Q1 2020 Earnings Call
The conference. Please press Star then zero on your Touchtone telephone as a reminder, this call is being recorded I would now like to turn the conference over to your host Mr., Jim story of Investor Relations.
Thank you Crystal and welcome everyone to Premier Inc.'s fiscal 2021st quarter Conference call.
Speakers today, our Susan Devor, Chief Executive Officer, Mike Alkire, President and Craig Mckasson, Chief administrative and financial Officer, Susan Mike and Craig will review the quarter's performance provided an operations update and discuss ongoing strategies for the year before.
Before we get started I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call.
<unk> in the Investor Relations section of our website at investors stuff Premier Inc. Dot com.
Management's remarks today contains 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 FCC, including our form.
10-Q for the fiscal first quarter, which we expect to file soon.
We encourage you to review these detailed safe Harbor and risk factor disclosures. Please also note where appropriate we will refer to non-GAAP financial measures to evaluate our business reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release in the appendix up a supplemental slides accompanying.
This presentation and in our earnings release form 8-K, which we expect to file to the FCC. Soon now let me turn the call over Susan divorce.
Thanks, Jim and welcome everyone to our conference call today, Mike Craig and I will review, our fiscal first quarter financial and operational performance and provide updates on our strategic initiatives and focus for the remainder of fiscal 2020.
Well, then turn the call over to QNX.
So let's get started overall, our fiscal first quarter financial performance exceeded managements expectations driven by the continued steady growth of our core supply chain business, which largely offset the anticipated softness in performance services segment revenue.
We delivered this performance within the context of our longer term focus on technology, enabling our supply chain business.
And expanding our enterprise analytics and performance improvement capabilities.
Mike and Craig will discuss our initiatives and financial performance shortly.
However, before we turn to further review of the quarter I want to take a few minutes to address some recent market speculation about premiere.
Did take a step back premieres business model for both supply chain and performance services is driven by differentiated comprehensive data analytics and services.
Which enable us to deliver a unique integrated total value proposition customized for each member.
This helps us retain and grow our business in a highly competitive marketplace underscored by the fact that we have produced consistent study of profitable growth since our IPO.
We consistently deliver our members a total return on their investment averaging between five and 20 to one.
We believe this focus generate strong member satisfaction and has been the key driver of our high GPR retention rate, which is averaged in the mid to high 90% range over the last decade.
The fact is GPL switching occurs in frequently in our industry due largely to the considerable complexities involved and we believe our members will continue to evaluate their relationship with premier based on our total value proposition.
The several components of which include contract pricing.
Total cost savings.
Analytic capabilities resources dedicated to their accounts and see share.
We also enjoy long standing collaborative relationships with our member owners. The average tenure of which is about 20 years.
These member owners, many of which continue to hold a significant equity interest in our company have worked with us over decades to build premier into a powerful shared resource.
Provides a comprehensive cost quality and safety solutions that they require to succeed in this dynamic and evolving marketplace.
In short, we have very sticky relationships with our members.
As we move forward, we expect to continue to win new business, while retaining existing members with respect to retention. Our two seven year group purchasing contract relationships with Yankee Alliance and Greater New York Hospital Association. Each have initial terms originally running to September Thirtyth 20 Twond.
Okay.
I'm very pleased to announce that Yankee representing approximately 85 hospitals has now renewed its relationship with premier through September 2027.
We are also in active and collaborative discussions with greater New York and while there can be no assurances, we expect that our relationship with greater New York and its members will continue for years to call.
Looking at new business growth I'm pleased to welcome VC, you health system, a comprehensive medical center in Central Virginia to Premier.
We're working with BC, you to leverage our supply chain services analytics and insights in support of their mission to preserve and restore the health of their communities through innovative patient care research and education.
As we think ahead about our evolving member relationships in this highly competitive and rapidly changing marketplace. We expect average b share could trend incrementally higher over time as one variable component within our total value proposition. However, we also believed that our members are focused on the total return on their relationship with <unk>.
We're not merely this one component.
In this total value relationship we continue to work together with our members to expand initiatives designed to deliver more supply chain savings through contract expansion and penetration.
We continue to target the profitable low to middle low to mid single digit supply chain services revenue growth that we have steadily produced since our IPO.
Significant initiatives underway include leveraging new opportunities in the area of purchase services.
Continuing to expand our high compliance purchasing programs continuing to build out our provide gx drug shortage program.
Rolling out our new E Commerce platform stopped.
As Mike will discuss shortly some of these initiatives.
Helped drive our 8% revenue growth in supply chain services in the first quarter.
So let me wrap up by saying that clearly we are operating in a highly competitive market and justice clearly, we intend to maintain and build upon premiers leadership position in our industry.
We continue to prudently deploy a portion of the company's strong cash flow to invest in internal and external expansion of our capabilities.
Which in turn strengthens our value proposition with members.
Great multiple growth drivers for Premier and helps drive long term value creation for our stockholders now let me turn the call over to Mike Alkar, Our President who will walk you through some of the initiatives were pursuing.
Thank you Susan and thanks, everyone for joining our call.
Today in reviewing our operational performance I'm Gonna first note. How pleased we are with the performance of our supply chain services businesses.
