Apr 27, 2010
Operator
Good morning, my name is Alisha and I will be your conference operator today. At this time I would like to welcome everyone to the IntegraMed first quarter 2010 conference call.
(Operator Instructions). Thank you.
Mr. Hlywak, you may begin your conference.
John Hlywak
Thank you. Good morning.
This is John Hlywak, Executive Vice President and CFO of IntegraMed. Thank you for participating in today's call.
Due to an unexpected family emergency Jay Higham, IntegraMed’s President and CEO will not be able to participate on today’s call. In Jay’s absence I will provide both the corporate and financial overviews of IntegraMed’s performance.
After that we will open the call for questions. Jay will return to the office next week and will be able – be available to those of you who have any follow up questions.
Before we begin, I'd like to caution that comments made during this conference call may contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of IntegraMed. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's Form 10-K and Form 10-Qs, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.
The content of this conference call contains time-sensitive information that is accurate only as of today, April 27, 2010. IntegraMed undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With those announcements out of the way let me turn to the topic of this call. Overall, IntegraMed achieved great topline growth across all of our businesses has leveraged through 9% over Q109 to $57 million.
The net income increased 22% to $1.1 million compared to last year as we were better able to leverage the revenue growth to the bottom line. Despite an 18% increase in diluted shares as a result of $2.8 million share offering in mid-February, our Q1 2010 EPS rose a $0.01 to $0.11 over the prior year quarter.
Operating income or contributions as we refer to it rose by 8% to $5.3 million or 9.3% of revenues. On an EBITDA basis, and which we calculate EBITDA by subtracting SG&A costs from our operating income and then adding to depreciation and amortization with deferred tax provision and deferred compensation, that EBITDA increased $1.4 million on trailing 12-month basis to 17.4 million.
EBITDA for the first quarter of 2010 was 4.2 million. G&A expenses increased about 2% from Q1 of last year mainly due to judicious headcount additions.
G&A as a percentage of operating income decreased to 60% from 64% in Q109. Net interest expense declined 7% in Q1 2010 due to lower interest rates, a slight reduction of our outstanding debt balance and increased cash balances.
Days sales outstanding for the consolidated company includes a 36.5 days in Q1 of 2010 from 39.9 in a year ago. This reflects our continued effort in this area.
Coming to the balance sheet, IntegraMed transformed its balance sheet during the first quarter through the successful sale of 2.8 million of our common stock yielding net proceeds of almost $19 million. This will adjust in addition to the existing strength of our balance sheet puts us in a great position to pursue a range of fertility industry contract acquisitions and new marketing initiatives as well as the build out of new vein clinic centers.
Our cash position increased by $18 million through 46.6 million compared to year end 2009. The increase comes obviously comes from the share offering as well as sustained improvements in cash flow from operations as well as cash outflows related to fixed asset acquisitions and debt repayment.
Now we are going to move to our three business segments, beginning with the fertility centers. Our fertility center segment continues to perform well generating 16% increase in contribution and a 5% increase in revenues.
The performance drivers in this business were similar to those during the previous quarters including the benefit of our successful sales and marketing programs as well as the initial contributions from three fertility contracts that we acquired in the late Q4 2009. With the regard to the key metrics for the segment both inquiries as well as new patient visits remain relatively flat in terms of another IVF cycles we experienced a 6% decline compared to last year.
As highlighted in this morning’s press release, a loss of a payer contract in the Chicago market around this time last year makes year-over-year patient volume comparison difficult. That contract that we lost accounted for approximately 300 in-patients, and 300 IVF cycles in Q1 2009.
Factoring in that headwind our performance shows the underlying growth and resilience of this segment. The fertility center segments performance is also tampered by climate and weather in January and February throughout the middle May and to a lesser degree in Midwest and northeast regions.
We continue our purpose of preserving as much as of our topline success as possible utilizing well developed operational metrics and controls that enable us to expand contribution margins by 16% from the year ago period. We believe we have the potential to obtain additional leverage as we grow our fertility center operations across US.
In the area of revenue cycle management, we are able to drive further improvements as days sales outstanding have reduced to 27.3 days in the first quarter of 2010 compared 32.1 a year ago and that is a 15% improvement. We view revenue cycle management as one of the most important factors for success and failure in healthcare services and therefore it remains an area of daily focus.
