ATLANTA, Oct. 29, 2014 (GLOBE NEWSWIRE) -- MedAssets, Inc. (Nasdaq:MDAS) today announced results for its third quarter and nine-month period ended September 30, 2014.
Third Quarter
| (In millions, except per share) | 3Q'14 | 3Q'13 | % Change |
| Net Revenue: | |||
| Spend and Clinical Resource Mgmt (SCM) | $105.8 | $103.2 | 2.5% |
| Revenue Cycle Management (RCM) | 69.9 | 63.1 | 10.7 |
| Total Net Revenue a | 175.7 | 166.4 | 5.6 |
| Net income | 7.7 | 6.9 | 12.1 |
| Earnings per share (EPS) - diluted | 0.13 | 0.11 | 18.2 |
| Non-GAAP adjusted EBITDA | 59.5 | 53.9 | 10.3 |
| Non-GAAP adjusted EPS - diluted | $0.34 | $0.31 | 9.7 |
| Weighted average shares - diluted | 60.7 | 61.5 | (1.3)% |
| (a) Column amounts may not add to total due to rounding. | |||
Net Revenue
Total net revenue for the third quarter of 2014 increased 5.6% to $175.7 million from $166.4 million for the third quarter of 2013. Net revenue in the SCM segment increased 2.5% to $105.8 million from $103.2 million for the third quarter of 2013 due to growth in group purchasing net administrative fees and other service fees. The acquisition of Sg2 on September 22, 2014 resulted in approximately $1.1 million of SCM segment and total net revenue in the most recent third quarter. Net revenue in the RCM segment increased 10.7% to $69.9 million from $63.1 million for the third quarter of 2013 as technology-related revenue (67.5% of RCM segment revenue) increased 5.1%, while services-related revenue rose 24.6%.
Non-GAAP Adjusted EBITDA
Total non-GAAP adjusted EBITDA for the third quarter of 2014 increased 10.3% to $59.5 million, or 33.8% of total net revenue, from total non-GAAP adjusted EBITDA of $53.9 million, or 32.4% of total net revenue, for the third quarter of 2013. Sg2 added approximately $0.1 million in SCM segment and total non-GAAP adjusted EBITDA in the most recent third quarter.
Net Income and Non-GAAP Adjusted Earnings Per Share (EPS)
Net income for the third quarter of 2014 increased 12.1% to $7.7 million, or $0.13 per share, and included $3.0 million in expenses related to the acquisition of Sg2. This compared with net income of $6.9 million, or $0.11 per share, for the third quarter of 2013. Non-GAAP adjusted EPS (defined as EPS excluding non-cash acquisition-related intangible amortization and depreciation, non-cash share-based compensation, certain restructuring, acquisition and integration-related expenses and non-recurring items on a tax-adjusted basis) rose 9.7% to $0.34 per share for the third quarter of 2014, compared with $0.31 per share for the third quarter of 2013.
Nine-Month Period
| (In millions, except per share) | 9 mos. '14 | 9 mos. '13 | % Change |
| Net Revenue: | |||
| Spend and Clinical Resource Mgmt (SCM) | $320.3 | $318.0 | 0.7% |
| Revenue Cycle Management (RCM) | 201.7 | 191.9 | 5.1 |
| Total Net Revenue b | 522.0 | 510.0 | 2.4 |
| Net income | 22.0 | 19.7 | 11.8 |
| Earnings per share (EPS) - diluted | 0.36 | 0.32 | 12.5 |
| Non-GAAP adjusted EBITDA | 170.5 | 168.1 | 1.4 |
| Non-GAAP adjusted EPS - diluted | $0.96 | $1.02 | (5.9) |
| Weighted average shares - diluted | 61.3 | 60.9 | 0.6% |
| (b) Column amounts may not add to total due to rounding. | |||
Net Revenue
Total net revenue for the nine months ended September 30, 2014 increased 2.4% to $522.0 million from $510.0 million for the first nine months of 2013. Net revenue in the SCM segment grew 0.7% to $320.3 million from $318.0 million for the first nine months of 2013. Net revenue in the RCM segment rose 5.1% to $201.7 million from $191.9 million for the first nine months of 2013 as technology-related revenue (68.9% of RCM segment revenue) increased 4.0% while services-related revenue increased 7.6%.
