Q3 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Premier Inc. fiscal year, 2023rd quarter results in conference call. At this time, all participants' lines are in listen only mode.
The speaker presentation, there will be a question answer session.
Yes. Good question during the session you would need to press star one on your telephone if you acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Jim story Investor Relations. Thank you. Please go ahead Sir.
Thank you April and welcome everyone to Premier Inc.'s fiscal 2023rd quarter Conference call. Our speakers today, our seasonal Devor, Chief Executive Officer, Mike Alkire, President and Craig Mckasson, Chief administrative and financial Officer.
This is Mike incredible review the quarter's results provide an operations update and discuss the ongoing strategies for the remainder of the fiscal year before we get started I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section of our way.
Website at investors Dot Premier Inc. Dot com.
Management's remarks today contain certain forward looking statements and actual results could differ materially from those discussed today. These forward looking statements speak as of today and we undertake no obligation to update them factors that might affect future results are discussed in our filings with the FCC, including our form 10-Q for the fifth.
Third quarter, which we expect file soon we encourage you to review these detailed safe harbor and risk factor disclosures. Please.
Please also note that financial results presented today reflect continuing operations. Following the completion of our sale and exit of the specialty pharmacy business on June 7th 2019, also where appropriate we will refer to non-GAAP financial measures to evaluate our business reconciliation of non-GAAP financial measures to.
GAAP financial financial measures are included in our earnings release in the appendix of the supplement the slides accompanying this presentation and then our earnings release form 8-K, which we expect to furnish the FCC soon now let me turn the call over to Susan Debord.
Thanks, Jim and welcome everyone to our call I Hope you and your loved ones are managing through these difficult times, and saying safe and healthy.
I'd like to start today by acknowledging this significant impact cobot 19, its head on the ways in which we live and work and especially in the healthcare industry.
We are grateful to healthcare providers first responders and frontline workers across the us and around the world for their tremendous efforts everyday to combat. This pandemic. We also thank individuals and organizations working to put this pandemic behind us from vaccine researchers to logistics providers.
So those studying new treatment protocols.
I'd also like to take a moment to thank the premier employees for their continued commitment to serving our member health systems through this challenging time their ability to mobilize quickly and adapt to new ways of working has been instrumental and our ability to continue improving health outcomes and enabling our members.
To support patients.
As Cobot 19 is top of mind for everyone I'll start today with a brief recap of the quarter and then spend most of my time today discussing the critical role premieres playing in helping our healthcare partners managed through this truly unprecedented crisis.
In terms of our fiscal third quarter results Premier delivered strong financial performance that exceeded managements expectations.
While we do expect some cobot 19 related pressure across our businesses in the fourth quarter, we do not believe the impact warrants changing or withdrawing our current fiscal 2020 financial guidance range.
Greg will discuss the various potential impacts on our business during his financial review and outlook for the remainder of fiscal 2020.
In the meantime, we are continuing to operate from a position of financial strength and flexibility.
Operationally the integrated capabilities and diversified platform that we've strategically built in recent years are serving premiere in our health care providers very well in this environment.
This includes our direct sourcing business, which accelerates access to much needed products using avenues that go beyond traditional sourcing and our stocked online ordering platform.
Provides alternate site customers like nursing homes.
The access to quality products from reliable sources.
Through these businesses, we are helping our partners address increasingly complex sourcing and supply chain issues to ensure continuity of care for our rapidly changing patient population.
On the performance services side, our Sarah Dock safety surveillance solution is monitoring inside the hospital for Covance specific alerts.
While our stance in clinical decision support technology is flagging suspected cobot 19 cases directly at the point of care in the Amar at the Physician's office and is also leveraging predictive modeling to create an early warning capability for future waves of cobot.
19.
I'll now turn to some of the specific actions that we're executing in this environment to both lead and support our member health care providers.
In supply chain services, we've organized our response around three key initiatives.
First we are accelerating provider access to much needed products, providing real time actionable information is something that premier does every day, but weve redoubled, our efforts to find new sources of supply and get products, where they need to be.
For example, in our group purchasing business, we took the highly unusual step of opening our agreements to all capable suppliers to help meet the surging demand. This expedited sourcing process has added suppliers to product categories that are in shortage or under allocation.
In addition, our direct sourcing business executed a series of aggregated purchases for certain categories of personal protective equipment or pp to ensure supplies are available to our health care providers.
This enabled us to increase delivery of protective masks to more than 28 million last month alone from approximately 2 million per month prior to the outbreak.
We've also partnered with major companies and brands to serve as additional sources of products.
Like face shields face masks and hand sanitizer.
And to provide expedited transportation to quickly and efficiently deliver these products, where they are needed most.
Our second initiative is to align with other critical stakeholders to share information and more effectively coordinate the response efforts.
For example in early March we led the formation of a coalition of major healthcare companies dedicated to organizing the private sectors response to cobot 19.
Premieres role in this coalition includes delivering timely data to FEMA HHS and a host of other federal agencies regarding PE availability ventilator needs surge capacity.
Providing key insights into critical drugs and diagnostic supplies that are at or approaching shortage.
The third initiative is monitoring supply in the system conserving supply on hand, and advising our members on non traditional supply channels, including the gray market.
In conjunction with the FDA CDC and HHS.
Premieres using our extensive supply chain analytics capabilities.
To assess healthcare providers levels of supplies, including and 95 respirator masks gallons and highly in demand drugs.
And is advising members on the latest conservation and sterilization information.
We're also actively monitoring non traditional suppliers and the gray market vetting products and solicitation offers and providing guidance to our members.
These efforts have a profound impact on the quality of care that patients ultimately receive.
And we're so proud of what our teams have been able to accomplish on this front.
On the technology side of our business, we are executing initiatives that capitalize on premieres unique position in combination of capabilities.
To make it easier for clinicians to deliver informed coordinated care.
For instance, our clinical surveillance technology now includes cobot 19 specific alerts and patient flags for tracking and analytics.
In addition, our clinical decision support technology is using natural language processing and machine learning to flag suspected or confirmed cobot 19 patient cases directly in the MSR at the point of care.
