Q3 2022 Premier Inc Earnings Call
Hello, and welcome to the Premier Inc. Fiscal 2022 third quarter results and conference call.
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Thank you and welcome to premiere fiscal 2022 third quarter call.
Our speakers. This morning are Mike Alkire, Premier's, President and CEO , and Craig Mckesson, our chief administrative and financial Officer before we get started I would like to remind you that our earnings release and the supplemental slides accompanying this conference call are available on the Investor Relations section of our website at investors got 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 and we encourage you to review these filings, including our 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 presentation and.
Our earnings form 8-K, which we expect to furnish to the SEC I will now turn the call over to Mike <unk> Mike.
Thanks Sanjay.
Everyone and thank you for joining us today.
As we expected our third quarter results reflect the continued normalization of our direct sourcing revenue within our supply chain services segment toward a pre COVID-19 pandemic level.
Our performance services segment results were affected by the timing of revenue associated with enterprise analytics license agreements.
The quarter as compared with the prior year quarter.
Notably our adjacent markets and consulting businesses are expected to continue to grow this fiscal year and we believe our adjacent market businesses collectively are on track to exceed 25% growth on a year over year basis.
So aside from a couple of transitory items, our core underlying businesses continued to deliver steady growth and we are making progress and further positioning our business to achieve our longer term growth objectives.
And importantly, as we begin to wrap up our fiscal 2022 based on our results for the first nine months of the year and our expectations for the fourth quarter. We are increasing our full year adjusted earnings per share guidance to a range of $2.48 to $2 58.
Sets.
This morning, I'll provide some brief comments on the macro environment as well as highlights on the progress we are making towards achieving our longer term objectives. Craig will then review our operational and financial results as well as our updated fiscal 2022 guidance in more detail.
From a macro perspective, we continue to operate in an environment affected by rising inflation labor shortages and supply chain disruption and increased raw material costs.
While the COVID-19 pandemic appears to be abating in the United States. We are closely monitoring the spread of Covid cases, and Lockdowns in China.
Sports are operating at lower levels of productivity due to a lack of dock workers and trucking capacity has also been reduced.
In an effort to mitigate disruptions some shippers are switching their cargo to nearby ports.
Over the coming weeks, we anticipate further transportation delays, resulting from Lockdowns and increased COVID-19 testing across China.
While we have contracted suppliers that manufacture and export goods from this region.
Including our own direct sourcing company <unk> globally, we have been diversifying our business to reduce dependence on China for a number of years we.
We are also keeping a close eye on any potential impact from a Russia, Ukraine War, which could further stress it already constrained global supply chain as access to certain critical supplies used in the manufacturing process are sourced from these two countries.
We remain in close contact with our supplier base to monitor all the overall supply of semiconductors, which are used in medical supplies such as Ibs.
MRI machines, pacemakers and blood pressure monitors among other items.
We are not currently seeing a drug shortage of shortages of semiconductors in health care and we're not aware of any direct impacts to patient safety. Thus far. However, we believe a proactive approach is warranted to avoid supply shortages and the potential for patient heart. Therefore, we will continue to take a leadership position in working closely with our <unk>.
Suppliers, the government and industry partners in an effort to stay ahead and informed of any potential disruptions.
In addition to the availability of medical supplies, we continue to focus on proactively addressing drug shortages in fact during the pandemic. We have maintained a steady supply of drugs for our members despite demand spikes of 150% and shifts and manufacturing prioritization due to vaccine production.
Moreover, our pharmacy programs have been instrumental in the delisting of 14 drugs from the food and drug administrations shortage list.
We also created opportunities that incentivize nearly 30 generic injectable suppliers to enter the market over the past decade.
In addition, we at 11 of our leading member health systems invested in <unk> pharma sciences to secure and support U S based drug manufacturing and further reduce drugs on the shortage list.
Finally, we have led and advancing policy solutions to increase supply chain security domestic.
Manufacturing and the fda's capabilities to address shortages.
Also we've communicated over the past several years, an overreliance on any one geography for raw materials pharmaceuticals, and the production of medical supplies as one of the biggest disruption risk to the health care supply chain.
We will continue to focus on creating a more resilient and geographically diverse supply chain.
Lastly, as we discussed on last quarter's earnings call high labor costs are impacting our members.
To help address this we convene an advisory committee of more than 30 of our member health system, Ceos, and Cfos, who resoundingly sided labor shortages as the greatest challenge.
We believe and this group confirm that our consulting services and technology platform are well positioned to help our members address these labor shortages.
