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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

 

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

For the quarterly period ended March 31, 2014

OR

 

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

For the transition period from             to             

Commission file number: 001-33881

MEDASSETS, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE		51-0391128
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
100 North Point Center East, Suite 200 Alpharetta, Georgia		30022
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (678) 323-2500

(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      x  No        ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes        x   No        ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer  x		Accelerated filer  ¨		Non-accelerated filer  ¨		Smaller reporting company  ¨
				(Do not check if a smaller       reporting company)

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

As of April 25, 2014, the registrant had 60,986,125 shares of common stock, par value $0.01 per share, outstanding.

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MEDASSETS, INC.

FORM 10-Q

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013			4
Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March  31, 2014			5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Mine Safety Disclosures			36
Item 5. Other Information			36
Item 6. Exhibits			36
Signatures

 

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MedAssets, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

		March 31, 2014				December 31, 2013
		(In thousands, except share and per share amounts)
ASSETS
Current assets
Cash and cash equivalents		$	-			$	2,790
Accounts receivable, net of allowances of $2,539 and $2,568 as of March 31, 2014 and December 31, 2013, respectively			100,993				87,636
Deferred tax asset, current portion			2,764				4,535
Prepaid expenses and other current assets			24,049				24,059
Total current assets			127,806				119,020
Property and equipment, net			156,518				157,747
Other long term assets
Goodwill			1,027,847				1,027,847
Intangible assets, net			253,414				267,440
Other			41,034				41,695
Other long term assets			1,322,295				1,336,982
Total assets		$	1,606,619			$	1,613,749
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	19,586			$	24,066
Accrued revenue share obligation and rebates			71,125				77,398
Accrued payroll and benefits			18,277				41,587
Other accrued expenses			36,905				12,126
Deferred revenue, current portion			54,498				46,523
Current portion of notes payable			33,308				15,500
Current portion of finance obligation			273				255
Total current liabilities			233,972				217,455
Notes payable, less current portion			408,562				424,000
Bonds payable			325,000				325,000
Finance obligation, less current portion			8,698				8,781
Deferred revenue, less current portion			16,484				16,369
Deferred tax liability			116,902				121,083
Other long term liabilities			11,093				11,272
Total liabilities			1,120,711				1,123,960
Commitments and contingencies
Stockholders’ equity
Common stock, $0.01 par value, 150,000,000 shares authorized; 61,176,000 and 61,740,000 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively			612				617
Additional paid-in capital			705,578				717,132
Accumulated deficit			(220,282)				(227,960)
Total stockholders’ equity			485,908				489,789
Total liabilities and stockholders’ equity		$	1,606,619			$	1,613,749

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

 

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MedAssets, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended March 31,
		2014				2013
		(In thousands, except per share amounts)
Revenue:
Administrative fees, net		$	76,246			$	76,519
Other service fees			94,621				96,318
Total net revenue			170,867				172,837
Operating expenses:
Cost of revenue (inclusive of amortization expense of $424 and $598 for the three months ended March 31, 2014 and 2013, respectively)			37,431				34,268
Product development expenses			7,397				8,501
Selling and marketing expenses			15,193				13,742
General and administrative expenses			58,803				58,620
Restructuring, acquisition and integration-related expenses			1,697				8,030
Depreciation			11,540				9,177
Amortization of intangibles			14,026				16,501
Total operating expenses			146,087				148,839
Operating income			24,780				23,998
Other income (expense):
Interest (expense)			(11,173)				(11,349)
Other income			58				41
Income before income taxes			13,665				12,690
Income tax expense			5,987				4,986
Net income		$	7,678			$	7,704
Basic and diluted income per share:
Basic net income per share		$	0.13			$	0.13
Diluted net income per share		$	0.12			$	0.13
Weighted average shares—basic			60,648				59,006
Weighted average shares—diluted			61,681				60,404

 

 

 

 

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

 

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MedAssets, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

Three Months Ended March 31, 2014

 

		Common Stock								Additional Paid-In Capital				Accumulated Deficit				Total Stockholders’ Equity
		Shares				Par Value
		(In thousands)
Balances at December 31, 2013			61,740			$	617			$	717,132			$	(227,960)			$	489,789
Issuance of common stock from stock option and SSAR exercises and restricted stock issuances, net			185				2				1,754				-				1,756
Shares surrendered to pay taxes on vesting of restricted stock			(109)				(1)				(2,622)								(2,623)
Stock compensation expense			-				-				4,302				-				4,302
Repurchase of common stock			(640)				(6)				(16,055)				-				(16,061)
Excess tax benefit from equity award exercises, net			-				-				1,067				-				1,067
Net income															7,678				7,678
Balances at March 31, 2014			61,176			$	612			$	705,578			$	(220,282)			$	485,908

 

 

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

 

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MedAssets, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended March 31,
		2014				2013
		(In thousands)
Operating activities
Net income		$	7,678			$	7,704
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation			11,964				9,775
Amortization of intangibles			14,026				16,501
Impairment of assets			-				2,015
(Gain) loss on sale of assets			(20)				46
Noncash stock compensation expense			4,302				3,411
Excess tax benefit from exercise of equity awards			(1,382)				(2,612)
Amortization of debt issuance costs			943				953
Noncash interest expense, net			105				120
Deferred income tax benefit			(2,451)				(474)
Changes in assets and liabilities:
Accounts receivable			(13,357	)			2,986
Prepaid expenses and other assets			10				(3,798)
Other long-term assets			452				20
Accounts payable			(4,691)				(4,641)
Accrued revenue share obligations and rebates			(6,273)				(1,396)
Accrued payroll and benefits			(23,310)				(22,942)
Other accrued expenses and long-term liabilities			21,647				12,098
Deferred revenue			8,090				(2,283)
Cash provided by operating activities			17,733				17,483
Investing activities
Purchases of property, equipment and software, net			(1,748)				(686)
Capitalized software development costs			(8,383)				(8,292)
Cash used in investing activities			(10,131)				(8,978)
Financing activities
Borrowings from revolving credit facility			16,524				-
Repayment of notes payable			(13,875)				(18,875)
Repayment of revolving credit facility			(279)				-
Repayment of finance obligation			(169)				(169)
Excess tax benefit from exercise of equity awards			1,382				2,612
Issuance of common stock, net of offering costs			1,756				2,725
Purchase of treasury shares, including shares surrendered for tax withholdings			(15,731)				-
Cash used in financing activities			(10,392)				(13,707)
Net decrease in cash and cash equivalents			(2,790)				(5,202)
Cash and cash equivalents, beginning of period			2,790				13,734
Cash and cash equivalents, end of period		$	-			$	8,532

 

 

 

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

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands, except share and per share amounts)

Unless the context indicates otherwise, references in this Quarterly Report to “MedAssets,” the “Company,” “we,” “our” and “us” mean MedAssets, Inc., and its subsidiaries and predecessor entities.

 

1.	BUSINESS DESCRIPTION AND BASIS OF PRESENTATION

We provide technology-enabled products and services which together deliver solutions designed to reduce total cost of care, enhance operational efficiency, align clinical delivery with advance care coordination and improve revenue performance for hospitals, health systems and other ancillary healthcare providers. Our client-specific solutions are designed to efficiently analyze detailed information across the spectrum of cost, operations, clinical delivery and reimbursement. Our solutions integrate with existing operations and enterprise software systems of our clients and provide financial improvement with minimal upfront costs or capital expenditures. Our operations and clients are primarily located throughout the United States and to a limited extent, Canada.

The accompanying unaudited condensed consolidated financial statements, and condensed consolidated balance sheet as of December 31, 2013, 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 materially from those estimates. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2014.

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, 2013 included in our Form 10-K as filed with the SEC on March 3, 2014. These financial statements include the accounts of MedAssets, Inc. and our wholly owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation.

Use of Estimates

The preparation of the financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from those estimates. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts and returns, product development costs, share-based payments, business combinations, impairment of goodwill, intangible assets and long-lived assets, and accounting for income taxes have the greatest potential impact on our condensed consolidated financial statements.

Cash and Cash Equivalents

All of our highly liquid investments with original maturities of three months or less at the date of purchase are carried at cost which approximates fair value and are considered to be cash equivalents. Currently, our excess cash is voluntarily used to repay our swing line credit facility, if any, on a daily basis and applied against our revolving credit facility on a routine basis when our swing line credit facility is undrawn. In addition, we may periodically make voluntary repayments on our term loans.

Cash and cash equivalents were zero and $2,790 as of March 31, 2014 and December 31, 2013, respectively. We had $26,245 and $10,000 outstanding on our revolving credit facility as of March 31, 2014 and December 31, 2013. In the event our cash balance is zero at the end of a period, any outstanding checks are recorded as accrued expenses.

As of March 31, 2014, we reclassified approximately $14,846 of outstanding checks related to a book overdraft into other accrued expenses on the condensed consolidated balance sheet. This book overdraft amount has been included in operating activities within the condensed consolidated statement of cash flows. See Note 5 for immediately available cash under our revolving credit facility.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

2.	RECENT ACCOUNTING PRONOUNCEMENTS

Income Taxes

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update relating to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This update amends existing GAAP that required in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. We adopted this update on January 1, 2014.

Obligations Resulting from Joint and Several Liability Arrangements

In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples of obligations within the scope of this update include debt arrangements, other contractual obligations and settled litigation and judicial rulings. The guidance requires an entity to measure such obligations as the sum of the amount that the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance in the update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this update on January 1, 2014.

 

3.	RESTRUCTURING, ACQUISITION AND INTEGRATION-RELATED EXPENSES

Restructuring Activities

Restructuring charges consist of exit costs and other costs associated with the reorganization of our operations, including employee termination costs, lease contract termination costs, impairment of assets, and any other qualifying exit costs. Costs associated with exit or disposal activities are recorded when the liability is incurred or when such costs are deemed probable and estimable and represent management’s best estimate.

In January 2014, our management approved and initiated a plan to restructure our operations resulting in certain workforce changes within the Company that resulted in costs of approximately $1,697. During the three months ended March 31, 2014 and 2013, we expensed restructuring and exit and integration-related costs of approximately $1,697 and $8,030, respectively. These costs are included within the restructuring, acquisition and integration-related expenses line on the accompanying condensed consolidated statements of operations. As of March 31, 2014, cash payments were made of approximately $1,382 and we had approximately $935 included in current liabilities for these employee-related costs that we expect to pay over the next twelve months.

