MedAssets Reports Third Quarter and Nine Month 2012 Financial Results

Tue Oct 30, 2012 4:04pm EDT

* Reuters is not responsible for the content in this press release.

MedAssets Reports Third Quarter and Nine Month 2012 Financial Results

MedAssets, Inc. (NASDAQ: MDAS) today announced results for its third quarter and nine-month periods ended September 30, 2012. Third quarter results are summarized in the table below:

 

($ in millions, except per share)

   

3Q-12

 

3Q-11

 

% Change

Net Revenue:
Spend and Clinical Resource Mgmt (SCM) $ 99.1 $ 90.4 9.6 %
Revenue Cycle Management (RCM)   64.3   53.1   21.1  
Total Net Revenue 163.4 143.6 13.9 %
Non-GAAP acquisition-related purchase
accounting revenue adjustments a   --   0.2   nm
Total non-GAAP Net Revenue b 163.4 143.7 13.7 %
Net income (loss) 5.5 (1.0 ) nm
Earnings (loss) per share (EPS) – diluted 0.09 (0.02 ) nm
Non-GAAP adjusted EBITDA 57.0 45.2 26.0 %
Non-GAAP adjusted EPS - diluted $ 0.32 $ 0.26 23.1
Weighted average shares - diluted c 59.5 57.4 3.7 %

 

 

(a) Non-GAAP acquisition-related purchase accounting revenue adjustments reflect net revenue that would have been recognized after completion of the Broadlane acquisition if not for the GAAP-related purchase accounting revenue adjustments. A detailed explanation is provided under “Use of Non-GAAP Financial Measures” following the accompanying financial schedules.

(b) Column amounts may not add to total amount due to rounding.

(c) Given the Company’s net loss for the three months ended September 30, 2011, basic and fully diluted weighted average shares are the same for EPS and non-GAAP adjusted EPS.

Net Revenue

Third Quarter

Total net revenue for the third quarter of 2012 increased 13.9% to $163.4 million from $143.6 million in the third quarter of 2011. Comparing period-over-period organic growth, total net revenue of $163.4 million in the third quarter of 2012 increased 13.7% from total non-GAAP net revenue of $143.7 million (including non-GAAP acquisition-related purchase accounting revenue adjustments) in the third quarter of 2011. Net revenue in the SCM segment grew 9.4% to $99.1 million from non-GAAP net revenue of $90.6 million in the third quarter of 2011 primarily due to continued growth in group purchasing-related net administrative fees as well as the recognition of certain guarantee-related revenue and performance fees. Net revenue in the RCM segment increased 21.1% to $64.3 million from $53.1 million in the third quarter of 2011 as technology-related revenue grew 14.5%, due to growth in subscription fees from multiple products, while services-related revenue increased 36.8% from growth in both new and existing clients.

Nine-Month Period

Total net revenue for the first nine months of 2012 increased 13.0% to $476.3 million from $421.5 million in the first nine months of 2011. Comparing period-over-period organic growth, total net revenue of $476.3 million in the first nine months of 2012 increased 11.4% from total non-GAAP net revenue of $427.7 million in the first nine months of 2011. Net revenue in the SCM segment grew 10.2% to $294.5 million from non-GAAP net revenue of $267.1 million in the first nine months of 2011. Net revenue from the RCM segment increased 13.2% to $181.8 million from $160.6 million in the first nine months of 2011 as technology-related revenue grew 13.0% and services-related revenue increased 13.8%.

Non-GAAP Adjusted EBITDA

Third Quarter

Total non-GAAP adjusted EBITDA was $57.0 million, or 34.9% of total net revenue, in the third quarter of 2012, a 26.0% increase over total non-GAAP adjusted EBITDA of $45.2 million, or 31.4% of total non-GAAP net revenue, in the third quarter of 2011.

Nine-Month Period

In the first nine months of 2012, total non-GAAP adjusted EBITDA was $152.4 million, or 32.0% of total net revenue, a 16.8% increase over total non-GAAP adjusted EBITDA of $130.4 million, or 30.5% of total non-GAAP net revenue, in the first nine months of 2011.

