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MedAssets Reports Fourth Quarter and Full-Year 2014 Financial Results

ATLANTA, Feb. 17, 2015 (GLOBE NEWSWIRE) -- MedAssets, Inc. (Nasdaq:MDAS) today announced results for its fourth quarter and twelve-month period ended December 31, 2014.

Fourth Quarter

(In millions, except per share) 4Q'14 4Q'13 % Change
Net Revenue:
Spend and Clinical Resource Mgmt (SCM) $125.3 $106.4 17.7%
Revenue Cycle Management (RCM) 73.0 64.0 13.9
Total Net Revenue a 198.2 170.5 16.3%
Net (loss) income (42.4) 7.8 nm
(Loss) earnings per share (EPS) - diluted (0.71) 0.13 nm
Non-GAAP adjusted EBITDA 63.5 52.8 20.4%
Non-GAAP adjusted EPS - diluted $0.39 $0.30 30.0%
(a) Column amounts may not add to total due to rounding.

Net Revenue

Total net revenue for the fourth quarter of 2014 increased 16.3% to $198.2 million from $170.5 million for the fourth quarter of 2013. Excluding the contribution from Sg2 (acquired on September 22, 2014), fourth quarter total net revenue growth was 10.0% on a year-over-year basis.

Net revenue in the SCM segment increased 17.7% to $125.3 million from $106.4 million for the fourth quarter of 2013 due to the addition of Sg2 and growth in other service fees and performance-related fees. Excluding the contribution from Sg2, fourth quarter SCM net revenue growth was 7.7%. Net revenue in the RCM segment increased 13.9% to $73.0 million from $64.0 million for the fourth quarter of 2013 as technology-related revenue (68.6% of RCM segment revenue) increased 7.0%, while services-related revenue rose 32.5%.

Non-GAAP Adjusted EBITDA

Total non-GAAP adjusted EBITDA for the fourth quarter of 2014 increased 20.4% to $63.5 million, or 32.0% of total net revenue, from total non-GAAP adjusted EBITDA of $52.8 million, or 30.9% of total net revenue, for the fourth quarter of 2013.

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

Net loss for the fourth quarter of 2014 was $42.4 million, or a loss of $0.71 per share, compared with net income of $7.8 million, or $0.13 per share, for the fourth quarter of 2013. The net loss in the fourth quarter of 2014 was due to a $52.5 million impairment charge to write off goodwill associated with the company's Revenue Cycle Services business unit, which is described in more detail below.

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 other non-recurring items on a tax-adjusted basis) rose 30.0% to $0.39 per share for the fourth quarter of 2014, compared with $0.30 per share for the fourth quarter of 2013.

Twelve-Month Period

(In millions, except per share) FY'14 FY'13 % Change
Net Revenue:
Spend and Clinical Resource Mgmt (SCM) $ 445.6 $ 424.5 5.0%
Revenue Cycle Management (RCM) 274.6 256.0 7.3
Total Net Revenue b 720.2 680.4 5.9%
Net (loss) income (20.4) 27.4 nm
(Loss) earnings per share (EPS) - diluted (0.34) 0.45 nm
Non-GAAP adjusted EBITDA 234.0 220.8 6.0%
Non-GAAP adjusted EPS - diluted $1.35 $1.32 2.3%
(b) Column amounts may not add to total due to rounding.

Net Revenue

Total net revenue for the twelve months ended December 31, 2014 increased 5.9% to $720.2 million from $680.4 million for full-year 2013. Excluding the contribution from Sg2, full-year total net revenue growth was 4.1% when compared with 2013. Net revenue in the SCM segment grew 5.0% to $445.6 million from $424.5 million for 2013. Excluding the contribution from Sg2, full-year SCM net revenue growth was 2.2%. Net revenue in the RCM segment rose 7.3% to $274.6 million from $256.0 million for full-year 2013 as technology-related revenue (68.8% of RCM segment revenue) increased 4.8% while services-related revenue increased 13.3%.

Non-GAAP Adjusted EBITDA

For the full-year 2014, total non-GAAP adjusted EBITDA was $234.0 million, or 32.5% of total net revenue, a 6.0% increase from total non-GAAP adjusted EBITDA of $220.8 million, or 32.5% of total net revenue, for 2013.