 

4.	DEFERRED REVENUE

Deferred revenue consists of unrecognized revenue related to advanced client billing or client payments received prior to revenue being realized and earned. Substantially all of our deferred revenue consists of: (i) deferred administrative fees, net; (ii) deferred service fees; (iii) deferred software and implementation fees; and (iv) other deferred fees, including receipts for our annual customer and vendor meeting prior to the event.

 

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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:

 

		March 31, 2014				December 31, 2013
Software and implementation fees		$	32,276			$	27,393
Service fees			24,617				22,363
Administrative fees			6,662				10,935
Other fees			7,427				2,201
Deferred revenue, total			70,982				62,892
Less: Deferred revenue, current portion			(54,498)				(46,523)
Deferred revenue, non-current portion		$	16,484			$	16,369

As of March 31, 2014 and December 31, 2013, deferred revenue included in our condensed consolidated balance sheets that was contingent upon meeting performance targets was $2,879 and $6,516, respectively. Advance billings on arrangements that include contingent performance targets are recorded in accounts receivable and deferred revenue when billed. Only certain contingent performance targets are billed in advance of meeting the target as determined by the customer arrangement.

5. NOTES AND BONDS PAYABLE

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

 

		March 31, 2014				December 31, 2013
Term A facility		$	234,375			$	237,500
Term B facility			181,250				192,000
Revolving credit facility			26,245				10,000
Total notes payable			441,870				439,500
Bonds payable			325,000				325,000
Total notes and bonds payable			766,870				764,500
Less: current portions			(33,308)				(15,500)
Total long-term notes and bonds payable		$	733,562			$	749,000

Notes Payable

As of March 31, 2014, our long-term notes payable consists of a Term A Facility, a Term B Facility and a revolving credit facility, each with an outstanding balance of $234,375, $181,250 and $26,245 (inclusive of our swing line balance of $16,245), respectively. We have classified the balance of the swing line component of our revolving credit facility as a current liability because under our auto-borrowing plan all excess cash on hand is used to repay the swing line component on a daily basis, and the swing line component is expected to be repaid over the next twelve months. We have classified the remaining $10,000 of the outstanding balance on our revolving credit facility as a long term liability given the maturity date of December 13, 2017. This resulted in approximately $172,755 of availability under our revolving credit facility (after giving effect to $1,000 of outstanding but undrawn letters of credit on such date) as of March 31, 2014. During the three months ended March 31, 2014, we made scheduled principal payments of $3,875 on our Term A Facility and Term B Facility in addition to $10,000 in voluntary prepayments on our Term B Facility. The applicable weighted average interest rates (inclusive of the applicable bank margin) on our Term A Facility, Term B Facility and Revolving Credit Facility at March 31, 2014 were 2.50%, 4.00% and 2.49%, respectively.

We are a party to a credit agreement with JP Morgan Chase Bank, N.A and other financial institutions named therein, dated December 13, 2012 (the “Credit Agreement”). The Credit Agreement contains certain customary negative covenants, including but not limited to, limitations on the incurrence of debt, limitations on liens, limitations on fundamental changes, limitations on asset sales and sale leasebacks, limitations on investments, limitations on dividends or distributions on, or redemptions of, equity interests, limitations on prepayments or redemptions of unsecured or subordinated debt, limitations on negative pledge clauses, limitations on transactions with affiliates and limitations on changes to the Company’s fiscal year. The Credit Agreement also includes maintenance covenants of maximum ratios of consolidated total indebtedness (subject to certain adjustments) to consolidated EBITDA (subject to certain adjustments) and minimum cash interest coverage ratios. The Credit Agreement contains certain customary representations and warranties, affirmative covenants and events of default, including but not limited to payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of insolvency or bankruptcy, material judgments, certain events under ERISA, actual or asserted failures of any guaranty or security document

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

supporting the credit agreement to be in full force and effect and changes of control. The Company was in compliance with these covenants as of March 31, 2014. We are also required to prepay our debt obligations based on an excess cash flow calculation for the applicable fiscal year which is determined in accordance with the terms of the Credit Agreement. Our current portion of notes payable does not include an amount with respect to any 2014 excess cash flow payment. We will reclassify a portion of our long-term notes payable to a current classification at such time that any 2014 excess cash flow payment becomes estimable. We will be required to make any necessary cash flow payment within the first quarter of 2015.

All of the Company’s obligations under the Credit Agreement are unconditionally guaranteed by each of the Company’s existing and subsequently acquired or organized wholly-owned restricted subsidiaries, except that the following subsidiaries do not and will not provide guarantees: (a) unrestricted subsidiaries, (b) subsidiaries with tangible assets and revenues each having a value of less than 2.5% of the consolidated tangible assets and consolidated revenues of the Company (provided that all such immaterial subsidiaries, on a consolidated basis, shall not account for more than 5.0% of the consolidated EBITDA of the Company), (c) any subsidiary prohibited by applicable law, rule or regulation from providing a guarantee or which would require governmental (including regulatory) consent or approval or which would result in adverse tax consequences and (d) not-for-profit subsidiaries.

All of the Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s assets and the assets of each guarantor (subject to certain exceptions), including, but not limited to (1) a perfected pledge of all of the equity securities of each direct wholly owned restricted subsidiary of the Company and of each subsidiary guarantor (which pledge, in the case of any foreign subsidiary, is limited to 65% of the equity securities of such foreign subsidiary) and (2) perfected security interests in, and mortgages on, substantially all tangible and intangible personal property and material fee-owned real property of the Company and each subsidiary guarantor (including but not limited to accounts receivable, inventory, equipment, general intangibles (including contract rights), investment property, intellectual property, material intercompany notes and proceeds of the foregoing).

Loans under the Credit Agreement must be prepaid under certain circumstances, including with proceeds from certain future debt issuances, asset sales and a portion of excess cash flow for the applicable fiscal year. Loans under the Credit Agreement may be voluntarily prepaid at any time, subject to customary LIBOR breakage costs.

Bonds Payable

In November 2010, we closed the offering of an aggregate principal amount of $325,000 of senior notes due 2018 (the “Notes”) in a private placement (the “Notes Offering”). In October 2011, our Notes were registered under the Securities Act of 1933, as amended. The Notes are guaranteed on a senior unsecured basis by each of our existing domestic subsidiaries and each of our future domestic restricted subsidiaries in each case that guarantees our obligations under the credit agreement. Each of the subsidiary guarantors is 100% owned by us; the guarantees by the subsidiary guarantors are full and unconditional; the guarantees by the subsidiary guarantors are joint and several; we have no independent assets or operations; and any subsidiaries of ours other than the subsidiary guarantors are minor. The Notes and the guarantees are senior unsecured obligations of the Company and the subsidiary guarantors, respectively.

The Notes were issued pursuant to an indenture dated as of November 16, 2010 (the “Indenture”) among the Company, its subsidiary guarantors and Wells Fargo Bank, N.A., as trustee. Pursuant to the Indenture, the Notes will mature on November 15, 2018 and bear 8% annual interest. Interest on the Notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2011.

The Indenture contains certain customary negative covenants, including but not limited to, limitations on the incurrence of debt, limitations on liens, limitations on consolidations or mergers, limitations on asset sales, limitations on certain restricted payments and limitations on transactions with affiliates. The Indenture does not contain any significant restrictions on the ability of the Company or any subsidiary guarantor to obtain funds from the Company or any other subsidiary guarantor by dividend or loan. The Indenture also contains customary events of default. The Company was in compliance with these covenants as of March 31, 2014.

The Company has the option to redeem the Notes as follows: (i) at any time prior to November 15, 2014, the Company may redeem all or part of the Notes at a redemption price equal to 100% of the principal amount plus the applicable premium (as defined in the Indenture); and (ii) on and after November 15, 2014, the Company may redeem all or a part of the Notes, at the following redemption prices:

 

Year		Percentage
2014			104%
2015			102%
2016 and thereafter			100%

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

The Notes also contain a redemption feature that would require the repurchase of 101% of the aggregate principal amount plus accrued and unpaid interest at the option of the holders upon a change in control.

As of March 31, 2014, the Company’s 8% senior notes due 2018 were trading at 107.0% of par value (Level 1).

Debt Issuance Costs

As of March 31, 2014, we had approximately $16,323 of debt issuance costs related to our credit agreement and Notes which will be amortized into interest expense generally using the effective interest method until the applicable maturity date. For the three months ended March 31, 2014 and 2013, we recognized $943 and $953, respectively, in interest expense related to the amortization of debt issuance costs.

Debt Maturity Table

The following table summarizes our stated debt maturities and scheduled principal repayments as of March 31, 2014:

 

Year		Term A Facility				Term B Facility				Revolving Credit Facility				Senior Unsecured Notes				Total
2014		$	9,375			$	2,250			$	16,245			$	-			$	27,870	(1)
2015			18,750				3,000				-				-				21,750
2016			25,000				3,000				-				-				28,000
2017			181,250				3,000				10,000				-				194,250
2018			-				3,000				-				325,000				328,000
Thereafter			-				167,000				-				-				167,000
		$	234,375			$	181,250			$	26,245			$	325,000			$	766,870

 

(1)

Represents the remaining quarterly principal payments due during the fiscal year ending December 31, 2014 and the balance of the swing line component of our revolving credit facility.

Total interest paid (net of amounts capitalized) on our notes and bonds payable during the three months ended March 31, 2014 and 2013 was approximately $3,484 and $5,932, respectively.

 

6.	COMMITMENTS AND CONTINGENCIES

Performance Targets

In the ordinary course of contracting with our clients, we may agree to make some or all of our fees contingent upon the client’s achievement of financial improvement targets from the use of our services and software. These contingent fees are not recognized as revenue until the client confirms achievement of the performance targets. We generally receive client acceptance as and when the performance targets are achieved. If we invoice contingent fees prior to client 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.

Legal Proceedings

From time to time, we become involved in legal proceedings arising in the ordinary course of business. As of March 31, 2014, we are not presently involved in any legal proceedings, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, operating results or financial condition.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

7.	STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

During the three months ended March 31, 2014, we issued approximately 211,000 shares of common stock in connection with employee stock option exercises, stock-settled stock appreciation rights (“SSARs”) exercises and the vesting of restricted stock units (“RSUs”) for net exercise proceeds of $1,756.

During the three months ended March 31, 2014, approximately 26,000 shares of restricted common stock were forfeited.

During the three months ended March 31, 2014, we received approximately 109,000 restricted shares that were surrendered from equity awards holders to settle their associated minimum statutory tax liability of $2,623 from shares that vested during the year.

