UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
Commission file number: 001-33881
MEDASSETS,
INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE |
|
51-0391128 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
|
|
100 North Point Center East, Suite 200
Alpharetta, Georgia |
|
30022 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: (678) 323-2500
N/A
(Former name, former
address and former fiscal year, if changed since last report)
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):
|
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Large accelerated filer |
|
x |
|
Accelerated filer |
|
¨ |
|
|
|
|
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
As of October 28, 2015, the registrant had 59,287,313 shares of common stock, par value $0.01 per share, outstanding.
MEDASSETS, INC.
FORM 10-Q
INDEX
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MedAssets, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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|
|
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|
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(In thousands, except share and per share amounts) |
|
ASSETS |
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
12,100 |
|
Accounts receivable, net of allowances of $2,558 and $2,641 as of September 30, 2015 and December 31, 2014, respectively |
|
|
120,005 |
|
|
|
127,741 |
|
Deferred tax asset, current portion |
|
|
5,683 |
|
|
|
5,782 |
|
Prepaid expenses and other current assets |
|
|
25,138 |
|
|
|
30,557 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
150,826 |
|
|
|
176,180 |
|
Property and equipment, net |
|
|
154,092 |
|
|
|
170,318 |
|
Other long term assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
1,058,414 |
|
|
|
1,058,414 |
|
Intangible assets, net |
|
|
231,591 |
|
|
|
276,407 |
|
Other |
|
|
31,851 |
|
|
|
37,477 |
|
|
|
|
|
|
|
|
|
|
Other long term assets |
|
|
1,321,856 |
|
|
|
1,372,298 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,626,774 |
|
|
$ |
1,718,796 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
19,014 |
|
|
$ |
26,910 |
|
Accrued revenue share obligation and rebates |
|
|
93,769 |
|
|
|
91,864 |
|
Accrued payroll and benefits |
|
|
42,013 |
|
|
|
32,784 |
|
Other accrued expenses |
|
|
23,521 |
|
|
|
9,040 |
|
Deferred revenue, current portion |
|
|
70,241 |
|
|
|
76,034 |
|
Current portion of notes payable |
|
|
26,438 |
|
|
|
29,583 |
|
Current portion of finance obligation |
|
|
315 |
|
|
|
294 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
275,311 |
|
|
|
266,509 |
|
Notes payable, less current portion |
|
|
437,667 |
|
|
|
526,417 |
|
Bonds payable |
|
|
325,000 |
|
|
|
325,000 |
|
Finance obligation, less current portion |
|
|
8,236 |
|
|
|
8,475 |
|
Deferred revenue, less current portion |
|
|
16,740 |
|
|
|
15,418 |
|
Deferred tax liability |
|
|
107,403 |
|
|
|
116,607 |
|
Other long term liabilities |
|
|
13,731 |
|
|
|
13,883 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,184,088 |
|
|
|
1,272,309 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 150,000,000 shares authorized; 62,872,000 and 59,266,000 shares issued and outstanding as of September
30, 2015 and 62,598,000 and 60,199,000 shares issued and outstanding as of December 31, 2014, respectively |
|
|
593 |
|
|
|
602 |
|
Additional paid-in capital |
|
|
683,012 |
|
|
|
694,235 |
|
Accumulated deficit |
|
|
(240,919 |
) |
|
|
(248,350 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
442,686 |
|
|
|
446,487 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,626,774 |
|
|
$ |
1,718,796 |
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
3
MedAssets, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
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2015 |
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|
2014 |
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|
2015 |
|
|
2014 |
|
|
|
(In thousands, except per share amounts) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative fees, net |
|
$ |
71,987 |
|
|
$ |
70,788 |
|
|
$ |
219,471 |
|
|
$ |
217,125 |
|
Other service fees |
|
|
117,981 |
|
|
|
104,917 |
|
|
|
346,502 |
|
|
|
304,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total net revenue |
|
|
189,968 |
|
|
|
175,705 |
|
|
|
565,973 |
|
|
|
521,987 |
|
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|
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|
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|
|
|
|
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|
|
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|
Operating expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue (inclusive of depreciation expense of $1,001 and $1,094 for the three months ended September 30, 2015 and 2014,
respectively; and $2,968 and $2,166 for the nine months ended September 30, 2015 and 2014, respectively) |
|
|
48,003 |
|
|
|
42,439 |
|
|
|
138,060 |
|
|
|
120,231 |
|
Product development expenses |
|
|
8,198 |
|
|
|
8,106 |
|
|
|
24,049 |
|
|
|
22,145 |
|
Selling and marketing expenses |
|
|
17,120 |
|
|
|
14,273 |
|
|
|
60,480 |
|
|
|
50,187 |
|
General and administrative expenses |
|
|
64,363 |
|
|
|
57,579 |
|
|
|
188,247 |
|
|
|
175,911 |
|
Restructuring, acquisition and integration-related expenses |
|
|
5,027 |
|
|
|
3,010 |
|
|
|
10,022 |
|
|
|
4,707 |
|
Depreciation |
|
|
13,691 |
|
|
|
11,845 |
|
|
|
40,589 |
|
|
|
35,247 |
|
Amortization of intangibles |
|
|
14,829 |
|
|
|
13,936 |
|
|
|
44,816 |
|
|
|
41,989 |
|
Impairment of property and equipment |
|
|
10,309 |
|
|
|
|
|
|
|
10,309 |
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|
|
|
|
|
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|
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Total operating expenses |
|
|
181,540 |
|
|
|
151,188 |
|
|
|
516,572 |
|
|
|
450,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
8,428 |
|
|
|
24,517 |
|
|
|
49,401 |
|
|
|
71,570 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) |
|
|
(11,556 |
) |
|
|
(11,338 |
) |
|
|
(35,235 |
) |
|
|
(33,625 |
) |
Other (expense) income |
|
|
(103 |
) |
|
|
273 |
|
|
|
(151 |
) |
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(3,231 |
) |
|
|
13,452 |
|
|
|
14,015 |
|
|
|
38,307 |
|
Income tax (benefit) expense |
|
|
(995 |
) |
|
|
5,712 |
|
|
|
6,584 |
|
|
|
16,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
|
$ |
7,431 |
|
|
$ |
22,014 |
|
|
|
|
|
|
|
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|
|
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|
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|
Basic and diluted (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share |
|
$ |
(0.04 |
) |
|
$ |
0.13 |
|
|
$ |
0.12 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share |
|
$ |
(0.04 |
) |
|
$ |
0.13 |
|
|
$ |
0.12 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Weighted average shares - basic |
|
|
59,437 |
|
|
|
59,401 |
|
|
|
59,678 |
|
|
|
59,917 |
|
Weighted average shares - diluted |
|
|
59,437 |
|
|
|
60,662 |
|
|
|
60,822 |
|
|
|
61,269 |
|
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
4
MedAssets, Inc.
Condensed Consolidated Statement of Stockholders Equity (Unaudited)
Nine Months Ended September 30, 2015
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Additional |
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|
Total |
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders |
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|
|
(In thousands) |
|
Balances at December 31, 2014 |
|
|
60,199 |
|
|
$ |
602 |
|
|
$ |
694,235 |
|
|
$ |
(248,350 |
) |
|
$ |
446,487 |
|
Issuance of common stock from stock option and SSAR exercises and restricted stock issuances, net |
|
|
477 |
|
|
|
5 |
|
|
|
1,384 |
|
|
|
|
|
|
|
1,389 |
|
Shares surrendered to pay taxes on vesting of restricted stock |
|
|
(203 |
) |
|
|
(2 |
) |
|
|
(3,911 |
) |
|
|
|
|
|
|
(3,913 |
) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
16,721 |
|
|
|
|
|
|
|
16,721 |
|
Repurchase of common stock |
|
|
(1,207 |
) |
|
|
(12 |
) |
|
|
(24,988 |
) |
|
|
|
|
|
|
(25,000 |
) |
Tax deficit from equity award exercises, net |
|
|
|
|
|
|
|
|
|
|
(429 |
) |
|
|
|
|
|
|
(429 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,431 |
|
|
|
7,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2015 |
|
|
59,266 |
|
|
$ |
593 |
|
|
$ |
683,012 |
|
|
$ |
(240,919 |
) |
|
$ |
442,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
5
MedAssets, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
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|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(In thousands) |
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,431 |
|
|
$ |
22,014 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Bad debt expense |
|
|
|
|
|
|
100 |
|
Impairment of property and equipment |
|
|
10,309 |
|
|
|
|
|
Depreciation |
|
|
43,557 |
|
|
|
37,413 |
|
Amortization of intangibles |
|
|
44,816 |
|
|
|
41,989 |
|
Loss on sale of assets |
|
|
346 |
|
|
|
24 |
|
Noncash stock compensation expense |
|
|
16,721 |
|
|
|
14,703 |
|
Excess tax benefit from exercise of equity awards |
|
|
(543 |
) |
|
|
(1,788 |
) |
Amortization of debt issuance costs |
|
|
2,916 |
|
|
|
2,829 |
|
Noncash interest expense, net |
|
|
289 |
|
|
|
309 |
|
Deferred income tax benefit |
|
|
(9,208 |
) |
|
|
(6,883 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
7,736 |
|
|
|
(13,204 |
) |
Prepaid expenses and other assets |
|
|
5,419 |
|
|
|
1,552 |
|
Other long-term assets |
|
|
713 |
|
|
|
386 |
|
Accounts payable |
|
|
(7,886 |
) |
|
|
(4,348 |
) |
Accrued revenue share obligations and rebates |
|
|
1,905 |
|
|
|
1,225 |
|
Accrued payroll and benefits |
|
|
9,229 |
|
|
|
(13,068 |
) |
Other accrued expenses and long-term liabilities |
|
|
14,329 |
|
|
|
4,195 |
|
Deferred revenue |
|
|
(4,471 |
) |
|
|
8,604 |
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
143,608 |
|
|
|
96,052 |
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property, equipment and software, net |
|
|
(6,255 |
) |
|
|
(9,820 |
) |
Capitalized software development costs |
|
|
(30,069 |
) |
|
|
(30,568 |
) |
Acquisitions, net of cash acquired |
|
|
|
|
|
|
(138,233 |
) |
|
|
|
|
|
|
|
|
|
Cash used in investing activities |
|
|
(36,324 |
) |
|
|
(178,621 |
) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Borrowings from revolving credit facility |
|
|
|
|
|
|
216,080 |
|
Repayment of notes payable |
|
|
(24,896 |
) |
|
|
(21,625 |
) |
Repayment of revolving credit facility |
|
|
(67,000 |
) |
|
|
(59,080 |
) |
Repayment of finance obligation |
|
|
(507 |
) |
|
|
(507 |
) |
Debt issuance costs |
|
|
|
|
|
|
(569 |
) |
Excess tax benefit from exercise of equity awards |
|
|
543 |
|
|
|
1,788 |
|
Issuance of common stock, net |
|
|
1,389 |
|
|
|
3,378 |
|
Purchase of treasury shares, including shares surrendered for tax withholdings |
|
|
(28,913 |
) |
|
|
(45,793 |
) |
|
|
|
|
|
|
|
|
|
Cash (used in) provided by financing activities |
|
|
(119,384 |
) |
|
|
93,672 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(12,100 |
) |
|
|
11,103 |
|
Cash and cash equivalents, beginning of period |
|
|
12,100 |
|
|
|
2,790 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
13,893 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.
6
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
Unless the context indicates otherwise, references in this Quarterly Report to MedAssets, the Company, we,
our and us mean MedAssets, Inc., and its subsidiaries and predecessor entities.
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
We provide technology-enabled products and services that, together, deliver solutions designed to reduce total cost of care,
enhance operational efficiency, align clinical delivery with advance care coordination and improve revenue performance for hospitals, health systems and other ancillary healthcare providers. Our customer-specific solutions are designed to
efficiently analyze detailed information across the spectrum of cost, operations, clinical delivery and reimbursement. Our solutions integrate with our customers existing operations and enterprise software systems and provide financial
improvement with minimal upfront costs or capital expenditures. Our operations and customers are primarily located throughout the United States and to a limited extent, Canada.
The accompanying unaudited condensed consolidated financial statements, and condensed consolidated balance sheet as of December 31, 2014,
derived from audited financial statements, have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01 of the U.S.
Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. In the opinion of management, all adjustments considered necessary
for a fair presentation of the interim financial information, consisting of normal recurring adjustments, have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the condensed consolidated financial statements. Actual results may differ materially from those estimates. Operating results for the three and nine
months ended September 30, 2015 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2015.
The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2014 included in our annual report on Form 10-K as filed with the SEC on March 2, 2015 in addition to our quarterly reports filed on Form 10-Q for the periods after
December 31, 2014. These financial statements include the accounts of MedAssets, Inc. and our wholly owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation.
Use of Estimates
The preparation
of the condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from
those estimates. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts and returns, product development costs, share-based payments, business combinations, impairment of goodwill,
intangible assets and long-lived assets and accounting for income taxes have the greatest potential impact on our condensed consolidated financial statements.
Cash and Cash Equivalents
All of
our highly liquid investments with original maturities of three months or less at the date of purchase are carried at cost (which approximates fair value) and are considered to be cash equivalents. Currently, our excess cash is voluntarily used to
repay our swing line credit facility, if any, on a daily basis and applied against our revolving credit facility on a routine basis when our swing line credit facility is undrawn. In addition, we may periodically make voluntary repayments on our
term loans.
Cash and cash equivalents were zero and $12,100 as of September 30, 2015 and December 31, 2014, respectively. We
had $85,000 and $152,000 outstanding on our revolving credit facility as of September 30, 2015 and December 31, 2014, respectively. In the event our cash balance is zero at the end of a period, any outstanding checks are recorded as
accrued expenses. As of September 30, 2015, we reclassified approximately $8,431 of outstanding checks related to a book overdraft into other accrued expenses on the condensed consolidated balance sheet. This book overdraft amount has been
included in operating activities within the condensed consolidated statement of cash flows. See Note 6 for immediately available cash under our revolving credit facility.
7
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Business Combinations
In September 2015, the Financial Accounting Standards Board (FASB) issued an accounting standard update relating to the accounting
for business combinations. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
The amendments in this update require that the acquirer record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the
provisional amounts, calculated as if the accounting had been completed at the acquisition date.
The amendments in this update require an
entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the
provisional amounts had been recognized as of the acquisition date. The update will be effective on January 1, 2016.
Debt Issuance Costs
In April 2015, the FASB issued an accounting standard update relating to simplifying the presentation of debt issuance costs. The
amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The update
will be effective on January 1, 2016.
Going Concern
In August 2014, the FASB issued an accounting standard update relating to disclosure of uncertainties about an entitys ability to
continue as a going concern. The update provides guidance about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures
in the event that there is such substantial doubt. The update will be effective on January 1, 2016.
Share-Based Compensation
In June 2014, the FASB issued an accounting standard update relating to reporting entities that grant their employees share-based payments in
which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. This update requires that a performance target that affects vesting and that could be achieved after the
requisite service period be treated as a performance condition. The update will be effective on January 1, 2016.
Revenue Recognition
In May 2014, the FASB issued an accounting standard update relating to revenue from contracts with customers, which requires an
entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The update will replace most existing revenue recognition guidance under GAAP when it becomes effective. The
update was originally to be effective for us on January 1, 2017. In July 2015, the FASB approved a one year extension to the required implementation date. As a result, the update is effective for us on January 1, 2018. Early application is
not permitted. The update permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the update will have on our consolidated financial statements and related disclosures. We have not yet
selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
8
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
3. RESTRUCTURING, ACQUISITION AND INTEGRATION-RELATED EXPENSES
Restructuring Activities
On September 28, 2015, we announced a cost reduction program in order to improve operating efficiency and align our cost structure with
expected future net revenue. As part of this cost reduction program, we reduced our workforce by approximately 180 full-time employees. As a result, we incurred employee-related costs which represent one-time termination benefits, comprised
principally of severance, benefit continuation costs, outplacement services and other associated costs. During the three months ended September 30, 2015 and 2014, we expensed total restructuring, acquisition and integration-related costs of
$5,027 and $3,010, respectively.
In addition to the cost reduction program described above, our management had previously approved and
initiated a plan to restructure our operations that resulted in certain workforce reductions within the Company and changes in senior management. During the nine months ended September 30, 2015 and 2014, we expensed total restructuring,
acquisition and integration-related costs of $10,022 (inclusive of $352 of acquisition-related expenses) and $4,707, respectively. These costs are included within the restructuring, acquisition and integration-related expenses line on the
accompanying condensed consolidated statements of operations. During 2015, cash payments related to restructuring and acquisition-related activities were approximately $5,991. As of September 30, 2015, we had $6,104 in accrued liabilities for
these costs of which $5,203 is expected to be paid over the next twelve months.
The following table summarizes the activities related to
the restructuring and other charges, as discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related costs |
|
|
Other associated costs |
|
|
Total |
|
Restructuring Reserve |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued, December 31, 2014 |
|
$ |
1,918 |
|
|
$ |
155 |
|
|
$ |
2,073 |
|
Charges incurred |
|
|
9,443 |
|
|
|
579 |
|
|
|
10,022 |
|
Cash payments |
|
|
(5,482 |
) |
|
|
(509 |
) |
|
|
(5,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued, September 30, 2015 |
|
$ |
5,879 |
|
|
$ |
225 |
|
|
$ |
6,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. PROPERTY AND EQUIPMENT
In connection with our business transformation plan, we made the strategic decision to eliminate certain capitalized
software products within our Revenue Cycle Management segment. We assessed the recoverability of these products by comparing the net carrying value of the assets to their total undiscounted cash flows which indicated that the carrying amount may not
be recoverable. As a result, we performed a fair value analysis using the income approach based on estimated discounted future cash flows to determine the fair value of the assets (level 3 non-recurring measurement). Our cash flow assumptions
considered historical and forecasted revenue, operating costs and other relevant factors similar to those a market participant would use to assess fair value. Based on our analysis, for the three months ended September 30, 2015, we recorded a
non-cash capitalized software impairment expense of $10,309 to adjust the assets carrying amount to their estimated fair value.
5. DEFERRED REVENUE
Deferred revenue consists of unrecognized revenue related to advanced customer billing or customer payments received prior
to revenue being realized and earned. Substantially all of our deferred revenue consists of: (i) deferred administrative fees, net; (ii) deferred service fees; (iii) deferred software and implementation fees; and (iv) other
deferred fees, including receipts for our annual customer and vendor meeting prior to the event.
9
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
The following table summarizes the deferred revenue categories and balances as of:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Software and SaaS implementation fees |
|
$ |
48,564 |
|
|
$ |
55,152 |
|
Service fees |
|
|
23,148 |
|
|
|
19,241 |
|
Administrative fees |
|
|
13,217 |
|
|
|
15,715 |
|
Other fees |
|
|
2,052 |
|
|
|
1,344 |
|
|
|
|
|
|
|
|
|
|
Deferred revenue, total |
|
|
86,981 |
|
|
|
91,452 |
|
Less: Deferred revenue, current portion |
|
|
(70,241 |
) |
|
|
(76,034 |
) |
|
|
|
|
|
|
|
|
|
Deferred revenue, non-current portion |
|
$ |
16,740 |
|
|
$ |
15,418 |
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 and December 31, 2014, deferred revenue included in our condensed
consolidated balance sheets that was contingent upon meeting performance targets was $7,547 and $8,441, respectively. Advance billings on arrangements that include contingent performance targets are recorded in accounts receivable and deferred
revenue when billed. Only certain contingent performance targets are billed in advance of meeting the target as determined by the customer arrangement.
