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IntegraMed America, Inc.

Q4 2010 Earnings Call

February 17, 2011 11:00 AM EST

Executives

Norberto Aja - IR

Jay Higham - President and CEO

Tim Sheehan - VP and Finance Interim CFO

Analysts

Mark Arnold - Piper Jaffray

Brooks O’Neil - Dougherty & Company

Eric Mara - Pavis Capital

Operator

Good morning, my name is Kimberly and I’ll be your conference operator today. At this time I would like to welcome everyone to the IntegraMed fourth quarter 2010 earnings conference call. (Operator Instructions). Thank you. I would now like to turn the conference over to Mr. Norberto Aja. Please go ahead.

Norberto Aja

Thank you operator. And good morning everyone and thank you for participating in IntegraMed’s fourth quarter conference call. I’m joined today by Jay Higham President and CEO and by Tim Sheehan Vice President IntegraMed CFO. Initially Jay will provide some comments on the results the business and the company’s overall strategy. Tim will then review the financial results in greater detail before we open the call for questions.

However before we begin, I would like to caution that comments made during this conference call, may contain forward-looking statements that involved risk and uncertainties regarding the operations and future results of IntegraMed. I encourage you to review the company’s filings with the Securities and Exchange Commission including without limitation the company’s Form-10 and Form-10Q’s which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

The content of this conference call contains time sensitive information that is accurate only as of today February 17, 2011. IntegraMed undertakes no obligation to revise or update any statements to reflect events or circumstances occurring after the date of this conference call.

With that, I will now like to turn the call over to Jay Higham President and CEO. Jay.

Jay Higham

Thank you Norberto and good morning everyone. And we appreciate your joining us today and are excited to review our progress the past year and our plans for the future.

2010 was an important year for IntegraMed on many fronts and we’re pleased with the end results as we were able to achieve solid growth in the revenue and operating income across the business before taking into account the impact of our growth initiatives on our vein clinic division.

The year began with a strong first quarter performance by our Attain Fertility center division, driven by healthy top-line results across our partner centers and by a significant improvement in the results from our Attain idea program. Our vein clinic business continue to generate attractive results with double digit increases and encourage new patient visits and First Leg treatments.

The second quarter further confirmed that investments to diversify and strengthen our business were benefiting the company. Our vein clinic segment delivered very strong performance showcasing the operating leverage in this business segments, providing us with added confidence to accelerate growth by our new clinics and the expansion of our service into interventional radiology. As you may recall in June we announced plans to open 10 new vein clinics in the next nine months on top of the two clinics we had already opened earlier in the year.

The third and fourth quarters extended the trend of healthy top-line growth across both our fertility and vein clinic segments, that as anticipated our bottom-line performance was tempered by startup cost from the new vein clinics in both Q3 and to a greater extent in Q4. These costs combined with the impact of some unanticipated short-term events led to bottom-line results that are not representative of the businesses underlying performance.

Despite the second half impact on a full year basis, operating income grew 2% and net income grows 5% versus 2009. Reflecting the dilution from our February 2010 share offering full-year EPS declined 20% to $0.41 per share, if we exclude the 32% increase in shares outstanding resulting from the offering EPS would have approximated $0.53 a $0.2 improvement over 2009 EPS.

Let me now turn to our Attain Fertility center’s division. Where during 2009 we achieved 10% revenue growth and 6% increase in operating income. Overall in our fertility business we continue to see out performance by certain markets such as the west coast and the mid-Atlantic regions while other market such as Florida and the south continue to experience challenges. Clearly the growth in division was principally driven by a strong performance from our Attain IVR program, where during 2010 applications rose 32% and enrollment rose 64%. At the same time, our fertility partners experienced the challenging environment in 2010 that was exacerbated by the short-term impacts in Q4.

With regard to the group physicians departed our northeast partner center effective September 1st we’ve made excellent progress in mitigating the impact of those departures through operational changes that have allowed us to absorb much of the business volume that we had feared we would lose. As for replacing that [inaudible] we’ve already hired three new physicians one of them has started and the other two who are scheduled to start mid-year.

To support the future success of the Attain Fertility centers division we’ve undertaken host of initiatives to help prepared growth including new products and services designed to resonate with today’s more value conscious consumers and improving the operational framework at the center level by upgrading many of the systems to unable more efficient operations. That particular now we are standardizing operations and removing some redundant infrastructure that should improve efficiency and margin at the center level, this initiative will also help to improve the average physician compensation which is the barometer by which we measure our business success.

