Jul 27, 2010
Operator
Good morning, my name is Mishea [ph] and I will be your conference Operator today. At this time, I would like to welcome everyone to the IntegraMed second quarter 2010 earnings conference call.
(Operator Instructions) Thank you. Mr.
John Hlywak, you may begin your conference.
John Hlywak
Thank you. Good morning and thank you for participating in todays call.
This is John Hlywak, Executive Vice President and CFO of IntegraMed. Joining me today is Jay Higham, President and Chief Executive Officer of the company.
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-Q, 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, July 27, 2010. IntegraMed undertakes no obligation to revise or update any statements to reflect events or circumstances recurring after the date of this call.
I will now turn the call over to Jay. Jay.
Jay Higham
Thank you, John, and good morning everyone. Thank you for joining us today.
In Q2, IntegraMed achieved top-line growth of 10% across our business, and we were able to drive more of that growth to the bottom-line with operating income or contribution as we refer to it increasing 15%. As a reminder, this is the first quarter in which we reflect the combination of our former Fertility Centers and Consumer Services Divisions under a newly created division Attain Fertility Centers.
This new division is being led by Andrew Mintz, who has a strong track record of successfully managing large physician-based medical groups. Going forward, we will use the term Partner Centers to refer to fertility clinics that benefit from all IntegraMed assets and resources and are managed by the company.
We will use the term affiliate centers to refer to fertility clinics that only offer our Attain idea of program. The combination of the divisions acknowledges the fact that a good portion of our Attain idea of program business is being written at IntegraMed Partner Centers.
We combine the two businesses because separate reporting structures were no longer necessary and in some respects hindered our agility and decision making. By combining the fertility business under the Attain fertility brand, we believe we will be able to generate added synergies, growth and profitability including the opportunity to better leverage our brand with consumers.
We also hope this combination will make it easier for investors to focus on our two core areas of specialty fertility and vein care. For the 2010 second quarter, our new Attain Fertility Centers Division generated an 8% increase from revenues and a 4% increase in contribution.
That we saw a slowdown in revenue growth in our Fertility Centers relative to recent quarters, our Attain idea of program had a very strong performance at both partner and affiliate centers more than offsetting some of the pockets of softness in our partner business. We attribute this softness through our partner centers to the lingering effects of the economic slowdown.
After perhaps a modest rebound in consumer optimism and spending earlier in the year, consumers will appear to be a little more reserved in their spending in our fertility segment. The number of high cost idea of treatments remained flat with gross being seen in lower cost intrauterine insemination procedures or IUIs, as well as other fertility treatments and diagnostics.
This combined effect driven overall slight increase in partner revenue. Affiliates and partners offering our Attain idea of program benefited from our marketing initiatives achieving strong growth in patient applications and program enrollments.
The marketing initiatives include radio advertising, direct mail, physician referral, education initiatives, Internet advertising, as well as the launch of our new attainfertility.com web portal. These efforts sharply increased the volume of applications up 54% as well as enrollment up 81%.
Revenue from the Attain idea program also benefited from a net increase of new affiliates to 27 reflecting the addition of six new affiliates over the past year, along with the termination of two affiliates that had no meaningful impact on the program. Just as in Q1 2010, Q2 2010 operating performance in our Attain IVF program was dampened when compared to last year as Q2 ‘09 pregnancy rates were at unsustainably high levels versus more normal levels this year.
Pregnancy is a key milestone in our revenue recognition methodology for the Attain IVF program, so any fluctuation will have a meaningful short-term impact on revenue and profitability. In addition to pregnancy rates, increased investments in G&A to support long-term growth resulted in operating income growth from our Attain IVF program trailing revenue growth.
Despite current demand fluctuations, our 25 years of experience in the field gives us confidence in the long-term demand for fertility treatment and we are developing services to meet current budgets. As consumer economic challenges begin to dissipate, we believe the patient demand will firm up for all forms of fertility treatment.
Of course, we believe that during these times where our management expertise enables our partners and affiliates to continue to outperform the broader fertility market. Importantly, we believe our well-known track record within the fertility community is our strongest asset as we engage in acquisition discussions with potential new fertility partners.
We continue to have dialogues with a number of centers and are encouraged by the number of attractive opportunities, some of which are substantially larger than those we have previously contemplated. As we have repeatedly stated, the timing and magnitude of this effort is hard to predict, but our perspective partners do seem to recognize the benefits we provide, as well as our strong financial position that enables us to consummate deals.
In terms of our affiliate center expansion, we recently entered the Austin market via an agreement with Austin Fertility Institute. Earlier this year, we secured our second affiliate center in Huston, the fourth largest city in the United States, and a new affiliate in Tennessee.