Net (Loss) Income and Non-GAAP Adjusted EPS

Net loss for full-year 2014 was $20.4 million, or a loss of $0.34 per share, which was due to a $52.5 million impairment charge described in more detail below. This compared with net income of $27.4 million, or $0.45 per share, for 2013. Non-GAAP adjusted EPS was $1.35 per share for 2014, a 2.3% increase from $1.32 per share for full-year 2013.

Impairment Charge

The Company recognized an impairment charge of $52.5 million in the fourth quarter of 2014 to write off goodwill associated with its Revenue Cycle Services business unit given lower adjusted EBITDA margin expectations due to revenue growth primarily from lower-margin business office outsourcing.

Cash Flow and Capital Resources

Cash provided by operating activities in the twelve months of 2014 was $139.0 million versus $152.9 million in 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 $75.8 million from $94.1 million in 2013. The company's balance sheet at December 31, 2014 included $868.9 million in total bank and bond debt, net of cash and cash equivalents. Total net debt equates to leverage of approximately 3.7 times total non-GAAP adjusted EBITDA for the trailing twelve-month period.

Non-GAAP Contracted Revenue Estimate

At December 31, 2014, MedAssets' rolling 12-month non-GAAP contracted revenue estimate was $661.9 million (SCM segment - $423.5 million; RCM segment - $238.4 million), a year-over-year increase of 5.8%. 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.

2015 Financial Guidance

MedAssets introduced its full-year 2015 (FY'15) financial guidance ranges, as follows:

(In millions, except per share) FY'15 FY'14 Y-Y %
Guidance Actual Change
Net Revenue:
SCM Segment c $ 488.0 - 496.0 $445.6 9.5 - 11.3%
RCM Segment d 264.0 - 272.0 274.6 (3.9) - (1.0)
Total Net Revenue e 753.0 - 767.0 720.2 4.6 - 6.5
Non-GAAP adjusted EBITDA $ 227.0 - 237.0 $234.0 (3.0) - 1.3%
Adjusted EBITDA margin % 29.9 - 31.2% 32.5% (263) - (131) bps
GAAP EPS - diluted $ 0.26 - 0.36 $ (0.34) nm
Non-GAAP adjusted EPS - diluted $ 1.13 - 1.23 $1.35 (16.3) - (8.9)%
(c) Assuming the company owned Sg2 on January 1, 2014, SCM segment revenue growth is expected to be 2.2 - 3.9%
(d) Excluding $28 million in revenue from Barnabas outsourcing agreement that ended December 31,2014, the RCM segment revenue growth is expected to be 7.0 - 10.3%
(e) Assuming the company owned Sg2 on January 1, 2014 and excluding $28 million in revenue from Barnabas outsourcing agreement that concluded December 31, 2014, total net revenue growth is expected to be 4.0 - 5.9%

Key considerations underlying the company's FY'15 financial guidance include:

  • Sg2 full-year net revenue expected to be $47-52 million in FY'15, versus $43.6 million (non-GAAP) in FY'14
  • Adjusted EBITDA margin expected to be impacted by revenue growth rate, higher proportion of revenue from advisory solutions and services versus higher-margin GPO and Revenue Cycle Technology, and higher incentive compensation (employee cash bonus) expense of approximately $10 million in FY'15 due to lower SCM segment performance in FY'14
  • Depreciation expense in FY'15 expected to be approximately $63 million, compared with $51.2 million in FY'14

John Bardis Retires; Halsey Wise Named Chairman and CEO

Concurrently with the announcement of fourth quarter and full-year 2014 financial results, the company announced that R. Halsey Wise has been appointed chairman of the board of directors and chief executive officer of the company, effective immediately. Mr. Wise joined MedAssets board of directors in March 2014. Mr. Wise succeeds John A. Bardis, who retired as chairman and CEO for personal reasons due to family health issues. Please refer to the press release dated February 17, 2015 with the headline "John A. Bardis to Retire; R. Halsey Wise Named Chairman and CEO of MedAssets" for additional information.

