Premier Inc (PINC): 38.97 +0.38 +0.98% Volume: 885,405 December 11, 2018

Premier, Inc. Reports Fiscal 2015 Second-Quarter Results

February 9, 2015

CHARLOTTE, N.C., Feb. 9, 2015 (GLOBE NEWSWIRE) -- Premier, Inc. (Nasdaq:PINC) today reported financial results for the fiscal 2015 second quarter ended December 31, 2014.

Fiscal Second-Quarter Highlights:

  • Net revenue increased 19% to $249.4 million from the same period last year; Supply Chain Services segment revenue rose 19% and Performance Services segment revenue increased 20%.
  • Adjusted EBITDA* increased 18% to $98.8 million from the same period last year.
  • Adjusted fully distributed net income* increased 17% to $52.1 million, or 18% to $0.36 on a fully diluted per-share basis, from the same period a year ago. GAAP net income attributable to shareholders was $9.3 million, compared with $6.4 million in the prior year.
  • At December 31, 2014, cash, cash equivalents and short- and long-term marketable securities totaled $469.5 million, and the company had access to its entire unsecured $750.0 million, five-year revolving credit facility.
  • For the first half of the fiscal year, net revenue increased 17% to $478.8 million, adjusted EBITDA rose 14% to $189.3 million, and adjusted fully distributed net income increased 12% to $99.9 million, or $0.69 per diluted share, compared with non-GAAP pro forma results for the same period a year ago. Net revenue for the six-month period increased 7% and adjusted EBITDA decreased 9% from GAAP results for the same period a year ago.
  • Based on year-to-date performance and the current outlook and assumptions for the remainder of the fiscal year, the company is increasing its fiscal full-year guidance range for consolidated net revenue and raising the low end of its consolidated adjusted EBITDA and adjusted fully distributed net income per share ranges.

* Descriptions of adjusted EBITDA, adjusted fully distributed net income and other non-GAAP financial measures are provided in "Use and Definition of Non-GAAP Measures," and reconciliations are provided in the tables at the end of this release. See "Reorganization and Initial Public Offering" for important information regarding non-GAAP pro forma results.

"We are very pleased to report another strong quarter in which we achieved double-digit year-over-year percentage gains in both consolidated net revenue and adjusted EBITDA, driven by robust growth in our Supply Chain Services segment and continued growth in our Performance Services segment," said Susan DeVore, president and chief executive officer. "We believe our financial performance demonstrates the powerful leverage inherent in the diverse revenue drivers that characterize our integrated product and service offerings, enabling healthcare providers to comprehensively address the many cost, quality, safety and population health challenges facing them."

Results of Operations for the Second Quarter of Fiscal 2015

 
Consolidated Second-Quarter and Year-to-Date Financial Highlights
 Three Months Ended December 31,Six Months Ended December 31,Six Months Ended December 31,
(in thousands, except per share data)20142013% Change20142013% Change20142013% Change
 ActualActual Actual Actual  Actual Non-GAAP
pro forma (a)
Net Revenue:                  
Supply Chain Services:                  
Net administrative fees  $ 112,675  $ 102,130 10%  $ 219,198  $ 245,706 -11%  $ 219,198  $ 204,443 7%
Other services and support  237  173 37%  452  307 47%  452  307 47%
Services  112,912  102,303 10%  219,650  246,013 -11%  219,650  204,750 7%
Products  66,696  48,582 37%  130,260  92,330 41%  130,260  92,330 41%
Total Supply Chain Services  179,608  150,885 19%  349,910  338,343 3%  349,910  297,080 18%
Performance Services:                  
Services  69,837  58,024 20%  128,843  111,142 16%  128,843  111,142 16%
Total $ 249,445  $ 208,909 19% $ 478,753  $ 449,485 7% $ 478,753  $ 408,222 17%
             
Adjusted EBITDA (b):                  
Supply Chain Services  $ 97,342  $ 85,119 14%  $ 188,610  $ 210,599 -10%  $ 188,610  $ 169,336 11%
Performance Services  23,189  17,731 31%  41,551  34,060 22%  41,551  34,060 22%
Total segment adjusted EBITDA  120,531  102,850 17%  230,161  244,659 -6%  230,161  203,396 13%
Corporate  (21,723)  (19,445) 12%  (40,835)  (36,920) 11%  (40,835)  (36,920) 11%
Total $ 98,808  $ 83,405 18% $ 189,326  $ 207,739 -9% $ 189,326  $ 166,476 14%
             
Non-GAAP adjusted fully distributed net income (b)  $ 52,130  $ 44,443 17%        $ 99,895  $ 89,531 12%
Non-GAAP earnings per share on adjusted fully distributed net income - diluted (b)  $ 0.36  $ 0.31 18%        $ 0.69  $ 0.62 12%
Weighted average fully distributed shares outstanding - diluted  144,688  145,093          144,676  145,041  
 
(a) Reflects the impact of the Company's Reorganization on the Supply Chain Services segment as a result of the 30% revenue share to owner members after the Reorganization. The impact of the non-GAAP pro forma adjustment on both Supply Chain Services net revenue and segment adjusted EBITDA was $41.3 million for the six months ended December 31, 2013. Non-GAAP Pro forma adjustments do not impact the financial results of the Company's Performance Services segment. 
(b) See attached supplemental financial information for reconciliation of reported GAAP results to Non-GAAP results.