Non-GAAP Adjusted EBITDA
For the first nine months of 2014, total non-GAAP adjusted EBITDA was $170.5 million, or 32.7% of total net revenue, a 1.4% increase from total non-GAAP adjusted EBITDA of $168.1 million, or 33.0% of total net revenue, for the first nine months of 2013.
Net Income and Non-GAAP Adjusted Earnings Per Share (EPS)
Net income for the first nine months of 2014 increased 11.8% to $22.0 million, or $0.36 per share, compared with $19.7 million, or $0.32 per share, for the first nine months of 2013. Non-GAAP adjusted EPS was $0.96 per share for the first nine months of 2014, a 5.9% decrease from $1.02 per share for the first nine months of 2013.
Cash Flow and Capital Resources
Cash provided by operating activities in the first nine months of 2014 was $96.1 million versus $109.8 million for the first nine months of 2013. Non-GAAP free cash flow (defined as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs) decreased to $55.7 million versus $63.4 million for the first nine months of 2013. The company's balance sheet at September 30, 2014 included $886.0 million in total bank and bond debt, net of cash and cash equivalents. Total net debt equates to leverage of approximately 4.0 times non-GAAP adjusted EBITDA for the trailing twelve-month period.
Non-GAAP Contracted Revenue
At September 30, 2014, MedAssets' rolling 12-month non-GAAP contracted revenue estimate was $661.2 million (SCM segment - $425.3 million; RCM segment - $235.9 million), a year-over-year increase of 5.8%. Excluding the addition of Sg2, non-GAAP contracted revenue increased 0.4% year-over-year. Non-GAAP contracted revenue is the company's estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period.
2014 Financial Guidance
MedAssets updated its full-year 2014 financial guidance ranges, as follows:
| ($ in millions, except per share) | FY'14 | Y-Y % change |
| Net Revenue: | ||
| SCM segment | $ 444.0 - 448.0 | 4.6 - 5.5% |
| RCM segment | 271.0 - 273.0 | 5.9 - 6.6 |
| Total Net Revenue | 715.0 - 721.0 | 5.1 - 6.0 |
| Non-GAAP adjusted EBITDA | 234.0 - 238.0 | 6.0 - 7.8 |
| GAAP EPS – diluted | 0.49 - 0.53 | 8.9 - 17.8 |
| Non-GAAP adjusted EPS – diluted | $ 1.34 - 1.38 | 1.5 - 4.5% |
Sg2 comprises approximately $10.5-$11.0 million in estimated SCM segment net revenue for full-year 2014. Excluding Sg2 as well as performance-related fees from both 2014 and 2013, total net revenue in full-year 2014 is expected to grow approximately 4.0% at the midpoint of the guidance range.
Conference Call Information
| Time/Date: | 5:00 p.m. ET today, Wednesday, October 29, 2014 |
| Phone: | 888-517-2464 (or 630-827-6816 for international/local callers), PIN code 9160777 |
| Webcast: | http://ir.medassets.com, "Events & Presentations" page; Archive will be available for at least 30 days |
| Replay: | Call 888-843-7419 or 630-652-3042 (PIN code 9160777) |
Note: The live webcast will include a slide presentation, a copy of which is available on http://ir.medassets.com in the "Events & Presentations" section in conjunction with today's event.
About MedAssets
MedAssets (Nasdaq:MDAS) is a healthcare performance improvement company focused on helping providers realize financial and operational gains so that they can sustainably serve the needs of their community. More than 4,400 hospitals and 122,000 non-acute healthcare providers currently use the company's evidence-based solutions, best practice processes and analytics to help reduce the total cost of care, enhance operational efficiency, align clinical delivery, and improve revenue performance across the care continuum. For more information, please visit www.medassets.com.