A key driver of net administrative fees revenue growth was our high compliance portfolio members.
This growth largely reflects the ongoing work we're doing what this high compliance initiative to bring value and vital cost controls toward members.
We are excited about the success of this initiative and expected to continue driving profitable growth for us.
As always we are focused on delivering enhanced and comprehensive value toward members, which we believe our acquisition last week, but price or will help us to continue to achieve mid price or enabled health systems to effectively manage the large but elusive area of purchase services.
Which are provided by third party vendors to accomplish routine continuing and necessary clinical and nonclinical functions things like staffing services marketing lab testing and environmental services.
According to research purchased services on average account for up to 30% of a typical U.S. hospitals, non labor expenses and often fall outside the scope of traditional national group purchasing contracts.
Net price or accelerate for capabilities in this major area of spend by technology, enabling our comprehensive purchased services spend database.
Helping us more effectively addressed largely untapped acute care market with purchasing spend that we estimate approximates $160 billion.
Price or provides technology solutions that enable hospitals and other health care providers to analyze benchmark and source purchase services contracts.
Independent of any existing GPL affiliation.
We believe that price or represents a key component of our technology enabled supply chain strategy.
Enhancing our core supply chain offering at total value approach for our members.
While delivering incremental SaaS subscription and net administrative fees revenue for premier as it helps to drive contract penetration and expand our contract portfolio and the area purchased services.
We also continue to achieve success in addressing the ongoing drug shortage problems.
Earlier this year, we announced our partnership with cognitive Rx to technology enabled the process of identifying and solving drug shortages.
Through our provide gx program, we continue to engage with strategic partners and our efforts of directly led to reliably so to a reliable supply of an additional 15 critical shortage drugs and 2019 alone.
During the total number of shortage drugs addressed through our program to more than 130.
For example, we recently announced the success of our partnership with Excel pharma services and resolving the shortage assisting hydrochloride injections.
We also recently partnered with pamphlets star to provide seven additional shortage drugs.
The objective of this initiative is to continually identify safe high quality supply sources for drugs that are or maybe a risk of being added to the national drug shortage list.
Through this program, we serve a critical need in the market provides additional value to our members.
Drive incremental net administrative fees revenue for premier.
Turning to performance services as we have previously discussed we continue to operate in a challenging market.
We're political and regulatory uncertainties are weighing on provider decision, making and some areas.
Packed in both our technology and consulting businesses and response, we are continuing to invest them and cultivate new areas of growth in adjacent markets to drive value creation and approve revenue growth.
Let me walk you through some of these initiatives.
First we're making progress in the development of our high value network.
35 health systems, representing more than 440 hospitals have agreed to be the initial participants in our high valued network of providers.
To that end, we recently formed the new company Contigo health, which will be powered by remember networks.
Data and technology.
The Contigo Health network will link employers health systems, and other payers to achieve common goals, including increasing access to high quality care, improving employee productivity and controlling costs.
We expect to formally launch can you go next week and soon thereafter announced health system participants and provide information about major national employer participants.
These pilot programs will bring employers and health system partners together in select markets.
To address two goals.
One.
Pulp reduce unwarranted variation them care in order to lower cost and improve outcomes.
And to increase engagement with employers health and wellness programs in the clinical setting.
Second we continue to make progress growing our strategic relationships that are applied Sciences research business.
Leverages, our best in class data subject matter expertise and our provider channel to generate real world evidence that supports healthcare transformation.
For example, we recently announced a new partnership with GE healthcare to bring saying they breast cancer diagnosis and treatment models to the United States.
This compares to current diagnosis and treatment that in some cases requires patience to wait weeks for a follow up exam to evaluate the results of a suspicious mammogram.
Third we are investing an additional sales and account management capabilities as well as consulting professionals to help drive performance services growth in the back half of the current fiscal year and into fiscal 2021.
We are focusing on recruiting additional senior consulting professionals to further enhance capabilities within our various service lines.
Finally, I'd like to briefly touch on our recent announcement of stock.
Our internally developed ecommerce marketplace that will initially focused on serving select classes of trade in the non acute alternate site market.
Which includes facilities like home health providers senior living facilities physician offices and imaging centers among others.
Building on our supply chain expertise stock is a natural extension of our ongoing efforts to foster increased competition and makes that health care supply chain more efficient.
We expect this purchasing platform to offer significant time savings and the ability to leverage premiers expertise.
Pricing a qualified supplier relationships to inform purchasing decisions.
For Premier we expect stock to enhance our core supply chain capability by providing incremental net administrative fees revenue.
As it helps drive further contract penetration for alternate sites members.
Looking forward, we remain focused on further developing our technology enabled supply chain and enterprise analytics and performance improvement strategies, we believe our continuous focus on enhancing our core capabilities, while developing new ones positions us well, both now and in the future.
Thank you for your time today now, let me turn the call over to Craig Mckasson, our chief administrative and financial Officer.
Thanks, Mike now, let's walk through the first quarter financial results in more detail.
From a GAAP standpoint, consolidated first quarter net revenue of 302.4 million increased 3% from 292.6 million a year ago.
Supply chain services segment revenue of 223.1 million increased 8% from 206.9 million.
