8-K
false 0001577916 0001577916 2020-05-05 2020-05-05

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): May 5, 2020

 

Premier, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

001-36092

 

35-2477140

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

13034 Ballantyne Corporate Place

Charlotte, NC 28277

(Address of Principal Executive Offices) (Zip Code)

(704) 357-0022

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol

 

Name of each exchange

on which registered

Class A Common Stock, $0.01 Par Value

 

PINC

 

NASDAQ Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2). Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 


Item 2.02. Results of Operations and Financial Condition.

On May 5, 2020, Premier, Inc. (the “Company”) issued a press release reporting the financial results of the Company for the three and nine months ended March 31, 2020. A copy of the press release is attached to this report as Exhibit 99.1 and is incorporated herein by this reference.

As discussed in the press release, the Company held a conference call and webcast on May 5, 2020. Supplemental slides referenced during the conference call and webcast were available on the Company’s website for viewing by call participants. A transcript of the call together with supplemental slides referenced during the conference call are attached as Exhibit 99.2 and Exhibit 99.3, respectively, to this Current Report on Form 8-K.

Item 7.01. Regulation FD Disclosure.

As noted above, the Company held a conference call and webcast on May 5, 2020, to discuss the Company’s operating results for the three and nine months ended March 31, 2020. A copy of the press release, which contains additional information regarding how to access the conference call and webcast and how to listen to a recorded playback of the call, is attached as Exhibit 99.1 to this Current Report on Form 8-K. A transcript of the call together with supplemental slides referenced during the conference call are attached as Exhibit 99.2 and Exhibit 99.3, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.

* * * *

The information discussed under Item 2.02 and Item 7.01 above, including Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing by the Company under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.
         
 

99.1

   

Press release of Premier, Inc., dated May 5, 2020.

         
 

99.2

   

Transcript of conference call of Premier, Inc., dated May 5, 2020.

         
 

99.3

   

Supplemental slides referenced during the third quarter 2020 earnings call of Premier, Inc.

         
 

104

   

Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)


SIGNATURE

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 hereunto duly authorized.

Premier, Inc.

     

By:

 

/s/ Susan D. DeVore

Name:

 

Susan D. DeVore

Title:

 

Chief Executive Officer

Date: May 8, 2020

EX-99.1

Exhibit 99.1

 

FOR IMMEDIATE RELEASE

PREMIER INC. REPORTS FISCAL 2020 THIRD-QUARTER RESULTS

CHARLOTTE, N.C., May 5, 2020 – Premier Inc. (NASDAQ: PINC) today reported financial results for the fiscal 2020 third quarter ended March 31, 2020.

All results presented in this press release reflect continuing operations following completion of the sale and exit of the Specialty Pharmacy business on June 7, 2019.

Q3 2020 Highlights:

 

   

GAAP net revenue increased 11% to $334.8 million from $301.2 million a year ago; Supply Chain Services segment revenue increased 14% to $238.6 million from $208.6 million a year ago; and Performance Services segment revenue increased 4% to $96.2 million from $92.6 million a year ago.

 

   

GAAP net income was $73.2 million, compared with $75.3 million a year ago; diluted earnings per share was $0.54 compared with income of $0.49 per share a year ago.

 

   

Non-GAAP adjusted EBITDA* increased 12% to $155.9 million from $138.7 million a year ago.

 

   

Non-GAAP adjusted fully distributed net income* increased 4% to $88.9 million from $85.7 million a year ago and non-GAAP adjusted fully distributed earnings per share increased 10% to $0.73 from $0.66.

 

   

To expand Premier’s long-term Contigo Health direct-to-employer, high-value care initiative, on May 4, 2020, the company acquired Health Design Plus (HDP), a third-party administrator and care management company specializing in the development and administration of innovative health benefits solutions for employer clients and health system partners, for a total consideration of approximately $25.0 million, including a 3% equity stake in the combined Contigo Health-HDP company.

 

*

Descriptions of non-GAAP financial measures are provided below under “Use and Definition of Non-GAAP Financial Measures,” and reconciliations are provided in the tables at the end of this release.

“Premier delivered a solid financial performance in the fiscal third quarter, reflecting continued momentum in our Supply Chain Services segment and revenue growth in our Performance Services segment that exceeded our expectations,” said Susan DeVore, chief executive officer. “I am proud that Premier is successfully managing through the COVID-19 pandemic, mobilizing our


Premier Inc. FY’20 Q3 Results

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full resources for our member health systems and the patients they serve. Our teams responded quickly to implement our business continuity and disaster preparedness protocols, rapidly addressing our members’ critical supply chain, clinical and technology needs.

“We believe Premier will continue adding significant value to our members through the duration of the COVID-19 pandemic and beyond, given our unique position as the nexus between healthcare providers, distributors, manufacturers and government agencies, as well as our differentiated ability to facilitate supply, aggregate demand and provide critical flow of timely and accurate information for the industry,” DeVore continued. “We have also been leveraging our unique combination of analytics and technology capabilities to help clinicians deliver informed, coordinated patient care during the COVID-19 pandemic, to predict disease progression and resurgence as the nation begins its recovery, and ultimately to improve the quality of medical interventions and the spread of this and other diseases in the future.

“Looking ahead, we will continue to operate from a position of financial strength and stability and expect to deliver results generally within our full-year guidance range, subject to the ultimate impact of COVID-19, which we expect to pressure profitability in the fourth quarter even as we experience positive net revenue trends,” DeVore said. “Our solid balance sheet, ample liquidity and strong free cash flow give us the financial flexibility to continue creating value for our members and stockholders.”

Consolidated Fiscal 2020 Third-Quarter Financial Highlights

Consolidated Third-Quarter Financial Highlights

 

     Three Months Ended March 31,     Nine Months Ended March 31,  
(in thousands, except per share data)    2020     2019     % Change     2020     2019     % Change  

Net Revenue (a):

            

Supply Chain Services:

            

Net administrative fees

   $ 174,049     $ 164,534       6   $ 518,566     $ 492,229       5

Other services and support

     3,396       2,484       37     8,439       6,520       29
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Services

     177,445       167,018       6     527,005       498,749       6

Products

     61,183       41,568       47     167,344       129,441       29
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Supply Chain Services (a)

     238,628       208,586       14     694,349       628,190       11

Performance Services (a)

     96,195       92,627       4     262,490       273,214       (4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (a)

   $ 334,823     $ 301,213       11   $ 956,839     $ 901,404       6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

   $ 73,212     $ 75,265       (3 )%    $ 235,726     $ 264,448       (11 )% 

Net income from continuing operations attributable to stockholders

   $ 340,726     $ 266,524       28   $ 620,262     $ 280,128       121

Adjusted net income from continuing operations (b)

   $ 66,145     $ 63,503       4   $ 205,719     $ 225,945       (9 )% 

Weighted average shares outstanding:

            

Basic

     69,451       62,020       12     65,582       58,346       12

Diluted

     122,470       129,072       (5 )%      124,030       132,249       (6 )% 

Earnings per share attributable to stockholders from continuing operations:

            

Basic

   $ 4.91     $ 4.30       14   $ 9.46     $ 4.80       97

Diluted (b)

   $ 0.54     $ 0.49       10   $ 1.66     $ 1.71       (3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NON-GAAP FINANCIAL MEASURES:

            

Adjusted EBITDA (a) (c):

            

Supply Chain Services

   $ 149,212     $ 134,805       11   $ 447,081     $ 406,139       10

Performance Services

     34,634       33,235       4     84,977       100,910       (16 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total segment adjusted EBITDA

     183,846       168,040       9     532,058       507,049       5

Corporate

     (27,957     (29,323     (5 )%      (87,508     (85,862     2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (a)

   $ 155,889     $ 138,717       12   $ 444,550     $ 421,187       6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted fully distributed net income (c)

   $ 88,908     $ 85,722       4   $ 265,668     $ 262,722       1

Earnings per share on adjusted fully distributed net income
- diluted (a) (c)

   $ 0.73     $ 0.66       10   $ 2.14     $ 1.99       8

 

(a)

Bolded measures correspond to company guidance.

(b)

Earnings per share attributable to stockholders excludes the adjustment of redeemable limited partners’ capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be dilutive. Likewise, earnings per share attributable to stockholders includes the adjustment of redeemable limited partners’ capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be antidilutive.

(c)

See attached supplemental financial information for reconciliation of reported GAAP results to Non-GAAP results.


Premier Inc. FY’20 Q3 Results

Page 3 of 16

 

Results of Operations for the Three Months Ended March 31, 2020

For the fiscal third quarter ended March 31, 2020, Premier generated GAAP net revenue of $334.8 million, an increase of 11% from $301.2 million for the same period a year ago.

GAAP net income for the fiscal third quarter was $73.2 million, compared with $75.3 million a year ago. In accordance with GAAP, fiscal 2020 and 2019 third-quarter net income attributable to stockholders includes non-cash adjustments of $302.6 million and $235.4 million, respectively, to reflect the change in the redemption value of limited partners’ Class B common unit ownership at the end of each period. These non-cash adjustments resulted primarily from changes in the number of Class B common units outstanding and the company’s stock price between periods and do not reflect results of the company’s business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $340.7 million, or $0.54 per diluted share, compared with net income of $266.5 million, or $0.49 per diluted share, a year ago. See “Calculation of GAAP Earnings per Share” in the income statement section of this press release.

Fiscal third-quarter non-GAAP adjusted EBITDA of $155.9 million increased 12% from $138.7 million for the same period the prior year.

Non-GAAP adjusted fully distributed net income for the fiscal third quarter of $88.9 million increased 4% from $85.7 million for the same period a year ago. Non-GAAP adjusted fully distributed earnings per share increased 10% to $0.73 from $0.66 for the same period a year ago. Adjusted fully distributed earnings per share is a non-GAAP financial measure that represents net income, adjusted for non-recurring and non-cash items, attributable to all stockholders as if all Class B stockholders exchanged their Class B common units and associated Class B common shares for Class A common shares.

Segment Results

Supply Chain Services

For the fiscal third quarter ended March 31, 2020, Supply Chain Services segment net revenue of $238.6 million increased 14% from $208.6 million a year ago. Net administrative fees revenue of $174.0 million increased 6% from $164.5 million a year ago, primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and revenue from new contract categories and suppliers.

Products revenue of $61.2 million increased 47% from $41.6 million a year ago, primarily driven by strong growth in PremierPro brand commodity products related to healthcare and food service providers and timing of revenue from ongoing aggregated purchasing of certain products relative to the prior year.

Supply Chain Services segment non-GAAP adjusted EBITDA for the fiscal 2020 third quarter of $149.2 million increased 11% from $134.8 million for the same period a year ago, primarily driven by growth in net administrative fees revenue.


Premier Inc. FY’20 Q3 Results

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Performance Services

For the fiscal third quarter ended March 31, 2020, Performance Services segment net revenue of $96.2 million increased 4% from $92.6 million for the same quarter a year ago. The increase was primarily driven by growth in licensed technology engagements and clinical decision support technology, partially offset by the timing of certain consulting and technology engagements, as well as lower revenue associated with the CMS government contract at reduced rates, which ended on March 31, 2020.

Performance Services segment non-GAAP adjusted EBITDA for the fiscal 2020 third quarter of $34.6 million increased 4% from $33.2 million for the same period a year ago. The increase was primarily due to increased revenue, partially offset by ongoing strategic investments in the company’s Contigo Health direct-to-employer, high-value care network and clinical decision support technology.

Results of Operations for the Nine Months Ended March 31, 2020

For the nine months ended March 31, 2020, GAAP net revenue of $956.8 million increased 6% from $901.4 million for the same period a year ago.

For the nine-month period, GAAP net income totaled $235.7 million, compared with $264.4 million for the same period a year ago. Fiscal 2020 and 2019 nine-month GAAP net income attributable to stockholders required non-cash adjustments of $516.7 million and $178.9 million, respectively, to reflect changes in redemption value of the limited partners Class B common unit ownership at the end of each period. These non-cash adjustments resulted primarily from changes in the number of Class B common units outstanding and the company’s stock price between periods and do not reflect results of the company’s business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $620.3 million compared with $280.1 million a year ago. On a diluted per-share basis, net income totaled $1.66 compared with $1.71 for the same period a year ago. See “Calculation of GAAP Earnings per Share” in the income statement section of this press release.

For the nine months ended March 31, 2020, non-GAAP adjusted EBITDA of $444.6 million increased 6% from $421.2 million for the same period last year. Non-GAAP adjusted fully distributed net income of $265.7 million increased 1% from $262.7 million, while non-GAAP adjusted fully distributed earnings per share of $2.14 increased 8% from $1.99.

Supply Chain Services segment net revenue for the first nine months of fiscal 2020 of $694.3 million increased 11% from $628.2 million a year earlier. Supply Chain Services segment adjusted EBITDA of $447.1 million increased 10% from $406.1 million for the prior year.

Performance Services segment net revenue for the nine months of fiscal 2020 of $262.5 million decreased 4% from $273.2 million a year earlier. Segment adjusted EBITDA of $85.0 million decreased 16% from $100.9 million for the prior year.


Premier Inc. FY’20 Q3 Results

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Cash Flows and Liquidity

Net cash provided by operating activities was $248.1 million for the nine months ended March 31, 2020, compared with $356.6 million for the same period last year. The decrease was primarily due to the addition of the prepaid contract administrative fee share of $92.1 million for one-time rebates to certain Acurity members, as agreed to by Acurity prior to entering into a purchase agreement with Premier, which was excluded from the purchase price of the Acurity and Nexera asset acquisition. In addition, the company funded prepayments during March 2020 to procure personal protective equipment for members related to COVID-19. The decreases were partially offset by a decline in operating expenses primarily due to the remeasurement of the TRA, partially offset by increased acquisition and disposition related expenses associated with certain strategic initiatives. At March 31, 2020, the company’s cash and cash equivalents totaled $241.7 million, compared with $141.1 million at June 30, 2019. At March 31, 2020, the company had an outstanding balance of $250.0 million on its five-year, $1.0 billion revolving credit facility, of which $150.0 million was subsequently repaid in late April 2020.