We also remain intently focused on expanding this business by purchasing additional fertility center contracts. This offer is focused on both our traditional size centers of approximately $5 million in patient revenue to much larger centers where revenues in excess of $20 million per year. We are also looking at university affiliated practices and smaller centers that can integrated into our existing network to provide expanded opportunities for market consolidation and business development for the company. Though our progress is slow on that front and didn’t meet our expectations in 2010, our efforts did lead to the completion in January, 2011 of one fertility center acquisition in the Seattle market. We’re combining that center with an existing partner in the region, which will offer additional synergies on top of an expanded footprint.

We are confident that our organic growth initiatives across the Attain Fertility Center division, were unable us to continue to outperform the overall fertility industry. We also look to supplement that performance with additional fertility center acquisitions and new Attain IVF program affiliates. We believe these initiatives will help us to achieve operating results that will create value for our physician partners and for our shareholders.

I’ll now turn to the vein clinic segment, where we achieved excellent operating results in both existing and new clinics. In addition of the benefit of expanding our vein clinic footprint, our key performance driver in the business who has been the achievement of continued gains and efficiency and patients’ throughput at the clinic level. A very clear sign of this progress is reflected in the increase in the average of revenue per established clinic from approximately $1.3 million, when we bought the business less than four years ago to nearly $1.8 million today. The bulk of this improvement has been achieved by making the clinics more efficient, so that they are able to provide services to a greater number of patients with largely the same staffing and infrastructure.

In spite of this significant improvement, we continue to identify and evaluate ways to further increase the revenue opportunity at these clinics. One such approach currently being evaluated is the expansion of our typical vein clinic footprint to allow for a second ultrasound room and technician as well as an additional procedure room in the introduction of new clinical services.

Ultrasound scanning and availability of procedure rooms are the primary treatment bottlenecks in the vein clinics. By providing these additional facilities we are able to enable the physician to move from one procedure to the next more efficiently, well also providing the potential to treat a higher volume of patients. Our early results from this program are showing promise and data from that program is guiding us in planning and building somewhat larger clinics as part of our new clinic development program.

We are also making progress in our sales and marketing channels. Productivity improvements are depended on our ability of full schedule with new patients and then convert those patients to treatments. Success in this area is clear in the strong growth of our First Leg starts in Q4 and for 2010, particularly as compared to the growth rate of both enquiries and new consultations.

However, with growing forward, we would like to shift to a greater focus on physician referral based patient acquisition rather than relying on expensive consumer advertising. And programs are being to develop to support this transition including hiring a sales rep for every two clinics in the market. In terms of our vein clinic expansion, we are pleased to have the new clinic openings have progressed. We’ve opened the new clinics on-schedule but a few delays but physician and staff recruitment and training have occurred on-schedule. As we’ve reported, most of the new clinics came online in Q4 with an additional of three opened in Q1, 2011. These are the seasonally slowest times of the year and we expect to startup loses in Q4 to be replicated in Q1 of 2011.

Our first priority is building new clinics in local markets where we already have a presence and where demand support traditional locations. The second priority is to expand and to continue a contiguous market, where we can leverage our existing infrastructure intend to get up the speed more quickly.

Our third focus is on expanding into new markets where we are comfortable with the regulatory and reimbursement environment and where we see potential to establish a dominant market position. These locations take longer to reach break-even but are essential part of our new clinic mix is we expand the cost CRM’s dates.

We expect new clinics to reach foot profitability within nine months. We expect the clinics that opened in 2010, to generate average revenue of $800,000 to a million dollars each in 2011 and breakeven on a P&L basis. Those clinics opening in 2011 should generate similar pre-unit revenue in their first full year of operations. As investors becoming increasingly comfortable with the long-term opportunity and unit economics of this business, we expect they will look beyond the short-term start up losses to the underlying long-term growth opportunity. With average matured clinic margins at approximately 20%, we expect new clinics to become significant contributors to our future growth and profitability.

We planned to open six additional vein clinics during the second half of 2011 and into early 2012, bringing total vein clinics in operation from 44 to 50. We knew this is a substantial accomplishment given less than 4 years ago, when we bought the business in August of 2007, where we had 27 clinics.

With the benefit development expertise, our growing base of experience with IR clinics and expanded formatted clinics as well as overall operational performance, we expect to formalize our 2012 development schedule sometime in the second half of this year. Given the impact of few hundred thousand dollars can have on our reported EPS, we want to make sure, we are helping our investors better anticipate P&L impact of our vein clinic development in 2011.

So we estimate $300,000 in start-up losses per new clinic. We already incurred $2.1 million in start-up losses in 2010, for the 12 new clinics opened or under development currently. Therefore the balance of start-up losses for those 12 clinics should approximate $1.5 million, much of that will hit in the first of the year with most in the first quarter.

