##### 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, 2010
 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(State or other jurisdiction of 
incorporation or organization)
    
    51-0391128(I.R.S. Employer
Identification No.)100 North Point Center East, Suite 200
Alpharetta, 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 þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller Reporting Company o
 o þ




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##### 



MEDASSETS, INC.
FORM 10-Q
  PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the three months ended March 31, 2010
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 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
    
    
    38Item 6. Exhibits
    
    
    38SignaturesEX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 MedAssets, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)  (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrentCash and cash equivalents
    
    $
    4,981
    
    
    $
    5,498Accounts receivable, net of allowances of $3,767 and $4,189 as of March 31, 2010 and December 31, 2009, respectively
    
    
    70,323
    
    
    
    67,617Deferred tax asset, current
    
    
    14,423
    
    
    
    14,423Prepaid expenses and other current assets
    
    
    15,283
    
    
    
    8,442Total current assets
    
    
    105,010
    
    
    
    95,980Property and equipment, net
    
    
    58,720
    
    
    
    54,960Other long term assetsGoodwill
    
    
    511,861
    
    
    
    511,861Intangible assets, net
    
    
    89,320
    
    
    
    95,589Other
    
    
    20,407
    
    
    
    20,154Other long term assets
    
    
    621,588
    
    
    
    627,604Total assets
    
    $
    785,318
    
    
    $
    778,544LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    9,300
    
    
    $
    8,680Accrued revenue share obligation and rebates
    
    
    27,084
    
    
    
    31,948Accrued payroll and benefits
    
    
    15,074
    
    
    
    12,874Other accrued expenses
    
    
    11,309
    
    
    
    7,410Deferred revenue, current portion
    
    
    30,848
    
    
    
    24,498Current portion of notes payable
    
    
    2,499
    
    
    
    13,771Current portion of finance obligation
    
    
    166
    
    
    
    163Total current liabilities
    
    
    96,280
    
    
    
    99,344Notes payable, less current portion
    
    
    200,765
    
    
    
    201,390Finance obligation, less current portion
    
    
    9,651
    
    
    
    9,694Deferred revenue, less current portion
    
    
    7,606
    
    
    
    7,380Deferred tax liability
    
    
    19,358
    
    
    
    19,239Other long term liabilities
    
    
    2,465
    
    
    
    4,125Total liabilities
    
    
    336,125
    
    
    
    341,172Commitments and contingenciesStockholders equityCommon stock, $0.01 par value, 150,000,000 shares authorized; 57,000,000 and 56,715,000shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively
    
    
    570
    
    
    
    567Additional paid-in capital
    
    
    645,544
    
    
    
    639,315Accumulated other comprehensive loss
    
    
    (1,536
    )
    
    
    (1,605
    )Accumulated deficit
    
    
    (195,385
    )
    
    
    (200,905
    )Total stockholders equity
    
    
    449,193
    
    
    
    437,372Total liabilities and stockholders equity
    
    $
    785,318
    
    
    $
    778,544
  3




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##### Table of Contents



MedAssets, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 Three
Months Ended March 31,2010
    
    
    2009(In thousands, except per share amounts)Revenue:Administrative fees, net
    
    $
    28,590
    
    
    $
    27,486Other service fees
    
    
    64,816
    
    
    
    51,498Total net revenue
    
    
    93,406
    
    
    
    78,984Operating expenses:Cost of revenue (inclusive of
certain depreciation and
amortization expense)
    
    
    21,722
    
    
    
    16,745Product development expenses
    
    
    5,370
    
    
    
    6,018Selling and marketing expenses
    
    
    10,668
    
    
    
    10,896General and administrative expenses
    
    
    32,151
    
    
    
    27,451Depreciation
    
    
    4,293
    
    
    
    2,910Amortization of intangibles
    
    
    6,084
    
    
    
    7,011Total operating expenses
    
    
    80,288
    
    
    
    71,031Operating income
    
    
    13,118
    
    
    
    7,953Other income (expense):Interest (expense)
    
    
    (3,932
    )
    
    
    (4,993
    )Other income
    
    
    67
    
    
    
    214Income before income taxes
    
    
    9,253
    
    
    
    3,174Income tax expense
    
    
    3,733
    
    
    
    1,269Net income
    
    $
    5,520
    
    
    $
    1,905Basic and diluted income per share:Basic net income
    
    $
    0.10
    
    
    $
    0.04Diluted net income
    
    $
    0.09
    
    
    $
    0.03Weighted average shares  basic
    
    
    55,817
    
    
    
    54,102Weighted average shares  diluted
    
    
    58,829
    
    
    
    56,302
  4




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MedAssets,
Inc.
 Condensed Consolidated Statement of Stockholders Equity (Unaudited)
Three Months Ended March 31, 2010
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Equity(In thousands)Balances at December 31, 2009
    
    
    56,715
    
    
    $
    567
    
    
    $
    639,315
    
    
    $
    (1,605
    )
    
    $
    (200,905
    )
    
