IntegraMed America reports solid revenue growth for fourth-quarter and full-year 2009

Feb 5 2010

IntegraMed America, Inc. (NASDAQ: INMD):

“Our Q4 and 2009 results reflect solid revenue growth across all three business units and margin expansion in two of those businesses”

IntegraMed America, Inc. (NASDAQ: INMD), the nation’s leading manager of specialty outpatient healthcare facilities in the emerging, technology-focused medical niches of fertility and vein care, today announced improved results for the fourth quarter and full-year periods ended December 31, 2009.

“Our Q4 and 2009 results reflect solid revenue growth across all three business units and margin expansion in two of those businesses,” commented IntegraMed CEO, Jay Higham. “Our results demonstrate we have created a business that is strong in good economic environments and resilient in bad economic climates. Not only do our fertility centers grow faster than those of our competitors, but we have also proven we can drive operating efficiency and margins, factors that are very attractive to both current and prospective physician partners. The three new Fertility Center contract acquisitions completed in Q4 2009 highlight this value while providing an expanded base of future growth opportunities in the Western states. As we look out to 2010 and beyond, we see a range of opportunities to continue expanding our base of fertility centers.

“With respect to Consumer Services, 2009 was a challenging year. While the costs of undergoing fertility treatment have remained relatively constant, that has not been the case with consumer purchasing power. With an average price point of approximately $25,000 for our lead product, the Attain IVF Refund program, combined with a temporary disruption in our third-party consumer-lending partner, the growth in this business encountered headwinds beginning in the second quarter. However, as we entered the fourth quarter, we began to see a modest ramp in demand. We were also able to secure an experienced third-party financing partner replacement and as the quarterly results show, the Attain IVF program is making good progress, causing us to be optimistic in our prospects to regain momentum in 2010 and beyond.”

Mr. Higham, added, “Our Vein Clinic business grew revenue and contribution at the top end of our expectation. VCA has brought a dynamic and valuable source of additional revenue to our Company, and we expect for it to continue to make an important contribution to our growth with an accelerated pace of new clinic openings and the continued refinement of the business model.”

Fertility Centers

Fertility Center top-line growth was driven by both same store patient revenue growth of 3.2% during Q4 ‘09 and 3.2% in the full year 2009 as well as by improved operating efficiency across the division. Economic challenges continued to modestly temper consumer demand for high cost IVF treatment as patients substituted other treatments with better insurance coverage. Same store practice level operating margins rose to 10.3% in Q4 ‘09 and 10.0% for 2009 compared to 9.7% and 9.4% for the same periods in 2008.

In addition to organic growth, which has always been a primary focus for the division and a core component of IntegraMed’s growth strategy, is an increase in the pace of fertility center contract acquisitions. During the quarter IntegraMed closed on three previously announced new contract acquisitions and is planning on scaling the historic pace of one or two new contracts per year up to two to four new contracts per year. IntegraMed is in dialogue with a number of prospective centers and though it is difficult to predict the timing of transactions, it remains confident in the prospects for its new center growth in 2010 and beyond.

IntegraMed has the most extensive consolidated network of fertility centers in the U.S., spanning 14 partner centers with 66 locations in 12 major markets across the country. This growing geographic breadth and diversity has played an important role in enabling the Company to deliver solid financial performance.

Consumer Services (Attain IVF Program)

(1) 2008 results have been restated to reflect the corrections of errors with respect to the timing of certain revenue recognition for the Attain IVF program within the Consumer Services Division.

The improved Q4 ’09 results of the Consumer Services business principally reflect the reestablishment of a robust third-party financing capability in the fourth quarter following the termination of an earlier funding source during Q2 ’09, as well as the launch of the Attain IVF Multi-Cycle product which has a lower price point than the Refund Program and broadens the pool of patients who are able to enroll in the program.

Consumer Services division margins improved slightly on a quarter-over-quarter basis to 25.9% for Q4 ’09, but fell to 25.7% for all of 2009 as compared to 27.4% in 2008. The full year decline in margins is attributable to a reduction in pregnancy rates from 43.2% and 44.4% in Q4 ’08 and 2008, respectively, to 39.8% and 43.8% in Q4 ’09 and 2009, respectively. The variation of pregnancy rates, though within a normal range, will continue to be a meaningful factor in year-over-year margin comparisons. Additionally, IntegraMed initiated an aggressive ramp-up in its marketing efforts during Q4 that will impact future margins in favor of faster growth in 2010.