Net administrative fees revenue of 172.4 million increased 6% from 162 million, primarily resulting from contract penetration driven by high compliance portfolio members as Mike noted as well as by the addition of new contract categories and.
Suppliers.
Looking at recent patient utilization trends. We also note that acute care utilization has increased in both inpatient and outpatient settings.
Products revenue of 48.1 million increased 10% from 43.7 million last year, driven by growth in certain commodity product categories of the direct sourcing business as well as by sales associated with aggregated purchasing of products.
Turning to the performance services segment as anticipated first quarter revenue of 79.3 million decreased 7% from 85.7 million a year ago as we anticipated and previously discussed factors negatively impacting performance services segment revenue.
Included reduced revenue from our hospital improvement innovation network contract with CMS and fewer consulting engagements relative to last year when multiple engagements were underway in conjunction with the recruitment of a number of academic medical centers.
Additionally, the applied sciences business experienced lower year over year revenue largely related to timing of certain contracts. This was partially offset by growth in our clinical decision support technology.
Looking at profitability.
Net income was 70.9 million for the quarter compared to 83.4 million last year. After a GAAP required non cash positive adjustment of 694.3 million to reflect the decrease in the redemption value of limited partners class B common unit ownership.
Based on the decline in our stock price during the period, we reported GAAP net income of 49 cents per share.
Consolidated non-GAAP adjusted EBITDA of $140.3 million for the quarter increased 1% from 139.5 million.
From a segment perspective supply chain services non-GAAP adjusted EBITDA of 149.9 million compared with 136.3 million the 10% year over year increase was primarily driven by higher net administrative fees revenue.
In performance services non-GAAP , adjusted EBITDA of 20.4 million compared with 30.6 million a year ago. The decline was primarily driven by the same factors impacting revenue that I, just discussed as well as by increases in salaries and expenses associated with our investments.
Additional sales and consulting professionals and ongoing strategic investments as Mike described these were partially offset by a reduction in bad debt expense.
First quarter non-GAAP adjusted fully distributed net income of 86 million decreased 2% from 87.5 million a year ago and non-GAAP adjusted fully distributed earnings per share increased to 68 cents from 65 cents.
As part of our ongoing 300 million dollar class a share repurchase program for the first quarter and through October 30, Onest, we repurchased a total of 4.1 million shares for $130.6 million at an average price of $31.90 per share.
From a liquidity and balance sheet perspective cash flow from operations for the first quarter was 96.1 million compared with 61.6 million last year, the increasing cash flow from operations was primarily driven by growth in both net administrative fees revenue and.
Collections on accounts receivable.
These increases were partially offset by growth in selling general and administrative expenses.
non-GAAP free cash flow for the first quarter was 43.5 million compared with 3.1 million a year earlier, primarily due to the same factors driving growth in cash flow from operations as well as a decrease in purchases of property and equipment and a decrease.
In distributions to limited partners given the ongoing decline in membership ownership as a result of the quarterly exchange process.
Historically free cash flow is lowest in the first quarter given that our fiscal year ends in June and the payment of certain expenses, including annual incentives occurs in the first quarter.
We continue to expect that non-GAAP free cash flow will approximate 55% to 65% of non-GAAP adjusted EBITDA for the full fiscal year.
Our cash and cash equivalents totaled 125.2 million at September 32019, compared with 141.1 million at June 32019, we ended the quarter with no outstanding balance on our five year 1 billion dollar revolving credit facility.
Subject subsequent to quarter end, we borrowed 125 million against the revolver for acquisitions share repurchases and general corporate purposes.
Fiscal 2020 guidance remains unchanged from the guidance that we established on our last quarterly conference call.
Finally, I would like to provide a brief update on our ongoing quarterly exchange process on October 30, Onest approximately 6.9 million class B units were exchanged on a one for one basis for shares of class a common stock.
Our next quarterly exchange occurs on January 30 Onest.
Thank you for your time today, let me turn the call back over to Susan.
Thanks, So much Craig I want to conclude our prepared remarks with a few points I think are just worth repeating.
First management remains highly confident in our business model and in the strong relationships that we have with our members.
Amir was built to serve as a shared resource providing the comprehensive cost quality and safety solutions required by our members to succeed today and into the future.
Second we believe premieres comprehensive data and analytics platform allows us to provide highly differentiated products and services.
Delivering significant return on our members total investment beyond administrative fee share. It's a value proposition that attracts new members and has proven successful in driving our consistently high retention rate.
Finally, we are operating in a highly competitive market, maybe even more challenging by the current regulatory environment. We intend to remain a leader in this market by continuing to retain and cultivate the member relationships that we've worked so hard to bill.
By attracting new members and by continuing to invest in Bill and innovate integrated solutions for continued success.
Now operator, please open the call for questions.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to move here. So from the Q. Please press the pound key.
And your first question comes from the line of Ryan Daniels with William Blair.
Hi, Good morning, guys. Thanks for taking the question in regards to be performance services Division.
I know you highlighted some staffing.
You believe will help drive growth in the back half of the year and I'm curious if you think the increased staffing will give you the flexibility or is that.
Kind of meeting Green shoots of novel demand that you're already seeing such that the visibility for that return to growth is higher than perhaps it was a few months ago.
