UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

(Former name, former address and former fiscal year, if changed since last report)
N/A

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 þ     No o

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 o     No o

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):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller Reporting Company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

As of November 5, 2009, the registrant had 56,576,644 shares of $0.01 par value common stock outstanding.

 

 

INDEX

PART I. FINANCIAL INFORMATION			3
Item 1. Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008			4
Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2009			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			49
PART II. OTHER INFORMATION			49
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 3. Defaults Upon Senior Securities			50
Item 4. Submission of Matters to a Vote of Security Holders			50
Item 5. Other Information			50
Item 6. Exhibits			50
Signatures			50
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO
EX-31.1
EX-31.2
EX-32.1

Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MedAssets, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Current
Cash and cash equivalents (Note 1)		$	4,675			$	5,429
Accounts receivable, net of allowances of $1,898 and $2,247 as of September 30, 2009 and December 31, 2008, respectively			55,638				55,048
Deferred tax asset, current			13,780				13,780
Prepaid expenses and other current assets			7,476				5,997
Total current assets			81,569				80,254
Property and equipment, net			53,123				42,417
Other long term assets
Goodwill			511,861				508,748
Intangible assets, net			102,756				124,340
Other			19,586				18,101
Other long term assets			634,203				651,189
Total assets		$	768,895			$	773,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	6,954			$	6,725
Accrued revenue share obligation and rebates			24,700				29,698
Accrued payroll and benefits			17,851				21,837
Other accrued expenses			7,846				6,981
Deferred revenue, current portion			25,886				24,280
Deferred purchase consideration (Note 3)			—				19,361
Current portion of notes payable			2,499				30,277
Current portion of finance obligation			159				149
Total current liabilities			85,895				139,308
Notes payable, less current portion			228,287				215,349
Finance obligation, less current portion			9,737				9,860
Deferred revenue, less current portion			5,483				6,411
Deferred tax liability			13,834				15,817
Other long term liabilities			5,296				4,176
Total liabilities			348,532				390,921
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value, 150,000,000 shares authorized; 56,488,000 and 53,917,000
shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively			565				539
Additional paid in capital			632,631				605,340
Accumulated other comprehensive loss (Note 11)			(1,957	)			(2,088	)
Accumulated deficit			(210,876	)			(220,852	)
Total stockholders’ equity			420,363				382,939
Total liabilities and stockholders’ equity		$	768,895			$	773,860

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Operations
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(In thousands, except per share amounts)
Revenue:
Administrative fees, net		$	25,631			$	25,663			$	78,495			$	78,355
Other service fees			56,762				50,309				167,091				117,610
Total net revenue			82,393				75,972				245,586				195,965
Operating expenses:
Cost of revenue (inclusive of certain amortization expense)			21,472				17,101				55,830				36,252
Product development expenses			4,156				4,719				15,424				11,027
Selling and marketing expenses			10,038				9,641				36,529				32,096
General and administrative expenses			23,039				22,779				77,971				66,054
Depreciation			3,125				2,581				9,020				7,051
Amortization of intangibles			7,018				7,324				21,029				16,117
Impairment of intangibles (Note 3)			—				—				—				2,079
Total operating expenses			68,848				64,145				215,803				170,676
Operating income			13,545				11,827				29,783				25,289
Other income (expense):
Interest (expense)			(4,259	)			(5,803	)			(14,015	)			(15,120	)
Other income (expense)			223				228				404				(2,101	)
Income before income taxes			9,509				6,252				16,172				8,068
Income tax expense			3,613				2,566				6,196				3,259
Net income		$	5,896			$	3,686			$	9,976			$	4,809
Basic and diluted income per share:
Basic net income		$	0.11			$	0.07			$	0.18			$	0.10
Diluted net income		$	0.10			$	0.07			$	0.17			$	0.09
Weighted average shares — basic			54,792				53,715				54,589				48,493
Weighted average shares — diluted			57,855				56,136				57,223				51,035

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

MedAssets, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)
Nine Months Ended September 30, 2009

														Accumulated
										Additional				Other								Total
		Common Stock								Paid-In				Comprehensive				Accumulated				Stockholders’
		Shares				Par Value				Capital				Income (Loss)				Deficit				Equity
		(In thousands)
Balances at December 31, 2008			53,917			$	539			$	605,340			$	(2,088	)		$	(220,852	)		$	382,939
Issuance of common stock from stock option exercises			1,509				15				8,318				—				—				8,333
Issuance of common restricted stock			1,062				11				(11	)			—				—				—
Stock compensation expense			—				—				12,911				—				—				12,911
Excess tax benefit from stock option exercises			—				—				6,073				—				—				6,073
Other comprehensive income:
Unrealized gain from hedging activities (net of a tax expense of $77)			—				—				—				131				—				131
Net income			—				—				—				—				9,976				9,976
Comprehensive income			—				—				—				131				9,976				10,107
Balances at September 30, 2009			56,488			$	565			$	632,631			$	(1,957	)		$	(210,876	)		$	420,363

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

MedAssets, Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)

		Nine Months Ended September 30,
		2009				2008
		(In thousands)
Operating activities
Net income		$	9,976			$	4,809
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Bad debt expense			3,823				1,457
Depreciation			10,858				7,359
Amortization of intangibles			21,585				16,806
Loss (gain) on sale of assets			147				(119	)
Noncash stock compensation expense			12,911				6,591
Excess tax benefit from exercise of stock options			(6,073	)			(1,697	)
Amortization of debt issuance costs			1,382				895
Noncash interest expense, net			1,049				906
Impairment of intangibles			—				2,079
Deferred income tax (benefit) expense			(36	)			937
Changes in assets and liabilities:
Accounts receivable			(4,536	)			(5,356	)
Prepaid expenses and other assets			(1,480	)			(819	)
Other long-term assets			(3,580	)			(1,850	)
Accounts payable			5,110				785
Accrued revenue share obligations and rebates			(4,998	)			(9,327	)
Accrued payroll and benefits			(4,090	)			1,768
Other accrued expenses			(2,773	)			949
Deferred revenue			676				4,932
Cash provided by operating activities			39,951				31,105
Investing activities
Purchases of property, equipment and software			(9,233	)			(3,891	)
Capitalized software development costs			(12,268	)			(8,378	)
Acquisitions, net of cash acquired (Note 3)			(18,275	)			(209,423	)
Cash used in investing activities			(39,776	)			(221,692	)
Financing activities
Decrease in restricted cash			—				20
Proceeds from notes payable			71,797				142,629
Repayment of notes payable and capital lease obligations			(86,638	)			(85,615	)
Repayment of finance obligations			(494	)			(483	)
Debt issuance costs			—				(6,167	)
Excess tax benefit from exercise of stock options			6,073				1,697
Interest accrued on note receivable from stockholders			—				(18	)
Payment on note receivable from stockholders			—				49
Issuance of common stock, net of offering costs			8,333				1,523
Cash (used in) provided by financing activities			(929	)			53,635
Net decrease in cash and cash equivalents			(754	)			(136,952	)
Cash and cash equivalents, beginning of period			5,429				136,952
Cash and cash equivalents, end of period		$	4,675			$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION

We provide technology-enabled products and services which together deliver solutions designed to improve operating margin and cash flow for hospitals, health systems and other ancillary healthcare providers. Our customer-specific solutions are designed to efficiently analyze detailed information across the spectrum of revenue cycle and spend management processes. Our solutions integrate with existing operations and enterprise software systems of our customers and provide financial improvement with minimal upfront costs or capital expenditures. Our operations and customers are primarily located throughout the United States.

