MedAssets Announces Third Quarter and Nine-Month 2008 Financial Results

Press Release

MedAssets Announces Third Quarter and Nine-Month 2008 Financial Results

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Posted 13 November 2008 @ 05:04 pm ET

MedAssets, Inc. (NASDAQ: MDAS) today announced results for its third quarter and nine-month period ended September 30, 2008.

Financial Highlights

Total net revenue was $76.0 million in the third quarter of 2008, an increase of 54.2% from total net revenue of $49.3 million in the third quarter last year.
Adjusted EBITDA ^a increased 68.1% to $25.2 million in the third quarter of 2008 when compared to adjusted EBITDA of $15.0 million in the third quarter last year.
Adjusted diluted earnings per share^a in the third quarter of 2008 was $0.15, excluding non-cash acquisition-related intangible amortization on a tax-adjusted basis.

Net Revenue

Total net revenue for the third quarter of 2008 increased 54.2% to $76.0 million from $49.3 million in the third quarter of 2007, driven by revenue growth from both organic and acquisition sources. For comparative purposes, total net revenue of $76.0 million in the third quarter of 2008 increased 15.4% over total pro forma net revenue^{a b} of $65.9 million in the third quarter of 2007.

Total net revenue for the nine-month period ended September 30, 2008 increased 45.6% to $196.0 million from $134.6 million in the first nine months of 2007. For comparative purposes, total pro forma net revenue in the first nine months of 2008 was $224.5 million, representing a 10.4% increase over total pro forma net revenue of $203.4 million in the first nine months of 2007.

Adjusted EBITDA

In the third quarter of 2008, total adjusted EBITDA was $25.2 million, or 33.2% of total net revenue, a 68.1% increase over adjusted EBITDA of $15.0 million, or 30.4% of total net revenue, in the third quarter of 2007. For comparative purposes, third quarter 2008 total adjusted EBITDA of $25.2 million was up 35.0% over total pro forma adjusted EBITDA^{a b} in the third quarter of 2007 of $18.7 million, or 28.4% of total pro forma net revenue.

In the nine months ended September 30, 2008, adjusted EBITDA increased 34.4% to $60.3 million, or 30.8% of total net revenue, versus adjusted EBITDA of $44.8 million, or 33.3% of total net revenue, in the first nine months of 2007. For comparative purposes, pro forma adjusted EBITDA in the first nine months of 2008 increased 10.5% to $70.4 million, or 31.3% of total pro forma net revenue, compared to pro forma adjusted EBITDA of $63.7 million, or 31.3% of total pro forma net revenue, in the nine-month period ended September 30, 2007.

(a) Reconciliation of non-GAAP measures, including pro forma net revenue, adjusted EBITDA, pro forma adjusted EBITDA and adjusted diluted EPS, to their most directly comparable GAAP measure, is provided in the attached financial schedules.

(b) Pro forma results assume the completion of the XactiMed and MD-X acquisitions, as well as certain financing, occurred on January 1, 2007, and the acquisition of Accuro occurred on January 1 of each respective year.

Profitability

The Company reported net income attributable to common stockholders in the third quarter of 2008 of $3.7 million, or $0.07 per diluted share, versus a net loss attributable to common stockholders of $4.6 million, or a loss of $0.40 per diluted share, in the third quarter of 2007. Adjusted diluted earnings per share (EPS) in the third quarter of 2008 was $0.15 per diluted share, excluding non-cash acquisition-related intangible amortization on a tax-adjusted basis.

For the first nine months of 2008, the Company reported net income attributable to common stockholders of $4.8 million, or $0.09 per diluted share, versus a net loss attributable to common stockholders of $6.0 million, or a loss of $0.55 per diluted share, in the nine-month period ended September 30, 2007. Excluding non-cash acquisition-related intangible amortization and non-recurring expense items on a tax-adjusted basis, adjusted diluted EPS in the first nine months of 2008 was $0.36 per diluted share.

Share-based compensation expense, on a tax-adjusted basis, equated to $0.03 per diluted share in the third quarter and $0.08 per diluted share in the nine-month period ended September 30, 2008.

Business Segment Financial Highlights

Revenue Cycle Management (RCM) Segment

The RCM segment reported net revenue in the third quarter of 2008 of $45.8 million, up 87.8% from net revenue of $24.4 million in the third quarter of 2007. For comparative purposes, net revenue in the third quarter of 2008 of $45.8 million increased 11.8% when compared to pro forma net revenue of $41.0 million in the third quarter of 2007.

