Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the IntegraMed third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator instructions) I would now like to turn today's call over to John Hlywak. Please go ahead, sir.

Thank you. Good morning. This is John Hlywak, Executive Vice President and CFO of IntegraMed. Thank you for participating in today's call. Joining me today is Jay Higham, President and Chief Executive Officer. Before we begin, I'd like to caution that comments made during this conference call by management may contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of IntegraMed. I encourage you to review the company's filings with the Securities and Exchange Commission, including without limitation, the company's Form 10-K and Form 10-Qs, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. The content of this conference call contains time-sensitive information that is accurate only as of today, October 27, 2008. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. I will now turn the call over to Jay. Jay?

Thank you, John. Good morning, everyone. And thank you for joining us today. Our results demonstrate ongoing growth and increased contribution across all three of our business units – fertility centers, consumer services, and vein clinics. Both on the top line and bottom line, we achieved record quarterly operating results in Q3 2008, despite an increasingly uncertain economy. While no business can be completely immune from the impact of economic forces, we believe our results point to the strength and value of our service model, as well as the resiliency of the segments of healthcare we occupy. We remain vigilant in monitoring the business in order to quickly identify if the larger macroeconomic forces do spill over into our chosen service markets. Total revenues for the three and nine-month periods ending September 30 grew 30% and 38% over their respective prior-year periods to $52.3 million and $147.8 million. Q3 and year-to-date EPS rose 18% and 10% respectively, to $0.13 and $0.32 in 2008 versus $0.11 and $0.29 for the prior-year periods. Please note that our acquisition of the Vein Clinic business did not take place until early August of last year. So the prior-year periods contain less than two months of contribution from this business. And the comparative results should be viewed in that context. Let me now make a few brief comments highlighting the performance of each of our business units, starting with our Fertility Centers business. IntegraMed achieved strong growth in new patient visits and same center revenue during the third quarter, reflecting continued strong patient demand and good execution. Importantly, this demand underscores our experience historically that the decision to start or expand a family remains a top priority for couples, even in challenging economic times. Overall revenues for our fertility centers business increased by 18% in…

Thank you, Jay. Third quarter revenues increased across all three business units on both a three and nine-month basis. Total revenues for Q3 2008 grew 30% to $52.3 million. And total revenues for the first nine months of 2008 grew 38% to $147.8 million versus last year. If we assume that we had acquired the VCA operations as of January 1, 2007, our pro forma Q3 revenue growth would have been 19% and pro forma revenue for the first nine months would have grown 18% in 2008 compared to 2007. While our segment revenues are reflected in today's news announcements, I will provide some same-center data to help you evaluate organic versus inorganic growth in our business segments. Same-center revenues from fertility centers under contract for greater than one year grew 11% and 9.7% for the three and nine-month periods to $33.7 million and $97.8 million respectively. Same-center consumer services revenue increased 18.4% and 16.8% for the three and nine-month periods to $5.4 million and $14.2 million respectively. And on a pro forma basis, if we look at our vein clinic comparisons, assuming we had purchased the business as of January 1, 2007, same-center vein clinics revenues grew by 11.8% and 8.4% in the three and nine-month periods of 2008. Third quarter and year-to-date revenues are based on 25 clinics. Moving onto contribution, a measure we use to illustrate the economic benefit we derive from each business unit, total contribution rose 14% to $5.1 million in Q3 2008 and reflects the addition of additional personnel and infrastructure investments we have made in these businesses to better support their long-term growth. While some of these investments have been nonrecurring in nature, much of it involves additional personnel, including key senior management and recurring cost that will continue to impact operating performance…

