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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20260
IntegraMed America, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1150326
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
Two Manhattanville Road
Purchase, New York 10577
(Address of principal executive offices) (Zip code)
(914) 253-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12 b-2).
Yes [ ] No [X]
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on April 26, 2005 was 3,720,438.
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INTEGRAMED AMERICA, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at March 31, 2005
and December 31, 2004......................................3
Consolidated Statements of Income for the three month
periods ended March 31, 2005 and 2004 .....................4
Consolidated Statements of Shareholders' Equity for the
three month periods ended March 31, 2005 and 2004 ..........5
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2005 and 2004 ....................6
Notes to Consolidated Financial Statements ...............7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 18
Item 4. Controls and Procedures....................................... 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 19
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities............................................ 19
Item 3. Defaults upon Senior Securities............................... 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
Item 5. Other Information............................................. 19
Item 6. Exhibits ..................................................... 19
SIGNATURES ..................................................... 20
CERTIFICATIONS PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002..................................... EXHIBITS
CERTIFICATIONS PURSUANT TO 18 U.S.C ss.1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002..................................... EXHIBITS
2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTEGRAMED AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(all dollars in thousands, except per share amounts)
ASSETS
March 31, December 31,
--------- ------------
2005 2004
--------- ------------
(unaudited)
Current assets:
Cash and cash equivalents ....................................................... $ 5,333 $ 11,300
Due from Medical Practices, net ................................................. 11,097 8,130
Pharmaceutical sales accounts receivable, net ................................... 1,469 1,259
Deferred income taxes, net ...................................................... 1,898 1,950
Prepaids and other current assets ............................................... 3,850 2,043
-------- --------
Total current assets ........................................................ 23,647 24,682
Fixed assets, net ............................................................... 16,001 14,868
Intangible assets, net .......................................................... 23,491 20,519
Deferred income taxes,net ....................................................... 1,291 1,366
Other assets .................................................................... 527 410
-------- --------
Total assets ................................................................ $ 64,957 $ 61,845
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 782 $ 519
Accrued liabilities ............................................................. 7,280 7,451
Current portion of long-term notes payable and other obligations ................ 2,219 2,218
Patient deposits ................................................................ 16,955 14,193
-------- --------
Total current liabilities ................................................... 27,236 24,381
-------- --------
Long-term notes payable and other obligations ..................................... 2,717 3,021
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common Stock, $.01 par value - 15,000,000 and 15,000,000 shares authorized in
2005 and 2004 respectively; and 3,720,438 and 3,647,282 shares issued in
2005 and 2004, respectively ................................................. 37 36
Capital in excess of par value .................................................. 48,785 48,467
Deferred compensation ........................................................... (241) (293)
Treasury stock, at cost - 51,312 and 40,547 shares in 2005 and 2004, respectively (461) (337)
Accumulated deficit ............................................................. (13,116) (13,430)
-------- --------
Total stockholders' equity .................................................. 35,004 34,443
-------- --------
Total liabilities and stockholders' equity .................................. $ 64,957 $ 61,845
======== ========
See accompanying notes to the consolidated financial statements.
