Premier, Inc.

Good morning and welcome to the Premier, Inc. Fiscal 2022 Fourth Quarter Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Angie McCabe, Vice President, Investor Relations. Please go ahead. Thank you.

Welcome to Premier's fiscal 2022 fourth quarter and full year conference call. Our speakers this morning are Mike Alkire, our President and CEO, and Craig McCaslin, 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. Mike?

Thanks, Angie. Good morning, everyone, and thank you for joining us today. We're very pleased with our performance in the fourth quarter and fiscal year 2022. For the full year, net revenue of $1.4 billion and adjusted EBITDA of $498.7 million. exceeded our expectations that reflect our focus on executing our multi-year growth strategy. At our investor day in November 2021, we communicated how we are leveraging technology and executing our strategy to achieve sustainable long-term growth. This morning, Craig and I will share with you the progress we are making to advance the strategy and our outlook for fiscal year 2023 Craig will also provide additional details regarding our fiscal 2023 guidance. Our multi-year growth strategy consists of four pillars. The first pillar is to grow and deepen existing relationships with our more than 4,400 hospitals and health systems and nearly 250,000 providers and other organizations. We believe the challenges of labor shortages and supply chain disruption that our healthcare systems faced over the past two years have provided us with the opportunity to further demonstrate our differentiated solutions and the value we bring to the market. I am proud of our results from our most recent annual C-suite satisfaction survey, where more than 90% of our member executives responded that they view Premier not simply as a vendor, but a strategic partner or an extension of their own organization. We recently achieved an all-time high net promoter score, which remains above 70 and places Premier among some of the most recognizable well-regarded companies in the Fortune 500. And our overall satisfaction score has steadily increased over the last five years and remains in the high 90% range. Through the second pillar of our growth strategy, we are building and strengthening capabilities and solutions that deliver on the needs of our members and other customers. For instance, as part of our supply chain services growth strategy, we are leveraging our technology-enabled purchasing program for non-acute healthcare to further capture members' spend, particularly since healthcare is increasingly shifting from the hospital to the outpatient setting. This resulted in year-over-year double-digit growth in our non-acute group purchasing business. Our third strategic growth pillar consists of creating and delivering innovative solutions in healthcare. In fiscal 2022, we launched two new innovative brands that represent Premier's unique ability to scale disruptive technologies in healthcare. Pink AI, our AI-enabled technology and services platform, and Remitra, our digital invoice and payment solution for healthcare providers and suppliers. In Remitra, We recently achieved the key milestone on our strategic roadmap. Ahead of our schedule, we launched Remitra Cashflow Optimizer, or Remitra CFO. Remitra is already digitizing invoicing, and Remitra CFO positions us to be what we believe is the first solution in healthcare to manage electronic invoicing and guarantee on-time invoice payment for suppliers. Launching Remitra CFO is a very exciting step for us as we continue to vertically integrate and evolve our capabilities to build an end-to-end technology-enabled supply chain to create efficiencies and savings across the entire supply chain. We expect it to drive Remitra's growth as we add more suppliers and providers to the platform in fiscal 2023. Lastly, The fourth pillar of our growth strategy is to diversify and grow revenue by expanding into adjacent markets. Contigo Health, our direct-to-employer business, performed very well in fiscal 2022, with both revenue and participants accessing our centers of excellence and third-party health plan administrative services growing nearly 30% year-over-year and exceeding the target that we communicated at our investor day last year. We believe Contigo Health is well positioned for continued growth as we expand our offering into the provider and employer sponsored health plan markets and seek opportunities to provide more comprehensive network services, back office support and infrastructure. In the second half of this fiscal year, we anticipate rolling out new centers of excellence programs, including a new substance use program, and expanding our Center of Excellence provider network. We also expect the number of participants accessing Contigo Health's products and services to grow by 20 to 30% in fiscal 2023. We are very pleased with the strong momentum in Pink AI Applied Sciences business. We believe we are highly differentiated through our unique health systems relationship and Pink AI's technology capabilities to accelerate regulatory review and commercialization of treatment therapies for life sciences and medical device companies. In fiscal 2022, we continue to expand our partnerships so that pharmaceutical, medical device, and diagnostic companies can leverage real-world evidence using Pink AI's data and research capabilities. One example of this is our new partnership with AstraZeneca to support their efforts to transform the treatment of chronic obstructive pulmonary disease, or COPD, and eliminate it as a leading cause of death. This is in addition to the work we are already doing with them to use our platform to help identify patients with incidental pulmonary nodules for the diagnosis of lung cancer, as well as five other cancer types. In fiscal 2023, we expect to drive further growth in this business by entering new and expanding existing strategic partnerships with life sciences companies members and other research organizations, collaborating with life sciences companies on innovative clinical trials, leveraging real-world evidence to help in the pre-market regulatory process and to deliver targeted treatment therapies for patients. Before I turn the call over to Craig, I want to take a moment to thank our employees for their hard work and continued dedication to and support of our members, our customers, and partners as we all navigate a challenging environment. This is a testament to our employees' focus and belief in our mission to improve the health of communities. In closing, we continue to evolve in what we believe is the most comprehensive, full-service performance improvement company in healthcare. As we look ahead, we remain committed to achieving our longer-term objectives and creating value for our stakeholders. I will now turn the call over to Craig McKesson for a discussion of our operational and financial performance and fiscal 2023 financial guidance.