The accompanying unaudited Condensed Consolidated Financial Statements, and Condensed Consolidated Balance Sheet as of December 31, 2008, derived from audited financial statements, have been prepared in accordance with accounting principles generally accepted in the United States (“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, consisting of normal recurring adjustments, considered necessary for a fair presentation of the interim financial information 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 financial statements. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2009.

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, 2008 included in our Form 10-K as filed with the SEC on March 12, 2009. These financial statements include the accounts of MedAssets, Inc. and our wholly owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation.

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 fair value and are considered to be cash equivalents. During 2008, we voluntarily changed our cash management practice in an effort to reduce our amount of interest expense and indebtedness. Currently, our excess cash on hand is voluntarily used to repay our swing-line credit facility on a daily basis and applied against our revolving credit facility on a routine basis when our swing-line credit facility is undrawn. Cash and cash equivalents were $4,675 and $5,429 as of September 30, 2009 and December 31, 2008, respectively. See Note 5 for immediately available cash under our revolving credit facility.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (“FASB”) issued its final Statement of Financial Accounting Standards (“SFAS”) No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162. SFAS No. 168 made the FASB Accounting Standards Codification (the “Codification”) the single source of U.S. GAAP used by non-governmental entities in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into approximately 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for us beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the basis for conclusions on the change(s) in the Codification. As a result of adopting this standard, we no longer reference specific standards under the pre-codification naming convention and all references to accounting standards are made in plain english as defined by the SEC.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

Revenue Recognition

In October 2009, the FASB issued an accounting standards update for multiple-deliverable revenue arrangements. The update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. The update also addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The amendments in the update significantly expand the disclosures related to a vendor’s multiple-deliverable revenue arrangements with the objective of providing information about the significant judgments made and changes to those judgments and how the application of the relative selling-price method of determining stand-alone value affects the timing or amount of revenue recognition. The accounting standards update will be applicable for annual periods beginning after June 15, 2010, however, early adoption is permitted. We are currently assessing the impact of the adoption of this update on our Condensed Consolidated Financial Statements.

Software

In October 2009, the FASB issued an accounting standards update relating to certain revenue arrangements that include software elements. The update will change the accounting model for revenue arrangements that include both tangible products and software elements. Among other things, tangible products containing software and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance. In addition, the update also provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes tangible products and software. The accounting standards update will be applicable for annual periods beginning after June 15, 2010, however, early adoption is permitted. We are currently assessing the impact of the adoption of this update on our Condensed Consolidated Financial Statements.

Accounting for Transfers of Financial Assets

In June 2009, the FASB issued an amendment to generally accepted accounting principles relating to transfers and servicing. The guidance eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. The guidance is applicable for annual periods ending after November 15, 2009 and interim periods thereafter. We are currently assessing the impact, if any, of the adoption of this guidance on our Condensed Consolidated Financial Statements.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued an amendment to generally accepted accounting principles relating to consolidation. The guidance eliminates previous exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary of a variable interest entity, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. The guidance also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying the guidance. The guidance is applicable for annual periods after November 15, 2009 and interim periods thereafter. We are currently assessing the impact, if any, of the adoption of this guidance on our Condensed Consolidated Financial Statements.

Subsequent Events

In May 2009, the FASB issued generally accepted accounting principles for subsequent events. The guidance establishes general standards regarding the disclosure of, and the accounting for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The guidance is effective for interim and annual financial periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In April 2009, the FASB issued generally accepted accounting principles relating to the accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. The guidance amends and clarifies generally accepted accounting principles for business combinations to address application issues on the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance was effective for fiscal years beginning on or after December 15, 2008. The guidance was effective for us beginning January 1, 2009 and will apply to business combinations completed on or after that date. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In April 2009, the FASB issued an amendment to generally accepted accounting principles relating to the disclosures about fair value of financial instruments and interim financial reporting, which is effective for the Company June 30, 2009. The guidance requires a publicly traded company to include disclosures about fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. In addition, the guidance requires an entity to disclose either in the body or the accompanying notes of its summarized financial information the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by general accounting principles for financial instruments. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In March 2008, the FASB issued generally accepted accounting principles relating to the disclosure about derivative instruments and hedging activities. The guidance seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding the impact on financial position, financial performance, and cash flows. To achieve this increased transparency, the guidance requires (1) the disclosure of the fair value of derivative instruments and gains and losses in a tabular format; (2) the disclosure of derivative features that are credit risk-related; and (3) cross-referencing within the footnotes. We adopted the guidance on January 1, 2009. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

3. ACQUISITION AND RESTRUCTURING ACTIVITIES

Accuro Acquisition

On June 2, 2009, we finalized the acquisition purchase price and related purchase price allocation of Accuro Healthcare Solutions, Inc. (collectively with its subsidiaries, “Accuro”), which was acquired on June 2, 2008 (the “Accuro Acquisition”).

In connection with the purchase consideration paid upon the closing of the Accuro Acquisition, which occurred on June 2, 2008, we recorded an initial liability (or the “deferred purchase consideration”) of $18,500 on our balance sheet, representing the present value of $20,000 in deferred purchase consideration payable on the first anniversary date of the closing of the Accuro Acquisition as required by the purchase agreement. During the three and nine months ended September 30, 2009, we recognized approximately zero and $639, respectively, in interest expense to accrete the Accuro deferred purchase consideration to its face value by the first anniversary of the Accuro Acquisition closing date or June 2, 2009.

On June 2, 2009, we reduced the $20,000 deferred purchase consideration by approximately $224 due to certain adjustments allowed for under the purchase agreement and we paid $19,776 (inclusive of $1,501 of imputed interest) in cash to the former shareholders of Accuro to satisfy the deferred purchase consideration obligation. We acquired all the outstanding stock of Accuro for a total purchase price of $357,635 comprised of $228,248 in cash, including $5,355 in acquisition related costs, and approximately 8,850,000 unregistered shares of our common stock valued at $129,387.

