ìôBLRaQ5 ÷ ¤ ^µä[email protected]/CIK-0001577916/5d28a3fb-0f...press release...
Transcript of ìôBLRaQ5 ÷ ¤ ^µä[email protected]/CIK-0001577916/5d28a3fb-0f...press release...
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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
WASHINGTON,D.C.20549
FORM8-K
CURRENTREPORTPursuanttoSection13or15(d)
oftheSecuritiesExchangeActof1934
DateofReport(DateofEarliestEventReported):February5,2018
Premier,Inc.(ExactNameofRegistrantasSpecifiedinitsCharter)
Delaware 001-36092 35-2477140
(StateorOtherJurisdictionofIncorporation)
(CommissionFileNumber)
(IRSEmployerIdentificationNo.)
13034BallantyneCorporatePlaceCharlotte,NC28277
(AddressofPrincipalExecutiveOffices)(ZipCode)
(704)357-0022(Registrant’sTelephoneNumber,IncludingAreaCode)
NotApplicable(FormerNameorFormerAddress,ifChangedSinceLastReport)
ChecktheappropriateboxbelowiftheForm8-Kfilingisintendedtosimultaneouslysatisfythefilingobligationoftheregistrantunderanyofthefollowingprovisions:
☐ WrittencommunicationspursuanttoRule425undertheSecuritiesAct(17CFR230.425)
☐ SolicitingmaterialpursuanttoRule14a-12undertheExchangeAct(17CFR240.14a-12)
☐ Pre-commencementcommunicationspursuanttoRule14d-2(b)undertheExchangeAct(17CFR240.14d-2(b))
☐ Pre-commencementcommunicationspursuanttoRule13e-4(c)undertheExchangeAct(17CFR240.13e-4(c))
IndicatebycheckmarkwhethertheregistrantisanemerginggrowthcompanyasdefinedinRule405oftheSecuritiesActof1933(§230.405)orRule12b-2oftheSecuritiesExchangeActof1934(§240.12b-2).Emerginggrowthcompany☐
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐
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Item2.02. ResultsofOperationsandFinancialCondition.
OnFebruary5,2018,Premier,Inc.(the“Company”)issuedapressreleasereportingthefinancialresultsoftheCompanyforthethreeandsixmonthsendedDecember31,2017.AcopyofthepressreleaseisattachedtothisreportasExhibit99.1andisincorporatedhereinbythisreference.
Asdiscussedinthepressrelease,theCompanyheldaconferencecallandwebcastonFebruary5,2018.SupplementalslidesreferencedduringtheconferencecallandwebcastwereavailableontheCompany’swebsiteforviewingbycallparticipants.AtranscriptofthecalltogetherwithsupplementalslidesreferencedduringtheconferencecallareattachedasExhibit99.2andExhibit99.3,respectively,tothisCurrentReportonForm8-K.
Item7.01. RegulationFDDisclosure.
Asnotedabove,theCompanyheldaconferencecallandwebcastonFebruary5,2018,todiscusstheCompany’soperatingresultsforthethreeandsixmonthsendedDecember31,2017.Acopyofthepressrelease,whichcontainsadditionalinformationregardinghowtoaccesstheconferencecallandwebcastandhowtolistentoarecordedplaybackofthecall,isattachedasExhibit99.1tothisCurrentReportonFrom8-K.AtranscriptofthecalltogetherwithsupplementalslidesreferencedduringtheconferencecallareattachedasExhibit99.2andExhibit99.3,respectively,tothisCurrentReportonForm8-Kandareincorporatedhereinbyreference.
****
TheinformationdiscussedunderItem2.02andItem7.01above,includingExhibit99.1,Exhibit99.2andExhibit99.3,shallnotbedeemed“filed”forpurposesofSection18oftheSecuritiesExchangeActof1934,asamended,orincorporatedbyreferenceinanyfilingbytheCompanyundertheSecuritiesActof1933,asamended,exceptasshallbeexpresslysetforthbyspecificreferenceinsuchafiling.
Item9.01. FinancialStatementsandExhibits.
(d)Exhibits.99.1 PressreleaseofPremier,Inc.,datedFebruary5,2018.
99.2 TranscriptofconferencecallofPremier,Inc.,datedFebruary5,2018.
99.3 Supplementalslidesreferencedduringthesecondquarter2018earningscallofPremier,Inc.
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SIGNATURE
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersignedhereuntodulyauthorized.
Premier,Inc.
By: /s/SusanD.DeVore Name: SusanD.DeVore Title: PresidentandChiefExecutiveOfficer
Date:February8,2018
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Exhibit99.1
FORIMMEDIATERELEASE
PREMIERINC.REPORTSFISCAL2018SECOND-QUARTERRESULTS
CHARLOTTE,NC,Feb.5,2018–PremierInc.(NASDAQ:PINC)todayreportedfinancialresultsforthefiscal2018secondquarterendedDec.31,2017.
Q22018Highlights:
• Netrevenueincreased15%to$411.4millionfromthesameperiodlastyear;SupplyChainServicessegmentrevenuerose19%andPerformanceServicessegmentrevenueincreased1%fromthesameperiodlastyear.
• Duealmostentirelytoaone-timeremeasurementofdeferredtaxesresultingfromtheTaxCutsandJobsAct,whichincreasedincometaxexpenseto
$231.5millionfrom$37.4millionayearago,netincomedeclined92%to$19.8millionfromthesameperiodayearago.Dilutednetlosspersharetotaled$1.66pershare,comparedwithdilutednetincomeof$1.50pershareintheprioryear.
• Non-GAAPadjustedEBITDA*of$133.5millionincreased9%fromthesameperiodlastyear.
• Non-GAAPadjustedfullydistributednetincome*increased7%to$70.0million,representingnon-GAAPadjustedfullydistributedearningspershare*of$0.50,anincreaseof9%over$0.46persharefromayearago.
• Theguidancerangeforfiscal2018non-GAAPadjustedfullydistributedearningspershareisraisedto$2.24-$2.37persharetoreflecttheexpectedincreasefromtaxreformandthecompany’sstockrepurchaseprogram.
* Descriptions of non-GAAP financial measures are provided in “Use and Definition of Non-GAAP Financial Measures,” and reconciliations are provided in the
tables at the end of this release.
“Premierdeliveredasuccessfulfiscal2018secondquarter,”saidSusanDeVore,presidentandchiefexecutiveofficer.“Wemetorexceededmanagementexpectationsfortheoverallbusinessaswellasforthesegments.Onaconsolidatedbasis,year-over-yearnetrevenueincreased15%andnon-GAAPadjustedEBITDArose9%.SupplyChainServicessegmentrevenueincreased19%fromayearago,withlegacygrouppurchasingdelivering5%growthinnetadministrativefeesrevenue.Theproductsbusinessproduceddouble-digitrevenuegrowthacrossboththeintegratedpharmacyanddirectsourcingbusinesses.WecontinuetoexpectrevenuegrowthinthePerformanceServicessegmenttoincreasesequentiallyinthesecondhalfofthefiscalyear,specificallydrivenbyexpectedsalesofambulatoryqualitysolutionslinkedtoregulatoryreportingthatwilloccurinthethirdquarter,andaswerecognizerevenuefromperformance-basedadvisoryservicesengagements.
“Wearecontinuallylookingforwaystoimprovetheefficiencyofourbusinessesanddelivervaluetoourstockholders,”DeVorecontinued.“Duringthequarter,weannouncedandlauncheda$200million
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Premier,Inc.FY’18Q2ResultsPage2of15stockrepurchaseprogram.Weexpectthisprogram,combinedwiththeanticipatedbenefitsfromfederaltaxreform,tomeaningfullyimpactfull-yearnon-GAAPadjustedfullydistributedearningspershare,andweareincreasingthisguidancerangeaccordingly.Weareaffirmingourotherguidanceranges,basedontheyear-to-dateperformanceandouroutlookfortheremainderoffiscal2018.
“Tofurtheroptimizeefficiencies,realizeongoingintegrationsynergies,andrealignresourcesforfuturegrowthareas,managementisimplementingcertainpersonneladjustments,includingamodestreductioninforce,thatweexpecttoproducepre-taxcostsavingsapproximating$13millionto$14milliononanannualrun-ratebasis,”DeVorecontinued.
“Lookingforward,webelievePremier’sintegratedsupplychain,technologyandanalyticscapabilitiesandwrap-aroundadvisoryservicescontinuetouniquelydifferentiateourhealthcareperformanceimprovementcompanyaswepartnerwithprovidersandsupplierstomanagetotalcosts,improvequalityandsafetyandnavigatethecontinuingevolutiontovalue-basedcare,”DeVoresaid.“WefurtherbelievethatourcomprehensiveapproachandmultiplebusinessdriversenablePremiertoachievesuccessfulgrowththroughchangingmarketplaceconditions,aswecontinuetodeliveracompellingvaluepropositiontoourmembersandseektobuildlong-termvalueforourstockholders.”
ResultsofOperationsfortheSecondQuarterofFiscal2018ConsolidatedSecond-QuarterFinancialHighlights ThreeMonthsEndedDecember31, SixMonthsEndedDecember31, (in thousands, except per share data) 2017 2016 %Change 2017 2016 %ChangeNetRevenue(a): SupplyChainServices:
Netadministrativefees $ 159,343 $129,071 23% $ 310,334 $255,047 22%Otherservicesandsupport 3,421 1,201 185% 5,570 2,846 96%
Services 162,764 130,272 25% 315,904 257,893 22%Products 162,101 142,378 14% 314,764 248,507 27%
TotalSupplyChainServices(a) 324,865 272,650 19% 630,668 506,400 25%PerformanceServices(a) 86,533 85,850 1% 171,294 165,372 4%
Total(a) $ 411,398 $358,500 15% $ 801,962 $671,772 19%
Netincome $ 19,769 $246,184 (92)% $ 80,385 $304,279 (74)%Netincomeattributabletostockholders $ 281,200 $400,275 (30)% $ 617,630 $470,577 31%Adjustednetincome(loss)(b) $(231,316) $211,688 (209)% $(181,251) $248,831 (173)%Weightedaveragesharesoutstanding:
Basic 55,209 49,445 12% 54,059 48,330 12%Diluted 139,237 141,308 (1)% 139,641 142,133 (2)%
Earningspershareattributabletostockholders: Basic $ 5.09 $ 8.10 (37)% $ 11.43 $ 9.74 17%Diluted(b) $ (1.66) $ 1.50 (211)% $ (1.30) $ 1.75 (174)%
NON-GAAPFINANCIALMEASURES:
AdjustedEBITDA(a)(c): SupplyChainServices $ 132,045 $119,022 11% $ 257,665 $236,326 9%PerformanceServices 27,929 28,603 (2)% 49,150 50,914 (3)%
TotalsegmentadjustedEBITDA 159,974 147,625 8% 306,815 287,240 7%Corporate (26,432) (25,616) (3)% (54,102) (54,458) 1%
Total(a) $ 133,542 $122,009 9% $ 252,713 $232,782 9%
Adjustedfullydistributednetincome(c) $ 69,982 $ 65,242 7% $ 131,695 $124,170 6%
Earningspershareonadjustedfullydistributednetincome-diluted(a)(c) $ 0.50 $ 0.46 9% $ 0.94 $ 0.87 8%
(a) Boldedmeasurescorrespondtocompanyguidance.(b) Earningspershareattributabletostockholdersexcludestheadjustmentofredeemablelimitedpartners’capitaltoredemptionamountandthenetincome
attributabletonon-controllinginterestinPremierLPifClassBcommonstockisdeterminedtobedilutive.Likewise,earningspershareattributabletostockholdersincludestheadjustmentofredeemablelimitedpartners’capitaltoredemptionamountandthenetincomeattributabletonon-controllinginterestinPremierLPifClassBcommonstockisdeterminedtobeantidilutive.
(c) SeeattachedsupplementalfinancialinformationforreconciliationofreportedGAAPresultstoNon-GAAPresults.
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Premier,Inc.FY’18Q2ResultsPage3of15Forthefiscalsecond-quarterendedDec.31,2017,Premiergeneratednetrevenueof$411.4million,anincreaseof15%,fromnetrevenueof$358.5millionforthesameperiodayearago.
Duealmostentirelytoaone-timeremeasurementofdeferredtaxesresultingfromtheTaxCutsandJobsAct,netincomeforthefiscalsecond-quarterwas$19.8million,comparedwith$246.2millionforthesameperiodayearago.InaccordancewithGAAP,fiscal2018and2017second-quarternetincomeattributabletostockholdersincludednon-cashadjustmentsof$317.9millionand$335.3million,respectively,toreflectthechangeintheredemptionvalueoflimitedpartners’ClassBcommonunitownershipattheendofeachperiod.Thesenon-cashadjustmentsresultprimarilyfromchangesinthenumberofClassBcommonsharesoutstandingandthecompany’sstockpricebetweenperiodsanddonotreflectresultsofthecompany’sbusinessoperations.Afterthesenon-cashadjustments,thecompanyreportednetincomeattributabletostockholdersof$281.2million,comparedwith$400.3millionforthesameperiodayearago.Second-quarternetlossperdilutedshare,whichisbasedonnetincomeadjustedinaccordancewithGAAPforthetaxexpenserelatedtoPremierInc.retainingtheportionofnetincomeattributabletoincomefromnon-controllinginterestinPremierLP,was$1.66comparedwithdilutednetincomeof$1.50pershareforthesameperiodayearago.Second-quarternetlosspersharewasalsonegativelyimpactedbythesamefactorsthatimpactednetincome.See “Calculation of GAAPEarnings per Share” in the income statement section of this press release.
Fiscalsecond-quarternon-GAAPadjustedEBITDAof$133.5millionincreased9%from$122.0millionforthesameperiodtheprioryear.AdjustedEBITDAgrowthwasprimarilydrivenbygrowthinnetadministrativefeesrevenue,includingcontributionsrelatedtotheInnovatixandEssensaacquisition,netofthereductioninequityinnetincomeofunconsolidatedaffiliatesduetoacquiringtheremaining50%ofInnovatix,alongwithanincreaseinproductrevenue.Theseresultswerepartiallyoffsetbyincreasedcostofproductsandselling,generalandadministrativeexpensesresultingfromhighersalariesandbenefitsexpensesasaresultofacquisitionsandtosupportgrowth.
Non-GAAPadjustedfullydistributednetincomeforthefiscalsecond-quarterincreased7%to$70.0millionfrom$65.2millionforthesameperiodayearago.Adjustedfullydistributedearningspershareincreasedto$0.50from$0.46forthesameperiodayearago.Adjustedfullydistributedearningspershareisanon-GAAPfinancialmeasurethatrepresentsnetincome,adjustedfornon-recurringandnon-cashitems,attributabletoallstockholdersasifallClassBstockholdersexchangedtheirClassBcommonunitsandassociatedClassBcommonsharesforClassAcommonshares.
SegmentResults
Supply Chain Services
Forthefiscalsecond-quarterendedDec.31,2017,theSupplyChainServicessegmentgeneratednetrevenueof$324.9million,anincreaseof19%from$272.7millionayearago.Therevenueincreasewasdrivenbygrowthinthecompany’sgrouppurchasingorganization(GPO)andproductsbusinesses.GPOnetadministrativefeesrevenueof$159.3millionincreased$30.3million,or23%,fromayearago,primarilydrivenbycontributionsfromtheInnovatixandEssensabusinesses,whichwereacquiredinDecember2016.Legacyyear-over-yearnetadministrativefeerevenuegrowthinthesecondquarterwas5%,resultingfromasupplierrevenuerecoverysettlementandcontractpenetrationofexistingmembers.Productrevenuesof$162.1millionincreased14%from$142.4millionayearago,attributabletodouble-digitgrowthfromboththeintegratedpharmacyanddirectsourcingbusinesses.