Use of Non-GAAP Financial Information
In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; free cash flow; and contracted revenue. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures, where possible, are included in the accompanying financial schedules. Also, see "Use of Non-GAAP Financial Measures" following the financial schedules for more information.
Safe Harbor Statement
This Press Release contains forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, and include the intent, belief or current expectations of the company and its management team with respect to the company's future business operations that include, but are not limited to: 2014 financial guidance, revenue growth and other financial projections and forecasts. Any forward-looking statements are not guarantees of future performance, involve risks and uncertainties, and actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those contemplated by the forward-looking statements in this Press Release include, but are not limited to: failure to realize improvements in performance, efficiency and profitability; failure to complete anticipated sales under negotiations; failure to successfully implement revenue backlog; lack of revenue growth; customer losses; and adverse developments with respect to the operation or performance of the company's business units or the market price of its common stock. Additional factors that could cause actual results to differ materially from those contemplated within this Press Release can also be found in the company's Risk Factor disclosures in its Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission and available at http://ir.medassets.com. The company disclaims any responsibility to update any forward-looking statements.
mdas/F
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
| (UNAUDITED) | ||||||
| In 000s, except per share data | Three Months Ended | Nine Months Ended | ||||
| September 30, | September 30, | |||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | |
| Revenue: | ||||||
| Administrative fees, net | $ 70,788 | $ 69,426 | 2.0% | $ 217,125 | $ 216,447 | 0.3% |
| Other service fees | 104,917 | 96,945 | 8.2% | 304,862 | 293,503 | 3.9% |
| Total net revenue | 175,705 | 166,371 | 5.6% | 521,987 | 509,950 | 2.4% |
| Operating expenses: | ||||||
| Cost of revenue (inclusive of certain amortization expense) | 42,439 | 38,246 | 11.0% | 120,231 | 110,010 | 9.3% |
| Product development expenses | 8,106 | 7,173 | 13.0% | 22,145 | 23,649 | -6.4% |
| Selling and marketing expenses | 14,273 | 12,898 | 10.7% | 50,187 | 46,925 | 7.0% |
| General and administrative expenses | 57,579 | 59,095 | -2.6% | 175,911 | 174,914 | 0.6% |
| Restructuring, acquisition and integration-related expenses | 3,010 | 111 | nm | 4,707 | 9,576 | -50.8% |
| Depreciation | 11,845 | 10,926 | 8.4% | 35,247 | 29,979 | 17.6% |
| Amortization of intangibles | 13,936 | 15,341 | -9.2% | 41,989 | 47,957 | -12.4% |
| Total operating expenses | 151,188 | 143,790 | 5.1% | 450,417 | 443,010 | 1.7% |
| Operating income | 24,517 | 22,581 | 8.6% | 71,570 | 66,940 | 6.9% |
| Other income (expense): | ||||||
| Interest expense | (11,338) | (11,814) | -4.0% | (33,625) | (35,544) | -5.4% |
| Other income | 273 | 118 | 131.4% | 362 | 435 | -16.8% |
| Income before income taxes | 13,452 | 10,885 | 23.6% | 38,307 | 31,831 | 20.3% |
| Income tax expense | 5,712 | 3,983 | 43.4% | 16,293 | 12,141 | 34.2% |
| Net income | 7,740 | 6,902 | 12.1% | 22,014 | 19,690 | 11.8% |