During the nine months ended September 30, 2008, we deemed several intangible assets to be impaired in combination with our purchase of Accuro. We incurred certain impairment expenses (primarily related to acquired developed technology from prior acquisitions, revenue cycle management tradename and internally developed software product write-offs) of approximately $2,079. These expenses have been recorded to the impairment line item within our Condensed Consolidated Statements of Operations for the nine months ended September 30, 2008.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

Accuro Purchase Price Allocation

The following table details the final purchase price and purchase price allocation for the Accuro Acquisition (unaudited):

		Preliminary
		Purchase								Final
		Price								Purchase
		Allocation								Price
		December								Allocation
		31, 2008				Adjustments				June 2, 2009
Current assets		$	9,113			$	(124	)		$	8,989
Property and equipment			4,853				—				4,853
Other long term assets			169				—				169
Goodwill			275,899				3,113				279,012
Intangible assets			87,700				—				87,700
Total assets acquired			377,734				2,989				380,723
Current liabilities			14,474				3,282				17,756
Other long term liabilities			5,401				(69	)			5,332
Total liabilities assumed			19,875				3,213				23,088
Total purchase price		$	357,859			$	(224	)		$	357,635

Prior to the one year anniversary of the acquisition, we made certain adjustments to finalize the purchase price allocation of Accuro. These adjustments have been recognized as assets acquired or liabilities assumed in the Accuro Acquisition and included in the allocation of the cost to acquire Accuro and, accordingly, have resulted in a net increase to goodwill of approximately $3,113. The adjustments primarily relate to the following:

	•		a $3,463 increase associated with restructuring activities, consisting of estimated severance costs, facility lease termination penalties, system migration and standardization as well as other restructuring costs (as further described below);
	•		a $224 decrease related to adjustments to the final deferred purchase consideration; and
	•		a $126 decrease associated with adjusting assets acquired and liabilities assumed to fair value.

In connection with the Accuro Acquisition, our management approved, committed and initiated a plan to restructure our operations resulting in certain management, system and organizational changes within our Revenue Cycle Management segment. As a result of the finalization of our purchase price allocation, we adjusted our preliminary purchase price allocation by approximately $3,463 comprised of: (i) facility lease termination costs of approximately $3,407 in connection with exiting Accuro’s primary office facility in Dallas, TX; (ii) system migration and standardization costs of approximately $354 to bring certain Accuro systems up to our standards; (iii) estimated severance costs of approximately $108 related to involuntary terminations of acquired employees; and (iv) a reduction of approximately $406 related to other liabilities assumed in connection with the acquisition. Any increases or decreases to the estimates of executing the restructuring plan subsequent to June 2009 will be recorded as an adjustment to operating expense.

There were no such adjustments made during the three months ended September 30, 2009.

The changes in the plan are summarized as follows (unaudited):

		Accrued												Accrued,
		December 31,				Adjustments				Cash				September 30,
		2008				to Costs				Payments				2009
Accuro Restructuring Plan
Severance		$	920			$	108			$	(752	)		$	276
Other			709				3,355				(582	)			3,482
Total Accuro Restructuring Costs		$	1,629			$	3,463			$	(1,334	)		$	3,758

We expect that the remaining severance and other costs will be paid out prior to December 31, 2009 with the exception of the Dallas lease termination penalty, of which $2,361 will be paid ratably from September 2009 through January 2011 and the remaining $1,046 will be paid in February 2011.

Unaudited Pro Forma Financial Information

The unaudited financial information for the nine months ended September 30, 2008 presented in the table below summarizes the combined results of operations of MedAssets and Accuro, on a pro forma basis, as if the acquisition had occurred on January 1, 2008. Accuro’s results of operations have been included in our consolidated results of operations subsequent to the acquisition date of June 2, 2008 and are included in our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2009. As such, there is not a similar comparison in the table below for the three month period ending September 2009 and 2008.

The 2008 pro forma results include the following non-recurring expenses included in Accuro’s pre-acquisition financial statements that were directly attributable to the acquisition:

	•		$1,317 related to transaction costs Accuro incurred in relation to its potential initial public offering prior to the Accuro Acquisition;
	•		$1,462 related to one-time contractual severance payments made to certain employees as part of the purchase agreement;
	•		$2,222 related to one-time change of control payments made to certain employees as part of the purchase agreement; and
	•		$2,184 related to the one-time acceleration of unvested Accuro stock options that were repurchased as part of the purchase agreement.

The unaudited pro forma financial information for the nine months ended September 30, 2008 presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2008:

		Nine Months Ended September 30,
		2009				2008
		(Unaudited, in thousands, except per share data)
Net revenue		$	245,586			$	224,505
Net income (loss)		$	9,976			$	(1,226	)
Basic net income (loss) per share		$	0.18			$	(0.02	)
Diluted net income (loss) per share		$	0.17			$	(0.02	)

4. DEFERRED REVENUE

Deferred revenue consists of unrecognized revenue related to advanced customer invoicing 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 received prior to the event.

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,				December 31,
		2009				2008
		(Unaudited)
Software and implementation fees		$	11,831			$	13,839
Service fees			17,763				14,206
Administrative fees			1,674				1,313
Other fees			101				1,333
Deferred revenue, total			31,369				30,691
Less: Deferred revenue, current portion			(25,886	)			(24,280	)
Deferred revenue, non-current portion		$	5,483			$	6,411

As of September 30, 2009 and December 31, 2008, deferred revenue included in our Condensed Consolidated Balance Sheets that were contingent upon meeting performance targets were $2,654 and $1,174, respectively.

5. NOTES PAYABLE

The balances of our notes payable are summarized as follows as of:

		September 30,				December 31,
		2009				2008
		(Unaudited)
Notes payable — senior		$	230,786			$	245,176
Other			—				450
Total notes payable			230,786				245,626
Less: current portion			(2,499	)			(30,277	)
Total long-term notes payable		$	228,287			$	215,349

On September 11, 2009, we entered into an assignment agreement with Lehman Commercial Paper Inc. (“Lehman”) and Barclays Bank PLC (“Barclays”) whereby Lehman assigned their extended commitments of $15,000 under our revolving credit facility to Barclays. As a result of Lehman’s bankruptcy in September 2008, Lehman had not funded any of its pro rata share of our request to borrow under the revolving credit facility post bankruptcy. Upon the assignment, Barclays funded approximately $2,400 to us representing the pro rata share of unfunded revolver borrowing requests not fulfilled by Lehman. We believe that Barclays has the ability to fund its pro rata share of any future borrowing requests and therefore the commitments outstanding under the revolving credit facility have been increased to the original commitment amount of $125,000. This assignment did not change the existing terms, conditions or covenants under our credit agreement nor did we incur any fees associated with the execution of this assignment agreement.

Our credit agreement contains certain provisions that require us to pay a portion of our outstanding obligations one quarter subsequent to the end of each fiscal year in the form of an excess cash flow payment on the term loan. The amount is determined based on defined percentages of excess cash flow required in the credit agreement. Our current portion of notes payable does not include an amount with respect to any 2010 excess cash flow payment. We will reclassify a portion of our long-term notes payable to a current classification at such time that any 2010 excess cash flow payment becomes estimable.

Interest paid during the nine months ended September 30, 2009 and 2008 was approximately $11,313 and $12,725, respectively. During the nine months ended September 30, 2009, we made payments on our term loan balance which included an annual excess cash flow payment to our lender in accordance with our credit facility amounting to approximately $27,516, scheduled principal payments on our senior term loan of $1,874, and repayments of approximately $450 related to other notes payable. In addition, we had net borrowings on our revolving credit facility of approximately $15,000 during the nine months ended September 30, 2009, which partially funded our excess cash flow payment. The applicable weighted average interest rate (inclusive of the applicable bank margin) on our term loan facility, revolving credit facility and swing-line component of our revolving credit facility at September 30, 2009 was 4.03%, 2.74% and 4.75%, respectively. At September 30, 2009, we had approximately $15,000 drawn on our revolving credit facility, of which zero was drawn on our swing-line component, resulting in approximately

$109,000 of availability under our credit facility inclusive of the swing-line (after giving effect to $1,000 of outstanding but undrawn letters of credit on such date).