Affiliate relationships are immediately accretive to our financial results, if they add to our Attain IVF program volumes without a capital investment. Additionally, over the years, we have been able to transform affiliate relationships into partner relationships and have done so based on in-depth experience with the centers prior to consummating the deal.
Now turning to our vein clinic segment, we couldn’t be more pleased with the continued progress of this business, both in terms of revenue growth and contribution. Key vein clinic operational metrics in the release show more moderate performance than in recent quarters, particularly in the case of new consultations.
It’s important to note that earlier in the year we seized offerings free consultations, something that we had been doing over the past few years, so the slight decline in consultations was not unexpected. The real news in the segment, however, was operating leverage as our contribution margin improved nearly 300 basis points to 12% into our sharp increasing contribution.
Once again, the benefits of marketing an operational leverage were responsible for the improvements in contribution. Lastly, new clinics also performed very well with two new clinics we opened so far this year achieving a record performance in terms of the revenue and short ramp-up time, broader base of treatments including higher price point treatments across a wider patient population.
Beyond the two additional vein clinics we opened during the second quarter actually, which brought our total to 36, we have announced plans for 10 more clinics over the next nine months. The first of these is slated to open later in the third quarter this year.
Three of the ten clinics also include the enhanced interventional radiology capabilities. Beyond new clinic growth, we also continue to do a good job of improving same store performance at existing clinics.
Year-to-date same store vein clinic revenue were up 33% compared to the first half of 2009 with Chicago, Washington DC and the Atlanta markets leading the way. Overall, despite some pockets of weakness in consumer demand in our fertility business, we are making great progress in the areas that we can control and our confidence that we have a team and tools to drive continued operational improvements across the entire business.
We are also confident in our ability to take advantage of the current environment to continue to expand our footprint in both fertility and vein care. With that, let me now turn the call over to John, who will provide some additional color on our operating performance, financials and liquidity.
John Hlywak
Thank you, Jay. Given that you should have the press release already, I'll run through just a few highlights.
Our new attain fertility center segment revenue increased 8% compared to last year. While we don’t intend to break up the former consumer services and fertility center components, we will say that the improvement was driven by a $2 million increase in the revenues from our Attain IVF program and a $1.3 million increase from our fertility partner centers.
In the vein clinics division, revenue grew 17% over the second quarter of 2009, this reflects our marketing efforts as well as the overall health of the businesses, same still revenue grew 23% over the prior year. As Jay mentioned, the two clinics opened in 2010 that set records in revenue and reaching profitability, which we attribute to be rooted in the regions where we have substantial synergies and patient awareness and physician referrals.
Overall, the main clinic contribution was $2 million rose 54% over the prior year. Now moving to the business as a whole, gross margin improved 50 basis points to 10.3% for the quarters compared to Q2 ’09.
G&A expenses decreased 5% from the prior year as a result of our continued focus on cost management. Net interest expense increased 8% compared to Q2 ’09 as a result of lower net - lower interest income to offset the expense.
Future course will benefit from the reduction of our borrowings of approximately $9 million that occurred late in the second quarter. Net income increased by 45% to $1.6 million compared to last year yielding an EPS of $0.14 versus the $0.13 in Q2 ’09.
(Inaudible) dilution from the secondary offering that we had in February of this year Q2 EPS would have been approximately $0.04 higher. In the area of revenue cycle management, we continue to drive further improvements with DSOs declining another three full days to 33.3 days.
This reflects our reimbursement systems and procedures as well as strong follow-up on delinquencies. Turning now to the balance sheet, our cash position increased over $21 million since last year end.
A key focus and strength of our business continues to be our solid cash generation with second quarter cash flow from operating activities of $14 million. This increase in cash reflects a strong cash flow as well as the $19 million proceeds from our secondary offering partially offset by June’s repayment of the $9.6 million under our bank lines.
Second quarter adjusted EBITDA rose 23% to $5.2 million compared to $4.2 million in the prior year. For the first six months, adjusted EBITDA rose 14% to $9.3 million from $8.2 million in the first half of the last year.
CapEx for the first half of 2010 was approximately $3.2 million of which two thirds was over growth CapEx. For the balance of 2010, CapEx should be moderately higher mainly due to our plan role out of the new vein clinics.
The last item I wanted to cover is our effective tax rate, which was 43.9% in the second quarter of 2010. This rate was (Inaudible) this year for the first time a new movable provision for the state of Washington gross received tax, which adds to that 1% through the effective rate as well as some provisions for tax positions taken previously on some state tax returns that are currently undergoing audits, that caused a 2.4% increase in the rate.
