News Column

MedAssets Reports Second Quarter and Six-Month 2014 Financial

July 30, 2014

ATLANTA, July 30, 2014 (GLOBE NEWSWIRE) -- MedAssets, Inc. (Nasdaq:MDAS) today announced results for its second quarter and six-month period ended June 30, 2014.

Second Quarter
       
(In millions, except per share)   2Q'14  2Q'13  % Change
Net Revenue:       
 Spend and Clinical Resource Mgmt (SCM)$ 105.9$ 105.3 0.6%
 Revenue Cycle Management (RCM) 69.5 65.4 6.2
Total Net Revenue  175.4 170.7 2.7
Net income 6.6 5.1 29.7
Earnings per share (EPS) - diluted 0.11 0.08 37.5
Non-GAAP adjusted EBITDA  54.3 52.5 3.4
Non-GAAP adjusted EPS - diluted $0.30$0.30 0.0
Weighted average shares - diluted 60.9 60.7 0.5%


Net Revenue

Total net revenue for the second quarter of 2014 increased 2.7% to $175.4 million from $170.7 million for the second quarter of 2013. Net revenue in the SCM segment increased 0.6% to $105.9 million from $105.3 million for the second quarter of 2013 due to growth in advisory, consulting and other service fees, partially offset by lower group purchasing net administrative fees. Net revenue in the RCM segment increased 6.2% to $69.5 million from $65.4 million for the second quarter of 2013 as technology-related revenue (68.3% of RCM segment revenue) increased 4.9%, while services-related revenue rose 9.2%, including certain one-time items.

Non-GAAP Adjusted EBITDA

Total non-GAAP adjusted EBITDA was $54.3 million, or 31.0% of total net revenue, for the second quarter of 2014, a 3.4% increase from total non-GAAP adjusted EBITDA of $52.5 million, or 30.8% of total net revenue, for the second quarter of 2013.

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

Net income for the second quarter of 2014 increased 29.7% to $6.6 million, or $0.11 per share, compared with net income of $5.1 million, or $0.08 per share, for the second quarter of 2013. Non-GAAP adjusted EPS (defined as EPS excluding non-cash acquisition-related intangible amortization and depreciation, non-cash share-based compensation, certain restructuring, acquisition and integration-related expenses and non-recurring items on a tax-adjusted basis) was $0.30 per share for the second quarter of 2014, compared with $0.30 per share for the second quarter of 2013.

Six-Month Period
       
(In millions, except per share)   6 mos. '14  6 mos. '13  % Change
Net Revenue:       
 Spend and Clinical Resource Mgmt (SCM)$214.5$214.8 (0.1)%
 Revenue Cycle Management (RCM) 131.8 128.8 2.3
Total Net Revenue 346.3 343.6 0.8
Net income 14.3 12.8 11.6
Earnings per share (EPS) – diluted 0.23 0.21 9.5
Non-GAAP adjusted EBITDA  111.0 114.2 (2.8)
Non-GAAP adjusted EPS - diluted $0.62$0.71 (12.7)
Weighted average shares – diluted 61.4 60.6 1.3%


Net Revenue

Total net revenue for the six months ended June 30, 2014 increased 0.8% to $346.3 million from $343.6 million for the first six months of 2013. Net revenue in the SCM segment declined 0.1% to $214.5 million from $214.8 million for the first half of 2013. Net revenue in the RCM segment rose 2.3% to $131.8 million from $128.8 million for the first half of 2013 as technology-related revenue (69.6% of RCM segment revenue) increased 3.4% while services-related revenue declined 0.1%.

Non-GAAP Adjusted EBITDA

For the first six months of 2014, total non-GAAP adjusted EBITDA was $111.0 million, or 32.1% of total net revenue, a 2.8% decrease from adjusted EBITDA of $114.2 million, or 33.2% of total net revenue, for the first half of 2013.

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

Net income for the first six months of 2014 increased 11.6% to $14.3 million, or $0.23 per share, compared with $12.8 million, or $0.21 per share, for the first half of 2013. Non-GAAP adjusted EPS was $0.62 per share for the first six months of 2014, a 12.7% decrease from $0.71 per share for the first half of 2013.

