second quarter.
Amortization expense was in line with last quarter. As we
noted then, we have not yet started amortizing the real-time
network platform acquired from MedUnite. With the introduction
of PROXYMED.NET, which was based on the MedUnite real-time
platform, we will begin amortizing this platform sometime in
the third quarter. This amortization should add about $255,000
per quarter for the next five years. Additionally, down the
road as we enter the fourth quarter, we'll begin to amortize
our HIPAA-compliant platform that we have worked on for the
last 18 months to complete. This is expected to add
approximately $50,000 per quarter over five years.
From a cash perspective, we ended the quarter with $8.6
million in total cash. At this time, we have settled or made
arrangements for the payment of all significant liabilities at
MedUnite that were reported as part of our acquisition. We
settled the original $8.3 million in accrued acquisition and
exit costs for at least $1.5 million less than originally
estimated due to our negotiations. Additionally, as noted in
our last quarter's call, we were successful in entering into
financing agreements with MedUnite's vendors for payment of
some $4.6 million in liabilities at MedUnite that existed at
December 31st. As a result of these financing agreements and
the interest that we're paying on our $13.4 million
convertible notes to the MedUnite founders, our net interest
expense was expected to be about $180,000 per quarter. We're
running a little more than that due to lower interest earned
on our investments.
With $8.6 million in total cash and with the company almost at
a positive free cash flow level, I'm comfortable with our
4
current cash resources as compared to our internal needs.
Additionally, we've signed a term sheet for a $12.5 million
line of credit with our current commercial bank. Documentation
and closing of this line is expected to be concluded in the
next few weeks.
Finally, in conjunction with our commercial agreement with
PlanVista to provide claims re-pricing services to our payers,
we acquired a warrant to purchase up to 15 percent of
PlanVista at $1.95 per share. In the accounting for this
warrant we recorded an initial value of $547,000 on June 10th.
By June 30, as the market price of PlanVista stock was up
significantly, the value of this warrant increased to $1.3
million. The resulting increase of $752,000 was recorded as
current period income. Until this warrant gets exercised or
expires, we'll have to mark up or down the value of this
warrant. If we don't exercise the warrant, we'll have to take
a charge for any remaining value on our books.
With the momentum in transaction services and the rebound
expected in lab services, we plan to continue to improve our
operating results in the last two quarters of the year and
then beyond. While we have much hard work ahead of us, our
goal is to exit the year on a positive EPS run rate. With
that, I'd like to turn it over to Nancy, who will be
discussing our operations in more detail. Nancy...
NANCY HAM: Good morning, everyone. I'd like to start out this morning by
sharing with you some of our continued success in completing
the integration of MedUnite. Just six months ago, we purchased
a business with a cash burn rate of almost $1.6 million a
month. Today as we exit the second quarter, that burn rate is
less than $100,000 a month. I'm very comfortable that MedUnite
will make its first positive EBITDA in the third quarter. I
want to thank all of the associates at both the former
MedUnite and at ProxyMed for their incredible hard work and
dedication in making this happen by executing on our four-step
plan of action:
First, we immediately moved to eliminate overlapping corporate
functions and services such as executive management, human
resources, finance, marketing, legal, and real estate. While
most of this work was accomplished in the first sixty days, it
did take a while for all the savings to show up in the P&L.
Second, we started attacking the operations area where it
seemed we had two of just about everything. In the first 90
days we made all the decisions about which systems to keep and
which to eliminate. In the second 90 days, we have been taking
5
actions on those decisions. The biggest impact here, both
operationally and financially, were the move to a single
corporate co-location facility for our production systems and
the move to one customer-relation management system. This was
accomplished in the second quarter and is now allowing us to
consolidate all of our front-end customer support into our
Norcross facility.
Third, we reviewed and re-reviewed every expenditure in the
business asking ourselves, do we need it at all? If we needed
it, can we renegotiate it, downsize it, or combine it with
something here at ProxyMed? This has been especially true in
our telecommunications and software license and maintenance
areas where our corporate IT department, led by Brian
McGannon, has just done an outstanding job.
Finally, we're still working on the fourth and final step of
the plan, which is to integrate the main production processing
platform. We just reached a major milestone here with the
launch of PROXYMED.NET, which is our new web portal for
providers. This portal combines the former PROXYMED.COM and
MEDUNITE.NET in a single HIPAA-compliant portal.
Congratulations to the dedicated team who've been heads-down
making this happen. We now have a best-of-breed platform
combining the real-time transaction suite acquired from
MedUnite with ProxyMed's flexible architecture which, among
other things, allows us to private-label the portal for our
partners. The first users have gone live successfully. We
anticipate completing the full migration by the end of
September. This will allow us to then shut off the two former
platforms and to realize those incremental savings.