For the fiscal second quarter ended December 31, 2014, Premier generated net revenue of $249.4 million, an increase of 19%, from net revenue of $208.9 million for the same period a year ago.

Adjusted EBITDA of $98.8 million increased 18% from $83.4 million for the same period last year. The increase was driven by revenue growth in both of the company's business segments, and continued effective management of operating expenses.

Adjusted fully distributed net income for the fiscal second quarter rose to $52.1 million, or $0.36 per fully diluted share, from $44.4 million, or $0.31 per fully diluted share, for the same period a year ago. Adjusted fully distributed earnings per share is a non-GAAP financial measure that represents net income, adjusted for non-recurring and non-cash items, attributable to all shareholders as if all Class B shareholders have converted to Class A shareholders, and reflects income taxes at an estimated effective rate of approximately 40% on 100% of pretax income.

Net income for the quarter totaled $65.8 million, compared with $51.5 million for the same quarter a year ago. In accordance with GAAP, net income attributable to shareholders of $9.3 million at December 31, 2014 requires a non-cash adjustment of $(42.3) million, and net income attributable to shareholders of $6.4 million at December 31, 2013 requires a non-cash adjustment of $(3,720) million to reflect redeemable limited partners' capital at the appropriate redemption amount attributable to the limited partners' Class B common unit ownership at the end of each period. On a GAAP fully diluted per-share basis, the company reported a net loss attributable to shareholders of $0.93, compared with a net loss attributable to shareholders of $114.70 a year ago. (See income statement in the tables section of this press release.)

Segment Results

Supply Chain Services

For the fiscal second quarter ended December 31, 2014, the Supply Chain Services segment generated net revenue of $179.6 million, an increase of 19%, from $150.9 million a year ago. Revenue growth was driven by very strong performances of both the company's group purchasing organization (GPO) and products businesses. GPO net administrative fees revenue of $112.7 million increased 10.3% from a year ago, reflecting the continuing impact of newer member conversion to the company's contract portfolio, including those who have recently joined Premier, further contract penetration of the membership and the impact of increasing patient utilization. Product sales of $66.7 million increased 37% from a year ago, primarily from the ongoing expansion of member support for the company's direct sourcing and specialty pharmacy businesses, which was further augmented in direct sourcing by purchases related to flu season and Ebola preparedness efforts, and in specialty pharmacy by new hepatitis-C therapies.

Supply Chain Services segment adjusted EBITDA of $97.3 million for the fiscal 2015 second quarter increased 14%, from $85.1 million for the same period a year ago. The increase largely reflects growth in net administrative fees revenue, as well as growth in the company's direct sourcing activities, and continued effective management of operating expenses.

Performance Services

For the fiscal second quarter ended December 31, 2014, the Performance Services segment generated net revenue of $69.8 million, an increase of 20%, from $58.0 million for the same quarter last year. Revenue growth was driven primarily by SaaS-based (software-as-a-service) subscriptions and renewals, and includes TheraDoc and Aperek, which were acquired late in the fiscal first quarter, as well as by the company's population health offerings, PremierConnect® Enterprise and advisory services.

Performance Services segment adjusted EBITDA was $23.2 million for the fiscal 2015 second quarter, an increase of 31% from $17.7 million for the same quarter last year. The growth in adjusted EBITDA reflects the sale of new SaaS-based and licensed informatics products, including the company's recent TheraDoc and Aperek acquisitions, and effective management of segment operating expenses.

Results of Operations for the Six Months Ended December 31, 2014

Note: Comparisons of GAAP results are impacted by the changes associated with the Reorganization and IPO, as described below, and therefore, management believes they do not provide meaningful year-over-year comparisons. Performance Services segment results are not impacted by non-GAAP pro forma results.

The company generated net revenue of $478.8 million for the six-month period ended December 31, 2014, an increase of 17% from non-GAAP pro forma net revenue of $408.2 million in the same period last year. Adjusted EBITDA for the six-month period totaled $189.3 million, an increase of 14% from non-GAAP pro forma adjusted EBITDA of $166.5 million in the same period last year. Adjusted fully distributed net income totaled $99.9 million, or $0.69 per diluted share, compared with non-GAAP pro forma amount of $89.5 million, or $0.62 per diluted share, for the same period last year.

On a GAAP-comparison basis, net revenue of $478.8 million for the six-month period ended December 31, 2014 increased 7% from net revenue of $449.5 million for the prior year. Adjusted EBITDA of $189.3 million decreased 9% from adjusted EBITDA of $207.7 million for the prior year. Net income of $130.7 million compared with $164.0 million for the same period last year. In accordance with GAAP, net income attributable to shareholders of $18.5 million at December 31, 2014 requires a non-cash adjustment of $(424.9) million, and net income attributable to shareholders of $5.9 million at December 31, 2013, requires a non-cash adjustment of $(3,720) million to reflect redeemable limited partners' capital at the appropriate redemption amount attributable to the limited partners' Class B common unit ownership at the end of each period. On a fully diluted per-share basis, the company reported a net loss attributable to shareholders of $11.96 for the first six months of fiscal 2015, compared with a net loss attributable to shareholders of $195.46 for the same period a year ago. (See income statement in the tables section of this press release.)

