Premier, Inc. (NASDAQ:PINC) Q3 2024 Earnings Call Transcript May 7, 2024
Premier, Inc. misses on earnings expectations. Reported EPS is $-0.36161 EPS, expectations were $0.47. Premier, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Premier’s Fiscal 2024 Third Quarter Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ben Krasinski, Senior Director Investor Relations. Please go ahead.
Ben Krasinski: Thank you, and welcome to Premier’s fiscal 2024 third quarter conference call. Our speakers this morning are Mike Alkire, Premier’s President and CEO; and Craig McKasson our Chief Administrative and Financial Officer. Before we get started, I want to remind everyone that our earnings release and the supplemental presentation accompanying this call are available in the Investors section of our website at investors.premierinc.com. Please be advised that management’s remarks today contain certain forward-looking statements, such as statements regarding our strategies, plans, prospects, expectations and future performance and the actual results could differ materially from those discussed today. These forward-looking statements speak as of today and we undertake no obligation to update them.
Factors that might affect future results are discussed in our filings with the SEC including our most recent Form 10-K and Form 10-Q for the quarter, which we expect to file soon. We encourage you to review the detailed forward-looking statements and risk factor disclosures in these reports. Also during this presentation, we will refer to adjusted and other non-GAAP financial measures including free cash flow to evaluate our business. Information on why we use these measures in addition to GAAP financial measures and reconciliations of these measures to our GAAP financial measures are included in our earnings release and in the appendix of the supplemental presentation accompanying this call. Information on our non-GAAP financial measures will also be included in our Form 10-Q for the quarter and our earnings Form 8-K, both of which we expect to furnish to the SEC soon.
I will now turn the call over to Mike Alkire.
Mike Alkire: Good morning, everyone and thank you for joining us. Today, we will share our fiscal 2024 third quarter operating results. We’ll also provide some highlights on the progress we continue to make advancing our strategy to drive healthcare performance improvement through further technology enablement of our capabilities. Lastly, we’ll provide an update on our outlook for fiscal 2024, as well as provide some initial perspectives on fiscal 2025. First, let me say that I am proud of how our team executed this quarter to deliver operating performance that exceeded our expectations for profitability and has us on track to meet our guidance, which we are reaffirming for the full year. For the third quarter, total net revenue increased from the prior year period, driven by growth in both our Supply Chain Services and Performance Services segments.
We also continued to return additional capital to stockholders as we implemented our $400 million accelerated share repurchase transaction during the quarter. We continue to execute with discipline as we advance our two core strategies, technology enabling this and streamlining all aspects of supply chain and leveraging our unique data, technology and AI capabilities to support provider performance improvement and growth in certain adjacent markets. Regarding our technology-enabled supply chain strategy, we made progress driving adoption of our digital supply chain capabilities as we continue to roll-out automated invoicing and payable capabilities to large integrated delivery networks and other providers. We believe these solutions are differentiated in the market and can be a key enabler for providers to better manage labor costs and increase working capital allowing for better cash flow management and helping to support organizational growth initiatives.
We’ve also renewed expanded and signed new partnership agreements with providers and key suppliers and we continue to deliver significant value in the market. For example, Kaleida Health, a five-hospital system in Western New York leveraged Premier’s capabilities to realize over $75 million in savings during the last five years, all while maintaining high-quality care and outcomes for their patients. Kaleida utilizes our robust data and analytics as well as our supply chain co-management capabilities and together, we align clinical and supply chain teams with industry-leading data and insights to enable smarter purchasing decisions. With respect to our AI-driven provider performance improvement strategy, we’re excited to announce the recent release of the 100 Top Hospitals in partnership with Fortune Magazine.
This transparent ratings program provides vital insights for providers seeking market differentiation and performance enhancement. Importantly, the success of this program and our road map for its enhancements have helped us open doors and expand partnerships including a signed deal with one of the nation’s largest health systems. We also continue to expand relationships and establish new partnerships with hospitals and health systems to drive margin improvement. These engagements underscore the essential role our technology-enabled solutions play in supporting and enhancing healthcare delivery. For example, a large regional system recently expanded our multi-decade partnership. As part of this agreement, they will deploy our advanced analytics and AI-enabled technology across their entire system.
This included clinical decision support capabilities specifically our AI-enabled clinical documentation solution that Craig will speak further about later in the call. Before I conclude, I wanted to commend our team for their dedication and commitment as they continue to innovate to enable better, smarter health care for member health system providers and the communities they serve. I will now turn the call over to Craig for a more comprehensive discussion on our financial results and outlook.
Craig McKasson: Thanks, Mike. Let me share our fiscal year 2024 third quarter results. Total net revenue increased from the prior year period in both of our segments. In our Supply Chain Services segment, higher net administrative fees were driven primarily by continued growth in member purchasing in both the acute and Continuum of Care programs as well as onetime payments from certain members due to early termination of their agreements partially offset by an expected increase in the aggregate blended member fee share to the mid-50% level. In our direct sourcing business, products revenue was relatively flat as further expansion and growth of the business was offset by lower pricing for certain products compared to the prior year period.
We also experienced growth in software license, other services and support revenue in the Supply Chain Services segment driven by growth in our supply chain co-management business where members continue to engage Premier’s expertise to help manage their end-to-end supply chain operations. We recently announced Beebe Healthcare’s selection of Premier as its supply chain operations partner, which comes on the heels of our announcement last quarter with Tufts Medicine. In our Performance Services segment, the revenue increase was driven by an increase in contributions from enterprise license agreements compared to the prior year period, partially offset by a decrease in our Applied Sciences business. We continue to make progress in our adjacent markets businesses, which have delivered over 20% revenue growth during the first nine months of fiscal 2024.