Among other capabilities, we have enhanced our technology to be able to predict surges and hotspot.
Serving as an early warning system for future waves of Coven 19, while a vaccine is being developed.
This would be a critical component in helping our healthcare providers and the economy in general achieve a higher level of normalcy. During this recovery period end beyond as new methodologies are adopted to rapidly detect and respond to potential health threats in the future.
So as I step back it's clear to me that the challenges created by this crisis underscore premieres unique position as the Nexus between healthcare providers distributors manufacturers life Sciences companies and government agencies.
As well as the tremendous value, we bring to our member health care providers and the patients that they support.
At the same time, we are continuing to cultivate our longer term capabilities I.
I believe that these capabilities built around our technology enabled end to end supply chain and enterprise analytics and performance improvement strategies will foster an even deeper and more integrated partnership with our members as we work together to deliver a safer and healthier tomorrow.
Before handing it over to Mike I want to reiterate my gratitude to premier employees for stepping up to navigate these unusual challenges and to our healthcare providers and other partners everywhere working to save lives and provide patients with the care that they need with that I'll turn the call over to Mike Our president.
Thank you Susan and thanks, everyone for joining our call.
So began to echo Susan's comments I couldn't be more proud of our team and everything they're doing to help our healthcare provider members. During these challenging times.
I want to say thank you for all the hard work I very much appreciate it.
Today I want to address the work we're doing to help our members managed through the recovery to identify and mitigate the impact of coded 19 resurgence and.
And to ensure a more resilient healthcare system and supply chain in the future.
That's the nature begins to look beyond the immediate cobot 19 crisis.
Remember health systems, as well as tens of thousands of other health care providers are working to deliver cared for patients who have had to postpone their health care needs.
We are working as a trusted partner with our members to help them accomplish for major objectives in this environment.
One build confidence with their patients to resume typical health care procedures.
At the same time continuing to care for patients with grown a virus to prepare for another croda by research and their community.
Three find ways to become more efficient for both procedural and infrastructural costs.
And for improve their revenue.
Let's look at the first objective.
When it comes to rebuilding patient confidence in this new environment, our data technology and consulting solutions will be critical to enabling our members success.
Providing them with the ability to monitor for editor Cobot 18 cases.
Predict disease progression in surge and determine and prioritize supplies necessary to care for the infected population.
These solutions will also help our members improve the quality of medical interventions through sharing of guidance and rapid deployment of best practices.
We will ultimately be positioned to quickly detect and implement protocols to prevent the spread of not just coded 19, but other future diseases as well.
On the supply chain services side, we're working to fill the new supply needs created by this environment.
Which include Turnbull per monitors additional personal protective apparel.
Testing reagents, and cleaning and sanitation suppliers just to name a few.
There are also needs for staffing adjustments and infrastructure redesigned isolate coded 19 patients from the rest of the patient population.
Objected to his prepared for more surges.
This new normal will potentially include future disease ways.
Requiring that health care providers have the technology to quickly the tech and mitigate new outbreaks and sufficient stocks with PE drugs and other suppliers to care for patient surges.
It is clearly shows that in the wake of this pandemic us health care providers need more domestic resources for their critical supply needs and that we as an industry need to support and develop additional us near shore opportunities for critical product manufacturing.
Domestic supply chain securities.
The fact is that pp products are overwhelmingly sourced overseas with approximately 80% coming from China and Southeast Asia.
No. This is similar geographic reliance on pharmaceuticals.
The risks associated with this geographic over reliance came into sharp focus as the coated 19 pandemic swap across the globe and these nations closed their borders and prevented us access but much needed supplies.
This triggered widespread shortages of products needed to protect healthcare workers and treat patients here in the us.
To create a more resilient supply chain, our country needs to build a more robust infrastructure of domestic manufacturing, while also giving more consideration to the geographic concentration risk.
Sourcing product.
To be clear, we're not advocating of old sourcing from China and Asia go away.
But it's a secure supply chain will require more geographic diversification of production.
Including both domestic and near shore manufactures.
In this regard Premier has organized a group of provider members to explore strategic investment opportunities focus on expanding domestic production or personal protective equipment.
Objective is to help ensure that a greater proportion of health care products are insulated from shortages in our available here than the time to leave.
I envision this approach has very similar to our successful provide Gs Gx initiative, which premieres partnering with pharmaceuticals manufactures to address drugs that are in or nearing a shortage.
Let me address objectives, three and four cost efficiencies and improved revenue together.
Health care providers have always been focused on improving care at a reduced cost environment.
There need to further reduce costs and generate revenue has never been greater than in a post pandemic era.
We anticipate that our members will utilize our consulting and other capabilities as follows.
First to understand how the co that 18 environment is impacting revenue and cost performance and build financial models to project future scenarios and their impact on performance second to identify short term margin improvement initiatives to support longer term strategic plans to reposition the healthcare system.
And third to adopt the more focus and technology enabled approach to clinical standardization, which will require a balanced focus of redesigning business models over the longer term to optimize the overall cost of care delivery through focused efforts.
In addition, contigo help our innovative direct to employer high value care initiative that is focused on improving and standardize incur reducing cost and generating revenue for health system participants is continuing to make steady progress.
Today Contigo health is working with three major national employers an increase of two from when we talked last quarter.
I'm also pleased to announce that we've acquired health design, plus or HCP to accelerate our contigo health initiatives.
HBP is a care management company specializing in the development and administration of customize health benefits solutions for employer clients and health system partners.
It offers a nationally recognized centers of excellence program for many innovative employers, including well known fortune 25 brands.
The company employees the high touch personalized approach, which has helped us employer clients achieve significant financial savings for healthcare expenses and maintain a high quality of care.
HCP will continue to provide specialized PA services, while supporting contigo help as it expands its product pilots in multiple markets with multiple employers.
We're very excited about this acquisition and welcome to team at HCP The Premier family.
Thank you for your time today, let me turn the call over to Craig Mckasson, our chief administrative and financial Officer.
Thanks, Mike I'd also like had my heartfelt gratitude to all of the healthcare workers as well as our colleagues working behind the scenes, helping our country work through this pandemic and get back on its feet again. Thank you.