From our workflow automation technology that saves time and money to our consulting services solutions that enable real time demand and capacity planning, we are delivering critically needed solutions to help mitigate this issue.
I'll now review some highlights from the quarter and provide some insights into our adjacent market businesses with a focus on re metro Pink AI applied Sciences, and PKI technology capabilities, particularly for clinic clinical decision support and prior authorization.
First in every metro our digital payments and financial solutions platform. We are on track with the roadmap we shared at our Investor Day last November to expand our capabilities from automating invoicing to automating payments for providers and suppliers.
We continue to evolve our entire supply chain services business into an end to end technology enabled supply chain solution that can help create efficiencies across the entire supply chain process from the sourcing of products and services to settlement of payments. This is critically important now since our members are feeling pressure from <unk>.
Labor shortages.
We are seeing growing interest every metric from our member healthcare providers and suppliers.
We believe our strategy is a key market differentiator and that Re-met remains on track to achieve 50 million to $100 million in annual revenue in the next three to five years as previously communicated.
Second in our Pinky I applied Sciences business, we have a strong pipeline and continue to partner with market, leading life sciences companies to leverage <unk> artificial intelligence machine learning and natural language processing technology to help close the gap in cancer diagnosis and care.
In partnership with Astrazeneca and through our relationship with <unk>, which is the largest public health information exchange in the U S. We are collaborating to identify patients with idiopathic pulmonary nodules are ips to bring them back into the health system, so that potential underlying conditions.
Including lung cancer, which is the leading cause of cancer step globally can be addressed.
Early results from this work has yielded approximately 140000 patients with Ibm's that would have otherwise been missed.
With regard to PKI. This scalable technology and services platform is the engine behind our innovative solutions designed to meet the many needs of providers life Sciences companies employers and payers pay.
<unk> clinical decision support has natural language processing and machine learning capabilities that our data science experts are leveraging to automate the prior authorization process.
A labor workflow and administrative burden for both payers and providers current prior authorization processes could delay the delivery of care to patients.
Our foundational capabilities and advanced imaging are being used by several payers today and we continue to explore partnership opportunities that we believe will help accelerate our ability to technologically automate every aspect of this process from the time, a clinician enters in order to the moment it is approved.
By a payer.
<unk> the timeline from days to minutes.
In summary, we have positive momentum as we begin to wrap up our fiscal 2022.
Some exciting and innovative opportunities to continue to evolve our business.
We believe we remain on track to achieve our short and long term goals as we continue to enhance our capabilities in new ways and advance our strategies to deliver greater value to our members and other customers.
I will now turn the call over to Craig Mckesson for a discussion on our operational and financial performance.
Thanks, Mike.
As we expected our supply chain services segment and total net revenue declined from the third quarter of last year as we continue to return to a more normalized pre COVID-19 pandemic level in our direct sourcing products business.
While our performance services segment performance was affected by the timing of revenue in the quarter. We believe we remain on track to achieve and for some metrics exceed our previously communicated fiscal 2022 financial guidance I'll provide more detail on our revised fiscal 2022 guidance.
After reviewing our third quarter performance.
For the third quarter of 2022, and as compared with the year ago third quarter total net revenue was $347 8 million a decrease of 26%.
Supply chain services segment revenue was $250 9 million a decrease of 32% and performance services segment revenue was $96 9 million a decrease of 2%.
In our supply chain services segment net administrative fees revenue increased 1% from the year ago quarter, primarily due to further penetration of member spend which was partially offset by the impact from a small number of members that did not amend and extend their GPO agreements as part of our August 2020.
<unk> restructure as previously communicated.
We are pleased that our non acute business is performing well compared with the prior year quarter. This business grew more than 10% and as we communicated at our 2021 Investor Day, We believe it's on track with our expectations to grow faster than the acute business over the next few years.
Within our GPO portfolio certain categories continued to generate strong year over year growth.
These categories include our food program, which continues to return to pre pandemic levels and workforce staffing, where we continue to see high demand due to the ongoing labor challenges in the market.
Within the diagnostics category, we saw less demand for COVID-19 testing supplies compared with the year ago third quarter.
And notably we continue to manage price increases for supplies for our health care providers and inflation did not have a material impact on our performance during the quarter.
Products revenue declined 57% from the prior year quarter and was primarily the result of the normalization of demand and pricing of personal protective equipment or PPE and other supplies as a result of the state of the COVID-19 pandemic relative to the prior year quarter. This do.
Increase was partially offset by ongoing demand for commodity products as we continue to expand our product portfolio and drive increased member adoption.
