Q1 2022 Premier Inc Earnings Call
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Good morning, and welcome to Premier's fiscal 2022 first quarter results conference call all participants will be in listen only mode.
Do you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to you.
Angie Mccabe Vice President Investor Relations. Please go ahead.
Thank you and welcome to Premier's fiscal 2022 first quarter call. Our speakers. This morning are Mike Alkire, our president and CEO and Craig Mckesson, our chief administrative and financial Officer before we get started just a reminder, that our earnings release and the supplemental slides accompanying.
This conference call are available in the Investor Relations section of our website at investors Dot Premier Inc. Dot com.
Our remarks today contain certain forward looking statements and actual results could differ materially from those discussed today. These forward looking statements speak only as of today and we undertake no obligation to update them factors that might affect future results are discussed in our filings with the SEC, including our most recent form.
10-K, and our Form 10-Q for the quarter, which we expect to file soon we encourage you to review these detailed safe harbor and risk factor disclosures.
Also where appropriate we refer to adjusted or other non-GAAP financial measures such as free cash flow to evaluate our business reconciliations of non-GAAP financial measures to GAAP financial measures are included in our earnings release and the appendix of the supplemental slides accompanying this.
This presentation and in our earnings form 8-K, which we expect to furnish to the SEC I will now turn the call over to Mike Alkire.
Thanks, Andrew Good morning, everyone and thank you for joining us today.
We are pleased with our first quarter performance, we continued to advance our strategies to help our members and other customers deliver higher quality more cost effective health care and support them through the COVID-19 pandemic.
We're working every day to advance our technology enabled supply chain capabilities and expansion of our pink AI platform to serve our members and adjacent markets and fulfill our mission to improve the health of the community.
We are also proud to play a role in our member health systems ability to care for patients in such a dynamic environment.
The unique combination of our strategic member relationships vast data and technology platform that yields actionable insights and solutions.
And strong culture of highly engaged employees are foundational to our ability to execute our strategy.
Compared with the first quarter of last year total net revenue grew 5% with a 19% increase in supply chain services segment revenue, resulting from us from strong execution in our GPO a direct sourcing businesses as we continue to help our members manage through the pandemic.
And a 5% decrease in performance services segment revenue due to the timing of revenue related to enterprise analytics license agreements in the quarter.
Our adjusted EBITDA grew 10%.
And our adjusted earnings per share increased 12%.
Based on our first quarter performance and outlook for the remainder of the year. We believe we remain on track to achieve our fiscal 2022 guidance and deliver long term sustainable growth.
<unk> will discuss our operational and financial results in more detail.
We continue to operate in an environment characterized by new and emerging challenges, including rising inflation.
Creased raw material cost supply chain disruption and labor shortages.
Through the combination of our strong member relationships and technology based solutions, we are able to identify a.
Potential market uncertain uncertainties.
Sure options.
We believe we are uniquely positioned to help our members and other customers navigate these challenges.
More specifically the global supply chain continues to experience unprecedented disruption.
Which are affecting multiple industries, including U S health care.
The market is experiencing an array of bottlenecks that could result in shortages of certain products.
However, we continue to take a leadership role in helping our members and other customers identify and act on vulnerabilities, while preparing for the post pandemic environment.
We also continue to work on creating a more resilient health care supply chain through a number of investments partnerships and collaboration and.
In September we announced that we co invested with 11 of our member health systems and sell off pharma sciences to enhance and support U S based drug supply and manufacturing.
We believe these efforts differentiate premier in the marketplace and reflect the long term strategic relationships, we have with our members.
The pandemic highlighted.
We had accelerated the need for technology based solutions to promote resiliency and long term sustainability of the U S health care system.
We continued to demonstrate the value of our offering.
For example, through our artificial intelligence and other technology based capabilities, we could predict potential disruption and shortages to enable better preparedness.
This is just one example of the timely and meaningful solutions, we offer through our comprehensive technology and services platform.
Inc.
Launched in August the Pink brand.
Brent has been favorably received by providers in adjacent markets.
Including payers employers and life Sciences companies.
We believe this closed loop platform for continuous health care improvement has the ability to help providers stabilize their business.
For example, health systems across the country are facing a labor and staffing crisis.