Repurchase of Common Stock

On February 26, 2014, our Board of Directors authorized a share repurchase program of up to $75,000 of our common stock. The following table shows the amount and cost of shares of common stock we repurchased for the three months ended March 31, 2014 under the share repurchase program. The repurchased shares have not been retired and constitute authorized but unissued shares.

 

		Three months ended March 31,
		2014				2013
Number of shares repurchased			640,000				-
Cost of shares repurchased(1)		$	16,061			$	-

 

(1)

Our share repurchase program required a three-day cash settlement period with our broker. We made purchases during the last three days of March 2014 amounting to 120,000 shares totaling $2,953, which were settled in April 2014. The cost of these shares is included in other accrued expenses on our condensed consolidated balance sheet as of March 31, 2014.

Share-Based Compensation

As of March 31, 2014, we had restricted common stock, RSUs, SSARs and common stock option equity awards outstanding under three share-based compensation plans. As of March 31, 2014, we had approximately 4,800,000 shares reserved (inclusive of equity award forfeitures) and available for grant under the 2008 MedAssets, Inc. Long-Term Performance Incentive Plan (“LTPIP”).

The total share-based compensation expense related to equity awards was $4,302 and $3,411 for the three months ended March 31, 2014 and 2013, respectively. The total income tax benefit recognized in the condensed consolidated statement of operations for share-based compensation arrangements related to equity awards was $1,602 and $1,280 for the three months ended March 31, 2014 and 2013, respectively. There were no capitalized share-based compensation expenses during the three months ended March 31, 2014.

Total share-based compensation expense (inclusive of restricted common stock, RSUs, SSARs and common stock options) for the three months ended March 31, 2014 and 2013 as reflected in our condensed consolidated statements of operations is as follows:

 

		Three Months Ended March 31,
		2014				2013
Cost of revenue		$	1,166			$	713
Product development			244				118
Selling and marketing			527				379
General and administrative			2,365				2,201
Total share-based compensation expense		$	4,302			$	3,411

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

Employee Stock Purchase Plan

In 2010, we established the MedAssets, Inc. Employee Stock Purchase Plan (the “Plan”). Under the Plan, eligible employees may purchase shares of our common stock at a discounted price through payroll deductions. The price per share of the common stock sold to participating employees will be 95% of the fair market value of our common stock on the applicable purchase date. The Plan requires that all stock purchased be held by participants for a period of 18 months from the purchase date. A total of 500,000 shares of our common stock are authorized for purchase under the Plan. For the three months ended March 31, 2014 and 2013, we purchased approximately 11,000 shares and 11,700 shares of our common stock under the Plan which amounted to approximately $253 and $205, respectively.

Equity Award Grants

Information regarding equity awards for the three months ended March 31, 2014 is as follows:

Restricted Stock Unit Equity Awards

In February 2014, our Compensation Committee of our Board of Directors approved an equity grant for certain eligible employees consisting of service-based and performance-based RSUs. The purpose of the equity grant is to assist the Company in attracting, retaining, motivating, and rewarding certain individuals of the Company. The equity grant is intended to promote the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of the stockholders. The total approved equity grant amounted to 1,218,826 RSUs with a grant date fair value of $25.06 per share and was comprised of: (i) 63,355 service-based RSUs that vest ratably each month through December 31, 2014; (ii) 469,011 service-based RSUs that vest annually over three years of continuous service with the first annual vest date beginning on March 1, 2015; (iii) 343,230 performance-based RSUs using a net revenue performance metric that vest annually over three years of continuous service with the first annual vest date beginning on March 1, 2015 provided the performance metric is achieved; and (iv) 343,230 performance-based RSUs using an adjusted EBITDA performance metric that vest annually over three years of continuous service with the first annual vest date beginning on March 1, 2015 provided the performance metric is achieved.

The measurement period for the net revenue performance-based awards is from January 1, 2014 through December 31, 2014. The net revenue performance metric is based on the achievement of an established net revenue target. The Company must achieve a minimum threshold of net revenue before any performance-based RSUs begin vesting. The equity award holders have an opportunity to earn between 50% and 100% of the performance-based equity awards once the minimum threshold has been met. If the minimum threshold is not met, the equity award holders will forfeit those awards.

The measurement period for the adjusted EBITDA performance-based awards is from January 1, 2014 through December 31, 2014. The adjusted EBITDA performance metric is based on the achievement of an established adjusted EBITDA target. The Company must achieve a minimum threshold of adjusted EBITDA before any performance-based RSUs begin vesting. The equity award holders have an opportunity to earn between 50% and 100% of the performance-based equity awards once the minimum threshold has been met. If the minimum threshold is not met, the equity award holders will forfeit those awards.

 

8.	INCOME TAXES

Income tax expense recorded during the three months ended March 31, 2014 and 2013 reflected an effective income tax rate of 43.8% and 39.3%, respectively.

 

9.	INCOME PER SHARE

We calculate earnings per share (or “EPS”) in accordance with the GAAP relating to earnings per share. Basic EPS is calculated by dividing reported net income by the weighted-average number of common shares outstanding for the reported period following the two-class method. Diluted EPS reflects the potential dilution that could occur if our stock options, SSARs, unvested restricted stock, RSUs and shares that were purchasable pursuant to our employee stock purchase plan were exercised and converted into our common shares during the reporting periods.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

A reconciliation of basic and diluted weighted average shares outstanding for basic and diluted EPS for the three months ended March 31, 2014 and 2013 is as follows:

 

		Three Months Ended March 31,
		2014				2013
Numerator for Basic and Diluted Income Per Share:
Net income			7,678				7,704
Denominator for basic income per share weighted average shares			60,648,000				59,006,000
Effect of dilutive securities:
Stock options			285,000				719,000
SSARs			327,000				345,000
Restricted stock and RSUs			421,000				334,000
Denominator for diluted income per share—adjusted weighted average shares and assumed conversions			61,681,000				60,404,000
Basic income per share:
Basic net income from continuing operations		$	0.13			$	0.13
Diluted net income per share:
Diluted net income from continuing operations		$	0.12			$	0.13

During the three months ended March 31, 2014 and 2013, the effect of certain dilutive securities have been excluded because the impact is anti-dilutive as a result of certain securities being “out of the money” with strike prices greater than the average market price during the periods presented.

The following table provides a summary of those potentially dilutive securities that have been excluded from the above calculation of diluted EPS:

 

		Three Months Ended March 31,
		2014				2013
SSARs			-				63,000

10. SEGMENT INFORMATION

We manage our business through two reportable business segments, Spend and Clinical Resource Management (or “SCM”) and Revenue Cycle Management (or “RCM”).

 

—

Spend and Clinical Resource Management. Our SCM segment provides a comprehensive suite of technology-enabled services that help our clients manage their expense categories. Our solutions lower supply and medical device pricing and utilization by managing the procurement process through our group purchasing organization (“GPO”) portfolio of contracts, consulting services and business intelligence tools.

 

—

Revenue Cycle Management. Our RCM segment provides a comprehensive suite of products and services spanning the hospital revenue cycle workflow — from patient access and financial responsibility, charge capture and integrity, pricing analysis, claims processing and denials management, payor contract management, revenue recovery and accounts receivable services. Our workflow solutions, together with our data management, compliance and audit tools, increase revenue capture and cash collections, reduce accounts receivable balances and increase regulatory compliance.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

GAAP relating to segment reporting defines reportable segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. The guidance indicates that financial information about segments should be reported on the same basis as that which is used by the chief operating decision maker in the analysis of performance and allocation of resources. Management of the Company, including our chief operating decision maker, uses what we refer to as Segment Adjusted EBITDA as its primary measure of profit or loss to assess segment performance and to determine the allocation of resources. We define Segment Adjusted EBITDA as segment net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization (“EBITDA”) as adjusted for other non-recurring, non-cash or non-operating items. Our chief operating decision maker uses Segment Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period. Segment Adjusted EBITDA includes expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of the segment. General and administrative corporate expenses that are not specific to the segments are not included in the calculation of Segment Adjusted EBITDA. These expenses include the costs to manage our corporate offices, interest expense on our credit facilities and expenses related to being a publicly-held company. All reportable segment revenues are presented net of inter-segment eliminations and represent revenues from external clients.

The following tables present Segment Adjusted EBITDA and financial position information as utilized by our chief operating decision maker. A reconciliation of Segment Adjusted EBITDA to consolidated net income is included. General corporate expenses are included in the “Corporate” line item. “RCM” represents the Revenue Cycle Management segment and “SCM” represents the Spend and Clinical Resource Management segment. Other assets and liabilities are included to provide a reconciliation to total assets and total liabilities.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

The following tables represent our results of operations, by segment, for the three months ended March 31, 2014 and 2013:

 

		Three Months Ended March 31,
		2014				2013
Revenue:
SCM
Gross administrative fees(1)		$	126,361			$	120,636
Revenue share obligation(1)			(50,115)				(44,117)
Net administrative fees			76,246				76,519
Other service fees(2)			32,371				32,989
Total SCM net revenue			108,617				109,508
RCM
Revenue cycle technology			44,193				43,381
Revenue cycle services			18,057				19,948
Total RCM net revenue			62,250				63,329
Total net revenue			170,867				172,837
Operating expenses:
SCM			76,443				81,689
RCM			56,975				55,693
Corporate			12,669				11,457
Total operating expenses			146,087				148,839
Operating income (loss):
SCM			32,174				27,819
RCM			5,275				7,636
Corporate			(12,669)				(11,457)
Total operating income			24,780				23,998
Interest expense			(11,173)				(11,349)
Other income			58				41
Income before income taxes			13,665				12,690
Income tax expense			5,987				4,986
Net income		$	7,678			$	7,704
Segment Adjusted EBITDA
SCM		$	49,950			$	53,712
RCM			13,401				14,690
Total Segment Adjusted EBITDA		$	63,351			$	68,402
Corporate			(6,634)				(6,756)
Total Adjusted EBITDA(1)		$	56,717			$	61,646

 

(1)

These are non-GAAP measures. See “Use of Non-GAAP Financial Measures” section for additional information.

(2)

Other service fees primarily consists of consulting, services and technology fees.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

		Three Months Ended March 31,
		2014				2013
Capital expenditures(1):
SCM		$	3,283			$	1,857
RCM			5,499				5,149
Corporate			1,349				1,972
Total		$	10,131			$	8,978

 

(1)

Capital expenditures consist of purchases of property and equipment and capitalized software development costs (internal and external use).