6. NOTES AND BONDS PAYABLE
The balances of our notes and bonds payable are summarized as follows as of:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Term A facility |
|
$ |
206,576 |
|
|
$ |
225,000 |
|
Term B facility |
|
|
172,529 |
|
|
|
179,000 |
|
Revolving credit facility |
|
|
85,000 |
|
|
|
152,000 |
|
|
|
|
|
|
|
|
|
|
Total notes payable |
|
|
464,105 |
|
|
|
556,000 |
|
Bonds payable |
|
|
325,000 |
|
|
|
325,000 |
|
|
|
|
|
|
|
|
|
|
Total notes and bonds payable |
|
|
789,105 |
|
|
|
881,000 |
|
Less: current portions |
|
|
(26,438 |
) |
|
|
(29,583 |
) |
|
|
|
|
|
|
|
|
|
Total long-term notes and bonds payable |
|
$ |
762,667 |
|
|
$ |
851,417 |
|
|
|
|
|
|
|
|
|
|
Notes Payable
As of September 30, 2015, our long-term notes payable consists of a Term A Facility, a Term B Facility and a revolving credit facility
(inclusive of a swing line loan) under a credit agreement with JP Morgan Chase Bank, N.A and other financial institutions named therein, dated December 13, 2012 (as amended from time to time, the Credit Agreement), each with an
outstanding balance of $206,576, $172,529 and $85,000, respectively. We have classified the $85,000 outstanding balance on our revolving credit facility as a long term liability given the maturity date of December 13, 2017. No amounts were
drawn on our swing line loan and we made voluntary payments of $67,000 on our revolving credit facility, which resulted in $214,000 of availability under our revolving credit facility (after giving effect to $1,000 of outstanding but undrawn letters
of credit on such date and the increase in the revolving credit facility as discussed below) as of September 30, 2015. During the nine months ended September 30, 2015, we made scheduled principal payments of $16,312 on our Term A Facility
and Term B Facility in addition to payments of $7,833 relating to our 2014 excess cash flow payment ($4,362 on the Term A Facility and $3,471 on the Term B Facility). We also made a voluntary payment of $750 on the Term B Facility. The applicable
weighted average interest rates (inclusive of the applicable bank margin) on our Term A Facility, Term B Facility and revolving credit facility at September 30, 2015 were 2.52%, 4.00% and 2.53%, respectively. On September 8, 2014, the
Company entered into a First Increase Joinder to the Credit Agreement (the First Increase Joinder). The First Increase Joinder increased the revolving commitment amount under the Credit Agreement by $100,000 to $300,000. In connection
with the First Increase Joinder, we incurred and capitalized approximately $615 of debt issuance costs which will be amortized into interest expense ratably over the remaining term of the revolving credit facility.
10
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
The Credit Agreement contains certain customary negative covenants, including but not limited
to, limitations on the incurrence of debt, limitations on liens, limitations on fundamental changes, limitations on asset sales and sale leasebacks, limitations on investments, limitations on dividends or distributions on, or redemptions of, equity
interests, limitations on prepayments or redemptions of unsecured or subordinated debt, limitations on negative pledge clauses, limitations on transactions with affiliates and limitations on changes to the Companys fiscal year. The Credit
Agreement also includes maintenance covenants of maximum ratios of consolidated total indebtedness (subject to certain adjustments) to consolidated EBITDA (subject to certain adjustments) and minimum cash interest coverage ratios. The Credit
Agreement contains certain customary representations and warranties, affirmative covenants and events of default, including but not limited to, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to
certain indebtedness, certain events of insolvency or bankruptcy, material judgments, certain events under ERISA, actual or asserted failures of any guaranty or security document supporting the credit agreement to be in full force and effect and
changes of control. The Company was in compliance with these covenants as of September 30, 2015. We are also required to prepay our debt obligations based on an excess cash flow calculation for the applicable fiscal year which is determined in
accordance with the terms of the Credit Agreement. Our current portion of notes payable does not include an amount with respect to any 2015 excess cash flow payment. We will reclassify a portion of our long-term notes payable to a current
classification at such time that any 2015 excess cash flow payment becomes estimable. We will be required to make any necessary cash flow payment within the first quarter of 2016.
All of the Companys obligations under the Credit Agreement are unconditionally guaranteed by each of the Companys existing and
subsequently acquired or organized wholly owned restricted subsidiaries, except that the following subsidiaries do not and will not provide guarantees: (a) unrestricted subsidiaries, (b) subsidiaries with tangible assets and revenues each
having a value of less than 2.5% of the consolidated tangible assets and consolidated revenues of the Company (provided that all such immaterial subsidiaries, on a consolidated basis, shall not account for more than 5.0% of the consolidated EBITDA
of the Company), (c) any subsidiary prohibited by applicable law, rule or regulation from providing a guarantee or which would require governmental (including regulatory) consent or approval or which would result in adverse tax consequences and
(d) not-for-profit subsidiaries.
All of the Companys obligations under the Credit Agreement are secured by substantially all
of the Companys assets and the assets of each guarantor (subject to certain exceptions), including but not limited to, (1) a perfected pledge of all of the equity securities of each direct wholly owned restricted subsidiary of the Company
and of each subsidiary guarantor (which pledge, in the case of any foreign subsidiary, is limited to 65% of the equity securities of such foreign subsidiary) and (2) perfected security interests in, and mortgages on, substantially all tangible
and intangible personal property and material fee-owned real property of the Company and each subsidiary guarantor (including but not limited to, accounts receivable, inventory, equipment, general intangibles (including contract rights), investment
property, intellectual property, material intercompany notes and proceeds of the foregoing).
Loans under the Credit Agreement must be
prepaid under certain circumstances, including with proceeds from certain future debt issuances, asset sales and a portion of excess cash flow for the applicable fiscal year. Loans under the Credit Agreement may be voluntarily prepaid at any time,
subject to customary LIBOR breakage costs.
Bonds Payable
The Company has an aggregate principal amount of $325,000 of 8% senior notes due 2018 (the Notes) outstanding that have been
registered under the Securities Act of 1933, as amended. The Notes are guaranteed on a senior unsecured basis by each of our existing domestic subsidiaries and each of our future domestic restricted subsidiaries in each case that guarantees our
obligations under the Credit Agreement. Each of the subsidiary guarantors is 100% owned by us. The guarantees by the subsidiary guarantors are full and unconditional and joint and several. We have no independent assets or operations, and any
subsidiaries of ours other than the subsidiary guarantors are minor. The Notes and the guarantees are senior unsecured obligations of the Company and the subsidiary guarantors, respectively.
The Notes were issued pursuant to an indenture dated as of November 16, 2010 (the Indenture) among the Company, its
subsidiary guarantors and Wells Fargo Bank, N.A., as trustee. Pursuant to the Indenture, the Notes will mature on November 15, 2018 and bear 8% annual interest. Interest on the Notes is payable semi-annually in arrears on May 15 and
November 15 of each year, beginning on May 15, 2011.
11
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
The Indenture contains certain customary negative covenants, including but not limited to,
limitations on the incurrence of debt, limitations on liens, limitations on consolidations or mergers, limitations on asset sales, limitations on certain restricted payments and limitations on transactions with affiliates. The Indenture does not
contain any significant restrictions on the ability of the Company or any subsidiary guarantor to obtain funds from the Company or any other subsidiary guarantor by dividend or loan. The Indenture also contains customary events of default. The
Company was in compliance with these covenants as of September 30, 2015.
The Company has the option to redeem all or a part of the
Notes, at the following redemption prices:
|
|
|
|
|
Year |
|
Percentage |
|
2015 |
|
|
102 |
% |
2016 and thereafter |
|
|
100 |
% |
The Notes also contain a redemption feature that would require the repurchase of 101% of the aggregate
principal amount plus accrued and unpaid interest at the option of the holders upon a change in control.
As of September 30, 2015,
the Notes were trading at 102.3% of par value (Level 1).
Debt Issuance Costs
As of September 30, 2015, we had approximately $11,159 of debt issuance costs related to the Credit Agreement and Notes which will be
amortized into interest expense generally using the effective interest method until the applicable maturity date. For the three months ended September 30, 2015 and 2014, we recognized $967 and $949, respectively, in interest expense related to
the amortization of debt issuance costs. For the nine months ended September 30, 2015 and 2014, we recognized $2,916 and $2,829, respectively, in interest expense related to the amortization of debt issuance costs.
Debt Maturity Table
The following
table summarizes our stated debt maturities and scheduled principal repayments as of September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Term A Facility |
|
|
Term B Facility(2) |
|
|
Revolving Credit Facility |
|
|
Senior Unsecured Notes |
|
|
Total |
|
2015(1) |
|
$ |
4,688 |
|
|
$ |
750 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,438 |
|
2016 |
|
|
25,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
2017 |
|
|
176,888 |
|
|
|
3,000 |
|
|
|
85,000 |
|
|
|
|
|
|
|
264,888 |
|
2018 |
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
325,000 |
|
|
|
328,000 |
|
2019 |
|
|
|
|
|
|
162,779 |
|
|
|
|
|
|
|
|
|
|
|
162,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
206,576 |
|
|
$ |
172,529 |
|
|
$ |
85,000 |
|
|
$ |
325,000 |
|
|
$ |
789,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents the remaining quarterly principal payments due during the fiscal year ending December 31, 2015 and the balance of the swing line component of our revolving credit facility, if any. |
(2) |
The Term B Facility matures on December 13, 2019; however, the facility will mature in full on May 15, 2018 if our outstanding senior notes have not been repaid or refinanced in full by such date.
|
Total interest paid (net of amounts capitalized) on our notes and bonds payable during the nine months ended
September 30, 2015 and 2014 was approximately $25,528 and $23,959, respectively.
7. COMMITMENTS AND CONTINGENCIES
Performance Targets
In
the ordinary course of contracting with our customers, we may agree to make some or all of our fees contingent upon the customers achievement of financial improvement targets from the use of our services and software. These contingent fees are
not recognized as revenue until the customer confirms achievement of the performance targets. We generally receive
12
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
customer acceptance as and when the performance targets are achieved. If we invoice contingent fees prior to customer confirmation that a performance target has been achieved, we record invoiced
contingent fees as deferred revenue on our condensed consolidated balance sheets. Often, recognition of this revenue occurs in periods subsequent to the recognition of the associated costs.
Legal Proceedings
From time to time, we
become involved in legal proceedings arising in the ordinary course of business. As of September 30, 2015, we are not presently involved in any legal proceedings, the outcome of which, if determined adversely to us, would have a material
adverse effect on our business, operating results or financial condition.
8. STOCKHOLDERS EQUITY AND SHARE-BASED COMPENSATION
Common Stock
During the nine months ended September 30, 2015, we issued approximately 506,000 shares of common stock in connection with employee stock
option exercises, stock-settled stock appreciation rights (SSARs) exercises and the vesting of restricted stock units (RSUs) for net exercise proceeds of $1,389.
During the nine months ended September 30, 2015, approximately 29,000 shares of restricted common stock were forfeited.
During the nine months ended September 30, 2015, we received approximately 203,000 shares that were surrendered from equity awards
holders to settle their associated minimum statutory tax liability of $3,913 from shares that vested during the year.
Repurchase of Common Stock
In February 2015, our Board of Directors authorized an extension to our existing share repurchase program until February 29,
2016 and increased the total dollar amount available for the repurchase of shares of our common stock to $100,000 subject to certain restrictions under our Credit Agreement and Indenture. As of September 30, 2015, we had approximately $32,230
available for repurchase under our existing share repurchase program. The following table shows the amount and cost of shares of common stock we repurchased for the three and nine months ended September 30, 2015 and 2014 under the share
repurchase program. The repurchased shares have not been retired and constitute authorized shares that are issued but not outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Number of shares repurchased |
|
|
792,148 |
|
|
|
500 |
|
|
|
1,207,384 |
|
|
|
1,784,645 |
|
Cost of shares repurchased |
|
$ |
16,412 |
|
|
$ |
11 |
|
|
$ |
25,000 |
|
|
$ |
42,771 |
|
Share-Based Compensation
As of September 30, 2015, we had restricted common stock, RSUs, SSARs and common stock option equity awards outstanding under three
share-based compensation plans. As of September 30, 2015, we had approximately 4,017,000 shares reserved (inclusive of equity award forfeitures) and available for grant under the 2008 MedAssets, Inc. Long-Term Performance Incentive Plan
(LTPIP).
The total share-based compensation expense related to equity awards was $5,590 and $4,809 for the three months ended
September 30, 2015 and 2014, respectively. The total income tax benefit recognized in the condensed consolidated statements of operations for share-based compensation arrangements related to equity awards was $2,088 and $1,793 for the three
months ended September 30, 2015 and 2014, respectively.
13
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
The total share-based compensation expense related to equity awards was $16,721 and $14,703
for the nine months ended September 30, 2015 and 2014, respectively. The total income tax benefit recognized in the condensed consolidated statements of operations for share-based compensation arrangements related to equity awards was $6,247
and $5,481 for the nine months ended September 30, 2015 and 2014, respectively. There were no capitalized share-based compensation expenses during the three and nine months ended September 30, 2015.
Total share-based compensation expense (inclusive of restricted common stock, RSUs, SSARs and common stock options) for the three and nine
months ended September 30, 2015 and 2014 as reflected in our condensed consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Cost of revenue |
|
$ |
1,565 |
|
|
$ |
1,476 |
|
|
$ |
4,715 |
|
|
$ |
4,505 |
|
Product development |
|
|
271 |
|
|
|
252 |
|
|
|
1,044 |
|
|
|
887 |
|
Selling and marketing |
|
|
965 |
|
|
|
710 |
|
|
|
2,872 |
|
|
|
2,082 |
|
General and administrative |
|
|
2,789 |
|
|
|
2,371 |
|
|
|
8,090 |
|
|
|
7,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense |
|
$ |
5,590 |
|
|
$ |
4,809 |
|
|
$ |
16,721 |
|
|
$ |
14,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
In 2010, we established the MedAssets, Inc. Employee Stock Purchase Plan (the Plan). Under the Plan, eligible employees may
purchase shares of our common stock at a discounted price through payroll deductions. The price per share of the common stock sold to participating employees will be 95% of the fair market value of our common stock on the applicable purchase date.
The Plan requires that all stock purchased be held by participants for a period of 18 months from the purchase date. A total of 500,000 shares of our common stock are authorized for purchase under the Plan. For the nine months ended
September 30, 2015 and 2014, we purchased approximately 27,000 shares and 22,000 shares of our common stock under the Plan which amounted to approximately $506 and $494, respectively.
Equity Award Grants
Information
regarding equity awards for the nine months ended September 30, 2015 is as follows:
Restricted Stock Unit Equity Awards
During 2015, our Compensation Committee of our Board of Directors (the Compensation Committee) approved equity grants for certain
eligible employees consisting of service-based and performance-based RSUs. The purpose of the equity grants are to assist the Company in attracting, retaining, motivating, and rewarding certain individuals of the Company. The equity grants are
intended to promote the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of the stockholders. A summary of the total approved equity grants during the nine months ended
September 30, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Total RSUs |
|
|
Range of Grant Date Fair Values |
|
RSUs - Service |
|
|
816,261 |
|
|
|
$18.44 - $22.16 |
(1) |
RSUs - Performance |
|
|
1,026,028 |
|
|
|
$18.44 - $22.16 |
(2) |
|
|
|
|
|
|
|
|
|
Total RSUs granted |
|
|
1,842,289 |
|
|
|
|
|
(1) |
Service-based RSUs vest annually over three years of continuous service with the exception of certain equity awards granted to our Board that vest ratably each month through December 31, 2015; and
|
(2) |
Performance-based RSUs generally vest annually over three years of continuous service provided the performance metric is achieved and consist of a net revenue and a non-GAAP adjusted earnings per share (EPS)
performance metric. The Company must achieve a minimum net revenue and non-GAAP adjusted EPS threshold before any performance-based RSUs begin vesting. If the minimum threshold is not met, the equity award holders will forfeit those awards.
|
14
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
9. INCOME TAXES
Income tax expense recorded during the three and nine months ended September 30, 2015 reflected an effective income tax
rate of 30.8% (tax benefit) and 47.0%, respectively. Income tax expense recorded during the three and nine months ended September 30, 2014 reflected an effective income tax rate of 42.5%.
10. (LOSS) INCOME PER SHARE
We calculate earnings per share (or EPS) in accordance with GAAP relating to earnings per share. Basic EPS is
calculated by dividing reported net (loss) income by the weighted-average number of common shares outstanding for the reported period. Diluted EPS reflects the potential dilution that could occur if our stock options, SSARs, unvested restricted
stock, RSUs and shares that were purchasable pursuant to our employee stock purchase plan were exercised and converted into our common shares during the reporting periods.
A reconciliation of basic and diluted weighted average shares outstanding for basic and diluted EPS for the three and nine months ended
September 30, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Numerator for Basic and Diluted (Loss) Income Per Share: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
Denominator for basic (loss) income per share weighted average shares |
|
|
59,437,000 |
|
|
|
59,401,000 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
195,000 |
|
SSARs |
|
|
|
|
|
|
288,000 |
|
Restricted stock and RSUs |
|
|
|
|
|
|
778,000 |
|
|
|
|
|
|
|
|
|
|
Denominator for diluted (loss) income per share - adjusted weighted average shares and assumed conversions |
|
|
59,437,000 |
|
|
|
60,662,000 |
|
Basic (loss) income per share: |
|
|
|
|
|
|
|
|
Basic net (loss) income from continuing operations |
|
$ |
(0.04 |
) |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
Diluted net (loss) income from continuing operations |
|
$ |
(0.04 |
) |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Numerator for Basic and Diluted Income Per Share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,431 |
|
|
$ |
22,014 |
|
Denominator for basic income per share weighted average shares |
|
|
59,678,000 |
|
|
|
59,917,000 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
|
126,000 |
|
|
|
268,000 |
|
SSARs |
|
|
190,000 |
|
|
|
299,000 |
|
Restricted stock and RSUs |
|
|
828,000 |
|
|
|
785,000 |
|
|
|
|
|
|
|
|
|
|
Denominator for diluted income per share - adjusted weighted average shares and assumed conversions |
|
|
60,822,000 |
|
|
|
61,269,000 |
|
Basic income per share: |
|
|
|
|
|
|
|
|
Basic net income from continuing operations |
|
$ |
0.12 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
Diluted net income from continuing operations |
|
$ |
0.12 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
15
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
During the three months ended September 30, 2015, basic and diluted EPS are the same
because potentially dilutive securities have been excluded from the calculation of diluted EPS given our net loss for the period. In addition, the effect of certain dilutive securities have been excluded because the impact is anti-dilutive as a
result of certain securities being out of the money with strike prices greater than the average market price during the periods presented. The following table provides a summary of those potentially dilutive securities that have been
excluded from the above calculation of diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
SSARs |
|
|
|
|
|
|
9,000 |
|
|
|
23,000 |
|
|
|
7,000 |
|
11. SEGMENT INFORMATION
We manage our business through two reportable business segments, Spend and Clinical Resource Management (or SCM)
and Revenue Cycle Management (or RCM).
|
|
|
Spend and Clinical Resource Management. Our SCM segment provides a comprehensive suite of technology-enabled services that help our customers manage their expense categories. Our solutions lower supply and
medical device pricing and utilization by managing the procurement process through our group purchasing organization (GPO) portfolio of contracts, consulting services and business intelligence tools. |
|
|
|
Revenue Cycle Management. Our RCM segment provides a comprehensive suite of products and services spanning the hospital revenue cycle workflow from patient access and financial responsibility,
charge capture and integrity, pricing analysis, claims processing and denials management, payor contract management, revenue recovery and accounts receivable services. Our workflow solutions, together with our data management, compliance and audit
tools, increase revenue capture and cash collections, reduce accounts receivable balances and improve regulatory compliance. |
GAAP relating to segment reporting defines reportable segments as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. The guidance indicates that financial information about segments should be reported on the same
basis as that which is used by the chief operating decision maker in the analysis of performance and allocation of resources. Management of the Company, including our chief operating decision maker, uses what we refer to as Segment Adjusted EBITDA
as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. We define Segment Adjusted EBITDA as segment net income (loss) before net interest expense, income tax expense (benefit),
depreciation and amortization (EBITDA) as adjusted for other non-recurring, non-cash or non-operating items. Our chief operating decision maker uses Segment Adjusted EBITDA to facilitate a comparison of our operating performance on a
consistent basis from period to period. Segment Adjusted EBITDA includes expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of the segment. General and administrative
corporate expenses that are not specific to the segments are not included in the calculation of Segment Adjusted EBITDA. These expenses include the costs to manage our corporate offices, interest expense on our credit facilities and expenses related
to being a publicly-held company. All reportable segment revenues are presented net of inter-segment eliminations and represent revenues from external customers.