Future maturities of principal of notes payable as of September 30, 2009 are as follows:

		Amount
		(Unaudited)
2009		$	625
2010			2,499
2011			17,499
2012			2,499
2013			207,664
Thereafter			—
Total notes payable		$	230,786

In the ordinary course of contracting with our customers, we may agree to make some or all of our fees contingent upon a customer’s achievement of financial improvement targets resulting from the use of our services and software. These contingent fees are not recognized as revenue until a customer confirms achievement of the performance targets. We generally receive written customer acknowledgement as and when the performance targets are achieved. Prior to customer confirmation that a performance target has been achieved, we record invoiced contingent fees as deferred revenue on our Condensed Consolidated Balance Sheet. Often, recognition of this revenue occurs in periods subsequent to the recognition of the associated costs. In the event the performance targets are not achieved, we may be obligated to refund or reduce a portion of our fees.

In August 2007, the former owner of Med-Data Management, Inc. (or “Med-Data”) disputed our earn-out calculation made under the Med-Data Asset Purchase Agreement and alleged that we failed to fulfill our obligations with respect to the earn-out. In November 2007, the former owner filed a complaint alleging that we failed to act in good faith with respect to the operation of Med-Data subsequent to the acquisition which affected the earn-out calculation. The Company refutes these allegations and is vigorously defending itself against these allegations. On March 21, 2008 we filed an answer, denying the plaintiffs’ allegations; and also filed a counterclaim, alleging that the plaintiffs fraudulently induced us to enter into the purchase agreement by intentionally concealing the true status of their relationship with their largest customer. Discovery has been substantially completed, but we currently cannot estimate any probable outcome. The maximum earn-out payable under the Asset Purchase Agreement is $4,000. In addition, the plaintiffs claim that Ms. Hodges, one of the plaintiffs, is entitled to the accelerated vesting of options to purchase 140,000 shares of our common stock that she received in connection with her employment agreement with the Company.

As of September 30, 2009, we are not presently involved in any other legal proceeding, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, operating results or financial condition.

During the nine months ended September 30, 2009 and 2008, we issued approximately 1,509,000 and 388,000 shares of common stock, respectively, in connection with employee stock option exercises for aggregate exercise proceeds of $8,333 and $1,545, respectively.

During the nine months ended September 30, 2009, we issued 20,000 shares of restricted common stock to a former member of our senior advisory board in exchange for advisory services previously rendered. The market value of the common stock on the date of issuance was approximately $354, which has been recorded as non-cash share-based expense in our accompanying Condensed Consolidated Statement of Operations for the nine months ended September 30, 2009. The restricted shares of common stock vested immediately.

During the nine months ended September 30, 2009, approximately 2,700 shares of restricted common stock were forfeited due to the resignation of a member of our Board of Directors (the “Board”).

During the nine months ended September 30, 2008, we issued approximately 8,850,000 unregistered shares of our common stock in connection with our acquisition of Accuro. We valued this equity issuance at $14.62 per share, which was computed using the five-day average of our closing share price for the period beginning two days before the April 29, 2008 announcement of the Accuro Acquisition and ending two days after the announcement in accordance with general accounting principles for business combinations.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

During the nine months ended September 30, 2008, we issued approximately 190,000 unregistered shares of our common stock in connection with a cashless exercise of a warrant.

During the nine months ended September 30, 2008, we issued approximately 20,000 shares of our common stock to an unrelated charitable foundation. The market value of the common stock on the date of issuance was approximately $348, which has been recorded as non-cash, non-employee share-based expense in our accompanying Condensed Consolidated Statement of Operations for the nine months ended September 30, 2008.

During the nine months ended September 30, 2008, we issued approximately 6,000 shares of restricted common stock to a member of our senior advisory board in exchange for advisory services. The estimated fair value of the restricted common stock at the date of issuance was approximately $95. The restricted shares of common stock vest ratably over three years.

During the nine months ended September 30, 2008, we recorded an approximate $556 reduction to non-cash share-based compensation expense to mark shares of common stock collateralizing certain shareholder notes receivable to market value. These shares were subsequently retired and are no longer outstanding.

Share-Based Compensation

As of September 30, 2009, we had outstanding equity awards under our share-based compensation plans in the form of restricted common stock, common stock options, and stock-settled stock appreciation rights (“SSARs”). The share-based compensation cost related to equity awards that has been charged against income was $3,951 and $2,452 for the three months ended September 30, 2009 and 2008, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements related to equity awards was $1,495 and $945 for the three months ended September 30, 2009 and 2008, respectively.

The share-based compensation cost related to equity awards that has been charged against income was $12,911 and $6,591 for the nine months ended September 30, 2009 and 2008, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements related to equity awards was $4,884 and $2,541 for the nine months ended September 30, 2009 and 2008, respectively.

There were no capitalized share-based compensation costs at September 30, 2009 or September 30, 2008.

As of September 30, 2009, we had approximately 1,759,000 shares reserved under our equity incentive plans available for grant. Total share-based compensation expense (inclusive of restricted common stock, common stock options, and SSARs) for the three and nine months ended September 30, 2009 and 2008 is reflected in our Condensed Consolidated Statements of Operations as noted below:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Unaudited)
Cost of revenue		$	778			$	498			$	2,407			$	1,603
Product development			90				231				695				488
Selling and marketing			680				499				2,242				1,487
General and administrative			2,403				1,224				7,567				3,013
Total share-based compensation expense		$	3,951			$	2,452			$	12,911			$	6,591

Management Equity Award Grant

On January 5, 2009, the compensation, governance and nominating committee of our Board granted equity awards totaling approximately 3,584,000 underlying shares to certain employees under our Long-Term Performance Incentive Plan. The equity awards are comprised of both restricted common stock and SSARs and are subject to service-based and/or performance-based vesting criteria. The restricted common stock awards have a grant date fair value of $14.74 and the SSARs have a base price of $14.74 which was equal to our closing stock price on the date of grant. The grant date fair market value of the SSARs equity awards was $4.62 as determined using the Black-Scholes valuation model.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

On August 26, 2009, the compensation, governance and nominating committee of our Board granted equity awards totaling approximately 97,000 underlying shares under our Long-Term Performance Incentive Plan. The equity awards are comprised of both restricted common stock and SSARs and are subject to service-based and/or performance-based vesting criteria. The restricted common stock awards have a grant date fair value of $23.11 and the SSARs have a base price of $23.11 which was equal to our closing stock price on the date of grant. The grant date fair market value of the SSARs equity awards was $7.17 as determined using the Black-Scholes valuation model.