Thanks, Mike. This morning I will walk through our fiscal 2022 fourth quarter and full year results and provide some color around our initial outlook and guidance for fiscal 2023. First, I wanted to echo Mike's comments regarding our team at Premier. I, too, am very proud of our employees' unwavering efforts to help make a difference as we continue to provide differentiated solutions and what we believe is unmatched value in the healthcare market we serve. Our trusted relationships and ability to deliver meaningful solutions are reflected in the continuation of our high retention and renewal rates, with our fiscal 2022 GPO retention rate at 97%, and our SAS institutional renewal rate at 96%. Now turning to the fourth quarter of 2022, and as compared with the year ago fourth quarter, total net revenue was $340.7 million, a decrease of 29%, as we expected. Supply chain services segment revenue was $232.7 million, a decrease of 40%, and performance services segment revenue was $108 million, an increase of 18%. In our supply chain services segment, net administrative fees revenue increased 3% from the year-ago quarter, primarily due to our efforts to further penetrate existing members' spend. For example, in fiscal 2022, we continued to add members to and expand our highly committed purchasing programs. In fiscal 2023, we are targeting continued member adoption of these programs as one of our strategic levers to drive incremental member savings and more spend through our GPO contract portfolio. Our non-acute GPO business performed very well in fiscal 2022, as we expanded the number of providers and other organizations that are members, and we delivered double digit growth, which is consistent with the expectations we communicated at our investor day in November of 2021. Within our GPO portfolio, certain categories, including our food program and workforce staffing, continued to generate strong quarter-over-quarter growth. Our food program has now generally returned to and is beginning to grow beyond pre-COVID-19 pandemic levels. With respect to workforce staffing, There was an increase in labor demand in the fourth quarter as compared with the prior year period, providing net administrative fee growth. But we are beginning to see some abatement on a sequential basis as providers focus on lowering contract labor expenses. Importantly, we continue to manage price increases for supplies and services on behalf of our healthcare provider members. And while some contracts in certain categories have experienced the impact of inflation, It did not have a material impact in aggregate on our performance during the quarter. As we expected, products revenue declined 163 million or 70% from the prior year quarter, which included an estimated 168 million in incremental purchases of personal protective equipment or PPE and other high demand supplies as a result of the state of the COVID-19 pandemic in the prior year. This was partially offset by ongoing demand for commodity products as we continue to expand our product portfolio and drive increased member adoption. In our performance services segment, revenue increased 18% in the fourth quarter of fiscal 2022 compared with last year's fourth quarter. This was primarily due to growth in our adjacent markets businesses, as well as the timing of enterprise analytics license revenue in the current year compared with the prior year. As Mike discussed, in fiscal 2022, our adjacent markets businesses grew nearly 30% over fiscal 2021 to more than $83 million in revenue. These businesses are still in their early stages, and we are excited about the progress in fiscal 2022 and their longer-term prospects. We believe we are well positioned to continue growing these businesses by scaling them across our platform and continuing to address unmet market needs with our unique combination of data, technology, and scale. With respect to profitability, GapNet income was $30.7 million for the quarter. Adjusted EBITDA of $122.8 million in the fourth quarter increased 5% from the same quarter a year ago, primarily as a result of two factors. First, performance services segment adjusted EBITDA of $37.7 million increased from the prior year quarter, primarily due to an increase in revenue that was partially offset by higher selling, general, and administrative expense, mainly related to additional headcount. to support growth in our adjacent market businesses. Second, supply chain services adjusted EBITDA of 119.3 million decreased quarter over quarter, primarily due to a decline in products revenue, which was mainly driven by lower demand and pricing for PPE, as well as increased freight costs impacting margins in our direct sourcing business. These were partially offset by the increase in net administrative fees revenue. Compared with the year-ago quarter, adjusted net income slightly declined to $73.5 million, and adjusted earnings per share increased 2% to 61 cents. For fiscal 2022, adjusted net income was $302.7 million, compared with $306 million in fiscal 2021. Adjusted EPS was $2.49 in fiscal 2022, compared with $2.48 in fiscal 2021. Adjusted net income and adjusted EPS reflect income tax expense at an effective rate of 26% and 22% for fiscal year 2022 and 2021, respectively. The lower effective tax rate in fiscal 2021 was primarily the result of our August 2020 restructuring, which created a tax benefit upon the release of a valuation allowance on deferred tax assets. While we also benefited from an additional valuation allowance release in fiscal 2022 due to the second quarter subsidiary reorganization, it was not as significant, and our effective tax rate returned to a more normalized level in the current year. Therefore, fiscal 2022 adjusted EPS saw less benefit from the valuation allowance release and income taxes than in fiscal 2021. We expect our effective tax rate to further normalize slightly in fiscal 2023 to a 26 to 27% rate. From a cash tax rate perspective, we continue to benefit from our August 2020 restructuring and our fiscal 2022 second quarter subsidiary reorganization. As a result, and consistent with our expectations, the cash tax rate for fiscal 2022 was 1%. In fiscal 2023, we expect our cash tax rate to be in the range of 1 to 5%. From a liquidity and balance sheet perspective, cash flow from operations for the year ended June 30, 2022 was $444.2 million. compared with $407.4 million for the prior year. The increase was primarily due to higher cash inflows from the collection of accounts receivable and reduction in inventory purchases due to the prior year buildup in inventory in the company's direct sourcing business to meet demand associated with the COVID-19 pandemic. The increase in cash was partially offset by an increase in cash outflows for payments related to operational