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Executives

Robert Borchert - Vice President of Investor Relations

John A. Bardis - Chairman, President and Chief Executive Officer

Rand A. Ballard - Chief Operating Officer and Chief Customer Officer

Neil Hunn - Chief Financial Officer

Analysts

Ross Muken - Deutsche Bank

Larry Marsh - Lehman Brothers

Corey Tobin - William Blair

Charles Rhyee - Oppenheimer

David Veal - Morgan Stanley

Eric Coldwell - Robert W. Baird

Bill Bonello - Wachovia

MedAssets, Inc. (MDAS) Q2 2008 Earnings Call August 13, 2008 5:00 PM ET

Operator

Good afternoon. My name is Cara and I will be your conference operator today. At this time, I would like to welcome everyone to the MedAssets Second Quarter 2008 Financial Results Conference Call. After the speakers’ prepared remarks there will be a question-and-answer session. [Operator Instructions]. As a reminder ladies and gentlemen, this conference is being recorded today, Wednesday, August 13, 2008. Thank you.

I would now like to introduce Mr. Robert Borchert, Vice President of Investor Relations. Mr. Borchert, you may begin your conference.

Robert Borchert – Vice President of Investor Relations

Thank you, Cara. Good afternoon and welcome to the MedAssets conference call to discuss our financial and operating results for the second quarter ended June 30, 2008. With me today are John Bardis, our Chairman, President and CEO, Rand Ballard, our Chief Customer and Operating Officer and Neil Hunn, our Chief Financial Officer.

Before we begin, I'd like to remind everyone on this call that this call may contain forward-looking statements regarding our Company's expected financial and operating performance for 2008 and 2009. These forward-looking statements maybe affected by important risk factors that are described in MedAssets' filings with the Securities and Exchange Commission and in our earnings release issued today.

Therefore, actual results may differ materially from our forward-looking statements discussed today or in the future. MedAssets assumes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

To the extent any non-GAAP financial measure is discussed in today's call, you can find a reconciliation of that measure to the most directly comparable GAAP financial measure in today's earnings release, which is now posted in the Investor Relations section of our corporate website medassets.com.

Now I would like to turn the call over to our CEO, John Bardis. John?

John A. Bardis - Chairman, President and Chief Executive Officer

Thank you, Robert and good afternoon everyone. I want to let you know that I am speaking here from Beijing, China, where I am serving as Team Leader of the United States Greco-Roman Team. So, if there are any questions at the end of that -- beginning I would be happy to answer those as well.

It's my pleasure to be speaking with each of you today about our second quarter results and the market environment. Our recent customers’ success is the continued strength of our core businesses as well as the integration of Accuro. MedAssets again delivered a very solid and balanced contribution for each of our business segments as we posted financial results in line with our expectations for the second quarter of 2008.

Total net revenue came in slightly above $61 million, adjusted EBITDA was about $19 million and adjusted EPS of $0.11 in the quarter. Later in the call Neil will walk through the details of our financial performance and Accuro integration as well as our updated 2008 guidance and outlook for 2009.

In the meantime I would like to spend a few minutes discussing how MedAssets extremely attracted financial profile and solid business finance that can support and drive our growth and success in the short run as well as for years to come.

We believe net assets will continue to thrive regardless of the economic climate on a broad basis and specifically whether or not the broad economy is expanding or contracting we believe net assets will be in a great position. People still require medical care to sustain their physical well being. To add to this the US population and the aging baby boomers will begin consuming more and more healthcare resources. Please be mindful that over 50% of the US healthcare dollars are spent on care for just 3% of the population.

The chronicle yield and life ending cases are particularly noteworthy relative to contribution of cost. These two factors alone will drive the demand for the healthcare system and best hospital resource consumption both in the short term and more importantly over the next 20 years to 25 years. Separately hospitals are facing significant and increasing financial pressure from traditional sources such as rapidly rising medical device cost, more complex reimbursement from payers and a dynamic and challenging regulatory and reimbursement environment.

Recent market activity such as Medicare raw products, which identify of opinions to hospitals as well as the increasing problems of consumer directed healthcare plans are examples of trends that occurred in additional cash flow challenges and greater bad debt risk for all healthcare providers.

In addition to recent inflationary pressures that include the rising cost of raw materials which are increasing things such as the cost of manufactured food and basic medical products we are seeing pressure being put on our manufacturers and vendors to increase the prices in order to maintain basic margin. Of course, broadly speaking these results in supplying cost increases for hospitals where at least able to pass along these increases to the patients or their payers in this more constrained environment, this is a difficult environment for healthcare providers and we think that environment continues to deteriorate especially for hospitals that’s the world of culture that we live in and its one that we are used to and its one that we have expected.

Medicare’s hospital executives are also not surprised by this, this is something that’s been on the docket for a period of time that we are now seeing what we believe to be the effects of hospital based inflation meaning that they are not able to pass along much in the form of cost or price increases to consumers and health plans are continuing to negotiate very aggressively and in many cases low, low single digit increases year-to-year. But, hospitals are now experiencing basic cost increases that are in the double digit range for just basic things such as energy and product cost.

So, having said that these pressures are exactly what drive a greater need for our solutions and is the very foundation of our business strategy and value proposition to offer technology and service solutions that can address many of our customers’ financial challenges and enable them to generate proved profit margin and cash flow.

Specifically, we have not experienced any leading indicators that would suggest any reduced demand for our spend management or revenue cycle solutions. Instead hospitals are seeking operating cash flow to support their capital budget and we are actively engaged with our customers and prospects to identify how we can help alleviate these supply cost and reimbursement pressures. We deliver a financial (inaudible) hospital that is measured in cash improvement in months not years. We had minimal on most cases no capital expense whatsoever. These are the reasons we remain extremely bullish in the short term even more so in our longer term outlook notwithstanding the broader economic issues faced in our country today. The issues are just described (inaudible) presidential politics regardless of who wins the Whitehouse either candidate will likely begin addressing our nation’s healthcare challenges.

One, by focusing on universal healthcare coverage or two, targeting the cost challenges our industry faces. In either case our business model will thrive. Switching gears we are pleased to report that the integration of our Accuro acquisition is moving along extremely well, we closed the transaction a month earlier than anticipated and we’re able to come together as one company for senior management meeting at early June and as a combined sales force, the following week at the HFMA ANI conference, the annual trade event for the hospital financial executives. We made significant progress on all three areas of our integration plan. Sales force and go to market strategy for cross selling, our integrated product roadmap and integration of corporate operations such as finance, accounting, human resources and administration.

I will let Neil provide some additional details later but will say that the reaction of our current customers and prospects has been extremely positive across the board to the Accuro acquisition and I would just like to add once again that Scott Mackesy at Welsh and John Carlyle with Accuro and the entire Accuro team, Ron McCarthy are really both an excellent company with outstanding people. So, it’s very rare that when you finally get under their view, you finally got a better company then what you thought about that’s the case here and the people are actually outstanding.

With that let me turn the call over to our Chief Customer Officer and Chief Operating Officer Rand Ballard for an update on our sales pipeline and current customer engagements. Rand?

