EXHIBIT 99.1
PROXYMED
SECOND QUARTER 2001 FINANCIAL RESULTS CONFERENCE CALL
Moderator: Michael Hoover
July 11, 2001
10:00 a.m. ET
Operator: Ladies and gentlemen thank you for standing by. Welcome to
the ProxyMed second quarter earnings conference call. During
the presentation, all participants will be in a listen only
mode. Afterwards, you will be invited to participate in a
question and answer session. At that time if you have a
question, you will need to press the one followed by the
four on your telephone. As a reminder, this conference is
being recorded today, Wednesday, July 11, 2001. I would now
like to turn the conference over to Mr. Judd Schmid, Chief
Financial Officer for ProxyMed. Please go ahead, sir.
Judd Schmid: Thank you, Ken. Good morning everyone. Thank you for joining
us for ProxyMed's conference call to discuss the company's
results for the second quarter of 2001. As Ken pointed out,
I am Judd Schmid, ProxyMed's Chief Financial Officer. Before
we begin our formal discussion, I'd like to mention that we
posted our press release yesterday evening, and it is
available through the major wire services and on our web
site at www.ProxyMed.com. If you have not seen a copy of the
release, please check the Internet or call our office at
area code 954-473-1001, extension 300, and we'll fax or e-
mail one to you immediately. As noted in our press release,
this call is being carried live on the CCBN Internet site at
www.streetevents.com and will be available for replay at the
same web site through August 11th.
Please also let me take a minute to reference the safe
harbor statement under the Private Securities Litigation
Reform Act of 1995. This 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 upon
ProxyMed's interpretation and analysis of health care
industry trends and management's ability to successfully
develop, market, sell and implement its clinical and
financial transaction services and software applications to
physicians, pharmacies, laboratories and payers as well as
the successful integration of its acquisitions. 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 statement.
Leading today's conference call is Michael Hoover,
ProxyMed's Chairman and Chief Executive Officer; and
providing an operational summary will be Nancy Ham, our
Chief Operating Officer. Now I'd like to turn the call over
to Mike. Go ahead please, Mike.
Michael Hoover: Thank you, Judd. Good morning everyone and welcome to
ProxyMed's second quarter 2001 results conference call.
Today Nancy Ham and I will discuss and review our second
quarter results, and then we'll review our general business
and future outlook and strategies for the remainder of 2001
year.
In the formal oral presentation today, we will be focusing
on three topics: overall core growth and profitability,
strategic opportunities and driving shareholder value. We
hope our formal presentation will answer most of the
questions that you
may have as to what has been happening here at ProxyMed
since our last conference call. As is customary, at the end
of the oral presentation, we will open up the lines for any
additional questions that you may have.
Let me start by saying good news couldn't wait. As you'll
hear shortly from Judd, ProxyMed has reported record revenue
and EBITDA profits for the second quarter, truly a major
milestone for the company. As we noted in our last quarter's
call, we have been on the right track since the fourth
quarter of last year, and we now feel confident that this
trend is here to stay. We remain committed towards our goal
stated for 2001 of $42.5 million in revenues and $3 million
in EBITDA profits. In addition to discussing the results for
the quarter, Judd will also report on our ongoing efforts to
clean up our capitalization structure, and Nancy will
discuss the continued core growth in our payer and lab
services division, which have again fueled our success this
quarter. I will now turn it over to Judd for his financial
review. Judd, go ahead.
J. Schmid: Thank you, Mike. Good morning everyone. As Mike said, we
have released our results earlier than in the past because
we wanted to inform our shareholders, institutional
investors and analysts of the tremendous success that we've
had here at ProxyMed in this past quarter. What a difference
a year makes. As you'll hear, our results have improved
steadily over the last several quarters as we continue to
pursue our established financial goals set forth at the end
of last year. To begin our discussion, let's start with a
recap of our record revenues and discuss what contributed to
our EBITDA profit of almost $420,000, the first time we have
reported EBITDA profits in the history of the company.