Supply Chain Services segment net revenue for the six-month period increased 18% to $349.9 million from non-GAAP pro forma net revenue of $297.1 million a year earlier. Supply Chain Services segment adjusted EBITDA increased 11%, to $188.6 million from non-GAAP pro forma adjusted EBITDA of $169.3 million for the same period last year.

Performance Services segment net revenue for the six-month period increased 16% to $128.8 million from $111.1 million in the same period last year. Performance Services segment adjusted EBITDA increased 22% to $41.6 million from $34.1 million the prior year.

On a GAAP-comparison basis, Supply Chain Services segment net revenue of $349.9 million increased 3% from $338.3 million for the same period a year ago. Segment adjusted EBITDA of $188.6 million decreased 10% from $210.6 million a year ago.

Cash Flows and Liquidity

Cash provided by operating activities was $153.7 million for the six-month period ended December 31, 2014, compared with $198.5 million for the same period a year ago. Operating cash flows decreased primarily due to the addition of member owner revenue share as a result of the Reorganization and IPO effective October 2013. At December 31, 2014, the company's cash, cash equivalents, short- and long-term marketable securities totaled $469.5 million, compared with $408.7 million at December 31, 2013, and consisted of $129.6 million in cash and cash equivalents and $339.9 million in marketable securities with maturities ranging from three to 24 months.

Free cash flow for the fiscal second quarter ended December 31, 2014 was $67.1 million, compared with $45.4 million for the same period a year ago. The high level of free cash flow relative to adjusted EBITDA in the second quarter results from strong performance in the company's Supply Chain Services segment. Prior year free cash flow of $45.4 million included distributions to member owners related to earnings generated prior to the Reorganization and IPO. The company defines free cash flow as cash provided by operating activities less distributions to limited partners and purchases of property and equipment (see free cash flow reconciliation to net cash provided by operating activities in the tables section of this press release).

At December 31, 2014, there was no outstanding balance on the company's unsecured $750 million, five-year revolving credit facility.

Fiscal 2015 Outlook and Guidance

 
Fiscal 2015 Financial Guidance (1)
Premier, Inc. updates full-year fiscal 2015 financial guidance, as follows:
 
  Updated Pro Forma Previous
(in millions, except per share data) FY 2015 % YoY Change  FY 2015
Net Revenue:      
Supply Chain Services segment $706.0 - $725.0  11% - 14%  $688.0 - $707.0
Performance Services segment $268.0 - $275.0  15% - 18%  $281.0 - $288.0
Total Net Revenue $974.0 - $1,000.0  12% - 15%  $969.0 - $995.0
       
Non-GAAP adjusted EBITDA $382.0 - $390.0  9% - 11%  $379.0 - $390.0
       
Non-GAAP adjusted fully distributed EPS $1.40 - $1.44  8% - 11%  $1.39 - $1.44
(1) Guidance is based on comparisons with prior-year pro forma results, which have been adjusted to reflect the impact of the company's reorganization and IPO. The Company does not reconcile guidance for adjusted EBITDA and non-GAAP adjusted fully distributed net income per-share to net income (loss) or GAAP earnings per share because the Company does not provide guidance for reconciling items between net income (loss) and adjusted EBITDA and non-GAAP adjusted fully distributed earnings per share. The Company is unable to provide guidance for these reconciling items since certain items that impact net income (loss) are outside of the Company's control and cannot be reasonably predicted. Accordingly, a reconciliation to net income (loss) or GAAP earnings per share is not available without unreasonable effort.

"Our year-to-date financial results reflect the success of our differentiated business model and our multiple sources of revenue," DeVore said. "We are raising our fiscal full-year consolidated net revenue guidance, based on these results and our current expectations of continued strong Supply Chain Services growth. Within this overall increase, we are anticipating more moderate revenue growth for Performance Services than originally anticipated, due specifically to our advisory services outlook. However, we continue to expect the remainder of our Performance Services segment to perform in line with our original outlook for the balance of the fiscal year. Our SaaS-based offerings, including PremierConnect Enterprise, are on track, with solid quarterly bookings and a full sales pipeline. We're winning business across our PremierConnect platform and continue to sign up new members who are seeking to leverage our integrated Supply Chain Services and Performance Services offerings.

"We believe our unique business model positions Premier very well for the future," DeVore continued. "This model, when combined with our collaborative member relationships, aligned delivery channel, market-leading data analytics platform, and strong execution, uniquely positions Premier to successfully lead the transformation to high-quality, cost-effective healthcare and deliver value for our shareholders for years to come."

Premier is increasing its full fiscal-year 2015 financial guidance range for consolidated net revenue and raising the low end of the non-GAAP adjusted EBITDA and non-GAAP fully distributed EPS guidance ranges, based on the following key assumptions.

The company is increasing full-year revenue expectations for the Supply Chain Services segment based on continued growth in net administrative fees revenue, driven by continued contract conversions among newer members, deeper penetration of existing members' supply spend, and increased patient utilization. The company's expectations further assume annualized growth of 20% to 30% in the company's direct sourcing and specialty pharmacy business, reflecting more normalized year-over-year growth in the second half of the fiscal year.