    $
    437,372Issuance of common stock from
equity award exercises
    
    
    245
    
    
    
    2
    
    
    
    1,938
    
    
    
    
    
    
    
    
    
    
    
    1,940Issuance of common restricted stock
    
    
    40
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    3,472
    
    
    
    
    
    
    
    
    
    
    
    3,472Excess tax benefit from equity award
exercises
    
    
    
    
    
    
    
    
    
    
    820
    
    
    
    
    
    
    
    
    
    
    
    820Other comprehensive income:Unrealized gain from hedging
activities
(net of a tax expense of $48)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,520
    
    
    
    5,520Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    5,520
    
    
    
    5,589Balances at March 31, 2010
    
    
    57,000
    
    
    $
    570
    
    
    $
    645,544
    
    
    $
    (1,536
    )
    
    $
    (195,385
    )
    
    $
    449,193
  5




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MedAssets, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Operating activitiesNet income
    
    $
    5,520
    
    
    $
    1,905Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:Bad debt expense
    
    
    407
    
    
    
    1,284Depreciation
    
    
    5,015
    
    
    
    3,514Amortization of intangibles
    
    
    6,269
    
    
    
    7,196Loss on sale of assets
    
    
    1
    
    
    
    21Noncash stock compensation expense
    
    
    3,472
    
    
    
    4,386Excess tax benefit from exercise of equity awards
    
    
    (820
    )
    
    
    (1,075
    )Amortization of debt issuance costs
    
    
    458
    
    
    
    462Noncash interest expense, net
    
    
    134
    
    
    
    518Deferred income tax expense
    
    
    71
    
    
    
    124Changes in assets and liabilities:Accounts receivable
    
    
    (3,113
    )
    
    
    (3,858
    )Prepaid expenses and other assets
    
    
    (6,841
    )
    
    
    (3,367
    )Other long-term assets
    
    
    (1,163
    )
    
    
    (1,265
    )Accounts payable
    
    
    1,439
    
    
    
    2,136Accrued revenue share obligations and rebates
    
    
    (4,865
    )
    
    
    (4,938
    )Accrued payroll and benefits
    
    
    2,200
    
    
    
    (5,267
    )Other accrued expenses
    
    
    2,316
    
    
    
    1,914Deferred revenue
    
    
    6,575
    
    
    
    471Cash provided by operating activities
    
    
    17,075
    
    
    
    4,161Investing activitiesPurchases of property, equipment and software
    
    
    (4,493
    )
    
    
    (3,396
    )Capitalized software development costs
    
    
    (3,798
    )
    
    
    (3,218
    )Cash used in investing activities
    
    
    (8,291
    )
    
    
    (6,614
    )Financing
activitiesProceeds from notes payable
    
    
    
    
    
    
    29,995Repayment of notes payable and capital lease obligations
    
    
    (11,897
    )
    
    
    (35,430
    )Repayment of finance obligations
    
    
    (164
    )
    
    
    (164
    )Excess tax benefit from exercise of equity awards
    
    
    820
    
    
    
    1,075Issuance of common stock
    
    
    1,940
    
    
    
    1,548Cash used in financing activities
    
    
    (9,301
    )
    
    
    (2,976
    )Net decrease in cash and cash equivalents
    
    
    (517
    )
    
    
    (5,429
    )Cash and cash equivalents, beginning of period
    
    
    5,498
    
    
    
    5,429Cash and cash equivalents, end of period
    
    $
    4,981
    
    
    $
    
  6




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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
 Revenue Recognition
   7




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (continued)
(In thousands, except share and per share amounts)
   Subsequent Events
  3. ACQUISITION AND RESTRUCTURING ACTIVITIES
 Accuro Restructuring Plan
   Accrued
    
    
    
    
    
    
    AccruedDecember 31,
    
    
    Cash
    
    
    March 31,2009
    
    
    Payments
    
    
    2010Accuro Restructuring PlanSeverance
    
    $
    246
    
    
    $
    (246
    )
    
    $
    Lease termination penalty and other costs
    
    
    2,813
    
    
    
    (338
    )
    
    
    2,475Total Accuro Restructuring Costs
    
    $
    3,059
    
    
    $
    (584
    )
    
    $
    2,475
  4. DEFERRED REVENUE
   8




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (continued)
(In thousands, except share and per share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009Software and implementation fees
    
    $
    14,203
    
    
    $
    14,080Service fees
    
    
    18,735
    
    
    
    15,786Administrative fees
    
    
    2,278
    
    
    
    924Other fees
    
    
    3,238
    
    
    
    1,088Deferred revenue, total
    
    
    38,454
    
    
    
    31,878Less: Deferred revenue, current portion
    
    
    (30,848
    )
    
    
    (24,498
    )Deferred revenue, non-current portion
    
    $
    7,606
    
    
    $
    7,380
  5. NOTES PAYABLE
  March 31,
    
    
    December 31,2010
    
    
    2009Notes payable  senior
    
    $
    203,264
    
    
    $
    215,161Less: current portion
    
    
    (2,499
    )
    