With our technology based solutions combined with our GPO and supply chain offerings, we are helping them manage through these issues.
For instance, Pinky I Leverages machine learning to predict in war, if a clinical department is at risk of a near term labor shortage.
It further supports health care providers with benchmarks to identify areas of opportunity where leaders may need to adjust staffing.
The consulting arm of PKI helps providers manage and implement effective labor management solution.
By automating manual time consuming processes, such as prior authorization and invoicing and payables.
I can say providers and other health care organizations time and expense.
Our G. P. O also offers national and local contracts that help our members control the costs of full time and contingent staff.
And our supply chain services offers co management of health systems supply chain operation.
We are committed to supporting our members and finding innovative ways to solve for these and other related challenges. So they can continue to do continue to deliver high quality and cost effective patient care.
We also continued to advance our environmental social and governance or ESG effort.
A few weeks ago, we published our first ever sustainability report.
Highlighting our many practices and initiatives aimed at improving health care building Trust operating responsibly.
And positively impacting community.
Further demonstrating our commitment to sustainability ESG oversight has been elevated to our board of directors with dedicated responsibilities delegated to the board's nominating and governance Committee.
Our focus on incorporating appropriate ESG practices into our business remains a priority.
<unk> for the long term successful premier but for the good of our members other customers and the communities we serve.
I would like to take the opportunity to invite you to join our virtual Investor day that is scheduled for the morning of November 17.
During this is that we plan to provide more insight into our strategy to leverage innovative technologies, including AI and machine learning to drive long term sustainable growth and deliver value to our stakeholders.
We are excited about the future and look forward to sharing more details with you in a couple of weeks.
I will now turn the call over to Craig Mckesson for a discussion of our operational and financial performance and some comments on our fiscal 2022 financial guidance.
Thanks, Mike for the first quarter of 2022, and as compared with the year ago first quarter total net revenue was $365 1 million an increase of 5%.
Supply chain services segment revenue was $276 8 million, an increase of 9% and performance services segment revenue was $88 3 million a decrease of 5%.
Our supply chain services segment net administrative fees revenue increased 13% compared with the first quarter of fiscal 2021 due to current year growth as well as a less significant impact from the COVID-19 pandemic compared with the first quarter of last year.
Certain categories in our GPO portfolio, including our food program grew significantly as demand across the acute and non acute markets return to more normalized levels. The.
The addition of new members and further penetration of existing members spend in the quarter also contributed to quarter over quarter growth.
Products revenue grew 3% from the prior year quarter. The increase was mainly due to higher demand for commodity products, partially offset by lower demand for PPE and other supplies as a result of the current state of the pandemic relative to prior year.
In our performance services segment revenue declined in the first quarter, primarily due to the timing of revenue associated with enterprise analytics license agreements in the current year compared to prior year.
This impact was partially offset by our ongoing efforts to expand into adjacent markets as well as growth in our consulting business.
As a reminder, and consistent with previous commentary, we may experience periodic variability across quarters in performance services as a result of the manner in which revenue was recognized on enterprise analytics license agreement.
Which typically results in a significant percentage of the total contract value being recognized in the quarter in which the agreement was signed.
Overall, we believe we remain on track to achieve our initial expectations for performance services physical 2022 segment net revenue of 395 million to $420 million.
With low to mid single digit growth in our health care provider revenues and approximately 25% year over year growth in our adjacent markets.
With respect to profitability GAAP net income was $121.3 million for the quarter.
Adjusted EBITDA of $121 7 million in the first quarter increased 10% from the same quarter a year ago as a result of the following.
Supply chain services, adjusted EBITDA of $129 3 million increase quarter over quarter, primarily due to increased net administrative fees revenue.
As well as increased revenue and profitability in our direct sourcing products business.
Performance services segment, adjusted EBITDA of $23 7 million decrease from the prior year quarter due to the decrease in revenue as well as increased selling general and administrative expense primarily related to additional headcount to support growth in contango help.
Compared with a year ago quarter, adjusted net income increased 13% to $79 1 million and adjusted earnings per share increased 12% to 64 cents.
From a liquidity and balance sheet perspective.
<unk> flows from operations for the three months ended September 32021 was $55 2 million compared with $30 8 million from the prior year.