The company is reducing full-year revenue expectations for the Performance Services segment, based on the pace at which the advisory services business expects to replace revenue previously generated by the Centers for Medicare & Medicaid Services (CMS) Partnership for Patients initiative, which concluded in December 2014, as well as on management's decision to reposition the company's research advisory services business to better support prospective research activities and collaboratives. Performance Services revenue guidance assumes continued growth in SaaS-based product and services sales, member participation in performance improvement collaboratives and continued demand for advisory services, in addition to the continuation of historically high retention rates of Premier's GPO and SaaS-based offerings.

Guidance assumptions do not contemplate the impact of any potential significant future acquisitions. For fiscal 2015, Premier expects capital expenditures of approximately $67.0 million and a consolidated EBITDA margin of approximately 39%.

The statements in this "Outlook and Guidance" discussion are "forward-looking statements." For additional information regarding the use and limitations of such statements, see "Forward-Looking Statements" below and the "Risk Factors" section of the company's Form 10-K for the year ended June 30, 2014.

Conference Call

Premier management will host a conference call and live audio webcast on Monday, February 9, 2015, at 5:00 p.m. ET, to discuss the company's financial results. The conference call can be accessed through a link provided on the investor relations page on Premier's website at investors.premierinc.com. Those wishing to participate in the call should dial 855.601.0048 (international callers should dial 702.495.1234) and provide the operator with conference ID number 76895275. The company encourages listeners to dial in at least five minutes before the start of the call to ensure proper connection. A replay of the conference call will be available on the investor relations page of Premier's website.

About Premier, Inc.

Premier, Inc. (Nasdaq:PINC) is a leading healthcare improvement company, uniting an alliance of approximately 3,400 U.S. hospitals and 110,000 other providers to transform healthcare. With integrated data and analytics, collaboratives, supply chain solutions, and advisory and other services, Premier enables better care and outcomes at a lower cost. Premier, a Malcolm Baldrige National Quality Award recipient, plays a critical role in the rapidly evolving healthcare industry, collaborating with members to co-develop long-term innovations that reinvent and improve the way care is delivered to patients nationwide. Headquartered in Charlotte, N.C., Premier is passionate about transforming American healthcare. Please visit Premier's news and investor sites on www.premierinc.com; as well as Twitter, Facebook, LinkedIn, YouTube, Instagram, Foursquare and Premier's blog for more information about the company.

Reorganization and Initial Public Offering

On October 1, 2013, Premier completed its IPO by issuing 32,374,751 shares of its Class A common stock, at a price of $27.00 per share, raising net proceeds of approximately $821.7 million, before expenses. In connection with the IPO, Premier completed the reorganization of the company on October 1, 2013, issuing 112.6 million shares of Class B common stock representing, at that time, 77.7% of the common stock outstanding, and corresponding Class B common units in Premier Healthcare Alliance, L.P. (Premier LP) to its member owners.

The company's historical consolidated operating results for the six-month period do not reflect the Reorganization, the IPO and contemplated use of net proceeds from the IPO. Therefore, in addition to presenting the historical actual results, the company presents and discusses non-GAAP pro forma results, which reflect the impact of the company's Reorganization and IPO and the contemplated use of net proceeds from the IPO, to provide a more comparable indication of future expectations.

The key non-GAAP pro forma adjustments include:

  • The reorganization, which included the formation of a C-Corporation and the sale of approximately 22.3% of the member's partnership interests to the public through the issuance of Premier Class A common stock, with the member owners retaining their approximately 77.7% ownership interest in the form of Premier LP Class B common units and an equal number of Premier Class B common stock. As part of the quarterly exchange that occurred on October 31, 2014, the member owners exchanged approximately 3.4% of their Class B common units and associated Class B common stock. As a result, the public investors now own approximately 25.7% of the company's stock and the member owners own approximately 74.3% as of December 31, 2014.
  • Payments to each member owner of revenue share from Premier equal to 30% of all gross administrative fees collected.
  • Payments due to member owners pursuant to the tax receivable agreement equal to 85% of the amount of cash savings, if any, in income and franchise taxes, that Premier realizes.
  • The further adjustments set forth in the notes to the supplemental non-GAAP pro forma financial information provided below.

Further details of the Reorganization and non-GAAP pro forma adjustments are in Premier's Form 10-Q for the fiscal first quarter ended September 30, 2014, filed with the Securities and Exchange Commission (SEC) on November 12, 2014, and accessible on the SEC's website at www.sec.gov and in the investor relations section of Premier's website at investors.premierinc.com.

Use and Definition of Non-GAAP Measures

Premier uses adjusted EBITDA, segment adjusted EBITDA, adjusted fully distributed net income, adjusted fully distributed net income per share, and free cash flow to facilitate a comparison of the company's operating performance on a consistent basis from period to period that, when viewed in combination with its results prepared in accordance with GAAP, provides a more complete understanding of factors and trends affecting the company's business than GAAP measures alone. The company believes adjusted EBITDA and segment adjusted EBITDA assist its board of directors, management and investors in comparing the company's operating performance on a consistent basis from period to period because they remove the impact of the company's asset base (primarily depreciation and amortization) and items outside the control of management (taxes), as well as other non-cash (impairment of intangible assets and purchase accounting adjustments) and non-recurring items, from operations.