The following tables present Segment Adjusted EBITDA and financial position information as utilized by our chief operating decision maker. A
reconciliation of Segment Adjusted EBITDA to consolidated net income is included. General corporate expenses are included in the Corporate line item. RCM represents the Revenue Cycle Management segment and SCM
represents the Spend and Clinical Resource Management segment. Other assets and liabilities are included to provide a reconciliation to total assets and total liabilities.
16
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
The following tables represent our results of operations, by segment, for the three and nine
months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net administrative fees |
|
$ |
71,987 |
|
|
$ |
70,788 |
|
|
$ |
219,471 |
|
|
$ |
217,125 |
|
Other service fees(1) |
|
|
45,245 |
|
|
|
35,011 |
|
|
|
137,107 |
|
|
|
103,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SCM net revenue |
|
|
117,232 |
|
|
|
105,799 |
|
|
|
356,578 |
|
|
|
320,323 |
|
RCM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue cycle technology |
|
|
48,051 |
|
|
|
47,189 |
|
|
|
141,554 |
|
|
|
138,889 |
|
Revenue cycle services |
|
|
24,685 |
|
|
|
22,717 |
|
|
|
67,841 |
|
|
|
62,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RCM net revenue |
|
|
72,736 |
|
|
|
69,906 |
|
|
|
209,395 |
|
|
|
201,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
189,968 |
|
|
|
175,705 |
|
|
|
565,973 |
|
|
|
521,987 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCM |
|
|
97,536 |
|
|
|
76,384 |
|
|
|
288,718 |
|
|
|
234,640 |
|
RCM |
|
|
68,949 |
|
|
|
59,817 |
|
|
|
182,478 |
|
|
|
175,035 |
|
Corporate |
|
|
15,055 |
|
|
|
14,987 |
|
|
|
45,376 |
|
|
|
40,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
181,540 |
|
|
|
151,188 |
|
|
|
516,572 |
|
|
|
450,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCM |
|
|
19,696 |
|
|
|
29,415 |
|
|
|
67,860 |
|
|
|
85,683 |
|
RCM |
|
|
3,787 |
|
|
|
10,089 |
|
|
|
26,917 |
|
|
|
26,629 |
|
Corporate |
|
|
(15,055 |
) |
|
|
(14,987 |
) |
|
|
(45,376 |
) |
|
|
(40,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
8,428 |
|
|
|
24,517 |
|
|
|
49,401 |
|
|
|
71,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) |
|
|
(11,556 |
) |
|
|
(11,338 |
) |
|
|
(35,235 |
) |
|
|
(33,625 |
) |
Other (expense) income |
|
|
(103 |
) |
|
|
273 |
|
|
|
(151 |
) |
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(3,231 |
) |
|
|
13,452 |
|
|
|
14,015 |
|
|
|
38,307 |
|
Income tax (benefit) expense |
|
|
(995 |
) |
|
|
5,712 |
|
|
|
6,584 |
|
|
|
16,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
|
$ |
7,431 |
|
|
$ |
22,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCM |
|
$ |
43,227 |
|
|
$ |
47,983 |
|
|
$ |
134,693 |
|
|
$ |
140,233 |
|
RCM |
|
|
22,712 |
|
|
|
17,914 |
|
|
|
62,093 |
|
|
|
50,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Adjusted EBITDA |
|
$ |
65,939 |
|
|
$ |
65,897 |
|
|
$ |
196,786 |
|
|
$ |
191,161 |
|
Corporate |
|
|
(7,162 |
) |
|
|
(6,429 |
) |
|
|
(21,499 |
) |
|
|
(20,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjusted EBITDA(2) |
|
$ |
58,777 |
|
|
$ |
59,468 |
|
|
$ |
175,287 |
|
|
$ |
170,509 |
|
(1) |
Other service fees primarily consists of consulting, services and technology fees. |
(2) |
These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for additional information. |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Capital expenditures(1): |
|
|
|
|
|
|
|
|
SCM |
|
$ |
13,775 |
|
|
$ |
16,070 |
|
RCM |
|
|
20,457 |
|
|
|
21,861 |
|
Corporate |
|
|
2,092 |
|
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36,324 |
|
|
$ |
40,388 |
|
(1) |
Capital expenditures consist of purchases of property and equipment and capitalized software development costs (internal and external use). |
17
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Financial Position: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
SCM |
|
$ |
60,630 |
|
|
$ |
74,337 |
|
RCM |
|
|
59,375 |
|
|
|
53,129 |
|
Corporate |
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net |
|
|
120,005 |
|
|
|
127,741 |
|
Other assets |
|
|
|
|
|
|
|
|
SCM |
|
|
1,015,981 |
|
|
|
1,067,039 |
|
RCM |
|
|
425,527 |
|
|
|
439,333 |
|
Corporate |
|
|
65,261 |
|
|
|
84,683 |
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,506,769 |
|
|
|
1,591,055 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,626,774 |
|
|
$ |
1,718,796 |
|
SCM accrued revenue share obligation |
|
$ |
93,769 |
|
|
$ |
91,864 |
|
Deferred revenue |
|
|
|
|
|
|
|
|
SCM |
|
|
46,003 |
|
|
|
51,958 |
|
RCM |
|
|
40,978 |
|
|
|
39,494 |
|
|
|
|
|
|
|
|
|
|
Total deferred revenue |
|
|
86,981 |
|
|
|
91,452 |
|
Notes payable |
|
|
464,105 |
|
|
|
556,000 |
|
Bonds payable |
|
|
325,000 |
|
|
|
325,000 |
|
Other liabilities |
|
|
|
|
|
|
|
|
SCM |
|
|
34,246 |
|
|
|
36,938 |
|
RCM |
|
|
20,903 |
|
|
|
23,952 |
|
Corporate |
|
|
159,084 |
|
|
|
147,103 |
|
|
|
|
|
|
|
|
|
|
Total other liabilities |
|
|
214,233 |
|
|
|
207,993 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,184,088 |
|
|
$ |
1,272,309 |
|
GAAP for segment reporting requires that the total of the reportable segments measures of profit or loss
be reconciled to the Companys consolidated operating results. The following table reconciles Segment Adjusted EBITDA to consolidated net income for the three and nine months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
SCM Adjusted EBITDA |
|
$ |
43,227 |
|
|
$ |
47,983 |
|
|
$ |
134,693 |
|
|
$ |
140,233 |
|
RCM Adjusted EBITDA |
|
|
22,712 |
|
|
|
17,914 |
|
|
|
62,093 |
|
|
|
50,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Adjusted EBITDA |
|
|
65,939 |
|
|
|
65,897 |
|
|
|
196,786 |
|
|
|
191,161 |
|
Depreciation |
|
|
(10,132 |
) |
|
|
(8,695 |
) |
|
|
(29,369 |
) |
|
|
(25,653 |
) |
Depreciation (included in cost of revenue) |
|
|
(1,001 |
) |
|
|
(1,094 |
) |
|
|
(2,968 |
) |
|
|
(2,166 |
) |
Amortization of intangibles |
|
|
(14,829 |
) |
|
|
(13,936 |
) |
|
|
(44,816 |
) |
|
|
(41,989 |
) |
Income tax expense |
|
|
(14,267 |
) |
|
|
(16,942 |
) |
|
|
(47,112 |
) |
|
|
(47,894 |
) |
Impairment of property and equipment(1) |
|
|
(10,309 |
) |
|
|
|
|
|
|
(10,309 |
) |
|
|
|
|
Share-based compensation expense(2) |
|
|
(2,629 |
) |
|
|
(2,399 |
) |
|
|
(8,238 |
) |
|
|
(7,740 |
) |
Purchase accounting adjustments(3) |
|
|
(116 |
) |
|
|
(94 |
) |
|
|
(944 |
) |
|
|
(94 |
) |
Restructuring, acquisition and integration-related expenses(4) |
|
|
(3,607 |
) |
|
|
(7 |
) |
|
|
(5,733 |
) |
|
|
(1,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reportable segment net income |
|
|
9,049 |
|
|
|
22,730 |
|
|
|
47,297 |
|
|
|
64,487 |
|
Corporate net loss |
|
|
(11,285 |
) |
|
|
(14,990 |
) |
|
|
(39,866 |
) |
|
|
(42,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
|
$ |
7,431 |
|
|
$ |
22,014 |
|
(1) |
Represents the impairment of intangibles relating to the elimination of certain capitalized software products within the RCM segment. |
(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) |
Represents the effect on revenue of adjusting Sg2s acquired deferred revenue balance to fair value at the acquisition date. |
(4) |
Represents the amount attributable to restructuring, acquisition and integration-related costs which may include costs such as severance, retention, salaries relating to redundant positions, certain performance-related
salary-based compensation, operating infrastructure costs and facility consolidation costs. |
18
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
12. FAIR VALUE MEASUREMENTS
We measure fair value for financial instruments when a valuation is necessary, such as for impairment of long-lived and
indefinite-lived assets when indicators of impairment exist in accordance with GAAP for fair value measurements and disclosures. This defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value
measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value.
In estimating our fair value disclosures for financial instruments, we use the following methods and assumptions:
|
|
|
Cash and cash equivalents. The carrying value reported in the condensed consolidated balance sheets for these items approximates fair value due to the high credit standing of the financial
institutions holding these items and their liquid nature; |
|
|
|
Accounts receivable, net. The carrying value reported in the condensed consolidated balance sheets is net of allowances for doubtful accounts which includes a degree of counterparty non-performance risk;
|
|
|
|
Accounts payable and current liabilities. The carrying value reported in the condensed consolidated balance sheets for these items approximates fair value, which is the likely amount for which the
liability with short settlement periods would be transferred to a market participant with a similar credit standing as the Company; |
|
|
|
Notes payable. The carrying value of our long-term notes payable reported in the condensed consolidated balance sheets approximates fair value since they bear interest at variable rates. Refer to Note 6
for further information; and |
|
|
|
Bonds payable. The carrying value of our long-term bonds payable reported in the condensed consolidated balance sheets reflects par value. As of September 30, 2015, the Notes were trading at 102.3% of
par value (Level 1). Refer to Note 6 for further information. |
13. RELATED PARTY TRANSACTION
We had an agreement with John Bardis, formerly our chief executive officer, for the use of an airplane owned by JJB
Aviation, LLC, a limited liability company owned by Mr. Bardis. We paid Mr. Bardis at market-based rates for the use of the airplane for business purposes. The audit committee of the board of directors reviews such usage of the airplane
annually. During the nine months ended September 30, 2015 and 2014, we incurred charges of zero and $1,013, respectively, related to transactions with Mr. Bardis. On February 17, 2015, the Company entered into a Transition and
Consulting Agreement (the Transition Agreement) with Mr. Bardis in connection with Mr. Bardiss resignation from his positions with the Company. Pursuant to the Transition Agreement, the Companys agreement to use the
airplane owned by JJB Aviation, LLC was terminated effective as of January 1, 2015.
14. SUBSEQUENT EVENTS
We have evaluated subsequent events for recognition or disclosure in the condensed consolidated financial statements filed
on Form 10-Q with the SEC and no events have occurred that require disclosure, except for the following:
19
MedAssets, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(In thousands, except share and per share amounts)
On November 1, 2015, the Company entered into an Agreement and Plan of Merger (the
Merger Agreement) with Magnitude Parent Holdings, LLC, a Delaware limited liability company (Parent), and Magnitude Acquisition Corp., a Delaware corporation (Merger Sub). Pursuant to the Merger Agreement and
subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent (the
Merger). Parent and Merger Sub were formed by affiliates of Pamplona Capital Management LLP (Sponsor). Refer to the Current Report on Form 8-K filed on November 2, 2015 for additional details.
20
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
NOTE ON FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements (as defined in Section 27A of the U.S.
Securities Act of 1933, as amended (the Securities Act) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act)) that reflect our expectations regarding our future growth, results of
operations, performance and business prospects and opportunities. Words such as anticipates, believes, plans, expects, intends, estimates, projects,
targets, can, could, may, should, will, would, and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means
of identifying these statements. For purposes of this Quarterly Report on Form 10-Q, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements reflect our current
beliefs and expectations and are based on information currently available to us. As such, no assurance can be given that our future growth, results of operations, performance and business prospects and opportunities covered by such forward-looking
statements will be achieved. We have no intention or obligation to update or revise these forward-looking statements to reflect new events, information or circumstances.
A number of important factors could cause our actual results to differ materially from those indicated by such forward-looking statements,
including those described herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 as filed with the SEC on March 2, 2015.
Overview
We are a financial and
performance improvement company providing technology-enabled products and services which together help mitigate the increasing financial challenges faced by hospitals, health systems and other non-acute healthcare providers. Our solutions are
designed to reduce the total cost of care delivery, enhance operational efficiency, align clinical delivery of physicians and staff to advance care coordination and improve revenue performance primarily for hospitals and health systems. We believe
implementation of our full suite of solutions has the potential to decrease supply costs, improve clinical resource utilization and increase revenue capture and cash flow. Our operations and customers are primarily located throughout the United
States and, to a limited extent, Canada.
Managements primary metrics to measure the consolidated financial performance of the
business are net revenue, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin and non-GAAP diluted adjusted EPS.
The table below
highlights our primary results of operations for the three and nine months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in millions, except per share amounts) |
|
Total net revenue |
|
$ |
190.0 |
|
|
$ |
175.7 |
|
|
$ |
14.3 |
|
|
|
8.1 |
% |
|
$ |
566.0 |
|
|
$ |
522.0 |
|
|
$ |
44.0 |
|
|
|
8.4 |
% |
Operating income |
|
|
8.4 |
|
|
|
24.5 |
|
|
|
(16.1 |
) |
|
|
(65.7 |
) |
|
|
49.4 |
|
|
|
71.6 |
|
|
|
(22.2 |
) |
|
|
(31.0 |
) |
Net (loss) income |
|
$ |
(2.2 |
) |
|
$ |
7.7 |
|
|
$ |
(9.9 |
) |
|
|
(128.6 |
%) |
|
$ |
7.4 |
|
|
$ |
22.0 |
|
|
$ |
(14.6 |
) |
|
|
66.4 |
% |
Adjusted EBITDA(1) |
|
$ |
58.8 |
|
|
$ |
59.5 |
|
|
$ |
(0.7 |
) |
|
|
(1.2 |
%) |
|
$ |
175.3 |
|
|
$ |
170.5 |
|
|
$ |
4.8 |
|
|
|
2.8 |
% |
Adjusted EBITDA margin(1) |
|
|
30.9 |
% |
|
|
33.8 |
% |
|
|
|
|
|
|
|
|
|
|
31.0 |
% |
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
Adjusted EPS(1) |
|
$ |
0.32 |
|
|
$ |
0.34 |
|
|
$ |
(0.02 |
) |
|
|
(5.9 |
%) |
|
$ |
0.94 |
|
|
$ |
0.96 |
|
|
$ |
(0.02 |
) |
|
|
(2.1 |
%) |
(1) |
These are non-GAAP measures. See Use of Non-GAAP Financial Measures section for additional information. |
The increase in total net revenue during the three months ended September 30, 2015 compared to the three months ended September 30,
2014 was primarily attributable to:
|
|
|
growth in our SCM segment primarily driven by the contribution from Sg2 and higher net administrative fees; and |
|
|
|
growth in our RCM segment primarily from an increase in our revenue cycle services and an increase in our subscription services related to our revenue cycle technology tools. |
21
The decrease in operating income during the three months ended September 30, 2015 compared
to the three months ended September 30, 2014, was attributable to higher operating expenses related to the capitalized software impairment expense, increased compensation expense for new and existing personnel, higher cost of revenue
attributable to a higher percentage of net revenue being derived from service-based engagements, higher depreciation and amortization and higher restructuring, acquisition and integration-related expenses partially offset by the growth in total net
revenue discussed above.
For the three months ended September 30, 2015, the decrease in consolidated non-GAAP adjusted EBITDA and
adjusted EBITDA margin compared to the three months ended September 30, 2014 was primarily attributable to a higher proportion of lower margin services revenue and higher operating expenses.
The increase in total net revenue during the nine months ended September 30, 2015 compared to the nine months ended September 30,
2014 was primarily attributable to:
|
|
|
growth in our SCM segment primarily driven by the contribution from Sg2, increased advisory services and higher net administrative fees; and |
|
|
|
growth in our RCM segment from an increase in our revenue cycle services and an increase in our subscription services related to our revenue cycle technology tools. |
The decrease in operating income during the nine months ended September 30, 2015 compared to the nine months ended September 30,
2014, was attributable to higher operating expenses related to the capitalized software impairment expense, increased compensation expense for new and existing personnel, inclusive of share-based compensation expense, higher cost of revenue
attributable to a higher percentage of net revenue being derived from service-based engagements, higher depreciation and amortization and higher restructuring, acquisition and integration-related expenses, partially offset by the growth in net
revenue discussed above.
For the nine months ended September 30, 2015, the increase in consolidated non-GAAP adjusted EBITDA
compared to the nine months ended September 30, 2014 was primarily attributable to revenue growth including higher performance-related fee revenue earned partially offset by higher operating expenses during the period.
For the nine months ended September 30, 2015, the decrease in consolidated non-GAAP adjusted EBITDA margin compared to the nine months
ended September 30, 2014 was primarily attributable to a higher proportion of lower margin services revenue and higher operating expenses.
