May 3, 2012
Operator
Good morning everyone and thank you for participating in IntegraMed America Inc. First Quarter Conference Call.
I am joined today by Jay Higham, President and CEO and Sheehan Senior Vice President and CFO. Before we begin I would like to caution that some of the comments made on this call may refer to certain measures such as adjusted EBITDA which are not calculated in accordance with generally accepted accounting principles or GAAP.
Management believes these results are representative of the performance of the ongoing business of the company. For a reconciliation of adjusted EBITDA to GAAP results in accordance with Regulation G under the Securities Exchange Act please see IntegraMed Q1 press release which was filed today with the SEC on Form 8K and maybe found under the news tab of the company’s website.
The content of this conference call may contain time sensitive information that is accurate only as of today May 3, 2012, IntegraMed undertakes no obligation to revise or update any statements to reflect events or circumstances occurring after the date of this conference call. I will now turn the call over to Jay Higham, President & CEO, Jay?
Jay Higham
Thank you everybody and good morning. We appreciate you joining us on the call today.
As our Q1 results demonstrate we have had a strong start to 2012 and are optimistic regarding our prospects for the balance of the year. I would like to review some of our business progress and then Tim Sheehan will provide some added color on our financial performance.
Starting with our Attain Fertility Centers division during Q1 we entered into an agreement to manage the fertility clinic within the University of North Carolina Healthcare Systems. UNCs fertility practice consistent of four respected reproductive endocrinologist, a lab director and staff.
We like to support the clinics growth and success by providing them with a full array of IntegraMed support services and infrastructure that will enable the physicians to focus more patient care and to support the practices growth through sales and marketing, operations and revenue cycle management. To position the clinic to better serve the significant patient population in the region we will relocate the clinic to the research triangle park area a process that is targeted to the second half of 2012.
We also expanded our presence in the Florida market by completing in end market merger of the Palmetto Fertility Center in Miami Lakes, Florida with our IVF Florida operations. The Palmetto Center has expanded our leadership in South Florida with the addition of two well-regarded physicians, a lab director and office staff and a state of the art laboratory.
The transition IVF Florida operations to include nine physicians across six centers primarily in Miami, Dade and Broward Counties. We are very pleased with these transactions and we will remain focused on building our fertility network and growing the Attain IVF Program enrollment.
We are also encouraged by the ongoing business development activity across the country. The innovative public, private partnership arrangement with the University of North Carolina is gaining visibility among other Academy Medical Centers is opening a new segment of the market to the benefits of working with IntegraMed.
We believe that big part of our success is being driven by our expanding online presence through our websites, attainfertility.com and attainivf.com and significant social media efforts. A considerable growth in traffic to our sites up three times quarter-over-quarter expanding consumer use of our innovative apps and dominant brand awareness translates into greater consumer education and the increase in patient enquiries to our partners and affiliates.
We have seen tremendous growth in our Attain Fertility Blog, YouTube channel and Facebook community. Our newest features attain fertility friends and ecards are quickly gaining popularity in our community as well.
These interactive tools and expanded mobile marketing efforts extend the reach of our educational messages and help drive traffic to our fertility center network. One innovative interactive tool we offer the attain fertility planner available at www.attainfertilityplanner.com.
This tool has been approved by the U.S. FDA as a fertility diagnostic device.
The free planner helps couples double the chance of conception by tracking and using simple body signs, test results, inoculation patterns to identify optimal timing for conception. It also helps track patient, helps patient track their data and understand when it's time to see a fertility specialist.
Due to the strong patient demand for the planner, we will launch the iPhone and iPad app in Q2. I will now turn to Attain IVF Program which provide unique financing options for patients seeking fertility treatment and are offered through our partner and affiliates patterns.
Attain IVF programs are disconnected packages of services that improve patient success rates through a proven course of treatment focus. We offer patients low cost, financing through a third party partner to secure financing for this program.