Expansion of Share Repurchase Program

The company's board of directors authorized an extension of the existing share repurchase program to February 29, 2016 and increased the total amount available for the repurchase of shares to $100 million, subject to certain restrictions under the company's credit agreement and bond indenture. The company has repurchased $42.8 million in common stock under the program. The program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, accelerated share repurchases, 10b5-1 trading plans, privately negotiated transactions or block trades, or any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. Please refer to the press release dated February 17, 2015 with the headline "MedAssets Announces Extension of Share Repurchase Plan and Increase to $100 Million" for additional information.

Conference Call Information

Time/Date: 5:00 p.m. ET today, Tuesday, February 17, 2015
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 9160777)

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. Approximately 4,500 hospitals and 123,000 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 consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; 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: 2015 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.

mdas/F

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In 000s, except per share data Three Months Ended Twelve Months Ended
December 31, December 31,
2014 2013 % Change 2014 2013 % Change
Revenue:
Administrative fees, net $ 74,238 $ 73,028 1.7% $ 291,363 $ 289,475 0.7%
Other service fees 124,004 97,438 27.3% 428,866 390,941 9.7%
Total net revenue 198,242 170,466 16.3% 720,229 680,416 5.9%
Operating expenses:
Cost of revenue (inclusive of certain amortization expense) 51,621 41,940 23.1% 171,852 151,950 13.1%
Product development expenses 8,988 7,225 24.4% 31,133 30,874 0.8%
Selling and marketing expenses 17,239 14,502 18.9% 67,426 61,427 9.8%
General and administrative expenses 61,706 56,912 8.4% 237,617 231,826 2.5%
Restructuring, acquisition and integration-related expenses 2,805 494 nm 7,512 10,070 -25.4%
Depreciation 12,849 10,824 18.7% 48,096 40,803 17.9%
Amortization of intangibles 15,604 14,766 5.7% 57,593 62,723 -8.2%
Impairment of goodwill 52,539 -- nm 52,539 -- nm
Total operating expenses 223,351 146,663 52.3% 673,768 589,673 14.3%
Operating (loss) income (25,109) 23,803 -205.5% 46,461 90,743 -48.8%
Other income (expense):
Interest expense (11,938) (11,363) 5.1% (45,563) (46,907) -2.9%
Other (expense) income (47) (148) -68.2% 315 287 9.8%
(Loss) income before income taxes (37,094) 12,292 -401.8% 1,213 44,123 -97.3%
Income tax expense 5,310 4,541 16.9% 21,603 16,682 29.5%
Net (loss) income (42,404) 7,751 -647.1% (20,390) 27,441 -174.3%
Basic net (loss) income per share (0.71) 0.13 -646.2% (0.34) 0.46 -173.9%
Diluted net (loss) income per share $ (0.71) $ 0.13 -646.2% $ (0.34) $ 0.45 -175.6%
Weighted average shares — basic 59,513 60,470 -1.6% 59,811 59,705 0.2%
Weighted average shares — diluted 59,513 61,827 -3.7% 59,811 61,178 -2.2%
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, December 31,
In 000s, except share and per share amounts 2014 2013
ASSETS
Current assets
Cash and cash equivalents $ 12,100 $ 2,790
Accounts receivable, net of allowances of $2,641 and $2,568 as of December 31, 2014 and December 31, 2013, respectively 127,741 87,636
Deferred tax asset, current 4,224 4,535
Prepaid expenses and other current assets 30,557 24,059
Total current assets 174,622 119,020
Property and equipment, net 170,318 157,747
Other long term assets
Goodwill 1,058,414 1,027,847
Intangible assets, net 276,407 267,440
Other 37,477 41,695
Other long term assets 1,372,298 1,336,982
Total assets $ 1,717,238 $ 1,613,749