Going forward, the provision should level out around 42.5% to 43%. With that overview, let’s open the call now to questions.
Operator.
Operator
(Operator Instructions).And your first question comes from the line of Mark Arnold with Piper Jaffray.
Mark Arnold
Good morning guys.
John Hlywak
Hi Mark.
Mark Arnold
I guess just to start with -- Jay is there anything specific that impacted the demand in South Florida and Massachusetts?
Jay Higham
No, not really. I guess I was anticipating that last year was going to be the nadir if you will and it seems as if there has been a little bit of a delayed reaction, although it is very market specific, we had some markets like California, Southern California and Northern California, which have struggled over the last couple of years that really came out strong and they’re having best years they have ever had.
We had a few physician related issues where we had some capacity issues in some locations, but other than that market, it’s nothing you can really put your finger on.
Mark Arnold
Okay. So hard to tell whether that’s going to be sustained or whether we could just see it kind of being an anomaly year in the quarter?
Jay Higham
It's hard to say Mark. I mean, I guess I'm cautious as far as expecting any type of an immediate rebound here.
This is a trend that’s going on for a period of time. We’ve seen the drop, a slight drop in demand over a period of time.
So some of it is demographic, but I think the lingering effects of the economy is making people that much more cautious. So, new patient visits are not as robust as I had anticipated.
We are also seeing a little bit of a slowdown in the conversion from a new patient visit into various forms of treatment with the exception of the lower cost treatments that we mentioned in IUI. So it's sort of a combination of a little bit softer input of new patients, as well as little bit slower transition from becoming a new patient into various forms of treatment.
So, the way I am interpreting it is to serve an overall cautious attitude on the part of patients.
Mark Arnold
Okay. Then on the Attain IVF side, here in the quarter your applications were actually pretty strong and the enrollments as well.
So how do we think about, particularly now that you are reporting this as one segment, how do we reconcile that with the comments you just made about the reserve consumer and kind of the flat IVF cycles?
Jay Higham
So, in my mind, its completely consistent because what patient behavior is telling us right now is that they’re very value conscious and our Attain IVF program is designed to overcome some of the financial barriers that patients - normal financial barriers that patient have to accessing treatment because it is a very high value, it’s the best value for patients. So, I think it’s entirely consistent, more and more people are looking to that program to get the best value that they possibly can, and so when we first put this together number of years ago was with the attitude that it was to help overcome financial barriers to treatment, and I think it’s proving to be the case.
Mark Arnold
So under that scenario even with kind of weaker overall demand in the partner fertility centers, the strong growth in Attain IVF will likely generate some decent margin performance? Is that the way to think about it?
Jay Higham
Absolutely. I mean we are -- as I mentioned here, the margin on that particular component of the business has come down somewhat as well as the fertility partner business, our management businesses has come down, but that’s a function of making further investments in capturing those patients.
We are seeing a higher percentage of people who do move on to IVF treatment enrolling in this program versus just paying fee for service and we see that continue to move forward and that will help to bolster margins overall.
Mark Arnold
Okay. Just moving on to the vein clinic side, the huge increase in your contribution margin here in the quarter, is that sustainable here in the short term?
Jay Higham
Well, the things going to -- the wildcard here as far as the margin is concerned is the 10 new clinics that we are opening over the course of the next nine months. We have had fantastic performance for the two that we did open.
We reached profitability in a record time under three months. So those no longer present a drag for us, it's really going to be a function of how quickly those new clinics ramp up.
Our expectation is that the clinics that are in existing markets are going to ramp up quickly, because we have a really good -- we have lubricated the market in a sense. We already have name recognition.
We have great advertising and marketing programs. We’ve got good regional management; we can slot these new clinics into existing markets very effectively.
So we think those are going to present a significant drag. The ones that are opening in brand new markets will present more of a drag, how that plays out over the course of the next year is really going to determine what contribution margins are going to be like.
But we are optimistic that we can over the long term continue to improve the contribution margins even above where we have them right now, but short term is a bit of a question Mark only from the standpoint of the new clinic drag.
Mark Arnold
Okay. And then you mentioned that you ceased offering the free consultations on the vein side.
Can you just say again when you started doing that and then did that have any impact on the contribution margin improvement?
Jay Higham
It's really a function of tightening up the business and it was a holdover from - when we made the acquisition of the vein clinic business, it was predominantly a self-pay, didn’t really participate all that much in insurance, because remember when we made that acquisition that was -- and the reason we were excited about is because new technology, the laser, had been approved by the FDA, and then Medicare established a CPT code that approved reimbursement and all the other commercial insurance companies followed. So we made the acquisition right during that transition period, the timing was perfect and the free consultation was really a holdover from the days when it was the self-pay situation.