Net Income and Non-GAAP Adjusted Earnings Per Share (EPS)

Third Quarter

Net income in the third quarter of 2012 was $5.5 million, or $0.09 per share, versus a net loss of $1.0 million, or a loss of $0.02 per share, in the third quarter of 2011.

Non-GAAP adjusted EPS, defined as EPS excluding non-cash acquisition-related intangible amortization and depreciation, non-cash share-based compensation, certain acquisition and integration-related expenses and non-recurring items on a tax-adjusted basis, increased 23.1% to $0.32 per share in the third quarter of 2012, versus non-GAAP adjusted EPS of $0.26 per share in the third quarter of 2011.

Nine-Month Period

Net income in the first nine months of 2012 was $7.5 million, or $0.13 per share, versus a net loss of $19.6 million, or a loss of $0.34 per share, in the first nine months of 2011. The first nine months of 2011 was impacted by acquisition and integration-related expenses associated with the purchase of Broadlane in November 2010.

Non-GAAP adjusted EPS was $0.84 per share in the first nine months of 2012, a 27.3% increase over non-GAAP adjusted EPS of $0.66 per share in the first nine months of 2011.

Cash Flow and Capital Resources

Cash provided by operating activities in the first nine months of 2012 was $107.7 million, a 42.3% increase from $75.7 million in the first nine months of 2011. The Company’s balance sheet at September 30, 2012 included $890.7 million in total bank and bond debt, net of cash and cash equivalents. The Company prepaid $30 million of bank debt in the third quarter along with its scheduled principal payments, in addition to $25 million in prepayments earlier in the year. Total net debt equates to leverage of approximately 4.3 times non-GAAP adjusted EBITDA for the trailing twelve-month period.

Updated 2012 Financial Guidance

MedAssets raised its full-year 2012 net revenue guidance and narrowed its adjusted EBITDA and EPS guidance, as follows:

($ in millions, except per share)

 

FY 2012

 

Y-Y % change

Net Revenue:
SCM segment $ 389.5 – 394.5 5.2 - 6.6 %
RCM segment   241.5 – 244.5 12.7-14.1  
Total Net Revenue

633.0 - 637.0

8.3 - 9.0
Non-GAAP adjusted EBITDA

200.0 - 206.0

8.6-11.9

%

GAAP EPS – diluted 0.14 - 0.21 nm
Non-GAAP adjusted EPS – diluted $ 1.07 - 1.13 8.1-14.1 %

Non-GAAP Contracted Revenue

At September 30, 2012, MedAssets rolling 12-month non-GAAP contracted revenue estimate was $603.4 million (SCM segment - $370.6 million; RCM segment - $232.8 million), a year-over-year increase of 7.5%. Non-GAAP contracted revenue is the Company’s estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period.

Conference Call Information

Time/Date: 5:00 p.m. ET today, Tuesday, October 30, 2012
Phone: 866-200-6965 (or 646-216-7221 for international/local callers), PIN code 77897238
Webcast: http://ir.medassets.com, “Events & Presentations” page; Archive will be available for over 30 days
Replay: Call 866-206-0173 or 646-216-7204 (PIN code 276968)

About MedAssets

MedAssets (NASDAQ: MDAS) partners with healthcare providers to improve their financial strength by implementing revenue cycle, spend and clinical resource management solutions that help capture revenue, control cost, improve margins and cash flow, increase regulatory compliance, and optimize operational efficiency. MedAssets serves more than 4,200 hospitals and 100,000 non-acute healthcare providers. The company currently manages $48 billion in supply spend and touches over $340 billion in gross patient revenue annually through its revenue cycle solutions. For more information, go to www.medassets.com.

Use of Non-GAAP Financial Information

In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the Company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; acquisition-related purchase accounting revenue adjustments; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; and contracted revenue. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures, where possible, are included in the accompanying financial schedules. Also, see "Use of Non-GAAP Financial Measures" following the financial schedules for more information.