In addition, we’ve announced 6 new clinics to open in the second half of the year, based on the schedule, we’ve published today we expect start-up losses to approximately $1 million for those planned new clinics in 2011, with the balance occurring in 2012. Therefore total start-up losses for 2011 will likely approximately $20 million. In addition we expect a range of between $3 million and $3.5 million in capital investments to support this new clinic development plans in 2011.

I also want to point out the seasonality of our business, where the first quarter, tends to be both the weakest and the more valuable quarter. The reasons for this include variability and pregnancy rates in the Attain IVF program early in the year, as patients often comments or re-start treatment after having taken off the holidays. And in our vein clinic business many patients have not yet met their insurance deductibles early in the year, which can cause them to delay treatment.

I think we also have to recognize this has been an unusually harsh winter especially in our 3 strongest markets on both sides of the business, Chicago, Baltimore DC and Atlanta and we’ll undoubtedly have weather related softness during this period.

The combination of these seasonal impacts combined with sizable start-up cost should have a significant impact and reported net income and EPS in Q1 leading to what we expect will be a sequential decline in EPS.

Now, let me quickly turn to the issue of physician turnover in the vein clinics business that we have referenced back in September where we’ve been able to effectively cover those vacancies with regional backup travelling doctors who are able to provide continuity of treatment during physician vacations illness or any event of departures. We expect to have fulltime replacement physicians in place in the near-term.

The employee and physician turnovers in normal part of any business it does exact a near-term toll on operating performance given recruitment and training cause and foregone revenue potential. We expect physician turnover to remain in the range of what we have experienced historically, which is represented in our average revenue and contribution per established clinic. The very attractive carrier opportunity are vein clinics provides for physicians, will make us feel the good place for physicians looking for better work [inaudible] and income opportunities.

So in summary, we were very pleased with the performance of the business overall and very excited about the potential to continue growing it and to great revenue and the cash flow.

With that I’m going to turn it over to Tim, who can provide some adding color on our operating performances, financials and liquidity. Tim.

Timothy Sheehan

Thank you Jay. Revenues grew both on our quarter-over-quarter and year-over-year basis across both our Attain Fertility centers and vein clinic divisions, unable in [inaudible] to achieve Q4 and full year revenue growth of 17% and 12% respectively. We are very pleased we’re [inaudible] those positive revenue growth during the economic down-turn, showcasing the inherent strength resilient of our overall business.

Despite these revenue gains and settlement operating income margins declined by 241 basis points to 8.7% in 2010. As a result, Q4 2010 operating income declined 12%, while full year 2010 operating income increased 2%. The operating income margin declined was principally due to the increased vein clinic startup cost that impacted the third and fourth quarters of 2010. Reflecting this cost, operating income margin of vein clinic division declines at 3.3% in Q4 2010 versus 8% in the prior year. And full year, vein clinic operating income margin declined to 5.7% from 8.1% in 2009.

Moving down the income statement, G&A expenses increased 16% and 4% in Q4 in 2010 respectively below the pays of overall revenue growth. The G&A increases reflected number of investments that we’ve made to prepare the business to grow, including cost associated with key personal hires including a new head of IT and new Human Resources director. As well as the cost related to the Q4 retirement of a former CFO. We do expect to see some leverage on the G&A, as we grow the business in future quarters.

Net interest expense decreased by 50% and 24% compared to Q4 and full year 2009 respectively, principally of the result of lower average borrowing and involving our payment of 7.5 million on our credit line during the second quarter.

Our focus in the area revenue set of management was the further improvements consolidated data sales outstanding DSO decreased to 31.6 days at year end 2010 compared to 2.1 days at year end 2009. These generated by Attain IVF program of data front in the entirety thereby eliminating credit risks in receivable management issues.

Our tax rate declined in both the Q4 and full year periods to approximately 40%, where we expected to be on a full year basis going forward. The decreased tax rate particularly in Q4 period was related to the closure of a number of income tax audits, which allow us to forecast reflecting more favorable lending tax rate going forward. On the bottom line, IntegraMed’s Q4 2010 net income declined 28% to 890,000, where full year 2010, net income rose 5% to 4.7 million.

On an EPS basis; we generated earnings of $0.8 per diluted share of Q4 compared to $0.14 in Q4 2009, and $0.41 per diluted share for the full year 2010 a 20% decrease from $0.51 in 2009. As Jay mentioned, our EPS results were affected by dilution from last year’s public offering, excluding dilution of the offering, Q4 EPS would have been $0.10 and $0.53 for the fourth quarter and full year of 2010 respectively.