In addition, adjusted fully distributed net income eliminates the variability of non-controlling interest as a result of member owner exchanges of Class B common stock and corresponding Class B units into shares of Class A common stock (which exchanges are a member owner's cumulative right, but not obligation, which began on October 31, 2014, and occur each quarter thereafter, and are limited to one-seventh of the member owner's initial allocation of Class B common units) and other potentially dilutive equity transactions which are outside of management's control. Adjusted fully distributed net income is defined as net income attributable to PHSI (i) excluding income tax expense, (ii) excluding the effect of non-recurring and non-cash items, (iii) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP, and (iv) reflecting an adjustment for income tax expense on non-GAAP pro forma fully distributed net income before income taxes at the company's estimated effective income tax rate.

EBITDA is defined as net income before interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items, and including equity in net income of unconsolidated affiliates. Non-recurring items include certain strategic and financial restructuring expenses. Non-operating items include gain or loss on disposal of assets. Segment adjusted EBITDA is defined as the segment's net revenue less operating expenses directly attributable to the segment, excluding depreciation and amortization, amortization of purchased intangible assets, merger and acquisition related expenses and non-recurring or non-cash items, and including equity in net income of unconsolidated affiliates. Operating expenses directly attributable to the segment include expenses associated with sales and marketing, general and administrative and product development activities specific to the operation of each segment. General and administrative corporate expenses that are not specific to a particular segment are not included in the calculation of segment adjusted EBITDA. Adjusted EBITDA is a supplemental financial measure used by the company and by external users of the company's financial statements.

Management considers adjusted EBITDA an indicator of the operational strength and performance of the company's business. Adjusted EBITDA allows management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business. Segment adjusted EBITDA is the primary earnings measure used by management to evaluate the performance of the company's business segments.

Management believes free cash flow is an important measure because it represents the cash that the company generates after payment of tax distributions to limited partners and capital investment to maintain existing products and services as well as development of new and upgraded products and services to support future growth. Free cash flow is important because it allows the Company to enhance shareholder value through acquisitions, partnerships, share repurchases, debt reduction and/or dividend payments.

Forward-Looking Statements

Statements made in this release that are not statements of historical or current facts, such as those under the heading "Fiscal 2015 Outlook and Guidance" are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from historical results or from any future results or projections expressed or implied by such forward-looking statements. Accordingly, readers should not place undue reliance on any forward looking statements. In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements in the conditional or future tenses or that include terms such as "believes," "belief," "expects," "estimates," "intends," "anticipates" or "plans" to be uncertain and forward-looking. Forward-looking statements may include comments as to Premier's beliefs and expectations as to future events and trends affecting its business and are necessarily subject to uncertainties, many of which are outside Premier's control. More information on potential factors that could affect Premier's financial results is included from time to time in the "Cautionary Note Regarding Forward Looking Statements," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of Premier's periodic and current filings with the SEC, including those discussed under the "Risk Factors" and "Cautionary Note Regarding Forward Looking Statements" section of Premier's Form 10-Q for the fiscal first quarter ended September 30, 2014, filed with the SEC on November 12, 2014, and also made available on Premier's website at investors.premierinc.com. Forward looking statements speak only as of the date they are made, and Premier undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date.

 
Contacts
 
 
Investor relations contact:Media contact:
Jim Storey Amanda Forster
Vice President, Investor Relations Vice President, Public Relations 
704.816.5958 202.879.8004
jim_storey@premierinc.comamanda_forster@premierinc.com

(Tables Follow)

Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
       
 Three Months Ended
December 31,
Six Months Ended
December 31,
 2014201320142013 (a)
Net revenue:        
Net administrative fees  $ 112,675  $ 102,130  $ 219,198  $ 245,706
Other services and support  70,074  58,197  129,295  111,449
Services  182,749  160,327  348,493  357,155
Products  66,696  48,582  130,260  92,330
Net revenue  249,445  208,909  478,753  449,485
Cost of revenue:        
Services  35,276  29,017  68,040  56,505
Products  59,256  43,720  116,513  83,758
Cost of revenue  94,532  72,737  184,553  140,263
Gross profit  154,913  136,172  294,200  309,222
Operating expenses:        
Selling, general and administrative  85,391  73,126  156,557  135,769
Research and development  716  1,042  1,789  1,894
Amortization of purchased intangible assets  3,141  755  4,044  1,356
Total operating expenses  89,248  74,923  162,390  139,019
Operating income  65,665  61,249  131,810  170,203
Equity in net income of unconsolidated affiliates  4,749  4,491  9,615  8,605
Interest and investment income, net  122  21  313  241
Other (expense) income, net  (458)  —  (962)  4
Other income, net  4,413  4,512  8,966  8,850
Income before income taxes  70,078  65,761  140,776  179,053
Income tax expense  4,270  14,284  10,081  15,048
Net income 65,808  51,477  130,695  164,005
Net (income) loss attributable to noncontrolling interest in S2S Global  (786)  (157)  (1,584)  53
Net income attributable to noncontrolling interest in Premier LP  (55,751)  (44,916)  (110,567)  (158,130)
Net income attributable to noncontrolling interest  (56,537)  (45,073)  (112,151)  (158,077)
Net income attributable to shareholders  9,271  6,404  18,544  5,928
Adjustment of redeemable limited partners' capital to redemption amount  (42,250)  (3,719,812)  (424,907)  (3,719,812)
Net loss attributable to shareholders after adjustment of redeemable limited partners' capital to redemption amount $ (32,979) $ (3,713,408) $ (406,363) $ (3,713,884)
         