Cash Flow and Capital Resources

Cash provided by operating activities in the first six months of 2014 was $50.8 million versus $67.6 million for the first half of 2013. Non-GAAP free cash flow (defined as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs) decreased to $22.7 million versus $43.4 million for the first half of 2013 due to higher cash tax payments, increased investments, and the timing of changes in working capital in the first half of 2014. The company's balance sheet at June 30, 2014 included $780.8 million in total bank and bond debt, net of cash and cash equivalents. Total net debt equates to leverage of approximately 3.6 times non-GAAP adjusted EBITDA for the trailing twelve-month period. The company repurchased 1.1 million shares of common stock in the second quarter, for a total of 1.8 million in share repurchases in the first six months of 2014.

Non-GAAP Contracted Revenue

At June 30, 2014, MedAssets' rolling 12-month non-GAAP contracted revenue estimate was $627.9 million (SCM segment - $383.8 million; RCM segment - $244.1 million), a year-over-year increase of 1.8%. 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.

2014 Financial Guidance
MedAssets updated its full-year 2014 financial guidance ranges, as follows:
     
($ in millions, except per share)   FY'14  Y-Y % change
Net Revenue:     
 SCM segment$ 431.0 - 439.0  1.5 - 3.4%
 RCM segment 266.0 - 272.0  3.9 - 6.3
Total Net Revenue  698.0 - 710.0  2.6 - 4.3
Non-GAAP adjusted EBITDA  231.0 - 239.0  4.6 - 8.2
GAAP EPS – diluted 0.55 - 0.63 22.2 - 40.0
Non-GAAP adjusted EPS – diluted$ 1.32 - 1.40  0.0 - 6.1%


Excluding performance-related fees from both 2014 and 2013, total net revenue in 2014 is expected to grow approximately 4.0% at the midpoint of the guidance range.

Conference Call Information  
Time/Date: 5:00 p.m. ET today, Wednesday, July 30, 2014
Phone:  888-517-2464 (or 630-827-6816 for international/local callers), PIN code 9160777
Webcast:   http://ir.medassets.com, "Events & Presentations" page; Archive will be available for at least 30 days
Replay:  Call 888-843-7419 or 630-652-3042 (PIN code 9160777)


Note: The live webcast will include a slide presentation, a copy of which is available on http://ir.medassets.com in the "Events & Presentations" section in conjunction with today's event.  

About MedAssets

MedAssets (Nasdaq:MDAS) is a healthcare performance improvement company focused on helping providers realize financial and operational gains so that they can sustainably serve the needs of their community. More than 4,400 hospitals and 122,000 non-acute healthcare providers currently use the company's evidence-based solutions, best practice processes and analytics to help reduce the total cost of care, enhance operational efficiency, align clinical delivery, and improve revenue performance across the care continuum. For more information, please visit 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; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; free cash flow; 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:  2014 financial guidance, revenue growth and other financial projections and forecasts. 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; customer 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, 2013 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 dataThree Months Ended  Six Months Ended  
 June 30,  June 30,  
 20142013% Change20142013% Change
 Revenue:            
 Administrative fees, net  $ 70,091  $ 70,502 -0.6%  $ 146,337  $ 147,021 -0.5%
 Other service fees  105,324  100,240 5.1%  199,945  196,558 1.7%
              
 Total net revenue  175,415  170,742 2.7%  346,282  343,579 0.8%
              
 Operating expenses:            
Cost of revenue (inclusive of certain amortization expense)  40,361  37,496 7.6%  77,792  71,764 8.4%
Product development expenses  6,642  7,975 -16.7%  14,039  16,476 -14.8%
Selling and marketing expenses  20,721  20,285 2.1%  35,914  34,027 5.5%
General and administrative expenses  59,529  57,199 4.1%  118,332  115,819 2.2%
Restructuring, acquisition and integration-related expenses  --   1,435 -100.0%  1,697  9,465 -82.1%
Depreciation  11,862  9,876 20.1%  23,402  19,053 22.8%
Amortization of intangibles  14,027  16,115 -13.0%  28,053  32,616 -14.0%
              
Total operating expenses  153,142  150,381 1.8%  299,229  299,220 0.0%
              
 Operating income  22,273  20,361 9.4%  47,053  44,359 6.1%
 Other income (expense):            
Interest expense  (11,114)  (12,381) -10.2%  (22,287)  (23,730) -6.1%
Other income   31  276 -88.8%  89  317 -71.9%
              
Income before income taxes  11,190  8,256 35.5%  24,855  20,946 18.7%
 Income tax expense  4,594  3,172 44.8%  10,581  8,158 29.7%
              