Rand A. Ballard - Chief Operating Officer and Chief Customer Officer

Thank you, John, and good afternoon. Overall, I’m pleased to say that sales pipeline for our revenue cycle and spend management solutions remains robust. With the acquisition of Accuro now 10 weeks old, our revenue cycle sales force is 100% focused on winning new business both with new and existing accounts and working with our implementation and account management teams to drive operational excellence for our customers. We immediately took steps to ensure the Accuro and MedAssets sales teams worked in a coordinated fashion, sharing sales lead data in instituting a short term commission plan that offers extra incentives when appropriate.

Our revenue cycle sales team continues to be on schedule to be fully integrated by January 1, 2009. In fact, as we brought the Accuro and MedAssets revenue cycle sales teams together we have been very pleased with the high level cross selling activity that is additive to our sales pipeline.

Immediately, following the closing of Accuro we quickly identified more than two dozen opportunities to coordinate joint selling efforts and we’ve already seen early successes with key customers and prospects as a go to market was targeted cross selling campaigns. We left the revenue cycles industries main trade show with about 80 qualified and active sales lease. Further, and as we have discussed in prior calls our RFP responses year-to-date to July 31, continued to be approximately 70% higher than through the same period last year. We’ve also had a nice balance of new business wins as well as a number of expanded agreements with existing customers across our revenue cycle and spend management solution portfolio. We are deeply committed to driving new product and service placements into our existing customer base though this is a long term activity measured in years not just weeks and months.

Now, let me provide a quick update on the three transformational relationships we entered into over the past several months. Back in February we began implementation of our first fully integrated end-to-end revenue cycle management agreement with Ivinson Memorial Hospital. We have literally been reengineering Ivinson’s core revenue cycle functions. For example, we accelerated the implementation of our client submission solution due to a large volume of issues associated with Ivinson’s previous vendor. And the clean claims rate improved from 0% to greater than 50% within 3 weeks and continues to improve to the current average rate of 70%.

Overall, we felt Ivinson generate incremental cash collections over the initial six-month period that are greater than 5% of their annual net revenues all of which drops to Ivinson’s bottom line.

During the second quarter MedAssets was awarded a three-year agreement by the Cook County Bureau of Health Services to assess, analyze and implement comprehensive initiatives to transform the revenue cycle management processes to help deliver significant financial improvements for this health system in Chicago, which serves more than five million people.

We are focusing an all components of Cook County’s revenue cycle ranging from scheduling, pre-registration, patient access, charging, accounts receivable management and the remittances processing. Among other initiatives, we are developing a plan to better identified, uninsured and under insured patients at the point of registration or admission in order to build the broader base of Medicaid eligible individuals. We are also implementing a patient access quality program to standardize the registration process and train employees in order to decrease initial data entries at the flat end of the revenue cycle.

This will have a significant impact on the percent of denied claims and days of outstanding accounts receivable. Our revenue associated with this engagement is based on the increased cash collections of Cook County, the impact to MedAssets financial results will largely be seen in 2009 and beyond. The pipeline for these large transformational revenue cycle deals continues to build and we expect continued bookings moving into 2009 as these initial customers become referencable clients regarding their significant financial improvement experienced with MedAssets.

Switching gears to our spend management business, in March we communicated that MedAssets entered into a five year agreement with the major health system for an unprecedented supply chain partnership that involves a joint management of strategic sourcing, value added [lyrics] and clinical utilization. Our proprietary supply chain clinical tools and intellectual capital are being deployed across the health system to ensure the clinical choice and superior outcomes remain while balancing the organization’s need to remain cost effective and competitive in their market.

In the initial months of this project we have rolled out our plan to improve contracting and procurement efficiencies while they are getting to drive significant savings for this customer. Our approach has been enthusiastically embraced by this customer’s senior management and as become a foundational element of this health system’s long term strategic plan. The momentum and success of this non-GPO solution continues to reinforce that our market strategies are in point and that MedAssets will become a market leader in the emerging area on strategic supply chain management.

In summary, our sales and account management initiatives have generated a strong robust sales pipeline, new transformational market wins and very high occurrence renewals, which is why we continue to remain steadfast and our outlook for 2008 and 2009.

With that I will turn the call over to Neil. Neil?

Neil Hunn - Chief Financial Officer

Thank you, Rand and good afternoon everyone. As John noted earlier MedAssets again delivered very solid results for the second quarter ended June 30, 2008 that were right align with our expectations for the quarter. During my comments this afternoon, I will discuss our second quarter financial results, provide a detailed update on the Accuro integration. Updated 2008 guidance have included the Accuro acquisition and provide a high level overview of our 2009 outlook. As we’ve done consistently over the past few quarters, much of my quarter-over-quarter commentary will focus on proforma financial results in order to provide better apples-to-apples comparison as our XactiMed and MD-X acquisitions were completed on January 1, 2007 and the Accuro business was part of our operations at the beginning of 2007 and 2008.

With that said our GAAP total net revenue for the quarter was $61.2 million, an increase of 42.3% as compared to the second quarter of 2007, which represents a combination of revenue growth from both organic and acquisition sources.

Total proforma net revenue for the second quarter 2008 was $73.3 million an increase of 5.1% when compared to total proforma net revenue at $69.7 million in last year’s second quarter. When including the impact of the Accuro related purchase accounting deferred revenue discount second quarter 2008 proforma revenue grew 6.7% quarter-over-quarter.

On a segment basis, our spend management businesses reported net revenue of $29.9 million and a 11.3% increase over the $26.9 million reported in the second quarter of 2007. As we continue to experience, Solid GPO growth, strengthen our supply change technology business as well as an increased number consulting engagements with new and existing customers including the impact of the new strategic supply chain agreement the large health system that Ryan, discussed earlier.

Our revenue share obligation or the fees received from GPO vendors that we share with certain hospital clients was 33.6% of gross administrative fees up 600 basis points from the same quarter a year ago and up approximately 270 basis points sequentially. The primary reason for the increase in revenue share obligation percentage is the timely of contingent revenues recognized in 2008 as compared to 2007. We anticipate the full year 2008 revenue share obligation percentage to be largely consistent with that of calendar 2007.

Our revenue management segment generated net revenue of $31.3 million on a GAAP basis up more than 93% from net revenue of $16.2 million in the second quarter of 2007. The second quarter 2008 includes approximately $5.1 million of revenue from the inclusion of the business operations of Accuro, which is net of a $1.3 million purchase accounting deferred revenue discount. Excluding the one month revenue contribution from Accuro in the quarter, our GAAP net revenue was $26.2 million, on a sequential basis our standalone RCM business excluding Accuro grew 4.4% over the first quarter of 2008 consistent with our guidance.

On a proforma basis, second quarter 2008 net revenue in our RCM segment was $43.4 million up 1.2% from proforma net revenue of $42.9 million in the second quarter 2007. Excluding the impact of purchase accounting deferred revenue discounts in both periods, the proforma net revenue growth for the RCM segment was 3.8%.

As we’ve noted previously, we expect revenue from our decision support business to be flat to slightly down in 2008 due to a schedule step down in the annual maintenance payments from a large customer as well as the sales slowdown in our business intelligence product and services. Consistent with our prior comments, the long term outlook for decision support business remains very solid. The implementation of our largest customer continues to progress well and the revenue from this client will be recognized primarily in 2009 and 2010 based on contractual deliverables.

In addition our new leadership team within the decision support business, which has been in place since April is doing an exceptional job and we now expect to release Version 4 of our alliance decision support suite in the fourth quarter of this year.

