##### 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, 2008
 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: 0001254419
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4T. Controls and Procedures
    
    
    30PART II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Signatures
    
    
    33EX-10.3 THIRD AMENDMENT TO CREDIT AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO
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##### Table of Contents



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 31,2008
    
    
    2007(Unaudited)ASSETSCurrentCash and cash equivalents
    
    $
    127,977
    
    
    $
    136,952Restricted cash
    
    
    20
    
    
    
    20Accounts receivable, net of allowances of
$4,589 and $3,506 as of March 31, 2008 and
December 31, 2007
    
    
    42,258
    
    
    
    33,679Deferred tax asset, current
    
    
    14,331
    
    
    
    15,049Prepaid expenses and other current assets
    
    
    5,092
    
    
    
    4,508Total current assets
    
    
    189,678
    
    
    
    190,208Property and equipment
    
    
    33,486
    
    
    
    32,490Other long term assetsGoodwill
    
    
    232,822
    
    
    
    232,822Intangible assets, net
    
    
    58,462
    
    
    
    62,491Other
    
    
    8,958
    
    
    
    8,368Other long term assets
    
    
    300,242
    
    
    
    303,681Total assets
    
    $
    523,406
    
    
    $
    526,379LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    5,280
    
    
    $
    4,562Accrued revenue share obligation and rebates
    
    
    21,780
    
    
    
    29,998Accrued payroll and benefits
    
    
    11,898
    
    
    
    13,402Other accrued expenses
    
    
    6,803
    
    
    
    5,612Deferred revenue, current portion (Note 3)
    
    
    20,451
    
    
    
    19,791Current portion of notes payable (Note 4)
    
    
    2,020
    
    
    
    2,020Current portion of finance obligation
    
    
    135
    
    
    
    128Total current liabilities
    
    
    68,367
    
    
    
    75,513Notes payable, less current portion (Note 4)
    
    
    195,759
    
    
    
    196,264Finance obligation, less current portion
    
    
    9,973
    
    
    
    10,009Deferred revenue, less current portion (Note 3)
    
    
    3,474
    
    
    
    3,229Deferred tax liability
    
    
    4,644
    
    
    
    5,868Other long term liabilities
    
    
    9,229
    
    
    
    5,981Total liabilities
    
    
    291,446
    
    
    
    296,864Commitments and contingencies (Note 5)
    
    
    
    
    
    
    Stockholders equity (Note 6)Common stock, $0.01 par value,
150,000,000 shares authorized;
44,465,000 and 44,429,000 shares
issued and outstanding as of March 31,
2008 and December 31, 2007,
respectively
    
    
    445
    
    
    
    444Additional
paid-in capital
    
    
    466,125
    
    
    
    464,313Notes receivable from stockholders
    
    
    (621
    )
    
    
    (614
    )Accumulated other comprehensive loss
    
    
    (4,995
    )
    
    
    (2,935
    )Accumulated deficit
    
    
    (228,994
    )
    
    
    (231,693
    )Total stockholders equity
    
    
    231,960
    
    
    
    229,515Total liabilities and stockholders equity
    
    $
    523,406
    
    
    $
    526,379
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MedAssets, Inc.
 
 Condensed Consolidated Statements of Operations
 (Unaudited)
 Three Months ended March 31,2008
    
    
    2007(In thousands, except per share amounts)RevenueAdministrative fees, net
    
    $
    27,545
    
    
    $
    25,977Other service fees
    
    
    31,213
    
    
    
    16,329Total net revenue
    
    
    58,758
    
    
    
    42,306Operating expenses:Cost of revenue
    
    
    8,462
    
    
    
    4,186Product development expenses
    
    
    2,697
    
    
    
    1,881Selling and marketing expenses
    
    
    12,911
    
    
    
    7,838General and administrative expenses
    
    
    21,060
    
    
    
    13,449Depreciation
    
    
    2,121
    
    
    