 

		March 31,				March 31,
		2014				2013
Financial Position:
Accounts receivable, net
SCM		$	50,510			$	45,613
RCM			50,348				48,047
Corporate			135				-
Total accounts receivable, net			100,993				93,660
Other assets
SCM			943,587				995,161
RCM			496,577				489,967
Corporate			65,462				84,512
Total other assets			1,505,626				1,569,640
Total assets		$	1,606,619			$	1,663,300
SCM accrued revenue share obligation		$	71,125			$	72,878
Deferred revenue
SCM			27,892				26,831
RCM			43,090				41,035
Total deferred revenue			70,982				67,866
Notes payable			441,870				541,125
Bonds payable			325,000				325,000
Other liabilities
SCM			20,489				19,137
RCM			18,273				28,053
Corporate			172,972				160,206
Total other liabilities			211,734				207,396
Total liabilities		$	1,120,711			$	1,214,265

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

GAAP for segment reporting requires 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 the three months ended March 31, 2014 and 2013:

 

		Three Months Ended March 31,
		2014				2013
SCM Adjusted EBITDA		$	49,950			$	53,712
RCM Adjusted EBITDA			13,401				14,690
Total Segment Adjusted EBITDA			63,351				68,402
Depreciation			(8,262)				(6,476)
Depreciation (included in cost of revenue)			(424)				(598)
Amortization of intangibles			(14,026)				(16,501)
Income tax expense			(16,390)				(13,910)
Share-based compensation expense(1)			(2,098)				(1,398)
Restructuring, acquisition and integration-related expenses(2)			(1,131)				(8,030)
Total reportable segment net income			21,020				21,489
Corporate net loss			(13,342)				(13,785)
Consolidated net income		$	7,678			$	7,704

 

(1)

Represents non-cash share-based compensation to both employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based compensation, which varies from period to period based on amount and timing of grants.

 

(2)

Represents the amount attributable to restructuring, acquisition and integration-related costs which may include costs such as severance, retention, salaries relating to redundant positions, certain performance-related salary-based compensation, operating infrastructure costs and facility consolidation costs.

 

11.	FAIR VALUE MEASUREMENTS

We measure fair value for financial instruments when a valuation is necessary, such as for impairment of long-lived and indefinite-lived assets when indicators of impairment exist in accordance with GAAP for fair value measurements and disclosures. This defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value.

In estimating our fair value disclosures for financial instruments, we use the following methods and assumptions:

 

—

Cash and cash equivalents. The carrying value reported in the condensed consolidated balance sheets for these items approximates fair value due to the high credit standing of the financial institutions holding these items and their liquid nature;

 

—

Accounts receivable, net. The carrying value reported in the condensed consolidated balance sheets is net of allowances for doubtful accounts which includes a degree of counterparty non-performance risk;

 

—

Accounts payable and current liabilities. The carrying value reported in the condensed consolidated balance sheets for these items approximates fair value, which is the likely amount for which the liability with short settlement periods would be transferred to a market participant with a similar credit standing as the Company;

 

—

Notes payable. The carrying value of our long-term notes payable reported in the condensed consolidated balance sheets approximates fair value since they bear interest at variable rates. Refer to Note 5 for further information; and

 

—

Bonds payable. The carrying value of our long-term bonds payable reported in the condensed consolidated balance sheets approximates fair value. Refer to Note 5 for further information.

 

12.	RELATED PARTY TRANSACTION

We have an agreement with John Bardis, our chief executive officer, for the use of an airplane owned by JJB Aviation, LLC, a limited liability company, owned by Mr. Bardis. We pay Mr. Bardis at market-based rates for the use of the airplane for business purposes. The audit committee of the board of directors reviews such usage of the airplane annually. During the three months ended March 31, 2014 and 2013, we incurred charges of $378 and $587, respectively, related to transactions with Mr. Bardis.

 

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MedAssets, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited) – (continued)

(In thousands, except share and per share amounts)

 

 

13.	SUBSEQUENT EVENTS

We have evaluated subsequent events for recognition or disclosure in the condensed consolidated financial statements filed on Form 10-Q with the SEC and no events have occurred that require disclosure.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” (as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our expectations regarding our future growth, results of operations, performance and business prospects and opportunities. Words such as “anticipates,” “believes,” “plans,” “expects,” “intends,” “estimates,” “projects,” “targets,” “can,” “could,” “may,” “should,” “will,” “would,” and similar expressions have been used to identify these forward-looking statements, but are not the exclusive means of identifying these statements. For purposes of this Quarterly Report on Form 10-Q, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements reflect our current beliefs and expectations and are based on information currently available to us. As such, no assurance can be given that our future growth, results of operations, performance and business prospects and opportunities covered by such forward-looking statements will be achieved. We have no intention or obligation to update or revise these forward-looking statements to reflect new events, information or circumstances.

A number of important factors could cause our actual results to differ materially from those indicated by such forward-looking statements, including those described herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as filed with the SEC on March 3, 2014.

Overview

We are a financial and performance improvement company providing technology-enabled products and services which together help mitigate the increasing financial challenges faced by hospitals, health systems and other non-acute healthcare providers. Our solutions are designed to reduce the total cost of care delivery, enhance operational efficiency, align clinical delivery of physicians and staff to advance care coordination and improve revenue performance primarily for hospitals and health systems. We believe implementation of our full suite of solutions has the potential to decrease supply costs, improve clinical resource utilization and increase revenue capture and cash flow. Our operations and clients are primarily located throughout the United States and, to a limited extent, Canada.

Management’s primary metrics to measure the consolidated financial performance of the business are net revenue, non-GAAP gross fees, non-GAAP revenue share obligation, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin and non-GAAP diluted adjusted EPS.

The table below highlights our primary results of operations for the three months ended March 31, 2014 and 2013:

 

		Three Months Ended March 31,
		2014				2013				Change
		Amount				Amount				Amount				%
		(Unaudited, in millions)
Gross fees(1)		$	221.0			$	216.9			$	4.1				1.9%
Revenue share obligation(1)			(50.1)				(44.1)				(6.0)				13.6
Total net revenue			170.9				172.8				(1.9)				(1.1)
Operating income			24.8				24.0				0.8				3.3
Net income		$	7.7			$	7.7			$	-				(0.3%)
Adjusted EBITDA(1)		$	56.7			$	61.6			$	(4.9)				(8.0%)
Adjusted EBITDA margin(1)			33.2%				35.6%
Adjusted EPS(1)		$	0.32			$	0.41			$	(0.09)				(22.0%)

 

(1)

These are non-GAAP measures. See “Use of Non-GAAP Financial Measures” section for additional information.

The decrease in net revenue during the three months ended March 31, 2014 compared to the three months ended March 31, 2013 was primarily attributable to:

 

—

lower SCM performance-related fee revenue and an increase in our revenue share obligation; and

 

—

lower revenue in our RCM segment from revenue cycle services.

 

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The decrease was partially offset by:

 

—

growth in our SCM segment from our vendor administrative fees; and

 

—

growth in our RCM segment from an increase in our subscription services related to our revenue cycle technology tools.

The increase in operating income during the three months ended March 31, 2014 compared to the three months ended March 31, 2013, was primarily attributable to lower restructuring, acquisition and integration-related expenses partially offset by higher cost of revenue attributable to a higher percentage of net revenue being derived from service-based engagements.

For the three months ended March 31, 2014, decreases in consolidated non-GAAP adjusted EBITDA and consolidated non-GAAP adjusted EBITDA margin compared to the three months ended March 31, 2013 were primarily attributable to lower performance-related fee revenue compared to the prior period in addition to higher cost of revenue within our SCM segment.

Segment Structure and Revenue Streams

We deliver our solutions through two business segments, Spend and Clinical Resource Management (“SCM”) and Revenue Cycle Management (“RCM”). Management’s primary metrics to measure consolidated and segment financial performance are net revenue, non-GAAP gross fees, non-GAAP revenue share obligation, non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP diluted adjusted EPS and Segment Adjusted EBITDA. All of our revenues are from external clients and inter-segment revenues have been eliminated. See Note 10 of the Notes to Condensed Consolidated Financial Statements herein for discussion on Segment Adjusted EBITDA and certain items of our segment results of operations and financial position.

Spend and Clinical Resource Management

Our SCM segment provides a comprehensive suite of technology-enabled services that help our clients manage their expense categories. Our solutions lower supply and medical device pricing and utilization by managing the procurement process through our group purchasing organization (“GPO”) portfolio of contracts, consulting services and business intelligence tools. Our SCM segment revenue consists of the following components:

 

—

Administrative fees and revenue share obligation. We earn administrative fees from manufacturers, distributors and other vendors (collectively referred to as “vendors”) of products and services with whom we have contracts under which our group purchasing organization clients may purchase products and services. Administrative fees represent a percentage, which we refer to as our administrative fee ratio, typically ranging from 0.25% to 3.00% of the purchases made by our group purchasing organization clients through contracts with our vendors.

Our group purchasing organization clients make purchases, and receive shipments, directly from the vendors. Generally on a monthly or quarterly basis, vendors provide us with a report describing the purchases made by our clients through our group purchasing organization vendor contracts, including associated administrative fees. We recognize revenue upon the receipt of these reports from vendors.

Some client contracts require that a portion of our administrative fees be contingent upon achieving certain financial improvements, such as lower supply costs, which we refer to as performance targets. Contingent administrative fees are not recognized as revenue until we receive client acceptance on the achievement of those contractual performance targets. Prior to receiving client acceptance of performance targets, we record contingent administrative fees as deferred revenue on our consolidated balance sheets. Often, recognition of this revenue occurs in periods subsequent to the recognition of the associated costs. Should we fail to meet a performance target, we may be contractually obligated to refund some or all of the contingent fees. Additionally, in many cases, we are contractually obligated to pay a portion of the administrative fees to our hospital and health system clients. Typically this amount, which we refer to as our revenue share obligation, is calculated as a percentage of administrative fees earned on a particular client’s purchases from our vendors. Our total net revenue on our condensed consolidated statements of operations is shown net of the revenue share obligation.

 

—

Other service fees. The following items are included as “Other service fees” in our condensed consolidated statement of operations:

 

—

Consulting fees. We consult with our clients regarding the costs and utilization of medical devices and physician preference items (“PPI”) and the efficiency and quality of their key clinical service lines. Our consulting projects are typically fixed fee projects with an average duration of six to nine months, and the related revenues are earned as

 

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services are rendered. We generate revenue from consulting contracts that also include performance targets. The performance targets generally relate to committed financial improvement to our clients from the use and implementation of initiatives that result from our consulting services. Performance targets are measured as our strategic initiatives are identified and implemented, and the financial improvement can be quantified by the client. Prior to receiving client acceptance of performance targets, we record contingent consulting fees as deferred revenue on our condensed consolidated balance sheets. Often, recognition of this revenue occurs in periods subsequent to the recognition of the associated costs. Should we fail to meet a performance target, we may be contractually obligated to refund some or all of the contingent fees.

