================================================================================
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, 2006
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 if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes _____ No __X__
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes _____No __X__
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 if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large Accelerated Filer Accelerated Filer _____ Non-Accelerated Filer_X__.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.
Yes ____ No __X__
The aggregate number of shares of the Registrant's Common Stock, $.01
par value, outstanding on April 28, 2006 was 5,127,300.
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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, 2006 and
December 31, 2005......................................... 3
Consolidated Statements of Income for the three-month periods
ended March 31, 2006 and 2005 .......................... 4
Consolidated Statements of Shareholders' Equity for the
three-month period ended March 31, 2006. .............. 5
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2006 and 2005 ................... 6
Notes to Consolidated Financial Statements ................7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....16
Item 4. Controls and Procedures........................................16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....17
Item 3. Defaults upon Senior Securities................................17
Item 4. Submission of Matters to a Vote of Security Holders............17
Item 5. Other Information..............................................17
Item 6. Exhibits ......................................................17
SIGNATURES ......................................................18
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 share amounts)
ASSETS
March 31, December 31,
---------- ------------
2006 2005
---------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 19,917 $ 22,521
Pharmaceutical and other receivables, net ................................... 875 490
Deferred income taxes, net .................................................. 976 1,080
Prepaids and other current assets ........................................... 4,289 2,768
-------- --------
Total current assets .................................................... 26,057 26,859
Fixed assets, net ........................................................... 14,513 14,877
Exclusive Service Rights and other intangibles, net ......................... 22,080 22,434
Deferred income taxes, net .................................................. 703 815
Other assets ................................................................ 651 590
-------- --------
Total assets ............................................................ $ 64,004 $ 65,575
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 623 $ 917
Accrued liabilities ......................................................... 6,989 8,023
Current portion of long-term notes payable and other obligations ............ 1,501 1,500
Due to medical practices .................................................... 3,984 4,949
Shared Risk Refund program patient deposits ................................. 5,009 4,739
-------- --------
Total current liabilities ............................................... 18,106 20,128
Long-term notes payable and other obligations .................................. 8,271 8,647
-------- --------
Total Liabilities .............................................................. 26,377 28,775
Commitments and Contingencies
Shareholders' equity:
Common Stock, $.01 par value - 15,000,000 shares authorized; 5,127,300 and
5,102,627 shares issued and
outstanding in 2006 and 2005, respectively ................................ 51 51
Capital in excess of par .................................................... 49,465 49,747
Deferred Compensation ....................................................... (658) (354)
Treasury stock, at cost - 0 and 105,768 shares in 2006 and 2005, respectively -- (937)
Accumulated deficit ......................................................... (11,231) (11,707)
-------- --------
Total shareholders' equity .............................................. 37,627 36,800
-------- --------
Total liabilities and shareholders' equity .............................. $ 64,004 $ 65,575
======== ========
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,
-------------------
2006 2005
---- ----
(unaudited)
Revenues, net
Provider Services .................... $ 27,796 $ 25,734
Consumer Services .................... 2,658 6,249
-------- --------
Total revenues ................... 30,454 31,983
Costs of revenues:
Provider Services costs .............. 25,032 23,019
Consumer Services costs .............. 1,640 5,611
-------- --------
Total costs of revenues .......... 26,672 28,630
-------- --------
Contribution
Provider Services contribution ....... 2,764 2,715
Consumer Services contribution ....... 1,018 638
-------- --------
Total contribution ............... 3,782 3,353
General and administrative expenses ..... 3,052 2,834
Interest income ......................... (221) (100)
Interest expense ........................ 159 97
-------- --------
Total other expenses ............. 2,990 2,831
-------- --------
Income before income taxes .............. 792 522
Income tax provision .................... 316 208
-------- --------
Net income .............................. $ 476 $ 314
======== ========
Basic and diluted net earnings per share:
Basic earnings per share ............. $ 0.09 $ 0.07
======== ========
Diluted earnings per share ........... $ 0.09 $ 0.06
======== ========
Weighted average shares - basic ...... 5,201 4,740
======== ========
Weighted average shares - diluted .... 5,303 5,010
======== ========
See accompanying notes to the consolidated financial statements.
