Q4 2022 Premier Inc Earnings Call

Good morning, and welcome to the Premier Inc. Fiscal 2022 fourth quarter results Conference call all participants will be in listen only mode.

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After todays 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 Angie Mccabe Vice President Investor Relations. Please go ahead. Thank you welcome to Premier's fiscal 2020 to the fourth quarter and full year conference call. Our speakers. This morning are Mike Alkire, our president and CEO and Craig Mckesson, our chief administrative and finance.

Officer before we get started I want to remind everyone that our earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section of our website at investors stopped Premier Inc. Dot com.

Management's remarks today contain certain forward looking statements and actual results could differ materially from those discussed today.

These forward looking statements speak as of today, and we undertake no obligation to update them.

Factors that might affect future results are discussed in our filings with the SEC, including our Form 10-K for the fiscal year, which we expect to file soon.

Courage you to review these detailed safe harbor and risk Doctor disclosures.

Where appropriate we will 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 in our earning.

Form 8-K, which we expect to furnish to the SEC soon.

I will now turn the call over to Mike Alkire, Mike.

Thanks Angie.

Good morning, everyone and thank you for joining US today, we're very pleased with our performance in the fourth quarter and fiscal year 2022.

For the full year net revenue of $1 4 billion and adjusted EBITDA of $498 $7 million.

Seeded our expectations and reflects our focus on executing our multiyear growth strategy.

At our Investor Day in November 2021, we've communicated how we are leveraging technology and executing our strategy to achieve sustainable long term growth.

Morning, Craig and I will share with you the progress we are making to advance the strategy and our outlook for fiscal year 2023.

Craig will also provide additional details regarding our fiscal 2023 guidance.

Our multiyear growth strategy consists of four pillars. The first pillar is to grow and deepen existing relationships with our more than 4400 hospitals and health systems, and nearly 250000 providers and other organization.

We believe the challenge so labor shortages and supply chain disruption that our health care system faced over the past two years.

It provided us with the opportunity to further demonstrate our differentiated solution and the value we bring to the market.

I am proud of our results from our most recent annual C suite satisfaction survey, where more than 90% of our memory exactly that's responded that they you premier not simply as a vendor, but a strategic partner or an extension of their own organization.

We recently achieved an all time high net promoter score, which remains about 70 places premier amongst some of the most recognizable well regarded companies in the fortune 500.

And our overall satisfaction score has steadily increased over the last five years and remains in the high 90% range.

The second pillar of our growth strategy, we are building and strengthening capabilities and solutions that deliver on the needs of our members and other customers.

For instance, as part of our supply chain services growth strategy, we are leveraging our technology enabled purchasing program for non acute health care to further capture members of that.

Particularly since healthcare is increasingly shifting from the hospital to the outpatient setting.

This resulted in year over year double digit growth in our non acute group purchasing business.

Our third strategic growth pillar consists of creating and delivering innovative solutions in health care and.

In fiscal 2022 we launched two new innovative brands that represent premier's unique ability to scale disruptive technologies in health care.

Our AI enabled technology and services platform and <unk>, our digital invoice and payment solutions for health care providers and suppliers.

Henry My truck, we recently achieved a key milestone on our strategic roadmap.

The head of our schedule, we launched we metric cash flow optimizer, or Re-met Trophy, Oh, Oh remote tourists already digitizing invoicing and remit your CFO positions us to be what we believe is the first solution in health care to manage electronic invoicing and guarantee I'll chime in.

Payment for suppliers.

Watching remit your CFO is a very exciting step for us as we continue to vertically integrate in a ballpark capabilities to build an end to end technology.

Technology enabled supply chain to create efficiencies and savings across the entire supply chain.

We expect it to drive robust growth as we add more suppliers of providers to the platform in fiscal 2023.

Lastly, the fourth pillar of our growth strategy is to diversify and grow revenue by expanding into adjacent markets.

<unk>, our direct to employer business performed very well in fiscal 2022 with both revenue and participants accessing our centers of excellence and third party health plan administrative services growing nearly 30% year over year and exceeded the target that we communicated at our Investor day last.

Here.

We believe contango health is well positioned for continued growth as we expand our offering.

So the provider and employer sponsor.

Sponsored health plan markets.

Seek opportunities to provide more comprehensive network services back office support and infrastructure.

In the second half of this fiscal year, we anticipate rolling out new centers of excellence programs, including a new substance use program and expanding our centre of excellence provider network.

We also expect the number of participant accessing <unk> health products and services to grow by 20% to 30%.

In fiscal 'twenty 'twenty three.

We are very pleased with the strong momentum in pink.

<unk> Sciences business. We believe we are highly differentiated through our unique health system relationships and PKI technology capabilities to accelerate regulatory review and commercialization of treatment therapies for life Sciences and medical device companies.

In fiscal 2022 we continue to expand our partnerships so that pharmaceutical medical device and diagnostic companies can leverage real world evidence using pink AI data and research capabilities.

One example of this is our new partnership with Astrazeneca.