    1,599Amortization of intangibles
    
    
    3,778
    
    
    
    2,841Total operating expenses
    
    
    51,029
    
    
    
    31,794Operating income
    
    
    7,729
    
    
    
    10,512Other income (expense):Interest expense
    
    
    (4,317
    )
    
    
    (3,629
    )Other income
    
    
    1,033
    
    
    
    472Income before income taxes
    
    
    4,445
    
    
    
    7,355Income tax expense
    
    
    1,746
    
    
    
    2,810Net income
    
    
    2,699
    
    
    
    4,545Preferred stock dividends
    
    
    
    
    
    
    (3,672
    )Net income attributable to common stockholders
    
    $
    2,699
    
    
    $
    873Basic and diluted income per share (Note 8):Basic net income attributable to common stockholders
    
    $
    0.06
    
    
    $
    0.03Diluted net income attributable to common
stockholders
    
    $
    0.06
    
    
    $
    0.03Weighted average shares  basic
    
    
    44,418
    
    
    
    26,807Weighted average shares  diluted
    
    
    47,213
    
    
    
    28,853
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MedAssets, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 Three Months ended March 31,2008
    
    
    2007(In thousands)Operating activitiesNet income
    
    $
    2,699
    
    
    $
    4,545Adjustments to reconcile income from continuing operations to net
cash used in operating activities:Bad debt expense
    
    
    772
    
    
    
    50Depreciation
    
    
    2,260
    
    
    
    1,657Amortization of intangibles
    
    
    4,029
    
    
    
    3,006Loss on sale of assets
    
    
    
    
    
    
    2Noncash
stock compensation expense (Note 6)
    
    
    1,740
    
    
    
    744Amortization of debt issuance costs
    
    
    153
    
    
    
    84Noncash interest expense, net
    
    
    140
    
    
    
    128Deferred income tax expense
    
    
    763
    
    
    
    2,375Changes in
assets and liabilities:Accounts receivable, net
    
    
    (9,351
    )
    
    
    (1,636
    )Prepaid expenses and other assets
    
    
    (584
    )
    
    
    (1,350
    )Other long-term assets
    
    
    (150
    )
    
    
    (22
    )Accounts payable
    
    
    718
    
    
    
    (1,303
    )Accrued revenue share obligations and rebates
    
    
    (8,218
    )
    
    
    (4,423
    )Accrued payroll and benefits
    
    
    (1,504
    )
    
    
    (3,338
    )Other accrued expenses
    
    
    1,111
    
    
    
    (2,216
    )Deferred revenue
    
    
    905
    
    
    
    (880
    )Cash used in operating activities
    
    
    (4,517
    )
    
    
    (2,577
    )Investing activitiesPurchases of property, equipment, and software
    
    
    (1,707
    )
    
    
    (586
    )Capitalized software development costs
    
    
    (2,152
    )
    
    
    (1,364
    )Cash used in investing activities
    
    
    (3,859
    )
    
    
    (1,950
    )Financing activitiesProceeds from notes payable
    
    
    
    
    
    
    188Repayment of notes payable and capital lease obligations (Note 4)
    
    
    (505
    )
    
    
    (621
    )Repayment of finance obligation
    
    
    (160
    )
    
    
    (163
    )Issuance of note receivable to stockholders
    
    
    (7
    )
    
    
    (11
    )Issuance of common stock, net of offering costs (Note 6)
    
    
    73
    
    
    
    Cash used in financing activities
    
    
    (599
    )
    
    
    (607
    )Net decrease in cash and cash equivalents
    
    
    (8,975
    )
    
    
    (5,134
    )Cash and cash equivalents, beginning of period
    
    
    136,952
    
    
    
    23,459Cash and cash equivalents, end of period
    
    $
    127,977
    
    
    $
    18,325
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MedAssets, Inc.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 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
    2. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Fair Value Measurements,
  Accounting for Derivative Instruments
and Hedging Activities
 6