Thanks, John. Let me close by addressing a question being asked of all healthcare service companies, namely how well will your business hold up in a protracted recession. The simple answer is that we just don't know, as we are all in uncharted waters as far as the economy goes, and it would be foolish to think that we are somehow totally immune. Having said that, a key metric to look at is utilization or procedure volumes. Volume in our fertility center business increased 16% in the third quarter, volume in our consumer services or shared-risk refund program increased by 24% in the period, and volume in our vein clinics business increased 18%. And so far in October, we have continued to experience positive demand trends across all our businesses. While we have a few weaker regions, such as Florida, the overall demand has remained strong so far in Q4. While this is encouraging, and our teams are working very hard to achieve the strongest possible performance, we do caution that it is by no means a trend or an indicator of future performance, and we are watching our operations very closely. I also want to reemphasize that we continue to manage the company in a prudent, fiscally-disciplined manner to maximize revenue, profitability, and cash flow and seek to strengthen our already strong balance sheet. As always, we will make all necessary adjustments to our business model to reflect current market conditions to be certain that we maintain our company in a strong financial and market position. In closing, we remain confident in our business model and in the areas of medical specialty we have chosen. We believe we are well positioned from a capital and management standpoint to execute our business and we continue to explore opportunities to expand our footprint and better leverage our suite of services. That concludes my comments this morning. So let us now turn the call over to the operator to open the floor for questions. Operator, we are now ready to take those questions.

(Operator instructions) Your first question comes from Greg Williams with Sidoti & Company.

Morning, guys. And thanks for taking my call.

Hey, Greg.

Hi. John, you mentioned in the cash flow of operations, $2.5 million outflow from physicians I guess drawing on undistributed earnings. Can you maybe go into detail on what specifically that means and why that is happening?

What it means is that we would have a liability in use of their cash for a while and they are taking it down. And as I talked to some of the doctors, I guess it has been happening more later in the year now and they are concerned about higher tax rates next year. So they want to get it taxed at current rates rather than next year's rate – so assuming there will be a tax increase.

Okay. So they are assuming a tax increase, so they are just drawing on their cash today.

Right. That is all it is. There's no fear of anything else.

Okay. And that is in the – due to medical practice line?

Yes.

Okay, great. And while I got you, John, the fertility centers – you mentioned there's maybe some noise in the contribution margin of fertility centers. I see it is around 7.5% of revenue. Is there a way maybe we can quantify like without the noise, without the growth initiatives that you guys had what the fertility centers' contribution would have been?

Without the noise, probably about 10%.

Okay.

So that is the additional investments that we have going in there.

All right. And then CapEx, it has been a little bit bumpy. And I'm just wondering maybe you can hold our hands here as we model that out, tell us maybe what we can expect next quarter and maybe 2009 regarding capital investments?

Capital investments have – we are kind of bumpy, like you say, almost $4 million through the first nine months and a real small amount in Q3. Probably on a rolling 12 months, we are always about $5 million to $6 million.

$5 million to $6 million.

And much of that is growth CapEx. It is generally all growth CapEx. It is the expansion and relocation of clinics. It is adding to the vein centers. It is new computer equipment for efficiencies and effectiveness.

Okay. And just last question – great job on the G&A rationalization there. I'm just trying to figure out what you guys – what are you guys doing specifically in that line item? And is it safe to say you pruned out most that you can and sort of maybe seeing a plateau there? Or, are there other opportunities?

Well, what happened this year, Greg, is we had a very aggressive budget –

Okay.

– for ourselves internally and targets. And it is basically the lack of accrual for bonuses for senior management. There's a number of things that are going on. I mean, we are doing extremely well, but we set our targets a lot higher. And we are just not having to accrue bonuses.

Okay, great. Thanks, guys.

I don't know if it was great, but –

Great for your shareholders, I guess.

Okay.

Your next question comes from Richard West with Dutton Associates.

Morning, and a great quarter, obviously, considering what is going on in the rest of the economy. My question is directed toward the $3 million swing due to working capital training compensation for VCA. As you continue to increase the centers – you talked about getting four new VCA centers I believe next coming year. Will that stay the same level or be less?

I think it will probably be near the same level or even less. This year, we had a number of new physicians come onboard, a number of physicians that were replacements. It was rather an extraordinary year for VCA in adding and training physicians.

Yes, Richard, if you look at the – I would not equate that necessarily just to the new clinics. I mean, we actually had about twice the number of new physicians who joined this year and some other staff. It was part of sort of the getting control of the operations there. 2007 was a year of unusually high turnover in the physician ranks and some other key people. So we had a lot of investment requirements that I think would be more than the normal for just an ongoing basis.

In other words, it is not going to continue at that level.

I don't think so.

No, it came with all the doctors that joined you.

Yes.