Over the rest of the year then, our focus at MedUnite is to
complete the migration of all of our claims customers on the
ProxyMed Phoenix platform. The Phoenix platform is our new
redesigned and HIPAA-compliant transaction platform, which
processes both claims and real-time transactions. Phoenix is
important to us for several reasons. First, it has facilitated
the integration of the MedUnite and ProxyMed platforms,
allowing us to consolidate all of our customers onto one-batch
platforms while eliminating the cost associated with
MedUnite's multiple claims platforms. Second, Phoenix provides
our HIPAA-compliant processing engine. Third, it provides a
new data warehouse, which is needed to support some of our new
value-added services. Finally, it provides us with the
scalability to support continued aggressive growth in the
future.
Let's turn now to ProxyMed's core transaction services
business, which had a pretty good quarter, growing revenue 12
percent sequentially and core transactions by 8 percent. Our
growth comes first from our excellent provider sales force. In
the quarter they signed up over 3,000 physicians for over
8,000 services. This translates to 2.6 services per doctor,
which shows our efforts at cross-selling are continuing to pay
off for us. In addition we were able to bring on several
larger new partners, such as AlphaThought, in record time.
Finally, strategic relationships, such as HBMA, are beginning
to bear fruit.
6
All-in-all we're having a lot of success not only in selling
our services, but in getting them implemented more quickly. Of
course, we've also been busy with HIPAA this year. We've
already met the first major deadline, which was the privacy
deadline on April 15th. This involved updating almost of our
inbound products to add more robust security and
authentication features. We had to sign business associate
agreements with our providers and we conducted training for
all of our associates.
While this was a lot of effort in and of itself, the bigger
work effort is around the October 16th deadline for
transactions and code sets, which involves changing the
formats of all of our transactions to ANSI X.12 4010A. I'm
pleased to report that we have hit several major HIPAA
milestones so far: we've received full production
certification from Clarity that our transactions are
HIPAA-compliant; we implemented the production version of our
HIPAA claims validator; we implemented our new payer router
that allows us to seamlessly handle both compliant and
non-compliant transactions, depending on the readiness of our
provider and payer partners; we're processing HIPAA-compliant
professional and institutional 4010A claims end-to-end in
production with multiple payers with the balance of our payers
migrating between now and October; we've launched our
self-testing tools for our partners; and a lot more.
While I'm pleased overall with our readiness, we are not
complacent. With only 87 days left until October 16th, we and
the entire industry still have much to do. It's certain at
this point that there will be both payers and especially
providers who will not be ready. Yet, it is still uncertain
what CMS plans to do about this. The industry is very engaged
in a dialog with CMS around contingency planning for these
lagging providers, as no one wants to see you drop the paper.
The current expectation seems to be that non-compliant
providers will be able to continue to submit their
transactions electronically post-October 16th for a defined
grace period. ProxyMed has prepared itself for this
contingency by architecting our Phoenix platform to handle
both compliant and non-compliant transactions even to the same
payer.
Now a quick note on our prescription services business.
Overall there is certainly a renewed interest in the
marketplace due to pending federal legislation and the growing
number of state statutes regarding the legibility of
prescriptions. For example, our home state right here in
Florida has already adopted such a statute. While it doesn't
specifically mention e-prescribing, it does put pressure on
physicians to do something to make prescriptions more
consistent and legible. While we hope this macro trend will
accelerate our growth, we do continue to make steady
day-to-day progress ourselves. Our launch with Rite Aid is
going well. We're now active in 12 states. While the
transaction count with Rite Aid is still modest, they are very
pleased and are rolling this into all of their major markets
with quite a bit of attention. On a global basis, our
7
prescription transaction volumes are consistently up 15
percent over the same period last year.
Finally, let me turn to our lab business, which continues to
feel the effects of the overall economic slowdown in both our
contract manufacturing and our lab device business. While our
national and regional account business was mostly on track for
the quarter, our smaller labs and our hospital labs showed a
definite slowdown. IT resources at these customers were
consumed in the second quarter with HIPAA privacy efforts and
their physician office customers were likewise reluctant to
make any changes in the quarter as well. With the April 15th
privacy date behind us, we are seeing in the third quarter a
definite pickup in orders from all segments of our lab
business.
We've also taken steps to better leverage our multiple touch
points with labs, which includes devices and the latest
services from our lab business, real-time transactions from
MedUnite, and claims and encounters from our transaction
service business. While each of our businesses work with labs
everyday, in the past we didn't treat labs as single
consolidated customers nor do we do much to cross-sell these
customers our full suite of services. Under our new approach,
we believe we can use our market-leading position in devices
to win more of the lab's recurring transaction business - both
claims and real-time. Labs are also key targets customers for
our new FirstProxy ERA/EFT offering.
