EXHIBIT 99.1
PROXYMED, INC.
THIRD QUARTER 2001 FINANCIAL RESULTS CONFERENCE CALL
Moderator: Michael Hoover
October 12, 2001
10:00 a.m. ET
Operator: Good morning. My name is Nikki and I will be your conference
facilitator. At this time, I would like to welcome everyone to
the ProxyMed third quarter earnings release conference call.
All lines have been placed on mute to prevent any background
noise. After the speakers' remarks, there will be a question
and answer period. If you would like to ask a question during
this time, simply press star then the number one on your
telephone keypad and questions will be taken in the order that
they are received. If you would like to withdraw your
question, press star, then the number two on your telephone
keypad.
I would like to turn the call over to Judd Schmid, chief
financial officer of ProxyMed. Mr. Schmid, you may begin your
conference.
Judson Schmid: Thank you, Nikki. Good morning, everyone. Thank you once again
for joining us for ProxyMed's conference call to discuss the
company's results for the third quarter of 2001. I am Judson
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 upon ProxyMed's interpretation and analysis of
healthcare 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 statements.
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. I'd like to turn the call now over to Mike. Go ahead,
please, Mike.
Michael Hoover: Thank you, Judd. Good morning, everyone and welcome to
ProxyMed's third quarter 2001 results conference call. Today,
Nancy, Judd, and I will discuss and review our third quarter
results and then we will review our general business outlook
and strategies for the remainder of 2001 and for next year.
In the formal oral presentation today, we will be focusing on
four themes: the clean up of our capital structure; our
efforts to increase our institutional ownership; our growth
strategies; and the operational leverage attributable to our
business. We hope that our opening remarks will answer many of
your questions as to what has been happening here at ProxyMed
since our last conference call. But as is customary at the end
of our oral presentation, we will open up the lines for
additional questions that you may have.
Let me first express our condolences to all those affected by
the tragedy of one month ago. While we at ProxyMed were not
directly effected, we are saddened by the loss of one of our
direct investors, some of our business associates, and others
that follow our company. All of our employees are safe and our
computer networks were unaffected by the event. Like many in
our industry, we did see dips in our transaction volumes in
the days following the tragedy, but now have seen a rebound
back to normal levels. To do our share to help those effected
by the tragedy, ProxyMed has made a donation to the American
Red Cross.
Well, once again, we have good news to report. As you will
hear shortly from Judd and Nancy, ProxyMed has again reported
record revenue and EBITDA profits for the quarter, a
continuous improvement since I joined the company a year ago.
In addition to discussing the results for the quarter, Judd
will also report on the successful completion of the exchange
of warrants for common stock and our 1-for-15 reverse stock
split, both major undertakings in our successful ongoing
effort to clean up an overly complex capital structure. Nancy
will then discuss our business operations, including core
growth and operating leverage. At the end of the call, I will
come back to discuss the outlook for the remainder of the year
and beyond.
I will now turn it over to Judd for his financial review.
Judd...
Judson Schmid: Thank you, Mike, and good morning, everyone. As Mike said, we
have good news to report here at ProxyMed. To begin our
discussion, let's start with a recap of our record revenues of
$11.9 million and discuss what contributed to our EBITDA
profit of $754,000, an improvement of 80 percent over last
quarter.
The third quarter has traditionally been a strong revenue
quarter for ProxyMed and this year continues that trend.
ProxyMed recorded consolidated revenues of $11.9 million in
the third quarter, an increase of 23 percent over third
quarter 2000 consolidated revenues of $9.1 million. This
performance was fueled by a 105 percent revenue increase in
Healthcare Transaction Services, which rose from $2.3 million
last year to $4.7 million this year. This includes the result
of the first full quarter of operations from our accretive MDP
acquisition. In addition, we saw a five percent revenue
increase in our Laboratory Services segment from $6.8 million
last year to $7.1 million this year.
In terms of transaction growth during the quarter, we
processed 23.6 million clinical and financial transactions
through ProxyNet, our secure, national healthcare information
network, representing a 56 percent increase over the third
quarter of 2000. Direct cost of sales for Healthcare
Transaction Services increased slightly as compared to
revenues primarily due to the impact of higher direct costs at
MDP for our statement processing services and they may
continue to grow as we begin to share revenues with EDS under
our MHIN contract, which Nancy will discuss shortly.
