Premier, Inc.

Thank you and welcome to Premier's fiscal 2021 fourth quarter and full year conference call. Our speakers this morning are Mike Alkire, our president and CEO, and Craig McCasin, our chief administrative and financial officer. Before we get started, I want to remind everyone that our earnings release and the supplemental slides accompanying this conference call are available in the investor relations section of our website at investors.premierinc.com. Management's remarks today contain certain forward-looking statements, and actual results could differ materially from those discussed today. These forward-looking statements speak as of today, and we undertake no obligation to update them. Factors that might affect future results are discussed in our filings with the SEC, including our Form 10-K for the fiscal year, which we expect to file soon. We encourage you to review these detailed safe harbor and risk factor disclosures. Also, where appropriate, we will refer to adjusted or other non-GAAP financial measures, such as free cash flow, to evaluate our business. Reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release, in the appendix of the supplemental slides accompanying this presentation, and in our earnings form 8K, which we expect to furnish to the SEC soon. I will now turn the call over to Mike Alkire.

Thanks, Angie. Good morning, everyone. And thank you for joining us today. This morning, we will provide an update on the progress we are making to advance our strategies to achieve our longer term goals and deliver value to our stockholders. We will also discuss our fiscal 2021 fourth quarter and full year results and our outlook and guidance for fiscal 2022. We are pleased with our fourth quarter results, which reflect another quarter of solid execution. Compared with the fourth quarter of fiscal 2020, our total net revenue grew 40%, supply chain services segment net revenue increased 51%, performances segment net revenue grew 9%, and profitability was in line with our expectations. Craig will discuss our operational and financial results in more detail and walk you through our fiscal 2022 financial guidance in his remarks. We continue to operate in a very dynamic environment brought on by the COVID-19 pandemic. Our employees have really stepped up during this time, and we are playing an integral role in supporting our members as they focus on the safety and protection of their staff, while delivering high-quality, cost-effective healthcare to their patients. Our members are informed by insights gleaned from our member network, reflecting the power of our alliance, as well as our predicted data to effectively manage significant increases in patient utilization, including hospitalizations, particularly in southern states that have resulted from the rapid spread of the Delta variant. The pandemic highlighted weaknesses in the healthcare supply chain. The continued evolution of our supply chain, direct sourcing, and analytics capabilities have enabled us to advance our strategy to build a more resilient healthcare supply chain in the United States. In addition to co-investing with our members to support the domestic manufacturing of critically needed face masks and gowns, we recently announced our collaboration with Honeywell to expand the U.S. production of nitrile exam gloves a critical category for care delivery. These unique initiatives will help to protect our healthcare providers from shortages, drive supply chain innovation, and increase both domestic and near-shore manufacturing of critical products. Our supply chain services strategy is focused on building a technology-enabled end-to-end supply chain with a set of unique capabilities that span the front-end e-commerce, consumer-like web-based catalog ordering to back in e-invoicing and e-payables solutions. In March, we achieved a critical step in advancing the strategy through our acquisition of the assets of invoice delivery services. With the addition of IDS, an element of our e-invoicing and e-payable strategy, we have branded these capabilities Remitra. While Remitra is a key component of our overall supply chain strategy, it is managed within our performance services segment to enhance connectivity with our broader suite of AI-enabled technology and consulting capabilities. We are looking forward to the value we believe Remitra will deliver in the upcoming years, including diversifying our revenue, the profitable growth, and increasing visibility into total member spend and increased member retention and recruitment. Turning to our performance services business, we launched a new brand for our comprehensive technology and consulting services platform last week, called Pink AI. Our performance services segment now consists of three sub-brands, Pink AI, Remitra, and Contigo Health. This realignment better reflects our current product offerings and strategy to expand and incorporate artificial intelligence, including machine learning and natural language processing, throughout our portfolio. Today, Pink AI enables more than 300,000 physicians to deliver high-quality care while safely reducing waste and other inefficiencies. Through its robust dataset, which includes visibility to more than 45% of US hospital discharges, a technology and services platform, and a large network of providers, We believe Pink AI can scale to advance collaborative, patient-centric innovation and help drive