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LCA-Vision Inc. (NASDAQ:LCAV)

Q4 2009 Earnings Call Transcript

February 9, 2009 10:00 am ET

Executives

Jody Cain -- IR, Lippert/Heilshorn & Associates

Mike Celebrezze -- SVP - Finance, CFO and Treasurer

Dave Thomas -- COO

Analysts

Ryan Daniels -- William Blair

Deepak Chaulagai -- Dougherty & Company

Steve Willoughby -- Cleveland Research

Anthony Vendetti -- Maxim Group

Peter Bye -- Jefferies & Company

John Ransom -- Raymond James

Sameer Tendulkar -- BOE Research Services

Darren Carpenter [ph] -- BOE Securities

Operator

Ladies and gentlemen, welcome to the LCA-Vision 2009 fourth quarter and year-end conference call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. (Operator instructions). As a reminder, this conference is being recorded today, February 9, 2010.

I would now like to turn the call over to Ms. Jody Cain. Please go ahead, ma’am.

Jody Cain

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today’s call to discuss the LCA-Vision’s 2009 fourth quarter and full year financial results and business update.

Joining me from LCA are Michael Celebrezze, Chief Financial Officer; and David Thomas, Chief Operating Officer. I’d like to remind listeners that comments made during this call will include forward-looking statements within the meaning of Federal Securities Laws.

These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a list and description of those risks and uncertainties, please review LCA-Vision’s filings with the Securities and Exchange Commission. Please note that the content of this call contains time-sensitive information that is accurate only as of today, February 9, 2010.

LCA disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether as a result of new information, future events or otherwise.

Now I’d like to turn the call over to Mike Celebrezze. Mike?

Mike Celebrezze

Thank you, Jody. Good morning, everyone, and thank you for joining us. Last year was indeed challenging for the laser vision correction industry as prospective patients demonstrated a reluctance to spend on elective, self-pay surgical procedures.

As you may know, in the past couple of months, two leading multi site laser vision correction service companies filed for Chapter 11 bankruptcy protection. LCA-Vision is in a much stronger and much different financial position.

We are balancing cash conservation in the current challenging economic environment against our longer-term objective of managing to profitability when the economy improves.

We took multiple measures in 2009 to conserve cash and reduce spending, including closing 12 underperforming centers and a 13th one in January 2010, reducing marketing expense by $18.6 million in an attempt to match spending with consumer demand; reducing our full time equivalent head count by 19% and renegotiating our equipment contracts. The payroll and equipment cost reductions resulted in an annual savings of approximately $11 million.

I’m pleased to report that we achieved all our 2009 stated goals with respect to cash conservation. Center direct costs per center decreased by approximately 18% compared with the prior year, reaching our goal of reducing center direct costs in excess of 10%.

General and administrative expenses declined by 19% compared with 2008, exceeding our 17% reduction goals and we held capital expenditures to $240,000, well below our goal of under $1 million and down significantly from $14.9 million in 2008.

As a result of our success in conserving cash, we believe our cash resources are sufficient to fund operations beyond 2012 at an annual procedure volume of 55,000. We ended 2009 with more than $54 million in cash and investments and we currently have a network of 52 LasikPlus Vision Centers.

In addition to cash conservation, we have declared patient acquisition and retention and organizational effectiveness as priority to improve our business in the current environment and build a platform for future success.

Our entire LCA-Vision LasikPlus team is working to accelerate progress on multiple parallel actions under these priorities that impact every aspect of our business.

We are taking a systematic, methodical approach to these priorities with actions that have performance measures and require greater accountability than in the past. Some of these will be achieved quickly, while others will take some time. In today’s call we will provide a progress report on achievements, programs underway and planned activities.

First, I’d like to review with you our 2009 fourth quarter and full year financial results. We are providing both GAAP and adjusted revenues and operating loss as a means of measuring performance. The adjusted results account for the non-cash impact of the accounting for separately priced extended warrants. A reconciliation of revenues and operating loss as reported in accordance with GAAP is provided at the end of the news release we issued this morning.

For the fourth quarter of 2009, revenues were $22 million compared with $34 million for the 2008 fourth quarter and adjusted revenues were $20.1 million compared with $30.3 million for the 2008 fourth quarter.

We performed 11,718 procedures during the 2009 fourth quarter compared with 19,424 procedures during the 2008 fourth quarter. We attribute the lower procedure volume to a year-over-year decline in pre-operative appointment bookings, which we believe is primarily due to reduced consumer confidence as well as to a 34% year-over-year decline in spending on marketing activities.

Also, to a lesser extent, the year-over-year decline was due to center closures and the $150 exam charge associated with our advanced eye help analysis test program.

During the fourth quarter, we determined that the AEHA exam charge was having a negative impact, and we made the exam complementary. Year-over-year, appointment show rates and conversion rates declined while candidacy rates improved and treatment show rates were flat. On a sequential quarter basis, appointment show rates and conversion rates were up slightly and treatment show rates were down slightly.

Same-store revenues decreased 33.3% during the fourth quarter, while adjusted same-store revenues decreased 31.1%. There were 71 Vision centers included in the same-store count.

We reported an operating loss of $10.1 million and adjusted operating loss of $11.8 million for the 2009 fourth quarter. Operating loss and adjusted operating loss included $1.4 million in restructuring charges and $190,000 in adjustments to impairment charges.

On last quarter’s call we estimated that we would record restructuring charges of approximately $4.1 million in the 2009 fourth quarter related to ten Vision center closures as well as field call center and corporate staff reductions.

In our estimate we anticipated lease contract termination and other closure costs of $3.1 million. However, we are pleased to report the actual contract termination and other closure costs were $1.1 million, as we were able to successfully negotiate lease buyouts at many of the closed Vision centers.

Additionally, we included $750,000 in the restructuring charge estimates related to two Vision centers that were not closed during the fourth quarter. One of these Vision centers subsequently closed in January 2010 and we will take a related charge of approximately $75,000 in this year’s first quarter.

We successfully negotiated a license agreement for the second center, located in Savannah, Georgia, which avoided the need to take a charge related to the center’s closure.

In the 2008 fourth quarter, we reported an operating loss of $9.6 million and adjusted operating loss of $13 million, which included $2.1 million in restructuring and impairment charges.

Medical, professional and license fees for the fourth quarter of 2009 decreased by $2.5 million or 33% from the fourth quarter of 2008. The decrease was primarily due to lower costs and physician fees associated with lower revenues.

Direct costs decreased for the quarter by $2.2 million or 14% compared with the prior year. This decrease was principally the result of expense reductions made as a result of lower procedure volumes.

General and administrative expenses decreased by $1.2 million or 23% from the fourth quarter of 2008, resulting primarily from headcount reductions and lower professional services and contract services. Marketing and advertising expenses of $5.8 million decreased $2.9 million or 34% compared with the prior year.