When compared to the second quarter of 2007 on a proforma basis, we saw a 13.7% increase in recurring subscription and transactional revenue in this year’s second quarter. In addition and on a sequential quarterly basis we saw strength in our RCM services and transactional businesses as new bookings are being implemented and starting to generate solid revenue growth.

Turing to our adjusted EBITDA results, our consolidated adjusted EBITDA increased 40.2% in the second quarter of 2008 to $19 million or 31.1% margin. Excluding the impact of Accuro, our consolidated adjusted EBITDA in the second quarter would have been $16.8 million or 29.9% margin. Adjusted EBITDA in the spend management segment was $15.3 million or 51.2% margin as compared to a $11.2 million or 41.6% margin in the second quarter of 2007. While our core spend management segment experienced margin expansions due to operating leverage, last year’s second quarter EBITDA margin was also lower due to approximately $2.9 million revenue and comparable cost in annual customer vendor meeting which occurred in the second quarter last year.

Adjusted EBITDA in our RCM segment for the second quarter was $7.8 million or 24.9% margin versus adjusted EBITDA of $5.4 million or 33.5% margin in the second quarter a year ago, excluding the impact of Accuro our RCM segment adjusted EBITDA and this year’s second quarter would have been $5.5 million or 21% margin.

The quarter-over-quarter decline and second quarter adjusted EBITDA margin in the RCM segment was driven by the factors previously discussed regarding segment revenue. One point to reiterate, however, is that we continue to invest in our operating cost structure and our decision support and service businesses to bolster current customer implementations and anticipated revenue growth that have already being factored into our rolling twelve month contractive revenue estimates.

Our corporate operations impacted total adjusted EBITDA by approximately $4.1 million in the second quarter of 2008, a $1.1 million increase from the same quarter of 2007 due primarily to the higher cost of being a publicly company and the addition of certain senior staff functions. Primarily resulting from the Accuro acquisition, we took a one time non cash charge of $2.1 million for the write-down of previously acquired intangible assets such as trade names and internally developed software.

To reiterate this is a non-recurring, non-cash charge that equates to $0.03 per share on a tax adjusted basis. We also unwound two interest rate swaps on a $155 million of our term debt during the second quarter and paid approximately $3.9 million for early termination. This is a one time charge that equates to $0.05 per diluted share on a tax adjusted basis in the second quarter. In lieu of the interest rate swap termination during the second quarter we entered into a no cost color head transaction on a $155 million of term debt with a minimum three-month LIBOR rate of 2.85% and a maximum rate of 6%. The net impact of these transactions is lower projected interest expense. As a result of these factors we reported a GAAP net loss in the second quarter of 2008 of $1.6 million or loss of $0.03 per diluted share, which also included $5.3 million in acquisition related amortization expense.

Our adjusted EPS in the second quarter 2008 was $0.11 per diluted share. In addition we recognized share based compensation expense of $2.4 million in the second quarter 2008, which impacted EPS by $0.03 on an after tax basis resulting in cash earnings per share of $0.14. We entered the six months ended June 30, 2008 with strong cash hold from operations of $24.4 million or nearly 70% of our GAAP based adjusted EBITDA.

Now, turning to our balance sheet. On June 2, we purchased Accuro for approximately $209 million in cash and 8.85 million shares of MedAssets common stock plus a deferred payment of $20 million in cash or shares in MedAssets common stock during the first anniversary of the transaction closing date. We funded the cash portion of the transaction with cash on hand, a $50 million expansion of our term loan credit facility and borrowings under our expanded $125 million revolving credit facility.

Our amended term loan facility increased our interest expense margin to 400 basis points over the three-month LIBOR rate and a revolver to an interest expense margin of 350 basis points over LIBOR resetting quarterly. Our interest rate margin will decrease overtime as we de-lever our balance sheet. The specific pricing grid was included in exhibit to our Form 8-K filed on May 28. At June 30, 2008 our balance sheet reflected a $14 million in cash and equivalents and $274 million in total bank debt and we have approximately $97 million of availability remaining under our revolving credit facility.

Our current leverage is approximately 3.2 times trailing adjusted proforma EBITDA basis on a net debt basis. We are very comfortable with this level of leverage given our incredibly high percentage of recurring revenue and high conversion of adjusted EBITDA to free cash flow.

Moving now to the acquisition of Accuro, the integration process is well underway and right on track with our plan. We have a dedicated integration support team consisting of four individuals who are wholly focused on a near term and long term integration road map. We started fast out of the gate thanks for closing the transaction three weeks after announcing the definitive agreement. Our day one initiatives included active employer communication, such as internal announcement of our go forward revenue cycle leadership team while we quickly moved to retain key employees in the area of sales, product development, product management and operations.

Our four restructured business units within the RCM segment are being operated by the combination of MedAssets executives and former cure operators led by D T Nguyen as RCM Segment President. Sales and marketing is clearly a priority w believe a tremendous opportunity in front of us across our solution set to a base of more than 3,300 current hospital customers into a new accounts. To that end we expect the integration of our revenue cycle sales force with regard to territories and complaints to be completed by the end of this year.

The Accuro solution set was highly complementary of MedAssets with only one major product overlap in the area of charge master and management, we’re making it very clear to our customers and prospects that we’re not sun setting either our CodeCorrect CDM master product and we’re showing our customers that they will not be asked to move to a new product and so it includes all the key futures of the current solution.

Our two or three year plan is to bring to market our next generation charge master solution with the best features and functions from both of our products of accretive value added migration for our customers. All of our corporate, administrative, finance and accounting integration is scheduled to be completed by year end as well.

Turning to our financial outlook, our contracted revenue metric provides strong support for the revenue outlook of our business, given at 85% to 90% of our net revenues recurring it is management’s best estimate of future revenues from existing customer contracts especially since most of our contracted revenue drives a multi year agreements. At June 30, 2008, MedAssets rolling 12 month contracted revenue was an estimated $284 million consisting of $163.1 million from the RCM segment and $120.9 million from the Spend Management segment. Excluding the impact of Accuro our rolling 12-month contracted revenue increased approximately 5.7% on both the segment and consolidated basis when compared to the rolling 12 month total as of March 31.

Today, we are reaffirming our previous financial guidance for 2008 on a standalone basis with the addition of Accuro into our financial results we’re updating our full year 2008 guidance. Let’s take it one step at a time. First, we are reaffirming the revenue and adjust the EBITDA guidance for 2008 first standalone MedAssets business excluding the impact of Accuro specifically consolidated net revenue guidance is $230 million to $236 million. Our, RCM net revenue guidance is $109 million to $113 million and our spend management net revenue guidance is $120 million to $124 million. In addition, we’re reaffirming our standalone adjusted EBITDA guidance of $71 million to $75 million.

Next, let’s add the impact of Accuro to our 2008 guidance which is consistent to our communication at the announcement of the transaction. Specifically, we expect the Accuro to add $34 million to $37 million of revenue in the second half of 2008 impacted by approximately $3 million of purchase accounting deferred revenue discounts.

We expect Accuro’s operations contribute adjusted EBITDA of approximately $14 million to $15 million for the last seven months of 2008, again consistent with our previous guidance. When you combine the Accuro’s impact with our standalone MedAssets guidance our updated 2008 guidance consists of consolidated net revenue of $270 million to $276 million, RCM net revenue of $149 million to $153 million, spend management net revenue of $120 million to $124 million and consolidated adjusted EBITDA of $86 million to $90 million.