With that, I'll turn it back over to Mike.
MICHAEL HOOVER: Thanks, Nancy. As we've just discussed, the results for the
quarter in our transaction services business have been
terrific. While we'll keep our eye on our lab business this
next quarter,. we believe that we can exit the year on a
positive EPS run-rate. As we mentioned to you in our last
call, an integral part of our growth plan is that we are
always looking for new products and services that add value to
our existing offering. Keeping in line with this strategy, in
June we announced a big business relationship with PlanVista
Corporation to provide claims re-pricing services to our payer
customers. More recently we introduced FirstProxy, our new
service offering in conjunction with First Data. I'd like to
spend a few moments discussing the significance of both of
these important relationships.
Leveraging our extensive payer connectivity and PlanVista's
state-of-the-art re-pricing capability and other proven
cost-containment services, ProxyMed and PlanVista can
immediately begin to roll out these services to ProxyMed
payers and save them real dollars on out-of-network claims.
Payers today usually are not re-pricing all the claims. A
payer may be paying that claim at full retail or perhaps at a
8
reasonable and customary rate. If they are re-pricing claims,
they are often focused on just high-dollar claims. This means
they are leaving potentially tens of millions of dollars on
the table annually.
Using our new service, we can re-price claims at any dollar
level with a guaranteed 24-hour turnaround. For our payer
customers, we can typically generate savings of 20 to 30
percent on over half of their out-of-network claims - a very
nice savings for the payer. ProxyMed is then paid on a
percentage of savings, which translates to well north of a
dollar per claim. This service is a great win-win: our payers
realize major savings, while we realize enhanced revenues and
margins. We've already received positive feedback from some of
our larger payer customers and are in active discussions with
them about using the new service. Finally, as Judd mentioned,
as part of the agreement, ProxyMed received a warrant to
acquire 15 percent of PlanVista at a price of $1.95 a share.
We are also equally excited about our new relationship with
First Data. By leveraging ProxyMed's Phoenix platform and our
connectivity to both payers and over 140,000 healthcare
providers and First Data's expertise in financial
transactions, we can offer a suite with innovative solutions
under the FirstProxy name that will streamline and expedite
the healthcare claim payment and settlement process. Our first
offering together will be for electronic remittance advice and
electronic funds transfer. We expect to begin beta testing
this service in the fourth quarter. In our relationship with
First Data, we granted them a warrant to purchase 600,000
shares of ProxyMed common stock at $16.50 per share, a 36
percent premium to the market price at the time the deal is
signed. This warrant, however, is performance-based over a
3-1/2 year period. This means that First Data only has the
right to exercise a portion of the warrant if certain revenues
are generated by FirstProxy and recognized by ProxyMed. If the
targets are not met, First Data loses its ability to exercise
each portion. It is essentially the same concept as we entered
into the founding members of MedUnite. In my prior business
ventures, I worked extensively with First Data and both
companies benefiting from the relationship. I am confident
that ProxyMed's relationship with First Data will be just as
successful.
In conclusion, I think it's been a good quarter here at
ProxyMed. We are very pleased with our return to EBITDA
profitability and with the continued success in our
transaction services business. We're excited about our new
value-added offerings with PlanVista and First Data, and the
impact that they can have on our growth in 2003 and especially
in 2004. Now we are focused on delivering our results to you
for the rest of the year.
Before we leave you today, I just want to clarify two items
that were noted in our press release yesterday. First of all,
despite the typo, my title is still Chief Executive Officer.
Second, I stated that with PlanVista and First Data, we could
9
meet the financial and operational goals established at the
beginning of the year. By this, I mean that while we will
continue to be challenged to meet analyst consensus on
revenues, I am comfortable we will meet or exceed EBITDA
guidance, which is currently $4.2 million for the remainder of
the year. This is despite absorbing any start-up costs related
to PlanVista and First Data offerings. While we have much work
to do to get there, including the final stages of the MedUnite
migration and avoiding any significant HIPAA problems, I am
confident we will be exiting 2003 on a positive EPS run rate.
With that, we conclude our formal statements. Operator, we
will open the lines for any questions that we may have.
[Questions from participants and answers from management omitted]
MICHAEL HOOVER: Great, OK. Let's wrap it up. We want to thank you for your
time and participation today. Please join us for our next
conference call. I am sure we will have some follow-ups via
phone. Thank you.
OPERATOR: Ladies and gentlemen, thank you for participating in today's
conference. This concludes the program. You may now
disconnect.
10