Premier Inc. Reports Fiscal 2020 Third-Quarter Results
Premier Inc. (NASDAQ: PINC) today reported financial results for the fiscal 2020 third quarter ended March 31, 2020.
All results presented in this press release reflect continuing operations following completion of the sale and exit of the Specialty Pharmacy business on June 7, 2019.
Q3 2020 Highlights:
GAAP net revenue increased 11% to $334.8 million from $301.2 million a year ago; Supply Chain Services segment revenue increased 14% to $238.6 million from $208.6 million a year ago; and Performance Services segment revenue increased 4% to $96.2 million from $92.6 million a year ago. GAAP net income was $73.2 million, compared with $75.3 million a year ago; diluted earnings per share was $0.54 compared with income of $0.49 per share a year ago. Non-GAAP adjusted EBITDA* increased 12% to $155.9 million from $138.7 million a year ago. Non-GAAP adjusted fully distributed net income* increased 4% to $88.9 million from $85.7 million a year ago and non-GAAP adjusted fully distributed earnings per share increased 10% to $0.73 from $0.66. To expand Premier’s long-term Contigo Health direct-to-employer, high-value care initiative, on May 4, 2020, the company acquired Health Design Plus (HDP), a third-party administrator and care management company specializing in the development and administration of innovative health benefits solutions for employer clients and health system partners, for a total consideration of approximately $25.0 million, including a 3% equity stake in the combined Contigo Health-HDP company.* Descriptions of non-GAAP financial measures are provided below under “Use and Definition of Non-GAAP Financial Measures,” and reconciliations are provided in the tables at the end of this release.
“Premier delivered a solid financial performance in the fiscal third quarter, reflecting continued momentum in our Supply Chain Services segment and revenue growth in our Performance Services segment that exceeded our expectations,” said Susan DeVore, chief executive officer. “I am proud that Premier is successfully managing through the COVID-19 pandemic, mobilizing our full resources for our member health systems and the patients they serve. Our teams responded quickly to implement our business continuity and disaster preparedness protocols, rapidly addressing our members’ critical supply chain, clinical and technology needs.
“We believe Premier will continue adding significant value to our members through the duration of the COVID-19 pandemic and beyond, given our unique position as the nexus between healthcare providers, distributors, manufacturers and government agencies, as well as our differentiated ability to facilitate supply, aggregate demand and provide critical flow of timely and accurate information for the industry,” DeVore continued. “We have also been leveraging our unique combination of analytics and technology capabilities to help clinicians deliver informed, coordinated patient care during the COVID-19 pandemic, to predict disease progression and resurgence as the nation begins its recovery, and ultimately to improve the quality of medical interventions and the spread of this and other diseases in the future.
“Looking ahead, we will continue to operate from a position of financial strength and stability and expect to deliver results generally within our full-year guidance range, subject to the ultimate impact of COVID-19, which we expect to pressure profitability in the fourth quarter even as we experience positive net revenue trends,” DeVore said. “Our solid balance sheet, ample liquidity and strong free cash flow give us the financial flexibility to continue creating value for our members and stockholders.”
Consolidated Fiscal 2020 Third-Quarter Financial Highlights
Consolidated Third-Quarter Financial HighlightsThree Months Ended March 31,
Nine Months Ended March 31,
(in thousands, except per share data)2020
2019
% Change
2020
2019
% Change
Net Revenue (a): Supply Chain Services: Net administrative fees$
174,049
$
164,534
6
%
$
518,566
$
492,229
5
%
Other services and support
3,396
2,484
37
%
8,439
6,520
29
%
Services
177,445
167,018
6
%
527,005
498,749
6
%
Products
61,183
41,568
47
%
167,344
129,441
29
%
Total Supply Chain Services (a)
238,628
208,586
14
%
694,349
628,190
11
%
Performance Services (a)
96,195
92,627
4
%
262,490
273,214
(4
)%
Total (a)$
334,823
$
301,213
11
%
$
956,839
$
901,404
6
%
Net income from continuing operations$
73,212
$
75,265
(3
)%
$
235,726
$
264,448
(11
)%
Net income from continuing operations attributable to stockholders$
340,726
$
266,524
28
%
$
620,262
$
280,128
121
%
Adjusted net income from continuing operations (b)$
66,145
$
63,503
4
%
$
205,719
$
225,945
(9
)%
Weighted average shares outstanding: Basic
69,451
62,020
12
%
65,582
58,346
12
%
Diluted
122,470
129,072
(5
)%
124,030
132,249
(6
)%
Earnings per share attributable to stockholders from continuing operations: Basic$
4.91
$
4.30
14
%
$
9.46
$
4.80
97
%
Diluted (b)$
0.54
$
0.49
10
%
$
1.66
$
1.71
(3
)%
NON-GAAP FINANCIAL MEASURES: Adjusted EBITDA (a) (c): Supply Chain Services$
149,212
$
134,805
11
%
$
447,081
$
406,139
10
%
Performance Services
34,634
33,235
4
%
84,977
100,910
(16
)%
Total segment adjusted EBITDA
183,846
168,040
9
%
532,058
507,049
5
%
Corporate
(27,957
)
(29,323
)
(5
)%
(87,508
)
(85,862
)
2
%
Total (a)$
155,889
$
138,717
12
%
$
444,550
$
421,187
6
%
Adjusted fully distributed net income (c)$
88,908
$
85,722
4
%
$
265,668
$
262,722
1
%
Earnings per share on adjusted fully distributed net income - diluted (a) (c)$
0.73
$
0.66
10
%
$
2.14
$
1.99
8
%
(a) Bolded measures correspond to company guidance. (b) Earnings per share attributable to stockholders excludes the adjustment of redeemable limited partners' capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be dilutive. Likewise, earnings per share attributable to stockholders includes the adjustment of redeemable limited partners' capital to redemption amount and the net income attributable to non-controlling interest in Premier LP if Class B common stock is determined to be antidilutive. (c) See attached supplemental financial information for reconciliation of reported GAAP results to Non-GAAP results.Results of Operations for the Three Months Ended March 31, 2020
For the fiscal third quarter ended March 31, 2020, Premier generated GAAP net revenue of $334.8 million, an increase of 11% from $301.2 million for the same period a year ago.
