##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 Commission file
    number: 001-33881
 MEDASSETS, INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    51-0391128(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 100 North Point Center East, Suite 200Atlanta, Georgia
    
    30022(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (678) 323-2500
(Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer
o

   

   Accelerated filer þ

   

   Non-accelerated filer o
(Do not check if a smaller reporting company)

 

 Smaller Reporting Company o
 o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31,
2009 and 2008
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three months ended March 31,

2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and

2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of

Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATION
    
    
    38Item 1. Legal Proceedings
    
    
 38Item 1A. Risk Factors
    
    
    38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    38Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    40Signatures
    
    
    41EX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO
  2




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Part I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 
 MedAssets, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrentCash and cash equivalents (Note 1)
    
    $
    
    
    
    $
    5,429Accounts
receivable, net of allowances of $2,278 and $2,247 as of March 31, 2009 and
December 31, 2008, respectively
    
    
    57,622
    
    
    
    55,048Deferred tax asset, current
    
    
    13,737
    
    
    
    13,780Prepaid expenses and other current assets
    
    
    9,360
    
    
    
    5,997Total current assets
    
    
    80,719
    
    
    
    80,254Property and equipment, net
    
    
    45,741
    
    
    
    42,417Other long term assetsGoodwill
    
    
    508,946
    
    
    
    508,748Intangible assets, net
    
    
    117,145
    
    
    
    124,340Other
    
    
    18,440
    
    
    
    18,101Other long term assets
    
    
    644,531
    
    
    
    651,189Total assets
    
    $
    770,991
    
    
    $
    773,860LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    7,885
    
    
    $
    6,725Accrued revenue share obligation and rebates
    
    
    24,760
    
    
    
    29,698Accrued payroll and benefits
    
    
    16,512
    
    
    
    21,837Other accrued expenses
    
    
    9,172
    
    
    
    6,981Deferred revenue, current portion
    
    
    26,304
    
    
    
    24,280Deferred purchase consideration (Note 3)
    
    
    19,742
    
    
    
    19,361Current portion of notes payable
    
    
    2,755
    
    
    
    30,277Current portion of finance obligation
    
    
    152
    
    
    
    149Total current liabilities
    
    
    107,282
    
    
    
    139,308Notes payable, less current portion
    
    
    237,436
    
    
    
    215,349Finance obligation, less current portion
    
    
    9,820
    
    
    
    9,860Deferred revenue, less current portion
    
    
    4,858
    
    
    
    6,411Deferred tax liability
    
    
    15,916
    
    
    
    15,817Other long term liabilities
    
    
    3,581
    
    
    
    4,176Total liabilities
    
    
    378,893
    
    
    
    390,921Commitments and contingenciesStockholders equityCommon stock, $0.01 par value, 150,000,000
shares authorized; 55,282,000 and 53,917,000
shares issued and outstanding as of March 31,
2009 and December 31, 2008, respectively
    
    
    552
    
    
    
    539Additional paid in capital
    
    
    612,336
    
    
    
    605,340Accumulated other comprehensive loss (Note 11)
    
    
    (1,843
    )
    
    
    (2,088
    )Accumulated deficit
    
    
    (218,947
    )
    
    
    (220,852
    )Total stockholders equity
    
    
    392,098
    
    
    
    382,939Total liabilities and stockholders equity
    
    $
    770,991
    
    
    $
    773,860
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MedAssets, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except per share amounts)Revenue:Administrative fees, net
    
    $
    27,486
    
    
    $
    27,545Other service fees
    
    
    51,498
    
    
    
    31,213Total net revenue
    
    
    78,984
    
    
    
    58,758Operating expenses:Cost of revenue (inclusive of certain amortization expense)
    
    
    16,745
    
    
    
    8,462Product development expenses
    
    
    6,018
    
    
    
    2,697Selling and marketing expenses
    
    
    10,896
    
    
    
    12,911General and administrative expenses
    
    
    27,451
    
    
    
    21,060Depreciation
    
    
    2,910
    
    
    
    2,121Amortization of intangibles
    
    
    7,011
    
    
    
    3,778Total operating expenses
    
    
    71,031
    
    
    
    51,029Operating income
    
    
    7,953
    
    
    
    7,729Other income (expense):Interest expense
    
    
    (4,993
    )
    
    
    (4,317
    )Other income
    
    
    214
    
    
    
    1,033Income before income taxes
    
    
    3,174
    
    
    
    4,445Income tax expense
    
    
    1,269
    
    
    
    1,746Net income
    
    $
    1,905
    
    
    $
    2,699Basic and diluted income per share:Basic net income
    
    $
    0.04
    
    
    $
    0.06Diluted net income
    
    $
    0.03
    
    
    $
    0.06Weighted average shares  basic
    
    
    54,102
    
    
    
    44,418Weighted average shares  diluted
    
    
    56,302
    
    
    
    47,213
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MedAssets, Inc.
Condensed Consolidated Statement of Stockholders Equity (Unaudited)
Three Months Ended March 31, 2009
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Equity(In thousands)Balances at December 31, 2008
    
    
    53,917
    
    
    $
    539
    
    
    $
    605,340
    
    
    $
    (2,088
    )
    
    $
    (220,852
    )
    
    $
    382,939Issuance of common stock from
stock option exercises
    
    
    342
    
    
    
    3
    
    
    
    1,545
    
    
    
    
    
    
    
    
    
    
    
    1,548Issuance of common restricted stock
    
    
    1,023
    
    
    
    10
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    4,386
    
    
    
    
    
    
    
    
    
    
    
    4,386Excess tax benefit from stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,075
    
    
    
    
    
    
    
    
    
    
    
    1,075Other comprehensive income:Unrealized gain from hedging activities
(net of a tax expense of $150)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    245Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,905
    
    
    
    1,905Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    1,905
    
    
    
    2,150Balances at March 31, 2009
    
    
    55,282
    
    
    $
    552
    
    
    $
    612,336
    
    
    $
    (1,843
    )
    
    $
    (218,947
    )
    
    $
    392,098
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MedAssets, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended March 31,2009
    
    
    2008(In thousands)Operating activitiesNet income
    
    $
    1,905
    
    
    $
    2,699Adjustments to reconcile income from continuing operations to net cash provided by
(used in) operating activities:Bad debt expense
    