Turning to the balanced sheet, cash and equivalents rose to 50.2 million from 28.9 million at year end. This increased principally reflects strong cash flow from operating activities of approximately 21.6 million in 2010, as well as 19 million in net proceeds from our share offering and illustrate the solid cash generation of the business.

Operating cash flow and operating proceeds were partially offset by capital expenditures of 8.1 million and the retirement of 8.3 million in debt. Capital expenditures for the fourth quarter of 2010 were 3.6 million of which the majority related to growth initiatives.

Q4 adjusted EBITDA declined by 17.8% to 3.9 million compared to 4.7 million in the Q4 of 2009, and by 1.5% to 17.2 million compared to 17.4 million on a full year basis. As with other results, the decline was principally due to vein care startup costs and short term factors in Q4.

As we noted in our earnings announcement, during the fourth quarter, we were in a violation of the covenant in our credit facility. This resulted from startup losses related to the development of new vein clinics for which we have secured labor from vein group. Going forward, we expect reminder facility in the first quarter of 2001. The [inaudible] provide us with greater flexibility and how we deploy our capital and better align our credit line of availability with the revolving realities of our growth strategy.

In response to a few questions we had in the past, let me point out that some other divisional performance data we include in our quarterly releases is subject to later adjustment. Examples include the adjustment of pregnancy statistics is up to the fact, the patient later miscarries. As a result of such updates, invest issue rely in the most current quarterly and year to meet statics.

In summary, we are very pleased with the financial help and performance with the business and look forward to pursing the ample opportunities receive for future growth.

Let’s now open the call for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Mark Arnold of Piper Jaffray.

Mark Arnold - Piper Jaffray

Good morning. I guess it looked like the fertility business is actually a bit stronger than may be you expected back in the fall. And I guess, I’m curious was that all the result of the Attain IVF program, and can you maybe just give us?

Jay Higham

Yeah, thanks Mark, good question. So there is a number of moving parts to that. One in is sort of the underlying demographic situation that we discussed many times here before as well as the economy, which we’re putting in a downward – some downward pressure on volumes. We did have some of the issues that we identified in front of the third quarter. Couple of embryology labs closing down, we had a flood that we talked about. We also had the physician departures. We actually, were able to mitigate a lot of those issues those operational issues much more effectively then I think we had anticipated.

So, that was a bit of pick up for us. Then the Attain IVF, just, that program continues to gain traction and it’s been increasingly attracted to the patient and we have been initiating really for the last year launching a much more aggressive direct consumer marketing program. In the past, we had relied on the physicians in the centers to refer patients to us for their program. We are taking a more hands on approach to going on and capturing those patients respectively and then driving them to the centers. That long-term of very productive and positive development for us, because it does create sort of a strong feedback that we were able to delivered patients to the center. The physicians obviously appreciated that they’ve become more weighted to IntegraMed overall and so that’s a real positive development for this program.

Operator

Your next question comes from the line of Brooks O’Neil of Dougherty & Company.

Brooks O’Neil - Dougherty & Company

Yeah, good morning, I’ve a couple of questions. I guess probably the, how much you made about the sequential decline in earnings per share in the first quarter probably going to draw the most investor attention. So can you help us, just sort of estimate the magnitude where we talk in 25% decline, do you think it’s going to be more than that?

Jay Higham

Well, I think I have provided you with a pretty good road map of trying to understand that. I mean I think u can see a kind of the overall directions at the businesses, it’s sort of an organic base, if you get a low, the startup losses, you can kind of see how the business is performing. We have had – this first quarter is a more valuable quarter, as I mentioned earlier. We have the added problem, somewhere with related issues here in this quarter.

So just on a general sort of organic basis, my expectations in the first quarter it’s going to be a kind of soft quarter compared to say, what we were able to perform last year in the first quarter. And if you take a look at what are normal progression is of the business I think you can get a sense for that and then, startup losses are going to be off the magnitude that we’ve mentioned earlier that we have reported in the fourth quarter, may be a little bit less, but that’s what the magnitude.

Brooks O’Neil - Dougherty & Company

Then I guess, given that you’re planning to continue be in aggressive developing centers, what it would be your expectation that we might continue to see earnings down year-over year, obviously sequentially things move around quite a bit in your business. But I just played with my model, with little bit looks to me like there is a reasonable chance that earnings will be down each quarter this year?