investments to support growth in the company's adjacent market businesses. Free cash flow for fiscal 2022 was 260.8 million, or approximately 52% of adjusted EBITDA, compared with 240.3 million for the same period a year ago. The increase was primarily due to the same factors that affected cash flow from operations and changes resulting from our August 2020 restructuring. For fiscal 2023, we expect free cash flow of approximately 45 to 55% of adjusted EBITDA. Cash and cash equivalents totaled 86.1 million as of June 30, 2022, compared with 129.1 million as of June 30, 2021. We ended the quarter with an outstanding balance of $150 million on our five-year $1 billion revolving credit facility. With respect to capital deployment, we continue to focus on taking a balanced approach by investing in organic growth and targeting acquisitions to strengthen, enhance, or complement our existing capabilities and differentiate our offerings in the marketplace. We continue to actively pursue and evaluate acquisitions and opportunities to generate additional stockholder return, while at the same time, focusing on completing the integrations of our previously announced acquisition. In fiscal 2022, capital expenditures totaled 87.4 million, and we expect capital expenditures to be in the range of 90 to $100 million in fiscal 2023. We also continue to return capital to our stockholders. During fiscal 2022, we repurchased approximately 6.4 million shares of our common stock for a total of $250 million. The share repurchases contributed 3 cents per share to adjusted EPS in the fourth quarter of fiscal 2022 and 8 cents per share for the full fiscal year. We also paid quarterly cash dividends to stockholders, totaling $96.5 million. And recently, our board of directors increased our quarterly cash dividend by 5% to $0.21 per share, payable on September 15, 2022, to stockholders of record as of September 1. Now let's turn to our fiscal 2023 guidance. which is based on our historical performance and current expectations for this fiscal year. Our 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 share repurchases or 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 2023. This represents approximately 80% to 86% of our total net revenue guidance range, which is slightly lower than in prior years due to the mix and composition of our revenue streams. This estimate assumes the continuation of historical GPO retention and SAS institutional renewal rates. Also, as a reminder, our performance in fiscal 2022 continued to experience some impact in our direct sourcing business related to the COVID-19 pandemic. And when adjusting for this impact, our fiscal 2023 guidance is consistent with our multi-year targeted growth rate. With these key assumptions in mind, our specific fiscal 2023 full-year guidance ranges are as follows. Supply chain services segment revenue of $950 million to $1 billion, primarily comprised of GPO net administrative fees revenue of $620 to $640 million, and direct sourcing products revenue of $315 to to $345 million. Performance services segment net revenue of $430 to $450 million. Together, these produce total net revenue of $1.38 to $1.45 billion. We expect adjusted EBITDA to be in the range of $510 to $530 million and adjusted earnings per share to be in the range of $2.63 to $2.75. Our guidance is also based on the following assumptions and expectations. In our GPO business, we expect to continue to drive further contract penetration of existing member spend, add new members, and expand our contract portfolio. We are also assuming that patient utilization remains near current levels which is generally in line with levels prior to the pandemic. To the extent that utilization or member participation in our GPO are higher or lower than we expect, these could represent potential headwinds or tailwinds to our expectations. In our direct sourcing products business, we expect continued growth by increasing member adoption and expanding our product portfolio and through new partnerships and collaborations with providers and suppliers to promote additional onshore and nearshore manufacturing. In addition, we believe that our fourth quarter fiscal 2022 revenue has almost normalized to what we would expect in a non-pandemic environment. We expect to see some slight sequential normalization in the first quarter of fiscal 2023, after which we anticipate that this business will begin to grow again sequentially on a quarterly basis. In our performance services business, we anticipate that our continued investments in and expansion of our adjacent markets businesses will produce approximately 30 to 40% revenue growth over fiscal 2022. As a reminder, these businesses are still in their early stages and we anticipate revenue to ramp as the fiscal year progresses. Therefore, we generally expect performance services revenue to be the lowest in the first quarter of fiscal 2023 and to increase sequentially throughout the year. Also, as a reminder, due to the timing and magnitude of enterprise 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. From a profitability perspective, on a full year basis and adjusted to exclude the impact from the COVID-19 pandemic in fiscal 2022, we expect adjusted EBITDA to grow in the mid to high single digit range over fiscal 2022. As a reminder, profitability in the first half of the prior year benefited from higher demand and pricing associated with purchases of PPE and other supplies in our direct sourcing business. Therefore, our year-over-year profitability growth will be impacted in the first half of fiscal 2023. In fiscal 2023, we also expect to make incremental investments across the business to drive our anticipated growth and to recruit and retain talent in a challenging labor market. These factors are expected to result in an approximate mid-single-digit year-over-year decline in adjusted EBITDA in the first half of fiscal 2023. Importantly, we expect this trend to reverse in the second half of this fiscal year as we continue to grow the business. In summary, we are pleased with our fiscal 2022 performance as we continue to execute our strategy, generate strong free cash flow, and maintain a flexible balance sheet. As we look ahead and adjusted for the impact of the COVID-19 pandemic on our direct sourcing business, we remain and believe we are on track to achieve our targeted compound annual growth rates from fiscal year 2021 through fiscal year 2024 of mid to high single digits for total net revenue, adjusted EBITDA, and adjusted earnings per share as we provided at our investor day last year. Thank you for your time this morning. We'll now open the call up for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from Stephanie Davis of SVB Learing. Please go ahead. Hey guys, congrats on the quarter.