Yes, Ryan this is Mike So a couple of things first of all I think it's both in answer to your question.
There are a couple of very strategic projects that we're.
Putting some of these additional staff on to not only deliver what what's out there, but also to expand those accounts and then further they're bringing out a level of capability in terms of clinical transformation.
We've really not had in the past and so they are out in the market tried to create new demand or working with our systems to create new demand in the full year of clinical transformation.
Okay. That's helpful and then Susan you talked about.
Obviously strong performance and long term relationship in the supply chain I'm curious can you talk a little bit about the net admin fee. That's that's obviously been a focal point or high point for investors and I know the value proposition and total revenue is much broader than that but what type of potential upward pressure might you see on the share back.
And does that at all change the growth outlook with.
Those entities going forward. Thank you.
Yeah. Thanks, Ryan So what I would say is we continue to target low to mid single digit growth in net revenue in the GP.
Our value proposition is differentiated we think we are different from the competitors, which is if you're talking about a person percentage of an admin fee or you're talking about 10% supply chain savings on the spend.
The supply chain savings number is just a much larger number so while we think it's a part of the value proposition.
Our intent is to continue to to sell and deliver a whole value proposition.
We will customize every relationship.
We have and I talked about strategic initiatives and Mike did as well to get after more of the spin there's a lot of volume to be gotten there was a lot of contract penetration to be gotten and the truth is administrative fees are all over the map and their customized for every customer relationship.
So we continue to have the same targeted net revenue growth performance plan.
And we're implementing our strategies based on that.
Okay. That's very helpful. Thank you I'll hop back thank you.
Your next question comes from the line of Jamie Stockton with Wells Fargo.
Hi, good morning, Thanks for taking my questions.
I guess, maybe since GPS seem to be so strong during the quarter and you guys are.
Our calling out the high compliance model as may be one of the biggest drivers of that if you could just talk about where the penetration of that stands today.
No.
People should think about.
Its ability to penetrate your customer rates like what portion of the customer base is really.
Great for that'd be great.
Jamie This is Mike So just as a quick reminder, we have two very high committed programs one is surpass.
Which we have approximately 11 core members and about eight and a half billion dollars of spend that's that's and surpass and then we also have a sense, which is still a highly committed program, but not quite as highly committed to surpass we have about a thousand hospitals at $21 billion.
I have spent within our us on program. So collectively if you pull both those programs together there is about $30 billion of spend that's in those two programs. So obviously, we think that theres additional opportunities to expand the portfolio.
Both those programs have committed contracts.
So our focus is to continue to will move from commodities to those areas that are sort of clinically preferred to more physician preference. So we still think theres, a long runway of opportunity and as we get into the more complex areas. We believe there is actually going to be more savings.
And then Jamie this is maybe my only comment I would add quickly is that surpassed actually are initially was limited to a core group and within the last six months. We've opened it up for new members to come in and join that and have actually been successful and expanding that to some additional members. Thanks Chris.
Okay, that's great.
And then maybe just sticking with that real quick.
The GPS business, Mike I think you highlighted the stock to E Commerce platform.
Is there way that we should think about.
Portion of the market that that is really targeting I know you rattled off some examples of providers.
But.
How much of.
Healthcare spend to those providers really represent and how should we think about.
How successful maybe GPS have historically been penetrating that part of the market and if it's a relatively low penetration where could it go with more of an e-commerce focus solution.
Yes, Jamie this is Craig so I'll start and then Mike can add some more color, but I think we've talked in the past about that the alternate sites space, which includes all those types of facilities outside the walls of the hospital represent about 30% of our GPO today. So as Mike described the launch of stock which is in its initial phases is targets.
In a subset of the 50 something classes of trade that are outside the walls of the hospital and so it's early stage in terms of the growth potential today, but it's the fits the foundation for expansion into those additional classes and ultimately to drive a more seamless and efficient way of purchasing on a contract portfolio.
For those alternate sites. So ultimately we think the market opportunity is very large but early on is just in a limited group of classes of trade as we're continuing to build it out yes, the only thing I'll.
Add there is said, it's the technology enablement to really get after.
All these desperate areas that we think is going to be the key differentiation for the program.
As well as.
As you think about our strategy, we're working with that its suppliers. So it's really really important that we understand the chain of custody and that we ensure that the ultimate end user experience for the use of these products remains incredibly high.
Okay. Thank you.
Thanks, Jamie.
Your next question comes from the line of Lisa Kim with JP Morgan.
Hi, Thanks, very much good morning, Mike I just wanted to go back to your comments around Contigo health and just better understand how it is that premier fits into this and how you make money you talked about stock and talked about net administrative fee revenue Hello work on with this new high value that work from a revenue earnings per se.
If a premier yes, so let me just up all the way back.
So if you think about our initiative with Contigo health It really is leveraging our core capabilities around.
Working with our health care systems to drive improvements and then leveraging our technology and our benchmarking capability to really rise everybody's performance to to the same level. So that's really what we're leveraging as all that history of working with all these health care systems to rise all of their perform.
Was from a quality standpoint, three areas of focus if you think about the business model for us first.
It is and Susan always says it's a layer on top of the relationship that employers have.