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Premier,Inc.FY’18Q2ResultsPage4of15SupplyChainServicessegmentadjustedEBITDAof$132.0millionforthefiscal2018second-quarterincreased11%from$119.0millionforthesameperiodayearago.Theincreaselargelyreflectsgrowthinnetadministrativefeesrevenue.Growthwaspartiallyoffsetbyincrementalsalariesandbenefitsassociatedwiththeprior-yearacquisitionofInnovatixandEssensa.Additionally,adjustedEBITDAfromtheprioryearincludeda$5.6millionnon-cashadjustmentforcashcollectionsnotrecognizedasrevenueonaGAAPbasisduetoapurchaseaccountingadjustment,andincluded$4.1millioninequityinnetincomeofInnovatix,asitwashistoricallyaccountedforasanunconsolidatedaffiliatethroughthedateofacquisition.
Performance Services
Forthefiscalsecond-quarterendedDec.31,2017,thePerformanceServicessegmentgeneratednetrevenueof$86.5million,a1%increasefrom$85.9millionforthesamequarterlastyear,primarilyduetogrowthinthecompany’sinformaticsandtechnologyservicesbusinessprimarilyrelatedtocostmanagementsolutionsaswellasgrowthinambulatoryqualitysolutions.
PerformanceServicessegmentadjustedEBITDAof$27.9millionforthefiscal2018second-quarterdecreased2%from$28.6millionforthesamequarterlastyear.Growthwasimpactedbyanincreaseincostofsales,primarilyrelatedtoanincreaseinstaffingandcoststosupportgrowthandperformance-basedengagementsandwasimpactedonacomparablebasisduetohigherrevenuerecognitionfromperformance-basedengagementsintheprioryear.
ResultsofOperationsfortheSixMonthsEndedDec.31,2017
ForthesixmonthsendedDec.31,2017,Premiergeneratednetrevenueof$802.0million,a19%increasefromnetrevenueof$671.8millionforthesameperiodayearago.
Duealmostentirelytoaone-timeremeasurementofdeferredtaxesresultingfromtheTaxCutsandJobsAct,netincomeforthesix-monthperiodtotaled$80.4million,comparedwith$304.3millionforthesameperiodayearago.Fiscal2018and2017six-monthnetincomeattributabletostockholdersrequirednon-cashadjustmentsof$638.3millionand$397.1million,respectively,toreflectchangesinredemptionvalueofthelimitedpartnersClassBcommonunitownershipattheendofeachperiod.Thesenon-cashadjustmentsresultprimarilyfromchangesinthenumberofClassBcommonsharesoutstandingandthecompany’sstockpricebetweenperiodsanddonotreflectresultsofthecompany’sbusinessoperations.Afterthesenon-cashadjustments,thecompanyreportednetincomeattributabletostockholdersof$617.6million,comparedwith$470.6millionayearago.Onadilutedper-sharebasis,whichisbasedonnetincomeadjustedinaccordancewithGAAPforthetaxexpenserelatedtoPremierInc.retainingtheportionofnetincomeattributabletoincomefromnon-controllinginterestinPremierLP,thenetlosswas$1.30comparedwithdilutednetincomeof$1.75forthesameperiodayearago.NetlosspershareforthesixmonthsendedDec.31,2017wasalsonegativelyimpactedbythesamefactorsthatimpactednetincome.See “Calculation of GAAP Earnings per Share” in the incomestatement section of this press release.
ForthesixmonthsendedDec.31,2017,non-GAAPadjustedEBITDAof$252.7millionincreased9%from$232.8millionforthesameperiodlastyear.Non-GAAPadjustedfullydistributednetincomeforthesixmonthsrose6%to$131.7millionfrom$124.2millionforthesameperiodayearago,whilenon-GAAPadjustedfullydistributedearningspershareincreasedto$0.94from$0.87.
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Premier,Inc.FY’18Q2ResultsPage5of15SupplyChainServicessegmentnetrevenueforthefirstsixmonthsoffiscal2018increased25%to$630.7millionfrom$506.4millionayearearlier.SupplyChainServicessegmentadjustedEBITDAincreased9%to$257.7millionfrom$236.3millionfortheprioryear.
PerformanceServicessegmentnetrevenueforthesixmonthsoffiscal2018increased4%to$171.3millionfrom$165.4millionayearearlier.SegmentadjustedEBITDAdecreased3%to$49.2millionfrom$50.9million.
CashFlowsandLiquidity
Cashprovidedbyoperatingactivitieswas$206.5millionforthesix-monthperiodendedDec.31,2017,comparedwith$138.4millionforthesameperiodlastyear.Theincreaseincashflowfromoperationswasprimarilydrivenbyanincreaseinnetadministrativefeesaswellasdecreasedoutflowsrelatedtoworkingcapitalneeds.AtDec.31,2017,thecompany’scashandcashequivalentstotaled$163.0million,comparedwith$156.7millionatJune30,2017.AtDec.31,2017,thecompanyhadanoutstandingbalanceof$200.0milliononitsfive-year,$750millionrevolvingcreditfacility.
ThroughDec.31,2017,thecompanyrepurchasedapproximately2.6millionsharesofClassAcommonstockfor$74.7million,usingthetradingdate(approximately2.5millionsharesfor$71.0millionusingthesettlementdate).Therepurchasestookplaceunderthecompany’songoing$200.0millionstockrepurchaseprogramannouncedOct.31,2017,whichauthorizessharestoberepurchasedthroughJune30,2018.Assumingfullcompletionoftheprogrambytheendofthefiscalyear,thecompanyexpectsfiscal2018non-GAAPadjustedfullydistributedearningspersharetobepositivelyimpactedbyapproximately$0.03to$0.05pershare.
Non-GAAPfreecashflowforthesix-monthperiodendedDecember31,2017was$122.2million,comparedwith$59.4millionforthesameperiodayearago.Theincreaseinfreecashflowresultsfromthesamefactorsdrivingthegrowthincashflowfromoperations.(See free cash flow definition in “Use and Definitionof Non-GAAP Financial Measures,” and reconciliation to net cash provided by operating activities is provided in the tables section of this press release) .
Fiscal2018OutlookandGuidance
BasedonresultsforthesixmonthsendedDec.31,2017,management’scurrentexpectationsfortheremainderoffiscal2018andtherealizationofpreviouslydisclosedunderlyingassumptions,thecompanyreaffirmsitsfullfiscal-year2018guidancerangeforconsolidatednetrevenue,SupplyChainServicesandPerformanceServicessegmentrevenue,andnon-GAAPadjustedEBITDA.WithinSupplyChainServices,productsrevenueisexpectedtogrow14%to18%forthefullfiscalyear,comparedwiththepreviousassumptionof9%to13%.Theguidancerangefornon-GAAPadjustedfullydistributedearningspershareisbeingincreasedtoreflectexpectationsofthebeneficialimpactsofthefederalcorporateincometaxreformandthefullimplementationofthecompany’spreviouslyannounced$200millionstockrepurchaseprogram.Taxreformisexpectedtopositivelyimpactfiscal2018non-GAAPadjustedfullydistributedEPSbyapproximately$0.23,whilethesharerepurchaseisexpectedtoadd$0.03to$0.05.Asaresult,theguidancerangeforfiscal2018non-GAAPadjustedfullydistributedearningspershareisbeingincreasedto$2.24-$2.37.
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Premier,Inc.FY’18Q2ResultsPage6of15
Fiscal2018FinancialGuidance(1)
Premier,Inc.adjustsfull-yearfiscal2018financialguidance,asfollows:
(inmillions,exceptpersharedata) Current*FY2018 %YoYIncrease
PreviousFY2017
NetRevenue: SupplyChainServicessegment $1,200.0-$1,266.0 9%-15% $1,200.0-$1,266.0PerformanceServicessegment $364.0-$382.0 3%-8% $364.0-$382.0
TotalNetRevenue $1,564.0-$1,648.0 8%-13% $1,564.0-$1,648.0
Non-GAAPadjustedEBITDA $532.0-$557.0 6%-11% $532.0-$557.0
Non-GAAPadjustedfullydistributedEPS $2.24-$2.37 19%-25% $1.98-$2.09
* GuidanceadjustmentsasofFeb5,2018,adds$0.26tolowendand$0.28tohighendofnon-GAAPadjustedfullydistributedEPSrangeforexpected$0.23
impactfromtaxreformand$0.03-$0.05impactfromsharerepurchaseprogram,assumingprogramiscompletedbyfiscalyearend.(1) Thecompanydoesnotmeaningfullyreconcileguidancefornon-GAAPadjustedEBITDAandnon-GAAPadjustedfullydistributedearningspersharetonet
incomeattributabletostockholdersorearningspershareattributabletostockholdersbecausethecompanycannotprovideguidanceformoresignificantreconcilingitemsbetweennetincomeattributabletostockholdersandadjustedEBITDAandbetweenearningspershareattributabletostockholdersandnon-GAAPadjustedfullydistributedearningspersharewithoutunreasonableeffort.Thisisduetotwoprimaryreasons:
• Reasonableguidancecannotbeprovidedforreconcilingtheadjustmentofredeemablelimitedpartners’capitaltoredemptionamount–historicallythelargestadjustmentinthereconciliationfromnon-GAAPtoGAAPamounts–duetothefactthattheincreaseordecreaseinthisitemisbasedonthechangeinthenumberofsharesofClassBstockoutstandingandchangeinstockpricebetweenquarters,whichthecompanycannotpredict,controlorreasonablyestimate.
• Reasonableguidancecannotbeprovidedforearningspershareattributabletostockholdersbecausetheongoingquarterlymember-ownerexchangeofClassBcommonstockandcorrespondingClassBunitsintosharesofClassAcommonstockimpactsthenumberofsharesofClassAcommonstockoutstandingeachquarter,whichthecompanycannotpredict,controlorreasonablyestimate.Memberownershavetheright,butnottheobligation,toexchangesharesonaquarterlybasis,andthecompanyhasthediscretiontosettleanyexchangedsharesforClassAcommonstock,cash,oracombinationthereof,neitherofwhichcanbepredicted,controlledorreasonablyestimatedatthistime.
RealignmentofResources
Aspartofthecompany’songoingintegrationsynergiesandeffortstorealignresourcesforfuturegrowthareas,managementisimplementingcertainpersonneladjustments,includingamodestworkforcereduction,thatareexpectedtoproducepre-taxcostsavingsapproximating$13.0millionto$14.0milliononanannualrun-ratebasis.Pre-taxcashrestructuringchargesofapproximately$5.2millionrelatedtotheworkforcereduction,whichisexpectedtobesubstantiallycompletedinFebruary2018,willbeexpensedinthecurrentquarterendingMarch31,2018.Thesepersonneladjustmentsimpactapproximately75positions,or3%oftotalemployees.
ConferenceCall
PremiermanagementwillhostaconferencecallandliveaudiowebcastonMonday,Feb.5,2018,at5:00p.m.ET,todiscussthecompany’sfinancialresults.TheconferencecallcanbeaccessedthroughalinkprovidedontheinvestorrelationspageonPremier’swebsiteatinvestors.premierinc.com.Thosewantingtoparticipatebyphonemaydosobydialing844.296.7719andprovidingtheoperatorwithconferenceIDnumber:5799398.Internationalcallersshoulddial574.990.1041andprovidethesamepasscode.Thecompanyencouragescallerstodialinatleastfiveminutesbeforethestartofthecalltoregister.ThearchivedwebcastwillbeaccessibleonPremier’sinvestorrelationspage.
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Premier,Inc.FY’18Q2ResultsPage7of15AboutPremierInc.
PremierInc.(NASDAQ:PINC)isaleadinghealthcareimprovementcompany,unitinganallianceofapproximately3,900U.S.hospitalsandhealthsystemsandapproximately150,000otherprovidersandorganizationstotransformhealthcare.Withintegrateddataandanalytics,collaboratives,supplychainsolutions,andadvisoryandotherservices,Premierenablesbettercareandoutcomesatalowercost.Premierplaysacriticalroleintherapidlyevolvinghealthcareindustry,collaboratingwithmemberstoco-developlong-terminnovationsthatreinventandimprovethewaycareisdeliveredtopatientsnationwide.HeadquarteredinCharlotte,N.C.,PremierispassionateabouttransformingAmericanhealthcare.PleasevisitPremier’snewsandinvestorsitesonwww.premierinc.com;aswellasTwitter,Facebook,LinkedIn,YouTube,Instagram,FoursquareandPremier’sblogformoreinformationaboutthecompany.
UseandDefinitionofNon-GAAPFinancialMeasures
PremierusesEBITDA,adjustedEBITDA,segmentadjustedEBITDA,adjustedfullydistributednetincome,adjustedfullydistributedearningspershare,andfreecashflowtofacilitateacomparisonofthecompany’soperatingperformanceonaconsistentbasisfromperiodtoperiodandtoprovidemeasuresthat,whenviewedincombinationwithitsresultspreparedinaccordancewithGAAP,allowforamorecompleteunderstandingoffactorsandtrendsaffectingthecompany’sbusinessthanGAAPmeasuresalone.ThecompanybelievesadjustedEBITDAandsegmentadjustedEBITDAassistitsboardofdirectors,managementandinvestorsincomparingthecompany’soperatingperformanceonaconsistentbasisfromperiodtoperiodbyremovingtheimpactofthecompany’sassetbase(primarilydepreciationandamortization)anditemsoutsidethecontrolofmanagement(taxes),aswellasothernon-cash(impairmentofintangibleassetsandpurchaseaccountingadjustments)andnon-recurringitems,fromoperatingresults.Non-recurringitemsareincomeorexpensesorotheritemsthathavenotbeenearnedorincurredwithinthepriortwoyearsandarenotexpectedtorecurwithinthenexttwoyears.Suchitemsincludecertainstrategicandfinancialrestructuringexpenses.
Inaddition,adjustedfullydistributednetincomeandadjustedfullydistributedearningspershareeliminatethevariabilityofnon-controllinginterestasaresultofmemberownerexchangesofClassBcommonstockandcorrespondingClassBunitsintosharesofClassAcommonstock(whichexchangesareamemberowner’scumulativeright,butnotobligation,whichbeganonOctober31,2014,andoccureachquarterthereafter,andarelimitedtoone-seventhofthememberowner’sinitialallocationofClassBcommonunitsperyear)andotherpotentiallydilutiveequitytransactionswhichareoutsideofmanagement’scontrol.AdjustedfullydistributednetincomeisdefinedasnetincomeattributabletoPremier(i)excludingincometaxexpense,(ii)excludingtheimpactofadjustmentofredeemablelimitedpartners’capitaltoredemptionamount,(iii)excludingtheeffectofnon-recurringandnon-cashitems,(iv)assumingtheexchangeofalltheClassBcommonunitsforsharesofClassAcommonstock,whichresultsintheeliminationofnon-controllinginterestinPremierLP,and(v)reflectinganadjustmentforincometaxexpenseonnon-GAAPfullydistributednetincomebeforeincometaxesatthecompany’sestimatedeffectiveincometaxrate.Wedefineadjustedfullydistributedearningspershareasadjustedfullydistributednetincomedividedbydilutedweightedaverageshares.Thesemeasuresassistourboardofdirectors,managementandinvestorsincomparingournetincomeandearningspershareonaconsistentbasisfromperiodtoperiodbecausethesemeasuresremovenon-cashandnon-recurringitems,andeliminatethevariabilityofnon-controllinginterestthatresultsfrommemberownerexchangesofClassBcommonunitsintosharesofClassAcommonstock.
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Premier,Inc.FY’18Q2ResultsPage8of15EBITDAisdefinedasnetincomebeforeinterestandinvestmentincome,net,incometaxexpense,depreciationandamortizationandamortizationofpurchasedintangibleassets.AdjustedEBITDAisdefinedasEBITDAbeforemergerandacquisitionrelatedexpensesandnon-recurring,non-cashornon-operatingitems,andincludingequityinnetincomeofunconsolidatedaffiliates.Non-recurringitemsincludecertainstrategicandfinancialrestructuringexpenses.Non-operatingitemsincludegainorlossonthedisposalofassets.SegmentadjustedEBITDAisdefinedasthesegment’snetrevenuelesscostofrevenueandoperatingexpensesdirectlyattributabletothesegment,excludingdepreciationandamortization,amortizationofpurchasedintangibleassets,mergerandacquisitionrelatedexpensesandnon-recurringornon-cashitems,andincludingequityinnetincomeofunconsolidatedaffiliates.Operatingexpensesdirectlyattributabletothesegmentincludeexpensesassociatedwithsalesandmarketing,generalandadministrativeandproductdevelopmentactivitiesspecifictotheoperationofeachsegment.GeneralandadministrativecorporateexpensesthatarenotspecifictoaparticularsegmentarenotincludedinthecalculationofsegmentadjustedEBITDA.AdjustedEBITDAisasupplementalfinancialmeasureusedbythecompanyandbyexternalusersofthecompany’sfinancialstatements.