4
INTEGRAMED AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
(unaudited)
Common Stock Capital in Deferred Treasury Stock Accumulated Total
Shares Amount Excess of Par Compensation Shares Amount Deficit Equity
------ ------ ------------- ------------ ------ ------ --------- ------
BALANCE AT DECEMBER 31, 2005 5,103 $ 51 $49,747 $(354) 106 $(937) $(11,707) $36,800
Restricted Stock Grant 32 -- 400 (400) -- -- -- --
Stock grant amortization -- -- -- 96 -- -- -- 96
Options and warrants exercised 108 1 315 -- 10 (121) -- 195
Stock Option expense -- -- 60 -- -- -- -- 60
Cancellation of Treasury Stock (116) (1) (1,057) -- (116) 1,058 -- --
Net income for the quarter ended 03/31/06 -- -- -- -- -- -- 476 476
----- ---- ------- ----- ----- ----- -------- -------
BALANCE AT MARCH 31, 2006 5,127 $ 51 $49,465 $(658) -- $ -- $(11,231) $37,627
===== ==== ======= ===== ===== ===== ======== =======
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,
-------------------
2006 2005
------- ------
Cash flows from operating activities:
Net income ..................................................... $ 476 $ 314
Adjustments to reconcile net income to
Net cash provided by (used in) operating activities:
Depreciation and amortization ................................ 1,401 1,298
Deferred income tax provision ................................ 216 127
Stock-based compensation ..................................... 96 60
Changes in assets and liabilities Decrease (increase) in assets:
Pharmaceutical and other accounts receivable .............. (385) (205)
Prepaids and other current assets ......................... (1,521) (1,807)
Other assets .............................................. (61) (117)
Increase (decrease) in liabilities:
Accounts payable .......................................... (294) 263
Accrued liabilities ....................................... (974) (171)
Due to medical practices .................................. (965) (1,255)
Shared Risk Refund program patient deposits ............... 270 1,045
-------- --------
Net cash provided by (used in) operating activities ................ (1,741) (448)
Cash flows from investing activities:
Payment for exclusive FertilityPartners service rights ......... -- (3,325)
Purchase of fixed assets and leasehold improvements ............ (683) (2,078)
-------- --------
Net cash provided by (used in) investing activities ................ (683) (5,403)
Cash flows from financing activities:
Principal repayments on debt ................................... (357) (287)
Principal repayments under capital lease obligations ........... (18) (16)
Exercise of common stock options and warrants .................. 195 187
-------- --------
Net cash provided by (used in) financing activities ................ (180) (116)
Net increase (decrease) in cash and cash equivalents ............... (2,604) (5,967)
Cash and cash equivalents at beginning of period ................... 22,521 11,300
-------- --------
Cash and cash equivalents at end of period ......................... $ 19,917 $ 5,333
======== ========
Supplemental Information:
Interest paid ................................................. $ 282 $ 228
Income taxes paid ............................................. $ 969 $ 75
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, 2006, 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, 2006. These financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in IntegraMed America's Annual Report on Form 10-K for the year ended December
31, 2005.
Certain amounts from our March 31, 2005 presentations have been
reclassified to conform with our current 2006 presentation.
NOTE 2 -- COMMON SHARES OUTSTANDING:
All common share numbers reported herein reflect the 30% Stock Split effected
in the form of a Dividend declared by the Board of Directors on May 23, 2005 and
paid to shareholders on June 22, 2005.