 

—

Subscription fees. We also offer technology-enabled services that provide spend management analytics and data services to improve operational efficiency, reduce supply costs, and increase transparency across spend management processes. We earn fixed subscription fees on a monthly basis for these Company-hosted SaaS-based solutions.

Revenue Cycle Management

Our RCM segment provides a comprehensive suite of products and services spanning the hospital revenue cycle workflow — from patient access and financial responsibility, charge capture and integrity, pricing analysis, claims processing and denials management, payor contract management, revenue recovery and accounts receivable services. Our workflow solutions, together with our data management, compliance and audit tools, increase revenue capture and cash collections, reduce accounts receivable balances and increase regulatory compliance. Our RCM segment revenue is listed under the caption “Other service fees” on our condensed consolidated statements of operations and consists of the following components:

 

—

Subscription and implementation fees. We earn fixed subscription fees on a monthly or annual basis on multi-year contracts for client access to our SaaS-based solutions. We may also charge our clients non-refundable upfront fees for implementation of our SaaS-based services. These non-refundable upfront fees are earned over the subscription period or estimated client relationship period, whichever is longer.

We defer costs related to implementation services and expense these costs in proportion to the revenue earned over the subscription period or client relationship period, as applicable.

In addition, we defer upfront sales commissions related to subscription and implementation fees and expense these costs ratably over the related contract term.

 

—

Transaction fees. For certain of our revenue cycle management solutions, we earn fees that vary based on the volume of client transactions or enrolled members.

 

—

Service fees. For certain of our RCM solutions, we earn fees based on a percentage of cash remittances collected and fixed-fee consulting arrangements. The related revenues are earned as services are rendered.

Operating Expenses

We classify our operating expenses as follows:

Cost of revenue. Cost of revenue primarily consists of the direct labor costs incurred to generate our revenue. Direct labor costs consist primarily of salaries, benefits, incentive compensation and other direct costs and share-based compensation expenses related to personnel who provide services to implement our solutions for our clients (indirect labor costs for these personnel are included in general and administrative expenses). As the majority of our services are generated internally, our costs to provide these services are primarily labor-driven. A less significant portion of our cost of revenue consists of costs of third-party products and services and client reimbursed out-of-pocket costs. Cost of revenue does not include certain expenses relating to hosting our services and providing support and related data center capacity (which is included in general and administrative expenses), and allocated amounts for rent, depreciation, amortization or other indirect operating costs because we do not consider the inclusion of these items in cost of revenue relevant to our business. However, cost of revenue does include the amortization for the cost of software to be sold, leased, or otherwise marketed. In addition, any changes in revenue mix between our SCM and RCM segments, including changes in revenue mix towards SaaS-based revenue and consulting services, may cause significant fluctuations in our cost of revenue and have a favorable or unfavorable impact on operating income.

Product development expenses. Product development expenses primarily consist of the salaries, benefits, incentive compensation and share-based compensation expense of the technology professionals who develop, support and maintain our software-related products and services. Product development expenses are net of capitalized software development costs for predominantly internal use.

 

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—

Selling and marketing expenses. Selling and marketing expenses consist primarily of costs related to marketing programs (including trade shows and brand messaging), personnel-related expenses for sales and marketing employees (including salaries, benefits, incentive compensation and share-based compensation expense), certain meeting costs and travel-related expenses.

 

—

General and administrative expenses. General and administrative expenses consist primarily of personnel-related expenses for administrative employees and indirect time related to operational service-based employees (including salaries, benefits, incentive compensation and share-based compensation expense) and travel-related expenses, occupancy and other indirect costs, insurance costs, professional fees, and other general overhead expenses.

 

—

Restructuring, acquisition and integration-related expenses. Restructuring, acquisition and integration-related expenses may consist of: (i) costs incurred to complete acquisitions including due diligence, consulting and other related fees; (ii) integration-type costs relating to our completed acquisitions; (iii) other management restructuring costs; and (iv) acquisition-related fees associated with unsuccessful acquisition attempts.

 

—

Depreciation. Depreciation expense consists primarily of depreciation of fixed assets and the amortization of software, including capitalized costs of software developed for internal use.

 

—

Amortization of intangibles. Amortization of intangibles includes the amortization of all identified intangible assets (with the exception of software), primarily resulting from acquisitions.

 

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Results of Operations

Consolidated Tables

The following table sets forth our consolidated results of operations grouped by segment for the periods shown:

 

		Three Months Ended March 31,
		2014				2013
		(Unaudited, in thousands)
Net revenue:
Spend and Clinical Resource Management
Gross administrative fees(1)			$126,361				$120,636
Revenue share obligation(1)			(50,115)				(44,117)
Other service fees			32,371				32,989
Total Spend and Clinical Resource Management			108,617				109,508
Revenue Cycle Management			62,250				63,329
Total net revenue			170,867				172,837
Operating expenses:
Spend and Clinical Resource Management			76,443				81,689
Revenue Cycle Management			56,975				55,693
Total segment operating expenses			133,418				137,382
Operating income
Spend and Clinical Resource Management			32,174				27,819
Revenue Cycle Management			5,275				7,636
Total segment operating income			37,449				35,455
Corporate expenses(2)			12,669				11,457
Operating income			24,780				23,998
Other income (expense):
Interest expense			(11,173)				(11,349)
Other income			58				41
Income before income taxes			13,665				12,690
Income tax expense			5,987				4,986
Net income			7,678				7,704
Reportable segment adjusted EBITDA(3):
Spend and Clinical Resource Management			49,950				53,712
Revenue Cycle Management		$	13,401			$	14,690
Reportable segment adjusted EBITDA margin(4):
Spend and Clinical Resource Management			46.0%				49.0%
Revenue Cycle Management			21.5%				23.2%

 

(1)

These are non-GAAP measures. See “Use of Non-GAAP Financial Measures” section for additional information.

 

(2)

Represents the expenses of the corporate office operations.

 

(3)

Management’s primary metric of segment profit or loss is segment adjusted EBITDA. See Note 10 of the Notes to Condensed Consolidated Financial Statements.

 

(4)

Reportable segment adjusted EBITDA margin represents each reportable segment’s adjusted EBITDA as a percentage of each segment’s respective net revenue.

 

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Comparison of the Three Months Ended March 31, 2014 and March 31, 2013

 

		Three Months Ended March 31,
		2014								2013								Change
		Amount				% of Revenue				Amount				% of Revenue				Amount				%
		(Unaudited, in thousands)
Net revenue:
Spend and Clinical Resource Management
Gross administrative fees(1)		$	126,361				74.0%			$	120,636				69.8%			$	5,725				4.7%
Revenue share obligation(1)			(50,115)				(29.3)				(44,117)				(25.5)				(5,998)				13.6
Other service fees			32,371				18.9				32,989				19.1				(618)				(1.9)
Total Spend and Clinical Resource Management			108,617				63.6				109,508				63.4				(891)				(0.8)
Revenue Cycle Management			62,250				36.4				63,329				36.6				(1,079)				(1.7)
Total net revenue		$	170,867				100.0%			$	172,837				100.0%			$	(1,970)				-1.1%

 

(1)	These are non-GAAP measures. See “Use of Non-GAAP Financial Measures” section for additional information.

Total net revenue. Total net revenue for the three months ended March 31, 2014 was $170.8 million, a decrease of approximately $2.0 million, or 1.1%, from total net revenue of $172.8 million for the three months ended March 31, 2013. The decrease in total net revenue was comprised of a $0.9 million decrease in SCM revenue and a $1.1 million decrease in RCM revenue. For the three months ended March 31, 2014 and 2013, performance-related fee revenue as a percentage of consolidated net revenue amounted to approximately 3.9% and 6.5%, respectively. Revenue may fluctuate materially from period to period based upon a number of factors including achieving and thereof receiving client acknowledgement of the financial performance targets.

Spend and Clinical Resource Management net revenue. SCM net revenue for the three months ended March 31, 2014 was $108.6 million, a decrease of $0.9 million, or 0.8%, from net revenue of $109.5 million for the three months ended March 31, 2013. The decrease was the result of a decrease in other service fees of $0.6 million and an approximate $6.0 million increase in non-GAAP revenue share obligation partially offset by an increase in gross administrative fees of $5.7 million.

 

—

Gross administrative fees. Non-GAAP gross administrative fee revenue increased by $5.7 million, or 4.7%, as compared to the prior period, primarily due to an increase in the average administrative fee percentage realized under our manufacturer and distributor contracts. We may have fluctuations in our non-GAAP gross administrative fee revenue in future periods as the timing of vendor reporting and client acknowledgement of achieved performance targets varies.

 

—

Revenue share obligation. Non-GAAP revenue share obligation increased $6.0 million, or 13.6%, as compared to the prior period. We analyze the impact of our non-GAAP revenue share obligation on our results of operations by calculating the ratio of non-GAAP revenue share obligation to non-GAAP gross administrative fees including administrative fees not subject to a variable revenue share obligation (or the “revenue share ratio”). Our revenue share ratio was 39.7% and 36.6% for the three months ended March 31, 2014 and 2013, respectively. The increase was primarily attributable to certain large volume clients who are entitled to receive a higher revenue share percentage due to increased purchasing volume. We may continue to experience fluctuations in our revenue share ratio based on the mix of such clients who are entitled to a higher revenue share percentage. As a result, we expect our non-GAAP revenue share obligation to increase in future periods.

 

—

Other service fees. The $0.6 million, or 1.9%, decrease in other service fees was primarily driven by lower performance-related fee revenue from medical device consulting and strategic sourcing services compared to the prior period.

Revenue Cycle Management net revenue. RCM net revenue for the three months ended March 31, 2014 was $62.2 million, a decrease of $1.1 million, or 1.7%, from net revenue of $63.3 million for the three months ended March 31, 2013. The decrease was attributable to a $1.9 million decrease in revenue from our comprehensive revenue cycle service engagements partially offset by a $0.8 million increase in revenue from our revenue cycle technology tools. As we engage new clients, renew with existing clients and complete existing contracts, we may experience fluctuations in our revenue cycle services financial performance as the business is characterized by a relatively small number of agreements, which each relate to large amounts of revenue.