I'll first walk briefly through our fiscal third quarter results and then review guidance for the remainder of the fiscal year, including the expected cobot 19 impact on fourth quarter results.
Our third quarter financial performance was very strong exceeding management expectations across the board as we continued to execute on our operational strategies to drive long term growth and value creation.
In direct sourcing, while we did see some product allocations begin to kick in.
And freight cost start to rise during the latter half of the quarter the financial impact related to covert 19 was not material.
I also want to reiterate that we continued and are continuing to operate from a position of financial strength and flexibility cash flow remains strong and we have a very low amount of net debt on our balance sheet.
So let's review from a GAAP standpoint, consolidated third quarter net revenue of $334.8 million increased 11% from a year ago.
Supply chain services segment revenue of 238.6 million increased 14%.
Net administrative fees revenue increased 6% primarily from ongoing contract penetration driven partly by our high compliance portfolio programs and the addition of new contract categories and suppliers.
Across both our acute and alternate site businesses.
This progress came against a continuing backdrop of rising patient utilization trends prior to the cobot 19 impact.
Products revenue increased 47% from last year, driven primarily by strong growth in member demands for our Premier pro commodity product categories, among healthcare and food service providers prior to cobot 19.
As well as growth due to revenue generated through aggregated purchases for certain products relative to the prior year.
Turning to performance services revenue of 96.2 million increased 4% from year ago. The increase was primarily driven by growth in license technology engagements, including a significant new enterprise license agreement with a member to access our suite of integrated technology solution.
And clinical decision support technology engagements.
This was partially offset by the timing of certain consulting and technology engagements as well as the previously disclosed lower revenue associated with the CMS Hospital improvement innovation network government contract.
Ended as expected on March 30 Onest.
Looking at profitability GAAP net income was 73.2 million for the quarter compared with 75.3 million last year.
After a GAAP required noncash positive adjustment of 302.6 million to reflect the decrease in the redemption value of limited partners class B common unit ownership.
Based on the decrease in our stock price during the third quarter.
We reported GAAP net income attributable to stockholders of 54 cents per share.
Third quarter consolidated non-GAAP adjusted EBITDA of 155.9 million increased 12% from a year ago.
From a segment perspective supply chain services non-GAAP adjusted EBITDA of 149.2 million increased 11% from a year ago, primarily driven by growth in net administrative fees and products revenue.
In performance services non-GAAP adjusted EBITDA of 34.6 million increased 4% from a year earlier.
The growth was primarily due to increased revenue, partially offset by the ongoing previously disclosed strategic investments in our clinical decision support technology.
And in Contigo health.
Third quarter non-GAAP adjusted fully distributed net income.
Of $88.9 million increased 4% from a year ago and non-GAAP adjusted fully distributed earnings per share increased 10% to 73 cents.
From a liquidity and balance sheet perspective cash flow from operations for the nine month period was 248.1 million compared with 356.6 million for the same period last year.
The decrease in cash flow from operations was primarily driven by the addition of the prepaid contract administrative fee share of 92.1 million for one time rebates to certain acuity members as agreed to buy a security prior to entering into the purchase agreement with Premier.
Which was excluded from the purchase price of the acuity and next Sarah asset acquisition.
We also deployed capital to fund prepayments for commodity products related to increased demand due to cobot 19.
These decreases were partially offset by a decline in operating expenses, primarily due to the remeasurement of the tax receivable agreement.
Non-GAAP free cash flow for the nine month period was 213.9 million or approximately 48% of non-GAAP adjusted EBITDA, compared with 224 million or 53% a year earlier.
The decrease primarily resulted from the same factors impacting net cash provided by operating activities.
Partially offset by reduced distributions to limited partners due to changing ownership.
Our fiscal 2020 free cash flow projection will be impacted due to the implications of cobot 19 on our fourth quarter net administrative fees revenue as well as a result, the timing of cash inflows and outflows given our strategic decision to use operating cash flow to procure necessary products.
In direct sourcing to address increase member demand for products.
Given the coven 19 related surgeon member demand cash flow timing may be impacted as a result of when payments are made to purchase products in comparison to the subsequent routine cash collection on product sales.
Our cash and cash equivalents totaled 241.7 million at March 31, 2020, compared with 141.1 million at June 32019.
We ended the quarter with an outstanding balance of $250 million on our five year 1 billion dollar revolving credit facility and we have subsequently repaid 150 million of that amount.
Looking at our stock repurchase program, we completed the purchase of $150 million of class a common shares in January but did not conduct further share repurchases during the quarter and given the current environment do not expect to repurchase any more shares in the current fiscal year under the Irrs.
Originally established 300 million dollar authorization.
Now, let's turn to guidance.
Based upon our performance through the first nine months of the fiscal year and the current outlook and assumptions for the fourth quarter, including the anticipated impact of Cobot 19.
We expect to complete the fiscal year generally within the current guidance ranges.
That said due to the uncertainty and lack of visibility associated with Coca 19th.
It is possible, but supply chain services revenue could exceed the top end of our current range, while non-GAAP adjusted EBITDA and adjusted fully distributed earnings per share could finish slightly below their respective ranges.
Specifically, we expect supply chain services segment revenue at the top end of the current range of 895 to 930 million.
We expect strong gains in direct sourcing revenue from our ongoing efforts to assist member health care providers in securing certain personal protective equipment and other high demand supplies as a result of cobot 19.
We expect this revenue increase will more than offset the anticipated softness in net administrative fees revenue due to the pandemic induce interruption of elective procedures, which typically account for approximately one third of surgeries performed in a hospital.
As well as lower overall occupancy and utilization.
And the slowdown of alternate sites spending in non healthcare related areas.
Performance services segment revenue is expected to be at the low end of the current range of 340 to 354 million.
This is due to the pressure on new and existing consulting and technology engagement, which are being delayed and extended as healthcare providers focus on this pandemic.
This confluence of factors puts our expectations for consolidated net revenue in the upper end of the current range.