3
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(all amounts in thousands, except per share amounts)
For the
three-month period
ended March 31,
----------------------
2005 2004
-------- --------
(unaudited)
Revenues, net:
FertilityPartners , net of Service Rights amortization
of $354 and $321 in 2005 and 2004, respectively ........ $ 25,456 $ 20,598
Pharmaceutical ............................................ 4,739 3,766
FertilityDirect ........................................... 1,788 1,030
-------- --------
Total .................................................. 31,983 25,394
-------- --------
Cost of services and sales:
FertilityPartners, including depreciation of $853 and $610 22,952 18,549
Pharmaceutical ............................................ 4,551 3,624
FertilityDirect ........................................... 1,127 746
-------- --------
Total .................................................. 28,630 22,919
-------- --------
Contribution:
FertilityPartners ......................................... 2,504 2,049
Pharmaceutical ............................................ 188 142
FertilityDirect ........................................... 661 284
-------- --------
Total ................................................... 3,353 2,475
-------- --------
Other expenses (income):
General and administrative expenses, including depreciation
of $92 and $87 .......................................... 2,834 2,142
Interest income ........................................... (100) (58)
Interest expense .......................................... 97 80
-------- --------
Total ................................................... 2,831 2,164
-------- --------
Income before income taxes ................................... 522 311
Income tax provision ......................................... 208 124
-------- --------
Net income ................................................... $ 314 $ 187
======== ========
Basic earnings per share ..................................... $ 0.09 $ 0.05
======== ========
Diluted earnings per share ................................... $ 0.08 $ 0.05
======== ========
Weighted average shares - basic .............................. 3,646 3,573
======== ========
Weighted average shares - diluted ............................ 3,854 3,814
======== ========
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
Total
Common Stock Capital in Accumulated Treasury Stock Deferred Shareholders'
Shares Amount Excess of Par Deficit Shares Amount Compensation Equity
------ ------ ------------- ------- ------------- ------------ -------------
BALANCE AT DECEMBER 31, 2003 .... 3,544 $ 35 $48,172 $(14,616) 90 $(426) $(315) $32,850
Issuance of Restricted Stock Grant 33 -- 211 -- -- -- -- 211
Options and warrants exercised .. 210 2 907 -- -- -- -- 909
Treasury Stock transactions, net (140) (1) (823) -- (49) 89 -- (735)
Stock grants issued, net ........ -- -- -- -- -- -- (219) (219)
Stock grant amortization ........ -- -- -- -- -- -- 241 241
Net income ...................... -- -- -- 1,186 -- -- -- 1,186
------- ----- ------- -------- ---- ----- ----- -------
BALANCE AT DECEMBER 31, 2004 .... 3,647 $ 36 $48,467 $(13,430) 41 $(337) $(293) $34,443
Options and warrants exercised .. 72 1 310 -- 10 (124) -- 187
Stock grants issued, net ........ 1 -- 8 -- -- -- (8) --
Stock grant amortization ........ -- -- -- -- -- -- 60 60
Net income ...................... -- -- -- 314 -- -- -- 314
------- ----- ------- -------- ---- ----- ----- -------
BALANCE AT MARCH 31, 2005 ....... 3,720 $ 37 $48,785 $(13,116) 51 $(461) $(241) $35,004
======= ===== ======= ======== ==== ===== ===== =======
See accompanying notes to the consolidated financial statements.
5
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts in thousands)
For the
three-month period
ended March 31,
------------------
2005 2004
------- -------
(unaudited)
Cash flows from operating activities:
Net income .......................................................... $ 314 $ 187
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ..................................... 1,298 1,018
Deferred income taxes ............................................. 127 103
Deferred compensation ............................................. 60 51
Change in assets and liabilities -- Decrease (increase) in assets:
Due from Medical Practices ..................................... (2,967) (2,790)
Pharmaceutical sales accounts receivable ....................... (210) 198
Prepaids and other current assets .............................. (1,807) (241)
Other assets ................................................... (117) 8
Increase (decrease) in liabilities:
Accounts payable .............................................. 263 (622)
Accrued liabilities ........................................... (171) 2,188
Patient deposits .............................................. 2,762 1,855
-------- --------
Net cash provided by (used in) operating activities .................... (448) 1,955
-------- --------
Cash flows used in investing activities:
Payment for Exclusive Service Rights .............................. (3,325) (1,204)
Purchase of fixed assets and leasehold improvements ............... (2,078) (1,814)
-------- --------
Net cash used in investing activities .................................. (5,403) (3,018)
-------- --------
Cash flows used in financing activities:
Principal repayments on debt ...................................... (287) (287)
Principal repayments under capital lease obligations .............. (16) (11)
Proceeds from exercise of common stock warrants and options ....... 187 242
Repurchase of common stock ........................................ -- (192)
-------- --------
Net cash used in financing activities .................................. (116) (248)
-------- --------
Net change in cash and cash equivalents ................................ $ (5,967) $ (1,311)
Cash and cash equivalents at beginning of period ....................... 11,300 6,885
-------- --------
Cash and cash equivalents at end of period ............................. $ 5,333 $ 5,574
======== ========
Supplemental Information:
Interest paid ..................................................... $ 97 $ 80
Income taxes paid ................................................. $ 418 $ 66
See accompanying notes to the consolidated financial statements.