The following table shows the number of equity awards by type of award granted on January 5, 2009 and August 26, 2009 (unaudited):

		Number of Equity Awards
		January 5,				August 26,
Award Type		2009				2009				Total
Restricted common stock — service based vesting			340,000				7,000				347,000
Restricted common stock — performance based vesting			675,000				14,000				689,000
Restricted common stock awards			1,015,000				21,000				1,036,000
SSARs — service based vesting			1,200,000				50,000				1,250,000
SSARs — performance based based vesting			1,369,000				26,000				1,395,000
SSARs awards			2,569,000				76,000				2,645,000
Total management equity awards granted			3,584,000				97,000				3,681,000

The compensation committee resolved that the Company’s cash earnings per share growth, or Cash EPS growth, will be used as the performance criteria for the SSARs and restricted common stock awards subject to performance-based vesting. Cash EPS, a non-GAAP measure, is defined as the Company’s fully-diluted net income per share excluding non-cash acquisition-related intangible amortization, non-cash share-based compensation expense and certain Board approved non-recurring items on a tax-adjusted basis. The Company’s management team and Board believe the use of Cash EPS as the measure for vesting terms is appropriate as it can be used to analyze the Company’s operating performance on a consistent basis by removing the impact of certain non-cash and non-recurring items from the Company’s operations, and by reflecting organic growth and accretive business transactions. However, as Cash EPS is a non-GAAP measure, it may not be the sole or best measure for investors to gauge the Company’s overall financial performance. The audit committee of the Board will be responsible for validating the calculation of Cash EPS growth over the relevant period.

Performance-Based Equity Awards

Approximately 1,395,000 SSARs are subject to performance-based vesting and vest upon the achievement of a 25% compounded annual growth rate of Cash EPS for the three-year period ending December 31, 2011. None of the performance-based SSARs will vest unless the Company achieves the aforementioned 25% Cash EPS growth rate.

Approximately 689,000 shares of restricted common stock are subject to performance-based vesting criteria and will vest as follows:

	•		50% vesting based on achievement of a 15% compounded annual growth rate of Cash EPS for the three-year period ending December 31, 2011;
	•		Pro rata vesting of between 50% and 100% based on achievement of a compounded annual growth rate of Cash EPS between 15% and 25% for the three-year period ending December 31, 2011; and
	•		100% vesting based on achievement of a 25% compounded annual growth rate of Cash EPS for the three-year period ending December 31, 2011.

In addition to meeting the performance targets as discussed above, the grantees must be employed by the Company for a full four years through December 31, 2012 in order for the awards that are subject to performance-based vesting criteria to vest.

Share-based compensation expense for performance-based equity awards is recognized on a straight-line basis over the expected vesting term. We evaluate the probability of performance achievement each reporting period and, if necessary, adjust share-based compensation expense based on expected performance achievement.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

We have recorded non-cash employee share-based compensation expense related to performance-based SSARs of $382 and $1,130, respectively, for the three and nine months ended September 30, 2009. As of September 30, 2009, there was $5,318 of total unrecognized compensation cost related to the outstanding performance-based SSARs that will be recognized on a straight-line basis over the next 3.25 years.

We have recorded non-cash employee share-based compensation expense related to performance-based restricted common stock of $603 and $1,778, for the three and nine months ended September 30, 2009, respectively. As of September 30, 2009, there was $8,391 of total unrecognized compensation cost related to the outstanding performance-based restricted common stock that will be recognized on a straight-line basis over the next 3.25 years.

Service-Based Equity Awards

The remaining equity awards, comprised of approximately 1,250,000 SSARs and approximately 347,000 shares of restricted common stock are solely service-based and vest over a four-year period, of which the restricted common stock awards vest 100% on December 31, 2012 and the SSARs vest 25% annually beginning on December 31, 2009.

Share-based compensation expense for service-based equity awards is recognized on an accelerated basis over the expected vesting term. We have recorded non-cash employee share-based compensation expense related to service-based SSARs of $670 and $2,034 for the three and nine months ended September 30, 2009, respectively. As of September 30, 2009, there was $3,637 of total unrecognized compensation cost related to the outstanding service-based SSARs that will be recognized on an accelerated basis over a weighted average period of 1.50 years.

We have recorded non-cash employee share-based compensation expense related to service-based restricted common stock of $630 and $1,863 for the three and nine months ended September 30, 2009, respectively. As of September 30, 2009, there was $3,202 of total unrecognized compensation cost related to the outstanding service-based restricted common stock that will be recognized on an accelerated basis over a weighted average period of 1.49 years.

During the nine months ended September 30, 2009, approximately 24,000 shares of service-based SSARs were forfeited.

Board Equity Award Grant

On January 15, 2009, the compensation committee granted equity awards totaling approximately 126,500 underlying shares to the members of our Board and senior advisory board under our Long-Term Performance Incentive Plan as compensation for 2009 board service. These grants are part of our standard board compensation plan. The equity awards are comprised of approximately 8,500 shares of restricted common stock and 118,000 SSARs and vest ratably each month through December 31, 2009. The restricted common stock awards have a grant date fair value of $12.98 and the SSARs have a base price of $12.98 which was equal to our closing stock price on the date of grant. The grant date fair market value of the SSARs equity awards was $3.79 as determined using the Black-Scholes valuation model.

We have recorded non-cash share-based compensation expense related to the Board and senior advisory board service-based SSARs of approximately $112 and $335, for the three and nine months ended September 30, 2009, respectively, and will recognize an additional $112 over the remainder of 2009. We have recorded non-cash share-based compensation expense related to the Board and senior advisory board service-based restricted common stock of $13 and $63 for the three and nine months ended September 30, 2009, respectively, and will recognize an additional $13 over the remainder of 2009.

In addition, we have recorded non-cash share-based compensation expense related to previously issued restricted common stock to our senior advisory board of approximately $10 and $35 during the three months ended September 30, 2009 and 2008, respectively. We have recorded non-cash share-based compensation expense related to previously issued restricted common stock to our senior advisory board of approximately $36 and $82 during the nine months ended September 30, 2009 and 2008, respectively. We will recognize additional non-cash share-based compensation expense of $10, $11 and $2 for the years ended December 31, 2009, 2010, and 2011, respectively, related to restricted common stock issued for advisory services.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

Common Stock Option Awards

During the nine months ended September 30, 2009 and 2008, we granted service-based stock options for the purchase of approximately 402,000 and 1,639,000 shares, respectively. The stock options granted during the nine months ended September 30, 2009 have a weighted average exercise price of $19.15 and have a service vesting period of five years. The stock options granted during the nine months ended September 30, 2008 have a weighted average exercise price of $16.45 and have a service vesting period of five years, with the exception of 41,000 shares vesting ratably over a ten-month period.

The exercise price of all stock options described above was equal to the market price of our common stock on the date of grant (or “common stock grant-date fair value”), and therefore the intrinsic value of each option grant was zero. The common stock grant-date fair value of options granted during the nine months ended September 30, 2009 and 2008 represents the market value of our common stock as of the close of market on the date prior to the grant date.

The weighted-average grant-date fair value of each option granted during the nine months ended September 30, 2009 and 2008 was $6.32 and $6.87, respectively.