In our performance services segment revenue declined in the third quarter as compared with the third quarter of fiscal 2021, primarily due to the timing of enterprise analytics license revenue in the current year compared with prior year. This is similar to what we experienced in the first quarter of this fiscal year and is.
<unk> with our general expectation that we may experience periodic variability across quarters in our performance services segment, given that revenue recognition on enterprise license agreements typically results in a significant percentage of the total contract value being recognized in the quarter in which the agreement is.
Find and the technology is delivered.
Notably, both our consulting services and our adjacent market businesses continued to grow in the third quarter compared with the same period last year.
And our consulting services business, our recent focus on strengthening our capabilities and enhancing our sales efforts are producing results, we have significantly enhanced our talent and capabilities in this business and we now deliver a clinically focused technology enabled business model that delivers larger ski.
<unk> more integrated solutions to help drive performance improvement for our customers.
Mike discussed a few of our adjacent market businesses in his remarks, and I would like to highlight contango help which is our direct to employer adjacent markets business. We're very pleased with <unk> performance year to date as consistent with our expectations. It continues to ramp nicely gaining further traction.
Action and its third party Health plan Administration services.
In addition, as the pandemic abates and travel resumes our employer customers are increasingly accessing contango health centres of excellence services for their associates as.
As Mike said earlier in his remarks, we believe our adjacent markets businesses are on track to exceed our expectation of 25% year over year growth in fiscal 2022.
With respect to profitability.
GAAP net income was $39 1 million for the quarter.
Adjusted EBITDA of $112 2 million in the third quarter decreased 7% from the same quarter a year ago as a result of the following.
Supply chain services, adjusted EBITDA of $118 million was relatively flat quarter over quarter, primarily due to a slight increase in net administrative fees revenue that was partially offset by increased freight costs and our direct sourcing business.
And performance services segment, adjusted EBITDA of $26 6 million decrease from the prior year quarter, primarily due to two factors.
First the aforementioned decrease in revenue and second higher selling general and administrative expense mainly related to a decrease in capitalized labor primarily as a result of initiatives to offshore certain software development efforts as well as additional head count to support growth in our <unk>.
<unk> health and remit truck adjacent markets businesses.
Compared with the year ago quarter, adjusted net income decreased 13% to $68 1 million and.
And adjusted earnings per share decreased 11% to 57.
Due to adjusted EBITDA performance and the increase in our effective tax rate in the third quarter of this year compared with the prior year quarter.
From a liquidity and balance sheet perspective cash flows from operations for the nine months ended March 31, 2022 was $334 8 million compared with $192 4 million for the prior year the increase.
This was mainly due to a decrease in cash outlays in the current year period, resulting from the prior year a buildup in inventory to meet demand for PPE and other supplies associated with the COVID-19 pandemic.
This was partially offset by a decrease in cash received as a result of lower normalized revenue in our direct sourcing business the impact of higher administrative fee share payments to members in the current year compared with the prior year and an increase in cash outflows for payments related to operational investments.
To support growth in our adjacent markets businesses.
Free cash flow for the nine months ended March 31, 2022 was $201 9 million or approximately 54% of adjusted EBITDA compared with $71 million for the same period a year ago. The increase was primarily due to the same factors that affected cash flows from.
<unk> lower purchases of property and equipment.
And changes, resulting from our August 2020 restructure.
For fiscal 2022, we now expect free cash flow to approximate 45% to 55% of adjusted EBITDA.
Cash and cash equivalents totaled $179 5 million at March 31, 2022, compared with $129 1 million at June 32021.
We ended the quarter with an outstanding balance of $250 million on our five year $1 billion revolving credit facility $75 million of which we subsequently repaid in April .
With regard to capital deployment, we continue to focus on taking a balanced approach by investing in organic growth and targeting acquisitions to strengthen enhance or complement our existing capabilities and differentiate our offerings in the marketplace.
We also continue to return capital to our stockholders during the nine months ended March 31, 2022, we repurchased approximately six 4 million shares of our common stock for a total of $250 million, thereby.
Completing our fiscal 2022 stock repurchase program we.
We also paid dividends to stockholders totaling $72 9 million recently, our board of directors declared a dividend of <unk> 20 per share payable on June 15, 2022 to stockholders of record as of June one.
Turning to our full year fiscal 2022 guidance based on our performance for the nine months year to date and outlook for the remainder of this year, we are raising guidance for the following metrics.
For supply chain services segment revenue, we are increasing our guidance to a range of $1 2 billion to $1 3 billion.
This increase primarily reflects higher product revenue than we previously expected.
Therefore, we are increasing our total net revenue guidance to a range of 141 billion to 145 billion.
