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MedAssets Reports First Quarter 2014 Financial Results

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ATLANTA, April 30, 2014 (GLOBE NEWSWIRE) -- MedAssets, Inc. (Nasdaq:MDAS) today announced results for its first quarter ended March 31, 2014, which are summarized below.

($ in millions, except per share) 1Q'14 1Q'13 % Change
Net Revenue:
Spend and Clinical Resource Mgmt (SCM) $108.6 $109.5 (0.8)%
Revenue Cycle Management (RCM) 62.3 63.3 (1.7)
Total Net Revenue 170.9 172.8 (1.1)
Net income 7.7 7.7 (0.3)
Earnings per share (EPS) – diluted 0.12 0.13 (7.7)
Non-GAAP adjusted EBITDA 56.7 61.6 (8.0)
Non-GAAP adjusted EPS - diluted $0.32 $0.41 (22.0)
Weighted average shares – diluted 61.7 60.4 2.1%

Net Revenue

Total net revenue for the first quarter of 2014 decreased 1.1% to $170.9 million from $172.8 million for the first quarter of 2013. Excluding performance-related fees from both periods, total net revenue in the first quarter of 2014 grew 1.6% from the same period a year earlier. Net revenue in the SCM segment decreased 0.8% to $108.6 million from net revenue of $109.5 million for the first quarter of 2013, due to lower group purchasing net administrative fees and an anticipated year-over-year decrease in performance-related fees. Net revenue in the RCM segment decreased 1.7% to $62.3 million from $63.3 million for the first quarter of 2013 as technology-related revenue (approximately 71.0% of RCM segment revenue) increased 1.9% while services-related revenue declined 9.5% due primarily to the wind down of two clients disclosed in early 2013 and certain non-recurring revenue in the first quarter of 2013.

Non-GAAP Adjusted EBITDA

Total non-GAAP adjusted EBITDA was $56.7 million, or 33.2% of total net revenue, for the first quarter of 2014, an 8.0% decrease from total non-GAAP adjusted EBITDA of $61.6 million, or 35.7% of total net revenue, for the first quarter of 2013. This decline was due primarily to the anticipated year-over-year decrease in performance-related fees versus the first quarter of 2013.

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

Net income for the first quarter of 2014 was $7.7 million, or $0.12 per share, compared with net income of $7.7 million, or $0.13 per share, for the first quarter of 2013. Non-GAAP adjusted EPS (defined as EPS excluding non-cash acquisition-related intangible amortization and depreciation, non-cash share-based compensation, certain restructuring, acquisition and integration-related expenses and non-recurring items on a tax-adjusted basis) was $0.32 per share for the first quarter of 2014, compared with non-GAAP adjusted EPS of $0.41 per share for the first quarter of 2013.

Cash Flow and Capital Resources

Cash provided by operating activities in the first quarter of 2014 was $17.7 million, up 1.4% from $17.5 million for the first quarter of 2013. Non-GAAP free cash flow (defined as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs) decreased to $7.6 million from $8.5 million for the first quarter of 2013 due to the timing of property, equipment and software expenditures in 2013. The company's balance sheet at March 31, 2014 included $766.9 million in total bank and bond debt, net of cash and cash equivalents. Total net debt equates to a leverage ratio of approximately 3.6 times non-GAAP adjusted EBITDA for the trailing twelve-month period. The company repurchased 640,000 shares of common stock in the first quarter of 2014.

Non-GAAP Contracted Revenue

At March 31, 2014, MedAssets' rolling 12-month non-GAAP contracted revenue estimate was $638.1 million (SCM segment - $394.2 million; RCM segment - $243.9 million), a year-over-year increase of 6.0%. Non-GAAP contracted revenue is the company's estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period.