Port their efforts to transform the treatment of chronic obstructive pulmonary disease or COPD and eliminated as a leading cause of death.

This is in addition to the work we're already doing with them to use our platform to help identify patients.

With incidental pulmonary nodules.

Diagnosis of lung cancer as well as five other cancer types.

In fiscal 'twenty 'twenty, three we expect to drive further growth in this business by entering new and expanding existing.

Strategic partnerships with life Sciences company members and other research organizations.

I am writing with life Sciences companies and innovative clinical trials.

Leveraging real world evidence, the hull and the pre market regulatory process and took deliberate targeted treatment therapies for patients.

Before I turn the call over to Craig I'm going to take a moment to thank our employees for their hard work and continued dedication to and support of our members our customers and partners as we all navigate a challenging environment.

This is a testament to our employees focus and belief.

Our mission.

Prove the health of communities.

In closing, we continue to all but what we believe it's the most comprehensive full service performance improvement company in health care.

As we look ahead, we remain committed to achieving our longer term objectives and creating value for our stakeholders.

I'll now turn the call over to Craig Mckesson for a discussion of our operational and financial performance in fiscal 'twenty, two 'twenty three financial guidance.

Thanks, Mike.

This morning, I will walk through our fiscal 2022 fourth quarter and full year results and provide some color around our initial outlook and guidance for fiscal 2023.

First I wanted to Echo Mike's comments regarding our team at Premier.

I too am very proud of our employees unwavering efforts to help make a difference as we continue to provide differentiated solutions and what we believe is unmatched value in the health care market we serve.

Our trusted relationships and ability to deliver meaningful solutions are reflected in the continuation of our high retention and renewal rates with our fiscal 2022, GPO retention rate at 97% and our SaaS institutional renewal rates at 96%.

Now turning to the fourth quarter of 2022, and as compared with the year ago fourth quarter total net.

Revenue was $347 million, a decrease of 29% as we expected.

Apply chain services segment revenue was $232 $7 million, a decrease of 40% and performance services segment revenue was $108 million an increase of 18%.

In our supply chain services segment net administrative fees revenue increased 3% from the year ago quarter, primarily due to our efforts to further penetrate existing members spend there.

For example in fiscal 2022, we continued to add members to and expand our highly committed purchasing programs in fiscal 2023. We are targeting continued member adoption of these programs as one of our strategic levers that drive incremental member savings.

And more spend through our GPO contract portfolio.

Our non acute GPO business performed very well in fiscal 2020 two as we expanded the number of providers and other organizations that are members.

And we delivered double digit growth, which is consistent with the expectations. We communicated at our Investor day in November 2021.

Within our GPO portfolio certain categories, including our food program and workforce staffing continued to generate strong quarter over quarter growth.

Our food program is now generally returned to and it's beginning to grow beyond pre COVID-19 pandemic levels.

With respect to workforce staffing there was an increase in labor demand in the fourth quarter as compared with the prior year period, providing net administrative fee growth but.

But we are beginning to see some abatement on a sequential basis as providers focus on lowering contract labor expenses.

Importantly, we continue to manage price increases for supplies and services on behalf of our health care provider members and while some contracts in certain categories have experienced the impact of inflation. It did not have a material impact in aggregate on our performance during the quarter.

As we expected products revenue declined $163 million or 70% from the prior year quarter, which included an estimated $168 million and incremental purchases of personal protective equipment or PPE and other high demand and supplies.

As a result of the state of the COVID-19 pandemic.

Prior year.

This 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 increased 18% in the fourth quarter of fiscal 2022, compared with last year's fourth quarter.

This was primarily due to growth in our adjacent markets businesses as well as the timing of enterprise analytics license revenue in the current year compared with the prior year.

As Mike discussed in fiscal 2022, our adjacent market businesses grew nearly 30% over fiscal 2021 to more than $83 million in revenue.

These businesses are still in their early stages and we are excited about the progress.

2022, and their longer term prospects. We believe we are well positioned to continue growing these businesses are scaling them across our platform.

And continuing to address unmet market needs with our unique combination of data technology and scale.

With respect to profitability GAAP net income was $30 7 million for the quarter.

Adjusted EBITDA of $122 8 million in the fourth quarter increased 5% from the same quarter a year ago, primarily as a result of two factors.

First performance services segment, adjusted EBITDA of $37 7 million.

<unk> from the prior year quarter, primarily due to an increase in revenue.

It was partially offset by higher selling general and administrative expense mainly related to additional headcount to support growth in our adjacent market businesses.

Second supply chain services, adjusted EBITDA of $119 3 million decrease quarter over quarter, primarily due to a decline in products revenue, which was mainly driven by lower demand and pricing for PPE as well as increased freight costs impacting margins in our direct sourcing business.

These were partially.

We offset by the increase in net administrative fees revenue.

Compared with the year ago quarter, adjusted net income slightly declined to $73 5 million and adjusted earnings per share increased 2% to 61.