And now we are tightening up the business, we have shown that we can generate patient demand very predictably with the new sales and marketing programs that we have in place, didn’t need to be offering that anymore, and in some ways we are sort of clogging up the system with patients that maybe were not as well insured and weren’t likely to follow through on treatment as well as other patients. So it’s really refocusing the business, continuing the process of refocusing the business into insurance market and tightening up the operations.
Mark Arnold
Great, just one last question. I guess this one is probably more for you John.
But can you just give us a number of vein clinic procedures done in the quarter?
John Hlywak
I will call you back with that number. I don’t have that right in front of me.
Mark Arnold
Okay. Thank you, nice quarter guys.
John Hlywak
Thanks.
Operator
And your next question comes from the line of Brooks O’Neil with Dougherty & Company.
Brooks O’Neil
Good morning guys. I have a couple of questions.
I guess I’d start off maybe with the hardest one probably for you to answer, but obviously the key reason for the offering last year was to prepare to be in a position to make most likely fertility center acquisitions. Could you talk about, obviously you said the pipeline was fairly active, but what do you think the probability is that we see in acquisition in that area yet this year?
John Hlywak
I think there is -- Brooks, I think it's a reasonable probability. It’s really hard, as I mentioned in the comments here.
It’s very hard to provide a lot of visibility on that, what we told people is that we’re committed to doing a couple of this year and hopefully accelerating that as time goes on. We are in a little bit of a sort of a reset period in terms of valuations right now.
For a whole host of reasons, early on in the evolution of the company when we didn’t have the track record that we have right now, we had to pay a lot more, so valuations were a lot higher. We now have a track record that we can hang or add on, we feel like we are bringing tremendous value.
We don’t pay as much as we used to. Also, growth rate in the market has come down, because of both the economy but also because of demographic issues.
So for that reason, valuations need to be reset a little bit also and so the timing on this is I think really a function of making sure that we have good discipline on those valuations, and that the seller on the other side, the physician group really has a sense of reality about valuation process. So it’s a little bit like the housing market where I think sellers in some cases continue to have outside the expectations about what valuations are and so it slows things down a little bit until there is better equilibrium between the buyer and the seller.
So, sort of long answer of saying we are in a – it's hard to give you clear guidance on timing of these things, but we are definitely very committed to it and we have no reason to believe that we won’t continue to have the type of success we have had historically.
Brooks O’Neil
Great, and then maybe as a follow-on to that one, are you convinced, obviously your track record over a long period of time, if you look at key markets like Washington DC is to buy these groups and then have an incredible impact on the growth of the business over time. Are you convinced that you have somewhat similar opportunity with the larger practices you might be looking at today?
John Hlywak
Well, I think it’s hard to make the claim Brooks that we are going to have the same type of top-line growth. I mean, we are committed to beating the market and we have always done that.
So I do think that we will continue to do that. We have had really solid performance.
We know for a fact that in markets that are really struggling, our clinics continue to grow and competitors are declining in size. So I have no concern about our capability of going and making a really solid case that joining with IntegraMed is going to recharge the growth engine of your business.
But I think even more important, I mean not more important but equally as important as far as growth is concerned on the top line is growth on the bottom line. We are beginning to achieve a size now on a scale where we can bring operating efficiencies and margin improvement that really is unachievable without IntegraMed.
So it’s not all about the top line.
Brooks O’Neil
That’s great. And then I guess two questions related to the vein business.
Number one, I don’t know if you have it handy, but it would be helpful if you could talk about the development schedule and sort of the time you mentioned one additional clinic at the end of the third quarter, and then how do you envision the rest of the nine new clinics rolling out. And then what is it, and I don’t want to put words in your mouth, but what is it that gives you confidence that you can accelerate the growth of the vein centers without having a meaningful negative impact on the operating profit of the business?
John Hlywak
Well, I'm not sure I made that statement. We have a really good business model in place.
So, let’s go back to what we have done over the last three years. When we made the acquisition, we committed to and we told people we were going to have to make a pretty sizable investment in the infrastructure, and this is sort of the IntegraMed way if you will.
Whenever we do an acquisition, whether it’s a facility center or in the case of vein clinic business, first thing we do is we go and build out the infrastructure that’s necessary to achieve better performance in the future. So, there is a period of time where margins do come under pressure that happened with the vein clinic business, and now we are in the cycle where we are achieving really good leverage and we are getting the pay-off from those investments.