ManagementconsidersadjustedEBITDAanindicatoroftheoperationalstrengthandperformanceofthecompany’sbusiness.AdjustedEBITDAallowsmanagementtoassessperformancewithoutregardtofinancingmethodsandcapitalstructureandwithouttheimpactofothermattersthatmanagementdoesnotconsiderindicativeoftheoperatingperformanceofthebusiness.SegmentadjustedEBITDAistheprimaryearningsmeasureusedbymanagementtoevaluatetheperformanceofthecompany’sbusinesssegments.
Freecashflowisdefinedasnetcashprovidedbyoperatingactivitieslessdistributionsandtaxreceivableagreementpaymentstolimitedpartnersandpurchasesofpropertyandequipment.Freecashflowdoesnotrepresentdiscretionarycashavailableforspendingasitexcludescertaincontractualobligationssuchasdebtrepayments.Managementbelievesfreecashflowisanimportantmeasurebecauseitrepresentsthecashthatthecompanygeneratesafterpaymentoftaxdistributionstolimitedpartnersandcapitalinvestmenttomaintainexistingproductsandservicesandongoingbusinessoperations,aswellasdevelopmentofnewandupgradedproductsandservicestosupportfuturegrowth.Freecashflowisimportantbecauseitallowsthecompanytoenhancestockholdervaluethroughacquisitions,partnerships,jointventures,investmentsinrelatedorcomplimentarybusinessesand/ordebtreduction.
Readersareurgedtoreviewthereconciliationofthesenon-GAAPfinancialmeasuresincludedattheendofthisrelease.Toproperlyandprudentlyevaluateourbusiness,readersareencouragedtoreviewthefinancialtablesincludedattheendofthisrelease.Readersshouldnotrelyonanysinglefinancialmeasuretoevaluatethecompany’sbusiness.Inaddition,thenon-GAAPfinancialmeasuresusedinthisreleasearesusceptibletovaryingcalculationsandmaydifferfrom,andmaythereforenotbecomparableto,similarlytitledmeasuresusedbyothercompanies.
Forward-LookingStatements
Statementsmadeinthisreleasethatarenotstatementsofhistoricalorcurrentfacts,suchasthoserelatedtoexpectedfinancialperformanceandgrowthtrendsinourSupplyChainandPerformanceServicesbusinesssegmentsandtheirrespectivebusinessunits,theimpactandlengthofthelowerutilizationandpatientvolumetrendsandregulatoryuncertaintyandourabilitytomanagethroughtheseissues,thesuccessofourcostreductionandsavingsmeasures,expectedfinancialcontributionsfromouracquiredbusinesses,thestatementsrelatedtofiscal2018outlookandguidanceandthe
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Premier,Inc.FY’18Q2ResultsPage9of15assumptionsunderlyingsuchguidance,theexpectedcompletionandfinancialimpactofPremier’sClassAcommonstockrepurchaseprogram,andtheexpectedfinancialimpactofthefederalcorporateincometaxreform,are“forward-lookingstatements”withinthemeaningofthePrivateSecuritiesLitigationReformActof1995.Forward-lookingstatementsmayinvolveknownandunknownrisks,uncertaintiesandotherfactorsthatmaycausetheactualresults,performanceorachievementsofPremiertobemateriallydifferentfromhistoricalresultsorfromanyfutureresultsorprojectionsexpressedorimpliedbysuchforward-lookingstatements.Accordingly,readersshouldnotplaceunduerelianceonanyforwardlookingstatements.Inadditiontostatementsthatexplicitlydescribesuchrisksanduncertainties,readersareurgedtoconsiderstatementsintheconditionalorfuturetensesorthatincludetermssuchas“believes,”“belief,”“expects,”“estimates,”“intends,”“anticipates”or“plans”tobeuncertainandforward-looking.Forward-lookingstatementsmayincludecommentsastoPremier’sbeliefsandexpectationsastofutureeventsandtrendsaffectingitsbusinessandarenecessarilysubjecttouncertainties,manyofwhichareoutsidePremier’scontrol.MoreinformationonpotentialfactorsthatcouldaffectPremier’sfinancialresultsisincludedfromtimetotimeinthe“CautionaryNoteRegardingForward-LookingStatements,”“RiskFactors”and“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”sectionsofPremier’speriodicandcurrentfilingswiththeSEC,includingthosediscussedunderthe“RiskFactors”and“CautionaryNoteRegardingForward-LookingStatements”sectionofPremier’sForm10-KfortheyearendedJune30,2017,aswellastheForm10-QforthequarterendedDec.31,2017,expectedtobefiledwiththeSECshortlyafterthedateofthisrelease,andalsomadeavailableonPremier’swebsiteatinvestors.premierinc.com.Forward-lookingstatementsspeakonlyasofthedatetheyaremade,andPremierundertakesnoobligationtopubliclyupdateorreviseanyforward-lookingstatements,whetherasaresultofnewinformationorfutureeventsthatoccurafterthatdate,orotherwise.Contacts Investorcontact:JimStoreyVicePresident,[email protected]
Mediacontact:AmandaForsterVicePresident,[email protected]
(TablesFollow)
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Premier,Inc.FY’18Q2ResultsPage10of15
CondensedConsolidatedStatementsofIncome(Unaudited)
(Inthousands,exceptpersharedata)
ThreeMonthsEndedDecember31,
SixMonthsEndedDecember31,
2017 2016 2017 2016 Netrevenue:
Netadministrativefees $ 159,343 $ 129,071 $ 310,334 $ 255,047Otherservicesandsupport 89,953 87,051 176,864 168,218
Services 249,296 216,122 487,198 423,265Products 162,102 142,378 314,764 248,507
Netrevenue 411,398 358,500 801,962 671,772Costofrevenue:
Services 47,255 44,856 94,191 87,546Products 153,272 131,158 297,712 226,971
Costofrevenue 200,527 176,014 391,903 314,517
Grossprofit 210,871 182,486 410,059 357,255Otheroperatingincome:
Remeasurementoftaxreceivableagreementliabilities 177,174 — 177,174 5,722
Otheroperatingincome: 177,174 — 177,174 5,722
Operatingexpenses: Selling,generalandadministrative 108,620 95,927 222,941 193,887Researchanddevelopment 324 767 813 1,573Amortizationofpurchasedintangibleassets 13,817 11,151 27,715 20,360
Operatingexpenses 122,761 107,845 251,469 215,820
Operatingincome 265,284 74,641 335,764 147,157
RemeasurementgainattributabletoacquisitionofInnovatix,LLC — 204,833 — 204,833Equityinnetincomeofunconsolidatedaffiliates 1,257 5,127 5,509 14,706Interestandinvestmentloss,net (1,508) (857) (3,003) (1,009)Lossondisposaloflong-livedassets (400) — (1,720) (1,518)Otherincome(expense) (13,356) (131) (11,893) 875
Otherincome(expense),net (14,007) 208,972 (11,107) 217,887
Incomebeforeincometaxes 251,277 283,613 324,657 365,044Incometaxexpense 231,508 37,429 244,272 60,765
Netincome 19,769 246,184 80,385 304,279Netincomeattributabletonon-controllinginterestinPremierLP (56,485) (181,173) (101,095) (230,774)Adjustmentofredeemablelimitedpartners’capitaltoredemptionamount 317,916 335,264 638,340 397,072
Netincomeattributabletostockholders $ 281,200 $ 400,275 $ 617,630 $ 470,577
Calculation of GAAP Earnings (Loss) per Share
Numeratorforbasicearningspershare: Netincomeattributabletostockholders $ 281,200 $ 400,275 $ 617,630 $ 470,577
Numeratorfordilutedearnings(loss)pershare: Netincomeattributabletostockholders $ 281,200 $ 400,275 $ 617,630 $ 470,577Adjustmentofredeemablelimitedpartners’capitaltoredemptionamount (317,916) (335,264) (638,340) (397,072)Netincomeattributabletonon-controllinginterestinPremierLP 56,485 181,173 101,095 230,774
Netincome 19,769 246,184 80,385 304,279TaxeffectonPremier,Inc.netincome (251,085) (34,496) (261,636) (55,448)
Adjustednetincome(loss) $(231,316) $ 211,688 $(181,251) $ 248,831
Denominatorforbasicearningspershare: Weightedaverageshares 55,209 49,445 54,059 48,330
Denominatorfordilutedearnings(loss)pershare: Weightedaverageshares 55,209 49,445 54,059 48,330Effectofdilutivestockbasedawards 450 401 553 437ClassBsharesoutstanding 83,578 91,462 85,029 93,366
Weightedaveragesharesandassumedconversions 139,237 141,308 139,641 142,133
Basicearningspershare $ 5.09 $ 8.10 $ 11.43 $ 9.74Dilutedearnings(loss)pershare $ (1.66) $ 1.50 $ (1.30) $ 1.75
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Premier,Inc.FY’18Q2ResultsPage11of15
CondensedConsolidatedBalanceSheets(Unaudited)
(Inthousands,exceptsharedata) December31,2017 June30,2017Assets
Cashandcashequivalents $ 163,014 $ 156,735Accountsreceivable(netof$2,384and$1,812allowancefordoubtfulaccounts,respectively) 171,354 159,745Inventory 62,067 50,426Prepaidexpensesandothercurrentassets 24,021 35,164Duefromrelatedparties 381 6,742
Totalcurrentassets 420,837 408,812Propertyandequipment(netof$264,173and$236,460accumulateddepreciation,respectively) 190,815 187,365Intangibleassets(netof$125,903and$99,198accumulatedamortization,respectively) 349,847 377,962Goodwill 906,545 906,545Deferredincometaxassets 305,549 482,484Deferredcompensationplanassets 42,779 41,518Investmentsinunconsolidatedaffiliates 98,388 92,879Otherassets 5,403 10,271
Totalassets $ 2,320,163 $ 2,507,836
Liabilities,redeemablelimitedpartners’capitalandstockholders’deficit Accountspayable $ 49,626 $ 42,815Accruedexpenses 46,090 55,857Revenueshareobligations 74,651 72,078Limitedpartners’distributionpayable 20,396 24,951Accruedcompensationandbenefits 41,725 53,506Deferredrevenue 45,699 44,443Currentportionoftaxreceivableagreements 17,925 17,925Currentportionoflong-termdebt 201,139 227,993Otherliabilities 9,106 32,019
Totalcurrentliabilities 506,357 571,587Long-termdebt,lesscurrentportion 6,544 6,279Taxreceivableagreements,lesscurrentportion 229,291 321,796Deferredcompensationplanobligations 42,779 41,518Deferredtaxliabilities 30,942 48,227Otherliabilities 55,183 42,099
Totalliabilities 871,096 1,031,506
Redeemablelimitedpartners’capital 2,398,640 3,138,583Stockholders’deficit:
ClassAcommonstock,$0.01parvalue,500,000,000sharesauthorized;57,263,627sharesissuedand54,685,668sharesoutstandingatDecember31,2017and51,943,281sharesissuedandoutstandingatJune30,2017 573 519
ClassBcommonstock,$0.000001parvalue,600,000,000sharesauthorized;82,282,748and87,298,888sharesissuedandoutstandingatDecember31,2017andJune30,2017,respectively — —
Treasurystock,atcost;2,577,959shares (74,698) —Additionalpaid-in-capital — —Accumulateddeficit (875,448) (1,662,772)Accumulatedothercomprehensiveloss — —
Totalstockholders’deficit (949,573) (1,662,253)
Totalliabilities,redeemablelimitedpartners’capitalandstockholders’deficit $ 2,320,163 $ 2,507,836
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Premier,Inc.FY’18Q2ResultsPage12of15
CondensedConsolidatedStatementsofCashFlows(Unaudited)(Inthousands)
SixMonthsEndedDecember31, 2017 2016 Operatingactivities
Netincome $ 80,385 $ 304,279Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities:
Depreciationandamortization 61,532 48,576Equityinnetincomeofunconsolidatedaffiliates (5,509) (14,706)Deferredincometaxes 235,648 48,705Stock-basedcompensation 17,699 12,066Remeasurementoftaxreceivableagreementliabilities (177,174) (5,722)RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (204,833)Lossondisposaloflong-livedassets 1,720 1,518Changesinoperatingassetsandliabilities:
Accountsreceivable,prepaidexpensesandothercurrentassets (467) (11,888)Otherassets 1,060 274Inventories (11,641) (31,832)Accountspayable,accruedexpenses,andothercurrentliabilities (20,238) (4,136)Long-termliabilities 1,287 (4,100)LossonFFFputandcallrights 15,607 174
Otheroperatingactivities 6,606 (11)
Netcashprovidedbyoperatingactivities 206,515 138,364
Investingactivities Purchasesofpropertyandequipment (38,622) (34,325)Proceedsfromsaleofmarketablesecurities — 48,013AcquisitionofInnovatix,LLCandEssensaVentures,LLC,netofcashacquired — (222,217)AcquisitionofAcroPharmaceuticals,netofcashacquired — (68,745)Investmentsinunconsolidatedaffiliates — (65,660)Distributionsreceivedonequityinvestmentsinunconsolidatedaffiliates — 6,550Otherinvestingactivities — 26
Netcashusedininvestingactivities (38,622) (336,358)
Financingactivities Paymentsmadeonnotespayable (6,858) (1,338)Proceedsfromcreditfacility 30,000 327,500Paymentsoncreditfacility (50,000) —Proceedsfromexerciseofstockoptionsunderequityincentiveplan 2,808 2,909ProceedsfromissuanceofClassAcommonstockunderstockpurchaseplan 1,388 1,256Repurchaseofvestedrestrictedunitsforemployeetax-withholding (5,743) (17,629)SettlementofexchangeofClassBunitsbymemberowners — (99,999)DistributionstolimitedpartnersofPremierLP (45,703) (44,630)RepurchaseofClassAcommonstock(heldastreasurystock) (70,844) —Earn-outliabilitypaymenttoGNYHAHoldings (16,662) —
Netcashprovidedby(usedin)financingactivities (161,614) 168,069
Netincrease(decrease)incashandcashequivalents 6,279 (29,925)Cashandcashequivalentsatbeginningofyear 156,735 248,817
Cashandcashequivalentsatendofperiod $ 163,014 $ 218,892
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Premier,Inc.FY’18Q2ResultsPage13of15
SupplementalFinancialInformationReconciliationofNetCashProvidedbyOperatingActivitiestoNon-GAAPFreeCashFlow
(Unaudited)(Inthousands)
ThreeMonthsEndedDecember31,
SixMonthsEndedDecember31,
2017 2016 2017 2016 Netcashprovidedbyoperatingactivities $131,482 $ 96,537 $206,515 $138,364Purchasesofpropertyandequipment (21,975) (17,359) (38,622) (34,325)DistributionstolimitedpartnersofPremierLP (20,752) (22,137) (45,703) (44,630)
Non-GAAPFreeCashFlow $ 88,755 $ 57,041 $122,190 $ 59,409
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Premier,Inc.FY’18Q2ResultsPage14of15
SupplementalFinancialInformationReconciliationofNetIncometoAdjustedEBITDA
ReconciliationofOperatingIncometoSegmentAdjustedEBITDAReconciliationofNetIncomeAttributabletoStockholderstoNon-GAAPAdjustedFullyDistributedNetIncome
(Unaudited)(Inthousands)
ThreeMonthsEndedDecember31,
SixMonthsEndedDecember31,
2017 2016 2017 2016 Netincome $ 19,769 $ 246,184 $ 80,385 $ 304,279
Interestandinvestmentloss,net 1,508 857 3,003 1,009Incometaxexpense 231,508 37,429 244,272 60,765Depreciationandamortization 17,310 14,198 33,817 28,216Amortizationofpurchasedintangibleassets 13,817 11,151 27,715 20,360
