MDAS

MedAssets, Inc. (MDAS)

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Industry: Technology
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MedAssets, Inc. (MDAS)

Q3 2008 Earnings Call

November 13, 2008 5:00 pm ET

Executives

Robert Borchert – Vice President of Investor Relations.

John Bardis – Chief Executive Officer

Neil Hunn – Chief Financial Officer

Analysts

Corey Tobin - William Blair

Richard Close – Jefferies & Company

Larry Marsh – Barclays Capital

David Veal – Morgan Stanley

Ross Muken – Deutsche Bank

Charles Rhyee – Oppenheimer

Eric Coldwell – Robert W. Baird

Sean Weiland – Piper Jaffray

Sandy Draper – Raymond James

Presentation

Operator

Good afternoon. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to the MedAssets third quarter 2008 financial results conference call. (Operator Instructions). I would now like to introduce Mr. Robert Borchert, Vice President of Investor Relations.

Robert Borchert

Good afternoon and welcome to the MedAssets conference call to discuss our financial and operating results for the third quarter ended September 30, 2008. With me today are John Bardis, our Chairman, President, and CEO, and Neil Hunn, our Chief Financial Officer. Before we begin, I would like to remind everyone that this conference call will contain forward-looking statements regarding our company’s expected financial and operating performance for 2008 and 2009. The forward-looking statements may be affected by important risk factors that are described in MedAssets filing with Securities Exchange Commission and our earnings press release issued today. Therefore, actual results may differ materially from our forward-looking statements discussed today or in the future. MedAssets assumes no obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise. To the extent that any non-GAAP financial measure is discussed in today’s call, you can find a reconciliation of that measure to the most directly comparable GAAP financial measure in today’s earnings release, which is now posted in the Investor Relations section of our corporate website www.medassests.com. Now, I would like to turn the call over to our CEO, John Bardis.

John Bardis

Thank you, Robert, and good afternoon everyone. It is our pleasure to be speaking with you today about our third quarter results, the market environment, our recent customer successes, the continued strength of our core businesses as well as the integration of the Accuro acquisition. Since our last call, we’ve had a significant number of successes, better than expected third quarter financial results, several large customer wins, and the introduction of three significant solutions.

We posted third quarter net revenue of $76 million, adjusted EBITDA of $25.2 million, and adjusted EPS of $0.15 per share. Specifically, our total net revenue grew 54% over the third quarter of last year and 24% on a sequential basis. Our adjusted EBITDA was up 68% year over year and 32% sequentially. These results were bolstered by excellent execution and organic growth as well as the benefit of our recent acquisitions. In a few minutes, Neil will walk us through the details of our financial and operating performance and will update you on the 2008 financial guidance and outlook for 2009.

Right now, I’d like to take a moment to discuss how I believe the current financial market and economic challenges could affect our customers and our business. Then I will highlight a number of recent successes that underscore why we are confident that MedAssets can continue to deliver solid growth and success in the quarters and years to come.

First of all, healthcare providers and hospitals in particular continue to deal with intense financial pressures. Over the last few months, a number of significant issues have arisen to create even greater cash flow challenges and bad debt risk for these healthcare providers. The disruption in the financial markets has translated into cost of capital and liquidity issues for hospitals. The macroeconomic environment is also forcing higher unemployment rates and adding to the rolls of the uninsured, which will almost certainly lead to lower levels of reimbursement and a greater percentage of uncompensated care.

In addition, aggressive supply cost growth increases forced by rising raw material costs and food production and the manufacture of medical products are symptomatic of a classic stagflation environment in which we are seeing hospitals net revenues increase at a slower rate than supply growth. The federal government’s expected broad rollout of RAC audits will also serve to exacerbate the fundamental financial challenges our hospitals and healthcare provider customer base has, and we believe they will continue to face increasing pressure at this level well into the future.

Importantly, these are the very issues we help to address and solve for our customers. This capital constraint environment is driving customers to MedAssets because the breadth and depth of our technology and services can alleviate these costs and reimbursement pressure and substantially improve the revenue integrity and cash flow in a manner of months. In fact, largely due to our focused cash-based return on investment value proposition, we actually have been experiencing a moderate increase in demand for our solutions. We have specifically built our business to deliver high return on investment solutions that can be funded directly from our customers’ current operating budgets. The vast majority of our technology and service capabilities avoid having to sell in to the headwind of a capital budget, and we are continuing to see acceleration and the number of potential opportunities to sign large transformational deals to help our provider customers close the financial gap between revenue and cost.

Switching gears, we have had a number of important product and service launches over the last month or so as we continue to focus on improving and expanding our suite of solutions. On the frontline of government reimbursement, hospitals are facing RAC audits which are the Medicare recovery audit contractor programs that identify overpayments to hospitals and have the potential to negatively impact their bottom lines.

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