Because of the programs value and attracting and retaining patients we are working to improve the quality and scope of our network by removing underperforming affiliates and seeking new practices. Attain IVF Program enrollments rose by more than 7% in Q1 2011 while applications declined due to the lingering impact of the recession.
A seasonal decline in December enrollments and modest decrease in pregnancy rates during the period contributed to the division slight operating income decline in Q1. We are committed to building the awareness and geographic reach of this program and in addition to our focus on internet marketing we are working closely with the centers to help them boast awareness of their program.
At the same time, we are looking to improve our program offerings by adding a discount drug program and additional financing options in Q2. As for our growth plans in our fertility partner business it's important to remember that our business model is built around having a minority participation in centers under contract.
It's important both the physicians and IntegraMed that our physicians maintain substantial upside because of the business. That keeps them motivated and focused on their prime responsibility of patient care.
We believe this collaborative approach is the most effective relationship for all involved, physicians, patients, employees and shareholders. In summary we are convinced that the steady growth and cash flow from the fertility business can be enhanced both organically and through investments in the business that will help our partners and affiliates build even greater competitive advantages and through the addition of new partner and affiliate relationships.
Turning to our Vein Clinics Division we had a tremendous first quarter, achieving growth both in new and mature clinic revenues. Growing interest in the treatments we offer is reflected in double digit increase in inquires, new consultations and in new patients.
In this top line performance was translated into an over two fold increase and division operating income despite increased division over had required to support the expansion of this business. We are launching new practices on time and expect to bring them to profitability in a predictable manner.
My comments during past calls highlighted the enhanced capabilities we added to this crucial practice development function. We opened two new clinics in the quarter, one in Illinois and one in Pennsylvania, and in April we added two additional practices one in Minneapolis, Maryland and second in Plano, Texas.
The additions were offset by the closure of the legacy clinic in Fort Lauderdale, Florida. We now have 48 clinics through April in operation and are confident in meeting our goal of building 8 to 10 clinics this year.
Most of the remaining clinics have targeted to open in the second quarter as the first half of the year tends to be a better time to launch new practices. As we add new clinics in existing market such as Chicago, Baltimore, Washington, Philadelphia and Connecticut we can achieve lower per-clinic operating cost by leveraging end market synergies and benefiting from current market awareness.
We gain experience with each new clinic opening and are very conscious to leverage that expertise in our future development plan. Accordingly we expect to see ongoing improvements in the planning and execution of each new launch.
One of the strengths of our organization is a proprietary database that enables us to do sophisticated market and operations performance modeling. These models are particularly robust and multi-practice metropolitan markets.
In fact our executives who are leading these efforts are now being consistently sought to speak at scientific conferences. This represents a great opportunity for us to build credibility with top tier physician candidates.
Another area we have been strengthening as our approach to local marketing and sales. Referrals to our practices from other physicians have improved 19.6% in Q1, 2012 compared to Q1, 2011 as we have added more resources to the direct to physicians' promotional efforts.
These educational based programs build physician awareness about superficial venous disease as well as educate potential referring physicians on the high quality of our network physicians. Additionally, better pre-launch marketing and sales programs appear to be accelerating new practice ramp up to profitability especially in established markets.
Another area we are excited about is our targeted local health fair events; these events involve our physicians and allied health staff interacting directly with potential patients and are generating a lot of localized interest and new in office consultations. One recent event with the major airline resulted in 30 new enquires from just one event.
These two patient acquisition approaches earn outstanding compliment to an already robust direct to consumer marketing effort. As I mentioned earlier we are targeting 8 to 10 new practices this year and are confident that our expansion plans will continue to scale in the future.
Inherent in this level of growth is finding the right physicians for these practices. Probably the most important factor to a success of a practice is having the right physicians, accordingly we have strengthened our physicians recruiting function to physicians who not only embrace our practice model but also have a strong entrepreneurial spirit.
We are now in the process of refining our physicians' candidate profiles and candidate acquisition tools utilizing external validating behavioral and character assessment instruments. We believe this will increase the likelihood of success for new physicians.