Non-GAAP free cash flow for the nine months ended March 31, 2020 was $213.9 million, or 48% of non-GAAP adjusted EBITDA, compared with $224.0 million, or 53% of non-GAAP adjusted EBITDA, for the same period a year ago. The decrease primarily resulted from the same factors that impacted net cash provided by operating activities, partially offset by reduced distributions to limited partners due to change in ownership. The company defines free cash flow as cash provided by operating activities less quarterly tax distributions and annual TRA payments to limited partners and purchases of property and equipment (see free cash flow reconciliation to net cash provided by operating activities in the tables section of this press release).

Fiscal 2020 Outlook and Guidance

Based on results for the nine months ended March 31, 2020, management’s expectations for the remainder of fiscal 2020, the realization in all material respects of the company’s underlying guidance assumptions and the estimated financial impact of COVID-19 on the company, Premier currently expects to complete fiscal 2020 within its previously announced guidance ranges. However, due to uncertainty regarding the extent and duration of the unprecedented COVID-19 pandemic, it is possible that Supply Chain Services revenue might slightly exceed the top end of its current range, while non-GAAP adjusted EBITDA and fully distributed earnings per share could finish below their respective ranges. Current expectations are as follows:

 

   

Supply Chain Services segment revenue is currently expected to perform at or above the top end of the current range of $895.0 million to $930.0 million for the fiscal year. This outlook assumes that strong gains in direct sourcing revenue from ongoing COVID-19-related efforts to secure certain personal protective equipment and other high-demand supplies, will more than offset anticipated softness in net administrative fees revenue due to the pandemic-induced interruption of elective procedures, lower overall occupancy and utilization and the slowdown of alternate site spending in non-healthcare related areas.

 

   

Performance Services segment revenue is expected to be at the low end of the current range of $340.0 million to $354.0 million, due to pressure on new and existing consulting and technology engagements, which are being delayed and extended as healthcare providers focus on the pandemic.


Premier Inc. FY’20 Q3 Results

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Consolidated revenue is projected to be in the upper end of the current range of $1.235 billion to $1.284 billion.

 

   

Non-GAAP adjusted EBITDA is currently anticipated to be near or potentially a few million dollars below the low end of the current range of $566.0 million to $589.0 million, due to the pandemic-related expectation that fourth-quarter Supply Chain Services revenue growth will be largely driven by a mix shift to the low-margin direct sourcing products business, while Performance Services revenues will be further pressured by delays in consulting and technology projects as healthcare providers focus on the pandemic.

 

   

As a result, non-GAAP adjusted fully distributed earnings per share is currently expected to be near or potentially a few cents below the low end of the current range of $2.76 to $2.89.

Fiscal 2020 Financial Guidance *

Premier, Inc. maintains full-year fiscal 2020 financial guidance, as follows:

 

     Current*         

(in millions, except per share data)

   FY 2020      % YoY Increase  

Net Revenue:

     

Supply Chain Services segment

   $ 895.0 - $930.0        5% - 9%  

Performance Services segment

   $ 340.0 - $354.0        (6)% - (2)%  
  

 

 

    

 

 

 

Total Net Revenue

   $ 1,235.0 - $1,284.0        1% - 5%  

Non-GAAP adjusted EBITDA

   $ 566.0 - $589.0        1% - 5%  

Non-GAAP adjusted fully distributed EPS

   $ 2.76 - $2.89        4% - 9%  

 

*

The company does not meaningfully reconcile guidance for non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share to net income attributable to stockholders or earnings per share attributable to stockholders because the company cannot provide guidance for more significant reconciling items between net income attributable to stockholders and adjusted EBITDA and between earnings per share attributable to stockholders and non-GAAP adjusted fully distributed earnings per share without unreasonable effort. This is due to two primary reasons:

 

   

Reasonable guidance cannot be provided for reconciling the adjustment of redeemable limited partners’ capital to redemption amount – historically the largest adjustment in the reconciliation from non-GAAP to GAAP amounts – due to the fact that the increase or decrease in this item is based on the change in the number of shares of Class B stock outstanding and change in stock price between quarters, which the company cannot predict, control or reasonably estimate.

 

   

Reasonable guidance cannot be provided for earnings per share attributable to stockholders because the ongoing quarterly member-owner exchange of Class B common stock and corresponding Class B units into shares of Class A common stock impacts the number of shares of Class A common stock outstanding each quarter, which the company cannot predict, control or reasonably estimate. Member owners have the right, but not the obligation, to exchange shares on a quarterly basis, and the company has the discretion to settle any exchanged shares for Class A common stock, cash, or a combination thereof, neither of which can be predicted, controlled or reasonably estimated at this time.

Consistent with prior years, Premier plans to address fiscal 2021 guidance in mid-August, when the company reports fiscal 2020 results. Management will continue to assess the course of the pandemic and evaluate additional trends and data to inform its approach for establishing fiscal 2021 guidance.


Premier Inc. FY’20 Q3 Results

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Health Design Plus Acquisition

On May 4, 2020, Premier acquired Health Design Plus (HDP), a third-party administrator (TPA) and care management company specializing in the development and administration of customized health benefits solutions for employer clients and health system partners. The company offers both TPA services and nationally recognized Centers of Excellence health benefit programs for many innovative employers, including well-known Fortune 25 brands. HDP is expected to be an integral part of Premier’s long-term Contigo Health direct-to-employer, high-value care strategy. It will continue to provide specialized TPA services as well as support Contigo Health as it expands its product pilot programs in various markets with multiple employers. HDP is also expected to further enhance and expand employer-focused products by expanding the Center of Excellence program, bundling pricing of care episodes for employers, and providing capability enhancements for employers’ health benefit plans. Premier acquired HDP from University Hospitals Health System for a total consideration of approximately $25.0 million, including a 3% equity stake in the combined Contigo Health-HDP company.

Conference Call

Premier management will host a conference call and live audio webcast on Tues., May 5, 2020, at 8:00 a.m. ET, to discuss the company’s financial results. The conference call can be accessed through a link provided on the investor relations page on Premier’s website at investors.premierinc.com. Those wanting to participate by phone may do so by dialing 844.296.7719 and providing the operator with conference ID number: 7033659. International callers should dial 574.990.1041 and provide the same passcode. The company encourages callers to dial in at least five minutes before the start of the call to register. The archived webcast will be accessible on Premier’s investor relations page.

About Premier Inc.

Premier Inc. (NASDAQ: PINC) is a leading healthcare improvement company, uniting an alliance of more than 4,000 U.S. hospitals and health systems and approximately 175,000 other providers and organizations to transform healthcare. With integrated data and analytics, collaboratives, supply chain solutions, and consulting and other services, Premier enables better care and outcomes at a lower cost. Premier plays a critical role in the rapidly evolving healthcare industry, collaborating with members to co-develop long-term innovations that reinvent and improve the way care is delivered to patients nationwide. Headquartered in Charlotte, N.C., Premier is passionate about transforming American healthcare. Please visit Premier’s news and investor sites on www.premierinc.com; as well as Twitter, Facebook, LinkedIn, YouTube, Instagram and Premier’s blog for more information about the company.

Use and Definition of Non-GAAP Measures

Premier uses EBITDA, adjusted EBITDA, segment adjusted EBITDA, adjusted fully distributed net income, adjusted fully distributed earnings per share, and free cash flow to facilitate a comparison of the company’s operating performance on a consistent basis from period to period and to provide measures that, when viewed in combination with its results prepared in accordance with GAAP, allow for a more complete understanding of factors and trends affecting the company’s business than GAAP measures alone. The company believes adjusted EBITDA and segment adjusted EBITDA assist its board of directors, management and investors in comparing the company’s operating performance on a consistent basis from period to period by removing the


Premier Inc. FY’20 Q3 Results

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impact of the company’s asset base (primarily depreciation and amortization) and items outside the control of management (taxes), as well as other non-cash (impairment of intangible assets and purchase accounting adjustments) and non-recurring items, from operating results.

In addition, adjusted fully distributed net income and adjusted fully distributed earnings per share eliminate the variability of non-controlling interest as a result of member owner exchanges of Class B common units and corresponding Class B common stock into shares of Class A common stock and other potentially dilutive equity transactions which are outside of management’s control. Adjusted fully distributed net income is defined as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners’ capital to redemption amount, (iii) excluding the effect of non-recurring and non-cash items, (iv) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP, and (v) reflecting an adjustment for income tax expense on non-GAAP fully distributed net income before income taxes at the company’s estimated effective income tax rate. We define adjusted fully distributed earnings per share as adjusted fully distributed net income divided by diluted weighted average shares. These measures assist our board of directors, management and investors in comparing our net income and earnings per share on a consistent basis from period to period because these measures remove non-cash and non-recurring items, and eliminate the variability of non-controlling interest that results from member owner exchanges of Class B common units into shares of Class A common stock.

EBITDA is defined as net income before loss from discontinued operations, net of tax, interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income of unconsolidated affiliates. For all Non-GAAP financial measures, we consider non-recurring items to be income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic and financial restructuring expenses. Non-operating items include gains or losses on the disposal of assets and interest and investment income or expense.

Segment adjusted EBITDA is defined as the segment’s net revenue less cost of revenue and operating expenses directly attributable to the segment, excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative, and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of segment adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.

Adjusted EBITDA is a supplemental financial measure used by the company and by external users of the company’s financial statements.


Premier Inc. FY’20 Q3 Results

Page 9 of 16

 

Management considers adjusted EBITDA an indicator of the operational strength and performance of the company’s business. Adjusted EBITDA allows management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business. Segment adjusted EBITDA is the primary earnings measure used by management to evaluate the performance of the company’s business segments.

Free cash flow is defined as net cash provided by operating activities from continuing operations less distributions and tax receivable agreement payments to limited partners and purchases of property and equipment. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments. Management believes free cash flow is an important measure because it represents the cash that the company generates after payment of tax distributions to limited partners and capital investment to maintain existing products and services and ongoing business operations, as well as development of new and upgraded products and services to support future growth. Free cash flow is important because it allows the company to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related or complimentary businesses and/or debt reduction.

To properly and prudently evaluate our business, readers are urged to review the reconciliation of these non-GAAP financial measures, as well as the other financial tables, included at the end of this release. Readers should not rely on any single financial measure to evaluate the company’s business. In addition, the non-GAAP financial measures used in this release are susceptible to varying calculations and may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.

Further information on Premier’s use of non-GAAP financial measures is available in the “Our Use of Non-GAAP Financial Measures” section of Premier’s Form 10-K for the year ended June 30, 2019.

Forward-Looking Statements

Statements made in this release that are not statements of historical or current facts, such as those related to the expected financial and operational impacts of the COVID-19 pandemic on our business segments, our ability to manage expenses during the COVID-19 pandemic, current market environment and uncertainties, expected financial performance, non-GAAP free cash flow generation, the statements related to fiscal 2020 outlook and guidance and the assumptions underlying such guidance, and the anticipated financial and operational impact of the acquisition of HDP are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as “believes,” “belief,” “expects,” “estimates,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking


Premier Inc. FY’20 Q3 Results

Page 10 of 16

 

statements may include comments as to Premier’s beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier’s control. More information on potential factors that could affect Premier’s financial results is included from time to time in the “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Premier’s periodic and current filings with the SEC, including those discussed under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” section of Premier’s Form 10-K for the year ended June 30, 2019 as well as the Form 10-Q for the quarter ended March 31, 2020, expected to be filed with the SEC shortly after the date of this release, and also made available on Premier’s website at investors.premierinc.com. Forward-looking statements speak only as of the date they are made, and Premier undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events that occur after that date, or otherwise.