our growth in adjacent markets in the coming years. We also continue to make progress in advancing our strategy to drive growth and diversify our revenue streams through deeper penetration of the provider market through our consulting and technology businesses and further expansion into adjacent markets, including the payer, life sciences and employer markets. For example, in our life sciences business, we are focused on better connecting providers and life sciences companies with data-driven research leading to real-world evidence and advancements in patient identification for clinical trials. In fiscal 2021, we expanded our capabilities to include new data sources, natural language processing, solutions for improved clinical trial recruitment, and expanded member partnerships. In our Contigo Health business, which focuses on direct provider to employer solutions, we continue to make progress in fiscal 2021. We completed the integration of Health Design Plus through Manage Live by more than 20% and achieved 100% customer retention. We have several key initiatives underway for Contigo Health in fiscal 2022. For example, we continue to expand our Centers of Excellence Network and other networks to meet the needs of our employer customers with technology enablement to improve health outcomes, provider connectivity, and access to care. We also expect to enhance our health plan administration capabilities with several key platform improvements. This includes advanced analytics that combine claims with clinical data to drive deeper insights and actions and drive continuous clinical quality improvement. We also continue to advance our environmental, social, and governance efforts. Last week, Conductive, our business that helps our members optimize purchase services, launched Lumen, a diversity, equity, and inclusion initiative. Using AI power to analytic technology, Lumen helps our customers identify and implement inclusive supplier sourcing strategies, efficiently increase the spend with diverse suppliers, meet their broader diversity, equity, and inclusion goals, and importantly, support local economies by choosing local, qualified, and diverse suppliers for their third-party service needs. Premier was also recently honored to be named a recipient of the Achiever's Annual 50 Most Engaged Workplaces Award. International Award for our commitment to creating an engaged workforce through our many employee-centered programs. Also, reinforcing our focus on building an engaged workplace through an environment of diversity, equity, inclusion, and belonging, earlier this month, we received two 2021 Diversity Impact Awards from the Global ERG Network. In addition, We plan to publish our inaugural sustainability report this fall. I'd like to take this opportunity to recognize our members and frontline workers for their tireless commitment and dedication to addressing the pandemic and continuing to provide care in their communities. I'd also like to thank Premier employees for their continued commitment in supporting each other, our members, and other customers during these unprecedented times. The support our members have received during this critical time was reflected in our fiscal 2021 annual CEO member survey in which we received a 98% overall satisfaction rate and more than 90% of our members view Premier as their strategic partner. In summary, we are excited about the strategic path we are on as we continue to transform healthcare from the inside. Our evolution to a full-service performance improvement company will be powered by our engaged member network, our broad data assets, and the continued advancement and innovation of our AI-based technology to provide deeper and more actionable insights for our stakeholders. We remain focused on executing our strategies and creating value for all our stakeholders. I will now turn the call over to Craig McCastin for a discussion of our operational financial performance and fiscal 22 financial guidance.

Thanks, Mike. This morning we reported fiscal fourth quarter and full year 2021 results that reflect a year of solid execution, even in the face of challenges brought on by the COVID-19 pandemic. Today I will walk through our fiscal 2021 fourth quarter results, highlight our capital allocation priorities, and then discuss our fiscal 2022 financial outlook, including initial guidance and key assumptions in more detail. For the fourth quarter of 2021, and as compared with the prior year period, total net revenue was $481.5 million, an increase of 40%. Supply chain services segment revenue was $389.7 million, an increase of 51%, and performance services segment revenue was 91.8 million, an increase of 9%. In our supply chain services segment, net administrative fees revenue declined slightly compared with the prior year quarter and was mainly affected by three factors. First, as we expected, our amended and extended GPO agreements with most of our members, which were effective July 1, 2020, reduced net administrative fees revenue by approximately $33 million in the fourth quarter compared with the prior year quarter. The $115 million impact of the amended agreements in fiscal 2021 was $5 million higher than our original top-end estimate communicated last August due to changes in the actual level and mix of member purchasing throughout the year. This decrease was partially offset by a less significant impact from the pandemic compared to