GAAP net income for the fiscal third quarter was $73.2 million, compared with $75.3 million a year ago. In accordance with GAAP, fiscal 2020 and 2019 third-quarter net income attributable to stockholders includes non-cash adjustments of $302.6 million and $235.4 million, respectively, to reflect the change in the redemption value of limited partners’ Class B common unit ownership at the end of each period. These non-cash adjustments resulted primarily from changes in the number of Class B common units outstanding and the company’s stock price between periods and do not reflect results of the company’s business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $340.7 million, or $0.54 per diluted share, compared with net income of $266.5 million, or $0.49 per diluted share, a year ago. See “Calculation of GAAP Earnings per Share” in the income statement section of this press release.
Fiscal third-quarter non-GAAP adjusted EBITDA of $155.9 million increased 12% from $138.7 million for the same period the prior year.
Non-GAAP adjusted fully distributed net income for the fiscal third quarter of $88.9 million increased 4% from $85.7 million for the same period a year ago. Non-GAAP adjusted fully distributed earnings per share increased 10% to $0.73 from $0.66 for the same period a year ago. Adjusted fully distributed earnings per share is a non-GAAP financial measure that represents net income, adjusted for non-recurring and non-cash items, attributable to all stockholders as if all Class B stockholders exchanged their Class B common units and associated Class B common shares for Class A common shares.
Segment Results
Supply Chain Services
For the fiscal third quarter ended March 31, 2020, Supply Chain Services segment net revenue of $238.6 million increased 14% from $208.6 million a year ago. Net administrative fees revenue of $174.0 million increased 6% from $164.5 million a year ago, primarily due to continuing contract penetration driven largely by the company’s high-compliance portfolio programs and revenue from new contract categories and suppliers.
Products revenue of $61.2 million increased 47% from $41.6 million a year ago, primarily driven by strong growth in PremierPro brand commodity products related to healthcare and food service providers and timing of revenue from ongoing aggregated purchasing of certain products relative to the prior year.
Supply Chain Services segment non-GAAP adjusted EBITDA for the fiscal 2020 third quarter of $149.2 million increased 11% from $134.8 million for the same period a year ago, primarily driven by growth in net administrative fees revenue.
Performance Services
For the fiscal third quarter ended March 31, 2020, Performance Services segment net revenue of $96.2 million increased 4% from $92.6 million for the same quarter a year ago. The increase was primarily driven by growth in licensed technology engagements and clinical decision support technology, partially offset by the timing of certain consulting and technology engagements, as well as lower revenue associated with the CMS government contract at reduced rates, which ended on March 31, 2020.
Performance Services segment non-GAAP adjusted EBITDA for the fiscal 2020 third quarter of $34.6 million increased 4% from $33.2 million for the same period a year ago. The increase was primarily due to increased revenue, partially offset by ongoing strategic investments in the company’s Contigo Health direct-to-employer, high-value care network and clinical decision support technology.
Results of Operations for the Nine Months Ended March 31, 2020
For the nine months ended March 31, 2020, GAAP net revenue of $956.8 million increased 6% from $901.4 million for the same period a year ago.
For the nine-month period, GAAP net income totaled $235.7 million, compared with $264.4 million for the same period a year ago. Fiscal 2020 and 2019 nine-month GAAP net income attributable to stockholders required non-cash adjustments of $516.7 million and $178.9 million, respectively, to reflect changes in redemption value of the limited partners Class B common unit ownership at the end of each period. These non-cash adjustments resulted primarily from changes in the number of Class B common units outstanding and the company’s stock price between periods and do not reflect results of the company’s business operations. After these non-cash adjustments, the company reported net income attributable to stockholders of $620.3 million compared with $280.1 million a year ago. On a diluted per-share basis, net income totaled $1.66 compared with $1.71 for the same period a year ago. See “Calculation of GAAP Earnings per Share” in the income statement section of this press release.
For the nine months ended March 31, 2020, non-GAAP adjusted EBITDA of $444.6 million increased 6% from $421.2 million for the same period last year. Non-GAAP adjusted fully distributed net income of $265.7 million increased 1% from $262.7 million, while non-GAAP adjusted fully distributed earnings per share of $2.14 increased 8% from $1.99.