    
    1,284
    
    
    
    772Depreciation
    
    
    3,514
    
    
    
    2,260Amortization of intangibles
    
    
    7,196
    
    
    
    4,029Loss on sale of assets
    
    
    21
    
    
    
    Noncash stock compensation expense
    
    
    4,386
    
    
    
    1,740Excess tax benefit from exercise of stock options
    
    
    (1,075
    )
    
    
    Amortization of debt issuance costs
    
    
    462
    
    
    
    153Noncash interest expense, net
    
    
    518
    
    
    
    140Deferred income tax expense
    
    
    124
    
    
    
    763Changes in assets and liabilities:Accounts receivable
    
    
    (3,858
    )
    
    
    (9,351
    )Prepaid expenses and other assets
    
    
    (3,367
    )
    
    
    (584
    )Other long-term assets
    
    
    (1,265
    )
    
    
    (150
    )Accounts payable
    
    
    2,136
    
    
    
    718Accrued revenue share obligations and rebates
    
    
    (4,938
    )
    
    
    (8,218
    )Accrued payroll and benefits
    
    
    (5,267
    )
    
    
    (1,504
    )Other accrued expenses
    
    
    1,914
    
    
    
    1,111Deferred revenue
    
    
    471
    
    
    
    905Cash provided by (used in) operating activities
    
    
    4,161
    
    
    
    (4,517
    )Investing activitiesPurchases of property, equipment and software
    
    
    (3,396
    )
    
    
    (1,707
    )Capitalized software development costs
    
    
    (3,218
    )
    
    
    (2,152
    )Cash used in investing activities
    
    
    (6,614
    )
    
    
    (3,859
    )Financing activitiesProceeds from notes payable
    
    
    29,995
    
    
    
    Repayment of notes payable and capital lease obligations
    
    
    (35,430
    )
    
    
    (505
    )Repayment of finance obligations
    
    
    (164
    )
    
    
    (160
    )Excess tax benefit from exercise of stock options
    
    
    1,075
    
    
    
    Issuance of note receivable to stockholders
    
    
    
    
    
    
    (7
    )Issuance of common stock, net of offering costs
    
    
    1,548
    
    
    
    73Cash used in financing activities
    
    
    (2,976
    )
    
    
    (599
    )Net decrease in cash and cash equivalents
    
    
    (5,429
    )
    
    
    (8,975
    )Cash and cash equivalents, beginning of period
    
    
    5,429
    
    
    
    136,952Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    127,977
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MedAssets, Inc.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
 Unless the context indicates otherwise, references in this Quarterly Report to MedAssets,
the Company, we, our and us mean MedAssets, Inc., and its subsidiaries and predecessor
entities.
 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
    Cash and Cash Equivalents
  2. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Effective Date of FASB Statement No. 157, Fair Value Measurements,
 Business Combinations
 Business Combinations
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MedAssets, Inc.
 Notes
to Condensed Consolidated Financial Statements (Unaudited) 
(Continued)
(In thousands, except share and per share amounts)
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from Contingencies
 Disclosures about Derivative Instruments and Hedging Activities
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of SFAS No. 133
 Intangible Assets
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 GAAP Hierarchy
 The Hierarchy of Generally Accepted Accounting Principles The meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles
 3. ACQUISITION AND RESTRUCTURING ACTIVITIES
 Accuro
   Unaudited Pro Forma Financial Information
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MedAssets, Inc.
 Notes
to Condensed Consolidated Financial Statements (Unaudited) 
(Continued)
(In thousands, except share and per share amounts)
   Three Months Ended March 31,2009
    
    2008(Unaudited)Net revenue
    
    $
    78,984
    
    
    $
    75,263Net income
    
    $
    1,905
    
    
    $
    1,588Basic net income per share
    
    $
    0.04
    
    
    $
    0.03Diluted net income per share
    
    $
    0.03
    
    
    $
    0.03
 Accuro Restructuring Plan
   
    
    Involuntary employee terminations  due to the size of the Accuro acquisition and the
complete reorganization within our Revenue Cycle Management workforce, we are still
assessing the adequacy of the employee skill sets with regard to newly created or changed
positions resulting from the reorganization;
    
    System migration and standardization  the process of system migration and
standardization to our software platforms is lengthy and although we have estimated accruals
for such costs, we anticipate they could be different from our original estimates given the
size and scope of this effort;
    
    Real estate consolidation  office space in common
geographic locations was not consolidated as of
March 31, 2009 but management intends to realize synergies from combined office space.
Negotiations were in process at March 31, 2009 and any related lease cancellation changes
were not accrued for as of March 31, 2009; and,
    
    Federal and state income taxes and sales taxes  we are still assessing the accuracy of
Accuros historical income and sales tax positions and related filings. We have not
received all of the information necessary to make a final determination of any uncertain
tax positions and tax contingencies.
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MedAssets, Inc.
 Notes
to Condensed Consolidated Financial Statements (Unaudited) 
(Continued)
(In thousands, except share and per share amounts)
  Accrued
    
    
    
    
    
    
    
    
    
    
    Accrued,December 31,
    
    
    Adjustments
    
    
    Cash
    
    
    March 31,Accuro Restructuring Plan
    
    2008
    
    
    to Costs
    
    
    Payments
    
    
    2009Severance
    
    $
    920
    
    
    $
    (55
    )
    
    $
    (502
    )
    
    $
    363Other
    
    
    709
    
    
    
    388
    
    
    
    (133
    )
    
    
    964Total 2008 Restructuring Costs
    
    $
    1,629
    
    
    $
    333
    
    
    $
    (635
    )
    
    $
    1,327
 4. DEFERRED REVENUE
   March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)Software and implementation fees
    
    $
    11,437
    
    
    $
    13,839Service fees
    
    
    16,279
    
    
    
    14,206Administrative fees
    
    
    851
    
    
    
    1,313Other fees
    
    
    2,595
    
    
    
    1,333Deferred revenue, total
    
    
    31,162
    
    
    
    30,691Less: Deferred revenue, current portion
    
    
    (26,304
    )
    
    
    (24,280
    )Deferred revenue, non-current portion
    
    $
    4,858
    
    
    $
    6,411
  5. NOTES PAYABLE
  March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)Notes payable  senior
    