Additionally, direct costs associated with Lab Services
revenues increased due to the mix of products and services
sold and due to promotional programs for selected lab
customers.
On the expense side, we have continued to keep our expenses in
check. In addition, we are working throughout the Company to
leverage investments in technology and processes, allowing us
to take advantage of operational efficiencies as a way to
improve our profit margins. Despite our tight cost controls,
we have made
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investments in certain expense areas to drive revenue growth
primarily related to MDP operations, the gearing up for MHIN
activities and for marketing expenses.
Consolidated SG&A expenses were $5.2 million for the quarter,
down from $6.3 million in the third quarter of last year. On a
segment basis, SG&A expenses for Healthcare Transaction
Services were down to $2.5 million from $2.9 million last year
while SG&A expenses for Lab Services increased slightly from
$1.9 million to $2.1 million. Finally, we saw the greatest
improvement in our corporate expenses dropping to $600,000
from $1.5 million last year.
Now turning to my favorite topic, operating profits. I am
pleased to announce that our EBITDA profits for the third
quarter increased to $754,000 compared to a reported EBITDA
loss of $739,000 for the third quarter of 2000. The
improvement in EBITDA also represents an increase of 80
percent over last quarter's record EBITDA performance of
$420,000. Additionally, we are pleased that both our operating
segments contributed improved EBITDA performance over last
year's quarter.
As we mentioned in last quarter's call, we will continue to
record amortization expense of approximately $800,000 per
quarter related to our acquisition of MDP through the end of
2001, at which time, we will adopt the new FASB No. 142
statement rules regarding goodwill amortization. Once this
goodwill amortization is eliminated, we believe that we will
achieve positive earnings per share in Q1 of 2002, a true
milestone for ProxyMed.
Finally, in wrapping up our P&L discussion, we had non-cash
dividend charges of $3.6 million for the quarter. This
resulted from both our regular Series C preferred dividend
payment and from a non-cash accounting charge for the Series C
warrant exchange, which we will talk about shortly.
With regards to Series C dividends, we issued 24,500 shares of
common stock in October for payment of these dividends in lieu
of paying cash. 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. Since
June, when the original lock-up period expired, preferred
holders have converted $4.4 million of the $25.3 million in
Series C preferred stock into common shares. All conversions
reduce the amount of dividends that we ultimately pay whether
paid in cash or stock. In addition, subsequent to quarter end,
the last of the Series B preferred stock was also converted.
As you may already know in June, ProxyMed commenced a program
to exchange the warrants issued in conjunction with our Series
C preferred financing into shares of common stock. As reported
in our press release of August 17th, we successfully exchanged
over 96 percent of the warrants previously issued to the
investors and the placement agent, thereby virtually
eliminating the overhang and reducing our fully-diluted share
position by over six percent compared to before the
transaction. It is important to note that any shares exchanged
in this transaction are subject to a lock-up until February
15, 2002 and for this transaction, we recorded a non-cash
accounting charge of $3.2 million in the third quarter of
2001.
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At the same time we completed the warrant exchange, we
announced a 1-for-15 reverse stock split. Clearly a gutsy
move that has paid off. We completed this reverse split
for three reasons: (i) even after the successful warrant
exchange, we still had over 81 million fully-diluted
shares outstanding, way too much for a small company, and
we still had limited float; (ii) we needed to get our
share price above a level where we could attract
institutional investors and analysts; and (iii) we were
somewhat concerned about the Nasdaq listing requirements.
Our Board believed that this was the best option to
address these issues and we believe that the investment
community has agreed with this decision. Mike will talk
shortly about our need to gain further institutional
ownership.
As a result of the warrant exchange, the reverse stock
split, and additional conversions of our Series C
preferred stock, our capitalization structure at the end
of the third quarter was as follows: 3 million shares of
outstanding common stock; 1.4 million underlying common
shares for preferred stock; and 1 million underlying
shares for stock options and warrantsall totaling 5.4
million shares a much simpler picture.
Insider and affiliate ownership is approximately 22
percent, and there are approximately 2.4 million shares of
public float, although over 1 million shares are locked-up
through February 2002, as noted previously. Institutional
ownership is estimated to be approximately eight percent.