And if you get four more, it could me not as – obviously, not as heavy. Well, thank you very much. And again, great quarter.

Thanks, Richard.

(Operator instructions) Your next question comes from Brooks O'Neil with Dougherty & Company.

Good morning, guys. I'm just curious if – you helped us a lot with the outlook in terms of the economy and the performance of the business, which sounds like it's holding up very well. Can you just give us any sort of anecdotal information you can see in terms of what might be called leading indicators in terms of appointments with doctors, the responses to your advertising efforts, and that kind of stuff? Are those holding up as well?

Sure. Let us go down through the businesses. The fertility centers, which are the "owned centers", the capital intensive component of our business, we are tracking that on a weekly-monthly basis. And we look at inquiries. We look at patient visits scheduled. We look at new patient, actual new patient visits. Then we look at a variety of other statistics. And one of the things – new patient visits are growing at a historic rate comparable to the revenue growth. So we have a lot of patients that are in the pipeline right now. That continues to grow. We are not seeing any softening in that area. One of the metrics that I do look at quite carefully is the conversion rate from new patient visits to IVF cycles. And the IVF cycle, the treatment there is the high-ticket item for us. That is where a whole bunch of our revenue is tied up. And one of the things that we were tracking earlier in the year, actually from about the second quarter of last year through the first quarter of this year, 2008, was that the conversion rate was starting to drop a little bit from, say, 53% down to closer to 47%, 48%. But from the first quarter on through the third quarter of this year, that's built back up. And we are back up over 50%, 51%. So I think it is sort of a normal fluctuation in that business that we see. And I'm not at this point identifying any meaningful trend that is not just sort of normal noise that would cause us to be really concerned. With that said, I think all of us here are sort of sitting on pins and needles and just being very watchful and cautious and concerned with what…

Sure. That was a very thoughtful and impressive answer to the question. Clearly, you are tracking a lot of different metrics, which is very helpful. I'm just curious if we could take to two different but related directions. A, on one hand, are there ways you can take advantage of the current softening in the marketplace in terms of accelerated growth opportunities, more acquisition opportunities, et cetera? And then conversely, if you did start to see a slowdown, I'm just curious – what are some of the more basic steps you might take to respond to that?

Well, I think the answer for one is the flip-side of the coin for the other. The things that we can do most quickly to respond to a softening of demand is to – the thing that we are most concerned about at that point is cash. And the things that we can – the steps that we can take there are to slowdown new clinic openings, slowdown our expansion effort. Those are the things that eat up big chunks of cash. We feel like we do run a very lean operation here. And I'm not too sure how hard we are going to be able to squeeze on some of those other areas, but we could certainly slowdown on the continued expansion program that we have. And so the acquisition opportunities – yes, I mean, we are seeing a greater demand right now or level of inquiry. And this is on the vein clinic side – or I'm sorry, on the fertility center side, because that's where we do the acquisitions. We do have a number of opportunities that we are looking at very strongly. We are trying to be very prudent and cautious in those deals. The pricing has come down very substantially over the years. And so, we are being conservative and we are taking advantage of our increased size and strength in that marketplace. So I think we are doing those transactions in a very prudent manner. And we will look for attractive opportunities to continue to pursue right now. Our deals in that area are accretive immediately. So it does eat up some cash initially. Those centers are capital intensive. So the typical deal is going to cost us between $2 million and $4 million by the time you figure in working capital and assets and receivables and the buy in to the arrangement. So it is a capital-intensive situation. But it becomes very quickly strongly accretive for us. So we do look favorably on those deals. The vein clinic operations do eat up cash when we first launch them. And it takes nine months to a year for them to start returning. So that is an area where we could slow down. But we are going to be cautious.

All that makes sense. Last question – I'm just curious. Clearly, it sounds like the non-accrual of executive bonuses probably isn't going to make anybody too happy. And I'm assuming it is a relatively temporary phenomenon. Maybe you could talk about exactly how much was saved, and sort of what the outlook for that number would be going forward.