Looking at profitability, we expect non-GAAP adjusted EBITDA to be near the lower end of the range of $566 million to $589 million and depending on the extent of the coven 19 related impacts it could finish a few million dollars below that range.
Specifically, we expect a greater portion on supply chain services revenue to be derived from our low margin direct sourcing business, while in our higher margin group purchasing business, we expect negative impacts related to the deferral of elective procedures and the shutdown of non healthcare related entities.
While these are expected to be partially offset by spikes in demand and other product areas. The net effect is expected to pressured net administrative fees revenue growth in the quarter relative to a year ago.
Additionally, we expect increased pressure on performance services segment EBITDA for the reasons I discussed earlier.
As a result, non-GAAP adjusted fully distributed earnings per share is expected to be near.
Or a few cents below the low end of the current range of $2.76 to $2.89.
Amid this environment, we are diligently managing expenses delaying new hires greatly reducing travel and meeting costs and have plans in place to further manage costs should conditions deteriorate appreciably.
All that said, we are managing our business with the.
Full understanding that this is truly an unprecedented environment in which additional unforeseen factors over which we have no control could further impact operating and financial results, both positively and negatively over the near term.
With respect to fiscal 2021 as you know premieres year ends on June Thirtyth.
Therefore, consistent with prior.
Prior years, we currently plan to address guidance for fiscal 2020.
One when we announced our fourth quarter financial results in mid mid August.
Given the current circumstances.
It would be premature for us to attempt to assess today the impact of Kogan 19 on our next fiscal year ending in June 2021.
Management plans to use the time between now and August to gather and digest additional data.
[laughter] trends and insights to inform our approach for establishing fiscal 21 guidance.
We will be assessing key.
Areas like the timing and impact related to the resumption of elective procedures, the economic recovery and the reopening of non healthcare related facilities as well as the demand level for performance services among other things.
So depending on the state of the medical and economic recovery in mid August we may need to consider similar to many other.
Organizations. During this extraordinary time period, whether premier can establish annual guidance, we'll need to potentially issue quarterly guidance on the short term basis or withhold guidance altogether.
Certainly our current assumptions is that our line of sight into this environment will improve over the next couple of months, which will hopefully enable us to initiate guidance in August.
Thank you for your time today now, let me turn the call back over to Susan.
Thanks, Craig I want to close our prepared remarks by saying that together, we will make it through this pandemic, we plan to keep partnering closely with our members to enable our us healthcare system to manage and ultimately defeat this virus, while working to better position our providers to quickly detect.
And respond to future Pandemics.
Moving forward Premier continues to be supported by our resilient and diversified business model, our strong cash flow.
And our flexible balance sheet as we continue to grow our comprehensive capabilities and provide critical value to our members.
Thanks for your time today, and because we are all in different locations.
Ken.
Please address your questions to either Mike, Craig or me and we'll address them.
Accordingly, operator, you may open the call for questions.
As a reminder to ask a question you need to press star one on your telephone.
So your question your question pressed account or Heskey.
Please standby, we can probably Q Monday roster.
And your first question is from Michael Cherny with Bank of America.
Hi, Michael.
Hey, everyone. Good morning, and thank you so much for all the details I think this is a question for Mike, but obviously anywhere else wants to jump in.
Please go for Mike you've been.
Center handling a lot of the response with your customers.
You talked about.
Yeah.
You mentioned the dynamic of electives roughly a third of the surgery as you see in hospitals are electives as you continue to have those conversations.
With your customers and as all of your customers across the country have bearing states during periods of Reopenings, how are they positioning themselves now from a purchasing for sprint.
Active from a stuff.
Sure that.
They're not only their patients are feeling comfortable but the their providers are feeling comfortable so think of.
Things like face masks and isolation downs and those kinds of things. So I think that's the first thing in the second initiative that.
We've been rolling out over the past, so sort of two or three.
Three weeks is ensuring that as these elective procedures start to come back online.
We want to make sure that they've got the.
Good color.
The EBITDA range should be EBITDA came in a few million below the low end as you alluded to what does that.
It encompass was that the view of the conditions related to today.
In terms of the average volume average utilization for your customers.
Sure. Thanks, Michael So so I. Thank you know from a utilization standpoint, I talked about prior to cope and 19, we were continuing to see rising utilization within the healthcare solution and outpatient and.
And non acute.
Clearly that has fallen demonstrably with 10% to 15% decline in the limited amount of data we've seen in the fourth that we've seen into the fourth quarter inpatient admissions and utilization and you've seen some of the other.
Public hospitals talk about the declines that they're seeing so to the extent that that the recovery starts to happen in some of the elective procedures.
And things you were just talking to Mike about start to resume a little bit before the end of fiscal year that would help us with in terms of staying.
Within the guidance range, but if there are delays in that pushing into.
Later, and then beyond the fourth quarter, that's what would potentially impact us and Apis be potentially slightly below the range.
My sense is the the reopening in the phase.
Okay.
Great. Thanks, good morning, everybody.
I'm not sure. If this question is more for you Susan or Mike but.
We have on those same lines I guess I was just curious.
As far as states reopening in.
Any.
Data points that you might see as far as weather procedures, returning I'm sure it's going to.
Great different across different parts of the country, but.
Are you seeing any rescheduling.
Thanks.
Any elective procedures.
Coming back to the forefront here during the June quarter.
Is there any way to approximate what kind of that might come back during the June quarter versus what would fall into.
Your next.
Is putting in their reopening plan and beginning to figure out the scheduling the the protective equipment they need the processes that they.
Need to put in place many of them have had significant.
Revenue hit for not being able to do those procedures. So I would say they're all.
[music].
Just on it and I think that they all intend in the fourth quarter to bring back.
That volume, we do think it will be a gradual ramp up.
And it will it will vary by state to your point, it's really hard Steve for us to estimate.
The exact amounts over the next three months.
For the fourth quarter.
But I guess.
We've tried to reflect in.
Craig comments about.
Oh, the rest of the year, what we think is is likely.
To happen based on what we know today.
Yes.
Military hi, et cetera, just curious if there's any further color breaking that down that way.