    $
    239,747
    
    
    $
    245,176Other
    
    
    444
    
    
    
    450Total notes payable
    
    
    240,191
    
    
    
    245,626Less: current portions
    
    
    (2,755
    )
    
    
    (30,277
    )Total long-term notes payable
    
    $
    237,436
    
    
    $
    215,349
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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
   Amount(Unaudited)2009
    
    $
    2,1302010
    
    
    2,6872011
    
    
    25,2112012
    
    
    2,4992013
    
    
    207,664Thereafter
    
    
    Total notes
payable
    
    $
    240,191
 6. COMMITMENTS AND CONTINGENCIES
 Performance Targets
  Legal Proceedings
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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 7. STOCKHOLDERS EQUITY AND SHARE-BASED COMPENSATION
 Common Stock
  Share-Based Compensation
   Three Months Ended March 31,2009
    
    
    2008(Unaudited)Cost of revenue
    
    $
    860
    
    
    $
    648Product development
    
    
    309
    
    
    
    122Selling and marketing
    
    
    798
    
    
    
    477General and administrative
    
    
    2,419
    
    
    
    493Total share-based compensation expense
    
    $
    4,386
    
    
    $
    1,740
  Management Equity Award Grant
  Number ofEquityAward Type
    
    AwardsRestricted common stock  service based vesting
    
    
    340,000Restricted common stock  performance based
vesting
    
    
    675,000Restricted common stock awards
    
    
    1,015,000SSARs  service based vesting
    
    
    1,200,000SSARs  performance based vesting
    
    
    1,369,000SSARs awards
    
    
    2,569,000Total management equity awards granted
    
    
    3,584,000
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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
  Performance-Based Equity Awards
   
    
    50% vesting based on achievement of a 15% compounded annual growth
rate of Cash EPS for the three-year period ending December 31, 2011
    
    Pro rata vesting of between 50% and 100% based on achievement of a
compounded annual growth rate of Cash EPS between 15% and 25% for the
three-year period ending December 31, 2011
    
    100% vesting based on achievement of a 25% compounded annual growth
rate of Cash EPS for the three-year period ending December 31, 2011
     Service-Based Equity Awards
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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
  Board Equity Award Grant
    Common Stock Option Awards
       14




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOptions outstanding as of January 1, 2009
    
    
    7,995,000
    
    
    $
    8.63
    
    
    7 years
    
    $
    50,918Granted
    
    
    164,000
    
    
    
    13.98Exercised
    
    
    (342,000
    )
    
    
    4.53Forfeited
    
    
    (44,000
    )
    
    
    9.07Cancelled
    
    
    
    
    
    
    Options outstanding as of March 31, 2009
    
    
    7,773,000
    
    
    $
    8.92
    
    
    7 years
    
    $
    45,235Options exercisable as of March 31, 2009
    
    
    2,944,000
    
    
    $
    6.35
    
    
    6 years
    
    $
    23,908
    March 31,
    
    March 31,2009
    
    2008Range of exercise prices
    
    
    $0.63 - $17.86
    
    
    
    $0.63 - $16.00Number of options outstanding
    
    
    7,773,000
    
    
    
    7,544,000Weighted average exercise price
    
    
    $8.92
    
    
    
    $7.31Weighted average remaining contractual life
    
    7.3 years
    
    8.0 years
 Equity Award Valuation
   Three Months Ended
    
    Three Months EndedMarch 31, 2009
    
    March 31, 2008Range of calculated volatility
    
    
    33.38% - 34.73%
    
    
    
    35.30%Dividend yield
    
    
    0%
    
    
    
    0%Range of risk free interest rate
    
    
    1.36% - 1.87%
    
    
    
    3.00%Range of expected term
    
    4.0 - 5.0 years
    
    5.4 - 6.5 years
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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
  8. INCOME TAXES
  9. INCOME PER SHARE
 Earnings Per Share.
 Three Months Ended March 31,2009
    
    
    2008(Unaudited)Numerator for Basic and Diluted Income Per Share:Net income
    
    $
    1,905
    
    
    $
    2,699Denominator for basic income or loss per share
weighted average shares
    
    
    54,102,000
    
    
    
    44,418,000Effect of dilutive securities:Stock options
    
    
    2,102,000
    
    
    
    2,638,000Restricted stock and stock warrants
    
    
    98,000
    
    
    
    157,000Denominator for diluted income or loss per share  adjusted weighted
average shares and assumed conversions
    
    
    56,302,000
    
    
    
    47,213,000Basic income per share:Basic net income per common share
    
    $
    0.04
    
    
    $
    0.06Diluted net income per share:Diluted net income per common share
    
    $
    0.03
    
    
    $
    0.06
  10. SEGMENT INFORMATION
  16




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 
    
    Revenue Cycle Management.Our Revenue Cycle Management segment provides a comprehensive
suite of software and services spanning the hospital revenue cycle workflow  from patient
admission, charge capture, case management and health information management through claims
processing and accounts receivable management. Our workflow solutions, together with our
data management and business intelligence tools, increase revenue capture and cash
collections, reduce accounts receivable balances and increase regulatory compliance.
    
    Spend Management.Our Spend Management segment provides a comprehensive suite of
technology-enabled services that help our customers manage their non-labor expense
categories. Our solutions lower supply and medical device pricing and utilization by
managing the procurement process through our group purchasing organization portfolio of
contracts, consulting services and business intelligence tools.
 Disclosures About Segments of an Enterprise and Related Information
   17




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 Three Months Ended March 31, 2009RCM
    
    
    SM
    
    
    Corporate
    
    
    Total(Unaudited, in thousands)Results of Operations:Revenue:Administrative fees
    
    $
    
    
    
    $
    40,932
    
    
    $
    
    
    
    $
    40,932Revenue share obligation
    
    
    
    
    
    
    (13,446
    )
    
    
    
    
    
    
    (13,446
    )Other service fees
    
    
    47,020
    
    
    
    4,478
    
    
    
    
    
    
    
    51,498Total net revenue
    
    
    47,020
    
    
    
    31,964
    
    
    
    
    
    
    
    78,984Total operating expenses
    
    
    45,523
    
    
    
    18,201
    
    
    
    7,307
    
    
    
    71,031Operating income
    
    
    1,497
    
    
    
    13,763
    
    
    