Let's see. We – yes, probably $500,000 to $750,000; something in that nature. It is a program that goes down through the whole company. So it is not a situation that personally I'm thrilled about, but it is the nature of the business. We have some very good years. Last year was a very good year; this year not so good. And I actually went into the year anticipating that we probably weren't going to have as strong a year from a bonus point of view because the acquisition of VCA in my mind was a long-term situation that we were going to – if we were going to go into the year with the expectation that VCA was going to be neutral and that we were building up G&A expenses to support a bigger organization and a more successful organization down the road, then asking the shareholders to bear the entire brunt of that burden wasn't fair. Management should be in the same boat as that. So we do have a bonus program. My expectation was that the payouts were going to be somewhat meager this year and that is how we are running the company.

That makes sense. Jay, thanks a lot.

No problem.

Your next question comes from Kevin Ellich with RBC Capital Markets.

Good morning. And thanks for taking my question. Just going back to your comment on the fertility clinics business, I think you said volumes were up 16%. I was just wondering if you guys break that out same store versus acquisition.

Well, we don't do acquisitions in that business, at least we haven't historically. Yes, if you look at the same store, it's up on a procedure level by – well, we can give you this in a variety of different ways. If you look at it on a – based on total consultations, which is a really good indicator, actually the same clinic – the same store, if you will, is up 16% and the total business is up 36%. That is in the month of December – I'm sorry, September. In the year-to-date period, it is 2% for the same store and 14% for all clinics. So you can see that we – as I mentioned earlier, during the first half of the year, there was a bit of a slowdown in that area based on a need to retool the marketing. And we have really over the last – this last couple of months, have really accelerated the pace with that new marketing program. So we are very pleased about that.

Right. So that's – the 16%. But that includes the center – the southeastern facility center that came in April 2008 and the Arizona Reproductive Medical Associates –

I'm sorry. I thought you talking about the vein clinics.

No, fertility centers.

Okay. I'm sorry. Fertility centers – and the question there is –

What was the same-store volume?

Same store there is 9.7%. And with everybody, it's 16%.

Okay. And then how about on the consumer services? There’s no acquisitions in that number. Is that correct?

There's no acquisitions, but we do add clinics –

Okay.

– with clinic contracts. And we did break out that same-store number for you on that one.

Okay. That's pretty much all I had. Thank you.

Sure.

Your next question comes from Kevin Goldstein with Great Gable Partners.

Hi, guys.

Hi, Kevin.

Hi. I have a few questions for you about the shared-risk business. I guess I'm trying to assess firstly how these incremental affiliates that you have announced – the four in the last year and the four you project next year – how will affiliate – new affiliates contribute to the shared-risk business? I mean, can you answer that maybe – can you tell us historically how much of your shared-risk revenue comes from affiliates rather than from owned partners?

Yes, it has been about 50/50. So about half of the volume comes from our partners, and half of it comes from the affiliates. So it's – and we have almost twice the number of affiliates that we do partners. And if you look at the number of IVF cycles performed in our partners as compared to the affiliates is also about 50/50. So we are getting very similar penetration into the affiliate network that we are getting into the partner network.

Okay. So I should view for that piece of the business – it doesn't matter if it is partner or an affiliate, if you actually add one, it is incremental revenue. I mean, can you give us dollar volume? I should just – I guess I can just – can I just divide by the total number and say – ?

Yes, we have some really big centers and some smaller centers. I suppose you could probably – I haven't looked at it that way, Kevin. It takes a while for these centers to ramp up. So I don't anticipate that the year that we get an affiliate that we're going to have much in the way of contribution from that affiliate. So the difference in my mind between a partner and the affiliate is really – one of the differences is that a partner deal has an immediate impact both on top and bottom line for us, whereas an affiliate has a much longer ramp up curve.

And one more question along the same lines – on the balance sheet, the shared-risk patient deposits increased 18% year-over-year. But as you said earlier, the applications and enrollments increased in the mid 20s. So I just – is there – can you explain the difference why patient deposits is lagging enrollments, which I – I would assume is very similar?

Yes, it's – you have to also take a look at the pregnancy rates, Kevin. And the pregnancy rates are higher this year than they were last year, so we have faster turnover and money moving out of the balance sheet into the P&L.

Okay. Thanks. Great quarter, and keep up the good work.

Thank you.

(Operator instructions) Your next question is a follow-up question from Kevin Ellich with RBC Capital Markets.