22
Recent Developments
Certain significant items or events must be considered to better understand differences in our results of operations from period to period. We
believe that the following items have had a material impact on our results of operations for the periods discussed below or may have a material impact on our results of operations in future periods.
Restructuring Activities and Impairment Charges
On September 28, 2015, we announced the implementation of a cost reduction program in order to improve operating efficiency and align our
cost structure with expected future net revenue.
As part of this cost reduction program, we reduced our workforce by approximately 180
full-time employees, or about 5% of our total headcount by year-end 2015. Additionally, we plan to eliminate certain open full-time positions, close one office location and reduce other non-employee expenses including professional services and
vendor fees in our human resource, information technology, legal and marketing service departments.
In connection with the cost reduction
program, we incurred restructuring expenses of approximately $5.0 million during the three months ended September 30, 2015 and expect to incur approximately $6.0 million during the fourth quarter ended December 31, 2015. The restructuring
charges associated with the workforce reduction represent one-time termination benefits, comprised principally of severance, benefit continuation costs, outplacement services and associated costs.
The Company may incur other charges and will record those expenses in the appropriate period as they are determined. The estimates of the
charges and costs that the Company expects to incur in connection with the cost reduction plan, and the timing thereof, are subject to a number of assumptions and actual results may differ materially.
In addition, we eliminated certain products within the Revenue Cycle Management segment and reallocated those resources to invest for future
growth. These changes resulted in a non-cash capitalized software impairment expense of approximately $10.3 million during the three months ended September 30, 2015.
Segment Structure and Revenue Streams
We
deliver our solutions through two business segments, Spend and Clinical Resource Management (SCM) and Revenue Cycle Management (RCM). Managements primary metrics to measure consolidated and segment financial performance
are net revenue, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP diluted adjusted EPS and Segment Adjusted EBITDA. All of our revenues are from external customers and inter-segment revenues have been eliminated. See Note 11 of
the Notes to Condensed Consolidated Financial Statements herein for discussion on Segment Adjusted EBITDA and certain items of our segment results of operations and financial position.
Spend and Clinical Resource Management
Our SCM segment provides a comprehensive suite of technology-enabled services that help our customers manage their expense categories. Our
solutions lower supply and medical device pricing and utilization by managing the procurement process through our group purchasing organization (GPO) portfolio of contracts, consulting services and business intelligence tools. Our SCM
segment revenue consists of the following components:
|
|
|
Administrative fees and revenue share obligation. We earn administrative fees from manufacturers, distributors and other vendors (collectively referred to as vendors) of products and services
with whom we have contracts under which our GPO customers may purchase products and services. Administrative fees represent a percentage, which we refer to as our administrative fee ratio, typically ranging from 0.25% to 3.00% of the purchases made
by our GPO customers through contracts with our vendors. |
Our GPO customers make purchases, and receive shipments, directly
from the vendors. Generally on a monthly or quarterly basis, vendors provide us with a report describing the purchases made by our customers through our GPO vendor contracts, including associated administrative fees. We recognize revenue upon the
receipt of these reports from vendors.
23
Some customer contracts require that a portion of our administrative fees be contingent upon
achieving certain financial improvements, such as lower supply costs, which we refer to as performance targets. Contingent administrative fees are not recognized as revenue until we receive customer acceptance on the achievement of those contractual
performance targets. Prior to receiving customer acceptance of performance targets, we record contingent administrative fees as deferred revenue on our condensed consolidated balance sheets. Often, recognition of this revenue occurs in periods
subsequent to the recognition of the associated costs. Should we fail to meet a performance target, we may be contractually obligated to refund some or all of the contingent fees. Additionally, in many cases, we are contractually obligated to pay a
portion of the administrative fees to our hospital and health system customers. Typically this amount, which we refer to as our revenue share obligation, is calculated as a percentage of administrative fees earned on a particular customers
purchases from our vendors. Our total net revenue on our consolidated statements of operations is shown net of the revenue share obligation.
|
|
|
Other service fees. The following items are included as Other service fees in our condensed consolidated statements of operations: |
|
|
|
Consulting fees. We consult with our customers regarding the costs and utilization of medical devices and physician preference items (PPI) and the efficiency and quality of their key
clinical service lines. Our consulting projects are typically fixed fee projects with an average duration of six to nine months, and the related revenues are earned as services are rendered. We generate revenue from consulting contracts that also
include performance targets. The performance targets generally relate to committed financial improvement to our customers from the use and implementation of initiatives that result from our consulting services. Performance targets are measured as
our strategic initiatives are identified and implemented, and the financial improvement can be quantified by the customer. Prior to receiving customer acceptance of performance targets, we record contingent consulting fees as deferred revenue on our
condensed consolidated balance sheets. Often, recognition of this revenue occurs in periods subsequent to the recognition of the associated costs. Should we fail to meet a performance target, we may be contractually obligated to refund some or all
of the contingent fees. |
|
|
|
Subscription fees. We also offer technology-enabled services that provide spend management analytics and data services to improve operational efficiency, reduce supply costs, and increase transparency
across spend management processes. We earn fixed subscription fees on a monthly basis for these Company-hosted SaaS-based solutions. |
Revenue Cycle Management
Our RCM
segment provides a comprehensive suite of products and services spanning the hospital revenue cycle workflow from patient access and financial responsibility, charge capture and integrity, pricing analysis, claims processing and denials
management, payor contract management, revenue recovery and accounts receivable services. Our workflow solutions, together with our data management, compliance and audit tools, increase revenue capture and cash collections, reduce accounts
receivable balances and improve regulatory compliance. Our RCM segment revenue is listed under the caption Other service fees on our condensed consolidated statements of operations and consists of the following components:
|
|
|
Subscription and implementation fees. We earn fixed subscription fees on a monthly or annual basis on multi-year contracts for customer access to our SaaS-based solutions. We may also charge our customers
non-refundable upfront fees for implementation of our SaaS-based services. These non-refundable upfront fees are earned over the subscription period or estimated customer relationship period, whichever is longer. |
We defer costs related to implementation services and expense these costs in proportion to the revenue earned over the subscription period or
customer relationship period, as applicable.
In addition, we defer upfront sales commissions related to subscription and implementation
fees and expense these costs ratably over the related contract term.
|
|
|
Transaction fees. For certain of our revenue cycle management solutions, we earn fees that vary based on the volume of customer transactions or enrolled members. |
|
|
|
Service fees. For certain of our RCM solutions, we earn fees based on a percentage of cash remittances collected and fixed-fee consulting arrangements. The related revenues are earned as services are
rendered. |
24
Operating Expenses
We classify our operating expenses as follows:
|
|
|
Cost of revenue. Cost of revenue primarily consists of the direct labor costs incurred to generate our revenue. Direct labor costs consist primarily of salaries, benefits, incentive compensation and other
direct costs and share-based compensation expenses related to personnel who provide services to implement our solutions for our customers (indirect labor costs for these personnel are included in general and administrative expenses). As the majority
of our services are generated internally, our costs to provide these services are primarily labor-driven. A less significant portion of our cost of revenue consists of costs of third-party products and services and customer reimbursed out-of-pocket
costs. Cost of revenue does not include certain expenses relating to hosting our services and providing support and related data center capacity (which is included in general and administrative expenses), and allocated amounts for rent,
depreciation, amortization or other indirect operating costs because we do not consider the inclusion of these items in cost of revenue relevant to our business. However, cost of revenue does include the amortization for the cost of software to be
sold, leased, or otherwise marketed. In addition, any changes in revenue mix between our SCM and RCM segments, including changes in revenue mix towards SaaS-based revenue and consulting services, may cause significant fluctuations in our cost of
revenue and have a favorable or unfavorable impact on operating income. |
|
|
|
Product development expenses. Product development expenses primarily consist of the salaries, benefits, incentive compensation and share-based compensation expense of the technology professionals who
develop, support and maintain our software-related products and services. Product development expenses are net of capitalized software development costs for both internal and external use. |
|
|
|
Selling and marketing expenses. Selling and marketing expenses consist primarily of costs related to marketing programs (including trade shows and brand messaging), personnel-related expenses for sales and
marketing employees (including salaries, benefits, incentive compensation and share-based compensation expense), certain meeting costs and travel-related expenses. |
|
|
|
General and administrative expenses. General and administrative expenses consist primarily of personnel-related expenses for administrative employees and indirect time related to operational service-based
employees (including salaries, benefits, incentive compensation and share-based compensation expense) and travel-related expenses, occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses.
|
|
|
|
Restructuring, acquisition and integration-related expenses. Restructuring, acquisition and integration-related expenses may consist of: (i) costs incurred to complete acquisitions including due
diligence, consulting and other related fees; (ii) integration type costs relating to our completed acquisitions; (iii) other management restructuring costs; and (iv) acquisition-related fees associated with unsuccessful acquisition
attempts. |
|
|
|
Depreciation. Depreciation expense consists primarily of depreciation of fixed assets and the amortization of software, including capitalized costs of software developed for internal use.
|
|
|
|
Amortization of intangibles. Amortization of intangibles includes the amortization of all identified intangible assets (with the exception of software), primarily resulting from acquisitions.
|
25
Results of Operations
Consolidated Tables
The following
table sets forth our consolidated results of operations grouped by segment for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited, in thousands) |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net administrative fees |
|
$ |
71,987 |
|
|
$ |
70,788 |
|
|
$ |
219,471 |
|
|
$ |
217,125 |
|
Other service fees |
|
|
45,245 |
|
|
|
35,011 |
|
|
|
137,107 |
|
|
|
103,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Spend and Clinical Resource Management |
|
|
117,232 |
|
|
|
105,799 |
|
|
|
356,578 |
|
|
|
320,323 |
|
Revenue Cycle Management |
|
|
72,736 |
|
|
|
69,906 |
|
|
|
209,395 |
|
|
|
201,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
189,968 |
|
|
|
175,705 |
|
|
|
565,973 |
|
|
|
521,987 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
97,536 |
|
|
|
76,384 |
|
|
|
288,718 |
|
|
|
234,640 |
|
Revenue Cycle Management |
|
|
68,949 |
|
|
|
59,817 |
|
|
|
182,478 |
|
|
|
175,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating expenses |
|
|
166,485 |
|
|
|
136,201 |
|
|
|
471,196 |
|
|
|
409,675 |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
19,696 |
|
|
|
29,415 |
|
|
|
67,860 |
|
|
|
85,683 |
|
Revenue Cycle Management |
|
|
3,787 |
|
|
|
10,089 |
|
|
|
26,917 |
|
|
|
26,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
23,483 |
|
|
|
39,504 |
|
|
|
94,777 |
|
|
|
112,312 |
|
Corporate expenses(1) |
|
|
15,055 |
|
|
|
14,987 |
|
|
|
45,376 |
|
|
|
40,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
8,428 |
|
|
|
24,517 |
|
|
|
49,401 |
|
|
|
71,570 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(11,556 |
) |
|
|
(11,338 |
) |
|
|
(35,235 |
) |
|
|
(33,625 |
) |
Other (expense) income |
|
|
(103 |
) |
|
|
273 |
|
|
|
(151 |
) |
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(3,231 |
) |
|
|
13,452 |
|
|
|
14,015 |
|
|
|
38,307 |
|
Income tax (benefit) expense |
|
|
(995 |
) |
|
|
5,712 |
|
|
|
6,584 |
|
|
|
16,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(2,236 |
) |
|
|
7,740 |
|
|
|
7,431 |
|
|
|
22,014 |
|
Reportable segment adjusted EBITDA(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
43,227 |
|
|
|
47,983 |
|
|
|
134,693 |
|
|
|
140,233 |
|
Revenue Cycle Management |
|
$ |
22,712 |
|
|
$ |
17,914 |
|
|
$ |
62,093 |
|
|
$ |
50,928 |
|
Reportable segment adjusted EBITDA margin(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
36.9 |
% |
|
|
45.4 |
% |
|
|
37.8 |
% |
|
|
43.8 |
% |
Revenue Cycle Management |
|
|
31.2 |
% |
|
|
25.6 |
% |
|
|
29.7 |
% |
|
|
25.3 |
% |
(1) |
Represents the expenses of corporate office operations. |
(2) |
Managements primary metric of segment profit or loss is segment adjusted EBITDA. See Note 11 of the Notes to Condensed Consolidated Financial Statements. |
(3) |
Reportable segment adjusted EBITDA margin represents each reportable segments adjusted EBITDA as a percentage of each segments respective net revenue. |
Comparison of the Three Months Ended September 30, 2015 and September 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in thousands) |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net administrative fees |
|
$ |
71,987 |
|
|
|
37.9 |
% |
|
$ |
70,788 |
|
|
|
40.3 |
% |
|
$ |
1,199 |
|
|
|
1.7 |
% |
Other service fees |
|
|
45,245 |
|
|
|
23.8 |
|
|
|
35,011 |
|
|
|
19.9 |
|
|
|
10,234 |
|
|
|
29.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Spend and Clinical Resource Management |
|
|
117,232 |
|
|
|
61.7 |
|
|
|
105,799 |
|
|
|
60.2 |
|
|
|
11,433 |
|
|
|
10.8 |
|
Revenue Cycle Management |
|
|
72,736 |
|
|
|
38.3 |
|
|
|
69,906 |
|
|
|
39.8 |
|
|
|
2,830 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
189,968 |
|
|
|
100.0 |
% |
|
$ |
175,705 |
|
|
|
100.0 |
% |
|
$ |
14,263 |
|
|
|
8.1 |
% |
26
Total net revenue. Total net revenue for the three months ended September 30,
2015 was $190.0 million, an increase of approximately $14.2 million, or 8.1%, from total net revenue of $175.7 million for the three months ended September 30, 2014. The increase in total net revenue was comprised of an
$11.4 million increase in SCM revenue and a $2.8 million increase in RCM revenue. For the three months ended September 30, 2015 and 2014, performance-related fee revenue as a percentage of consolidated net revenue amounted to
approximately 2.2% and 2.7%, respectively. Revenue may fluctuate materially from period to period based upon a number of factors including achieving, and thereafter receiving, customer acknowledgement of the financial performance targets.
Spend and Clinical Resource Management net revenue. SCM net revenue for the three months ended September 30, 2015 was
$117.2 million, an increase of $11.4 million, or 10.8%, from net revenue of $105.8 million for the three months ended September 30, 2014. The increase was the result of an increase in other service fees of $10.2 million, or 29.2%,
primarily related to the revenue contribution by Sg2 and an increase in net administrative fees of $1.2 million, or 1.7%, due to increased GPO utilization.
We may have fluctuations in our net administrative fee revenue in future periods that are attributable to: (i) the timing and variability
of vendor reporting and customer acknowledgement of achieved performance targets; (ii) changes in customer purchase volume under our GPO contracts; and (iii) fluctuations in our revenue share obligation based on the mix of customers who
are entitled to a higher revenue share percentage due to increased purchasing volume in addition to an increase in the number of fixed-fee arrangements.
Revenue Cycle Management net revenue. RCM net revenue for the three months ended September 30, 2015 was $72.7 million, an
increase of approximately $2.8 million, or 4.0%, from net revenue of $69.9 million for the three months ended September 30, 2014. The increase was attributable to a $2.0 million increase in revenue from our comprehensive revenue cycle
service engagements, inclusive of performance-related fee revenue and a $0.8 million increase in revenue from our revenue cycle technology tools. As we engage new customers, renew existing customers and complete existing contracts, we may
experience fluctuations in our revenue cycle services financial performance as the business is characterized by a relatively small number of agreements, which each relate to large amounts of revenue.
Total Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in thousands) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
48,003 |
|
|
|
25.3 |
% |
|
$ |
42,439 |
|
|
|
24.2 |
% |
|
$ |
5,564 |
|
|
|
13.1 |
% |
Product development expenses |
|
|
8,198 |
|
|
|
4.3 |
|
|
|
8,106 |
|
|
|
4.6 |
|
|
|
92 |
|
|
|
1.1 |
|
Selling and marketing expenses |
|
|
17,120 |
|
|
|
9.0 |
|
|
|
14,273 |
|
|
|
8.1 |
|
|
|
2,847 |
|
|
|
19.9 |
|
General and administrative expenses |
|
|
64,363 |
|
|
|
33.9 |
|
|
|
57,579 |
|
|
|
32.8 |
|
|
|
6,784 |
|
|
|
11.8 |
|
Restructuring, acquisition and integration-related expenses |
|
|
5,027 |
|
|
|
2.6 |
|
|
|
3,010 |
|
|
|
1.7 |
|
|
|
2,017 |
|
|
|
67.0 |
|
Depreciation |
|
|
13,691 |
|
|
|
7.2 |
|
|
|
11,845 |
|
|
|
6.7 |
|
|
|
1,846 |
|
|
|
15.6 |
|
Amortization of intangibles |
|
|
14,829 |
|
|
|
7.8 |
|
|
|
13,936 |
|
|
|
7.9 |
|
|
|
893 |
|
|
|
6.4 |
|
Impairment of property and equipment |
|
|
10,309 |
|
|
|
5.4 |
|
|
|
|
|
|
|
0.0 |
|
|
|
10,309 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
181,540 |
|
|
|
95.6 |
|
|
|
151,188 |
|
|
|
86.0 |
|
|
|
30,352 |
|
|
|
20.1 |
|
Operating expenses by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
97,536 |
|
|
|
51.3 |
|
|
|
76,384 |
|
|
|
43.5 |
|
|
|
21,152 |
|
|
|
27.7 |
|
Revenue Cycle Management |
|
|
68,949 |
|
|
|
36.3 |
|
|
|
59,817 |
|
|
|
34.0 |
|
|
|
9,132 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating expenses |
|
|
166,485 |
|
|
|
87.6 |
|
|
|
136,201 |
|
|
|
77.5 |
|
|
|
30,284 |
|
|
|
22.2 |
|
Corporate expenses |
|
|
15,055 |
|
|
|
7.9 |
|
|
|
14,987 |
|
|
|
8.5 |
|
|
|
68 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
181,540 |
|
|
|
95.6 |
% |
|
$ |
151,188 |
|
|
|
86.0 |
% |
|
$ |
30,352 |
|
|
|
20.1 |
% |
Cost of revenue. Cost of revenue for the three months ended September 30, 2015 was
$48.0 million, or 25.3% of total net revenue, an increase of $5.6 million, or 13.1%, from cost of revenue of $42.4 million, or 24.2% of total net revenue, for the three months ended September 30, 2014. The increase was primarily
attributable to the previously discussed revenue contribution of Sg2 resulting in an increase in labor costs associated with service-related engagements in our SCM segment and an increased mix of services revenue in our RCM segment. In addition, for
our engagements that include achieving financial performance targets, we recognize revenue based on when the financial performance targets are achieved and such achievement is acknowledged by our customers. There are instances during a reporting
period where we incur a higher amount of direct costs with no associated revenue for these types of engagements. Also, we may record revenue in a reporting period where the direct costs have been recorded in a previous period. These events may
affect period over period comparability.