EBITDA 283,912 309,819 389,192 414,629Stock-basedcompensation 8,951 6,423 17,908 12,319Acquisitionrelatedexpenses 1,674 4,216 4,773 7,153Remeasurementoftaxreceivableagreementliabilities (177,174) — (177,174) (5,722)ERPimplementationexpenses 156 432 491 1,526Acquisitionrelatedadjustment-revenue 87 5,813 192 5,964RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (204,833) — (204,833)Lossondisposaloflong-livedassets 400 — 1,720 1,518LossonFFFputandcallrights 15,587 — 15,607 —Otherexpense (51) 139 4 228
AdjustedEBITDA $ 133,542 $ 122,009 $ 252,713 $ 232,782
Incomebeforeincometaxes $ 251,277 $ 283,613 $ 324,657 $ 365,044RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (204,833) — (204,833)Equityinnetincomeofunconsolidatedaffiliates (1,257) (5,127) (5,509) (14,706)Interestandinvestmentloss,net 1,508 857 3,003 1,009Lossondisposaloflong-livedassets 400 — 1,720 1,518Otherincome 13,356 131 11,893 (875)
Operatingincome 265,284 74,641 335,764 147,157Depreciationandamortization 17,310 14,198 33,817 28,216Amortizationofpurchasedintangibleassets 13,817 11,151 27,715 20,360Stock-basedcompensation 8,951 6,423 17,908 12,319Acquisitionrelatedexpenses 1,674 4,216 4,773 7,153Remeasurementoftaxreceivableagreementliabilities (177,174) — (177,174) (5,722)ERPimplementationexpenses 156 432 491 1,526Acquisitionrelatedadjustment-revenue 87 5,813 192 5,964Equityinnetincomeofunconsolidatedaffiliates 1,257 5,127 5,509 14,706Deferredcompensationplanincome 1,577 8 3,116 1,103Otherincome 603 — 602 —
AdjustedEBITDA $ 133,542 $ 122,009 $ 252,713 $ 232,782
SegmentAdjustedEBITDA: SupplyChainServices $ 132,045 $ 119,022 $ 257,665 $ 236,326PerformanceServices 27,929 28,603 49,150 50,914Corporate (26,432) (25,616) (54,102) (54,458)
AdjustedEBITDA $ 133,542 $ 122,009 $ 252,713 $ 232,782
Netincomeattributabletostockholders $ 281,200 $ 400,275 $ 617,630 $ 470,577Adjustmentofredeemablelimitedpartners’capitaltoredemptionamount (317,916) (335,264) (638,340) (397,072)Netincomeattributabletonon-controllinginterestinPremierLP 56,485 181,173 101,095 230,774Incometaxexpense 231,508 37,429 244,272 60,765Amortizationofpurchasedintangibleassets 13,817 11,151 27,715 20,360Stock-basedcompensation 8,951 6,423 17,908 12,319Acquisitionrelatedexpenses 1,674 4,216 4,773 7,153Remeasurementoftaxreceivableagreementliabilities (177,174) — (177,174) (5,722)ERPimplementationexpenses 156 432 491 1,526Acquisitionrelatedadjustment-revenue 87 5,813 192 5,964RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (204,833) — (204,833)Lossondisposaloflong-livedassets 400 — 1,720 1,518LossonFFFputandcallrights 15,587 — 15,607 —Otherexpense (51) 139 4 228
Non-GAAPadjustedfullydistributedincomebeforeincometaxes 114,724 106,954 215,893 203,557Incometaxexpenseonfullydistributedincomebeforeincometaxes 44,742 41,712 84,198 79,387
Non-GAAPAdjustedFullyDistributedNetIncome $ 69,982 $ 65,242 $ 131,695 $ 124,170
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Premier,Inc.FY’18Q2ResultsPage15of15
SupplementalFinancialInformationReconciliationofGAAPEPStoNon-GAAPEPSonAdjustedFullyDistributedNetIncome
(Unaudited)(Inthousands,exceptpersharedata)
ThreeMonthsEndedDecember31,
SixMonthsEndedDecember31,
2017 2016 2017 2016 Netincomeattributabletostockholders $ 281,200 $ 400,275 $ 617,630 $ 470,577
Adjustmentofredeemablelimitedpartners’capitaltoredemptionamount (317,916) (335,264) (638,340) (397,072)Netincomeattributabletonon-controllinginterestinPremierLP 56,485 181,173 101,095 230,774Incometaxexpense 231,508 37,429 244,272 60,765Amortizationofpurchasedintangibleassets 13,817 11,151 27,715 20,360Stock-basedcompensation 8,951 6,423 17,908 12,319Acquisitionrelatedexpenses 1,674 4,216 4,773 7,153Remeasurementoftaxreceivableagreementliabilities (177,174) — (177,174) (5,722)ERPimplementationexpenses 156 432 491 1,526Acquisitionrelatedadjustment—revenue 87 5,813 192 5,964RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (204,833) — (204,833)Lossondisposaloflong-livedassets 400 — 1,720 1,518LossonFFFputandcallrights 15,587 — 15,607 —Otherexpense (51) 139 4 228
Non-GAAPadjustedfullydistributedincomebeforeincometaxes 114,724 106,954 215,893 203,557Incometaxexpenseonfullydistributedincomebeforeincometaxes 44,742 41,712 84,198 79,387
Non-GAAPAdjustedFullyDistributedNetIncome $ 69,982 $ 65,242 $ 131,695 $ 124,170
WeightedAverage: Commonsharesusedforbasicanddilutedearnings(loss)pershare 55,209 49,445 54,059 48,330Potentiallydilutiveshares 450 401 553 437ConversionofClassBcommonunits 83,578 91,462 85,029 93,366
Weightedaveragefullydistributedsharesoutstanding-diluted 139,237 141,308 139,641 142,133
GAAPearnings(loss)pershare $ 5.09 $ 8.10 $ 11.43 $ 9.74Adjustmentofredeemablelimitedpartners’capitaltoredemptionamount (5.76) (6.79) (11.81) (8.22)Netincomeattributabletonon-controllinginterestinPremierLP 1.02 3.66 1.87 4.77Incometaxexpense 4.19 0.76 4.52 1.26Amortizationofpurchasedintangibleassets 0.25 0.23 0.51 0.42Stock-basedcompensation 0.16 0.13 0.33 0.25Acquisitionrelatedexpenses 0.03 0.09 0.09 0.15Remeasurementoftaxreceivableagreementliabilities (3.21) — (3.28) (0.12)ERPimplementationexpenses — 0.01 0.01 0.03Acquisitionrelatedadjustment—revenue — 0.12 — 0.12RemeasurementgainattributabletoacquisitionofInnovatix,LLC — (4.14) — (4.24)Lossondisposaloflong-livedassets 0.01 — 0.03 0.03LossonFFFputandcallrights 0.28 — 0.29 —Impactofcorporationtaxes (0.80) (0.84) (1.56) (1.63)Impactofdilutiveshares (0.76) (0.87) (1.49) (1.69)
Non-GAAPEPSonAdjustedFullyDistributedNetIncome $ 0.50 $ 0.46 $ 0.94 $ 0.87
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Exhibit99.2
FISCAL2018SECONDQUARTERCONFERENCECALLTRANSCRIPT
February5,2018/05:00PMEST
On February 5, 2018, Premier, Inc. hosted a conference call to discuss financial results for the fiscal 2018 second quarter, ended December 31, 2017. Thefollowing transcript is an interpretation of the statements made on the call. The actual conference call may have differed slightly.
CORPORATEPARTICIPANTS
JamesR.StoreyPremier, Inc. – VP of IR
SusanD.DeVorePremier, Inc. – President, CEO & Director
MichaelJ.AlkirePremier, Inc. – COO
CraigS.McKassonPremier, Inc. – CFO and Senior VP
CONFERENCECALLPARTICIPANTS
DonaldHoughtonHookerKeyBanc Capital Markets Inc., Research Division – VP and Equity Research Analyst
ElizabethHammellAndersonEvercore ISI, Research Division – Associate
EricR.PercherNephron Research LLC – Research Analyst
EricWhiteColdwellRobert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst
JamesJohnStocktonWells Fargo Securities, LLC, Research Division – Director & Senior Equity Research Analyst
LisaChristineGillJP Morgan Chase & Co, Research Division – Senior Publishing Analyst
MohanA.NaiduOppenheimer & Co. Inc., Research Division – MD and Senior Analyst
RichardCollamerCloseCanaccord Genuity Limited, Research Division – MD & Senior Analyst
SeanWilfredDodgeJefferies LLC, Research Division – Equity Analyst
SeanWilliamWielandPiper Jaffray Companies, Research Division – MD and Senior Research Analyst
StephanieJulyDavisCitigroup Inc, Research Division – VP & Senior Analyst
PRESENTATION
Operator
Goodday,ladiesandgentlemen,andwelcometothePremierFiscalYear2018SecondQuarterResultsConferenceCall.(OperatorInstructions)Iwouldnowliketointroduceyourhostfortoday’sconference,Mr.JimStorey,InvestorRelations.Sir,youmaybegin.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page2of20JamesR.Storey-Premier,Inc.-VPofIR
Thankyou,Skyler,andwelcome,everyone,toPremier,Inc.’sFiscal2018SecondQuarterConferenceCall.OurspeakerstodayareSusanDeVore,PresidentandChiefExecutiveOfficer;MikeAlkire,ChiefOperatingOfficer;andCraigMcKasson,ChiefFinancialOfficer.Susan,MikeandCraigwillreviewthequarter’sperformance,provideanoperationsupdateanddiscussouroutlookfortheremainderoftheyear.
Beforewegetstarted,IwanttoremindeveryonethatcopiesofourearningsreleaseandthesupplementalslidesaccompanyingthisconferencecallareavailableintheInvestorRelationssectionofourwebsiteatinvestors.premierinc.com.
Management’sremarkstodaycontaincertainforward-lookingstatements,andactualresultscoulddiffermateriallyfromthosediscussedtoday.Theseforward-lookingstatementsspeakasoftoday,andweundertakenoobligationtoupdatethem.FactorsthatmightaffectfutureresultsarediscussedinourfilingswiththeSEC,includingourfiscal2017Form10-Kandourfiscal2018quarterlyreportonForm10-Q,whichweexpecttofilesoon.Weencourageyoutoreviewthesedetailedsafeharborandriskfactordisclosures.
Pleasealsonotethatwhereappropriate,wewillrefertonon-GAAPfinancialmeasurestoevaluateourbusiness.Reconciliationsofnon-GAAPfinancialmeasurestoGAAPfinancialmeasuresareincludedinourearningsrelease,intheappendixofthesupplementalslidesaccompanyingthispresentationandinourearningsreleaseForm8-K,whichweexpecttofurnishtotheSECsoon.
NowletmeturnthecallovertoSusanDeVore.
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Thanks,Jim,andwelcome,everyone,toourfiscalsecondquarterconferencecall.I’llbegintodaywithanoverviewofoursecondquarterperformance.Ialsowanttospendsometimetalkingaboutourevolvinglong-termvisionandgo-forwardstrategy,whichwebelieveuniquelypositionsPremierasacontinuingleaderinhealthcaretransformation.Mikewillthenprovideanoperationalupdate,followedbyCraig,whowillwalkthroughthefinancialaspectsofthequarterandupdateyouonouroutlookfortheremainderofthefiscalyear.
I’mverypleasedtoreportthatPremiercontinuedtodeliverconsistentfinancialandstrategicgrowthacrossourbusinessesinthefiscalsecondquarter,partneringwithhealthsystemstoachievecontinuousimprovementintheareasofcost,quality,safetyandvalue-basedcare.Wemetorexceededmanagement’sfinancialandstrategicobjectivesforthequarter.Atamoremacrolevel,wearealsoencouragedbytherecentpatientutilizationtrends,andwebelievethattheappointmentofAlexAzarasthenewHHSSecretarywillreestablishthemomentumwithinCMStowardtheimplementationofvalue-basedpaymentanddeliverymodels.We’reexcitedabouttheuniqueverticalandhorizontalintegrationgoingonintheindustry,andwethinkwe’rewell-positionedtocapitalizeontheinfrastructure,technology,dataandimplementationneedsofthesecomplexorganizations.
Solet’slookatsomeofourspecificachievementsduringthequarter.Wedelivered19%year-over-yearrevenuegrowthinSupplyChainServiceswithnetadministrativefeesrevenueup23%,legacynetadministrativefeesrevenueincreasing5%,andproducts,up14%.PerformanceServicesrevenuegrewaccordingtoourexpectations.Wecontinuetoexpectsequentialrevenuegrowthinthebackhalfoftheyear,andwe’rediligentlymanagingthebusinesstoaddressthefuturechallengesofourhealthcaresystems.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page3of20Wecontinuetomaintainastrongbalancesheetandminimalleverage,givingustheongoingflexibilitytobuildoracquirestrategicassetsinthemarketplacewhilesimultaneouslyreturningvaluetoourstockholders.
Withrespecttoreturningvaluetostockholders,weexecutedonour$200millionstockrepurchaseplanannouncedinOctober,andwecontinuetoimplementtheplaninthecurrentquarter.Wealsoexpectthestockrepurchaseprogramalongwithtaxreformtopositivelyimpactnon-GAAPadjustedfullydistributedearningspershare.Weareraisingfiscalfullyearguidanceforthisfinancialmeasureaccordinglywhilereaffirmingexistingguidancerangesforourotherfinancialmetrics.Andwecontinuetowininthemarketplace,fromintroducingnewsupplychaincapabilitiesinourGPOtoexpandingandwinningnewrelationships,toearningtopaccoladesfromKLAS,tooutperformingtheindustryinMedicareACOsharedsavingsandbundledpayments.Mikewilltouchmoreontheseandotherbusinessdevelopmentsinafewminutes.
Nowlookingatthelongerterm,IbelievePremierremainsuniquelydifferentiatedinourabilitytoleadthetransformationacrossourindustry,leveragingourdeepdataassets,innovativetechnologies,alignedmemberchannelandstrongsupplierrelationshipsaswecontinuetorefineourcapabilitiesandexpandourscale.
IbelievePremierstandsattheepicenteroftherapidchangeoccurringinourindustry,characterizedbymountingcostsandregulatorychallenges,byinnovativetechnologies,newmarketentrantsanduniquebusinesscombinations.Wethriveonchangeandweanticipateit.Andthat’swhatIwanttotalktoyouabouttoday.Themarketplaceforcesthataredrivingchangeandhowwe,atPremier,areleveragingthemtocapitalizeonfuturegrowthopportunities.Forpurposesoftoday’sdiscussion,I’vecondensedmanyforcesdownto3interrelatedtrends.
Firstisthecontinuingmovementtovalue-basedcare.Althoughournation’shealthcaretransformationwillalwaysbesubjecttoperiodicmarketandregulatoryuncertainties,webelievethelong-termjourneytovalue-baseddeliveryandpaymentwillcontinue.Thismeanspatientcareismigratingtonewanddifferentsettingsasprovidersseektoimprovequalityofcareandreducecost.Premierrecognizedandembracedthistrendyearsago.Ourcapitalallocationoverthepastfewyearsreflectsthis.It’swhyweacquiredInnovatixandEssensaandwecontinuetobuildandenhanceouralternatesiteGPObusiness.It’swhyweacquiredandintegratedCECitytobettercaptureclinicalandperformancecapabilitiesanddataassetsintheambulatorysetting.Theseacquisitions,alongwithothersthatwe’vecompletedaswellasongoinginternaldevelopment,havepositionedPremiertoservetheentireintegrateddeliverysystemwithend-to-endsolutions,addressingproviderandconsumerneedswherevertheyemergeacrossthehealthcarecontinuum.Ourdeepdataassetsandwrap-aroundadvisoryservicesalsoplayaveryimportantroleinhelpinghealthsystemstransitiontovalue-basedpaymentmodels.