For fiscal 2022, adjusted net income was $302 7 million compared with $306 million in fiscal 2020 one.

So the E. P. S was $2 49 in fiscal 2022.

Paired with $2 48 in fiscal 2021.

Adjusted net income and adjusted EPS reflect income tax expense at an effective rate of 26% and 22% for fiscal year 'twenty to 'twenty two and.

2020 one respectively.

The lower effective tax rate in fiscal 2020. One was primarily the result of our August 2020, restructuring, which created a tax benefit upon the release of a valuation allowance on deferred tax assets.

While we also benefited from an additional valuation allowance release in fiscal 2020 two due to the second quarter subsidiary reorganization. It was not as significant and our effective tax rate returned to a more normalized level in the current year.

Therefore fiscal 2022, adjusted EPS saw less benefit from the valuation allowance released in income taxes than in fiscal 2020 one.

We expect our effective tax rate to further normalize slightly in fiscal 2023 to 26% to 27% rate.

From a cash tax rate perspective, we continue to benefit from our August 2020 restructuring and our fiscal 2022 second quarter subsidiary reorganization.

As a result, and consistent with our expectations, our cash tax rate for fiscal 2022 was 1%.

In fiscal 2023, we expect our cash tax rate to be in the range of one to five.

From a liquidity and balance sheet perspective cash flow from operations for the year ended June 32022 was $444 2 million compared with $407 4 million for the prior year.

The increase was primarily due to higher cash inflows from the collection of accounts receivable and reduction in inventory purchases due to the prior year a buildup in inventory in the company's direct sourcing business to meet demand associated with the COVID-19 pandemic the.

The increase in cash was partially offset by an increase in cash outflows for payments related to operational investments to support growth and the company's adjacent market businesses.

Free cash flow for fiscal 2022 was $260 8 million or approximately 52% of adjusted EBITDA.

Compared with $240 3 million for the same period a year ago.

The increase was primarily due to the same factors that affected cash flow from operations and changes, resulting from our August 2020 restructuring.

For fiscal 2023, we expect free cash flow of approximately 45% to 55%.

Good evening.

Cash and cash equivalents totaled $86 1 million as of June 32022, compared with $129 1 million as of June 32021.

We ended the quarter with an outstanding balance of 150 million on our five year $1 billion revolving credit facility.

With respect 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 continue to actively pursue and evaluate acquisitions and opportunities to generate additional stockholder return while at the same time focusing on completing the integrations of our previously announced acquisition.

In fiscal 2022 capital expenditures totaled $87 4 million.

And we expect capital expenditures to be in the range of $90 million to $100 million in fiscal 2023.

We also continue to return capital to our stockholders during fiscal 2022 we repurchased approximately six 4 million shares of our common stock for a total of $250 million.

Share repurchases contributed <unk> <unk> per share to adjusted EPS in the fourth quarter of fiscal 2022.

Eight cents per share for the full fiscal year.

We also paid quarterly cash dividends to stockholders totaling $96 5 million.

Recently, our board of directors increased our quarterly cash dividend by 5% to 21 cents per share payable on September 15th 2022.

Stockholders of record as of September 1st.

Yeah.

Now, let's turn to our fiscal 2023 guidance, which is based on our historical performance and current expectations for this fiscal year.

Our guidance incorporates certain key assumptions related to the market.

Our business in France.

With prior years, it does not incorporate the impact of any future share repurchases or significant acquisitions that we may undertake.

In developing our guidance, we factored in the expected realization of approximately 1.23 billion in estimated revenue.

It is available under contract for fiscal 2023.

This represents approximately 80% to 86% of our total net revenue guidance range, which is slightly lower than in prior years due to the mix and composition of our revenue streams.

This estimate assumes the continuation of historical GPO retention and SaaS institutional renewal rates.

Also as a reminder, our performance in fiscal 2020 to continue to experience some impact in our direct sourcing business related to the COVID-19 pandemic.

When adjusting for this impact our fiscal 2023 guidance is consistent with our multi year targeted growth rates.

With these key assumptions in mind, our specific fiscal 2023 full year guidance ranges are as follows.

Supply chain services segment revenue of $950 million to $1 billion.

Merely comprised of GPO net administrative fees revenue of $620 million to $640 million and direct sourcing products revenue of $315 million to $345 million.

Performance services segment, net revenue of $430 million to $450 million.

Together these produced total net revenue.

$1.38 billion to $1.45 billion.

We expect adjusted EBITDA to be in the range of $510 million to $530 million and adjusted earnings per share to be in the range of $2 63.

So $2.75.

Our guidance is also based on the following assumptions and expectations.

In our GPO business.

We expect to continue to drive further contract penetration of existing members spend.

Our new members.

And to expand our contract portfolio.

We are also assuming that patient utilization remains near current levels, which is generally in line with levels prior to the pandemic.

To the extent that utilization or member participation in our G T O or higher or lower than we expect these could represent potential headwinds or tailwind to our expectations.

And our direct sourcing products business, we expect continued growth by increasing member adoption and expanding our product portfolio.