For example we continue to see interest in our AI-enabled clinical documentation capabilities and recently highlighted how Community Health Network in Indiana leveraged our solution to improve the accuracy of clinical documentation, while also increasing provider satisfaction by enhancing decision-making and reducing alert fatigue. Turning to profitability. GAAP net loss was $49.2 million for the quarter and was primarily the result of a $140 million impairment charge to goodwill and long-lived assets related to our Contigo Health business. The expansion of our network capabilities into the self-insured health care provider market was a key driver of our future financial expectations for this business and adoption has been meaningfully slower than originally contemplated.
As we announced last quarter, we believe an outside partner will allow for continued advancement of this business through a broader capability set and increased scale. We will provide more information on this process as well as our search for a partner for S2S Global, our direct sourcing business once we have something definitive to report. Total adjusted EBITDA was impacted by the following factors; Performance Services’ adjusted EBITDA increased, mainly due to revenue growth, partially offset by an increase in expenses, primarily related to higher performance-related compensation in the current year period as well as investments to support continued growth in our adjacent markets businesses. Supply Chain Services adjusted EBITDA declined, primarily due to an increase in expenses primarily related to the ongoing enablement of generative AI capabilities in our purchase services GPO program and for expansion of our Supply Chain Co-Management business and a lower profit margin in our direct sourcing business due to higher logistics costs compared to the prior year period, partially offset by revenue growth.
Adjusted net income decreased, primarily as a result of the same factors that impacted adjusted EBITDA, but was partially offset by a decrease in interest expense. Adjusted earnings per share increased, primarily due to the reduction in weighted average share count as a result of the retirement of approximately 15 million Class A common shares in conjunction with our $400 million accelerated share repurchase implemented in early February. The final number of shares to be repurchased and retired through the accelerated share repurchase transaction will be determined upon completion, which is expected in the first quarter of fiscal 2025. From a cash perspective, excluding the impact of the $148.6 million in tax payments, related to the sale of our non-healthcare GPO operations earlier this fiscal year, we continue to expect fiscal 2024 free cash flow to approximate 45% to 55% of adjusted EBITDA for the full year.
For the first nine months of fiscal 2024, cash flow from operations of $190.3 million decreased from $331.2 million in the prior year period. The change was primarily due to the tax payments associated with the sale of our non-healthcare GPO operations. Free cash flow of $48.1 million also declined from the prior year period as it too was impacted by the tax payments as well as an increase in capitalized software development related to the advancement of our supply chain technology automation. Cash and cash equivalents totaled $61.9 million as of March 31, 2024, compared with $89.8 million as of June 30, 2023. The decrease was driven by the use of cash for the accelerated share repurchase as well as the repayment of the outstanding balance on our five-year $1 billion revolving credit facility, which continued to have no balance as of the end of the quarter.
These decreases were partially offset by the proceeds received from the sale of our non-healthcare GPO operations net of the previously mentioned tax payments. With respect to the sale of non-healthcare GPO operations, we have received a total of $629.8 million in total proceeds as of March 31, 2024 and expect the final purchase price to be up to $738 million as we continue to finalize member consent and the true-up period that has been extended into the fourth quarter. With respect to capital deployment, we remain disciplined and focused on taking a balanced approach long-term with return to stockholders a current priority. As we mentioned last quarter, to accelerate returns to stockholders, our Board approved a $1 billion share repurchase authorization through June 30, 2025 and as part of that we executed a $400 million accelerated share repurchase transaction.
This augmented our quarterly cash dividend, which totaled $73.1 million during the first nine months of fiscal 2024. In addition, our Board recently declared a dividend of $0.21 per share payable on June 15, 2024 to stockholders of record as of June 1. We also continue to evaluate opportunities for investment to support organic growth as well as potential acquisitions to strengthen, enhance or complement our existing capabilities and further differentiate our offerings in the marketplace. Turning to our full year fiscal 2024 guidance. Based on our performance for the nine months year-to-date and outlook for the remainder of this year, we are reaffirming the guidance that we introduced on our fiscal 2024 second quarter earnings call in February.
Looking ahead, while we are not planning to provide our formal fiscal 2025 guidance until our fourth quarter and full year earnings report in August, we did want to share a few high-level perspectives in anticipation of next fiscal year. Consistent with recent commentary, we expect fiscal 2025 revenue will decline in Supply Chain Services, excluding S2S Global, primarily due to a further increase in aggregate blended member fee share from the current mid-50% level to the low-60% range as we continue to renew and extend GPO agreements with our members. While we expect continued growth in member purchasing and gross administrative fees revenue in both our acute and Continuum of Care GPO programs, we anticipate this will be more than offset by the increase in member fee share.
Given the high-margin nature of the GPO business, this will have a meaningful impact on profitability. In our Performance Services segment, excluding Contigo Health, we expect revenue to grow in the mid-single-digit range comprised of double-digit growth in our adjacent markets businesses and low single-digit growth in the healthcare provider business. In closing, I would also like to thank our employees for their continued dedication to our mission and for their hard work, advancing our strategy and enabling our members and other customers to deliver higher quality, lower-cost healthcare to the communities they serve. They are our greatest asset and a key component of our foundation, which we believe is also differentiated by our unique combination of capabilities including our AI-enabled technology solutions powered by our vast data sets and deeply embedded member relationships, where we are helping to drive healthcare improvement from the inside.
We also continue to maintain a flexible balance sheet, generate substantial cash flow and remain committed to returning value to stockholders. We appreciate your time today and we’ll now open the call for questions.
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