    
    (13,771
    )Total long-term notes payable
    
    $
    200,765
    
    
    $
    201,390
     9




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (continued)
(In thousands, except share and per share amounts)
 Amount2010
    
    $
    1,874
    (1)2011
    
    
    2,4992012
    
    
    2,4992013
    
    
    196,392Total notes payable
    
    $
    203,264
   6. COMMITMENTS AND CONTINGENCIES
 Performance Targets
  Legal Proceedings
    7. STOCKHOLDERS EQUITY AND SHARE-BASED COMPENSATION
 Common Stock
  Share-Based Compensation
   10




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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 31,2010
    
    
    2009Cost of revenue
    
    $
    566
    
    
    $
    860Product development
    
    
    197
    
    
    
    309Selling and marketing
    
    
    614
    
    
    
    798General and administrative
    
    
    2,095
    
    
    
    2,419Total share-based compensation expense
    
    $
    3,472
    
    
    $
    4,386
 Equity Award Grants
  Common Stock Option Awards
   Restricted Common Stock Awards
   SSARs Awards
   11




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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
  Three Months Ended March 31,2010
    
    
    2009Numerator for Basic and Diluted Income Per Share:Net income
    
    $
    5,520
    
    
    $
    1,905Denominator for basic income per share
weighted average shares
    
    
    55,817,000
    
    
    
    54,102,000Effect of dilutive securities:Stock options
    
    
    2,160,000
    
    
    
    2,102,000Stock settled stock appreciation rights
    
    
    383,000
    
    
    
    Restricted stock and stock warrants
    
    
    469,000
    
    
    
    98,000Denominator for diluted income per share  adjusted weighted
average shares and assumed conversions
    
    
    58,829,000
    
    
    
    56,302,000Basic income per share:Basic net income per common share
    
    $
    0.10
    
    
    $
    0.04Diluted net income per share:Diluted net income per common share
    
    $
    0.09
    
    
    $
    0.03
 12




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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 31,2010
    
    2009Stock options
    
    
    77,000
    
    
    
    350,000SSARs
    
    
    43,000
    
    
    
    469,000Total
    
    
    120,000
    
    
    
    819,000
 10. SEGMENT INFORMATION
  
    
    Revenue Cycle Management. Our Revenue Cycle Management segment provides a
comprehensive suite of software and services spanning the hospital, health system and other
ancillary healthcare provider revenue cycle workflow  from patient admission and
financial responsibility, patient financial liability estimation, charge capture, case
management, contract 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.
    13




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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, 2010RCM
    
    
    SM
    
    
    Corporate
    
    
    TotalResults of Operations:Revenue:Gross administrative fees(1)
    
    $
    
    
    
    $
    43,029
    
    
    $
    
    
    
    $
    43,029Revenue share obligation(1)
    
    
    
    
    
    
    (14,439
    )
    
    
    
    
    
    
    (14,439
    )Other service fees
    
    
    58,684
    
    
    
    6,132
    
    
    
    
    
    
    
    64,816Total net revenue
    
    
    58,684
    
    
    
    34,722
    
    
    
    
    
    
    
    93,406Total operating expenses
    
    
    51,588
    
    
    
    19,600
    
    
    
    9,100
    
    
    
    80,288Operating income (loss)
    
    
    7,096
    
    
    
    15,122
    
    
    
    (9,100
    )
    
    
    13,118Interest (expense)
    
    
    
    
    
    
    
    
    
    
    (3,932
    )
    
    
    (3,932
    )Other (expense) income
    
    
    (33
    )
    
    
    (10
    )
    
    
    110
    
    
    
    67Income (loss) before income taxes
    
    $
    7,063
    
    
    $
    15,112
    
    
    $
    (12,922
    )
    
    $
    9,253Income tax (benefit)
    
    
    2,849
    
    
    
    6,096
    
    
    
    (5,212
    )
    
    
    3,733Net income (loss)
    
    
    4,214
    
    
    
    9,016
    
    
    
    (7,710
    )
    
    
    5,520Segment Adjusted EBITDA
    
    $
    17,482
    
    
    $
    16,957
    
    
    $
    (6,627
    )
    
    $
    27,812
 
 (1)
    
    These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for
additional information. As of March 31, 2010RCM
    
    
    SM
    
    
    Corporate
    
    
    TotalFinancial Position:Accounts receivable, net
    
    $
    53,765
    
    
    $
    38,558
    
    
    $
    (22,000
    )
    
    $
    70,323Other assets
    
    
    562,955
    
    
    
    94,484
    
    
    
    57,556
    
    
    
    714,995Total assets
    
    
    616,720
    
    
    
    133,042
    
    
    
    35,556
    
    
    
    785,318Accrued revenue share obligation
    
    
    
    
    
    
    27,084
    
    
    
    
    
    
    
    27,084Deferred revenue
    
    
    30,159
    
    
    
    8,295
    
    
    