With respect to adjusted EBITDA, we are raising the low end of and tightening our guidance range to $490 million to $500 million and we are.
Increasing our adjusted earnings per share guidance to a range of $2 48.
To $2 58.
In summary as.
As we begin to wrap up this fiscal year, we continue to execute our strategy generates strong free cash flow and maintain a flexible balance sheet.
As we look beyond fiscal 2022, and adjusted for the impact of the COVID-19 pandemic, we remain committed to and believe we are on track for achieving our targeted multi year compound annual growth rates of mid to high single digits for total net revenue adjusted EBITDA.
And adjusted earnings per share.
Thank you for your time. This morning, we will now open the call up for questions.
Yes. Thank you at this time, we will begin the question and answer session.
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At this time, we will pause momentarily to assemble the roster.
And the first question comes from Eric Percher with Nephron research.
Thank you.
I appreciate you mentioning the long term guidance at the end and I know you mentioned, you're getting fairly far into fiscal year 'twenty to Greg could you speak to kind of the known headwinds in tailings and my thought here is really a couple of items, including the product normalization the admin fee weighing on <unk>.
Half of next year or second half of this year and then maybe some of the timing fluctuations how much of those factors will continue on.
Sure Eric This is Greg thanks for the question.
I'll start kind of.
And from a GPO standpoint, we've talked about the fact that the contract reset.
For the most part.
Kind of now.
And that's really where we are.
In the back half of this year.
Baseline to grow from again, so you can see that.
As we move into fiscal 2023, and when we established guidance on our next quarterly earnings call from a direct sourcing perspective, we continued to normalize down we do believe for the most part we should be back to kind of pre pandemic levels by the end of this fiscal year and then growing on a normalized basis.
On that basis.
<unk> on a go forward basis.
And then performance services will have the periodic variability that we've talked about but we haven't really seen.
As much of an impact directly tied to the pandemic, the only sort of potential headwinds or thing we have to keep an eye on is the.
Impact on.
On labor shortages.
While in the long run we believe the company create more need for our services to help them automate and technology enabled some of their processes to eliminate costly homes.
Ability to take things on when they have labor challenges.
And Youtube.
Thank you and once again. Please press Star then one if you would like to ask a question.
Gan pressing star and then one will allow you ask a question.
Yeah.
And our next question comes from a J rice with credit Suisse.
Hi, everybody and I apologize if there's background noise.
One of the things that was mentioned last quarter was.
You were seeing some deferrals, obviously with the surge as we saw late in the year. Obviously, we had a surge in January the continued and you might see that as a potential source of upside as some of that volume came back later in the year, but you were still sort of monitoring it do you have any update.
Dave.
Do you think there's a deferred activity that may provide some short term boost.
So the next few quarters for you.
Okay.
Okay.
This is Craig I'll be happy to take that Mike.
Mike you can add some color if you'd like so you know.
Clearly the impact of the pandemic and labor is affecting utilization, although we do continue to see utilization returning.
For the most part to normalized levels, depending on regional areas. There can be some pent up demand that's coming back, but overall I would say that we're getting back to sort out.
Historical levels it does.
Kind of in a little bit across various months when I would say for the most art.
As we've talked with our health care executives they are continuing to try and get all of the.
Acute episodes surgeries things of that nature.
Scheduled in taking place there are.
Due to some of the challenges.
Lower acuity.
I wouldn't expect a big ramp up.
And I think over time, you'll continue to see.
Right.
Robert.
And then this is Mike so over the last number of weeks or a couple of months, Craig and I have been.
Obviously, you know meeting with our board and meeting with our Board Advisory Committee in and having one on one conversations with the members.
I'll tell you I do think that.
Obviously, our health systems are looking forward to.
You know the potential of the some of the procedures that may have not happened over the last number of months because of Covid the balance to that really is labor.
So you know I think that.
To the degree that our health systems or don't have the staff to do a lot of those procedures and those kinds of things that's going to be sort of the headwind a little bit in.
In terms of you know the the growth and.
You know potentially sort of mute that growth going forward, but well.
It's really early and there's a lot of dynamics at play and we'll have a better understanding over the next number of weeks.
Okay, Great maybe just one other one.
Obviously diversifying the supply chain, it's been a topic of discussion for a little while now moving to some domestic sourcing in certain areas near shore sourcing.
I guess the thing that's hard to understand is how much has actually changed.
There's where your key sourcing was pre pandemic.
As it stands today, and where do you hope to take it.
A couple of years out.
Yeah, Great question, So I will tell you prior to the pandemic.