Supply Chain Services segment net revenue for the first nine months of fiscal 2020 of $694.3 million increased 11% from $628.2 million a year earlier. Supply Chain Services segment adjusted EBITDA of $447.1 million increased 10% from $406.1 million for the prior year.
Performance Services segment net revenue for the nine months of fiscal 2020 of $262.5 million decreased 4% from $273.2 million a year earlier. Segment adjusted EBITDA of $85.0 million decreased 16% from $100.9 million for the prior year.
Cash Flows and Liquidity
Net cash provided by operating activities was $248.1 million for the nine months ended March 31, 2020, compared with $356.6 million for the same period last year. The decrease was primarily due to the addition of the prepaid contract administrative fee share of $92.1 million for one-time rebates to certain Acurity members, as agreed to by Acurity prior to entering into a purchase agreement with Premier, which was excluded from the purchase price of the Acurity and Nexera asset acquisition. In addition, the company funded prepayments during March 2020 to procure personal protective equipment for members related to COVID-19. The decreases were partially offset by a decline in operating expenses primarily due to the remeasurement of the TRA, partially offset by increased acquisition and disposition related expenses associated with certain strategic initiatives. At March 31, 2020, the company’s cash and cash equivalents totaled $241.7 million, compared with $141.1 million at June 30, 2019. At March 31, 2020, the company had an outstanding balance of $250.0 million on its five-year, $1.0 billion revolving credit facility, of which $150.0 million was subsequently repaid in late April 2020.
Non-GAAP free cash flow for the nine months ended March 31, 2020 was $213.9 million, or 48% of non-GAAP adjusted EBITDA, compared with $224.0 million, or 53% of non-GAAP adjusted EBITDA, for the same period a year ago. The decrease primarily resulted from the same factors that impacted net cash provided by operating activities, partially offset by reduced distributions to limited partners due to change in ownership. The company defines free cash flow as cash provided by operating activities less quarterly tax distributions and annual TRA payments to limited partners and purchases of property and equipment (see free cash flow reconciliation to net cash provided by operating activities in the tables section of this press release).
Fiscal 2020 Outlook and Guidance
Based on results for the nine months ended March 31, 2020, management’s expectations for the remainder of fiscal 2020, the realization in all material respects of the company’s underlying guidance assumptions and the estimated financial impact of COVID-19 on the company, Premier currently expects to complete fiscal 2020 within its previously announced guidance ranges. However, due to uncertainty regarding the extent and duration of the unprecedented COVID-19 pandemic, it is possible that Supply Chain Services revenue might slightly exceed the top end of its current range, while non-GAAP adjusted EBITDA and fully distributed earnings per share could finish below their respective ranges. Current expectations are as follows:
Supply Chain Services segment revenue is currently expected to perform at or above the top end of the current range of $895.0 million to $930.0 million for the fiscal year. This outlook assumes that strong gains in direct sourcing revenue from ongoing COVID-19-related efforts to secure certain personal protective equipment and other high-demand supplies, will more than offset anticipated softness in net administrative fees revenue due to the pandemic-induced interruption of elective procedures, lower overall occupancy and utilization and the slowdown of alternate site spending in non-healthcare related areas. Performance Services segment revenue is expected to be at the low end of the current range of $340.0 million to $354.0 million, due to pressure on new and existing consulting and technology engagements, which are being delayed and extended as healthcare providers focus on the pandemic. Consolidated revenue is projected to be in the upper end of the current range of $1.235 billion to $1.284 billion. Non-GAAP adjusted EBITDA is currently anticipated to be near or potentially a few million dollars below the low end of the current range of $566.0 million to $589.0 million, due to the pandemic-related expectation that fourth-quarter Supply Chain Services revenue growth will be largely driven by a mix shift to the low-margin direct sourcing products business, while Performance Services revenues will be further pressured by delays in consulting and technology projects as healthcare providers focus on the pandemic. As a result, non-GAAP adjusted fully distributed earnings per share is currently expected to be near or potentially a few cents below the low end of the current range of $2.76 to $2.89. Fiscal 2020 Financial Guidance * Premier, Inc. maintains full-year fiscal 2020 financial guidance, as follows: Current* (in millions, except per share data) FY 2020 % YoY Increase Net Revenue: Supply Chain Services segment $895.0 - $930.0 5% - 9% Performance Services segment $340.0 - $354.0 (6)% - (2)% Total Net Revenue $1,235.0 - $1,284.0 1% - 5% Non-GAAP adjusted EBITDA $566.0 - $589.0 1% - 5% Non-GAAP adjusted fully distributed EPS $2.76 - $2.89 4% - 9% * The company does not meaningfully reconcile guidance for non-GAAP adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share to net income attributable to stockholders or earnings per share attributable to stockholders because the company cannot provide guidance for more significant reconciling items between net income attributable to stockholders and adjusted EBITDA and between earnings per share attributable to stockholders and non-GAAP adjusted fully distributed earnings per share without unreasonable effort. This is due to two primary reasons:• Reasonable guidance cannot be provided for reconciling the adjustment of redeemable limited partners’ capital to redemption amount – historically the largest adjustment in the reconciliation from non-GAAP to GAAP amounts – due to the fact that the increase or decrease in this item is based on the change in the number of shares of Class B stock outstanding and change in stock price between quarters, which the company cannot predict, control or reasonably estimate.