 Net income   6,596  5,084 29.7%  14,274  12,788 11.6%
              
Basic net income per share  0.11  0.09 22.2%  0.24  0.22 9.1%
                      
Diluted net income per share  $ 0.11  $ 0.08 37.5%  $ 0.23  $ 0.21 9.5%
              
 Weighted average shares — basic 59,752 59,387 0.6% 60,189 59,198 1.7%
 Weighted average shares — diluted  60,946 60,665 0.5% 61,419 60,628 1.3%
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
     
 June 30,December 31,
In 000s, except share and per share amounts20142013
     
ASSETS    
Current assets    
Cash and cash equivalents  $ 6,004  $ 2,790
Accounts receivable, net of allowances of $2,627 and $2,568 as of June 30, 2014 and December 31, 2013, respectively  97,901  87,636
Deferred tax asset, current  1,269  4,535
Prepaid expenses and other current assets  26,795  24,059
          
Total current assets  131,969  119,020
     
Property and equipment, net  160,274  157,747
Other long term assets    
Goodwill  1,027,847  1,027,847
Intangible assets, net   239,387  267,440
Other  41,063  41,695
Other long term assets  1,308,297  1,336,982
          
Total assets  $ 1,600,540  $ 1,613,749
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities    
Accounts payable  $ 16,609  $ 24,066
Accrued revenue share obligation and rebates   77,697  77,398
Accrued payroll and benefits  29,511  41,587
Other accrued expenses  12,154  12,126
Current portion of deferred revenue  55,645  46,523
Current portion of notes payable   18,625  15,500
Current portion of finance obligation   280  255
          
Total current liabilities  210,521  217,455
     
Notes payable, less current portion   443,125  424,000
Bonds payable  325,000  325,000
Finance obligation, less current portion  8,625  8,781
Deferred revenue, less current portion   17,233  16,369
Deferred tax liability   113,041  121,083
Other long term liabilities  10,900  11,272
          
Total liabilities  1,128,445  1,123,960
     
Commitments and contingencies    
     
Stockholders' equity    
Common stock, $0.01 par value, 150,000,000 shares authorized; 60,089,000 and 61,740,000 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively  601  617
Additional paid in capital  685,180  717,132
Accumulated deficit  (213,686)  (227,960)
          
Total stockholders' equity  472,095  489,789
          
Total liabilities and stockholders' equity  $ 1,600,540  $ 1,613,749
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended
In 000sJune 30,June 30,
 20142013
     
Operating activities:    
 Net income  $ 14,274  $ 12,788
     
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Bad debt expense  100  -- 
Depreciation  24,474  20,222
Amortization of intangibles  28,053  32,616
Impairment of assets  --   2,403
Loss (gain) on sale of assets  16  (123)
Noncash stock compensation expense  9,894  7,422
Excess tax benefit from exercise of equity awards  (1,557)  (3,035)
Amortization of debt issuance costs  1,880  1,908
Noncash interest expense, net  208  239
Deferred income tax benefit  (4,837)  (2,560)
     
 Changes in assets and liabilities  (21,716)  (4,296)
          
Cash provided by operating activities  50,789  67,584
          
 Investing activities:        
Purchases of property, equipment, and software  (7,201)  (5,328)
Capitalized software development costs  (20,878)  (18,861)
          
Cash used in investing activities  (28,079)  (24,189)
          
 Financing activities:        
Borrowings from revolving credit facility  74,080  -- 
Repayment of notes payable  (17,750)  (62,750)
Repayment of revolving credit facility  (34,080)  -- 
Repayment of finance obligation  (338)  (338)
Excess tax benefit from exercise of equity awards  1,557  3,035
Issuance of common stock, net of offering costs  2,559  3,640
Purchase of treasury shares, including shares surrendered for tax witholdings  (45,524)  -- 
          
Cash used in financing activities  (19,496)  (56,413)
          
 Net increase (decrease) in cash and cash equivalents  3,214  (13,018)
 Cash and cash equivalents, beginning of period  2,790  13,734
          
 Cash and cash equivalents, end of period  $ 6,004  $ 716
 
SUPPLEMENTAL REVENUE REPORTING
RECONCILIATION OF GROSS FEES (A NON-GAAP MEASURE) TO NET REVENUE
(UNAUDITED)
           
In 000sThree Months Ended June 30,    
 2014  2013  % Change
Non-GAAP gross administrative fees  $ 119,406    $115,488  3.4%
Other service fees  105,324    100,240  5.1%
Non-GAAP gross fees  224,730RSO %  215,728RSO %4.2%
Non-GAAP revenue share obligation (RSO)  (49,315)41.3%  (44,986)39.0%9.6%
Net revenue  $ 175,415    $170,742  2.7%
           