And through new partnerships and collaboration with providers and suppliers to promote additional onshore and nearshore manufacturing.

In addition, we believe that our fourth quarter fiscal 2022 revenue has almost normalize to what we would expect any non pandemic environment.

We expect to see some slight sequential normalization in the first quarter of fiscal 2023.

After which we anticipate that this business will begin to grow again sequentially on a quarterly basis.

In our performance services business, we anticipate that our continued investments in <unk> and.

And expansion.

Our adjacent market businesses will produce approximately 30% to 40% revenue growth over fiscal 2022.

As a reminder, these businesses are still in their early stages, and we anticipate revenue to ramp as the fiscal year progresses.

Therefore, we generally expect performance services revenue to be the lowest in the first quarter of fiscal 2020 three.

Increased sequentially throughout the year.

Also as a reminder, due to the timing and magnitude of enterprise license agreements and certain consulting arrangements. There may be periodic variability and the recognition of the revenue and profitability associated with these engagements between quarters during any given fiscal year.

From a profitability perspective on a full year basis and adjusted to exclude the impact from the COVID-19 pandemic in fiscal 2022.

We expect adjusted EBITDA to grow in the mid to high single digit range over fiscal 2022.

As a reminder, profitability in the first half of the prior year benefited from higher demand and pricing associated with purchases of PPE and other supplies in our direct sourcing business.

Therefore, our year over year profitability growth will be impacted in the first half of fiscal 2023.

In fiscal 2020 three we also expect to make incremental investments across the business to drive our anticipated growth and to recruit and retain talent in a challenging labor market.

These factors are expected to result in an approximate mid single digit year over year decline in adjusted EBITDA in the first half of fiscal 2023.

Importantly, we expect this trend to reverse in the second half of this fiscal year as we continue to grow the business.

In summary, we are pleased with our fiscal 2022 performance as we continue to execute our strategy generate strong free cash flow and maintain a flexible balance sheet.

As we look ahead and adjusted for the impact of the COVID-19 pandemic on our direct sourcing business, we remain and.

And believe we are on track to achieve our targeted compound annual growth rates from fiscal year, 2020 one through fiscal year 2024.

Mid to high single digits for total net revenue.

Adjusted EBITDA and adjusted earnings per share as we provided at our Investor day last year.

Thank you for your time. This morning, we'll now open the call up for questions.

We will 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 the keys.

To withdraw from the question queue. Please press Star then two.

First question is from Stephanie Davis.

SBB Leerink. Please go ahead.

Hey, guys congrats on the quarter.

So I heard that 30% to 40% growth comment on the performance services adjacent markets and I know with chopped up a call because I thought that potentially I was on the phone call there.

Is that how sustainable is that 30 or 40% growth rate and are we at the peak or is there is.

Is there just still more wood to chop and is adjacent market.

Sure Stephanie.

Go ahead go ahead, Craig Yeah, Let me just start so Stephanie as we articulated at our Investor Day last November that is the growth rate. We expect for the three year time period that we've set forth in terms of our longer term rates you know, though we do have businesses that are ramping up both contango, Andrew Medtronic and then the continued expansion of the pink eye.

Applied sciences and clinical decisions.

Decision support businesses, so I wouldn't say, 30% to 40% growth is you know in perpetuity, but for the next couple of years that is the expectations in terms of growth of those businesses.

So let's talk about mix that you've got this incredibly fast growing component of your business.

And services.

That's got to mean that the mix shift is going toward that and how should we think about that over the coming years.

Yeah, I think you'll continue to see a mix shift I think what you will see given the earlier stages. Some of those businesses is that the margin profile of this segment as a whole will have some implications as we continue to ramp those and so you know we did approximately at 31% adjusted EBITDA margin in 'twenty two.

I think you'll see a low 30% adjusted EBITDA margin in 'twenty three five virtue of that and then as they keep ramping, particularly the remittance business, which has the opportunity for high margins, you'll see us eventually get back to sort of the mid thirty's on a go forward basis.

And then on that that mid to high single digit growth that you've been guiding to cause I think about the performance services segment.

And the growth personally normalization in things like license sales this year are going to book.

Oh, that's you're being asked by 'twenty three going to look a little bit more like the prior year or are we going to see a more rapid acceleration.

Just given given the outsized performance in that segment.

Yeah. It's a good question I think you know as we've talked about the guidance. We've given is mid to high single digit for this segment as a whole obviously that will be dictated upon that we talked about periodic variability at times about enterprise licenses, so depending when some of those hit across fiscal years can influence that clearly the 30% to 40%.

And the adjacent markets helps support the level of overall growth that we anticipate to have but wouldnt expect you know significant difference from the mid to high single digit growth overall for fiscal 2023.

Oh awesome to hear thank you guys.

The next question is from Michael Cherny of Bank of America Merrill Lynch. Please go ahead.

Good morning, and thanks for taking the question.