Weighted average shares outstanding:        
Basic  35,589  32,375  33,965  19,001
Diluted  35,589  32,375  33,965  19,001
Loss per share attributable to shareholders (b):        
Basic  $ (0.93)  $ (114.70)  $ (11.96)  $ (195.46)
Diluted  $ (0.93)  $ (114.70)  $ (11.96)  $ (195.46)
         
(a) After the completion of the Reorganization, Premier Healthcare Solutions, Inc. (PHSI) became a consolidated subsidiary of Premier, Inc. Operating results for the six months ended December 31, 2013 reflect the combined results of PHSI, the predecessor of the Company for accounting purposes, and Premier, Inc. These operating results differ significantly from subsequent periods, which reflect the impact of the Reorganization and IPO that became effective October 1, 2013. 
(b) Loss per share attributable to shareholders includes an adjustment to net income attributable to shareholders of redeemable limited partners' capital to redemption amount of $(42.3) million and $(424.9) million for the three and six months ended December 31, 2014, respectively, and $(3,720) million for the three and six months ended December 31, 2013.
 
 
Consolidated Balance Sheets
(In thousands, except share and per share data)
     
 December 31, 2014June 30, 2014
   (Unaudited)  (Audited)
Assets    
Cash and cash equivalents  $ 129,616  $ 131,786
Marketable securities  217,773  159,820
Accounts receivable  86,787  67,577
Inventories  27,677  20,823
Prepaid expenses and other current assets  34,358  31,175
Due from related parties  1,559  1,228
Deferred tax assets  11,867  9,647
Total current assets  509,637  422,056
Property and equipment  145,430  134,551
Restricted cash  5,000  5,000
Marketable securities  122,151  248,799
Deferred tax assets  346,534  286,936
Goodwill  214,506  94,451
Intangible assets  43,761  10,855
Other assets  45,351  44,008
Total assets  $ 1,432,370  $ 1,246,656
     
Liabilities, redeemable limited partners' capital and stockholders' deficit    
Accounts payable  $ 29,019  $ 28,007
Accrued expenses  32,877  25,536
Revenue share obligations  55,580  56,531
Limited partners' distribution payable  23,752  22,351
Accrued compensation and benefits  35,531  46,713
Deferred revenue  30,442  15,694
Current portion of tax receivable agreements  10,970  11,035
Current portion of notes payable and line of credit  18,621  17,696
Other current liabilities  3,265  319
Total current liabilities  240,057  223,882
Notes payable, less current portion  15,960  16,051
Tax receivable agreement, less current portion  231,332  181,256
Deferred compensation plan obligations  34,857  32,872
Deferred rent  16,047  15,960
Other long-term liabilities  3,865  2,272
Total liabilities  542,118  472,293
     
Redeemable limited partners' capital  3,578,802  3,244,674
     
Stockholders' deficit:    
Series A Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding  —  —
Class A common stock, $0.01 par value, 500,000,000 shares authorized; 37,092,793 and 32,375,390 shares issued and outstanding at December 31, 2014 and June 30, 2014, respectively  371  324
Class B common stock, $0.000001 par value, 600,000,000 shares authorized; 107,181,272 and 112,510,905 shares issued and outstanding at December 31, 2014 and June 30, 2014, respectively  —  —
Additional paid-in-capital  —  —
Accumulated deficit  (2,689,660)  (2,469,873)
Accumulated other comprehensive (loss) income  (40)  43
Noncontrolling interest  779  (805)
Total stockholders' deficit  (2,688,550)  (2,470,311)
     
Total liabilities, redeemable limited partners' capital and stockholders' deficit  $ 1,432,370  $ 1,246,656
 
 
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
     
 Six Months Ended December 31,
 20142013*
  
Operating activities    
Net income  $ 130,695  $ 164,005
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  25,614  18,912
Equity in net income of unconsolidated affiliates  (9,615)  (8,605)
Deferred taxes  917  2,593
Stock-based compensation  13,844  6,819
Adjustment to tax receivable agreement liability  1,073  —
Changes in operating assets and liabilities:    
Accounts receivable, prepaid expenses and other current assets  (11,276)  (14,624)
Other assets  (3,754)  (1,751)
Inventories  (6,854)  (3,375)
Accounts payable, accrued expenses revenue share obligations and other current liabilities  11,246  34,798
Long-term liabilities  674  (321)
Other operating activities  1,151  67
Net cash provided by operating activities 153,715  198,518
Investing activities    
Purchase of marketable securities  (123,536)  (231,121)
Proceeds from sale of marketable securities  190,734  37,689
Acquisition of SYMMEDRx, net of cash acquired  —  (28,688)
Acquisition of Meddius, L.L.C., net of owner receivable  —  (7,737)
Acquisition of Aperek, net of cash acquired  (47,446)  —
Acquisition of TheraDoc, net of cash acquired  (108,561)  —
Distributions received on equity investment  10,050  6,800
Purchases of property and equipment  (32,411)  (26,019)
Other investing activities  353  —
Net cash used in investing activities (110,817) (249,076)
Financing activities    
Payments made on notes payable  (684)  (1,926)
Proceeds from S2S Global revolving line of credit  800  5,200
Payments on S2S Global revolving line of credit  (500)  —
Proceeds from senior secured line of credit  —  60,000
Payments on senior secured line of credit  —  (60,000)
Proceeds from issuance of Class A common stock in connection with the IPO, net of underwriting fees and commissions  —  821,671
Payments made in connection with the IPO  —  (2,822)
Purchase of Class B common units from member owners  —  (543,857)
Proceeds from issuance of PHSI common stock  —  300
Proceeds from notes receivable from partners  —  12,726
Proceeds from exercise of stock options  446  —
Repurchase of restricted units  (31)  (2)
Distributions to limited partners of Premier LP  (45,099)  (280,969)
Net cash (used in) provided by financing activities (45,068) 10,321
Net decrease in cash and cash equivalents  (2,170)  (40,237)
Cash and cash equivalents at beginning of period  131,786  198,296
Cash and cash equivalents at end of period $ 129,616  $ 158,059
     