    (7,307
    )
    
    
    7,953Interest (expense)
    
    
    (1
    )
    
    
    
    
    
    
    (4,992
    )
    
    
    (4,993
    )Other income
    
    
    35
    
    
    
    51
    
    
    
    128
    
    
    
    214Income (loss) before income taxes
    
    $
    1,531
    
    
    $
    13,814
    
    
    $
    (12,171
    )
    
    $
    3,174Income tax (benefit)
    
    
    612
    
    
    
    5,523
    
    
    
    (4,866
    )
    
    
    1,269Net income (loss)
    
    
    919
    
    
    
    8,291
    
    
    
    (7,305
    )
    
    
    1,905Segment Adjusted EBITDA
    
    $
    12,326
    
    
    $
    16,252
    
    
    $
    (5,249
    )
    
    $
    23,329As of March 31, 2009RCM
    
    
    SM
    
    
    Corporate
    
    
    Total(Unaudited, in thousands)Financial Position:Accounts receivable, net
    
    $
    43,557
    
    
    $
    30,964
    
    
    $
    (16,899
    )
    
    $
    57,622Other assets
    
    
    576,196
    
    
    
    96,211
    
    
    
    40,962
    
    
    
    713,369Total assets
    
    
    619,753
    
    
    
    127,175
    
    
    
    24,063
    
    
    
    770,991Accrued revenue share obligation
    
    
    
    
    
    
    24,760
    
    
    
    
    
    
    
    24,760Deferred revenue
    
    
    25,427
    
    
    
    5,735
    
    
    
    
    
    
    
    31,162Other liabilities
    
    
    29,110
    
    
    
    32,057
    
    
    
    261,804
    
    
    
    322,971Total liabilities
    
    $
    54,537
    
    
    $
    62,552
    
    
    $
    261,804
    
    
    $
    378,893Three Months Ended March 31, 2008RCM
    
    
    SM
    
    
    Corporate
    
    
    Total(Unaudited, in thousands)Results of Operations:Revenue:Administrative fees
    
    $
    
    
    
    $
    39,887
    
    
    $
    
    
    
    $
    39,887Revenue share obligation
    
    
    
    
    
    
    (12,342
    )
    
    
    
    
    
    
    (12,342
    )Other service fees
    
    
    25,106
    
    
    
    6,107
    
    
    
    
    
    
    
    31,213Total net revenue
    
    
    25,106
    
    
    
    33,652
    
    
    
    
    
    
    
    58,758Total operating expenses
    
    
    26,251
    
    
    
    19,899
    
    
    
    4,879
    
    
    
    51,029Operating income
    
    
    (1,145
    )
    
    
    13,753
    
    
    
    (4,879
    )
    
    
    7,729Interest (expense)
    
    
    
    
    
    
    
    
    
    
    (4,317
    )
    
    
    (4,317
    )Other income (expense)
    
    
    14
    
    
    
    (8
    )
    
    
    1,027
    
    
    
    1,033Income (loss) before income taxes
    
    $
    (1,131
    )
    
    $
    13,745
    
    
    $
    (8,169
    )
    
    $
    4,445Income tax (benefit)
    
    
    (239
    )
    
    
    4,325
    
    
    
    (2,340
    )
    
    
    1,746Net income (loss)
    
    
    (892
    )
    
    
    9,420
    
    
    
    (5,829
    )
    
    
    2,699Segment Adjusted EBITDA
    
    $
    4,241
    
    
    $
    16,028
    
    
    $
    (4,239
    )
    
    $
    16,030
 18




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 As of March 31, 2008RCM
    
    
    SM
    
    
    Corporate
    
    
    Total(Unaudited, in thousands)Financial Position:Accounts receivable, net
    
    $
    27,322
    
    
    $
    14,550
    
    
    $
    386
    
    
    $
    42,258Other assets
    
    
    227,988
    
    
    
    117,734
    
    
    
    135,426
    
    
    
    481,148Total assets
    
    
    255,310
    
    
    
    132,284
    
    
    
    135,812
    
    
    
    523,406Accrued revenue share obligation
    
    
    
    
    
    
    21,780
    
    
    
    
    
    
    
    21,780Deferred revenue
    
    
    18,768
    
    
    
    5,157
    
    
    
    
    
    
    
    23,925Other liabilities
    
    
    35,588
    
    
    
    31,636
    
    
    
    178,517
    
    
    
    245,741Total liabilities
    
    $
    54,356
    
    
    $
    58,573
    
    
    $
    178,517
    
    
    $
    291,446
  Three Months Ended March 31,2009
    
    
    2008(Unaudited, in thousands)RCM Adjusted EBITDA
    
    $
    12,326
    
    
    $
    4,241SM Adjusted EBITDA
    
    
    16,252
    
    
    
    16,028Total reportable Segment Adjusted EBITDA
    
    
    28,578
    
    
    
    20,269Depreciation
    
    
    (2,438
    )
    
    
    (1,731
    )Amortization of intangibles
    
    
    (7,011
    )
    
    
    (3,778
    )Amortization of intangibles (included in cost of revenue)
    
    
    (788
    )
    
    
    (391
    )Interest expense, net of interest income(1)
    
    
    7
    
    
    
    2Income tax
    
    
    (6,135
    )
    
    
    (4,085
    )Share-based compensation expense(2)
    
    
    (2,814
    )
    
    
    (1,501
    )Accuro & XactiMed purchase accounting adjustments(3)
    
    
    (189
    )
    
    
    (257
    )Total reportable segment net income
    
    
    9,210
    
    
    
    8,528Corporate net (loss)
    
    
    (7,305
    )
    
    
    (5,829
    )Consolidated net income
    
    $
    1,905
    
    
    $
    2,699
 
 (1)
    
    Interest income is included in other income (expense) and is not
netted against interest expense in our Condensed Consolidated
Statement of Operations.(2)
    
    Represents non-cash share-based compensation to both employees and
directors. We believe excluding this non-cash expense allows us to
compare our operating performance without regard to the impact of
share-based compensation, which varies from period to period based on
amount and timing of grants.(3)
    