Contacts

 

Investor contact:    Media contact:
Jim Storey    Amanda Forster
Vice President, Investor Relations    Vice President, Public Relations
704.816.5958    202.879.8004
jim_storey@premierinc.com    amanda_forster@premierinc.com

(Tables Follow)


Premier Inc. FY’20 Q3 Results

Page 11 of 16

 

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended March 31,     Nine Months Ended March 31,  
     2020     2019     2020     2019  

Net revenue:

        

Net administrative fees

   $ 174,049     $ 164,534     $ 518,566     $ 492,229  

Other services and support

     99,591       95,111       270,929       279,734  
  

 

 

   

 

 

   

 

 

   

 

 

 

Services

     273,640       259,645       789,495       771,963  

Products

     61,183       41,568       167,344       129,441  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     334,823       301,213       956,839       901,404  

Cost of revenue:

        

Services

     49,007       46,545       143,965       133,107  

Products

     54,121       39,496       150,415       124,024  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

     103,128       86,041       294,380       257,131  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     231,695       215,172       662,459       644,273  

Operating expenses:

        

Selling, general and administrative

     115,289       113,336       315,311       320,198  

Research and development

     628       296       1,808       928  

Amortization of purchased intangible assets

     13,966       13,572       38,948       39,787  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     129,883       127,204       356,067       360,913  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     101,812       87,968       306,392       283,360  
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in net income of unconsolidated affiliates

     4,442       553       11,038       4,687  

Interest and investment loss, net

     (9,966     (1,081     (9,849     (2,628

(Loss) gain on FFF put and call rights

     (13,906     (4,109     8,477       3,458  

Other (expense) income

     (5,005     3,671       (1,996     1,362  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (expense) income, net

     (24,435     (966     7,670       6,879  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     77,377       87,002       314,062       290,239  

Income tax expense

     4,165       11,737       78,336       25,791  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

     73,212       75,265       235,726       264,448  

Income (loss) from discontinued operations, net of tax

     5       (1,463     1,009       (3,862
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     73,217       73,802       236,735       260,586  

Net income from continuing operations attributable to noncontrolling interest

     (35,055     (44,135     (132,189     (163,230

Net (income) loss from discontinued operations attributable to noncontrolling interest

     (3     747       (480     2,098  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to non-controlling interest in Premier LP

     (35,058     (43,388     (132,669     (161,132

Adjustment of redeemable limited partners’ capital to redemption amount

     302,569       235,394       516,725       178,910  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to stockholders

   $ 340,728     $ 265,808     $ 620,791     $ 278,364  
  

 

 

   

 

 

   

 

 

   

 

 

 
                          

Calculation of GAAP Earnings per Share

        

Numerator for basic earnings per share:

        

Net income from continuing operations attributable to stockholders

   $ 340,726     $ 266,524     $ 620,262     $ 280,128  

Net income (loss) from discontinued operations attributable to stockholders

     2       (716     529       (1,764
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to stockholders

   $ 340,728     $ 265,808     $ 620,791     $ 278,364  
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for diluted earnings per share:

        

Net income from continuing operations attributable to stockholders

   $ 340,726     $ 266,524     $ 620,262     $ 280,128  

Adjustment of redeemable limited partners’ capital to redemption amount

     (302,569     (235,394     (516,725     (178,910

Net income from continuing operations attributable to non-controlling interest in Premier LP

     35,055       44,135       132,189       163,230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

   $ 73,212     $ 75,265     $ 235,726     $ 264,448  

Tax effect on Premier, Inc. net income

     (7,067     (11,762     (30,007     (38,503
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income from continuing operations

   $ 66,145     $ 63,503     $ 205,719     $ 225,945  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from discontinued operations attributable to stockholders

   $ 2     $ (716   $ 529     $ (1,764

Net income (loss) from discontinued operations attributable to non-controlling interest in Premier LP

     3       (747     480       (2,098
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) from discontinued operations

   $ 5     $   (1,463)    $ 1,009     $ (3,862
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income

   $ 66,150     $ 62,040     $ 206,728     $ 222,083  
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for basic earnings per share:

        

Weighted average shares

     69,451       62,020       65,582       58,346  
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for diluted earnings per share:

        

Weighted average shares

     69,451       62,020       65,582       58,346  

Effect of dilutive securities:

        

Stock options

     232       474       357       630  

Restricted stock

     216       256       239       304  

Performance share awards

     197       —         66       —    

Class B shares outstanding

     52,374       66,322       57,786       72,969  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares and assumed conversions

     122,470       129,072       124,030       132,249  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share:

        

Basic earnings per share from continuing operations

   $ 4.91     $ 4.30     $ 9.46     $ 4.80  

Basic earnings (loss) per share from discontinued operations

     —         (0.01     0.01       (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share attributable to stockholders

   $ 4.91     $ 4.29     $ 9.47     $ 4.77  

Diluted earnings per share:

        

Diluted earnings per share from continuing operations

   $ 0.54     $ 0.49     $ 1.66     $ 1.71  

Diluted earnings (loss) per share from discontinued operations

     —         (0.01     —         (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share attributable to stockholders

   $ 0.54     $ 0.48     $ 1.66     $ 1.68  
  

 

 

   

 

 

   

 

 

   

 

 

 


Premier Inc. FY’20 Q3 Results

Page 12 of 16

 

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

     March 31, 2020      June 30, 2019  

Assets

     

Cash and cash equivalents

   $ 241,734      $ 141,055  

Accounts receivable (net of $1,125 and $739 allowance for doubtful accounts, respectively)

     139,902        168,115  

Contract assets

     234,467        205,509  

Inventory

     48,522        51,032  

Prepaid expenses and other current assets

     87,746        23,765  

Current assets of discontinued operations

     —          24,568  
  

 

 

    

 

 

 

Total current assets

     752,371        614,044  

Property and equipment (net of $431,633 and $359,235 accumulated depreciation, respectively)

     203,512        205,108  

Intangible assets (net of $233,888 and $197,858 accumulated amortization, respectively)

     420,104        270,722  

Goodwill

     929,615        880,709  

Deferred income tax assets

     436,047        422,014  

Deferred compensation plan assets

     42,780        45,466  

Investments in unconsolidated affiliates

     120,642        99,636  

Operating lease right-of-use assets

     59,901        —    

Other assets

     98,097        31,868  
  

 

 

    

 

 

 

Total assets

   $ 3,063,069      $ 2,569,567  
  

 

 

    

 

 

 

Liabilities, redeemable limited partners’ capital and stockholders’ equity (deficit)

 

  

Accounts payable

   $ 62,304      $ 54,540  

Accrued expenses

     67,289        82,476  

Revenue share obligations

     149,976        137,359  

Limited partners’ distribution payable

     9,314        13,202  

Accrued compensation and benefits

     56,208        70,799  

Deferred revenue

     38,042        35,623  

Current portion of tax receivable agreements

     18,118        17,505  

Line of credit and current portion of long-term debt

     254,745        27,608  

Other liabilities

     30,187        7,113  

Current liabilities of discontinued operations

     —          11,797  
  

 

 

    

 

 

 

Total current liabilities

     686,183        458,022  

Long-term debt, less current portion

     4,828        6,003  

Tax receivable agreements, less current portion

     276,739        326,607  

Deferred compensation plan obligations

     42,780        45,466  

Deferred tax liabilities

     13,140        4,766  

Deferred consideration

     112,917        —    

Operating lease liabilities, less current portion

     55,336        —    

Other liabilities

     71,265        67,683  
  

 

 

    

 

 

 

Total liabilities

     1,263,188        908,547  
  

 

 

    

 

 

 

Redeemable limited partners’ capital

     1,658,419        2,523,270  

Stockholders’ equity (deficit):

     

Class A common stock, $0.01 par value, 500,000,000 shares authorized; 71,070,617 shares issued and outstanding at March 31, 2020 and 64,357,305 shares issued and 61,938,157 shares outstanding at June 30, 2019

     711        644  

Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 50,715,564 and 64,548,044 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively

     —          —    

Treasury stock, at cost; 0 and 2,419,148 shares at March 31, 2020 and June 30, 2019, respectively

     —          (87,220

Additional paid-in-capital

     140,751        —    

Accumulated deficit

     —          (775,674
  

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     141,462        (862,250
  

 

 

    

 

 

 

Total liabilities, redeemable limited partners’ capital and stockholders’ equity (deficit)

   $ 3,063,069      $ 2,569,567  
  

 

 

    

 

 

 


Premier Inc. FY’20 Q3 Results

Page 13 of 16

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Nine Months Ended March 31,  
     2020     2019  

Operating activities

    

Net income

   $ 236,735     $ 260,586  

Adjustments to reconcile net income to net cash provided by operating activities:

    

(Income) loss from discontinued operations, net of tax

     (1,009     3,862  

Depreciation and amortization

     114,638       103,316  

Equity in net income of unconsolidated affiliates

     (11,038     (4,687

Deferred income taxes

     60,394       9,849  

Stock-based compensation

     19,048       20,354  

Remeasurement of tax receivable agreement liabilities

     (24,584     —    

Impairment of held to maturity investments

     8,500       —    

Gain on FFF put and call rights

     (8,477     (3,458

Changes in operating assets and liabilities:

    

Accounts receivable, inventories, prepaid expenses and other assets

     (95,953     (30,268

Contract assets

     (28,909     (28,056

Accounts payable, accrued expenses, deferred revenue, revenue share obligations and other liabilities

     (23,341     24,118  

Other operating activities

     2,078       1,018  
  

 

 

   

 

 

 

Net cash provided by operating activities from continuing operations

     248,082       356,634  

Net cash provided by operating activities from discontinued operations

     9,338       11,502  
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 257,420     $ 368,136  
  

 

 

   

 

 

 

Investing activities

    

Purchases of property and equipment

   $ (69,326   $ (69,906

Acquisition of businesses, net of cash acquired

     (96,346     (50,854

Investments in unconsolidated affiliates

     (10,165     —    

Proceeds from sale of assets

     3,632       —    

Other investing activities

     251       (11,414
  

 

 

   

 

 

 

Net cash used in investing activities from continuing operations

     (171,954     (132,174

Net cash used in investing activities from discontinued operations

     —         (211
  

 

 

   

 

 

 

Net cash used in investing activities

   $ (171,954   $ (132,385
  

 

 

   

 

 

 

Financing activities

    

Payments made on notes payable

   $ (2,046   $ —    

Proceeds from credit facility

     375,000       50,000  

Payments on credit facility

     (150,000     —    

Distributions to limited partners of Premier LP

     (39,590     (44,746

Payments to limited partners of Premier LP related to tax receivable agreements

     (17,425     (17,975

Repurchase of Class A common stock (held as treasury stock)

     (150,093     (248,840

Other financing activities

     (633     10,936  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

   $ 15,213     $ (250,625
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     100,679       (14,874

Cash and cash equivalents at beginning of year

     141,055       152,386  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 241,734     $ 137,512  
  

 

 

   

 

 

 


Premier Inc. FY’20 Q3 Results

Page 14 of 16

 

Supplemental Financial Information

Reconciliation of Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow

(Unaudited)

(In thousands)

 

     Nine Months Ended March 31,  
     2020     2019  

Net cash provided by operating activities from continuing operations (a)

   $ 340,228     $ 356,634  

Purchases of property and equipment

     (69,326     (69,906

Distributions to limited partners of Premier LP

     (39,590     (44,746

Payments to limited partners of Premier LP related to tax receivable agreements

     (17,425     (17,975
  

 

 

   

 

 

 

Non-GAAP Free Cash Flow

   $ 213,887     $ 224,007  
  

 

 

   

 

 

 

 

(a)

Net cash provided by operating activities from continuing operations excludes the impact of the prepaid contract administrative fee share for one-time rebates to certain Acurity, Inc. members, as agreed to by Acurity, Inc. prior to entering into the Purchase Agreement, which was excluded from the purchase price of the Acurity and Nexera asset acquisition.


Premier Inc. FY’20 Q3 Results

Page 15 of 16

 

Supplemental Financial Information

Reconciliation of Net Income from Continuing Operations to Adjusted EBITDA

Reconciliation of Operating Income to Segment Adjusted EBITDA

Reconciliation of Net Income Attributable to Stockholders to Non-GAAP Adjusted Fully Distributed Net Income

(Unaudited)

(In thousands)

 

     Three Months Ended March 31,     Nine Months Ended March 31,  
     2020     2019     2020     2019  

Net income from continuing operations

   $ 73,212     $ 75,265     $ 235,726     $ 264,448  

Interest and investment loss, net

     9,966       1,081       9,849       2,628  

Income tax expense

     4,165       11,737       78,336       25,791  

Depreciation and amortization

     25,777       21,797       75,690       63,529  

Amortization of purchased intangible assets

     13,966       13,572       38,948       39,787  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     127,086       123,452       438,549       396,183  

Stock-based compensation

     7,668       6,737       19,358       20,650  

Acquisition and disposition related expenses

     7,287       3,856       16,263       6,789  

Remeasurement of tax receivable agreement liabilities

     (902     —         (24,584     —    

Gain on FFF put and call rights

     13,906       4,109       (8,477     (3,458

Other expense

     844       563       3,441       1,023  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 155,889     $ 138,717     $ 444,550     $ 421,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 77,377     $ 87,002     $ 314,062     $ 290,239  

Equity in net income of unconsolidated affiliates

     (4,442     (553     (11,038     (4,687

Interest and investment loss, net

     9,966       1,081       9,849       2,628  

Gain on FFF put and call rights

     13,906       4,109       (8,477     (3,458

Other expense (income)

     5,005       (3,671     1,996       (1,362
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     101,812       87,968       306,392       283,360  

Depreciation and amortization

     25,777       21,797       75,690       63,529  

Amortization of purchased intangible assets

     13,966       13,572       38,948       39,787  

Stock-based compensation

     7,668       6,737       19,358       20,650  

Acquisition and disposition related expenses

     7,287       3,856       16,263       6,789  

Remeasurement of tax receivable agreement liabilities

     (902     —         (24,584     —    

Equity in net income of unconsolidated affiliates

     4,442       553       11,038       4,687  

Deferred compensation plan (expense) income

     (5,476     3,975       (2,484     1,076  

Other expense, net

     1,315       259       3,929       1,309  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 155,889     $ 138,717     $ 444,550     $ 421,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

SEGMENT ADJUSTED EBITDA

        

Supply Chain Services

   $ 149,212     $ 134,805     $ 447,081     $ 406,139  

Performance Services

     34,634       33,235       84,977       100,910  

Corporate

     (27,957     (29,323     (87,508     (85,862
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 155,889     $ 138,717     $ 444,550     $ 421,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to stockholders

   $ 340,728     $ 265,808     $ 620,791     $ 278,364  

Adjustment of redeemable limited partners’ capital to redemption amount

     (302,569     (235,394     (516,725     (178,910

Net income attributable to non-controlling interest in Premier LP

     35,058       43,388       132,669       161,132  

(Income) loss from discontinued operations, net of tax

     (5     1,463       (1,009     3,862  

Income tax expense

     4,165       11,737       78,336       25,791  

Amortization of purchased intangible assets

     13,966       13,572       38,948       39,787  

Stock-based compensation

     7,668       6,737       19,358       20,650  

Acquisition and disposition related expenses

     7,287       3,856       16,263       6,789  

Remeasurement of tax receivable agreement liabilities

     (902     —         (24,584     —    

Loss (gain) on FFF put and call rights

     13,906       4,109       (8,477     (3,458

Other expense

     844       563       3,441       1,023  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted fully distributed income before income taxes