The $24 $4 million increase in operating cash flows was mainly due to a $14 $3 million increase in cash received as a result of higher revenue primarily attributable to net administrative fees in the current period.
And a decrease of $71 million in costs, primarily driven by higher demand a P. P E. In the prior year period as a result of the COVID-19 pandemic.
These increases in operating cash were partially offset by an increase of $44 4 million in payments of operating expenses and a decrease of $14 6 million and income tax refunds.
Free cash flow for the three months ended September 32021 was $11 2 million compared with a negative $28 4 million for the same period a year ago.
The increase was primarily due to the same factors that affected cash flow from operations.
A decrease in purchases of property and equipment.
And the elimination of tax distributions to limited partners offset by payments to the former limited partners in connection with the termination of the tax receivable agreement as part of the company's August 2020 restructure.
As a reminder, free cash flow is typically lowest in the first quarter given that our fiscal year ends in June and payment of certain expenses, including annual employee incentive compensation occur in the first quarter.
Cash and cash equivalents totaled $184 4 million at September 32021, compared with $129 1 million at June 32021.
Our five year $1 billion revolving credit facility had an outstanding balance of $175 million as of September 30th and $50 million was subsequently repaid in October.
We are focused on taking a balanced approach to capital deployment and our priorities remain twofold.
First we expect to continue investing in the future growth of our businesses. This could include a combination of organic reinvestment in our businesses to drive growth as well as acquisitions and other investments to strengthen enhance or complement our existing capabilities and differentiate.
Our offerings in the marketplace.
And second returning capital to our stockholders.
In the first quarter, we repurchased approximately one 1 million shares of our common stock for a total of $42 $6 million and paid quarterly dividends to stockholders totaling $24 9 million.
In addition, our board of directors declared a dividend of <unk> 20 per share payable on December 15, 2021 to stockholders of record as of December 1st.
With respect to our fiscal 2022 guidance.
On our first quarter performance and outlook for the remainder of this year we continue.
You do expect total net revenue to be in the range of 1.32 billion to $1 four 3 billion and adjusted EBITDA to be in the range of 483 million to $500 million.
We are increasing our previous guidance range of $2 50 to $2.60 for adjusted earnings per share to a range of $2 56 and two.
The $2 and 66%.
As a result of our expectation that our effective tax rate will be approximately 21% compared to our previous expectation of 23% for the full fiscal year 2022.
The decrease in our effective tax rate from our original expectation is due to the additional release of valuation allowance on deferred tax assets associated with current year utilization of historical net operating losses as a result of an anticipated plan to reorganize and simplify our.
Subsidiary reporting structure or the end of the second quarter of fiscal 2022.
The effective tax rate could potentially fluctuate in future periods as a result of changes in our projection for ordinary income as well as any incremental release, a valuation allowance on deferred tax assets.
And as previously discussed we do expect our effective tax rate to return to a more normalized 27% level beyond fiscal 2022.
Our adjusted earnings per share guidance includes the effect of $1 1 million in share repurchases through September 32021, but does not include the potential effect of any subsequent share repurchases during the remainder of fiscal 2022.
Finally, as we look forward to the remainder of fiscal 2022 and beyond we remain excited about the path. We're on and are focused on executing our strategy to further strengthen grow and position premier for sustainable long term success.
In addition, adjusted for the impact of the COVID-19 pandemic, we remain committed to achieving our targeted multiyear compound annual growth rate of mid to high single digits for total net revenue adjusted EBITDA and adjusted earnings per share, which we plan to tell you more about during our investor.
And then on November 17th.
Thank you for your time today, we'll now open the call up for questions.
We don't now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing a key to withdraw from the question queue. Please press Star then two.
Our first question is from Eric Percher Nephron Research. Please go ahead.
Thank you maybe just start on performance services, Craig could you give us a little bit more on what you've called the timing of enterprise analytics I understand the element of high recognition. This year you made a comment about relative to the prior years and I want to make sure I understand.
What were some of the headwinds that we saw last quarter for performance services versus what Youre seeing this quarter and make sure I understand the difference between the two.
Sure Eric Thanks for the question first of all to clarify not compared to last quarter, but the year ago first quarter and so relative to timing. It is simply a function of when do we actually execute these agreements they are and do tend to be more complex and more all in in terms of the applications that are healthy.