Reflecting the success, growing awareness and consumer demand for the Attain IVF Program, IntegraMed added four new Affiliate providers to its Consumer Services fertility network in 2009 and just yesterday added its first new Affiliate in 2010, bringing the Affiliate total to 26 in 22 states. IntegraMed remains active in its pursuit of additional affiliate opportunities and expects to continue to add affiliate centers at a similar rate in 2010.

The Attain IVF (in vitro fertilization) Program was pioneered by IntegraMed to fund the financial cost of a patient’s decision to embark on a series of IVF treatments. The program is available in a flexible format that combines various treatment and refund options of up six treatments and up to a 100% refund in the event that treatment does not result in a take home baby. The Attain IVF program has strong consumer appeal and represents an important competitive advantage for IntegraMed affiliated fertility centers.

Vein Clinics (VCA)

Contribution or operating income from the Vein Clinic segment increased to $1.1 million in Q4 ‘09 from $0.7 million in Q4 ’08, representing a 48% increase. On a full year period, contribution grew 55% to $4.1M, demonstrating the strong leverage this business model is capable of generating.

VCA margins improved on a quarterly as well as full year basis to 8.0% in Q4 ’09 from 6.8% in Q4 ’08 and to 8.1% in 2009 from 6.6% in 2008. The margin improvements were principally due to the impact of higher revenues on a relatively fixed overhead as well as from the slower pace of new clinic openings during 2009, as start-up losses from the first several months of new clinics create a short-term drag on divisional operating performance.

IntegraMed opened two additional clinics in 2009, bringing the total number of clinics to 3. So far in 2010 IntegraMed has announced the upcoming opening of two new vein clinics, bringing total announced clinics to 36, with at least six more clinics slated to open during the balance of 2010.

IntegraMed also announced the incorporation of Interventional Radiology (IR) into a forthcoming new clinic in Columbia, MD. Though still investigating the potential benefits of IR within the Vein Clinic business, management sees substantial synergies allowing for the treatment of a broader array of vein related conditions from the same facility.

Cash Flow and Balance Sheet

IntegraMed’s total assets grew to $124.3 million at year-end 2009 from $121.4 million at year-end 2008, with cash and equivalents increasing by 2% to $28.9 million at year-end 2009 versus $28.3 million at year-end 2008. The increase in cash was achieved despite investments across the company’s businesses including approximately $3.6 million for acquisitions in the Fertility Centers Division. Cash provided by operating activities rose to $13.8 million in 2009, versus $6.9 million in 2008. The Company expects to use some of its cash in Q1 2010 to fund its growth strategy as well as for fertility physician drawdowns of accrued compensation, upfront outlays for marketing, advertising and media purchases and for the payment of medical malpractice and other insurance premiums.

The Company continues to focus on revenue cycle improvements and as a result has improved consolidated days sales outstanding (DSO) to 32.1 days at year-end 2009 from 40.5 days at year-end 2008. By division, Vein Clinic DSO declined to 49.3 days and the Fertility Center DSO improved to 24.9 days. Consumer Services revenues are paid up front in their entirety, eliminating any credit risk or receivable management issues.

IntegraMed CFO, John Hlywak, added, “As we anticipated, our markets improved modestly in the fourth quarter, reflecting the continuation of the slow consumer recovery. Looking at 2009 as a whole, our pace of growth was tempered by the impact of consumer economic challenges. Additionally, we had a fourth quarter catch-up adjustment for taxes in one state, which amounted to an approximately two cent negative impact on EPS. Going forward we expect taxes in this jurisdiction will have only a nominal impact on our tax rate.

“In summary, we believe the steps we took to deal with the downturn effectively adjusted our cost structure to ensure we can operate profitably in this new consumer environment and realize attractive incremental profits and free cash flows on revenue gains. We continue to utilize the cash generated in the business to support our growth, and in spite of such investments, our liquidity position and balance sheet remain strong. Looking through 2010 and into 2011, we are committed to accelerating our pace of growth by leveraging our proven business model to grow each of our businesses through acquisition in fertility, new affiliate agreements in consumer services and new clinic builds in vein care.”