With their current commercial healthcare insurance providers, so think of things like ancillary benefits think of smoking cessation, we believe with our clinical decision support tools, we can actually help.
Implement some of those programs more effectively.
And then then there are currently being implemented so thats, one theres an opportunity to get some PMPM sort of revenue associated with that number two we talk about the high valued at work itself. We believe we're going to be launching national programs that standardize care and reduce variation in terms of how cares provided so theres going to be an opportunity to work with our health care says.
So more technology and services.
To drive that high level of.
Care that the employers are going to expect and then three we have a number of our healthcare systems that actually have health plans and they want to go direct to those large employers in their market. We believe our high value that work will be the backbone for them to provide those services outside of those markets. So it's been.
Basically technology fee consulting fees potentially portion of PMPM and potentially a portion of shared savings. So there will be multiple revenue drivers for those relationships, yet and Leigh Anderson. The recently reminded me. There was also this initial component around centers of excellence and so we do believe that theres going to be an op.
Certainly for us to work with our health care systems to provide that center of excellence capability for large employers.
And so as we just think about the timeline of Dave you talked about formal launch being next week.
We think about the benefit year for example for an employer is generally January 1st I mean, so should we think of us as more of a January 1st 2021 opportunity or do you think you'll see.
Any any benefit coming through and the calendar year of 20 plenty.
It's a great question Lisa this is Craig so so it really is earmarking more toward 2021 2022 kind of launch there will be some small pilots that will probably be doing and in calendar 2020, but we'd expected to begin to really get legs in future years, given the timing of benefits as as you highlighted.
Great. Thank you very much thanks Lisa.
Your next question comes from the line of Stephen Fella Kaye from Barclays.
Great. Thanks, Good morning, Susan Mike and Craig.
Congrats on the renewal of the Yankee Alliance contract just a couple of questions around that I guess, just generally speaking is there any notable change and the pricing or economics around that contract or would you characterize the economics is fairly consistent in the context of renewal.
And then does this renewal related just to the supply chain services side of your business doesn't include any components that would help performance services segment, either directly or indirectly. Thanks.
Sure. Steve This is Craig so we don't disclose individual contract terms, but what I can tell you with respect to the Yankee Alliance renewal through 2027, as we do not believe it will have a material impact on our ongoing financial performance.
With respect to the nature of the renewal it is primarily centered around our supply chain services capabilities and the GP O renewal.
But we do continue to have a very strategic relationship with Yankee and its members and look for opportunities to leverage those relationships to drive performance services growth and other solutions in that marketplace.
Okay. All right appreciate the color. Thanks. Thank you.
Your next question comes on line of Sean Wieland from Piper Jaffray.
Hi, Sean Hi, Hi, good morning.
I was hoping you could just put a little bit some more parameters around your statements you said that that see share could trend incrementally higher over time, just don't want to run off you want to runway with that.
Yeah, you know Sean as I said before we are all about the total value proposition every deal is customized to the needs of the of the member I think that you know in some instances they request additional fee share in some instances they request to higher savings target additional resources or.
Or for technology, and so I think you know we are just reflecting what we think would be sort of natural market trends and they're there maybe some incremental.
Increase in administrative fee share, but we think our members and customers are focused on the total value proposition. So just to be one part.
Okay, Thanks and.
Contigo, just so I understand this do all of your direct contracting capabilities fit within.
This new company.
Say more above direct on cod. So yes, we actually have hired up a team and made investments in the people that.
That come from a payer and centers of excellence and and clinical improvement kinds of background and so we will have all of those resources in up in a group targeted to doing direct relationships with employers and will bring the network to it and our job in all of that will.
Will be primarily to help design centers of excellence, our design pilots and design programs that allow Palau those employers to take out the variation across the performance of a network up providers, but I, but I think the answer to your question is yes, unless I didn't understand the question.
No. That's that's that's great. Thanks, so much thank you.
Your next question comes from the line of Eric Coldwell with Robert W. Baird and company.
Hey, Thanks, very much hey, good morning, Thanks, very much I noticed in the products discussion under supply chain, 10% growth certain commodity products in aggregate purchasing timing I'm, hoping you could parse those out for us what were the commodity products that showed strength and then what was the magnitude of the.
It appears to be upside aggregate purchasing.
Yes. This is Craig Eric so so on the commodity products. It was really strong growth in our gloves business and incontinence products. So kind of standard typical market products that we have in that in that portfolio products and so just continuing to see kind of usage and expansion across our membership base and use of and use of those kind of standard.
Oddities relative to the aggregated purchasing of products as we've talked about in the past we have periodic programs, where we work with particular manufacturers of products when they have excess capacity and we can aggregate our demand together and so there are periods of time, where we will have opportunities to take title to product and.
Based on the demand of our members and send that through and so while I don't have the exact specific breakout for you I would say that a couple percentage points of the growth was from the increase in those aggregated purchasing of products in the quarter.
That's that's very helpful. And then just one quick follow up provide gx I'm curious if you can give us a since on the contribution that's having or might have over the next 12 months from both the revenue and also a profit standpoint, thank you very much.