Providers engaging with and and we have we did have a significant enterprise license agreement in the first quarter of the prior year and the timing of executing it didnt occur as we originally anticipated in the first quarter this year, but still on track from a full year basis.
Okay, and then as we think about the performance services margin cadence clearly that recognition will will flow through.
On that are there other elements that you think are important to understand relative to margin over the course of the year.
Nothing I would call out specifically, Eric we would still expect adjusted EBITDA margins to be in that mid <unk> range, which is what we've traditionally talked about that segment performing at obviously due to the the revenue shortfall. The margin was lower in Q1, but we would expect that to sort of.
<unk> ramped back up and be relatively consistent across the remaining quarters of fiscal 2022.
Thank you.
The next question is from Kelly interesting of Credit Suisse. Please go ahead.
Yeah. Thank you and good morning, everyone plus the one for Greg.
To reconcile our fiscal Q1, net admin fees revenue of around $150 million and the guidance is 570 to 519 million for the whole full year based on historical trends fiscal Q1 is generally the seasonally weakest quarter for you guys from net admin fees point of view.
So guidance seems to imply some moderation here can you help us reconcile that that's why the guidance is unchanged with that Q1 number.
Sure. It's obviously still early in the year. After one quarter. We did have a very strong first quarter, but continue to monitor and watch whats happening from a demand and a utilization standpoint, while for the most part it appears that utilization has returned to pre pandemic levels. There's obviously a lot of questions out.
We head into the fall in certain cases elective procedures being delayed things of that nature. So we do expect a little bit of moderation as we go into the back half of the year. We had talked about the fact that you know we're through this the restructuring and the renewal of the agreements that we'd had in place we did have a couple.
A small number of members that elected not to continue with Premier and we will see that impact in the back half of the fiscal year.
Oh, I can even give us some sense on just the funnel there are some sense on the revenue impact of those members who discontinued.
Now obviously, we don't call out individual contract contributions what I would tell you is that overall, our GPO performance will be relatively consistent across the quarters, but some slight moderation into the back half of the year as those couple of members.
Ramped down.
Okay, and then one.
Final photo Mike Thanks for all the color around how Pinky I add some value for you to provide declines but you also mentioned that payers employers and life science companies are leveraging AI platform can you elaborate more on the value proposition of this technology John race for these non provider partners.
Yeah sure. Thanks for the question so.
So just as a quick reminder, our pink AI platform.
Really is our focus on our clinical decision support leveraging our machine learning and AI and natural language processing with our wrap around advisory services business that really helps our health systems drive higher levels of performance in the adjacent markets to your question.
Our initial focus really with payers is all around prior authorization. So a lot of those use cases, we're working with our health systems around.
To help them manage.
Imaging for example high cost images more effectively there is opportunities for us to leverage that same technology in that same capability.
From a prior authorization standpoint for the payer market and then for the life Sciences market. We've also been able to leverage that technology platform.
For a couple of in a couple of different ways one.
Obviously to extend our ability to drive real world evidence as it relates to supporting health.
The pharma companies as they're thinking through launching.
Watching new therapies, but secondarily, it's also to identify patients.
Who would be potentially you know good for drug trials. So that's that's the sort of the novel opportunity there, which is really all about patient identification for life Sciences.
Great. Thanks, guys.
Thank you.
The next question is from Kevin Kelly and out of UBS. Please go ahead.
Thanks, and thanks for taking my call.
I have a broad question about sort of the whole supply chain and how things are operating.
And what what impact that has on you and your customers and the manufacturers that we see all these delays and we read about shipping costs and the like are you seeing material inflation coming from products O U S or even inside the U S and how does that impact you like how does that inflation are you able to pass it through does it.
Impact the hospitals does it impact the manufacturers more.
If we think about the whole supply chain who's most at risk from from this and how how would you is it really at this point.
Excellent question, Kevin So let me just frame up your question with a bit more detail a bit more background.
So we're having record congestion at the major U S ports as you've suggested.
This is being exacerbated by the seasonal sort of consumer goods purchasing.
Are happening today.
Record freight and transportation costs.
Or you know what.
At all time highs.