We have recorded non-cash employee share-based compensation expense related to common stock option awards of $1,533 and $2,419 for the three months ended September 30, 2009 and 2008, respectively. We have recorded non-cash employee share-based compensation expense related to common stock option awards of $5,320 and $6,717 for the nine months ended September 30, 2009 and 2008, respectively. There was $10,295 of total unrecognized compensation cost related to outstanding stock option awards that will be recognized over a weighted average period of 1.67 years.

A summary of changes in outstanding options during the nine months ended September 30, 2009 is as follows (unaudited):

										Weighted
						Weighted				Average
						Average				Remaining
						Exercise				Contractual		Aggregate
		Shares				Price				Term		Intrinsic Value
Options outstanding as of January 1, 2009			7,995,000			$	8.63			7 years		$	50,918
Granted			402,000				19.15
Exercised			(1,509,000	)			5.52
Forfeited			(181,000	)			13.41
Options outstanding as of September 30, 2009			6,707,000			$	9.84			7 years		$	85,529
Options exercisable as of September 30, 2009			2,513,000			$	7.86			7 years		$	36,975

The total fair value of stock options vested during the nine months ended September 30, 2009 and 2008 was $4,755 and $3,772, respectively.

The total intrinsic value of stock options exercised during the nine months ended September 30, 2009 and 2008, was $19,071 and $4,911, respectively. Our policy for issuing shares upon stock option exercise is to issue new shares of common stock.

The following table summarizes the exercise price range, weighted average exercise price, and remaining contractual lives for the number of stock options outstanding as of September 30, 2009 and 2008 (unaudited):

		September 30,				September 30,
		2009				2008
Range of exercise prices		$	0.63 - $23.11			$	0.63 - $17.86
Number of options outstanding			6,707,000				7,997,000
Weighted average exercise price		$	9.84			$	8.58
Weighted average remaining contractual life		6.9 years				7.9 years

Under generally accepted accounting principles for stock compensation, we calculate the grant-date estimated fair value of share-based awards using a Black-Scholes valuation model. Determining the estimated fair value of share-based awards is judgmental in nature and involves the use of significant estimates and assumptions, including the expected term of the share-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of the Company’s shares and forfeiture rates of the awards. The guidance requires forfeitures to be estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is estimated based on historical experience. We base fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates.

The fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions for the nine months ended September 30, 2009 and 2008 (unaudited):

		Nine Months Ended September 30,
		2009				2008
Range of calculated volatility			31.21% - 34.73	%			32.1% - 36.0	%
Dividend yield			0	%			0	%
Range of risk free interest rate			1.36% - 2.46	%			3.00% - 3.56	%
Range of expected term		4.0 - 5.0 years				5.4 - 6.5 years

It is not practicable for us to estimate the expected volatility of our share price given our limited history as a publicly traded company. Once we have sufficient history as a public company, we will estimate the expected volatility of our share price, which may impact our future share-based compensation. In accordance with generally accepted accounting principles for stock compensation, we have estimated grant-date fair value of our shares using volatility calculated (“calculated volatility”) from an appropriate industry sector index of comparable entities. We identified similar public entities for which share and option price information was available, and considered the historical volatilities of those entities’ share prices in calculating volatility. Dividend payments were not assumed, as we did not anticipate paying a dividend at the dates in which the various option grants occurred during the year. The risk-free rate of return reflects the weighted average interest rate offered for zero coupon treasury bonds over the expected term of the options. The expected term of the awards represents the period of time that options granted are expected to be outstanding. Based on its limited history, we utilized the “simplified method” as prescribed in Staff Accounting Bulletin No. 107, Share-based Payment, to calculate expected term. For service-based equity awards, compensation cost is recognized using an accelerated method over the vesting or service period and is net of estimated forfeitures. For performance-based equity awards, compensation cost is recognized using a straight-line method over the vesting or performance period and is adjusted each reporting period in which a change in performance achievement is determined and is net of estimated forfeitures.

Income tax expense recorded during the nine months ended September 30, 2009 and 2008, reflected an effective income tax rate of 38.3% and 40.4%, respectively. During the three months ended September 30, 2009, we recorded estimated research and development tax credits related to our 2008 tax year resulting in a favorable impact on our effective tax rate for the nine months ended September 30, 2009. This favorable impact was partially offset by adjustments to reconcile our 2008 income tax provision to our 2008 income tax return.

We calculate earnings per share (or “EPS”) in accordance with generally accepted accounting principles for earnings per share. Basic EPS is calculated by dividing reported net income available to common shareholders by the weighted-average number of common shares

outstanding for the reporting. Diluted EPS reflects the potential dilution that could occur if our stock options, stock warrants, SSARs and unvested restricted stock were included in our common shares outstanding during the reporting periods.

		Three Months Ended September 30,
		2009				2008
		(Unaudited)
Numerator for Basic and Diluted Income Per Share:
Net income		$	5,896			$	3,686
Denominator for basic income per share weighted average shares			54,792,000				53,715,000
Effect of dilutive securities:
Stock options			2,384,000				2,386,000
Stock settled stock appreciation rights			287,000				—
Restricted stock and stock warrants			392,000				35,000
Denominator for diluted income per share — adjusted weighted average shares and assumed conversions			57,855,000				56,136,000
Basic income per share:
Basic net income per common share		$	0.11			$	0.07
Diluted net income per share:
Diluted net income per common share		$	0.10			$	0.07

		Nine Months Ended September 30,
		2009				2008
		(Unaudited)
Numerator for Basic and Diluted Income Per Share:
Net income		$	9,976			$	4,809
Denominator for basic income per share weighted average shares			54,589,000				48,493,000
Effect of dilutive securities:
Stock options			2,275,000				2,507,000
Stock settled stock appreciation rights			21,000				—
Restricted stock and stock warrants			338,000				35,000
Denominator for diluted income per share — adjusted weighted average shares and assumed conversions			57,223,000				51,035,000
Basic income per share:
Basic net income per common share		$	0.18			$	0.10
Diluted net income per share:
Diluted net income per common share		$	0.17			$	0.09

The effect of certain dilutive securities has been excluded for the three and nine months ended September 30, 2009 and 2008 because the impact is anti-dilutive as a result of certain securities strike price being 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 calculation of basic and diluted EPS:

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Unaudited)
Stock options			69,000				366,000				133,000				396,000
Stock settled stock appreciation rights			20,000				—				39,000				—
Restricted stock and stock warrants			1,000				—				4,000				—
Total potentially dilutive securities			90,000				366,000				176,000				396,000

10. SEGMENT INFORMATION

We deliver our solutions and manage our business through two reportable business segments, Revenue Cycle Management (or “RCM”) and Spend Management (or “SM”):

	•		Revenue Cycle Management. Our Revenue Cycle Management segment provides a comprehensive suite of software and services spanning the hospital revenue cycle workflow — from patient admission, charge capture, case management and health information management through claims processing and accounts receivable management. Our workflow solutions, together with our data management and business intelligence tools, increase revenue capture and cash collections, reduce accounts receivable balances and increase regulatory compliance.
	•		Spend Management. Our Spend Management segment provides a comprehensive suite of technology-enabled services that help our customers manage their non-labor expense categories. Our solutions lower supply and medical device pricing and utilization by managing the procurement process through our group purchasing organization portfolio of contracts, consulting services and business intelligence tools.