Net investment income increased by $3 million. During the fourth quarter we received more than $1 million from Deutsche Bank to buy auction rate securities, which had a par value of $2.3 million and adjusted cost basis of $675,000. We recognized a $350,000 gain on the sale of those securities. We have now reduced our exposure to auction rate securities from par value of $18.3 million at 2007 year-end to $2.4 million at 2009 year-end.

Income tax benefit for the quarter was $5.5 million versus $3.7 million in the prior period. To maximize our 2009 tax deductions, we worked aggressively to complete buyouts and sub-leases of our previously announced center closures during the fourth quarter. The tax rules require that lease exit agreements be signed in order to deduct the leasehold improvements and rent write-offs.

Our ability to obtain lease exit agreements before the end of 2009 will provide us $1.7 million towards the tax refunds to be received in the second quarter of 2010 while exiting the agreements in 2010, would have resulted in a tax loss carry forward and no refund in 2010.

We currently anticipate receiving a tax refund during the second quarter of 2010 in the $10 million to $11 million range. For the quarter we reported a $3.6 million net loss or $0.19 per share compared with a net loss of $8.2 million or $0.44 per share for the fourth quarter of 2008.

We used $7.5 million in cash and investments in the fourth quarter, which included $1.6 million of debt service, $865,000 related to center closure lease buyouts and severance costs and the balance from operations.

Turning to our full year 2009 results, revenues were $129 million compared with $205 million for 2008 and adjusted 2009 revenues were $120 million compared with $186 million for 2008. Procedure volume was 72,776 versus 115,153 for 2008.

Operating loss was $36.5 million compared with an operating loss of $8.2 million for the comparable 2008 period. The 2009 adjusted operating loss was $44.7 million compared with the 2008 adjusted operating loss of $25.1 million. Both operating loss and adjusted operating loss for 2009 included $8.1 million in impairment and restructuring charges and $800,000 in consent revocation solicitation extensions.

Operating loss and adjusted operating loss for 2008 included $3.5 million in restructuring and impairment charges. The net loss for 2009 was $33.2 million or $1.79 per share compared with a net loss of $6.6 million or $0.36 per share for 2008. Included in the 2009 net loss was a $12.2 million or a $0.66 per share valuation allowance for deferred tax assets.

Cash and investments totaled $54.6 million as of December 31, 2009, down $4.9 million from $59.5 million as of December 31, 2008. We generated $1.4 million in cash from operations for 2009. Debt service totaled $6.1 million and we kept capital expenditures to a minimum with only $240,000 for the year.

We continued to benefit from improvements in our average per procedure price. Excluding the impact of deferred revenues, our fourth quarter average revenue per procedure was $1719, up $42 from the third quarter and up $161 from the 2008 fourth quarter. We have increased price based on findings of relative price inelasticity within a certain range.

We continued to monitor the relationship between price and conversion for each market on a monthly basis and make appropriate adjustments to maximize operating income.

Internally financed patient accounts receivable were $5.4 million at year-end compared with $12.3 million at December 31, 2008. We have improved overall revenue collections through our program that requires different down payments based on patients credit scores. The minimum down payment is $300 per eye and increases to as much as $1000 per eye.

Bad debt expense for the fourth quarter of 2009 totaled 2.5% of revenue. For the full year 2009 bad debt expense was 2.6% of revenues, which is relatively consistent with the 2.6% bad debt expense percentages in 2008 and 2.5% in 2007. Revenues financed by Care Credit also were consistent with last year.

I’d now like to turn the call over to Dave Thomas.

Dave Thomas

Thank you, Mike. As discussed on past calls, consumer confidence has historically correlated fairly closely with procedure volumes for LCA-Vision and throughout the laser vision correction industry.

Although the conference board consumer confidence index in late January climbed to its highest point in more than a year, this indicator continues to suggest that discretionary spending will remain sluggish in the coming period, especially for larger ticket discretionary spending. We are cautiously optimistic that the uptick may portend increases in procedure volumes in quarters to come.

We reduced fourth quarter marketing spending to $5.8 million, 34% lower than prior year marketing expenses, in an effort to align marketing spending with perceived patient demand. As demonstrated by the low December present situation consumer confidence index of 18, the lowest since 1983, our spending reductions were appropriate.

Our marketing spend per procedure for the fourth quarter was $493 versus $359 for 2009 third quarter and $447 for 2008 fourth quarter. Since the first quarter is our seasonally strongest, we have increased marketing spending for this quarter to $9 million.

As discussed on our last call, we have set cat [ph] conservation, patient acquisition and retention and organizational effectiveness as our priorities with a company-wide goal of improving our current business, while building a strong base for future growth and profitability when the U.S. economy improves.

I’d like to share some recent actions and achievements, starting with patient acquisition and retention. Consumer marketing is critical to driving procedure volume and last quarter we discussed several immediate objectives including recruiting a top quality executive to lead this function.

I am pleased to announce that at the beginning of this year, Bharat Kakar joined LCA-Vision as Vice President, Marketing. Bharat previously held senior level marketing positions at Cincinnati Bell Telephone and Embarq, the successor to Sprint, among other customer-centric organizations. And he has already taken direct responsibility for the overall development of our patient acquisition initiatives.

In the past several months we have conducted an extensive analytical and quantitative evaluation of all marketing drivers. Our objective was to take a more comprehensive data-driven approach to marketing. To assist with this effort we retained the services of Element 79, a top-line full service advertising agency based in Chicago. I personally have great confidence in working with Element 79, which is led by Brian Williams, whom I came to greatly respect during our time together at Leo Burnett.

We are using insight from our market research in an effort to optimize our marketing programs. In our marketing evaluation, we found that many past marketing assumptions and activities were spot on with some shortcoming that we attribute mostly to execution.

We also made some significant findings. Among these, we found that our target customers are skewing to a slightly older age group with higher income levels. We are placing a higher importance on branding and we are developing brand essence and brand positioning to differentiate us from others in our category.

Additionally, we’re placing greater emphasis in our advertising messages on convincing prospective patients of the life-changing value of laser vision correction and the reasons why LasikPlus is the right choice.

To our advantage, we believe that messages we develop to target an older age group with higher income levels will resonate with the younger, lower income segment as well.

We also made the decision to change our competitive focus for 2010 away from other corporate providers, who represent less than a quarter of the market, to individual surgeon practices that comprise nearly two-thirds of the market. In particular, we intend to target local surgeons with high visibility in their respective markets.

Among our advertising messages, we will focus on our ability to provide the doctor the ability to select the best laser for the patient while providing our patients technology with the widest range of treatment versus local ophthalmologists who often offer only one technology.

This changing competitive focus is in keeping with our objective to think global and act local. We are developing our messages and strategies at the corporate level while taking actions at the local center level. Examples of this are using local advertising agencies for media placement in a few key markets and providing local center information in our local advertising.