• Reasonable guidance cannot be provided for earnings per share attributable to stockholders because the ongoing quarterly member-owner exchange of Class B common stock and corresponding Class B units into shares of Class A common stock impacts the number of shares of Class A common stock outstanding each quarter, which the company cannot predict, control or reasonably estimate. Member owners have the right, but not the obligation, to exchange shares on a quarterly basis, and the company has the discretion to settle any exchanged shares for Class A common stock, cash, or a combination thereof, neither of which can be predicted, controlled or reasonably estimated at this time.
Consistent with prior years, Premier plans to address fiscal 2021 guidance in mid-August, when the company reports fiscal 2020 results. Management will continue to assess the course of the pandemic and evaluate additional trends and data to inform its approach for establishing fiscal 2021 guidance.
Health Design Plus Acquisition
On May 4, 2020, Premier acquired Health Design Plus (HDP), a third-party administrator (TPA) and care management company specializing in the development and administration of customized health benefits solutions for employer clients and health system partners. The company offers both TPA services and nationally recognized Centers of Excellence health benefit programs for many innovative employers, including well-known Fortune 25 brands. HDP is expected to be an integral part of Premier’s long-term Contigo Health direct-to-employer, high-value care strategy. It will continue to provide specialized TPA services as well as support Contigo Health as it expands its product pilot programs in various markets with multiple employers. HDP is also expected to further enhance and expand employer-focused products by expanding the Center of Excellence program, bundling pricing of care episodes for employers, and providing capability enhancements for employers’ health benefit plans. Premier acquired HDP from University Hospitals Health System for a total consideration of approximately $25.0 million, including a 3% equity stake in the combined Contigo Health-HDP company.
Conference Call
Premier management will host a conference call and live audio webcast on Tues., May 5, 2020, at 8:00 a.m. ET, to discuss the company’s financial results. The conference call can be accessed through a link provided on the investor relations page on Premier’s website at investors.premierinc.com. Those wanting to participate by phone may do so by dialing 844.296.7719 and providing the operator with conference ID number: 7033659. International callers should dial 574.990.1041 and provide the same passcode. The company encourages callers to dial in at least five minutes before the start of the call to register. The archived webcast will be accessible on Premier’s investor relations page.
About Premier Inc.
Premier Inc. (NASDAQ: PINC) is a leading healthcare improvement company, uniting an alliance of more than 4,000 U.S. hospitals and health systems and approximately 175,000 other providers and organizations to transform healthcare. With integrated data and analytics, collaboratives, supply chain solutions, and consulting and other services, Premier enables better care and outcomes at a lower cost. Premier plays a critical role in the rapidly evolving healthcare industry, collaborating with members to co-develop long-term innovations that reinvent and improve the way care is delivered to patients nationwide. Headquartered in Charlotte, N.C., Premier is passionate about transforming American healthcare. Please visit Premier’s news and investor sites on www.premierinc.com; as well as Twitter, Facebook, LinkedIn, YouTube, Instagram and Premier’s blog for more information about the company.
Use and Definition of Non-GAAP Measures
Premier uses EBITDA, adjusted EBITDA, segment adjusted EBITDA, adjusted fully distributed net income, adjusted fully distributed earnings per share, and free cash flow to facilitate a comparison of the company’s operating performance on a consistent basis from period to period and to provide measures that, when viewed in combination with its results prepared in accordance with GAAP, allow for a more complete understanding of factors and trends affecting the company’s business than GAAP measures alone. The company believes adjusted EBITDA and segment adjusted EBITDA assist its board of directors, management and investors in comparing the company’s operating performance on a consistent basis from period to period by removing the impact of the company’s asset base (primarily depreciation and amortization) and items outside the control of management (taxes), as well as other non-cash (impairment of intangible assets and purchase accounting adjustments) and non-recurring items, from operating results.
In addition, adjusted fully distributed net income and adjusted fully distributed earnings per share eliminate the variability of non-controlling interest as a result of member owner exchanges of Class B common units and corresponding Class B common stock into shares of Class A common stock and other potentially dilutive equity transactions which are outside of management’s control. Adjusted fully distributed net income is defined as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners’ capital to redemption amount, (iii) excluding the effect of non-recurring and non-cash items, (iv) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP, and (v) reflecting an adjustment for income tax expense on non-GAAP fully distributed net income before income taxes at the company’s estimated effective income tax rate. We define adjusted fully distributed earnings per share as adjusted fully distributed net income divided by diluted weighted average shares. These measures assist our board of directors, management and investors in comparing our net income and earnings per share on a consistent basis from period to period because these measures remove non-cash and non-recurring items, and eliminate the variability of non-controlling interest that results from member owner exchanges of Class B common units into shares of Class A common stock.
EBITDA is defined as net income before loss from discontinued operations, net of tax, interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income of unconsolidated affiliates. For all Non-GAAP financial measures, we consider non-recurring items to be income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic and financial restructuring expenses. Non-operating items include gains or losses on the disposal of assets and interest and investment income or expense.