NOTE 3 -- 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, 2006 and
2005 is as follows (000's omitted, except for per share amounts):
For the
three-month period
ended March 31,
-------------------
2006 2005
------ ------
Numerator
Net Income ................................... $ 476 $ 314
====== ======
Denominator
Weighted average shares outstanding (basic) .. 5,201 4,740
Effect of dilutive options and warrants ...... 102 270
------ ------
Weighted average shares and dilutive potential
Common shares (diluted) ................. 5,303 5,010
====== ======
Basic EPS .................................... $ 0.09 $ 0.07
====== ======
Diluted EPS .................................. $ 0.09 $ 0.06
====== ======
For the three-month periods ended March 31, 2006 and 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 was less than the
average market price of the shares of Common Stock.
7
INTEGRAMED AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
NOTE 4 -- SEGMENT INFORMATION:
We follow the requirements contained in Statement of Financial Accounting
Standards (SFAS) No.131, "Disclosures about Segments of an Enterprise and
Related Information," with respect to identifying and reporting business
segments. This statement requires that segment reporting reflect our
organizational structure, major revenue sources, lines of responsibility and
senior management's perspective of an organization. In order to better execute
our business strategy and prepare for opportunities offered in the healthcare
marketplace, we modified our reporting segments in 2005. We currently report two
major lines of business, our Provider Services, which is comprised of our
FertilityPartners and Affiliate segments, and our Consumer Services, which is
comprised of our Shared Risk and Pharmaceutical segments.
Providers Consumers
--------------------- ----------------------
Fertility Shared
Corporate Partners Affiliates Risk Pharmaceutical Consolidated
--------- --------- ---------- ------ -------------- ------------
For the three months ended March 31, 2006
Revenues............................. $ -- $27,517 $279 $2,505 $ 153 $30,454
Cost of Services..................... -- 25,031 1 1,640 -- 26,672
------- ------- ---- ------ ----- ------
Contribution......................... --- 2,486 278 865 153 3,782
Operating Margin..................... -- 9.0% 99.6% 34.5% 100.0% 12.4%
General and administrative........... 3,052 -- -- -- -- 3,052
Interest, net........................ (62) -- -- -- -- (62)
------- ------- ---- ------ ----- ------
Income before income taxes........... (2,990) 2,486 278 865 153 792
Depreciation expense included above.. $ 139 $ 908 $ -- $ -- $ -- $ 1,047
Capital expenditures................. $ 174 $ 509 $ -- $ -- $ -- $ 683
Total assets......................... $21,633 $41,219 $ 90 $ 523 $ 539 $64,004
For the three months ended March 31, 2005
Revenues............................. $ -- $25,487 $247 $1,510 $4,739 $31,983
Cost of Services..................... -- 22,967 52 1,060 4,551 28,630
------- ------- ---- ------ ----- ------
Contribution......................... -- 2,520 195 450 188 3,353
Operating Margin..................... -- 9.9% 78.9% 29.8% 4.0% 10.5%
General and administrative........... 2,834 -- -- -- -- 2,834
Interest, net........................ (3) -- -- -- -- (3)
------- ------- ---- ------ ----- ------
Income before income taxes........... (2,831) 2,520 195 450 188 522
Depreciation expense included above.. $ 92 $ 853 $ -- $ -- $ -- $ 945
Capital expenditures................. $ 264 $ 1,814 $ -- $ -- $ -- $ 2,078
Total assets......................... $ 6,894 $44,874 $ 82 $ 486 $1,606 $53,942
As of December 31, 2005
Total assets......................... $21,934 $41,207 $ 46 $ 241 $2,147 $65,575
NOTE 5 - DUE TO MEDICAL PRACTICES
Due to Medical Practices is comprised of the net amounts owed by us to
medical practices contracted as FertilityPartners. This balance is comprised of
amounts due to us by the medical practices for funds, which we advanced for use
in financing their accounts receivable, less balances owed to the medical
practices by us for undistributed physician earnings and patient deposits we
hold on behalf of the medical practices.