ProxyMed recorded revenues of $10.2 million for the second
quarter of 2001, an increase of 27% over the second quarter
of 2000 which had revenues of $8 million. We are
particularly pleased at the strong growth in our existing
core businesses, which showed revenue growth of almost 14%
over the same period last year. This strong performance was
once again fueled by a 21% revenue increase in healthcare
transactions and a 10% revenue increase in our laboratory
services division. In addition to this core growth, our MDP
acquisition, which is now part of payer services, was
accretive and contributed positive EBITDA as expected.
In terms of transaction growth during the second quarter, we
processed 21.8 million electronic clinical and financial
transactions through ProxyNet, our secure proprietary
national health care information network, representing a 58%
increase over the second quarter of 2000. Included in this
number are 3.4 million claims and patient statements
processed at MDP. For the current quarter, lab services
accounted for 60% of total revenues while our transaction
services units, prescription services and payer services,
including MDP, accounted for 40%.
Shifting now from revenues to expenses and profits, as
expected, gross margins for the second quarter of 2001
decreased to 54% compared to 66% for the second quarter of
2000, primarily due to the impact of lower margins at MDP
for our statement processing services and lower margins from
our laboratory services division due to a shift in the
revenue mix from higher margin leases to lower margin sales
of communication device units.
As in the past few quarters, we continue to keep our
expenses in check and to monitor our spending closely. While
we have started to increase discretionary spending in areas
that we had held back in he prior quarter, SG&A expenses
were $5 million for the quarter, down from $7.1 million in
the second quarter of last
year and below expense levels for the first quarter of this
year. Our current monthly run rate for SG&A expenses is now
$1.7 million per month. This is up slightly from last
quarter's ending monthly run rate of $1.5 million and is
primarily due to the inclusion of MDP in our operations
starting May 1st.
Looking at overall profitability, I am extremely pleased to
announce that we are reporting EBITDA profits of $419,600 in
the second quarter of 2001 compared to an EBITDA loss of
$1.8 million for the second quarter of 2000. More
significant, however, is that this is $968,000 better than
our EBITDA performance last quarter. This quarter's positive
EBITDA results truly represent a major milestone for the
company, and all of our associates should take pride in
their contribution to these results.
On another note, as we had shared previously, amortization
expense related to our 1998 acquisition of IMS ended in May
2001. This would have positioned us to be net income
positive in Q3; however, with our recent acquisition of MDP
we will now incur approximately $800,000 per quarter in
amortization charges through the end of 2001 until the new
FASB rules regarding goodwill amortization take effect.
Starting in 2002, these new rules eliminate amortization of
goodwill and require an impairment analysis to be performed
each year, at which time an impairment charge may be
required. Along with any non-cash charges we'll incur from
the exchange of the Series C warrants, which we'll talk
about in a moment, and continued charges for dividends, this
will delay our ability to achieve bottom line profitability
until late in the 2001 year or even until the beginning of
2002.
Finally, in wrapping up the P&L discussion, we had a non-
cash dividend charge of $2.3 million for the quarter. This
resulted from both our regular Series C preferred dividend
payment and an accounting charge for the Series B warrant
exchange. Again, we'll talk about this shortly. With regards
to Series C, as you know, we have issued $25.3 million in
Series C preferred stock, which carries a 7% dividend which
is payable quarterly. For Q2 of 2001, we issued almost
430,000 shares of common stock for payment of these
dividends instead of paying cash. As noted last quarter, we
evaluate our dividend payment strategy each quarter, but in
all likelihood, we will continue to pay these dividends in
stock until we increase our cash position. Additionally, we
are not anticipating any significant conversions of
preferred shares until our stock price increases, although
we have had $710,000 out of the $25.3 million in Series C
preferred stock actually converted to common shares during
the quarter.
Let's spend a few minutes talking about the warrant
exchanges from our Series B and Series C preferred stock. As
you may know, ProxyMed suffered significant dilution when
the company was refinanced last June. In almost every
conversation we've had with analysts and institutional
investors alike, we have been told to clean up the overhang
of the warrants issued in connection with these preferred
financings. As a result, we have offered to exchange on a
cashless basis, both the 4.1 million Series B warrants and
the 21.9 million Series C warrants directly into common
stock at ratios less than 1-to-1. We completed the Series B
warrant exchange in April whereby we exchanged 4.1 million
warrants for 3.3 million common shares and reduced the
number of fully diluted shares by 800,000.