| Basic net income per share | 0.13 | 0.12 | 8.3% | 0.37 | 0.33 | 12.1% |
| Diluted net income per share | $ 0.13 | $ 0.11 | 18.2% | $ 0.36 | $ 0.32 | 12.5% |
| Weighted average shares — basic | 59,401 | 59,936 | -0.9% | 59,917 | 59,446 | 0.8% |
| Weighted average shares — diluted | 60,662 | 61,476 | -1.3% | 61,269 | 60,912 | 0.6% |
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (UNAUDITED) | ||
| September 30, | December 31, | |
| In 000s, except share and per share amounts | 2014 | 2013 |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | $ 13,893 | $ 2,790 |
| Accounts receivable, net of allowances of $2,617 and $2,568 as of September 30, 2014 and December 31, 2013, respectively | 109,939 | 87,636 |
| Deferred tax asset, current | -- | 4,535 |
| Prepaid expenses and other current assets | 24,397 | 24,059 |
| Total current assets | 148,229 | 119,020 |
| Property and equipment, net | 162,560 | 157,747 |
| Other long term assets | ||
| Goodwill | 1,108,360 | 1,027,847 |
| Intangible assets, net | 291,151 | 267,440 |
| Other | 40,479 | 41,695 |
| Other long term assets | 1,439,990 | 1,336,982 |
| Total assets | $ 1,750,779 | $ 1,613,749 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities | ||
| Accounts payable | $ 21,211 | $ 24,066 |
| Accrued revenue share obligation and rebates | 78,623 | 77,398 |
| Accrued payroll and benefits | 30,119 | 41,587 |
| Other accrued expenses | 16,887 | 12,126 |
| Current portion of deferred revenue | 72,321 | 46,523 |
| Current portion of notes payable | 20,187 | 15,500 |
| Current portion of finance obligation | 287 | 255 |
| Total current liabilities | 239,635 | 217,455 |
| Notes payable, less current portion | 554,688 | 424,000 |
| Bonds payable | 325,000 | 325,000 |
| Finance obligation, less current portion | 8,551 | 8,781 |
| Deferred revenue, less current portion | 17,076 | 16,369 |
| Deferred tax liability | 109,486 | 121,083 |
| Other long term liabilities | 10,706 | 11,272 |
| Total liabilities | 1,265,142 | 1,123,960 |
| Commitments and contingencies | ||
| Stockholders' equity | ||
| Common stock, $0.01 par value, 150,000,000 shares authorized; 60,204,000 and 61,740,000 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively | 602 | 617 |
| Additional paid in capital | 690,981 | 717,132 |
| Accumulated deficit | (205,946) | (227,960) |
| Total stockholders' equity | 485,637 | 489,789 |
| Total liabilities and stockholders' equity | $ 1,750,779 | $ 1,613,749 |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (UNAUDITED) | ||
| Nine Months Ended | ||
| In 000s | September 30, | September 30, |
| 2014 | 2013 | |
| Operating activities: | ||
| Net income | $ 22,014 | $ 19,690 |
| Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||
| Bad debt expense | 100 | -- |
| Depreciation | 37,413 | 31,719 |
| Amortization of intangibles | 41,989 | 47,957 |
| Impairment of assets | -- | 2,403 |
| Loss (gain) on sale of assets | 24 | (123) |
| Noncash stock compensation expense | 14,703 | 11,783 |
| Excess tax benefit from exercise of equity awards | (1,788) | (5,091) |
| Amortization of debt issuance costs | 2,829 | 2,858 |
| Noncash interest expense, net | 309 | 349 |
| Deferred income tax benefit | (6,883) | (69) |
| Changes in assets and liabilities | (14,658) | (1,653) |
| Cash provided by operating activities | 96,052 | 109,823 |
| Investing activities: | ||
| Purchases of property, equipment, and software | (9,820) | (16,259) |