So I heard that 30 to 40% growth comment on the performance services adjacent markets. And I nearly chopped up the call because I thought that potentially I was on the wrong call there. Is that, how sustainable is that 30 to 40% growth rate? And are we at the peak or is there just still more wood to chop in those adjacent markets?

Thanks, Stephanie.

Go ahead.

Go ahead, Craig.

Yeah, let me just start. So Stephanie, as we articulated our investor day last November, that is the growth rate we expect for the three-year time period that we've set forth in terms of our longer-term rates. You know, we do have businesses that are ramping up, both Contigo and Remitra, and then the continued expansion of the Pink AI Applied Sciences and clinical decision support businesses. So I wouldn't say 30% to 40% growth is significant. you know, in perpetuity. But for the next couple of years, that is the expectations in terms of growth of those businesses.

So let's talk about mix then. You've got this incredibly fast-growing component of your business in performance services. That's got to mean that the mix shift is going towards that. So how should we think about that over the coming years?

Yeah, I think you'll continue to see a mixed shift. I think what you will see given the earlier stage of some of those businesses is that the margin profile of the segment as a whole will have some implications as we continue to ramp those. You know, we did approximately a 31% adjusted EBITDA margin in 22. I think you'll see a low 30% adjust EBITDA margin in 23 by virtue of that. And then as they keep ramping, particularly the remitra business, which has the opportunity for high margins, you'll see us eventually get back to sort of the mid-30s on a go-forward basis.

And then on that mid to high single-digit growth that you've been guiding to, just when I think about the performance services segment, Is the growth just from normalization of things like license sales this year going to look, this year being FY23, going to look a little bit more like the prior year? Or are we going to see a more rapid acceleration, just given this outsized performance in that subsegment?

Yeah, it's a good question. I think, you know, as we've talked about, the guidance we've given is mid to high single digit for the segment as a whole. Obviously, that will be dictated upon that we talk about periodic variability at times about enterprise licenses. So depending when some of those hit across fiscal years can influence that, clearly the 30 to 40% growth in the adjacent markets helps support the level of overall growth that we anticipate to have, but wouldn't expect, you know, significant difference from the mid to high single-digit growth overall for fiscal 2023. Okay.

Awesome to hear. Thank you, guys.

The next question is from Michael Turney of Bank of America Merrill Lynch. Please go ahead.

Good morning, and thanks for taking the question. Maybe if I can dive into the net administrative fees a bit. Craig, Mike, I heard you talk about the variability that you expect to see related to utilization. Can you give us a better sense on where exactly the puts and pulls are within that guidance in terms of your expectations? I think it's for a modest decline, if I'm doing the math correctly, unless I'm missing something. But just curious to think about how you think about the upside-down sides of the net administrative fees. targets and what that incorporates in terms of utilization progressing over the course of the year.