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 26,910 $ 24,066
Accrued revenue share obligation and rebates 91,864 77,398
Accrued payroll and benefits 32,784 41,587
Other accrued expenses 9,040 12,126
Current portion of deferred revenue 76,034 46,523
Current portion of notes payable 29,583 15,500
Current portion of finance obligation 294 255
Total current liabilities 266,509 217,455
Notes payable, less current portion 526,417 424,000
Bonds payable 325,000 325,000
Finance obligation, less current portion 8,475 8,781
Deferred revenue, less current portion 15,418 16,369
Deferred tax liability 115,049 121,083
Other long term liabilities 13,883 11,272
Total liabilities 1,270,751 1,123,960
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares authorized; 60,199,000 and 61,740,000 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively 602 617
Additional paid in capital 694,235 717,132
Accumulated deficit (248,350) (227,960)
Total stockholders' equity 446,487 489,789
Total liabilities and stockholders' equity $ 1,717,238 $ 1,613,749
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twelve Months Ended
In 000s December 31, December 31,
2014 2013
Operating activities:
Net (loss) income $ (20,390) $ 27,441
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:
Bad debt expense 195 --
Depreciation 51,227 42,960
Amortization of intangibles 57,593 62,723
Impairment of goodwill 52,539 3,551
Loss on sale of assets 260 90
Noncash stock compensation expense 17,849 14,496
Excess tax benefit from exercise of equity awards (1,958) (6,032)
Amortization of debt issuance costs 3,805 3,807
Noncash interest expense, net 409 456
Deferred income tax (benefit) expense (5,564) 2,013
Changes in assets and liabilities (16,950) 1,397
Cash provided by operating activities 139,015 152,902
Investing activities:
Purchases of property, equipment, and software (21,034) (17,643)
Capitalized software development costs (42,224) (41,175)
Acquisitions, net of cash acquired (141,256) --
Cash used in investing activities (204,514) (58,818)
Financing activities:
Borrowings from revolving credit facility 216,080 --
Repayment of notes payable (25,500) (120,500)
Repayment of revolving credit facility (74,080) --
Repayment of finance obligation (676) (676)
Debt issuance costs (615) --
Excess tax benefit from exercise of equity awards 1,958 6,032
Issuance of common stock, net of offering costs 3,610 10,116
Purchase of treasury shares, including shares surrendered for tax withholdings (45,968) --
Cash provided by (used in) financing activities 74,809 (105,028)
Net increase (decrease) in cash and cash equivalents 9,310 (10,944)
Cash and cash equivalents, beginning of period 2,790 13,734
Cash and cash equivalents, end of period $ 12,100 $ 2,790
SUPPLEMENTAL REVENUE REPORTING
RECONCILIATION OF GROSS FEES (A NON-GAAP MEASURE) TO NET REVENUE
(UNAUDITED)
In 000s Three Months Ended December 31,
2014 2013 % Change
Non-GAAP gross administrative fees $ 127,431 $ 120,511 5.7%
Other service fees 124,004 97,438 27.3%
Non-GAAP gross fees 251,435 RSO % 217,949 RSO % 15.4%
Non-GAAP revenue share obligation (RSO) (53,193) 41.7% (47,483) 39.4% 12.0%
Net revenue $ 198,242 $ 170,466 16.3%
In 000s Twelve Months Ended December 31,
2014 2013 % Change
Non-GAAP gross administrative fees $ 494,927 $ 472,113 4.8%
Other service fees 428,866 390,941 9.7%
Non-GAAP gross fees 923,793 RSO % 863,054 RSO % 7.0%
Non-GAAP RSO (203,564) 41.1% (182,638) 38.7% 11.5%
Net revenue $ 720,229 $ 680,416 5.9%
SUPPLEMENTAL SEGMENT REPORTING WITH SELECTED NON-GAAP MEASURES
(UNAUDITED)
In 000s Three Months Ended December 31,
2014 2013 % Change
Net revenue
Spend and Clinical Resource Management (SCM) $ 125,282 $ 106,419 17.7%
Revenue Cycle Management (RCM) 72,960 64,047 13.9%