2014 Financial Guidance

MedAssets maintained its full-year 2014 financial guidance ranges, as follows:

($ in millions, except per share) FY'14 Y-Y % change
Net Revenue:
SCM segment $ 438.0 - 446.0 3.2 - 5.1%
RCM segment 261.0 - 269.0 2.0 - 5.1
Total Net Revenue 700.0 - 714.0 2.9 - 4.9
Non-GAAP adjusted EBITDA 232.0 - 242.0 5.1 - 9.6
GAAP EPS – diluted 0.56 - 0.66 24.4 - 46.7
Non-GAAP adjusted EPS – diluted $ 1.33 - 1.43 0.8 - 8.3%

Excluding performance-related fees from both 2013 and 2014, total net revenue in 2014 is expected to grow approximately 4.5% at the midpoint of the guidance range.

Conference Call Information
Time/Date: 5:00 p.m. ET today, Wednesday, April 30, 2014
Phone: 888-517-2464 (or 630-827-6816 for international/local callers), PIN code 9160777
Webcast: http://ir.medassets.com, "Events & Presentations" page; Archive will be available for at least 30 days
Replay: Call 888-843-7419 or 630-652-3042 (PIN code 37055950)

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

About MedAssets

MedAssets (Nasdaq:MDAS) is a healthcare performance improvement company focused on helping providers realize financial and operational gains so that they can sustainably serve the needs of their community. More than 4,400 hospitals and 122,000 non-acute healthcare providers currently use the company's evidence-based solutions, best practice processes and analytics to help reduce the total cost of care, enhance operational efficiency, align clinical delivery, and improve revenue performance across the care continuum. For more information, please visit www.medassets.com.

Use of Non-GAAP Financial Information

In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the Company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; free cash flow; and contracted revenue. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures, where possible, are included in the accompanying financial schedules. Also, see "Use of Non-GAAP Financial Measures" following the financial schedules for more information.