Segment adjusted EBITDA is defined as the segment's net revenue less cost of revenue and operating expenses directly attributable to the segment, excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative, and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of segment adjusted EBITDA. Segment Adjusted EBITDA also excludes any income and expense that has been classified as discontinued operations.
Adjusted EBITDA is a supplemental financial measure used by the company and by external users of the company’s financial statements.
Management considers adjusted EBITDA an indicator of the operational strength and performance of the company’s business. Adjusted EBITDA allows management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business. Segment adjusted EBITDA is the primary earnings measure used by management to evaluate the performance of the company’s business segments.
Free cash flow is defined as net cash provided by operating activities from continuing operations less distributions and tax receivable agreement payments to limited partners and purchases of property and equipment. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayments. Management believes free cash flow is an important measure because it represents the cash that the company generates after payment of tax distributions to limited partners and capital investment to maintain existing products and services and ongoing business operations, as well as development of new and upgraded products and services to support future growth. Free cash flow is important because it allows the company to enhance stockholder value through acquisitions, partnerships, joint ventures, investments in related or complimentary businesses and/or debt reduction.
To properly and prudently evaluate our business, readers are urged to review the reconciliation of these non-GAAP financial measures, as well as the other financial tables, included at the end of this release. Readers should not rely on any single financial measure to evaluate the company’s business. In addition, the non-GAAP financial measures used in this release are susceptible to varying calculations and may differ from, and may therefore not be comparable to, similarly titled measures used by other companies.
Further information on Premier’s use of non-GAAP financial measures is available in the “Our Use of Non-GAAP Financial Measures” section of Premier’s Form 10-K for the year ended June 30, 2019.
Forward-Looking Statements
Statements made in this release that are not statements of historical or current facts, such as those related to the expected financial and operational impacts of the COVID-19 pandemic on our business segments, our ability to manage expenses during the COVID-19 pandemic, current market environment and uncertainties, expected financial performance, non-GAAP free cash flow generation, the statements related to fiscal 2020 outlook and guidance and the assumptions underlying such guidance, and the anticipated financial and operational impact of the acquisition of HDP are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward-looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as “believes,” “belief,” “expects,” “estimates,” “intends,” “anticipates” or “plans” to be uncertain and forward-looking. Forward-looking statements may include comments as to Premier’s beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier’s control. More information on potential factors that could affect Premier’s financial results is included from time to time in the “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of Premier’s periodic and current filings with the SEC, including those discussed under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” section of Premier’s Form 10-K for the year ended June 30, 2019 as well as the Form 10-Q for the quarter ended March 31, 2020, expected to be filed with the SEC shortly after the date of this release, and also made available on Premier’s website at investors.premierinc.com. Forward-looking statements speak only as of the date they are made, and Premier undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events that occur after that date, or otherwise.
(Tables Follow)
Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share data) Three Months Ended March 31, Nine Months Ended March 31,2020
2019
2020
2019
Net revenue: Net administrative fees$
174,049
$
164,534
$
518,566
$
492,229
Other services and support
99,591
95,111
270,929
279,734
Services
273,640
259,645
789,495
771,963
Products
61,183
41,568
167,344
129,441
Net revenue
334,823
301,213
956,839
901,404
Cost of revenue: Services
49,007
46,545
143,965
133,107
Products
54,121
39,496
150,415
124,024
Cost of revenue
103,128
86,041
294,380
257,131
Gross profit
231,695
215,172
662,459
644,273
Operating expenses: Selling, general and administrative
115,289
113,336
315,311
320,198
Research and development
628
296
1,808
928
Amortization of purchased intangible assets
13,966
13,572
38,948
39,787
Operating expenses
129,883
127,204
356,067
360,913
Operating income
101,812
87,968
306,392
283,360