Finally, to wrap up the financial discussion, at September
30th, our cash position was over $5.4 million. We had
great success in our cash collection efforts and have
reduced our days outstanding from 51 days at year end to
43 days currently. We have spent approximately $760,000 on
capital expenditures so far this year, primarily related
to network and security upgrades, which Nancy will discuss
shortly. Looking at the balance sheet, we do have a $7
million note due in May 2002 as a result of our
acquisition of MDP. Although, we believe that operations
will generate sufficient cash to cover this repayment, we
are currently negotiating an asset-based revolving line of
credit.
We continue to improve our financial results quarter over
quarter and believe that we represent an exciting
investment in the Healthcare IT space. Thank you very much
and I will now turn it over to Nancy.
Nancy Ham: Thanks, Judd. As we just pointed out, this has been our
most successful quarter ever and I would like to share
some of the operational details of how we got there. I'll
begin by discussing our Healthcare Transaction Services
segment, which includes both payer services and
prescription services.
In this segment, we focused in the past quarter on three
things: core growth; completing the integration of our MDP
acquisition; and increasing our operational leverage.
With regards to core growth, we increased again this
quarter both the breadth and the depth of our network. On
the front-end, or provider side of the network, our sales
team had a great quarter, being over quota once again on
both the number of new physicians and the number of new
services sold to those physicians. We added almost 1,000
new physicians to our network. In addition, we added six
new
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electronic commerce partners representing over 1,500
indirect physicians in multiple markets. This brings our
total of electronic commerce partners, or VARs, to 120. On
the back-end of the network, we signed seven new payers,
bringing our total of direct payer connections to 337.
In addition to this internal growth, we also effectively
grew the breadth of our network through strategic
opportunities. In the second quarter, we improved our
nationwide coverage through the acquisition of MDP, which
brought to us over 5,000 physicians in the Southeast,
greatly strengthening our position there. In the third
quarter, we entered into a partnership with EDS enabling
us to offer our financial transaction services to clients
of their Maryland Health Information Network or "MHIN".
This has the potential to add over 1,500 physicians in Q4
in the Mid-Atlantic area. These are just two examples of
how ProxyMed has grown in the past year to become the
second largest connectivity services organization focused
on serving physician offices.
As we add physicians to our network, we then have the
opportunity to cross-sell to them additional products and
services. Today, we have seven separate financial,
administrative, and clinical value-added services for a
physician office, with the majority of our customers
currently using only one or two. Obviously, this
represents tremendous untapped potential with our existing
customer base. We have kicked off several initial
cross-selling efforts in Q3 to explore which approach will
be most effective. As we hone our market approach, this
will be a big driver for us as we move forward into 2002.
In addition to accelerating the top line, increased
services from current customers allows us to maximize our
operational leverage, thereby positioning us for improved
margins on this incremental business.
Now on the transaction side, Judd has already mentioned
that we processed almost 24 million transactions via
ProxyNet. This growth was largely due to payer services
which had its fifth consecutive record breaking quarter
transaction growth. We broke our record from last quarter
by growing core business, meaning excluding the MDP
acquisition, over 24 percent year over year. Including
MDP, we processed over 56 percent more transactions than
in Q3 of 2000 and we were pleased to see strong growth
coming in multiple transaction categories.
Shifting now to prescription services, although 2001 has
been a challenging year, we remain enthusiastic about the
longer-term prospects of electronic prescribing. After
three quarters of slow and steady progress, we are now
seeing signs of stronger activity. RxHub, the consortium
of the three largest PBMs, has hired their CEO and is
moving forward with its business plan. The retail pharmacy
industry has announced a similar initiative, SureScript,
with which we are closely involved. And in contrast to the
handheld sector of e-prescribing, which is going through a
significant shakeout, at ProxyMed, we are seeing renewed
interest in our production- proven desktop and Webtop
solutions. Despite all of these challenges in Q3, we were
able to grow our prescription network by signing two new
front-end partners and by bringing a new pharmacy retail
chain customer live. We hope to report even greater
success in Q4.
Moving now to MDP, we are very pleased at our ongoing
progress with this mid-Q2 acquisition. We have fully
integrated its operations into our network and into our
day-to-day operational processes. We have successfully
retained the employee and
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the customer base through focus and improved service. With
this operational work behind us, we have shifted our
attention now to increase revenue growth by adding new
sales resources and by kicking off a concerted effort to
cross-sell patient statements into our physician and lab
customer base.