Safe Harbor Statement

This Press Release contains forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, and include the intent, belief or current expectations of the Company and its management team with respect to the Company's future business operations that include, but are not limited to: 2014 financial guidance, revenue growth and other financial projections and forecasts. Any forward-looking statements are not guarantees of future performance, involve risks and uncertainties, and actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Press Release include, but are not limited to: failure to realize improvements in performance, efficiency and profitability; failure to complete anticipated sales under negotiations; failure to successfully implement revenue backlog; lack of revenue growth; customer losses; and adverse developments with respect to the operation or performance of the Company's business units or the market price of its common stock. Additional factors that could cause actual results to differ materially from those contemplated within this Press Release can also be found in the Company's Risk Factor disclosures in its Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission and available at http://ir.medassets.com. The Company disclaims any responsibility to update any forward-looking statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In 000s, except per share data Three Months Ended
March 31,
2014 2013 % Change
Revenue:
Administrative fees, net $ 76,246 $ 76,519 -0.4%
Other service fees 94,621 96,318 -1.8%
Total net revenue 170,867 172,837 -1.1%
Operating expenses:
Cost of revenue (inclusive of certain amortization expense) 37,431 34,268 9.2%
Product development expenses 7,397 8,501 -13.0%
Selling and marketing expenses 15,193 13,742 10.6%
General and administrative expenses 58,803 58,620 0.3%
Restructuring, acquisition and integration-related expenses 1,697 8,030 -78.9%
Depreciation 11,540 9,177 25.7%
Amortization of intangibles 14,026 16,501 -15.0%
Total operating expenses 146,087 148,839 -1.8%
Operating income 24,780 23,998 3.3%
Other income (expense):
Interest expense (11,173) (11,349) -1.6%
Other income 58 41 41.5%
Income before income taxes 13,665 12,690 7.7%
Income tax expense 5,987 4,986 20.1%
Net income 7,678 7,704 -0.3%
Basic net income per share 0.13 0.13 0.0%
Diluted net income per share $ 0.12 $ 0.13 -7.7%
Weighted average shares — basic 60,648 59,006 2.8%
Weighted average shares — diluted 61,681 60,404 2.1%
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
In 000s, except share and per share amounts 2014 2013
ASSETS
Current assets
Cash and cash equivalents $ -- $ 2,790
Accounts receivable, net of allowances of $2,539 and $2,568 as of March 31, 2014 and December 31, 2013, respectively 100,993 87,636
Deferred tax asset, current 2,764 4,535
Prepaid expenses and other current assets 24,049 24,059
Total current assets 127,806 119,020
Property and equipment, net 156,518 157,747
Other long term assets
Goodwill 1,027,847 1,027,847
Intangible assets, net 253,414 267,440
Other 41,034 41,695
Other long term assets 1,322,295 1,336,982
Total assets $ 1,606,619 $ 1,613,749
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,586 $ 24,066
Accrued revenue share obligation and rebates 71,125 77,398
Accrued payroll and benefits 18,277 41,587
Other accrued expenses 36,905 12,126
Current portion of deferred revenue 54,498 46,523
Current portion of notes payable 33,308 15,500
Current portion of finance obligation 273 255
Total current liabilities 233,972 217,455
Notes payable, less current portion 408,562 424,000
Bonds payable 325,000 325,000
Finance obligation, less current portion 8,698 8,781
Deferred revenue, less current portion 16,484 16,369
Deferred tax liability 116,902 121,083
Other long term liabilities 11,093 11,272
Total liabilities 1,120,711 1,123,960
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized; 61,176,000 and 61,740,000 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively 612 617
Additional paid in capital 705,578 717,132
Accumulated deficit (220,282) (227,960)
Total stockholders' equity 485,908 489,789
Total liabilities and stockholders' equity $ 1,606,619 $ 1,613,749
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
In 000s March 31, March 31,
2014 2013
Operating activities:
Net income $ 7,678 $ 7,704
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation 11,964 9,775
Amortization of intangibles 14,026 16,501
Impairment of assets -- 2,015
(Gain) loss on sale of assets (20) 46
Noncash stock compensation expense 4,302 3,411
Excess tax benefit from exercise of equity awards (1,382) (2,612)
Amortization of debt issuance costs 943 953
Noncash interest expense, net 105 120
Deferred income tax benefit (2,451) (474)
Changes in assets and liabilities (17,432) (19,956)
Cash provided by operating activities 17,733 17,483
Investing activities:
Purchases of property, equipment, and software (1,748) (686)
Capitalized software development costs (8,383) (8,292)
Cash used in investing activities (10,131) (8,978)
Financing activities:
Borrowings from revolving credit facility 16,524 --
Repayment of notes payable (13,875) (18,875)
Repayment of revolving credit facility (279) --
Repayment of finance obligation (169) (169)
Excess tax benefit from exercise of equity awards 1,382 2,612
Issuance of common stock, net of offering costs 1,756 2,725
Purchase of treasury shares, including shares surrendered for tax witholdings (15,731) --
Cash used in financing activities (10,392) (13,707)