Secondisthefactthattherapidgrowthofdigitaltransformationisoccurringatnearlyeverytouchpointofhealthcare,fromoptimizationofelectronichealthrecordstothegrowthofpredictiveanalytics,machinelearningandconsumer-focuseddemandforconnectivityandtransparency.Asaresult,deepanalyticcapabilitiesarecriticalprerequisitestoenablingcostmanagementandclinicalimprovementacrosstheentirehealthsystem.Allofthisispoweredbyaccesstolarge,detailedandcredibledataassets.LookingatPremierseveralyearsago,webuiltadataanalyticsplatform.It’svendor-agnosticandpayer-neutral.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page4of20Wetakedisconnecteddatafromdisparatesourcesacrossourmemberhealthcareproviders,andwepullitintoaunifieddatasetthatcanbeusedtodriveactionablebusinessintelligence,pushingtheseinsightsbackouttoourmembersintheformofimprovementopportunities.Asthisdigitaltransformationtrendcontinuestoevolve,weseegrowingopportunitiestoconnectouranalyticsanddatasetstoworkflowcapabilitiesandemergingtechnologieslikeprecisionmedicine,blockchaintechnologyandmachinelearningtooptimizeperformanceacrosstheentirehealthsystem.
Andathirdforceimpactingourindustryisintegrationandconsolidationamongkeystakeholdersacrossourindustry:payers,employers,providers,distributors,manufacturers.They’reworkingtogethertoaddresshealthcarecostandqualityimprovement.WebelievePremiersitsinthenexusofthesestakeholdersandhastheabilitytoprovidethebestinfrastructuretodirectlyenablesustainablecostreductionandclinicalimprovementforthesecomplexorganizations.Sincegoingpublicover4yearsago,wehavefurtherbuiltourinfrastructureandcapabilitiestoenhanceoursupplychainassets,ourtechnologyassets,ourdataassetsandouradvisorycapabilities.
Lookingforward,IseetheopportunitytoaccelerateandexpandourleadershippositionbytransformingPremierintoanend-to-endsupplychainandclinicalperformancesolutionsprovider.Sowhatdoesthatmean?
InSupplyChainServices,beinganend-to-endprovidertranslatestoowningtotalsupplychainoutcomeswithourmembers,implementingourworkflowandanalyticscapabilities,ourstrategicsourcingstrategyandservices,andleveragingpartnerstoenhanceourfront-endelectronicprocurementandback-endlogisticsanddistributioncapabilities.
InPerformanceServices,weplantocombinecognitivecomputingcapabilities,detailedanalytics,advisoryservicesandcollaborativeswithconnectivitytoclinicalworkflow.WeexpectthistoenablePremiertoextendourcapabilitiesinenterpriseclinicalanalyticsandtransformationinitiativesacrosshealthcareproviders.Itwouldalsoprovideacomprehensiveplatformonwhichtobuildprecisionmedicineandappliedsciencesinitiatives,whichinturn,wecouldleveragetocreatemarketandcustomerexpansionopportunities.
SoaswelooktoenhancePremier’spositionasahealthcareperformanceimprovementleaderinthischangingmarketplace,wearealsoevaluatingouroptionsastheyrelatetocapitalallocationandouracquisition,partneringandbuildstrategies.AsIstatedatJPMorganlastmonth,we’replanningtodeploycapitalinsomedifferentwaysmovingforward.Intermsofenhancingourelectronicprocurementcapabilities,indeepeningourpartnershipsforlogisticsandfulfillment,inambulatorydataintegration,inresearchandappliedsciences,inpredictiveanalyticsandprecisionmedicine.
Ourstrategicpathforwardissupportedbyourflexiblebalancesheetandourstrongcashflow.Andoursolutionsremainfocusedonenablinghealthcareproviderstosucceedintheircontinuingjourneytohigherquality,morecost-effectivehealthcare.Thankssomuch.Nowhere’sMikeAlkire,ourChiefOperatingOfficer.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page5of20MichaelJ.Alkire-Premier,Inc.-COO
Thankyou,Susan,andthankyouallforjoiningourcall.Today,Iwanttoreviewouroperationalperformanceaswecontinuetowardsourconsistentgoalofdeliveringhighlydifferentiatedvaluetohealthcareproviders,valuethatwebelievetranslatestolong-termgrowthforourstockholders.
AsSusanjustdiscussed,wecontinuetoenhanceandevolveourdiversifiedbusinessmodelthatspanssupplychainservices,integratedpharmacy,cloud-basedinformaticsproducts,integratedanalytics,advisoryservicesandperformanceimprovementcollaboratives.
InSupplyChainServices,forinstance,wearerollingoutanewnationalcommittedbuyingprogramdesignedtoprovidesignificantcostsavingstohighly-committedmemberswhoareabletocoordinatesupplychaindecisionsandmaintainstandardizationacrosstheirfacilities.Byintroducingthisconcentratedbuyingprogram,weareleveragingourcontractingplatformtoachievebest-in-marketpricingineverychosencategory,drivingdowncostsforourmostcommittedmemberswhiledeliveringadditionalvolumeandcontractpenetrationforcontractedsuppliers.Webelievetheincrementalvaluethatwillbedeliveredthroughthisprogramtohealthcareproviderswilldrivefuturerevenuegrowth,maintainretentionratesandenableadditionalrecruitingopportunities.WeexpectthisprogramtolaunchinApril.
We’realsocontinuingtogaintractionwithouracademichealthsystemstrategyandhaveinitiatedengagementswith2additionalacademichealthsystemssincewelastspokelastquarter.Wejustexpandedourrelationshipwitharegionalacademichealthsystem,along-termGPOpartnerthatislaunchingatotalcostmanagementinitiativesupportedbyPremier’sAdvisoryServices.Inaddition,werecentlyannouncedthatUniversityofLouisvilleHospital,anacademicteachingandresearchhospital,ispartneringwithPremiertodrivehigh-valuecaredeliveryusingacustomizedbundleofenterprise-wideperformanceimprovementandsupplychainservicesofferings.
Wenowareworkingwithmorethan60academichealthsystems,includingseveralthathavejoinedorexpandedtheirrelationshipwithPremierinthepastyear,andwearepleasedbytheactivepipelineofacademicscontinuingtoexpressinterestinjoining.
Amongourotherrecentsuccesses,weannouncedthatMedicareaccountablecareorganizations,supportedbyPremier’spopulationhealthcollaborative,outperformedtheirpeersby57%inachievingsharedsavingsduringthemostrecentmeasurementperiods.IfallMedicareACOsperformedatthesamelevelasourcollaborativemembers,weestimatethatMedicarecouldhavedoubledthesavingsachievedforitsACOprogramsto$4billionsince2012.
Separately,PremierwasjustnamedtheBestStrategy,GrowthandConsolidationConsultingorganizationbyKLASforthesecondstraightyearintheresearchfirm’s2018BestinKLASSoftware&Servicesreport.Inrecentyears,wehaveconsistentlybeenrecognizedbyKLASasatopperformerinmanyofitssurveysandreports.
Aswemoveforward,ourgrowthstrategyincludesongoingintegrationsynergiestomaximizeefficienciesandtoappropriatelyalignresourceswithourgrowthobjectives.Aspartofthisprocess,wehaveimplementedsomepersonneladjustments,includingamodestreductioninforcethatwewillexpecttobelargelycompletedbytheendofthemonth.Craigwilldiscussthefinancialimpactofthiseffortshortly.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page6of20Beforeclosing,IwanttoreiteratethatweareencouragedbythenewHHSSecretary,whohasvoicedstrongsupportforvalue-basedpaymentprograms.WeexpectMr.AzartoworkcloselywiththeFDAtolowerthebarriers-to-entryforgeneric,biosimilarandotherdrugsaswellasadvanceotherpoliciestocreateamorecompetitivepharmaceuticalsmarket.
WealsoapplaudtherecentCMSdecisiontolaunchthenextgenerationofitsbundledpaymentprogram,whichincludes29inpatientand3outpatientprocedures.Underthisvoluntaryprogram,patientswillbeatriskforcostandqualityofcareoveranentire90-dayepisodeandcliniciansalsowillbeeligibletoqualifyfora5%Medicarepaymentbonus.Weareindiscussionswithcurrentandprospectivemembersandexpectmanyofthemtoapplyforthisprogram.
Premierhasworkedwithhundredsofprovidersonbundledpayments,andwe’vefoundthatthoseorganizationsworkwithPremierunderCMS’ComprehensiveCareforJointReplacementModelperformed35%betterthanallotherparticipatinghospitalsinachievingsharedsavings.
Letmeconcludebysayingthatwearecontinuingtoinvestinthefuturefromapositionoffinancialstabilityandstrength.OurhealthcareproviderslooktoPremiertodevelopanddeliverthecost,quality,safetyandvalue-basedcaresolutionsthatenabletheirsuccesstodayandinthefuture.
Thankyouforyourtimetoday.NowletmeturnthecallovertoCraigMcKasson,ourChiefFinancialOfficer.
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Thanks,Mike.Nowlet’swalkthroughthequarter’sperformanceinmoredetail.FromaGAAPstandpoint,consolidatednetrevenueof$411.4millionincreased15%fromayearago.
SupplyChainServicesnetrevenueincreased19%to$324.9million.Netadministrativefeesrevenueincreased$30.3millionor23%to$159.3millionfromthesameperiodayearago,drivenbycontributionsfromtheInnovatixandEssensabusinessesandcontractpenetrationofourexistingmembers.
Legacyyear-over-yearnetadministrativefeerevenuegrowthinthesecondquarterwas5%,whichincludedarevenuerecoverysettlementfromasupplier.Ashistoricallydiscussed,ouradministrativefeesrevenueiseffectivelyrecognizedonacashbasisandissubjecttoperiodicvariabilitybasedonthetimingofcashreceipts,includingrevenuerecoveries,whicharearoutinepartofourGPO.Excludingthisrecoveryinthesecondquarter,therateofgrowthinourlegacyGPObusinesswasconsistentwiththefirstquarterandprimarilyresultsfromlowerpatientutilizationoverthesummermonthsthatwehavepreviouslydiscussed.
OurproductsbusinesswithinSupplyChainServicesgrewsecondquarterrevenue14%fromayearagoto$162.1million,withboththeintegratedpharmacyanddirectsourcingbusinessesachievingdouble-digitgrowth.TurningtoPerformanceServices,asexpected,secondquarterrevenueincreasedsequentiallyoverfirstquarterwhilereflectinggrowthof1%fromthesameperiodayearago.Weexperiencedgrowthinthecompany’sinformaticsandtechnologyservicesbusinessprimarilyrelatedtoourcostmanagementsolutions,andwealsosawgrowthinambulatoryqualitysolutions.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page7of20Turningnowtoprofitability,duealmostentirelytotheone-timeremeasurementofdeferredtaxesresultingfromtheTaxCutsandJobsAct,GAAPnetincometotaled$19.8millioncomparedwith$246.2millionayearago.AfteraGAAP-requirednoncashadjustmentof$317.9milliontoreflectthedecreaseintheredemptionvalueoflimitedpartners’ClassBcommonunitownership,wereportedaGAAPlossof$1.66pershare.Consolidatednon-GAAPadjustedEBITDAof$133.5millionforthequarterrepresentsa9%increasefromayearago.
Fromasegmentperspective,the11%increaseinSupplyChainServicesnon-GAAPadjustedEBITDAprimarilyreflectsgrowthinnetadministrativefeesrevenue.GrowthwaspartiallyoffsetbyincreasedsalariesandbenefitsassociatedwiththeDecember2016acquisitionofInnovatixandEssensa.Additionally,prioryearnon-GAAPadjustedEBITDAincludeda$5.6millionnoncashadjustmentforcashcollectionsnotrecognizedasrevenueonaGAAPbasisduetoapurchaseaccountingadjustmentandincluded$4.1millioninequityinnetincomeofInnovatixasitwashistoricallyaccountedforasanunconsolidatedaffiliateupthroughthedateofacquisition.
InPerformanceServices,the2%decreaseinsegmentnon-GAAPadjustedEBITDAwasimpactedbyprioryearperformance-basedAdvisoryServicesrevenuerecognitionaswellasanincreaseincostofsalesprimarilyrelatedtoanincreaseinstaffingandcoststosupportgrowth.Corporatenon-GAAPadjustedEBITDAreflectsa3%expenseincreaseinthesecondquarter.
Secondquarternon-GAAPadjustedfullydistributednetincomeof$70millionincreased7%fromthesameperiodayearagoandnon-GAAPadjustedfullydistributedearningspersharetotaled$0.50,anincreaseof9%fromayearago.
Lookingatliquidity,cashflowfromoperationsforthe6-monthperiodwas$206.5millioncomparedwith$138.4millionlastyear.Theincreaseisprimarilydrivenbygrowthinnetincomeduelargelytoanincreaseinnetadministrativefeesrevenueaswellasdecreasedoutflowsrelatedtoworkingcapitalneeds.
Non-GAAPfreecashflowforthe6-monthperiodtotaled$122.2million,whichrepresentsapproximately48%ofnon-GAAPadjustedEBITDAfortheperiodandcompareswith$59.4millionayearago.Theincreaseisprimarilyrelatedtothesamefactorsdrivingthegrowthincashflowfromoperations.Wecurrentlyexpecttaxreformtopositivelyimpactfiscal2018non-GAAPfreecashflowbyapproximately$20millionorabout4%asapercentageoffiscal2018non-GAAPadjustedEBITDA.Fromabalancesheetperspective,ourcashandcashequivalentstotaled$163millionatDecember31,2017,comparedwith$156.7millionatJune30,2017,andwehadanoutstandingbalanceof$200milliononour5-year,$750millionrevolvingcreditfacilityatquarterend.
Throughtheendofthequarter,wepurchasedapproximately2.6millionsharesofClassAcommonstockfor$74.7millionatanaveragepriceof$28.96pershareunderourongoing$200millionstockrepurchaseprogram.Assumingfullcompletionoftheprogrambytheendofthefiscalyear,weestimateanincreaseof$0.03to$0.05innon-GAAPadjustedfullydistributedearningspershare.
Nowlet’sturninmoredetailtoourguidance.Today,weareincreasingourfiscal2018financialguidancerangefornon-GAAPadjustedfullydistributedearningspershareto$2.24to$2.37basedonthe$0.03to$0.05fromthestockrepurchaseprogramandtheexpectedtaxreformimpactofapproximately$0.23pershare.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page8of20Asareminder,weguidetonon-GAAPadjustedfullydistributedearningspershareasaresultofourcorporatestructureandourquarterlymember-ownershareexchangeprocess.Thisnon-GAAPmeasureassumesthatallofthecompany’sClassAandClassBcommonsharesareheldbythepublicandincludedinthesharecountdetermination.Further,incometaxesarecalculatedasthoughtheentirecompanyisataxableCcorporation.Iwouldliketopointoutthatbecauseoftheimpactoftaxreform,beginningonJanuary1,2018,theeffectivecorporatetaxrateusedinournon-GAAPadjustedfullydistributedearningspersharecalculationwilldecreasefromarateof39%inthefirsthalfofthefiscalyeartoarateof25%inthesecondhalfofthefiscalyearandbeyond.Thiswillresultinablendedrateof32%forfiscal2018onafull-yearbasis.
Baseduponfirsthalfperformanceandourcurrentoutlookandassumptionsfortheremainderoftheyear,wearereaffirmingourpreviousguidancerangesforconsolidatednetrevenue,SupplyChainServicessegmentrevenue,PerformanceServicessegmentrevenueandnon-GAAPadjustedEBITDA.
Lookingatthecomponentsofconsolidatednetrevenue,ourcurrentexpectationisthatSupplyChainServicessegmentrevenuewillperformabovethemidpointoffullyearguidance.Additionally,basedonthefiscalfirsthalfperformanceandcurrentexpectationsforthesecondhalfoftheyear,weareraisingourassumptionforfiscalfullyearproductsrevenuegrowthto14%to18%fromthe9%to13%previously.
Wecurrentlyexpectadministrativefeesrevenuegrowthtostabilizeinthesecondhalfoftheyearandarereaffirmingourpreviousassumptionsforfiscalfullyearnetadministrativefeesrevenuegrowthat13%to17%foroverallnetadministrativefeesrevenueandatmid-single-digitgrowthforthelegacybusiness.Webaseouroutlookforstabilizationonthefollowing3factors.