27
Product development expenses. Product development expenses for the three months
ended September 30, 2015 were $8.2 million, or 4.3% of total net revenue, an increase of approximately $0.1 million, or 1.1%, from product development expenses of $8.1 million, or 4.6% of total net revenue, for the three months ended
September 30, 2014. The increase was attributable to a $0.7 million increase in compensation expense partially offset by a $0.6 million decrease in professional fees. Our product development capitalization rate for the three months ended
September 30, 2015 and 2014 was 55.5% and 54.5%, respectively.
Selling and marketing expenses. Selling and marketing
expenses for the three months ended September 30, 2015 were $17.1 million, or 9.0% of total net revenue, an increase of $2.8 million, or 19.9%, from selling and marketing expenses of $14.3 million, or 8.1% of total net revenue,
for the three months ended September 30, 2014. The increase was primarily attributable to an increase in compensation expense mostly associated with additional headcount.
General and administrative expenses. General and administrative expenses for the three months ended September 30, 2015 were
$64.4 million, or 33.9% of total net revenue, an increase of $6.8 million, or 11.8%, from general and administrative expenses of $57.6 million, or 32.8% of total net revenue, for the three months ended September 30, 2014. The
increase was attributable to a $6.8 million increase in compensation expense; a $0.6 million increase in rent expense; a $0.4 million increase in share-based compensation; and a $0.3 million increase in other operating infrastructure expense. The
increase was partially offset by a $0.7 million decrease in transportation expense and a $0.6 million decrease in professional fees.
Restructuring, acquisition and integration-related expenses. Restructuring, acquisition and integration-related expenses for the
three months ended September 30, 2015 were $5.0 million, or 2.6% of total net revenue, an increase of $2.0 million, or 67.0%, from restructuring, acquisition and integration-related expenses of $3.0 million, or 1.7% of total net revenue, for
the three months ended September 30, 2014. The increase was attributable to the costs associated with certain workforce reductions within the Company. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further
details.
Depreciation. Depreciation expense for the three months ended September 30, 2015 was $13.7 million, or 7.2%
of total net revenue, an increase of approximately $1.9 million, or 15.6%, from depreciation of $11.8 million, or 6.7% of total net revenue, for the three months ended September 30, 2014. The increase was attributable to depreciation
resulting from purchases of property and equipment inclusive of increases to capitalized software development. As a result of our capital investments, we expect our depreciation expense to increase in future periods.
Amortization of intangibles. Amortization of intangibles for the three months ended September 30, 2015 was
$14.8 million, or 7.8% of total net revenue, an increase of $0.9 million, or 6.4%, from amortization of intangibles of $13.9 million, or 7.9% of total net revenue, for the three months ended September 30, 2014. The increase in
amortization expense compared to the prior period was due to incremental amortization expense associated with acquisitions that occurred in the prior year partially offset by certain identified intangible assets that are nearing the end of their
useful life under an accelerated method of amortization.
Impairment of property and equipment. The impairment of property
and equipment for the three months ended September 30, 2015 was $10.3 million compared to zero for the prior period. The impairment was associated with the elimination of certain products within Revenue Cycle Management resulting in a
non-cash capitalized software impairment expense. Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further details.
Segment Operating Expenses
Spend
and Clinical Resource Management expenses. SCM operating expenses for the three months ended September 30, 2015 were $97.5 million, or 51.3% of total net revenue, an increase of $21.1 million, or 27.7%, from
$76.4 million, or 43.5% of total net revenue for the three months ended September 30, 2014. As a percentage of SCM segment net revenue, segment expenses were 83.2% and 72.2% for the three months ended September 30, 2015 and 2014,
respectively.
28
The increase was primarily attributable to a $7.4 million increase in compensation expense,
mostly related to employees of Sg2 (acquired near the end of the third quarter of 2014) and increased service and sales resources; a $6.8 million increase in cost of revenue in connection with higher direct labor costs; a $2.3 million increase
in restructuring, acquisition and integration-related costs associated with the reduction in workforce during the period; a $1.4 million increase in depreciation expense; a $1.3 million increase in the amortization of intangibles; a $0.5
million increase in other operating infrastructure expense; a $0.4 million increase in telecommunications expense; a $0.4 million increase in professional fees; a $0.4 million increase in rent expense; and a $0.2 million increase in share-based
compensation expense.
Revenue Cycle Management expenses. RCM operating expenses for the three months ended
September 30, 2015 were $68.9 million, or 36.3% of total net revenue, an increase of $9.1 million, or 15.3%, from $59.8 million, or 34.0% of total net revenue, for the three months ended September 30, 2014. As a percentage
of RCM segment net revenue, segment expenses were 94.8% and 85.6% for the three months ended September 30, 2015 and 2014, respectively.
The increase was attributable to a $10.3 million impairment of intangibles (refer to footnote 4 of the Notes to Condensed Consolidated
Financial Statements for further details); a $1.3 million increase in restructuring, acquisition and integration-related costs associated with the reduction in workforce during the period; a $0.9 million increase in compensation expense; and a
$0.4 million increase in other operating infrastructure expense. The increase was partially offset by a $1.6 million decrease in professional fees; a $1.3 million decrease in cost of revenue; a $0.5 million decrease in telecommunications expense;
and a $0.4 million decrease in amortization of intangibles as certain intangible assets reached the end of their useful life.
Corporate expenses. Corporate expenses for the three months ended September 30, 2015 were $15.1 million, or 7.9% of
total net revenue, an increase of $0.1 million, or 0.5%, from $15.0 million, or 8.5% of total net revenue, for the three months ended September 30, 2014. The increase in corporate expenses was attributable to a $1.9 million increase
in compensation expense; a $0.5 million increase in share-based compensation expense; and a $0.4 million increase in depreciation expense. The increase was partially offset by a $1.6 million decrease in restructuring, acquisition and
integration-related costs; a $0.6 million decrease in other operating infrastructure expense; and a $0.5 million decrease in transportation expense.
Non-operating Expenses
Interest
expense. Interest expense for the three months ended September 30, 2015 was $11.6 million, an increase of $0.2 million from interest expense of $11.3 million for the three months ended September 30, 2014. The increase in
interest expense was primarily due to the increase in average outstanding balance of our indebtedness and an increase in LIBOR interest rates compared to the prior year. As of September 30, 2015, we had total indebtedness of $789.1 million
compared to $899.9 million as of September 30, 2014. See Note 6 of the Notes to Condensed Consolidated Financial Statements herein for more details.
Other (expense) income. Other expense for the three months ended September 30, 2015 was $0.1 million comprised of a $0.2
million foreign exchange loss partially offset by $0.1 million of rental income. Other income for the three months ended September 30, 2014 was approximately $0.3 million comprised mainly of rental income.
Income tax (benefit) expense. Income tax benefit for the three months ended September 30, 2015 was $1.0 million, a decrease
of $6.7 million from an income tax expense of $5.7 million for the three months ended September 30, 2014, which was primarily attributable to decreased income before taxes. Income tax (benefit) expense recorded during the three months
ended September 30, 2015 and 2014 reflected an effective income tax rate of 30.8% (tax benefit) and 42.5%, respectively. The decrease in our effective tax rate was primarily driven by a pre-tax net loss during the current period versus pre-tax
income during the prior period partially offset by an increase in state income tax expense associated with state legislative changes pertaining to tax rates and apportionment of our taxable income.
29
Comparison of the Nine Months Ended September 30, 2015 and September 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in thousands) |
|
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net administrative fees |
|
$ |
219,471 |
|
|
|
38.8 |
% |
|
$ |
217,125 |
|
|
|
41.6 |
% |
|
$ |
2,346 |
|
|
|
1.1 |
% |
Other service fees |
|
|
137,107 |
|
|
|
24.2 |
|
|
|
103,198 |
|
|
|
19.8 |
|
|
|
33,909 |
|
|
|
32.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Spend and Clinical Resource Management |
|
|
356,578 |
|
|
|
63.0 |
|
|
|
320,323 |
|
|
|
61.4 |
|
|
|
36,255 |
|
|
|
11.3 |
|
Revenue Cycle Management |
|
|
209,395 |
|
|
|
37.0 |
|
|
|
201,664 |
|
|
|
38.6 |
|
|
|
7,731 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
565,973 |
|
|
|
100.0 |
% |
|
$ |
521,987 |
|
|
|
100.0 |
% |
|
$ |
43,986 |
|
|
|
8.4 |
% |
Total net revenue. Total net revenue for the nine months ended September 30, 2015 was
$566.0 million, an increase of approximately $44.0 million, or 8.4%, from total net revenue of $522.0 million for the nine months ended September 30, 2014. The increase in total net revenue was comprised of a $36.3 million
increase in SCM revenue and a $7.7 million increase in RCM revenue. For the nine months ended September 30, 2015 and 2014, performance-related fee revenue as a percentage of consolidated net revenue amounted to approximately 3.2% and 2.8%,
respectively. Revenue may fluctuate materially from period to period based upon a number of factors including achieving, and thereafter receiving, customer acknowledgement of the financial performance targets.
Spend and Clinical Resource Management net revenue. SCM net revenue for the nine months ended September 30, 2015 was $356.6
million, an increase of $36.3 million, or 11.3%, from net revenue of $320.3 million for the nine months ended September 30, 2014. The increase was the result of an increase in other service fees of $33.9 million, or 32.9%, primarily
related to the revenue contribution by Sg2 and an increase in advisory related services. The increase was also attributable to an increase in net administrative fees of approximately $2.4 million, or 1.1%, due to increased GPO utilization.
We may have fluctuations in our net administrative fee revenue in future periods that are attributable to: (i) the timing and variability
of vendor reporting and customer acknowledgement of achieved performance targets; (ii) changes in customer purchase volume under our GPO contracts; and (iii) fluctuations in our revenue share obligation based on the mix of customers who
are entitled to a higher revenue share percentage due to increased purchasing volume in addition to an increase in the number of fixed-fee arrangements.
Revenue Cycle Management net revenue. RCM net revenue for the nine months ended September 30, 2015 was $209.4 million,
an increase of $7.7 million, or 3.8%, from net revenue of $201.7 million for the nine months ended September 30, 2014. The increase was attributable to a $5.1 million increase in revenue from our comprehensive revenue cycle service
engagements, inclusive of performance-related fee revenue, and a $2.6 million increase in revenue from our revenue cycle technology tools. As we engage new customers, renew existing customers and complete existing contracts, we may experience
fluctuations in our revenue cycle services financial performance as the business is characterized by a relatively small number of agreements, which each relate to large amounts of revenue.
30
Total Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% of Revenue |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in thousands) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
$ |
138,060 |
|
|
|
24.4 |
% |
|
$ |
120,231 |
|
|
|
23.0 |
% |
|
$ |
17,829 |
|
|
|
14.8 |
% |
Product development expenses |
|
|
24,049 |
|
|
|
4.2 |
|
|
|
22,145 |
|
|
|
4.2 |
|
|
|
1,904 |
|
|
|
8.6 |
|
Selling and marketing expenses |
|
|
60,480 |
|
|
|
10.7 |
|
|
|
50,187 |
|
|
|
9.6 |
|
|
|
10,293 |
|
|
|
20.5 |
|
General and administrative expenses |
|
|
188,247 |
|
|
|
33.3 |
|
|
|
175,911 |
|
|
|
33.7 |
|
|
|
12,336 |
|
|
|
7.0 |
|
Restructuring, acquisition and integration-related expenses |
|
|
10,022 |
|
|
|
1.8 |
|
|
|
4,707 |
|
|
|
0.9 |
|
|
|
5,315 |
|
|
|
112.9 |
|
Depreciation |
|
|
40,589 |
|
|
|
7.2 |
|
|
|
35,247 |
|
|
|
6.8 |
|
|
|
5,342 |
|
|
|
15.2 |
|
Amortization of intangibles |
|
|
44,816 |
|
|
|
7.9 |
|
|
|
41,989 |
|
|
|
8.0 |
|
|
|
2,827 |
|
|
|
6.7 |
|
Impairment of property and equipment |
|
|
10,309 |
|
|
|
1.8 |
|
|
|
|
|
|
|
0.0 |
|
|
|
10,309 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
516,572 |
|
|
|
91.3 |
|
|
|
450,417 |
|
|
|
86.3 |
|
|
|
66,155 |
|
|
|
14.7 |
|
Operating expenses by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spend and Clinical Resource Management |
|
|
288,718 |
|
|
|
51.0 |
|
|
|
234,640 |
|
|
|
45.0 |
|
|
|
54,078 |
|
|
|
23.0 |
|
Revenue Cycle Management |
|
|
182,478 |
|
|
|
32.2 |
|
|
|
175,035 |
|
|
|
33.5 |
|
|
|
7,443 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating expenses |
|
|
471,196 |
|
|
|
83.3 |
|
|
|
409,675 |
|
|
|
78.5 |
|
|
|
61,521 |
|
|
|
15.0 |
|
Corporate expenses |
|
|
45,376 |
|
|
|
8.0 |
|
|
|
40,742 |
|
|
|
7.8 |
|
|
|
4,634 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
516,572 |
|
|
|
91.3 |
% |
|
$ |
450,417 |
|
|
|
86.3 |
% |
|
$ |
66,155 |
|
|
|
14.7 |
% |
Cost of revenue. Cost of revenue for the nine months ended September 30, 2015 was
approximately $138.0 million, or 24.4% of total net revenue, an increase of $17.8 million, or 14.8%, from cost of revenue of $120.2 million, or 23.0% of total net revenue, for the nine months ended September 30, 2014. The
increase was primarily attributable to the previously discussed revenue contribution of Sg2 and increased advisory services resulting in an increase in labor costs associated with service-related engagements in our SCM segment and an increased mix
of services revenue in our RCM segment. In addition, for our engagements that include achieving financial performance targets, we recognize revenue based on when the financial performance targets are achieved and such achievement is acknowledged by
our customers. There are instances during a reporting period where we incur a higher amount of direct costs with no associated revenue for these types of engagements. Also, we may record revenue in a reporting period where the direct costs have been
recorded in a previous period. These events may affect period over period comparability.
Product development expenses.
Product development expenses for the nine months ended September 30, 2015 were $24.0 million, or 4.2% of total net revenue, an increase of approximately $1.9 million, or 8.6%, from product development expenses of $22.1 million, or
4.2% of total net revenue, for the nine months ended September 30, 2014. The increase was attributable to a $2.8 million increase in compensation expense partially offset by a $0.9 million decrease in professional fees. Our product development
capitalization rate for the nine months ended September 30, 2015 and 2014 was 55.6% and 58.0%, respectively.
Selling and
marketing expenses. Selling and marketing expenses for the nine months ended September 30, 2015 were $60.5 million, or 10.7% of total net revenue, an increase of $10.3 million, or 20.5%, from selling and marketing expenses of
$50.2 million, or 9.6% of total net revenue, for the nine months ended September 30, 2014. The increase was primarily attributable to a $9.2 million increase in compensation expense mostly associated with additional headcount; a $0.8
million increase in share-based compensation; and a $0.2 million increase in advertising expense. Total expenses related to our customer and vendor meeting amounted to $6.1 million and $6.0 million for the nine months ended September 30, 2015
and 2014, respectively.
General and administrative expenses. General and administrative expenses for the nine months ended
September 30, 2015 were $188.2 million, or 33.3% of total net revenue, an increase of $12.3 million, or 7.0%, from general and administrative expenses of $175.9 million, or 33.7% of total net revenue, for the nine months ended
September 30, 2014. The increase was attributable to a $10.1 million increase in compensation expense; a $1.9 million increase in rent expense; a $1.4 million increase in telecommunications expense; a $0.9 million increase in share-based
compensation; and a $0.9 million increase in other operating infrastructure expense. The increase was partially offset by a $2.0 million decrease in transportation expense; a $0.7 million decrease in legal expense; and a $0.2 million decrease in
professional fees.
31
Restructuring, acquisition and integration-related expenses. Restructuring,
acquisition and integration-related expenses for the nine months ended September 30, 2015 were $10.0 million, or 1.8% of total net revenue, an increase of $5.3 million from restructuring, acquisition and integration-related expenses of $4.7
million, or 0.9% of total net revenue, for the nine months ended September 30, 2014. The increase was attributable to the costs associated with certain workforce reductions within the Company and to senior management changes during the period.
Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further details.
Depreciation. Depreciation
expense for the nine months ended September 30, 2015 was approximately $40.5 million, or 7.2% of total net revenue, an increase of $5.3 million, or 15.2%, from depreciation of $35.2 million, or 6.8% of total net revenue, for the nine
months ended September 30, 2014. The increase was attributable to depreciation resulting from purchases of property and equipment inclusive of increases to capitalized software development. As a result of our capital investments, we expect our
depreciation expense to increase in future periods.
Amortization of intangibles. Amortization of intangibles for the nine
months ended September 30, 2015 was $44.8 million, or 7.9% of total net revenue, an increase of $2.8 million, or 6.7%, from amortization of intangibles of $42.0 million, or 8.0% of total net revenue, for the nine months ended
September 30, 2014. The increase in amortization expense compared to the prior year was due to incremental amortization expense associated with acquisitions that occurred in the prior year partially offset by certain identified intangible
assets that are nearing the end of their useful life under an accelerated method of amortization.
Impairment of property and
equipment. The impairment of property and equipment for the nine months ended September 30, 2015 was $10.3 million compared to zero for the prior period. The impairment was associated with the elimination of certain products within
Revenue Cycle Management resulting in a non-cash capitalized software impairment expense. Refer to Note 4 of the Notes to Condensed Consolidated Financial Statements for further details.
Segment Operating Expenses
Spend
and Clinical Resource Management expenses. SCM operating expenses for the nine months ended September 30, 2015 were $288.7 million, or 51.0% of total net revenue, an increase of $54.1 million, or 23.0%, from approximately
$234.6 million, or 45.0% of total net revenue for the nine months ended September 30, 2014. As a percentage of SCM segment net revenue, segment expenses were 81.0% and 73.3% for the nine months ended September 30, 2015 and 2014,
respectively.
The increase was primarily attributable to: a $21.1 million increase in cost of revenue in connection with higher direct
labor costs; a $17.1 million increase in compensation expense, mostly related to employees of Sg2 (acquired near the end of the third quarter of 2014) and increased service and sales resources; a $4.3 million increase in the amortization of
intangibles; a $3.5 million increase in restructuring, acquisition and integration-related costs associated with the reduction in workforce during the period; a $2.5 million increase in depreciation expense; a $2.2 million increase in
telecommunications expense; a $1.8 million increase in professional fees; a $1.5 million increase in other operating infrastructure expense; a $1.3 million increase in rent expense; and a $0.6 million increase in share-based compensation expense.
The increase was partially offset by a $1.3 million decrease in marketing expenses and $0.5 million decrease in other meetings expense.
Revenue Cycle Management expenses. RCM operating expenses for the nine months ended September 30, 2015 were
$182.5 million, or 32.2% of total net revenue, an increase of $7.4 million, or 4.3%, from $175.0 million, or 33.5% of total net revenue, for the nine months ended September 30, 2014. As a percentage of RCM segment net revenue,
segment expenses were 87.1% and 86.8% for the nine months ended September 30, 2015 and 2014, respectively.