The new process is at the cutting edge of physicians recruiting models. Essentially we are extending our expertise in consumer marketing model and implementation into our physicians recruiting efforts, for example we had recruiting booths at the February, American Venous Forum and at the Society of Interventional Radiology in March where we added about 30 prospects to our physicians candidate pool.
We will be attending an additional nine events during the remainder of 2012 that target vascular sub-specialist and expect to continue building our candidate pool overtime to support our growth needs. With that summary, let me turn the call over to Tim who will provide some additional color on our operating performance and financials before we take your questions.
Tim?
Tim Sheehan
Thank you Jay. Solid growth in both our Attain Fertility and bank finance divisions enable total first quarter revenues of 70.8 million, a better than 10% increase over the first quarter of last year.
A key driver in the first quarter was a 25% increase in bank clinic revenue, a solid mature clinic growth 14.6% was augmented by new clinic contributions. Additionally, Q1 revenue benefited from a solid performance in our Attain Fertility Centers division.
Total operating income rose 9.3% to 5.1 million benefiting from a 0.5 million increase in contribution from our vein clinic division. The Attain Fertility Centers operating income declined slightly in the quarter due to performance in 2011 exceeded historical trends for the first quarter of the same IVF program where as 2012 reverted back to historical seasonal trend.
Corporate G&A expenses were down slightly from year-ago based on few open positions at the corporate level and lower incentive compensation. In line with our expectations of approximately 40% tax rate this year, our Q1 tax rate was 39.8, a modest increase over 38.1% experienced in the first quarter of last year.
Leveraged to the bottom line has enabled us to issue a net income of 1.3 million, a 36.5% increase, diluted earnings per share grew 37.5% to $0.11 per share. We are particularly proud of our bottom line performance as it demonstrates that we have been able to balance investment and growth with bottom line performance.
Turning to adjusted EBITDA which we view as a metric for measuring our performance. Given our significant non-cash depreciation, amortization and deferred compensation expenses.
We issued a 17.8% increase to 4.7. Moving to the balance sheet, we maintained a strong cash position despite ongoing investments to both of our division of approximately 4 million in the quarter as well as further (inaudible) reduced in the balance of a long-term debt.
This liability moves from long term to current status in the (inaudible) as we have now less than one year until its full maturity. We are already working with our lenders on this matter to determine the best path forward, given our various dollars balance sheet and cash position; we expect this to be a non-event but want to point out as we get in place.
From revenue cycle management standpoint, (inaudible) consolidated day sales outstanding decreased to 25.4 days as compared to 31.9 days a year ago. This decrease was fueled primarily on the strength of the VCA revenue cycle team.
In summary, in entitlement operations are performing well, and we are very well positioned to fund our growth initiatives across the business. We are pleased with the progress that are being on the expansion program and are optimistic there with strong start by adding capacity to our facility operation and maybe a good indicator for the balance of the year.
With that operator, we will now open it up for questions. Operator?
Operator
(Operator Instructions). And your first question comes from the line of Frank DiLorenzo.
Frank DiLorenzo
I had a question on the vein clinics side. It looked like the numbers were pretty good.
Considering if I recall, you didn’t open any new clinics in the fourth quarter of 2011 and my question's actually around you opening a couple of clinics in Q1, 2012 in April of 2012 you opened it up I believe a few more clinics. So could we expect somewhat of a ramp on the revenue side with regards to then clinic segment through the second quarter here.
Jay Higham
Yes, second quarter is typically our strongest quarter in that business. This is a business that has a lot of seasonality to it and we're timing the opening of our new clinic to take advantage of that seasonality where people come back into the market starting in the first quarter where we start to get especially the latter half of the first quarter where we start to get a lot of inquiries coming in and new patients starting to come in and then there is a process of getting patients from the initial consultation into treatment and so we do expect as has been consistent in past years, that we will begin to see that treatment revenue coming through in the second quarter and even the third and fourth quarters.