Moving now to operations, we have had a very busy and
productive quarter. We completed the initial upgrade of
our payer services production network, creating improved
reliability and faster performance. In Q3 and Q4, this
work continues with the implementation of a fairly
significant investment in production automation tools.
Finally, we successfully submitted our application for
clearinghouse certification to EHNAC, which is the
"Electronic Healthcare Network Accreditation Commission".
EHNAC is an independent organization that accredits
companies in our industry based on their performance
against defined criteria, which are a combination of
speed, accuracy, and data integrity. We expect to receive
our final accreditation shortly. This is a significant
step in our ongoing commitment to quality and it follows
in the tradition of our Lab Services unit's long standing
ISO 9001 certification.
In addition to the upgrade of the payer services network,
we have been equally busy improving the reliability,
performance and security of ProxyNet, our secure,
web-based national healthcare information network. We have
been implementing a multi-part plan throughout 2001 and it
is nearing completion. Some of the key goals realized
include:
- Remediating single points of failure and adding
redundancy to insure 100 percent uptime.
- Implementing superior security systems and
features to not only meet HIPAA security
requirements but to provide the best level of
service for our customers.
- Redesigning the network platform to increase
financial and operational performance.
- Upgrading both disaster avoidance and disaster
recovery processes.
- Installing network and application monitoring
tools to insure complete control and visibility of
network performance.
- And finally, moving the network to the robust,
secure, and controlled environment of a state-of-
the-art UUNET facility in Atlanta.
These projects are just two examples of how we are
investing in automation and process improvement to drive
operational efficiencies, and I am pleased to report that
this work is showing up in the bottom line. As an example,
in payer services, we decreased our payroll expense as a
percent of net revenue by over 14 full percentage points
in just one year. And in Lab Services, this year we have
been concentrating on our SG&A expenses, dropping them
almost three full percentage points as a percent of
revenue.
Speaking of Lab Services, we had another outstanding
quarter. In our core products group of intelligent lab
reporting devices, we had a banner quarter with over 28
new customers and an increase of 17 percent in devices
sold over Q3 of 2000. And from a revenue perspective, we
were up almost 23 percent from the second quarter and up
almost five percent from the previous record setting
period last year. We continue to see significant demand
for core products and look forward to a number of
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opportunities to expand both our products and our services
offering. However, I do want to remind everyone that third
quarter is typically the peak quarter each year for Lab
Services. Many of our customers use capital expenditures
dollars to fund their purchases from ProxyMed, and
historically labs begin to exhaust their annual capital
budgets in early Q4 which causes the corresponding overall
drop in our sales. While we try to anticipate the
seasonality in our budgets and forecasts, it is a
challenge to predict it accurately. We do expect, though,
in any event that Q4 revenue in 2001 will be above the
same period last year.
While core products and services are growing well, we are
equally focused on expanding our new Internet-based
services for clinical, specialty hospital and anatomical
pathology lab companies. For example, we completed this
quarter a major release of our product which integrated
confidential physician-to-patient notification. And our
Internet product received a nice recognition by being
selected as one of the finalists for the South Florida
Business Journal's 2001 Technology Awards.
All in all, we had a terrific quarter, both operationally
and financially and we look forward to reporting our
progress and success as we carry this momentum into 2002.
And with that, I'll turn it over to Mike to wrap it up.
Michael Hoover: Thank you, Nancy. Now that we have reviewed the financial
and operating successes of this past quarter, I'd like to
spend some time talking about the outlook for Q4 and
beyond. Let's start by talking about our performance for
the balance of the year and 2002.
As you know, when I joined the company in late 2000,
ProxyMed was in a significant money-losing situation. I am
very pleased with our success since then in this
challenging market. Given our successes so far this year,
we have confidence that we will meet our revenue goals of
$42.5 million but we are updating our recurring EBITDA
guidance to a range of $2.4 to $2.55 million. This update
is primarily due to the challenges in the e-prescribing
market, changes in revenue recognition, and increased
direct cost as Judd pointed out in his discussion. Despite
this update, considering the Company's long history of
money-losing operations prior to the new management, this
is clearly great success in one short year. For 2002, we
remain committed to our goals for $55 million in revenue
and $6.7 million in EBITDA.