Adjusted EBITDA for the RCM segment in the third quarter of 2008 more than doubled to $14.0 million, or 30.6% of net revenue, versus adjusted EBITDA of $6.1 million, or 25.2% of net revenue, in the third quarter of 2007. For comparative purposes, adjusted EBITDA in the third quarter of 2008 of $14.0 million increased 42.5% from pro forma adjusted EBITDA in the third quarter of 2007 of $9.8 million, or 24.0% of pro forma net revenue.

For the nine-month period ended September 30, 2008, the RCM segment reported net revenue of $102.2 million, an 87.9% increase over net revenue of $54.4 million in the first nine months of 2007. Pro forma net revenue in the first nine months of 2008 was $130.8 million, compared to pro forma net revenue of $123.2 million in the first nine months of 2007.

Adjusted EBITDA in the first nine months of 2008 increased 61.4% to $26.0 million, or 25.5% of net revenue, versus adjusted EBITDA of $16.1 million, or 29.7% of net revenue, in the nine-month period ended September 30, 2007. For comparative purposes, pro forma adjusted EBITDA in the first nine months of 2008 was $36.1 million, or 27.6% of pro forma net revenue, versus pro forma adjusted EBITDA in the first nine months of 2007 of $35.0 million, or 28.4% of pro forma net revenue.

Net revenue and adjusted EBITDA growth in the RCM segment was primarily driven by increases in service and recurring subscription fee revenue, as well as the impact of acquisitions, offset slightly by a period-over-period decline in decision support revenue.

Spend Management Segment

Net revenue in the Spend Management segment increased 21.3% to $30.2 million from the $24.9 million reported in the third quarter of 2007. Adjusted EBITDA in the third quarter of 2008 was $15.2 million, or 50.4% of net revenue, versus $11.8 million, or 47.6% of net revenue, in the third quarter of 2007.

For the nine-month period ended September 30, 2008, net revenue in the Spend Management segment was $93.7 million, a 16.9% increase over the $80.2 million reported in the first nine months of 2007. Adjusted EBITDA for the Spend Management segment increased 24.1% to $46.5 million, or 49.7% of net revenue, in the first nine months of 2008, when compared to $37.5 million, or 46.7% of net revenue, in the nine-month period ended September 30, 2007.

The increase in Spend Management segment adjusted EBITDA margin in 2008 was due primarily to operating leverage and lower sales and marketing expenses as a percentage of segment net revenue.

Corporate Operations

The impact of corporate operations on total adjusted EBITDA was $4.0 million in the third quarter of 2008, versus $3.0 million in the same quarter of 2007. For the first nine months of 2008, the impact of corporate operations on total adjusted EBITDA was $12.3 million, versus $8.8 million in the first nine-month period of 2007. The increase in corporate expense was primarily attributable to higher costs associated with being a publicly-traded company and the addition of certain senior staff functions.

Cash Flow and Capital Resources

Net cash provided by operating activities increased 40.9% to $31.1 million in the first nine months of 2008, as compared to $22.1 million for the nine months ended September 30, 2007. Capital expenditures and capitalized software costs for the nine months ended September 30, 2008 were $12.3 million as compared to $12.7 million for the comparable period in 2007.

During the third quarter of 2008, the Company repaid $18.9 million of its long-term bank debt, and its balance sheet included $255.3 million in long-term bank debt at September 30, 2008. Current net leverage was approximately 2.8 times trailing adjusted pro forma EBITDA, and the Company had approximately $100 million of availability under its revolving credit facility at the end of the quarter.

Reaffirming 2008 Guidance; Initiating 2009 Guidance

MedAssets reaffirmed and narrowed its full-year 2008 financial outlook, and introduced its 2009 guidance, as follows:

(In millions, except EPS)	Â	2008E		Â	2009E
Net Revenue:		(As Reported)
Revenue Cycle Management		$	149 - 151		$	207 - 213
Spend Management			123 - 125			137 - 143
Total Net Revenue			272 - 276			346 - 354
					Â
Total Adjusted EBITDA			87 - 90			111 - 117
					Â
GAAP EPS (diluted)			0.17 - 0.21			0.25 - 0.33
Adjusted EPS (diluted)			0.51 - 0.55			0.54 - 0.62
Cash EPS (diluted)		$	0.61 - 0.65		$	0.74 - 0.82

At September 30, 2008, MedAssets' rolling 12-month contracted revenue was an estimated $298.0 million, consisting of $175.0 million from the RCM segment and $123.0 million from the Spend Management segment. The Company's rolling 12-month contracted revenue increased approximately 5.0% on a consolidated basis, as compared to the rolling 12-month total as of June 30, 2008. The Company's contracted revenue reflects the estimated contractually committed revenue to be generated under existing customer contracts in the forward 12-month period.