     120,146       115,839       359,011       355,030  

Income tax expense on fully distributed income before income taxes

     31,238       30,117       93,343       92,308  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Adjusted Fully Distributed Net Income

   $ 88,908     $ 85,722     $ 265,668     $ 262,722  
  

 

 

   

 

 

   

 

 

   

 

 

 


Premier Inc. FY’20 Q3 Results

Page 16 of 16

 

Supplemental Financial Information

Reconciliation of GAAP EPS to Non-GAAP EPS on Adjusted Fully Distributed Net Income

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended March 31,     Nine Months Ended March 31,  
     2020     2019     2020     2019  

Net income attributable to stockholders

   $ 340,728     $ 265,808     $ 620,791     $ 278,364  

Adjustment of redeemable limited partners’ capital to redemption amount

     (302,569     (235,394     (516,725     (178,910

Net income attributable to non-controlling interest in Premier LP

     35,058       43,388       132,669       161,132  

(Income) loss from discontinued operations, net of tax

     (5     1,463       (1,009     3,862  

Income tax expense

     4,165       11,737       78,336       25,791  

Amortization of purchased intangible assets

     13,966       13,572       38,948       39,787  

Stock-based compensation

     7,668       6,737       19,358       20,650  

Acquisition and disposition related expenses

     7,287       3,856       16,263       6,789  

Remeasurement of tax receivable agreement liabilities

     (902     —         (24,584     —    

Loss (gain) on FFF put and call rights

     13,906       4,109       (8,477     (3,458

Other expense

     844       563       3,441       1,023  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted fully distributed income before income taxes

     120,146       115,839       359,011       355,030  

Income tax expense on fully distributed income before income taxes

     31,238       30,117       93,343       92,308  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Adjusted Fully Distributed Net Income

   $ 88,908     $ 85,722     $ 265,668     $ 262,722  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average:

        

Common shares used for basic and diluted earnings per share

     69,451       62,020       65,582       58,346  

Potentially dilutive shares

     645       730       662       934  

Conversion of Class B common units

     52,374       66,322       57,786       72,969  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average fully distributed shares outstanding - diluted

     122,470       129,072       124,030       132,249  
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP earnings per share

   $ 4.91     $ 4.29     $ 9.47     $ 4.77  

Adjustment of redeemable limited partners’ capital to redemption amount

     (4.36     (3.80     (7.88     (3.07

Net income attributable to non-controlling interest in Premier LP

     0.50       0.70       2.02       2.76  

(Income) loss from discontinued operations, net of tax

     —         0.02       (0.02     0.07  

Income tax expense

     0.06       0.19       1.19       0.44  

Amortization of purchased intangible assets

     0.20       0.22       0.59       0.68  

Stock-based compensation

     0.11       0.11       0.30       0.35  

Acquisition and disposition related expenses

     0.10       0.06       0.25       0.12  

Remeasurement of tax receivable agreement liabilities

     (0.01     —         (0.37     —    

Loss (gain) on FFF put and call rights

     0.20       0.07       (0.13     (0.06

Other expense

     0.01       0.01       0.05       0.02  

Impact of corporation taxes

     (0.45     (0.50     (1.42     (1.58

Impact of dilutive shares

     (0.54     (0.71     (1.91     (2.51
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP EPS on Adjusted Fully Distributed Net Income

   $ 0.73     $ 0.66     $ 2.14     $ 1.99  
  

 

 

   

 

 

   

 

 

   

 

 

 

# # #

EX-99.2

Exhibit 99.2

 

FISCAL 2020 THIRD QUARTER CONFERENCE CALL TRANSCRIPT

May 5, 2020 / 08:00 AM EDT

On May 5, 2020, Premier, Inc. hosted a conference call to discuss financial results for the fiscal 2020 third quarter, ended March 31, 2020. The following transcript is an interpretation of the statements made on the call. The actual conference call may have differed slightly.

CORPORATE PARTICIPANTS

James R. Storey Premier, Inc. – VP of IR

Susan D. DeVore Premier, Inc. – CEO and Director

Michael J. Alkire Premier, Inc. – President

Craig S. McKasson Premier, Inc. – CFO, CAO, Senior VP & Treasurer

CONFERENCE CALL PARTICIPANTS

Alexander Yearley Draper SunTrust Robinson Humphrey, Inc., Research Division – MD of Equity Research

Charles Rhyee Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

Eric R. Percher Nephron Research LLC - Research Analyst

Eric White Coldwell Robert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst

Jailendra P. Singh Crédit Suisse AG, Research Division – Research Analyst

Jared Phillip Haase William Blair & Company L.L.C., Research Division – Research Analyst

Lisa Christine Gill JP Morgan Chase & Co, Research Division – Analyst

Michael Aaron Cherny BofA Merrill Lynch, Research Division - Director

Richard Collamer Close Canaccord Genuity Corp., Research Division – MD & Senior Analyst

Stephanie July Davis Demko SVB Leerink LLC, Research Division - MD & Senior Research Analyst

Steven James Valiquette Barclays Bank PLC, Research Division – Research Analyst

PRESENTATION

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Premier, Inc. Fiscal Year 2020 Third Quarter Results and Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Jim Storey, Investor Relations. Thank you. Please go ahead, sir.


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Fiscal 2020 Third Quarter Conference Call Transcript

Page 2 of 22

 

James R. Storey – Premier, Inc. – VP of IR

Thank you, April, and welcome, everyone, to Premier, Inc.’s Fiscal 2020 Third Quarter Conference Call. Our speakers today are Susan DeVore, Chief Executive Officer; Mike Alkire, President; and Craig McKasson, Chief Administrative and Financial Officer.

Susan, Mike and Craig will review the quarter’s results, provide an operations update and discuss the ongoing strategies for the remainder of the fiscal year.

Before we get started, I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section of our website at investors.premierinc.com.

Management’s remarks today contain certain forward-looking statements, and actual results could differ materially from those discussed today. These forward-looking statements speak as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, including our Form 10-Q for the fiscal third quarter, which we expect to file soon. We encourage you to review these detailed safe harbor and risk factor disclosures. Please also note that financial results presented today reflect continuing operations following the completion of our sale and exit of the Specialty Pharmacy business, on June 7, 2019. Also, where appropriate, we will refer to non-GAAP financial measures to evaluate our business. Reconciliation of non-GAAP financial measures to GAAP financial measures are included in our earnings release, in the appendix of the supplement slides, accompanying this presentation and in our earnings release Form 8-K, which we expect to furnish with the SEC soon.

Now let me turn the call over to Susan DeVore.

Susan D. DeVore - Premier, Inc. - CEO & Director

Thanks, Jim, and welcome, everyone, to our call. I hope you and your loved ones are managing through these difficult times and staying safe and healthy. I’d like to start today by acknowledging the significant impact COVID-19 has had on the ways in which we live and work and especially in the healthcare industry. We are grateful to healthcare providers, first responders and frontline workers across the U.S. and around the world for their tremendous efforts every day to combat this pandemic. We also thank individuals and organizations working to put this pandemic behind us from vaccine researchers to logistics providers to those studying new treatment protocols. I’d also like to take a moment to thank the Premier employees for their continued commitment to serving our member health systems through this challenging time. Their ability to mobilize quickly and adapt to new ways of working has been instrumental in our ability to continue improving health outcomes and enabling our members to support patients.

As COVID-19 is top of mind for everyone, I’ll start today with a brief recap of the quarter, and then spend most of my time today discussing the critical role Premier is playing in helping our healthcare partners manage through this truly unprecedented crisis.

In terms of our fiscal third quarter results, Premier delivered strong financial performance that exceeded management’s expectations. While we do expect some COVID-19-related pressure across our businesses in the fourth quarter, we do not believe the impact warrants changing or withdrawing our current fiscal 2020 financial guidance range. Craig will discuss the various potential impacts on our business during his


PREMIER, INC.

Fiscal 2020 Third Quarter Conference Call Transcript

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financial review and outlook for the remainder of fiscal 2020. In the meantime, we are continuing to operate from a position of financial strength and flexibility. Operationally, the integrated capabilities and diversified platform that we’ve strategically built in recent years are serving Premier and our healthcare providers very well in this environment. This includes our direct sourcing business, which accelerates access to much needed products using avenues that go beyond traditional sourcing. And our Stockd online ordering platform, which provides alternate site customers, like nursing homes, with access to quality products from reliable sources.

Through these businesses, we are helping our partners address increasingly complex sourcing and supply chain issues to ensure continuity of care for a rapidly changing patient population.

On the Performance Services side, our TheraDoc safety surveillance solution is monitoring inside the hospital for COVID-specific alerts, while our Stanson clinical decision support technology is flagging suspected COVID-19 cases directly at the point of care in, the EMR and at the physician’s office, and is also leveraging predictive modeling to create an early warning capability for future waves of COVID-19.

I’ll now turn to some of the specific actions that we’re executing in this environment to both lead and support our member healthcare providers. In Supply Chain Services, we’ve organized our response around 3 key initiatives. First, we are accelerating provider access to much needed products, providing real time, actionable information is something that Premier does every day. But we’ve redoubled our efforts to find new sources of supply and get products where they need to be. For example, in our group purchasing business, we took the highly unusual step of opening our agreements to all capable suppliers to help meet the surging demand. This expedited sourcing process has added suppliers to product categories that are in shortage or under allocation. In addition, our direct sourcing business executed a series of aggregated purchases for certain categories of personal protective equipment or PPE to ensure supplies are available to our healthcare providers. This enabled us to increase delivery of protective masks to more than 28 million last month alone from approximately 2 million per month prior to the outbreak. We’ve also partnered with major companies and brands to serve as additional sources of products like face shields, face masks and hand sanitizer, and to provide expedited transportation to quickly and efficiently deliver these products where they are needed most.

Our second initiative is to align with other critical stakeholders to share information and more effectively coordinate the response efforts. For example, in early March, we led the formation of a coalition of major healthcare companies dedicated to organizing the private sector’s response to COVID-19. Premier’s role in this coalition includes delivering timely data to FEMA, HHS and a host of other federal agencies regarding PPE availability, ventilator needs, surge capacity, and providing key insights into critical drugs and diagnostic supplies that are at or approaching shortage.

The third initiative is monitoring supply in the system. Conserving supply on hand and advising our members on nontraditional supply channels, including the gray market. In conjunction with the FDA, CDC and HHS, Premier is using our extensive supply chain analytics capabilities to assess healthcare providers’ levels of supplies, including N95 respirator masks, gowns and highly in-demand drugs, and is advising members on the latest conservation and sterilization information. We’re also actively monitoring nontraditional suppliers and the gray market, vetting products and solicitation offers and providing guidance to our members. These efforts have a profound impact on the quality of care that patients ultimately receive, and we’re so proud of what our teams have been able to accomplish on this front. On the technology side of our business, we are executing initiatives that capitalize on Premier’s unique position and combination of capabilities to make it easier for clinicians to deliver informed coordinated care. For instance, our clinical surveillance technology now includes COVID-19-specific alerts and patient flags for tracking and analytics. In addition, our clinical decision support technology is using natural language processing and machine learning to flag suspected or confirmed COVID-19 patient cases directly in the EMR at the point of care.


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Fiscal 2020 Third Quarter Conference Call Transcript

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Among other capabilities, we have enhanced our technology to be able to predict surges and hotspots, serving as an early warning system for future waves of COVID-19, while a vaccine is being developed. This would be a critical component in helping our healthcare providers, and the economy in general, achieve a higher level of normalcy during this recovery period and beyond, as new methodologies are adopted to rapidly detect and respond to potential health threats in the future.

So as I step back, it’s clear to me that the challenges created by this crisis underscore Premier’s unique position as the nexus between healthcare providers, distributors, manufacturers, life sciences companies and government agencies as well as the tremendous value we bring to our member healthcare providers and the patients that they support. At the same time, we are continuing to cultivate our longer-term capabilities. I believe that these capabilities built around our technology-enabled end-to-end supply chain and enterprise analytics and performance improvement strategies will foster an even deeper and more integrated partnership with our members as we work together to deliver a safer and healthier tomorrow.

Before handing it over to Mike, I want to reiterate my gratitude to Premier employees for stepping up to navigate these unusual challenges and to our healthcare providers and other partners everywhere working to save lives and provide patients with the care that they need.

With that, I’ll turn the call over to Mike, our President.

Michael J. Alkire – Premier, Inc. – President

Thank you, Susan, and thanks, everyone, for joining our call. To begin and to echo Susan’s comments, I couldn’t be more proud of our team and everything they are doing to help our healthcare provider members during these challenging times. So I want to say thank you for all the hard work. I very much appreciate it.

Today, I want to address the work we’re doing to help our members manage through the recovery to identify and mitigate the impact of COVID-19 resurgence and to ensure a more resilient healthcare system and supply chain in the future. As the nation begins to look beyond the immediate COVID-19 crisis, our member health systems as well as tens of thousands of other healthcare providers are working to deliver care to their patients who have had to postpone their healthcare needs. We are working as a trusted partner with our members to help them accomplish 4 major objectives in this environment: one, build confidence with their patients to resume typical healthcare procedures while at the same time, continuing to care for patients with coronavirus; two, prepare for another coronavirus surge in their community; three, find ways to become more efficient for both procedural and infrastructural costs; and four, improve their revenue.

Let’s look at the first objective. When it comes to rebuilding patient confidence in this new environment, our data, technology and consulting solutions will be critical to enabling our members’ success, providing them with the ability to monitor for and attack COVID-19 cases, predict disease progression and surge and determine and prioritize supply is necessary to care for the infected population. These solutions will also help our members improve the quality of medical interventions through sharing of guidance and rapid deployment of best practices. And ultimately be positioned to quickly detect and implement protocols to prevent the spread of not just COVID-19, but other future diseases as well.