Safe Harbor Statement

This Press Release contains forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, and include the intent, belief or current expectations of the Company and its management team with respect to the Company’s future business operations that include, but are not limited to: 2012 financial guidance, revenue growth and other financial projections and forecasts; and the Company’s ability to successfully integrate and capitalize on synergies associated with acquisitions. Any forward-looking statements are not guarantees of future performance, involve risks and uncertainties, and actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Press Release include, but are not limited to: failure to realize improvements in performance, efficiency and profitability; failure to complete anticipated sales under negotiations; failure to successfully implement revenue backlog; lack of revenue growth; client losses; and adverse developments with respect to the operation or performance of the Company’s business units or the market price of its common stock. Additional factors that could cause actual results to differ materially from those contemplated within this Press Release can also be found in the Company’s Risk Factor disclosures in its Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission and available at http://ir.medassets.com. The Company disclaims any responsibility to update any forward-looking statements.

mdas/F

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
                               
In 000s, except per share data Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011   % Change     2012     2011   % Change  
Revenue:
Administrative fees, net $ 68,641 $ 62,635 9.6 % $ 200,752 $ 179,032 12.1 %
Other service fees   94,800     80,923   17.1 %   275,589     242,459   13.7 %
 
Total net revenue   163,441     143,558   13.9 %   476,341     421,491   13.0 %
 
Operating expenses:
Cost of revenue 34,570 29,528 17.1 % 100,583 90,571 11.1 %
Product development expenses 7,217 6,771 6.6 % 20,777 19,646 5.8 %
Selling and marketing expenses 12,983 12,853 1.0 % 46,709 43,454 7.5 %
General and administrative expenses 55,167 53,196 3.7 % 165,577 149,107 11.0 %
Acquisition and integration-related expenses 1,535 3,742 -59.0 % 4,812 22,713 -78.8 %
Depreciation 7,721 5,507 40.2 % 21,416 16,414 30.5 %
Amortization of intangibles   17,840     20,228   -11.8 %   55,251     60,700   -9.0 %
 
Total operating expenses   137,033     131,825   4.0 %   415,125     402,605   3.1 %
 
Operating income 26,408 11,733 125.1 % 61,216 18,886 224.1 %
Other income (expense):
Interest expense (16,672 ) (17,818 ) -6.4 % (50,722 ) (53,942 ) -6.0 %
Other income   114     2,490   nm   449     2,770   nm
 
Income (loss) before income taxes 9,850 (3,595 ) nm 10,943 (32,286 ) nm
Income tax expense (benefit)   4,386     (2,612 ) nm   3,467     (12,645 ) nm
 
Net income (loss) 5,464 (983 ) nm 7,476 (19,641 ) nm
 
Basic net income (loss) per share   0.09     (0.02 ) nm   0.13     (0.34 ) nm
 
Diluted net income (loss) per share $ 0.09   $ (0.02 ) nm $ 0.13   $ (0.34 ) nm
 
Weighted average shares — basic 57,693 57,410 57,239 57,334
Weighted average shares — diluted 59,513 57,410 3.7 % 58,896 57,334 2.7 %
 
 

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
       
September 30, December 31,
In 000s, except share and per share amounts   2012     2011  
 
ASSETS
Current assets
Cash and cash equivalents $ 8,234 $ 62,947

Accounts receivable, net of allowances of $3,258 and $3,891 as of September 30, 2012 and
December 31, 2011

94,884 104,039
Deferred tax asset, current 16,291 15,434
Prepaid expenses and other current assets   21,088     18,488  
 
Total current assets 140,497 200,908
 
Property and equipment, net 119,909 101,471
Other long term assets
Goodwill 1,027,847 1,027,847
Intangible assets, net 347,703 403,371
Other   55,027     61,381  
Other long term assets   1,430,577     1,492,599  
 
Total assets $ 1,690,983   $ 1,794,978  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 15,779 $ 21,185
Accrued revenue share obligation and rebates 71,477 70,906
Accrued payroll and benefits 28,971 33,265
Other accrued expenses 22,870 17,811
Current portion of deferred revenue 51,179 48,459
Deferred purchase consideration - 120,136
Current portion of notes payable 6,350 6,350
Current portion of finance obligation   228     213  
 
Total current liabilities 196,854 318,325
 
Notes payable, less current portion 567,538 572,300
Bonds payable 325,000 325,000
Finance obligation, less current portion 9,108 9,287
Deferred revenue, less current portion 14,038 14,148
Deferred tax liability 130,263 129,635
Other long term liabilities   10,378     7,670  
 