We retained a leading integrated customer marketing agency, Merkle, to conduct our direct mail campaign. In January, Merkle began mailing a newly designed creative mailer we call the “pocket piece.” We are using this mailer to transition away from our older assumptive pre-set appointment message.

Our new message is more personalized with testimonials and local center information, which we believe, based on our research, will better resonate with our target customer. The impact of some marketing programs and activities are immediate and others will become more apparent in the months to come.

Importantly, the systemic, methodical processes that we are implementing throughout our businesses that extend to our marketing programs are essential to our goal of creating stability in building a platform for growth and future success.

Among several bright spots in patient acquisition and retention during the fourth quarter, our managed care program is performing well as might be expected given the employment status of members.

Fourth quarter call volume for our managed care accounts was down only 9% year-over-year. We have focused more efforts on managed care opportunity. During the fourth quarter, for the first time, our managed care representatives attended approximately 60 open enrolment meetings to increase awareness of the LASIK plus discount and we added Block Vision, with its approximately 3 million members, to our managed care network for 2010.

We also are beginning to benefit from several innovative programs. Starting with insured LASIK, which reimburses a portion of the procedure cost and our LASIK plus Vision Centers. This program currently includes about 150,000 covered lives, and we treated 45 eyes in the fourth quarter.

Procedure cost is a major factor in a patient’s decision-making process, and this program covers up to $600 per covered patient laser vision correction procedures. This program is exclusive to LasikPlus.

Moving on to our Delta Airlines SkyMiles partnership, this program provides frequent flyer miles to members who book appointments and additional miles to those who have the procedure. We performed 667 procedures during the fourth quarter, up from 115 for the preceding quarter. Additionally, our conversion rates from this program improved versus the prior quarter.

And under our life-time fitness programs that provides members reduced out of pocket costs, we performed 169 procedures for the fourth quarter with all operational metrics exceeding Company averages.

Beginning in the second quarter of 2010, we plan to roll out our Life in Focus campaign, which targets prospective patients with higher household incomes who are less concerned by procedure cost, marking a shift away from our ‘See Now; Pay Later’ promotion.

We have completed the first phase of our LASIK plus web site project that included improving our Eye Schedule feature and enhancing the ease of online appointment scheduling. Currently, about 30% of all LasikPlus patients make appointments through Eye Schedule. We expect to complete the second phase of the new website project in the second quarter.

This phase includes modifying our home page and improving the processes for managing content. Also, we announced in December that LCA-Vision would join forces with the Wounded Warrior Project to provide LasikPlus corrective vision surgery at no cost to wounded U.S. military veterans and their primary caregivers.

We are delighted to partner with this organization and to do our part to help improve the quality of life of veterans. Our LasikPlus surgeons also have offered their services free of charge and our vendors are supporting us. We will be featuring stories from this project in our laser Vision Centers, and our call center in with our Eye Schedule feature on our LasikPlus web site.

Turning to our Advanced Eye Health Analysis or AEHA, we expanded this program under our Lifetime Vision model to 14 LasikPlus centers during the fourth quarter. However, as Mike stated, after determining that the $150 charge for this exam was negatively impacting our appointment show rate, we reached the decision to provide the exam at no cost. We expect to complete our evaluation of this program in the second quarter.

We are also exploring a new service offering. Late last month we began test marketing Latisse in ten LasikPlus Vision Centers. Latisse is a recently FDA approved once-daily treatment to enhance eyelash growth and is available only through prescription.

Depending on state requirements, either our optometrists or surgeons, and in some cases both, are qualified to prescribe Latisse. We are charging $150 for the Latisse exam, which is free if the patient has the LASIK procedure.

The Latisse program could have multiple benefits, including providing a source of patients to market our laser vision correction services and an additional offering to market to former patients as well as added recurring revenue source. We are very early in testing and expect to report more on next quarter’s call.

Moving on to the priority of organizational effectiveness. Since Mike and I assumed the senior leadership roles we have made numerous changes throughout our organization that provide greater structure and add processes and systems to measure results. Moreover, we have expanded our leadership advisory committee to now include our executive medical directors, a team of three LasikPlus surgeons who provide medical and business input on our strategic decisions.

As we are all aware, our industry has gone through some significant changes. As a result, we are adjusting our approach to be more effective in terms of achieving our business priorities by redefining our organizational values and work plan.

For example, we are working to improve the conversion rates in our call center by providing messaging and training that will assist our staff in convincing prospective patients of the life-changing value of laser vision correction and the reasons why to choose LasikPlus.

Finally, we are refining our recruiting process and establishing competency model to ensure that we have the right people in the right position. We are particularly focused on call center personnel and optometrists, who often are the first points of patient contact and who drive the greatest value.

I’ll now turn the call back to Mike.

Mike Celebrezze

Thanks, Dave. We announced last quarter that we had entered into a licensing arrangement with our surgeon in Oklahoma City to operate a combination LasikPlus Vision Center and surgeons private practice.

This arrangement allows us to defray the overhead expenses of running a center in a smaller market that was losing money as a standalone LasikPlus operation. So far, the results from the Oklahoma license arrangement are meeting our earnings expectation. We are pleased to have entered a similar arrangement last month in the Savannah market, a center that was previously slated for closure.

Before we take your questions, let me review our activities to conserve cash and reduce expenses. We completed the Vision Center closures and staff reductions we announced on last quarter’s call, which will improve profit by more than $4 million annually.

We continue to implement profit improvement actions at our LasikPlus Vision Centers, including measures to reduce expenses, increase per-procedure price in certain markets, improve operational metrics, improve marketing efficiency and improve staff performance. We have now involved our executive medical directors in that process.

We took actions in the fourth quarter that will reduce consulting fees by approximately $600,000 per year. We have implemented a new incentive plan for our Vision Center staff in 2010 that better aligns payouts with results.

To improve our operational metrics we have implemented a program we call the business intelligence dashboard to assess each metric from the initial patient call through the LASIK treatment process. This program is designed to provide our regional directors and center directors with better accountability at each point in the continuum.

In reviewing our near-term financial outlook, we intend to continue to manage cash flow conservatively in the current year. We do not plan to open any new Vision Centers in the near-term. We will consider restarting our de novo new center opening program when cash flow improves.

We will continue to manage general and administrative expenses aggressively, which we now expect will decline slightly in 2010 from 2009 levels, following a 19% decline in 2009 from 2008. We expect center direct costs per center to decline slightly in 2010 compared with 2009, following an 18% decline in 2009 from 2008.

We plan to spend approximately $9 million on marketing in the first quarter. We expect capital expenditures of approximately $1.2 million in 2010. And we anticipate an effective tax rate for 2010 of approximately 1%.

As a result of our aggressive efforts to reduce costs, the number of procedures per Vision Center require to breakeven is 95 per month. We also estimate that the number of procedures companywide per year required for breakeven cash flow after capital expenditures and debt service is approximately 95,000.