I expect that to continue over the long haul. As I mentioned to Mark Arnold, the key here, the only question that we have over the short term is sort of the operating drag.
We are trying to build this network of vein clinics as fast as possible, but balancing the drag on contribution that these new clinics have. So as we gain more experience with bringing on these new clinics and leverage our infrastructure better, we will have better capability of making predictions in that area.
That would really be the only wildcard in my mind related to the vein clinic business as far as operating performance is concerned. And even if we do have some short-term drag, there is no question that we are going to grow out of that relatively quickly.
So I don’t see this as a multi-year sort of situation certainly with these 10 clinics.
Brooks O’Neil
And any detail on the roll-out schedule, one in the third quarter, sort of how many in the fourth first quarter etc?
John Hlywak
So, I think we actually have two scheduled for the third quarter in September and then we have the bulk in the fourth quarter. So, let’s say I think of the 10, it’s probably six in the fourth quarter and then there is a couple in the first quarter as well.
And we are starting to build a pipeline of clinics for the next year as well, but we will make some announcements about that later on.
Brooks O’Neil
Great, thank you very much.
John Hlywak
Okay.
Operator
And your next question comes from the line of Bob Rebitz with BlueLine Partners. Bob Rebitz - BlueLine Partners Hi guys.
John Hlywak
Hey Bob. Bob Rebitz - BlueLine Partners Record revenue in EBITDA, hard to be terribly critical about that, but as long as I'm on the call, actually really Jay, what I want to ask about is the decision to reconsolidate the IVF business.
Obviously when you split it into clinics and consumer services, a couple of years ago you thought it was a good idea, now it’s a good idea to reconsolidate it, I was just wondering what was happening or maybe wasn’t happening in the business as it was just aggregated that kind of led you to that decision?
Jay Higham
I'm not -- there was no problem really Bob, other than what we said in the release, which is an opportunity to streamline things a little bit here. I mean when I made the original decision to have three separate divisions, we had anticipated at some point that we were probably going to reconsolidate them.
I think you have to appreciate that at that time it was sort of a bit of a leadership transition where I was taking over as the CEO of the company, and I wanted to be -- and I view our consumer service business as one of the most important assets that we had in the company, and I wanted to make sure that it achieved a level of visibility and resources in the company that it needed in order to spur the growth and development. We have gone over that hump now.
I think the performance of that business has been well established, it’s well institutionalized. And I think that any further benefit that we can get from keeping these two businesses separate is probably minimal and we might be even running into a little bit of, sort of a better opportunity to streamline decision making by consolidating those two businesses.
Bob Rebitz - BlueLine Partners And you mentioned in the release and again on the call about efficiencies and synergies that will accrue from reconsolidating the business. Jay, we have owned the shares since 2006, and the thesis then was this, and you mentioned it very frequently on the calls the idea of leveraging the G&A expense, and again it’s hard to be critical after such a good quarter, but the operating income didn’t grow as fast in IVF as the top line, so we have added yet another highly paid executive in the IVF space.
So I am wondering, would it make more sense to say take cost out of that business and just except the fact that it’s going to be a 1% to 2% growth business, and there's not a whole heck of a lot we can do about it, it's demographics as opposed to putting in additional layers of management.
Jay Higham
I don’t think we are prepared to throw in the towel here on this business Bob, we view this as a very good business; the investments we made do produce very good returns. I don’t think we are being overly ambitious as far as building the infrastructure and management team here.
There is a void in that business that needed to be filled and the decision that we made. Bob Rebitz - BlueLine Partners So, if I do understand this correctly, there are now three senior executives in the business that effectively you ran yourself a couple of years ago, is that correct?
Jay Higham
No, I don’t think that’s the right way to frame it at all. I mean, we have a management team there, in effect there will be operations who are reporting directly to me, I needed to as our vein clinic business began to grow and take on more importance and I needed to be able to shift some of my focus over, it was important to put the equivalent leadership team in place in our legacy business that we had over in the vein clinics.
So, I think it was the right decision. Bob Rebitz - BlueLine Partners You know Jay, you used the impression throw in the towel, I certainly, I don’t think that - I mean I think the IVF business is a wonderful business, don’t get me wrong at, I'm just, again just trying to figure out what the strategy was, what the thinking was.
I also think the consumer division was doing fabulous after an off year last year due to a variety of things not the least of which is losing the third party finance provider, and I just - I guess I don’t want the company to be takings it's eye off the ball with the consumer division which I think really has been the driver of that whole business?