6
INTEGRAMED AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- INTERIM RESULTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position at March 31, 2005, and the results of operations
and cash flows for the interim periods presented. Operating results for the
interim period are not necessarily indicative of results that may be expected
for the year ending December 31, 2005. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in IntegraMed America's (the "Company") Annual Report on Form 10-K for the year
ended December 31, 2004.
NOTE 2 -- EARNINGS PER SHARE:
The reconciliation of the numerators and denominators of the basic and
diluted EPS computations for the three month periods ended March 31, 2005 and
2004 is as follows (000's omitted, except for per share amounts):
For the
three-month period
ended March 31,
-------------------
2005 2004
------ ------
Numerator
Net Income.............................................. $ 314 $ 187
======= =======
Denominator
Weighted average shares outstanding (basic)............. 3,646 3,573
Effect of dilutive options and warrants................. 208 241
------- -------
Weighted average shares and dilutive potential
Common shares (diluted)................................. 3,854 3,814
======= =======
Basic EPS............................................... $ 0.09 $ 0.05
======= =======
Diluted EPS............................................. $ 0.08 $ 0.05
======= =======
For the three-month period ended March 31, 2005, there were no outstanding
options or warrants to purchase shares of Common Stock which were excluded from
the computation of the diluted earnings per share amount as the exercise prices
of all outstanding options and warrants were less than the average market price
of the shares of Common Stock.
For the three-month period ended March 31, 2004, there were no outstanding
options to purchase shares of Common Stock which were excluded from the
computation of the diluted earnings per share amount as the exercise prices of
all outstanding options were less than the average market price of the shares of
Common Stock. For the three-month period ended March 31, 2004, the effect of the
assumed exercise of warrants to purchase 88,000 shares of Common Stock at an
exercise price of $9.00 per share was excluded in computing the diluted per
share amount because the exercise price of the warrants was greater than the
average market price of the shares of Common Stock, thereby causing these
warrants to be antidilutive.
7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
NOTE 3 -- SEGMENT INFORMATION:
The Company is principally engaged in providing products and services to
the fertility market. For disclosure purposes, the Company recognizes Business
Services offered to its network of FertilityPartners and its pharmaceutical
distribution operations as separate reporting segments. The Business Services
segment includes revenues and costs categorized as FertilityPartners Service
Fees and FertilityDirect Revenues, as follows (000's omitted):
Business Pharmaceutical
Corporate Services Distribution Consolidated
--------- -------- ------------ ------------
For the three months ended March 31, 2005
Revenues...................................... -- $27,244 $4,739 $31,983
Cost of services and sales.................... -- 24,079 4,551 28,630
----- ------- ------ -------
Contribution.................................. -- 3,165 188 3,353
-------
General and administrative costs.............. 2,834
Interest, net................................. (3)
------
Income before income taxes.................... 522
======
Depreciation expense included above........... 945
Capital expenditures.......................... 264 1,814 -- 2,078
Total assets.................................. 7,075 56,276 1,606 64,957
For the three months ended March 31, 2004
Revenues...................................... -- $21,628 $3,766 $25,394
Cost of services and sales.................... -- 19,295 3,624 22,919
----- ------- ------ -------
Contribution.................................. -- 2,333 142 2,475
-------
General and administrative costs.............. 2,142
Interest, net................................. 22
------
Income before income taxes.................... 311
======
Depreciation expense included above........... 697
Capital expenditures.......................... 34 1,780 -- 1,814
Total assets.................................. 7,547 49,717 1,705 58,969
8
NOTE 4 -- STOCK-BASED EMPLOYEE COMPENSATION:
As of March 31, 2005, the Company had two stock-based employee compensation
plans, which are described more fully in Note 12 of the Company's financial
statements in its most recent Annual Report on Form 10-K. Prior to fiscal 2003,
the Company accounted for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Under this standard, no stock option-based employee
compensation cost is reflected in net income, as all options granted under the
plans had an exercise price equal to the market value of the underlying Common
Stock on the date of grant. Effective July 1, 2003, the Company adopted the fair
value recognition provisions of FAS No. 148. Under the Prospective transition
method selected by the Company, fair value accounting is applied to all new
stock grants and modifications to old grants since January 1, 2003. Disclosure
of pro-forma net income and EPS is continued for any pre-adoption grants. No
options have been granted subsequent to the adoption of FAS No. 148.