Importantly, we now believe we have sufficient cash and investments to last beyond 2012 at 65,000 procedures annually. Our cash position remains strong, and we are taking actions to improve our operations in the current economic environment and build a platform for growth and profitability when the economy improves.

As always, we are dedicated to providing positive patient experiences and exceptional clinical outcomes and earnings throughout every moment to build relationships for our life science. With these comments, I’d like to open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions).

Dave Thomas

While we are waiting for questions, I want to mention that we conducted our first procedures under the Wounded Warriors Project partnership in our Jacksonville LasikPlus Center earlier this month. Our center personnel commented on the humbleness of these heroes who have given so much for our country and our LasikPlus surgeon, Dr. Jeffrey Robbins, stated performing the laser vision correction procedure on these individuals is one of the greatest things he’s ever done as an ophthalmologist. Operator, we’re ready for the first question.

Operator

Our first question comes from the line of Ryan Daniels with William Blair. Please go ahead.

Ryan Daniels – William Blair

Hey, good morning, guys. I was hoping you could go into a little bit more detail on the licensing agreements you did in the fourth quarter and the first quarter. I’m just trying to get a feel for, is that literally a licensing fee that the physician would pay you to operate under the LASIK plus brand? Or is this a joint ownership where you pay out a minority interest, would be the first question. And then maybe a follow-up to that is, do you see opportunities to do this with more centers or would this be something you would consider as a means to open new centers with physicians and lower your overhead going forward?

Mike Celebrezze

Hey, Ryan, it’s Michael. Our arrangement in Oklahoma City and Savannah are arrangements whereby we provide the equipment and essentially the leads and our surgeon provides everything else. So he provides the facility, the people, and the supplies. And then we have a license fee arrangement whereby the surgeon pays us for what we provide that surgeon. So it allowed us to take all these overhead costs that we were carrying and defray them. It works for the surgeon because he’s got private practice revenue coming in, which he would have had anyway, that covers the overhead costs like all the staff and so forth. But it helps us by not having to have any of those costs.

We are using it as a test to determine whether or not it would be an appropriate B market strategy. Generally speaking, we view that LASIK plus can be very profitable in a decent economy in the top 70 markets to 80 markets in America. That leaves a lot of markets uncovered. So we are looking at this as two things. Number one, it’s a way to convert what were existing losing properties into profit centers. And number two, it’s a way to test and determine whether or not it’s a viable alternative for future expansion.

Ryan Daniels – William Blair

Okay, great, that’s very helpful color. And then you mentioned earlier that some of the other large competitors have filed Chapter 11 bankruptcy. And I don’t know yet if they’ve actually started closing any centers as part of the reorganization. But I’m curious if you’ve seen any capacity or at least an acceleration of capacity leaving your markets over the last one to two quarters or if not, maybe what you anticipate going forward, just on that total market capacity front.

Mike Celebrezze

Yes, we have seen some capacity taken out of the marketplace over the last six months, including capacity that we’ve given up in this market. And we’ve closed a fair number of centers. TLC has closed a few centers. LVI has closed a few centers. We are not seeing massive closures by any of the companies, but it is probably healthy for the industry to have some capacity taken out right now.

Ryan Daniels – William Blair

Fair enough. And then maybe two quick related ones and I’ll hop back off into the queue. First off, on the advanced eye exams, I know you mentioned that that was impacting conversion rates. You’ve decided to make that a free program for potential candidates. I’m curious how that impacts your profitability. Obviously, there’s more capital equipment cost and probably more time with your practitioners to deliver those exams. And is it more of a marketing benefit where you can market this and hope to bring people in the doors even though it’s free? So it would be the trade-off for spending more money on that to get more potential LASIK volume? Is that the way you guys are thinking about that?

Dave Thomas:

Excellent question. We, in looking at the test, wanted to push the needle a little bit to see whether or not this idea might allow us to be able to generate a revenue stream because of the type and the quality of the exam. What we found was, because most of our space, in general, the pre-operative exam is free, we found that folks did not really take well to that. So, we made an adjustment as we were rolling out new locations and then we changed what the old locations were doing in terms of charging, and got everybody on the free program.

In essence, it allows us to be able to continue to market ourselves in terms of differentiation against our competitors. And at this point, the way we’ve structured the program was to keep our costs down and keep it to a methodology that allowed us to be able to look at it in terms of its long-term capabilities and its costs. We really created a scenario, where we were looking at a click fee to (inaudible) and certainly, Mike can speak more to that negotiation. But we’ve structured it to make sure we could keep our costs down as we looked at the power of it.

Mike Celebrezze

Right. Our number one objective with the Advanced Eye Health Analysis is additional conversion to LASIK. The additional revenue generated from the exam itself is on the list of the benefits, but it’s not the number one goal of the program. The number one goal is conversion. In terms of on the cost side, as Dave said, during the test period, we have a per-click fee that we’re paying, which is pretty nominal. We’re working with the vendor now to determine what a permanent deal might look like. So, as we make conclusions in the second quarter about the overall value of the program, we’ll be able to discuss more as to where we ended up with that.

Ryan Daniels – William Blair

And then one final one. I’ll get off. Just curious if you guys have ever looked at just eye examinations post-LASIK. I know, after having it done, you have to come in a few times. But, longer-term, if there’s more of a back end model here to this story, too, i.e., you get LASIK, you buy the life time guarantee, which I personally have, and then go back to the LASIK Center for your annual eye examinations, with a million or so eyeballs treated or 500,000 patients, I assume that’s a big recurring revenue stream you are currently not potentially tapping into. Any thoughts on pushing towards that market in the future?

Dave Thomas

Another good point. As you know, last year, we moved away from what we would call the catch and release kind of model that was in place. We believe that, that group of close to 550,000 plus folks are a good opportunity for us to go back to and be able to provide additional services.

So part of what we’re trying to do with the Advanced Eye Health Analysis is make that particular execution in our center such a valuable part of it that people will want to come back and have that thorough eye exam as they continue to make sure that their eye health is in check. So, somebody like yourself, as we reach back and talk to you about it, we want to encourage you to come into our centers to do that versus in the past where after we did the eyeballs, we didn’t need to see you any more.

Ryan Daniels – William Blair

Okay great. Thanks for all the color, guys.

Operator

Our next question comes from Brooks O’Neill with Dougherty & Company.

Deepak Chaulagai – Dougherty & Company

Good morning, guys. This is Deepak Chaulagai in for Brooks O’Neill today.

Mike Celebrezze

Good morning.

Deepak Chaulagai – Dougherty & Company

If you could provide some more color on your focus towards competing with individual surgeons, particularly, are you seeing any traction in that effort? And if not, what kind of feedback have you gotten?

Dave Thomas

Okay. So, right now we are currently working with the Element 79 group in terms of how we are going to specifically execute this idea. We’ve gone through a process with them in terms of identifying who we are, what we are, and how we can differentiate ourselves in the marketplace, which is a key thing, given that our space is kind of vanilla in general. So, as we looked at the opportunity of the team, it was very clear to us that the greatest opportunity was to go after where the greatest share was, which is the individual practitioners.