With regard to Series C, the warrant solicitation is
currently underway with warrant holders having until mid
August to participate in the exchange. Assuming full
participation in the exchange, the 21.9 million warrants
would be converted into 16.3 million common shares, reducing
the number of fully diluted
shares by 5.6 million. Please note that this number was
incorrectly reported on our June 15th press release at 9
million shares. We anticipate that we will be able to
exchange at least 80% of these warrants or management can
decide not to follow through with the transaction.
Some have asked us, why do this exchange now, especially
when the stock price is depressed? Well, we strongly believe
that the stock price will rise above the $1 to $1.50
exercise prices of these warrants and that ultimately all
will be converted at some time in the near future. By
allowing these exchanges to take place now, we mitigate that
uncertainty in the minds of investors and analysts and add
value to our stock. And doing so at ratios of less than
1-to-1, we save millions of shares that would otherwise hit
the market.
Another important point to mention here is that the Series B
warrants that were successfully exchanged in April were
fully registered in June with no restrictions, and the
original lock up on the Series C preferred shares and
warrants expired on June 16th. In contrast, under the Series
C warrant solicitation, any shares exchanged would be re-
locked up until February 2002.
As far as our capitalization goes, as of today, we have 25.9
million shares outstanding, 24.7 million convertible
preferred shares, and 35.6 million outstanding stock options
and warrants for a total of 86.2 million shares on a fully
diluted basis. However, as a result of these warrant
exchanges and other options and warrants that will probably
remain out of the money, we estimate that only 75 to 80
million shares will ultimately be outstanding. Finally, we
estimate that with insider and affiliate ownership at 17%,
there are 21.5 million shares of public float. Institutional
ownership is estimated to be approximately 5%. I know that
the warrant exchanges have been confusing to the average
investor, and I hope that these explanations have cleared up
any questions.
Finally, to wrap up the financial discussion, at June 30th,
our cash position was over $5 million. This represents
positive cash flow after we completed our acquisition of
MDP. Additionally, as a result of the MDP acquisition, we
have a $7 million note due in May 2002, and while we believe
that we can generate sufficient cash flow to cover this
payment, we are currently exploring an asset based revolving
line of credit to be used for the MDP payment and for future
acquisitions. With all the continued success over the last
few quarters, it is still unbelievable to us that our stock
is trading below $1.
With all the difficulties ProxyMed went through in 2000, it
is comforting to know that hard work pays off and that we
have turned it around as projected. While the future cannot
be guaranteed, we look forward to this continued operating
success being reflected in our stock prices.
Thank you very much, and I'll now turn it over to Nancy to
discuss the second quarter successes in our business units
in some more detail. Nancy.
Nancy Ham: Thanks, Judd. As we've just pointed out, this has been our
most successful quarter ever, and we certainly owe that
success to those at the operating level. Therefore, let's
take a few minutes to discuss in more detail the successes
and activities in each of our business units. I'll begin by
discussing healthcare transactions, which includes payer
services and prescription services.
Starting with payer services, with the acquisition of MDP,
we believe that we are now the second largest physician
clearinghouse in our industry. This increase in visibility
and positioning is clearly having a demonstrable effect on
our sales momentum on both the back end and the front end.
On the back end, in the second quarter we added nine new
direct payers to our sales efforts and 148 new payers in the
MDP acquisition, bringing us to a total of 332 direct payers
connected to our network. In addition to this breadth of
connectivity, we're also well positioned with depth, as
shown by our all payer connectivity now in 35 states. We
bring to these payers a real quality of connectivity as
well, with over 93% of our volume going direct to our
payers. In addition to simply having a payer connection for
claims or encounters, one of our strategic themes for 2001
is deepening our relationship with our payers through co-
marketing programs to grow volume, through additional
transaction types, such as eligibility and ERAs; and through
additional services such as collaborating all payer portals.
This strategic effort is going very well, and I expect to
report next quarter on some of our successes here.