Sure. Happy to kick it off and then Mike can add color. In terms of the GPO broadly, the guidance range assumes sort of consistent utilization, so not necessarily decline. What we are continuing to see, and we've talked about this for the past couple of years, is that inpatient utilization continues to sort of trend down just slightly. while utilization in the alternate site settings continues to increase. And so we do think that we're, for the most part, it does vary regionally back to sort of pre-COVID utilization levels. Although, you know, in certain geographies, there does continue to be pressure on some of the procedures coming back into the inpatient settings. From a standpoint of the guidance overall, the only thing I would highlight relative to the GPO as a reminder is we did have the The lingering impact of the August 2020 restructuring and those members that did not participate in that restructuring at the time that had their historical contracts run through September 30 of 2021, so the first quarter of our fiscal 2022. So we're still sort of lapping that last quarter where we had the lower administrative fee share contracts before the repricing took place. And so that's a part of the reason for a little bit of the hurdle in terms of year-over-year comps. in the first half of the year, and that's particularly impacting the first quarter. But then on a go-forward basis, we would expect kind of stable, continuous growth in the GPO as we typically experience.

Hey, Michael. This is Mike Alkire. Just real quick, one quick add to that. As Craig said, as we look through the numbers through the end of March, the acute was, you know, decreased by 2.5%. you know, and there is variability across, obviously, the geographies. The only other pressure that health systems are seeing is this tight labor market. And so if there's, you know, if they don't have the labor to perform some of the procedures, that would be the only other headwind that we would want to keep an eye on. Having said that, we seem to see, at least anecdotally, we're seeing a more normalization of utilization as we get into this last quarter. But we don't have all the statistics in, but we'll look forward to getting that data in before we can really come to some conclusions on what's going to happen with utilization.

Understood. And maybe just going back to the performance services commentary, You talked about some of the variability you can expect on a quarter-by-quarter basis based on when licensing contracts come in. How should we think about the future of the way that you want to contract? And I assume with all the adjacent businesses, this quarterly potential fluctuations will likely slow over time, but just curious how that should factor into the various quarter-by-quarter variability.

Yeah, so first, we do like enterprise licenses. They are we believe more sticky. They are obviously more inclusive of all the technology analytics that our health systems need. So as opposed to selling points solutions, we believe our integrated offering drives the most amount of value from a technology standpoint. So we continue to like the whole enterprise license concept. As you look at our adjacent businesses, You know, things like Contigo Health, you know, that's a whole different, you know, business model. Obviously, we're getting, you know, paid fees as part of the TPA. And then as you look at our Remitra offering, we're also collecting fees as a result of the new products that we've been developing there for, you know, by suppliers to utilize the network. And then also, obviously, by the providers who are utilizing the network as well.

Yeah, this is Craig Michael. The only color I would add is that we do meet our customers where they are. The majority of the technology business that we have is still SaaS-based. About 10% to 15% of our performance services revenue relates to these enterprise license agreements. So given the size and magnitude of those, those can have an impact on variability depending when they close. I think that will continue to occur in 23. I think as we move forward and as these other businesses ramp, which are generally not license-based, I would agree with you that longer-term volatility should start to settle down. There's also been a migration of where these licenses will eventually begin renewing, and so you'll get some stability in the platform once that occurs.

The next question is from Eric Coldwell of Baird. Please go ahead.

Thanks very much. Good morning. I have two. The first one is just putting a bow on the EBITDA comments on the first half of fiscal 23. Correct me if I heard you incorrectly, but I think you said expect EBITDA to be down about mid-single digits in the first half against the tough comps and the investments you're making. When I look at the model, it seems like The second quarter is really the quarter that has the toughest comp, but you also made some comments about timing and phasing in one queue in both segments. So just hoping to get a little more color on the direction of EBITDA in the first half of the fiscal year, and are you looking for similar mid-single-digit declines in both quarters, or is it perhaps a bit more weighted to one quarter versus the other?

Yeah, that's a good question, Eric. It really is fairly consistent across both quarters, and there's really two factors driving it. So the first quarter is more weighted toward the GPO headwind that I just talked about, where we have the runoff of, we had some GPO contracts in the first quarter that were still under the old pricing model before they were renewed. In the second quarter, if you were to go back and look at last year's performance, that's where we had the highest profitability from our direct sourcing business. given we hadn't begun to see some of the price declines take effect yet that hit us in the back half of the year. We talked a lot about that last year on our quarterly earnings calls. So those are the two primary drivers affecting the year over your comp. We then do have some of the ongoing investments in the adjacent markets growth businesses that will continue through the year, but we'll see the ramp of revenue as those continue to mature and have been. But it's generally a pretty equal headwind in Q1 and Q2.