Given this and the impact of our changed capital structure and tax rates, our full year 2008 adjusted diluted EPS excluding non-cash acquisition related and change of amortization and other one time items it is expected to be $0.50 to $0.56. In addition we estimated our non-cash share base compensation expense will impact EPS by approximately $0.10 to $0.11 per diluted share in 2008, yielding cash EPS guidance of $0.60 to $0.66 per diluted share.

Taking into consideration the Accuro acquisition our expected effective income tax rate for full year 2008 is 39%. For the reconciling items between adjusted EBITDA and net income for our 2008 guidance please refer to our earnings press release.

I also want to provide some insights into the business trends to the remainder of 2008. First, we anticipate our third quarter as reported RCM segment net revenue to roll between 34% to 37% on a sequential basis driven largely by gaining a full quarter of Accuro’s revenue. Second, we expect spend management net revenue to grow between 1% and 2% sequentially in the third quarter. Third, our fourth quarter revenue for both spend management and revenue cycle management segment is expected to be very strong given the timely of revenue recognition associated with current, signed customer contracts that are in various stages of implementation.

And finally, we would anticipate our as reported third quarter consolidated adjust EBITDA margins to be consistent with that of the second quarter of 2008. For the fourth quarter, we expect as reported consolidated adjusted EBITDA margins to increase significantly as revenues that should be recognized have expenses booked in earlier quarters given our accounting policies.

Our 2009 outlook continues to be very positive and remains consistent with our prior calls based on the underlying strength of our new customer contract implementation trends. We have signed a number of sizable new customer agreements over the last 9 to 12 months that will have a substantial impact on 2009 financial results due to the timing of contracts signings, implementation and associated revenue recognition.

Its Important to point out that our business went to 2009 with tremendous momentum based on our outlook for the second half and in particular to the fourth quarter of this year. Specifically, we expect consolidated as reported GAAP net revenue growth of 27% to 30% in 2009 over 2008 which translates in the 15% to 17% revenue growth in 2009 as compared to 2008 full year proforma revenue. Given the natural operating leverage in our spend management and lower new product development expense due to the acquisition of number solutions from Accuro that would have not previously offered. We now expect our adjusted EBITDA margin to expand as compared to our projected 2008 proforma adjusted EBITDA margin.

In summary, we have an extremely stable financial profile with high recurring revenue, a very high percentage of EBITDA conversion to free cash flow and a compelling business model that delivers measurable, financial improvements for hospitals, health systems and other ancillary healthcare providers across the country. We continue to be very excited about the opportunity to leverage our comprehensive solution set to drive customer satisfaction and continue to prove the value for our customers, employees and shareholders.

With that I’d like to thank you for you time this afternoon. At this point I’d like to open up the call to questions. Cara?

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Ross Muken with Deutsche Bank.

Ross Muken

Good afternoon, gentlemen. John, prior to this last quarter, you had a competitor that also made a significant acquisition on the decision support side of the space. Could you talk a bit about the competition there with Avega, have you seen anything different, any sort of different type behavior out of that company, now that it has been acquired? And just talk about sort of the ramp up in the market, I know you had some struggle sort of over the last quarter too. But, it seems to us from our check with that market continues to see significant uptick overall?

L. Neil Hunn

Hi, Ross. This is Neil, I’ll start and then I’ll ask Rand to provide some colors and season to feel it everyday. So, specifically I believe we are talking about Eclypsis acquisition, EPSI we competed with Eclypsis, McKesson and EPSI on decision support front for years since we’re now in the business. Since the last six months we haven’t seen any market difference of Eclypsis with EPSI, as I’m sure there are still focused on integrating the business. We are very excited about our Version 4 product, which should be a completely if not slightly better product than what’s in the marketplace today by EPSI. The thing I would also add is our understanding is that Eclypsis will focus on selling that EPSI into their existing customer base, but I believe they are four platform products and as they do that, it’s going to open the market up as they think about what other solutions are out there. And so, Rand is there any sort of feedback do you have for the markets.

Rand A. Ballard

No, I think that’s well said. I think it’s actually that acquisition is going to create more opportunity for us because of what Neil said, because they are going at full speed and EPSI solution into their existing base and some people don’t want that so, a lot of people will check the market.

Ross Muken

And, in terms of sort of the transformational type deals that we’ve talked about in general, how much is it a case that some of these sort of come online over the next 12 months plus. And then other hospitals will see sort of the case study of what you are able to do potentially with some of these implementations and then thus be more willing to do such type deals or do you think still that’s an opportunity that’s probably more specific to certain types of hospitals or certain types of CFO’s etcetera we were looking for whole basket of items?

Neil Hunn

Well, that’s a great question Ross, it’s early but I think you are exactly right. I think many customers will look at the financial results that we achieve at Ivinson, and we are going to achieve at Cook County and then in the large supply chain transformation project and we are optimistic that will result in pre sales in this area.

Ross Muken

Alright, great guys, thanks.

Operator

Your next question comes from the line of Larry Marsh with Lehman Brothers.

Larry Marsh

Hi, thanks, good afternoon. And thanks for all the details so most of this -- first, I just want to make sure, clear, looks like you are suggesting with the back out at Accuro, you’re down a couple of million sequentially in revenue cycle. Is that right and what would be the driver for that or did I get that wrong, in the third quarter?

Rand A. Ballard

No, Larry I think, the second quarter over first quarter excluding Accuro, they were flat and slightly down for all the reason that we talked about before which is the consulting revenues that occurred in the first half of ’07 as compared to first half of ’08.

Larry Marsh

Yeah.

Rand A. Ballard

Forging for delaying and importantly the step down in maintenance in the large customer as schedule that’s the same thing that carry into the second quarter. We should be passed those now on a go forward basis.

Larry Marsh

So, I’m just want to make sure, in the grace of for the third quarter you would set up 34% to 37% sequentially. I’m just sort of saying if we back out Accuro, the full quarter that, you are saying that the seam revenue basis would be roughly flat sequentially because I was giving beyond couple of million?

L. Neil Hunn

I think it’s even that will be hard for us since we’ve been the great care into the financial results to part them out. I think our core revenue cycle business is actually up, what you made in the third quarter, what you maybe factoring out is the deferred revenue discounts of Accuro into third quarter model.

Larry Marsh

Got it, okay. Second, and just to clarify to the follow-up with Ross’s question, it sounds like you are seeing a Version 4.0 of alliance coming at I think you said December. So, is that in your view kind of a hard date now, is that some date push backs throughout the year and just to confirm what you said back in May, you said Accuro at the right manageable team on that product now?

L. Neil Hunn

I’ll start and then I’ll have John or Rand to add any color. So, it’s the fourth quarter release within specified December that will be fourth quarter. We are highly confident that release date, there is actually six internal milestones, and we’ve achieved four on schedule, important without moving the goal post of each deliverable. The fourth deliverable was sort of the big hurdle and so we’ve achieved that one. So, we feel very confident the fourth quarter release of this product in terms of timing.

Larry Marsh

Okay.

L. Neil Hunn

In terms of the leadership team, personally I couldn’t be happier with the leadership team we had out there, and I’ll let John or Rand to comment on that as well.