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Par forward contracts
   Interest rate swaps
   Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities
 7




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Disclosures about Derivative Instruments and Hedging Activities
 Disclosures about Derivative Instruments and
Hedging Activities  An Amendment of SFAS No. 133
 Business Combinations
 Business Combinations
 3. DEFERRED REVENUE
  
 March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)(In thousands)Software and implementation fees
    
    $
    15,175
    
    
    
    11,082Service fees
    
    
    7,175
    
    
    
    7,266Administrative fees
    
    
    1,377
    
    
    
    2,914Other fees
    
    
    198
    
    
    
    1,758Deferred revenue, total
    
    
    23,925
    
    
    
    23,020Less: Deferred revenue, current portion
    
    
    (20,451
    )
    
    
    (19,791
    )Deferred revenue, non-current portion
    
    $
    3,474
    
    
    
    3,229
  4. NOTES PAYABLE
  8




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March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)(In thousands)Notes payable  senior
    
    $
    197,050
    
    
    $
    197,548Other
    
    
    729
    
    
    
    736Notes payable, total
    
    
    197,779
    
    
    
    198,284Less: current portions
    
    
    (2,020
    )
    
    
    (2,020
    )Notes payable, non-current portion
    
    $
    195,759
    
    
    $
    196,264
  5. COMMITMENTS AND CONTINGENCIES
      6. STOCKHOLDERS EQUITY
 Preferred Stock
  9




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Common Stock
   WeightedAverageGrant DateShares
    
    Fair ValueNonvested balance at January 1, 2008
    
    
    25,000
    
    
    $
    6.35Change during the period:Shares granted
    
    
    5,000
    
    
    
    15.95Nonvested balance at March 31, 2008
    
    
    30,000
    
    
    $
   7.93
 
   Stock Options
    10




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WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOptions outstanding as
of January 1, 2008
    
    
    6,974,000
    
    
    $
    6.49
    
    
    8 years
    
    $
    121,713,000Granted
    
    
    691,000
    
    
    
    15.95Exercised
    
    
    (11,000
    )
    
    
    8.67Forfeited
    
    
    (110,000
    )
    
    
    9.59Options outstanding as
of March 31, 2008
    
    
    7,544,000
    
    
    
    7.31
    
    
    8 years
    
    
    56,686,000Options exercisable as of
March 31, 2008
    
    
    2,009,000
    
    
    $
    4.06
    
    
    7 years
    
    $
    21,626,000
    March 31,2008Range of exercise prices
    
    $
    .63 - $16.00Number of options outstanding
    
    
    7,544,000Weighted average exercise price
    
    $
    7.31Weighted average remaining contractual life
    
    8.0 years
 Share-Based Payment
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Three Months EndedMarch 31, 2008Calculated volatility
    
    
    35.3
    %Dividend yield
    
    
    0
    %Risk free interest rate
    
    
    3.00
    %Range of expected term
    
    5.4 - 6.5 years
   Three Months Ended March 31,2008
    
    
    2007(Unaudited, in thousands)Cost of revenue
    
    $
    648
    
    
    $
    140Product development
    
    
    122
    
    
    
    72Selling and marketing
    
    
    477
    
    
    
    154General and administrative
    
    
    493
    
    
    
    378Total share-based compensation expense
    
    $
    1,740
    
    
    $
    744
 7. INCOME TAXES
   12




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8. INCOME PER SHARE
 Earnings Per Share. Participating Securities and the Two-Class Method under SFAS No. 128
 Three Months Ended March 31,2008
    
    
    2007(Unaudited)(In thousands, except per share amounts)Numerator for Basic and Diluted Income Per Share:Net income from continuing operations
    
    $
    2,699
    
    
    $
    4,545Preferred stock dividends
    
    
    
    
    
    
    (3,672
    )Net income attributable to common stockholders
    
    
    2,699
    
    
    