The increase was
attributable to a $10.3 million impairment of capitalized software development assets (refer to footnote 4 of the Notes to Condensed Consolidated Financial Statements for further details); a $2.4 million increase in compensation expense; a $1.2
million increase in depreciation expense; a $1.1 million increase in restructuring, acquisition and integration-related costs associated with the reduction in workforce during the period; a $1.0 million increase in marketing expenses; a $0.5
million increase in rent expense; and a $0.1 million increase in other operating infrastructure expense. The increase was partially offset by a $3.4 million decrease in cost of revenue due to the conclusion of a large customer outsourcing agreement
in the prior year; a $2.9 million decrease in professional fees; a $1.5 million decrease in amortization of intangibles as certain intangible assets reached the end of their useful life; a $1.2 million decrease in telecommunications expense; and a
$0.2 million decrease in transportation expense.
32
Corporate expenses. Corporate expenses for the nine months ended September 30,
2015 were approximately $45.3 million, or 8.0% of total net revenue, an increase of $4.6 million, or 11.4%, from $40.7 million, or 7.8% of total net revenue, for the nine months ended September 30, 2014. The increase in corporate
expenses was attributable to a $2.6 million increase in compensation expense; a $1.6 million increase in depreciation expense; a $1.5 million increase in share-based compensation expense; and a $0.7 million increase in restructuring,
acquisition and integration-related costs associated with the reduction in workforce and to certain changes in senior management during the period. The increase was partially offset by a $1.4 million decrease in transportation expense; and a $0.4
million decrease in other operating infrastructure expense.
Non-operating Expenses
Interest expense. Interest expense for the nine months ended September 30, 2015 was $35.2 million, an increase of
$1.6 million from interest expense of $33.6 million for the nine months ended September 30, 2014. The increase in interest expense was primarily due to the increase in average outstanding balance of our indebtedness and an increase in
LIBOR interest rates compared to the prior year. As of September 30, 2015, we had total indebtedness of $789.1 million compared to $899.9 million as of September 30, 2014. See Note 6 of the Notes to Condensed Consolidated Financial
Statements herein for more details.
Other (expense) income. Other expense for the nine months ended September 30, 2015
was $0.2 million primarily attributable to a foreign exchange loss. Other income for the nine months ended September 30, 2014 was approximately $0.4 million comprised mainly of rental income.
Income tax expense. Income tax expense for the nine months ended September 30, 2015 was $6.6 million, a decrease of
$9.7 million from an income tax expense of $16.3 million for the nine months ended September 30, 2014, which was primarily attributable to decreased income before taxes. Income tax expense recorded during the nine months ended
September 30, 2015 and 2014 reflected an effective income tax rate of 47.0% and 42.5%, respectively. The increase in our effective tax rate was primarily driven by an increase in state income tax expense due to state legislative changes
pertaining to tax rates and apportionment of our taxable income.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. We base our estimates and judgments on historical
experience and other assumptions that we find reasonable under the circumstances. Actual results may differ materially from such estimates under different conditions.
Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult,
subjective or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in Item 7 (Managements Discussion and Analysis of Financial Condition and Results of Operations) of
Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014.
Liquidity and Capital Resources
Our primary cash requirements involve payment of ordinary expenses, working capital fluctuations, debt service obligations and capital
expenditures. Our capital expenditures typically consist of software purchases, internal product development capitalization and computer hardware purchases. Historically, the acquisition of complementary businesses has resulted in a significant use
of cash. Our principal sources of funds have primarily been cash provided by operating activities and borrowings under our credit facilities.
We believe we currently have adequate cash flow from operations, capital resources, available credit facilities and liquidity to meet our cash
flow requirements including the following near term obligations (next 12 months): (i) our working capital needs; (ii) our debt service obligations; (iii) planned capital expenditures; (iv) our revenue share obligation and
rebate payments; and (v) estimated federal and state income tax payments.
We expect our cash tax liability to increase in 2015 and
in the future, primarily attributable to exhausting all of our federal net operating loss and tax credit carryforwards.
33
We have not historically utilized borrowings available under our credit agreement to fund
operations. We implemented an auto-borrowing plan pursuant to which all excess cash on hand is used to repay our swing line credit facility on a daily basis. As a result, any excess cash on hand will be used to repay our swing line balance, if any,
on a daily basis. See Note 6 of the Notes to Condensed Consolidated Financial Statements for further details.
As of September 30,
2015, we had $85.0 million drawn on our revolving credit facility resulting in $214.0 million of availability under our revolving credit facility inclusive of the swing line component (after giving effect to $1.0 million of outstanding but
undrawn letters of credit on such date). We may observe fluctuations in cash flows provided by operations from period to period. Certain events may cause us to draw additional amounts under our swing line or revolving facility and may include the
following:
|
|
|
changes in working capital due to inconsistent timing of cash receipts and payments for major recurring items such as trade accounts payable, revenue share obligation, incentive compensation, changes in deferred
revenue, and other various items; |
|
|
|
unforeseeable events or transactions. |
We may continue to pursue other acquisitions or
investments in the future. We may also increase our capital expenditures consistent with our anticipated growth in infrastructure, software solutions, and personnel, and as we expand our market presence.
Cash provided by operating activities may not be sufficient to fund such expenditures. Accordingly, in addition to the use of our available
revolving credit facility, we may need to engage in additional equity or debt financings to secure additional funds for such purposes. Any debt financing obtained by us in the future could include restrictive covenants relating to our capital
raising activities and other financial and operational matters including higher interest costs, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition,
we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain required financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business
challenges could be limited.
Discussion of Cash Flow
As of September 30, 2015 and December 31, 2014, we had cash and cash equivalents of zero and $12.1 million, respectively.
Operating Activities.
The
following table summarizes the cash provided by operating activities for the nine months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
% |
|
|
|
(Unaudited, in thousands) |
|
Net income |
|
$ |
7,431 |
|
|
$ |
22,014 |
|
|
$ |
(14,583 |
) |
|
|
(66.2 |
%) |
Non-cash items |
|
|
109,203 |
|
|
|
88,696 |
|
|
|
20,507 |
|
|
|
23.1 |
|
Net changes in working capital |
|
|
26,974 |
|
|
|
(14,658 |
) |
|
|
41,632 |
|
|
|
284.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations |
|
$ |
143,608 |
|
|
$ |
96,052 |
|
|
$ |
47,556 |
|
|
|
49.5 |
% |
Net income represents the income attained during the periods presented and is inclusive of certain non-cash
expenses. These non-cash expenses include bad debt expense, impairment of property and equipment, depreciation of fixed assets, amortization of intangible assets, share-based compensation expense, deferred income tax expense, excess tax benefit from
the exercise of stock options, loss on sale of assets, amortization of debt issuance costs and non-cash interest expense. Refer to our condensed consolidated statement of cash flows for details regarding these non-cash items. The total for these
non-cash expenses was $109.2 million and $88.7 million for the nine months ended September
34
30, 2015 and 2014, respectively. The increase in non-cash expenses for the nine months ended September 30, 2015 compared to September 30, 2014 was primarily attributable to: (i) a
$10.3 million impairment of property and equipment; (ii) a $6.1 million increase in depreciation expense; (iii) a $2.8 million increase in the amortization of intangibles; (iv) a $2.0 million increase in share-based compensation; and
(v) a $1.2 million decrease in the excess tax benefit from exercise of equity awards. The increase was partially offset by a $2.3 million increase in our deferred income tax benefit. Refer to our Management Discussion and Analysis for more
detail.
Working capital is a measure of our liquid assets. Changes in working capital are included in the determination of cash provided
by operating activities. For the nine months ended September 30, 2015, the working capital changes resulting in an increase to cash flow from operations of $27.0 million primarily consisted of the following:
Increase to cash flow
|
|
|
a decrease in accounts receivable of $7.7 million primarily related to the timing of invoicing and cash collections; |
|
|
|
a decrease in prepaid expenses and other assets of $5.4 million primarily related to a decrease in prepaid insurance of $3.4 million from the timing of renewals; a decrease in other prepaid accounts of $3.0 million
the majority of which was attributable to prepaid payroll at year-end; and a $0.6 million decrease in prepaid taxes partially offset by an increase in deferred sales costs of $0.9 million and deferred royalty costs of $0.5 million;
|
|
|
|
a $1.9 million increase in accrued revenue share obligation and rebates due to the timing of cash payments and customer purchasing volume for our GPO; |
|
|
|
a $9.2 million increase in accrued payroll and benefits primarily due to an increase in performance-based compensation of $4.1 million; payroll cycle timing of $3.7 million; and an increase in severance of $3.0 million
associated with the reduction in force previously discussed. The increase was partially offset by lower accrued commissions of $2.0 million; and |
|
|
|
a $14.3 million increase in other accrued expenses and long-term liabilities primarily related to the $8.4 million reclassification of the cash book overdraft and an increase in the interest accrual of $6.5 million
due to the timing of our semi-annual bond interest payment. |
The working capital changes resulting in increases to cash flow
from operations discussed above were partially offset by the following changes in working capital resulting in decreases to cash flow:
Decrease to
cash flow
|
|
|
a $7.9 million decrease in trade accounts payable due to the timing of various payment obligations; and |
|
|
|
a $4.5 million decrease in deferred revenue due to timing of cash receipts and revenue recognition. |
For the nine months ended September 30, 2014, the working capital changes resulting in a decrease to cash flow from operations of
$14.7 million primarily consisted of the following:
Decrease to cash flow
|
|
|
an increase in accounts receivable of $13.2 million primarily related to the timing of invoicing and cash collections; |
|
|
|
a $4.3 million working capital decrease in trade accounts payable due to the timing of various payment obligations; and |
|
|
|
a $13.1 million decrease in accrued payroll and benefits due to payroll cycle timing and the payment of our 2013 performance-based compensation expense. |
The working capital changes resulting in decreases to cash flow from operations discussed above were partially offset by the following changes
in working capital resulting in increases to cash flow.
35
Increase to cash flow
|
|
|
a decrease in prepaid expenses and other assets of $1.6 million primarily related to a decrease in prepaid taxes; |
|
|
|
a $1.2 million increase in accrued revenue share obligation and rebates due to the timing of cash payments and client purchasing volume for our GPO; |
|
|
|
a $4.2 million increase in other accrued expenses primarily due to the timing of other payment obligations; and |
|
|
|
an increase in deferred revenue of $8.6 million for cash receipts not yet recognized as revenue. |
Investing Activities.
Investing
activities used $36.3 million of cash for the nine months ended September 30, 2015 which included $6.2 million for investment in property and equipment and $30.1 million of capitalized software development.
Investing activities used $178.6 million of cash for the nine months ended September 30, 2014 which included approximately $138.2 million
related to the Sg2 acquisition; $30.6 million for investment in capitalized software development and $9.8 million of capital expenditures.
We believe that cash used in investing activities will continue to be materially impacted by continued growth in investments in property and
equipment and capitalized software. Our property, equipment, and software investments consist primarily of SaaS-based technology infrastructure to provide capacity for expansion of our customer base, including computers and related equipment and
software purchased or implemented by outside parties. Our software development investments consist primarily of company-managed design, development, testing and deployment of new application functionality. In addition, cash used in investing
activities may be materially impacted by future acquisitions.
Financing Activities.
Financing activities used $119.4 million of cash for the nine months ended September 30, 2015. We made payments on our Term Loan
Facility of $24.9 million consisting of (i) $16.3 million in scheduled principal payments; (ii) $7.8 million relating to our annual excess cash flow payments; and (iii) we made a voluntary payment of $0.8 million on the Term B
Facility. We also made voluntary payments of $67.0 million on our revolving credit facility. We made payments of $0.5 million on our finance obligation (discussed below). In addition, we purchased 1,207,384 shares of common stock under our
share repurchase program totaling $25.0 million and also settled the tax liability relating to shares surrendered for tax withholdings totaling $3.9 million. This was partially offset by receipt of $1.4 million from the issuance of common stock
and $0.5 million from the excess tax benefit from the exercise of stock options. As of September 30, 2015, the Credit Agreement requires an assessment of excess cash flow for our fiscal year ended December 31, 2015. We would be
required to make any excess cash flow payment during the first quarter of 2016.
Financing activities provided $93.7 million of cash
for the nine months ended September 30, 2014. We received $216.1 million from borrowings on our revolving credit facility (inclusive of our swing line borrowings of $34.1 million); $3.4 million from the issuance of common stock; and
$1.8 million from the excess tax benefit from the exercise of stock options. This was partially offset by payments made on our Term Loan Facility of $80.7 million consisting of $11.6 million in scheduled principal payments, $35.0 million
in voluntary prepayments and payments of $34.1 million on our swing line. We also made payments of $0.5 million on our finance obligation (discussed below). In addition, we paid $0.6 million in debt issuance costs associated with the First
Increase Joinder discussed herein. We purchased 1,784,645 shares of common stock under our share repurchase program totaling $42.8 million and settled the tax liability relating to shares surrendered for tax withholdings totaling $3.0 million.
Off-Balance Sheet Arrangements and Commitments
We have provided a $1.0 million letter of credit to guarantee our performance under the terms of a ten-year lease agreement. The letter of
credit is associated with the capital lease of a building located in Cape Girardeau, Missouri under a finance obligation. We do not believe that this letter of credit will be drawn.
36
We lease office space and equipment under operating leases. Some of these operating leases
include rent escalations, rent holidays, and rent concessions and incentives. However, we recognize lease expense on a straight-line basis over the minimum lease term utilizing total future minimum lease payments. Our consolidated future minimum
rental payments under our operating leases with initial or remaining non-cancelable lease terms of at least one year are as follows as of September 30, 2015 for each respective year (Unaudited, in thousands):
|
|
|
|
|
|
|
Amount |
|
2015 |
|
$ |
4,856 |
(1) |
2016 |
|
|
9,061 |
|
2017 |
|
|
11,591 |
|
2018 |
|
|
12,624 |
|
2019 |
|
|
11,474 |
|
Thereafter |
|
|
89,230 |
|
|
|
|
|
|
Total future minimum rental payments |
|
$ |
138,836 |
|
|
|
|
|
|
(1) |
Represents the remaining rental payments due during the fiscal year ending December 31, 2015. |
As of September 30, 2015, we did not have any other off-balance sheet arrangements that have or are reasonably likely to have a current
or future significant effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for the following.
In October 2015, we amended our lease agreement in Skokie, Illinois which included adding approximately 25,000 square feet of office space in
addition to extending the term of the lease from March 31, 2019 to December 31, 2024. The lease term commences on or around July 1, 2016 with an option to extend the lease term for up to five years. The total estimated incremental
rental commitment under the lease agreement in addition to what is captured in the table above is approximately $10 million.
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 in its financial and operational decision-making, we supplement our condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial measures: EBITDA,
adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted diluted earnings per share.
These non-GAAP financial measures
have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We compensate for such limitations by relying primarily on our GAAP results and using non-GAAP
financial measures only supplementally. We provide reconciliations of non-GAAP measures to their most directly comparable GAAP measures, where possible. 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 us, may differ from and may not be comparable to similarly titled measures used by other companies.
EBITDA, adjusted EBITDA and adjusted EBITDA margin. We define: (i) EBITDA as net income before net interest
expense, income tax expense (benefit), depreciation and amortization; (ii) adjusted EBITDA as net income before net interest expense, income tax expense (benefit), depreciation and amortization and other non-recurring, non-cash or non-operating
items; and (iii) adjusted EBITDA margin as adjusted EBITDA as a percentage of net revenue. We use EBITDA, adjusted EBITDA and adjusted EBITDA margin to facilitate a comparison of our operating performance on a consistent basis from period to
period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing our operating performance
consistently over time as it removes the impact of our 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 our operational results. Adjusted EBITDA also removes the impact of non-cash share-based compensation expense, goodwill
impairments, property and equipment impairments and certain restructuring, acquisition and integration-related charges.
37
Our Board and management also use these measures as: (i) one of the primary methods for
planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive
incentive compensation programs, as well as for incentive compensation plans for employees generally.
Additionally, research analysts,
investment bankers and lenders may use these measures to assess our operating performance. For example, the Credit Agreement requires delivery of compliance reports certifying compliance with financial covenants certain of which are, in part, based
on an adjusted EBITDA measurement that is similar to the adjusted EBITDA measurement reviewed by our management and our Board. The principal difference is that the measurement of adjusted EBITDA considered by our lenders under the Credit Agreement
allows for certain adjustments (e.g., inclusion of interest income, franchise taxes and other non-cash expenses, offset by the deduction of our capitalized lease payments for one of our office leases) that result in a higher adjusted EBITDA than the
adjusted EBITDA measure reviewed by our Board and management and disclosed in our Annual Report on Form 10-K. Additionally, the Credit Agreement contains provisions that utilize other measures, such as excess cash flow, to measure liquidity.
EBITDA, adjusted EBITDA and adjusted EBITDA margin are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash
flow from continuing operating activities. Despite the advantages regarding the use and analysis of these measures as mentioned above, EBITDA, adjusted EBITDA and adjusted EBITDA margin, as disclosed herein, have limitations as analytical tools, and
you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the
limitations of EBITDA are:
|
|
|
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. |
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business,
we encourage you to review the GAAP financial statements included elsewhere herein, and not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net income to adjusted EBITDA in
this section, along with our condensed consolidated financial statements included elsewhere herein.
