IntegraMed America, Inc. ( INMD)

Q3 2011 Earnings Call

November 3, 2011 10:00 am ET

Executives

Jay Higham – President & Chief Executive Officer

Tim Sheehan – Senior Vice President & Chief Financial Officer

Analysts

Kevin Ellich – Piper Jaffray

Brooks O’Neil – Dougherty & Co.

Nick Halen – Sidoti & Company

Presentation

Operator

Good morning. My name is Joanne and I will be your conference Operator today. At this time I would like to welcome everyone to the IntegraMed Q3 Earnings Conference Call. (Operator instructions.) Thank you. Mr. Sheehan, you may begin your conference.

Tim Sheehan

Good morning, everyone, and thank you for participating in IntegraMed’s Q3 conference call. This is Tim Sheehan, Senior Vice President, CFO. I am joined today by Jay Higham, President and CEO.

Before we begin I would like to caution that some of the comments made on this call may refer to certain measures such as normalized earnings, 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. Please see the company’s press release furnished as an exhibit to its current report on Form 8(k) filed with the Securities and Exchange Commission, and which may be found under the News tab of the company’s website.

The content of this conference call contains time sensitive information that is accurate only as of today, November 3, 2011. 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, Tim, and good morning to everybody on the call. We appreciate you joining us today. We’re pleased with the Q3 results and with how things are progressing in general and we continue to be excited about the future of the business. Looking at our Attain fertility centers, the segment had a solid quarter with revenues growing 10.7% to $50.8 million and year-to-date revenues up 10% to $149 million.

Underlying patient volume metrics, including new patient visits and IVF cycles showed strong growth of 7% in a market that’s flat across the United States. Our performance reflects the success of our business model and the value of our approach in taking market share away from non-IntegraMed affiliated fertility centers. We achieved these results through a strong focus on patient recruitment, care coordination, revenue cycle management, integrated IT systems, and a host of other critical operational initiatives rarely seen at individual centers.

We’ve also created a powerful marketing engine that drives potential patients to IntegraMed and to our fertility centers. Specifically, we’ve focused a lot of time and effort on leveraging the internet and social media which have proven to attract new patients and have established us as a key influencer in the fertility field. We’re indeed fortunate that our target audience – women between the ages of 25 and 45 – feel very comfortable using the internet, and that we’ve been able to make a level of investment where the Attain IVF brand is gaining visibility.

Turning to the Attain IVF Fertility Treatment Financing Program, growth continued to moderate as the benefits of last year’s Attain multi-cycle launch have been fully annualized. We’re also beginning to bump up against Attain IVF enrollment limitations of the existing provider network. Incremental improvements can be obtained but continued significant growth in the future will likely come from additions to the provider network, a task we need to focus more attention on.

On the fertility center acquisition front, we’re maintain an active process of pursuing deals. We remain highly disciplined on valuation and return on investment criteria in these efforts to ensure new acquisitions deliver appropriate returns and present the right risk/reward profile. It’s difficult to predict when the next acquisition will occur but we remain confident that IntegraMed offers the best strategy for a standalone fertility center to gain the scale necessary to be competitive in today’s changing healthcare market.

We do believe the market is overdue for more consolidation. One example is Florida which is a very fragmented market where consolidation seems destined to take place given the challenges in obtaining organic growth and the high fixed costs of maintaining a fertility center. On a more general scale, markets across the US continue to be impacted for a third consecutive year by the overall softness in the economy, which we believe is causing physicians to rethink their operational strategies and goals. We have a variety of structures that can work including in-market mergers or outright acquisitions of mid-sized and large centers.

In summary, the fertility business is performing well despite the headwinds the fertility market continues to face. These challenges create opportunities for our firm and we will remain focused on operational performance and on expanding the business as prudent opportunities allow.

Moving to vein clinics, this segment delivered very strong top line performance, principally from the contribution of $3.7 million in incremental revenue from new clinics on top of stable mature clinic performance. Overall vein clinics posted record revenues each month of the quarter, underscoring the benefit of our new clinic expansion activity.

As for mature clinic revenue, the major issue there is that many of our clinics are at or near capacity both in terms of labor resources as well as physical capacity. To address these issues we’ve started to expand the footprint of certain of our clinics, adding additional personnel and implementing some operational changes that address treatment bottlenecks. As we gain experience from these changes we’ll be in a position to apply them to other facilities.

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