Increased pricing and lack of availability of raw materials for manufacturers, including some like semiconductors.
And residents are also impacting our inflation for a number of products.
And then we're having these issues associated with labor.
The high cost of labor and so that that's sort of the backdrop, which you're asking the question in terms of our response.
A number of ways that we're working through how to deal with is first we're expanding our partnership with whereas the lake, which obviously helps us with creating more efficiency in the supply chain.
We're expanding our domestic capability for PPE, where we don't necessarily have that expense associated with a lot of that congestion in logistics that I just spoke about and so obviously, we're expanding with you know think about prestige miratec in Honeywell to royall.
Excel of Pharmaceuticals.
And then also as you think about you know where are we sort of sit in the supply chain.
Many of our contracts are actually have price protection and there was obviously resiliency language in those so.
So at this point, we've been able to make a a lot of.
The request to increase pricing at this point I've been on a number of calls with suppliers, who have been requesting increases.
So far up to this point a majority of those.
[noise] suppliers, we've you know along with our members have pushed back and said you know we're going to ask you guys to continue to eat those because at.
At the end of the day, it's our health care systems that has the lowest margin in this entire channel right, they're operating at very low single digit margins.
From a performance standpoint, and they can absorb these costs. So we're actually pushing back and we're having the expectation that the suppliers are picking up that those increases that are occurring yeah. Mike. This is Craig the only thing I would add taken.
Taking it up levels I think there is some shared accountability and responsibility across the ecosystem. So as Mike said, we're doing everything we can but yes. There are some situations, where it's warranted and inflation is needing to be pass through.
But but as Mike said it can't be all of the health system. So the manufacturers are also having to lean into this problem and help kind of the industry overall collectively manage through it.
That's really helpful and just sort of a follow up one of the trends that we're seeing and hearing a lot about is the shortages.
Within the health systems, and how it's affecting demand or their ability to meet demand are you seeing that have you modeled in anything for a slowdown in procedures due to.
Due to shortages of other employees attacks of nursing.
Whomever that are limiting hospital systems from doing what they might normally be able to do it.
It's a great question, so far we've not modeled any of that in.
For any of our numbers, having said that I was on a call a couple of weeks ago with an executive of one of the health systems that.
Is looking to potentially shut 10% to 15% of their capacity now because they don't have access to the labor so little bit different issue, but similar in terms of them just being able to access the labor to provide the procedures.
Is that a geographic issue or is it do you think that stomach no no no. So far it's very very isolated geographically.
Okay. Thanks.
Thanks, so much thank you.
The next question is from Matthew Shea of Piper Sandler. Please go ahead.
Hey, Thanks for the question guys. So you guys have been winning a lot of incremental deals on the GPO side was just wondering what's been driving that is it the supplier contracts do you just kind of walk through or is it kind of this add on technology and performance service capabilities I'm wondering kind of where that strength is coming from yeah. Thanks for the question. This is Mike So I think it's three.
Things first.
I think we're winning because we have a much broader portfolio and that goes part and parcel with our investments in technology over the past couple of years, because we've made some of the investments and ideas and originally in the met price or we are able to contract for far more than.
Our competitors are able to contract for it. So that's number one and breadth of the portfolio number breadth of the portfolio. That's number one number two.
I will tell you that our capability around direct sourcing our vertical integration.
Where you know during the pandemic, we had a number of obviously shortages that were occurring.
We were not only able to you know to support our members, but towards the middle and the end of <unk>.
Last year, we were able to support you know some non members and that led to an opportunity for us to put that.
To recruit.
Folks from our competitors that was a number to it but that direct sourcing I do think is significantly differentiated.
I will say the last one really is focused on our technology enablement and our ability to really identify.
Everything that's come again to the health system, that's non labor oriented non labor cost oriented.
And I do think that that's a huge advantage as we're able if we don't have contracts, we can help them with price benchmarking.
And those kinds of things and then finally, I said three but I got one more I do think we're getting a lot of expansion in our committed program. So our surpass program in a sudden program are continuing to grow.
And continuing to really play out in terms of having best in market pricing, Mike not to pile on but the last one I would quickly add is I do think that the nature in which are our field force builds relationships and the embedded way that we own results with the members.