And so right now we are currently working on the specifics in terms of what we want to say about why we are different and what’s different about LasikPlus, why we are better than the individual practitioners. And so, my headline to you is to stay tuned because it is in the works right now. I will point out, though as I mentioned in the early remarks, one of the key differences is our two laser platform, which allows the doctor to select the absolute best laser for the patient and it provides a much greater range of cases that we can handle. The other key thing too is that we clearly have an all-bladeless type of procedure. So, all those things are key considerations that patients look at and we need to tell people why we are different with the technology and other things that we’re doing.

Deepak Chaulagai – Dougherty & Company

That’s very helpful. And another question and then I will hop back in the queue too. With your data analytics on what the marketing drivers would be. Is there anything else you could do to drive revenue and improve profits other than what some of the projects you guys have already targeted and started?

Dave Thomas:

Some of the things that we’re doing, for instance, are continuing to look at more partners that we can continue to expand our business. For example, we just added the U.S. Tennis Association as a group that we are going after. We just added the Road Runners Club of America as a group we are going after. We certainly have a lot of opportunity in the insured LASIK area, which is an exclusive arena for us that’s just starting to get some traction. We signed up Staples and Hewlett-Packard during the open enrolment period this year and there’s a lot of opportunity in those areas. So the headline here is marry up with power brands so that we can continue to get our brand name out there in a way that allows us to be resonating with other folks who are doing good things.

The other key differentiator, we think, can help us certainly from a PR standpoint and as we’ve gone out and talked to patients about what we’re doing is this Wounded Warrior Project, which one, it is exciting for our staff in terms of being able to do it. And then, number two, there is certainly a lot of sentiment in the public and potential patients about companies that are doing the right thing for these service members.

And I can only tell you that in talking to Dr. Robin [ph] and the team in Jacksonville, they were just blown away by the stories they heard from these soldiers and what they’d been through. And the fact that we are able to do something great for them has, one, from the Wounded Warrior Project, taken them to a new level of excitement about things that corporations are doing as well as our people feeling good about what they’re doing.

Deepak Chaulagai – Dougherty & Company

That’s great. One last question. On the cost side, it looks like you guys are doing a pretty good job in controlling costs, closing centers, etc. Are there any other centers you are looking in your current portfolio that might be a candidate for that consideration this quarter or next?

Mike Celebrezze

We look at all the Vision Centers profitability every month. We have a rigorous process that we go through on a monthly basis with a cross functional team, including operations, finance, marketing, human resources. And we have some centers that are producing negative EBITDA right now, a very small number. We are really working hard to fix those centers. We don’t have any centers slated for closure presently, but our goal is that all centers need to work toward EBITDA positive. So I’m very optimistic that we will get there on all these centers. But we’ll make the tough decisions if we need to. But it would be premature to make that call now.

Deepak Chaulagai – Dougherty & Company

Thank you so much for your comments, guys.

Operator

Our next question comes from the line of Steve Willoughby with Cleveland Research.

Steve Willoughby -- Cleveland Research

Hi, good morning. Mike, a question for you on taxes. I guess, couple of questions. First, if you could just provide some more color regarding the refund that you expect in the second quarter. Is that, I guess, sustainable if your net losses stay at the current levels or what’s going on with that? And then 1% tax rate for 2010, how do you get to that number as we look throughout the year?

Mike Celebrezze

The current tax laws allow for a two-year tax loss carry-back and a 20-year carry-forward. For 2008 and 2009, the government allowed a five-year carry-back, but they did not allow the five-year carry-back so far for 2010. So our tax refund in 2010 is directly related to the pre-tax losses from 2009 and we anticipate receiving about $10 million to $11 million in the second quarter of 2010 for those losses. If we have losses in 2010, which is likely, given where the economy is and our procedure volume, we will not be able to carry that back under the current rules because we carried back '08 and '09.

So it’s only two years carry-back. If the government extends the rule, the five-year carry back rule, we would be in a position to carry back. But they haven’t, so we haven’t factored that in. So the 2010 expense of 1% anticipates no carry-back that all the benefit will get recorded to a deferred tax asset. And we’re in the mode right now of reserving for all of our deferred tax assets. That doesn’t mean that we won’t be able to carry it forward and use it in the future, but we are not recognizing that benefit until we can prove that we can use it.

Steve Willoughby -- Cleveland Research

Okay. One follow-up with that then. Your guidance that you believe you have enough cash at 65,000 procedures through at least 2012, right now, you have net cash of around $41 million and change. Is that expectation of having enough cash through 2012, does that include the $10 million to $11 million you expect to receive here in the second quarter? My thinking is just that in the first quarter, it’s seasonally the strongest quarter of the year. Probably you are not going to lose as much cash in the first quarter as you did here in the fourth quarter. Then you add in $10 million or $11 million bucks and you’re close to, probably over $50 million in net cash again. Is that the right way to think about it and what’s assumed in your current thinking?

Mike Celebrezze

I’m not going to give you guidance on cash flow, but I can explain the concepts of how the number of 65,000 works. The sufficient cash to last beyond 2012 at 65,000 procedures contemplates our current cash situation and current debt payments, but it also contemplates that we have $14 million in reserve for our captive insurance company that remains untouched in our forecast. So when you take the $54 million of cash, only $40 million of it is really available to spend at the current date. We maybe able to get access to some of that captive cash, but we have assumed that we do not get access to any of that cash. It also assumes that we do get a $10 million tax refund in 2010 and no tax refunds in 2011 or beyond. That should help you to model.

Steve Willoughby -- Cleveland Research

Yes, thank you very much. And then just one final question, given that the first quarter is typically the seasonally strongest, just wondering if you could comment at all regarding trends so far this year?

Mike Celebrezze

We came out of the box in January stronger than we ended Q4, quite a bit stronger, although we’re below the same period last year. It’s too early to call how sustainable that is. We do feel that there was some fourth quarter deferral into the first quarter. In other words, always, we get a lift in the first quarter with (inaudible) money and we do believe that maybe there was a little bit more push to Q1 in 2009 that benefited January’s results. So, I don’t think we want to make a call yet on Q1 other than to say January was certainly stronger than December.

Steve Willoughby -- Cleveland Research

Okay. Thanks very much, Mike.

Operator

Our next question comes from the line of Anthony Vendetti with Maxim Group.

Anthony Vendetti -- Maxim Group

Hi, great, thanks, guys. A couple questions here. So your ASPs, are they stabilizing or do you think that you can keep moving them up? Did you move them up $42 from last quarter?