Equity in net income of unconsolidated affiliates
4,442
553
11,038
4,687
Interest and investment loss, net
(9,966
)
(1,081
)
(9,849
)
(2,628
)
(Loss) gain on FFF put and call rights
(13,906
)
(4,109
)
8,477
3,458
Other (expense) income
(5,005
)
3,671
(1,996
)
1,362
Other (expense) income, net
(24,435
)
(966
)
7,670
6,879
Income before income taxes
77,377
87,002
314,062
290,239
Income tax expense
4,165
11,737
78,336
25,791
Net income from continuing operations
73,212
75,265
235,726
264,448
Income (loss) from discontinued operations, net of tax
5
(1,463
)
1,009
(3,862
)
Net income
73,217
73,802
236,735
260,586
Net income from continuing operations attributable to noncontrolling interest
(35,055
)
(44,135
)
(132,189
)
(163,230
)
Net (income) loss from discontinued operations attributable to noncontrolling interest
(3
)
747
(480
)
2,098
Net income attributable to non-controlling interest in Premier LP
(35,058
)
(43,388
)
(132,669
)
(161,132
)
Adjustment of redeemable limited partners' capital to redemption amount
302,569
235,394
516,725
178,910
Net income attributable to stockholders
$
340,728
$
265,808
$
620,791
$
278,364
Calculation of GAAP Earnings per Share Numerator for basic earnings per share: Net income from continuing operations attributable to stockholders
$
340,726
$
266,524
$
620,262
$
280,128
Net income (loss) from discontinued operations attributable to stockholders
2
(716
)
529
(1,764
)
Net income attributable to stockholders$
340,728
$
265,808
$
620,791
$
278,364
Numerator for diluted earnings per share: Net income from continuing operations attributable to stockholders
$
340,726
$
266,524
$
620,262
$
280,128
Adjustment of redeemable limited partners' capital to redemption amount
(302,569
)
(235,394
)
(516,725
)
(178,910
)
Net income from continuing operations attributable to non-controlling interest in Premier LP
35,055
44,135
132,189
163,230
Net income from continuing operations
$
73,212
$
75,265
$
235,726
$
264,448
Tax effect on Premier, Inc. net income
(7,067
)
(11,762
)
(30,007
)
(38,503
)
Adjusted net income from continuing operations$
66,145
$
63,503
$
205,719
$
225,945
Net income (loss) from discontinued operations attributable to stockholders
$
2
$
(716
)
$
529
$
(1,764
)
Net income (loss) from discontinued operations attributable to non-controlling interest in Premier LP
3
(747
)
480
(2,098
)
Adjusted net income (loss) from discontinued operations$
5
$
(1,463
)
$
1,009
$
(3,862
)
Adjusted net income$
66,150
$
62,040
$
206,728
$
222,083
Denominator for basic earnings per share: Weighted average shares
69,451
62,020
65,582
58,346
Denominator for diluted earnings per share: Weighted average shares
69,451
62,020
65,582
58,346
Effect of dilutive securities: Stock options
232
474
357
630
Restricted stock
216
256
239
304
Performance share awards
197
-
66
-
Class B shares outstanding
52,374
66,322
57,786
72,969
Weighted average shares and assumed conversions
122,470
129,072
124,030
132,249
Basic earnings per share: Basic earnings per share from continuing operations
$
4.91
$
4.30
$
9.46
$
4.80
Basic earnings (loss) per share from discontinued operations
-
(0.01
)
0.01
(0.03
)
Basic earnings per share attributable to stockholders$
4.91
$
4.29
$
9.47
$
4.77
Diluted earnings per share: Diluted earnings per share from continuing operations
$
0.54
$
0.49
$
1.66
$
1.71
Diluted earnings (loss) per share from discontinued operations
-
(0.01
)
-
(0.03
)
Diluted earnings per share attributable to stockholders$
0.54
$
0.48
$
1.66
$
1.68
Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share data) June 18, 2020 June 18, 2020 Assets Cash and cash equivalents
$
241,734
$
141,055
Accounts receivable (net of $1,125 and $739 allowance for doubtful accounts, respectively)
139,902
168,115
Contract assets
234,467
205,509
Inventory
48,522
51,032
Prepaid expenses and other current assets
87,746
23,765
Current assets of discontinued operations
-
24,568
Total current assets
752,371
614,044
Property and equipment (net of $431,633 and $359,235 accumulated depreciation, respectively)
203,512
205,108
Intangible assets (net of $233,888 and $197,858 accumulated amortization, respectively)
420,104
270,722
Goodwill
929,615
880,709
Deferred income tax assets
436,047
422,014
Deferred compensation plan assets
42,780
45,466
Investments in unconsolidated affiliates
120,642
99,636
Operating lease right-of-use assets
59,901
-
Other assets
98,097
31,868
Total assets
$
3,063,069
$
2,569,567
Liabilities, redeemable limited partners' capital and stockholders' equity (deficit) Accounts payable
$
62,304
$
54,540
Accrued expenses
67,289
82,476
Revenue share obligations
149,976
137,359
Limited partners' distribution payable
9,314
13,202
Accrued compensation and benefits
56,208
70,799
Deferred revenue
38,042
35,623
Current portion of tax receivable agreements
18,118
17,505
Line of credit and current portion of long-term debt
254,745
27,608
Other liabilities
30,187
7,113
Current liabilities of discontinued operations
-
11,797
Total current liabilities
686,183
458,022
Long-term debt, less current portion
4,828
6,003
Tax receivable agreements, less current portion
276,739
326,607