Actually out there a reinforces the long standing member relationships, we have but also think it's a differentiator in terms of recruiting new business vis vis our competitors.
Got it Super helpful. Thanks, Thank you.
The next question is from Stephanie Davis of SBB Leerink. Please go ahead.
Hey, guys congrats on the quarter and thanks for taking my question. So I've got a very broad question and then a relatively specific follow up on the macro backdrop.
First we've seen some broader positive trends in the performance services business, but historically, it's been a bit of a glad I got asked that.
Now it sounds like from your prepared remarks, you may have spent some time on strategy how did the analyst day.
I was hoping you can give us some broad strokes outlined on your top strategic calls for performance services going forward.
Yeah, So just broadly performance services.
You know I think thats, the whole nature of embedding that technology of the machine learning.
The natural language processing.
Truly does differentiate our assets so in the past, we've always had great data and great integrated clinical datasets with labor.
Our clinical capabilities supply all those kinds of things we provided great insights in terms of performance improvements, but now we're able to actually take those insights and embed those into the workflow. So I do think that that is a broad chassis that we want to grow from.
And then obviously.
We have continued we've seen continued improvement with our advisory services business. So that's related to the health systems and then in the adjacent.
Jason markets.
We're getting very good at you know these solutions as they you know sort.
Sort of play out in the with the health systems from an improvement standpoint, taking those and transferring those to the other industries like for payers and that sort of.
Is illustrative to the focus on prior authorization and our focus.
Around high cost images were doing that that worked with our health systems and now we're able to take that over to the payers are built out prior authorization models.
And that value to those payers is really reducing a.
High labor costs, because we're automating that entire function and then as I spoke a little bit earlier in life Sciences, It's also lending itself well.
Around patient identification, we do think we have a very very unique offering because at the point of care we now.
Can you know as a physician is sitting down with the patient and they're talking about.
Progression of the management of the disease, we now have the ability to show at that point of care, whether or not a patient you know given their lab values or screens or.
Some of the other characteristics of the patients.
Just their wellness, whether or not that they would be good for a.
Drug trials. So we do think that that's another big opportunity and then of course, leveraging all that technology can Chico health and that's also showing some really really nice traction in the industry. As we began to you know continue to grow that that asset that helps our health systems work more closely and effectively with.
Employers.
Super helpful and then on on the specific macro question side.
We've talked a little bit about the puts and takes of the supply chain disruption, but I was wondering just final quick thing hub.
He brings a new GPO entrants or GPO and housing at the health system back given the amount of supply chain disruption.
It's such a it's a good question and I'll tell you one of the things I've always challenged our team with Stephanie over the years was if you were the largest idea and you know in the country. What are the services and capabilities that you would never probably investor.
And hence it's it's the way that we've continued to diversify our capability right that continual investment in the technology, the technology platforms, our investment and I'd, yes.
And really automating the point of order extending pricing to non acute facilities those kinds of capabilities. It's our focus on direct sourcing of the partnerships that we're creating for generic drugs and gloves and masks and and ice.
Collation gowns, but it's this focus on doing things at a scale that an idea it would be very it would it would be a stretch for an idea to actually accomplish.
Hey, How's the ambassador for non differentiating assets always Amazes me. Thank you for the color. Thank you.
The next question is from Eric Coldwell of Baird. Please go ahead.
Hey, Thanks, very much I was hoping to dig in a little bit on the admin fees. There's been some mention of net share wins on the call but also.
In your comments you suggested that you've also lost a couple of accounts that might be a wearing off as the year progresses.
Was hoping we could maybe parse out admin fee growth a little bit here what's.
Year over year easy comps, what's net share wins versus loss.
Penetration if there was any way to break these numbers out a little bit to.
To give us a sense on whats sustainable as we look forward over the next year.
Oh, Thanks for the question, Eric obviously with the impact of the pandemic, it's hard to do kind of.
Perfect year over year comps, but a large part of our growth is due to the recovery from where we were a year ago and the pandemic with our existing book of business.
As a reminder, and we've talked about this over the past few quarters. We went through the large restructuring last August where we renegotiated the agreements with 90 plus percent of our health systems and put those in place for the next 567 years. There were a small subset that did not agree to that restructuring at the time some of which have subs.