Maybe if I can dive into that administrative fees a bit Craig Mike I heard you talk about the variability that you expect to see related to utilization could you give us a better sense on.

Where exactly the puts and pulls are within that guidance.

In terms of your expectations I think it's for a modest decline if I'm doing the math correctly, unless I'm missing something but just curious to think about how you think about the upside downside to the net administrative fees targets and what that incorporates in terms of utilization progressing over the course of the year.

Sure happy to kick it off and then Mike can add color in terms of the.

The GPO broadly the guidance range assumes sort of consistent utilization so not necessarily decline, while we are continuing to see and we've talked about this for the past couple of years is the inpatient utilization continues to sort of trend down just slightly while our utilization in the alternate site look <unk>.

Settings continues to increase and so we do think that we're for the most part it does vary regionally back to sort of pre COVID-19 utilization levels although.

In certain geographies there does continue to be pressure on on some of the procedures coming back into the inpatient settings from a standpoint of the guidance overall.

The only thing I would highlight relative to the G. P. O. As a reminder is we did have the.

The lingering impact of the August 2020 restructuring and those members that did not participate in that restructuring at the time that have their historical contracts run through September 30 of 2021. So the first quarter of our fiscal 2022. So we're still sort of lapping that last quarter, where we had the lower administrate.

Fisher contracts before the repricing took place and so that'll be that's a part of the reason for a little bit of the hurdle in terms of year over year comps and.

In the first half of the year, and that's particularly impacting the first quarter, but then on a go forward basis, we would expect kind of stable continuous growth in the G. P O as we typically experience.

Hey, Michael This is Mike Alkire, just real quick one quick add to that as Craig said as we look through the numbers through the end of March the acute was decreased by 2.5%.

Hum you know and there is variability across obviously the geographies. The only other pressure that health systems are seeing is this tight labor market.

So if if there is you know if they don't have the labor to.

Perform some of the procedures that would be the only other head of headwind that we would want to keep an eye on having said that we.

We seem to see you know at least anecdotally, we're seeing a more normalization of utilization.

As we get into.

This does not this last quarter, but we don't have all the statistics.

We'll look forward to getting that data before we can really come to some conclusions on what's going to happen with utilization.

Understood and maybe just going back to the performance services commentary.

Talked about some of the variability you can expect on a quarter by quarter basis based on one licensing contracts come in how should we think about the future of the way that you want to contract and I assume with all the adjacent businesses.

Quarterly potential fluctuations will likely slow over time, but just curious how that should factor into the various quarter by quarter variability.

Yeah. So first we do like enterprise licenses. They are we believe more sticky they are obviously more inclusive.

Of all the technology analytics that are health systems need.

So as opposed to selling points solutions, we believe our integrated offering.

It drives the most amount of value from a technology standpoint, so we continue to like the the whole enterprise license concept.

As you look at our adjacent businesses.

You know things like <unk> health.

That's a whole different business model, obviously, where we're getting paid fees as part of the T. P. A.

And then as you look at our remit your offering.

We're also collecting fees as a result of the.

New products that we've been developing there.

Sure you know by suppliers to utilize the network.

And then also obviously by the providers, who are utilizing the network as well.

Yeah. The only this is Craig Michael the only color I would add is that you know we do meet our customers where they are the majority of the technology business that we have is still a SaaS based about 10% to 15% of our performance services revenue relates to these enterprise license agreements so given the size and magnitude of those those.

Can have an impact on variability depending on when they close I think that will continue to occur in 'twenty three I think as we move forward and as these other businesses ramp which are generally not licensed space I would agree with you that longer term volatility should start to settle down. There's also been a migration of where these licenses will eventually become big.

Renewing and so you'll get some stability in the platform once that occurs.

The next question is from Eric Coldwell of Baird. Please go ahead.

Thanks, very much good morning, I have two the first one is just putting a bow on the EBITA comments on the first half of fiscal 'twenty three.

Correct me if I heard you incorrectly, but I think you said expect EBITDA to be down about mid single digits in the first half against the tough comps and the investments you're making.

When I look at the model it seems like the.

The second quarter is really the quarter that has the toughest comp, but you also made some comments about our timing and phasing in <unk> in both segments. So.

Just hoping to get a little more color on the direction of EBIDTA in the first in the first half of the fiscal year and are you looking for similar mid single digit declines in both quarters or is it is it perhaps a bit more weighted to one quarter versus the other yes. It's a good question Eric it it really is fairly consistent across both quarters and theres really two fee.

<unk> driving it so the first quarter is more weighted towards the G. P O headwind that I, just talked about where we have the run off of.

We had some GPO contracts in the first quarter that were still under the old pricing model before they were renewed in the second quarter. If you were to go back and look at last year's performance, that's where we had the highest profitability from our direct sourcing business given we haven't begun to see some of the price declines take effect, Jeff that hit us in the back half year, we talk.

A lot about that last trying to earn on our quarterly earnings calls. So those are the two primary drivers affecting the year over year comp. We then do have some of the ongoing investments in the adjacent markets growth businesses that will continue through the year, but we will see the ramp of revenue as those continue to mature and and have them.