You know, we the way we have broken it down internally in the work that we're doing is by product category. So think about.
Pharmacy imaging nursing surgical cardiovascular and think about acute and non acute.
And so we basically because our administrative fee revenue and our direct sourcing revenue is tied to product categories have done it that way.
We think.
There there could be positive impacts in the nursing arenas and in the facilities Arena.
And certainly in.
The PPD and all the products that Mike talked about we think there are some potential negative impacts.
From food.
From an imaging.
From some of the purchase services and so we are taking sort of about.
On the approach of the puts and takes.
By category.
To determine where we think we're going to end up we do think the non acute care space.
Has been tougher.
And we do have some non healthcare non acute care space. So we've tried to reflect the non acute care space coming back maybe a little bit more slowly.
Okay Susan.
Necessarily have the products available.
To really manager virus the pandemic like this so many of them, we're actually operating in new markets trying to get access to products. So two things one we've been trying to get us provide them as much data as possible on the proper utilization and then too.
We then also helping them in terms of providing expertise around.
Appropriate product utilization and those kinds of things. So we do think obviously, we have an opportunity to provide a bit more education.
But also make sure that those those.
Those entities are getting access to the.
The needed product to care for those patients.
Okay I appreciate the color. Thanks.
This difficult time I know the hospitals really appreciate this I just want to understand a couple things a little bit better Mike you talked about this domestic manufacturing you know you're in a position as drink today around direct sourcing, but a lot of things coming previously from Asia. When you think about domestic manufacturing.
It is this an area that that you think that premier would get directly involved in when you think about your your business model going forward would be my first question and then secondly, obviously based on the first few questions a lot of focus around when things start to recover.
[laughter] on overall medical supplies from your perspective.
Thanks leases so.
Let me first just a quick reminder, around the domestic manufacturing question.
So domestic manufacturing, obviously would be part both our G.P.O. offerings. So.
So those are the good products that we you know contract for we're going up you know want to make sure we understand where the the point of origin for those products are so.
If those or you know, obviously produced in China or southeast Asia versus the U.S. So that's number one number two we have that direct sourcing business and over the past few years, we've actually been diversifying where the production of.
Those those products have been coming from so there'd there'd been a historic for the most part.
[laughter], <unk> and ensuring especially critical products things like you know and 90 fives.
In some cases things like isolation gowns very similar to what we did with provide G.X. on those drugs.
Those generic drugs are short supply, where we've added capital and where we've been working with domestic manufacturers to expand production lines. You know those are the kinds of strategies that we want to employ.
[laughter] as we're thinking about doing domestic manufacturing for for this P.P.E., so very very similar to what we're doing.
But it's in terms of the you know the access the products that they would you know typically use in their house setting.
I think it's a bit too early to tell you know what that that impact obviously would be Susan I'm not sure. If you add anything that yeah. The only thing I would add is we've been looking Lisa at the cost per patient, while we've been in that kind of it pandemic versus before and our sense is that.
And he f. patients that will be.
[laughter].
In hospitals, and doctors offices, and you know surgery centers will go up and the cost and the products being yeah.
You know because.
Yeah higher sent Meroney those things, we think will go up and then a low cost kinda low meroney stuff that can be done with power how will will be done with.
Oh Hell clean do think this will accelerate some of the talent help.
Initiative, but we think there'll be a chorus.
Finding increasing coffins severity of the stuff that is in health care facility. So we're going to continue to monitor that and see how that.
[laughter].
That was the health system is becoming more efficient from a revenue costs performance and margin improvement.
Peck adoption [noise], obviously, you know there's financial difficulties here.
For the health systems, and obviously, we have some federal funding calming, but I'm I'm curious your thumb.
<unk> as we X. at this although that's a known how we do accept this how do you see customers moving forward on these objectives.
Yeah, so great <unk> clustering Richard couple of things.
You know first you know we have the data and analytics to truly understand what's happening almost to leases question. You know if if if a business models changing we have the ability to see the impacts on revenue and the impact like costs. So obviously over the last few weeks, we've been building up business models for our health care systems.
[laughter] to help them better understanding application, so sort of a post kubat 19 World and then building models to actually help them from.
You know advisory services standpoint, as well as you know a technology standpoint. So a couple of things that you know I think that they're going to be looking to do one I think this earth.
[laughter] police surveillance.
<unk> has to you know do they want to create I guess for the lack of a better were a cohort of facilities that care for those patients. So that they can keep open you know other facilities you know it'll allow electra procedures and those kinds of things. So I think this surveillance in the analytics, it's gonna be really really critical you know post cold weather then.
It's the focus on the cost and then.
[laughter] and you know, there's obviously some opportunities for a revenue acceleration standpoint visa the what's happening you know with the cares active and getting access to that funding as well as arc and Teagle Health initiative, where we think.
They have a huge opportunity obviously to work more closely with employers on their markets.
Okay and have a follow up <unk>, how many cost.
Rumors does H.D.P. have the U.N. and the acquisition.
You know there's probably.
It's somewhere in the teens. So they you know they are working with you know from a T.P.A. standpoint, a number of.
Health care systems, as well as weather as well as other employers from T.P.A. standpoint, and then they've got Oh I don't know approximately 10 very very large.
Employers that they're working with to do these centres of excellence, which obviously, we think because it's it's a real opportunity for.
Health care systems to you know to participate in those centers.
Okay. Thank you.
<unk>.
Thank you restrict.
Your next question comes to mind Daniels with a million lane.
Yeah.
Hi.
The money this is actually Jerry online for Ryan This morning, but thanks. Thanks are the questions.
Incorrectly. He just you know from <unk> allocation perspective, you know it sounds like anything he talks a little bit about you know obviously some man.
[laughter] Jane expenses in your time, given the uncertainty.
Reducing travel things like that so I'm curious you know kind of how you think about balancing maybe playing defense <unk> been staying cautious given the uncertainty where versus still kind of investing.
In the product investing opposition organically as far as maybe the potential for continue them an activity.
[laughter].
Oh sure. Thank you. So first of all we we are due and we'll continue doing.