PREMIER, INC.

Fiscal 2020 Third Quarter Conference Call Transcript

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On the supply chain services side, we are working to fill the new supply needs created by this environment, which include temporal thermometers, additional personal protective apparel, testing reagents and cleaning and sanitation supplies, just to name a few. There are also needs for staffing adjustments and infrastructure redesign to isolate COVID-19 patients from the rest of the patient population.

Objective 2 is preparing for more surges. This new normal will potentially include future disease waves, requiring that healthcare providers have the technology to quickly detect and mitigate new outbreaks and sufficient stocks of PPE, drugs and other supplies to care for patient surges. It is clear to us that in the wake of this pandemic, U.S. healthcare providers need more domestic resources for their critical supply needs. And that we, as an industry, need to support and develop additional U.S. and nearshore opportunities for critical product manufacturing and domestic supply chain security.

The fact is that PPE products are overwhelmingly sourced overseas, with approximately 80% coming from China and Southeast Asia. And there is a similar geographic reliance on pharmaceuticals. The risks associated with this geographic overreliance came into sharp focus as the COVID-19 pandemic swept across the globe and these nations closed their borders and prevented U.S. access to much needed supplies. This triggered widespread shortages of products needed to protect healthcare workers and treat patients here in the U.S. To create a more resilient supply chain, our country needs to build a more robust infrastructure of domestic manufacturing while also giving more consideration to the geographic concentration risk when sourcing products. To be clear, we’re not advocating that all sourcing from China and Asia go away. But a secure supply chain will require more geographic diversification of production, including both domestic and nearshore manufacturers.

In this regard, Premier has organized a group of provider members to explore strategic investment opportunities, focused on expanding domestic production of personal protective equipment. Our objective is to help ensure that a greater proportion of healthcare products are insulated from shortages that are available here in times of needs. I envision this approach is very similar to our successful ProvideGx initiative in which Premier is partnering with pharmaceuticals manufacturers to address drugs that are in or nearing a shortage.

Let me address objectives 3 and 4, cost efficiencies and improved revenue, together. While healthcare providers have always been focused on improving care at a reduced cost environment, their need to further reduce costs and generate revenue has never been greater than in a post-pandemic era. We anticipate that our members will utilize our consulting and other capabilities as follows: first, to understand how the COVID-19 environment is impacting revenue and cost performance and build financial models to project future scenarios and their impact on performance; second, to identify short-term margin improvement initiatives to support longer-term strategic plans to reposition the healthcare system; and third, to adopt a more focused and technology-enabled approach to clinical standardization, which will require a balanced focus of redesigning business models over the longer term to optimize the overall cost of care delivery through focused efforts.

In addition, Contigo Health, our innovative direct-to-employer high-value care initiative that is focused on improving and standardizing care, reducing costs and generating revenue for health system participants is continuing to make steady progress. Today, Contigo Health is working with 3 major national employers, an increase of 2 from when we talked last quarter. I am also pleased to announce that we have acquired Health Design Plus, or HDP, to accelerate our Contigo Health initiative. HDP is a care management company specializing in the development and administration of customized health benefits


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Fiscal 2020 Third Quarter Conference Call Transcript

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solutions for employer clients and health system partners. It offers a nationally recognized centers of excellence program for many innovative employers, including well-known Fortune 25 brands. The company employs a high-touch personalized approach which has helped its employer clients achieve significant financial savings for healthcare expenses and maintain a high-quality of care.

HDP will continue to provide specialized TPA services while supporting Contigo Health as it expands its product pilots in multiple markets with multiple employers. We are very excited about this acquisition and welcome the team at HDP to the Premier family.

Thank you for your time today. Now let me turn the call over to Craig McKasson, our Chief Administrative and Financial Officer.

Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Thanks, Mike. I’d also like to add my heartfelt gratitude to all of the healthcare workers as well as our colleagues working behind the scenes, helping our country work through this pandemic and get back on its feet again. Thank you.

I’ll first walk briefly through our fiscal third quarter results and then review guidance for the remainder of the fiscal year, including the expected COVID-19 impact on fourth quarter results.

Our third quarter financial performance was very strong, exceeding management expectations across the board as we continue to execute on our operational strategies to drive long-term growth and value creation. In direct sourcing, while we did see some product allocations begin to kick in and freight costs start to rise during the latter half of the quarter, the financial impact related to COVID-19 was not material. I also want to reiterate that we continued and are continuing to operate from a position of financial strength and flexibility. Cash flow remains strong, and we have a very low amount of net debt on our balance sheet.

So let’s review, from a GAAP standpoint, consolidated third quarter net revenue of $334.8 million increased 11% from a year ago. Supply Chain Services segment revenue of $238.6 million increased 14%. Net administrative fees revenue increased 6%, primarily from ongoing contract penetration, driven partly by our high compliance portfolio programs and the addition of new contract categories and suppliers across both our acute and alternate site businesses. This progress came against a continuing backdrop of rising patient utilization trends prior to the COVID-19 impact.

Products revenue increased 47% from last year, driven primarily by strong growth in member demand for our PremierPro commodity product categories among healthcare and foodservice providers prior to COVID-19 as well as growth due to revenue generated through aggregated purchases for certain products relative to the prior year.

Turning to Performance Services. Revenue of $96.2 million increased 4% from a year ago. The increase was primarily driven by growth in licensed technology engagements, including a significant new enterprise license agreement with a member to access our suite of integrated technology solutions and clinical decision support technology engagements. This was partially offset by the timing of certain consulting and technology engagements as well as the previously disclosed lower revenue associated with the CMS Hospital Improvement Innovation Network government contract that ended as expected on March 31.


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Fiscal 2020 Third Quarter Conference Call Transcript

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Looking at profitability. GAAP net income was $73.2 million for the quarter compared with $75.3 million last year after a GAAP required noncash positive adjustment of $302.6 million to reflect the decrease in the redemption value of limited partners’ Class B common unit ownership - based on the decrease in our stock price during the third quarter 0 we reported GAAP net income attributable to stockholders of $0.54 per share. Third quarter consolidated non-GAAP adjusted EBITDA of $155.9 million increased 12% from a year ago. From a segment perspective, Supply Chain Services non-GAAP adjusted EBITDA of $149.2 million increased 11% from a year ago, primarily driven by growth in net administrative fees and products revenue.

In Performance Services, non-GAAP adjusted EBITDA of $34.6 million increased 4% from a year earlier. The growth was primarily due to increased revenue, partially offset by the ongoing previously disclosed strategic investments in our clinical decision support technology and in Contigo Health. Third quarter non-GAAP adjusted fully distributed net income of $88.9 million increased 4% from a year ago, and non-GAAP adjusted fully distributed earnings per share increased 10% to $0.73. From a liquidity and balance sheet perspective, cash flow from operations for the 9-month period was $248.1 million, compared with $356.6 million for the same period last year. The decrease in cash flow from operations was primarily driven by the addition of the prepaid contract administrative fee share of $92.1 million for onetime rebates to certain Acurity members as agreed to by Acurity prior to entering into the purchase agreement with Premier, which was excluded from the purchase price of the Acurity and Nexera asset acquisition.

We also deployed capital to fund prepayments for commodity products related to increased demand due to COVID-19. These decreases were partially offset by a decline in operating expenses, primarily due to the remeasurement of the tax receivable agreement.

Non-GAAP free cash flow for the 9-month period was $213.9 million or approximately 48% of non-GAAP adjusted EBITDA, compared with $224 million or 53% a year earlier. The decrease primarily resulted from the same factors impacting net cash provided by operating activities, partially offset by reduced distributions to limited partners due to changing ownership.

Our fiscal 2020 free cash flow projection will be impacted due to the implications of COVID-19 on our fourth quarter net administrative fees revenue as well as a result of the timing of cash inflows and outflows, given our strategic decision to use operating cash flow to procure necessary products in direct sourcing to address increased member demand for products.

Given the COVID-19 related surge in member demand, cash flow timing may be impacted as a result of when payments are made to purchase products in comparison to the subsequent routine cash collection on product sales. Our cash and cash equivalents totaled $241.7 million at March 31, 2020, compared with $141.1 million at June 30, 2019. We ended the quarter with an outstanding balance of $250 million on our 5-year $1 billion revolving credit facility, and we have subsequently repaid $150 million of that amount.

Looking at our stock repurchase program, we completed the purchase of $150 million of Class A common shares in January but did not conduct further share repurchases during the quarter and given the current environment, do not expect to repurchase any more shares in the current fiscal year under the originally established $300 million authorization.


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Fiscal 2020 Third Quarter Conference Call Transcript

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Now let’s turn to guidance. Based upon our performance through the first 9 months of the fiscal year and the current outlook and assumptions for the fourth quarter, including the anticipated impact of COVID-19, we expect to complete the fiscal year generally within the current guidance ranges. That said, due to the uncertainty and lack of visibility associated with COVID-19, it is possible that supply chain services revenue could exceed the top end of our current range, while non-GAAP adjusted EBITDA and adjusted fully distributed earnings per share could finish slightly below their respective ranges.

Specifically, we expect Supply Chain Services segment revenue at the top end of the current range of $895 million to $930 million. We expect strong gains in direct sourcing revenue from our ongoing efforts to assist member healthcare providers in securing certain personal protective equipment and other high demand supplies as a result of COVID-19. We expect this revenue increase will more than offset the anticipated softness in net administrative fees revenue due to the pandemic induced interruption of elective procedures which typically account for approximately 1/3 of surgeries performed in a hospital as well as lower overall occupancy and utilization and the slowdown of alternate site spending in nonhealth care-related areas.

Performance Services segment revenue is expected to be at the low end of the current range of $340 million to $354 million. This is due to the pressure on new and existing consulting and technology engagements, which are being delayed and extended as healthcare providers focus on this pandemic. This confluence of factors puts our expectations for consolidated net revenue in the upper end of the current range.

Looking at profitability. We expect non-GAAP adjusted EBITDA to be near the lower end of the range of $566 million to $589 million. And depending on the extent of the COVID-19 related impacts, it could finish a few million dollars below that range. Specifically, we expect a greater portion of Supply Chain Services revenue to be derived from our low-margin direct sourcing business. While in our higher-margin group purchasing business, we expect negative impacts related to the deferral of elective procedures and the shutdown of nonhealthcare-related entities. While these are expected to be partially offset by spikes in demand in other product areas, the net effect is expected to pressure net administrative fees revenue growth in the quarter relative to a year ago.

Additionally, we expect increased pressure on Performance Services segment EBITDA for the reasons I discussed earlier. As a result, non-GAAP adjusted fully distributed earnings per share is expected to be near or a few cents below the low end of the current range of $2.76 to $2.89.

Amid this environment, we are diligently managing expenses, delaying new hires, greatly reducing travel and meeting costs and have plans in place to further manage costs, should conditions deteriorate appreciably. All that said, we are managing our business with the full understanding that this is truly an unprecedented environment in which additional unforeseen factors, over which we have no control, could further impact operating and financial results, both positively and negatively over the near term.

With respect to fiscal 2021, as you know, Premier’s year ends on June 30. Therefore, consistent with prior years, we currently plan to address guidance for fiscal 2021 when we announce our fourth quarter financial results in mid-August. Given the current circumstances, it would be premature for us to attempt to assess today the impact of COVID-19 on our next fiscal year ending in June 2021. Management plans to use the time between now and August to gather and digest additional data, trends and insights to inform our approach for establishing Fiscal ‘21 guidance. We’ll be assessing key areas like the timing and impact related to the resumption of elective procedures, the economic recovery and the reopening of nonhealthcare-related facilities as well as the demand level for Performance Services, among other things.


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So depending on the state of the medical and economic recovery in mid-August, we may need to consider, similar to many other organizations during this extraordinary time period, whether Premier can establish annual guidance, will need to potentially issue quarterly guidance on a short-term basis or withhold guidance altogether. Certainly, our current assumption is that our line of sight into this environment will improve over the next couple of months, which will hopefully enable us to initiate guidance in August.

Thank you for your time today. Now let me turn the call back over to Susan.

Susan D. DeVore - Premier, Inc. - CEO & Director

Thanks, Craig. I want to close our prepared remarks by saying that together, we will make it through this pandemic. We plan to keep partnering closely with our members to enable our U.S. healthcare system to manage and ultimately defeat this virus while working to better position our providers to quickly detect and respond to future pandemics.

Moving forward, Premier continues to be supported by our resilient and diversified business model, our strong cash flow and our flexible balance sheet, as we continue to grow our comprehensive capabilities and provide critical value to our members.

Thanks for your time today. And because we are all in different locations, please address your questions to either Mike, Craig or me, and we’ll address them accordingly.

Operator, you may open the call for questions.

QUESTIONS AND ANSWERS

Operator

(Operator Instructions) And your first question is from Michael Cherny with Bank of America.

Michael Aaron Cherny - BofA Merrill Lynch, Research Division - Director

Thank you so much for all the details. I think this is a question for Mike, but obviously, anyone else wants to jump in, please go for it. Mike, you’ve been front and center, handling a lot of the response with your customers. You talked about — you mentioned the dynamics of electives and roughly 1/3 of the surgeries you see in hospitals are electives. As you continue to have those conversations with your customers and as all of your customers across the country have varying states, varying periods of reopenings, how are they positioning themselves now from a purchasing perspective, from a stocking perspective for these limited and rolling reopenings that we’re starting to see across the country?