Jay Higham

No, it’s hard for me to forecast that as far. Our expectations is that we are going to do better and we did in 2010. A lot of those depended on how quickly we are able to ramp up these new clinics. And if we are able to ramp them up on schedule that where we have in the past although in smaller numbers. Then, that’s going to give us added confidence as far as the overall performance for the year and going into next year and what that opening schedule will look like for next year.

Brooks O’Neil - Dougherty & Company

Then, as you think about this reflecting on the impact of your decision to accelerate openings, what some of the unexpected things have happened that have perhaps success rebated the impact of that. Would it be - I guess we should assume that you’re going to continue and then accelerated development schedule for vein centers in particular going forward into 2012.

Jay Higham

Yeah I mean, like I said if we’re able to hit the numbers that we have in our model which I’ve given you, which is sort of $300,000 instead of loses per clinic over 9 month of period and then that again the next period of time to get into that very positive contribution format. We are able to do that, which is where our historic performance would suggest then this is going to be a very, very attract for investors and for the company, it should be a very attractive strong growth vehicle for the company and we would expect to continue scaling the new clinic openings in the years to come.

But we need to get through I would say, good chunk of this year to see how this development program plans out before we commit anything for 2012 or in the future. By the way, I would just say that so far we’re on track. I mean there is nothing that occurred up until this point in time that has caused me to sack in gas, what we launching this development program, we’re very happy with the progress. We had a couple of delays here and there construction related you get into local communities and you have zoning issues and construction related issues and that can delay the opening of the clinic for two to three months.

But the [inaudible] related to recruiting physicians, training physicians, getting the contracts and those kinds of things you don’t have quite much control over. We are very happy with how we’ve been able to manage that process and have had no significant delays associated with that. So, so far so good I’m very pleased with where we are and we are right on track with what our expectations, where we’re going to launch this program back in June.

Brooks O’Neil - Dougherty & Company

Good. And then as you think back on the physician departures particularly on the vein center business, where we were just talked about the attractiveness of the opportunity you have for primary care physicians and other doctors. Would you say those physician departures were more or less in normally? That you did mention you expect some continued turnover in that business going forward I guess.

Jay Higham

Yeah, my expectation is that we’re going to have physician turnover and that sort of 5%, 10% range a year which is historically been the case. That should be something under normal circumstances which would never lies to disability for investors, it’s just not a material situation, it’s baked into our overall performance. We’ve had good solid growth in top-line as well as contribution out of this business and that includes the type of turnover that I’ve just mentioned. The only reason we saw like we need to bring it up to the investors in front of the third quarter because the accumulation of sort of three or four situation simultaneously they caused us to be more material than otherwise would have been the case. So I expect that we’re going to have that type of turnover I still expect [inaudible] happen ones.

Brooks O’Neil - Dougherty & Company

Sure.

Jay Higham

It’s going to happen across the year and on both side of the business.

Brooks O’Neil - Dougherty & Company

Sure.

Jay Higham

And I would expect that under normal circumstances these kinds of situations simply won’t need to be or even concern investors.

Brooks O’Neil - Dougherty & Company

Good. Were there be any cost to the amendment to your credit facility that you’ve mentioned in the prepared remarks?

Jay Higham

We’re still working with Bank of America, who’s our agent bank. We don’t believe there will be a material cost at this point of time.

Brooks O’Neil - Dougherty & Company

Okay, good. And then just two last questions. One, you didn’t say a lot about the impact of interventional radiology. I’m guessing you’re continuing to have success with that and we should expect more of the new centers to have the capability. Why can’t you just talk a little bit about what you’re seeing there, what’s your plans are?

Jay Higham

Yeah. So it’s about half of the clinics that we’ve opened during this phase of – this campaign here has included sort of expanded capabilities which we’re involved ‘C-Arm’ little bit larger facility in x-ray tech. And we are layering in those procedures, I mean the plan here is we get these facilities up and running with the core business which is being care. As we bring that capability up this March in each of these new clinics we begin to layer in some additional expanded procedures.

And that’s been the case with the one - the first one we opened was in Columbia Maryland and that’s been the case we’ve slowly ramped up some of these additional more complex procedures, which also by the way place into the sales and marketing strategy that I had mentioned in my comments which is more the referral based sales and marketing strategy. These procedures are not – we don’t think our - as promotionally responsive as the varicose vein procedures are so we have to build the referral base to support these procedures and that does take some time. So it’s going to be a slow controlled ramp-up, we don’t expect every one of the clinics we open going forward, and we’re going to have these capabilities. We are going to have a mix of traditional vein clinics and expanded vein clinics.