Our fertility division segment will be the beneficiary of the new capital provided by our common stock offering. The new capital is also enabling us to ramp up this segment’s acquisition activity at a time when we are seeing increasing number of potential opportunities.
And while the timing and magnitude of this effort – of this activity is and this effort is very hard to predict prospective partners are recognizing our enhanced financial strength and we are encouraged by all the opportunities we are seeing. I should say that we continue to emphasize strict financial discipline in structuring potential transactions and that tends to lengthen the timeline of any transaction, so while we like to demonstrate new found progress on this front, we will not let that desire to impede the more important goal of getting the right deals done at the right terms.
In summary, our strategy in the fertility center segment is beginning to drive topline growth both organically and by acquisitions while we also focus on efficiency and productivity of the centers. We remain very encouraged on the potential for growth from both sides.
Looking at our consumer services segment, which is principally comprised of our suite of fertility treatment financing programs under the Attain IVF program, we were able to achieve topline growth of 16% to $6.1 million compared to year ago period. This was driven largely by the ongoing success of the Attain Refund program as well as a growing popularity of the Attain multi-cycle program launched last year.
Attain multi-cycle was developed to expand the size of the potential patient population we serve by addressing patients to require lower cost option to enter IVF treatment. Attain multi-cycle provides up to four treatment cycles for one upfront standard fee.
The consumer services operating performance was dampened when compared to Q1 2009 as in Q1 2010, pregnancy rates were under normal expected rate while the 2009 rates were at unsustainably high level. At the same time, we increased investment in G&A to support the growth of this segment.
As a result operating income of the segment declined 8% when compared to year ago. As pregnancy is an important driver in revenue recognition and the ultimate profitability of our Attain programs, pregnancy rates will continue to cause variances in prior year-over-year and sequential operating performance.
Our marketing investment since last year included the hiring of new employees including a new head of marketing for this division and the ramping up of our marketing activities. The new expenditures, including, expansion of internet presence, the development of new marketing materials and related collateral, as well as additional media buying activity; fortunately our investments in marketing and the launch of the new programs also generated very positive trends in applications and enrollments, these are important indicators of the success of our marketing efforts and also provides some visibility to future results as these new applicants enter treatment in the coming weeks and months.
Both patient applications and enrollments increased significantly by 32% and 43% respectively confirming that demand remains healthy in this sector. In addition we remain intact we have been pursuing additional consumer services affiliates to offer our consumer services in new markets.
Given this year benefiting these programs for patients and for fertility centers where they seek to help patient find treatment, we are confident that we will be able to expand on the 39 centers we currently have in the country. Finally, our relationship with Springstone Patient Financing, the third party financing company we began working with last year is progressing very well and we are pleased with their performance.
Springstone has significant experience in financing for fertility treatment and it’s ideally well suited to provide a great compelling little financing package for patients. Now turning to veins clinics segment; we couldn’t be more pleased with its continued progress.
Q1 2010 revenues grew 20% on the back of our consumer outreach initiatives that were started in 2009 as well as from the benefit of new clinics opened in the past year. New patient consults are leading indicator for the business, are up 10% from prior year quarter and first link starts were up 20%.
This is on top of the 10% increase in consumer inquiries offering further truth of the stickiness of this business and our efforts to convert consumers into patients. Vein clinics’ margin – contribution margin this remains flat at 7%, due to the investment in strategic consumer outreach programs I just mentioned as well as team personnel hiring to help drive the future of this business.
We are excited about our plans to bring interventional radiology capabilities into the new clinic in Columbia, Maryland. This enhanced treatment options expected to provide synergies and new revenue opportunities by allowing clinics to deliver a broader base of treatment across a wider patient population.
We plan to learn from process of rolling out these capabilities in the Columbia facility and from there it is our expectation that we will roll these interventional radiology capabilities to some additional clinics as year progresses. So far this year, we have opened two additional vein clinics bringing the total number of clinics to 36.
We are planning to open as many as six more clinics for the balance of 2010. A key factor in new clinic development is physician recruitment and we are fortunately seeing a good number of physicians that are well taught by and interested in career opportunities in our vein clinics.
We have signed three additional physicians for new clinics opening later this year, already have several that are reviewing contracts and I should say that we now have a very healthy pipeline for future signing. So we are encouraged that physician recruitment does not seem to be an issue at this point.