8
As of March 31, 2006 and December 31, 2005, Due to Medical Practices was
comprised of the following balances:
2005 2004
-------- --------
Advances to FertilityPartners ..... $(13,529) $(12,727)
Undistributed Physician Earnings .. 2,534 3,721
Physician practice patient Deposits 14,979 13,955
-------- --------
Due to Medical Practices, net ..... $ 3,984 $ 4,949
======== ========
NOTE 6 -- STOCK-BASED EMPLOYEE COMPENSATION:
As of March 31, 2006, we had two stock-based employee compensation plans,
which are described more fully in Note 13 of the financial statements in our
most recent Annual Report on Form 10-K.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share
Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees". In 2005, we used APB Opinion No.
25 to account for the value of stock options granted to employees. Effective
January 1, 2006, we adopted SFAS No. 123(R). In the first quarter of 2006, the
adoption of SFAS No. 123(R) resulted in a charge to earnings of $60,000 for the
value of outstanding stock options issued in prior years. As of March, 31, 2006,
we also had approximately $27,000 of unrecognized compensation cost related to
non-vested stock options which had been previously granted under our plans. That
cost is expected to be recognized during the second quarter of 2006. This
expected cost does not include the impact of any future stock-based compensation
awards.
We also issue restricted stock grants to several officers and members of
the Board of Directors. Stock granted to Board members vests immediately and
stock granted to officers vests over a period of three years. Our General and
Administrative expense includes compensation costs recognized in connection with
these restricted stock grants of $96,000 and $84,000 for the three month periods
ended March 31, 2006 and March 31, 2005 respectively.
NOTE 7 -- LITIGATION
From time to time, we are party to legal proceedings in the ordinary course
of business. As of March 31, 2006, none of these proceedings is expected to have
a material adverse effect on our financial position, results of operations or
cash flow.
NOTE 8 -- RECENT ACCOUNTING STANDARDS
We disclose our critical accounting policies in our Form 10-K filed with
the Securities and Exchange Commission. Since our most recent Form 10-K filing
on December 31, 2005, none of those policies has changed, nor has any been
added. At this time, there are no recently issued accounting standards which are
expected to have a material impact on us.
9
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, 2005.
Overview
IntegraMed America, Inc. offers products and services to patients and
providers in the fertility industry. We have developed a network comprised of
twenty-seven contracted fertility centers in major markets across the United
States, products and services designed to support fertility center growth,
products in the pharmaceutical and patient financing areas, and captive
insurance offerings. Nineteen affiliate fertility centers purchase discrete
service packages provided by us and have the right to distribute our consumer
products, and eight fertility centers have access to our entire portfolio of
products and services under our comprehensive FertilityPartners(TM) program. All
twenty-seven centers have access to our consumer services, principally
pharmaceutical products, and patient financing products.
The business strategy of our Provider Services segment is to leverage our
deep expertise and commitment to improved fertility center performance by
providing the best value-specific offerings and an overall long term
relationship. The business strategy of our Consumer Segment is to provide
products and services that make obtaining high quality care easier and more
affordable. The primary elements of our strategy include: (i) expanding our
network of fertility centers to the top 50 markets in the United States; (ii) ;
(iii) increasing revenues and profits at contracted fertility centers;; and,
(iv) increasing sales of pharmaceutical and treatment financing products to
fertility patients.
Major events impacting financial condition and results of operations
In December 2005, we amended our existing credit agreement with Bank of
America. The amended agreement is comprised of a renewal and increase in our
three-year revolving credit line to $10 million, and a new $10 million five-year
term loan, of which approximately $3.2 million was used to retire the
outstanding balance on our previous term loan. We believe that these credit
facilities will be sufficient to fund our current operational, capital
investment and acquisition plans.