Deferred compensation plan obligations
42,780
45,466
Deferred tax liabilities
13,140
4,766
Deferred consideration
112,917
-
Operating lease liabilities, less current portion
55,336
-
Other liabilities
71,265
67,683
Total liabilities
1,263,188
908,547
Redeemable limited partners' capital
1,658,419
2,523,270
Stockholders' equity (deficit): Class A common stock, $0.01 par value, 500,000,000 shares authorized; 71,070,617 shares issued and outstanding at March 31, 2020 and 64,357,305 shares issued and 61,938,157 shares outstanding at June 30, 2019
711
644
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 50,715,564 and 64,548,044 shares issued and outstanding at March 31, 2020 and June 30, 2019, respectively
-
-
Treasury stock, at cost; 0 and 2,419,148 shares at March 31, 2020 and June 30, 2019, respectively
-
(87,220
)
Additional paid-in-capital
140,751
-
Accumulated deficit
-
(775,674
)
Total stockholders' equity (deficit)
141,462
(862,250
)
Total liabilities, redeemable limited partners' capital and stockholders' equity (deficit)$
3,063,069
$
2,569,567
Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended March 31,
2020
2019
Operating activities Net income$
236,735
$
260,586
Adjustments to reconcile net income to net cash provided by operating activities: (Income) loss from discontinued operations, net of tax
(1,009
)
3,862
Depreciation and amortization
114,638
103,316
Equity in net income of unconsolidated affiliates
(11,038
)
(4,687
)
Deferred income taxes
60,394
9,849
Stock-based compensation
19,048
20,354
Remeasurement of tax receivable agreement liabilities
(24,584
)
-
Impairment of held to maturity investments
8,500
-
Gain on FFF put and call rights
(8,477
)
(3,458
)
Changes in operating assets and liabilities: Accounts receivable, inventories, prepaid expenses and other assets
(95,953
)
(30,268
)
Contract assets
(28,909
)
(28,056
)
Accounts payable, accrued expenses, deferred revenue, revenue share obligations and other liabilities
(23,341
)
24,118
Other operating activities
2,078
1,018
Net cash provided by operating activities from continuing operations
248,082
356,634
Net cash provided by operating activities from discontinued operations
9,338
11,502
Net cash provided by operating activities
$
257,420
$
368,136
Investing activities Purchases of property and equipment
$
(69,326
)
$
(69,906
)
Acquisition of businesses, net of cash acquired
(96,346
)
(50,854
)
Investments in unconsolidated affiliates
(10,165
)
-
Proceeds from sale of assets
3,632
-
Other investing activities
251
(11,414
)
Net cash used in investing activities from continuing operations
(171,954
)
(132,174
)
Net cash used in investing activities from discontinued operations
-
(211
)
Net cash used in investing activities$
(171,954
)
$
(132,385
)
Financing activities Payments made on notes payable$
(2,046
)
$
-
Proceeds from credit facility
375,000
50,000
Payments on credit facility
(150,000
)
-
Distributions to limited partners of Premier LP
(39,590
)
(44,746
)
Payments to limited partners of Premier LP related to tax receivable agreements
(17,425
)
(17,975
)
Repurchase of Class A common stock (held as treasury stock)
(150,093
)
(248,840
)
Other financing activities
(633
)
10,936
Net cash provided by (used in) financing activities
$
15,213
$
(250,625
)
Net increase (decrease) in cash and cash equivalents
100,679
(14,874
)
Cash and cash equivalents at beginning of year
141,055
152,386
Cash and cash equivalents at end of period
$
241,734
$
137,512
Supplemental Financial Information Reconciliation of Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow (Unaudited) (In thousands)
Nine Months Ended March 31,
2020
2019
Net cash provided by operating activities from continuing operations (a)$
340,228
$
356,634
Purchases of property and equipment
(69,326
)
(69,906
)
Distributions to limited partners of Premier LP
(39,590
)
(44,746
)
Payments to limited partners of Premier LP related to tax receivable agreements
(17,425
)
(17,975
)
Non-GAAP Free Cash Flow$
213,887
$
224,007
(a) Net cash provided by operating activities from continuing operations excludes the impact of the prepaid contract administrative fee share for one-time rebates to certain Acurity, Inc. members, as agreed to by Acurity, Inc. prior to entering into the Purchase Agreement, which was excluded from the purchase price of the Acurity and Nexera asset acquisition. Supplemental Financial Information Reconciliation of Net Income from Continuing Operations to Adjusted EBITDA Reconciliation of Operating Income to Segment Adjusted EBITDA Reconciliation of Net Income Attributable to Stockholders to Non-GAAP Adjusted Fully Distributed Net Income (Unaudited) (In thousands) Three Months Ended March 31, Nine Months Ended March 31,
2020
2019
2020
2019
Net income from continuing operations$
73,212
$
75,265
$
235,726
$
264,448
Interest and investment loss, net
9,966
1,081
9,849
2,628
Income tax expense
4,165
11,737
78,336
25,791
Depreciation and amortization
25,777
21,797
75,690
63,529
Amortization of purchased intangible assets
13,966
13,572
38,948
39,787
EBITDA
127,086
123,452
438,549
396,183
Stock-based compensation
7,668
6,737