The following table sets forth a
reconciliation of EBITDA and adjusted EBITDA to net income, a comparable GAAP-based measure. All of the items included in the reconciliation from net income to EBITDA to adjusted EBITDA are either: (i) non-cash items (e.g., depreciation and
amortization, impairment of property and equipment and share-based compensation expense) or (ii) items that management does not consider in assessing our on-going operating performance (e.g., income taxes, interest expense and expenses related
to the cancellation of an interest rate swap and acquisition and integration-related expenses). In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the
measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other
non-recurring items, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
38
The following table reconciles net income to Adjusted EBITDA for the three and nine months ended
September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
Adjusted EBITDA Reconciliation |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited, in thousands) |
|
Net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
|
$ |
7,431 |
|
|
$ |
22,014 |
|
Depreciation |
|
|
13,691 |
|
|
|
11,845 |
|
|
|
40,589 |
|
|
|
35,247 |
|
Depreciation (included in cost of revenue) |
|
|
1,001 |
|
|
|
1,094 |
|
|
|
2,968 |
|
|
|
2,166 |
|
Amortization of intangibles |
|
|
14,829 |
|
|
|
13,936 |
|
|
|
44,816 |
|
|
|
41,989 |
|
Interest expense, net of interest income(1) |
|
|
11,555 |
|
|
|
11,338 |
|
|
|
35,232 |
|
|
|
33,625 |
|
Income tax (benefit) expense |
|
|
(995 |
) |
|
|
5,712 |
|
|
|
6,584 |
|
|
|
16,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
37,845 |
|
|
|
51,665 |
|
|
|
137,620 |
|
|
|
151,334 |
|
Impairment of property and equipment(2) |
|
|
10,309 |
|
|
|
|
|
|
|
10,309 |
|
|
|
|
|
Share-based compensation expense(3) |
|
|
5,590 |
|
|
|
4,809 |
|
|
|
16,721 |
|
|
|
14,703 |
|
Rental income from capitalizing building lease(4) |
|
|
(110 |
) |
|
|
(110 |
) |
|
|
(329 |
) |
|
|
(329 |
) |
Purchase accounting adjustments(5) |
|
|
116 |
|
|
|
94 |
|
|
|
944 |
|
|
|
94 |
|
Restructuring, acquisition and integration-related expenses(6) |
|
|
5,027 |
|
|
|
3,010 |
|
|
|
10,022 |
|
|
|
4,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
58,777 |
|
|
$ |
59,468 |
|
|
$ |
175,287 |
|
|
$ |
170,509 |
|
(1) |
Interest income is included in other income (expense) and is not netted against interest expense in our condensed consolidated statements of operations. |
(2) |
Represents the impairment of property and equipment relating to the elimination of certain capitalized software products within the RCM segment. |
(3) |
Represents non-cash share-based compensation to both employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based
compensation expense, which varies from period to period based on the amount and timing of grants. |
(4) |
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. |
(5) |
Represents the effect on revenue of adjusting the acquired deferred revenue balance associated with the Sg2 Acquisition to fair value at the acquisition date. |
(6) |
Represents the amount attributable to restructuring, acquisition and integration-related costs which may include costs such as severance, retention, salaries relating to redundant positions, certain performance-related
salary-based compensation, operating infrastructure costs and facility consolidation costs. |
Adjusted Net Income and
Diluted Adjusted Earnings Per Share. The Company defines: (i) adjusted net income as net income excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items on a tax-adjusted basis,
non-cash share-based compensation and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis; purchase accounting adjustments on a tax-adjusted basis; and (ii) diluted adjusted EPS as earnings per share
excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items, non-cash share-based compensation 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. Diluted adjusted EPS growth has been used historically by the Company as
the financial performance metric that determines whether certain equity awards granted pursuant to the Companys LTPIP will vest. Use of these measures allows management and the Board to analyze the Companys operating performance on a
consistent basis by removing the impact of certain non-cash and non-recurring items from our operations and assess organic growth and accretive business transactions. As a significant portion of senior managements incentive-based compensation
historically has been based on the achievement of certain diluted adjusted EPS growth over time, which is intended to reward them for organic growth and accretive business transactions, investors may find such information useful; however, as
non-GAAP financial measures, adjusted net income and diluted adjusted EPS are not the sole measures of the Companys financial performance and may not be the best measures for investors to gauge such performance.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited, in thousands) |
|
Net (loss) income |
|
$ |
(2,236 |
) |
|
$ |
7,740 |
|
|
$ |
7,431 |
|
|
$ |
22,014 |
|
Pre-tax non-cash, acquisition-related intangible amortization |
|
|
14,829 |
|
|
|
13,936 |
|
|
|
44,816 |
|
|
|
41,989 |
|
Pre-tax non-cash, share-based compensation(1) |
|
|
5,590 |
|
|
|
4,809 |
|
|
|
16,721 |
|
|
|
14,703 |
|
Pre-tax restructuring, acquisition and integration related expenses(2) |
|
|
5,027 |
|
|
|
3,010 |
|
|
|
10,022 |
|
|
|
4,707 |
|
Pre-tax non-cash, purchase accounting adjustment(3) |
|
|
116 |
|
|
|
94 |
|
|
|
944 |
|
|
|
94 |
|
Pre-tax non-cash, impairment of property and equipment(4) |
|
|
10,309 |
|
|
|
|
|
|
|
10,309 |
|
|
|
|
|
Tax effect on pre-tax adjustments(5) |
|
|
(14,348 |
) |
|
|
(8,739 |
) |
|
|
(33,124 |
) |
|
|
(24,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted net income |
|
$ |
19,287 |
|
|
$ |
20,850 |
|
|
$ |
57,119 |
|
|
$ |
58,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
Per share data |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited) |
|
EPS - diluted |
|
$ |
(0.04 |
) |
|
$ |
0.13 |
|
|
$ |
0.12 |
|
|
$ |
0.36 |
|
Pre-tax non-cash, acquisition-related intangible amortization |
|
|
0.25 |
|
|
|
0.23 |
|
|
|
0.74 |
|
|
|
0.69 |
|
Pre-tax non-cash, share-based compensation(1) |
|
|
0.09 |
|
|
|
0.07 |
|
|
|
0.27 |
|
|
|
0.23 |
|
Pre-tax restructuring, acquisition and integration related expenses(2) |
|
|
0.08 |
|
|
|
0.05 |
|
|
|
0.16 |
|
|
|
0.08 |
|
Pre-tax non-cash, purchase accounting adjustment(3) |
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
Pre-tax non-cash, impairment of property and equipment(4) |
|
|
0.17 |
|
|
|
|
|
|
|
0.17 |
|
|
|
|
|
Tax effect on pre-tax adjustments(5) |
|
|
(0.23 |
) |
|
|
(0.14 |
) |
|
|
(0.54 |
) |
|
|
(0.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP adjusted EPS - diluted |
|
$ |
0.32 |
|
|
$ |
0.34 |
|
|
$ |
0.94 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - diluted (in 000s)(6) |
|
|
60,884 |
|
|
|
60,662 |
|
|
|
60,822 |
|
|
|
61,269 |
|
(1) |
Represents the amount and the per share impact, on a pre-tax basis, of non-cash share-based compensation to employees and directors. We believe excluding this non-cash expense allows us to compare our operating
performance without regard to the impact of share-based compensation expense, which varies from period to period based on the amount and timing of grants. |
(2) |
Represents the amount and the per share impact, on a pre-tax basis, of restructuring, acquisition and integration-related costs which may include costs such as severance, retention, salaries relating to redundant
positions, certain performance-related salary-based compensation, operating infrastructure costs and facility consolidation costs. We consider these charges to be non-operating expenses and unrelated to our underlying results of operations.
|
40
(3) |
Represents the amount and the per share impact, on a pre-tax basis, of the effect on revenue of adjusting the acquired deferred revenue balance associated with the Sg2 Acquisition to fair value at the acquisition date.
|
(4) |
Represents the amount and the per share impact, on a pre-tax basis, of the impairment of property and equipment relating to the elimination of certain capitalized software products within the RCM segment.
|
(5) |
Reflects the tax impact on the adjustments used to derive Non-GAAP diluted adjusted EPS. We used a tax rate of 40.0% for the three and nine months ended September 30, 2015 and 2014 since we believe the 40% will be
our normalized long-term tax rate. The effective tax rate for the three months ended September 30, 2015 and 2014 was 30.8% (tax benefit) and 42.5%, respectively. The effective tax rate for the nine months ended September 30, 2015 and 2014
was 47.0% and 42.5%, respectively. |
(6) |
Given the Companys net loss for the three months ended September 30, 2015, 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. |
New Pronouncements
Business Combinations
In September
2015, the Financial Accounting Standards Board (FASB) issued an accounting standard update relating to the accounting for business combinations. The amendments in this update require that an acquirer recognize adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same periods financial statements, the
effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.
The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion
of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The update will be effective on
January 1, 2016.
Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board (FASB) issued an accounting standard update relating to simplifying the
presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. The update will be effective on January 1, 2016.
Going Concern
In August 2014, the FASB issued an accounting standard update relating to disclosure of uncertainties about an entitys ability to
continue as a going concern. The update provides guidance about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosures
in the event that there is such substantial doubt. The update will be effective on January 1, 2016.
Share-Based Compensation
In June 2014, the FASB issued an accounting standard update relating to reporting entities that grant their employees share-based payments in
which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. This update requires that a performance target that affects vesting and that could be achieved after the
requisite service period be treated as a performance condition. The update will be effective on January 1, 2016.
41
Revenue Recognition
In May 2014, the FASB issued an accounting standard update relating to revenue from contracts with customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The update will replace most existing revenue recognition guidance under GAAP when it becomes effective. The update was
originally to be effective for us on January 1, 2017. In July 2015, the FASB approved a one year extension to the required implementation date. As a result, the update is effective for us on January 1, 2018. Early application is not
permitted. The update permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the update will have on our consolidated financial statements and related disclosures. We have not yet
selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign currency exchange risk. Certain of our contracts are denominated in Canadian dollars. As our Canadian sales have not
historically been significant to our operations, we do not believe that changes in the Canadian dollar relative to the U.S. dollar will have a significant impact on our financial condition, results of operations or cash flows. We currently do not
transact any other business in any currency other than the U.S. dollar. As we continue to grow our operations, we may increase the amount of our sales to foreign customers. Although we do not expect foreign currency exchange risk to have a
significant impact on our future operations, we will assess the risk on a case-specific basis to determine whether any forward currency hedge instrument would be warranted.
Interest rate risk. We had outstanding borrowings on our Term Loan Facility and Revolving Credit Facility of $464.1 million
as of September 30, 2015. The Term A Facility and the Revolving Credit Facility bear interest at LIBOR plus an applicable margin. The Term B Facility bears interest at LIBOR, subject to a floor of 1.25% plus an applicable margin. We also had an
aggregate principal amount of our Notes of $325.0 million outstanding as of September 30, 2015, which bears interest at 8% per annum.
To the extent we do not hedge our variable rate debt, interest rates and interest expense could increase significantly.
A hypothetical 100 basis point increase in LIBOR, which would represent potential interest rate change exposure on our outstanding term
loans, would have resulted in an approximate $3.5 million increase to our interest expense for the nine months ended September
30, 2015.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any control and procedure, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship regarding the potential utilization of certain controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our chief executive officer and chief
financial officer, evaluated the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our chief executive officer and chief financial
officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and were operating at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting for the three months ended September 30, 2015 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we become involved in legal proceedings arising in the ordinary course of our business. We are not presently involved in any
legal proceedings, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, operating results or financial condition.
Item 1A. Risk Factors
There have been no material changes in the risk factors as disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock repurchases during the nine months ended September 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) |
|
(In thousands, except share and per share data) |
|
May 1-31, 2015 |
|
|
347,200 |
|
|
$ |
20.55 |
|
|
|
347,200 |
|
|
$ |
50,096 |
|
June 1-30, 2015 |
|
|
68,036 |
|
|
$ |
21.37 |
|
|
|
415,236 |
|
|
|
48,642 |
|
July 1-31, 2015 |
|
|
121,182 |
|
|
$ |
20.90 |
|
|
|
536,418 |
|
|
|
46,109 |
|
August 1-31, 2015 |
|
|
286,329 |
|
|
$ |
20.84 |
|
|
|
822,747 |
|
|
|
40,141 |
|
September 1-30, 2015 |
|
|
384,637 |
|
|
$ |
20.57 |
|
|
|
1,207,384 |
|
|
|
32,230 |
|
(1) |
In February 2015, our Board of Directors authorized an extension to our existing share repurchase program until February 29, 2016 and increased the total dollar amount available for the repurchase of shares of our
common stock to $100,000 subject to certain restrictions under our Credit Agreement and Indenture. As of September 30, 2015, we had approximately $32,230 available for repurchase under our existing share repurchase program. |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
Not applicable
43
Item 6. Exhibits
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|
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Exhibit No. |
|
Description of Exhibit |
|
|
10.1* |
|
Senior Executive Change in Control Severance Plan and Participation Agreement, dated September 13, 2012, by and between the Company and Bharat Sundaram |
|
|
31.1* |
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Executive Officer |
|
|
31.2* |
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer |
|
|
32.1* |
|
Sarbanes-Oxley Act of 2002, Section 906 Certification for Chief Executive Officer and Chief Financial Officer |
|
|
101.INS* |
|
XBRL Instance Document |
|
|
101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
44
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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|
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Signature |
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|
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Title |
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|
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Date |
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|
|
|
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/s/ R. HALSEY WISE |
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|
|
Chairman and Chief Executive Officer |
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November 6, 2015 |
Name: R. Halsey Wise |
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(Principal Executive Officer) |
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|
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/s/ ANTHONY COLALUCA, JR. |
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|
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Chief Financial Officer |
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|
|
November 6, 2015 |
Name: Anthony Colaluca, Jr. |
|
|
|
(Principal Financial Officer) |
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|
|
|
45
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description of Exhibit |
|
|
10.1* |
|
Senior Executive Change in Control Severance Plan and Participation Agreement, dated September 13, 2012, by and between the Company and Bharat Sundaram |
|
|
31.1* |
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Executive Officer |
|
|
31.2* |
|
Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer |
|
|
32.1* |
|
Sarbanes-Oxley Act of 2002, Section 906 Certification for Chief Executive Officer and Chief Financial Officer |
|
|
101.INS* |
|
XBRL Instance Document |
|
|
101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
46
Exhibit 10.1
MedAssets Services, LLC
Senior Executive Change in Control Severance Plan
ARTICLE 1. Plan Purpose and Effective Date
1.1 Purpose.
The purpose of the MedAssets Services, LLC Senior Executive Change in Control Severance Plan (the Plan) is to assure MedAssets Services, LLC and its Affiliates (collectively, the Company) of the continued dedication, loyalty,
and service of, and the availability of objective advice and counsel from senior executives of the Company in the event of a Change in Control. It is intended that this Plan will constitute an employee welfare benefit plan under the Employee
Retirement Income Security Act of 1974, as amended (ERISA).
1.2 Effective Date. This Plan shall be effective as of August 20, 2012 (the
Effective Date).
ARTICLE 2. Eligibility, Participation and Administration
2.1 Eligibility. The Plan Administrator, in its sole discretion, may from time to time designate key employees of the Company who are eligible to participate
in the Plan.
2.2. Participation; Execution of Participation Agreement. Each employee designated by the Plan Administrator pursuant to Article 2.1 shall
become a Participant in the Plan only upon the Participants and the Companys execution of a Participation Agreement in the form, or substantially the form, attached hereto as Exhibit A. The Administrator may terminate any
Participants participation in the Plan at any time and for any reason, in its sole discretion, except as set forth in the next sentence. Any attempted termination of a Participants participation shall not be effective it if occurs within
90 days before the Change in Control Date or within 12 months after the Change in Control Date, unless the Participant consents to the termination in a signed writing.
2.3 Administration.
2.3.1 The Plan Administrators
determinations will be conclusive and binding on all parties affected by its determinations. The Plan Administrator shall be the Company. The Company is also the named fiduciary of the Plan for purposes of ERISA. Prior to a
Change in Control, the Board has sole and absolute discretion and authority to administer the Plan on behalf of the Company, including the discretionary power and authority to:
(a) adopt such rules as it deems advisable in connection with the administration of the Plan; to construe, interpret, apply and enforce the Plan and any such
rules; and to remedy ambiguities, errors, or omissions in the Plan;
(b) determine eligibility pursuant to Article 2.1; determine the terms and conditions
of individual Participation Agreements pursuant to Article 2.2; and determine any other terms and conditions of Plan eligibility and participation, including, but not limited to, the Severance Period and the amount and method of payment;
(c) perform any and all acts as necessary or appropriate under the Plan on a case-by-case basis, which acts and related decisions may or may not be uniform
with respect to similarly-situated participants.
2.3.2 If any person with administrative authority under the Plan becomes eligible or makes a claim for
Plan benefits, then that person will have no authority with respect to any matter directly affecting his or her individual interest under the Plan and the Company will designate another person to exercise such authority.
2.3.3 Regardless of any terms in this Plan that conflict or may seem to conflict, after a Change in Control: (a) neither the Plan Administrator nor any
other person shall have discretionary authority in the administration of the Plan; and (b) any court or tribunal that adjudicates any dispute, controversy, or claim in connection with benefits described in Article 4 must apply a de novo
standard of review to any determinations made by the Plan Administrator. Such de novo standard shall apply notwithstanding the grant of full discretion hereunder to the Plan Administrator, and notwithstanding the characterization of any decision by
the Plan Administrator as final, binding, or conclusive.
ARTICLE 3. Definitions
The following capitalized terms as used in this Plan shall have the meanings set forth in this Article 3:
3.1 Affiliate means any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the
Company (including, but not limited to, joint ventures, limited liability companies and partnerships), as determined by the Plan Administrator.
3.2
Base Salary means a Participants annualized base salary, as in effect on the date of separation from employment, determined without regard to any reduction thereof that constitutes Good Reason under this Plan.
3.3. Board means the Board of Directors of the Company, or any Committee of the Board to which the Board delegates its authority to
administer the Plan.
3.4. Cause means (i) Participants act(s) of gross negligence or willful misconduct in the course of
Participants employment that is or could reasonably be expected to be materially injurious to the Company or any Affiliate, (ii) willful failure or refusal by Participant to perform in any material respect his duties or responsibilities,
(iii) misappropriation by Participant of any assets or business opportunities of the Company or any Affiliate, (iv) embezzlement or fraud committed by Participant, or at his direction, (v) Participants conviction by a court of
competent jurisdiction of, or pleading guilty or no contest to, a felony or any other criminal charge (other than minor traffic violations) that has, or could be reasonably expected to have, an adverse impact on the
performance of Participants duties to the Company or any Affiliate or otherwise result in material injury to the reputation or business of the Company or any Affiliate, or (vi) Participants breach of any material provision of this
Plan. For purposes of this definition of Cause, no act or failure to act on the part of Participant shall be considered willful if it is done, or omitted to be done, by Participant in good faith and with a good faith belief that
Participants act or omission was in the best interests of the Company.
3.5. Change in Control means any of the following events,
whichever occurs first, as construed in accordance with Article 409A of the Code and the regulations issued thereunder:
|
(i) |
a change in ownership or control of the Company effected through a transaction or series of transactions (other than an offering of stock to the general public through a registration statement filed with the Securities
and Exchange Commission) whereby any person or related group of persons (as such terms are used in Articles 13(d) and 14(d)(2) of the Exchange Act), any Affiliate, or any employee benefit plan maintained by the
Company or any Affiliate, directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company and thereby comes to possess more than 50% of the total combined voting
power of the Companys securities outstanding; or |
|
(ii) |
the date upon which the individuals who constitute the Board as of the Effective Date (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided however, any
individual who becomes a director subsequent to the Effective Date whose election, or nomination for election by the Companys stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board
shall be treated for Plan purposes as though he/she were a member of the Incumbent Board except as set forth in the next sentence. Any individual who assumes office as a result of either of the following shall not be deemed a member of the Incumbent
Board: any actual or threatened election contest with respect to the election or removal of directors, and any other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or |
|
(iii) |
the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any person or group (as such terms are defined in
Articles 13(d)(3) and 14(d)(2) of the Exchange Act) other than to one or more Affiliates. |
3.6 Code means the
Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder.
3.7 Company means MedAssets Services, LLC, a
Delaware Limited Liability Company.
3.8 Change in Control Date means the date on which a Change of Control becomes effective.
3.9 Effective Date means the Effective Date of the Plan, as set forth in Article 1.
3.10 Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
3.11 Excise Tax shall mean any tax imposed under Article 4999 of the Code or any similar tax
that may hereafter be imposed.
3.12 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
3.13 Good Reason means without the Participants consent: (i) a material diminution in the Participants base compensation;
(ii) a material diminution in the Participants duties or responsibilities; or (iii) a material change in the geographic location at which the Participant must perform services that is greater than fifty (50) miles from the
geographic location at which the Participant previously performed such services. A material diminution in duties and responsibilities would not be deemed to occur for purposes of clause (ii) solely because the Participant did not retain the
same title or continue to work in the same business division, or because the Participant has a different reporting relationship following a Change in Control, except as otherwise provided in an individual Participation Agreement. Good Reason shall
not exist unless the Participant notifies the Company in writing of the existence of the applicable condition specified above no later than ninety (90) days after the initial existence of any such condition, and the Company fails to remedy such
condition within thirty (30) days after receipt of such notice.