That's in our capabilities and we've been doing that throughout this process. We continue to believe we're fortunate to be operating from a <unk> position of strength.
[laughter] and you need to make investments and the Contigo health employer network continuing to make investments in the technology side of our supply chain business and don't see that changing what we're just ensuring that were being fit.
<unk> irresponsible through the implications of covert 19, given that it does have implications in the near term on the business and then we will end do continue to have an active corporate development pipeline and will continue to look for opportunities where appropriate to round out our strategic capabilities within organic.
Investment as well.
Okay, great yeah. Thanks, Thanks for it.
That and then you maybe season just from a macro perspective, you know obviously, we kind of talked about a number of you macro trends that are are in play right now I'm curious.
Maybe another one.
Kind of the transition to risk based models do they become maybe relatively more attractive as they are not so volume dependent going forward and.
Just you know any other thoughts from the macro perspective that.
And trends that you're seeing or maybe make you incrementally more positive as we look you know be on you know 2020 and things start to normalize it that.
Yeah, that's a great question and I do think because like.
Sit at that Nexus between members and a lot of the federal agencies and we're working with you know Congress members and and and everyone because of the pandemic they've actually been a lot.
Changes implemented in a temporary way that were learning from and so for example, color Madison and and for example, <unk> space models or alternative ways of thinking about raising products in that sort of thing. So the question is how how much.
That stuff well <unk>.
Once this is over and I do think there will be an evaluation of a lot of things. We were pleased that the H.B.O. adjustments that were made provide flexibility for the financial performance.
[laughter] during this period of time, but our senses that you know serving the needs of patients through more holistic and and models risk based model will will be a trap.
Active going forward and the marketplace patient physicians and health to.
Have by necessity.
On cost and on how do we get the economy.
Where we need it could be.
We'll play into it as well so the combination of that costs pressure.
Guy or can get revenue back to where it needed to be and and the new method of delivering pair that have been implemented I think all we'll we'll person.
[laughter] pouring that'll be complicated a little bit by you know.
We'll be in in an election cycle and there'll be a lot of a lot of discussions in the election cycle about change it to the way things have have been going.
Got it yeah, I think so that color.
Thank you.
Oh.
Your next questionnaires from child right.
<unk>.
H. zero.
Charles how are you there.
Oh, Yeah, sorry, I have I need on yeah just.
The question <unk>, when when we think about the recovery coming forward and I don't recall, if you've given just before can you can you maybe give us a sense on so the the geographic mix of your of your customers.
You know maybe involved in numbers because clearly a you know as we sort of reopened it looks like we're going to be working stages and obviously, we have some states structurally open more into south in the in the Midwest.
If you think about that you can you get a sense of where you are more geographically concentrated in their code.
[laughter] instantly everywhere I do think we have probably the largest market share of the big the I.D.N. that are multi state.
And I will tell you that and and all of our market. One of the first thing to come back and come back gradually is the focus in state on getting that access to elective procedures and and those.
Hospitals back opened up so I guess I would say that were were literally in in almost every market and all of our members are are doing their planning. We just did a survey actually outlier health systems and asked them the question across the country. The question.
You know what percentage of your prior.
They're volume do you think will be up and running in May and June July and the planning right now is for them to try to get back to their normal levels of like if sir.
[laughter] trees, and such you know by by the end up again, and now whether they'll make or not we don't know, but I think that's the intent so that that's how worth thinking about it.
Yeah.
And then <unk>. Thank you that I appreciate it and I and I figure to do something like that but just if if we think about.
The the pace of recover into your point <unk>.
They're not you know is there a lot in terms of.
[laughter].
That is that activity you would see before procedures really started going whereas have something where they make the orders, but we would not necessary in the results until maybe after procedure.
Thanks.
So I think [laughter] I think it both so what I would say is that they are planning for the additional pressure on P.P. and such that comes with continuing have coded patient while also ramping backup elective surgeries and they think there'll actually be.
<unk>.
Try to catch up for that.
Surgery, So I think that through our direct sourcing company and some of the forward by that might happen in anticipation of that you'll see you'll see that I think for the.
[laughter] Tory model.
And I'm more model, where they are advanced planning for the demand, particularly because they're expecting additional searches up code that along with the ramp up elective procedures.
Okay. Thank you that's really help <unk>, maybe just felt would you just said right there Susan is.
If you move away from just in time in inventory purchasing does that affect.
Does that affect your model at all or is that just they're gonna have maybe more supply on hand, but still have a regular purchasing patterns and wants to build some some accessing.
[laughter] mentors thanks.
Yeah, I think at all I you know our our assessment is they'll have cost pressure at the same time, they're going to need to have bigger numbers of days inventory on hand, they don't they don't want to be put back in the situation that they've been and and so I think there will be more stockpiling in there we'll pay it will be done gradually.
Overtime, and so our senses there.
We'll be increase you know increase need for particularly the commodity P.P.E. basic gown math love those products that that actually will be neat.
[laughter] he did in almost any kind of.
Any kind of epidemic or pandemic and so our sense is that they will ramp up the level of of inventory on <unk>.
And then there Alan hand in there there may be some benefit that as they do that and then it will go to then more normal buying patterns and replenishment patterns from there.
Great. Thank you so much appreciate it thank thank you.
Next question is from gently interesting with credit Sweet.
[laughter] mm that's reminder, surpass how's about 11 core members and it represents about eight and a half billion dollars supply chain.
Purchasing a sand has about a thousand hospitals.
Representing about 136000 beds and about 21 billion an annual will spend so.
You know as you as you think about those we've talked in the past the compliant.
Bye Bye category, obviously it it it varies but for the most part we think about you know and 80% of compliance for a signed a 90% force a path.
But it's <unk> answer your question do we too we.
[laughter] see you know either the evolution of this these committed groups you know true having you know more people join or are there.
For other sort of committed programs, we do actually.
So obviously as the cost pressures you know continued to ramp up I do think there's gonna be opportunities for you know folks.
[laughter] I would I would guess that there'll be a number of systems coming together that working with us to you know ensure that.
There's you know domestic production of of these.