It's generally a pretty equal.

Equal headwind in Q1 and Q2, that's a very helpful and my my second question again.

Again, just technical on the revenue guidance when I look at supply chain services. You're you you give segment revenue guidance for the year, obviously and you give it for both admin fees indirect sourcing you do have a third line other services and support by default it looks like.

Other services and support guidance is I mean by default it looks very low it looks about half of the fiscal 'twenty two run rate, but I'm not sure. If that's just captured in the rounding and and there's really nothing to see there, but I was hoping for a little more color on that as well. Thanks.

Yeah, No no Oh I'll have to go back here I can see why it would be looking at how we can have a follow up call with you on that what I would say relative to the other services and support line that is where our supply chain co management activity resides which is where we're actually doing kind of supply chain outsourcing in certain cases or other.

Consulting related relationships and so that business does continue to grow in selective accounts and so there's growth there what may be impacting that line, but I'll have to take a look is the sum of the intersegment activity related to small and engagements that where where there is contra inter segment revenue.

If that goes over to our performance services business based on some of our integrated couple of large integrated accounts, but we'll we can we'll take another look at that okay. Thanks very much Greg.

[laughter].

The next question is from Jessica Thompson of Piper Sandler. Please go ahead.

Hi, Thanks, so much for taking my question and congrats on the quarter I was just hoping maybe on the debt and professional services revenue guidance and on that $40 million roughly of dollar growth and can you help us understand what kind of visibility you have into that.

To that growth are these kind of incremental contract.

And then or they booked already and when would you expect that ramp up.

Sure. So generally we go into any fiscal year is a with a as indicated in the guidance kind of 80% to 86% of our revenue available under contract on the performance sort of services side of our business. We typically go in on the technology side with 70 plus percent visibility for the year in terms of.

And what we expect so there are new bookings that we need to achieve our we also have our advisory services business, which is the consulting business. What I will tell you is that we had a very successful year of larger.

Margin transformation engagement bookings in fiscal 2022 so were actually heading into fiscal 2020 three with higher visibility then we generally have a we actually have about 75% visibility for our advisory services business in fiscal 2023, where typically that would be more down in the 50% to 60% range. So.

I feel good about the visibility going into 'twenty three relative to our performance services business, but clearly there continues to be new business will need to sell and ramp that would also include contango house, where we look to continue to add new participants to the platform as we indicated.

You know expectations of sort of that 30% to 40% growth that we're talking about probably for the adjacent markets and then in the room Metro business, which is still a ramping with the addition of suppliers and providers, particularly around the room Metro CFO launch.

You know that that's not the those two there is an undiscovered business, but feel very good about the pipeline and the opportunities to achieve the growth in those two.

Got it and then just on the incremental investments that are going to depress EBITDA in the first half.

Are those are those and intended to support this years.

Services guidance or that's going to support kind of out year high single digit.

Growth for the next whatever it is three to five years, yes. Thanks for the question, it's definitely to support this year's growth given the 30% to 40% revenue growth that we're looking to deliver but then also contributes to future your performance.

Performance, but it is impacting the current year in terms of profitability of those businesses as we continue to ramp them up.

Got it I just have one last quick one on the supply chain services side are you kind of agnostic from an adjusted EBITDA margin perspective as to whether purchasing occurs in the acute care environment.

Or is that any an ambulatory setting thanks and that's it for me Yeah. Generally speaking the margins are fairly comparable I think we've talked about this at points in the in the past, but you know there's not quite as much centralization of some of the purchasing and the and the non acute space. So there's a little bit more outreach field support.

In the non acute that's why we've been focused on continuing to build out the technology enablement of that side of the business, but generally speaking fairly agnostic in terms of as we've seen that mix shift continue to move from the acute into the non acute space.

Got it thank you.

Our next question is from a J rice of credit Suisse. Please go ahead.

Oh, hi, everybody I'm, maybe two questions a lot of discussion last few quarters about utilization rates and where we're at but I know in the prepared remarks today, you're also mentioning oh.

Contract penetration of members and you're expecting that to go up I guess I'd be interested did did you I know we had some anecdotal discussion about people going off contract because of supply chain issues through the pandemic are you sort of where you were pre pandemic Oh.

Continuing accounts that are that stayed with you and and maybe comment on how much incremental.

Penetration you think you could drive over the next year and where might that come from.

Yeah. This is Mike I'll, just talk at a macro level. So yeah. We do feel like we are back to where we were pre COVID-19 on terms of where we are from a penetration standpoint, and I think a J you know.

Everything that we do is focused towards it on the supply chain as it relates to our field everything we do really its focus towards driving higher penetration because it's we have seen organizations that could drive higher levels of penetration to actually perform well in their supply chain outcome slow supply expense per adjusted discharged supply expense.

For operating costs.

So our focus really is to move the mark there and and we.