Jay Higham
Yeah, I appreciate that comment and that was the reason why we initially had the structure that we did, because I did want to make sure that we didn’t take our eye off the ball. And like I said now we have this fully institutionalized, the performance of that business, we are having the best performance we have ever had.
Last year, even though we didn’t get good growth in the business given the price point and the fact that we lost our financing partner, I thought it was a great level of performance and this year we are exceeding all of our expectations. So, I'm comfortable with making this change that we are not going to be taking our eye off the ball.
Bob Rebitz - BlueLine Partners Okay. That really was the concern, so...
Jay Higham
Yeah, I think it’s a great question and very relevant and now this is really institutionalized now, and I think you can symbolically you can see the focus and the level of commitment that we have to it, and that the division really is adopting the product name in effect. Bob Rebitz - BlueLine Partners Okay.
That’s perfect. Thank you for that.
Just a couple of other quick ones, maybe even for John, can you quantify the incremental cost for interventional radiology in the vein clinics that where you are rolling it out?
John Hlywak
That truly hasn’t been developed, although we know that there will be some additional equipment that will probably double our equipment project, and that will be a sea arm that would probably cost about a $100,000 and plus some filled out for the bill.
Jay Higham
I think the other component to this Bob is that the size of our vein clinics historically has been sort of 2500 square feet to 3000. So with the intervention radiology, we are beginning to upsize those facilities to a closer of sort of 3500 to 4000 square feet.
So, we are going to have little bit more in rent and build out cost. Personnel also, there is maybe one additional person that we have to have, one or two additional people that we have to have in these clinics.
We have to have a radiology tech and we have to have sort of recovery room, nurse as well for these more complex procedures. But like I said, we have opened the first one, we got the profitability in a record time even with that expanded cost structure, so we are really encouraged that this is a good move for the company that is going to expand the size of the average clinic and as well as the contribution from the average clinic.
Bob Rebitz - BlueLine Partners Right. No, I think it’s a great as well.
I mean you should drive more traffic and generate more revenue for a similar or slightly expanded footprint. How many of the existing 36 clinics could be retrofitted for IR?
Jay Higham
Well, I want to make sure that we have a really solid business model that’s going to - before we start going wild on that side, but certainly as leases come due that I think is going to be one of the critical factors, as leases come due we are going to look to upsize even if we don’t add interventional radiology at some of the existing centers, as leases come due we can increase the size of those facilities. One other thing that we are really encouraged by right now is the level of productivity that we are able to drive through the existing cost structure at some of these clinics.
I mean, the fact that we got 33% increase in revenue at these clinics year-to-date to me is one of the biggest stories, because we thought we were sort of maxing out last year and what we are finding is by adding an additional ultrasound tech we can establish greater procedure volume and continue to drive growth at the center, so the weight limiting factor of growing the business is not necessarily the physician which is a very encouraging development for us. Bob Rebitz - BlueLine Partners That’s wonderful.
Listen, I just have one more quickie here, and it’s for John. You are now calculating EBITDA, thank you very much for doing that.
There is a line that you use in the calculation amortization of deferred compensation, there is no FASB 123R expense or are those synonymous or am I missing something?
John Hlywak
Basically that is the amortization, which is similar to the 123 cost, its just deferred compensation that spread over the preview of the graph. Bob Rebitz - BlueLine Partners And so you have no 123R cost, is that correct?
John Hlywak
That’s very small Bob Rebitz - BlueLine Partners Okay. All right, very good.
Thanks guys.
Operator
And your next question comes from the line of Tony Kamin with Eastwood Partners.
Tony Kamin
The last caller kind of got into some of the questions I wanted to ask around the interventional radiologist, but maybe you can just expand a little bit on your expectations of kind of the magnitude of having a clinic with interventional radiologist. What is the magnitude you see of increased revenue and increased margin off of that?
Jay Higham
Well, the average, so let me give you sort of the breakdown here, the average vein clinic generates about $1.6 million to $1.7 million in revenue with 25% clinic contribution margin, that's of the established clinics. We are seeing some of those clinics begin to push up above $2 million and even much stronger contribution margin.
We are thinking, we are anticipating that once we are able to ramp up fully the expanded interventional radiology clinics that might build our revenue in those clinics up to $2.5 million to $2.8 million in revenue and the corresponding increase in contribution. But it’s a little bit early to be too confident about that.
I mean, this is a development project, we have one of these right now that’s in operation, it's going to take a while before we work out the kinks. So we are trying to be, I would say deliberate.
We are committed to opening three or four of these over the next six to nine months, I want to see how those materialize and whether or not our projections really come to fruition before we really push it too much further.