    873Denominator:Weighted average shares outstanding
    
    
    44,418
    
    
    
    10,694Effect of participating convertible preferred stock
    
    
    
    
    
    
    16,113Denominator for basic income per share
weighted average shares using the two-class method
    
    
    44,418
    
    
    
    26,807Effect of dilutive securities:Stock options
    
    
    2,638
    
    
    
    1,945Stock warrants
    
    
    157
    
    
    
    101Denominator for diluted income per share 
adjusted weighted average shares and assumed
conversions
    
    
    47,213
    
    
    
    28,853Basic income per share:Net income attributable to common stockholders
from continuing operations
    
    $
    0.06
    
    
    $
    0.03Basic income per share
    
    $
    0.06
    
    
    $
    0.03Diluted net income per share:Net income attributable to common stockholders
from continuing operations
    
    $
    0.06
    
    
    $
    0.03Diluted net income per share
    
    $
    0.06
    
    
    $
    0.03
 9. SEGMENT INFORMATION
  13




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
    
    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
    Three 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
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Three Months Ended 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, 2007RCM
    
    
    SM
    
    
    Corporate
    
    
    Total(Unaudited, in thousands)Results of Operations:Revenue:Administrative fees
    
    $
    
    
    
    $
    37,727
    
    
    $
    
    
    
    $
    37,727Revenue share obligation
    
    
    
    
    
    
    (11,750
    )
    
    
    
    
    
    
    (11,750
    )Other service fees
    
    
    13,856
    
    
    
    2,473
    
    
    
    
    
    
    
    16,329Total net revenue
    
    
    13,856
    
    
    
    28,450
    
    
    
    
    
    
    
    42,306Total operating expenses
    
    
    12,092
    
    
    
    16,203
    
    
    
    3,499
    
    
    
    31,794Operating income
    
    
    1,764
    
    
    
    12,247
    
    
    
    (3,499
    )
    
    
    10,512Interest expense
    
    
    
    
    
    
    (1
    )
    
    
    (3,628
    )
    
    
    (3,629
    )Other income (expense)
    
    
    (20
    )
    
    
    (8
    )
    
    
    500
    
    
    
    472Income (loss) before income taxes
    
    
    1,744
    
    
    
    12,238
    
    
    
    (6,627
    )
    
    
    7,355Income tax (benefit)
    
    
    662
    
    
    
    3,683
    
    
    
    (1,535
    )
    
    
    2,810Net income (loss)
    
    
    1,082
    
    
    
    8,555
    
    
    
    (5,092
    )
    
    
    4,545Segment Adjusted EBITDA
    
    $
    4,581
    
    
    $
    14,488
    
    
    $
    (2,811
    )
    
    $
    16,258
  Three Months Ended March 31,2008
    
    
    2007(Unaudited, in thousands)RCM Adjusted EBITDA
    
    $
    4,241
    
    
    $
    4,581SM Adjusted EBITDA
    
    
    16,028
    
    
    
    14,488Total reportable Segment Adjusted EBITDA
    
    
    20,269
    
    
    
    19,069Depreciation
    
    
    (1,731
    )
    
    
    (1,244
    )Amortization of intangibles
    
    
    (3,778
    )
    
    
    (2,841
    )Amortization of intangibles (included in cost of revenue)
    
    
    (391
    )
    
    
    (223
    )Interest expense, net of interest income (1)
    
    
    2
    
    
    
    (1
    )Income tax
    
    
    (4,085
    )
    
    
    (4,345
    )Share-based compensation expense (2)
    
    
    (1,501
    )
    
    
    (438
    )Purchase accounting adjustments (3)
    
    
    (257
    )
    
    
    (340
    )Total reportable segment net income
    
    
    8,528
    
    
    
    9,637Corporate net (loss)
    
    
    (5,829
    )
    