P. P.E. product you know very similar to what we built up with provide G.X. for the generic drugs.
Okay and then my follow up on on to go a held I mean, you added one more employed blind this ought to Los Board recalled out some consensus around slow wasn't expected <unk> in that business and they're supposed to speak all good I'm, assuming that buttons situation do not help I know you acknowledge that it's D.B.S.D.B. equity shouldn't but beyond that.
Have you guys slowed down on the face off your investment in that business and.
[laughter] have there'd be any changes in your outlook or opportunity you see that business.
Yeah, I I'll I'll do a quick summary, then you know Craig's certainly jump in so obviously just like all the different parts of purpose.
[laughter] snows, we're going to ensure that you know the the investments are the costs, you know ah parallel, but rather than a ramp up in the growth and so where we need to you know ensure that.
No we're driving the appropriate margins, we're going to either you know push back hiring or or make fewer investments with the revenues you know not support.
Of the growth models that we have in place. So the gist of all of it is though that you know we think this H.T.P. opportunity is significant for us so that really <unk>.
[laughter]. So we have <unk> mikes right. We're we're caution cautious in terms of how are making the investments in content.
[laughter] nearing but we have continued to invest in that to build the capability clearly in the very acute short term some of those large employers that we've been talking to and and doing initial pilot conversations have had a little bit or other thing.
It's on on that had to focus on but the but contigo health management team within premiers continuing to to move things forward and we would continue to expect that.
[laughter] as we said before kind of in the 21 22 time period is really starting to see that benefit and <unk> and we don't actually see a departure away from this direct to employer kind of.
Linkage from a strategy standpoint.
Okay. Thanks, a lot.
Thank you.
<unk>.
Hey, Stephanie.
Hey season. Thank you for taking my question can I I kind of last <unk> right now.
L farming carry he'd be sure. The first time, then allow and I heard you that call out a lot I'm kind of course efficient for my first question is that it is they read theories for this dancing asset I'm gaining traction.
Yeah, I you know I'll start and then my you can add in yeah, I think Stanton because dancing dies natural language processing machine learning in a high and because it it.
The major.
<unk>, our vendors and because it fits in physician offices. So not only did we quickly you know.
[laughter], we were having a significant growth rates in stance and that has continued and I think and we think will.
Contained and our paradox surveillance.
And really the whole enterprise anesthetics when you start thinking about how we managed to.
The recovery and potential additional surges, we're feeling good about R.I.T. products are consulting services.
You know have been somewhat delayed with that with the inability to travel and sort of the focus of the health systems on other things, we think a pressure on health system financially revenue and costs.
And how we how we might be able to help them from a consulting service is he will be a more gradual ramp up but yeah to answer your question stance in has has been doing very well.
And 70. This is good stuff maybe this was mikes. So you you have opened up the questions. So you know here's here's the big pitch right. We we think that you know the communities. The the the the the state governments the federal government below local governments they need to have the surveillance Cape.
Ability to choose them were describing so it's it's the stance sensibility to read the unstructured data and the electronic medical records.
Tied in with the surveillance capability from our safety product provide sort of real time updates buys zip code or worse surges are occurring and and we really do believe health officials should be informed by data like that to look at you know potentially you know.
A window order additional shelter in place or window open the economy and those kinds of things. So we do think it's a significant opportunity to provide data to these you know the appropriate health officials. The only other thing out I'd like to add is that we have this this entire control power focus so the way we talk.
About it is you know as true sort of <unk> 19 control power and and that that not only helps us understand surges, but so there. So we could then couldn't pull in our quality data and look at you know whether these are coded patients are being admitted to the hospital and then further whether they're you know being put on respirator. So we have.
Sorta end to end analytic that can be utilized from a control tower standpoint, and then finally, just a whole technology capability allows for us to share best practices.
Do you think about treatments to do you think about drugs leveraging all that data we can for the most part provide real time sort of.
Sticks around you know, what's working the best and and get that information into the hands of our providers as quickly as possible.
So we through from this to an theory is then safe to assume that yeah. The P.S. <unk> the energize over the next few coronary.
Giving everything going on between point to decision.
We're really really excited about the our safety solution then the investments that our teams, but making over the last couple of months and very very specifically the last eight weeks then.
You know, bringing all these data scientists sort of Florida filled out. These models. So like I said were incredibly excited about our check stuck in our control tower capability and then on performance on the advisory services, obviously, there's Ah with the building up the models.
Help our health care system post cold it and you know obviously, there's a lot of opportunities for us to help them drive improvements.
Yeah.
I'm I'm not going to follow up on the G.P.S. added business.
That.
Yeah, <unk> partial and housing at the G.P.L. business or a certain houses down to scale like everything going on during the pandemic.
See any early indications that client calling on these initiatives and things like me. This is <unk>.
Right right then.
Yeah.
Well the engagements we had that were ongoing in that state are continuing I think the pressure on Charleston, <unk> pressure on financial performance analysis on.
Will continue to make them open to.
Yeah, more comprehensive ways to help them get back to normal. So we're continuing as I sat in my comments to to move for him at the end to end.
Supply chain management and end to end enterprise analytics.
Hey, Thanks, Yeah.
Hey.
[laughter].
Yeah.
Research.
Down here and thanks for your afterwards.
Morning, Mike a question for you you've talked about my chain dependency for quite some time and I know today, we've coverage from the short term efforts, but I have to imagine from the changes that come from the situation that we're going through may extend over years, and if we really want to add.
Zillion see this can be five or 10 year efforts. So my question is is it right to think about it in terms of efforts they really need be implemented over the longer term and does this lead to upward pressure on input or operational costs is there a tradeoff.
Queen resilience and costs that has to be expected.
Yeah. So let me let me just Eric you you've heard me say this but you know the way that that we've been describing this as sort of infrastructure build out to Dido for my National economy standpoint. So you know the one dot o. was the whole notion of building up roads, an infrastructure to get the economy back working a number of years.
As you go.
This is sort of to to put two dot, Ohio building out this manufacturing infrastructure, you know domestically and and if you think about it just think of pharmaceuticals right. So you know what we saw a about a month ago in India. When you know they basically said you were no longer there were no longer got a ship or <unk>.