Total liabilities 1,253,179 1,376,365
 
Stockholders’ equity

Common stock, $0.01 par value, 150,000,000 shares authorized; 58,841,000 and 57,857,000
shares issued and outstanding as of September 30, 2012 and December 31, 2011

588 579
Additional paid in capital 683,245 670,618
Accumulated other comprehensive loss (4,982 ) (4,061 )
Accumulated deficit   (241,047 )   (248,523 )
 
Total stockholders’ equity   437,804     418,613  
 
Total liabilities and stockholders’ equity $ 1,690,983   $ 1,794,978  
 
 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
  Nine Months Ended
In 000s September 30,       September 30,
  2012     2011  
 
Operating activities:
Net income (loss) $ 7,476 $ (19,641 )
 
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by operating activities:
Bad debt expense 485 781
Depreciation 22,769 17,231
Amortization of intangibles 55,668 61,117
Loss on sale of assets 370 116
Non-cash stock compensation expense 7,796 2,945
Excess tax benefit from exercise of equity awards (1,191 ) (1,814 )
Amortization of debt issuance costs 5,705 5,583
Noncash interest expense, net 392 2,974
Deferred income tax benefit (441 ) (17,203 )
 
Changes in assets and liabilities   8,652     23,598  
 
Cash provided by operating activities   107,681     75,687  
 
Investing activities:
Purchases of property, equipment, and software (11,779 ) (7,592 )
Capitalized software development costs   (31,045 )   (18,847 )
 
Cash used in investing activities   (42,824 )   (26,439 )
 
Financing activities:
Borrowings from revolving credit facility 90,000 -
Repayment of notes payable (94,763 ) (54,763 )
Repayment of finance obligation (507 ) (496 )
Payment of deferred purchase consideration (120,136 ) -
Excess tax benefit from exercise of equity awards 1,191 1,814
Issuance of common stock, net of offering costs 5,245 1,796
Purchase of treasury shares   (600 )   (781 )
 
Cash used in financing activities   (119,570 )   (52,430 )
 
Net decrease in cash and cash equivalents (54,713 ) (3,182 )
Cash and cash equivalents, beginning of period   62,947     46,836  
 
Cash and cash equivalents, end of period $ 8,234   $ 43,654  
 
 

SUPPLEMENTAL REVENUE REPORTING
RECONCILIATION OF GROSS FEES (A NON-GAAP MEASURE) TO NET REVENUE
(UNAUDITED)
     
In 000s Three Months Ended September 30,
  2012   2011 d   % Change  
Non-GAAP gross administrative fees $ 109,335 $ 96,649 13.1 %
Other service fees   94,800     80,933   17.1 %
Non-GAAP gross fees 204,135 RSO % 177,582 RSO % 15.0 %
Non-GAAP revenue share obligation (RSO)   (40,694 ) 37.2 %   (33,842 ) 35.0 % 20.2 %
Total net revenue $ 163,441 $ 143,740 13.7 %
 
In 000s
Nine Months Ended September 30,
  2012   2011 e   % Change  
Non-GAAP gross administrative fees $ 321,351 $ 289,929 10.8 %
Other service fees   275,589     244,042   12.9 %
Non-GAAP gross fees 596,940 RSO % 533,971 RSO % 11.8 %
Non-GAAP RSO   (120,599 ) 37.5 %   (106,235 ) 36.6 % 13.5 %
Total net revenue $ 476,341 $ 427,736 11.4 %
 
SUPPLEMENTAL SEGMENT REPORTING
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
 
In 000s Three Months Ended September 30,
  2012     2011   % Change  
Net revenue
Spend and Clinical Resource Management ("SCM") $ 99,112 $ 90,438 9.6 %
Revenue Cycle Management ("RCM")   64,329     53,120   21.1 %
Total net revenue 163,441 143,558 13.9 %
Non-GAAP acquisition-related purchase accounting
revenue adjustments d   -     182  
Total non-GAAP net revenue $ 163,441 $ 143,740 13.7 %
 