Dave Thomas:

This is Dave. Look, we are essentially targeting a number that we want our people to get to right around 1700. And that’s the level that we feel within those ranges of inelasticity that we need to be had to be competitive in the marketplace. One of the key things that we have to balance is this cost value relationship so that we make sure we don’t negatively affect our conversions. So at this point I think we’ve done a really good job in terms of reversing our peoples' perspective that folks wouldn’t pay more for the services that we provide. And we think we’ve hit that number, right around $1700, where we want to stabilize for a little bit. And if we can push it higher, we will. But $1700 is really the target that we’re looking at right now.

Anthony Vendetti -- Maxim Group

And you finished the quarter at $1719? Is that right?

Mike Celebrezze

Yes.

Anthony Vendetti -- Maxim Group

How many of the 62 centers right now are doing 95 procedures per month?

Mike Celebrezze

We don’t disclose center level specifics. So some are and some aren’t.

Anthony Vendetti -- Maxim Group

Obviously, we’ve talked about the two big competitors declaring bankruptcy and they’ve closed some centers. How would you characterize your market share in the fourth quarter?

Dave Thomas

Based on information we received from MarketScope just the other day, we believe that we probably lost some market share in the fourth quarter. Our business model is highly reliant on consumer marketing and a consumer-driven model in a recession tends to underperform the other models. So, we believe that the private practitioners gained share again and again, they have a repeat customer base.

Having said that, we are taking actions to improve our position through these marketing partnerships that Dave spoke about, the Wounded Warrior Project, the insured LASIK benefits that we’re rolling out as quickly as we can get companies signed up. And even the Advanced Eye Health Analysis, which could be a lift for us in terms of getting repeat customers to come back in and expand our word of mouth referral.

Anthony Vendetti -- Maxim Group

What you are saying is, let me just make sure I have this right is that you did lose some market share, but not necessarily to the public competitors; you lost it to private docs that have recurrent patients. And obviously, the steps you are taking is you are trying to recapture that?

Mike Celebrezze

Yes, I wouldn’t say that’s exactly right either. I don’t know specifically. I haven’t seen anybody else report numbers. So I can’t say specifically where the share went. I do know, historically, if you just look at the rest of the year, the private practitioners have held up better and TLC’s optometric referral model has held up better. So, I would have to speculate that some of the share would have gone to those areas.

Anthony Vendetti -- Maxim Group

And in terms of average industry ASP per eye, is that still around $2000? You are still below the average industry; correct?

Mike Celebrezze

The average is about $2100. We’re still below the industry average. When we did our studies last year, there was like the premium priced, more or less independent operators, and then there were the low priced competitors. And we were sort of in the middle. And we’ve actually worked to move our price up to the lower end of the upper tier. We have the best technology, we have the most experienced surgeons. We need to take advantage of our strengths and there’s no reason to overly discount.

Anthony Vendetti -- Maxim Group

And on the licensing, it’s an interesting model. So you are doing that with two facilities and that’s making them profitable. Are there others in your network or even outside your network, even though I know you’re not going to go back to the de novo strategy at this point, are there others where this makes sense for you to roll out, where you license the center from the doc?

Mike Celebrezze

It’s hard to say. We just started in November and we’re looking to see how well it works. And if it works great, then we’ll look to see where we should expand it. I want to build a business case first; right? I want to do some analysis, build a business case. It was really an opportunistic move in some ways, because we were going to close these centers. They were losing money and material EBITDA burn. And it allowed us to convert them to some small profits. So it allows us to kill two birds with one stone, fix a problem and test the potential idea. So it’s too early to say where it will take us.

Anthony Vendetti -- Maxim Group

But you said you don’t have any centers slated to close now?

Mike Celebrezze

That’s correct.

Anthony Vendetti -- Maxim Group

Obviously, your first quarter is your biggest quarter and you are ramping up marketing by up to $9 million, I guess for the quarter, which makes sense because the first quarter is obviously the strongest quarter. Have you seen any change or based on your market research in the FSAs or the health spending accounts in terms of whether they will be as flush this year due to the economy and unemployment rate? Or do you have any sense for that at this point?

Dave Thomas:

The headline here is that we believe that the FSA account folks are pretty much the same as what we have been seeing. What the difference is we are finding that people are still doing FSAs, they’re just not putting as much money into it as they’ve done in the past. And certainly, first quarter is the time that folks take advantage of it in our space and as much as we can take advantage of it we are.

Anthony Vendetti -- Maxim Group

Great. All right, guys. Thanks a lot.

Operator

Our next question comes from the line of Peter Bye with Jefferies & Company.

Peter Bye -- Jefferies & Company

Hey, thanks, lot of questions, just maybe have a couple, on the breakeven at 65,000 procedures, I guess you gave us a one big component of the sales and marketing expense in Q1. Obviously roughly back into what the following three quarters could be to get a breakeven number. But can you tell us what the plan is for the year here for sales and marketing given that you are down in profitability at 95?

Mike Celebrezze

Our position hasn’t changed. We are going to spend the appropriate amount of money, based on our expectation of consumer demand. So there is no right answer. In other words, we know what we’re going to do for Q1. Q2, we’ll have to wait and see. If we start to see significant improvement in demand, we’re going to spend more money. If demand contracts, we’ll contract. So, we aren’t in a position to give guidance because we’re nimble. We’re going to make the appropriate spending decisions at the appropriate time.

Peter Bye -- Jefferies & Company

I guess, to put it another way, it’s a little bit of a chicken and egg. How do you determine when and how you have to prime the pump a little bit, that the consumer is ready to spend? We’ve seen some rebounding and other consumer behaviors and I know you guys are obviously a little bit lagging here at the bigger ticket item. But when you either look at aesthetics or some of the higher end retail, such as Estee Lauder or something like that on the cosmetic front as opposed to the consumer maybe coming back a little bit, are you looking at those trends or is it still primarily consumer confidence and you are going to track your spending to that, tied with web hits and incoming phone calls, that sort of stuff? Can you maybe prioritize on how you’re looking at it to decide whether to prime the pump?

Dave Thomas:

Good question. And yes, we are looking at it. I think if you take a look at fourth quarter of last year, where you saw the present situation index drop to 18, the worst since 1983, we were fortunate that we saw the same trends. And we tried to make sure that we conserved our cash. Going into first quarter we have seen in January that that number went up to 25%. And as you see, we are spending about a third more or 32% more than what we did in fourth quarter.

The key thing as we look at it is getting the right message and platform so that, to your point, we start seeing some velocity here with sales. When we find that that happens and collectively, all of these marketing drivers are getting us there, I think we’ll be very comfortable turning on more spending because it’s actually resulting in the kind of behaviors that we expect.

One of the most difficult things in a direct to consumer marketing is changing behavior. And right now, certainly with the way the media and the news is talking about jobs and the recession, it’s very difficult on our own to change that momentum. So we are being cautiously optimistic about how we spend. We just don’t want to drop money in a leaky bucket. So that’s the strategy that we’re using, but as soon as we find the secret sauce there, it will get turned up.