Through September 30, 2005, we marketed pharmaceutical products directly to
patients throughout our network and we had contracted with ivpcare, inc. to
provide certain business services related to the distribution of and accounting
for these sales. Effective October 1, 2005, this agreement was terminated and
replaced by a new agreement between us and ivpcare, inc. Under the terms of the
new agreement, we are no longer a direct distributor of pharmaceutical products
to patients, as this function is being performed directly by ivpcare. Our
responsibilities are limited to marketing the products for which we will be
compensated. This compensation will approximate our previous contribution from
those pharmaceutical sales and services, and will be shown on a "net" rather
than "gross" basis. As a result, as of October 1, 2005, we no longer record
pharmaceutical sales, the related cost of sales and other costs related to
pharmaceutical distribution. We anticipate significant decreases in revenues and
cost of sales; however (assuming the same volume of pharmaceutical products is
distributed) contribution from operations and income before income taxes, as
well as net income, will be virtually unaffected by this contract change.
On May 23, 2005, the Company declared a 30% stock split effected in the
form of a stock dividend for all holders of record as of June 8, 2005. As a
result of this dividend, 1,129,141 new shares of the Company's common stock were
issued on the payment date of June 22, 2005. No fractional shares were issued as
all fractional amounts were rounded up to the next whole share. All weighted
average shares outstanding and earnings per share calculations have been
restated to reflect the stock split.
Effective January 1, 2005, we signed a FertilityPartners agreement to
supply a complete range of business, marketing and facility services to the
Reproductive Partners Medical Group, Inc. or RPMG, a fertility practice
comprised of six physicians in the Southern California market. Under the terms
10
of this 25-year agreement, our service fees are comprised of reimbursed costs of
services, a tiered percentage of revenues, and an additional fixed percentage of
RPMG's earnings. We also committed up to $0.5 million to fund any necessary
capital needs of the practice.
Effective January 1, 2005, the Company became a minority equity investor in
the Assisted Reproductive Technology Insurance Company, LTD, ("ARTIC"). ARTIC is
incorporated as an off-shore captive insurance company designed to offer
malpractice insurance to physicians and related facilities within the IntegraMed
network. IntegraMed's equity investment of $50,000 represents a 10% ownership
stake, which is accounted for on the equity basis. The remaining equity of ARTIC
is owned by participating physician groups. IntegraMed has agreed to provide
certain administrative and risk management related services to ARTIC for a
predetermined fee.
Results of Operations
The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in our statement of operations
for the quarters ended March 31, 2006 and 2005:
For the
three-month period
ended March 31,
-------------------
2006 2005
------ ------
Revenues, net:
Provider services ...................... 91.3% 80.5%
Consumer services ...................... 8.7% 19.5%
----- -----
Total revenues ....................... 100.0% 100.0%
Costs of services incurred:
Provider services ...................... 82.2% 72.0%
Consumer services ...................... 5.4% 17.5%
----- -----
Total costs of service ................ 87.6% 89.5%
Contribution:
Provider services ...................... 9.1% 8.5%
Consumer services ...................... 3.3% 2.0%
----- -----
Total contribution .................... 12.4% 10.5%
General and administrative expenses ...... 10.0% 8.9%
Interest income .......................... (0.7)% (0.3)%
Interest expense ......................... 0.5% 0.3%
----- -----
Total other expenses .................. 9.8% 8.9%
Income from operations before income taxes 2.6% 1.6%
Income tax provision ..................... 1.0% 0.6%
----- -----
Net income ............................... 1.6% 1.0%
Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
Our revenues decreased by $1.5 million, or 4.8%, to $30.5 million for the
three months ended March 31, 2006, as compared to $32.0 million for the same
period in 2005. The first quarter of 2005 included pharmaceutical distribution
revenue of $4.7 million, which due to a contract amendment as discussed above,
reduced our pharmaceutical revenue but did not reduce our contribution from
pharmaceutical sales. Other significant factors affecting our reported revenues
were as follows:
11
(i) Provider Services -
Revenues from our Provider Services unit, comprised primarily of
our FertilityPartners centers, Affiliate members and ARTIC
services, increased by $2.1 million, or 8.0% from the same quarter
in the prior year. Approximately $1.7 million of this increase was
the result of internal growth within our eight FertilityPartner
locations and is largely attributable to consumer marketing
campaigns initiated in the fourth quarter of 2005.