Yes. This is Craig so the main contribution from prior provide gtx is the getting those products on contracts. So that we continue to have them in our pharmacy portfolio with net administrative fees. So it's not I'll say the number of drugs were talking about the incremental new ones. The 15 that we've added in COVID-19 aren't going to materially move.
The needle in terms of our performance, but they are continuing to ensure that theres robot reliable access to pharmaceuticals that were and have historically been in our program. So there were not seeing a decline or a decrease.
And so there is sustaining the ongoing business that we haven't and our targeted low to mid single digit growth in our net administrative fees, Mike you might have more yeah, Craig the only thing I want to add is that.
Provide gx just built out our overall all pharmacy program. So it just truly differentiates the way that we think about the entire pharmacy program and allows us to go to market and a differentiated way.
So is it safe to say that provide GXS actually helping I think I think Craig referenced this it's actually helping your net admin fees as much as its helping the product segment.
Yes, it has been keeping the keeping you it's keeping your clients access to these products. So it's allowing you to maintain your share maybe improve your penetration into farm pharmacy within the GPS That's correct, Eric and over time, there could be more contributions to product revenues are there could be royalties, if we're making investments.
For the company et cetera, but to date, it's been just ensuring access to drugs under the depot contract portfolio primarily.
Okay. That's great. Thanks, guys.
Thank thank you.
Your next question comes from the line of Michael Cherny with Bank of America.
Good morning, Thanks for taking the question. So the one thing I wanted to dive back into is the comments you made on utilization. If I heard you correctly, you said youre seeing expansion of both inpatient and outpatient utilization can maybe dive a little bit into what you're seeing from there I guess, how does a trend relative.
The previous quarters and does that have any impact on how you think about your growth rates for the remainder of the year. Given obviously that this is just your first fiscal quarter.
Yes, Thanks, Mike we have seen actually for the first time in five quarters and increase in all three areas, so inpatient utilization outpatient utilization and.
Ambulatory non acute utilization so they utilize the utilization increases our small, but they're positive and for the first time in five quarters I think.
Our net administrative fee revenue is driven in some ways by utilization by volume of purchasing bike penetration of the contract by the categories that we have covered by new customer growth and then offset by whatever and change in FY share. So we feel like the utilization is up.
Piece of the performance this quarter.
We think that the long term trends in utilization will continue to be stable inpatient outpatient and growing ambulatory utilization as it shifts but as it shifts the stuff that is in patient is typically higher severity. So there are lot of moving parts in that but we are.
We're seeing strength right now in that utilization environment and Michael This is Craig the on the color I would add is that given that it's only been one quarter uptick at this point, where we don't necessarily see it as a sustainable trend yet to make any changes or revisions to our overall, which is why our guidance remains unchanged, but we'll continue to have.
With that as we move forward.
Thanks. Appreciate just one quick follow up you Craig you said you'd had $125 million drawdown on the revolver post quarter for I believe buybacks and deals is that just mid price or on the deal side or is that encompassing other potential deals that you're currently looking at.
Well, we're certainly always have an active pipeline and are looking at transactions, but the only deal that we've actually funded is med pricer, yes.
Okay. Thanks.
Your next question comes from the line of Eric Percher Nephron research.
Thank you Eric.
Good morning, Susan can I ask you to speak to the nature of the relationship of regional Aggregators versus the average health system. You may work with we look at the resources of Greater New Yorker, Yankee, which obviously found it worthwhile to extend with you how does the or what are the key.
Key value drivers relative to your broader book.
Yes, so with both of those relationships, obviously, it's the contract portfolio the pricing.
The access to the high compliance portfolio for their members. So a lot of the same things are important to those regional Aggregators also technology is very important to them because what they want to do with our spend analytic technology, our pharmacy analytic technology is to be able to look at.
Got it across their entire membership base.
So it's got basically the same components, we just leverage some of that improvement and execution of the value proposition through those aggregated groups.
I think you know we are the infrastructure partner for those aggregated groups and I guess, that's how I would describe it.
And maybe on your comment on customization I know when we speak to customers and try to get a feel for where the.
Admin fee share it is very hard to pin them down and it seems like Theres a fairly wide range would we find within your portfolio that there are some that may be it 60 or 70, because that's their priority or do we find that given your technology services, it's always going to be.
A much lower number.
No I think you would find a wide range. So you would find them to be all over the map because for every one.
There are multiple components as I've described and so you would find it to be all over the math, depending on what what are the most important components to that so we do you know our owner contracts at the date of the IPO those were similar to each other.
But for many years before the IPO during the IPO and since the IPO, we've been recruiting new members, bringing other folks and those admin fees are in a wide range.
That's helpful. Thank you. Thanks.
Your next question comes from the liner for Richard close with Canaccord Genuity.
Great Good morning.
Richard.
On the VC you client new client win obviously, a competitive win I guess as a follow on to Eric's questions. Maybe what were the key points and winning that business. If you can call anything out.
You know it's interesting in that that was an academic I think that was another one that took a look had been had been with a competitor for a long time.
Actually the leader we worked with in that organization, what's the chair of the orthopedics.
Division and so their focus was how do we really get a handle on resource utilization, how do we really get a handle on high cost physician preference items, how do we bring clinical quality and data analytics to the discussion of.
Hi cost physician preference products and so we spent a lot of time talking about all the categories, but I'd say in that one, particularly they thought we had.