In 000s          
 Six Months Ended June 30,    
 2014  2013  % Change
Non-GAAP gross administrative fees  $ 245,767    $236,124  4.1%
Other service fees  199,945    196,558  1.7%
Non-GAAP gross fees  445,712RSO %  432,682RSO %3.0%
Non-GAAP RSO  (99,430)40.5%  (89,103)37.7%11.6%
Net revenue  $ 346,282    $343,579  0.8%
           
           
SUPPLEMENTAL SEGMENT REPORTING WITH SELECTED NON-GAAP MEASURES          
(UNAUDITED)          
           
In 000sThree Months Ended June 30,    
 2014  2013  % Change
Net revenue          
Spend and Clinical Resource Management (SCM)  $ 105,907    $105,308  0.6%
Revenue Cycle Management (RCM)  69,508    65,434  6.2%
Total net revenue  175,415    170,742  2.7%
           
Non-GAAP Adjusted EBITDA  % margin  % margin  
SCM  $ 42,30039.9%  $ 42,94240.8%-1.5%
RCM  19,61328.2%  17,02226.0%15.2%
Corporate  (7,589)    (7,427)  2.2%
Total non-GAAP Adjusted EBITDA  54,32431.0%  52,53730.8%3.4%
           
In 000sSix Months Ended June 30,    
 2014  2013  % Change
Net revenue          
SCM  $ 214,524    $214,816  -0.1%
RCM  131,758    128,763  2.3%
Total net revenue  346,282    343,579  0.8%
           
Non-GAAP Adjusted EBITDA  % margin  % margin  
SCM  $ 92,25043.0%  $ 96,65445.0%-4.6%
RCM  33,01425.1%  31,71224.6%4.1%
Corporate  (14,223)    (14,183)  0.3%
Total non-GAAP Adjusted EBITDA  111,04132.1%  114,18333.2%-2.8%
           
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 June 30,  Six Months Ended June 30, 
 2014201320142013
         
Net income $ 6,596  $ 5,084  $ 14,274  $ 12,788
         
Depreciation  11,862  9,876  23,402  19,053
Depreciation (included in cost of revenue)  648  571  1,072  1,169
Amortization of intangibles  14,027  16,115  28,053  32,616
Interest expense, net  11,114  12,382  22,287  23,731
Income tax expense   4,594  3,172  10,581  8,158
         
Non-GAAP EBITDA $ 48,841  $ 47,200  $ 99,669  $ 97,515
         
Share-based compensation  5,592  4,011  9,894  7,422
Rental income from capitalized building lease  (109)  (109)  (219)  (219)
Restructuring, acquisition and integration-related expenses  --   1,435  1,697  9,465
         
Non-GAAP Adjusted EBITDA  $ 54,324  $ 52,537  $ 111,041  $ 114,183
         
         
SUPPLEMENTAL NET INCOME AND EARNINGS PER SHARE REPORTING
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES 
(UNAUDITED)
         
In 000s, except per share data Three Months Ended June 30,  Six Months Ended June 30, 
 2014201320142013
         
Net income $ 6,596  $ 5,084  $ 14,274  $ 12,788
         
Pre-tax non-cash, acquisition-related intangible amortization and depreciation  14,027  16,589  28,053  33,564
Pre-tax non-cash, share-based compensation   5,592  4,011  9,894  7,422
Pre-tax restructuring, acquisition and integration-related expenses  --   1,435  1,697  9,465
Tax effect on pre-tax adjustments a  (7,847)  (8,814)  (15,857)  (20,180)
         
Non-GAAP adjusted net income $ 18,368  $ 18,305  $ 38,061  $ 43,059
         
Income Per Share (EPS) - diluted $ 0.11  $ 0.08  $ 0.23  $ 0.21
         
Pre-tax non-cash, acquisition-related intangible amortization and depreciation  0.23  0.27  0.46  0.55
Pre-tax non-cash, share-based compensation   0.09  0.07  0.16  0.12
Pre-tax restructuring, acquisition and integration-related expenses  --   0.02  0.03  0.16
Tax effect on pre-tax adjustments a  (0.13)  (0.14)  (0.26)  (0.33)
         
Non-GAAP adjusted EPS - diluted $ 0.30  $ 0.30  $ 0.62  $ 0.71
         
Weighted average shares - diluted 60,946 60,665 61,419 60,628
         
(a) The Company used a tax rate of 40.0% for the three and six months ended June 30, 2014 and 2013 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.        
         
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.        
 