    These adjustments include the effect on revenue of adjusting acquired
deferred revenue balances, net of any reduction in associated deferred
costs, to fair value as of the respective acquisition dates for Accuro
and XactiMed, Inc. (or XactiMed). The reduction of the deferred revenue balances
materially affects period-to-period financial performance
comparability and revenue and earnings growth in future periods
subsequent to the acquisition and is not indicative of changes in
underlying results of operations. 11. DERIVATIVE FINANCIAL INSTRUMENTS
 . Accounting for Derivative Instruments and Hedging Activities, as
amended
 19




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
 Interest rate collar
     Par forward contracts
    20




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##### Table of Contents



MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (Continued)
(In thousands, except share and per share amounts)
  Fair Values of Derivative Instruments
 Asset Derivatives
    
    
    
    Liability DerivativesMarch 31,
    
    
    
    March 31,2009
    
    
    
    2009Derivatives designated as
hedging instruments under Statement 133
    
    Balance Sheet Location
    
    
    Fair Value
    
    
    
    Balance Sheet Location
    
    
    Fair Value(Unaudited)
    
    
    
    (Unaudited)Interest rate contracts
    
    
    
    
    
    $
    
    
    
    
    Other long term liabilities
    
    $
    3,242Foreign exchange contracts
    
    Other long term assets
    
    
    282
    
    
    
    
    
    
    
    
    Total derivatives designated
as hedging instruments
under Statement 133
    
    
    
    
    
    $
    282
    
    
    
    
    
    
    
    $
    3,242
 The Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
for the Three Month Period Ended March 31, 2009
 Amount of Gain orAmount of Gain or
    
    
    Location of Gain or
    
    
    (Loss) Reclassified(Loss) Recognized in
    
    
    (Loss) Reclassified
    
    
    from Accumulated OCIDerivatives in Statement
    
    OCI on Derivative
    
    
    from Accumulated OCI
    
    
    into Income (Effective133 Cash Flow Hedging
    
    (Effective Portion)
    
    
    into Income
    
    
    Portion)Relationships
    
    2009
    
    
    (Effective Portion)
    
    
    2009(Unaudited)Interest rate contracts
    
    $
    260
    
    
    
    n/a
    
    
    $
    Foreign exchange contracts
    
    
    (15
    )
    
    
    n/a
    
    
    
    Total gain recognized in other comprehensive income
    
    $
    245
    
    
    
    
    
    
    $
    
 12. RELATED PARTY TRANSACTION
  21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 NOTE ON FORWARD-LOOKING STATEMENTS
   Overview
    Three Months Ended March 31,2009
    
    
    2008
    
    
    ChangeAmount
    
    
    Amount
    
    
    Amount
    
    
    %(In millions)Non-GAAP gross fees(1)
    
    $
    92.4
    
    
    $
    71.1
    
    
    $
    21.3
    
    
    
    30.0
    %Non-GAAP revenue share
obligation(1)
    
    
    (13.4
    )
    
    
    (12.3
    )
    
    
    (1.1
    )
    
    
    8.9Total net revenue
    
    
    79.0
    
    
    
    58.8
    
    
    
    20.2
    
    
    
    34.4Operating income
    
    
    8.0
    
    
    
    7.7
    
    
    
    0.3
    
    
    
    3.9Net income
    
    $
    1.9
    
    
    $
    2.7
    
    
    $
    (0.8
    )
    
    
    -29.6
    %Non-GAAP adjusted EBITDA(1)
    
    $
    23.3
    
    
    $
    16.0
    
    
    $
    7.3
    
    
    
    45.6
    %Non-GAAP adjusted EBITDA
margin(1)
    
    
    29.5
    %
    
    
    27.2
    %
 
 (1)
    
    See Use of Non-GAAP Financial Measures section for additional information.  
    
    the Accuro acquisition;
    
    organic growth in our Revenue Cycle Management segment exclusive of Accuro due to
increased demand for our reimbursement technologies, revenue cycle services and decision
support software; and
    
    offsetting the RCM increase, our Spend Management segment results for the current period do not compare favorably  to
the prior year period due primarily
to two timing related events.
 22




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##### Table of Contents



First, our annual customer and vendor meeting occurred in the first
quarter of 2008 contributing approximately $2.9 million in revenue; the 2009 annual customer and
vendor meeting will occur in the second quarter of 2009 and related revenue will be reflected in our
results of operations for that period. Second, we recognized approximately $2.1 million additional
performance fees in the first quarter of 2008 based on customer acceptance timing as compared to
the first quarter of 2009.  
    
    increases in the amortization of acquired intangibles;
    
    expenses related to the ongoing acquisition integration efforts at our Revenue Cycle
Management segment; and
    
    higher general and administrative costs associated with our expanded infrastructure and
increased personnel.
   Recent Developments
  Long-Term Performance Incentive Plan
  Segment Structure and Revenue Streams
  Revenue Cycle Management
  
    
    Subscription and implementation fees.We earn fixed subscription fees on a
monthly or annual basis on multi-year contracts for customer access to our software as a service (SaaS) based
solutions. We also charge our customers upfront fees for implementation services.
Implementation fees are earned over the subscription period or estimated customer
relationship period, whichever is longer.
 - 23 -




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##### Table of Contents




    
    Transaction fees.For certain revenue cycle management solutions, we earn fees
that vary based on the volume of customer transactions or enrolled members.
    
    Software-related fees.We earn license, consulting, maintenance and other
software-related service fees for our business intelligence, decision support and other
software products. We have certain Revenue Cycle Management contracts that are sold in
multiple-element arrangements and include software products. We have considered Rule 5-03
of Regulation S-X for these types of multiple-element arrangements that include software
products and determined the amount is below the threshold that would require separate
disclosure on our statement of operations.
    