By the way the CapEx on a going -forward basis we expect is going to be somewhat higher than it has traditionally hired for two reasons. One is that the CapEx required [inaudible] expanded interventional radiology clinics is more, I mean the ‘C-Arm’ $150,000 redline room is going to be some more. So I mean that - itself is going to require some additional capital. But for the second and probably even more important reason that we are going to have little bit higher CapEx requirement as we – as I mentioned we are pushing the productivity here of these clinics to a very high level and our expectation is that we are going start.

And right now what we are finding is the – what’s limiting our capability of growing the revenue is not the physicians capacity, it’s not the staffing because we can bring more staffing and it’s the physical facility. So we would like to build these somewhat I want to hire crazy but modestly bigger to add an extract room, I mean that does create a little bit capital requirement but it’s a very attractive return.

Brooks O’Neil - Dougherty & Company

Good. I assume you can do that in a way that it doesn’t dramatically exacerbate your start up loses at the outside.

Jay Higham

Correct. No, it’s capital so it’s appreciated and an additional couple $100,000 in capital per clinic depreciated over the life of the lease there is not going be a huge noticeable factor for us O’Neil.

Brooks O’Neil - Dougherty & Company

Yeah. But it gives you better growth dynamics overtime.

Jay Higham

Correct.

Brooks O’Neil - Dougherty & Company

Good. And then the last question I had, I don’t know to what extend you could talk about the acquisition environment that you are seeing in the fertility side. Your comments reflected optimism about your ability to consummate some acquisitions this year. But just talk a little bit about what you’re seeing there. I think you’ve adjusted your exhilaration for acquisitions somewhat. Is that beginning to resonate with perspective sellers sort of what’s going on out there in the market place?

Jay Higham

Yeah, I’m optimistic that we’re going to able to accelerate the phase here somewhat. Again, I would caution people to say the timing of these deals is very hard to predict, I think it’s going to be a mix. Historically we have done some of these smaller and even last year we did I think one smaller transaction. Getting an existing physician in a market emerging with one of our centers can be very productive, we are working as I mentioned that’s a university based. You know universities are we have one extremely successful situation taking a university base group out of the university in the private practice.

What we are finding now is, it’s probably more an interest of those physicians to get the benefits of a company like IRS, actually heavily believe the university, so it’s probably going to be more in the contacts, that sort of a hospital type contract or university contract, a hybrid type model if you will. That I think it would be very helpful and beneficial for all parties involves. So I’m generally very optimistic on this, it’s taken a little bit longer than I would have like to hope, but I’m very optimistic that we are going to be able to accelerated the pace here. And the environment is just compelling, I mean if it was IntegraMed, simply well, it is just relying on our capability of going out and convincing doctors in selling this opportunity, then we are going to have the type of pace, that we had historically, which is sort of one deal a year.

But what we have going for us right now, the environment is not as friendly, the more harmful environment out there, I mean growth is flat at best maybe even somewhat down, these are very high fixed cost businesses. The cost of operation, I can’t be able to reduce that unless you can consolidate this high fix cost operations and I think that’s what’s going to start driving more of this and we’re there we had a track record we have the capability, we have the resources so I don’t think it’s primarily a function of what we are willing to pay brooks, I mean we always have flexibility there, I think this is really more function of the environment, it’s just the lot more – it’s pushing people on this direction. And we have the capability in the track record and I think we are going to benefit from it.

Operator

Your next question comes from line of Eric Mara of Pavis Capital.

Eric Mara - Pavis Capital

Hey Jay Higham. So just a couple of quick questions. First, you just mentioned the radiology [inaudible] thing for the clinics can you kind of just quickly tell me to what extent that’s already penetrated in kind of your base. Perhaps the better way to asking it is, how many more of those machines you need to buy in kind of a one time basis?

Jay Higham

Well, we have - as I mentioned I think we’ve opened eight clinics over the past six to eight months. Four of them have this expanded capability. And you know this is going to be a mix as we continue to move forward, clinics are required this type of additional capital versus one for [inaudible] or this type of equipment versus one [inaudible]. As I just mentioned to Brooks, the CapEx on a moving forward basis, I think it’s going to be a little bit higher regardless of whether or not we buy this one piece of equipment or don’t buy this one piece of equipment because we are just building the clinics bigger.

Eric Mara - Pavis Capital

Yeah. And then the, the second question I have is on the contract renewals. So it’s kind of discussed before, may be a couple that are kind of coming up in the next to ten years and I think you guys are extending the contract structures. Can you just kind of talk about what contract in those might look like, whether there will be an additional capital commitment that you’re required to make for those renewals and just review on it, will you think about that?