On the front-end or physician side, we continue to grow our
direct physician and provider network successfully. In the
second quarter, our sales chain was 40% over quota for both
the number of physicians and the number of ProxyMed services
contracted by each physician, which, by the way, averaged
2.4 services per physician for the quarter. This great
success was up over our already successful first quarter by
39% for the number of physicians and 27% for the number of
services. If we continue our theme of breadth and depth, new
physicians are important to increase the breadth of our
network on the front-end. In addition to the benefit from
the initial transactions in revenues from signing a new
physician. We also benefit by increasing our platforms for
increasing depth or the amount of business we can receive
from each physician. One way we measure this is that the
number of services used by each physician office as we truly
begin to cross-sell and leverage our install base. ProxyMed
has today over seven separate financial, administrative and
clinical services that a physician's office can use. And
we're kicking off significant sales campaigns for the
remainder of 2001 to deepen our penetration in our existing
customer base.
Now on the transaction side, Judd has already mentioned that
we processed almost 22 million transactions via ProxyNet.
This growth was largely due by payer services, which had its
second consecutive record breaking quarter. We broke our
record from last quarter by growing core business, meaning
excluding the MDP acquisition, almost 16%, and year-over-
year we improved 35% over the second quarter of last year.
Importantly, this improvement came in all transaction
categories. Our core transactions of claims and encounters
were up over 43% and 23% respectively compared to last year.
In looking at some of our newer services, EOB scanning
through 126% over the first quarter while claims scanning
increased over 103%.
Finally, the integration of MDP has gone extremely well.
We've connected our networks such that MDP and ProxyMed
physicians have full access now to our combined suite of
services. We're well underway on upgrading the systems and
processes at MDP, which should add the operational and
financial efficiencies. With the operational aspect of the
integration going smoothly, our focus is now on cross
selling the MDP and ProxyMed customer bases.
Let's shift now to prescription services. As we shared with
you in the last quarter's call, we reorganized this business
unit in late March. I'm pleased to
report that the reorganization met its goal of reducing
expenses while having no negative impact on revenues. In
addition, with the tighter focus of the team, we've been
able to improve our customer service on both the networks
and in the customer call center.
On the product side, we continue to gain momentum with our
web-based prescription refill application, which we released
into production last quarter. We believe that we are the
only company today that has a production service bi-
directionally and securely connecting pharmacies and
physicians over the Internet. Today we have eight clinics in
three states using this service, and we have significant
interest from several partners in distributing this
capability to their physicians. Including our desktop
products, today we're actively sending prescriptions in 15
states through our industry-leading network.
Let's shift now to discuss lab services where we had another
outstanding quarter. In our core products group of
intelligent lab reporting devices, we had a banner quarter
with over 10 new customers and an increase in 9% in devices
sold. From a revenue perspective, we were up over 8% from Q1
and over 10% over the same period last year. We continue to
experience significant demand for core products and see a
number of opportunities to expand both our products and
services offering.
Speaking of services, as many of you know, ProxyMed is under
contract to support over 30,000 physician offices using one
of our products, and in the past quarter you might find it
interesting that we made over 2,000 physician office visits.
This physical presence in the physician office is a core
capability of ProxyMed and we're starting to successfully
leverage it into supporting non-lab services such as e-
prescribing handhelds. This is another example of our
ability to cross-sell across our business units.
While core products and services are growing well, we also
continue to focus on expanding our newer Internet based
services for clinical, specialty, hospital and anatomical
pathology lab companies. We ended the quarter with a
significant new release of our ProxyNet.com lab results
reporting service, which is being well received.
Today, across our product lines, ProxyMed is the largest
provider of lab to physician connectivity for the delivery
of patient lab results. Since lab results form almost 70% of
the average medical records, they are the clinical
foundation of patient care.
As the nation's leader in lab connectivity, today we serve
over 550 lab customers with one or more products or
services. We are very proud of the customer base, which has
been earned through 25 years of quality service. However,
despite this already leading position, we continue to see
significant potential to both add new labs and increase the
breadth of our network and to increase to the depth of sales
to our existing customers. As a sign of this, and based on
the product momentum in both core and Internet products, we
closed the quarter with our most successful trade show ever.
We exited the show with almost double the leads from our
previous best show, which was in 1999.
Thank you, and now I'll turn it over to Mike, who is going
to discuss the longer term strategic plans and outlook for
the company.
Michael Hoover: Thank you, Nancy. Now that we've reviewed the financial and
operating results of the company, I'd like to spend some
time talking about strategic opportunities and driving
shareholder value. Along with many of our long-term
investors, we too have been frustrated with our low stock
price in light of our ever-improving financial and
operational results and trying to increase our price to
reflect a more fair valuation is a major focus of the
company.