    
    (5,092
    )Consolidated net income
    
    $
    2,699
    
    
    $
    4,545
 15




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##### Table of Contents



(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 to fair value as of the respective
acquisition dates for Avega Health Systems, Inc. (or Avega) and
XactiMed. 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 underlying results of
operations. 10. SUBSEQUENT EVENTS
   16




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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
     Recent Developments
  17




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##### Table of Contents



Segment Structure and Revenue Streams
  Revenue Cycle Management
  Subscription and implementation fees.
 Transaction fees.
 Software-related fees.
 Service fees.
 Spend Management
  Administrative fees and revenue share obligations.
  18




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##### Table of Contents



Other
service fees. Other
Service Fees
 
    
    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 have 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 ASP-hosted services.
 Operating Expenses
  Cost of revenue.
 Product development expenses.
 Selling and marketing expenses.
 General and administrative expenses.
 Depreciation.
 Amortization of intangibles.
 19




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##### Table of Contents



Results of Operations
 Consolidated Tables
  Three Months Ended March 31,2008
    
    
    2007(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    25,106
    
    
    $
    13,856Spend ManagementAdministrative fees
    
    
    39,887
    
    
    
    37,727Revenue share obligation
    
    
    (12,342
    )
    
    
    (11,750
    )Other service fees
    
    
    6,107
    
    
    
    2,473Total Spend Management
    
    
    33,652
    
    
    
    28,450Total net revenue
    
    
    58,758
    
    
    
    42,306Operating expenses:Revenue Cycle Management
    
    
    26,251
    
    
    
    12,092Spend Management
    
    
    19,899
    
    
    
    16,203Total segment operating expenses
    
    
    46,150
    
    
    
    28,295Operating income:Revenue Cycle Management
    
    
    (1,145
    )
    
    
    1,764Spend Management
    
    
    13,753
    
    
    
    12,247Total segment operating income
    
    
    12,608
    
    
    
    14,011Corporate expenses(1)
    
    
    4,879
    
    
    
    3,499Operating income
    
    
    7,729
    
    
    
    10,512Other income (expense):Interest expense
    
    
    (4,317
    )
    
    
    (3,629
    )Other income
    
    
    1,033
    
    
    
    472Income before income taxes
    
    
    4,445
    
    
    
    7,355Income tax expense
    
    
    1,746
    
    
    
    2,810Net income
    
    
    2,699
    
    
    
    4,545Reportable segment adjusted EBITDA(2):Revenue Cycle Management
    
    
    4,241
    
    
    
    4,581Spend Management
    
    $
    16,028
    
    
    $
    14,488
 
 (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 9 of
the Notes to Condensed Consolidated Financial Statements. 20




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##### Table of Contents



Comparison of the Three Months Ended March 31, 2008 and March 31, 2007
 Three Months Ended March 31,2008
    
    2007
    
    Change% of
    
    
    
    
    
    % ofAmount
    
    Revenue
    
    Amount
    
    Revenue
    
    Amount
    
    %(Unaudited, in thousands)Net revenue:Revenue Cycle Management
    
    $
    25,106
    
    
    
    42.7
    %
    
    $
    13,856
    
    
    
    32.8
    %
    
    $
    11,250
    
    
    
    81.2
    %Spend ManagementAdministrative fees
    
    
    39,887
    
    
    
    67.9
    
    
    
    37,727
    
    
    
    89.2
    
    
    
    2,160
    
    
    
    5.7Revenue share obligation
    
    
    (12,342
    )
    
    
    (21.0
    )
    
    
    (11,750
    )
    
    
    (27.8
    )
    
    
    (592
    )
    
    
    5.0Other service fees
    
    
    6,107
    
    
    
    10.4
    
    
    
    2,473
    
    
    
    5.8
    
    
    
    3,634
    
    
    
    146.9Total Spend Management
    
    
    33,652
    
    
    
    57.3
    
    
    
    28,450
    
    
    
    67.2
    
    
    
    5,202
    
    
    
    18.3Total net revenue
    
    $
    58,758
    
    
    
    100.0
    %
    
    $
    42,306
    
    
    
    100.0
    %
    
    $
    16,452
    
    
    
    38.9
    %
 Total net revenue .
 Revenue Cycle Management revenue .
 