    
    
    
    
    38,454Other liabilities
    
    
    38,249
    
    
    
    30,914
    
    
    
    201,424
    
    
    
    270,587Total liabilities
    
    $
    68,408
    
    
    $
    66,293
    
    
    $
    201,424
    
    
    $
    336,125
 14




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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
    
    
    TotalResults of Operations:Revenue:Gross administrative fees(1)
    
    $
    
    
    
    $
    40,932
    
    
    $
    
    
    
    $
    40,932Revenue share obligation(1)
    
    
    
    
    
    
    (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 (loss)
    
    
    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
    )
    
    $
    23,329
 
 (1)
    
    These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for additional information. As of March 31, 2009RCM
    
    
    SM
    
    
    Corporate
    
    
    TotalFinancial 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
    
    
    $
    378,893
  15




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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 31,2010
    
    
    2009RCM Adjusted EBITDA
    
    $
    17,482
    
    
    $
    12,326SM Adjusted EBITDA
    
    
    16,957
    
    
    
    16,252Total reportable Segment Adjusted EBITDA
    
    
    34,439
    
    
    
    28,578Depreciation
expense
    
    
    (3,470
    )
    
    
    (2,438
    )Depreciation
expense (included in cost of revenue)
    
    
    (722
    )
    
    
    (603
    )Amortization of intangibles
    
    
    (6,084
    )
    
    
    (7,011
    )Amortization of intangibles (included in
cost of revenue)
    
    
    (185
    )
    
    
    (185
    )Interest expense, net of interest income(1)
    
    
    18
    
    
    
    7Income tax
expense
    
    
    (8,945
    )
    
    
    (6,135
    )Share-based compensation expense(2)
    
    
    (1,821
    )
    
    
    (2,814
    )Accuro purchase accounting adjustment(3)
    
    
    
    
    
    
    (189
    )Total reportable segment net income
    
    
    13,230
    
    
    
    9,210Corporate net (loss)
    
    
    (7,710
    )
    
    
    (7,305
    )Consolidated net income
    
    $
    5,520
    
    
    $
    1,905
 
 (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 equity 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 date for Accuro. The reduction of the deferred revenue balances
materially affects period-to-period financial performance comparability and revenue and
earnings growth in periods subsequent to the acquisition and is not indicative of the
changes in the underlying results of operations. In 2010, these adjustments will no longer
be reconciling items related to acquired deferred revenue balances because the amounts were
fully amortized in 2009. We may have this adjustment in future periods if required by
GAAP. 11. DERIVATIVE FINANCIAL INSTRUMENTS
   Interest rate swap
    16




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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)
    Interest rate collar
     Par forward contracts
  17




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (continued)
(In thousands, except share and per share amounts)
     Fair Value of FinancialInstrumentsAs of
    
    
    As ofMarch 31,
    
    
    DecemberBalance Sheet Location
    
    2010
    
    
    31, 2009Derivative LiabilitiesDerivatives designated as
hedging instruments:Interest rate contracts
    
    Other accrued expenses
    
    $
    1,002
    
    
    $
    Interest rate contracts
    
    Other long term liabilities
    
    
    1,451
    
    
    
    2,575Foreign exchange contracts
    
    Other accrued expenses
    
    
    12
    
    
    
    Foreign exchange contracts
    
    Other long term liabilities
    
    
    
    
    
    
    8Total
    
    
    
    $
    2,465
    
    
    $
    2,583
  18




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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)
 Amount of Gain or (Loss)
    
    
    Location of Gain or (Loss)
    
    
    Amount of Gain or (Loss)Recognized in OCI on
    
    
    Reclassified from
    
    
    Reclassified fromDerivative (Effective
    
    
    Accumulated OCI into
    
    
    Accumulated OCI intoPortion)
    
    
    Income (Effective Portion)
    
    
    Income (Effective Portion)Three Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedDerivatives designated as
    
    March 31,
    
    
    March 31,
    
    
    March 31,cash flow Hedges
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)Interest rate contracts
    
    $
    71
    
    
    $
    260
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    
    
    
    $
    Foreign exchange contracts
    
    
    (2
    )
    
    
    (15
    )
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    
    
    
    Total gain recognized in
other comprehensive
income
    
    $
    69
    
    
    $
    245
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
 12. FAIR VALUE MEASUREMENTS
    
    
    Cash and cash equivalents:The carrying value reported in the Condensed
Consolidated Balance Sheets for these items approximates fair value due to the high
credit standing of the financial institutions holding these items and their liquid
nature;
    
    Accounts receivable, net:The carrying value reported in the Condensed
Consolidated Balance Sheets is net of allowances for doubtful accounts which includes a
degree of counterparty non-performance risk;
    
    Accounts payable and current liabilities:The carrying value reported in the
Condensed Consolidated Balance Sheets for these items approximates fair value, which is
the likely amount for which the liability with short settlement periods would be
transferred to a market participant with a similar credit standing as the Company;
    