* After the completion of the Reorganization, Premier Healthcare Solutions, Inc. (PHSI) became a consolidated subsidiary of Premier, Inc. The Statement of Cash Flows for the six months ended December 31, 2013 reflects the combined cash flows of PHSI, the predecessor of the Company for accounting purposes, and Premier, Inc. 
 
 
Supplemental Financial Information - Reporting of Pro Forma Adjusted EBITDA 
and Non-GAAP Adjusted Fully Distributed Net Income 
Reconciliation of Selected Non-GAAP Measures to GAAP Measures
(Unaudited)
(In thousands)
     
 Three Months Ended
December 31,
Six Months Ended
December 31,
 2014*2013*2014*2013
     
Reconciliation of Pro Forma Net Revenue to Net Revenue:      
Pro Forma Net Revenue  $ 249,445  $ 208,909  $ 478,753  $ 408,222
Pro forma adjustment for revenue share post-IPO  —  —  —  41,263
Net Revenue  $ 249,445  $ 208,909  $ 478,753  $ 449,485
 
 
Reconciliation of Net Income to Adjusted EBITDA and Reconciliation of Segment Adjusted EBITDA to Income Before Income Taxes:
         
Net income  $ 65,808  $ 51,477  $ 130,695  $ 164,005
Pro forma adjustment for revenue share post-IPO  —  —  —  (41,263)
Interest and investment income, net  (122)  (21)  (313)  (241)
Income tax expense  4,270  14,284  10,081  15,048
Depreciation and amortization  11,262  9,198  21,570  17,556
Amortization of purchased intangible assets  3,141  755  4,044  1,356
EBITDA  84,359  75,693  166,077  156,461
Stock-based compensation  7,405  6,494  13,844  6,819
Acquisition related expenses  2,267  177  3,545  319
Strategic and financial restructuring expenses  1,183  1,041  1,279  2,881
Adjustment to tax receivable agreement liability  —  —  (1,073)  —
Acquisition related adjustment - deferred revenue  3,596  —  5,661  —
Other income, net  (2)  —  (7)  (4)
Adjusted EBITDA  $ 98,808  $ 83,405  $ 189,326  $ 166,476
         
Segment Adjusted EBITDA:        
Supply Chain Services  $ 97,342  $ 85,119  $ 188,610  $ 210,599
Pro forma adjustment for revenue share post-IPO  —  —  —  (41,263)
Supply Chain Services (including pro forma adjustment)  $ 97,342  $ 85,119  $ 188,610  $ 169,336
Performance Services  23,189  17,731  41,551  34,060
Corporate  (21,723)  (19,445)  (40,835)  (36,920)
Adjusted EBITDA  $ 98,808  $ 83,405  $ 189,326  $ 166,476
Depreciation and amortization  (11,262)  (9,198)  (21,570)  (17,556)
Amortization of purchased intangible assets  (3,141)  (755)  (4,044)  (1,356)
Stock-based compensation  (7,405)  (6,494)  (13,844)  (6,819)
Acquisition related expenses  (2,267)  (177)  (3,545)  (319)
Strategic and financial restructuring expenses  (1,183)  (1,041)  (1,279)  (2,881)
Adjustment to tax receivable agreement liability  —  —  1,073  —
Acquisition related adjustment - deferred revenue  (3,596)  —  (5,661)  —
Equity in net income of unconsolidated affiliates  (4,749)  (4,491)  (9,615)  (8,605)
Deferred compensation plan expense  460  —  969  —
   65,665  61,249  131,810  128,940
Pro forma adjustment for revenue share post-IPO  —  —  —  41,263
Operating income $ 65,665  $ 61,249  $ 131,810  $ 170,203
Equity in net income of unconsolidated affiliates  4,749  4,491  9,615  8,605
Interest and investment income, net  122  21  313  241
Other (expense) income, net  (458)  —  (962)  4
Income before income taxes $ 70,078  $ 65,761  $ 140,776  $ 179,053
 
Reconciliation of Non-GAAP Pro Forma Adjusted Fully Distributed Net Income:      
         
Net income attributable to shareholders  $ 9,271  $ 6,404  $ 18,544  $ 5,928
Pro forma adjustment for revenue share post-IPO  —  —  —  (41,263)
Income tax expense  4,270  14,284  10,081  15,048
Stock-based compensation  7,405  6,494  13,844  6,819
Acquisition related expenses  2,267  177  3,545  319
Strategic and financial restructuring expenses  1,183  1,041  1,279  2,881
Adjustment to tax receivable agreement liability  —  —  (1,073)  —
Acquisition related adjustment - deferred revenue  3,596  —  5,661  —
Amortization of purchased intangible assets  3,141  755  4,044  1,356
Net income attributable to noncontrolling interest in Premier LP  55,751  44,916  110,567  158,130
Non-GAAP pro forma adjusted fully distributed income before income taxes  86,884  74,071  166,492  149,218
Income tax expense on fully distributed income before income taxes  34,754  29,628  66,597  59,687
Non-GAAP Pro Forma Adjusted Fully Distributed Net Income $ 52,130  $ 44,443  $ 99,895  $ 89,531
 
* Note that no pro forma adjustments were made for the three and six months ended December 31, 2014 and the three months ended December 31, 2013; as such, actual results are presented for each of these periods.
 