And even in the pandemic, we had been diversifying our sourcing out of China, just because there was such an overdependence on the one country and into other southeast Asian.
Countries, we literally just broke ground.
Some T P E manufacturing in a in a southeast Asian country. Just recently, we're really really excited about that.
We think it will provide a you know a really nice bolus of supplies.
Obviously reasonable costs. So we want to continue to create that resiliency on a regional level.
So we will continue to do that.
Far as domestic goes.
Obviously, you know we've made the investments in our let's face masks.
Prestige ameritech.
What are the investments we've made by installation gowns.
With.
The Royal deal.
The investments that we've made in <unk> for generic drugs in the partnerships for gloves.
That we have with Honeywell I'll tell you I think you know for the foreseeable future we want to build those capabilities out we will be.
Looking for additional capabilities.
Capabilities that you know, we see as opportunities to diversify into our domestic market to produce those products.
As I have spoken about.
About in the past, it's really going to be.
I towards.
Product and pharmaceuticals that.
Our highly automated.
Where you know the labor cost isn't a profound impact on the manufacturing of the product. So strategically the way we like to describe it is we want a balanced supply chain depending on the category.
We'd like to try as much as possible to do a third a third a third so a third and low labor cost countries, a third and near shore and a third domestically and we think that will create the right level of resiliency as well as the.
The best prices for our members.
Okay, great. Thanks, a lot.
Thank you and the next question comes from Richard close with Canaccord Genuity.
Excuse me, yes. Thanks for the question, Mike or Craig can you go over the labor pressures a little bit obviously, that's a major issue right now and I'm. Just curious if you could go into a little bit more detail.
With respect to.
What you're doing to help clients there on the labor issues and then you know.
You just mentioned it a little bit that it could factor into growth for some of your customers but.
How would you gauge labor issues as a potential risk to growing your business.
We think about this.
23.
Thanks, Richard and I'll hit this Craig please add any color so.
Just from a.
If we just step back a little bit and looked at the broader issue from a labor standpoint I think.
Covid as we've been talking about resulted in a significant burn out among many of our.
Combinations of our health care systems.
Would that really led to was that we had a number of you know clinicians either retiring early.
Or in some cases clinicians that were working full time.
Are now doing either travel work and maybe working just a couple of days, a week, which which obviously exacerbates the shortage rich.
Richard to put it in perspective.
For every one clinician that's higher there was approximately 2.6 job openings.
And so we know that we've got a huge gap to fill.
Also we know that the wages for traveling staff.
Had almost tripled now that has come down a little bit I would still tell you it's more than doubled.
But you know we were seeing you know the tripling of the net.
I really you know rate for a.
They are traveling clinician so.
Those those are those are significant issues that are impacting obviously the margins of the health care systems and so you.
You know it.
We're obviously trying to create a number of capabilities.
To help them really manage their staff or work with their staffs to manage their work more effectively and so in the short term.
Obviously, it's it's really about how can we help them close gaps.
And get access to the labor and.
Those kinds of things.
And the short end and middle term I'll tell you, it's really about leveraging our technology in the U S. That's very very specifically, we think we've designed some of our technology with the intent to drive.
Incredible efficiencies around labor.
So if you think about you know are our products that do.
The technology enablement of prior authorization.
Oftentimes you have clinical staffs.
Looking at the notes.
And then looking at the charts and Theyre determining you know what what can either be preapproved or authorized for a procedure.
We are technologically automated that and at least you know in our early cases were seeing incredible accuracy to that too to our ability to automate that.
We think that's going to be huge opportunity for us to work with our health care systems to redeploy that staff into more political line opportunity. So that's number one number two we've been launching and rolling out or HCC codes coding capability as well which is.
Honestly, all using machine learning looking at the unstructured data again, another area where.
You know you have people doing.
Chart reviews, and those kinds of things, we believe that our technology there.
It is going to be able to really offset the need for a lot of labor to do a lot of that work.
And then finally.
Spoke a little bit about this.
My opening comments, but remit shrunk our.
And we're seeing it in the payables platform.
It's really interesting.
If if theres an invoice that has an error.
And it doesn't matter if that airs.
$500 or or.
$50000. It takes the same amount of time to do the work to track down why there was an error.
And how to fix that air and so we believe by totally automating that that whole process that we're going to bring a lot of efficiencies to our health care systems in a while that labor to also be redeployed. So that's kind of how we're thinking about it. The last thing is and obviously you are well aware of this Richard we have an advisory services business.
That's been out working with our health care systems.
And building out plans and performance improvement engagements to really help them optimize the later labor.
To ensure that that labor is being utilize the.