 

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Total Operating Expenses

 

		Three Months Ended March 31,
		2014								2013								Change
		Amount				% of Revenue				Amount				% of Revenue				Amount				%
		(Unaudited, in thousands)
Operating expenses:
Cost of revenue		$	37,431				21.9%			$	34,268				19.8%			$	3,163				9.2%
Product development expenses			7,397				4.3				8,501				4.9				(1,104)				(13.0)
Selling and marketing expenses			15,193				8.9				13,742				8.0				1,451				10.6
General and administrative expenses			58,803				34.4				58,620				33.9				183				0.3
Restructuring, acquisition and integration-related expenses			1,697				1.0				8,030				4.6				(6,333)				(78.9)
Depreciation			11,540				6.8				9,177				5.3				2,363				25.7
Amortization of intangibles			14,026				8.2				16,501				9.5				(2,475)				(15.0)
Total operating expenses			146,087				85.5				148,839				86.1				(2,752)				(1.8)
Operating expenses by segment:
Spend and Clinical Resource Management			76,443				44.7				81,689				47.3				(5,246)				(6.4)
Revenue Cycle Management			56,975				33.3				55,693				32.2				1,282				2.3
Total segment operating expenses			133,418				78.1				137,382				79.5				(3,964)				(2.9)
Corporate expenses			12,669				7.4				11,457				6.6				1,212				10.6
Total operating expenses		$	146,087				85.5%			$	148,839				86.1%			$	(2,752)				-1.8%

Cost of revenue. Cost of revenue for the three months ended March 31, 2014 was $37.4 million, or 21.9% of total net revenue, an increase of $3.1 million, or 9.2%, from cost of revenue of $34.3 million, or 19.8% of total net revenue, for the three months ended March 31, 2013. The increase was primarily attributable to an increase in service-related engagements in our SCM segment, which resulted in a higher cost of revenue as these engagements are generally more labor intensive. In addition, for our engagements that include achieving financial performance targets, we recognize revenue based on when the financial performance targets are achieved and such achievement is acknowledged by our clients. There are instances during a reporting period where we incur a higher amount of direct costs with no associated revenue for these types of engagements. Also, we may record revenue in a reporting period where the direct costs have been recorded in a previous period. These events may affect period over period comparability.

Product development expenses. Product development expenses for the three months ended March 31, 2014 were $7.4 million, or 4.3% of total net revenue, a decrease of $1.1 million, or 13.0%, from product development expenses of $8.5 million, or 4.9% of total net revenue, for the three months ended March 31, 2013. The decrease was primarily attributable to a $1.3 million decrease in compensation expense relating to a reduction in workforce in addition to an increase in capitalized costs partially offset by a $0.2 million increase in share-based compensation. Our product development capitalization rate for the three months ended March 31, 2014 and 2013, was 53.1% and 49.4%, respectively. We may experience fluctuations in our capitalization rate due to the timing of our product development investments associated with new product features and functionality, new technologies, and upgrades to our service offerings.

Selling and marketing expenses. Selling and marketing expenses for the three months ended March 31, 2014 were $15.2 million, or 8.9% of total net revenue, an increase of $1.5 million, or 10.6%, from selling and marketing expenses of $13.7 million, or 8.0% of total net revenue, for the three months ended March 31, 2013. The increase was attributable to a $1.0 million increase in compensation expense; a $0.3 million increase in meeting expenses; and a $0.2 million increase in share-based compensation.

General and administrative expenses. General and administrative expenses for the three months ended March 31, 2014 were $58.8 million, or 34.4% of total net revenue, an increase of $0.2 million, or 0.3%, from general and administrative expenses of $58.6 million, or 33.9% of total net revenue, for the three months ended March 31, 2013. The increase was attributable to a $1.2 million increase in compensation expense to new and existing employees; a $0.6 million increase in telecommunications expense and a $0.2 million increase in share-based compensation. The increase was partially offset by a $1.0 million decrease in impairment charges; a $0.4 million decrease in transportation expense; and a $0.4 million decrease in other operating infrastructure expense.

Restructuring, acquisition and integration-related expenses. Restructuring, acquisition and integration-related expenses for the three months ended March 31, 2014 were $1.7 million, or 1.0% of total net revenue, a decrease of $6.3 million, or 78.9%, from

 

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acquisition-related expenses of $8.0 million, or 4.6% of total net revenue, for the three months ended March 31, 2013. The decrease was attributable to lower costs relating to severance, retention and salaries relating to redundant positions. Refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further details.

Depreciation. Depreciation expense for the three months ended March 31, 2014 was $11.5 million, or 6.8% of total net revenue, an increase of $2.3 million, or 25.7%, from depreciation of $9.2 million, or 5.3% of total net revenue, for the three months ended March 31, 2013. The increase was primarily attributable to depreciation resulting from purchases of property and equipment inclusive of increases to capitalized software development. As a result of our capital investments, we expect our depreciation expense to increase in future periods.

Amortization of intangibles. Amortization of intangibles for the three months ended March 31, 2014 was $14.0 million, or 8.2% of total net revenue, a decrease of $2.5 million, or 15.0%, from amortization of intangibles of $16.5 million, or 9.5% of total net revenue, for the three months ended March 31, 2013. The decrease in amortization expense compared to the prior year was due to certain identified intangible assets that are nearing the end of their useful life under an accelerated method of amortization.

Segment Operating Expenses

Spend and Clinical Resource Management expenses. SCM operating expenses for the three months ended March 31, 2014 were $76.4 million, or 44.7% of total net revenue, a decrease of $5.2 million, or 6.4%, from approximately $81.6 million, or 47.3% of total net revenue for the three months ended March 31, 2013. As a percentage of SCM segment net revenue, segment expenses were 70.4% and 74.6% for the three months ended March 31, 2014 and 2013, respectively.

The decrease was primarily attributable to a $7.4 million decrease in restructuring, acquisition and integration-related costs including severance, retention, certain performance-related salary-based compensation; a $1.2 million decrease in the amortization of intangibles as certain intangible assets reached the end of their useful life; a $0.8 million decrease in other operating infrastructure expense; and a $0.5 million decrease in advertising expense. The decrease was partially offset by a $2.2 million increase in cost of revenue in connection with higher direct labor costs; a $1.2 million increase in telecommunications expense; a $0.6 million increase in share-based compensation expense; a $0.5 million increase in professional fees; and a $0.2 million increase in compensation expense with respect to new and existing employees.

Revenue Cycle Management expenses. RCM operating expenses for the three months ended March 31, 2014 were $57.0 million, or 33.3% of total net revenue, an increase of $1.3 million, or 2.3%, from $55.7 million, or 32.2% of total net revenue, for the three months ended March 31, 2013. As a percentage of RCM segment net revenue, segment expenses were 91.5% and 87.9% for the three months ended March 31, 2014 and 2013, respectively.

The increase was primarily attributable to a $1.8 million increase in depreciation expense; a $0.6 million increase in other operating infrastructure expense a $0.5 million restructuring charge; a $0.5 million increase in cost of revenue driven by higher third party payments and project labor costs associated with our revenue cycle services engagements; and a $0.2 million increase in compensation expense with respect to new and existing employees. The increase was partially offset by a $1.3 million decrease in amortization of intangibles as certain intangible assets reached the end of their useful life and a $1.0 million decrease in an impairment charge that occurred in the prior year.

Corporate expenses. Corporate expenses for the three months ended March 31, 2014 were $12.6 million, an increase of $1.2 million, or 10.6%, from $11.4 million for the three months ended March 31, 2013, or 7.4% and 6.6% of total net revenue, respectively. The increase in corporate expenses was attributable to a $0.6 million increase in depreciation expense; a $0.5 million increase in compensation expense with respect to new and existing employees; a $0.5 million increase in telecommunications expense; and a $0.2 million increase in share-based compensation expense. The increase was partially offset by a $0.4 million decrease in other operating infrastructure expense; and a $0.2 million decrease in transportation expense.

Non-operating Expenses

Interest expense. Interest expense for the three months ended March 31, 2014 was $11.2 million, a decrease of $0.1 million from interest expense of $11.3 million for the three months ended March 31, 2013. As of March 31, 2014, we had total indebtedness of $766.9 million compared to $764.5 million as of December 31, 2013. See Note 5 of the Notes to Condensed Consolidated Financial Statements herein for more details.

Other income. Other income for the three months ended March 31, 2014 and 2013 was $0.1 million comprised mainly of rental income.

 

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Income tax expense. Income tax expense for the three months ended March 31, 2014 was $6.0 million, an increase of $1.0 million from income tax expense of $5.0 million for the three months ended March 31, 2013, which was primarily attributable to increased income before taxes. Income tax expense recorded during the three months ended March 31, 2014 and 2013 reflected an effective income tax rate of 43.8% and 39.3%, respectively. The increase in our effective tax rate was primarily driven by: (i) credits for research and development expenditures, which were the result of legislation enacted during the three months ended March 31, 2013 for tax years 2012 and 2013 (such legislation has not been enacted for years beginning after December 31, 2013); and (ii) an increase in state income tax expense due to state legislative changes pertaining to apportionment of our taxable income.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. We base our estimates and judgments on historical experience and other assumptions that we find reasonable under the circumstances. Actual results may differ materially from such estimates under different conditions.

Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult, subjective or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Liquidity and Capital Resources

Our primary cash requirements involve payment of ordinary expenses, working capital fluctuations, debt service obligations and capital expenditures. Our capital expenditures typically consist of software purchases, internal product development capitalization and computer hardware purchases. Historically, the acquisition of complementary businesses has resulted in a significant use of cash. Our principal sources of funds have primarily been cash provided by operating activities and borrowings under our credit facilities.

We believe we currently have adequate cash flow from operations, capital resources, available credit facilities and liquidity to meet our cash flow requirements including the following near term obligations (next 12 months): (i) our working capital needs; (ii) our debt service obligations; (iii) planned capital expenditures; (iv) our revenue share obligation and rebate payments; and (v) estimated federal and state income tax payments.

Historically, we have utilized federal net operating loss carryforwards (“NOLs”) to reduce both regular and Alternative Minimum Tax (“AMT”) cash payments. Consequently, our federal cash tax payments in past reporting periods have been minimal. In 2012, we generated a NOL, with respect to which we filed a carryback claim to 2011. As a result, the credits previously utilized in 2011 were reclaimed and utilized in 2013. Despite having NOLs and credits to offset certain tax amounts in 2014, we expect our cash tax liability to increase significantly in 2014 and in the future.

We have not historically utilized borrowings available under our credit agreement to fund operations. We implemented an auto-borrowing plan pursuant to which all excess cash on hand is used to repay our swing line credit facility on a daily basis. As a result, any excess cash on hand will be used to repay our swing line balance, if any, on a daily basis. See Note 5 of the Notes to Condensed Consolidated Financial Statements for further details.