Non-GAAP Adjusted EBITDA % margin % margin
SCM $ 46,340 46.8 % $ 42,543 46.9 % 8.9 %
RCM 17,835 27.7 % 9,928 18.7 % 79.6 %
Corporate   (7,210 )   (7,266 ) -0.8 %
Total non-GAAP Adjusted EBITDA 56,965 34.9 % 45,205 31.4 % 26.0 %
 
In 000s Nine Months Ended September 30,
  2012     2011   % Change  
Net revenue
SCM $ 294,492 $ 260,884 12.9 %
RCM   181,849     160,607   13.2 %
Total net revenue 476,341 421,491 13.0 %
Non-GAAP acquisition-related purchase accounting
revenue adjustments e   -     6,245  
Total non-GAAP net revenue $ 476,341 $ 427,736 11.4 %
 
Non-GAAP Adjusted EBITDA % margin % margin
SCM $ 132,846 45.1 % $ 116,048 44.5 % 14.5 %
RCM 41,532 22.8 % 35,649 22.2 % 16.5 %
Corporate   (22,001 )   (21,269 ) 3.4 %
Total non-GAAP Adjusted EBITDA 152,377 32.0 % 130,428 30.5 % 16.8 %
 
(d) Figures for the three months ended September 30, 2011 include acquisition-related purchase accounting revenue adjustments of $0.2 million, which represents the net amount of: (i) approximately $0.3 million in gross administrative fees primarily based on vendor reporting received from July 1, 2011 through September 30, 2011 relating to purchases made prior to the acquisition date, and (ii) a corresponding revenue share obligation of $0.1 million relating to the same period. There were no related adjustments for the three month period ended September 30, 2012.
 
(e) Figures for the nine months ended September 30, 2011 include acquisition-related purchase accounting revenue adjustments of $6.2 million, which represents the net amount of: (i) approximately $9.4 million in gross administrative fees and $1.6 million in other service fees primarily based on vendor reporting received from January 1, 2011 through September 30, 2011 relating to purchases made prior to the acquisition date, and (ii) a corresponding revenue share obligation of $4.8 million relating to the same period. There were no related adjustments for the nine month period ended September 30, 2012.
 
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
 
 

SUPPLEMENTAL REPORTING OF ADJUSTED EBITDA
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
     
In 000s Three Months Ended September 30, Nine Months Ended September 30,
  2012     2011     2012     2011  
 
Net income (loss) $ 5,464 $ (983 ) $ 7,476 $ (19,641 )
 
Depreciation 7,721 5,507 21,416 16,414
Depreciation (included in cost of revenue) 536 306 1,353 815
Amortization of intangibles, acquisition-related 17,840 20,228 55,251 60,700
Amortization of intangibles, acquisition-related (included in cost of revenue) 139 139 417 417
Interest expense, net 16,672 17,818 50,717 53,928
Income tax expense (benefit)   4,386     (2,612 )   3,467     (12,645 )
 
Non-GAAP EBITDA $ 52,758 $ 40,403 $ 140,097 $ 99,988
 
Share-based compensation 2,781 2,123 7,796 2,945
RCM management restructuring expenses - 1,204 - 1,204
Rental income from capitalized building lease (109 ) (109 ) (328 ) (327 )
Purchase accounting revenue adjustments - 182 - 6,245
Acquisition and integration-related expenses 1,535 3,742 4,812 22,713
Insurance settlement   -     (2,340 )   -     (2,340 )
 
Non-GAAP Adjusted EBITDA $ 56,965 $ 45,205 $ 152,377 $ 130,428
 
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
 
 

SUPPLEMENTAL NET INCOME AND EARNINGS PER SHARE REPORTING
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
  Three Months Ended September 30,   Nine Months Ended September 30,
In 000s, except per share data   2012           2011       2012           2011  
 
Net income (loss) $ 5,464 $ (983 ) $ 7,476 $ (19,641 )
 
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 18,453 20,912 57,088 62,753
Pre-tax non-cash, share-based compensation 2,781 2,123 7,796 2,945
Pre-tax non-cash, acquisition and integration-related expenses 1,535 3,742 4,812 22,713
Pre-tax, RCM management restructuring expenses - 1,204 - 1,204
Pre-tax, purchase accounting adjustments - 182 - 6,245
Pre-tax, deferred payment interest expense accretion - 749 - 2,403
Pre-tax, insurance settlement   -     (2,340 )   -     (2,340 )
Tax effect on pre-tax adjustments f   (9,108 )   (10,629 )   (27,878 )   (38,369 )
 