Michael J. Alkire - Premier, Inc. - President

Yes. It’s a great question. So a couple of things. First of all, I think all the systems are trying to develop that confidence within their patients so that they can get back to normal procedures and doing these elective procedures. So I think, first, they’re looking for the safety products, the PPE, to ensure that their — not only their patients are feeling comfortable, but their providers are feeling comfortable. So think of things like face masks and isolation gowns and those kinds of things. So I think that’s the first thing. And then the second initiative that we’ve been rolling out over the past sort of 2 or 3 weeks, is ensuring that as


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these elective procedures start to come back online, we want to make sure that they’ve got the necessary products, right? The surgical gowns and the other implements that are going to be required for these procedures. So we’ve taken a significant initiative to go back and look at historical data to understand sort of what the past demands have been. And our interest really is to have all that product available as they bring these procedures back online.

Michael Aaron Cherny - BofA Merrill Lynch, Research Division - Director

And then just one quick question for Craig. Craig, when you think about the guidance, and in particular, the EBITDA range. Should the EBITDA come in a few million below the low end, as you alluded to, what does that encompass? What is the view of the conditions related to today in terms of the average volume, average utilization for your customers?

Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Sure. Thanks, Michael. So I think from a utilization standpoint, I talked about prior to COVID-19, we were continuing to see rising utilization within the healthcare solution and outpatient and in nonacute. Clearly, that has fallen demonstrably with 10% to 15% decline and in the limited amount of data we’ve seen into the fourth quarter in inpatient admissions and utilization. And you’ve seen some of the other public hospitals talk about the declines that they’re seeing. So to the extent that, that — the recovery starts to happen and some of the elected procedures and things you were just talking to Mike about start to resume a little bit before the end of the fiscal year, that would help us within — in terms of staying within the guidance range, but if there are delays in that, pushing into later, and then beyond the fourth quarter, that’s what would potentially impact us and have us be potentially slightly below the range. My sense is the reopening and the phasing of the economy for nonhealthcare-related facilities, which is impacting us in the fourth quarter, is more likely going to continue through the balance of the fourth quarter, and it would be into Fiscal ‘21, when we would see some of that stuff resume back to normal.

Operator

Your next question is from Steven Valiquette with Barclays.

Steven James Valiquette - Barclays Bank PLC, Research Division - Research Analyst

I’m not sure if this question is more for you, Susan or Mike. But kind of along those same lines, I guess, I was just curious as far as states reopening and any data points that you might see as far as elective procedures returning. I’m sure it’s going to be different across different parts of the country. But I mean, are you seeing any rescheduling or any elective procedures coming back to the forefront here during the June quarter? Is there any way to approximate what percent of that might come back during the June quarter versus what would fall into your next fiscal year?

Susan D. DeVore - Premier, Inc. - CEO & Director

Yes. So what I would say, and then, Mike, you can add in, every one of our members really is focused on how quickly can they reopen and they do think there’s some pent-up demand for cancer treatment, elective surgeries, things that people need that they haven’t been able to get. And so every member, and we actually work in all the states, as you know, is putting in their reopening plans and beginning to figure out the scheduling, the protective equipment they need, the processes that they need to put in place. Many


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of them have had significant revenue hits for not being able to do those procedures. So I would say they’re all focused on it. And I think that they all intend in the fourth quarter to bring back that volume. We do think it will be a gradual ramp up. And it will vary by state, to your point. It’s really hard, Steve, for us to estimate the exact amounts over the next 3 months for the fourth quarter. But I guess we’ve tried to reflect in Craig’s comments about the rest of the year, what we think is likely to happen based on what we know today. But what I would say is that all the conversations we’re having with our members are focused on reopening as quickly as they can and as safely as they can. And they’re all — and we’re helping them with the protocols to do that and the supply chain needs that they’re going to have.

Steven James Valiquette - Barclays Bank PLC, Research Division - Research Analyst

Okay, great. As far as just the breakdown of those trends in the acute segment versus other parts of your book of business, whether it’s ambulatory, et cetera. Just curious if there’s any further color breaking it down that way?

Susan D. DeVore - Premier, Inc. - CEO & Director

The way we have broken it down internally and the work that we’re doing is by product category. So think about food, pharmacy, imaging, nursing, surgical, cardiovascular and think about acute and nonacute. And so we basically, because our administrative fee revenue and our direct sourcing revenue is tied to product categories have done it that way. We think there could be positive impacts in the nursing arenas and in the facilities arenas, and certainly in the PPE and all the products that Mike talked about.

We think there are some potential negative impacts from food, from imaging, from some of the purchased services. And so we’re taking sort of a balanced approach of the puts and takes by category to determine where we think we’re going to end up. We do think the nonacute care space has been tougher, and we do have some nonhealthcare, nonacute care space. So we’ve tried to reflect the nonacute care space coming back, maybe a little bit more slowly.

Michael J. Alkire - Premier, Inc. - President

Susan, if — Steve, this is Mike. Just real quick, if I could just add just 2 comments on the nonacute space. One is, we’ve been doing a ton of surveys to truly understand the needs of that nonacute space. As you’re well aware, when the virus hit these nursing homes and some of these nonacute facilities, they didn’t necessarily have the products available to really manage a virus, a pandemic like this. So many of them are actually operating in new markets trying to get access to products. So 2 things. One, we’ve been trying to get — provide them as much data as possible on appropriate utilization. And then two, we’ve been also helping them in terms of providing expertise around appropriate product utilization and those kinds of things. So we do think, obviously, we have an opportunity to provide a bit more education but also make sure that those entities are getting access to the needed products, to care for those patients.

Operator

Your next question is from Lisa Gill with JP Morgan.


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Lisa Christine Gill - JP Morgan Chase & Co, Research Division - Senior Publishing Analyst

Thank you for all that Premier is doing on the front lines of this difficult time. I know the hospitals really appreciate this. I just want to understand a couple of things a little bit better. Mike, you talked about just domestic manufacturing. You’re in a position of strength today around direct sourcing, but a lot of things coming previously from Asia. When you think about domestic manufacturing, is this an area that you think that Premier would get directly involved in when you think about your business model going forward? Would be my first question.

And then secondly, obviously, based on the first few questions, a lot of focus around when things start to recover. As we start to think about the nonacute space and when you think about things like telehealth and how that impacts the future utilization of healthcare, obviously, you don’t need the same amount of medical supplies. If I’m sitting at home and my doctor is sitting in their office doing telehealth, how do we think about the impact of telehealth on overall medical supplies from your perspective?

Michael J. Alkire - Premier, Inc. - President

Thanks, Lisa. So let me first, just a quick reminder around the domestic manufacturing question. So domestic manufacturing, obviously, would be part of both our GPO offerings. So those are the products that we contract for. We’re going to want to make sure we understand where the point of origin for those products are. So if those are obviously produced in China or Southeast Asia versus the U.S., so that’s number one.

Number two, we have that direct sourcing business. And over the past few years, we’ve actually been diversifying where the production of those products have been coming from. So there’ve been a historic, for the most part, bolus of production happening in China and India. And over the last couple of 3 years, we’ve been moving a lot of that production to other Southeast Asian countries. So really, what we’re thinking about is it’s just extending that diversification of production and ensuring especially critical products, things like N95s. In some cases, things like isolation gowns. Very similar to what we did with ProvideGx on those drugs, those generic drugs that are short supply, where we’ve added capital and where we’ve been working with domestic manufacturers to expand production lines, those are the kinds of strategies that we want to employ as we’re thinking about doing domestic manufacturing for this PPE. So very, very similar to what we’re doing with ProvideGx.

And then in the nonacute, it’s interesting. You were asking about telehealth and virtual medicine and those kinds of things. So obviously, we think there’s going to be a need for a lot more technology, analytics and capabilities from our Performance Services side as these physicians are providing care in different ways than they have potentially in the past. In terms of the access to products that they would typically use in their health settings, I think it’s a bit too early to tell what that impact obviously would be. Susan, I’m not sure if you had anything to add.

Susan D. DeVore - Premier, Inc. - CEO & Director

Yes. The only thing I would add is we’ve been looking, Lisa, at the cost per patient while we’ve been in the COVID pandemic versus before. And our sense is that the severity of patients that will be in hospitals, in doctors’ offices, in surgery centers will go up and the cost and the products being used because of the higher severity, those things, we think, will go up. And then the low-cost kind of low severity stuff that can be done with telehealth will be done with telehealth. We do think this will accelerate some of the telehealth initiatives. But we think there will be a corresponding increase in cost and severity of the stuff that is in healthcare facilities. So we’re going to continue to monitor that and see how that balances out.


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Operator

Your next question comes from Richard Close with Canaccord Genuity.

Richard Collamer Close - Canaccord Genuity Corp., Research Division - MD & Senior Analyst

Thank you as well for all that the company has done during this time. So Mike, I wanted to hit on #3 of your major objectives. That was the health systems becoming more efficient from a revenue cost performance and margin improvement and tech adoption. Obviously, there’s financial difficulties here for the health systems. And obviously, we have some federal funding coming. But I’m curious, your thoughts — as we exit this, although that’s unknown, how we do exit this, how do you see customers moving forward on these objectives?

Michael J. Alkire - Premier, Inc. - President

Yes. So great question, Richard. A couple of things. First, we have the data and the analytics to truly understand what’s happening, almost to Lisa’s question, if a business model is changing, we have the ability to see the impact on revenue and the impact on costs. So obviously, over the last few weeks, we’ve been building our business models for our healthcare systems to help them better understand the implications of sort of a post-COVID-19 world. And then building models to actually help them from an advisory services standpoint as well as a technology standpoint. So a couple of things that I think that they’re going to be looking to do. One, I think this early surveillance of understanding if there’s a prevalence of the disease, I think, is really, really critical. So we’ve got to make sure that they’ve got the appropriate surveillance system so that if the patient has the symptoms and comes into the facility, they can recognize it very, very quickly. So that’s number one. Number two, I think the analytics, as they’re thinking about working with their communities and they have surges in different areas, it will inform their strategic decisions as to do they want to create, I guess, for the lack of a better word, a cohort of facilities that care for those patients so that they can keep open other facilities to allow elective procedures and those kinds of things. So I think this surveillance and the analytics is going to be really, really critical post-COVID. And then it’s the focus on the costs. And then there’s obviously some opportunities from a revenue acceleration standpoint vis-à-vis what’s happening with the CARES Act and getting access to that funding as well as our Contigo Health initiative, where we think they have a huge opportunity, obviously, to work more closely with employers in their markets.

Richard Collamer Close - Canaccord Genuity Corp., Research Division - MD & Senior Analyst

Okay. And a follow-up. How many customers does HDP have that you announced the acquisition on?

Michael J. Alkire - Premier, Inc. - President

That’s probably — it’s somewhere in the teens. So they’re working with, from a TPA standpoint, a number of healthcare systems as well as other employers from a TPA standpoint. And then they’ve got, I don’t know, approximately 10 very, very large employers that they’re working with to do these centers of excellence, which obviously we think is a real opportunity for our healthcare systems to participate in those centers.

Operator

Your next question comes from Ryan Daniels with William Blair.


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Jared Phillip Haase - William Blair & Company L.L.C., Research Division - Research Analyst

This is actually Jared on the line for Ryan this morning. But thanks for the questions. Craig, maybe just from a capital allocation perspective, it sounds like you talked a little bit about, obviously, some managing expenses in the near term, given the uncertainty, reducing travel, things like that. So I’m curious kind of how you think about balancing, maybe playing defense a little bit and staying cautious given the uncertainty where — versus still kind of investing in the product, investing in the value proposition organically as well as maybe the potential for continued M&A activity?

Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Sure. Thank you. So first of all, we do and will continue to invest in our capabilities, and we’ve been doing that throughout this process. We continue to believe we’re fortunate to be operating from a position of strength with the amount of free cash flow and the little amount of debt that we have in place. And so that does enable us to continue to try and play offense where appropriate. Obviously, we just announced the acquisition of HDP, which is furthering our strategy in the large employer direct with provider initiative that we’re working on. So we’ve continued to make investments in our clinical decision support technology, continuing to make investments in the Contigo Health employer network, continuing to make investments in the technology side of our Supply Chain business and don’t see that changing.

We’re just ensuring that we’re being fiscally responsible through the implications of COVID-19, given that it does have implications in the near term on the business. And then we will and do continue to have an active corporate development pipeline, and we’ll continue to look for opportunities where appropriate to round out our strategic capabilities with inorganic investment as well.

Jared Phillip Haase - William Blair & Company L.L.C., Research Division - Research Analyst

Okay. Great. And then maybe, Susan, just from a macro perspective, obviously, we kind of talked about a number of macro trends that are in play right now. I’m curious, maybe another one. As we think about the kind of the transition to risk-based models, do they become maybe relatively more attractive as they’re not so volume dependent going forward? And just any other thoughts from the macro perspective that any trends that you’re seeing that maybe make you incrementally more positive as we look beyond 2020 as things start to normalize a bit?

Susan D. DeVore - Premier, Inc. - CEO & Director

Yes. That’s a great question. And I do think because we sit at that nexus between members and a lot of the federal agencies, and we’re working with Congress members and everyone. Because of the pandemic, there have actually been a lot of changes implemented in a temporary way that we’re learning from. And so for example, telemedicine and for example, risk-based models or alternative ways of thinking about reusing products and that sort of thing. So the question is how much of that stuff will stick once this is over? And I do think there will be an evaluation of a lot of things. We were pleased that the ACO adjustments that were made, provide flexibility for the financial performance during this period of time.