Total net revenue $ 198,242 $ 170,466 16.3%
Non-GAAP Adjusted EBITDA % margin % margin
SCM $ 54,770 43.7% $ 45,352 42.6% 20.8%
RCM 16,512 22.6% 15,490 24.2% 6.6%
Corporate (7,754) (8,083) -4.1%
Total non-GAAP Adjusted EBITDA $ 63,528 32.0% $ 52,759 30.9% 20.4%
In 000s Twelve Months Ended December 31,
2014 2013 % Change
Net revenue
SCM $ 445,605 $ 424,462 5.0%
RCM 274,624 255,954 7.3%
Total net revenue $ 720,229 $ 680,416 5.9%
Non-GAAP Adjusted EBITDA % margin % margin
SCM $ 195,003 43.8% $ 189,393 44.6% 3.0%
RCM 67,440 24.6% 62,551 24.4% 7.8%
Corporate (28,406) (31,103) -8.7%
Total non-GAAP Adjusted EBITDA $ 234,037 32.5% $ 220,841 32.5% 6.0%
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)
Three Months Ended Twelve Months Ended
In 000s December 31, December 31,
2014 2013 2014 2013
Net (loss) income $ (42,404) $ 7,751 $ (20,390) $ 27,441
Depreciation 12,849 10,824 48,096 40,803
Depreciation (included in cost of revenue) 965 417 3,131 2,157
Amortization of intangibles 15,604 14,766 57,593 62,723
Interest expense, net 11,938 11,363 45,563 46,907
Income tax expense 5,310 4,541 21,603 16,682
Non-GAAP EBITDA $ 4,262 $ 49,662 $ 155,596 $ 196,713
Impairment of goodwill 52,539 -- 52,539 --
Share-based compensation 3,146 2,713 17,849 14,496
Rental income from capitalized building lease (109) (110) (438) (438)
Purchase accounting adjustments 885 -- 979 --
Restructuring, acquisition and integration-related expenses 2,805 494 7,512 10,070
Non-GAAP Adjusted EBITDA $ 63,528 $ 52,759 $ 234,037 $ 220,841
SUPPLEMENTAL NET INCOME AND EARNINGS PER SHARE REPORTING
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
Three Months Ended Twelve Months Ended
In 000s, except per share data December 31, December 31,
2014 2013 2014 2013
Net (loss) income $ (42,404) $ 7,751 $ (20,390) $ 27,441
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 15,604 15,081 57,593 64,459
Pre-tax non-cash, share-based compensation 3,146 2,713 17,849 14,496
Pre-tax restructuring, acquisition and integration-related expenses 2,805 494 7,512 10,070
Pre-tax non-cash, purchase accounting adjustment 885 -- 979 --
Non-cash impairment of goodwill f 52,539 -- 52,539 --
Tax effect on pre-tax adjustments g (8,978) (7,314) (33,574) (35,609)
Non-GAAP adjusted net income $ 23,597 $ 18,725 $ 82,508 $ 80,857
(Loss) Income Per Share (EPS) - diluted $ (0.71) $ 0.13 $ (0.34) $ 0.45
Impact of using weighted average shares — diluted h 0.01 -- 0.01 --
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 0.26 0.24 0.94 1.05
Pre-tax non-cash, share-based compensation 0.05 0.04 0.29 0.24
Pre-tax restructuring, acquisition and integration-related expenses 0.05 0.01 0.12 0.16
Pre-tax non-cash, purchase accounting adjustment 0.02 -- 0.02 --
Non-cash impairment of goodwill f 0.86 -- 0.86 --
Tax effect on pre-tax adjustments g (0.15) (0.12) (0.55) (0.58)
Non-GAAP adjusted EPS - diluted $ 0.39 $ 0.30 $ 1.35 $ 1.32
Weighted average shares - diluted (in 000s) 60,792 61,827 61,107 61,178
(f) The impairment of goodwill was not tax effected because the Company received no tax benefit as the associated goodwill related to a non-taxable acquisition.
(g) The Company used a tax rate of 40.0% for the three and twelve months ended December 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.
(h) Given the Company's net loss, GAAP diluted net loss per share is the same as basic net loss per share. However, the Company uses weighted average shares - diluted in its calculation of non-GAAP adjusted EPS.
See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures.
SUPPLEMENTAL 2015 ADJUSTED EBITDA GUIDANCE
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
Guidance Range for
Twelve Months Ending
In 000s December 31, 2015
(Low) (High)
Net Income $ 16,400 $ 22,400