Looking ahead to 2002, although the electronic prescribing
business is developing somewhat more slowly than we had
hoped, in contrast, our payer services business is showing
greater growth opportunities than we originally forecast.
With reduced valuations for many public and private
companies, we see a number of attractive acquisition
targets. We are most interested in adding geographic depth
to our existing services and increasing our real-time
transaction capabilities and volumes and in acquiring an
entry point into the hospital market. With the clean-up of
our capital structure and our strong and growing
profitability, ProxyMed is an attractive acquirer, and we
have a number of discussions underway. While our
preference is for stock-based transactions, some of these
opportunities will require a cash component. If these
deals come to fruition, we expect to raise a modest amount
of external capital to facilitate their closing. Any
equity raised would be a common stock deal, which would
also serve the purpose of increasing our institutional
ownership. With the recent accomplishments of the Company
and the clean up of
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our capital structure, we are now receiving significant
interest of many of the institutions that we have been
speaking with. If we can successfully complete a capital
raise in the next few months, ProxyMed can begin to take
advantage of these acquisition opportunities in order to
achieve its external growth targets.
Look, don't get me wrong. We are pleased with our core
internal growth and believe that there are very attractive
internal opportunities that will drive future success of
ProxyMed in each of our lines of business. HIPAA is
spurring opportunities in Lab Services and in Healthcare
Transaction Services. RxHub, SureScript, MedUnite, and
other recently announced healthcare initiatives all bring
capital, visibility, and growth to our industry and
ProxyMed is well-positioned to participate in and benefit
from these efforts.
[Questions from participants and answers from management
omitted, except for the following]
Nancy Ham: There is one question that we have not gotten on the call
so far that I have been getting a lot offline, so I'd like
to address what are we doing here at ProxyMed about HIPAA.
So just a couple of comments:
As most of you know, HIPAA is primarily focused on
transaction code sets, security and privacy. So with
regards to transaction code sets, this currently affects
our payer services business unit, which is in great shape
to meet the October 2002 deadline. We are already in
production with claims, encounters, ERAs and claim status
transactions in compliance with HIPAA, and that is the
vast majority of our transaction volume today. For lab and
prescription services, the clinical transaction code sets
have not yet been finalized, but we are very involved in
the dialog. For example, just earlier this week, Jack
Guinan, who heads up our prescription services business
unit, was in Washington [DC] providing expert testimony on
the electronic prescription standard that is being
reviewed.
With regards to security, I have already discussed the
significant investments and hard work that we have
followed this year. Although the final security
regulations have not been issued yet, we are confident we
are on the leading edge with regards to security and we
will easily be in full compliance.
And finally on the privacy front, our lab services unit
has been taking the lead. We have worked very extensively
with Jeffrey Booth, who represents the lab industry on the
negotiated rules making committee. Jeff and I co-presented
in the summer at the industry's largest trade show about
how the privacy rules will effect the delivery of lab
results, and we just co-wrote an article discussing this
in detail. Privacy, of course, effects all three business
units. In payer services, a large part of the ENHAC
certification process focused on the policies and
procedures that are really required to insure privacy
under HIPAA.
So overall, we are very confident we will easily be ready
for HIPAA, and in fact, we see it much more as an
opportunity than as a threat. In lab services, we think we
will see increased sales of electronic devices, both new
units to displace manual or fax delivery methods, and unit
upgrades to add more affirmative access controls. And in
payer services, both providers and payers can use a
clearinghouse such as ProxyMed as an integral part of
their HIPAA compliance.
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[Concluding Comments]
Michael Hoover: Well, thank you for your time and interest today. Let me
close the call by reiterating ProxyMed's strategy and
commitment described in our previous conference call: Our
focus remains on connecting physicians with their
contracted financial and clinical partners so that they
can conduct value-added transactions. We are well
positioned today as the largest provider of retail
pharmacy connectivity, the largest provider of lab results
reporting devices and the second largest physician
connectivity clearinghouse. We will grow revenue by adding
front-end physician prescribers through our strategic
partners to drive our transaction and expanding our
back-end connectivity to labs, pharmacies, PBMs, and
payers. The addition of accretive acquisitions will only
accelerate our success. Being one of the most connected
and one of the only profitable Healthcare IT companies
will certainly help make the difference.
Again, I want to thank you for your time today and we will
talk to you next quarter.
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