But our sense is that serving the needs of patients through more holistic end-to-end models, risk-based models will be attractive going forward and the marketplace, patients, physicians and health systems have, by necessity, moved to those — some of those models further just in terms of the way they care for


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patients. And so we think our collaboration around ACOs and around bundled payments and around the models going forward, not to mention that there is going to be a financial price to pay, obviously, for the pandemic. And so I think the pressure on cost and on how do we get the economy back, where we need it to be, will play into it as well. So the combination of that cost pressure, the desire to get revenue back to where it needed to be. And then the new methods of delivering care that have been implemented, I think, all will push that forward. That will be complicated a little bit by — we’ll be in an election cycle, and there will be a lot of discussions in the election cycle about changes to the way things have been going.

Operator

Your next question is from Charles Rhyee with Cowen.

Charles Rhyee - Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

When we think about the recovery coming forward, and I don’t recall if you’ve given this before, can you maybe give us a sense on sort of the geographic mix of your customers, maybe in rough numbers because clearly, as we sort of reopen. It looks like we’re going to be working stages. And obviously, we had some states start to reopen more in the south and the Midwest. And if we think about that, can you maybe give us a sense of where you are more geographically concentrated? Is it coasts? Is it sort of an interior? Maybe you can help us there.

Susan D. DeVore - Premier, Inc. - CEO & Director

So if you looked at the map of our members, we have 4,000 members. So we have hospitals, health systems and 175,000 alternate sites. So we are literally all over the country. We have a very significant East Coast concentration. We have a significant West Coast and also central. So we’re essentially everywhere. I do think we have probably the largest market share of the big IDNs that are multistate. And I will tell you that in all of our markets, one of the first things to come back and come back gradually is the focus in states on getting that access to elective procedures and those hospitals back opened up. So I guess I would say that we’re literally in almost every market. And all of our members are doing their planning. We just did a survey, actually, of our health systems and asked them the question across the country. The question of what percentage of your prior volume do you think will be up and running in May, in June, in July. And the planning right now is for them to try to get back to their normal levels of elective surgeries and such by the end of June. Now whether they’ll make it or not, we don’t know, but I think that’s the intent. So that’s how we’re thinking about it.

Charles Rhyee - Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

I appreciate it. And I figured it would be something like that. But just, if we think about the pace of recovery and to your point, whether some hospitals can get there or not. Is there a lot in terms of purchasing supplies ahead of making that conversion? And is that something — is that activity you would see before procedures really start going? Or is that something where they make the orders, but we would not necessarily see the result until maybe after procedure volumes really got going?

Susan D. DeVore - Premier, Inc. - CEO & Director

So I think it’s both. So what I would say is that they are planning for the additional pressure on PPE and such that comes with continuing to have COVID patients while also ramping back up elective surgeries. And they think there will actually be a bigger ramp as they try to catch up for the lost surgeries. So I think


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that through our direct sourcing company and some of the forward buys, that might happen in anticipation of that, you’ll see that. I think for the administrative fees and estimating the accrual of the administrative fees that go with that ramp up of elective procedures, that will take a little bit more time to understand. I do think all of these health systems, and I think on a going-forward basis, there will be a movement away from a just-in-time inventory model and more models where they are advanced planning for the demand, particularly because they’re expecting additional surges of COVID, along with the ramp up of elective procedures.

Charles Rhyee - Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

Okay. That’s really helpful. Maybe just to follow-up what you just said right there, Susan, is if you move away from just-in-time inventory purchasing, does that affect your model at all? Or is that just they’re going to have maybe more supply on hand but still have a regular purchasing pattern? Once it builds some excess inventory?

Susan D. DeVore - Premier, Inc. - CEO & Director

Yes. I think our assessment is they’ll have cost pressure, at the same time, they’re going to need to have bigger numbers of days inventory on hand. They don’t want to be put back in the situation that they’ve been in. And so I think there will be more stockpiling and it will be done gradually over time. And so our sense is there will be increased need for, particularly the commodity PPE, basic gowns, masks, gloves, those products that actually will be needed in almost any kind of epidemic or pandemic. And so our sense is that they will ramp up the level of inventory on hand, and there may be some benefit of that as they do that. And then it will go to then more normal buying patterns and replenishment patterns from there.

Operator

Your next question is from Jailendra Singh with Crédit Suisse.

Jailendra P. Singh - Crédit Suisse AG, Research Division - Research Analyst

So this is just one for Mike. In terms of GPO compliance, can you provide some details around the SURPASS and ASCEND programs in terms of member participation? And do you guys expect to see the increased interest and participation in these compliance programs as we come out of COVID-19?

Michael J. Alkire - Premier, Inc. - President

Yes. Just as a reminder, SURPASS has about 11 core members, and it represents about $8.5 billion in supply chain purchasing. ASCEND has about 1,000 hospitals, representing about 136,000 beds and about $21 billion in annual spend. So as you think about those, and we’ve talked in the past, the compliance by category, obviously, it varies. But for the most part, we think about an 80% compliance for ASCEND and 90% for SURPASS. But to answer your question, do we see either the evolution of these committed groups through having more people join? Or are there other sort of committed programs? We do, actually. And so obviously, as the cost pressures continue to ramp up, I do think there’s going to be opportunities for folks to take advantage of that given that there’s pretty significant savings. I also think that you’re probably going to see some sort of interesting sort of other groups sort of evolved. As I spoke about in my sort of opening comments, I think there’s a lot of interest on behalf of a number of our healthcare systems to ensure that we’ve got this diversified supply chain. So I would guess that there’ll be a number of systems coming together that working with us to ensure that there’s domestic production of these PPE products, very similar to what we’ve built out with ProvideGx for the generic drugs.


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Jailendra P. Singh – Crédit Suisse AG, Research Division – Research Analyst

Okay. And then my follow-up on Contigo Health. I mean you added one more employer client in this quarter. Last quarter, you called out some concerns around slower-than-expected ramp in that business, and this was pre-COVID. I’m assuming the current situation did not help. I know you announced this HDP acquisition. But beyond that, have you guys slowed down on the pace of your investment in that business? And have there been any changes in your outlook or opportunity you see with that business?

Michael J. Alkire - Premier, Inc. - President

Yes. I’ll do a quick summary, and then Craig certainly jump in. So obviously, just like all different parts of our business, we’re going to ensure that the investments and the cost, parallel the revenue ramp up and the growth. And so where we need to ensure that we’re driving the appropriate margins, we’re going to either push back hiring or make fewer investments if the revenue is not supportive of the growth models that we have in place. So the gist of all of it is, though, that we think this HDP opportunity is significant for us as it really positions Contigo Health and the centers of excellence game. We think that that’s going to obviously be a big evolution in terms of how employers are going to have care provided to their employees.

Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Yes, Mike, this is Craig. The only color I would add is, as we’ve discussed previously, Contigo Health is a long-term strategy. We never expected it to have kind of short-term immediate accretion and revenue benefits. So we have — Mike’s right, we’re cautious in terms of how we’re making the investments and continuing. But we have continued to invest in that to build the capability. Clearly in the very acute short term, some of those large employers that we’ve been talking to and doing initial pilot conversations have had a little bit of other things on — that they’ve had to focus on. But the Contigo Health management team within Premier is continuing to move things forward, and we would continue to expect that, as we’ve said before, kind of in the ‘21, ‘22 time period is when we’ll really start to see that benefit. And we don’t actually see a departure away from this direct-to-employer kind of linkage from a strategy standpoint.

Operator

Your next question is from Stephanie Davis Demko with SVP.

Stephanie July Davis Demko - SVB Leerink LLC, Research Division - MD & Senior Research Analyst

And I echo everyone else’s sentiment about all you’re doing for the health system right now. So performances services beat, for the first time in a while, and I heard you guys call out a lot on clinical decision support. So my first question is that, is the read-through for the Stanson asset finally gaining traction?


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Susan D. DeVore - Premier, Inc. - CEO & Director

Yes. I’ll start, and then Mike, you can add in. Yes. I think Stanson — because Stanson does natural language processing, machine learning and AI. And because it sits on top of the major EHR vendors and because it sits in physician offices. So not only did we quickly build the capabilities to help with COVID-19. But when you think about those capabilities and you think about them with a resurgence or with almost any other clinical condition, that ability to read symptoms and read free text and figure out and get 7 days upstream to what might be happening is really, really important. We had a ton of traction with Stanson before COVID. We were having significant growth rates in Stanson, and that has continued. And I think — and we think will continue. And our TheraDoc surveillance will — and really the whole enterprise analytics, when you start thinking about how we manage the recovery and the potential additional surges, we’re feeling good about our IT products, our consulting services have been somewhat delayed with the inability to travel and sort of the focus of the health systems on other things. We think the pressure on health systems, financially, revenue and cost and how we might be able to help them from a consulting services will be a more gradual ramp up. But yes, to answer your question, Stanson has been doing very well.

Michael J. Alkire - Premier, Inc. - President

And Stephanie, this is — Stephanie, this is Mike. So you opened up a question. So here’s the big pitch, right? We think that the communities, the state governments, the federal government, the local governments, they need to have the surveillance capabilities that Susan was describing. So it’s the Stanson’s ability to read the unstructured data and the electronic medical records, tied in with the surveillance capability from our safety product, provides sort of real-time updates by ZIP code of where surges are occurring. And we really do believe health officials should be informed by data like that to look at potentially when to order additional shelter in place or when to open the economy and those kinds of things. So we do think that’s a significant opportunity to provide data to these — the appropriate health officials. The only other thing I’d like to add is that we have this entire control tower’s focus. So the way we talk about it is sort of a COVID-19 control tower. And that not only helps us understand surges, but severity. So we then can pull in our quality data and look at whether these COVID patients are being admitted to the hospital and then further whether they’re being put on respirators. So we have this sort of end-to-end analytics that can be utilized from a control tower standpoint. And then finally, just our whole technology capability allows for us to share best practices. If you think about treatments, if you think about drugs, leveraging all that data, we can, for the most part, provide real-time sort of analytics around what’s working the best and get that information into the hands of our providers as quickly as possible.

Stephanie July Davis Demko - SVB Leerink LLC, Research Division - MD & Senior Research Analyst

So reading through from those 2 answers, is it safe to assume that the PS business may get a little bit reenergized over the next few quarters, just given everything that’s going on, the importance of the solutions?

Michael J. Alkire - Premier, Inc. - President

We’re really, really excited about our safety solution and the investments that our team has been making over the last couple of months and very, very specifically in the last 8 weeks. And bringing all these data scientists forward to build out these models. So like I said, we’re incredibly excited about our tech stack and our control tower capability. And then on the advisory services. Obviously, there’s — we’ve been building out the model to help our healthcare system post-COVID. And obviously, there’s a lot of opportunities for us to help them drive improvements.


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Stephanie July Davis Demko - SVB Leerink LLC, Research Division - MD & Senior Research Analyst

Good. And one quick follow-up on the GPO side of the business. Over the past years, we have trend towards partial in-housing as the GPO business for certain health systems at scale. With everything going on during the pandemic, are you seeing any early indications of clients just cooling on these initiatives and saying let’s leave this to the experts?

Susan D. DeVore - Premier, Inc. - CEO & Director

Well, the engagements we had that were ongoing in that space are continuing, I think, the pressure on cost and the pressure on financial performance of health systems will continue to make them open to more comprehensive ways to help them get back to normal. So we’re continuing, as I said in my comments, to move forward with the end-to-end supply chain management and end-to-end enterprise analytics.

Operator

Your next question is from Eric Percher with Nephron Research.

Eric R. Percher - Nephron Research LLC - Research Analyst

Thanks for your efforts. Mike, a question for you. You’ve talked about supply chain dependency for quite some time. And I know today, we’ve covered some of the short-term efforts. But I have to imagine some of the changes that come from the situation that we’re going through may extend over years. And if we really want to add resiliency, this could be a 5- or even 10-year effort. So my question is, is it right to think about it in terms of efforts that really need to be implemented over the longer term? And does this lead to upward pressure on input or operational cost? Is there a trade-off between resilience and cost that has to be expected?

Michael J. Alkire - Premier, Inc. - President

Yes. So let me just — Eric, you’ve heard me say this, but the way that we’ve been describing this is sort of infrastructure build-out 2.0 from a national economy standpoint. So the 1.0 was the whole notion of building out roads and infrastructure to get the economy back working a number of years ago. This is sort of 2.0. How are you building out this manufacturing infrastructure domestically? And if you think about it, just think of pharmaceuticals, right? So what we saw about a month ago in India, and they basically said you were no longer — they were no longer going to ship erythromycin and some incredibly important vitamin supplements and those kinds of things in the middle of this. I think it really sort of sparked a lot of concerns, rightfully so, that we’ve got this incredible dependence, not only on finished goods manufacturing outside the U.S., but also these active pharmaceutical ingredients and other ingredients that go into the finished product. Point of all of that is, we, over the last 5 or 6 weeks, have been really understanding country of origin for a lot of these critical products. Those products that are either in short supply or that are going to be needed in future epidemics, we’re highlighting and ensuring that those products can either be produced domestically nearshore or in some cases where there’s some resiliency in the supply chain overseas. So I think you’re going to see a significant push, both short, middle and long


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term for that. In the same regard for obviously, PPE, not just where the finished product is being manufactured, but the raw materials as well. One of the things we’re obviously, finding out is the raw materials for ISO gowns was, for the most part, concentrated in 5 major manufacturing facilities in Southeast Asia. There was some here, obviously, domestically, but not enough to meet the needs of the system. So it’s identifying where those raw materials are being produced as well. To answer your question around cost, I think with any system, as you add more resiliency and more redundancy, you’re going to add, obviously, costs to that system. And so we’re — but quite frankly, it’s not — we’re going to have to do these things efficiently. So what we’re thinking about is obviously creating a model that leverages the domestic needs that we think are going to have to be built out, doing more nearshore production of products as well. So maybe leveraging on some countries that have lower cost options here that are nearshore. And then obviously, as I said in my prepared remarks, we’ll still leverage low-cost markets so that we have a blended rate. So it’s not, obviously, moving from one total cost structure of Southeast Asia to domestic, but it’s really spread across those 3 areas, I just talked about.