As of March 31, 2014, we had $16.2 million drawn on our swing line and $10.0 million drawn on our revolving credit facility resulting in $172.8 million of availability under our revolving credit facility inclusive of the swing line component (netted for a $1.0 million letter of credit). We may observe fluctuations in cash flows provided by operations from period to period. Certain events may cause us to draw additional amounts under our swing line or revolving facility and may include the following:

 

—

changes in working capital due to inconsistent timing of cash receipts and payments for major recurring items such as trade accounts payable, revenue share obligation, incentive compensation, changes in deferred revenue, and other various items;

 

—

acquisitions; and

 

—

unforeseeable events or transactions.

We may continue to pursue other acquisitions or investments in the future. We may also increase our capital expenditures consistent with our anticipated growth in infrastructure, software solutions, and personnel, and as we expand our market presence.

 

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Cash provided by operating activities may not be sufficient to fund such expenditures. Accordingly, in addition to the use of our available revolving credit facility, we may need to engage in additional equity or debt financings to secure additional funds for such purposes. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters including higher interest costs, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain required financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be limited.

Discussion of Cash Flow

As of March 31, 2014 and December 31, 2013, we had cash and cash equivalents of zero and $2.8 million, respectively.

Operating Activities.

The following table summarizes the cash provided by operating activities for the three months ended March 31, 2014 and 2013:

 

		Three Months Ended March 31,
		2014				2013				Change
		Amount				Amount				Amount				%
		(Unaudited, in millions)
Net income		$	7.7			$	7.7			$	—				(0.3%)
Non-cash items			27.4				29.7				(2.3)				(7.7)
Net changes in working capital			(17.4)				(19.9)				2.5				12.6
Net cash provided by operations		$	17.7			$	17.5			$	0.2				1.1%

Net income represents the income attained during the periods presented and is inclusive of certain non-cash expenses. These non-cash expenses include depreciation for fixed assets, amortization of intangible assets, stock compensation expense, deferred income tax expense, excess tax benefit from the exercise of stock options, (gain) loss on sale of assets, amortization of debt issuance costs, impairment of assets and non-cash interest expense. Refer to our condensed consolidated statement of cash flows for details regarding these non-cash items. The total for these non-cash expenses was $27.4 million and $29.7 million for the three months ended March 31, 2014 and 2013, respectively. The decrease in non-cash expenses for the three months ended March 31, 2014 compared to March 31, 2013 was primarily attributable to: (i) a $2.5 million decrease in the amortization of intangibles; (ii) a $2.0 million impairment of assets that occurred in the prior year; and (iii) a $2.0 million increase in our deferred income tax benefit. The decrease was partially offset by: (i) a $2.2 million increase in depreciation expense; (ii) a $1.2 million increase in the excess tax benefit from exercise of equity awards; and (iii) a $0.9 million increase in share-based compensation. Refer to our Management Discussion and Analysis for more detail.

Working capital is a measure of our liquid assets. Changes in working capital are included in the determination of cash provided by operating activities. For the three months ended March 31, 2014, the working capital changes resulting in a decrease to cash flow from operations of $17.7 million primarily consisted of the following:

Decrease to cash flow

 

—

an increase in accounts receivable of $13.3 million primarily related to the timing of invoicing and cash collections;

 

—

a $4.7 million working capital decrease in trade accounts payable due to the timing of various payment obligations;

 

—

a $6.3 million decrease in accrued revenue share obligation and rebates due to the timing of cash payments and client purchasing volume for our GPO; and

 

—

a $23.3 million decrease in accrued payroll and benefits due to payroll cycle timing and the payment of our 2013 performance-based compensation expense.

The working capital changes resulting in decreases to cash flow from operations discussed above were partially offset by the following changes in working capital resulting in increases to cash flow:

Increase to cash flow

 

—

a $21.6 million increase in other accrued expenses and long-term liabilities primarily related to the $14.8 million reclassification of the cash book overdraft as previously discussed; and

 

—

an increase in deferred revenue of $8.1 million for cash receipts not yet recognized as revenue.

 

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For the three months ended March 31, 2013, the working capital changes resulting in an increase to cash flow from operations of $19.9 million primarily consisted of the following:

Decrease to cash flow

 

—

an increase in prepaid expenses and other assets of $3.8 million primarily related to an increase in software maintenance costs of $2.9 million; prepaid meetings of $3.0 million; and higher prepaid insurance costs of $1.1 million partially offset by lower prepaid taxes of $3.9 million;

 

—

a $4.6 million working capital decrease in trade accounts payable due to the timing of various payment obligations;

 

—

a $1.4 million decrease in accrued revenue share obligation and rebates due to the timing of cash payments and client purchasing volume for our GPO;

 

—

a $22.9 million decrease in accrued payroll and benefits due to payroll cycle timing and the payment of our 2012 performance-based compensation expense; and

 

—

a decrease in deferred revenue of $2.3 million for cash receipts not yet recognized as revenue.

The working capital changes resulting in increases to cash flow from operations discussed above were partially offset by the following changes in working capital resulting in increases to cash flow:

Increase to cash flow

 

—

a decrease in accounts receivable of $3.0 million primarily related to the timing of invoicing and cash collections; and

 

—

a $12.1 million increase in other accrued expenses primarily due to recording certain exist costs relating to our facilities consolidation of $6.9 million and an increase in accrued interest of $5.7 million due to the timing of our semi-annual interest payment on our bonds. This was partially offset by the timing of other payment obligations.

Investing Activities.

Investing activities used $10.1 million of cash for the three months ended March 31, 2014 which included $8.4 million for investment in software development and $1.7 million of capital expenditures.

Investing activities used $9.0 million of cash for the three months ended March 31, 2013 which included: $8.3 million for investment in software development and $0.7 million of capital expenditures.

We believe that cash used in investing activities will continue to be materially impacted by continued growth in investments in property and equipment, future acquisitions and capitalized software. Our property, equipment, and software investments consist primarily of SaaS-based technology infrastructure to provide capacity for expansion of our client base, including computers and related equipment and software purchased or implemented by outside parties. Our software development investments consist primarily of company-managed design, development, testing and deployment of new application functionality.

Financing Activities.

Financing activities used $10.4 million of cash for the three months ended March 31, 2014. We made payments on our Term Loan Facility of $13.9 million consisting of $3.9 million in scheduled principal payments and a $10.0 million voluntary prepayment and we also made payments of $0.3 million on our swing line and $0.2 million on our finance obligation (discussed below). In addition, we purchased 640,000 shares of common stock under our share repurchase program totaling $13.1 million and settled the tax liability relating to shares surrendered for tax withholdings totaling $2.6 million. This was partially offset by $16.5 million received from borrowings on our swing line; $1.8 million received from the issuance of common stock and $1.4 million from the excess tax benefit from the exercise of stock options. As of March 31, 2014, the Credit Agreement requires an assessment of excess cash flow for our fiscal year ended December 31, 2014. We would be required to make any excess cash flow payment during the first quarter of 2015.

Financing activities used $13.7 million of cash for the three months ended March 31, 2013. We made payments on our Term Loan Facility of $18.9 million consisting of: (i) $3.9 million in scheduled principal payments; and (ii) a $15.0 million voluntary prepayment from free cash flow. In addition, we made payments of $0.2 million that were made on our finance obligation (as discussed below). This was partially offset by $2.7 million received from the issuance of common stock; and $2.6 million from the excess tax benefit from the exercise of stock options.

 

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Off-Balance Sheet Arrangements and Commitments

We have provided a $1.0 million letter of credit to guarantee our performance under the terms of a ten-year lease agreement. The letter of credit is associated with the capital lease of a building located in Cape Girardeau, Missouri under a finance obligation. We do not believe that this letter of credit will be drawn.

We lease office space and equipment under operating leases. Some of these operating leases include rent escalations, rent holidays, and rent concessions and incentives. However, we recognize lease expense on a straight-line basis over the minimum lease term utilizing total future minimum lease payments. Our consolidated future minimum rental payments under our operating leases with initial or remaining non-cancelable lease terms of at least one year are as follows as of March 31, 2014 for each respective year (Unaudited, in thousands):

 

		Amount
2014		$	8,576(1)
2015			10,354
2016			7,200
2017			7,035
2018			6,119
Thereafter			44,996
Total future minimum rental payments		$	84,280

  (1) Represents the remaining rental payments due during the fiscal year ending December 31, 2014.

As of March 31, 2014, we did not have any other off-balance sheet arrangements that have or are reasonably likely to have a current or future significant effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Use of Non-GAAP Financial Measures

In order to provide investors with greater insight, promote transparency and allow for a more comprehensive understanding of the information used by management and the Board in its financial and operational decision-making, we supplement our consolidated financial statements presented on a GAAP basis herein with the following non-GAAP financial measures: gross fees, gross administrative fees, revenue share obligation, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted diluted earnings per share.

These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. We compensate for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only supplementally. We provide reconciliations of non-GAAP measures to their most directly comparable GAAP measures, where possible. Investors are encouraged to carefully review those reconciliations. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.

Gross Fees, Gross Administrative Fees and Revenue Share Obligation. Gross fees include all gross administrative fees we receive pursuant to our vendor contracts and all other fees we receive from clients. Our revenue share obligation represents the portion of the gross administrative fees we are contractually obligated to share with certain of our GPO clients. Total net revenue (a GAAP measure) reflects our gross fees net of our revenue share obligation. These non-GAAP measures assist management and the Board and may be helpful to investors in analyzing our growth in the SCM segment given that administrative fees constitute a material portion of our revenue and are paid to us by over 1,150 vendors contracted by our GPO, and that our revenue share obligation constitutes a significant outlay to certain of our GPO clients. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measure can be found in the “Overview” and “Results of Operations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations herein.

EBITDA, adjusted EBITDA and adjusted EBITDA margin. We define: (i) EBITDA, as net income before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) adjusted EBITDA, as net income before net interest expense, income tax expense (benefit), depreciation and amortization and other non-recurring, non-cash or non-operating items; and (iii) adjusted EBITDA margin, as adjusted EBITDA as a percentage of net revenue. We use EBITDA, adjusted EBITDA and adjusted EBITDA margin to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing our operating performance consistently over time as it removes the impact of our capital structure (primarily interest charges and amortization of debt issuance costs), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes), as well as other non-cash (purchase accounting adjustments and imputed rental income) and non-recurring items, from our operational results. Adjusted EBITDA also removes the impact of non-cash share-based compensation expense.