    Finance obligation:The carrying value of our finance obligation reported in
the Condensed Consolidated Balance Sheets approximates fair value based on current
interest rates; and
    
    Notes payable:The carrying value of our long-term notes payable reported in
the Condensed Consolidated Balance
Sheets approximates fair value since they bear interest at variable rates or fixed rates
which contain an element of default risk. Refer to Note 5.
 13. RELATED PARTY TRANSACTION
  19




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MedAssets, Inc.
 Notes to Condensed Consolidated Financial Statements (Unaudited)  (continued)
(In thousands, except share and per share amounts)
  14. SUBSEQUENT EVENTS
  20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 NOTE ON FORWARD-LOOKING STATEMENTS
   Overview
    Three
Months Ended March 31,2010
    
    
    2009
    
    
    ChangeAmount
    
    
    Amount
    
    
    Amount
    
    
    %(In millions)Gross fees(1)
    
    $
    107.8
    
    
    $
    92.4
    
    
    $
    15.4
    
    
    
    16.7
    %Revenue share obligation(1)
    
    
    (14.4
    )
    
    
    (13.4
    )
    
    
    (1.0
    )
    
    
    7.5Total net revenue
    
    
    93.4
    
    
    
    79.0
    
    
    
    14.4
    
    
    
    18.3Operating income
    
    
    13.1
    
    
    
    8.0
    
    
    
    5.1
    
    
    
    63.8Net income
    
    $
    5.5
    
    
    $
    1.9
    
    
    $
    3.6
    
    
    
    189.5
    %Adjusted EBITDA(1)
    
    $
    27.8
    
    
    $
    23.3
    
    
    $
    4.5
    
    
    
    19.3
    %Adjusted EBITDA margin(1)
    
    
    29.8
    %
    
    
    29.5
    %Diluted Cash EPS(1)
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.03
    
    
    
    18.8
    %
 
 (1)
    
    These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for additional information.  
    
    growth in our Revenue Cycle Management segment from our comprehensive revenue cycle
services and technology solutions, claims and denial management tools and charge
integrity consulting services; and
 21




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##### Table of Contents




    
    growth in our Spend Management segment from our medical device consulting and
strategic sourcing services and our vendor administrative fees.
  
    
    increased cost of revenue attributable to a higher percentage of net revenue being
derived from service-based engagements within our Revenue Cycle Management and Spend
Management segments; and
    
    higher operating expenses related to new employee compensation expense primarily
associated with our expanding services-based business and other
infrastructure expense.
  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.We defer costs related to implementation services and expense
these costs in proportion to the revenue earned over the subscription period
or customer relationship period, as applicable.In addition, we defer upfront sales commissions related to
subscription and implementation fees and expense these costs ratably over the related
contract term.
    
    Transaction fees.For certain revenue cycle management solutions, we earn
fees that vary based on the volume of customer transactions or enrolled members.
    
    Licensed-software fees.We earn license, implementation, maintenance and
other software-related service fees for our business intelligence, decision support and
other software products. These software revenues are typically recognized
 22




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##### Table of Contents



ratably over
the contract period as these are effectively annual licenses. 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, fixed-fee and cost-plus consulting
arrangements. The related revenues are earned as services are rendered.
 Spend Management
  
    
    Administrative fees and revenue share obligation.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 may 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,
which we refer to as our 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 Condensed 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 an average duration of
six 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
  
    
    Cost of revenue.Cost of revenue primarily consists of the direct labor
costs incurred to generate our revenue. Direct labor
 23




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##### Table of Contents



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 consists
of costs of third-party products and services and client reimbursed out-of-pocket costs.
Cost of revenue does not include certain expenses relating to hosting our services and
providing support and related data center capacity, and allocated amounts for rent,
depreciation, amortization or other indirect operating costs because we do not consider
the inclusion of these items in cost of revenue relevant to our business. However, cost
of revenue 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 re-allocation of expenses primarily between
cost of revenue and general and administrative expense resulting from the implementation
of our accounting expense allocation policies that could affect period over period
comparability. In addition, any changes in revenue mix between our Revenue Cycle
Management and Spend Management segments including changes in revenue mix towards
SaaS-based revenue and consulting services, may cause significant fluctuations in our
cost of revenue and have a favorable or unfavorable impact on operating income.
    
    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. Product development expenses are net of capitalized software development
costs.
    