First,inOctoberandNovember,webeganhearinganecdotalcommentaryfromourmembersthatpatientutilizationrateswereimprovingafterthesummerslowdown.Thiscommentaryhasintensifiedfromseveralmembersinrecentmonths.Second,ourongoingreviewofdischargedatashowsmoderatingutilizationtrendsinbothinpatientandoutpatientvolumesbetweentheperiodsaffectingourfirstandsecondquarters.Andthird,thenationcontinuestodealwithanunusuallyseverefluseasonthisyear,whichwebelieveispositivelyaffectinghealthcareadmissionsandutilization.Asareminder,sincewerecordadministrativefeesrevenueonacashbasis,ourrevenuesaregenerallyrecognizedonapproximatelya1-quarterlagtopatientutilizationtrendsduetotheinherentlaginreportingandreceiptofcashfromourcontractedsuppliers.
TurningtoourPerformanceServicessegment.Weexpectfullyearrevenuetobebelowthemidpointofguidancegiventhecurrentyearimpactofregulatoryuncertainty.Wedocontinuetoexpectrevenuetobemoreheavilyweightedinthethirdandfourthquartersprimarilyrelatedtoambulatoryregulatoryreportingandthetimingofperformance-basedAdvisoryServicesengagements.
Lookingatnon-GAAPadjustedEBITDA,wecurrentlyexpectfullyearperformancetowardthelowerendoftheguidancerangegiventhesoftpatientutilizationduringthesummermonthsandthecurrentyearimpactofregulatoryuncertainty.
WeexpectthepersonneladjustmentsthatMikehighlighted,includingthemodestreductioninforce,toproducepretaxcostsavingsapproximating$13millionto$14milliononanannualrunratebasis.Weexpecttoincurapretaxchargerelatedtothereductioninforceofapproximately$5.2million,whichwillbeexpensedinthecurrentquarterendingMarch31.Approximately75positionsor3%oftotal
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page9of20employees,areimpactedbythesepersonneladjustments,andthemajorityoftheaffectedpositionsareinourPerformanceServicessegmentandrelatetofurtherintegrationsynergiesandeffortstorealignresourcesforfuturegrowthareas.
Finally,Iwouldliketoprovideabriefupdateonourongoingquarterlyexchangeprocess.FollowingourmostrecentexchangeonJanuary31,ourcompanyiscurrentlyownedapproximately40%bythepublicand60%byourmemberhealthsystems.OnFebruary1,approximately1millionClassBunitswereexchangedonaone-for-onebasisforsharesofClassAcommonstock.OurnextquarterlyexchangeoccursonApril30.Withthat,letmeturnthecallbackovertoSusan.
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Thanks,MikeandCraig.Beforeopeningthecalltoquestions,I’djustliketoreiteratethatIampleasedwiththeprogressthatwe’remakinginthismarketenvironment,andI’mveryexcitedaboutourfuturestrategyevolution.IremainconfidentaboutPremier’slonger-termopportunitiesasourmarketcontinuestogrowandevolve.Ibelievewehaveauniqueandpowerfulcombinationofsupplychain,clinicalimprovementandtechnologyanddataassets,which,whencombinedwithouradvisorycapabilities,ourstrongbalancesheetandalignedmemberchannel,canbeleveragedtodelivercompellingvaluefarintothefuture.Goodforthecompanyandgoodforallourstockholders.
Thankyouforyourtimetoday.Andoperator,couldyoupleaseopenthecallforquestions.
QUESTIONSANDANSWERS
Operator
(OperatorInstructions)OurfirstquestioncomesfromJamieStocktonwithWellsFargo.
JamesJohnStockton-WellsFargoSecurities,LLC,ResearchDivision-Director&SeniorEquityResearchAnalyst
Iguess,maybethefirstone.Mike,youmentionedthatyouguysaregoingtobekickingoffthisnewcommittedbuyingprogram.Couldyougiveusmaybesomerulesofthumbforthetypeofhealthsystemthatwouldfallintothatbucketversusmaybeonethatwouldnotwithinyourbase?
MichaelJ.Alkire-Premier,Inc.–COO
Sure.SoJamie,justletmereiterate.Thisprogramisintendedtodrivethehighestlevelofcommitmentinsavingsforourmembersthroughtheseaggregatedpurchases.Thetypesoforganizationsthatwillparticipatearethoseorganizationsthatcanstandardize,thattrulymanagetheirsupplychaincentrallyandareabletodrivehighlevelsofcommitment,which,obviously,ourmostsophisticatedhealthcaresystemscan.Wealsoaregoingtoexpectthemtohavethedatacapabilitiestosharewithustheirperformanceandtheirabilitytoactuallyhittherightcommitmentlevel.SowethinkahighpercentofourhealthcaresystemsareactuallygoingtobeabletoparticipategiventhatmanyofthemalreadyparticipateinourcurrentASCENDprogramanyways.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page10of20JamesJohnStockton-WellsFargoSecurities,LLC,ResearchDivision-Director&SeniorEquityResearchAnalyst
Imean,isthegoalofthis—Imean,it’sobviouslyforthehealthsystem,justtohelpthembuymorethroughyourcontractsandgetlowersupplyspendingasaresultofit.ForPremier,shouldweseecontractcompliance,orwhateveryouwanttocallit,goupasaresultofthis?Imean,it’snotjusttakingpeoplethathavehighcompliancealreadyandmovingthemintothisprogram,butmaybegettingthemtoachieveinhigherlevels?
MichaelJ.Alkire-Premier,Inc.-COO
Yes.Soweexpecteveryoneinthisprogramtodrivehigherlevelsofpenetrationonthosecontracts.Sothey’regoingtobe,obviously,leveragingourcontractsmorethantheycurrentlydo.Jamie,wealsothinkthatwe’regoingtobeabletocreateamuchsignificantdifferentiationinthemarket,whichisgoingtoallowforustorecruitmoreeffectivelyagainstourcompetitors.
JamesJohnStockton-WellsFargoSecurities,LLC,ResearchDivision-Director&SeniorEquityResearchAnalyst
Okay,that’sgreat.Andthenmaybejustonemore.Craig,thebenefitthatyouguyssawwiththekindoflegacyGPObusinessthisquarter,recoupingsomerevenuefromasupplierthatmaybeyoudidn’totherwiseexpect.Canyoujustgiveusasenseforthetimingofwhenyoutheoreticallymissedoutonthatrevenuehistorically?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Sure,Jamie.SorevenuerecoveriesarearoutinepartofourGPOasIstatedinmypreparedremarks.We,generally,inanyfiscalyear,willhaveapproximately1%to1.5%ofouradministrativefeesatanygivenyearcomingfromrevenuerecoveries.Thoserecoveriestendtobeoftentimestheidentificationofasystemissueorsomething,wheretherewasunderreportedsalesandcancrossmultipleyears,actually,intermsofthetimingthatweget.Andsoit’sjustafunctionoftimingwithinafiscalyearwhenthosearrive,butourfullyearforecastwouldstillbeinlinewithwhatwetypicallyexpectforrevenuerecoveries.
Operator
ThenextquestioncomesfromLisaGillwithJPMorgan.
LisaChristineGill-JPMorganChase&Co,ResearchDivision-SeniorPublishingAnalyst
Susan,IjustwantedtostartwithacommentthatyouhadaroundthePerformanceServicesandtalkingaboutambulatoryqualitysolutionscominginQ3.Canyoujust—atthispoint,haveyouseenthosesalesstarttocomeinaswe’realmosthalfwaythroughQ3?Orisitstillyouranticipationthatyou’regoingtoseeitinQ3?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Sowe’realreadyseeingsomeofthesign-ups,ifyouwill,forthereportingthat’sgoingtohappenattheendofQ3.AndwedostillthinkthattheincreasethatwehaveseeninprioryearswillplayoutinQ3.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page11of20CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Lisa,thisisCraig.Justquickly,I’lljustremindthatthewaytherevenuerecognitionworksonthatambulatoryqualityreportingisweactuallyrecognizetherevenueoncethereportsaresubmittedtoCMS,whichisattheendofthequarter.Sowhatwe’vebeentrackingistheregistrationsandthesubmissions,buttheactualrecognitionwilloccuratthepointthatthosehappenattheendofthequarter.
LisaChristineGill-JPMorganChase&Co,ResearchDivision-SeniorPublishingAnalyst
Okay,that’shelpful.Andthensecondly,Craig,aswethinkabouttheworkforcereductions,youtalkedabouttheseverancecosts.Butthe$13millionto$14million,dowethinkaboutthatasarunrategoingintonextyear?Andhowmuchofthatbenefitwillyouactuallyseeinfiscal’18?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes,it’sagreatquestion.SowhatIwouldtellyouis,givenwhereweareinourcurrentfiscalyear,theimpactofseveranceeffectivelyoffsetsthesavingsthatwewouldgetinthecurrentyear.Andthenthe$13millionto$14millionisanannualizedrunrate,soifyouthinkaboutthatforfiscal2019.
Operator
OurnextquestioncomesfromRichardClosewithCanaccordGenuity.
RichardCollamerClose-CanaccordGenuityLimited,ResearchDivision-MD&SeniorAnalyst
Susan,thanksforsharingyourvisionthere.Withrespecttothelongertermvision,youdidrattleoffsomeareasofinterest.CanyoudiveinalittlebitdeeperintothoseasitgoesacrosssupplychainandthePerformanceServices?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes.SoItalkedaboutitalittlebitatJPMorganaswell.ButourviewisthatwehavetremendouscorecapabilitiesinSupplyChainandPerformanceServices.We’veacquiredalotoftuck-inacquisitions.We’vebuiltoutalotofanalyticsandGPOandclinicalimprovementcapabilities.Ithinkonthesupplychainside,Richard,we’renowinterestedinconnectingwhatwehavetoadditionalfuturestatetechnologiesonthefrontendandthenconnectingitmoredeeplytosomeoftheback-endlogisticsanddistributionandfulfillmentsothatwecangotoourhealthcaresystems,andthey’reaskingforthis,andsay,“Youknowwhat?You’vegottotalsupplychaincostsofx.Wecanhelpyouwithfront-endelectronicprocurement,withmiddleoftheprocesssourcing,withback-enddistributionthroughpartnersandwecanownyourtotalsupplychainspendwithyou,andwecantakethosenumbersdownsignificantly.”Sothat’sourvisiononthesupplychainsideanditneedstobeconnectedtoERPandworkflow.
OnthePerformanceServicesside,it’sasimilarpointofview,whichis,wehavealotofanalytics,wehavealotofadvisorycapabilitiesincollaboration.We’dliketobringadditionalfuturestatetechnologies,machinelearning,cognitivecomputingandgettoanend-to-endconnectivityofthoseanalyticswithworkflow.Ourmembersareaskingfor,giventhesizeofourdatasets,formoreprecisionmedicinesupport,andwealsothinkthereareadditionalcustomerchannels.Sowewantedtostarttolayoutthatsomeofourcapitaldeploymentwillbealongthose2linesasitrelatestothesegments.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page12of20RichardCollamerClose-CanaccordGenuityLimited,ResearchDivision-MD&SeniorAnalyst
Andjustafollow-uptothat.Intermsofthecapitaldeployment,doesthatcomemostlythroughinternaldevelopmentorM&A?Andthenanytimelineintermsoftheseinitiativesintermsofdrivingacceleratedrevenuegrowth?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,soit’sacontinuousprocessforusanditincludesbothorganictechnologydevelopmentandotherdevelopmentonourownaswellasacquisitionsand,potentially,partnering.Andsowe—asalways,weareconstantlyevolvingandrefiningourstrategygoingforward,andwe’llcontinuetodothat.Thisisabig,boldstrategyonboththesupplychainsideandthePerformanceServicesside,Richard,soitwilltakesometimetoplayitselfout.
Operator
OurnextquestioncomesfromEricPercherwithNephronResearch.
EricR.Percher-NephronResearchLLC-ResearchAnalyst
Susan,I’dliketofollowupwhereyoujustended.Soyourcommentaryoverthelast30daysseemsnotable,andIwanttomakesureI’mgivingtherightweighttoit.Isthisinpartthatyouexpectthatwemayseeadifferenttypeofpartnershipaswellastheinternalcapitalallocation?Isthere—canyougiveusalittlebitmoreonwhatyou’repreparingfor?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Eric,alloptionsareonthetable.Soforus,thismeansreallytakingthecapabilitieswehaveandfiguringoutwhatweneedtoaddtoittoextend.Sothegoalistoownthesupplychainmetricwiththehealthsystemandtoowntheirclinicalimprovementandcostmetricswiththehealthsystemandbringrealscaleandintegrationtothoseactivities,whichareprettyfragmentedtoday.Imean,ourhealthsystemsaresaying,“I’vegotmultiplepartners,I’vegotmultipletools.Ineedanintegratedwayofsolvingthesebigchallenges,particularlyinthisenvironmentofcostpressure.”SoasIsaid,Ithinkit’llbeorganicdevelopment,itwillbeacquisitions,itwillbepotentialpartnershipsforustoreallybeabletogettothisend-to-endsetofsolutions.Andwethinkthiswillbedisruptiveaswethinkaboutourcompetitorsinthisspace.They’renotinthesamepositionwearetobeinsidethehealthcaresystemreallydrivingtheend-to-end.
EricR.Percher-NephronResearchLLC-ResearchAnalyst
Soyou’retakingonalotthere.Andthenletmeaddonemoretothat,whichisyourcommentaryaboutintegrationacrosstheindustry.Doesthatviewextendtopayersaswellanddoyouseearoletobeplayedaswellforthepayercommunityoranimpactfromconsolidationthatwe’reseeingwithinthepayercommunity?
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page13of20SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,it’sagreatquestion.Andwhenwelookattheproviderconsolidationfirst,youseebigger,morecomplexorganizationsthatwethinkwillhaveevengreaterneedfortheseintegrated,standardized,unfragmentedsetofsolutionsbutalso,payersand,potentially,pharmaorsupplierswhowouldhavealotofinterestinthedatasetsandtheimprovementactivities.Becauseweseeinthemarketmoreandmorepartneringbetweenandamongprovidersandpayersanddistributorsandmanufacturers,andwethink,again,we’reinaprettyuniquepositionthathelpcapitalizeonthat.Soyes,itwouldbeapotentiallyadditionalcustomerbase,too.
Operator
OurnextquestioncomesfromStephanieDaviswithCiti.
StephanieJulyDavis-CitigroupInc,ResearchDivision-VP&SeniorAnalyst
CouldyouwalkusthroughtheputsandtakesofsecondhalfEBITDA,justgiventhesolidbeatsyear-to-date?Isthatprimarilyrestructuring-drivenoristhere—there’sanelementofconservatisminthenumbers?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Notrestructuringdriven.SoasIindicated,therestructuringimpactwilleffectivelynetitselfoutinfiscal‘18.SoaswelookatadjustedEBITDAcontributionsonthebackhalfoftheyearonaconsolidatedbasis,there’salittlebitofimprovementinthesecondhalfoftheyear,vis-à-visthefirsthalfoftheyeartogettooverallranges.Andsomeofthatcomesfromtheloweradministrativefeegrowththatwesawinthefirsthalf,andweexpect,asImentioned,forthattostabilizeinthesecondhalfoftheyear.Andgiventheprofitabilityoftheadministrativefeemodelinthatpartofourbusiness,that’llhelpdrivesomeoftheEBITDAinthesecondhalf.Secondarily,aswe’vetalkedaboutconsistently,thewaythatourPerformanceServicesbusinesswilloperatethisyeariswe’llhavesequentialimprovementinthebackhalfoftheyear.Theambulatoryregulatoryreportingthatwetalkedaboutisahighermarginbusiness.Sointhethirdquarter,wedoseethatpullthroughanimprovementinPerformanceServices.Andthenwehavesomeperformance-basedengagementsweanticipatetocontributeinthefourthquarterwhenwe’reabletorecognizesomeofthatrevenue,whichwillhelpdriveprofitabilityatthatpoint.
StephanieJulyDavis-CitigroupInc,ResearchDivision-VP&SeniorAnalyst
Allright,thatmakessense.Andonequickfollow-upontheperformanceside.Justgiventheincreasedtractionoverthepriorfewquartersininformaticsbusiness,couldyoujustgiveusanycolorwhat’sreallydrivingthat?