A lot more to offer to actually change behaviors of physicians in the high cost areas.
Okay, and then as a follow up.
I understand your broad offering delivering value is differentiator versus your competitors and drive and high retention I'm. Just curious have you lost any GPO client solely attributed to the share back difference versus competitors.
Good question Richard I, we we typically if we have lost any clients. It's because it's been a merger and they've moved to a consolidated partner that was the case with tenant vanguard several years ago.
Or there's a change in leadership.
I think and then it and then it how does the total value proposition compare one competitor to another.
So.
We have a winning record we've been on market taker. We've we've taken several from our competitors and when we lose its usually a merger or it's a change in leadership.
Okay. Thank you. Thank you.
Your next question comes from the line of Vikram because on for Potluck with Guggenheim.
Hey, good morning, Thanks for taking my question I just wanted to go back to the performance services business and your prepared remarks, you called out the ongoing regulatory uncertainty kind of weighing on provider decision, making I'm. Just curious if you can give us some color based on the conversations you're having with clients. When you think that dynamic can maybe start to alleviate from the market and drive some change in the purchasing behavior.
Yes, there are some positive signals.
Meaning they continue to focus on the results of the C. O program the movement to value based care they've made some recent regulatory changes and some of the star clause that actually prevented physicians and health systems from doing what they wanted to do together and so we think.
Here.
And we see some movement from a regulatory perspective, but recognizing that we're in an election year and health care will be a high profile topic in the election year, we've built that uncertainty because we think in a year of an election people are saying a lot of things they are not able to do a lot of things.
And so given that uncertainty we've reflected in our guidance and we've also.
Pivoted some of our resources in assets to go after some adjacent markets as well.
Okay. Thanks, and maybe just a quick follow up I think on the last call you talked about $12 million of operating investments, you're making across that goes to high value network and integration of clinical decision support activities and a few other areas can you give us an update on where you are in those investments and how you're thinking about that for the remainder of the year. Thanks.
Sure. This is Craig so we are still anticipating to have that level of incremental investment that we talked about last quarter that we've we did incur those some of those investments in the first quarter, which is part of why you did see the increase in ESG in a expense in the performance services segment.
As we are continue to make those investments and expect some of the positive contribution to revenue contributions from stance and the clinical decision support technology as well as the beginning in the launch of Contigo to start to deliver some revenue contributions in the back half the or that we're not getting.
As has significant of in the in the first half.
Okay, great. Thank you.
Thank you.
Your next question comes from the line of Stephanie Tim Cope with Citi.
Hi, guys. Thank you for taking my question I'm going to asked the same question a lot of folks have been the slightly different way.
How many of your customers use solely the TPL, let them take advantage of your your ROI solutions like the analytics or consulting goals.
So Stephanie this is Craig broadly as we talk about we have relationships in some form or fashion with over 400, I'm going to talk acute for a minute for 4000 hospitals and about 23 2400 of those use us for supply chain services about 23 or 2400 to those use us for performance services capabilities.
And there somewhere in the range of a thousand that are using something across both sides of those and then there is obviously the non acute market, where we've got a tremendous number 175000 different sites that are using us for supply chain and Stephanie even even with those that are with us in supply chain and don't use a lot on the performance.
Services side, the supply chain analytics pharmacy analytics, all the things that we provide in supply chain generate that ROI, meaning we calculate those ROI for our supply chain only customers as well and those are also in the five to 20 to one so.
I Didnt want you to misinterpret that that ROI only applies to integrated customers it applies to our supply chain customers as well.
Let's now turn the GPL, it's it's of some sort of supply chain solutions on top of it. Yes. So we have spend analytics, we have pharmacy analytics, we have wrap around supply chain consulting we have.
All kinds of activities and revenue stream. In addition to admin fees that that come with.
Our supply chain customers and they pay for some of those SaaS based subscriptions and consulting fees and then it gets calculated in that ROI and Stephanie. This is Mike and that's the reason the med Pricer acquisition is so critical it actually helps us to get after purchase services spend which is.
A vast amount of spend that right now really is tough for our healthcare system to manage.
Understood understood and then if you if you look at that that cohort that only supply chain customers.
Is there any way to tease out if they had a different renewal rate or if they have a different sort of pricing dynamic then your main customer base.
I mean, when your renewal rate is 98% overall, there's there's no room for much difference in renewal rate, So I would say that.
Renewal rates I mean, Craig we have to go back and look what I think the renewal rates are the same across the whole population as well as the supply chain population.
Okay. That's getting here. Thank you guys, yes. Thank you.
Your next question comes from the line of Sandy Draper with Suntrust.
Thanks, very much for taking my question.
Thank you.
So maybe just a lots we talked about on the revenue side, but just curious seasonal Craig or Mike.
I think about the renewals as you said season.
Putting all these things together that sort of targeted the low to mid single digit topline rights and supply chain.
What a margins factor and then for you and how do you think as you see the mix of the different businesses you can put together how much variability is on your margin to thinking about the long term as opportunity as the mix shift to drive margins up or is it really we're going to continue to see a little bit of settle margin pressure and compression longer term just offset by.
The topline growth sense.