| Capitalized software development costs | (30,568) | (30,168) |
| Acquisitions | (138,233) | -- |
| Cash used in investing activities | (178,621) | (46,427) |
| Financing activities: | ||
| Borrowings from revolving credit facility | 216,080 | -- |
| Repayment of notes payable | (21,625) | (91,625) |
| Repayment of revolving credit facility | (59,080) | -- |
| Repayment of finance obligation | (507) | (507) |
| Debt issuance costs | (569) | -- |
| Excess tax benefit from exercise of equity awards | 1,788 | 5,091 |
| Issuance of common stock, net of offering costs | 3,378 | 9,911 |
| Purchase of treasury shares, including shares surrendered for tax witholdings | (45,793) | -- |
| Cash provided by (used in) financing activities | 93,672 | (77,130) |
| Net increase (decrease) in cash and cash equivalents | 11,103 | (13,734) |
| Cash and cash equivalents, beginning of period | 2,790 | 13,734 |
| Cash and cash equivalents, end of period | $ 13,893 | $ -- |
| SUPPLEMENTAL REVENUE REPORTING | |||||
| RECONCILIATION OF GROSS FEES (A NON-GAAP MEASURE) TO NET REVENUE | |||||
| (UNAUDITED) | |||||
| In 000s | Three Months Ended September 30, | ||||
| 2014 | 2013 | % Change | |||
| Non-GAAP gross administrative fees | $ 121,729 | $ 115,478 | 5.4% | ||
| Other service fees | 104,917 | 96,945 | 8.2% | ||
| Non-GAAP gross fees | 226,646 | RSO % | 212,423 | RSO % | 6.7% |
| Non-GAAP revenue share obligation (RSO) | (50,941) | 41.8% | (46,052) | 39.9% | 10.6% |
| Net revenue | $ 175,705 | $ 166,371 | 5.6% | ||
| In 000s | Nine Months Ended September 30, | ||||
| 2014 | 2013 | % Change | |||
| Non-GAAP gross administrative fees | $ 367,496 | $ 351,602 | 4.5% | ||
| Other service fees | 304,862 | 293,503 | 3.9% | ||
| Non-GAAP gross fees | 672,358 | RSO % | 645,105 | RSO % | 4.2% |
| Non-GAAP RSO | (150,371) | 40.9% | (135,155) | 38.4% | 11.3% |
| Net revenue | $ 521,987 | $ 509,950 | 2.4% | ||
| SUPPLEMENTAL SEGMENT REPORTING WITH SELECTED NON-GAAP MEASURES | |||||
| (UNAUDITED) | |||||
| In 000s | Three Months Ended September 30, | ||||
| 2014 | 2013 | % Change | |||
| Net revenue | |||||
| Spend and Clinical Resource Management (SCM) | $ 105,799 | $ 103,227 | 2.5% | ||
| Revenue Cycle Management (RCM) | 69,906 | 63,144 | 10.7% | ||
| Total net revenue | $ 175,705 | $ 166,371 | 5.6% | ||
| Non-GAAP Adjusted EBITDA | % margin | % margin | |||
| SCM | $ 47,983 | 45.4% | $ 47,387 | 45.9% | 1.3% |
| RCM | 17,914 | 25.6% | 15,349 | 24.3% | 16.7% |
| Corporate | (6,429) | (8,837) | -27.2% | ||
| Total non-GAAP Adjusted EBITDA | $ 59,468 | 33.8% | $ 53,899 | 32.4% | 10.3% |
| In 000s | Nine Months Ended September 30, | ||||
| 2014 | 2013 | % Change | |||
| Net revenue | |||||
| SCM | $ 320,323 | $ 318,043 | 0.7% | ||
| RCM | 201,664 | 191,907 | 5.1% | ||
| Total net revenue | $ 521,987 | $ 509,950 | 2.4% | ||
| Non-GAAP Adjusted EBITDA | % margin | % margin | |||
| SCM | $ 140,233 | 43.8% | $ 144,041 | 45.3% | -2.6% |
| RCM | 50,928 | 25.3% | 47,061 | 24.5% | 8.2% |
| Corporate | (20,652) | (23,020) | -10.3% | ||
| Total non-GAAP Adjusted EBITDA | $ 170,509 | 32.7% | $ 168,082 | 33.0% | 1.4% |
| See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures. | |||||
| SUPPLEMENTAL REPORTING OF ADJUSTED EBITDA | ||||
| RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES | ||||
| (UNAUDITED) | ||||
| In 000s |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
| 2014 | 2013 | 2014 | 2013 | |
| Net income | $ 7,740 | $ 6,902 | $ 22,014 | $ 19,690 |
| Depreciation | 11,845 | 10,926 | 35,247 | 29,979 |