The most efficiently. So those are the areas we're focused on Craig I'm not sure. If you have any additional color.
Yes, the only color I would add my thanks as on the supply chain.
<unk> really focused on the performance for spine.
The supply chain side and the.
<unk>, Yeah, Bruce happening.
Tracks that we worked with providers in the marketplace to make sure that when members need access to so that's continued to be.
Element of growth as I mentioned in my comments.
And then we also have supply chain co management capabilities, where we actually arguments happens.
And that is an area that we're focused on and are seeing growth.
Some of them are healthcare providers need some assistance given what's happening in the marketplace.
Okay. Thank you if I could ask a follow up on.
On the enterprise.
Timing Craig is there any way.
That you guys can transition to a SaaS model at all from the license.
With that I know you do offer SaaS models, but I was just curious if there's any any way you could do that and take sorted that lumpiness out of the equation.
Yeah, It's a good question Richard.
The vast majority of our.
Performance services technology revenue continues to be sound space. It really gets to the structuring of the <unk>.
Contract agreement with the health care provider, how they want to host in and we're seeing that technology in some cases, they actually want it to be more of a license basis capital lines narrow acquisition cost versus having ongoing expense. So we we evaluate when we're going through the sales process. The most effective way and we really do try to do.
Meet the customer where they are.
And you continue to think about ways to.
Clearly, we prefer to have a more seamless consistency, but at times, it's just difficult to know how things close exactly on the timeline that you would like.
Thank you.
Thank you Richard.
Thank you and the next question comes from Steven Valiquette with Barclays.
Alright, great. Thanks, good morning, everybody.
A couple of things here first your comments on the pharmaceutical supply channel were helpful and I guess I just have a two interrelated questions around that.
First just to the extent that there are some elevated levels of supply shortages for injectable drugs used in the hospital setting.
I'm curious is it more on the brand side or the generic side.
And then secondarily are you seeing any notable signs of generic drug price inflation, either due to those supply shortages or.
Perhaps maybe just due to higher generic manufacturing costs, if you're getting any feedback from manufacturers on that variable.
Yes, thanks, Stephen so.
Real quick on the National drug shortages you know this is something we've been incredibly passionate about for a number of years.
And so primarily what we focus on Stephen is the we focus obviously across the entire portfolio, but where we have a an acute focus is really on the generic drugs that are chronically in short supply. So obviously, that's the market that you know when a project goes generic.
There is huge savings, but we always have to balance.
And ensure that we have healthy supply markets, because we know that if there are suppliers that are eliminated.
Then you put that together that imbalance that you have a you know a generic drug that you know obviously goes up in price and so the net of all of it is we've got sort of a three pronged approach if you will.
To really work through those drug shortages so.
One we have our provide T X program, which really the focus there was to create partnerships to deploy capital working with.
Generic drug manufacturers to extend and expand production or to expand.
Pharmaceutical companies to getting into the market.
So that's something that we want to continue to double down on and we believe that that will.
You know create healthier markets, which is really really critical for us to help our health systems manage their generic drug supply secondly, you know our investment there in <unk>.
And what we're attempting to do with our health systems, they're great platform.
A very strong capability to produce products, we want to expand those products.
To hit more of the generic drugs that are in short supply or its manufacturing more of those drugs and then we want to vertically integrate those processes as well and make sure that we have the ability where it makes sense.
To actually produce the API or the active pharmaceutical ingredients as well because we do think that's part and parcel to.
The whole solution and then finally, we.
We want to continue to drive standardization of buying on behalf of our members because that gives us the most amount of flexibility.
Terms of how to deploy that scattered buying you know tough.
The organizations that.
We don't want to continue to work with and support or to the help build up new ones or is it just gives us a lot more flexibility to keep healthier supply markets. So.
That's going to be the continued focus as far as inflation. It's one of those things that you know.
We continue to manage and we've been keeping in check.
But you know again.
We'll just we'll just keep building, our our resiliency strategies and keep building out our capabilities.
Two as much as possible keep that inflation abated.
Yeah. The only quick follow up as weather has there been any inflection and like the trends maybe over the past couple of months, where either no shortages of either accelerated or.
Generic price deflation is maybe you know swung back towards inflation, if there's no. If there's nothing that's fine too. It's just helps to hear that kind of one way or the other thanks, Yeah. Yeah. No I appreciate it we saw some obviously some pretty significant utilization of drugs.
That were needed for folks to be Intubated.
And so obviously there was a huge.
Increase in and a lot of those product lines.
During COVID-19, but you know I would tell you that the way I would describe it is you know fairly normal with the exception of the drugs needed to treat COVID-19 patients and so far we've been able to manage through that.