Non-GAAP adjusted net income $ 19,125   $ 14,960   $ 49,294   $ 37,913  
 
Income (Loss) Per Share (EPS) - diluted $ 0.09 (0.02 ) $ 0.13 (0.34 )
 
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 0.30 0.36 0.97 1.09
Pre-tax non-cash, share-based compensation 0.05 0.04 0.13 0.06
Pre-tax non-cash, acquisition and integration-related expenses 0.03 0.07 0.08 0.40
Pre-tax, RCM management restructuring expenses - 0.02 - 0.02
Pre-tax, purchase accounting adjustments - - - 0.11
Pre-tax, deferred payment interest expense accretion - 0.01 - 0.03
Pre-tax, insurance settlement   -     (0.04 )   -     (0.04 )
Tax effect on pre-tax adjustments f   (0.15 )   (0.18 )   (0.47 )   (0.67 )
 
Non-GAAP adjusted EPS - diluted   0.32   $ 0.26     0.84   $ 0.66  
 
Weighted average shares - diluted (in 000s) g 59,513 57,410 58,896 57,334
 
 
(f) The Company used a tax rate of 40.0% for the three and nine months ended September 30, 2012 and 2011 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
 
(g) Given the Company’s net loss for the three and nine months ended September 30, 2011, basic and fully diluted weighted average shares are the same for EPS and non-GAAP adjusted EPS.
 
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
 
 

SUPPLEMENTAL 2012 ADJUSTED EBITDA GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
  Guidance Range for
Twelve Months Ending
In 000s December 31, 2012
(Low)   (High)
 
Net Income $ 8,600 $ 12,400
 
Depreciation 29,900 29,900
Depreciation (included in cost of revenue) 1,800 1,800
Amortization of intangibles, acquisition-related 72,700 72,700
Amortization of intangibles, acquisition-related (included in cost of revenue) 600 600
Interest expense, net 66,200 66,400
Income tax expense   4,700     6,700  
 
Non-GAAP EBITDA 184,500 190,500
 
Share-based compensation 10,300 10,300
Acquisition and integration-related expenses 5,600 5,600
Rental income from capitalized building lease   (400 )   (400 )
 
Non-GAAP adjusted EBITDA $ 200,000   $ 206,000  
 
SUPPLEMENTAL 2012 EARNINGS PER SHARE GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
Guidance Range for
Twelve Months Ending
In 000s, except per share data December 31, 2012
(Low) (High)
 
Net Income $ 8,600 $ 12,400
 
EPS - diluted 0.14 0.21
 
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 1.23 1.23
Pre-tax non-cash, acquisition-related intangible depreciation 0.04 0.04
Pre-tax non-cash, share-based compensation 0.17 0.17
Pre-tax acquisition and integration-related expenses   0.09     0.09  
 
Tax effect on pre-tax adjustments h   (0.61 )  

(0.61

)
 
Non-GAAP adjusted EPS - diluted i $ 1.07 $ 1.13
 
Fully diluted weighted average shares outstanding 59,500 59,500
 
 
(h) The Company used a tax rate of 40.0% for the twelve months ended December 31, 2012 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
 
(i) Column amounts may not add to total amount due to rounding.
 
 
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
 
 

SUPPLEMENTAL NON-GAAP CONTRACTED REVENUE ESTIMATES
(UNAUDITED)
       
In millions 9.30.11 12.31.11 3.31.12 6.30.12 9.30.12
 
SCM segment $ 348.3 $ 350.3 $ 356.5 $ 373.1 $ 370.6
RCM segment 213.0 218.4 222.7 230.3 232.8
Total $ 561.3 $ 568.7 $ 579.2 $ 603.4 $ 603.4
 
 
 
SUPPLEMENTAL REPORTING OF SHARE-BASED COMPENSATION
EXPENSE INCLUDED IN OPERATING EXPENSES
(UNAUDITED)
In 000s Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011 j
Amount of share-based compensation included in:
Cost of revenue 672 459 1,535 1,053
Product development expense 34 97 123 177
Selling & marketing expense 282 492 1,069 242
General & administrative expense 1,793 1,075 5,069 1,473
 
Total $ 2,781 $ 2,123 $ 7,796 $ 2,945
 
(j) During the three months ended June 30, 2011, we recorded an adjustment of ($6,537) to share-based compensation expense based on our probability assessment of performance achievement relating to certain performance-based restricted stock grants and SSAR grants.
 