Rand A. Ballard

Yeah, this is Rand. I agree totally on the leadership team and I think we are absolutely on track to implement Version 4.0 in the fourth quarter.

Larry Marsh

Okay. The second thing just so, you are sure announcing here is call D.T. Nguyen as President of revenue cycle. So, that’s obviously achieved, somewhere you had been. Are there any other changes in the teams either revenue cycle or spend management from what we’ve heard here from you over the last year?

L. Neil Hunn

Certainly not on the spend, on the revenue cycle side, this new organization is purely a function of the Accuro acquisition and as we’ve taken both their organization and their business units in ours and logically put them together we took a swap to the management team that was reflected by both organization. We also by the way sent there the best leaders from the combined organization. And so, D.T. Nguyen, was he came to us from our XactiMed acquisition and was running one of our business units in the revenue cycle business prior to the Accuro acquisition, incomes from dozens of years of background of revenue cycle not only revenue cycle but technology and as XactiMed has built the leading product and service organization in that particularly initiative in the revenue cycle. So, his vision for how we integrate everything that we do a strategic plan for how we bring service and development together is something that we are very glad about.

Larry Marsh

Okay, great. And then just have there been any announce changes of note in the Accuro top management group? And it’s only given the assumption that we would see some of that team moving on which would not be surprised but is there any single note in the sort of top four, five since close in June?

L. Neil Hunn

Yes, there is. I think we actually when we announced the transaction, the expectation was for the corporate operation. So, the CEO, COO, Chief Accounting Officer, Chief Financial Officer over transition period would be with transition out of the business and that was largely the basis for the $3 million to $4 million of cost synergies that we sort of baked into our 2009 models. And so, we are in various stages and implantation. There are couple of those folks have moved on and couple are still on board helping with the transition.

Larry Marsh

Okay, great. Two other very quick things, I know at your corporate events in March there was obviously a lot of buzz about the credit markets and change of behavior I think as John, talking about the continued challenging environment. It doesn’t sound like that’s impacted business at all but is there any mix shift in terms of what customers are asking for in this environment? Is there any more interest into the guaranteed cost save product that you’ve -- offer in the marketplace?

Rand A. Ballard

Yeah, this is Rand. Actually it helps our business, as the hospitals become more critically, financially challenged and I think all of the hospital’s senior executives I’m talking to believe that it’s going to get worse coming forward. It really makes our solutions and our technology a more viable interest to them, more vibrant interest.

Larry Marsh

Okay.

John A. Bardis

This is John Bardis, I would just add that right now but what we see at the general financial outlook for hospitals deteriorate. In my time in healthcare, I have not seen the current combination of trends at the level that they presently are, specifically reimbursement trends are in the low single digits and in some cases flat. But all of the major economic trend lines on cost that we’ve seen in the general economy are hitting hospitals at an even higher level because they have a very difficult time adjusting cost infrastructure because their service requirements within their communities remain pretty stead fast, meaning that they can’t really change who they are of the community and yet they are having to absorb substantial cost increases being driven by energy and a variety of other factors that we are aware of exist in the economy. So, the general motion of a substantially decreasing rate of revenue growth and a substantially increasing rate of cost growth is driving hospitals more today than ever before. And then lastly, the transformational opportunities which are emerging from situations with those two factors that I just spoke of had go not of hand, has made our transformational opportunities quite a bit forward with us and more up/down I should say than we expected to see at this point.

Larry Marsh

Very good, thanks sure. I’ll follow-up.

John A. Bardis

Thanks Larry.

Operator

Your next question comes from the line of Corey Tobin with William Blair.

Corey Tobin

Hi, good afternoon.

L. Neil Hunn

Hi, Corey.

Corey Tobin

A couple of quick ones if I could. First, on the 2009 thought, Neil, with respect to the higher margins that you alluded to, is it still in line with I think the 75 or so basis points that you commented on earlier or is there any uptick to that thinking?

L. Neil Hunn

Hi, Cory. The leverage is there. There is that much leverage that’s actually in our business we are starting to do our resources planning for ’09 and the question will become how much of that leverage do we actually invest back into the business and how much do we drop to the bottom line. And so, I would call it somewhere between 25 and 100 basis points that a magnitude of which we’ll talk about and 13 weeks when we’ll give our 2009 guidance, it’s there naturally it’s just we have lots of investment opportunities that we’ve uncovered as result of the Accuro acquisition that we might want to pursue.

Corey Tobin

Got it, great. Now, shifting gears for a second can you give us an update on the Aspen business, what’s was the contribution this quarter from the Aspen product line and how would you gauge the growth is trending on that business.

L. Neil Hunn

So, Corey. Let me give you some of the numbers are lack there up for and then I’ll let John or Rand talk about how the business is performing in the market place. So, as you know we don’t give companies specific information of any business unit, the value proposition of Aspen continues to be fantastic if the evolving with the market and their scales are -- were deploying that scale set in broader ways in the market place. So, it is very important to our new customer when but we just don’t provide the details of that business already been the in the MedAssets segment.

Rand A. Ballard

Hi, this is Rand, I might add Corey that, you know the technology that Aspen deploys in the physician preference items arena continues to be strong robust and really unparallel and now we’re coupling that with the supply change transformation project that we have at this really large customer, I mentioned previously. We are very, very bullish and continued contributions and their ability to enable us to up selling frac sales to other customers.

Corey Tobin

Add some to the result was quarter can you, could you comment on the pipeline is standing there, is it up would you say more or less in the corporate increase of 70% or so is that kind of that earlier rent?

Rand A. Ballard

I would say, the pipeline specifically in the Spend segment is extremely robust and primarily as we host the results of the supply chain transformation project and as John mentioned the continued pressures at the hospital have cost. The demand for the Aspen services is out there in pretty huge way.

Corey Tobin

Okay, great that will be helpful.

John A. Bardis

I don’t know, I would only add one thing. We have several very, very large transaction that are in internally haven’t been, finalized they have to be fall in mind with what Rand just mentioned. So, we’re seeing an evolution in the industry to not only grow to good purchasing business as we have along with our traditional approach with Aspen but this broader supply chain management opportunity represents a deeper product revenue on our per client basis.

Rand A. Ballard

Hey Corey, the one thing, as I remind you also on the Aspen and some of the transformation deals we do, those are typically not RFP sort of transactions is very consultative sale. So, I’ll just be mind for that.

Corey Tobin

Okay. One more on housekeeping if I could, could you provide break down of stock compensation by segment please? Thanks.

Rand A. Ballard

Yeah, we’ll come back, thanks. Okay next question.

Operator

Your next question comes from Richard [inaudible] of Jeffries.

Richard

Congratulations. Quick question I guess beginning with you Rand. On the revenue cycle product offering you mentioned some commentary with respect to the front end, how would you guys gauge, your presence on the front end of the revenue cycle and where do you need the bolster yourself up if you do?

Rand A. Ballard

That’s absolutely a great question. You know as you know, if there’s error in the front end then the hospital had as an area in backend collecting it. So, they can have very minor area in the front end, that really effects the account receivable function, clearly Accuro has a major presence here in this with the care price of product and that’s being received very well in our membership and I may ask Neil to kind a comment little bit about what we’re going to do business development to kind of bolster this activity.