Revenues from our Affiliate clinics increased approximately $0.4
million in the first quarter of 2006 relative to the first quarter
of 2005, reflecting both our growing network of affiliated
fertility clinics, which increased from seventeen clinics as of
March 31, 2005 to nineteen clinics as of March 31, 2006, and our
ability to increase sales penetration at these clinics.
(ii) Consumer Services -
Our Shared Risk Refund program continued to see significant
double-digit year-to-year growth with first quarter 2006 revenues
of $2.5 million, an increase of $1.0 million, or 66%, above 2005
revenues of $1.5 million for the same period. We believe that this
program will show continued growth and are working to increase the
acceptance and sales penetration of this product to targeted
FertilityPartner and Affiliates locations within our network.
Pharmaceutical revenue was $0.2 million for quarter ended March
31, 2006, compared to $4.7 million for the same quarter in 2005.
This reduction in revenue is primarily the result of a change in
contract terms we initiated with our strategic partner in the
pharmaceutical business, which became effective on October 1,
2005. Under the new contract terms, we no longer record the sales
of pharmaceutical products as revenue and the cost of these
products as costs of sales, but rather report net marketing fees
associated with those sales. While these new terms do have an
effect on our reported revenues, they will not have any impact on
our net profit from those sales. As a result, reported revenues
for 2006 are not directly comparable with 2005 results.
Contribution for the quarter ended March 31, 2006 of $3.8 million increased
approximately $0.4 million, or 12.8%, from the same quarter in 2005. As a
percentage of revenue, our contribution margin for the quarter increased to
12.4% in 2006 relative to 10.5% in 2005 due primarily to the current
presentation of "net pharmaceutical revenue" as discussed above. The following
factors had a significant impact on contribution:
(i) Provider Services -
Contribution from our FertilityPartners segment of $2.5 million
for the first quarter of 2006 was essentially even with the
contribution in the prior year. Despite revenue growth of 8%,
previously disclosed fee reductions at three FertilityPartners
clinics reduced contribution growth. The year 2006 represents the
final year of our multi-year fee realignment program. With the fee
structures we currently have in place, we expect that continued
revenue growth in future years will directly translate into growth
in contribution.
Our Affiliate clinics generated contribution of $0.3 million in
2006, an increase of $0.1 million from their contribution in 2005.
This increase is primarily the result of a net addition of two
Affiliate clinics to our network since the first quarter of 2005.
(ii) Consumer Services -
Contribution from our Shared Risk Refund program rose by $0.4
million, or 92%, to $0.9 million for the quarter ended March 31,
2006, from $0.5 million in 2005. This growth is attributable to
increased patient volume and continued favorable pregnancy
outcomes, especially during early treatment cycles.
12
Pharmaceutical contribution of $0.2 million in 2006 was consistent
with the contribution level in 2005. As previously stated, the
change in contract terms with our strategic partner in the
pharmaceutical business was designed to have no effect on our
contribution from those underlying sales.
General and Administrative expenses are comprised of salaries, benefits,
corporate regulatory, operational, administrative and support costs which are
not specifically related to our clinical patient care or other product
offerings. These costs were $3.1 million in 2006, compared to $2.8 million for
the same period in 2005. Approximately $0.1 million of this increase relates to
wage and benefit items, with the remaining $0.2 million representing an increase
in general support and administrative costs.
Interest income increased to $221,000 for the quarter ended March 31, 2006,
from $100,000 in 2004. This increase is primarily attributed to interest income
earned on capital investments at several FertilityPartners clinics. Interest
expense increased to $159,000 for the first quarter of 2006, from $97,000 in
2005, primarily as a result of interest charges on our existing bank debt, which
is $4.2 million higher than the balance outstanding in 2005.