Over the last several months, we have spoken with
institutional investors, investment bankers and analysts on
this important topic. They all agree that while the
company's results are indeed improving and they applaud the
cleanup of our capital structure, that alone is not enough.
In order to attract analysts and investors, we must be able
to prove that we were one of the favored solutions in this
healthcare space. We must continue to gain market share and
to improve profitability.
So let's talk about the growth opportunities for the short-
term and long-term. With regards to core growth, excluding
acquisitions, we are comfortable that we can maintain 20 to
25% growth through the strategies Nancy discussed with new
products and services and cross-selling our customer base.
In addition, we are constantly evaluating acquisition
candidates in each business, and we are targeting growth of
another 20 to 25%. With the lower valuations afforded to
many smaller companies out there, the next few quarters may
offer great opportunities to acquire small strategic claims
clearinghouses and other similar businesses. As with MDP, we
are confident in our ability to acquire claims and lab
services companies, rapidly integrate them and begin to
maximize revenue and profitability and growth. As we stated
before, we will not acquire any company that is not
accretive from the onset.
Beyond 2001, we see our most significant opportunity in the
area of electronic prescribing. With emphasis in this arena
brought on by RxHub, the consortium of three pharmacy
benefit managers -- Merck Medco, AdvancePCS and Express
Scripts -- and the new Microsoft, Pfizer and IBM consortium,
as well as HIPAA mandates, within the next two years, we
think this market will explode. As a way to kind of size the
opportunity, it's important to understand that there are
currently over four billion manual prescriptions written
[and filled] each year by the 600,000 practicing physicians
in this country and growing at a rate of over 15% a year. As
you know, we have changed our strategy in late 2000 to focus
on being solely a back-end network services provider. While
we remain committed to leveraging our network capabilities,
we are experiencing significant renewed interest from our
strategic partners in having ProxyMed provide a front-end
solution. With the e-prescribing handheld space changing
rapidly, there may be an opportunity with one of the
handheld vendors or an opportunity to leverage our desktop
and web-based products.
Whether we participate on the back-end, or on the front-end
and back-end, prescription services has a very large,
untapped market. If there is an opportunity to get even just
25% of the four billion annual transaction and convert them
into an electronic format, let's say an average price of 40
cents per transaction, ProxyMed could generate well over
$400 million in revenue. This is a tremendous opportunity.
Obviously, this market will take time to mature, which is
why our revenue model publicized at the end of 2000
highlighted at only $36 million in 2003 revenues would be
from electronic prescribing.
However, meta forces such as legislation or the success of
RxHub, could help to advance this market faster than we
predict. With 2 states currently -- Ohio and California --
already moving forward with legislation to mandate
electronic prescriptions and over 20 more states having some
level of legislative activity, the adoption of e-prescribing
could become a legal mandate. If this happens, we are well
positioned to benefit since we have the largest e-
prescribing network currently in production. We have spent
years getting this network to its current level, one that
unfortunately was ahead of its time and is currently under-
utilized. But with the opportunity that awaits us, perhaps
its time has come.
Let me conclude by saying that while we can't control the
future, we can be positioned to take advantage of the
changing tides in healthcare. Being one of the most
connected and one of the only profitable healthcare IT
companies out there, must make a difference. Ultimately,
however, it is taking advantage of the opportunities that
drive value for you, our shareholders.
I reiterate ProxyMed's strategy and commitment described in
our previous conference calls: our focus remains on
connecting physicians with their contracted financial and
clinical partners so that they can conduct value-added
transactions. We remain well positioned today as the largest
provider of retail pharmacy connectivity, the largest
provider of lab results reporting devices, and one of the
two largest physician EDI clearinghouses. We will continue
to grow revenue by adding front-end physician subscribers
through our strategic partners to drive our transaction
growth and in expanding our back-end connectivity to labs,
pharmacies, PBMs and payers. We remain absolutely committed
that we can meet our revenue and EBITDA goals for 2001.
That concludes our formal presentation, and operator, we
would now like to open the lines up for any questions that
our callers may have.
[Questions from participants and answers from management
omitted]