Operator

Your next question is from Eric Coldwell with Baird.

Eric White Coldwell - Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

I have 2 questions. First for Susan, second for Craig. Susan, this one should be easy. I think the answer is either a no or largely a no, but is there anything in the CARES Act or other stimulus or regulatory change that directly impacts Premier?

Susan D. DeVore - Premier, Inc. - CEO & Director

There’s not much, Eric, from a financial perspective that directly impacts Premier. Craig, I don’t know if you want to give any additional highlights.

Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Yes. I mean we’ve reviewed the provisions. There are some income tax benefits that we’ll get, Eric, as a result of certain subsidiaries and being able to take advantage of the net operating loss carryback provisions that were incorporated. But nothing from a stimulus standpoint that’s relative to Premier.

Susan D. DeVore - Premier, Inc. - CEO & Director

Right.

Eric White Coldwell - Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

That’s what I thought. Okay. And then, Craig, my follow-up for you. I’ll just ask directly. Your direct sourcing business, obviously, is a shining light at the moment, especially given the volume slowdown, you’re going to see in admin fees. Could you give us a sense on what you’re modeling for fourth quarter revenue? And then perhaps parse out aggregated buys versus sourcing. And finally, if you could remind us how margin has trended, both — either gross or operating doesn’t matter. But if you could remind us how margin has trended in that business over the last couple of quarters?


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Craig Steven McKasson - Premier, Inc. - Chief Administrative Officer, CFO, Senior VP & Treasurer

Yes. So unfortunately, given the uncertainty, it’s really hard for me to give an accurate Q4 projection like you would ask because it is somewhat dependent on some of these aggregated forward buys. And so that’s why we did provide some. We’ll be in the upper end of the range and actually could exceed, but it will depend on how much demand we see and what sort of uptake in some of that PPE we see through the balance of the fourth quarter. So the majority of our direct sourcing business does continue to be the ongoing PremierPro use of commodity products, not these aggregated purchases, but we have seen a ramp. What I can tell you is that in the third quarter, we did deploy about $29 million of capital to advance buy product that has been pushing through in the fourth quarter. We deployed another $21 million. So we put about $50 million of capital out in order to get more product moving forward, and we’ll continue to look for those opportunities, but really can’t give specific Q4 projection on that. From a standpoint of margins, actually, over the past couple of quarters, we had talked about a year ago about some of the operational improvements that needed to be put in place in that business, have been having tremendous success with that. And so actually had seen margins continuing to improve in the direct sourcing business. I think the impact we’ve seen as a result of COVID-19, I talked about this a little bit in my prepared remarks. I do think we’ll see compression in margins in Q4, primarily due to our decision to expedite the transportation of product over here. So as opposed to kind of the normal course, putting it on an ocean liner, there were other expedited transportation vehicles used to get stuff here more quickly, which is more expensive. It was the right thing to do. That’s not a long-term permanent solution, but I do think that we will see lower margins in Q4 from our direct sourcing business.

Operator

Your next question is from Sandy Draper with SunTrust.

Alexander Yearley Draper - SunTrust Robinson Humphrey, Inc., Research Division - MD of Equity Research

So I will try to keep this brief. I appreciate you guys staying on over the hour. Maybe for you, Susan and/or Mike, looking at the crystal ball, and I don’t know if you even have the historical numbers. But when I’m just thinking about longer term, CapEx budgets for hospitals, where they — so not like what’s going to be spent, but where they allocated dollars historically. I think a lot of it was towards bricks and mortar and other facilities. Do you think this event will change — it may change the size of the pie, but the slices of the pie, do you see different changes in terms of how people start to — the hospitals start to allocate their capital going forward and maybe think about their capital allocation differently than they have over the past 10, 15 years?

Susan D. DeVore - Premier, Inc. - CEO & Director

It’s funny. I saw somewhere, Sandy, that somebody said that what COVID-19 will really do is accelerate trends that were already underway. And so the trend for telehealth, the trend for ambulatory settings, the trend for globally managing a population more efficiently makes me think that bricks and mortar, bricks and mortar inpatient and declining in the trend to technology, enterprise analytics, having the visibility to supply and demand, having the natural language processing. So I think IT and enterprise investments,


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ambulatory capabilities and investments and then infrastructure investments to manage populations. Those are the kinds of things that I think you’ll continue to see. And potentially, those will accelerate while sort of the bricks and mortar. The only sort of mitigating piece to that is the severity of the patients with some of these pandemics and clinical conditions. And so we’re sort of — we’re looking at both sides at the same time. But I do think it will accelerate the trends that were already underway.

Okay. I think that was our last caller. So thanks, everybody, for joining us and staying on a little bit longer. We look forward to talking with all of you in the coming weeks and months, and stay safe and healthy. Thank you.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

EX-99.3

Third-Quarter Fiscal 2020 Financial Results and Update May 5, 2020 Exhibit 99.3


Forward-looking statements and non-GAAP financial measures Forward-looking statements – Statements made in this presentation that are not statements of historical or current facts, such as those related to the expected financial and operational impacts of the COVID-19 pandemic on our business segments, our ability to manage expenses during the COVID-19 pandemic, current market environment and uncertainties, expected financial performance, non-GAAP free cash flow generation, the statements related to fiscal 2020 outlook and guidance and the assumptions underlying such guidance, and the anticipated financial and operational impact of the acquisition of Health Design Plus are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as “believes,” “belief,” “expects,” “estimates,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to Premier’s beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier’s control. More information on potential factors that could affect Premier’s financial results is included from time to time in the “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Premier’s periodic and current filings with the SEC, including those discussed under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” section of Premier’s Form 10-K for the year ended June 30, 2019 as well as the Form 10-Q for the quarter ended March 31, 2020, expected to be filed with the SEC shortly after the date of this presentation, and also made available on Premier’s website at investors.premierinc.com. Forward-looking statements speak only as of the date they are made, and Premier undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events that occur after that date, or otherwise. Non-GAAP financial measures – This presentation and accompanying webcast includes certain “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934. Schedules are attached that reconcile the non-GAAP financial measures included in this presentation to the most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States. You should carefully read Premier’s periodic and current filings with the SEC for definitions and further explanation and disclosure regarding our use of non-GAAP financial measures and such filings should be read in conjunction with this presentation.


Q3 Overview and Business Update Susan DeVore Chief Executive Officer Premier, Inc.


Premier’s COVID-19 response strategies Key Supply Chain Initiatives: Accelerating provider access to much-needed products Align with other critical stakeholders to share information and more effectively coordinate response efforts Monitoring supply in the system, conserving supply on hand, and advising our members on non-traditional supply channels, including the gray market Key Technology Initiatives: Clinical surveillance technology now includes COVID-19 specific alerts and patient flags for tracking and analysis Clinical decision support technology is using natural language processing and machine learning to flag suspected or confirmed COVID-19 patient cases directly in the EMR, at the point of care Use technology to predict surges and hot spots, serving as an early warning system for future waves of COVID-19


Operations Review Mike Alkire President Premier, Inc.


Premier is helping members manage through recovery Major Objectives: Build confidence with patients to resume typical healthcare procedures, while continuing to care for patients with COVID-19 Prepare for another COVID-19 surge in their community Find ways to become more efficient for both procedural and infrastructure costs Improve their revenue


Update on Contigo Health, direct-to-employer, high value care network initiative Acquired Health Design Plus (HDP) to help accelerate Contigo Health initiative HDP is third-party administrator (TPA) and care management company specializing in the development and administration of customized health benefits solutions for employer clients and health system partners HDP offers both TPA services and a nationally recognized Centers of Excellence program for many innovative employers, including well-known Fortune 25 brands, who operate their own self-funded insurance plans HDP will provide specialized TPA services supporting Contigo Health as it expands its product pilots in multiple markets with multiple employers


Financial Review Craig McKasson Chief Administrative and Financial Officer Premier, Inc.


Fiscal 2020 third-quarter financial highlights *See non-GAAP Adjusted EBITDA, non-GAAP Adjusted Fully Distributed Earnings Per Share and non-GAAP Free Cash Flow reconciliations to GAAP equivalents in Appendix. Performance Services (PS) segment revenue increased 4% to $96.2 million Supply Chain Services (SCS) segment revenue increased 14% to $238.6 million; net administrative fees revenue increased 6%; products revenue increased 47% Non-GAAP adjusted EBITDA* increased 12% to $155.9 million Non-GAAP adjusted fully distributed net income* increased 4% to $88.9 million Non-GAAP adjusted fully distributed earnings per share* increased 10% to $0.73 Consolidated net revenue increased 11% to $334.8 million; GAAP net income of $73.2 million representing $0.54 per fully diluted share *See non-GAAP Adjusted EBITDA, non-GAAP Adjusted Fully Distributed Net Income, non-GAAP Adjusted Fully Distributed Earnings Per Share reconciliations to GAAP equivalents in Appendix.


Fiscal 2020 year-to-date cash flows and liquidity Cash flow from operations of $248.1 million and non-GAAP free cash flow* of $213.9 million for the nine months ended March 31, 2020 Previously expected range for fiscal 2020 non-GAAP free cash flow will be impacted due to the implications of COVID-19 Cash and cash equivalents of $241.7 million Outstanding borrowings of $250.0 million on our $1.0 billion five-year unsecured revolving credit facility at March 31, 2020; subsequent to quarter end, $150.0 million of the balance was repaid CONSIDERABLE CASH AND DEBT CAPACITY AVAILABLE AMPLE CAPITAL FLEXIBILITY FOR FUTURE ACQUISITIONS AND STOCKHOLDER RETURN *See non-GAAP free cash flow reconciliation to GAAP equivalent in Appendix.


Fiscal 2020 updated financial guidance * Fiscal 2020 Financial Guidance (in millions, except per share data) Current FY 2020 % YoY Increase Range Expectations Net Revenue:   Supply Chain Services segment $895.0 - $930.0 5% - 9% Higher end of range Performance Services segment $340.0 - $354.0 (6)% - (2)% Lower end of range Total Net Revenue $1,235.0 - $1,284.0 1% - 5% Higher end of range     Non-GAAP adjusted EBITDA $566.0 - $589.0 1% - 5% Lower end or slightly below range     Non-GAAP adjusted fully distributed EPS $2.76 - $2.89 4% - 9% Lower end or slightly below range * For the year ending June 30, 2020. As of May 5, 2020. See accompanying page for fiscal 2020 notes and assumptions to guidance.


Fiscal 2020 financial guidance footnotes and key assumptions * Guidance Footnotes: * The company does not meaningfully reconcile guidance for non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share to net income attributable to stockholders or earnings per share attributable to stockholders because the company cannot provide guidance for more significant reconciling items between net income attributable to stockholders and adjusted EBITDA and between earnings per share attributable to stockholders and non-GAAP adjusted fully distributed earnings per share without unreasonable effort. This is due to two primary reasons: • Reasonable guidance cannot be provided for reconciling the adjustment of redeemable limited partners’ capital to redemption amount – historically the largest adjustment in the reconciliation from non-GAAP to GAAP amounts – due to the fact that the increase or decrease in this item is based on the change in the number of Class B common units outstanding and change in stock price between quarters, which the company cannot predict, control or reasonably estimate. • Reasonable guidance cannot be provided for earnings per share attributable to stockholders because the ongoing quarterly member-owner exchange of Class B common units and corresponding Class B common stock into shares of Class A common stock impacts the number of shares of Class A common stock outstanding each quarter, which the company cannot predict, control or reasonably estimate. Member owners have the right, but not the obligation, to exchange class B common units on a quarterly basis, and the company has the discretion to settle any exchanged units for Class A common stock, cash, or a combination thereof, neither of which can be predicted, controlled or reasonably estimated at this time. Key Assumptions*: Supply Chain Services assumptions: Net administrative fees revenue growth of 2% to 6% Products revenue growth of 20% to 30% Continued high GPO retention rates Performance Services assumptions: Continued high SaaS institutional renewal rates Continued challenge of hesitant demand in some areas, including quality and safety technology, and cost management and value-based care consulting related to political and regulatory uncertainty Extension of Hospital Improvement Innovation Network contract with CMS at rates approximately $6.0 million compared to $14.4 million generated in fiscal 2019 Other assumptions: Estimated revenue available under contract of approximately $1.1 billion, which represents approximately 88% to 93% of our consolidated net revenue guidance range Fiscal 2020 non-GAAP free cash flow will be impacted due to the implications of COVID-19 on fourth quarter net administrative fees revenue, as well as a result of the timing of cash inflows and outflows given strategic decision to use operating cash flow to procure necessary products in direct souring to address increased member demand for products; given the COVID-19 related surge in demand, Premier is unlikely to collect cash on product sales within the same quarter that the purchase of these products is funded Capital expenditures of $95 million to $100 million, representing 7% to 8% of consolidated net revenue Consolidated non-GAAP adjusted EBITDA margin of 44% to 48% Stock-based compensation of $28 million to $32 million Non-GAAP adjusted fully distributed net income and earnings per share calculations to reflect an effective tax rate of 26% Amortization of purchased intangible assets of approximately $50 million Guidance does not contemplate any future share repurchases or significant acquisitions *As of May 5, 2020.


Questions


Appendix


Fiscal 2020 and 2019 non-GAAP reconciliations


Fiscal 2020 and 2019 non-GAAP reconciliations


Fiscal 2020 and 2019 non-GAAP reconciliations


Fiscal 2020 and 2019 non-GAAP reconciliations


Fiscal 2020 and 2019 non-GAAP reconciliations


Fiscal 2020 and 2019 non-GAAP reconciliations

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