3.14 Participant means an individual designated by the Plan
Administrator as eligible to participate in the Plan pursuant to Article 2.1 of the Plan who executes and returns to the Company a Participation Agreement in accordance with Article 2.2 of the Plan.
3.15 Participation Agreement means any agreement entered between a Participant and the Company pursuant to Article 2.2 of the Plan.
3.16 Plan means this MedAssets Services, LLC Senior Executive Change in Control Severance Plan, as it may be amended from time to time.
Plan includes any Participation Agreement entered into pursuant to Article 2.2 the Plan.
|
|
|
3.17 Projected Bonus shall equal |
|
|
T represents the Participants target annual bonus for the year in which the termination of his or
her employment occurs, determined without regard to any reduction thereof that would constitute Good Reason.
t and tt
represent the Participants target annual bonus for the two years immediately preceding the year in which Participant separates from employment; t represents the target bonus for the calendar year immediately preceding the year in
which Participant separates from employment; tt represents the target bonus for the calendar year prior to that.
p and
pp represent the annual bonus paid to Participant for the two years immediately preceding the year in which Participant separates from employment; p represents the bonus that Participant received for the calendar year
immediately preceding the year in which Participant separates from employment; pp represents the bonus that Participant received for the calendar year prior to that. If the applicable Participant was not employed with the Company during the
two years immediately preceding the year in which the Participant separates from employment, then the Plan Administrator may adjust the value of the lower-case variables as necessary to reflect the Companys most recent two-year bonus payout
history under the same or comparable bonus plans.
S represents the number of calendar months in the Participants Severance
Period.
3.18 Revocation Period means the period of time during which a Participant may revoke his or her waiver and release of claims
executed pursuant to Article 5.1 of the Plan.
3.19 Severance Period means the applicable period of time, measured in calendar months,
for which Severance Benefits (defined in Article 4.2.1) will be calculated and/or paid to a Participant, as further described in Article 4.2. The Severance Period begins on the first day following the Participants last day of employment with
the Company, and ends on the last day of the last calendar month in the Severance Period.
ARTICLE 4. Severance Benefits
4.1 Entitlement to Severance Benefits. If on or within 12 months after the Change in Control Date, either the Company terminates the Participants
employment without Cause or the Participant terminates his or her own employment with Good Reason, then the Company shall make the payments to the Participant as specified under Articles 4.2 through 4.5, subject to the Participants
satisfaction of the requirements of Article 5 of the Plan (the Severance Benefits).
4.2. Severance Benefits.
4.2.1 Subject to Article 4.1 and Article 5, the Company shall pay to the Participant the following Severance Benefits in substantially equal installments
during the Severance Period, in accordance with the Companys regular payroll practices, beginning no later than the next regular payroll cycle following the expiration of any applicable Revocation Period (which expiration must occur within 60
days following Participants separation from employment):
|
(i) |
the Participants Base Salary divided by 52 weeks and multiplied by the number of weeks in the applicable Severance Period, plus |
|
(ii) |
the Participants Projected Bonus. |
4.2.2 In addition, for some, but not necessarily all Participants,
any equity awards granted to a Participant under any plan, program, or arrangement maintained by the Company which have not previously vested shall become fully vested and all restrictions on the exercise thereof shall lapse. These accelerated
vesting rights are also considered Severance Benefits for purposes of this Plan, but are not applicable or enforceable unless explicitly contemplated under an applicable Participation Agreement.
4.5 Article 280G Excise Tax. If any payment, benefit or distribution of any type to or for the benefit of Participant, whether paid or payable, provided or to
be provided, or distributed or distributable pursuant to the terms of this Plan (collectively, the Parachute Payments) would subject Participant to the Excise Tax, the Parachute Payments shall be reduced so that the maximum
amount of the Parachute Payments (after reduction) shall be one dollar less than the amount which would cause the Parachute Payments to be subject to the Excise Tax, except as set forth in the next sentence. The Parachute Payments shall only be
reduced to the extent the after-tax value of amounts received by Participant after application of the reduction would exceed the after-tax value of the amounts that would have been received in the absence of the reduction. For this purpose, the
after-tax value shall be determined taking into account all federal, state, and local income, employment, and excise taxes applicable to the amount.
Subject to the next sentence, the Company shall reduce or eliminate the Parachute Payments by first reducing or eliminating any cash Severance Benefits (with
the payments to be made furthest in the future being reduced first), then by reducing or eliminating any accelerated vesting of performance-based stock options or substantially similar awards (if applicable), then by reducing or
eliminating any accelerated vesting of performance-based restricted stock awards or substantially similar awards (if applicable), then by reducing or eliminating any accelerated vesting of service-based stock options or substantially similar
awards (if applicable), then by reducing or eliminating any accelerated vesting of service-based restricted stock awards or substantially similar awards (if applicable), then by reducing or eliminating any other remaining Parachute
Payments (if applicable); provided, that no such reduction or elimination shall apply to any non-qualified deferred compensation amounts (within the meaning of Article 409A) to the extent such reduction or elimination would accelerate or
defer the timing of the payment in manner that does not comply with Article 409A. If a reduction or elimination of any Parachute Payments is required, Participant may change the order in which the Parachute Payments are reduced or eliminated by
giving prior written notice to the Company, if such notice is consistent with the requirements of Article 409A to avoid the imputation of any tax, penalty or interest thereunder.
An initial determination as to whether (i) any of the Parachute Payments received by Participant in connection with the occurrence of a Change in Control
shall be subject to the Excise Tax, and (ii) the amount of reduction, if any, that may be required under this Article 4.5 shall be made by an independent accounting firm selected by the Company and reasonably acceptable to Participant (the
Accounting Firm) within two weeks following any separation from employment in which the Excise Tax may apply. The Participant shall be furnished with notice of all determinations made as to the Excise Tax payable with respect
to Participants Parachute Payments, together with the related calculations of the Accounting Firm, promptly after the determinations and calculations have been received by the Company.
For purposes of this Article 4.5: (i) no portion of the Parachute Payments, the receipt or enjoyment of
which the Participant shall have effectively waived in writing prior to the date of payment of the Parachute Payments, shall be taken into account; (ii) no portion of the Parachute Payments shall be taken into account which in the opinion of
the Accounting Firm does not constitute a parachute payment within the meaning of Article 280G(b)(2) of the Code; (iii) the Parachute Payments shall be reduced only to the extent necessary so that the Parachute Payments (other than
those referred to in the immediately preceding clauses (i) and (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of Article 280G(b)(4) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the Accounting Firm; and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Parachute Payments shall be determined by the Accounting Firm based on Articles
280G and 4999 of the Code, or on substantial authority within the meaning of Article 6662 of the Code.
4.6 Article 409A Compliance. Notwithstanding any
provision in this Plan to the contrary:
(a) Any payment otherwise required to be made under this Plan to any Participant at any date shall
be delayed for any period of time as may be necessary to meet the requirements of Article 409A(a)(2)(B)(i) of the Code (the Delay Period). On the first business day following the expiration of the Delay Period, Participant shall be paid,
in a single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule set forth in this
Plan;
(b) Each payment in a series of payments hereunder shall be deemed to be a separate payment for purposes of Article 409A of the
Code; and
(c) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Plan constitutes
nonqualified deferred compensation (within the meaning of Article 409A of the Code): (i) the Company shall make any such expense reimbursement no later than the last day of the taxable year following the taxable year in which the Participant
incurred the applicable expense, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits
provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided that the foregoing clause shall not be violated with regard to expenses reimbursed under
any arrangement covered by Article 105(b) of the Code solely because such expenses are subject to a limit related to the period during which the arrangement is in effect.
ARTICLE 5. Terms and Conditions of Participation
5.1
Waiver and Release of Claims. Regardless of any provision in this Plan that conflicts or may seem to conflict: payment of any amount or provision of any benefit pursuant to this Plan shall be conditioned upon the applicable Participants
execution, delivery to the Company, and non-revocation of a release and waiver of claims in favor of the Company and its Affiliates in such form as is reasonably required by the Company and consistent with the terms of this Plan (the
Release of Claims), and also conditioned upon the expiration of any revocation period allowed under the Release of Claims within no more than 60 days following the date of termination of Participants employment.
The Company shall provide such Release of Claims to Participant within five days of the date of termination of Participants employment. If Participant fails to execute the Release of Claims in a manner that is sufficiently timely so as
to permit any revocation period to expire prior by the end of this 60-day period, or timely revokes his or her acceptance of the Release of Claims, then Participant shall not be entitled to any Severance Benefits under this Plan. Further, to the
extent that any of the Severance Benefits under this Plan constitute nonqualified deferred compensation for purposes of Article 409A of the Code, any payment of any amount, and the provision of any benefit otherwise scheduled to occur
prior to the 60th day following the date of termination of Participants employment (but for the condition on executing the Release of Claims) shall not be made until the first regularly
scheduled payroll date following the 60th day. Then after that 60th day, any remaining Severance Benefits shall be provided to Participant
according to the applicable schedule set forth in this Plan.
5.2 At-Will Employment. All Participants are at-will employees. This Plan does not
constitute a contract of employment for a definite term. Participants have the right to end their employment relationship with the Company at any time for any reason. Similarly, a Participants employment can be terminated at the discretion of
the Company for any reason at any time.
5.3 Non-Duplication. Severance Benefits under this Plan shall be in lieu of any other severance or similar
payments that might otherwise be payable under any other Company-sponsored plan, program, policy or agreement, regardless of whether the Participant would otherwise have been eligible to receive severance or similar payments under any of those
plans, programs, policies or agreements.
5.4 Right of Offset. Any Severance Benefits payments will be offset by any amounts Participant owes to the
Company. For example and not by way of limitation, if Participant owes any balance on a corporate credit card for which the Company is or may be held responsible, owes the Company any relocation assistance that is subject to repayment, or has
received a draw or other advance against future incentive payments that have not been earned as of the date of separation from employment, then the Company may deduct those amounts from any and all Severance Benefits payments without further notice
to Participant.
5.5 Non-Competition. The Participants acceptance of, agreement to, and compliance with all non-competition restrictions set forth
in any agreement that may be required by the Company is a condition to participation in this Plan. Failure to comply with these restrictions will result in forfeiture of any and all Severance Benefits.
5.6 Non-Solicitation. The Participants acceptance of, agreement to, and compliance with all non-solicitation restrictions (including both employee and
customer non-solicitation restrictions) set forth in any agreement that may be required by the Company is a condition to participation in this Plan. Failure to comply with these restrictions will result in forfeiture of any and all Severance
Benefits.
5.7 Non-Disparagement. Participation in this Plan is subject to the Participants non-disparagement of the Company, both during and after
employment. Failure to comply with these restrictions will result in forfeiture of any and all Severance Benefits.
5.8 Confidentiality. This Plan is
confidential. Its terms, conditions, and even the existence of the Plan must not be disclosed, both during and after employment, except as set forth in this Article 5.8. Participant may disclose the terms and conditions of this Plan as necessary to
enforce any rights under the Plan. Participant may disclose the terms and conditions of this Plan to his or her legal counsel, accountant, and/or tax advisor for purposes of obtaining their assistance, and may also disclose the terms and conditions
of this Plan to his or her spouse or life partner, provided that the Participant advise and require that the receiving party not disclose the information to anyone else. The Company may disclose the terms and conditions of this Plan as necessary in
the ordinary course of business. Both the Company and the Participant may disclose the Plan in order to comply with any law, regulation, or order by a court or other tribunal of competent jurisdiction.
5.9 No Other Rights. A Participant shall have no rights to any benefits under this Plan if he or she is separated from employment with the Company for any
reason prior to a Change in Control, or for any reason more than 12 months following a Change in Control.
5.10 Clawbacks. Regardless of any language that
conflicts or may seem to conflict, the Participant forfeits all benefits of this Plan, including all Severance Benefits, if he or she violates any of the terms of this Article 5, any terms of a Release and Waiver of Claims, or any other
confidentiality, non-disclosure, non-competition, non-solicitation, non-disparagement, or other material term of any agreement between Participant and the Company. The Company reserves the right to stop payment of any and all Severance Benefits, and
to require repayment of any and all Severance Benefits already paid, in the event that Participant commits such a violation.
ARTICLE 6. Benefit Claims
6.1.1 Benefit Claims. A Participant who has not been awarded Severance Benefits under the terms of this Plan may file a written claim for Severance
Benefits with the Plan Administrator.
6.1.2 Any claim shall be decided within 90 days by the Plan Administrator unless special circumstances require an
extension of up to 90 additional days. If the Plan Administrator determines that an extension is necessary, it shall provide the claimant with written notice of the need for an extension prior to the termination of the initial 90-day period,
indicating the special circumstances requiring an extension and the date by which the Plan Administrator expects to render its decision. Written notice of the Plan Administrators decision on the claim shall be furnished promptly to the
claimant. If the claim is denied in whole or in part, such written notice shall (i) set forth, in a manner calculated to be understood by the claimant, the specific reason or reasons for the determination; and (ii) reference the specific
plan provisions on which the determination is based.
6.1.3 Within 60 days following receipt of an adverse benefit determination, a claimant may file a
request for review of the initial claim in writing with the Plan Administrator. A claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records or other information in the Plan
Administrators possession
relevant to the claimants claim for Severance Benefits, redacted as necessary to protect the Companys or any third partys confidential or proprietary information. The claimant
may also submit comments, documents, records and other information relating to the claim, which shall be taken into account by the Plan Administrator in reviewing its denial of the Participants claim, without regard to whether such information
was submitted or considered in the initial benefit determination.
6.1.4 Notice of the Plan Administrators decision on review shall be furnished to
the claimant within 60 days following the receipt of the request for review, unless special circumstances require an extension of up to 60 additional days, in which case written notice of the extension shall be furnished to the claimant prior to the
end of the initial 60-day period, indicating the special circumstances requiring an extension and the date by which the Plan Administrator expects to render its decision on review. If the Plan Administrator makes an adverse benefit determination
upon review, the adverse benefit determination will set forth, in a manner calculated to be understood by the claimant, the same documents and disclosures described in Article 6.1.2.
ARTICLE 7. General
7.1 Amendment and Termination of the
Plan. The Plan Administrator may amend or terminate this Plan in any respect and at any time; provided, however, that this Plan may not be amended or terminated during the first twelve months immediately following the Change in Control Date.
Notwithstanding anything herein to the contrary, the Plan may be amended by the Plan Administrator at any time, including retroactively if required, in order to conform the Plan to the provisions of Article 409A of the Code or any authoritative
guidance issued thereunder and to conform the Plan to the requirements of any other applicable law.
7.2 Integration with Other Benefit Programs.
Severance Benefits payable under this Plan, whether paid in a lump sum or in periodic payments, will not increase or decrease the benefits otherwise available to a Participant under any Company-sponsored retirement plan, welfare plan or any other
employee benefit plan or program, except as set forth under Article 5.3.
7.3 Funding. Severance Benefits payable under this Plan will be paid only from
the general assets of the Company or a successor. The Plan does not create any right to or interest in any specific assets of the Company.
7.4 No
Mitigation. The Participant shall not be obligated to seek other employment in mitigation of the amounts payable under any provision of this Plan, and the obtaining of such other employment shall not warrant or cause any reduction of the
Companys obligations to pay any Severance Benefits under this Plan.
7.6 Withholding. The Company may withhold from any payments made under this
Plan any and all applicable federal, state, local or other taxes required pursuant to any law or governmental regulation or ruling, as well as any other mandatory or permissible withholdings.
7.7 Successors. All rights under this Plan are personal to the Participant and without the prior written consent of the Company shall not be assignable by the
Participant other than by will or the laws of descent and distribution. This Plan shall inure to the benefit of and be binding upon the Participant and his/her permissible successors and assigns, as well as on the Company and its successors and
assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform the obligations set
forth in this Plan in the same manner and to the same extent as the Company would be required to do so.
7.8 Controlling Law; Jurisdiction. This Plan
shall in all respects be governed by, and construed in accordance with, the laws of the State of Georgia (without regard to principles of conflicts of laws).
7.9 Severability. Any provision in this Plan which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to
the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
7.10 Notices. Notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States certified mail (postage prepaid), or by prepaid overnight courier, to the Company at its corporate headquarters address, to the attention of the General Counsel, or to the Participant
at the home address as reflected in the Companys records.
EXHIBIT A
MEDASSETS SERVICES, LLC
SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN PARTICIPATION AGREEMENT
The Company has adopted the MedAssets Services, LLC Senior Executive Change in Control Severance Plan (the Plan), a copy of which is attached. In
order to become a Participant in the Plan, you must acknowledge and agree to all of the terms and conditions of the Plan by executing this Participation Agreement (Participation Agreement) and returning it to Keith Hicks no later than
September 14, 2012.
Pursuant to the Plan, this Participation Agreement is hereby made by and between Bharat Sundaram, VP Corporate Operations,
(you or the Participant) and MedAssets Services, LLC (the Company), as of the date set forth below.
Your Severance
Period, described in Article 3.16 of the Plan, is 12 calendar months. The Severance Benefits (described in Article 4.2 of the Plan) include the accelerated vesting rights described in Article 4.2.2.
Before executing this Participation Agreement, please review the entire Plan carefully, including, but not limited to, the Terms and Conditions of
Participation set forth in Article 5 of the Plan. As further described in Article 5.3 of the Plan, by signing this Participation Agreement, you waive any right you may otherwise have to participate in or receive severance or similar payments
under any other Company-sponsored severance plan, program, policy or agreement.
IN WITNESS WHEREOF, the Participant and the Company hereby execute this
Participation Agreement effective as of the date last written below.
|
MEDASSETS SERVICES, LLC |
|
By: /s/ Keith Hicks |
Keith W. Hicks, Senior Vice President and Chief People Officer |
|
Date: August 27, 2012 |
PARTICIPANT
I, Bharat
Sundaram, have read the Plan, including the foregoing Participation Agreement, understand the terms and conditions of the Plan, including the Participation Agreement, and hereby agree to be bound thereby:
By: /s/ Bharat Sundaram
Date: September 13, 2012
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, R.
Halsey Wise, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of MedAssets, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants
internal control over financial reporting.
|
Date: November 6, 2015 |
|
/s/ R. Halsey Wise |
R. Halsey Wise |
Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECURITIES
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Anthony
Colaluca, Jr., certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of MedAssets, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the
registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and
5. |
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
a) all significant deficiencies and
material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants
internal control over financial reporting.
Date: November 6, 2015
|
/s/ Anthony Colaluca, Jr. |
Anthony Colaluca, Jr.
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of MedAssets, Inc. (the Company) on Form 10-Q for the quarter ended September 30, 2015 as filed with
the Securities and Exchange Commission on the date hereof (the Report), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ R. Halsey Wise |
R. Halsey Wise |
Chairman and Chief Executive Officer |
November 6, 2015 |
|
/s/ Anthony Colaluca, Jr. |
Anthony Colaluca, Jr. |
Executive Vice President and Chief Financial Officer |
November 6, 2015 |
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to
the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
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