| Depreciation (included in cost of revenue) | 1,094 | 571 | 2,166 | 1,740 |
| Amortization of intangibles | 13,936 | 15,341 | 41,989 | 47,957 |
| Interest expense, net | 11,338 | 11,813 | 33,625 | 35,544 |
| Income tax expense | 5,712 | 3,983 | 16,293 | 12,141 |
| Non-GAAP EBITDA | $ 51,665 | $ 49,536 | $ 151,334 | $ 147,051 |
| Share-based compensation | 4,809 | 4,361 | 14,703 | 11,783 |
| Rental income from capitalized building lease | (110) | (109) | (329) | (328) |
| Purchase accounting adjustments | 94 | -- | 94 | -- |
| Restructuring, acquisition and integration-related expenses | 3,010 | 111 | 4,707 | 9,576 |
| Non-GAAP Adjusted EBITDA | $ 59,468 | $ 53,899 | $ 170,509 | $ 168,082 |
| SUPPLEMENTAL NET INCOME AND EARNINGS PER SHARE REPORTING | ||||
| RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES | ||||
| (UNAUDITED) | ||||
| In 000s, except per share data |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||
| 2014 | 2013 | 2014 | 2013 | |
| Net income | $ 7,740 | $ 6,902 | $ 22,014 | $ 19,690 |
| Pre-tax non-cash, acquisition-related intangible amortization and depreciation | 13,936 | 15,814 | 41,989 | 49,378 |
| Pre-tax non-cash, share-based compensation | 4,809 | 4,361 | 14,703 | 11,783 |
| Pre-tax restructuring, acquisition and integration-related expenses | 3,010 | 111 | 4,707 | 9,576 |
| Pre-tax non-cash purchase accounting adjustment | 94 | -- | 94 | -- |
| Tax effect on pre-tax adjustments c | (8,739) | (8,115) | (24,596) | (28,295) |
| Non-GAAP adjusted net income | $ 20,850 | $ 19,073 | $ 58,911 | $ 62,132 |
| Income Per Share (EPS) - diluted | $ 0.13 | $ 0.11 | $ 0.36 | $ 0.32 |
| Pre-tax non-cash, acquisition-related intangible amortization and depreciation | 0.23 | 0.26 | 0.69 | 0.81 |
| Pre-tax non-cash, share-based compensation | 0.07 | 0.07 | 0.23 | 0.19 |
| Pre-tax restructuring, acquisition and integration-related expenses | 0.05 | -- | 0.08 | 0.16 |
| Pre-tax non-cash purchase accounting adjustment | -- | -- | -- | -- |
| Tax effect on pre-tax adjustments c | (0.14) | (0.13) | (0.40) | (0.46) |
| Non-GAAP adjusted EPS - diluted | $ 0.34 | $ 0.31 | $ 0.96 | $ 1.02 |
| Weighted average shares - diluted (in 000s) | 60,662 | 61,476 | 61,269 | 60,912 |
| (c) The Company used a tax rate of 40.0% for the three and nine months ended September 30, 2014 and 2013 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate. | ||||
| See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures. | ||||
| SUPPLEMENTAL 2014 ADJUSTED EBITDA GUIDANCE | ||
| RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES | ||
| (UNAUDITED) | ||
| Guidance Range for | ||
| Twelve Months Ending | ||
| In 000s | December 31, 2014 | |
| (Low) | (High) | |
| Net Income | $ 30,000 | $ 32,400 |
| Depreciation | 48,000 | 48,000 |
| Depreciation (included in cost of revenue) | 3,200 | 3,200 |
| Amortization of intangibles | 57,600 | 57,600 |
| Interest expense, net | 45,700 | 45,700 |
| Income tax expense | 20,900 | 22,500 |
| Non-GAAP EBITDA | 205,400 | 209,400 |
| Share-based compensation | 20,100 | 20,100 |
| Restructuring, acquisition and integration-related expenses | 7,900 | 7,900 |
| Purchase accounting adjustments | 1,000 | 1,000 |
| Rental income from capitalized building lease | (400) | (400) |
| Non-GAAP adjusted EBITDA | $ 234,000 | $ 238,000 |
| SUPPLEMENTAL 2014 EARNINGS PER SHARE GUIDANCE | ||
| RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES | ||
| (UNAUDITED) | ||
| Guidance Range for | ||