    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 identified intangible assets (with the exception of software),
primarily resulting from acquisitions.
 Results of Operations
 Consolidated Tables
  24




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    58,684
    
    
    $
    47,020Spend ManagementGross administrative fees(1)
    
    
    43,029
    
    
    
    40,932Revenue share obligation(1)
    
    
    (14,439
    )
    
    
    (13,446
    )Other service fees
    
    
    6,132
    
    
    
    4,478Total Spend Management
    
    
    34,722
    
    
    
    31,964Total net revenue
    
    
    93,406
    
    
    
    78,984Operating expenses:Revenue Cycle Management
    
    
    51,588
    
    
    
    45,523Spend Management
    
    
    19,600
    
    
    
    18,201Total segment operating expenses
    
    
    71,188
    
    
    
    63,724Operating incomeRevenue Cycle Management
    
    
    7,096
    
    
    
    1,497Spend Management
    
    
    15,122
    
    
    
    13,763Total segment operating income
    
    
    22,218
    
    
    
    15,260Corporate expenses(2)
    
    
    9,100
    
    
    
    7,307Operating income
    
    
    13,118
    
    
    
    7,953Other income (expense):Interest expense
    
    
    (3,932
    )
    
    
    (4,993
    )Other income
    
    
    67
    
    
    
    214Income before income taxes
    
    
    9,253
    
    
    
    3,174Income tax expense
    
    
    3,733
    
    
    
    1,269Net income
    
    
    5,520
    
    
    
    1,905Reportable segment
adjusted EBITDA(3):Revenue Cycle Management
    
    
    17,482
    
    
    
    12,326Spend Management
    
    $
    16,957
    
    
    $
    16,252Reportable segment adjusted
EBITDA margin(4):Revenue Cycle Management
    
    
    29.8
    %
    
    
    26.2
    %Spend Management
    
    
    48.8
    %
    
    
    50.8
    %
 
 (1)
    
    These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for
additional information.(2)
    
    Represents the expenses of corporate office operations. Corporate does not represent an
operating segment of the Company.(3)
    
    Managements primary metric of segment profit or loss is Segment Adjusted EBITDA. See
Note 10 of the Notes to Condensed Consolidated Financial Statements.(4)
    
    Reportable segment Adjusted EBITDA margin represents each reportable segments Adjusted
EBITDA as a percentage of each segments respective net revenue. 25




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Comparison of the Three Months Ended March 31, 2010 and March 31, 2009
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    %(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    58,684
    
    
    
    62.8
    %
    
    $
    47,020
    
    
    
    59.5
    %
    
    $
    11,664
    
    
    
    24.8
    %Spend ManagementGross administrative fees(1)
    
    
    43,029
    
    
    
    46.1
    
    
    
    40,932
    
    
    
    51.8
    
    
    
    2,097
    
    
    
    5.1Revenue share obligation(1)
    
    
    (14,439
    )
    
    
    (15.5
    )
    
    
    (13,446
    )
    
    
    (17.0
    )
    
    
    (993
    )
    
    
    7.4Other service fees
    
    
    6,132
    
    
    
    6.6
    
    
    
    4,478
    
    
    
    5.7
    
    
    
    1,654
    
    
    
    36.9Total Spend Management
    
    
    34,722
    
    
    
    37.2
    
    
    
    31,964
    
    
    
    40.5
    
    
    
    2,758
    
    
    
    8.6Total net revenue
    
    $
    93,406
    
    
    
    100.0
    %
    
    $
    78,984
    
    
    
    100.0
    %
    
    $
    14,422
    
    
    
    18.3
    %
 
 (1)
    
    These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for additional information. Total net revenue .
 Revenue Cycle Management net revenue .
 Spend Management net revenue .
 
    
    Gross administrative fees.Non-GAAP gross administrative fee revenue increased
by $2.1 million, or 5.1%, as compared to the prior period, primarily due to higher
purchasing volumes by new and existing customers under our group purchasing organization
(or GPO) contracts with our manufacturer and distributor vendors. This net increase in
non-GAAP gross administrative fee revenue was comprised of a $2.4 million, or 6.0%
increase, in non-GAAP gross administrative fee revenue not associated with performance
targets. This increase was partially offset by an approximate $0.3 million increase in the
deferral of contingent revenue, which will be recognized upon confirmation from certain
customers that respective performance targets were achieved, during the three months ended
March 31, 2010 compared to the three months ended March 31, 2009. We may have fluctuations
in our non-GAAP gross administrative fee revenue in future periods as the timing of vendor
reporting and customer acknowledgement of achieved performance targets vary in their timing
and may not result in discernible trends.
 
    
    Revenue share obligation.Non-GAAP revenue share obligation increased $1.0
million, or 7.4%, as compared to the prior period. We analyze the impact of our non-GAAP
revenue share obligation on our results of operations by calculating the ratio of non-GAAP
revenue share obligation to non-GAAP gross administrative fees (or the revenue share
ratio). Our revenue share ratio was 33.6% and 32.8% for the three months ended March 31,
2010 and 2009, respectively. Excluding the impact of contingent revenue mentioned above and
the related revenue share obligation, our revenue share ratio remained consistent at 31.9%
and 31.7% for the three months ended March 31, 2010 and 2009, respectively. We have not had
any significant changes in our customer revenue mix during the year that would cause a
notable impact on our revenue share ratio. We may experience fluctuations in our revenue
share ratio because of 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 36.9%, increase in other service fees
primarily related to higher revenues from medical device consulting and strategic sourcing
services. The growth in supply chain consulting was mainly due to an increased
number of
engagements from new and existing customers.
 26