Doubly important vitamin supplements are those.
Because the thing in the middle over those.
Or they get really sort of you know sparked a lot of concerns rightfully. So that we've got this incredible dependence not only.
Finished goods manufacturing outside the U.S., but also these active pharmaceutical ingredients and other eight and other ingredients that go into the the finished product point of all of that is we over the last five or six weeks of doesn't really understand.
And it country of origin for a lot of these critical product.
Those products that are either in short supply or that are going to be needed and future. You know epidemics, we're highlighting and ensuring that you know those those products can either be produced you know domestically near shore or you know in some cases, where there's some resiliency endless supply chain you know overseas. So I think you're going to.
<unk>.
Significant push both short middle in long term for that and and the same regard for you know obviously P.P.E. It you know not just where the finished product that being manufactured but the the raw materials as well one of the things we're probably keep finding out is the raw materials Fry. So <unk> you know was for the most per country.
Traded five major manufacturing facilities in southeast Asia. There was some here obviously in the domestically, but not not enough to meet the needs of the system. So it's identifying where those raw materials are being produced as well to answer your question around cost I think with any system as you add more resiliency and more we've done.
See you are going to add obviously costs to that system, and so you know where but but quite frankly, it's it's not you know we're going to have to do these things. So efficiently. So what we're thinking about is obviously, creating a bottle that.
You know leverage is that the domestic needs that we think are going to have to be built out doing more near shore production of products as well. So you know maybe leveraging on some.
Trees that have lower cost opera options here that are near shore and then obviously, okay set of my prepared remarks will still leverage low cost markets. You know so that we have a blended rate. So it's not [noise], obviously moving from you know one total cost structure you know.
I'll be station to domestic but it's really spread across those three or so I just talked about.
It's helpful. Thank you.
Thank you.
Your next question isn't at Caldwell like thing or.
Hey think say good morning, Thanks, guys I have two questions first for Susan second for Craig Susan and this one should be easy I think the answer is.
Either I know are largely a no but.
Is there anything in the cares act or other stimulus or regulatory change that directly impacts premiere.
There's not much Eric from I 75 per second that directly impacts Premier Kragh I don't know if you want to give any additional highlight.
Yeah, I mean, we've reviewed the provisions there are some income tax benefits that won't get Eric as a result to certain subsidiaries and being able to take advantage of the net operating loss carry back provisions that were incorporated but but nothing from us stimulus standpoint, that's rounded to correct.
That's right when I thought Okay, and then Craig My my follow up for you.
I'll just asked directly you're direct sourcing business. Obviously is you know a shining light at the moment, especially given the volume slow down you're going to C.N., an admin fees could you give us a sense of what you're modeling for fourth quarter revenue and then perhaps parse out aggregated.
Vice versa sourcing and finally.
[laughter] what will be in the upper end of the range and actually could exceed but it will depend on how much demand, we see and what sort of taking some of that P.P., we see through the balance of the fourth quarter. So the majority of our direct sourcing business.
I was continued to be the ongoing premiere pro you know.
Use some commodity products not these aggregated.
[laughter] purchases, but we have seen a ramp what I can tell you is that in the third quarter, we did deployed.
About $29 million up capital to to advance by product that has been pushing through in the in the fourth quarter. We deployed another 21 million. So we put about $50 million up capital Wow in order to get more product moving forward and will continue to look for those opportunities, but really can't get us specific cues for projection.
Learned that from a standpoint of margins are actually over the past couple of quarters.
We had talked about a year ago about some of the operationally improvements that needed to be put in place in that business.
Hadn't been having tremendous success with that and so actually hadn't seen margins are continuing to improving the direct sourcing business I think the impact we've seen as a result of Cogan 19, I talked about this.
The little bit in my prepared remarks, I do think we'll see a compression and margins in q. for primarily due to our decision to x., but I.
The the transportation and product over here, so as opposed to kind of the normal course, you know putting it on an ocean liner there were other expedited transportation vehicle she used to get stuck here more quickly which is more expensive. It was the right thing to do that's not a long term permanent solution, but I do think that we will see lower margins and.
<unk> from our direct source in business.
Extremely helpful. Thanks very much.
[laughter] thank there.
Your next questionnaire tendencies in <unk>.
Sandy [laughter], Hey season, I'm, taking on your name sounds [laughter]. So I'll I'll try to keep this paper I. Appreciate you got staying on over the hour maybe for for you, Susan and or Mike looking at Crystal ball.
And I don't know to even have the historical numbers when I'm just thinking about you no longer term <unk> budgets for hospitals, you know where they so not like what's going to be spent but where they allocated dollars. Historically, yeah. I think a lot of it was towards bricks and mortar and now they're silly do you think this event.
Will change may change the size of the pie, but just slices of the pie do you see different changes in terms of how people start to the hospitals start to allocate their capital going forward and maybe think about their cap altercation differently than they have over the past 10 15 years. Thanks.
You know, it's funny I saw somewhere sandy that that somebody said that let covert 19 will really do is accelerate trends that were already under way and so the trend for <unk>, how that trend for ambulatory settings that trend for globally, managing a population more efficiently.
Makes me think that you know bricks and mortar bricks and mortar inpatient and you know declining in the trend to technology enterprise analytic, having the visibility to supply and demand.
Having a natural language processing I think it you know I think I tea and enterprise investment.
<unk> capabilities and investment and then infrastructure investments to manage population.
Those are those are the kinds of things that I think he'll continue to see and and you know potentially those will accelerate while sort of the brand that breaks and more the only you know sort of mitigating piece to that yeah [laughter] married he their patients.
With with some of these pandemics and and clinical conditions and so.
We're sort of we're looking at both sides at the same time, but I do think it will accelerate the trends that were already underway.
Great. Thanks, so much.
Thank you.
Okay, I think that was our last color. So thanks, everybody for joining us and staying on a little bit longer we look forward to talking with all of you and that coming weeks and months.
And stay safe and healthy banking.
Ladies and gentlemen is complete today's conference call. Thank you for participating you may now disconnect.
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