The following table illustrates the effect on net income and earnings per
share as if the fair value based method had been applied to all outstanding and
unvested awards in each period. (000's omitted, except per share amounts).
For the
three-month period
ended March 31,
------------------
2005 2004
----- -----
Net Income, as reported........................................... $ 314 $ 187
Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects........................................................... 22 31
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects........................ (65) (92)
----- -----
Pro forma net income.............................................. $ 271 $ 126
===== =====
Earnings per share:
Basic-as reported............................................ $0.09 $0.05
Basic-pro forma.............................................. $0.07 $0.04
Diluted-as reported.......................................... $0.08 $0.05
Diluted-pro forma............................................ $0.07 $0.04
NOTE 5- LITIGATION
On November 12, 2003 an action captioned South Broward Hospital District
vs. Wayne S. Maxson, M.D. et. al. was filed against, among others, the Company
and one of its FertilityPartners, in the Broward County Florida Circuit Court
alleging that the Company had interfered with the contractual relationship
between the Hospital and certain individuals. The Company and the other
defendants filed a motion to dismiss the Complaint, which matter was heard on
March 24, 2005. The court dismissed all claims against the defendants and
subsequently the parties entered into a settlement agreement.
9
There are other minor legal proceedings to which the Company is a
party. In the Company's opinion, the claims asserted and the outcome of such
proceedings will not have a material adverse effect on the financial position,
results of operations or the cash flow of the Company.
NOTE 6 -- RECENT ACCOUNTING STANDARDS
The Company discloses its critical accounting policies in its Form 10-K
filed with the Securities and Exchange Commission. Since December 31, 2004, none
of those policies has changed, nor has any been added.
At this time, there are no recently issued accounting standards, which
impact the Company.
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in this
quarterly report and with IntegraMed America Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2004.
Overview
IntegraMed America, Inc. (the "Company") offers products and services to
patients and providers in the fertility industry. The IntegraMed Network is
comprised of twenty-five fertility centers in major markets across the United
States, pharmaceutical products and services, a financing subsidiary, the
Council of Physicians and Scientists, and a leading fertility portal
(www.integramed.com). Seventeen Affiliate fertility centers purchase discrete
service packages provided by the Company and eight fertility centers have access
to the entire portfolio of products and services under the comprehensive
FertilityPartners(TM) program. All twenty-five centers have access to the
Company's consumer services, principally pharmaceutical products and patient
financing products.
The Company's strategy is to align information, technology and finance for
the benefit of fertility patients, providers, and payers. The primary elements
of the Company's strategy include: (i) expanding the IntegraMed Provider Network
into new major markets; (ii) increasing the number and value of service packages
purchased by members of the IntegraMed Provider Network; (iii) entering into
additional FertilityPartners contracts; (iv) increasing revenues at contracted
FertilityPartners centers; (v) increasing the number of Shared Risk Refund
treatment packages sold to patients of the IntegraMed Provider Network and
managing the risk associated with the Shared Risk Refund program; (vi)
increasing sales of pharmaceutical products and services; and (vii) developing
Internet-based access to personalized health information.
Major events impacting financial condition and results of operations
During 2003, the Company negotiated revised fee structures on three of its
existing FertilityPartner contracts. In all three of these contracts, the
timetable for the phase-in of that portion of the fee reductions which are based
on the earnings of the underlying fertility centers was delayed by one year and
became effective in the first quarter of 2004. Beginning in the year 2006, these
revised contracts contain a maximum limit on the amount of fees the Company can
earn, which are based on the earnings of the underlying fertility centers. The
maximum limitation on one contract is below the fees earned by the Company on
this contract in 2004. The Company believes that these fee limitations will be
more than offset by volume based increases in fees earned in other areas of our
existing contracts, the sale of new FertilityPartner contracts and growth in our
FertilityDirect business unit.