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##### Table of Contents



Total Operating Expenses
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    %(Unaudited, in thousands)Operating expenses:Cost of revenue
    
    $
    21,722
    
    
    
    23.3
    %
    
    $
    16,745
    
    
    
    21.2
    %
    
    $
    4,977
    
    
    
    29.7
    %Product development expenses
    
    
    5,370
    
    
    
    5.7
    
    
    
    6,018
    
    
    
    7.6
    
    
    
    (648
    )
    
    
    (10.8
    )Selling and marketing expenses
    
    
    10,668
    
    
    
    11.4
    
    
    
    10,896
    
    
    
    13.8
    
    
    
    (228
    )
    
    
    (2.1
    )General and administrative expenses
    
    
    32,151
    
    
    
    34.4
    
    
    
    27,451
    
    
    
    34.8
    
    
    
    4,700
    
    
    
    17.1Depreciation
    
    
    4,293
    
    
    
    4.6
    
    
    
    2,910
    
    
    
    3.7
    
    
    
    1,383
    
    
    
    47.5Amortization of intangibles
    
    
    6,084
    
    
    
    6.5
    
    
    
    7,011
    
    
    
    8.9
    
    
    
    (927
    )
    
    
    (13.2
    )Total operating expenses
    
    
    80,288
    
    
    
    86.0
    
    
    
    71,031
    
    
    
    89.9
    
    
    
    9,257
    
    
    
    13.0Operating expenses by segment:Revenue Cycle Management
    
    
    51,588
    
    
    
    55.2
    
    
    
    45,523
    
    
    
    57.6
    
    
    
    6,065
    
    
    
    13.3Spend Management
    
    
    19,600
    
    
    
    21.0
    
    
    
    18,201
    
    
    
    23.0
    
    
    
    1,399
    
    
    
    7.7Total segment operating expenses
    
    
    71,188
    
    
    
    76.2
    
    
    
    63,724
    
    
    
    80.7
    
    
    
    7,464
    
    
    
    11.7Corporate expenses
    
    
    9,100
    
    
    
    9.7
    
    
    
    7,307
    
    
    
    9.3
    
    
    
    1,793
    
    
    
    24.5Total operating expenses
    
    $
    80,288
    
    
    
    86.0
    %
    
    $
    71,031
    
    
    
    89.9
    %
    
    $
    9,257
    
    
    
    13.0
    %
 Cost of revenue .
   Product development expenses .
  Selling and marketing expenses .
 27




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##### Table of Contents



General and administrative expenses .
  Depreciation .
 Amortization of intangibles .
 Segment Operating Expenses
 Revenue Cycle Management expenses .
   Spend Management expenses .
  Corporate expenses .
 Non-operating Expenses
 28




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##### Table of Contents



Interest expense .
 Other income .
 Income tax expense
 Critical Accounting Policies
   Allowance for Doubtful Accounts
     29




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##### Table of Contents



Liquidity and Capital Resources
      
    
    changes in working capital due to inconsistent timing of cash receipts and payments for
major recurring items such as trade accounts payable, revenue share obligation, incentive
compensation, changes in deferred revenue, and other various items;
 
    
    acquisitions; and
 
    
    unforeseeable events or transactions
  Discussion of Cash Flow
  Operating Activities .
  Three Months Ended March 31,2010
    
    
    2009
    
    
    ChangeAmount
    
    
    Amount
    
    
    Amount
    
    
    %(In millions)Net income
    
    $
    5.5
    
    
    $
    1.9
    
    
    $
    3.6
    
    
    
    189.5
    %Non-cash items
    
    
    15.1
    
    
    
    16.5
    
    
    
    (1.4
    )
    
    
    (8.5
    )Net changes in working capital
    
    
    (3.5
    )
    
    
    (14.2
    )
    
    
    10.7
    
    
    
    (75.4
    )Net cash provided by operations
    
    $
    17.1
    
    
    $
    4.2
    
    
    $
    12.9
    
    
    
    307.1
    %
 30




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##### Table of Contents



Reduction of cash flow
 
    
    an increase in prepaid expenses and other assets of $6.8 million primarily related to
sales incentive compensation payments and payroll cycle timing;
 
    
    an increase in accounts receivable of $3.1 million
primarily related to unbilled revenues and the timing of our customer cash collections;
 
    
    an increase in other long term assets of $1.2 million primarily related to the timing
of cash payments for our deferred sales expenses; and
 
    
    a decrease in accrued revenue share obligation and rebates of $4.9 million due to the
timing of cash payments and customer purchasing volume at our GPO.
  Increase to cash flow
 
    
    a $6.6 million increase in deferred revenue for cash receipts not yet recognized as
revenue;
 
    
    a $2.3 million increase in other accrued expenses due to the timing of various
payment obligations;
 
    
    a $2.2 million increase in accrued payroll and benefits due to payroll cycle timing;
and
 
    
    a $1.4 million working capital increase in trade accounts payable due to the timing
of various payment obligations.
  Reduction of cash flow
 
    
    an increase in accounts receivable of $3.9 million related to the timing of invoicing
and cash collections and our revenue growth;
 
    
    an increase in prepaid expenses and other assets of $3.4 million primarily related to
sales incentive compensation payments;
 
    
    an increase in other long term assets of $1.3 million related to the timing of cash
payments for our deferred sales expenses;
 
    
    a decrease in accrued payroll and benefits of
$5.3 million due to bonus payment
timing; and
 
    
    a decrease in accrued revenue share obligation and rebates of $4.9 million due to the
timing of cash payments and customer purchasing volume at our GPO.
 31