Peter Bye -- Jefferies & Company

Maybe it’s a little ways out. But when you think about if it does turn, how quick you are able to respond in terms of, one, opening new centers? And how do you look at opening new centers versus throwing more marketing versus the infrastructure you have? And then I guess, three, how attuned are to you? I know you used to have and you still do, I guess a map of new opportunities and markets. How good is your data about what’s going on in those markets now? And how often does that map change in terms of where your priorities would be if, let’s say, this market did turn around to expand?

Mike Celebrezze

We won’t be opening any new centers in the short-term. We do keep our eyes on the marketplace. We get market intelligence from MarketScope and other sources. The math doesn’t change that much. We’re looking at the top 70 markets to 80 markets. At one point we were looking at the top 100 markets. We’ve scaled back, based on some of the results in some of the smaller markets like Savannah, where we never really made a go of it there. So we’ve skinned back to the target. In all likelihood, as we start to see things come back, we’ll first invest in marketing and we’ll try to leverage the existing infrastructure. We have huge capacity in all of our Vision Centers, so we could certainly use more volume in them.

And then, once we start to get robust cash flow out of the existing centers, we will start adding new centers. But it’s about a six-month ramp up period to add a new center, so the timing should work out just fine. We’ll have plenty of lead time to do the research and find the right sites, but we are better off driving more volume through our existing centers first.

Peter Bye -- Jefferies & Company

And then lastly, just on the flipside is, there’s a little bit of a, I guess, tipping point too in terms of critical mass to spread out the sales and marketing expenses and the like, in terms of your tolerance level to keep centers now with maybe negative EBITDA. Is it the same as it has been in the past or has it extended a little bit longer? Is there are a number of centers you don’t want to go below or --?

Mike Celebrezze

No, most of our advertising is local now. We are buying geo-targeted media. So there is no maximum or minimum number. We want to keep as many stores open as we can because we know that in a good economy these centers are going to make a lot of money. So we don’t want to close Vision Centers. We’ve worked hard to open them and build a portfolio of centers and a staff that is second to none. So it’s not our objective to shrink the portfolio.

So we’re willing to carry a few negative EBITDA centers, so long as we see progress, with the objective of keeping the portfolio as large as we can. Otherwise, if we close them then we just have to reopen them that cost a bunch of money. So we’re balancing the short-term with the long-term. We really have a long-term view of this thing. We’re not managing for tomorrow. Having said that, we are managing everything everyday.

Peter Bye -- Jefferies & Company

Okay, great.

.

Operator

Our next question comes from the line of John Ransom with Raymond James.

John Ransom -- Raymond James

Hi, good morning. All the good questions have been asked, so, I just had a qualitative question about your marketing. I know you’ve been through a number of agencies and a number of approaches. How are you thinking about that? I’m not so much concerned about the dollars that you’re spending but your overall approach. It still feels to me like you are still feeling your way about how to position yourself in this downturn. So, what have you learned? And why is it that the marketing approach appears to be changing a lot?

Dave Thomas:

Okay. Good question. So if you go back to early 2009, we started with a new group there. We rolled out an execution and weren’t able to properly test it. As you know, we were in a fight and certainly we were trying to make sure we got into the market with something. As we continue to do the research in the marketplace, we had Millward Brown, one of the top research firms, continuing to review what was going on in our category and our space. And as we got into about the middle of the second quarter, we realized that the group that we had traditionally targeted was not a good place to go. They just weren’t in a position to purchase the procedure.

And so, in the late part of second quarter, third quarter, we took a lot of the data from Millward Brown and actually came up with a couple of executions that we tested in fourth quarter, and we tested one execution gets, the other one of them came out better. And as you know, that was the ‘See Now; Pay Later’. During that time period, we also realized that the direct mail channel that we had wasn’t performing the way we wanted, so we went through a review with that and changed that out. And at the same time, we were doing a vigorous search to find a marketing lead who has dealt with these kinds of dynamics that have changed so much in terms of marketing. The world of marketing today isn’t like what it was two years to five years ago.

And so we continued to push these things and continued to research where we needed to go. And as part of this push, we incorporated the Element 79 group in the fourth quarter to take a look at everything we’ve done, make sure it made sense. And then we went through a process of looking at all of the things that we knew and that’s how we got to the place that we are now, which is we know that the doctor is critical, we know that we need to be very specific about who we’re targeting. We know that the target group is older and skews higher in income than what we traditionally went after and we also know that we need to take advantages of the differences that we bring in the marketplace. And so this month, actually, we’re working on getting that all nail down so, hopefully, in the first part of second quarter, we can start executing against a lot of the work that Element 79 is doing.

And so the key thing here is that we wanted to make sure that we have comfort that the things that we were doing were making sense because the actions that we were taking and the actual delivery on it just wasn’t what we wanted. And we just spent a lot of money against unknowns. And so we’ve taken this more methodical approach, test as we go, test the executions. And these are all done in a quantitative way with companies like Millward Brown and now including Element 79, to make sure that what we’re saying and what we’re doing has actually been out in the marketplace and been tested against the consumer target group that we want. So that’s been the real change.

John Ransom -- Raymond James

Okay. I guess my other question. I used to think of you guys kind of like Southwest Airlines. You had good prices and reasonably good quality. You went on the strategy to raise your ASP under the prior administration. And I guess I’m struggling to understand what you are. It seems like you’ve become more like a Buick, where you’ve raised your prices a lot and I guess your quality is a little bit above average. But when people think of your company versus, say the independent doctors, how are you trying to differentiate yourself now?

Dave Thomas:

That is part of the process that we’re going through with Element 79, and that’s what we’re calling that brand essence piece. And you raise a good question; that’s a part of what we are working on as we get ready to roll out the strategy in second quarter. Now, let’s talk a little bit about the pricing issue because it’s not quite as acute as what you’re saying, in the sense that we actually tested lower pricing last year where we put a lot lower pricing in some markets versus the other. We didn’t see any significant change.

One of the key things that we did though was that we went from what was about eight different pricing tiers down to two. So we made the pricing component very simple. And the fact that by June of last year we had the WaveLight laser as well as the VISX and IntraLase. We were able to justify a higher price because we had the best technology in the marketplace and then we had simple pricing.

And so the simple pricing allowed us to put the doctor in a position in that I’ll choose the best technology based on the requirements for your eyes. And that’s the conversation. It’s a simple conversation with the patient, and it helped us be able to justify a higher price. But at the same time, you are right; we do need to define ourselves. And that’s what this whole issue of brand positioning and brand essence is all about and that’s why we got Element 79 on board to help us define that.

John Ransom -- Raymond James

It’s one thing to talk about this very consumer marketing 101 stuff, but are you also giving thought to broadening your channels of referral towards some of what your competitors are doing? I know you’ve got the eyelash thing, but is there some other things you can do to take the cyclicality out of your business or to broaden out your channels of referrals to add even additional services? Are those under consideration at this time?