We continue to do a good job of improving same store performance at existing clinics without having to rely exclusively on the clinics on new trends to drive performance improvements. Same store revenue dropped 9% compared Q1 2009 with Washington DC and Chicago leading the way.
Finally in the area of revenue cycle management we can see them drive down vein clinic division’s DSO which is now at 52 days compared to 53.4 days a year ago. In summary, we feel quite positive about our three businesses and their futures.
We are seeing more positive signs of growth across our businesses than we expected to see a few months ago. This seems to be largely due to prudent execution on our business and a rebound in consumer sentiment.
From an inorganic growth standpoint, the improved liquidity position of the company certainly flexibility in terms of acquisition and other growth initiatives. We continue to pursue growth areas as a key component of our strategy to drive long term improvements and shareholder value when we see much opportunity in those areas.
With that said, let’s turn the call over to the operator and begin – open the call for questions. Operator?
Operator
(Operator Instructions). Your first question comes from the line of Mark Arnold [ph].
Mark Arnold
Good morning John.
John Hlywak
Good morning.
Mark Arnold
May be just to start with, you have mentioned the weather as you said – obviously given the company size here you are may be unfortunately weighted towards some of those mid-Atlantic states particularly the DC market. Can you give us a sense or just how much of an impact weather might have had on your Q1 results?
John Hlywak
Well, it was – it definitely slowed the fertility group somewhat. Even though our offices never shut down, When patients need services they were there, but it did impact some in-patient visits somewhat which made the March a little bit slower, it also impacted our vein center since we have a significant presence very much there.
And then you basically have the weather in the Midwest, it definitely has an issue or two, but for the most part, we were there but the patients can’t get to us.
Mark Arnold
Okay, so it is hard to quantify that you definitely had any impact?
John Hlywak
Yeah.
Mark Arnold
On the Attain IVF, beside – you know applications and enrollments were really strong here in the quarter, can you just remind me how long it takes before you start to see those numbers significantly impacting your reported revenues?
John Hlywak
Once you have the enrollment, it may take anywhere from 30 to 60 days to get them into service, starting their procedures and then. You know it takes a lot for them to go through the process and for us, remember we only recognize revenue when there is a pregnancy, so we could be 90 to 150 days from seeing the revenue from that.
Mark Arnold
Great. And then I guess the other question there on Attain IVF, you know, how much or can you – can you give us some sense as to how much of the new enrollments and applications were driven by the multi-cycle program versus I mean, your traditional Attain IVF services?
John Hlywak
Actually a bigger portion of the increase was multi-cycle program. And what’s interesting there and most important is that there has not only any significant cannibalization of the refund programs.
The process for us is when a patient applies we tell them the program that they are qualified for. And many will have qualifications for the refund program and also the multi-cycle program and when given that choice, technically the patients go for the refund program.
So the increase has been mostly, as I said, in the multi-cycle, but still the refund program is doing well.
Mark Arnold
One more question on the fertility side. You mentioned pregnancy success rates.
Can you give us what that number was in the quarter?
John Hlywak
We haven’t gotten into that detail in the past, Mark. But let me see here, we – it dropped about 12% from year ago.
Mark Arnold
Okay. And then just a couple of questions on the vein side.
I guess first, when does the two centers, or the two clinics that opened in Q1, kind of, when during the quarter did they open?
John Hlywak
One about mid-quarter and the other, we had a little bit difficulty starting that one – opening that one, so that one was right at the end of the quarter.
Mark Arnold
Okay. And then do you currently expect any clinic – vein clinics to open in Q2?
John Hlywak
We may have some in towards the end.
Mark Arnold
So, little contribution from new clinics in the quarter but you will see some improvement on the two that opened?
John Hlywak
Right.
Mark Arnold
And then –
John Hlywak
And then also those that have opened over the last few years, they continue to grow and we are seeing significant growth on our Washington DC market.
Mark Arnold
Okay. I just have one last question that is kind of a numb question, but can you give me the total vein clinic procedures in the quarter?
John Hlywak
Certainly. Yeah, I can give that.
Hang on. I don’t have that right now.
Mark Arnold
Okay, great. Thank you, John.