Tony Kamin
Okay. Any market where you have already got say several centers, would you anticipate sort of having one center with the interventional radiologist and referring over or would you anticipate in markets where you have multiple centers you might have, they might all have that?
Jay Higham
No, that’s a great question, and I think that's exactly our expectation. So for instance Washington DC is probably our second largest market right now.
We did open our first interventional radiology center there, the expectation is that we will be able to make some referrals from the existing vein clinics. We are also hiring experienced interventional radiologists from the market, so they bring their own referral patterns.
We are looking to bring on interventional radiology center in Chicago, which is our biggest market as well. So again trying to replicate that one to two interventional radiology clinics per major market definitely is a way to go.
Tony Kamin
I see. Can you talk a little bit about the experience in Madison, was that a unit that you acquired or is that one that you opened and you know what was sort of the timeframe and the kind of cost to you in terms of when you finally determined that that one wasn’t going to work and what is the learning from that one?
Jay Higham
So, another great question. Madison is a smaller market.
It’s also a market that is dominated by one system, one or two systems. We found that as an independent provider entity coming into that system and remaining or into that market and remaining independent from the big system, university and then dean clinic, it was very difficult for us to break into the referral patterns there.
So, it’s a clinic that definitely struggled over an extended period of time. We had an opportunity, the physician is a good physician, we had an opportunity to move him to the Chicago market.
We took that opportunity, he’s doing great in Chicago, and we just decided to close down that clinic. So it was a multi-year effort and we learned about how to do may be a better job of due diligence as far as the dynamics of the provider market and the pair market and also the smaller markets tend to be little bit more insular and difficult to break into, and so we will probably shy away from some of these smaller markets in the future.
Tony Kamin
Okay. On the IVF side, you mentioned in the quarter seeing a shift of some of the lower cost procedures, is any of that driven by, I'm just wondering whether there is any technology change in the lower cost procedures or any increased efficacy or anything that’s driving that other than cost maybe.
Jay Higham
Yeah, I really think it’s a cost issue. There is no, I mean there is always tweaks to the technology, it isn’t - it continues to be an emerging area, but there is no significant change as far as technology that is really causing a shift for patients into different lower cost treatment.
So lower cost treatments are frankly less effective and which is one of the reasons why we are so confident that over time as things improve here consumers get back on firmer footing that we will see a rotation back to IVF. It’s been a long trend of a shift from more traditional conventional surgical procedures and inseminations over to IVF as IVF success rates have continued to improve and I don’t see that trend changing.
Tony Kamin
You kind of anticipated my last question, which is a kind of a macro and based on some of the earlier questions people had on the call; do you have a sense of the sort of the long-term growth expectation and penetration for IVF among the population in large? Is there just a sort of grow according to people’s awareness and understanding of the effectiveness of IVF and have you guys been able to identify what kind of a long term macro growth model might looks like?
Jay Higham
Yeah, there is actually an independent research report out and that’s by a group called Millennium I think, and they have estimated that the long term, we must take out the last couple years because of the economic disruption that occurred, but their estimation is that long term, meaning the next say five years, it should be sort of 3% overall market growth in that neighborhood, and then you are going to see a bit of a bounce back into higher growth as sort of that baby boomer echo comes through. So those are the children of the baby boomers who begin to have children, so that’s going to be a bigger demographic that comes through and starts to experience infertility and then so there will be a growth in demand.
The United States like in most other areas is somewhat unique. There are a number of countries around the world that provide a lot better insurance or financial support either through tax rebates or through an established insurance program with coverage for IVF, so you get much higher levels of utilization.
Here in the United States, the utilization of IVF services is a fraction of what it is in other industrialized, western countries. So, our feeling is that it's still a very large untapped market, helping people to overcome the financial barrier is one of the best ways, it’s really not a situation where people don’t have awareness at this point.
It’s, people I think are very aware, IVF is very well established. So, it’s really more - they might not be aware of how effective that is, and that’s certainly an educational challenge, and that is something that we do take on, and particularly with the design of our Attain IVF program we’re showing people that it can be a very cost effective way of having a baby also.
Tony Kamin
Great, well thank you very much.
Operator
And your next question comes from the line of Dennis Van Zelfden with Brazos Research.
Dennis Van Zelfden
Good morning gentlemen. Jay, I just want to go back to your acquisition strategy.
Earlier you had indicated that because of the economy, the valuations that you guys want to pay, I guess is lower than what you used to pay. Can you refresh us what did you use to pay in terms of multiple, and what are you looking at now that you want to pay?
Jay Higham
Great question. So, back when the market was growing, say 15% on average and IntegraMed had less of a reputation, so we were bit of an unknown quantity in the market, we used to pay one to one and half time's revenue.