Conference Call Information

The Company will host a conference call at 5:00 p.m. ET today, Thursday, November 13, 2008, to discuss its financial and business highlights and management's outlook for future performance. The live audio webcast will be accessible from the "Events & Presentations" page at http://ir.medassets.com. To access the conference call, dial 866-811-1812 or 706-902-0609 (international), and provide the conference ID number 69058140. For those unable to listen to the live broadcast, a webcast replay will be archived on MedAssets' website for 30 days. A conference call replay will be available for one week by calling 800-642-1687 or 706-645-9291 (international), and entering conference ID number 69058140.

About MedAssets

MedAssets (NASDAQ: MDAS) partners with healthcare providers to improve their financial strength by implementing integrated spend management and revenue cycle solutions that help control cost, improve margins and cash flow, increase regulatory compliance, and optimize operational efficiency. MedAssets serves more than 125 health systems, 3,300 hospitals and 30,000 non-acute care healthcare providers. For more information, go to www.medassets.com.

Safe Harbor Statement

This Press Release contains statements that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Forward-looking statements contained in this Press Release include the intent, belief or current expectations of the Company and members of its management team with respect to the Company's future business operations as well as the assumptions upon which such statements are based. Forward-looking statements include specifically, but are not limited to: 2008 and 2009 projections, costs and revenue growth, margin and other financial projections; contracted revenue forecasts; and the Company's ability to successfully integrate and capitalize on synergies associated with its past and future acquisitions. Investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Press Release include, but are not limited to: failure to realize improvements in performance, efficiency and profitability; failure to complete anticipated sales under negotiations; failure to successfully implement revenue backlog; lack of revenue growth; client losses; and adverse developments with respect to the operation or performance of the Company's business units or the market price of its common stock. Additional factors that could cause actual results to differ materially from those contemplated within this Press Release can also be found in the Company's Risk Factor disclosures in its Form 10-K for the year ended December 31, 2007 and subsequent Forms 10-Q filed with the Securities and Exchange Commission. The Company disclaims any responsibility to update any forward-looking statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

GAAP

Pro Forma

In 000s, except per share data

Three Months Ended

September 30,

Pro Forma

September 30,

2008

2007

Adjustments ^c

2007

Revenue:

Administrative fees, net

25,663

22,642

Other service fees

50,309

26,631

16,588

43,219

Total net revenue

75,972

49,273

16,588

65,861

Operating expenses:

Cost of revenue

17,101

8,155

4,306

12,461

Product development expenses

4,719

1,916

1,786

3,702

Selling and marketing expenses

9,641

7,958

2,014

9,972

General and administrative expenses

22,779

18,148

5,358

23,506

Depreciation

2,581

1,936

353

2,289

Amortization of intangibles

7,324

5,102

3,945

9,047

Total operating expenses

64,145

43,215

17,762

60,977

Operating income

11,827

6,058

(1,174

)

4,884

Other income (expense):

Interest (expense)

(5,803

)

(6,763

)

(2,580

)

(9,343

)

Other income (expense)

228

1,189

1,205

Income (loss) before income taxes

6,252

484

(3,738

)

(3,254

)

Income tax expense (benefit)

2,566

320

(1,736

)

(1,416

)

Net income (loss)

3,686

164

(2,002

)

(1,838

)

Preferred stock dividends and accretion ^d

(4,798

)

(4,798

)

Net income (loss) attributable to common stockholders

3,686

(4,634

)

(2,002

)

(6,636

)

Basic and diluted income (loss) per share:

Basic net income (loss) attributable to common stockholders

0.07

(0.40

)

(0.32

)

Diluted net income (loss) attributable to common stockholders

0.07

(0.40

)

(0.32

)

Weighted average shares - basic ^e

53,715

11,685

8,850

20,535

Weighted average shares - diluted ^e

56,136

11,685

8,850

20,535

(c) Includes all adjustments relating to the acquisition of Accuro as if this company was acquired on January 1, 2007. Refer to the Company's Form 8-K/A filed with the Securities and Exchange Commission (SEC) on August 13, 2008 for further description of similar adjustments. The unaudited pro forma results are for illustrative and informational purposes only and are not intended to represent or be indicative of what the Company's results of operations would have been if this event had occurred at the beginning of such period.

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