SUPPLEMENTAL 2014 ADJUSTED EBITDA GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES 
(UNAUDITED)
 Guidance Range for
 Twelve Months Ending
In 000sDecember 31, 2014
  (Low) (High)
     
Net Income $ 33,600  $ 38,400
     
Depreciation  49,000  49,000
Depreciation (included in cost of revenue)  3,100  3,100
Amortization of intangibles, acquisition-related   55,000  55,000
Interest expense, net  44,700  44,700
Income tax expense  23,300  26,500
     
Non-GAAP EBITDA 208,700  216,700
     
Share-based compensation  21,000  21,000
Restructuring, acquisition and integration-related expenses  1,700  1,700
Rental income from capitalized building lease  (400)  (400)
Non-GAAP adjusted EBITDA $ 231,000  $ 239,000
     
SUPPLEMENTAL 2014 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 dataDecember 31, 2014
  (Low) (High)
     
Net Income $ 33,600  $ 38,400
     
EPS - diluted  0.55  0.63
     
Pre-tax non-cash, acquisition-related intangible amortization and depreciation  0.90  0.90
Pre-tax non-cash, share-based compensation   0.34  0.34
Pre-tax restructuring, acquisition and integration-related expenses  0.03  0.03
 Tax effect on pre-tax adjustments b  (0.51)  (0.51)
     
Non-GAAP adjusted EPS - diluted c $ 1.32  $ 1.40
     
Fully diluted weighted average shares outstanding  60,900  60,900
     
     
(b) The Company used a tax rate of 40.0% for the full year ending December 31, 2014 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
     
(c) Column amounts may not add to total 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 MillionsJune 30,March 31,Dec. 31,Sept. 30,June 30,
 20142014201320132013
           
Revenue Cycle Technology (RCT)  $ 177.6  $ 174.4  $ 173.9  $ 173.3  $ 175.5
Revenue Cycle Services (RCS)  66.5  69.5  65.4  60.8  62.9
RCM segment Total  244.1  243.9  239.4  234.1  238.4
SCM segment  383.8  394.2  386.0  391.0  378.4
Total d  $ 627.9  638.1  $ 625.4  $ 625.1  $ 616.8
           
           
SUPPLEMENTAL REPORTING OF SHARE-BASED COMPENSATION  
EXPENSE INCLUDED IN OPERATING EXPENSES   
(UNAUDITED)  
           
In 000s Three Months Ended   Six Months Ended      
 June 30,  June 30,      
 2014201320142013  
Amount of share-based compensation included in:          
Cost of revenue  $ 1,863  $ 1,463  $ 3,029  $ 2,176  
Product development expense  391  225  635  343  
Selling & marketing expense  845  590  1,372  969  
General & administrative expense  2,493  1,733  4,858  3,934  
           
Total $ 5,592  $ 4,011  $ 9,894  $ 7,422  
           
           
SUPPLEMENTAL REPORTING OF FREE CASH FLOW      
RECONCILIATION OF SELECTED NON-GAAP TO GAAP MEASURES       
(UNAUDITED)      
           
In 000s Six Months Ended         
  June 30,         
 20142013      
           
Cash provided by operating activities  $ 50,789  $ 67,584      
Purchases of property, equipment and software  (7,201)  (5,328)      
Capitalized software development costs  (20,878)  (18,861)      
           
Non-GAAP free cash flow $ 22,710  $ 43,395      
           
(d) Column amounts may not add to total due to rounding.          
           
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; adjusted net income; diluted adjusted EPS; free cash flow; 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 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 restructuring, acquisition and integration-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. 
The Company defines adjusted net income as earnings excluding non-cash acquisition-related intangible amortization and non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense and certain restructuring, 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 non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense and certain restructuring, 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 our operations, and by rewarding organic growth and accretive business transactions. As a significant portion of senior management's incentive based compensation has historically been based on the achievement of certain diluted adjusted EPS growth over time, investors may find such information useful. 
The Company defines free cash flow as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs. Management believes free cash flow is an important measure because it represents the cash that the Company is able to generate after spending capital on infrastructure to maintain its business and investing in new and upgraded products and services to support future growth. Free cash flow is important because it allows the Company to pursue opportunities that are intended to enhance shareholder value, which could include debt reduction, share repurchases, partnerships, alliances and acquisitions, and/or dividend payments. The Company's definition of free cash flow does not consider non-discretionary cash payments, such as debt.
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. 

CONTACT: Robert Borchert 678.248.8194 rborchert@medassets.com



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