Well, we look at it more broadly at a macro level in terms of penetration our focus really is account by account so depending on what the needs are of you know from a savings standpoint to sort of offset the labor cost issue that a lot of our health systems are facing.

We set up parameters for contract penetration in specific categories, where we know it will yield the most amount of savings and so we are back in that program going full steam have been back in that program probably for the better part of six to eight months, where we're really driving higher levels of penetration because it is actually drawn.

Giving more enhanced value, obviously to the health systems and helping their bottom lines.

Okay.

Let me just maybe one other thing that's come up in some of the discussions with the public hospital companies. A couple had mentioned that they have in their supply contracts are they had multi year contracts and so they didn't see the full impact of inflation.

And some of the items this year they will substitute a will.

We'll have 'twenty three and beyond.

To what extent is that relevant for you. All do you have oh meaningful contracts multi year end is that a good thing or does it help you with.

Your administrative fees or is it a challenging thing that it puts more pressure on your customers.

Yeah, that's a great question a J. So so very quickly everything that you know we do from a GPO perspective is really to manage inflation.

So we have within our contract terms that do not allow for obviously increases due to inflation. So exactly what you heard from them.

The publicly traded you know ideas perspective, when you have contracts that are you know three years long and you have those those terms in there where they can increase due to.

The terms of those agreements.

Then there is some form of a protection and that is something that you know is in pretty much every all of our contracts and that is something that we constantly focus on her.

Having said that there are you know you do have sort of we call the mid cycle.

Asks for you know increases of of.

You know for increases we have had a number of suppliers that have come to us.

To us for increases I think that you know on average about 30% of those are.

Our agreed to.

And just very quickly the way that that actually happens is.

Premier has you know.

Strategic advisory committees and other sourcing committees. Those committees are actually made up of our health care systems executives and they are the.

<unk> or the committees that determine whether or not.

They're going to allow for a price increase because it's very important obviously that we limit the number of of price increases that occurred mid cycle.

Given that.

Health systems are very very you know very tight bottom lines and so it's the only reason there's only a couple of reasons why you don't get an increase and that would be that if somebody was going to exit from the market and then potentially you might be a monopolistic or duopoly kind of scenario playing out.

You know something something like that would be one of the very few reasons why you would actually agree too.

A price increase but it is something that we manage every single day. It is a significant focus of our organization and our.

Organizationally, it's something we take pride in that we do it very well in terms of managing inflation.

Mike This is Craig the only one clarification I wanted to point out, which we've talked about in the past is that that part of our GPO portfolio. Our food program in our pharmacy program actually do have variable pricing. So they do ebb and flow a bit up and down with inflation and deflation what Mike was talking about the fixed fee contracts with the majority of our <unk>.

Folio about 2000 up to 3000 contracts that we have which are primarily in the med surge in the other areas I just wanted to clarify and call that out.

Thank you crusher. Thanks.

Thanks.

The next question is from Richard close of Canaccord Genuity. Please go ahead.

Yeah. Thanks for the questions and congratulations on finishing the year strong Craig maybe walk us through the the contract coverage in fiscal 'twenty, three being a little bit lower that's my first question.

Yeah in terms of being at 80% to 86% of our revenue guidance range versus in the past being slightly higher I think it's really a function of the continuing change.

And expansion of the business into other areas, so as I talked about remit Tara and contango.

Little bit less visibility than we've historically had as those continue to grow and so really due to mix. It's changing the percentages, we still have very high visibility to the G. P. O I responded to Jessica earlier in terms of the visibility on the technology and advisory services business.

Okay. Thanks on that and then.

I guess on the performance services side, So health catalyst's who's in the analytics area.

And the services they.

They reported.

<unk> guidance for the rest of this calendar year seems to.

Very versus your commentary on your performance services area. So.

Just curious you know how how are you thinking about the end market the financial situation of hospitals health systems and I'm just you know.

What was baked into your guidance from the current economic uncertainty and just thoughts in and around that would be helpful.

Hey, Craig if I could just step in real quickly at a high level.

You know, obviously, we don't necessarily.

Richard on you know competitive potential competitors, but the very unique part of our offering is.

We have the technology clinical decision support.

And we have the wraparound services and so if you think about what we do with our health systems, we're taking in sort of an all in.

Sort of savings opportunity that includes labor. It includes how to drive standardization politically it includes.

Supply chain. So we're taking it at all in approach and so what our health systems. Obviously are struggling you know.

With various things as they come out of dealing with the virus to include some of the inflationary stuff that we've been talking about or.

The issues associated with some of the labor costs, the higher labor costs, we're able to take in sort of all in approach for performance improvement.

This improvement and we do see a lot of our health systems, we see a significant portion of our health systems, who are in need of that kind of capability to kind of rightsize.

Their operations and to be looking at you know basically every opportunity to save money. So we believe that our offering is fairly unique in that it's much more broadly based around a total performance improvement of the health system.

It both has the technology as well as the wraparound services.