    Service fees.For certain revenue cycle management solutions, we earn fees based
on a percentage of cash remittances collected.
 Spend Management
  
    
    Administrative fees and revenue share obligations.We earn administrative fees
from manufacturers, distributors and other vendors of products and services with whom we
have contracts under which our group purchasing organization customers may purchase
products and services. Administrative fees represent a percentage, which we refer to as our
administrative fee ratio, typically ranging from 0.25% to 3.00% of the purchases made by
our group purchasing organization customers through contracts with our vendors.Our group purchasing organization customers make purchases, and receive shipments, directly
from the vendors. Generally on a monthly or quarterly basis, vendors provide us with a report
describing the purchases made by our customers through our group purchasing organization
vendor contracts, including associated administrative fees. We recognize revenue upon the
receipt of these reports from vendors.Some customer contracts require that a portion of our administrative fees are contingent upon
achieving certain financial improvements, such as lower supply costs, which we refer to as
performance targets. Contingent administrative fees are not recognized as revenue until the
customer confirms achievement of those contractual performance targets. Prior to customer
confirmation that a performance target has been achieved, we record contingent administrative
fees as deferred revenue on our consolidated balance sheet. Often, recognition of this
revenue occurs in periods subsequent to the recognition of the associated costs. Should we
fail to meet a performance target, we would be contractually obligated to refund some or all
of the contingent fees.Additionally, in many cases, we are contractually obligated to pay a portion of the
administrative fees to our hospital and health system customers. Typically this amount, or
revenue share obligation, is calculated as a percentage of administrative fees earned on a
particular customers purchases from our vendors. Our total net revenue on our consolidated
statements of operations is shown net of the revenue share obligation.
    
    Other service fees.The following items are included as other service fees in
our Condensed Consolidated Statement of Operations:
 
    
    Consulting fees.We consult with our customers regarding the costs and
utilization of medical devices and implantable physician preference items, or PPI, and
the efficiency and quality of their key clinical service lines. Our consulting projects
are typically fixed fee projects with a duration of three to nine months, and the
related revenues are earned as services are rendered.
    
    Subscription fees.We also offer technology-enabled services that provide
spend management analytics and data services to improve operational efficiency, reduce
supply costs, and increase transparency across spend management processes. We earn fixed
subscription fees on a monthly basis for these Company-hosted SaaS-based solutions.
 Operating Expenses
  24




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##### Table of Contents




    
    Cost of revenue.Cost of revenue primarily consists of the direct labor costs
incurred to generate our revenue. Direct labor costs consist primarily of salaries,
benefits, and other direct costs and share-based compensation expenses related to
personnel who provide services to implement our solutions for our customers. As the
majority of our services are generated internally, our costs to provide these services
are primarily labor-driven. A less significant portion of our cost of revenue derives
from third-party products and services, and client reimbursed out-of-pocket costs. Cost
of revenue does not include allocated amounts for rent, depreciation or amortization,
but does include the amortization for the cost of software to be sold, leased, or
otherwise marketed. As a result of the Accuro acquisition and related integration, there
may be some reclassifications primarily between cost of revenue and operating expense
classifications resulting from the implementation of our accounting policies that could
affect period over period comparability.
    
    Product development expenses.Product development expenses primarily consist
of the salaries, benefits, and share-based compensation expense of the technology
professionals who develop, support and maintain our software-related products and
services.
    
    Selling and marketing expenses.Selling and marketing expenses consist
primarily of costs related to marketing programs (including trade shows and brand
messaging), personnel-related expenses for sales and marketing employees (including
salaries, benefits, incentive compensation and share-based compensation expense),
certain meeting costs and travel-related expenses.
    
    General and administrative expenses.General and administrative expenses
consist primarily of personnel-related expenses for administrative employees (including
salaries, benefits, incentive compensation and share-based compensation expense) and
travel-related expenses, occupancy and other indirect costs, insurance costs,
professional fees, and other general overhead expenses.
    
    Depreciation.Depreciation expense consists primarily of depreciation of
fixed assets and the amortization of software, including capitalized costs of software
developed for internal use.
    
    Amortization of intangibles.Amortization of intangibles includes the
amortization of all intangible assets (with the exception of software), primarily
resulting from acquisitions.
 Results of Operations
 Consolidated Tables
  25




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    47,020
    
    
    $
    25,106Spend ManagementAdministrative fees
    
    
    40,932
    
    
    
    39,887Revenue share obligation
    
    
    (13,446
    )
    
    
    (12,342
    )Other service fees
    
    
    4,478
    
    
    
    6,107Total Spend Management
    
    
    31,964
    
    
    
    33,652Total net revenue
    
    
    78,984
    
    
    
    58,758Operating expenses:Revenue Cycle Management
    
    
    45,523
    
    
    
    26,251Spend Management
    
    
    18,201
    
    
    
    19,899Total segment operating expenses
    
    
    63,724
    
    
    
    46,150Operating incomeRevenue Cycle Management
    
    
    1,497
    
    
    
    (1,145
    )Spend Management
    
    
    13,763
    
    
    
    13,753Total segment operating income
    
    
    15,260
    
    
    
    12,608Corporate expenses(1)
    
    
    7,307
    
    
    
    4,879Operating income
    
    
    7,953
    
    
    
    7,729Other income (expense):Interest expense
    
    
    (4,993
    )
    
    
    (4,317
    )Other income
    
    
    214
    
    
    
    1,033Income before income taxes
    
    
    3,174
    
    
    
    4,445Income tax expense
    
    
    1,269
    
    
    
    1,746Net income
    
    
    1,905
    
    
    
    2,699Reportable segment adjusted EBITDA(2):Revenue Cycle Management
    
    
    12,326
    
    
    
    4,241Spend Management
    
    $
    16,252
    
    
    $
    16,028Reportable segment adjusted EBITDA margin(3):Revenue Cycle Management
    
    
    26.2
    %
    
    
    16.9
    %Spend Management
    
    
    50.8
    %
    
    
    47.6
    %
 
 (1)
    
    Represents the expenses of corporate office operations. Corporate does not represent an operating segment of the Company.(2)
    
    Managements primary metric of segment profit or loss is Segment Adjusted EBITDA. See Note 10 of the Notes to Condensed
Consolidated Financial Statements.(3)
    
    Reportable segment Adjusted EBITDA margin represents each reportable segments Adjusted EBITDA as a percentage of each
segments respective net revenue. 26




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##### Table of Contents



Comparison of the Three Months Ended March 31, 2009 and March 31, 2008
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    %(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    47,020
    
    
    
    59.5
    %
    
    $
    25,106
    
    
    
    42.7
    %
    
    $
    21,914
    
    
    
    87.3
    %Spend ManagementAdministrative fees
    
    
    40,932
    
    
    
    51.8
    
    
    
    39,887
    
    
    
    67.9
    
    
    
    1,045
    
    
    
    2.6Revenue share obligation
    
    
    (13,446
    )
    
    
    (17.0
    )
    
    
    (12,342
    )
    
    
    (21.0
    )
    
    
    (1,104
    )
    
    
    8.9Other service fees
    
    
    4,478
    
    
    
    5.7
    
    
    
    6,107
    
    
    
    10.4
    
    
    
    (1,629
    )
    
    
    (26.7
    )Total Spend Management
    
    
    31,964
    
    
    
    40.5
    
    
    
    33,652
    
    
    
    57.3
    
    
    
    (1,688
    )
    
    
    (5.0
    )Total net revenue
    
    $
    78,984
    
    
    
    100.0
    %
    
    $
    58,758
    
    
    
    100.0
    %
    
    $
    20,226
    
    
    
    34.4
    %
 Total net revenue .
 Revenue Cycle Management net revenue .
 