Okay, great. Thanks.
Thank you and the next question comes from Michael Cherny with Bank of America Merrill Lynch.
Good morning, Thanks for all the details so far I want to go back to a question I think Richard asked relative to the dynamics of your performance services business broadly obviously, you're building a number of interesting strategic platforms are garnering various degrees of share and mind share already as you think about what's built into the <unk>.
Use of your long term trajectory, how do you think about that conversion of in year in period sales relative to revenue growth and how much of it will evolve over time based on some of the Metro and T go et cetera. Some of the other platforms that are being built out versus what you've traditionally filter market.
Yeah. So this is Mike I'll start Craig please add any color, but it's the balance right. You know, we our focus really is to.
Really leverage our SaaS based technology in our enterprise license deals to.
To help our health care systems.
You know drive performance improvement and so we continue to do that we have a strong pipeline, obviously everything ive been talking about in terms of focusing on labor you know the one area I did that focus on his clinical standardization I'll tell you our health care systems are.
As you know are very much focused on standardizing the way care is being provided they are looking for new ways to generate revenue in those kinds of things through.
You know, new new models, and often times looking at ways to.
Partner with payers or be compares to the market. So we wanted to make sure that we're building out all of those capabilities, which is absolutely core to who we are.
In terms of meeting their needs from a performance improvement standpoint, and then along the way we have to leverage that you know the profit you know that the revenue you know.
From those businesses to grow those other businesses, because we know long term the technology enablement.
These processes are we know the technology from the processes around prior authorization and HCC, scoring and those kinds of things, we know that that will be the most efficient way to to actually perform those functions.
And then obviously, we see a huge opportunity and.
Whats happening as Craig described in his opening comments on contango.
Supporting our members as they're thinking about moving into new new care delivery models, and then finally as I spoke a little bit about in life Sciences. We think we have some really really unique capabilities, but.
Not only doing real world evidence in terms of helping our health care systems.
Alright in terms of supporting life Sciences organizations, and our health care systems.
But we also think the opportunity to identify patients using our you know our advanced technology and machine learning and natural language processing.
At the point of care is going to be something that's going to be.
Really differentiating for our life Sciences.
Segments or sub segments. So we're really excited about all of it but to me it's all about balance.
Yeah, and the only color.
Michael.
About this at our Investor day.
It really is the balanced Mike's talking about corn provider business and performance services growing in sort of a mid single digit kind of growth rate.
Leveraging those capabilities to drive a much higher at 30% to 40% Jason.
Jason markets.
Clinical decision support applied sciences, working with payers and employers through P. T.
Got it and then if I could just do a follow up on the GPO business and especially now as you're almost two years past the announcement of the <unk>.
Change in an operating structure, how should we think about the ongoing period of.
Renewals of retention is there a different cadence that we should expect versus where it had been previously on when your various different previous member owners from large customers will come up and along those lines will we get to a point, where we essentially have all of those member owners that reset after the after.
After the change all renewing at the same time.
Yeah, So Craig.
Okay. Good.
Craig.
I'm sorry, Mike you can jump in.
So all of the historical member owners.
Now.
Contracts have been renewed as we talked about at the time of the restructuring goes from 567 year agreements.
The majority of all of our business is contracted and will come up and are just the beginning of our fiscal 2026.
So we have a number of years under contract remaining.
We over time will continue to look at creating more of a waterfall.
We did a little bit of that through the restructuring and then.
As you would expect to have other customers that are.
Across both our acute and non acute portfolio.
Renew at regular times through out there.
<unk> contract periods.
Got it thank you.
Thank you.
The next question comes from Jessica <unk> with Piper Sandler.
Hi, Thank you for taking my question.
So just interested to know if you could help us understand how many of your N. G. P. L. Members are currently using room Mitra or maybe just what percent and then just how is that solution build and when and when you and when these are enterprise contract or enterprise licenses kind of how long do the contracts.
Tend to be flat.
And by the way Jessica Congratulations so I'll I'll hit.
I'll hit remix your first so.
One of the reasons that we were so interested in the underlying platform since it was already.
Embedded in a number of our very very large health care systems, and so I think the important way that we look at that is if you look at our you know our most significant health systems.
Boy I'll tell you at a high percentage of them are you had had been using that technology now we are obviously in <unk>.
<unk> been adding functionality to that program on that platform and so we're in the process of building out more capabilities to do that so.
It was one of the key reasons why we actually acquired ideas since because of the penetration that they already had in their houses and so obviously, we're really excited about where that goes and our comfort that gives us comfort obviously.