MichaelJ.Alkire-Premier,Inc.-COO
SothisisMikeAlkire.Sojustacoupleofusecasesthatareprettyprevalentinthemarketrightnow.Oneisservicelineanalytics.Soit’sreallypullingtogetherallofourclinicaldataandoursupplychaindataandourlabordatareallytohelpourhealthcaresystemsunderstandtheprofitabilityandtheclinicaloutcomesassociatedwitheachoftheirlinesofbusiness.Sothat’sprobablythe#1driver.Thesecondareaisthiswholefocusonhigh-valuecare,whichisreallyourhealthcaresystemshavinganinterestin
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page14of20standardizingcareacrosstheentirecontinuum.Nowthatwehavedatafromaqualitystandpointinthenonacute,wealsohaveitintheacute.They’relookingforustobringthoseassetstobeartoreallyhelpthemwithmanagingqualityacrossthecontinuum.Thefinalareaisenterpriseanalytics.Sothat’sanofferingthatwe’velaunchedprobablyacoupleofyearsago.Andwe’rereallyseeingalotofuptakeintermsofourhealthcaresystemsusingthattoimprovetheirmargins,standardizingcareandthendrivingthatlastprogramItalkedabout,whichwasstandardizingcareacrossthecontinuum.
Operator
AndournextquestioncomesfromSeanDodgewithJefferies.
SeanWilfredDodge-JefferiesLLC,ResearchDivision-EquityAnalyst
SomaybejuststayingonPerformanceServicesforamoment.Craig,canyougiveusasenseofhowmuchrevenueyou’vegotbuiltinoryou’reexpectinginthefourthquartercominginfromtheperformance-basedadvisoryengagements?Andmaybehelpusunderstandhowmuchadvancedvisibilityyouhaveintothoserevenue?Iknowthey’reinguidance.Isthatsomethingyoucanprettyclearlyseenoworarethosealittlebitriskier?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Imean,asyouwouldexpectinanadvisoryservicesbusiness,thereisalwayssomeportionofyourrevenuestreamoutinthefuturethat’snotgoingtobefixedanddeterminableasyou’removingthroughaconsultingtypeoperation.Butifyoulookatthebackhalfoftheyear,again,alotofvisibilitytothethirdquarterinformaticsbusinessandwhatwewouldanticipateandexpecttoseefromtheambulatoryreportingperiod,aswe’vediscussed,andthentherestofthatbusinessonthetechnologyside,giventheSaaSnatureofit,iseffectivelyknownatthispoint.Sohigh90%visibilityonthetechnologyside.FromanAdvisoryServicesstandpoint,whileIcan’tdisclosetheexactmagnitudeofperformance-basedengagements,manyofthoseareinflight,underway.Wehaveworkplansinplacewiththehealthcaresystemsthatwe’reworkingwithandknowwhenwewouldexpecttoachievethesavings.AndasI’vetalkedaboutinthepast,there’salwaysthepotentialforsomeslippageoraccelerationdependingonhowparticularengagementsaregoing.Butasweindicated,theoverallexpectationthatthesegmentwillperformbelowthemidpointoftheoriginallyestablishedguidancerangeiswhereweanticipatethatwillcomein.AndIthinkyou’llseesequentialandthenkindofnormalizedthird,fourthquarterperformanceoutofthatsegmentofthebusiness.
SeanWilfredDodge-JefferiesLLC,ResearchDivision-EquityAnalyst
Okay,fairenough.Andthenmaybe,Susan,goingbacktotheefficiencyinitiativesreallyquick,thereductionsinheadcount.ArethereanyparticularareasoftheorganizationthosearefocusedonorarethosespreadprettyevenlyacrossPremier?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Always,workforcereductionsareverydifficultandhard.Thisis3%oftheworkforce.Ithastodomostlywithlayersofmanagementasaresultofintegrationoftheacquisitionswe’vedoneoverthelastfewyears.Soit’sprimarilyinsomeoftheperformanceservicesareasanditrelatestoacquisitionsynergiesandrepositioningresourcestowherewethinkthegrowthiscominginthefuture.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page15of20Operator
OurnextquestioncomesfromRossMukenwithEvercore.
ElizabethHammellAnderson-EvercoreISI,ResearchDivision-Associate
ThisisElizabethAndersoninforRoss.Iwaswondering,intermsofthelong-termforcesandmarketplacechangesthatyousuggestedearlierinthepresentation,howareyoureviewingAmazon’sannouncementlastweekasanopportunitytopotentiallyfitinwiththisornot?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
SoIassumeyou’retalkingabouttheAmazon,JPMorgan,Berkshireannouncement?
ElizabethHammellAnderson-EvercoreISI,ResearchDivision-Associate
Yes.
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,it’sinteresting.Wesupportandencouragetheactivityofemployerstoaggregatetheirhealthcareservicesbusiness.Inmanyways,Premierisanaggregatorandweworkwithothermemberswhoarealsoemployers,buttheyaredirectcontractingwithemployersbothregionallyandnationally.SoIwouldsayweencourageit.Andweactuallythinkbecausewehavesomuchdataandinformationontheprovidersegmentandwe’vebeenallaboutbuilding,testingandscalingnewmodelsforcaredelivery,wethinkit’sanetpositiveandwethinkit’sanopportunity.Andwethinktheremaybeotheremployerswhohaveaninterestingoingdirecttotheproviderdeliverysystemwiththekindsofinformation,datatechnologyandaggregationtoreallytrytodrivecostofcaredown.
ElizabethHammellAnderson-EvercoreISI,ResearchDivision-Associate
Perfect,that’sreallyhelpful.AndcanyoujustgiveusaquickupdateonwhereyouareintermsoftheGPOrenewalsthatyouweretalkingaboutthroughlastfall?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,wetalkedabouthavingrenewed,auto-renewedorrenewedorextended93%ofthosemember-ownercontracts.Wehaveahandfulthatwe’recontinuingtoworkthroughwithourmembers.Theydon’thavealotofurgencyaboutitbecausethesortofcontractdateisthiscomingSeptember30of2018.Sowejustcontinuetoworkwithallofthem.Andwestillexpectthevastmajorityofallofourmember-ownerstohaverenewedbythattimewegettothatdate.
Operator
OurnextquestioncomesfromMohanNaiduwithOppenheimer.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page16of20MohanA.Naidu-Oppenheimer&Co.Inc.,ResearchDivision-MDandSeniorAnalyst
Susan,justalongthesamelines.WhatdoyouthinkingeneralaboutthedisruptionfromplayerssuchasIntermountain,Ascensiontryingtocreatethisnewgenericdrugcompany,orAmazonandJPMorgantryingtodothis?Whataretherealopportunitieshereforyouandhowarehealthsystemsreactingtoallofthese?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,there’sjustalotofblurringoflinesgoingoninthehealthcaresystemgenerally.WhatIwouldsayis,Mohan,Ithinkwewereanticipatingthismanyyearsago.Weacquiredourowndirectsourcingcompany.We’realreadyprivatelabelingagenericdrugprogram.Wehavethecapabilitytofindotherwaystodealwithshortagesandpricingtransparency.AndsoalotofourmembersarealreadyleveragingthosecapabilitieswithinPremieranddon’tseetheneedtobuyorbuildtheirowngenericdrugcompany,forexample.SoIthinktherewillbefolkswhotestdifferentpartsofthemarket.Therealityoftheanalyticsyouneed,theaggregation,theprocesschange,thestandardizeddecision-making,we’vebeendoingalotofthosethingsandwillcontinuetodothose.AndIthinkifyoudrivethesavingsout,it’spartofwhyItalkedaboutowningthesupplychainoutcome,becauseanyoneofthosethingsinpiecesandpartsdon’tallowreallyforowningandchangingtheoveralltotalsupplychainoutcome,whichis,Ithink,whereeverybody’sgoingtohavetogettowiththetremendouscostpressurethey’refacing.
MichaelJ.Alkire-Premier,Inc.-COO
Mohan,thisisMikeAlkire.I’dliketojustaddacoupleofthings.Soweactuallythinkofthisasanopportunity.SoifyouthinkoftheAmazonandJPMorganopportunity,we’vegotthedata.We’vegotthetransparency.We’vegotthecollaborativestoactuallyhelppullemployerstogethertohelpthemifinfacttheyactuallywanttogodownthispathofdoingthisdirect-to-providersortofhealthcaredelivery.Sowethinkthere’sanopportunitythere.Andthenonthe—wheresomeofthehealthcaresystemsarecomingtogethertodothemanufacturingofgenerics,obviously,we’rereachingouttothoseorganizationsbecausewethinkwehavethetechnologyplatformtoaggregateallofthatsupply.Andwethink,giventheinvestmentswe’vemadewithourdirectsourcingasset,thatwecanactuallycontractmanufactureorprivatelabeldependingonwhat’sgoingtodrivethebestvaluetothem.
MohanA.Naidu-Oppenheimer&Co.Inc.,ResearchDivision-MDandSeniorAnalyst
That’sgreat.Maybeonequickoneonutilization.Craig,yousaidyou’reseeingimprovingutilization.Isthereenoughdataorstuffthatyou’reseeingrightnowthatcanhelpusdifferentiatewhetherthisisjustaconcentratedutilizationtowardstheendofthecalendaryearcomingfromthedeductibleplansoristhisjustageneralincreaseinutilizationoverall?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes.Iwouldtellyou,Mohan,it’sstillpreliminarytoreallybeabletoseethat.Ithinkwe’vetalkedinthepastthat,clearly,webelievethereissomeseasonalityasmorepeoplemovetoconsumer-directedplans.Andoverall,Iwouldthinkthatwe’reinanuncertainandpressuredenvironmentwherelongerterm,Idon’tthinkyou’regoingtoseehighutilization.Butrightnow,wehaveseenimprovementandmoderationandthinkthatbodeswellfortherestofourfiscalyear.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page17of20SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,oursense,Mohan,isthatutilizationisgoingtomovearoundthehealthcaresystemtothemostefficientsettingswiththehighestqualityoutcomes.Andsopatientsinthehospitalmightbesicker,otherpatientswillbeatothersitesofcare.Andaswesaidinthepreparedremarks,itreallyisbehindmakingsurewehavesupplychaincapabilities,analyticcapabilitiesinallsettingssothatasitmoves,we’reabletosupportthosehealthcaresystemsinwhateversettingitmovesto.
Operator
OurnextquestioncomesfromDonaldHookerwithKeyBanc.
DonaldHoughtonHooker-KeyBancCapitalMarketsInc.,ResearchDivision-VPandEquityResearchAnalyst
Kindoffollowingupontheearlierquestion.I’minterestedinthisnationalbuyingprogram.ButIguess,morebroadly,Iknowyouguyshavemadegreatprogresswithyourmembersgettingthemmorecompliantwithlow-costcontracts,supplycontractswithyourGPO.Howmuch—Imean,howdowethinkabouthowmuchmoreroomthereistorun?Itseemslikeyouguyshadmadegreatgainsthere.Istheresortofadiminishingreturnthere?Orhowfardoyouthinkwehavetogo?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes.Thanks,Don.ThisisCraig.I’llteeitupandthenSusanorMikecanaddanycolor.Butaswe’vetalkedabout,we’veroutinelydiscussedkindofpenetration,althoughwedon’tlookatanoverallpenetrationmetric.Weactuallytalkaboutbyserviceline.Andsotherearecertainservicelinesthatareveryhighlypenetratedwhenyouthinkaboutpharmacyor,forexample,ourfoodprogram.Butasyoumovedownintomorekindofstereotypicalmedicalsurgicalcategoriesorintothephysicianpreferencetypecategoriesorclinicianpreferencetypecategories,there’sstillalotofrunway.Thosearedowninthemoreofthe60stopotentially,inastrongercategory,70%penetration.Sothere’sstillalotofroomtodriveadditionalpenetrationthere.Andabigpartofthiscommittedbuyingprogramthatwe’relaunchingistoactuallyattackcategoriesinthatarenawhereyoucanactuallygettostandardization,asMikedescribed,andthereisanopportunitytoreallydrivestandardizationandcommitmenttogetbusinessforthesupplier,savingsforthememberandincrementalrevenuesforPremierlongerterm.
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,we’vebeenprettyintentionalaboutbuyinganalyticsassetsandthedirectsourcingcompaniessothatwiththisend-to-endstrategy,youcansolvethetotalsupplychainproblemwithGPOcontracts,withanalytics,withe-procurementofcapitalthroughananalyticstool,throughdirectsourcingsothatyouhavetheflexibilitytogotowhichevertoolorcapabilityisrequiredtogettothelowestsupplychaincost.
DonaldHoughtonHooker-KeyBancCapitalMarketsInc.,ResearchDivision-VPandEquityResearchAnalyst
Andthen—andmaybeaquickfollow-uponthesametopic.Nowthat,Iguess,we’regoingto—EssensaandInnovatixaregoingtocalendarizehere.Whatis—howdowethinkaboutkindofagrowthratefromthosebusinessesgoingforwardversusyourhistoricalin-patientsortofGPOservices?
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page18of20CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes,thisisCraig.Ithinkwhatwe’vetalkedabouthistoricallyintheGPOspaceiskindofmid-single-digitbeingtheregulargrowthratethathashistoricallybeencomprisedof,I’llsay,lowersingle-digitgrowthintheacutecarefootprintandalittlebithighergrowthinthenonacutecarefootprint.Ithinkyou’llcontinuetoseethatforminthatfashion.Butlongerterm,Iwouldexpectkindofmid-single-digitoverallgrowth.
Operator
OurnextquestioncomesfromSeanWielandwithPiperJaffray.
SeanWilliamWieland-PiperJaffrayCompanies,ResearchDivision-MDandSeniorResearchAnalyst
Sohowdoesthisremeasurementofthetaxreceivableagreementaffectthefuturepaymentstoyourmemberownersunderthatagreement?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes.Sothewaythetaxreceivableagreementsworkisthatatsuchtimethatweactuallyfileourtaxreturnandtakebenefitforataxdeductionasathen-enactedtaxrate,wepassthrough85%ofthattaxsavingstothemembers.Sotheshortanswertoyourquestionistheamountofthepaymentinthefuturetothehealthsystemsforthattaxreceivableagreementisreducedbecauseourtaxliabilityisreduced,andsothatincrementalcashflowwillgodownlongerterm.
SeanWilliamWieland-PiperJaffrayCompanies,ResearchDivision-MDandSeniorResearchAnalyst
SohowdoesthataffectthethinkingofyourmemberownersrelativetotherevenueshareobligationsandtheoveralleconomicmodelofdoingbusinesswithPremier?
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Yes,soaswetalkedabout,Sean,Imean,thewayourmembersviewthisisatotalsupplychainrelationship,whichincludesadminfee,sharetaxdistribution,someofthemhaveequity,someofthemdon’t.Butthebiggestnumberofthepageisalwaysthesupplychainsavingstarget.SoIdon’tknowifyou’reatInvestorDayorhaveseenthechart,Ithinkweshoweditlastquarter,whereforeverymember,they’retalkingaboutwithustheROIthatthey’regetting.Soiftheyhavea$50millionsavingstargetandthey’regettingfeesharetaxdistribution,resourcesandthey’reusingtechnologyandpayingSaaSfees,whatisthatoverallROI?AndthatROIisusuallybetween5:1and15:1,andthat’showtheythinkaboutitwithus.There’sjustalotofpartsoftherelationshipthatarebiggernumberstothem.Thistaxdistributionthingisafairlysmallnumberforfiscalyear’18andthere’salargenumberofowners.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page19of20SeanWilliamWieland-PiperJaffrayCompanies,ResearchDivision-MDandSeniorResearchAnalyst
Okay.Sothe$177million,thatis—howmanymoreyearsareleftinthetaxreceivableagreement?Howmanyyearswasthatfor?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Yes,sothewaythat—thisisCraig.Thewaythetaxreceivableagreementworks,Sean,isit’soverIRS’15-yearamortizationlife.Sothe$177millionisactuallyacumulationoverthefirst4yearsforthosememberownersthathaveexchangedequityatthetimeoftheIPOandsubsequenttothen.
Soitactuallyrunsoutforatleast15moreyearsatthispointintermsofthatremeasurement.Soasanexample,theamountthatweprovidedtoallofthememberownerslastyearattributabletothetaxreceivableagreementwasintherangeof$12millionto$13million.