    
    Acquisitions. $11.1 million of the increase resulted from revenue from products
and services attributable to the acquisitions of XactiMed, which we acquired on May 18,
2007, and MD-X Solutions Inc., MD-X Strategies, Inc., and MD-X Systems, Inc., or
collectively, MD-X, which we acquired on July 2, 2007.
    
    Other Revenue Cycle products and services. $0.2 million of the increase is
primarily comprised of a $0.9 million increase in software-related subscription fees from
new and existing customers, offset by a $0.8 million decrease in revenue from our business
intelligence products and services. Our subscription fee growth was derived from continued
market demand for our charge capture and our supply-chain-revenue-cycle linkage
subscription services, as well as from our latest version of our chargemaster management
subscription services.Our business intelligence products and services have
experienced some sales softening.
During 2007, we experienced delays in the release of the fourth version of our decision
support software, which limited the growth of Revenue Cycle Management revenue during 2007
and the three months ended March 31, 2008. We expect continued adverse impact in the second
quarter of 2008 as potential customers await the new product release and current customers
await the upgraded product.
 Spend Management net revenue .
 
    
    Administrative fees.Administrative fee revenue increased by $2.2 million as
compared to the prior period, primarily due to the result of a net $1.5 million increase in
contingent revenue recognized upon confirmation from certain customers that the respective
performance targets had been achieved during the three months ended March 31, 2008.
Excluding the revenue contribution from this contingent revenue, administrative fees
increased by $0.7 million, or 1.9%, during the three months ended March 31, 2008 compared
to the three months ended March 31, 2007. This increase in administrative fees was
primarily due to higher purchasing volumes by existing customers under our group purchasing
organization contracts with our manufacturer vendors, partially offset by the significant,
and atypical, volume of vendor reporting received in the first quarter of 2007. We may
continue to have significant fluctuations in our administrative fee revenue in future
quarters as the timing of vendor reporting may not result in discernable quarterly trends.
 21




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##### Table of Contents




    
    Revenue share obligation.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, 2008 was 30.9%, which was relatively consistent with
the revenue share ratio of 31.1% for the three months ended March 31, 2007.
    
    Other service fees. The $3.6 million of growth in other service fees primarily
related to $2.9 million in revenues from our annual customer and vendor meeting. In 2007,
this meeting and its related revenue and costs were recognized in our second quarter.
However, in 2008 the meeting was held in March, and the related recognition occurred in our
first quarter. Therefore, we do not expect this favorable revenue variance in other
service fees resulting from our annual customer and vendor meeting to continue into our
second quarter. To a lesser extent, other service fees also increased due to the
achievement of performance targets in our supply chain consulting business and an increased
number of consulting hours, or higher utilization, from new and existing customers.
 Three Months Ended March 31,2008
    
    
    2007
    
    
    Change% of
    
    
    
    
    
    
    % ofAmount
    
    
    Revenue
    
    
    Amount
    
    
    Revenue
    
    
    Amount
    
    
    %(Unaudited, in thousands)Operating expenses:Cost of revenue
    
    $
    8,462
    
    
    
    14.4
    %
    
    $
    4,186
    
    
    
    9.9
    %
    
    $
    4,276
    
    
    
    102.2
    %Product development expenses
    
    
    2,697
    
    
    
    4.6
    
    
    
    1,881
    
    
    
    4.4
    
    
    
    816
    
    
    
    43.4Selling and marketing expenses
    
    
    12,911
    
    
    
    22.0
    
    
    
    7,838
    
    
    
    18.5
    
    
    
    5,073
    
    
    
    64.7General and administrative expenses
    
    
    21,060
    
    
    