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##### Table of Contents



Increase to cash flow
 
    
    a $2.1 million working capital increase in trade accounts payable due to the timing
of various payment obligations; and
 
    
    a $1.9 million increase in other accrued expenses due to the timing of various
payment obligations.
 Investing Activities .
    Financing Activities .
   Off-Balance Sheet Arrangements and Commitments
   Amount(Unaudited)2010
    
    $
    6,4962011
    
    
    7,5162012
    
    
    7,6052013
    
    
    7,2942014
    
    
    6,616Thereafter
    
    
    20,040Total future minimum rental payments
    
    $
    55,567
    32




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##### Table of Contents



Use of Non-GAAP Financial Measures
   Gross Fees, Gross Administrative Fees and Revenue Share Obligation .
 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin .
    33




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##### Table of Contents




    
    EBITDA does not reflect our cash expenditures or future requirements for capital
expenditures or contractual commitments;
 
    
    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 31,2010
    
    
    2009(Unaudited, in thousands)Net income
    
    $
    5,520
    
    
    $
    1,905Depreciation
    
    
    4,293
    
    
    
    2,910Depreciation (included in cost of revenue)
    
    
    722
    
    
    
    603Amortization of intangibles, acquisition
related
    
    
    6,084
    
    
    
    7,011Amortization of intangibles (included in
cost of revenue)
    
    
    185
    
    
    
    185Interest expense, net of interest
income(1)
    
    
    3,913
    
    
    
    4,981Income tax expense
    
    
    3,733
    
    
    
    1,269EBITDA
    
    
    24,450
    
    
    
    18,864Share-based compensation(2)
    
    
    3,472
    
    
    
    4,386Rental income from capitalizing building
lease(3)
    
    
    (110
    )
    
    
    (110
    )Purchase accounting adjustment(4)
    
    
    
    
    
    
    189Adjusted EBITDA
    
    $
    27,812
    
    
    $
    23,329
 
 (1)
    
    Interest income is included in other income (expense) and is not netted against
interest expense in our Condensed Consolidated Statement of Operations. 34




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##### Table of Contents



(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 expense, which varies from period
to period based on the amount and timing of grants.(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, 2009 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
acquisition date for Accuro. The reduction of the deferred revenue balance 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. In 2010, these adjustments will no longer be reconciling
items related to acquired deferred revenue balances because the amounts were fully
amortized in 2009. We may have this adjustment in future periods if we have any new
acquisitions. Diluted Cash Earnings Per Share
  Three Months EndedMarch 31,Per share data
    
    2010
    
    
    2009(Unaudited)EPS  diluted
    
    $
    0.09
    
    
    $
    0.03Pre-tax non-cash, aquisition-related intangible amortization
    
    
    0.11
    
    
    
    0.13Pre-tax non-cash, share-based compensation(1)
    
    
    0.06
    
    
    
    0.08Tax effect on pre-tax adjustments(2)
    
    
    (0.07
    )
    
    
    (0.08
    )Non-GAAP cash EPS  diluted
    
    $
    0.19
    
    
    $
    0.16Weighted average shares  diluted
    
    
    58,829
    
    
    
    56,302
 
 (1)
    
    Represents the per share impact, on a tax-adjusted basis of 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 expense, which varies from period to period based on the amount and timing of
grants.(2)
    
    This amount reflects the tax impact to the adjustments used to derive Non-GAAP diluted
cash EPS. The Company uses its effective tax rate for each respective period to tax effect
the adjustments. The effective tax rate for the three months ended March 31, 2010 and 2009
was 40.3% and 40.0%, respectively. New Pronouncements
 Revenue Recognition
 35




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##### Table of Contents



Subsequent Events
  
 Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 Foreign currency exchange risk .
  Interest rate risk .
    36




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##### Table of Contents



Item 4.
Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  37




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##### Table of Contents



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
  
 Item 5.
Other Information
  
 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 38




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##### Table of Contents



Signatures
  Signature
    
    Title
    
    Date/s/ JOHN A. BARDIS

Name: John A. Bardis
    
    Chairman of the Board of Directors and Chief
Executive Officer
(Principal Executive Officer)
    
    May 7, 2010/s/ L. NEIL HUNN

Name: L. Neil Hunn
    
    Chief Financial Officer (Principal
Financial Officer)
    
    May 7, 2010
 39




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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 40