On January 1, 2004, the Company signed a FertilityPartners agreement with
the Seattle, Washington based Seattle Reproductive Medicine, Inc., P.S. ("SRM")
physician practice. Under the terms of this 15-year agreement, the Company's
service fees are comprised of reimbursed costs of services, a tiered percentage
of revenues, and an additional fixed percentage of SRM's earnings. The Company
also committed up to $2 million to fund the construction and equipping of a new
state-of-the-art facility to house the clinical practice and embryology
laboratory for SRM and its patients. Based on the terms of this transaction,
IntegraMed was paid a fixed service fee for approximately eleven months of 2004
until the new facility was fully operational in December 2004. Upon becoming
fully operational, IntegraMed's service fees reverted to the fee structure
described above.
Effective January 1, 2005, the Company signed a FertilityPartner agreement
to supply a complete range of business, marketing and facility services to the
Reproductive Partners Medical Group, Inc., a fertility practice comprised of six
physicians in the Southern California market. Under the terms of this 25-year
agreement, IntegraMed has committed up to $0.5 million to fund any necessary
capital needs of the practice. Based on the terms of the transaction,
IntegraMed's service fees will be comprised of the Company's standard reimbursed
costs of services, a variable percentage of revenues, plus an additional fixed
percentage of the center's earnings.
11
Effective January 1, 2005, the Company became a minority equity investor in
the Assisted Reproductive Technology Insurance Company ("ARTIC"). ARTIC is
incorporated as an off-shore captive insurance company designed to offer
malpractice insurance to physicians within the IntegraMed network. IntegraMed's
equity investment of $50,000 represents a 10% ownership stake, accounted for on
the cost basis,with the remaining equity owned by participating physician
groups. IntegraMed has agreed to provide certain administrative and insurance
related services to ARTIC members.
Subsequent to March 31, 2005 the Company and Theralogix, a developer of
evidence-based nutritional supplements, announced the launch of Fertility
Sciences, LLC, a new venture committed to developing nutritional supplements to
help enhance fertility. Fertility Science's mission is to facilitate the
responsible use of evidence-based, complementary therapies in reproductive
practice. The company distributes a limited number of evidence-based,
academically-backed nutritional supplements, which are formulated and endorsed
by leading fertility specialists, and certified for purity and content accuracy.
The company's first product offering, ConceptionXR for Men, targets male factor
infertility. The supplement is intended to benefit fertility providers and
patients by providing a product whose formula is vetted by highly-credentialed
scientists and whose manufacturing, bottling and labeling is overseen by NSF
International, a global leader in independent third-party certification.
We continue to aggressively promote our Shared Risk Refund Program. The
Shared Risk Refund Program is an innovative treatment and financing program
which, with recent enhancements, consists of up to six treatment cycles of in
vitro fertilization for one fixed price with a significant refund if the patient
does not deliver a live baby. Under this financial program, we receive payment
directly from consumers who qualify for the program and pay contracted fertility
centers a defined reimbursement for each treatment cycle performed. We manage
the risks associated with the Shared Risk Refund Program through a case
management program. This case management program authorizes patient care and
provides information to be used in recognizing revenue and developing the
related reserves for refunds.
12
Results of Operations
The following table shows the percentage of net revenues represented by
various expense and other income items reflected in our Consolidated Statement
of Operations.
For the
three-month period
ended March 31,
-------------------
2005 2004
----- -----
(unaudited)
Revenues, net
FertilityPartners ........................ 79.6% 81.1%
Pharmaceutical ........................... 14.8% 14.8%
FertilityDirect .......................... 5.6% 4.1%
----- -----
Total .................................... 100.0% 100.0%
Costs of services incurred:
FertilityPartners ........................ 71.8% 73.1%
Pharmaceutical ........................... 14.2% 14.3%
FertilityDirect .......................... 3.5% 4.1%
----- -----
Total .................................... 89.5% 90.3%
Contribution
FertilityPartners......................... 7.8% 8.0%
Pharmaceutical............................ 0.6% 0.5%
FertilityDirect........................... 2.1% 1.2%
----- -----
Total..................................... 10.5% 9.7%
General and administrative expenses............ 8.9% 8.4%
Interest income................................ (0.3)% (0.2) %
Interest expense............................... 0.3% 0.3%
----- -----
Total other expenses...................... 8.9% 8.5%
----- -----
Income before income taxes..................... 1.6% 1.2%
Provision for income taxes..................... 0.6% 0.5%
----- -----
Net income..................................... 1.0% 0.7%
===== =====
Three Months Ended March 31, 2005 Compared to Three Months Ended
March 31, 2004
Revenues for the three months ended March 31, 2005 increased by a net of
approximately $6.6 million, or 25.9%, from the same period in 2004. The main
growth factors contributing to this increase were:
(i) Revenues at our six FertilityPartner centers opened prior to
2004, increased by $1.5 million, or 7.5%. This increase resulted
from strong patient flow and higher clinical billings at most
clinical locations. Revenue from our two recent FertilityPartner
centers, located in Seattle, Washington and Los Angeles,
California, who joined our network in January 2004 and January
2005, respectively, totaled $3.4 million in the first quarter of
2005. The Seattle FertilityPartner location generated revenue of
$1.6 million in the first quarter of 2005, vs. revenue of $0.1
million in the comparable period of 2004.