 
Supplemental Financial Information - Reporting of Non-GAAP Free Cash Flow
Reconciliation of Selected Non-GAAP Measures to GAAP Measures
(Unaudited)
(In thousands)
     
 Three Months Ended
December 31,
 20142013
     
Reconciliation of Non-GAAP Free Cash Flow to Net Cash Provided by Operating Activities:    
Net cash provided by operating activities  $ 107,842  $ 131,726
Purchases of property and equipment  (18,051)  (13,720)
Distributions to limited partners  (22,691)  (72,645)
Non-GAAP free cash flow  $ 67,100  $ 45,361
 
 
Supplemental Financial Information - Reporting of Net Income and Earnings Per Share
Reconciliation of Selected Non-GAAP Measures to GAAP Measures
(Unaudited)
(In thousands, except per share data)
         
 Three Months Ended
December 31,
Six Months Ended
December 31,
 2014*2013*2014*2013
         
Reconciliation of numerator for GAAP EPS to Non-GAAP EPS on Adjusted Fully Distributed Net Income      
Net loss attributable to shareholders after adjustment of redeemable limited partners' capital to redemption amount  $ (32,979)  $ (3,713,408)  $ (406,363)  $ (3,713,884)
Adjustment of redeemable limited partners' capital to redemption amount  42,250  3,719,812  424,907  3,719,812
Net income attributable to shareholders  9,271  6,404  18,544  5,928
Pro forma adjustment for revenue share post-IPO  —  —  —  (41,263)
Income tax expense  4,270  14,284  10,081  15,048
Stock-based compensation  7,405  6,494  13,844  6,819
Acquisition related expenses  2,267  177  3,545  319
Strategic and financial restructuring expenses  1,183  1,041  1,279  2,881
Adjustment to tax receivable agreement liability  —  —  (1,073)  —
Acquisition related adjustment - deferred revenue  3,596  —  5,661  —
Amortization of purchased intangible assets  3,141  755  4,044  1,356
Net income attributable to noncontrolling interest in Premier LP  55,751  44,916  110,567  158,130
Non-GAAP pro forma adjusted fully distributed income before income taxes  86,884  74,071  166,492  149,218
Income tax expense on fully distributed income before income taxes  34,754  29,628  66,597  59,687
Non-GAAP pro forma adjusted fully distributed net income $ 52,130  $ 44,443  $ 99,895  $ 89,531
         
Reconciliation of denominator for GAAP EPS to Non-GAAP Adjusted Fully Distributed Net Income      
Weighted Average:        
Common shares used for basic and diluted earnings per share  35,589  32,375  33,965  19,001
Potentially dilutive shares  948  110  785  58
Class A common shares outstanding  --   --   --   13,374
Conversion of Class B common units  108,674  112,608  110,396  112,608
Weighted average fully distributed shares outstanding - diluted 145,211  145,093  145,146  145,041
         
Reconciliation of GAAP EPS to Adjusted Fully Distributed EPS        
GAAP loss per share  $ (0.93)  $ (114.70)  $ (11.96)  $ (195.46)
Impact of adjustment of redeemable limited partners' capital to redemption amount  $ 1.19  $ 114.90  $ 12.51  $ 195.77
Impact of additions:        
Pro forma adjustment for revenue share post-IPO  $ --   $ --   $ --   $ (2.17)
Income tax expense  $ 0.12  $ 0.44  $ 0.30  $ 0.79
Stock-based compensation  $ 0.21  $ 0.20  $ 0.41  $ 0.36
Acquisition related expenses  $ 0.06  $ 0.01  $ 0.10  $ 0.02
Strategic and financial restructuring expenses  $ 0.03  $ 0.03  $ 0.04  $ 0.15
Adjustment to tax receivable agreement liability  $ --   $ --   $ (0.03)  $ -- 
Acquisition related adjustment - deferred revenue  $ 0.10  $ --   $ 0.17  $ -- 
Amortization of purchased intangible assets  $ 0.09  $ 0.02  $ 0.12  $ 0.07
Net income attributable to noncontrolling interest in Premier LP  $ 1.57  $ 1.39  $ 3.25  $ 8.32
Impact of corporation taxes  $ (0.98)  $ (0.92)  $ (1.96)  $ (3.14)
Impact of increased share count  $ (1.10)  $ (1.07)  $ (2.26)  $ (4.09)
Non-GAAP earnings per share on adjusted fully distributed net income - diluted $ 0.36  $ 0.31  $ 0.69  $ 0.62
 
* Note that no pro forma adjustments were made for the three and six months ended December 31, 2014 and the three months ended December 31, 2013; as such, actual results are presented for each of these periods.
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