L. Neil Hunn

Its Neil Richard clearly as you talked about, ever since the road show, of the complete spectrum of the revenue cycle, the weakest relative component for us is on the front end. So, we spend a lot of time in the market place we spend time at the edge of May conference loading about well opportunity are out there. We have decent offering now, we have the largest market share about 2/3rds market share installed products for this front end patients estimation tool which we believe is going to be a comment function are need for every all of the 5,000 hospitals. So, then 5 to 7 year period just like charge MedAssets maintain was about 4, 5 years ago, it helps hospital price of funding claim before the patients admitted for instance. Accuro also was the leader in medical necessity which is very important when you’re sort of doing pre authorization with the insurance companies. We continue to kick around the market places, see at options there are and the front end around, anything around pre-registration, anything around scheduling, anything around admissions staff credentialing and auditing because you want to catch the areas up front much as you can as Rand said.

Richard

Okay. And, then just sort of follow on, let say thing shipped towards they are front end increasingly does that limit the market opportunity on the backend, I mean if you taking care of all this staff front, bit less problems down the road?

L. Neil Hunn

Let, me take shot at that. The answer is no, first of all the weight of growth are consumed involvement in the transaction of (inaudible) hospitals is fast strip in the growth rate up front end solution. #2, incredible compounded at the hospital level Richard is getting pricing, correct and active pricing into the hand of the consumer, which is not in the function and as it self of registration and benefit announces, somebody is going to go home in and analyzed under contract evaluation terms whether consumers responsibility and therefore the prices were services that are presently rented about the ranted. So the critical component is insuring that the consumer understand their portion of it, also what the actual price and relationship with their contract evolutions are, that is actually currently creating a greater variance and the revenue cycle. So, I don’t anticipate that any time soon that anyone front end solution is going to mitigate the ongoing problems that exists in the revenue cycle relative to accuracy.

Richard

Okay, that’s helpful. So, the complementary to some extend just to be clear Neil, I think Larry drew out 34% to 37% growth number in the press release you got $34 million to $37 million in Accuro contribution are those two different numbers or just want to be clear, what is the Accuro growth in the second half or contribution?

L. Neil Hunn

Yes, so. I want to make sure, I specifically understand your question. So, Accuro in the second half, right the second half of 2008, we’ll contributed $34 million to $37 million to the MedAssets business. That is, when we efforts, as we announced the deals we said 37 to 40 and there is a same numbers because there’s $3 million of differed revenue discount applied to those numbers.

Richard

Okay, that’s helpful and then, again what was the ‘09 sort of target growth just to be clear?

Rand A. Ballard

And, then the ‘09 target growth is 2009. So, we have to make sure it’s important to come up the right launch of right point so, So, the Performa apples to apples, we’re on the business all of 2008 its 15% to 17% top line growth, but you don’t have a full year Performa for us. So, the launch applied would be sort of our guidance range and that’s the 27% to 30% revenues, which backend to 15% to 17% on the proforma basis.

L. Neil Hunn

And Richard, let me clearly cut of with hopefully finish your first question. So the third quarter of growth, right we talked about being 34% to 37% on the revenue cycle side, right that those are, that’s breaking down the total contribution of Accuro for the year versus just into the third quarter.

Richard

Okay, great. And, then you know, you did a lot on the interest line can you talk a little bit about the savings on those changes?

L. Neil Hunn

Happy to. So, All the changes were on $155 million of the debt, so only a portion about have roughly you call at 60% of data. So, where we were as we had two swap agreement that locked in the base rate about 5.2%, which was allow for 90, we did him about year and half or two year, two year ago (inaudible) environment. So, we around that swapped and basically we’re now down 2.85% on that base rate on the $155 million, that equates to about $900,000 of saving a quarter assuming interests rates they were they are and now model on our guidance actually assumes an increase in LIBOR rates in the fourth quarter biotech. But we believe that this has a 4 to 6 quarter sort of positive NPV payback on unwinding the swaps and doing this no cost cover.

Richard

Okay, thank you. That’s helpful, congratulations.

L. Neil Hunn

Thank you, very much. Good question. Next question?

Operator

Your next question comes from the line of Charles Rhyee with Oppenheimer.

Charles Rhyee

Hi, guys, thanks for taking the questions. If I could start, I think Rand, you were taking about and John, you mentioned about as we move forward and the consumer becomes more involved and obviously your patient estimation tool will be helpful. To what extent has the market already moved further into measuring upfront of the patients ability to pay and ultimately you are providing credit scoring and things like that?

Rand A. Ballard

Yeah, this is Rand. And I would say, as about talking to customers, everybody wants it and it’s an issue that’s kind of boiling in there. The hospitals are really under equipped to help the patients understand this, not only gives the estimation but collect the money from them or let them know what the cold pay is going to be from the insurance company, those type of things. So, I think it is something that Accuro was by far at the leader on and there is a lot of pent up demand out there for these types of patient estimation tools.

L. Neil Hunn

Yeah, the offer profit role, this is Neil. And offer profit role is I think completely not ready for this, that’s the consumer directed healthcare portion being able to just have that process in place to collect money upfront, they ask for, they got to able to estimate it. They are completely not ready for it. Some of the four profit guys are a little bit more advanced as they are almost everything relative to healthcare technology.

Charles Rhyee

No, that’s helpful.

John A. Bardis

I would add one thing to that and that is, this problem has been coming for some period of time and has been equally challenging for both the investor and the non-investor on the sector and as you’ll recall the year that HCA went private, they had a 12% bad debt expense, which on a $24 billion base was absolutely enormous. And so, what you have in our industry is historically institutional transaction tools that without they are lot different than what you historically would see in the financial industry amongst banks. Our creeping in all along has been a series of consumer events which changed the vector of how our fill is identified and how been it’s paid for and you’ve heard it on the mining on the consumer credit swing, that is one yet important component of that. So, you these industrial transactional systems, which we have that are able to one, be applied on an ASP basis but two, they are able to stick in a sticky way down of the client, that also our consumer based solutions technically stick right into it. And so, you’re going to always have a level of hybrid in these environments that continue to manage these industrial B2B transactions and the consumer element which will also have to connect itself to the industrial side of contract measurements, our contract pricing and consumer responsibility and then outward to the consumer portal.

Charles Rhyee

That’s helpful. And just taking a step to your, talking more about the patient estimation tool. From what base of data are you collecting to estimate what the charge in, the responsibility of the patients are going to be? Is that, when you apply that product and I’m taking this to Accuro product, is it coming from just the hospitals on limited claims data or do you have access to a broader switch data that you can aggregate to analyze to make an estimation?

John A. Bardis

This is a great question, I want to turn a piece of it over to Neil, that you hit the differentiating feature for us right on the morning which is, you actually have to take the specific contract that a consumer is under any managed care agreement and apply that contract to the manage care of benefits available to that consumer. And therefore then be able to determine based on the contract benefits to their consumer, that One; the bill overall is going to be on an estimated basis for whatever services are going to be rendered but then. Two; identify their consumers personal responsibility portion of that bill, we do that. And what it requires is a complex analytical contract algorithm that allows you at both the hospital and therefore the consumer level, they determine those responsibilities. But to my knowledge, nobody else does that in the industry and that’s an enormous advantage for us and that perhaps as much as anything as the vector point that will be most important at least as hospitals interface with consumers. And Neil, let me -- may I ask you comment on that.