In the last transaction that we did, we paid a little bit less than half of revenue and I see that we do have sort of a benchmark, a hurdle rate if you will, we are looking for a certain return right out of the gate on these deals, and so that we don’t even have to have a strong growth in the future for this to make economic sense for the company. Happily, we have been able to generate really solid growth and so the returns just multiply over time.
But I think it’s fair for us to bring those valuations down given the fact that we have a real strong track record of being able to deliver value to the physicians, who do partner with us and the growth just isn’t there, so we can bring down the valuation somewhat from that as well.
Dennis Van Zelfden
Are there any companies out there making acquisitions or any deals getting done?
Jay Higham
There is really nobody that I'm aware of in the fertility market place that we compete with from an acquisition point of view.
Dennis Van Zelfden
Okay. So you, it's kind of a waiting game, you versus them.
I mean, what is their motivation to sell? I assume they are making decent livings and so forth.
Jay Higham
So, it varies. I think there are a variety of issues.
Right now, if you look at this business from the providers point of view at the level of the fertility center itself, it’s a very high fixed cost business that’s very profitable once you cover your fixed costs, so the incremental new patient is very important to the center and the margins are very high at the provider level. It’s really important to continue driving new patients and driving growth in the center, because your costs are going up, and you’ve got staff, you've got insurance, so it’s an expensive proposition and continuing to drive new patient volume is an important, very important criteria for these centers and the physicians who own them to continue doing well financially.
It’s important too from a clinical point of view because this is a subspecialty that does require certain level of volume of procedures and experience for the physicians to really do a good job clinically. You have to keep up your skill by treating a certain number of patients.
So for a whole host of reasons, size really doesn’t matter in this business, and physicians do come. Initially over the years they came to us because we did have a very strong track record in delivering patient volume, and even now compared to our historical performance the growth rate has come down.
We still year in and year out outperform the market as a whole in terms of growth, and usually at least two times we are growing, our centers are growing two times if not more, two to three times the pace of the market as a whole, so physicians do still come to us for that reason. But more and more they are coming to us looking for at least partially an exit strategy, but also for the infrastructure that we can deliver that can help them improve the efficiency of their operation, because efficiency now is awfully important.
When you are growing at 15%, 20%, 30% a year, you can be a little sloppy in operations. Now a single digit growth, it’s very important to have good, really good, solid, efficient operation, so that you can improve your profitability a little bit more.
Dennis Van Zelfden
Have you noticed any movement on their part, i.e., them realizing that maybe things have changed and maybe they need to reconsider or might it become a waiting game, who blinks first?
Jay Higham
Well, I mean the answer is yes, because we have brought our valuations down. If you go back 10 years ago, we were paying like I said one and half time's revenue, and now we are paying 50% of revenue.
So I mean the evaluations have come down tremendously. To me, it’s a matter of maintaining and we are not really looking for dramatic improvements and that it's a matter of maintaining those valuations and identifying the right situation.
We are very focused on making sure that we have a long term, very successful affiliation with the physicians. The last thing we want is for an acquisition to blow up on us, so we are very cautious about entering into transactions where we know we can provide really good value on the physicians over a long term are going to be happy and it's going to be a solid partnership.
Dennis Van Zelfden
I think it’s good that you are prudent and not paying too much. I guess I will be a little concerned in that you don’t make any acquisitions for a quite awhile and a $50 million or so when your balance sheet just kind of sits there and not earning very much?
I mean…
Jay Higham
Yeah, it’s obviously a situation and we want to put the money to work. We expect to put the money to work.
Our track record would suggest that we are going to put the money to work. I would rather err on the side of making sure it’s a really good solid deal than just being driven by putting the money to work.
Dennis Van Zelfden
Okay, thanks guys.
Operator
(Operator Instructions) And there are no questions at this time.
Jay Higham
Okay, thank you Operator. Those were really great questions, probably the best set of questions that we have had in a long time if ever.
I would like to conclude the call by acknowledging the hard work and dedication of all the members of IntegraMed and the physicians. We also want to thank the patients who put their trust in us and the medical groups that we work with.
We want to thank the shareholders for their ongoing support of the business and their investments and we do appreciate all of your participation on today’s call. We are committed to expanding awareness of the company and its track record in Wall Street, to that end if you have questions or want to schedule a meeting with management, do please contact Norberto Aja with our investor relations firm Jaffoni & Collins, and they can be reached at 212-835-8500.
Thank you very much and I think we will conclude the call.
Operator
This concludes today’s conference call. You may now disconnect.