Depreciation 59,000 59,000
Depreciation (included in cost of revenue) 4,000 4,000
Amortization of intangibles 58,800 58,800
Interest expense, net 47,700 47,700
Income tax expense 10,900 14,900
Non-GAAP EBITDA 196,800 206,800
Share-based compensation 24,600 24,600
Restructuring, acquisition and integration-related expenses 5,100 5,100
Purchase accounting adjustments 900 900
Rental income from capitalized building lease (400) (400)
Non-GAAP adjusted EBITDA $ 227,000 $ 237,000
SUPPLEMENTAL 2015 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, 2015
(Low) (High)
Net Income $ 16,400 $ 22,400
EPS - diluted 0.26 0.36
Pre-tax non-cash, acquisition-related intangible amortization and depreciation 0.95 0.95
Pre-tax non-cash, share-based compensation 0.40 0.40
Pre-tax restructuring, acquisition and integration-related expenses 0.08 0.08
Pre-tax purchase accounting adjustments 0.02 0.02
Tax effect on pre-tax adjustments i (0.58) (0.58)
Non-GAAP adjusted EPS - diluted j $ 1.13 $ 1.23
Fully diluted weighted average shares outstanding 61,900 61,900
(i) The Company used a tax rate of 40.0% for the full year ending December 31, 2015 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate.
(j) 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 REVENUE REPORTING
RECONCILIATION OF SCM SEGMENT AND CONSOLIDATED NET REVENUE TO NON-GAAP NET REVENUE
(UNAUDITED)
Fourth Quarter ended Year ended
In Millions Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2014 2013 2014 2013
SCM segment $ 114.6 $ 106.4 $ 433.9 $ 424.5
Sg2 (acquired September 22, 2014) 10.7 10.0 43.6 37.3
SCM segment total non-GAAP net revenue 125.3 116.4 477.5 461.8
RCM segment net revenue 73.0 64.0 274.6 256.0
Total consolidated non-GAAP net revenue $ 198.3 $ 180.4 $ 752.1 $ 717.8
SUPPLEMENTAL NON-GAAP CONTRACTED REVENUE ESTIMATES
(UNAUDITED)
In Millions Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2014 2014 2014 2014 2013
Revenue Cycle Technology (RCT) $ 177.4 $ 177.5 $ 177.6 $ 174.4 $ 173.9
Revenue Cycle Services (RCS) 61.0 58.4 66.5 69.5 65.4
RCM segment Total 238.4 235.9 244.1 243.9 239.4
SCM segment k 423.5 425.3 383.8 394.2 386.0
Total l $ 661.9 $ 661.2 $ 627.9 $ 638.1 $ 625.4
SUPPLEMENTAL REPORTING OF SHARE-BASED COMPENSATION
EXPENSE INCLUDED IN OPERATING EXPENSES
(UNAUDITED)
In 000s Three Months Ended Twelve Months Ended
December 31, December 31,
2014 2013 2014 2013
Amount of share-based compensation included in:
Cost of revenue $ 1,005 $ 826 $ 5,510 $ 3,866
Product development expense 67 162 954 635
Selling & marketing expense 540 307 2,622 2,251
General & administrative expense 1,534 1,418 8,763 7,744
Total $ 3,146 $ 2,713 $ 17,849 $ 14,496
SUPPLEMENTAL REPORTING OF FREE CASH FLOW
RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES
(UNAUDITED)
In 000s Twelve Months Ended
December 31,
2014 2013
Cash provided by operating activities $139,015 $152,902
Purchases of property, equipment and software (21,034) (17,643)
Capitalized software development costs (42,224) (41,175)
Non-GAAP free cash flow $ 75,757 $ 94,084
(k) The Contracted Revenue estimate in the SCM segment for the period ended December 31, 2014 and September 30, 2014 includes $32.7 million and $33.5 million, respectively, from Sg2 following its acquisition by the company on September 22, 2014.
(l) 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 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, goodwill impairment, 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, certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis, purchase accounting adjustments on a tax-adjusted basis and diluted adjusted EPS as earnings per share excluding non-cash acquisition-related intangible amortization, depreciation 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