13
(ii) Revenue at our pharmaceutical unit increased by $1.0 million, or
25.8% from the same period in 2004. Revenue for the first
quarter of 2004 had been negatively impacted by our decision, in
mid-2003, to de-emphasize the sale of certain high volume
products due to their lack of profitability. This decision
caused a drop in revenue during the last two quarters of 2003.
As a result of a more favorable pricing and reimbursement
environment for these products, revenues at our pharmaceutical
unit have increased significantly since the first quarter of
2004. We expect this trend to continue and have recently begun
enhanced marketing support initiatives designed to increase
pharmaceutical sales penetration within our network of
affiliated fertility centers.
(iii) FertilityDirect revenues, which are comprised of our direct to
consumer Shared Risk Refund program, membership fees from
affiliated clinics, and captive insurance company management
fees, increased by $0.8 million, or 73.6% from prior year
levels. The main factor accounting for this growth has been
continuing acceptance of, and enrollment in, our Shared Risk
program. This program has recently been enhanced to offer
additional frozen embryo cycles and access to discount
pharmaceuticals. We plan to continue aggressively promoting our
FertilityDirect programs and anticipate that these programs will
continue to show growth in future quarters.
Contribution of $3.4 million for the first quarter of 2005 was up $0.9
million, or 35.5% from 2004 levels. As a percentage of revenue, the contribution
margin grew to 10.5% for the first quarter of 2005 versus 9.7% for the same
period in 2004. The following factors had a significant effect on first quarter
2005 contribution:
(i) Contribution generated by the FertilityPartners agreements
increased by $0.5 million in the first quarter of 2005 versus
the same period in 2004. Contribution at our six
FertilityPartner centers opened prior to 2004, increased by $0.1
million, despite previously disclosed fee reductions on three of
these contracts. Contribution from our two recent
FertilityPartner centers, who joined our network subsequent to
January 1, 2004, totaled $0.4 million in the first quarter of
2005.
(ii) Pharmaceutical contribution increased by $46,000, or 32.4%, and
margin rates increased to 4.0% during the first quarter of 2005
from 3.8% in 2004. For the balance of 2005, we anticipate that
our pharmaceutical margins will stabilize in their historic
range of 3.5 - 4.0% on the higher revenues described above.
(iii) Contribution from the FertilityDirect program increased by
$377,000, or 132.7% from the same quarter in the prior year.
This increase resulted from growth in Shared Risk Refund patient
volume, driven in part from the previously mentioned
enhancements to the program, as well as better than expected
clinical outcomes. In January 2005, we began to receive
management fees related to the administration of a captive
insurance company, which totaled $32,000 during the first
quarter of 2005.
General and Administrative expenses increased by $692,000 in the first
quarter of 2005 from $2,142,000 in the same period in 2004 as a result of
increased compensation, marketing and regulatory costs. These increases are
designed to maintain growth rates in our business segments while maintaining
compliance with Sarbanes-Oxley requirements.
Interest income rose to $100,000 for the quarter ended March 31, 2005, from
$58,000 for the same quarter in 2004. This increase was mainly attributable to
finance charges assessed to various FertilityPartner locations on invested
capital in excess of predefined limits. Interest expense increased to $97,000
for the three months ending March 31, 2005 from $80,000 in the comparable period
in 2004. This increase was mainly the result of higher market interest rates on
our outstanding debt balances.