That's very helpful. And my second question, again, just technical on the revenue guidance. When I look at supply chain services, you give segment revenue guidance for the year, obviously, and you give it for both admin fees and direct sourcing. You do have a third line, other services and support. By default, it looks like other services and support guidance is, I mean, by default, it looks very low. It looks about half of the fiscal 22 run rate, but I'm not sure if that's just captured in the rounding, and there's really nothing to see there, but I was hoping for a little more color on that as well. Thanks.

Yeah, no, I'll have to go back here and see why it would be looking at half, and we can have a follow-up call with you on that. What I'd say relative to the other services and support line, that is where our supply chain co-management activity resides, which is where we're actually doing kind of supply chain outsourcing in certain cases or other consulting-related relationships. And so that business does continue to grow in selective accounts. And so there's growth there. What may be impacting that line, but I'll have to take a look, is some of the intersegment activity related to small-end engagements where there is contra-intersegment revenue that goes over to our performance services business based on some of our

integrated couple of large integrated accounts but we can we'll take another look at that okay thanks very much Craig the next question is from Jessica Tassin of Piper Sandler please go ahead hi thanks so much for taking the question and then congrats on the quarter I was just hoping maybe on the the professional services revenue guidance on that $40 million roughly of dollar growth. Can you help us understand what kind of visibility you have into that growth? Are these kind of incremental contracts? Are they expanded? Are they booked already? And when would you expect to have them booked?

Sure. So generally we go into any fiscal year, as indicated in the guidance, kind of 80% to 86% of our revenue available under contract. On the performance services side of our business, we typically go in on the technology side with 70 plus percent visibility for the year in terms of what we expect. So there are new bookings that we need to achieve. We also have our advisory services business, which is the consulting business. What I will tell you is that we had a very successful year of larger margin transformation engagement bookings in fiscal 2022. So we're actually heading into fiscal 2023 with higher visibility than we generally have. We actually have about 75% visibility for our advisory services business in fiscal 2023. where typically that would be more down in the 50 to 60% range. So feel good about the visibility going into 23 relative to our performance services business, but clearly there, you know, continues to be new business we'll need to sell and ramp. That would also include Contigo Health, where we look to continue to add new participants to the platform, as we indicated, you know, expectations of sort of that 30 to 40% growth that we're talking about broadly for the adjacent markets. And then in the Remitra business, which is still ramping with the addition of suppliers and providers, particularly around the Remitra CFO launch, those two, there is undiscovered business, but still very good about the pipeline and the opportunities to achieve the growth in those two.

Got it. And then just on the incremental investments that are going to depress EBITDA in the first half, are those intended to support this year's services guidance, or are those going to support kind of out-year, high single-digit growth for the next, whatever it is, three to five years?

Yeah, thanks for the question. It's definitely to support this year's growth, given the 30% to 40% revenue growth that we're looking to deliver, but then also contributes to future year performance. But it is impacting the current year in terms of profitability of those businesses as we continue to ramp them up.

Got it. I just have one last quick one. On the supply chain services side, are you kind of agnostic from an adjusted EBITDA margin perspective as to whether purchasing occurs in the acute care environment or in the ambulatory setting? Thanks, and that's it for me.

Yeah, generally speaking, the margins are fairly comparable. I think we've talked about this at points in the past, but there's not quite as much centralization of some of the purchasing in the non-acute space. So there's a little bit more outreach field support in the non-acute. That's why we've been focused on continuing to build out the technology enablement of that side of the business. But generally speaking, fairly agnostic in terms of as we've seen that mixed shift continue to move from the acute to the non-acute space.

Got it. Thank you. The next question is from AJ Rice of Credit Suisse. Please go ahead.

Hi, everybody. Maybe two questions. A lot of discussion the last few quarters about utilization rates and where we're at, but I know in the prepared remarks today, you're also mentioning contract penetration of members, and you're expecting that to go up. I guess I'd be interested, I know we had some anecdotal discussion about people going off contract because of supply chain issues through the pandemic. Are you sort of where you were pre-pandemic on the continuing accounts that stayed with you? And maybe comment on how much incremental penetration you think you could drive over the next year and where might that come from?

Yeah, this is Mike. I'll just talk at a macro level. So we do feel like we are back to, you know, where we were pre-COVID on terms of where we are from a penetration standpoint. And I think, AJ, you know, everything that we do is focused towards on the supply chain as it relates to our field. Everything we do really is focused towards driving higher penetration because as we have seen, Organizations that can drive higher levels of penetration actually perform well in their supply chain outcomes, so supply expense per adjusted discharge or supply expense per operating cost. Our focus really is to move the mark there. While we look at it more broadly at a macro level in terms of penetration, our focus really is account by account. Depending on, you know, what the needs are of, you know, from a savings standpoint to sort of offset this labor cost issue that a lot of our health systems are facing, we set out parameters for contract penetration in specific categories where we know it will yield the most amount of savings. And so we are back in that program going full steam, have been back in that program probably for the better part of six to eight months where we're you know, really driving higher levels of penetration because it is actually driving more enhanced value, obviously, to the health systems than helping their bottom lines.