    35.8
    
    
    
    13.449
    
    
    
    31.8
    
    
    
    7,611
    
    
    
    56.6Depreciation
    
    
    2,121
    
    
    
    3.6
    
    
    
    1,599
    
    
    
    3.8
    
    
    
    522
    
    
    
    32.6Amortization of intangibles
    
    
    3,778
    
    
    
    6.4
    
    
    
    2,841
    
    
    
    6.7
    
    
    
    937
    
    
    
    33.0Total operating expenses
    
    
    51,029
    
    
    
    86.8
    
    
    
    31,794
    
    
    
    75.2
    
    
    
    19,235
    
    
    
    60.5Operating expenses by segment:Revenue Cycle Management
    
    
    26,251
    
    
    
    44.7
    
    
    
    12,092
    
    
    
    28.6
    
    
    
    14,159
    
    
    
    117.1Spend Management
    
    
    19,899
    
    
    
    33.9
    
    
    
    16,203
    
    
    
    38.3
    
    
    
    3,696
    
    
    
    22.8Total segment operating expenses
    
    
    46,150
    
    
    
    78.5
    
    
    
    28,295
    
    
    
    66.9
    
    
    
    17,855
    
    
    
    63.1Corporate expenses
    
    
    4,879
    
    
    
    8.3
    
    
    
    3,499
    
    
    
    8.3
    
    
    
    1,380
    
    
    
    39.4Total operating expenses
    
    $
    51,029
    
    
    
    86.8
    %
    
    $
    31,794
    
    
    
    75.2
    %
    
    $
    19,235
    
    
    
    60.5
    %
 Total Operating Expenses
 Cost of revenue .
 Product development expenses .
 22




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##### Table of Contents



Selling and marketing expenses .
 General and administrative expenses .
 Depreciation .
 Amortization of intangibles .
 Segment Operating Expenses
 Revenue Cycle Management expense s.
 Spend Management expenses .
 23




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##### Table of Contents



Corporate expenses .
 Non-operating Expenses
 Interest expense .
 Other income .
 Income tax expense.
  Use of Non-GAAP Financial Measures
    24




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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.
    25




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##### Table of Contents



Three months endedMarch 31,2008
    
    2007(Unaudited, in thousands)Net Income
    
    $
    2,699
    
    
    $
    4,545Depreciation
    
    
    2,121
    
    
    
    1,599Amortization of intangibles
    
    
    3,778
    
    
    
    2,841Amortization of intangibles (included in cost of revenue)
    
    
    391
    
    
    
    223Interest Expense, net of Interest Income (1)
    
    
    3,409
    
    
    
    3,266Income tax expense
    
    
    1,746
    
    
    
    2,810EBITDA
    
    
    14,144
    
    
    
    15,284Share-based compensation (2)
    
    
    1,740
    
    
    
    744Rental income from capitalized building lease (3)
    
    
    (110
    )
    
    
    (110
    )Purchase accounting adjustment (4)
    
    
    256
    
    
    
    340Adjusted EBITDA
    
    $
    16,030
    
    
    $
    16,258
 
 (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 2008 is due to share-based
grants made subsequent to our initial public offering. 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,
2007 for further discussion of this rental income.(4)
    
    These adjustments include the effect on revenue of adjusting acquired
deferred revenue balances to fair value as of the respective
acquisition dates for Avega Health Systems, Inc. (or Avega) 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 the changes in underlying results
of operations. Critical Accounting Policies
   26




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##### Table of Contents



Self-Insurance Reserves
   New Pronouncements
 Fair Value Measurements
 Fair Value Measurements,
  Accounting for Derivative Instruments and
Hedging Activities
  Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Business Combinations
 27




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##### Table of Contents



Liquidity and Capital Resources
   
    
    cash and cash equivalents of $128.0 million, which we held deposited in various cash
equivalent funds that bore interest at average 30-day yields ranging from 1.8% to 3.2%.;
and
    
    $109 million of available capacity under our revolving loan facility, which is discussed
further below.
    Cash Flows
    28




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##### Table of Contents




    
    changes in working capital from the 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;
    
    unforeseeable events or transactions; and
    
    incremental net cash flows from operations of acquired businesses.
     Acquisition Contingent Consideration
   29




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##### Table of Contents



Off-Balance Sheet Arrangements and Commitments
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign currency exchange risk.
 Interest rate risk.
  