So currently renewed but their revised terms went into effect. After the end of the first quarter. So that's going to affect growth moving forward compared to last year when they were under the old historical agreements.
Transparently. We've said this we had a couple that through that evaluation due to M&A due to relationship changes decided to depart and go to a competitor you know we're pleased with 90 plus percent success on that large restructuring, but we did not have 100%. So those will will ramp down over the next.
Quarter, or so and be gone in the back half of the year.
And then we have had the wins we've talked about recently of unity point Christiana care and continue to have a pipeline and think you'll hear about other new wins in the near future what that means in terms of the full year performance as I mentioned earlier is relatively stable performance quarter to quarter throughout the full year.
With a little bit of you know a small amount of moderation as described by our overall guidance range relative to our first quarter performance, but it's hard for me to say it was X million was this $1 million was this the million with this I will tell you I think the area that we have obviously, Eric a lot of confidence in it is expanding our contracts into our health care.
Systems.
As we acquired idea for when we acquired <unk>, we have now the ability to look at all the different products that are being invoiced.
For our health care system and that provides us just a bevy of information for us to go back and figure out which of those you know.
Things that are being invoiced should be at a national contract level regional contract level of local contract level.
So we do think that that technology is going to continue to provide a bit of a tailwind for us to go after that non contracted spend area no. That's.
That's great. Thank you for that and then another question on the call was about the supply chain challenges and you you mentioned.
Many times being successful in actually asking the manufacturer or the supplier to to step up and eat some of the costs that they're hoping to pass through.
You also said, sometimes distillation does pass through and I don't think we got a final tally on that one which is what happens to your model in the case when you are.
The supplier has a oh.
A reasonable argument that they need to pass through expense and you agree to that.
Is your customer the one who gets hurt on that and you're getting higher admin fees because the product prices higher are you sharing in the pain, how how does the what's the economic model when that happens yeah I appreciate the.
Question, Eric So it does depend on which part of our business. So so clearly in our GPO, which the majority of our contracts contracts have fixed pricing.
The inflation is not pass through in some cases, there are accommodations made I do want to highlight those accommodations are actually made in consultation with the members. So theres actually a committee of our supply chain executives that evaluate those requests from suppliers and make that determination if theyre going to agree to allow the inflation to come through.
And then in that case and in the area of the GPO, Yes, the price to the member goes up and we would have incremental admin fees because it is a percentage of the purchase price so inflation could help us but our entire reason for being is not to have that happen and to take costs down for our health care providers. So we are very strategic.
And thoughtful about where we allow that to occur and I want to reiterate it is in consultation and determination with the members themselves that those decisions are made relative to direct sourcing. If we have a rock cost increases or things of that nature, then that business needs to make a decision just like any other manufacturer of whether it can pass.
That's through that in terms of pricing or needs to have margin compression and we make that strategic decision. So in some cases, we have had price increases on products through our direct sourcing business. In some cases, we have decided to hold pricing firm not increase it for the member and have had to absorb the margin within the business itself.
That's a very helpful answer and I guess, I'm, probably pushing the limits here, but could.
Could you give us a net answer you know overall, giving summer.
Some are some are eaten some are pass through in both segments is it overall winding up to be about net neutral to the company or slightly positive slightly negative.
I would say, it's generally Mike may have some color here, but relatively net neutral I will tell you that in the GPO, we hold firm as much as possible and do not routinely allow every suggested price increase to come through as Mike mentioned earlier. These health care providers are operating at very low margins. They don't have a lot of room to.
So orbit indirect sourcing we continue to be thoughtful in managing I would say that it has had relatively a net impact in terms of slight price increases in some places, but doing our best to help the health care providers get what they need at the lowest possible cost to continue to serve patients.
Thanks, Craig and last one for me.
I think I heard you say that you expected tax rate of 27% after fiscal 'twenty two.
Yes, we would expect a more normalized rate based on current tax law and the 27% range.
Beginning next year, that's consistent with what we articulated when we established guidance at the beginning of the year as well.
Hey, good thank you very much.
The next question is from Richard close of Canaccord Genuity. Please go ahead.
Yeah. Thanks for the question Craig you mentioned some restructuring in terms of the subsidiaries and.