Net decrease in cash and cash equivalents (2,790) (5,202)
Cash and cash equivalents, beginning of period 2,790 13,734
Cash and cash equivalents, end of period $ -- $ 8,532
SUPPLEMENTAL REVENUE REPORTING
RECONCILIATION OF GROSS FEES (A NON-GAAP MEASURE) TO NET REVENUE
(UNAUDITED)
In 000s Three Months Ended March 31,
2014 2013 % Change
Non-GAAP gross administrative fees $ 126,361 $120,636 4.7%
Other service fees 94,621 96,318 -1.8%
Non-GAAP gross fees 220,982 RSO % 216,954 RSO % 1.9%
Non-GAAP revenue share obligation (RSO) (50,115) 39.7% (44,117) 36.6% 13.6%
Net revenue $ 170,867 $172,837 -1.1%
SUPPLEMENTAL SEGMENT REPORTING WITH SELECTED NON-GAAP MEASURES
(UNAUDITED)
In 000s Three Months Ended March 31,
2014 2013 % Change
Net revenue
Spend and Clinical Resource Management (SCM) $ 108,617 $109,508 -0.8%
Revenue Cycle Management (RCM) 62,250 63,329 -1.7%
Total net revenue 170,867 172,837 -1.1%
Non-GAAP Adjusted EBITDA % margin % margin
SCM $ 49,950 46.0% $ 53,712 49.0% -7.0%
RCM 13,401 21.5% 14,690 23.2% -8.8%
Corporate (6,634) (6,756) 1.8%
Total non-GAAP Adjusted EBITDA 56,717 33.2% 61,646 35.7% -8.0%
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
SUPPLEMENTAL REPORTING OF ADJUSTED EBITDA
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
In 000s Three Months Ended March 31,
2014 2013
Net income $ 7,678 $ 7,704
Depreciation 11,540 9,177
Depreciation (included in cost of revenue) 424 598
Amortization of intangibles 14,026 16,501
Interest expense, net 11,173 11,349
Income tax expense 5,987 4,986
Non-GAAP EBITDA $ 50,828 $ 50,315
Share-based compensation 4,302 3,411
Rental income from capitalized building lease (110) (110)
Restructuring, acquisition and integration-related expenses 1,697 8,030
Non-GAAP Adjusted EBITDA $ 56,717 $ 61,646
SUPPLEMENTAL NET INCOME AND EARNINGS PER SHARE REPORTING
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
In 000s, except per share data Three Months Ended March 31,
2014 2013
Net income $ 7,678 $ 7,704
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 14,026 16,975
Pre-tax non-cash, share-based compensation 4,302 3,411
Pre-tax restructuring, acquisition and integration-related expenses 1,697 8,030
Tax effect on pre-tax adjustments a (8,010) (11,366)
Non-GAAP adjusted net income $ 19,693 $ 24,754
Income Per Share (EPS) - diluted $ 0.12 $ 0.13
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 0.23 0.28
Pre-tax non-cash, share-based compensation 0.07 0.06
Pre-tax restructuring, acquisition and integration-related expenses 0.03 0.13
Tax effect on pre-tax adjustments a (0.13) (0.19)
Non-GAAP adjusted EPS - diluted $ 0.32 $ 0.41
Weighted average shares - diluted (in 000s) 61,681 60,404
(a) The Company used a tax rate of 40.0% for the three months ended March 31, 2014 and 2013 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
SUPPLEMENTAL 2014 ADJUSTED EBITDA GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
Guidance Range for
Twelve Months Ending
In 000s December 31, 2014
(Low) (High)
Net Income $ 33,900 $ 39,800
Depreciation 48,700 48,700
Depreciation (included in cost of revenue) 3,300 3,300
Amortization of intangibles, acquisition-related 55,000 55,000
Interest expense, net 44,400 44,400
Income tax expense 23,500 27,600
Non-GAAP EBITDA 208,800 218,800
Share-based compensation 21,900 21,900
Restructuring, acquisition and integration-related expenses 1,700 1,700
Rental income from capitalized building lease (400) (400)
Non-GAAP adjusted EBITDA $ 232,000 $ 242,000
SUPPLEMENTAL 2014 EARNINGS PER SHARE GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
Guidance Range for
Twelve Months Ending
In 000s, except per share data December 31, 2014
(Low) (High)
Net Income $ 33,900 $ 39,800
EPS - diluted 0.56 0.66
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 0.91 0.91
Pre-tax non-cash, share-based compensation 0.36 0.36
Pre-tax restructuring, acquisition and integration-related expenses 0.03 0.03
Tax effect on pre-tax adjustments b (0.52) (0.52)
Non-GAAP adjusted EPS - diluted c $ 1.33 $ 1.43
Fully diluted weighted average shares outstanding 60,700 60,700
(b) The Company used a tax rate of 40.0% for the full year ending December 31, 2014 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
(c) Column amounts may not add to total due to rounding.
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
SUPPLEMENTAL NON-GAAP CONTRACTED REVENUE ESTIMATES
(UNAUDITED)
In Millions March 31, Dec. 31, Sept. 30, June 30, March 31,
2014 2013 2013 2013 2013
Revenue Cycle Technology (RCT) 174.4 173.9 173.3 175.5 170.9
Revenue Cycle Services (RCS) 69.5 65.4 60.8 62.9 56.8
RCM segment Total 243.9 239.4 234.1 238.4 227.7
SCM segment 394.2 $ 386.0 $ 391.0 $ 378.4 $ 374.0
Total d 638.1 $ 625.4 $ 625.1 $ 616.8 $ 601.7
SUPPLEMENTAL REPORTING OF SHARE-BASED COMPENSATION
EXPENSE INCLUDED IN OPERATING EXPENSES
(UNAUDITED)
In 000s Three Months Ended
March 31,
2014 2013
Amount of share-based compensation included in:
Cost of revenue $ 1,166 $ 713
Product development expense 244 118
Selling & marketing expense 527 379
General & administrative expense 2,365 2,201
Total $ 4,302 $ 3,411
SUPPLEMENTAL REPORTING OF FREE CASH FLOW
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
In 000s Three Months Ended
March 31,
2014 2013
Cash provided by operating activities $ 17,733 $ 17,483
Purchases of property, equipment and software (1,748) (686)
Capitalized software development costs (8,383) (8,292)
Non-GAAP free cash flow $ 7,602 $ 8,505
(d) Column amounts may not add to total due to rounding.
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.

