Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Premier Inc (PINC, Financial) exceeded expectations for both fourth quarter and full-year fiscal 2024 results.
- The company achieved a 97% GPO retention rate and a 95% SaaS institutional renewal rate for core informatics and technology products.
- Premier Inc (PINC) secured five new supply chain co-management agreements with health systems in fiscal 2024.
- The company onboarded 32 new health systems into its healthcare-specific enterprise resource planning solution.
- Premier Inc (PINC) announced a $200 million share repurchase as part of its $1 billion share repurchase authorization.
Negative Points
- Revenue in the direct sourcing business declined due to lower pricing and demand for certain products.
- Adjusted EBITDA for supply chain services declined due to increased expenses and higher performance-related compensation expenses.
- Free cash flow for fiscal 2024 decreased significantly from the prior year, primarily due to tax payments.
- The company expects aggregate blended member fee share to increase to the low 60% range for fiscal 2025, impacting profitability.
- Premier Inc (PINC) does not anticipate any member termination payments in fiscal 2025, which had positively impacted fiscal 2024 results.
Q & A Highlights
Q: Can you provide some assistance on the EBITDA margin expectation across the segments and speak to the underlying margin expectations versus any impact from the reclassification?
A: As we think about the EBITDA margin profiles for our business in fiscal 2025, we would anticipate the supply chain services segment to be in the low to mid 40s in terms of the EBITDA margin percentage. In our performance services segment, we would anticipate mid 20s for an EBITDA margin. The overall business perspective results in an adjusted EBITDA margin in the mid 20s. The removal of the direct sourcing revenues on the supply chain side changes the margin profile, counteracted by the incremental fee share expense in the GPO. The removal of the Contigo Health revenues impacts the margins in the performance services segment, while the transfer of Remitra is not a material change in the margins given the size and scale of that business.
Q: How do you feel about the visibility into the margin relative to the prior two years?
A: We feel very good about the supply chain services. We have factored in the impact of the renewals in the GPO as part of our supply chain services segment. On the performance services side, we feel good about the margin expectations, though there is periodic variability throughout the year based on the timing of enterprise licenses and consulting engagements. Overall, we have similar visibility to the guidance we have put out for the performance services segment.
Q: How much of the fourth-quarter beat and softer FY25 guidance is due to timing expectations or a pull forward versus underlying changes in the environment?
A: The team was successful in getting engagements through the finish line that were in the pipeline. Approximately $15 million of performance came through in the fourth quarter that we otherwise thought might have come into 2025. This impacts the growth rates anticipated on a year-over-year basis and is why we think the first quarter might be lighter, consistent with the past two years.
Q: Can you provide background on the demand environment to frame this guidance, considering the better demand environment seen by hospital-facing names and headwinds on the medical distribution side?
A: At a macro level, utilization of the health system is flat to maybe up single digits, providing a tailwind. We have a long run rate in terms of contract penetration, and our tools and technologies will continue to provide growth. There is strong demand for our co-sourcing, co-management capabilities, and as consolidation picks up, our integrated services and standardization capabilities will be necessary, presenting more opportunities.
Q: Based on where you are in your ongoing renewals with your members, should we think EBITDA is going to grow in fiscal year '26 as you continue to reset your net admin fee share?
A: We anticipate that our administrative fee share for fiscal 2025 will be in the low 60% range. We will continue renewals impacting '25 and into '26, with the fee share rising within the 60% range. This has implications on EBITDA growth in fiscal 2026, but we believe the business will be well-positioned for profitability growth moving forward.
Q: Can you talk about the performance services catch rate opportunity during the renewal process?
A: We are hyperfocused on cross-selling and advancing care in communities. Our AI and machine learning capabilities help with prior authorization and HCC documentation. We also offer co-management of supply chain capabilities and demonstrate value in making supply chains more efficient. We have a one Premier mindset, integrating deal teams to explore opportunities across GPO renewals and performance services.
Q: Can you help us understand the circumstances surrounding the AllSpire win and any nuances to co-sourcing and co-management versus a typical GPO engagement?
A: The AllSpire win was due to our value proposition, technology capabilities, and ability to provide a broad view of pricing across health systems. It was a one Premier go-to-market approach, integrating GPO and technology offerings.
Q: Was the $25 million in early termination fees in the fourth quarter contemplated in your FY24 guidance?
A: The $25 million was not in our fiscal 2024 guidance. These terminations occurred in the fourth quarter and impacted the performance, but they were not expected in the guidance for the year.
Q: Can you talk about the pipeline of co-management opportunities and the uplift from entering into co-management?
A: We approach total transformation to drive savings, including advisory capabilities and technology needs. Co-management opportunities arise from these engagements, providing revenue, technology adoption, and higher contract penetration. This includes national GPO contracts and regional contracts in areas like purchase services.
Q: Are there any distinctions between the composition of members that have been renewed and those yet to be renewed?
A: There are no distinctions between the composition of members. We have been thoughtful about the timing of renewals based on relationships and changes within member organizations. We have had strong retention rates and believe we will be successful in future renewals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