last year. And third, growth in net administrative fees revenue due to the ramp-up from the addition of new GPO members during fiscal 2021, including Virginia Mason, Health Resource Services, and Community Health System, and further penetration of existing member spend. The increased penetration of existing member spend was driven in part by growth in our highly committed purchasing programs for which the combined purchasing spend represented by the participating members grew from 27 billion to more than 30 billion in fiscal 2021. We also continued to broaden the GPO contract portfolio with the addition of new contract categories and suppliers across both our acute and alternate site businesses as we leverage our technology enablement to identify potential contract opportunities. Products revenue increased 127% from the prior year quarter, mainly due to $168 million in incremental revenue related to growth in ongoing demand for commodity products as a result of the nature and duration of the pandemic. Our fourth quarter revenue was higher than we expected a quarter ago, primarily due to higher demand for certain items than we initially expected and a lower than anticipated impact from certain port and logistic challenges prevailing in the market over the past six months. Looking ahead, we continue to expect our products revenue will gradually normalize to pre-pandemic levels in fiscal 2022 as excessive demand subsides from the broader market dynamics and the fact that our members have largely established their necessary inventory stockpiles at this point in time. In our performance services segment, revenue growth in the fourth quarter was primarily driven by Contigo Health and incremental revenue from Health Design Plus acquired in May 2020 and growth in our consulting business. In fiscal 2021, performance services grew 9% compared with fiscal 2020. We are pleased with the performance of our adjacent markets businesses, which consist of our applied sciences, Contigo Health, Remitra, and clinical decision support businesses, and which contributed more than $64 million in revenue for the full year. With respect to profitability, gap net income was $50.7 million for the quarter. As we expected, adjusted EBITDA of $116.5 million in the fourth quarter decreased 3% from the prior year quarter as a result of the following. Supply chain services adjusted EBITDA of $128.3 million increased quarter over quarter, primarily as a result of increased profitability associated with the direct sourcing and supply chain co-management businesses. which was partially offset by the anticipated lower net administrative fees. And performance services segment adjusted EBITDA of $22.6 million decreased from the prior year quarter due to timing and recognition of revenue throughout the fiscal year, as well as an increase in selling, general, and administrative expense, primarily related to investment in additional headcount to support growth in Contigo Health and our technology business, as well as incremental expense related to remitra. Adjusted net income of $74 million increased 4% from a year ago, and adjusted earnings per share increased 3% to 60 cents. From a liquidity and balance sheet perspective, cash flow from operations for the year ended June 30, 2021 was $407.4 million compared with $339.9 million for the prior year. The increase was primarily due to the year-over-year impact of the prior year payment of the Acurity prepaid contract administrative fee share in connection with that prior year acquisition, primarily reduced by changes in net working capital of purchases of PPE related to the pandemic, as well as lower net administrative fees revenue in the current year. Free cash flow for the year ended June 30, 2021, was $240.3 million, compared with $266.5 million for the same period a year ago. The decrease was primarily due to payments made to former limited partners of Premier LP in connection with the early termination of the tax receivable agreement, which were partially offset by the elimination of tax distributions, both of which occurred as part of the company's restructure in August 2020. Free cash flow for fiscal 2021 represented 51% of adjusted EBITDA, which was higher than we originally expected due to the timing of capital outlays and cash collections related to our efforts to secure PPE and other critical items for our members during the pandemic. In fiscal 2022, we expect that free cash flow will continue to normalize if and when the pandemic abates to a range of 35% to 50% of adjusted EBITDA for the year. Cash and cash equivalents totaled $129.1 million at June 30, 2021, compared with $99.3 million at June 30, 2020. Our five-year, $1 billion revolving credit facility had an outstanding balance of $75 million as of June 30, which was repaid in full subsequent to quarter end, and there is currently no amount outstanding on the credit facility. With respect to capital deployments, We expect to continue to take a balanced approach with our priorities being, first, to invest in the future growth of our businesses. This could include a combination of organic reinvestment in the business to drive growth, as well as acquisitions and other investments to strengthen our existing capabilities and differentiate our offerings in the marketplace. And second, returning capital to stockholders. On August 5th, 2021, Premier's Board of Directors approved a new $250 million share