 Item 4T. Controls and Procedures
 Disclosure Controls and Procedures
   30




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##### Table of Contents



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
  
 Item 5. Other Information
 Credit
Agreement Amendment
    31




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##### Table of Contents



Item 6. Exhibits
 Number
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger, dated as of April 29, 2008, by and among the Company, Accuro,
L.L.C., Accuro Healthcare Solutions, Inc., Aston Acquisition I, Inc., Aston Acquisition II,
LLC, certain signing sellers identified on the signature pages to the Merger Agreement and
Welsh, Carson, Anderson & Stowe IX, L.P., as representative (Incorporated by reference to
Exhibit 2.1 to the Companys Report on Form 8-K/A dated April 30, 2008).10.1
    
    Amendment No. 1 to Registration Rights Agreement, dated as of April 29, 2008, by and among the
Company, Welsh, Carson, Anderson & Stowe IX, L.P. and certain shareholders of the Company
(Incorporated by reference to Exhibit 10.1 to the Companys Report on Form 8-K/A dated April
30, 2008).10.2
    
    Debt Commitment Letter from Banc of America Securities LLC and Bank of America, N.A., dated as
of April 29, 2008 (without Addendums) (Incorporated by reference to Exhibit 10.2 to the
Companys Report on Form 8-K/A dated April 30, 2008).10.3*
    
    Third Credit Agreement Amendment,
dated as of May 9, 2008 among MedAssets, Inc., its domestic
subsidiaries, Bank of America, N. A., and the other lenders party
thereto.31.1*
    
    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 32




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##### Table of Contents



Signatures
  MEDASSETS, INC.May 15, 2008
    
    By:
    
    /s/ John A. BardisName:
    
    John A. BardisTitle:
    
    Chief Executive Officer
(Principal Executive Officer)May 15, 2008
    
    By:
    
    /s/ L. Neil HunnName:
    
    L. Neil HunnTitle:
    
    Chief Financial Officer
(Principal Financial Officer)
 33




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##### Table of Contents



Number
    
    Description of Exhibit2.1
    
    Agreement and Plan of Merger, dated as of April 29, 2008, by and among the Company, Accuro,
L.L.C., Accuro Healthcare Solutions, Inc., Aston Acquisition I, Inc., Aston Acquisition II,
LLC, certain signing sellers identified on the signature pages to the Merger Agreement and
Welsh, Carson, Anderson & Stowe IX, L.P., as representative (Incorporated by reference to
Exhibit 2.1 to the Companys Report on Form 8-K/A dated April 30, 2008).10.1
    
    Amendment No. 1 to Registration Rights Agreement, dated as of April 29, 2008, by and among the
Company, Welsh, Carson, Anderson & Stowe IX, L.P. and certain shareholders of the Company
(Incorporated by reference to Exhibit 10.1 to the Companys Report on Form 8-K/A dated April
30, 2008).10.2
    
    Debt Commitment Letter from Banc of America Securities LLC and Bank of America, N.A., dated as
of April 29, 2008 (without Addendums) (Incorporated by reference to Exhibit 10.2 to the
Companys Report on Form 8-K/A dated April 30, 2008).10.3*
    
    Third Credit Agreement Amendment,
dated as of May 9, 2008 among MedAssets, Inc., its domestic
subsidiaries, Bank of America, N. A., and the other lenders party
thereto.31.1*
    
    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 34