Generally accepted accounting principles for segment reporting define 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. 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” column. Other assets and liabilities are included to provide a reconciliation to total assets and total liabilities.

MedAssets, Inc.

		Three Months Ended September 30, 2009
		RCM				SM				Corporate				Total
		(Unaudited, in thousands)
Results of Operations:
Revenue:
Gross administrative fees(1)		$	—			$	39,222			$	—			$	39,222
Revenue share obligation(1)			—				(13,591	)			—				(13,591	)
Other service fees			51,635				5,127				—				56,762
Total net revenue			51,635				30,758				—				82,393
Total operating expenses			44,067				17,500				7,281				68,848
Operating income (loss)			7,568				13,258				(7,281	)			13,545
Interest expense			—				—				(4,259	)			(4,259	)
Other income			21				57				145				223
Income (loss) before income taxes		$	7,589			$	13,315			$	(11,395	)		$	9,509
Income tax expense (benefit)			2,883				4,986				(4,256	)			3,613
Net income (loss)			4,706				8,329				(7,139	)			5,896
Segment Adjusted EBITDA		$	17,964			$	15,710			$	(5,126	)		$	28,548

		As of September 30, 2009
		RCM				SM				Corporate				Total
		(Unaudited, in thousands)
Financial Position:
Accounts receivable, net		$	44,678			$	31,651			$	(20,691	)		$	55,638
Other assets			570,916				91,967				50,374				713,257
Total assets			615,594				123,618				29,683				768,895
Accrued revenue share obligation			—				24,700				—				24,700
Deferred revenue			26,856				4,513				—				31,369
Other liabilities			36,043				28,841				227,579				292,463
Total liabilities		$	62,899			$	58,054			$	227,579			$	348,532

		Three Months Ended September 30, 2008
		RCM				SM				Corporate				Total
		(Unaudited, in thousands)
Results of Operations:
Revenue:
Gross administrative fees(1)		$	—			$	39,867			$	—			$	39,867
Revenue share obligation(1)			—				(14,204	)			—				(14,204	)
Other service fees			45,791				4,518				—				50,309
Total net revenue			45,791				30,181				—				75,972
Total operating expenses			41,702				17,217				5,226				64,145
Operating income (loss)			4,089				12,964				(5,226	)			11,827
Interest expense			—				—				(5,803	)			(5,803	)
Other income (expense)			12				(26	)			242				228
Income (loss) before income taxes		$	4,101			$	12,938			$	(10,787	)		$	6,252
Income tax expense (benefit)			1,577				5,642				(4,653	)			2,566
Net income (loss)			2,524				7,296				(6,134	)			3,686
Segment Adjusted EBITDA		$	14,003			$	15,207			$	(4,009	)		$	25,201

MedAssets, Inc.

		Nine Months Ended September 30, 2009
		RCM				SM				Corporate				Total
		(Unaudited, in thousands)
Results of Operations:
Revenue:
Gross administrative fees(1)		$	—			$	119,498			$	—			$	119,498
Revenue share obligation(1)			—				(41,003	)			—				(41,003	)
Other service fees			149,425				17,666				—				167,091
Total net revenue			149,425				96,161				—				245,586
Total operating expenses			136,205				57,443				22,155				215,803
Operating income (loss)			13,220				38,718				(22,155	)			29,783
Interest expense			(1	)			—				(14,014	)			(14,015	)
Other (expense) income			(125	)			141				388				404
Income (loss) before income taxes		$	13,094			$	38,859			$	(35,781	)		$	16,172
Income tax expense (benefit)			5,017				14,890				(13,711	)			6,196
Net income (loss)			8,077				23,969				(22,070	)			9,976
Segment Adjusted EBITDA		$	44,785			$	46,135			$	(15,529	)		$	75,391

		Nine Months Ended September 30, 2008
		RCM				SM				Corporate				Total
		(Unaudited, in thousands)
Results of Operations:
Revenue:
Gross administrative fees(1)		$	—			$	117,634			$	—			$	117,634
Revenue share obligation(1)			—				(39,279	)			—				(39,279	)
Other service fees			102,218				15,392				—				117,610
Total net revenue			102,218				93,747				—				195,965
Total operating expenses			100,704				54,289				15,683				170,676
Operating income (loss)			1,514				39,458				(15,683	)			25,289
Interest expense			(3	)			(1	)			(15,116	)			(15,120	)
Other income (expense)			41				(59	)			(2,083	)			(2,101	)
Income (loss) before income taxes		$	1,552			$	39,398			$	(32,882	)		$	8,068
Income tax expense (benefit)			604				15,251				(12,596	)			3,259
Net income (loss)			948				24,147				(20,286	)			4,809
Segment Adjusted EBITDA		$	26,043			$	46,547			$	(12,323	)		$	60,267

Generally accepted accounting principles for segment reporting require that the total of the reportable segments’ measures of profit or loss be reconciled to the Company’s consolidated operating results. The following table reconciles Segment Adjusted EBITDA to consolidated net income for each of the three and nine months ended September 30, 2009 and 2008:

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Unaudited, in thousands)								(Unaudited, in thousands)
RCM Adjusted EBITDA		$	17,964			$	14,003			$	44,785			$	26,043
SM Adjusted EBITDA			15,710				15,207				46,135				46,547
Total reportable Segment Adjusted EBITDA			33,674				29,210				90,920				72,590
Depreciation			(2,552	)			(2,165	)			(7,455	)			(5,841	)
Amortization of intangibles			(7,018	)			(7,324	)			(21,029	)			(16,117	)
Amortization of intangibles (included in cost of revenue)			(801	)			(233	)			(2,391	)			(995	)
Interest expense, net of interest income(1)			2				13				12				15
Income tax			(7,869	)			(7,219	)			(19,907	)			(15,855	)
Impairment of intangibles(2)			—				—				—				(1,916	)
Share-based compensation expense(3)			(2,402	)			(1,755	)			(7,901	)			(4,720	)
Accuro & XactiMed purchase accounting adjustments(4)			1				(707	)			(203	)			(2,066	)
Total reportable segment net income			13,035				9,820				32,046				25,095
Corporate net (loss)			(7,139	)			(6,134	)			(22,070	)			(20,286	)
Consolidated net income		$	5,896			$	3,686			$	9,976			$	4,809

11. DERIVATIVE FINANCIAL INSTRUMENTS

Effective January 1, 2009, we adopted generally accepted accounting principles for derivatives and hedging which requires companies to provide enhanced qualitative and quantitative disclosures about how and why an entity uses derivative instruments and how derivative instruments and related hedged items are accounted for under generally accepted accounting principles. As of September 30, 2009, we had an interest rate swap, an interest rate collar and a par forward contract as described below. These derivatives were highly effective and, as a result, we did not record any gain or loss from ineffectiveness in our Condensed Consolidated Statements of Operations for the three or nine months ended September 30, 2009.