    
    Acquisition related revenue.The operating results of Accuro were included in our three
months ended March 31, 2009 and were not included in the comparable prior period. $18.7 million of
the net revenue increase resulted from revenue attributable to Accuro, which we acquired on June 2,
2008. Given the significant impact of the Accuro acquisition on our Revenue Cycle Management
segment, we believe acquisition-affected measures are useful for the comparison of our year over
year net revenue growth. Revenue Cycle Management net revenue for the three months ended March 31,
2009 was $47.0 million, an increase of $5.4 million, or 13.0%, from Revenue Cycle Management
non-GAAP acquisition-affected net revenue of $41.6 million for the three months ended March 31,
2008. The following table sets forth the reconciliation of Revenue Cycle Management non-GAAP
acquisition-affected net revenue to GAAP net revenue:
 Three Months Ended March 31,2009
    
    
    2008
    
    
    ChangeAmount
    
    
    Amount
    
    
    Amount
    
    
    %(Unaudited, in thousands)RCM non-GAAP acquisition-affected net revenue(1):Revenue Cycle Management net revenue
    
    $
    47,020
    
    
    $
    25,106
    
    
    $
    21,914
    
    
    
    87.3
    %Non-GAAP acquisition related RCM adjustments(1):Accuro
    
    
    
    
    
    
    16,505
    
    
    
    (16,505
    )
    
    
    (100.0
    )Total RCM non-GAAP acquisition-affected net
revenue(1)
    
    $
    47,020
    
    
    $
    41,611
    
    
    $
    5,409
    
    
    
    13.0
    %
 
 (1)
    
    See Use of Non-GAAP Financial Measures section for additional information regarding 2008 RCM adjustments. 
    
    Non-acquisition related revenue. The increase in net revenue from non-acquisition related
products and services was $3.2 million, or 12.7%. The increase was attributable to a $1.3 million
increase in revenue from our revenue cycle services; $1.2 million increase in revenue from our
claims management reimbursement technologies; and a $0.7 million increase in revenue from our
decision support software.
 Spend Management net revenue .
 27




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
    
    Administrative fees.Administrative fee revenue increased by $1.0 million, or
2.6%, as compared to the prior period, primarily due to higher purchasing volumes by
existing customers under our group purchasing organization contracts with our manufacturer
and distributor vendors. The net increase in administrative fee revenue was comprised of a
$3.1 million, or 8.3% increase, in administrative fee revenue not associated with
performance targets. This increase was partially offset by a $2.1 million decrease in
contingent revenue recognized upon confirmation from certain customers that respective
performance targets had been achieved during the three months ended March 31, 2009 compared
to the three months ended March 31, 2008. We may have fluctuations in our administrative
fee revenue in future quarters as the timing of vendor reporting and customer
acknowledgement of achieved performance targets vary in their timing and may not result in
discernable trends.
    
    Revenue share obligation.Revenue share obligation increased $1.1 million, or
8.9%, as compared to the prior period. We analyze the impact that our revenue share
obligation has on our results of operations by analyzing the ratio of revenue share
obligation to administrative fees (or the revenue share ratio). The revenue share ratio
for the three months ended March 31, 2009 was 32.8% as compared to 30.9% for the three
months ended March 31, 2008. The increase in our revenue share ratio was primarily the
result of changes in revenue mix to larger customers during the period. Larger customers
who commit to higher levels of purchasing volume through our group purchasing organization
contracts typically receive higher revenue share obligation percentages. We may also
experience fluctuations in our revenue share ratio because of changes in revenue mix, the
timing of vendor reporting and the timing of revenue recognition based on performance
target achievement for certain customers.
    
    Other service fees. The $1.6 million or 26.7% decrease in other service fees
primarily related to revenue from our annual customer and vendor meeting that will be
recognized during the second quarter of 2009 as compared to related revenue of $2.9 million
included in the three months ended March 31, 2008. Partially offsetting this decrease was
approximately $0.9 million in higher revenues from our supply chain consulting. The
consulting growth was mainly due to an increased number of consulting engagements from new
and existing customers.
 Total Operating Expenses
 Three Months Ended March 31,2009
    
    
    2008
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    %(Unaudited, in thousands)Operating expenses:Cost of revenue
    
    $
    16,745
    
    
    
    21.2
    %
    
    $
    8,462
    
    
    
    14.4
    %
    
    $
    8,283
    
    
    
    97.9
    %Product development expenses
    
    
    6,018
    
    
    
    7.6
    
    
    
    2,697
    
    
    
    4.6
    
    
    
    3,321
    
    
    
    123.1Selling and marketing expenses
    
    
    10,896
    
    
    
    13.8
    
    
    
    12,911
    
    
    
    22.0
    
    
    
    (2,015
    )
    
    
    (15.6
    )General and administrative
expenses
    
    
    27,451
    
    
    
    34.8
    
    
    
    21,060
    
    
    
    35.8
    
    
    
    6,391
    
    
    
    30.3Depreciation
    
    
    2,910
    
    
    
    3.7
    
    
    
    2,121
    
    
    
    3.6
    
    
    
    789
    
    
    
    37.2Amortization of intangibles
    
    
    7,011
    
    
    
    8.9
    
    
    
    3,778
    
    
    
    6.4
    
    
    
    3,233
    
    
    
    85.6Total operating expenses
    
    
    71,031
    
    
    
    89.9
    
    
    
    51,029
    
    
    
    86.8
    
    
    
    20,002
    
    
    
    39.2Operating expenses by segment:Revenue Cycle Management
    
    
    45,523
    
    
    