19,358
20,650
Acquisition and disposition related expenses
7,287
3,856
16,263
6,789
Remeasurement of tax receivable agreement liabilities
(902
)
-
(24,584
)
-
Gain on FFF put and call rights
13,906
4,109
(8,477
)
(3,458
)
Other expense
844
563
3,441
1,023
Adjusted EBITDA
$
155,889
$
138,717
$
444,550
$
421,187
Income before income taxes
$
77,377
$
87,002
$
314,062
$
290,239
Equity in net income of unconsolidated affiliates
(4,442
)
(553
)
(11,038
)
(4,687
)
Interest and investment loss, net
9,966
1,081
9,849
2,628
Gain on FFF put and call rights
13,906
4,109
(8,477
)
(3,458
)
Other expense (income)
5,005
(3,671
)
1,996
(1,362
)
Operating income
101,812
87,968
306,392
283,360
Depreciation and amortization
25,777
21,797
75,690
63,529
Amortization of purchased intangible assets
13,966
13,572
38,948
39,787
Stock-based compensation
7,668
6,737
19,358
20,650
Acquisition and disposition related expenses
7,287
3,856
16,263
6,789
Remeasurement of tax receivable agreement liabilities
(902
)
-
(24,584
)
-
Equity in net income of unconsolidated affiliates
4,442
553
11,038
4,687
Deferred compensation plan (expense) income
(5,476
)
3,975
(2,484
)
1,076
Other expense, net
1,315
259
3,929
1,309
Adjusted EBITDA
$
155,889
$
138,717
$
444,550
$
421,187
SEGMENT ADJUSTED EBITDA Supply Chain Services
$
149,212
$
134,805
$
447,081
$
406,139
Performance Services
34,634
33,235
84,977
100,910
Corporate
(27,957
)
(29,323
)
(87,508
)
(85,862
)
Adjusted EBITDA$
155,889
$
138,717
$
444,550
$
421,187
Net income attributable to stockholders
$
340,728
$
265,808
$
620,791
$
278,364
Adjustment of redeemable limited partners' capital to redemption amount
(302,569
)
(235,394
)
(516,725
)
(178,910
)
Net income attributable to non-controlling interest in Premier LP
35,058
43,388
132,669
161,132
(Income) loss from discontinued operations, net of tax
(5
)
1,463
(1,009
)
3,862
Income tax expense
4,165
11,737
78,336
25,791
Amortization of purchased intangible assets
13,966
13,572
38,948
39,787
Stock-based compensation
7,668
6,737
19,358
20,650
Acquisition and disposition related expenses
7,287
3,856
16,263
6,789
Remeasurement of tax receivable agreement liabilities
(902
)
-
(24,584
)
-
Loss (gain) on FFF put and call rights
13,906
4,109
(8,477
)
(3,458
)
Other expense
844
563
3,441
1,023
Non-GAAP adjusted fully distributed income before income taxes
120,146
115,839
359,011
355,030
Income tax expense on fully distributed income before income taxes
31,238
30,117
93,343
92,308
Non-GAAP Adjusted Fully Distributed Net Income
$
88,908
$
85,722
$
265,668
$
262,722
Supplemental Financial Information Reconciliation of GAAP EPS to Non-GAAP EPS on Adjusted Fully Distributed Net Income (Unaudited) (In thousands, except per share data) Three Months Ended March 31, Nine Months Ended March 31,
2020
2019
2020
2019
Net income attributable to stockholders$
340,728
$
265,808
$
620,791
$
278,364
Adjustment of redeemable limited partners' capital to redemption amount
(302,569
)
(235,394
)
(516,725
)
(178,910
)
Net income attributable to non-controlling interest in Premier LP
35,058
43,388
132,669
161,132
(Income) loss from discontinued operations, net of tax
(5
)
1,463
(1,009
)
3,862
Income tax expense
4,165
11,737
78,336
25,791
Amortization of purchased intangible assets
13,966
13,572
38,948
39,787
Stock-based compensation
7,668
6,737
19,358
20,650
Acquisition and disposition related expenses
7,287
3,856
16,263
6,789
Remeasurement of tax receivable agreement liabilities
(902
)
-
(24,584
)
-
Loss (gain) on FFF put and call rights
13,906
4,109
(8,477
)
(3,458
)
Other expense
844
563
3,441
1,023
Non-GAAP adjusted fully distributed income before income taxes
120,146
115,839
359,011
355,030
Income tax expense on fully distributed income before income taxes
31,238
30,117
93,343
92,308
Non-GAAP Adjusted Fully Distributed Net Income
$
88,908
$
85,722
$
265,668
$
262,722
Weighted average: Common shares used for basic and diluted earnings per share
69,451
62,020
65,582
58,346
Potentially dilutive shares
645
730
662
934
Conversion of Class B common units
52,374
66,322
57,786
72,969
Weighted average fully distributed shares outstanding - diluted
122,470
129,072
124,030
132,249
GAAP earnings per share
$
4.91
$
4.29
$
9.47
$
4.77
Adjustment of redeemable limited partners' capital to redemption amount
(4.36
)
(3.80
)
(7.88
)
(3.07
)
Net income attributable to non-controlling interest in Premier LP
0.50
0.70
2.02
2.76
(Income) loss from discontinued operations, net of tax
-
0.02
(0.02
)
0.07
Income tax expense
0.06
0.19
1.19
0.44
Amortization of purchased intangible assets
0.20
0.22
0.59
0.68
Stock-based compensation
0.11
0.11
0.30
0.35
Acquisition and disposition related expenses
0.10
0.06
0.25
0.12
Remeasurement of tax receivable agreement liabilities
(0.01
)
-
(0.37
)
-
Loss (gain) on FFF put and call rights
0.20
0.07
(0.13
)
(0.06
)
Other expense
0.01
0.01
0.05
0.02
Impact of corporation taxes
(0.45
)
(0.50
)
(1.42
)
(1.58
)
Impact of dilutive shares
(0.54
)
(0.71
)
(1.91
)
(2.51
)
Non-GAAP EPS on Adjusted Fully Distributed Net Income$
0.73
$
0.66
$
2.14
$
1.99
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