| Twelve Months Ending | ||
| In 000s, except per share data | December 31, 2014 | |
| (Low) | (High) | |
| Net Income | $ 30,000 | $ 32,400 |
| EPS - diluted | 0.49 | 0.53 |
| Pre-tax non-cash, acquisition-related intangible amortization and depreciation | 0.94 | 0.94 |
| Pre-tax non-cash, share-based compensation | 0.33 | 0.33 |
| Pre-tax restructuring, acquisition and integration-related expenses | 0.13 | 0.13 |
| Pre-tax purchase accounting adjustments | 0.02 | 0.02 |
| Tax effect on pre-tax adjustments d | (0.57) | (0.56) |
| Non-GAAP adjusted EPS - diluted e | $ 1.34 | $ 1.38 |
| Fully diluted weighted average shares outstanding | 61,200 | 61,200 |
| (d) The Company used a tax rate of 40.0% for the full year ending December 31, 2014 to calculate the tax effect of each adjustment since it believes 40.0% will be the Company's normalized long-term tax rate. | ||
| (e) Column amounts may not add to total due to rounding. | ||
| See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures. | ||
| SUPPLEMENTAL NON-GAAP CONTRACTED REVENUE ESTIMATES | |||||
| (UNAUDITED) | |||||
| In Millions | Sept. 30, | June 30, | March 31, | Dec. 31, | Sept. 30, |
| 2014 | 2014 | 2014 | 2013 | 2013 | |
| Revenue Cycle Technology (RCT) | $ 177.5 | $ 177.6 | $ 174.4 | $ 173.9 | $ 173.3 |
| Revenue Cycle Services (RCS) | 58.4 | 66.5 | 69.5 | 65.4 | 60.8 |
| RCM segment Total | 235.9 | 244.1 | 243.9 | 239.4 | 234.1 |
| SCM segment f | 425.3 | 383.8 | 394.2 | 386.0 | 391.0 |
| Total g | $ 661.2 | $ 627.9 | $ 638.1 | $ 625.4 | $ 625.1 |
| SUPPLEMENTAL REPORTING OF SHARE-BASED COMPENSATION | |||||
| EXPENSE INCLUDED IN OPERATING EXPENSES | |||||
| (UNAUDITED) | |||||
| In 000s | Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | ||||
| 2014 | 2013 | 2014 | 2013 | ||
| Amount of share-based compensation included in: | |||||
| Cost of revenue | $ 1,476 | $ 864 | $ 4,505 | $ 3,040 | |
| Product development expense | 252 | 130 | 887 | 473 | |
| Selling & marketing expense | 710 | 975 | 2,082 | 1,944 | |
| General & administrative expense | 2,371 | 2,392 | 7,229 | 6,326 | |
| Total | $ 4,809 | $ 4,361 | $ 14,703 | $ 11,783 | |
| SUPPLEMENTAL REPORTING OF FREE CASH FLOW | |||||
| RECONCILIATION OF SELECTED NON-GAAP MEASURES TO GAAP MEASURES | |||||
| (UNAUDITED) | |||||
| In 000s | Nine Months Ended | ||||
| September 30, | |||||
| 2014 | 2013 | ||||
| Cash provided by operating activities | $ 96,052 | $109,823 | |||
| Purchases of property, equipment and software | (9,820) | (16,259) | |||
| Capitalized software development costs | (30,568) | (30,168) | |||
| Non-GAAP free cash flow | $ 55,664 | $ 63,396 | |||
| (f) The Contracted Revenue estimate in the SCM segment for the period ended September 30, 2014 includes $33.5 million from Sg2 following its acquisition by the company on September 22, 2014. | |||||
| (g) Column amounts may not add to total due to rounding. | |||||
| See "Use of Non-GAAP Financial Measures" following financial schedules for more information on non-GAAP measures. | |||||
Use of Non-GAAP Financial Measures
In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the board of directors in their financial and operational decision-making, the Company supplements its condensed consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial information: gross fees; gross administrative fees; revenue share obligation; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; diluted adjusted EPS; free cash flow; and contracted revenue.