Dave Thomas

Yes, we are taking a look at in the second half of 2010, potentially being able to do either intraocular lenses or phakic intraocular lenses so that we have more services that we can perform. We do know, for example, that the cataract arena is one that’s fairly stable right now and slightly growing because of the baby boomer group. We feel like that’s an area that we need to take a strong look at and see whether or not we can take advantage of that. So that’s something that we are currently doing some investigation on and considering.

The other thing, obviously, we’re looking at other offerings like Latisse to see if we can encourage people to come into our centers and one, have potential revenue stream with that as well as encouraging people to do laser vision correction with us and then hopefully, gain some word of mouth as a result of that. We will continue to investigate working with some of these power brands. For example, the Delta thing is really, for a lot of the SkyMiles members, a pretty cool thing, because it allows them, if they go through the whole process, to get a free ticket. So we’re looking at those kinds of ways in which we can expand our footprint and our services. And so that’s essentially what we’re looking at right now.

John Ransom -- Raymond James

You wouldn’t need a surgery center license to perform some of those procedures?

Dave Thomas

There’s two ways in which we can go about it. The issue is you just have to have a clean room. We’ve looked at potentially being able to take our current foot plant and be able to do some adjustments or refinements in the center to be able to do that. And then the other choice is using an ambulatory surgical center and working with those groups to be able to do the same things, just like a private practice physician would do.

John Ransom -- Raymond James

Thanks so much.

Dave Thomas

You bet.

Operator

Our next question comes from the line of Sameer Tendulkar with BOE Research Services.

Sameer Tendulkar -- BOE Research Services

Hi, good morning. I was looking at the Advanced Eye Health Analysis program and it seems that you will be doing an assessment in the Q2 of this year. Is that correct?

Mike Celebrezze

Are you asking about the Advanced Eye Health Analysis?

Sameer Tendulkar -- BOE Research Services

Yes. You’ll be doing an evaluation in the second quarter of this year. Is that correct?

Dave Thomas:

Yes. We really didn’t get all the centers up and running until mid-December and we want to make sure we give a fair shot at being executed and understanding the value it brings to our business, particularly, as Mike mentioned on the conversion side. There’s obviously the opportunity on the word of mouth side and potentially, revenue generated as a result of people coming in, previous patients, to get this eye exam. So that’s what we’re taking a look at. We think that we need to take it at least through second quarter to give it a fair shot.

Sameer Tendulkar -- BOE Research Services

Great. So I gather that there are 14 centers to which this has been rolled out in. So, any initial color that you can provide to investors about how it’s going about?

Dave Thomas:

My headline to you is that, right now, the data is inconclusive. And it’s more so because we had to take what was the initial test, which was a price pointed kind of evaluation to one that is all free. And so we want to take a look at that and we want to make sure that the systems that are being used to provide the report that we’re providing the patient works well, consistently works well and is delivering on something special for the patients that gives us an advantage. And so that’s the piece that we want to make sure that we fully analyze before we make a call.

Sameer Tendulkar -- BOE Research Services

Okay. One more question that I had on the marketing spend. You are going to ramp it up to $9 million this quarter? Is that correct?

Dave Thomas:

Yes, sir. It went from about $5.8 million in the fourth quarter to about $9 million here in first quarter.

Sameer Tendulkar -- BOE Research Services

Right. So, now, first quarter being the most strongest quarter, if you are incurring the expenditures, then the benefit would actually accrue in the second half of the year, isn’t it? Am I reading it correctly?

Mike Celebrezze

No, that’s not correct. Most of the benefit is pretty short. We generally have about, I don’t know, two weeks to three weeks, maybe 30 days, from the booking date to the treatment date. So the response of the ad is relatively short in nature. It’s not a long-term response. It is a long-term research. Customers do a lot of research about LASIK before they make their decisions. But generally, their response to the consumer marketing is more immediate.

Dave Thomas

And I’ll add another piece to what Mike is saying. As you look at the different marketing drivers though, the direct mail piece that goes out there is a bit more lag time. So it gets in the mail and then there’s about a week or two that takes to get through the postal service, etc.

Mike Celebrezze

But nothing is two quarters.

Dave Thomas

Right; no, it’s not two quarters. It usually will be within the four to six week time period after it’s dropped.

Mike Celebrezze

A pretty short turnaround time.

Operator

Our next question comes from the line of Darren Carpenter [ph] with BOE Securities.

Darren Carpenter -- BOE Securities

Good morning, gentlemen. First of all, congratulations on managing through what continues to be a tough time for your business. I think you guys are doing as well as can be expected. Just a couple of quick questions. First off, the lifetime fitness marketing arrangements you said that you did 169 procedures in the fourth quarter?

Dave Thomas

Yes, we did.

Darren Carpenter -- BOE Securities

Okay, now, was that from a zero base from the third quarter, so that’s all new procedures from that arrangement?

Dave Thomas:

We had a few in the third quarter. I don’t have the number.

Mike Celebrezze

I probably do have the number somewhere, but it’s a new program and it’s ramping up.

Darren Carpenter -- BOE Securities

Okay. And you said that those procedure metrics were above the Company averages. Am I to assume that’s on an average revenue per procedure basis and a marketing cost basis?

Dave Thomas:

It’s on a show rate basis, candidacy, convert and treatment show. So we measure the performance every step of the way with our patients and their show rates exceed our company averages. They are better candidates for the LASIK, they convert better, and they show to their treatment better. So every step of the way they’re better.

Darren Carpenter -- BOE Securities

And my last question, you mentioned that you’re planning to continue to decrease G&A and direct center costs a little bit more in 2010. Can you just tell me what would it do to your ability to continue to participate in the up cycle if you continue to squeeze out the cost? I believe there was a similar question earlier. But I guess I’m just concerned that if you’ve already cut so much of the low hanging fruit, what are you going to be doing to continue to squeeze out those costs here in 2010?

Mike Celebrezze

We have done a lot of cost reductions and although we don’t think that we’ve harmed the business, we did say that we expect only modest additional reductions in 2010 compared to 2009. And so we’ll make sure that we balance any savings against any risk. We just completed in December a rigorous budgeting process for 2010. We involved all of our vision center staff, our center directors, I should say, our regional directors, our corporate folks. And so we have a plan for every center. So we know how we are managing and where we think there might be room to take additional costs out. It’s not a material amount, but we are going to continue to monitor and conserve cash and keep expenses in check.

Darren Carpenter -- BOE Securities

Thanks.

Operator

And at this time, there are no further questions. I’ll turn the conference back to management for any closing remarks.

Mike Celebrezze

Thank you for joining us this morning. We are taking actions to support improved operations in the current economic environment while positioning LCA-Vision for growth and profitability when the economy improves. We look forward to providing a progress report on our next conference call.

Operator

Ladies and gentlemen, this does conclude today’s conference. Thank you for participating. You may now disconnect.

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Source: LCA-Vision Inc. Q4 2009 Earnings Call Transcript
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