Okay. Let me just maybe one other thing that's come up in some of the discussions with the public hospital companies. A couple have mentioned that they have in their supply contracts, they had multi-year contracts, and so they didn't see the full impact of inflation in some of the items this year, they will in subsequent, will in 23 and beyond. To what extent is that relevant for you all? Do you have meaningful contracts that will be here, and is that a good thing, or does it help you with your administrative fees, or is it a challenging thing that it puts more pressure on your customers?

Yeah, that's a great question, AJ. So very quickly, Everything that, you know, we do from a GPO perspective is really to manage inflation. So we have within our contract terms that do not allow for, obviously, increases due to inflation. So exactly what you heard from in the, you know, the publicly traded, you know, IDN's perspective, when you have, you know, contracts that are, you know, three years long and you have those terms in there where they can increase due to, you know, the terms of those agreements, then there is, you know, some form of a protection. And that is something that, you know, is in pretty much all of our contracts, and it is something we constantly focus on. Having said that, there are, you know, you do have sort of we call the mid-cycle asks for, you know, increases of, you know, for increases. We have had, you know, a number of suppliers that have come to us to ask for increases. I think that, you know, on average about 30% of those are agreed to. And just very quickly, the way that that actually happens is Premier has, you know, strategic advisory committees and other sourcing committees. Those committees are actually made up of our healthcare systems executives, and they are the organizations or the committees that determine whether or not they're going to allow for a price increase. Because it's very important, obviously, that we limit the number of price increases that occur mid-cycle, given that health systems have very, very tight bottom lines. And so the only reason, or there's only a couple of reasons why you'd ever get an increase, and that would be that if somebody was going to exit from the market and there potentially might be a monopolistic or duopoly kind of a scenario playing out, something like that would be one of the very few reasons why you would actually agree to a price increase. But It is something that we manage every single day. It is a significant focus of our organization. And organizationally, it's something we take pride in that we do it very well in terms of managing inflation.

Hey, Mike, this is Craig. The only one clarification I wanted to point out, which we've talked about in the past, is that part of our GPO portfolio, our food program and our pharmacy program actually do have variable pricing, so they do ebb and flow a bit up and down with inflation and deflation. Where Mike was talking about the fixed fee contracts, it's the majority of our portfolio, about 2,000 of the 3,000 contracts that we have, which are primarily in the med-surg and the other areas. I just wanted to clarify and call that out.

Thank you, Craig. Sure, thanks. Thanks.

The next question is from Richard Close of Canada Corps Genuity. Please go ahead.

Yeah, thanks for the questions and congratulations on finishing the year strong. Craig, maybe walk us through the contract coverage and fiscal 23 being a little bit lower. That's my first question.

Yeah, in terms of being at 80% to 86% of our revenue guidance range versus in the past being slightly higher, I think it's really a function of the continuing change and expansion of the business into other areas. So as I talked about, Remitra and Contigo have a little bit less visibility than we've historically had as those continue to grow. really due to mix, it's changing the percentages. We still have very high visibility to the GPO. I responded to Jessica earlier in terms of the visibility on the technology and the advisory services business.

Okay, thanks on that. And then I guess on the performance services side, so Health Catalyst, who's in the analytics area in services, you know, they reported a you know, tough guidance for the rest of this calendar year seems to, you know, vary versus, you know, your commentary on your performance services area. So, just curious, you know, how are you thinking about the end market, the financial situation of hospitals, health systems, And just, you know, what was baked into your guidance from, you know, the current economic uncertainty and just thoughts in and around that would be helpful.

Hey, Craig, if I could just step in real quickly at a high level. You know, obviously, we don't necessarily, you know, comment, Richard, on, you know, potential competitors. But the very unique part of our offering is We have the technology, the clinical decision support, and we have the wraparound services. And so if you think about what we do with our health systems, we're taking in sort of an all-in sort of savings opportunity that includes labor, it includes how to drive standardization clinically, it includes, you know, supply chain. So we're taking in an all-in approach. And so when our health systems obviously are struggling, you know, with various things as they come out of, you know, dealing with the virus to include, you know, some of the inflationary stuff that we've been talking about or the issues associated with some of the, you know, labor costs, higher labor costs, we're able to take in sort of this all-in approach for performance improvement and performance improvement. And we do see a lot of our health systems, we see a significant portion of our health systems who are in a need of that kind of capability to, you know, kind of right-size their operations and to be looking at, you know, basically every opportunity to save money. So we believe that our offering is fairly unique in that it's much more broadly based around total performance improvement of the health system, and it both has the technology as well as wraparound services.