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
 
 

Use of Non-GAAP Financial Measures
In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the Company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; EBITDA; adjusted EBITDA; adjusted EBITDA margin; acquisition-related purchase accounting revenue adjustments; adjusted net income; diluted adjusted EPS; and contracted revenue.
 
These non-GAAP financial measures may have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. The Company compensates for such limitations by relying primarily on the Company’s GAAP results and using non-GAAP financial measures only supplementally. Where possible, the Company provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. Investors are encouraged to carefully review those reconciliations. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies.
 
Gross fees include gross administrative fees the Company receives pursuant to its vendor contracts and all other fees the Company receives from clients. The Company's revenue share obligation represents the portion of the gross administrative fees the Company is contractually obligated to share with certain of its GPO clients. Net administrative fees (a GAAP measure) are the Company's gross administrative fees net of its revenue share obligation. Total net revenue (a GAAP measure) reflects the Company's gross fees net of its revenue share obligation. These non-GAAP measures assist management and the board of directors and may be helpful to investors in analyzing the Company's growth in its Spend and Clinical Resource Management segment given that administrative fees constitute a material portion of the Company's revenue and are paid to the Company by approximately 1,150 suppliers and other vendors contracted by its GPO, and that the Company's revenue share obligation constitutes a significant outlay to certain of its GPO clients.
 
The Company defines: EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; and adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and other non-recurring, non-cash or non-operating items. EBITDA and adjusted EBITDA are used by the Company to facilitate a comparison of its operating performance on a consistent basis from period to period and provides for a more complete understanding of factors and trends affecting our business. These measures assist management and the board of directors and may be useful to investors in comparing the Company's operating performance consistently over time as it removes the impact of its capital structure (primarily interest charges and amortization of debt issuance costs), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes), as well as other non-cash (purchase accounting adjustments and imputed rental income) and non-recurring items, from the Company’s operational results. Adjusted EBITDA also removes the impact of non-cash share-based compensation expense and certain acquisition-related charges. EBITDA and adjusted EBITDA are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities.
 
Acquisition-related purchase accounting revenue adjustments reflect an estimated reduction of net administrative fee revenue. Under the Company’s revenue recognition policies, administrative fees are recorded as revenue when reported to the Company by vendors. GAAP relating to business combinations required that the Company estimate the amount of client supply purchases (the driver of administrative fee revenue) occurring prior to the Broadlane acquisition closing date and to record the fair value of the administrative fees (the asset) to be received from those purchases as an account receivable and any corresponding revenue share obligation as a liability. As vendor reports were received and cash was collected, the Company did not recognize revenue for these acquisition-related purchase accounting revenue adjustments.
 
The Company defines adjusted net income as net income excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items on a tax-adjusted basis, non-cash shared-based compensation and certain acquisition and integration-related expenses on a tax-adjusted basis and diluted adjusted EPS as earnings per share excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items, non-cash shared-based compensation and certain acquisition and integration-related expenses on a tax-adjusted basis. Adjusted net income and diluted adjusted EPS are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities. Use of this measure for this purpose allows management and the board of directors to analyze the Company’s operating performance on a consistent basis by removing the impact of certain non-cash and non-recurring items from the Company's operations, and by assessing organic growth and accretive business transactions. As a significant portion of senior management’s incentive based compensation historically has been based on the achievement of certain diluted adjusted EPS growth over time, investors may find such information useful.
 
Contracted revenue is a forward-looking operating measure used by management and the board of directors to better understand revenue growth trends within the Company's business segments as it reflects the Company’s current estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period. Such information may be useful to investors in their analysis of the Company's revenue growth trends. A reconciliation to the most directly comparable GAAP measure cannot be performed without unreasonable effort.

MedAssets, Inc.
Robert Borchert, 678-248-8194
rborchert@medassets.com