On May 21, 2009, we entered into a London Inter-bank Offered Rate (or “LIBOR”) interest rate swap with a notional amount of $138,276 beginning June 30, 2010, which effectively converts a portion of our variable rate term loan credit facility to a fixed rate debt. The notional amount subject to the swap has pre-set quarterly step downs corresponding to our anticipated principal reduction schedule. The interest rate swap converts the three-month LIBOR rate on the corresponding notional amount of debt to an effective fixed rate of 1.99% (exclusive of the applicable bank margin charged by our lender). The interest rate swap terminates on March 31, 2012 and qualifies as a highly effective cash flow hedge under generally accepted accounting principles for derivatives and hedging.

MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) — (continued)
(In thousands, except share and per share amounts)

As such, the fair value of the derivative will be recorded in our Condensed Consolidated Balance Sheet. Accordingly, as of September 30, 2009, we recorded the fair value of the swap on our balance sheet as a liability of approximately $340 ($211 net of tax) in other long-term liabilities, and the offsetting loss was recorded in accumulated other comprehensive loss, net of tax, in our stockholders’ equity. If we assess any portion of this to be ineffective, we will reclassify the ineffective portion to current period earnings or loss accordingly.

We determined the fair values of the swap using Level 2 inputs as defined under generally accepted accounting principles for fair value measurements and disclosures because our valuation techniques included inputs that are considered significantly observable in the market, either directly or indirectly. Our valuation technique assessed the swap by comparing each fixed interest payment, or cash flow, to a hypothetical cash flow utilizing an observable market 3-month floating LIBOR rate as of September 30, 2009. Future hypothetical cash flows utilize projected market-based LIBOR rates. Each fixed cash flow and hypothetical cash flow is then discounted to present value utilizing a market observable discount factor for each cash flow. The discount factor fluctuates based on the timing of each future cash flow. The fair value of the swap represents a cumulative total of the differences between the discounted cash flows that are fixed from those that are hypothetical using floating rates.

We considered the credit worthiness of the counterparty of the hedged instrument. Given the recent events in the credit markets and specific challenges related to financial institutions, the Company continues to believe that the size, international presence and US government cash infusion, and track record of the counterparty will allow them to perform under the obligations of the contract and are not a risk of default that would change the highly effective status of the hedged instruments.

Interest rate collar

On June 24, 2008, we entered into an interest rate collar to hedge our interest rate exposure on a notional $155,000 of our outstanding term loan credit facility. The collar sets a maximum interest rate of 6.00% and a minimum interest rate of 2.85% on LIBOR applicable to a $155,000 notional term loan debt. This collar effectively limits our LIBOR interest exposure on this portion of our term loan debt to within that range (2.85% to 6.00%). The collar also does not hedge the applicable margin payable to our lenders on our indebtedness. Settlement payments are made between the hedge counterparty and us on a quarterly basis, coinciding with our term loan installment payment dates, for any rate overage on the maximum rate and any rate deficiency on the minimum rate on the notional amount outstanding. The collar terminates on September 30, 2010 and no consideration was exchanged with the counterparty to enter into the hedging arrangement.

The collar is a highly effective cash flow hedge under generally accepted accounting principles for derivatives and hedging, as the payment and interest rate terms of the instrument coincide with that of our term loan and the instrument was designed to perfectly hedge our variable cash flow risk. Accordingly, as of September 30, 2009, we recorded the fair value of the collar on our balance sheet as a liability of approximately $2,815 ($1,750 net of tax) in other long-term liabilities, and the offsetting loss was recorded in accumulated other comprehensive loss, net of tax, in our stockholders’ equity. If we assess any portion of this to be ineffective, we will reclassify the ineffective portion to current period earnings or loss accordingly.

We determined the fair values of the collar using Level 2 inputs as defined under generally accepted accounting principles for fair value measurements and disclosures because our valuation technique included inputs that are considered significantly observable in the market, either directly or indirectly. Our valuation technique assesses the present value of future expected cash flows using a market observable discount factor that is based on a 3-month LIBOR yield curve adjusted for interest rate volatility. The assumptions utilized to assess volatility are also observable in the market.

We considered the credit worthiness of the counterparty of our hedged instrument. The Company believes that given the size of the hedged instrument and the likelihood that the counterparty would have to perform under the contract (i.e. LIBOR goes above 6.00%) mitigates any potential credit risk and risk of non-performance under the contract.

Par forward contracts

We have a series of par forward contracts to lock in the rate of exchange in U.S. dollar terms at a specific par forward exchange rate of Canadian dollars to one U.S. dollar, with respect to one specific Canadian customer contract. This three-year customer contract extends through April 30, 2010. The hedged instruments are classified as cash flow hedges and are designed to be highly effective at minimizing exchange risk on the contract. We designated this hedge as effective and recorded the fair value of this instrument as an asset of approximately $7 ($4 net of

tax) in other long-term assets as of September 30, 2009. The offsetting unrealized gain is recorded as accumulated other comprehensive income, net of tax, in our stockholders’ equity as of September 30, 2009. If we assess any material portion of this to be ineffective, we will reclassify that ineffective portion to current period earnings or loss accordingly.

We determined the fair values of the par forward contracts using Level 2 inputs as defined under generally accepted accounting principles for fair value measurements and disclosures because our valuation techniques included inputs that are considered significantly observable in the market, either directly or indirectly. However, these instruments are not traded in active markets, thus they are not valued using Level 1 inputs. Our valuation technique assessed the par forward contract by comparing each fixed cash flow to a hypothetical cash flow utilizing an observable market spot exchange rate as of September 30, 2009, and then discounting each of those cash flows to present value utilizing a market observable discount factor for each cash flow. The discount factor fluctuates based on the timing of each future cash flow. The fair value represents a cumulative total of each par forward contract calculated fair value.

We considered the credit worthiness of the counterparty of the hedged instrument. Given the recent events in the credit markets and specific challenges related to financial institutions, the Company continues to believe that the size, international presence and US government cash infusion, and track record of the counterparty will allow them to perform under the obligations of the contract and are not a risk of default that would change the highly effective status of the hedged instruments.

On June 24, 2008, we terminated two floating-to-fixed rate LIBOR-based interest rate swaps, originally entered into in November 2006 and July 2007. The swaps were originally set to fully terminate by July 2010. Such early termination with the counterparty was deemed to be a termination of all future obligations between us and the counterparty. The termination of the swaps resulted in the payment of such liability and the reclassification of the related accumulated other comprehensive loss to current period expense. The result was a charge to expense for the nine months ended September 30, 2008 of $3,914.

A summary of fair values of our derivatives as of September 30, 2009 is as follows:

Asset Derivatives

Liability Derivatives

September 30,

September 30,

2009

2009

Derivatives designated as hedging instruments under

Balance Sheet

Balance Sheet

generally accepted accounting principles

Location

Fair Value

Location

Fair Value

(Unaudited)

(Unaudited)

Interest rate contracts

$

—

Other long term liabilities

$

3,155

Foreign exchange contracts

Other long term assets

7

—

Total derivatives designated as hedging instruments

$

7

$

3,155