L. Neil Hunn

Yes. So, Charles, what I would have to what John said is, in order to view a patient for estimation you have to estimate, yet to know what the standard set of solar charges would be for say, hip replacement. So, in order I think specifically that point of your question we have our own proprietary content driven by other products that need to drive that product that we maintain and have the confidence people will do that. But importantly we also gather all the hospital’s historical data and can sort of update it real-time. So, we are very precise in what say, if you know the standard solar charges are for every procedure that would be front and estimated. Then you have to more importantly have to go then calculate what the patient responsibility is, that requires two or three very complex things, you have to go figure out what their insurance plan is and what’s their (inaudible) was on and how they pay against their, how they are against that. But then equally is important not more and much harder to do is you have to calculate what their specific insurance of that very specific hospital that’s fair, very specific case that you’re estimating, what the insurance discounts are. And so, that’s what, the Accuro contract management engine is well class, it is the best in the industry that calculates that. And so, with all of those things come together in a split second, we have an estimation that we believe is definitional the most accurate in the industry.

Charles Rhyee

That’s helpful. If I could just ask one more question here. As we’ve been talking over the last so minutes, clearly the solution that you’ve acquired with Accuro as well as the solutions that you already have definitely you can really see that it helps, it makes a lot of sense that it can help hospitals, improve their cash collection. But for the large problem, we are really talking about the softer side of that, it sounds like Rand, when you are talking about Cook County, you are also speaking a lot about the process it sells in. I’d like to get your sense on, when you’re coming into a hospital, how much of the problem the revenue cycle is really a software issue and how much maybe is the work flow process issue? And can you speak to Cook County specific of it, you kind of rattled off all the services you are providing them, to me listening to that, it sounds a lot like what you are really doing is going on there, reengineering the way they even attack the revenue cycle that begin with and if that’s the case I mean, doesn’t sound like you’re doing those work for them. But what is the success rate of once you train these people that sticks, people don’t fall back in the bad habits?

Rand A. Ballard

Yeah, that’s a great question and you are exactly correct in your assessment. What we actually do is, we’re bringing our technology software solutions to Cook County but sometimes there needs to be a process reengineering that’s approaching and training so that the people can be left with the ability to utilize these software tools for a long period of time. So, what we have found, we really bring out these technology solutions, sometimes you bring the process reengineering in place to make sure it’s sustain. And that’s kind of a good value that we do.

John A. Bardis

Let just jump in there and if I could, one of the things that’s happening here guys is that you got a very broad spectrum of expertise amongst hospitals, you have some situations where the revenue cycles through the base are completely broken with very complex and difficult pair structures and in those scenarios as you have planned it out, there is a level of professional service that you have to bring to the table in order to build complete process reengineering. And you got to literally start from scratch and change the work flow. What I meant, incorporates then as once we manage that work flow change is to surround that we’ll do work flow with tools that sustain it. So, in the end there will always be in those kinds of relationships a level of professional services that starts the ball well and retrains and hires people. And then, doctors suspend with technology that causes sustainability to Accuro for a period of time. I would tell you that professional services in the revenue cycle arena is not in the industry but quite frankly the ability to sustain value overtime on a consistent basis for engagements that we’re done for hospitals has been very poor and that has opened the door for the approach that we are taking which is work flow change supported by sustainable change and measurement with tools.

Charles Rhyee

Great, thanks for the comment guys.

L. Neil Hunn

As we go to the next question, it’s Neil, we are running long obviously but we are going to take four more questions. And so, I appreciate you guys with all your interest, next question please.

Operator

Your next question comes from David Veal with Morgan Stanley.

David Veal

Hi, thanks for taking my question. So, what I hear you saying is that the hospital reduction, they are struggling more on the financial side and one thing that’s concerning these analysis I hear is credit quality deteriorating for your customers and receivables. Can you walk us through how you are monitoring that? What you see in the trends there?

L. Neil Hunn

Hi, David, it’s Neil. So, we have very tight policies around where we ride something off from an AR perspective. We haven’t seen an increase of that, we take prints since our second quarter DSO’s on a net basis, on a trailing 12 months or about 51 days at the end of first quarter 53 days. We’ve actually seen a slight improvement there. It’s one of the things that we have to monitor really closely. One of the other things that you need to ask is when we do in enterprise deal and there if there really is a struggling hospital do want one or two things. One, is we’ll convert their GPO and the fees that are paid to us by the vendors with don’t have a credit issue. And two, if we are doing a big outsourcing AR deal or cash collections deal on the back end. We’ll do a sweep into their account on a weekly basis. And so, we monitor that very closely, we talked about in March timeframe and one of the hangout which we had in the first quarter of this year with a couple bankrupt clients that sort of close the doors. We haven’t seen that issue pop-up here in the last couple of quarters since that call. Not saying that won’t happen in the future but our client base is that they’re struggling but their doors are open and they are for open business and they just need help. It’s really not anything new, it’s just the next current set of issues that are facing them and they are particularly bad right now. Is there anything John?

John A. Bardis

No, I think you hit it Neil.

David Veal

Well, if I want to fund the reconcile, when I look at the balance sheet at the year, allowance are about full count at the lowest level in the year. And if I’m let them doing the math on, you get right off at 10X worth bad debt expenses. Can you reconcile that for me?

L. Neil Hunn

Yeah. So, we did write in the second quarter, we did do some netting of the gross AR in the balance but they are already written off to bad debt expense in prior periods and we just netted the valuation of the receivable reserve against the gross AR in the second quarter. But for instance in the first 6 months through 2008, I think we’ve had bad debt expense of about 1 million versus what was about a 1.1 million or 1.2 million all of last year. And so, that’s reflective more of our policies around credit and being very conservative in that regard more than anything else, it’s not a credit issue. The other point, the point now is that we mix more business into the revenue cycle, we’re paid by hospitals, which carry the little bit of credit risk or the vendor community on GPO side virtually carries none because there is no way out of there.

David Veal

So, you’re comfortable about 6% of gross receivables in the allowance that are close to either right?

L. Neil Hunn

For the quarter, that’s right. This is a very, every quarter we do a very detailed review for both of our segments, both to our companies and we are very comfortable with that, absolutely. There is no issue there.

David Veal

Great, thank you.

L. Neil Hunn

Thanks for your question.

Operator

Your next question comes from the line of Eric Coldwell with Robert W. Baird.

Eric Coldwell

Hello, good afternoon/evening. Couple of strategic questions, first of on Cook County, obviously we recognized that the revenue there is at least in some part contingent on cash flow in prevalence for your customer. I’m curious, is the revenue that’s contingent to you, are there colors around your potential outcome, are there minimums, is there any slide in the scale based on your performance, how should we think about that?

L. Neil Hunn

It’s Neil. So, there is no state for us, I think there are three components of that. First, there is a very low threshold for the initial payment which is basically just funds the deal from their perspective. We expect to clear that hurdle even maybe late this year, early next year. That’s it’s a very easy hurdle to clear, it’s a fraction of the total opportunity. Second, there is no upside, there is no cap if you will and in relative to the scale there is a break point. So, we go from one percentage to another sort of that, the point where it’s higher than they expected but it’s within our range. So, we would expect if we deliver very well, we’ll hit the higher threshold but it might be at 2010 if not later issue for 2009 will in be in the same -- the one threshold percentage.

Eric Coldwell

Thanks, and I assume that how you are structuring deals of this nature generally?