Yeah, the only quick color I would add is relative to our guidance, our expectations are based on the pipelines we have, the knowledge of the customers that we believe can use our services. We obviously have to go through the sales process with new customers, but as Mike articulated, it's all based on identifying and driving a return based on the savings we can yield. And our entire focus on our technology and services wraparound capabilities are really to take you know, inefficiency out of their processes and automate things that have been manual. And so a lot of our, you know, evolution into automation and prior authorization into the clinical decision support arenas, et cetera, are all about how to create efficiency for them when they have significant labor challenges. So it's just working through that process to make sure that we're achieving the growth objectives that we've set.

Okay, thanks. Very helpful.

The next question is from Jack Wallace of Guggenheim. Please go ahead.

Thanks for taking my questions, and congrats on a really solid end of the year and what looks to be really healthy guidance. Got a couple questions. So sort of piggybacking on Richard's question just around difficult environment, generally speaking, for hospitals and health systems, wondering how much of the growth projections, particularly on the GPO, are predicated on new customer acquisition. And on that topic, how are conversations with prospective clients going? How does that deal velocity look now, say, compared to, say, six months ago? And what kind of variability is impacted in the growth outlook? Thank you.

Yeah, I could give you a quick overview of the market. So I think as we've been saying, I think, you know, as with our health systems, all health systems, you know, are in a challenging state. And, you know, we are getting the message out to the currently non-premier health systems and having, you know, dialogue and discussions with them about how we can uniquely help them drive savings. The velocity obviously has picked up, given it was a bit more difficult during the height of the pandemic when you weren't able to access a lot of those folks and have some of the opportunities to share how we could differentiate our offering and differentiate our capability. So we're really obviously excited about opportunities that are in our funnel today. We do think we have a very, very unique value proposition that covers the technology. It covers the wraparound advisory services. It covers, obviously, our GPO. And then it's, you know, basically what Stephanie asked Craig and I about earlier, that the work that we're doing, you know, in Remetra is very, very unique. That whole e-invoicing and e-payables capability is getting the attention of folks that are you know, not necessarily in our current channel because it is a high labor oriented function within a health system and that we have the ability to automate. So we're getting some, you know, really nice velocity, as you say, in terms of getting our message out there. And we'll, you know, we'll know a lot more over the next couple of quarters in terms of how that message is playing out.

Yeah, and Jack, the only color I would add to that, back to sort of your question of what's kind of incorporated in the guidance, generally for our GPO, 90 plus percent of our business in any year is just our existing footprint and driving more penetration and spend through the existing portfolio, adding new contracts to the portfolio, which is an important component. New members generally represents around 5% to 10% of our business in any normal year. We have generally been a net market taker for all the reasons Mike articulated, other than the years, you know, the little bit lower retention that we've had in the years that we've done the big restructurings. But we would expect that to get back to sort of normal. And then to the extent we have more success in recruiting some of the new members for all the reasons Mike described, that could actually be a tailwind and help us from a guidance perspective.

Excellent. That call is really helpful. And thank you for the commentary on Remitra because that's where I was going with the second question. And it sounds like it's maybe not the best idea to be thinking about these two businesses separately. And Remitra is a – it sounds like it's a way that you're maybe – if you're not starting, you're maybe ending conversations with new customers. Can you give us just a little bit – maybe it's an anecdote – but talk about how that service is helping to close deals and to the extent that when you're onboarding a customer or even if it's an existing customer that would be a new Remitra customer, what is the lift required at the customer to implement and how fast, once you've signed a deal, do we go live? Thank you. Thanks, Jack.

There's a lot in that. And if I don't answer all the questions, you can jump back in and ask. But so typically, as I said earlier, we'll go over the total savings proposition. And, you know, it's one of those things now, you know, one of the arrows in our quiver is picking in Remitra. So when we get into the dialogue and we talk to them about, you know, what their ERP is and, and how they are doing their invoicing and how automated it is and how efficient they are from a payment standpoint and those kinds of things. If we get into more of that detail in the discussion, oftentimes we'll see or we'll find out that there's yet more opportunities than what we've had in the past that obviously drive savings from both an efficiency standpoint as it relates to labor But also, we use, you know, we're beginning to use the e-invoicing side of Remitra to understand off-contract spend, to understand literally what is being invoiced at a hospital. Because in some cases, health systems don't necessarily have access to that level of detail. So we're beginning to utilize that data. If you think about it, for our current health systems, really to identify, you know, off-contract spend where maybe in the past because of the pandemic, we've had products that have been, you know, either on back order or not available. And, you know, now that those products are coming back into the market, we can identify that there's the availability to move back to some of those products. So there is a level of specificity in Remitra, again, that's very, very unique. that, you know, is driving savings from both a labor and a supply chain standpoint. Gotcha. That's helpful. Thank you. Thank you.

Ladies and gentlemen, this concludes the question and answer session and the conference. Thank you for attending today's presentation. You may now disconnect.