Jay Higham

I don’t want to speculate on that Eric, that’s territory that we haven’t gone down. We do have - we don’t have any contract renewals for the next three years, so it’s definitely not a near-term situation, two and a half years. And you know that’s something that will have to contend with, not any time soon. My expectation is that, we are going to continue to build our capabilities, the value proposition, we are going to continue to integrate the operations, standardize the operations, create tremendous academies for these centers and so, I’ m really not worried about contract renewals at this point.

Eric Mara - Pavis Capital

Okay. And then a last question is, [inaudible] but since that the fertility – some fertility operator, sort of procedures were – we had already covered under insurance and [inaudible] a couple of years ago. And kind of wondering is, that is something you expect to see in other markets. And then also if you could kind of commented on how [inaudible] kind of work [inaudible] down materially but volume grow up, just kind of curious in a gross profit basis, kind of before and after you saw, sort of a positive or negative shift in gross profit and then again, if you are seeing another market.

Jay Higham

Okay, I am not sure I understood the whole question, but let me try and answer, what I have thought the question was, none, if I got a wrong you can let me know. So there hasn’t been any material changes to state wide covering fertility benefits, really in the last few years, so I am not sure which one you are referring to there. We have had in the 16 years, I had been doing it, I think Tuesday mandates that have happened, but there were a number of years ago. So but let me just tell you what the impact is, you know statement day, what we did coverage or insurance coverage versus where we don’t have insurance coverage, the two are you know from IntegraMed point of view, were sort of in different to it, it does lead to a different sort of operating environment for the center itself in the local market, so we do have a strong insurance mandate.

We tend to concentrate our business much more heavily on IVF procedures themselves that is the procedure that generates the highest revenue and all things being equal to highest level of, benefit to the patient. When we have an insurance mandate, the flip side of it is that, the insurance company they do demand discounts from providers, so we’re not different than, a hospital not different from any other provider in the market that has insurance coverage for treatments that are being provided, the insurance company comes in and does require or does try to negotiate at discount from, your fee schedule.

So we do tend to have somewhat lower revenue, but because we can - we create a very efficient facility that they really concentrate on IVF treatment itself, we tend to have more efficiency and the bottom-line result tends to be a very positive bottom line result. In markets where we do not have a mandate for insurance coverage we touch patients directly and they pay our fee schedule and so we tend to get higher reimbursement, higher net revenue per unit procedure performed, but we do feel our procedures because patients have a financial hurdle in order to get access the treatment. So, but at the end of the day we feel very comfortable in both environments, we have good programs and services, we have good skill on capably of operating in either environment and we’re confident that we can be very successful on either environment.

Operator

(Operator Instructions). Your next question comes from the line of [inaudible].

Unidentified Analyst

Good morning and thanks for taking my call. I had a question on the clinic side and we have 44 clinics and operation and those 44 interventional radiology. I apologized I missed this on the call, but once you ramp up 50 clinics by the end of this year or already next year, do you an idea of what the total numbers interventional radiology clinics will be at that point time you have 50 total was that still up near at this point?

Jay Higham

It’s really the ones that aren’t there, consideration of the 6 additional that we have for the balance of 2011. There would probably be a couple of interventional radiology, but not more than that.

Unidentified Analyst

Also I want the same lines, do you have – what percentage break-down and what the primary treatment is on the IRS side right now, and what some other opportunities are beside of those?

Jay Higham

So interventional radiologists have a broad range of capability, I mean they are the physicians who created many of the minimally and basic procedures particularly using catheters to access different parts of the body. So they, sometimes they put in [inaudible] which is a big part of – what happens in hospitals these days, whatever we are going down that road. What we’re doing is stand closed to what we currently do, so there are some procedures that are – for instance, pelvic congestion syndrome is a problem in some women develop who have varicose vein, this is very, very, simple and I might [inaudible] wrong.

But my understanding is that, certain percentage of these people are affected by varicose vein higher up in the pelvic region. That scenario that physicians who have been doing varicose vein treatment are really comfortable accessing, but it’s something that interventional radiology had a very strong training and background and so they are able to get in and really, in a fact perform very similar procedure to correct those problems. Another example is Uterine Fibroid Embolization. So Uterine Fibroid which are a mass that develop also in women in uterus, historically have been treated through a very invasive either a laparotomy which is open incision or laparoscopy, which is using instruments to make a minimal incision but they go in and they surgically actually remove the fibroid tumor.