I did have one or two other questions. Sorry about this. Going back to your comments about the approval rates in the consumer services business, I think you said it's about 42% to 43%.

Correct.

How has that trended historically? I mean, is that kind of the average? And then where do you guys think that can move to?

It's been – as I said, if you look at the trailing 12 months, it has 43% approval rating. And then if you take the previous year trailing 12 months through September, it was 42%. So it's very consistent. The loan closure rate for the trailing 12 months as of – through this September was 70%. And for the previous year trailing 12 months, it was 65%. So the big change really came in funding, closing on loans. I mean, we had approvals very similar to what we have had. As I said, FICO scores have been identical. So the approvals have really stayed very consistent. But what's happening is, it looks like a greater percentage of the people who are approved, ultimately do enroll or fund their loan. And I think the average funding level is starting to increase a little bit also.

So would you say based off of those metrics – sorry to interrupt you, but given the economic downturn in the housing bubble, it seems like credit quality for consumers has actually gotten worse. But yet, you are seeing higher loan closure rates while FICO scores have remained constant. So would you say your average patient is kind of resilient to the economic downturn, or is it a different subset of the average consumer?

Sure. Let me sort of complete the story here.

Okay.

So the average funding level per case, if you will, per patient or per person is – for the trailing 12 months was $13,928, versus the previous year's trailing 12 months was $1,000 less.

Okay.

So we are seeing an increase in the level of spending. Part of that might be more people entering higher-ticket item – entering, for instance, this shared-risk program, which has an average case rate of almost $23,000. So we're getting a greater penetration of shared risk into this population. What Capital One tells us is that the fertility marketplace historically has had fewer delinquencies than other healthcare markets where – and they have a unit that specializes in healthcare lending – consumer lending for healthcare, which we're part of. And historically, the fertility market has had a lower delinquency level. I'm not sure if it's had better credit versus worse credit. I just don't know that. But the delinquencies are lower. They like this market. And they are not cutting back, they are not slowing down. They haven't been changing their credit policy or the way in which they evaluate these loans because they have been pretty stable and a good-performing sector of their business.

That's pretty interesting relative to other cosmetic – obviously, your business is much different than the cosmetic type of procedures. And then lastly, just thinking about during an economic downturn, is the fertility business or the demand for it a leading or a lagging type of service that consumers look to get you think?

I'm sorry. I lost the last part, leading or lagging – ?

Do you think it's a leading or lagging type of indicator? Do you think it leads or lags a downturn?

Honestly –

If volumes were to drop off?

Yes, based on historical data that we have – and I've been here for almost 15 years now, I couldn't tell you that there was a leading or lagging indicator that correlates with the economy at all. We've never seen any impact. As I mentioned before, we have noticed some softening in the Florida market, actually in both components of the business, the fertility centers as well as the vein clinics. I will say that Consumer Services has done very well in that market and with a very strong level of patient demand. So I just – I can't tell you that there is any correlation whatsoever that we have been able to identify. And as I said before, I want to caution that the last time we had a downturn back in 2000, 2001, this obviously feels a lot different from a macroeconomic point of view. So I just don't – frankly, I'm not going to speculate as to how this is going to pan out.

Okay. Okay. That's fair. And then are there any other markets that you could point to that you're seeing some softness or weakness out of?

No, not really. I mean, you hear anecdotal things here and there, but it's just nothing that's a trend or a consistency or something that we can isolate out separate from sort of an operational issue. For instance, even in the Florida situation, we have had a couple physicians who have not been as available for various personal reasons and who are big producers for us. So, some of the impact there is an operational issue and not necessarily an economic issue. And it hasn't been a profound drop either. It's been sort of just a general not quite making their budget situation. We keep looking under every rock. We are hard pressed to identify anything that's a meaningful trend. I thought I had identified a trend earlier, which was – I mentioned earlier in this call, which was the drop off in conversion from new patient into IVF. And that bounced back. And I think if we looked at that over a longer period of time, there probably is a normal fluctuation in there. And so, I'm not even sure if that was economically driven.

Okay. Excellent. Thank you.

At this time, there are no further questions. I would like to turn the call back to Jay Higham for closing remarks.

Well, thank you all for joining us on today's conference call. We look forward to continuing to bring you news on our development and future communication with you. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.