Yeah, I think the only quick color I would add is relative to our guidance. Our expectations are based on the pipelines. We have the knowledge of the customers that we believe can use our services. We obviously have to go through the sales process with new customers, but as Mike articulated. It's it's all based on identifying them.

Driving a return based on the savings, we can yield and our entire focus on our technology and services wraparound capabilities are really to take.

You know inefficiency out of there out of their processes and automate things that had been manual and so a lot of our you know evolution into automation of prior authorization into the clinic.

Clinical decision support arena et cetera are all about how to create efficiency for them when they have significant labor challenges. So it's just working through that process to make sure that we're achieving the growth objectives that we've set.

Okay. Thanks very helpful.

The next question is from Jack Wallace of Guggenheim. Please go ahead.

Thanks for taking my questions and congrats on a really solid end of the year and what looks to be.

You know really healthy guidance.

Got a couple of questions.

So sort of piggybacking on Richards question to surround them difficult environment generally speaking for hospitals and health systems wondering.

I'm wondering how much of the growth.

Projections on the particularly on the G. P O R predicated on new customer acquisition and on that topic, how are conversations with prospective clients going what does that how does that deal velocity.

Look now compared to say six months ago.

And you know what what kind of variability is impacted in the growth outlook. Thank you.

Yeah, I could give you a quick overview of the market. So.

I think as we've been saying I think you know healthy as with our health systems. All health systems are in a challenging state then and you know we are getting the message out to the currently non Premier health systems, and having you know dialogue and discussions with them about.

Al.

How we can uniquely help them drive savings.

The velocity, obviously has picked up.

Given it was a bit more difficult during the height of the pandemic win.

You weren't able to access a lot of those folks and have the some of the opportunities to share how we could differentiate our offering and differentiate our capability.

So we're really obviously excited about opportunities that are in our funnel today. We do think we have a very very unique value proposition that covers the technology. It covers the wraparound advisory services that covers obviously our G. P O.

And then it's you know basically what Stephanie as Craig and I about earlier the work that we're doing.

You know and remit truck.

It's very very unique that whole E invoicing in the payables capability is getting the attention of folks that are not.

Not necessarily in our current channel because it has a high labor oriented function within a health system and that we have the ability to automate. So we're getting some really nice velocity as you say in terms of getting our message out there.

Will you know, we'll know a lot more over the next couple of quarters in terms of how that message is playing out.

Yeah, Jack the only color I would add to that back to sort of your what question or what's kind of incorporated in the guidance generally for our G. P. O 90, plus percent of our business in any year is just our existing footprint and driving more penetration and spend through the existing portfolio, adding new contracts to the portfolio, which is an important component.

New members generally represents around 5% to 10% of our business in any normal year, we have generally been a net market taker for all the reasons, Mike articulated other than the years, you know the little bit lower retention that we've had in the years that we've done the big restructurings, but we would expect that to get back to sort of normal and then.

To the extent, we have more success in recruiting some of the new members.

For all the reasons, Mike described that could actually be a tailwind and help us from a guidance perspective.

Excellent that color is really helpful and thank you for the commentary on Remits from and that's where I was going with the second question.

And it sounds like you know maybe.

Not the best idea to be thinking about these two businesses separately.

As a.

It sounds like it's a way that you're maybe if you're not starting maybe ending our conversations with new customers can you just give us a little bit.

Maybe it's an anecdote, but talk about how that service is.

Helping to close deals.

And to the extent that.

When you're onboarding, a customer or even if it's an existing customer that would be a new re mitra customer yeah. How does it what does the lift required at the customer to implement and how fast.

Once you sign a deal do we go life. Thank you.

Thanks, Jack there was a lot in that.

If I don't answer all the questions you can jump back in and out but.

So so typically as I said earlier, well will go up with the total savings proposition and.

It's one of those things now you know one of the arrows in our quiver as is picking and remit trop. So when we get into the dialogue and we talk to them about you know what.

What their ERP is sitting and how they are doing their invoicing and how automated it is and how how efficient they are from a payment standpoint, and those kinds of things if we get into more of that detail.

In the discussion.

Oftentimes, we'll see or we'll find out that.

There is more opportunities than what we've had in the past that you know obviously drive savings from both an efficiency standpoint as it relates to labor, but also we use you know.

We're beginning to beginning to use the invoicing side of re metro to understand off contract spend.

To understand literally what what is being invoiced at a hospital.

Because in some cases health systems don't necessarily have access to that level of detail.

So we're beginning to utilize that data if you think about it for our current health systems.

[noise] to identify off contract spend where maybe in the past because of the pandemic we've had products that.

<unk> have been you know either on back order or are not available.

And you know now that those products are coming back into the market.

We can identify that there's the availability to move back to some of those products. So.

There is a level of specificity and re metro.

Again, that's very very unique.

That is driving savings from both a labor and a supply chain standpoint.

Gotcha that's helpful. Thank you.

Thank you.

Yeah.

Ladies and gentlemen. This concludes the question and answer question and the conference. Thank you for attending today's presentation. You may now disconnect.

Okay.

Yeah.

Yeah.