repurchase program for fiscal 2022 and a 5.3% increase to our quarterly cash dividend with the declaration of a dividend of 20 cents per share payable on September 15, 2021 to stockholders of record as of September 1st. Now let's turn to our financial guidance. In follow-up to our early view into fiscal 2022 provided on our third quarter earnings call, we are now introducing our fiscal 2022 full-year guidance based on our historical performance and current expectations for this year. This guidance incorporates certain key assumptions related to the market and our business, and consistent with prior years, it does not incorporate the impact of any future significant acquisitions that we may undertake. In developing our guidance, we factored in the expected realization of approximately $1.23 billion in estimated revenue that is available under contract for fiscal 2022. This represents approximately 86% to 93% of our total net revenue guidance range, consistent with prior years, and assumes the continuation of historical GPO retention and SAS institutional renewal rates. With these key assumptions in mind, our specific fiscal 2022 full-year guidance ranges are as follows. Supply chain services segment net revenue of $925 million to $1.01 billion, primarily comprised of GPO net administrative fees revenue of $570 to $590 million, and direct sourcing products revenue of $350 to $390 million. performance services segment net revenue of 395 to 420 million dollars. Together these produce total net revenue of 1.32 to 1.43 billion dollars. We expect adjusted EBITDA to be in the range of 483 to 500 million dollars and adjusted earnings per share of excluding the impact of any share repurchase under our $250 million authorization to be in the range of $2.50 to $2.60. Our guidance is also based on the following assumptions and expectations. In our GPO business, we expect to continue experiencing some impact from the pandemic, including the impact of the current surge in cases due to the Delta variant. In addition, As we previously communicated, we expect an impact in net administrative fees revenue in fiscal 2022 as a result of the small number of members that did not agree to amended and extended GPO agreements at the time of our restructure in August 2020. With respect to net administrative fees revenue growth this year, we expect to continue to drive further contract penetration of existing member spend as well as to add and ramp up new members, including the recent additions of UnityPoint Health and ChristianaCare. We are also currently assuming that patient utilization remains near pre-pandemic levels and that the impact of the Delta variant on healthcare utilization and elective procedures is short-lived. To the extent that utilization is higher or lower than those levels, it could represent a potential headwind or tailwind to our expectations. In our direct sourcing products business, we expect that the elevated prices and levels of purchasing in fiscal 2021 associated with higher use and establishment of stockpiles as a result of the pandemic will continue to gradually return down to more normalized levels throughout this fiscal year. We believe our members have generally established necessary inventory stockpiles and currently have sufficient levels of PPE on hand. Given this, we expect a sequential step down of $120 to $140 million in the first quarter. In our performance services business, we expect our healthcare provider technology and consulting businesses to grow in the low to mid single digit range. With respect to our adjacent markets business, we anticipate that our continued investments and expansion in adjacent markets will produce approximately 25% revenue growth over fiscal 2021. In addition, and as we have communicated previously, due to the timing and magnitude of enterprise analytics license agreements and certain consulting arrangements, there may be periodic variability in the recognition of the revenue and profitability associated with these engagements between quarters during any given fiscal year. With this in mind, we currently expect year-over-year growth in the first quarter to be in the low single-digit range with a higher growth rate for the remaining nine months of fiscal 2022. From an income tax perspective, we currently anticipate a fiscal 2022 effective tax rate of 23% as a result of tax planning strategies being implemented in follow-up to the August 2020 restructuring, which enabled a 22% effective tax rate for fiscal 2021. Beyond fiscal 2022, we would expect our effective tax rate to return to a more normalized 27% level. Finally, we expect capital expenditures to be in the range of $100 to $110 million for the fiscal year. Our investment in capital expenditures is primarily focused on further AI enabling our technology capabilities for our growth initiatives, including clinical decision support, Contigo Health, and Remitra. As we look forward to fiscal 2022 and beyond, we are excited about the path we are on, and we remain vigilantly focused on executing our strategy to further strengthen, grow, and position Premier for sustainable long-term success and adjusted for the impact of the COVID-19 pandemic to achieve our targeted multi-year compound annual growth rates of mid to high single digits for total net revenue, adjusted EBITDA, and adjusted earnings per share. Thank you for your time today. Operator will now open the call up for questions.