Yes, Andy this is Craig so I'll start so I do want to first highlight the low to mid single digit is in the group purchasing part of supply chain services, and we would expect to have higher growth from our products business. So the overall growth rate would be higher than that.
Relative to on supply chain relative to margins overall, what I would say is that we'll continue to have some business mix shift impact over time, if we have higher non GP O business grows. So we'll have product revenue growth outpacing that and then longer term our target and expectation is that we'll get.
Performance services back to growing at a mid to high single digit type growth rate above the level of the GP out so that so there could be some subtle business mix margin compression, which but not to the level that we experienced kind of early in our post IPO journey.
Is the first comment I would make and then what I would say relative to the supply chain itself is.
That low to mid single digit growth part of our strategy and and Mike talked about some of these initiatives, but is really to continue to focus on capturing more spend and identifying more areas to actually capture savings for our health care systems, and health care providers and deliver revenue for premier So in the areas of.
It's a services.
Capital.
Facilities different types of areas that typically havent the non acute given the launch of stocked et cetera. So those will all helped to maintain the overall margin. We don't have a specific kind of multi year margin.
That we broadcast but but at a high level. That's what we what we would say relative to margins going forward.
Great. That's really helpful. Not only question appreciate it thank you.
Your next question comes from the line of Michael Newshel with Evercore.
Thanks, Good morning, maybe to follow up on that performance services just in the quarter, how does that step down in EBITDA margin compared to your full your expectations I know last call you expected to be in the mid Thirtys for the full year with a lower first half given the expected revenue softness and you mentioned the best since as well just wanted to confirm whether that first quarter margin is on track with your an initial expectations for the full.
Yes.
We continue to expect kind of mid 30% EBITDA margins for our performance services business, which is where it has consistently operated for the past couple of years. So it really is a function of some of the.
As we talked about when we established the guidance last year and then as we look forward and based on the results the investments that we're making that I've talked about the lower revenues some of which is timing related.
Overall on a full year basis, we continue to expect it will be in that mid thirtys low to mid Thirtys range.
I'd like seasonally for like the rest of the year should second quarter see some step up in a bigger step up in the back half of the or or more like in the range of the first quarter.
You should see a step up in the second quarter, and then yes, the back half the year, bringing.
More stronger contributions.
Thank you.
Thank you.
Your next question comes from the line of Jason Plagman with Jefferies.
Hey, good morning.
Just given your outlook for admin fee share to trend higher over time, how are you thinking about.
Relative size of the levers to achieve your target for for mid to low to mid single digit annual growth net net admin fees I just wondering how you see how you split that out between client additions.
Increased contract compliance and expansion of the products under contract portfolio.
Yes. So this is Craig is we've traditionally discussed kind of 80 plus percent of our revenue growth in any to end administrative fees in any typical year comes from contract compliance expansion of suppliers expansion of areas within the portfolio, we call that more kind of same store type growth and then somewhere in the range of 20.
Percent typically it can vary in any particular period, but tends to come from new member growth.
We do continue to have a lot of the larger integrated delivery systems that are adding an expanding and growing and their own markets and so that brings business to us. So we would expect and obviously.
The low to mid single digit growth that we've targeted for this year, we expect that sort of contribution we are seeing in the first quarter evidenced kind of stronger performance from some of those new initiatives like the ascendon the surpass high compliance portfolio that did contribute and drive.
A significant component of the growth. So so that is kind of the makeup of the composition that we'll continue to see through the fiscal year and moving forward.
Okay, and then one other out.
On that price or how many of your clients are currently using that tool or.
Similar software tool to manage their spend on purchase services, just trying to get a feel for the runway for growth in that area.
It's a relatively small number of our existing members. So we are.
Obviously building the.
Marketing plan to take it to the channel. It's also we think interesting in that it's sort of independent of GPL relationship.
So we believe that met price or will allow us to serve not only our current channel, but allow us to serve the purchase services market.
Nationally.
Great. Thanks.
Yes.
Your next question comes from the line of Jim Lindstrom Singh with Credit Suisse.
Hi, Good morning. This is daniel adverse that filling in fridge lender, saying thanks for taking my question last quarter you guys provided some color around the first half in second half revenue and EBITDA split for each segment. So I was just wondering if there's any change to those expectations.
This is Craig so no significant change to the cadence that we talked about last quarter.
Okay. Thank you and then is there any further update on your hospital improvement innovations that were contract with CMS I know. It's currently scheduled to ended March 2020, but I was wondering if there's any possibility of CMS continuing with the program. There's this is Craig Theres certainly a possibility that.
It could be extended or could be reformulated into something.
Front as we move forward, but but no additional updates to provide at this time at this point time, we continue to expect to have approximately $6 million of revenue contribution in fiscal 20 running through March 20, and our guidance and our plans for the hearings.
Factor in that that will terminate at that point to the extent that we hear anything we obviously, we'll update the markets and our information at that point in time.
Great. Thank you very much.
Thank you.
At this time I would like to turn it back to Susan to four for any further comments.
Thank you Chris So thanks, everyone for your time today I'm sure, we'll be meeting and talking with many of you in the weeks and months ahead. Our next quarterly update is currently scheduled for February 4th Thanks, So much.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.