Our provision for income tax was approximately $0.3 million in 2006, or
39.9% of pre-tax income, compared to $0.2 million, or 39.8% of pre-tax income in
2005, with the increase of $0.1 million resulting primarily from higher income
levels in 2006 versus 2005. Our effective tax rates for both 2006 and 2005
reflect provisions for both state and federal income taxes.
Off-balance Sheet Arrangements
FASB Interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest
Entities" ("VIE's") addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. 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 VIE'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, 2006, we do not
have an interest in any VIE's where we are the primary beneficiary, therefore
the adoption of FIN 46 had no impact on our financial statements.
Liquidity and Capital Resources
As of March 31, 2006, we had approximately $19.9 million in cash and cash
equivalents on hand as compared to $22.5 million at December 31, 2005.
Additionally, we had working capital of approximately $7.9 million, at March 31,
2006, an increase of $1.2 million from working capital of $6.7 million as of
December 31, 2005. Our increased working capital is partially attributed to a
reduction in accrued liabilities and reduced balances due to medical practices.
Shared Risk Refund patient deposits, which are reflected as a current
liability, represent funds received from patients in advance of treatment
cycles. These deposits, which represent prepayments of future revenues from
patients without full insurance coverage, totaled approximately $5.0 million and
$4.7 million as of March 31, 2006 and December 31, 2005, respectively. These
deposits are a significant source of recurring cash flow and represent
interest-free financing for us.
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As of March 31, 2006, we did not have any significant contractual
commitments for the acquisition of fixed assets or construction of leasehold
improvements. However, we anticipate upcoming capital expenditures of
approximately $3.1 million for the remainder of 2006. These expenditures are
primarily related to the expansion of our existing FertilityPartners centers. We
believe that working capital, specifically cash and cash equivalents, remain at
adequate levels to fund our operations and our commitments for fixed asset
acquisitions. We also believe that the cash flows from our operations plus our
available credit facility will be sufficient to provide for our future liquidity
needs for the next twelve months.
In December 2005, we amended our existing credit facility with Bank of
America. The amended facility is comprised of a $10.0 million three-year
revolving line of credit and a $10.0 million 5-year term loan. As of March 31,
2006, approximately $9.6 million of the term loan was outstanding with a
remaining term of 4.75 years, and no balance was outstanding under the revolving
line of credit.
Each component of this amended credit facility 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 1.75% to 2.50% 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. As of March 31, 2006, interest on both the term
loan and revolving credit line were payable at a rate of approximately 6.36%.
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 in the credit
agreement. As of March 31, 2006, under the revolving line of credit the full
amount of $10.0 million was available, of which none was outstanding. The Bank
of America credit facility is collateralized by all of our assets. As of March
31, 2006, we were in full compliance with all applicable debt covenants.
We are also continuously reviewing our credit agreements and may renew,
revise or enter into new agreements from time to time as deemed necessary.