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Our Board and management also use these measures as: i) one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and ii) as a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentive compensation plans for employees generally.

Additionally, research analysts, investment bankers and lenders may use these measures to assess our operating performance. For example, our credit agreement requires delivery of compliance reports certifying compliance with financial covenants certain of which are, in part, based on an adjusted EBITDA measurement that is similar to the adjusted EBITDA measurement reviewed by our management and our Board. The principal difference is that the measurement of adjusted EBITDA considered by our lenders under our credit agreement allows for certain adjustments (e.g., inclusion of interest income, franchise taxes and other non-cash expenses, offset by the deduction of our capitalized lease payments for one of our office leases) that result in a higher adjusted EBITDA than the adjusted EBITDA measure reviewed by our Board and management and disclosed in our Annual Report on Form 10-K. Additionally, our credit agreement contains provisions that utilize other measures, such as excess cash flow, to measure liquidity.

EBITDA, adjusted EBITDA and adjusted EBITDA margin are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities. Despite the advantages regarding the use and analysis of these measures as mentioned above, EBITDA, adjusted EBITDA and adjusted EBITDA margin, as disclosed herein, have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA are:

 

—

EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

—

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

—

EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our credit agreement;

 

—

EBITDA does not reflect income tax payments we are required to make; and

 

—

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.

Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, we encourage you to review the GAAP financial statements included elsewhere herein, and not rely on any single financial measure to evaluate our business. We also strongly urge you to review the reconciliation of net income to adjusted EBITDA in this section, along with our condensed consolidated financial statements included elsewhere herein.

The following table sets forth a reconciliation of EBITDA and adjusted EBITDA to net income, a comparable GAAP-based measure. All of the items included in the reconciliation from net income to EBITDA to adjusted EBITDA are either: (i) non-cash items (e.g., depreciation and amortization, impairment of intangibles and share-based compensation expense) or (ii) items that management does not consider in assessing our on-going operating performance (e.g., income taxes, interest expense and expenses related to the cancellation of an interest rate swap and acquisition and integration-related expenses). In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other non-recurring items, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

 

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The following table reconciles net income to Adjusted EBITDA for the three months ended March 31, 2014 and 2013:

 

		Three Months Ended March 31,
Adjusted EBITDA Reconciliation		2014				2013
		(Unaudited, in thousands)
Net income		$	7,678			$	7,704
Depreciation			11,540				9,177
Depreciation (included in cost of revenue)			424				598
Amortization of intangibles			14,026				16,501
Interest expense, net of interest income(1)			11,173				11,349
Income tax expense			5,987				4,986
EBITDA			50,828				50,315
Share-based compensation expense(2)			4,302				3,411
Rental income from capitalizing building lease(3)			(110)				(110)
Restructuring, acquisition and integration-related expenses(4)			1,697				8,030
Adjusted EBITDA		$	56,717			$	61,646

 

(1)

Interest income is included in other income (expense) and is not netted against interest expense in our condensed consolidated statement of operations.

 

(2)

Represents non-cash share-based compensation to both employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based compensation expense, which varies from period to period based on the amount and timing of grants.

 

(3)

The imputed rental income recognized with respect to a capitalized building lease is deducted from net income (loss) due to its non-cash nature. We believe this income is not a useful measure of continuing operating performance. See our consolidated financial statements filed in our Annual Report on Form 10-K for the year ended December 31, 2013 for further discussion of this rental income.

 

(4)

Represents the amount attributable to restructuring, acquisition and integration-related costs which may include costs such as severance, retention, salaries relating to redundant positions, certain performance-related salary-based compensation, operating infrastructure costs and facility consolidation costs.

Adjusted Net Income and Diluted Adjusted Earnings Per Share. The Company defines: i) adjusted net income as net income excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items on a tax-adjusted basis, non-cash share-based compensation and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis; and ii) diluted adjusted EPS as earnings per share excluding non-cash acquisition-related intangible amortization and depreciation, and non-recurring expense items, non-cash share-based compensation and certain restructuring, acquisition and integration-related expenses on a tax-adjusted basis. Adjusted net income and diluted adjusted EPS are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities. Diluted adjusted EPS growth has been used historically by the Company as the financial performance metric that determines whether certain equity awards granted pursuant to the Company’s LTPIP will vest. Use of these measures allows management and the Board 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 assess organic growth and accretive business transactions. As a significant portion of senior management’s incentive based compensation historically has been based on the achievement of certain diluted adjusted EPS growth over time, which is intended to reward them for organic growth and accretive business transactions, investors may find such information useful; however, as non-GAAP financial measures, adjusted net income and diluted adjusted EPS are not the sole measures of the Company’s financial performance and may not be the best measures for investors to gauge such performance.

 

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		Three Months Ended March 31,
		2014				2013
		(Unaudited, in thousands)
Net income		$	7,678			$	7,704
Pre-tax non-cash, acquisition-related intangible amortization and depreciation			14,026				16,975
Pre-tax non-cash, share-based compensation(1)			4,302				3,411
Pre-tax restructuring, acquisition and integration related expenses(2)			1,697				8,030
Tax effect on pre-tax adjustments(3)			(8,010)				(11,366)
Non-GAAP adjusted net income		$	19,693			$	24,754
		Three Months Ended March 31,
Per share data		2014				2013
		(Unaudited)
EPS - diluted		$	0.12			$	0.13
Pre-tax non-cash, acquisition-related intangible amortization and depreciation			0.23				0.28
Pre-tax non-cash, share-based compensation(1)			0.07				0.06
Pre-tax restructuring, acquisition and integration related expenses(2)			0.03				0.13
Tax effect on pre-tax adjustments(3)			(0.13)				(0.19)
Non-GAAP adjusted EPS - diluted		$	0.32			$	0.41
Weighted average shares - diluted (in 000s)			61,681				60,404

 

(1)

Represents the amount and the per share impact, on a pre-tax basis, of non-cash share-based compensation to employees and directors. We believe excluding this non-cash expense allows us to compare our operating performance without regard to the impact of share-based compensation expense, which varies from period to period based on the amount and timing of grants.

 

(2)

Represents the amount and the per share impact, on a pre-tax basis, of restructuring, acquisition and integration-related costs which include costs such as severance, retention, salaries relating to redundant positions, certain performance-related salary-based compensation, and operating infrastructure costs. We consider these charges to be non-operating expenses and unrelated to our underlying results of operations.

 

(3)

Reflects the tax impact on the adjustments used to derive Non-GAAP diluted adjusted EPS. We used a tax rate of 40.0% for the three months ended March 31, 2014 and 2013 because we believe the 40% will be our normalized long-term tax rate. The effective tax rate for the three months ended March 31, 2014 and 2013 was 43.8% and 39.3%, respectively.

New Pronouncements

Income Taxes

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update relating to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This update amends existing GAAP that required in certain cases, an unrecognized tax benefit, or portion of an unrecognized

 

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tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. We adopted this update on January 1, 2014.

Obligations Resulting from Joint and Several Liability Arrangements

In February 2013, the FASB issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples of obligations within the scope of this update include debt arrangements, other contractual obligations and settled litigation and judicial rulings. The guidance requires an entity to measure such obligations as the sum of the amount that the reporting entity agreed to pay on the basis of its arrangement among its co-obligors plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance in the update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this update on January 1, 2014.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign currency exchange risk. Certain of our contracts are denominated in Canadian dollars. As our Canadian sales have not historically been significant to our operations, we do not believe that changes in the Canadian dollar relative to the U.S. dollar will have a significant impact on our financial condition, results of operations or cash flows. We currently do not transact any other business in any currency other than the U.S. dollar. As we continue to grow our operations, we may increase the amount of our sales to foreign clients. Although we do not expect foreign currency exchange risk to have a significant impact on our future operations, we will assess the risk on a case-specific basis to determine whether any forward currency hedge instrument would be warranted.

Interest rate risk. We had outstanding borrowings on our Term Loan Facility and Revolving Credit Facility of $441.9 million as of March 31, 2014. The Term A Facility and the Revolving Credit Facility bear interest at LIBOR plus an applicable margin. The Term B Facility bears interest at LIBOR, subject to a floor of 1.25% plus an applicable margin. We also had outstanding an aggregate principal amount of our Notes of $325.0 million as of March 31, 2014, which bears interest at 8% per annum.

To the extent we do not hedge our variable rate debt, interest rates and interest expense could increase significantly.

A hypothetical 100 basis point increase in LIBOR, which would represent potential interest rate change exposure on our outstanding term loans, would have resulted in an approximate $1.1 million increase to our interest expense for the three months ended March 31, 2014.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any control and procedure, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship regarding the potential utilization of certain controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our chief executive officer and chief financial officer, evaluated the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective and were operating at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting for the three months ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we become involved in legal proceedings arising in the ordinary course of our business. We are not presently involved in any legal proceedings, the outcome of which, if determined adversely to us, would have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

There have been no material changes in the risk factors as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Stock repurchases during the three months ended March 31, 2014 were as follows:

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or				Maximum Dollar Value of Shares that May Yet Be Purchased  Under the Plans or Programs
(In thousands, except per share data)
March 1-31, 2014(1)			640			$	25.08				640				58,939

(1) On February 26, 2014, we announced that our board of directors had authorized the repurchase of up to $75,000 of our common stock. The share repurchase program expires the earlier of twelve months from the authorization by our board of directors or the repurchase of $75,000 of our common stock.

For additional information regarding our stock repurchase program, see Note 7 of the Notes to Condensed Consolidated Financial Statements.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

Item 6. Exhibits

 

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Exhibit No.		Description of Exhibit
31.1*		Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer
31.2*		Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer
32.1*		Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive Officer and Chief Financial Officer
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Signature		Title		Date
/s/ JOHN A. BARDIS		Chairman of the Board of Directors and Chief Executive Officer		May 7, 2014
Name: John A. Bardis		(Principal Executive Officer)
/s/ CHARLES O. GARNER		Chief Financial Officer		May 7, 2014
Name: Charles O. Garner		(Principal Financial Officer)

 

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EXHIBIT INDEX

 

Exhibit No.		Description of Exhibit
31.1*		Sarbanes-Oxley Act of 2002, Section 302 Certification for President and Chief Executive Officer
31.2*		Sarbanes-Oxley Act of 2002, Section 302 Certification for Chief Financial Officer
32.1*		Sarbanes-Oxley Act of 2002, Section 906 Certification for President and Chief Executive Officer and Chief Financial Officer
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

 

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