L. Neil Hunn

Well, I would say no, not really. The deals of this nature are not 100% contingent deals, the deals were our cost, they’re very much paid for over the small profit margin but then all of our profit is basically put at risk. So, this deal is all the revenue that risk, that’s not the way for instance the Ivinson deal is or other deals that are in the pipeline that we are negotiating. So, with this I would not say that the Cook County is the model for these deals.

Eric Coldwell

Okay. Shifting gears, high debts is quite you’re not so exactly how to phrase it but John, spoke a lot about the increasing financial burdens on hospitals related to supply cost increases and manufacturers and vendors needing to push their higher prices. The question is how do you negotiate with your vendors and how do you communicate with your hospitals during this period. What was that….?

Rand A. Ballard

I think there is a couple of things Eric, this is Rand. I would say first half, we are in the unique position that the vendors are seeing a pretty significant change in market share over the last several years. So, the commodity product vendors, the people that typically negotiate, they want to have deals with us. It’s very much; if they don’t have a deal they are going to feel the pressure of not being included and feel the growth. So, we were constantly evaluating that portfolio, we are working very hard with those vendors to get the best deals for our customers. So, I feel very, very positive sound about that. The other part of that is the physician preference item, vendors, and they are pretty much reeling from the success we are having when we do that and using the unique technology that Aspen has, that’s where we are driving pretty significant savings in every single case to the hospitals. So, good work on the commodity vendors, strong, they want to deal with us and then the physician preference items, we are going to continue to drive value for the hospitals.

Eric Coldwell

Great. Last question, I realize it’s turning late here. With CMS and private industry following suite on reducing the reimbursement for hospitals and HIAs etcetera. Are there any specific products or specific innovations that you are only nor around that seam or is it encompassed in the current portfolio that you offer?

John A. Bardis

Let me give a crack of that. I think what you’re talking about something lot more straighten is CMS decided not to pay for events that happen as a secondary option after a patient is admitted in other words probably on infection charge.

Eric Coldwell

That’s been correct.

John A. Bardis

First of all that MedAssets doesn’t make products in the clinical arena and that’s what this is a focus on or that what you are also talking about our work flow related issues clinically where if for example, no sign of floor it gives a patient a long drive and there was an adverse reaction and that patient has to stay in the hospital longer. What we are seeing today is a real opportunity for staff interface consulting work on basic work flow and error reduction. So, I wouldn’t call these new products but I would call these as new methodologies for employee and clinical engagement and I think you look for us to deal that space sooner than later.

Eric Coldwell

And, I think you’re addressing the question exactly, I’m just in a kind of chasing with what Charles was asking about workflow processes. Would we envision a new consulting practice or some kind of an announcement on operating that you are bringing to help the customer work through these issues and avoid those errors going forward?

John A. Bardis

I think, hardly you can work for us to be involved on the number of levels, I’m not allowed to be the real specific related this point but I would tell you that it’s something but that’s definitely on our radar screen because at the end of the day all of these things are sandwiched by our operating systems for both revenue cycle and supply chain management. Now as you can do good job in those areas. Finally, at the end of the day which you pointed out is if you have a failure clinically at workflow that reached to an additional event of the hospitals now reimbursed for, all that good work have literary go for not. And so, we know that we in order to connect the dots need to be in the clinical operating management transformation business and we already are an aspen and that we have done a number of operating revenue sweep transformation or interfaces where we have change of clinical workflow and those engagements have produced literally order of magnitude on sight multiple tens of million of dollars to value to the client. And we do believe that in the run long that we have the real dollar opportunity for operating efficiency in the US hospital environment is that clinical operating interface, but the byproduct of that is, when do you at right, you also get a better clinical result with fewer opportunities from major clinical mistakes which we think will have its centers deeply embedded and relevant to how hospitals are reimbursed. So, we are all over that but it’s a particularly strong question because we think at the end of the day you got to connect all three dots. One, you got to get the pricing and reimbursement and the responsibility of party is correct, yet to transact that throughout the system correct, but you have to make sure that the products and services that are being purchased by the hospital are done so at optimal prices without no obligationss for cash but in the middle of that, normally make any of those make maximum sense, you have to operate clinically and operationally in a way that maximizes best practice and constantly lays cost side of the system and produces the better clinical outcome.

L. Neil Hunn

Thanks very much for the questions.

Eric Cordwell

Thank you.

Operator

Your next question comes from the line of Bill Bonello with Wachovia.

Bill Bonello

Hi, thanks for taking the question. And mine was really simple and you’ve answered it, I zero that for you. So, just take it offline. I know away back when Larry or somebody asked about the sequential movement in revenue cycle management and the revenue ex Accuro and I’m just trying to figure out, if we’re looking at things on year-over-year basis, when you give the proforma number you talk about 1.4% that proforma revenue growth in that segment. How much of that proforma growth is in the Accuro business?

L. Neil Hunn

Yeah Bill it’s, -- so, I suggest we talk about that particular question offline just the way we understand it better and it’s getting late, if you don’t mind.

John A. Bardis

That is perfectly fine. Thank you.

Operator

Your final question comes from the line of Larry Marsh with Lehman Brothers

Larry Marsh

Okay. Well, good luck boys, go aside and asking how the team’s looking over there and if there’s a new on Gardner somewhere in the wings this year?

L. Neil Hunn

Did he pay you for that question?

John A. Bardis

Hi, Larry how are you doing? I’m actually sitting in the bathroom of my apartment and Steve Frazer, our head coach is sleeping in the room next to meet you here. So, I appreciate all you guys patience with its sounds like, go the connection worked okay. You know today is the big day for us, we have super heavy weight 211 pound and Brad Bearing our 185, 184 pound going 184 kilogram today, is a huge day for us, very much second in the world last year, Fires was third and then we got Adam Wheeler who is the 211 pound whose beat, to get on the team to beat the world’s bronze medalist and make the team spend. So, today is, we’re going to know a lot more at the end of the day, but the competition here is so tough with that in wrestling and wrestling thus far in the previously contested four way classes every single world champion from last year has not medaled. And, three of the four who have competed defending world champions, we’re defeated in the first round. As, the competition this year is just absolutely off the hook it’s just the intensity of that and the level of talent and the Olympic games in wrestling and you can’t just show up leaving that in the world championships there 60 guys in away class, only the top 19 in the world basically are in the half that qualify their placing in the top three in a world qualifier somewhere throughout the previous years. So, the level of talent in the Olympic here obviously is normally higher but the density of that talent given the limitation of access here is really high and that led to as I pointed out, not a single one of the defending world champions have placed and three of them have lost including the defending world and Olympic champion (inaudible) is a real stead both had lost in the first round in Athens.

Larry Marsh

Well, best of luck to the whole group, say.

John A. Bardis

Thanks, we are looking forward to work, I’d love to talk to you about it someday, but what an unbelievable experience particularly the opening several months.

Larry Marsh

Good deal, you are doing better.

L. Neil Hunn

Okay, well, everybody, we do appreciate your time today and in closing John, Rand and I would like to thank all the MedAssets employees for their continued commitment to our customer’s success. Thanks again for taking the time for the call and staying late. And we hope you enjoy your evening. Thank you.

John A. Bardis

Thanks, everybody.

Operator

That concludes this evening’s teleconference. You may now disconnect.

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Source: MedAssets, Inc. Q2 2008 Earnings Call Transcript
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