Significant Contractual Obligations and Other Commercial Commitments:
The following summarizes our contractual obligations and other commercial
commitments at March 31, 2006, 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................. $ 9,643,000 $1,428,000 $ 2,858,000 $ 5,357,000 $ --
Capital lease obligations..... 129,000 72,000 57,000 -- --
Operating leases.............. 47,204,000 6,509,000 10,901,000 8,944,000 20,850,000
FertilityPartners capital and
other obligations......... 500,000 500,000 -- -- --
Total contractual cash
obligations............... $57,476,000 $8,509,000 $13,816,000 $14,301,000 $20,850,000
Amount of Commitment Expiration Per Period
Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
-------- ---------------- ---------------- ------------- -------------
Lines of credit............... $10,000,000 $ -- $10,000,000 $ -- $ --
We also have commitments to provide working capital financing to our
FertilityPartners locations. A significant portion of this commitment relates to
our transactions with the medical practices themselves. Our responsibilities to
the medical practices are to provide financing for their accounts receivable and
to hold patient deposits on their behalf as well as undistributed physician
earnings. Disbursements to the medical practices generally occur on or before
the 20th business day of each month. The medical practice's repayment hierarchy
consists of the following:
(i) We provide a cash credit to the practice for billings to patients and
insurance companies;
(ii) We reduce the cash credit for clinic expenses that we have incurred on
behalf of the practice;
(iii) We reduce the cash credit for the base portion of our Service Fee which
relates to the FertilityPartners revenues;
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(iv) We reduce the cash credit for the variable portion of our Service Fee
which relates to the FertilityPartners earnings; and
(v) We disburse to the medical practice the remaining cash amount which
represents the physicians undistributed earnings.
We are also responsible for the collection of the FertilityPartners
accounts receivables, which we finance with full recourse. We continuously fund
these needs from our cash flow from operations, the collection of prior months'
receivables and deposits from patients in advance of treatment. 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 also 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. We have no other funding commitments to the FertilityPartners.
New Accounting Pronouncements
At this time, there are no recently issued accounting standards which are
expected to have a material impact on us.
Forward Looking Statements
This Form 10-Q and discussions and/or announcements made by or on behalf of
us, 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. Our actual results may
differ materially from those described in these forward-looking statements due
to the following factors: our ability to acquire additional FertilityPartners
agreements, our 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 us, 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. We are under
no obligation to (and expressly disclaim any such obligation) update or alter
any forward-looking statements whether as a result of new information, future
events or otherwise.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our interest income and expense items are sensitive to changes in the
general level of interest rates. At March 31, 2006 we had an outstanding balance
of approximately $9.7 million on our term loan. This borrowing has a remaining
term of 4.75 years, and bears interest at either the Prime Rate, or at LIBOR
plus a margin. As of March 31, 2006, this borrowing had an interest rate of
approximately 6.36%. We also receive interest income from short-term investments
and certain advances to FertilityPartner clinics, both of which are tied to the
Prime Rate. As of March 31, 2006, a one percent change in interest rates would
impact our pre-tax and net income by less than $10,000. As of March 31, 2006, we
have not entered into any interest rate swap transactions.
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,
2006 (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.
Section 404 of the Sarbanes-Oxley Act requires us to provide an assessment
of the effectiveness of our internal control over financial reporting as of the
end of fiscal year 2007. We are in the process of performing the system and
process documentation, evaluation and testing necessary to make its assessment.
We have not completed this process or its assessment. In the process of
evaluation and testing, we may identify deficiencies that will require
remediation.
(b) Changes in internal controls.
As of the end of the period covered by our previous Form 10-K, we
identified and disclosed a material weakness in our internal control over
financial reporting at one of our FertilityPartner locations. This weakness was
comprised of a lack of sufficient oversight over, and the proper segregation of,
duties with respect to the processes of initiating, authorizing, recording and
processing certain period end closing transactions, as well as the design
effectiveness of related fraud detection controls. To remediate this material
weakness, we have made certain personnel changes, changes in assigned roles and
responsibilities, and changes in procedures and processes for certain
transactions.
Other than these changes, 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.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are party to legal proceedings in the
ordinary course of business. As of March 31, 2006, none of
these proceedings is expected to have a material adverse
effect on our financial position, results of operations or
cash flow.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
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 19.
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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 12, 2006 By: /s/:John W. Hlywak, Jr.
----------------------------
John W. Hlywak, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
3.2(d) -- Copy of By-laws of Registrant (as Amended on March 6, 2006)
filed as exhibit with identical exhibit number to Registrant's
Report on Form 10-Q for the period ended March 31, 2006.
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 12, 2006.
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 12, 2006.
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 12, 2006.
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 12, 2006.
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