And it’s expensive, it’s painful and what interventional radiologist have developed is a procedure that they can access the blood supply actually just through a catheter they can access the blood supply have this fibroid tumor and put in a little pellets that actually interrupt the blood supply and then the tumor will actually just die, [inaudible] die. It’s a much simpler procedure than our patient basis and more of our facilities and that’s going to be a component of, the type of procedure we do. Varicose seal repair, which is in effect to varicose vein in the testis, also leave infertility in men and that’s the procedure that these physicians can perform and we have performed in our IR clinic. So those are the kinds of things effect extending the overall capability that we have in the leg a little bit further up in the body.

Unidentified Analyst

Okay. So, I guess it’s too early on to really start breaking down in percentage terms, what types of procedures are being done of those?

Jay Higham

No, we are really early for that. Really the focal point here in any of these clinics is to get them up in running with the bed and butter of what we know which is varicose vein treatment we have our sales force trained in that area, we have the marketing trained in that area, we have our entire infrastructure focused on that area, that’s the piece where we can get it up in running. Once we get this up in running and the generating, the past - break-even point, we want to layer in some additional procedure, these are kinds of capabilities that we want to be above layer and but it’s not – I don’t see – we are now looking it, this is a wholesale regions I had a business.

Unidentified Analyst

Alright, okay. Also, you had a really strong ramp and it’s going to continue maybe at a slightly slower phase in the vein clinics. For 2012 is it safe to saying that the vein clinic ramp would be lower than what we’ve seen recently, what’s number in new clinics?

Jay Higham

No, I don’t think that’s safe at all. I think – we see the opportunities here to – as I have mentioned to investors many times we see the opportunity for up to 250 vein clinics across the United States. We think this is very attractive business, we want to access the growth opportunity this affords us, we have the capital, we have the people, we have the business model, we want to – we built out the capability, we want to really push the engine. And I think what would slow us down, if we have – it’s really the scale and magnitude what we’ve taken on right now, really 12, 18 or two year period, which is really what we are talking about here between 2010, 2011.

That’s a lot that represents a huge increase in the percentage number of new clinics, our total percentage of clinics. So making sure that we have good execution that we’re hitting our numbers, that we’re getting to the break-even point, that we’re managing the receivables well. So to me this is more an execution issue and if we have some pickups there, which could happen, then we are going to slow down, because I don’t want to lose control or let those kind of operational problems impact, our capability is continuing to push this. But if we execute really well and have good control over the business, my expectations is we would continue to accelerate those.

Unidentified Analyst

Okay, thanks. Just one point on the fertility side, what recent fertility point of center I just sort of rolled up into – and you already had, is that a viable strategy for this year or next, or the opportunities more [inaudible] a separate hand alone partner. I’m just wondering [inaudible] that’s the first time you really [inaudible]. Do you see that as a viable strategy now it’s a kind of roll things up?

Jay Higham

Yeah, I mean we’ve been doing that for a long time, we had probably in every market that we enter. When we enter a market and establish a partnership in a market, we – I mean we abruptly, we end up having follow on acquisitions or as you would say roll up that local market, so that’s always been a component of our growth strategy. We haven’t provided the level of visibility to that, I mean in the past that we are now, because my expectation is that we are accelerate. In the case of Seattle, this is our primary competitor in Seattle.

Great group of physicians, really high quality people that we, if we already didn’t have our center in Seattle, this is a group that we would have been very proud to have as the focal point of one of our centers that were they met everyone of our criteria for being a partner from size to quality the reputation to stability all those good things. So this is bigger, and they came to us, they said look we see what you guys are doing, we have been [inaudible] here with you for a while and totally respect what you guys are bad in, we want to be part of the team. And I expect if that’s going to be something that will also accelerate in future. But I also think that the stand-alone in markets – getting into a new market on a stand-alone basis with a group, I think that’s also going to be a very important component of our growth.

Operator

At this time there are no further questions.

Jay Higham

Thank you operator. So in closing, we are pleased with our achievements and progress in 2010. As healthcare landscape becomes increasingly complex, we believe the value of proposition, we are also in being in demand across our businesses. We are confident in our vein clinic expansion along with the growth initiatives we are pursuing our fertility business and they represent an attractive path to value creation for our shareholders. We have a strong balance sheet and healthy free cash flow and look forward to deploying those assets I mean the growth from our business in the years to come.

And of course now that would be possible [inaudible] and dedication of the employees who are committed to make IntegraMed best possible company that it can be. And to the very talented, dedicated physicians and that we work with in both sides of the business, we have a deep gratitude for our capability of working with them and really look forward to continuing to attract other highly talented physicians in the future. We hope to see many of you during marketing trips or conferences throughout the year and as always should you have any questions.

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