Operator
(Operator Instructions). Seems we have a follow-up question from Frank DiLorenzo.
Frank DiLorenzo
Just one other question, this time related to the fertility side of the business. You worked on doing a couple of those deals recently.
I was wondering when you might see some critical mass if you will on those deals as far as starting at the top line of your businesses. It's going to take a little contractual efforts.
Can you give us a progress report on how that's been going?
Jay Higham
Yes, that's a great question Frank. Mostly and usually when we do these deals on the fertility center side, they are immediately accretive because they are established operations that have track record of critical mass of business already.
So we start to get the benefit of that immediately. In this case that's not as true.
The University of North Carolina particularly is a situation where we're helping them to develop a new facility to move the operations out of the hospital in Chaplin Hill over the triangle park area, a new facility. And so the revenue from that, it's not going to really start to materialize until the second half of the year and then as we grow that business.
So this is a situation where we won't really begin to perceive the benefits from a financial point of view until at least the second half of the year and then it will grow from there.
Frank DiLorenzo
Are you confident that the new location is more optimal compared to where they were set up?
Jay Higham
Absolutely, I mean we see this all the time, particularly academic medical centers. These fertility operations are very different from most other medical subspecialties.
There's a lot of resource requirement, a lot of space requirement and hospitals are even more so academic medical centers don't really have the right sort of commercial approach to providing those resources. It’s a more resource intensive business.
And it's just very difficult for them to know how to manage those businesses and provide those resources in the most effective way. You really need to get it out of the hustle and bustle of a large academic medical center into its own dedicated space.
We saw this when we took the University of Washington Fertility Center in Seattle out of that facility and put it into a free standing location. It's now I think four time the size it was when it first started.
So we're expecting some considerable growth from helping them do this transition.
Operator
And your next question is from the line of Quentin Matthew.
Quentin Matthew
Could you give a further detail into the potential margin expansion that you guys see in the vein business moving forward as you ramp up more clinics?
Tim Sheehan
We on average would have our June 1st, 20% margin of the contribution margin from each established mature clinic. Though we will have very minor increases in division overhead over time, the combination of a continued ramp of new clinics and much slower growth in division overhead will contribute to that margin expansion.
We just don't need to have that may buyers to support each new clinic status of the network.
Quentin Matthew
And what about the corporate side. Do you guys see as you grow that you've got the ability to scale up without really increasing your corporate costs as well?
Tim Sheehan
We do, I mean there will be additional bodies around the margin and new additions at this time but our corporate functions are all established and relatively fully staffed outside of one or two openings that we had experienced in a quarter that hasn’t been dealt.
Operator
(Operator Instructions). And again we have a follow-up question from Frank DiLorenzo.
Frank DiLorenzo
Walls around your cash, if you go back to Q1 of 2011, decent popup overall in your cash levels on the balance sheet. I missed the early part of the call but have you been considering what you may want to do with that cash going forward just strategically whatever may be another acquisition or investments, buybacks etcetera?
Jay Higham
Yes, we are not really planning a buyback at this point Frank. The float is somewhat limited for based on the fact of a company.
I'm not sure that would really help with maintaining stock price. The best use is to make investments in the business.
We look for the right acquisitions to do that and that's our focus at the moment.
Operator
(Operator Instructions). And there are no further questions from the line.
Jay Higham
Okay. Thank you operator.
In closing I would like to thank our physicians and the entire IntegraMed team for their efforts. That's what forms the foundation of our company.
I also thank our patients who put their trust in their providers as well as to shareholders for their continued support. We plan another active year of investor relation outreach and exposure to gain more visibility for the success of the business.
I hope to see many of you at various conferences and marketing trips throughout the year. Should you have questions or wish to speak to management, please contact our investor relations representative David Collins of Catalyst Global and the phone number there is 212-924-9800.
Thank you for your continued interest in IntegraMed and your participation in today's call and that concludes our prepared remarks.
Operator
And this concludes today's conference call. You may now disconnect.