Use of Non-GAAP Financial Measures

In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the Company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; free cash flow; and contracted revenue.

These non-GAAP financial measures may have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. The Company compensates for such limitations by relying primarily on the Company's GAAP results and using non-GAAP financial measures only supplementally. Where possible, the Company provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. Investors are encouraged to carefully review those reconciliations. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies.

Gross fees include gross administrative fees the Company receives pursuant to its vendor contracts and all other fees the Company receives from clients. The Company's revenue share obligation represents the portion of the gross administrative fees the Company is contractually obligated to share with certain of its GPO clients. Net administrative fees (a GAAP measure) are the Company's gross administrative fees net of its revenue share obligation. Total net revenue (a GAAP measure) reflects the Company's gross fees net of its revenue share obligation. These non-GAAP measures assist management and the board of directors and may be helpful to investors in analyzing the Company's growth in its Spend and Clinical Resource Management segment given that administrative fees constitute a material portion of the Company's revenue and are paid to the Company by approximately 1,150 suppliers and other vendors contracted by its GPO, and that the Company's revenue share obligation constitutes a significant outlay to certain of its GPO clients.

The Company defines: EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; and adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and other non-recurring, non-cash or non-operating items. EBITDA and adjusted EBITDA are used by the Company to facilitate a comparison of its operating performance on a consistent basis from period to period and provides for a more complete understanding of factors and trends affecting our business. These measures assist management and the board of directors and may be useful to investors in comparing the Company's operating performance consistently over time as it removes the impact of its capital structure (primarily interest charges and amortization of debt issuance costs), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes), as well as other non-cash (purchase accounting adjustments and imputed rental income) and non-recurring items, from the Company's operational results. Adjusted EBITDA also removes the impact of non-cash share-based compensation expense and certain restructuring, acquisition and integration-related charges. EBITDA and adjusted EBITDA are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities.

The Company defines adjusted net income as earnings excluding non-cash acquisition-related intangible amortization and non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis and diluted adjusted EPS as earnings per share excluding non-cash acquisition-related intangible amortization and non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis. Adjusted net income and diluted adjusted EPS are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities. Use of this measure for this purpose allows management and the board of directors to analyze the Company's operating performance on a consistent basis by removing the impact of certain non-cash and non-recurring items from our operations, and by rewarding organic growth and accretive business transactions. As a significant portion of senior management's incentive based compensation has historically been based on the achievement of certain diluted adjusted EPS growth over time, investors may find such information useful.

The Company defines free cash flow as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs. Management believes free cash flow is an important measure because it represents the cash that the Company is able to generate after spending capital on infrastructure to maintain its business and investing in new and upgraded products and services to support future growth. Free cash flow is important because it allows the Company to pursue opportunities that are intended to enhance shareholder value, which could include debt reduction, share repurchases, partnerships, alliances and acquisitions, and/or dividend payments. The Company's definition of free cash flow does not consider non-discretionary cash payments, such as debt.

Contracted revenue is a forward-looking operating measure used by management and the board of directors to better understand revenue growth trends within the Company's business segments as it reflects the Company's current estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period. Such information may be useful to investors in their analysis of the Company's revenue growth trends. A reconciliation to the most directly comparable GAAP measure cannot be performed without unreasonable effort.

CONTACT: Robert Borchert 678.248.8194 rborchert@medassets.com

Source:MedAssets