SeanWilliamWieland-PiperJaffrayCompanies,ResearchDivision-MDandSeniorResearchAnalyst
Okay.Andthen—soatthisnewtaxrate,thatwouldbecomewhat?
CraigS.McKasson-Premier,Inc.-SeniorVP&CFO
Itwouldgodownbyabout36%.
Operator
AndournextquestioncomesfromEricColdwellwithBaird.
EricWhiteColdwell-RobertW.Baird&Co.Incorporated,ResearchDivision-SeniorResearchAnalyst
Idon’tthinkIcanfollowthatoneupandallofmyquestionshavebeenaskedandanswered.Soletmejustsaycongratsonanicequarterandupdate.
Operator
Andatthistime,I’mshowingnofurtherquestions.I’dliketoturnthecallbackovertoMs.SusanDeVoreforclosingremarks.
SusanD.DeVore-Premier,Inc.-President,CEO&Director
Okay.Thankssomuch,everybody,forspendingtimewithustoday.WelookforwardtotalkingwithyouagainonorbeforeourthirdquarterconferencecallinearlyMay.Sooperator,youcannowclosethecall.
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PREMIER,INC.Fiscal2018SecondQuarterConferenceCallTranscript
Page20of20Operator
Ladiesandgentlemen,thankyouforyourparticipationintoday’sconference.Thisdoesconcludetheprogram,youmaynowdisconnect.Everyone,haveagreatday.
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Second-QuarterFiscal2018FinancialResults&UpdateFebruary5,2018Exhibit99.3
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Forward-lookingstatementsandnon-GAAPfinancialmeasuresForward-lookingStatements–Certainstatementsincludedinthispresentationthatarenothistoricalorcurrentfactsincluding,butnotlimitedto,thoserelatedtoourfinancialandbusinessoutlook,impactofevolvinghealthcareenvironment,strategyandgrowthdrivers,utilizationandpatientvolumetrends,revenuevisibility,anticipatedmemberrenewalsofGPOparticipationagreements,crossandupsellopportunities,acquisitionactivitiesandpipeline,revenueavailableundercontract,thefinancialimpactofsharerepurchases,taxreformandcostsavingsefforts,and2018financialguidanceandrelatedassumptionsare“forward-lookingstatements”withinthemeaningofthefederalsecuritieslaws.Forward-lookingstatementsmayinvolveknownandunknownrisks,uncertaintiesandotherfactorsthatmaycausetheactualresultsofPremiertobemateriallydifferentfromhistoricalresultsorfromanyfutureresultsorprojectionsexpressedorimpliedbysuchforward-lookingstatements.Accordingly,readersshouldnotplaceunduerelianceonanyforwardlookingstatements.Readersareurgedtoconsiderstatementsintheconditionalorfuturetensesorthatincludetermssuchas“believes,”“belief,”“expects,”“estimates,”“intends,”“anticipates”or“plans”tobeuncertainandforward-looking.Forward-lookingstatementsmayincludecommentsastoPremier’sbeliefsandexpectationsastofutureeventsandtrendsaffectingitsbusinessandarenecessarilysubjecttouncertainties,manyofwhichareoutsidePremier’scontrol.YoushouldcarefullyreadPremier’speriodicandcurrentfilingswiththeSECformoreinformationonpotentialrisksandotherfactorsthatcouldaffectPremier’sfinancialresults.Forward-lookingstatementsspeakonlyasofthedatetheyaremade.Premierundertakesnoobligationtopubliclyupdateorreviseanyforward-lookingstatements.Non-GAAPFinancialMeasures–Thispresentationincludescertain“non-GAAPfinancialmeasures”asdefinedinRegulationGundertheSecuritiesExchangeActof1934.Schedulesareattachedthatreconcilethenon-GAAPfinancialmeasuresincludedinthispresentationtothemostdirectlycomparablefinancialmeasurescalculatedandpresentedinaccordancewithGenerallyAcceptedAccountingPrinciplesintheUnitedStates.YoushouldcarefullyreadPremier’speriodicandcurrentfilingswiththeSECfordefinitionsandfurtherexplanationanddisclosureregardingouruseofnon-GAAPfinancialmeasuresandsuchfilingsshouldbereadinconjunctionwiththispresentation.
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SusanDeVorePresidentandChiefExecutiveOfficerPremier,Inc.OverviewandBusinessUpdate
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Second-quarterfiscal2018financialhighlights*Seenon-GAAPAdjustedEBITDA,non-GAAPAdjustedFullyDistributedEarningsPerShareandnon-GAAPFreeCashFlowreconciliationstoGAAPequivalentsinAppendix.Non-GAAPadjustedEBITDA*up9%to$133.5millionSupplyChainServicessegmentrevenueup19%to$324.9millionPerformanceServicessegmentrevenueup1%to$86.5millionNon-GAAPadjustedfullydistributedearningspershare*up9%to$0.50Cashflowfromoperationsof$206.5millionforsix-monthperiodNon-GAAPfreecashflow*of$122.2millionforsix-monthperiodRaisingfiscalfull-yearguidancefornon-GAAPadjustedfullydistributedearningspershareandreaffirmingexistingguidancerangesforotherfinancialmetricsConsolidatednetrevenueup15%to$411.4million;Afteraone-timeremeasurementofdeferredtaxbalances,GAAPnetincomeof$19.8million,GAAPEPSlossof$1.66*Seenon-GAAPAdjustedEBITDA,non-GAAPAdjustedFullyDistributedEarningsPerShareandnon-GAAPFreeCashFlowreconciliationstoGAAPequivalentsinAppendix.
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MarketplaceforcesthataredrivingchangeVolumetoValueValuedominates,evenwithregulatoryshiftsInsurersandtherapeuticcompaniespushingmoresharedvalue-basedcontractsRealworldefficacyofeverysinglesolutionDouble-sidedriskassumptionDigitaltransformationisoccurringateverynodeofhealthcareOptimizationofEMRsGrowthofpredictiveanalyticsandmachinelearningPrecisionmedicineBlockchainWorkflowandconsumerexperienceDigitalizationVertical/HorizontalIntegrationStakeholdersareconsolidatingtodeliverbetterofferingsPayer/providerRetail/providerDistributor/manufacturerTechnologyconnectivityDecentralizationofcaredeliveryinsystemsVirtualcareRemotepatientmonitoringEnhancedclinicaldatasharingAlternativecaresettingssuchasretailDecentralizationofCareConsumerism/WellnessTheconsumerisdemandingmorefromtheirhealthcarePricetransparencyAlwaysconnectedwellnessAccessandmanagementoftheirhealthdata
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PremiercontinuestoevolveitsstrategytoaddresschangingindustrydynamicsandproviderneedssupplychainservicesperformanceservicesOwnTotalSupplyChainCostWithMembersOwnTotalCostandClinicalPerformancewithMembersAnalytics/ComparativeEffectiveness/ResourceUtilizationComprehensiveE-enablementStrategicSourcing/PredictiveAggregationFulfillment/LogisticsPartnerClinicalandCostAnalyticsPerformanceImprovementServicesPopulationHealthManagementPrecisionMedicineConnectivityMasterDataManagementChangeManagement
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MikeAlkireChiefOperatingOfficerPremier,Inc.OperationsReview
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PremiercontinuestodemonstratevalueNewnationalcommittedbuyingprogramdesignedtoprovidesignificantcostsavingstohighly-committedmemberswhichareabletocoordinatesupplychaindecisionsandmaintainstandardizationacrosstheirfacilities.ContinuingtogaintractionwithourAcademicHealthSystemstrategyandhaveinitiatedengagementswithtwoadditionalacademichealthsystemssincelastquarter.
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PremiercontinuestodemonstratevalueMedicareaccountablecareorganizationssupportedbyPremier’spopulationhealthcollaborativeoutperformedtheirpeersby57percentinachievingsharedsavingsduringthemostrecentmeasurementperiods.PremierwasnamedthebestStrategy,GrowthandConsolidationConsultingorganizationbyKLASforthesecondstraightyear,intheresearchfirm’s2018BestinKLAS,SoftwareandServicesreport.ProvidersworkingwithPremieronbundledpaymentprogramsunderCMS’sComprehensiveCareforJointReplacementModelperformed35%betterthanallotherparticipatinghospitalsinachievingsharedsavings.
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CraigMcKassonChiefFinancialOfficerPremier,Inc.FinancialReview
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Fiscal2018second-quarterconsolidatedandsegmenthighlightsConsolidatedNetrevenue(inmillions)SupplyChainServicesNetrevenue(inmillions)PerformanceServicesNetrevenue(inmillions)AdjustedEBITDA(inmillions)AdjustedEBITDA(inmillions)AdjustedEBITDA(inmillions)*Seenon-GAAPAdjustedEBITDAandnon-GAAPSegmentAdjustedEBITDAreconciliationstoGAAPequivalentsinAppendix.15%9%19%11%1%-2%GAAPNON-GAAP*
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Fiscal2018second-quarterSupplyChainServicesrevenueSupplyChainServicesrevenueincreased19%Netadministrativefeesrevenueincreased23%IncludingcontributionfromInnovatixandEssensaProductsrevenueincreased14%Double-digitgrowthinbothdirectsourcingandintegratedpharmacybusinessesSupplyChainServicesNetrevenue(inmillions)19%$272.7$324.9
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Fiscal2018second-quarterPerformanceServicesrevenuePerformanceServicesrevenueincreased1%GrowthincostmanagementtechnologysolutionsandambulatoryqualitysolutionsPerformanceServicesNetrevenue(inmillions)1%
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Fiscal2018second-quarterGAAPnetincome-92%$1.50$(1.66)Earningspershareattributabletostockholders*–dilutedDuealmostentirelytoremeasurementofdeferredtaxbalancesasaresultoftaxreform,GAAPnetincomedecreased92%*AfterrequiredGAAPnon-cashadjustmentstoreflectthechangeinredemptionamountoflimitedpartners’ClassBcommonunitownershipattheendofeachperiod
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Fiscal2018second-quarternon-GAAPadjustedEBITDA*Consolidatednon-GAAPadjustedEBITDAup9%*Seenon-GAAPAdjustedEBITDAandnon-GAAPSegmentAdjustedEBITDAreconciliationstoGAAPequivalentsinAppendix.$133.5$122.0
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Fiscal2018second-quarternon-GAAPadjustedfullydistributednetincomeandearningspershare*Calculatesincometaxesat39%ofpre-taxincomeforsecondquarter(priortotaxreform),assumingtaxableCcorporatestructureCalculatesadjustedfullydistributedearningspershare,assumingallClassAandBcommonsharesareheldbythepublic9%$65.2million$70.0millionNon-GAAPadjustedfullydistributednetincome*Seenon-GAAPadjustedfullydistributednetincomeandnon-GAAPadjustedfullydistributedearningspersharereconciliationstoGAAPequivalentsinAppendix
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CashflowandcapitalflexibilityatDecember31,2017CONSIDERABLECASHANDDEBTCAPACITYAVAILABLEAMPLECAPITALFLEXIBILITYFORFUTUREACQUISITIONSANDSTOCKHOLDERRETURNCashflowfromoperationsof$206.5millionandnon-GAAPfreecashflow*of$122.2millionforthesixmonthsendedDecember31,2017Cashandcashequivalentsof$163.0millionOutstandingborrowingsof$200.0millionon$750.0millionfive-yearunsecuredrevolvingcreditfacility*Seenon-GAAPFreeCashFlowreconciliationtoGAAPequivalentinAppendix.
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Updatedfiscal2018guidance(1)Fiscal2018FinancialGuidance(inmillions,exceptpersharedata)FY2018%YoYIncreaseNetRevenue:SupplyChainServicessegment$1,200.0-$1,266.09%-15%PerformanceServicessegment$364.0-$382.03%-8%TotalNetRevenue$1,564.0-$1,648.08%-13%Non-GAAPadjustedEBITDA$532.0-$557.06%-11%Non-GAAPadjustedfullydistributedEPS$2.24-$2.3719%-25%(1)FortheyearendingJune30,2018.UpdatedFebruary5,2018.Seeaccompanyingpagefornotesandassumptionstoguidance.
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GuidanceFootnotes:Thecompanydoesnotmeaningfullyreconcileguidancefornon-GAAPadjustedEBITDAandnon-GAAPadjustedfullydistributedearningspersharetonetincomeattributabletostockholdersorearningspershareattributabletostockholdersbecausethecompanycannotprovideguidanceformoresignificantreconcilingitemsbetweennetincomeattributabletostockholdersandadjustedEBITDAandbetweenearningspershareattributabletostockholdersandnon-GAAPadjustedfullydistributedearningspersharewithoutunreasonableeffort.Thisisduetotwoprimaryreasons:•Reasonableguidancecannotbeprovidedforreconcilingtheadjustmentofredeemablelimitedpartners’capitaltoredemptionamount–historicallythelargestadjustmentinthereconciliationfromnon-GAAPtoGAAPamounts–duetothefactthattheincreaseordecreaseinthisitemisbasedonthechangeinthenumberofsharesofClassBstockoutstandingandchangeinstockpricebetweenquarters,whichthecompanycannotpredict,controlorreasonablyestimate.•Reasonableguidancecannotbeprovidedforearningspershareattributabletostockholdersbecausetheongoingquarterlymember-ownerexchangeofClassBcommonstockandcorrespondingClassBunitsintosharesofClassAcommonstockimpactsthenumberofsharesofClassAcommonstockoutstandingeachquarter,whichthecompanycannotpredict,controlorreasonablyestimate.Memberownershavetheright,butnottheobligation,toexchangesharesonaquarterlybasis,andthecompanyhasthediscretiontosettleanyexchangedsharesforClassAcommonstock,cash,oracombinationthereof,neitherofwhichcanbepredicted,controlledorreasonablyestimatedatthistime.Fiscal2018annualguidancefootnotesandkeyassumptions(foryearendingJune30,2018)*KeyAssumptions*:SupplyChainServicesassumptions:Netadministrativefeerevenuegrowthof13%to17%Mid-singledigitgrowthinlegacygrouppurchasingbusinessaugmentedbycontributionsfromtheInnovatixandEssensabusinessesContinuedhighGPOretentionrates14-18%productsrevenuegrowthPerformanceServicesassumptions:ContinueddemandforintegratedofferingsofSaaS-basedsubscriptionandlicensedproducts,advisoryservicesandcollaborativesContinuedhighSaaSinstitutionalrenewalratesOtherassumptions:Estimatedrevenueavailableundercontractof$1.47billion,whichrepresentsapproximately89%to94%ofourconsolidatedrevenueguidancerangeNon-GAAPfreecashflowwillapproximate40%ormoreofnon-GAAPadjustedEBITDA;taxreformpositiveimpactonfiscal2018non-GAAPfreecashflowaspercentofnon-GAAPadjustedEBITDAexpectedtoapproximate4%Capitalexpendituresofapproximately$85millionto$90million,representing5%to6%ofconsolidatednetrevenueConsolidatednon-GAAPadjustedEBITDAmarginintherangeof33%to34%Adjustedfullydistributednetincomeandearningspersharecalculationstoreflectaneffectivetaxrateof39%inthefirsthalfofthefiscalyearandaneffectivetaxrateof25%inthesecondhalfofthefiscalyearasaresultoftheimpactoftheTaxCutsandJobsAct,resultinginablendedeffectivetaxrateof32%forfiscal2018onafullyearbasisTaxreformisexpectedtopositivelyimpactfiscal2018non-GAAPadjustedfullydistributedEPSbyapproximately$0.23,whilethesharerepurchaseisexpectedtoadd$0.03to$0.05*AsofFebruary5,2018
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QuarterlyexchangeupdateOnJanuary31,2018,approximately1.0millionClassBunitswereexchangedforClassAcommonshareson1-for-1basis;equalnumberofClassBcommonsharesretired.NextquarterlyexchangewilloccuronApril30,2018.
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Questions
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Appendix
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Fiscal2018andfiscal2017non-GAAPreconciliations
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Fiscal2018andfiscal2017non-GAAPreconciliations
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Fiscal2018andfiscal2017non-GAAPreconciliations
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Fiscal2018andfiscal2017non-GAAPreconciliations
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Fiscal2018andfiscal2017non-GAAPreconciliations
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Fiscal2018andfiscal2017non-GAAPreconciliations