The provisions for income tax were $208,000 and $124,000 for the quarters
ending March 31, 2005 and 2004, respectively. For both periods the effective tax
rate was 39.8% of pre-tax income and reflected a provision for both state and
federal taxes.
14
Off-balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities ("SPE's"), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As of March 31, 2005, we were not involved in any
unconsolidated SPE transactions.
Liquidity and Capital Resources
Historically, we have financed our operations by the sale of equity
securities, issuance of notes and internally generated resources. In addition,
we also use bank financing for working capital and business development
purposes. Due to ongoing planned capital investments required by our expanding
FertilityPartners, as well as the payment of Service Rights related to our new
Southern California FertilityPartner contract, working capital decreased during
the first three months of 2005 to a negative $3.6 million as of March 31, 2005,
from $0.3 million as of December 31, 2004. We believe that cash flows from our
operations plus the existing credit facility and term loan will be sufficient to
provide for our future liquidity needs for the next twelve months.
Patient deposits, which represent funds received from patients in advance
of treatment cycles, increased by $2,762,000 since December 31, 2004 to
$16,955,000 as of March 31, 2005. These deposits, which are comprised of both
Shared Risk and non-Shared Risk sources, are prepayments of future revenues from
patients without full insurance coverage. Deposits are a significant source of
recurring cash flow and represent interest free financing for us.
On July 31, 2003, we amended our existing credit facility with Bank of
America (formally Fleet Bank). The amended facility is comprised of a $7.0
million three-year working capital revolver and a $5.75 million three-year term
loan, of which $0.75 million was used to repay the remaining outstanding balance
of the previous credit facility. Each component bears interest by reference to
Bank of America's prime rate or LIBOR, at our option, plus a margin, which is
dependent upon a leverage test, ranging from 2.25% to 2.75% in the case of
LIBOR-based loans. Prime based loans are made at Bank of America's prime rate
and do not contain an additional margin. Interest on the prime-based loans is
payable monthly and interest on LIBOR-based loans is payable on the last day of
each applicable interest period. Unused amounts under the working capital
revolver bear a commitment fee of 0.25% and are payable quarterly. Availability
of borrowings under the working capital revolver is based on eligible accounts
receivable as defined. As of March 31, 2005, we had borrowed $1.0 million under
the working capital revolver agreement for general corporate purposes. The
remaining working capital revolver balance of $6.0 million is available to us.
The Bank of America credit facility is collateralized by all of our assets. The
credit facility is subject to several covenants, all of which were met or for
which a waiver was granted at March 31, 2005.
We continuously review our credit agreements and may renew, revise or enter
into new agreements from time to time as deemed necessary.
15
Significant Contractual Obligations and Other Commercial Commitments:
The following summarizes our contractual obligations and other commercial
commitments at March 31, 2005, and the effect such obligations are expected to
have on our liquidity and cash flows in future periods.
Payments Due by Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
---------- ---------------- ----------- ------------ -------------
Notes Payable................. $ 4,738,000 $ 2,150,000 $ 2,588,000 $ -- $ --
Capital lease obligations..... 197,000 68,000 129,000 -- --
Operating leases.............. 32,503,000 5,248,000 13,694,000 5,524,000 8,037,000
FertilityPartners capital
projects.................. 1,950,000 1,950,000 -- -- --
----------- ---------- ----------- ---------- ----------
Total contractual
cash obligations.......... $39,388,000 $9,416,000 $16,411,000 $5,524,000 $8,037,000
=========== ========== =========== ========== ==========
Amount of Commitment Expiration Per Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
---------- ---------------- ------------- ------------- -------------
Lines of credit............... $ 7,000,000 $ -- $ 7,000,000 $ -- $ --
We also have commitments to provide accounts receivable financing under our
FertilityPartners agreements. Our financing of this receivable occurs on the
15th of each month. The medical practice's repayment priority consists of the
following:
(i) Reimbursement of expenses that we have incurred on their behalf;
(ii) Payment of the fixed or, if applicable, the variable portion of
the service fee which relates to the FertilityPartners revenues;
and
(iii) Payment of the variable portion of the service fee.