Do you expect any charges in the upcoming quarter associated with that just for clarity.
Wouldn't expect charges Richard its really just.
Subsequent to the August 2020 restructuring we did of the business. We've continued to look at the legal structure of the business and looked at opportunities to simplify that.
And so it's really just.
Doing some regular subsidiary cleanup at this point, it's not that there's something that there's going to be some sort of restructuring charge related to.
Okay. Thanks, and then on the GPO clients.
Obviously decided to leave.
A common theme, there essentially or any additional details.
Yeah. The common theme I would tell you was for the most part change in management so.
If you know typically.
No.
We've been working with somebody for a longer period of time, we've been demonstrating value we've been embedded in there there were sort of their culture of how they do business.
They're sitting on our committees they are participating in our strategy.
Craig said, they actually make the decisions on who we contract with what do we have price increases all of those kinds of things, but if they're committed and they're involved in the business then I will tell you there.
Uh huh.
Lock stock with Premier if management's changed leadership has changed and they're not at that level of involvement then I would say those are the folks that have always been at risk yeah, and the only color I would add to that and I think you might expect this given that we were successful in renewing the vast majority of our members longer term our comp.
Petition was incredibly aggressive and a very small subset that didn't get done and in some cases, we weren't willing to enter into what would have been required to retain the business because it didn't make sound business sense.
Because if that's fair. Thanks, and then my I guess my final question Craig.
You laid out the long term.
The high single digit growth.
Can you just remind us like how you're thinking about the growth rates in the different segments or different components.
Sure So and I think we will get into more color on this at our Investor day in a couple of weeks, but at a high level. What I would tell you is on the supply chain side of our business two major business lines, our GPO and our direct sourcing business. We would expect GPO to continue to be more of a low to mid single digit growth business longer term.
Term as it has been historically the way we anticipate obtaining that growth continues to be through expanding the available spend under contract.
Through penetration into new and expanding areas like purchase services capital in construction and other things other markets things of that nature in the direct sourcing business. We would expect it to be high single to low double digit growth longer term as we continue to identify further penetration opportunities and selectively look for expansion into new.
Product categories. The combination of those two is what gets us to the mid to high single digit topline growth and supply chain in the performance services business. We expect mid to high single digit growth that as we've talked about will be a combination of likely low to mid single digit growth in the kind of core historical provider.
Footprint and then the emerging growth that we continue to see the approximately 25% growth that we guided to for this year in those adjacent markets. So as we ramp up the.
Life Sciences, the clinical decision support the Ah.
T go health direct provider to employer network, and remit truck or electronic invoicing and paint.
Payment processing capabilities, those higher growth rates combined with the more mature growth rate in the health care provider footprint will give us the mid to high single digit topline growth in performance services.
Great. Thank you.
The next question is from Michael Cherny of Bank of America. Please go ahead.
Hi, This is Allen Lutz in for Mike.
I know, it's pretty early but I was wondering if you had any thoughts around the flu season here, what youre hearing from customers and sort of how it would compare to 2019.
Yes. It is hey, Alan this is Mike It is early.
Got hearing.
Much back as it relates to the flu season as of yet.
I think theres speculation of will it be an aggressive flu season, because you know a lot of people didn't get sick last year.
Antibody immune.
Immunity, maybe down et cetera, but it's early to tell I think generally also it is important to note that relative to our business flu hasn't traditionally even in bad flu years on the margin. It may create sicker patients that creates some issues, but broadly you know flu patients arent typically in the high <unk>.
Supply intensive cases, so it doesn't tend to materially affect our business one way or the other.
Sure that makes sense, and then going back to the outlook for elective procedures. Mike I think you mentioned that there were some isolated capacity constraints, but I guess kind of comparing where you are today versus 90 days ago does it seem like the outlook.
You know in the entire United States, it's better for elective procedures and it was 90 days ago. It is absolutely. So I would tell you the outlook is much more favorable than it was 90 days ago.
Just as you know and I will always say it is a.
The deliberate or that we're working through right now is labor.
But from a just from a supply standpoint from an availability standpoint is.
Fewer people are you know in the health system with Covid, obviously, those electric procedures are picking back up to pre COVID-19 levels.
Got it. Thank you. Thank you.
This concludes the question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.
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