With or our interest to continue to expand that platform.
No. Our goal there is to build out that network of health care systems.
And network of suppliers to more easily transact.
Using advanced technologies, but more easily transact doing invoicing and payments so.
We're really again excited about that and Jessica I forgot the last question Craig If you. If you remember you can answer it.
And the second question was.
Time.
Some of our enterprise analytics license agreements performance services and generally those are five year contracts.
Got it that's helpful. Thank you and then just maybe a follow up I think CMS invited comment on how you incentivize hospital to purchase domestically manufactured.
And 95, starting in 2023.
Do you have any views on a potential payment adjustment starting next year and could that potentially all tailwind.
<unk> salary yeah, I think that's it thank you.
Yeah, obviously, we're well aware of that we have been in conversations with that right. Now I think it's too early to tell whether or not we think there's going to be a significant tailwind or not.
Got it thank you.
<unk>.
Thank you and the next question comes from Jack Wallace with Guggenheim.
Hey, guys. Thanks for taking the question.
Really a good job of that particularly on the supply chain side of the business this quarter managing through some of the the roll off as well as the kind of the global disruption going on question for you on the guidance for the year.
So a pretty wide range about $20 million.
It looks like the net admin fees, some pretty stable throughout the year can you just give us a little color on some of the puts and takes that go on to the fourth quarter implied guide and what could cause us to end up at the high end low end of the ranges.
Yeah. Thanks for the question Jack This is Greg.
I think as you've seen throughout the year. The thing that's a little difficult to precisely predict is this normalization that's been happening on the direct sourcing side of the business and then the utilization impacts due to either.
Labour challenges or kind of what's been happening from overall resumption of services in hospitals as we've talked about earlier and so we were confident in the upper <unk>.
The guidance that we provided to the extent we.
See some of that demand come through in the fourth quarter.
And direct sourcing.
The GP owner pushes to the upper end of that range. If there was for any reason you know one of the things we're kind of keeping an eye on well at this point, it's not affecting hospitalizations too much with the countries.
Broadly moving away from mass mandates people flying without masks all those things were sort of just keeping an eye on that and so to the extent that there was any sort of maybe serge.
Nation across.
Health care providers.
Kind of concept beautiful number and so we're trying to be prudent in terms of the confidence of the business continuing to perform in a stable way than it is.
But that's sort of the puts and takes that could cause supply chain to vary as we close out.
Steve.
Got it that's helpful. All for me. Thank you so much. Thank you. Thank you.
And the next question comes from Stephanie Davis of SUV SUV Securities.
Hi, guys. Thank you for standing room I just had a quick question on hospital demand environment, given the whole macro drags out.
How should we think about the shifting appetite for large contracts is give them economic utilization labor brought him background are you seeing any areas of incremental demand versus.
Do you prioritize.
Hey, Stephanie this is Mike so it's it's a great question.
I will tell you I think that helps.
Health systems right now obviously are really struggling.
With labor cost and thereby their margins and I think.
You know us being able to have a.
Uh huh.
Corporate quiver, if you will.
Products and services that we can take in there to help them be more efficient.
I think the really even with all the pressure happening.
You know a labor standpoint, and those kinds of things I think they are very open obviously to engaging with us and having that dialogue around what are those things they need to be potentially doing differently and again I've been spending a lot of time talking about you know how to ensure that we are.
As possible you utilizing clinicians at standardizing care in those kinds of things I will also say.
You know I think health.
Health systems are looking for ways to balance and create more variable costs as opposed to fixed cost and so there's just a lot of that kind of opportunity that we're discussing with them. Given that you know there is this sort of new normal that everybody is dealing with these labor these labor issues.
Now as a follow up to that if this back half continues of labor and supply chain disruptions and whatnot.
Would you think of the next year as seeing greater demand for your supply chain business, either foundry services business.
That's our hope Craig Craig hit the nail on the head in terms of you know.
Where we think there's the opportunity to do co management with our health systems and so as you know the pressure increases and as you know there's issues associated with potentially getting access to the labor.
We believe we could potentially step in there and provide some services I will tell you. It is also.
The reason that we did our partnership with Gabs and created our joint venture called long E D, which is really from a technology side, helping.
What we believe is going to get you know, helping our health care systems get access to health care.
Technology labor.
More easily than if we didn't have that partnership. So we're also.
Looking forward to deploying that capability.
Over the next couple of years as well.
Awesome. Thank you.
Thank you.
Thank you.
That concludes our question and answer session as well as the call itself. Thank you. So much for attending today's presentation you may not have.
Central lines.