    57.6
    
    
    
    26,251
    
    
    
    44.7
    
    
    
    19,272
    
    
    
    73.4Spend Management
    
    
    18,201
    
    
    
    23.0
    
    
    
    19,899
    
    
    
    33.9
    
    
    
    (1,698
    )
    
    
    (8.5
    )Total segment operating expenses
    
    
    63,724
    
    
    
    80.7
    
    
    
    46,150
    
    
    
    78.5
    
    
    
    17,574
    
    
    
    38.1Corporate expenses
    
    
    7,307
    
    
    
    9.3
    
    
    
    4,879
    
    
    
    8.3
    
    
    
    2,428
    
    
    
    49.8Total operating expenses
    
    $
    71,031
    
    
    
    89.9
    %
    
    $
    51,029
    
    
    
    86.8
    %
    
    $
    20,002
    
    
    
    39.2
    %
 Cost of revenue .
  28




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Product development expenses .
   Selling and marketing expenses .
  General and administrative expenses .
   Depreciation .
  Amortization of intangibles .
 29




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Segment Operating Expenses
 Revenue Cycle Management expense s.
   Spend Management expenses .
  Corporate expenses .
 Non-operating Expenses
 Interest expense .
 Other income .
 Income tax expense
  30




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Critical Accounting Policies
   Allowance for Doubtful Accounts
    Liquidity and Capital Resources
    31




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
    
    changes in working capital due to inconsistent timing of cash receipts and payments
for major recurring items such as accounts receivable collections, accounts payable
payments, revenue share obligation payments, incentive compensation, changes in deferred
revenue, and other various items;
    
    acquisitions; and
    
    unforeseeable events or transactions.
  Discussion of Cash Flow
      32




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Acquisition Contingent Consideration
  Off-Balance Sheet Arrangements and Commitments
   Amount2009
    
    $
    5,8212010
    
    
    6,8482011
    
    
    6,5902012
    
    
    6,1622013
    
    
    3,439Thereafter
    
    
    11,192Total future minimum rental payments
    
    $
    40,052
   33




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##### Table of Contents



Use of Non-GAAP Financial Measures
   Gross Fees and Revenue Share Obligation .
 EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin .
    
    
    EBITDA does not reflect our cash expenditures or future requirements for capital
expenditures or contractual commitments;
 34




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
    
    EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
    
    EBITDA does not reflect the interest expense, or the cash requirements to service
interest or principal payments under our credit agreement;
    
    EBITDA does not reflect income tax payments we are required to make; and
    
    Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and EBITDA does not
reflect any cash requirements for such replacements.
   Three Months Ended March 31,2009
    
    
    2008(Unaudited, in thousands)Net income
    
    $
    1,905
    
    
    $
    2,699Depreciation
    
    
    2,910
    
    
    
    2,121Amortization of intangibles
    
    
    7,011
    
    
    
    3,778Amortization of intangibles (included in
cost of revenue)
    
    
    788
    
    
    
    391Interest expense, net of interest
income(1)
    
    
    4,981
    
    
    
    3,409Income tax expense
    
    
    1,269
    
    
    
    1,746EBITDA
    
    
    18,864
    
    
    
    14,144Share-based compensation(2)
    
    
    4,386
    
    
    
    1,740Rental income from capitalizing building
lease(3)
    
    
    (110
    )
    
    
    (110
    )Purchase accounting adjustment(4)
    
    
    189
    
    
    
    256Adjusted EBITDA
    
    $
    23,329
    
    
    $
    16,030
 
 (1)
    
    Interest income is included in other income (expense) and is not
netted against interest expense in our Condensed Consolidated
Statement of Operations.(2)
    
    Represents non-cash share-based compensation to both employees and
directors. The significant increase in 2009 is due to share-based
grants made from the Long-Term Performance Incentive Plan previously
discussed. We believe excluding this non-cash expense allows us to
compare our operating performance without regard to the impact of
share-based compensation expense, which varies from period to period
based on the amount and timing of grants. 35




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##### Table of Contents



(3)
    
    The imputed rental income recognized with respect to a capitalized
building lease is deducted from net income (loss) due to its non-cash
nature. We believe this income is not a useful measure of continuing
operating performance. See our Consolidated Financial Statements filed
in our annual report on Form 10-K for the year ended December 31, 2008
for further discussion of this rental income.(4)
    
    These adjustments include the effect on revenue of adjusting acquired
deferred revenue balances, net of any reduction in associated deferred
costs, to fair value as of the respective acquisition dates for Accuro
and XactiMed. The reduction of the deferred revenue balances
materially affects period-to-period financial performance
comparability and revenue and earnings growth in future periods
subsequent to the acquisition and is not indicative of changes in
underlying results of operations. Revenue Cycle Management Acquisition-Affected Net Revenue .
 New Pronouncements
 Fair Value Measurements
 Effective Date of FASB Statement No. 157,
 Business Combinations
 Business Combinations
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from Contingencies
 Disclosures about Derivative Instruments and Hedging Activities
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment
of SFAS No. 133
 36




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##### Table of Contents



Intangible Assets
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 GAAP Hierarchy
 The Hierarchy of Generally Accepted Accounting Principles The meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign currency exchange risk .
  Interest rate risk .
    37




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Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  38




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Item 5. Other Information
  39




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##### Table of Contents



Item 6. Exhibits
 ExhibitNo.
    
    Description of Exhibit31.1*
    
    Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer31.2*
    
    Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer32.1*
    
    Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive
Officer and Chief Financial Officer
 
 *
    
    Filed herewith 40




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##### Table of Contents



Signatures
  Signature
    
    Title
    
    Date/s/ JOHN A. BARDIS
    
    Chairman of the Board of Directors
and Chief Executive Officer
    
    May 8, 2009Name: John A. Bardis
    
    (Principal Executive Officer)/s/ L. NEIL HUNN
    
    Chief Financial Officer
    
    May 8, 2009Name: L. Neil Hunn
    
    (Principal Financial Officer)
 41




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##### Table of Contents



ExhibitNo.
    
    Description of Exhibit31.1*
    
    Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief
Executive Officer31.2*
    
    Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer32.1*
    
    Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief
Executive Officer and Chief Financial Officer
 
 *
    
    Filed herewith 42