These non-GAAP financial measures may have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP. The Company compensates for such limitations by relying primarily on the Company's GAAP results and using non-GAAP financial measures only supplementally. Where possible, the Company provides reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. Investors are encouraged to carefully review those reconciliations. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies.
Gross fees include gross administrative fees the Company receives pursuant to its vendor contracts and all other fees the Company receives from clients. The Company's revenue share obligation represents the portion of the gross administrative fees the Company is contractually obligated to share with certain of its GPO clients. Net administrative fees (a GAAP measure) are the Company's gross administrative fees net of its revenue share obligation. Total net revenue (a GAAP measure) reflects the Company's gross fees net of its revenue share obligation. These non-GAAP measures assist management and the board of directors and may be helpful to investors in analyzing the Company's growth in its Spend and Clinical Resource Management segment given that administrative fees constitute a material portion of the Company's revenue and are paid to the Company by approximately 1,150 suppliers and other vendors contracted by its GPO, and that the Company's revenue share obligation constitutes a significant outlay to certain of its GPO clients.
The Company defines: EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; and adjusted EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization and other non-recurring, non-cash or non-operating items. EBITDA and adjusted EBITDA are used by the Company to facilitate a comparison of its operating performance on a consistent basis from period to period and provides for a more complete understanding of factors and trends affecting our business. These measures assist management and the board of directors and may be useful to investors in comparing the Company's operating performance consistently over time as it removes the impact of its capital structure (primarily interest charges and amortization of debt issuance costs), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes), as well as other non-cash (purchase accounting adjustments and imputed rental income) and non-recurring items, from the Company's operational results. Adjusted EBITDA also removes the impact of non-cash share-based compensation expense and certain restructuring, acquisition and integration-related charges. EBITDA and adjusted EBITDA are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities.
The Company defines adjusted net income as earnings excluding non-cash acquisition-related intangible amortization and non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense, certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis, purchase accounting adjustments on a tax-adjusted basis and diluted adjusted EPS as earnings per share excluding non-cash acquisition-related intangible amortization, depreciation and non-recurring expense items on a tax-adjusted basis, non-cash tax-adjusted shared-based compensation expense and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis. Adjusted net income and diluted adjusted EPS are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities. Use of this measure for this purpose allows management and the board of directors to analyze the Company's operating performance on a consistent basis by removing the impact of certain non-cash and non-recurring items from our operations, and by rewarding organic growth and accretive business transactions. As a significant portion of senior management's incentive based compensation has historically been based on the achievement of certain diluted adjusted EPS growth over time, investors may find such information useful.
The Company defines free cash flow as cash provided by operating activities less purchases of property, equipment and software and capitalized software development costs. Management believes free cash flow is an important measure because it represents the cash that the Company is able to generate after spending capital on infrastructure to maintain its business and investing in new and upgraded products and services to support future growth. Free cash flow is important because it allows the Company to pursue opportunities that are intended to enhance shareholder value, which could include debt reduction, share repurchases, partnerships, alliances and acquisitions, and/or dividend payments. The Company's definition of free cash flow does not consider non-discretionary cash payments, such as debt.
Contracted revenue is a forward-looking operating measure used by management and the board of directors to better understand revenue growth trends within the Company's business segments as it reflects the Company's current estimate of contractually committed revenue to be generated under existing client contracts in the forward 12-month period. Such information may be useful to investors in their analysis of the Company's revenue growth trends. A reconciliation to the most directly comparable GAAP measure cannot be performed without unreasonable effort.