John Hlywak
I am sorry, I am sorry. I got it, it was about 2,900.
Mark Arnold
2,900. Thank you.
Operator
Your next question comes from the line of Brooks O’Neil [ph].
Brooks O’Neil
Good morning, John. Could you please offer my condolences to Jay and his family and tell him we look forward to catching up with him sometime soon.
John Hlywak
Sure will.
Brooks O’Neil
Thank you. I am curious, obviously a good strong results this year really across the business.
You mentioned the impact of weather. Could you see any impact related to the soft economy in results this quarter or do you think your businesses are really not terribly impacted by that?
John Hlywak
I would say we have not seen any deterioration with the soft economy, I know consumer sentiment is growing, we just have not seen the pick up just yet either. So, I think the kind of a turnaround should help us later in the year, but we just didn’t – we did not see any drop.
Brooks O’Neil
That’s great. I am assuming you don’t anticipate any major changes in the business related to the recently passed health reform legislation?
John Hlywak
Brooks, I think it is little bit too early to talk about that. The regulations are not written yet.
But it is just from the top of my head, 30 to 40 million more people having insurance has to be a good thing.
Brooks O’Neil
Right. That’s good.
Could you talk – I know you mentioned an active pipeline, and particularly in the fertility side of the business, but could you just talk about how the pipe has changed in last year, whether pricing has changed, any – just what the factors are that might influence the timing for some acquisitions on that side of the business?
John Hlywak
I guess the major factors haven’t changed. It is a long process for us.
As you might talk – maybe anywhere from a year to two year to start quoting some of the – to get the contracts signed. Pricing, well, we are the ones that are pushing the market and we have held pretty firm on the pricing strategy that we have established.
Obviously we are looking to increase our returns and as I said in the comments, we are going to go for the deals at the right terms that make sense to us.
Brooks O’Neil
But is it fair to say that you have a fairly active pipeline and that there you do see opportunities to make acquisition sometime this year?
John Hlywak
We are seeing opportunities, it is a possibility but again, just really can’t predict when something like that will fall.
Brooks O’Neil
Sure. Could you just talk a little bit about the addition of interventional radiology to the vein center.
Obviously I know you are just starting it, but what is that that makes you believe that that is going to be a valuable addition to the mix and how confident are you that it is really well and profitable volume to existing centers?
John Hlywak
Based on our kind of initial analysis and the sessions we have had with the interventional radiologists, it opens up another area for us for practice in the vein centers. We definitely will get into more urological, gynecological procedures, and we just have a number of things that this interventional radiology will bring to us.
Of course, cancer patients, and for us it is really too early to say what the revenue impact will be, but it certainly looks good from preliminary indications we have. To build out a facility and they are going to be a little bit bigger and you will have equipment processing here, but I think it is going to have a good return with respect to the long term.
Brooks O’Neil
Great. And then maybe just a last little bit of a detailed question.
I have to confess I am sometimes confused by the cash on your balance sheet. Could you just tell us what amount is, in your view, truly free cash and what amount is maybe related to the idea of the side of the business?
John Hlywak
Well, first of all, there are no encumbrances on any of the cash. We have all that cash that is available to us.
But the liability side of the balance sheet there is probably about 10 to $12 million of deposits that sit there for our Attain IVF program.
Brooks O’Neil
Okay.
John Hlywak
So – yeah, again that number – that continues to replenish itself as we have – even then you just really can’t say that I could take and set aside of that amount of money. So, I think it is available – but again it is being a conservative side.
Brooks O’Neil
Right.
John Hlywak
So, you know and that changes from time to time, how much I need.
Brooks O’Neil
Sure. Okay, great.
Thank you very much and again congratulations on a good quarter.
John Hlywak
Thank you.
Operator
(Operator Instructions). Mr.
Hlywak, there are no further questions.
John Hlywak
Okay, thank you. Well, let me say thank you for participating today.
I certainly appreciate having the opportunity to talk with you. I want to thank all of our – all the people on our IntegraMed family including the physicians and the patients who work with us and especially our employees.
We hope to bring additional information to you and of course we will be reporting additional information to you in the coming months, our improvements and our changes. And please be assured that we are really focused on driving shareholder value.
So that said, again thank you for participating and we will talk to you in quarter.
Operator
This concludes today’s conference, you may now disconnect.