We are responsible for the collection of receivables, which are financed
with full recourse. We have continuously funded these needs from cash flow from
operations and the collection of the prior month's receivables. If delays in
repayment are incurred, which have not as yet been encountered, we could draw on
our existing working capital line of credit. We make payments on behalf of the
FertilityPartners for which we are reimbursed in the short-term. Other than
these payments, as a general course, we do not make other advances to the
medical practice. Other than the capital commitments, we have no other funding
commitments to the FertilityPartners.
Recent Accounting Standards
At this time, there are no recently issued accounting standards which
impact the Company.
16
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
the Company, contain certain forward-looking statements regarding events and/or
anticipated results within the meaning of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the attainment of which
involves various risks and uncertainties. Forward-looking statements may be
identified by the use of forward-looking terminology such as, "may", "will",
"expect", "believe", "estimate", "anticipate", "continue", or similar terms,
variations of those terms or the negative of those terms. The Company's actual
results may differ materially from those described in these forward-looking
statements due to the following factors: the Company's ability to acquire
additional FertilityPartners agreements, the Company's ability to raise
additional debt and/or equity capital to finance future growth, the loss of
significant FertilityPartners agreement(s), the profitability or lack thereof at
fertility centers serviced by the Company, increases in overhead due to
expansion, the exclusion of fertility and ART services from insurance coverage,
government laws and regulation regarding health care, changes in managed care
contracting, the timely development of and acceptance of new fertility, and ART
and/or genetic technologies and techniques. The Company is under no obligation
to (and expressly disclaims any such obligation) update or alter any
forward-looking statements whether as a result of new information, future events
or otherwise.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see Item
7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, in our Annual
Report on Form 10-K for the year ended December 31, 2004. As of March 31, 2005,
a one percent change in interest rates would negatively impact pre-tax income by
approximately $47,000 and net income by approximately $28,000.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 under the Exchange Act) as of March 31,
2005 (the "Evaluation Date"). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date,
our disclosure controls and procedures were effective in timely alerting them to
the material information relating to us required to be included in our periodic
SEC filings.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On November 12, 2003 an action captioned South Broward Hospital District vs.
Wayne S. Maxson, M.D. et. al. was filed against, among others, the Company and
one of its FertilityPartners, in the Broward County Florida Circuit Court
alleging that the Company had interfered with the contractual relationship
between the Hospital and certain individuals. The Company and the other
defendants filed a motion to dismiss the Complaint, which matter was heard on
March 24, 2005. The court dismissed all claims against the defendants and
subsequently the parties entered into a settlement agreement.
There are other minor legal proceedings to which the Company is a party. In the
Company's opinion, the claims asserted and the outcome of such proceedings will
not have a material adverse effect on the financial position, results of
operations or the cash flow of the Company.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.
During the three months ended March 31, 2005, the Company
obtained 10,765 shares of its Common Stock that are now
held as treasury shares. These shares represent shares
tendered to the Company as consideration for the cashless
exercise of stock options as well as for the withholding of
taxes paid, on their behalf, by the Company on an employee
stock grant. The Company currently has no plans to dispose
of these shares.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
See Index to Exhibits on Page 21.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRAMED AMERICA, INC.
(Registrant)
Date: May 13, 2005 By: /s/ John W. Hlywak, Jr.
----------------------------
John W. Hlywak, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.24(k) __ Fourth Amendment and Waiver to Amended and Restated Loan
Agreement between IntegraMed America, Inc. and Fleet National
Bank, a Bank of America Company dated as of March 21, 2005.
10.32 __ Submanagement Agreement dated January 1, 2005 between
Reproductive Partners Inc and IntegraMed America, Inc.
10.32(a) __ First Amended Management, Service and Facility Agreement between
Reproductive Partners Inc. and Reproductive Partners Medical
Group Inc. dated January 1, 2005.
31.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 dated
May 13, 2005.
31.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 dated
May 13, 2005.
32.1 -- CEO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 dated
May 13, 2005.
32.2 -- CFO Certification Pursuant to 18 U.S.C. ss. 1350 as Adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 dated
May 13, 2005.
21